Remediation Contribution Orders in insolvency

The Building Safety Act 2022 introduced significant regulations to ensure the safety of buildings by granting owners with greater authority in addressing historical building defects. Namely, the legislation identified the responsible individuals in ensuring a building’s safety and the guideline to the costs involved, and created a remedy for Insolvency Practitioners to seek a contribution to the costs of remedial work.

Among its provisions is the introduction of Remediation Contribution Orders (RCOs), a crucial mechanism aimed at ensuring that necessary building safety remediation works are carried out. It is crucial to identify the order of action for when the responsible parties for a building’s safety become insolvent.

What is a Remediation Contribution Order?

RCOs empower the Property Chamber of the first-tier tribunal to issue orders requiring certain parties to contribute financially to the costs associated with remediating unsafe building conditions. These orders ordinarily target those responsible for the design, construction, or management of buildings found to have safety defects. RCOs serve as a means to hold accountable those who have contributed to building safety failures, ensuring that the financial burden of remediation is appropriately distributed.

Who is responsible?

In cases where responsible parties are insolvent, this may give rise to a more complex idea regarding the ability of affected parties to recover costs for necessary safety measures. RCOs provide a legal mechanism to compel contributions from relevant parties, even if they are undergoing insolvency proceedings.

The regulatory risk is held by any persons deemed as ‘responsible’ as stated by the Act. This becomes particularly perplexing regarding insolvency due to the broad narrative for responsible persons:

• A building owner
• A person who was a landlord on 14 February 2022
• The building’s developer
• Any person associated with any of these parties.

Costs of remediation works

Prior to the responsible party becoming insolvent, the costs or remediation work would be assigned to them to be satisfied. Therefore, it may appear that the natural cause of action would be for the Insolvency Practitioner to then assume responsibility. However, there has not been any notable caselaw or legislation identifying that liability falls on Insolvency Practitioners.

Tribunal decision

Although the Act does not specifically define all associated persons when identifying responsible parties as stated above, a tribunal decision marked the role of Insolvency Practitioners and further defined who may be held liable for the costs. In the tribunal case, the leaseholders eventually withdrew their claim against the insolvency practitioners and were only successful against the property developer itself, not the nominee directors or holding company. Whilst the facts are distinguishable, the leaseholders in that case were seeking to recover sums they had previously paid to replace defective cladding which the property developer was liable to replace, the case does give support to the argument that Insolvency Practitioners and their nominee directors should not be liable for events or liabilities which precede their appointment.

On the basis that the Building Safety Act 2022 creates a specific remedy for Insolvency Practitioners to seek an RCO, pursuant to section 125, it seems likely that it was not the legislation’s intention for practitioners to be directly liable to rectify relevant defects, unless they were involved on a day-to-day basis with completing the development.

When should an Insolvency Practitioner apply for a RCO?

The Act and relevant guidance specifically empowers Insolvency Practitioners to seek an RCO where:

• There are relevant defects
• The company is liable to remedy them
• There are relevant ‘associated persons’ who should contribute to the costs of the works, including associated companies to the developer.

The guidance clearly anticipates situations in which an Insolvency Practitioner has no funds but is seeking a contribution from third party to remedy defects, as in this case.

Summary

Insolvency Practitioners have not been identified to hold liability for Remediation Contribution Orders.

Once an Insolvency Practitioner takes office, and there is a potential liability regarding a historical building defect, they can identify the associated responsible parties and apply for a RCO. There is yet to be further caselaw which will further solidify the role of Insolvency Practitioners in this context. Nevertheless, the Act has paved way for significant guidance and regulations in addressing issues of buildings in the field of insolvency.