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Construction suppliers facing an insolvent customer cannot assume that they may either stop work or must continue. Section 112 of the Housing Grants, Construction and Regeneration Act 1996 gives a conditional right to suspend contractual performance after qualifying non-payment and at least seven days’ notice. Section 233B of the Insolvency Act 1986, inserted by section 14 of the Corporate Insolvency and Governance Act 2020, can neutralise contractual terms that allow action because a company enters a listed insolvency procedure. Whether a statutory suspension for non-payment is itself caught when both provisions apply is not settled by the sources considered here.
The safe answer is therefore fact-specific: identify the insolvency procedure, the payment default, the contract wording and the required notices before suspending. A supplier that stops without accounting for section 233B may face a claim for wrongful suspension; a supplier that continues indefinitely without payment may increase its own loss.
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Sometimes, but insolvency alone does not create a general right to stop and a right arising from non-payment is not automatically clear once the customer enters a protected procedure. The two statutes respond to different events. Section 233B is concerned with insolvency-related contractual rights. Section 112 is concerned with a failure to make a payment required under a qualifying construction contract.
That distinction matters in practice. A customer may enter administration, a moratorium or another listed procedure before a payment becomes due. Alternatively, a payment may already be overdue and the supplier may be preparing a section 112 notice when the customer enters an insolvency process. The chronology, the contract and the exact procedure can change the analysis.
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Ian Yule’s 6 October 2020 Building commentary identified the apparent conflict and described the legal position as unclear. That article is an explanation of the issue, not a court decision. The official statutory texts linked below set out each rule, but they do not provide a definitive answer to every case in which they overlap.
What does section 233B protect an insolvent company from?
Section 233B limits the operation of certain supplier contract terms when a company enters a “relevant insolvency procedure”. It was inserted into the Insolvency Act 1986 by section 14 of the Corporate Insolvency and Governance Act 2020. The statutory provision and its explanatory notes should be read together with the company’s actual procedure and contract.
The procedures covered by the provision include, subject to the statutory definitions and exclusions:
- a Part A1 moratorium;
- administration;
- specified forms of administrative receivership;
- a qualifying company voluntary arrangement;
- liquidation;
- the appointment of a provisional liquidator; and
- specified court orders connected with a restructuring plan.
When the section applies, a contract term that permits termination, or permits “any other thing to take place”, because the company enters the insolvency procedure generally ceases to have effect. The provision also restricts exercise of some termination rights based on an event that occurred before the insolvency period, while that period is continuing.
This is not a blanket rule that every supplier action is invalid. The statute contains exceptions and mechanisms involving consent, an office-holder’s consent and court permission where a supplier would suffer hardship. It also contains exclusions in the Act and its schedules. A supplier therefore needs to establish not only that the customer is in financial difficulty, but that the company, procedure, contract and proposed action fall within the statutory scope.
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What right does section 112 provide for non-payment?
Section 112 of the 1996 Act addresses a different problem: a sum due under a construction contract has not been paid even though the statutory payment requirement applies. The current official text gives the person owed the sum a right to suspend performance of any or all contractual obligations in the circumstances specified by the section.
The principal procedural safeguard is notice. Before suspending, the supplier must give at least seven days’ notice of its intention to suspend and state the grounds. The notice is not a formality to be added after work has stopped: suspension without the required prior notice risks losing the statutory protection and may expose the supplier to a contractual claim.
The right is tied to the unpaid sum. It ceases when the sum referred to in the provision has been paid in full. The current text also makes the defaulting party liable for a reasonable amount of costs and expenses reasonably incurred as a result of the suspension. That does not mean every cost claimed will be recoverable; the amount must be reasonable and causally connected with the suspension.
Section 112 does not say that any commercial disagreement permits suspension. The supplier must first check that the contract is within the construction-contract regime, that the relevant payment requirement applies, that the payment has not been made as required and that the notice identifies the grounds accurately. Payment notices, pay-less notices, certificates, due dates and the contract’s adjudication provisions may all be relevant to whether there is a qualifying default.
Why do sections 233B and 112 appear to conflict?
Section 233B can prevent an insolvency-triggered contractual termination or other contractual action. Section 112 can confer a statutory suspension right when a payment requirement has not been met. The first is triggered by entry into a listed insolvency procedure; the second is triggered by qualifying non-payment and a compliant notice.
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The difficult case is where both events exist. A supplier may say that it is not terminating because of insolvency; it is exercising a statutory right because an invoice or other required sum remains unpaid. The company or office-holder may respond that stopping supply is nevertheless an “action” occurring during the insolvency period that undermines the protection section 233B was intended to provide.
The wording does not supply a simple answer for every contract. Section 233B is framed around contractual provisions and insolvency-related events, while section 112 is a statutory right with its own trigger. Whether exercising the latter is restricted in the particular circumstances depends on the interaction of the provisions, the relevant procedure, the contract and the facts.
The linked legislation and explanatory material do not identify a definitive judicial interpretation of that precise interaction. It is therefore unsafe to state that section 112 always overrides section 233B, or that section 233B always eliminates a section 112 suspension. The 2020 commentary’s warning remains a useful description of the unresolved tension, but it should not be presented as a current court ruling.
How do the two provisions differ?
| Issue | Section 233B, Insolvency Act 1986 | Section 112, 1996 Act |
|---|---|---|
| Trigger | The company enters a listed relevant insolvency procedure, or a specified pre-insolvency event is relied on during the insolvency period. | A payment requirement applying to the construction contract is not met and a qualifying sum remains unpaid. |
| Scope | Covered companies, procedures, contracts and statutory exceptions; the Act and schedules define the boundaries. | A qualifying construction contract and the payment circumstances described by section 112. |
| Action affected or allowed | Insolvency-triggered contractual termination or another contractual thing taking place may cease to have effect; some pre-insolvency termination rights are restricted. | Suspension of performance of any or all contractual obligations may be available. |
| Notice or permission | Consent, office-holder consent and court permission can matter, particularly where supplier hardship is asserted; statutory exclusions also apply. | At least seven days’ notice of intention to suspend, stating the grounds, is required before suspension. |
| End point | Depends on the relevant insolvency period, procedure and statutory rules. | The statutory suspension right ends when the relevant sum is paid in full. |
| Unresolved issue | The sources do not settle whether a section 112 suspension for non-payment is an action restricted by section 233B in a particular insolvency case. | |
What should a supplier check before sending a suspension notice?
A disciplined fact check is more important than choosing a confident label for the customer’s financial condition. Use the following sequence, and obtain specialist advice before acting where an insolvency procedure is underway.
- Identify the legal procedure. Confirm whether the company is in administration, a Part A1 moratorium, liquidation, a qualifying voluntary arrangement, a specified receivership, a provisional liquidation or a restructuring-plan process covered by section 233B. “Insolvent” in a commercial conversation is not enough.
- Record the key dates. Note when the procedure began, when the payment became due, when notices were issued and when any office-holder was appointed. The order of those events can affect whether a contractual right is insolvency-triggered, based on a pre-insolvency event or based on non-payment.
- Read the payment machinery. Check the payment due date, payment notice, pay-less notice, certification requirements, contractual conditions precedent and any adjudication or dispute-resolution clause. Establish exactly which sum section 112 would concern.
- Separate insolvency from non-payment. Do not describe the proposed suspension as being “because the customer is insolvent” if the intended legal basis is an unpaid sum. Conversely, do not re-label an insolvency-triggered termination as a payment suspension merely to avoid section 233B.
- Review the contract’s insolvency wording. Locate clauses allowing termination, suspension, step-in, withholding, removal of materials or another consequence on insolvency. Section 233B may affect such clauses, subject to its exceptions and the facts.
- Check consent and hardship routes. Ask the administrator, monitor, liquidator or other relevant office-holder whether consent is available. If the statutory route requires court permission to rely on supplier hardship, a notice alone is not a substitute for that permission.
- Prepare the section 112 notice carefully. Give at least seven days’ notice, state the intention to suspend and identify the grounds with enough detail to connect the notice to the unpaid statutory sum. Keep proof of delivery and the calculation supporting the amount.
- Plan the operational pause. Identify what will stop, protect health and safety, secure the site and preserve records. “Any or all” contractual obligations may be relevant under section 112, but the practical scope should match the legal basis and avoid unnecessary damage.
What should a suspension notice say?
A notice should make the legal and factual basis intelligible rather than relying on a bare statement that the customer is in arrears. It should identify the contract, the unpaid sum or sums, the payment requirement said to have been breached, the date payment was due, the proposed suspension date (at least seven days after notice) and the obligations that will be suspended.
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It should also state the grounds for relying on section 112 and reserve the supplier’s other contractual and statutory rights without claiming more than the facts support. Delivery must follow the contract’s notice clause as well as any statutory requirement. Keep the payment records, notices, certificates, correspondence and delivery evidence together.
A notice cannot cure a substantive defect. If the sum is disputed, a valid pay-less notice was served, the contract is outside the statutory definition or the customer’s procedure engages section 233B, the seven-day period does not by itself make suspension safe.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What are the commercial choices while the legal position is uncertain?
Continuing supply may preserve the project, protect completed work and improve the prospect of payment. It can also increase exposure if new labour, materials and subcontractor costs are incurred without funding. Suspending may stop further loss and create leverage, but an incorrect suspension can disrupt the project, trigger a damages claim or put the supplier in breach.
Possible risk-management steps include agreeing cash-on-delivery or other revised payment arrangements, obtaining an office-holder’s written position, limiting new commitments, seeking security where available, documenting the value of work completed and pursuing the contract’s adjudication or debt-recovery route. These are commercial options, not automatic statutory entitlements, and their availability depends on the contract and insolvency process.
Do not assume that an office-holder’s appointment makes all previous contractual rights disappear, or that a supplier’s unpaid account is automatically a protected claim. Check whether the company is trading, who can authorise payment, whether a moratorium or administration is in force and whether the proposed step is contractual, statutory or both.
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Does the historical “20 working days” figure still apply?
The 2020 Building commentary referred to an initial moratorium of “20 working days” when discussing the then-new regime. That is a historical description in the article, not confirmation of the duration, extension rules or operation of a moratorium in November 2026. Current procedure documents and legislation should be checked before relying on any time period.
The same caution applies to statutory amendments, temporary measures and practice directions. A notice or commercial decision based on an outdated summary can be ineffective even if the underlying concern about non-payment is genuine.
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- Stopping on the insolvency announcement alone. Financial difficulty is not the same as a listed procedure, and section 112 requires a qualifying payment default.
- Treating seven days as a universal cure. Seven days is the minimum notice period in section 112; it does not resolve scope, payment validity or the section 233B interaction.
- Ignoring the insolvency procedure’s exceptions. Consent, office-holder involvement, court permission and statutory exclusions can change the result.
- Using an inaccurate ground. A notice that says suspension is for non-payment but is really an insolvency-triggered termination may be challenged.
- Failing to preserve evidence. Missing payment notices, certificates, delivery records or proof of service makes later enforcement and defence harder.
- Continuing unsecured work without a plan. A supplier can increase its exposure while waiting for certainty that may never arrive.
What is the safest conclusion for a construction supplier?
Section 112 can provide a valuable suspension mechanism for qualifying non-payment, but section 233B can restrict insolvency-related contractual action in a listed procedure. The statutes have different triggers and safeguards, and the sources available for this article do not settle whether a section 112 suspension is barred, permitted or conditionally available in every overlapping case.
Before suspending, verify the procedure, chronology, payment entitlement, contract terms, notice requirements, consent or court routes and the practical consequences on site. Obtain current advice from a construction and insolvency lawyer who can review the actual contract and facts. Until that analysis is complete, neither “the customer is insolvent, so we must keep working” nor “the customer has not paid, so we can stop immediately” is a reliable rule.
Frequently Asked Questions
Does section 233B apply to every company that cannot pay its debts?
No. The section is tied to listed insolvency procedures and statutory definitions, not to a general impression that a company is struggling. Confirm the formal procedure and check the Act’s exclusions before treating section 233B as engaged.
Is sending seven days’ notice enough to protect a supplier?
No. Seven days is a notice minimum for a section 112 suspension, not a decision on whether the payment is legally overdue or whether section 233B restricts the action. The notice must also state the grounds and comply with the contract’s notice machinery.
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An office-holder’s position can be important, and section 233B contains consent-related mechanisms, but the effect depends on the procedure and proposed action. Obtain written, procedure-specific advice rather than relying on an informal assurance.
What records should a supplier keep during an insolvency dispute?
Keep the signed contract, payment and pay-less notices, certificates, invoices, delivery and site records, correspondence, proof of notice delivery and a dated chronology of the insolvency events. Those documents help establish both the section 112 payment case and the section 233B context.
