The Future Lawyer Weekly Briefing – W/C 11th September 2023

UK INSOLVENCIES IN THE UK CONSTRUCTION SECTOR

The construction sector has seen more insolvencies in the last five years than any other UK sector. With the highest rate in a decade, figures have reported 4,280 operators insolvent over the previous 12 months.

Critical issues

When a company cannot pay its debts on time, it is considered insolvent. Insolvency may lead to proceedings whereby a company faces legal action resulting in business reorganisation or asset liquidation. At the start of 2023, the UK construction sector had accumulated £300m in bad debt. Financial experts expect this figure to rise to £1b by 2024.

The contributing factors for the increasing insolvency figures vary from skill and labour shortages, planning delays (primarily due to Covid) and rising material costs. Other factors include rising inflation, Covid loan repayments and high energy costs. Construction materials are reported to be nearly 50% higher than pre-pandemic prices, and the costs for some materials continue to increase due to inflation.

Tolent, a £200m-revenue construction firm, and Metnor Construction, a £62.6m-turnover company, are amongst the most prominent businesses which have gone into administration. Buckingham Group, labelled as the largest contractor, has also stopped trading.

The broader societal implications of the problems identified

Issues of insolvency within the construction sector have been identified since pre-pandemic years. Industry analysts warned the sector that distress within supply chains will increase due to tight profit margins. The effects can be seen in the last few years, whereby construction firms have been swimming in debt whilst housing shortages have been at their highest. It has been reported that around 8.5 million people have unmet housing needs.

A rise in insolvent construction firms creates a smaller market of available services, which consequently causes delays in the production of new homes, leaving many citizens with little access to suitable housing.

It also means that many projects have been delayed or halted. For example, the Government has delayed big rail and road projects, including a two-year delay to Phase 2a of its HS2 railway project in Northern England and other HS2 delays in central London. Simultaneously, many constructors announced a slowdown in the creation of new buildings.

The repercussions of the rise in insolvencies have not only impacted the livelihoods of workers who have been laid off and consumers who have been struggling in the current housing market, but they have also triggered a domino effect on current projects that cannot proceed due to resource and financial constraints.

How and why a law firm could or would be involved

The decrease in the number of construction companies operating in the UK may result in reduced traction of new clients in law firms which offer services in the construction sector. On the other hand, due to the unprecedented times, law firms will be offering guidance to businesses on navigating the fragile industry and ensuring businesses are protected, all at-risk projects are managed, and losses are mitigated. Furthermore, law firms will be helping adopt comprehensive business models to bring awareness of project risks and costs.

Lawyers may help businesses ensure that any construction contract entered into sets down the potential for insolvency and covers issues of termination and payments on insolvency. Other aspects include ensuring collateral warranties and step-in rights are in place. This would protect parties against the ‘retention system’ in the construction industry.

The retention system allows a party to reduce a percentage from sums otherwise due to main or sub-contractors. A retention fund protects an employer against any failures by the contractor to remedy defects in the work. However, delays in releasing retention sums may significantly affect a company’s profitability and solvency. Thus, accompanying parties entering into construction contracts may decrease risks associated with insolvency.

Litigation practices can assist businesses with open negotiations with appointed insolvency practitioners to ensure mutually agreeable solutions can be reached. Reaching appropriate agreements will ensure that suitable steps are taken to secure assets and sites, and payment obligation reviews are carried out. Whereas insolvency practices will work with clients on both insolvent companies and creditors to restructure a company’s debt.

Briefing by Dominika Gaber

CONTRACTUAL AND TORTIOUS LIABILITY: NON-SURGICAL COSMETIC PROCEDURES

In the late 1980s, non-surgical cosmetic procedures were invented as an alternative to their invasive counterparts. Since the COVID-19 pandemic, there has been a surge in their procurement despite a dearth of regulation. Currently, only surgical procedures are seemingly sufficiently regulated.

In 2022, the Health Care Act 2012 empowered the Secretary of State to introduce a licencing regime for practitioners in England to ensure such procedures are safe, thus retaining consumer confidence in the industry. This is highly welcomed; however, as this is a sector primarily bolstered by unlicensed private practitioners, there are tangible risks of contractual and tortious liabilities arising.

As a result, the government recently issued a consultation on comprehensively legislating for the non-surgical cosmetic sector.

Piecemeal legislation for the non-surgical industry

This sector comprises regulated professionals and beauty therapists, the latter unregulated and thus unlicenced. It is well known the increasing recounts of ‘botched’ procedures primarily owing to inexperienced and underqualified aestheticians. As a result, minimising malpractice is now a hotly debated topic in this sector.

Anybody could claim expertise and ‘open shop’, so to speak, in meeting a growing demand and the attraction to and promise of a profitable business. Whilst many practitioners are faultless in claiming expertise and experience and undertake their practices with high levels of professionalism and care for their clients, conversely, some, pointedly those underqualified or comparatively inexperienced, are the instigators of aesthetic negligence claims.

One of the ways in which contractual and tortious liability arise is through the lack of informed consent, which is that a patient is not armed with sufficient information, thus a lack of full disclosure to make an informed and well-thought-out decision. For instance, a patient may be predisposed to allergens used in some of the cosmetic materials, or the side effects of treatments may not be fully disclosed to a patient. In both instances, liability arises if there are adverse outcomes owing to the lack of informed consent.

This sector has minimal statutory control, further exacerbated by what could only be described as piecemeal legislation. Professional standards exist for non-invasive cosmetic practices. However, they are just that: guidance, and there are no statutory commitments for practitioners to adhere to.

Some of the available legislation includes the Local Government (Miscellaneous Provisions) Act 1982, which, although not mandatory, grants local authorities the statutory powers to enforce licensing arrangements and registration for some procedures, such as ‘cosmetic piercing, electrolysis, tattooing, and semi-permanent makeup, in addition to acupuncture’.

The Health and Safety at Work etc. Act 1974 imposes that equipment, premises, and work practices are as safe as reasonably possible, indirectly being used to regulate the non-surgical cosmetic industry. Further, the Botulinum Toxin and Cosmetics Fillers (Children) Act 2021 makes injecting under-18s with cosmetic fillers illegal, irrespective of an adult’s permission. However, as mentioned earlier, the legislation does not clearly state any impositions on practitioners for adult consumers.

Legislative reform

Therefore, whilst present legislation minimises resulting liabilities, further mitigation must be actioned by enacting a comprehensive framework. As a result, the Department for Health and Social Care (DHSC), on 2 September 2023, introduced its public consultation concerning the sector.

The government seeks views on the scope of requisite legislation, age restrictions, permissible cosmetic procedures, and any restrictions that may be warranted for such operations. The proposed scheme would, therefore, ensure that practitioners and the premises from which they operate are licenced, thereby reducing the dangers posed to consumers.

Some of the proposed reforms, to be operated by local authorities, include:

• The introduction of an age minimum of 18 for those seeking licenced procedures, especially those deemed complex, such as injectable procedures performed on intimate areas of the body.
• Making it a criminal offence should an unlicenced practitioner undertake licenced non-surgical cosmetic procedures.
• Ensuring that practitioners are fully trained and qualified, that they operate from the suitable premises and that they hold appropriate indemnity insurance.

The consultation is available for review here.

Impact on the legal sector

There will likely be an increased amount of claims following enactment; potentially, a floodgate will be opened for back and current claims, depending on the limitations applicable to such claims and the legislative provisions in the framework following enactment.

This would mean the private negligence claim lawyers would see an escalation in claims being handled for either new or existing clients. Further, it would mean they must remain learned on potentially complex legislation whilst advising their clients to ensure they offer the best service possible and stay abreast of the competition.

Whilst the changes will be welcomed, there have been some criticisms of the scope of the proposed framework, with those criticisms being mostly that the broad spectrum might discourage competition within the industry and that it remains that some procedures may not be adequately legislated.

The consultation is to run until 28 October 2023. Therefore, there is ample scope for change between now and its end date and, if at all, any resulting legislation is enacted.

Briefing by Aqua Koroma