So you hired someone to provide services for you as a contractor and they go bust. It’s a tough situation and you might be feeling overwhelmed. You may think you’re just out of luck and feel hopeless but that’s not the case – there are a few things you can do.

Firstly, ask more questions, have a chat with them and see what their situation is.  There are some different ways of shutting down businesses and several steps involved so see how far along in the process they are.  If the business owners or any points of contact that you have are still involved or if they have fully appointed liquidators who have taken over all of the assets and business operations. Often you can come to an arrangement with the business owner if they are early in the process, you may agree that they will finish the works up to a particular stage, that you don’t owe them any outstanding invoices, or that the ownership of materials will be passed in order for you to be able to continue the works. Come up with a plan that will ensure that you are not too out of pocket and unable to perform your obligations.

Secondly, if it is too far beyond this and the contractor cannot do anything to minimise your losses, then you need to recoup these somehow. Check to see if they have insurance, whether it is insolvency cover or another type of insurance that will pay out in these circumstances. If this is not the case and the business is still up and running, you could try taking them to court to make sure you get the outcome you deserve, however this may be a long and costly process which extends the process of them going bust and may not result in anything. As a last resort you should make a claim against them for any monies owed to you with the liquidator. This is again a very long process and may only result in you receiving a percentage of the money by the end of the process, however, is better than not being compensated at all.

Another thing to look at is your protection through this process, what are your obligations that you were relying on them completing? Let your client know as soon as possible and keep them in the loop with any plans or contingencies that you have. You may need to ask for extensions for the work, let them know that you can’t take on any more work and possibly request that they allow the works to be completed by others. Where the works are particularly specialist or under tight budgets and deadlines you may need to request that the specification or goalposts are changed, as not every business will be able to complete the exact same works for the same prices, they may have different suppliers and standards within their business.

The last step is to use this as an opportunity! Re-evaluate your contractors and find someone better suited to your needs – you can set out the conditions for your next contractor. Firstly, you want to ensure that you do your research, you may want to get references from other clients, ensure that they have been trading for some time and have a secure financial backing which may include a credit check, and finally that all important insurance. Depending on the industry you may be able to receive a guarantee from the company, these can be additionally registered and enforced with a trade or professional body, an insurance company, parent company or even by personal guarantee. These will help you enforce any guarantee if the business is no longer around to claim against.

Looking to the future you need to ensure that you have suitable contracts in place, ensure you are not paying out in advance for works that are not completed and not due to be completed for some time, keep the payment terms short and relevant so you are not becoming a lender for your contractor when they are in financial hard times. Where you do need to pay upfront for materials and equipment, make sure you have looked at indemnities and vesting agreements. As soon as you have paid for the materials the ownership of them should pass to you, regardless of whether they have been delivered or incorporated into the works yet. You have paid for them so they should be yours!