Can I recover retention from an insolvent main contractor?
Usually only as an unsecured creditor, unless the retention was actually set aside in a separate account before the insolvency.
Updated: . By Jack Butler-Kettle, Construction Claims Consultant.
The answer
An unsecured creditor has no security for its debt and usually gets back only a few pence in the pound. Most retention sits in the main contractor's general funds. So when it fails, your retention becomes part of the debt you claim in the administration or liquidation, alongside any unpaid applications. Some subcontracts say the retention is held on trust for you. That helps only if the money was actually put in a separate account that can be identified. Whether it was is a question for your solicitor and the administrator or liquidator. The retention is also netted off. Anything the main contractor could claim from you, such as defects or the cost of finishing your work, is deducted from it. So claim the retention as its own line, with the percentage, the release dates and the work it relates to. That way it is not lost inside a single total.
Example
Illustrative example. The scenario and figures are invented.
The facts
A drylining subcontractor's £920,000 package reached practical completion 4 months ago. Retention at 5%, £46,000, is still held. The first half should already have been released when the main contractor enters administration.
What happens
- The subcontract says the main contractor holds retention on trust, but the correspondence shows no separate account was ever opened.
- The solicitor confirms the trust point is unlikely to help without a separate fund, so the retention is treated as a debt.
- The retention goes into the claim as its own line: the percentage, the practical completion date, the release dates and the work it relates to.
- The administrator's quantity surveyor sets £9,000 of defects against it, backed by a snagging list the subcontractor had not answered.
The retention in figures
| Item | Amount |
|---|---|
| Retention held at 5% | £46,000 |
| Defects set against it | £9,000 |
| Claimed as an unsecured debt | £37,000 |
The outcome
The retention goes forward as an unsecured claim of £37,000. The administrator's first estimate of the dividend is a few pence in the pound. On its next job the subcontractor asks for the retention to be held in a separate account from the first valuation.
Claiming retention and the rest of the account in the process is part of our Insolvency Claim service.