In case of insolvency, the Project Company will likely be exposed to insolvency processes and the impact of applicable rules and laws designed to protect the general body of creditors.
When faced with this situation, or a situation where the Project Company might be insolvent, detailed legal advice will be needed to understand the rights and obligations of all parties involved - the Procuring Authority, the Project Company and its directors and staff, the lenders, insolvency practitioners, the courts, the contractors and other relevant creditors.
Once the Project Company has become insolvent, the choices for the Procuring Authority become limited. Legal considerations are key to understanding the Procuring Authority's options when the Project Company enters into insolvency. Insolvency laws differ widely in different jurisdictions. For example, in the common law jurisdictions (such as the UK and Australia), directors' powers are immediately curtailed and an insolvency practitioner takes over the running of the company. The insolvency practitioner has the power to sell or restructure the company with little or no interference from the courts. In other civil jurisdictions, the processes can be heavily court-based, with sales and restructuring needing court approval and public auctions required. In any scenario, the Procuring Authority will be at the mercy of the insolvency practitioner and/or the courts. The lenders may also have additional step-in rights in these circumstances, which will add to the complexities.