The long arm of corporate liability: building liability orders and corporate group exposure

The long arm of corporate liability: building liability orders and corporate group exposure

Separate companies are commonly used within corporate groups to organise different activities and manage risk. Each company is usually responsible for its own actions. But a phenomenon of responsibility and financial exposure extending beyond just the person or entity responsible and stretching out to a wider pool of people or entities is growing. 

The recent Ardmore Construction case is a stark example of how liability can flow to other group companies, even when the original contracting party is insolvent.

Ardmore Construction Limited (Ardmore) was appointed by Crest Nicholson Regeneration & Ors (Crest) to design and build 19 residential apartment buildings in Portsmouth. Serious fire safety defects were later identified, and an adjudicator ordered Ardmore to pay approximately £14.9 million. However, by that stage, Ardmore had entered administration as part of a group restructuring and the award remained unpaid. 

Crest pursued other companies within the Ardmore group using the building liability order regime introduced by the Building Safety Act 2022. A building liability order (BLO) can make an associated company jointly and severally liable for certain building safety liabilities where the court considers that it is “just and equitable” to do so.

The English court granted both an order relating to the adjudication award and an anticipatory order covering liability that might be established in the underlying proceedings. The anticipatory order is particularly significant. It confirmed that the original company’s liability does not need to have been finally determined before the court can decide that associated companies will share it. 

The longer-term impact of this case is less certain. Ardmore has been granted permission to appeal, with the Court of Appeal recognising that guidance on the scope of BLOs would be of wider value. However, more recently, a number of Ardmore group companies have entered into Company Voluntary Arrangements (CVAs) with the remaining two group companies, including Ardmore, remaining in administration. This raises questions over whether the appeal will proceed. If the CVAs are implemented as proposed, Crest as an unsecured judgment creditor, will be bound by the terms of a CVA, and this may impact what is recovered under the BLOs against the wider group.

The exact scope of BLOs may not yet be clear, but their impact on the Ardmore group is difficult to miss: every company potentially subject to the BLOs is now either in administration or subject to a CVA. And BLOs are far from the only example of increased exposure to far-reaching liability. A number of statutory regimes allow liabilities or enforcement action to extend beyond the company originally responsible in a variety of different ways.

In some circumstances environmental legislation can place responsibility for contaminated land on parties other than the entity whose activities caused the contamination. HMRC also has statutory powers enabling it to pursue individuals for certain company tax liabilities. The Pensions Regulator’s moral hazard powers can impose financial obligations on connected or associated parties where the relevant statutory conditions are met.

These regimes don’t operate in the same way. They have different policy objectives, legal tests and procedural safeguards. However, they demonstrate that the boundary around a company is not always the boundary around the risk.

Financial distress can bring these issues into sharper focus. In addition to complying with their ordinary duties, directors may need to consider potential personal exposure and the position of associated companies. Separate corporate personality remains a cornerstone of UK company law. However, a growing number of statutory regimes demonstrate that responsibility and financial exposure do not always stop at the boundaries of the company that originally incurred them. 

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