Fortune Favours The Brave

Navigating the Building Safety Act for Insolvency Practitioners & Property Receivers (P1)

• Howden Insurance Brokers Ltd • Episode 1

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Explore the labyrinth of the Building Safety Act with our host Dan Williams from Howden's Restructuring & Resolution team. Together, with his colleague Steve Cox and guest Emily Clift from Kennedys, they navigate its twists and turns.

Equip yourself with knowledge critical for insolvency practitioners and property receivers, as they dissect the Act's origins, zero in on higher-risk buildings, and introduce the pivotal role of the new Building Safety Regulator. This episode isn't just talk; it's an invaluable toolkit brimming with practical advice to help construction and insolvency professionals maintain an unbreakable chain of information and understand the construction spectrum's varied responsibilities. 

Venturing further into the construction process, they scrutinize the Building Safety Act's three gateways and their distinctive implications for those in the throes of insolvency and construction. The conversation crescendos when confronting the third gateway, where compliance and meticulous documentation can mean the difference between success and costly oversights. With their expertise, they strategize on safeguarding essential documents, leveraging digital tools, and preparing for the Act's potential to hold individuals accountable.

Stick with us to the end for a sneak peek into our next talk on the occupation phase, which promises to equip insolvency practitioners and receivers with crucial insights for navigating this decisive construction lifecycle stage.


Katy Norman:

Welcome to Howden's podcast Fortune Favors the Brave. We all take risks in our everyday life, and business is no different. In this podcast, we're speaking to the experts about a topical challenge or issue and what business leaders can do to overcome it.

Dan Williams:

Welcome to Howden's Fortune Favors the Brave podcast. My name is Dan Williams from the Howden Restructuring and Resolution team. I'm joined today by Steve Cox of Howden and Emily Cliff from Kennedy's Professional Risks and DNO team. Today we're going to be talking about the Building Safety Act, specifically from the point of view of insolvency practitioners and property receivers. This will be the first of a two-part series in relation to the Building Safety Act. As is tradition on the Fortune Favors the Brave podcast, we'd like to kick off by asking our guests to talk us through a time where they took a risk and whether that risk paid off. Steve Hi.

Steve Cox:

Dan, I think a good example for me is a relatively late career change. I completed my degree in criminology and, leaving uni, thought I'd do something relevant so I joined the prison service. Unfortunately, my timing was terrible. It was at the time of all the austerity measures following the financial crisis and there really wasn't much opportunity to progress my career there. So I made the decision to leave the service and took an entry-level job in insurance and yeah, that sort of led to where I am today. So at the time it certainly felt like a risk, but I'd say it's paid off and, yeah, definitely for the best in hindsight.

Dan Williams:

And Emily, how about yourself? Can you talk us through a time that you took a risk?

Emily Clift:

Yes, of course, at Kennedy's I do deal with a lot of construction and property related matters. But I decided to take a bit of a leap of faith in with my husband purchasing a fixer upper in Catalonia, in Spain, not knowing Catalan, not knowing Spanish law in Spain, not knowing Catalan, not knowing Spanish law, and on the promise of the local Spanish solicitor that even though it was built illegally, contrary to planning permission, it was now too late for the council to knock it down. So it was fine, and so far, four years later, we've been fixing it up. It's looking beautiful, sucked up a lot of holidays, but hopefully one day we'll have some good holidays to look forward to. And so far so good. The council hasn't knocked it down, so hopefully that's a good lesson for everyone in building regulations in Spain.

Dan Williams:

Excellent. Well, let's hope there's no changing of the guard within the council and they take a particular dislike to your lovely property in Catalonia. So, in terms of the Building Safety Act, we have obviously seen kind of in the industry, from an insolvency and kind of building regs perspective, that this has been quite an important piece of legislation. So, steve, could you just open up by talking us through the Building Safety Act from a general perspective? Where did it come from, where is it going and what's it designed to do?

Steve Cox:

Yeah, sure, so the Building Safety Act from a general perspective where did it come from, where is it going and what's it designed to do? Yeah, sure so. The Building Safety Act 2022 was introduced to implement the recommendations from Dame Judith Hackett's report into building regulations and, via safety, completed post-Gromfeld to address building safety concerns. The Act actually applies to all buildings insofar as it amends the Defective Premises Act building regulations, but the main focus is on higher risk buildings. These are buildings that have two or more domestic units with seven or more storeys or 18 metres or greater in height. The parts that do relate to high risk buildings can be broadly split into two phases the construction phase and the occupation phase, which I know we'll go into a bit more depth on in a moment. The Act also introduces a new regulator, the Building Safety Regulator, or the BSR, which is now the building control authority for high risk buildings, as well as the enforcement body for the Building Safety Act and secondary legislation.

Dan Williams:

Excellent. I think that gives everybody a fairly clear picture of kind of the landscape in which we're going to talk through the various points of the Act. So in episode one of this podcast series we'll be talking primarily around the construction phase. So the Building Safety Act is split into two key parts, which obviously Steve touched on earlier, being the construction phase and the occupation phase. So with regards to the construction phase, emily, what are the key dates that people need to be aware of?

Emily Clift:

Well, the Building Safety Act came into force April last year. A lot of the major provisions that we'll be concerned with today came into effect in October of last year, 2023. There's a lot of secondary legislation out there, not all of which has come into effect, and indeed even some of the bits of the building safety act itself haven't yet come into effect. But we'll most be concerned on about things that came into effect last year, on about things that came into effect last year.

Dan Williams:

So, in relation to the construction phase, if we put some context around how this may look in terms of our insolvency clients that we would deal with from a Howden perspective, or clients that Kennedy's would be engaged with if we were to take the scenario of an insolvency practitioner being appointed over a construction firm or a contractor, or indeed a land or property owner that is going through the construction of residential building, that would fall within the confines of the Building Safety Act In terms of some practical points in the lead up to that appointment and immediately post appointment. What would we advise IPs and property receivers in that scenario to consider as part of their planning?

Emily Clift:

Well, they should be aware that there are obligations on the whole food chain in relation to construction phase. So all those situations you just mentioned, dan, whether it's the client or the landowner, or the contractor or the designer, everyone's got a part to play and has some obligations under the Building Safety Act and its regulations. So the main thing is information is key, it's paramount, and what happens so often, of course, when insolvent practitioners come into a new company, is information is hard to find and it's of utmost importance to try and identify where it might be, where information relevant to building safety might be kept, and because the regulators see that there is a big risk in a company that's gone insolvent whether it be the regulator within 14 days of their appointment, for businesses that have buildings which could be buildings that fall under this legislation and, as Steve said earlier, that includes a whole weight of different residential buildings that are tall, essentially, and there's a lot of things, a lot of different types, specific types of information that need to be preserved and collected. There's something called the golden thread of information, which is a concept which is created by the Building Safety Act and its legislation. The information about building safety needs to be kept by the client in a secure digital format. It's probably going to be a cloud somewhere, like a lot of construction projects have. That needs to be accessed, kept. Payments need to be kept up to the cloud provider, whoever that may be.

Emily Clift:

Good news for insolvency practitioners the dear IP released from the government about this construction phase. Bsa legislation as it applies to insolvency practitioners makes clear that the 14-day notification duty is not going to be strictly enforced. There's no penalty for that. They're looking at IPs to sort of, in partnership with the regulator, help them out by the notification. But they appreciate that the insolvency practitioners they don't replace the legal entity that is the company. It's still the company that owes these duties under the BSA in terms of keeping the golden thread, etc. But the insolvency practitioner is expected to help the company to comply with those obligations.

Dan Williams:

So in terms of the golden thread, so it sounds like that's quite a key part to this construction phase and the risks that an IP would potentially face or a property receiver would potentially face as part of getting involved in a building, going through that construction phase, with regards to kind of the immediate aftermath of appointment and trying to access that golden thread information, obviously, where certain parties as part of that supply chain haven't been paid and there may be issues there. Are there any tools available to IPs or property receivers to access that information where perhaps third parties aren't being overly forthcoming?

Emily Clift:

Well, it depends on the situation, but there are a lot of places in the BSA where there are statutory obligations on people like the principal designer or the lead designer that they must provide X information at a particular stage, and so I mean you'd have to look at this on a case-by-case basis. But the chance of if you're an architect firm trying to withhold information from an IP about a very tall residential building under a professional EN or something, take legal advice because there are some mandated actions throughout the legislation.

Dan Williams:

Excellent, so that, obviously, from an insolvency practitioners and receivers perspective, they may sort of have some teeth in terms of being able to extract this information from the various parties that are involved in that construction phase. Yeah, that's right In terms of the different parties that we refer to there at the point of the insolvency practitioners or property receivers being involved and being appointed over this construction project or this property asset. Steve, can you talk us through some of the key roles as part of that construction phase?

Steve Cox:

So the primary duty holders under the Act are the client, who's a person for whom the building work is being done, the principal designer and the principal contractor. And it's the client who's responsible for appointing the principal designer, or the PD, and the principal contractor, the PC, and ensuring that they have the right competencies to undertake that work. Competency is always a bit of a vague term, but here it's defined as someone with the necessary skills, knowledge, experience, behaviours or organisational capability to ensure that the works are completed in accordance with the building regulations.

Emily Clift:

Perhaps you'd agree with me then that, with all these things to check, if an IP is suddenly thrown into a situation in the middle of a construction build on a site, that probably the best course of action would be to get someone that you know is already competent to check the competency of others, to check that the requisite information is available, still preserved, gathered, these types of things.

Steve Cox:

Yeah, absolutely. That's almost always going to be the best approach there. Worth noting that the BSA and the various requirements under it are in addition to existing legislation, so you've still got regulations like the CDM Construction Design and Management regulations that apply your whole raft of health and safety legislation and the fire safety order. So there's a lot to consider when building these projects, and that's obviously been added to through the BSA. So our advice to clients will normally be to appoint a building consultant to act in that role of project manager to essentially take control of those various requirements and make sure that the building is constructed in accordance with all of those yeah, because of course, if it isn't, or if the information goes missing, that's going to impact on sale price, isn't it?

Steve Cox:

Or make a sale almost impossible in some cases. So it's worth noting that the BSA has introduced three gateways to the construction process. Gateways one and two probably aren't going to be particularly relevant to IPs and receivers, the reason being that they actually occur right at the outset of a project. So gateway one is at the planning application. Gateway two is at design approval by the BSR, before there's actually any spades in the ground.

Steve Cox:

Now, where we see insolvency practitioners or receivers deciding to actually carry on building works, it's normally the case that the construction work is already well underway, that you've well past that design and planning stage. Gateway 3, however, is going to be very, very applicable. That actually occurs at completion of the project, and Gateway 3 requires the client to apply for a completion certificate from the BSR. At that point they need to evidence that that building has been constructed in accordance with the building regulations, in accordance with the approved plans that were submitted at gateway 2, and that the golden thread of information is intact. So it's very easy to imagine a scenario where, actually, some of that information may not be available, the completion certificate can't be obtained, the building can't be registered and, as such, you're left with a completed building that can't be occupied.

Dan Williams:

And we've seen over recent years several examples in our world from an insurance perspective where lenders have pulled the plug and enforced on debts where buildings are sort of on the verge of practical completion, With the BSA legislation obviously now being in effect. Presumably that makes those late in the day appointments even more risky if information is to kind of dissipate or be difficult to obtain at the point of practical completion, looking to get the certification from the BSR. Is that something that you think the lenders that are looking to enforce should be considering in terms of which stage of the construction project they potentially look to enforce?

Steve Cox:

Yes, certainly a consideration, and, as Emily touched on earlier, I think the key thing is engaging with the parties that are already involved in that project to try and get hold of that information, so the existing principal designer, the existing principal contractor, liaising with them, trying to get hold of those plans, of all of the information that's already been submitted to the BSR, and trying to keep that golden thread intact. Obviously, that's much easier said than done in some cases, but I think it's certainly a case that lenders or the people holding the purse strings need to be aware that actually, if there are payments owed to the existing architect, for example, in some cases it might be the easiest option to actually pay those sums to get hold of that information, rather than end up in that situation where you're really struggling to pass that gateway through.

Emily Clift:

Yeah, I mean hopefully the impact long term of this legislation will be that it just becomes part of the normal construction process to properly keep this information. And I mean the number of cases I've had where, well, the building's been built, but what's behind the walls nobody knows. Now there are a number of checkpoints over the course of the building of a building where people have to know and so hopefully that information you know, with modern technology, cloud sharing facilities et cetera, that information can be preserved and we have fewer cases like that passing my desk in future served and we have fewer cases like that passing my desk in future.

Steve Cox:

Yeah, certainly it should be the way that things are done anyway. I mean, if you think about any other industry that's making safety critical products, which high risk buildings essentially are, it's the way that things are already done. Say, for example, if someone's manufacturing an aircraft, they're going to have extremely detailed designs, they're going to make sure that it's constructed in accordance with those designs and that whole process is going to be very, very carefully managed. Unfortunately, construction hasn't always been that way. Certainly, if you look at design and build projects, for example, sometimes it's the other way around and actually they build the building and then alter the designs to match, and obviously, when you are dealing with life safety, that's really not how things should be done. That's what Dame Judith Hackett has identified and, as a result, it's now requiring wholesale changes to to the industry, but certainly, as Emily said, it is actually a change for the better. It's just that initial implementation process that's really going to cause some teething issues.

Emily Clift:

Yeah, and hopefully, the golden thread being digital and kept on the cloud somewhere. That's going to help the situation where, as happens so often, that your developer goes bust or contractor goes bust, because that's where a lot of the information is lost. Well, hopefully, if we're using modern ways of sharing this information and preserving it, we can overcome those sorts of problems and one day might consider them old fashioned.

Steve Cox:

Yeah, absolutely. I mean, I think it's fair to say that there's always going to be some issues, particularly with hostile appointments, maybe where the company that administrators, for example, are appointed over it's a hostile appointment, the directors aren't playing ball and actually that they're not able to get that information from the client to essentially step into their shoes. But, yeah, absolutely, as you say, that golden thread, the requirement to keep the information, the requirement to keep it in a certain way, will hopefully in theory, make it easier for them to get their hands on that information.

Emily Clift:

I should add that, talking about directors perhaps shirking responsibility, there are a few provisions in the Building Safety Act which do allow the regulator to look behind the corporate veil to some extent in particular situations and to hold individuals accountable. So hopefully that's a bit of incentive for various individuals involved in running companies that don't just drop it and run and remain helpful and help to preserve all this important information about safety of the building.

Steve Cox:

Yeah, absolutely, and in some cases it might actually be in the best interest of insolvency practitioners receivers to engage with the BSR If they are having issues getting hold of the information and actually notifying the BSR of that and using their powers to actually help compel people to provide the information. It's quite easy to always think of it as more of an adversarial relationship between the regulator and the other parties, but actually, yeah, there might be some cases where they might be able to provide assistance.

Emily Clift:

Yes, I agree about the construction phase BSA provisions is that the insolvency practitioner is being seen in a sort of partnership with the regulator to try and help ensure that these things are being enforced and followed and the IP isn't there to be punished and at the mercy of the regulator in the way that the client or designer or contractor themselves would be in the firing line under the BSA. So I think it's the messages to insolvency practitioners that help us. This is a collaboration and let's make buildings safer.

Dan Williams:

And on that point around kind of the background to the legislation and obviously the objective being to make high-risk residential buildings a safer place for people to reside. If you were an IP or property receiver post the implementation of the Building Safety Act, does this new legislation impact the timeline that you would expect to be in office? If we take our scenario of an administrator being appointed over a construction firm or principal contractor, should the IPs and receivers be considering the timeline for sign-off in relation to the BSR with regards to certification?

Steve Cox:

Yeah, absolutely so. If we're looking at Gateway 3 and obtaining that completion certificate, it's very easy to see where there may be delays there if they're not able to obtain the information that's necessary to pass that gateway. There's also the delay that is going to occur in any project, whether it's subject to insolvency or receivership proceedings or not. At that Gateway 3, the application for that completion certificate needs to be submitted and the BSR are indicating approximately three months turnaround time to actually issue that certificate. So certainly best case scenario, you're looking at a three month delay and worst case scenario, if all of the information isn't provided or the BSR request additional information, then that could well be extended well beyond that.

Dan Williams:

So, to summarise the construction phase consideration, it sounds like the key takeaways from that are to appoint a building consultant to act as project manager to oversee that process and ensure that all of the competencies at the various levels across the various parties are where they need to be Obviously a key consideration there is also the data storage and maintaining that golden thread, ensuring that nothing is lost due to administrative oversights, with cloud or file sharing systems being shut down. So, in relation to insolvency practitioners being appointed as administrators of construction firms or contractors, or indeed property receivers being appointed over the property itself, those key takeaways seem to be fairly key in terms of managing that risk from the officeholder's perspective. Thank you very much to our guests today Emily Cliff from Kennedy's and Steve Cox from Howden. Join us for part two, where we'll talk a little bit more around the occupation phase and more around the key duties and key actions that IPs and receivers will need to undertake in relation to that occupation phase.

Katy Norman:

Thank you for listening to this episode of Fortune Favors the Brave from Howden. To hear more episodes and subscribe to our channel, search Fortune Favors the Brave on your favourite podcast app.