November 19, 2014

Retentions issue leads to suspension of shares

A green technology company specialising in organic waste solutions has suspended trading of its shares on the Alternative Investment Market (AIM) as its long-running bid to secure the release of £2.8 million in retentions continues.

TEG, based in Chorley, Lancashire, issued a statement on 28 October saying that it had been in detailed discussions with engineering and construction group Costain for more than two years over the release of retentions held under the Greater Manchester Waste contract, a Costain contract to design and build a network of recycling and waste management facilities across Greater Manchester.

TEG, which has been carrying out remedial works for Costain as part of a programme to bring the contract to a close, said in the statement: “The company continues to bear the cost of its own EPC (engineering, procurement and construction) division required to manage the conclusion of the contract.

“TEG has engaged recently in discussions with Costain in relation to the group’s overall financial position, the release of the retentions monies owed and TEG’s ability to continue to provide the requested remedial work under the contract.”

The company said it had proposed options for exiting the contract, but was told on 27 October that this would not be possible. It added: “The board believes that there is no prospect of the release of any of the retentions owed to TEG in the near future, which will impact significantly on working capital requirements [and] has requested that trading in the shares of the group are suspended until such time as this uncertainty can be removed. 

“The group remains in discussions with its existing providers of finance regarding the ongoing provision of facilities, will maintain a dialogue with Costain and will separately continue to explore all financing and strategic options open to it, including the potential sale of certain parts of the business.”

The challenges TEG is facing illustrate the potentially significant impact that contract-related problems can create. Research published earlier this year revealed that the top two causes of construction disputes globally in 2013 were failure to properly administer a contract and failure to understand and/or comply with contractual obligations

Well-drafted contracts are crucial to avoiding disputes at a later stage and Palmers can provide expert advice on standard and bespoke contracts. Should disputes arise, we offer expert arbitration, mediation and adjudication services, which can help to maintain ongoing commercial relationships as well as well as providing a time and cost-effective alternative to court proceedings.

If the dispute does proceed to court, we can provide robust representation. For more information, please contact Adam Davis.