Administrators Chase Project Bank Account Funds to Pay Fees

Why It Matters

The dispute tests the legal boundaries of ring‑fenced project accounts, potentially reshaping how construction funds are protected in insolvencies and affecting thousands of SME subcontractors.

Key Takeaways

• Administrators seek to use £1.3 m PBA funds for £154k fees.
• EY logged 204 hours on PBA issue, 1,716 total hours.
• Trade body calls using PBA for fees “preposterous” and harmful to SMEs.
• Court to rule on claim by April 2026; payout delayed 18 months.

Pulse Analysis

Project Bank Accounts (PBAs) were introduced in the UK construction sector to create a transparent, ring‑fenced pool of money that pays both the lead contractor and its supply chain simultaneously. In theory, this mechanism shields subcontractors from the fallout of a contractor’s insolvency, ensuring that cash flow remains uninterrupted. The ESS Modular collapse, however, exposed a gray area: whether the same protected funds can be tapped to cover administrators’ legal and professional fees. Converting the £1.3 million held for four Ministry of Justice prison projects into roughly $1.65 million underscores the scale of the financial stakes involved.

The administrators, EY, argue that the 204 hours spent untangling the PBA’s legal status constitute a legitimate expense that should be reimbursed from the PBA itself, rather than from the broader insolvent estate. Their total fee claim of £154,000 (about $195,000) sits against a backdrop of £1.4 million (≈$1.78 million) in overall administration costs. Industry bodies, such as the Finishes and Interiors Sector, contend that diverting PBA funds erodes the very purpose of the account—protecting subcontractors, many of whom are small‑to‑medium enterprises that have already endured an 18‑month wait for any payout.

The pending court decision, scheduled for April 2026, will set a precedent for future construction insolvencies. If the judges permit fee recovery from PBAs, lenders and project owners may reconsider the design of these accounts, potentially tightening the rules around permissible deductions. Conversely, a ruling against the administrators could reinforce the sanctity of ring‑fenced funds, prompting contractors to allocate separate reserves for administration costs. Either outcome will influence how risk is priced in public‑sector construction contracts and could drive legislative refinements to safeguard supply‑chain liquidity.