Perspective
Insolvency

Four tips for dealing with a contractor’s bankruptcy

Written by
Anders Nørgaard Sørensen
Attorney-at-law
Published
9 September 2026

Inflation, economic uncertainty and price increases on building materials have led to a record number of contractor bankruptcies over the summer. This has major consequences not only for the contractors themselves, but also for the other parties in the construction industry and for ongoing projects.

1

In this article, we give a brief introduction to the consequences of a bankruptcy and the practical steps to take immediately after a contractor has gone bankrupt. We finish with four tips on how you, as a client, can prepare for contractor bankruptcies and improve your chances of limiting losses of time and money.

In the text we refer to “the client”, but the rules are the same for clients and subcontractors. The difference for subconsultants is that their contractual relationship is usually governed by ABR89 (or ABR18), whereas this text is based on AB92 (and AB18).

The consequences of bankruptcy for the construction contract

Under section 55 of the Danish Bankruptcy Act, the bankruptcy estate may choose to enter into the construction contract and thereby hold the client to it. As a starting point, the client therefore cannot terminate the construction contract solely because of the contractor’s bankruptcy, even if the contract contains a provision to that effect. In other words, the rules of the Bankruptcy Act on the estate’s right to enter into the contract cannot be contracted out of.

The client must therefore contact the trustee and ask the estate to decide whether or not it wishes to enter into the contract. Under AB92 § 42(2), the estate has five working days to decide whether the contract is to continue. Under AB18 § 61(2), the trustee must decide “without undue delay”.

If the bankruptcy estate enters into the construction contract, both parties are obliged to perform it. Essentially, this means that the client must pay the contract sum and the estate must carry out the work in accordance with the contract.

If the bankruptcy estate does not enter into the construction contract, the client may terminate the contract, cf. section 58 of the Bankruptcy Act. On termination, the client must arrange for a statement of the work completed in accordance with AB92 § 44 (AB18 § 63) and must also make sure to lodge any claim against the bankruptcy estate.

It is precisely these requirements that make it important for the client to handle the process correctly, as otherwise you risk incurring unnecessary financial losses and/or delays to the construction project.

Supreme Court judgment from 2019 – loss of 5 percentage points of the contractor’s guarantee

It is particularly important to be aware that in 2019 the Supreme Court handed down a judgment under which the contractor’s guarantee is, as a starting point, written down from 15% to 10% of the contract sum when a status survey of the work completed is carried out. To put it mildly, this is a very unfortunate situation and legal position for the client, as the client normally only calls on the guarantee after the status survey has been carried out. In that case, the client risks losing 5 percentage points of its security. 

The client must limit financial losses

The contractor’s security under AB92 § 6 (AB 18 § 9) serves to cover “all claims the client has in connection with the contractual relationship”, and the guarantee therefore also covers claims arising from the contractor’s bankruptcy.

The client has a duty to limit its financial loss as far as possible. The client should therefore secure the construction site immediately after the bankruptcy has occurred. Materials delivered to the site for incorporation into the works belong to the client, cf. AB92 § 10(3) (AB18 § 12(4)).

The bankruptcy estate, subcontractors, suppliers and the like therefore have no right to collect the materials.

Four preventive tips

Here are four tips on how the client can prepare for contractor bankruptcies and improve its chances of limiting losses of time and money:
Pay extra attention to making sure that payments of interim invoices correspond to the value of the work actually carried out, so the client does not risk the contractor having over-invoiced when the bankruptcy occurs.
1.
Secure ownership of materials that have been paid for but not delivered. In practice, however, declarations of ownership for prepaid materials stored at the supplier are often not worth much, as the supplier may still raise (more or less justified) counterclaims and exercise a right of retention over the materials. Consider therefore having as many of the client’s paid materials as possible delivered to the construction site. If declarations of ownership are issued, always remember to have them issued to the client and not to the (bankrupt) contractor.
2.
Make good use of the change log and keep it up to date, cf. AB 18 § 25(5). It is an important piece of evidence for agreements made on additional work and for the parties’ financial balances and/or disagreements, etc.
3.
Here are four tips on how the client can prepare for contractor bankruptcies and improve its chances of limiting losses of time and money:
4.

Featured content

Perspective

Go' Morgen Danmark

You don’t know what you don’t know. So seek proactive advice if you fear the contractor is going bankrupt
Read more

News from

Sign up for our newsletter featuring professional insights and experiences from integrated construction. Choose the topics about which you’d like to receive insights and information.