What are construction retentions?
A retention is a percentage of the contract sum — typically 3–5% — withheld by the client (or main contractor) until the end of a defects liability period. The first half is usually released on practical completion; the second half is released when the defects period expires, often 12 months later. Retentions are intended to incentivise contractors to return and fix defects, but in practice they represent significant cash tied up in completed projects.
Pursuing retentions owed to your company
Before dissolving your company, identify all outstanding retentions owed by clients or main contractors. Review each contract for the practical completion date, the defects liability period, and the retention release schedule. Issue formal written demands for any retention amounts that have become due. If a client refuses to pay, you may need to pursue adjudication or court action before the company is dissolved — legal proceedings cannot be conducted in the name of a dissolved company.
Retentions not yet due — your options
If retentions are contractually due to be released after your planned dissolution date, you have two main options. First, delay the dissolution until the retention is released and paid. Second, assign the debt to a third party (such as a shareholder or connected company) before dissolution, using a deed of assignment. The assignee takes over the right to receive the retention and can pursue it after the company is dissolved. Always take legal advice before assigning construction debts.
Retentions your company holds for subcontractors
If your company acted as a main contractor and holds retention funds on behalf of subcontractors, these must be released or settled before dissolution. Retention money held for subcontractors is effectively a liability of the company. Release retentions when due under each subcontract, and ensure all final accounts are agreed and signed off. Do not attempt to dissolve the company while holding outstanding retention liabilities.
What happens if retentions are unclaimed after dissolution
Any money owed to a dissolved company — including unpaid retentions — becomes bona vacantia and passes to the Crown. HMRC's Bona Vacantia division administers these assets. While it is technically possible to apply to restore a dissolved company to pursue a debt, this process is costly and time-consuming. The simplest approach is always to resolve all retention matters before dissolution.