What do you do if your builder goes bust? A recent string of financial troubles in large construction companies have shown that the building industry is anything but bulletproof. ProBuild and Condev have both become insolvent, and recent crisis talks between officials and a national homebuilding giant have sparked fears that it will share a similar fate.
For anyone with a building project the idea of your builder going bust can seem like the end of the world. But, knowing what to do in these situations is vital and can save your dream project from going under. The following information can help you to understand what to do in these situations as well as what your rights under each state government.
Why do Builders Become Insolvent?
There are plenty of reasons that a builder can become insolvent, however the main issue currently facing larger construction companies is cash flow. Since the pandemic rapidly rising material costs have led to greater losses on multiple projects. Project completion during the pandemic has also been cited as a costly issue for many larger companies and the cause of frequent incomplete works claims.
What Happens if My Builder is Insolvent?
If your builder becomes insolvent, they will likely appoint an insolvency practitioner as an administrator or liquidator and cease work on your project.
In the event that an insolvency practitioner is appointed to your builder, ensure that you do not make any further payments of progress claims outstanding/issued by them. This will ensure that your losses from the incomplete works are minimized and maximise the available funds available to you to re-engage another builder.
You will then need to correspond with the appointed practitioner, to confirm that you are likely to be a creditor of the Company for an amount that has not yet been determined. This will ensure:
- That you are kept up to date with the progress of the administration/liquidation of the builder, including receiving copies of all reports to creditors;
- Enable you to attend any meeting of creditors that may be held by the practitioner and vote on resolutions to put to the creditors of the company; and
- Enables you to correspond directly with the practitioner about your project and the next steps to be taken.
In the event a dividend to creditors is to be paid, you will be required to substantiate the value of your claim against the Company by way of lodgement of a Formal Proof of Debt. Accordingly, you should ensure that you keep adequate records of any additional costs you are required to incur to rectify incomplete works.
Who Will Complete My Project?
If the building works are not complete or otherwise defective, it is up to you to appoint a new builder. This can sometimes be difficult with builders often being reluctant to complete a “half finished” job, depending on the degree to which the current works are defective.
Once you take control of the building site from the current builder, you should ensure that the site is secured, and trespassers are restricted from the site. You may be required to assist in the return of hire equipment located on the site to the owner of that equipment. Furthermore, you may need to engage a builder to complete minor works to mothball the site and keep it safe whilst you undertake the process of appointing a new builder.
There may be a significant delay in resuming work on your project, as careful consideration should be afforded to appointing the right builder to take over. The incoming builder may also propose a price greater than the original contract to cover their associated risk.
While you might be tempted to simply engage subcontractors if the works are close to completion, keep in mind that there are strict legal penalties for acting as a “builder” if unlicensed.
It is noted that each state and territory has a different set of rights and regulation in respect to the building industry and its own home builders warranty scheme that will assist you in completing your project. A brief summary and relevant links for Victoria, NSW and Queensland is as follows:
Victoria – Rights and Regulations
The Victorian Building Authority recommends following steps similar to the above if you know or suspect your builder to be insolvent. Further information on their recommended process can be found here.
In Victoria if your project is a residential building, you may be able to make a claim against a domestic building insurance policy in the case of insolvency. Contact Consumer affairs Victoria 1300 55 81 81 or visit this site to find out more.
NSW – Rights and Regulations
In NSW, incomplete or defective works can allow you to make a claim for compensation under a policy issued by the Home Building Compensation Fund (HBCF). Your builder becoming insolvent or otherwise unable to complete the works is another caveat for allowing this claim.
The period of insurance on defective work claims is 2-6 years depending on the severity of the defective works, however it is good practice to claim within 6 months of becoming aware of any defects. In cases of insolvency there are additional extensions afforded provided certain notifications are lodged.
Visit the ICare site for complete information on how to make a claim.
Queensland – Rights and Regulations
In the case of incomplete or defective works due to an insolvency, the Queensland Home Warranty Scheme can allow you make a claim on:
- Additional completion costs including repair costs for any defective work and;
- Reimbursement for any deposit paid as part of the contract if the work has not commenced.
This claim can also only be made if the contract was for residential construction work, and there are several other requirements for eligibility.
To find out more, visit the QBCC website.
Still Have Questions?
If your builder has become insolvent and you want to know more about what this means for you or your business. Contact one of our insolvency practitioners, who will be happy to meet with you on an obligation free basis and discuss your situation.
Caring for Your Mental Health
Dealing with building works problems can be stressful. If your mental health has been affected by your situation, please call Lifeline on 13 11 14.
This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to RRI Advisory’s clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.