Data released by SVP Partners recently suggested that more than 80 Gold Coast construction companies are on the verge of collapse, highlighting that contractor insolvency in Queensland’s building and construction industry remains a very significant issue.
Subcontractors seeking payment for the work they have completed are far too regularly affected by builders succumbing to some form of insolvency, or operating under financial distress.
Until the tabling of the Building Industry Fairness (Security of Payment) Bill 2017 (BIF Bill) on Tuesday, August 22, 2017, various Queensland governments have sought to address the Security of Payment (SOP) for subcontractors issue through four main means:
1. The enactment of the Subcontractors Charges Act 1974 (SCA).
2. The introduction of Financial Requirements for Licensing in 1999 that requires contractors to comply with at all times or face the prospect of having their license suspended or cancelled.
3. The enactment of the Building and Construction Industry Payments Act 2004 (BCIPA) which provides persons carrying out construction work with a statutory entitlement to receive progress payments for work done, and an ability to activate a quick dispute resolution process called ‘adjudication’ in the event payment is not forthcoming. Approximately 65% of those seeking to rely on adjudication to recover monies owed to them are Subcontractors.
4. The banning of persons from holding a contractor’s licence in the event they were associated with a defined insolvent event.
The BIF Bill proposes to significantly expand the extent to which the state government regulates Queensland’s building and construction industry in order to achieve SOP for subcontractors. This will be achieved through:
- Controlling and directing the flow of money between clients, builders and subcontractors with the establishment of Project Bank Accounts (PBA).
- repealing the BCIPA and SCA and combining all SOP provisions in an amended form. These proposed changes will simplify the payment claim process for subcontractors and improve their payment prospects as a result of new restrictions imposed on respondent builders.
- Amending the definition of who is an influential person under the Queensland Building and Construction Commission Act 1991 (QBCC Act) for the purpose of addressing phoenix licensing concerns.
- Prescribing mandatory and prohibited conditions by way of regulation in a building contract under the QBCC Act.
- Creating many more offences under the BIFF Bill and the QBCC Act, with increased penalties for existing offences such as unlicensed contracting.
It would be a fair assumption that the industry collectively agrees subcontractors should be paid when they are entitled to be paid and ‘rogue’ builders should be removed from the industry. However, this view may be seen as a tough regulatory approach to SOP, especially when compared against the federal government’s proposal towards ensuring “pre-insolvency” companies don’t collapse, which in-turn reduces the flow-on effect to contracted parties, such as subcontractors who commonly lose money.
On September 11, 2017, the Senate passed the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Bill 2017.
The following extract is taken from the Treasury Laws Amendment (2017) Enterprise Incentives No.2 Bill 2017 Explanatory Notes: “The government is reforming Australia’s insolvency laws. Our current insolvent trading laws put too much focus on stigmatising and penalising failure. As part of the National Innovation and Science Agenda (NISA) these reforms aim to promote a culture of entrepreneurship and innovation which will help drive business growth, local jobs and global success.
“The threat of Australia’s insolvent trading laws, combined with uncertainty over the precise moment a company becomes insolvent have long been criticised as driving directors to seek voluntary administration even in circumstances where the company may be viable in the longer term. Concerns over inadvertent breaches of insolvent trading laws are frequently cited as a reason that early stage (angel) investors and professional directors are reluctant to become involved in a start-up.
“The amendments in Schedule 1, Part 1 of this Bill will create a safe harbour for company directors from personal liability for insolvent trading if the company is undertaking a restructure outside formal insolvency. This will drive cultural change amongst company directors by encouraging them to keep control of their company, engage early with possible insolvency and take reasonable risks to facilitate the company’s recovery instead of simply placing the company prematurely into voluntary administration or liquidation.”
This Bill represents a different approach to SOP and is designed to provide company directors with an option to successfully restructure their company and therefore be in a position to meet their obligations to pay subcontractors.
Queensland’s building and construction industry is being presented with two different approaches, both aiming to achieve the same desired outcome. What is clear is that there are no easy answers.
Michael Chesterman is a consultant with Helix Legal, focusing on the construction industry. To learn more about PBA’s or the proposed safe harbor changes, visit www.medium.com/@HelixLegal
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