Construction and Infrastructure update: My builder is experiencing financial difficulties, what do I do?

May 31, 2022

The rising cost of materials, material shortages, skilled labour shortages, shipping delays, already small profit margins and the flow on effect from the COVID-19 restrictions and lockdowns have combined to contribute to the current instability in the Australian domestic building market. 

This instability has recently been cast under a spotlight as a result of a number of prominent builders collapsing, with others teetering on the verge of collapse.

The insolvency, or potential insolvency, of domestic builders around Australia has been the subject of many recent enquiries to the KCL Law Construction and Infrastructure Team. 

If you are a building owner and your builder is or might be insolvent, it is essential that you obtain sound advice and that you know what to do.  Set out below is a simple two-step guide designed to assist owners.

Step 1: Check if the builder is insolvent

Whilst it can be difficult for owners to know whether their builder is insolvent, common indicators that a builder may be experiencing financial difficulties include: the builder ‘walking off’ the construction site without explanation, the builder’s temporary infrastructure (e.g. portable toilets and site fencing) being removed from the site, the builder’s website being inaccessible or ‘down for maintenance’, the builder failing to return calls and emails, the builder failing to progress works as scheduled, and (sometimes) the builder even expressly mentioning that it is experiencing cash flow problems.

These warning signs (a non-exhaustive list) should prompt owners to investigate whether the builder is insolvent.

One way that owners can investigate a builder’s solvency is by doing searches on the builder. If the builder is an individual, owners can search whether a builder is insolvent on the National Personal Insolvency Index. If the builder is a company, owners can search on ASIC. The search providers may charge a small fee for these searches.  

Another way owners may discover that a builder is experiencing financial difficulties is if they receive a letter from an administrator or liquidator informing the owners that the builder is in administration or liquidation and what the owners can do next. However, owners may not always receive this type of letter.

Step 2: Get legal advice

If owners suspect that their builder may be in financial difficulty, or owners confirm that their builder is in administration, liquidation or bankruptcy, it is imperative that they obtain legal advice from experienced construction lawyers at the earliest opportunity.

This is especially important if the builder enters into administration, liquidation or bankruptcy before the property has finished construction and before all defects have been rectified.

Experienced lawyers will be able to assist owners in relation to matters including:

  • suspending future obligations under the relevant contract, including payment of further money to the builder (if possible);
  • taking work ‘out of the hands’ of the builder and engaging a new builder to complete the works (if possible);
  • terminating the construction contract;
  • making a demand on administrators;
  • lodging a ‘proof of debt’ with liquidators; and
  • making a claim against the builder’s domestic building insurance policy (if applicable).

It is important that owners move swiftly to obtain advice from experienced construction lawyers, as this will ensure that additional payments are not unnecessarily made to the builder, and will also ensure that the works are able to continue as expeditiously as possible.  

KCL Law has dedicated construction, insolvency and insurance teams who are experienced in assisting owners to protect their position.

More information

For information or for advice, please contact:

Darren Cain, Principal Lawyer and
Head of Construction and Infrastructure
(03) 8600 8835 or
dcain@kcllaw.com.au

Dominic Brown, Senior Associate
(03) 8600 8851 or djbrown@kcllaw.com.au

Author

This Construction and Infrastructure case note was authored by Dominic Brown, Senior Associate.

Note: This article contains general information only and is a guide which is not intended to constitute, and is not a substitute for obtaining, legal advice.

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