01 Feb 2023
2 min read
01 Feb 2023
Whether you are a new contractor or have been working in the industry for some time, it is important to keep yourself informed, up to date and prepared for the various issues and risks faced in the construction industry.
As many are well aware, the long term affects of the pandemic and subsequent inflation over the costs of materials and supplies. In such an environment, it has become far riskier to conduct business in circumstances where companies are often set up with little to no assets to their name. Meaning that if something goes wrong, the ability to recover any loss and damage may be small, or non-existent.
Our building and construction team regularly assist contractors recover debts and money owing to them. There are many instances where a builder or contractor may withhold payment to a subcontactor and here is some helpful information to help you de-risk your business.
It may be common knowledge in the industry when a company is struggling financially, or its demise may come as a complete surprise. Either way, when a company struggles finally and it becomes insolvent, the company may be liquidated or put into administration, either voluntarily or by a party who may have sued them or pursued their own debts.
Once a company becomes insolvent, the company cannot control its finances as there is specific and legal order in which any of the companies’ debts must be reached.
If you are a contractor that is owed money from a company that becomes insolvent, it is quite unlikely that you will be paid, particularly if the company has secure creditors such as banks and other finance. The order in which people are paid usually leaves contractors and other suppliers at the bottom, meaning there is rarely any money left or only small cents on the dollar.
If you are a contractor who is owed money by an insolvent company, seek advice as soon as possible about what steps you need to take.
It is always important to do some due diligence before entering into any agreement with another party, irrespective of what industry you are in.
For contractors in the building industry, these few simple steps could mean the difference between financial distress and ruin for your company, or simply provide you with a heads up for being a little more cautious and restrictive with how much credit you may offer someone or how long you leave an unpaid invoice for before chasing it.
Here’s a few quick steps to take to gather that information:
The above being said, it is always important to gather your own information, but you may also need to be careful about what rumours you take into account. Often other businesses or contractors will tell the industry about late payers, credit issues or business troubles – proceed with caution and make sure you protect yourself.
If you are a contractor and would like to find out more about pre-contractual due diligence steps and how you can better safeguard yourself – please get in touch with one of our lawyers.
There are quite a few ways to go about protecting yourself and your company from any risky contracts and projects, or you may just prefer to have those protections as a standard procedure moving forward.
However, each of the protections listed below should be carefully considered as to whether they are right for you, suitable for the price and nature of the contract and if you are likely to face any push back from the other parties.
If you are unable to obtain security in one way or another, this means that you will be able to attempt to recovery any debt with priority over unsecured creditors.
Listed here are some of the most common types of security and protection used by contractors:
At PCL Lawyers our law firm is committed to providing concise legal advice with commercial understanding.
Our lawyers have relevant building and construction experience and understand the industry, from both a contract specific and business perspective. This means we can develop strategies and quickly guide you through the different options you have available.
As a contractor we can help you recouping fees owed to you and help you avoid the situation arising by securing your interests as much as possible.
If you require further information or assistance, please contact one of our building and construction lawyers on 1300 907 335.
Disclaimer: This article has been prepared for general information purposes and may not apply to your situation. This information should not be relied upon for legal, tax or accounting advice. Your individual circumstances will alter any legal advice given. The views expressed may not reflect the opinions, views or values of PCL Lawyers and belong solely to the author of the content. © PCL Lawyers Pty Ltd.
If you require legal advice specific to your situation please speak to one of our team members today.
Emma is a Partner and leads the Building & Construction team. After completing a Bachelor of Laws and a Bachelor of Business from Griffith University in Queensland, she relocated and was admitted...
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