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Builder gone (or about to go) bust?

1 min read

26 Mar 2024

Builder Insolvency: Know your rights.

Currently building businesses are failing at an extraordinary rate due to a myriad of external and economic forces issues impacting the construction industry.

If you are working with a builder who collapses it immediately raises a great deal of questions and a lot of concern about financial loss. To curb or reduce financial losses, it is important to understand your legal rights and not be led astray by the information and assertions made by a liquidator or administrator. It is also important that you don’t just take your information from online forums or other people who may have been affected by the builder going bust. Each person’s circumstances may differ substantially so what applies to one other home owner, may not apply to you.

You must know your legal rights and properly assert your position when a builder becomes insolvent.

The most important first step to take is to understand the accurate status of the builder and what your rights and obligations are so you can move forward diligently, to minimise, as best possible, any loss and damage.

So what happens if your builder goes into administration and/or liquidation?

Once a builder collapses, there are often a number of courses that company may take, however the most common are either liquidation or administration.

Builder in Administration

If a builder appoints an administrator, there is potentially some hope that the administrator will be able to turn around the financial position of the company.

Once appointed the administrator is in full control of the company. The role of the administrator is to restore the company’s financial position to be able to continue to trade.

This is usually negotiating with creditors and contractors of the company. If the administration process fails, then the company is placed into liquidation.

Common elements in the administration or liquidation process

Deed of company arrangement

If the Administrators are trying to rescue the building company to keep trading, often a deed of company arrangement (DOCA) will be sought. A DOCA is an agreement between the company and the creditors to settle the debt for a lower amount than the amount due. Creditors vote on whether to accept the proposed terms or not. It is important to understand that even if a DOCA is proposed, if there is insubstantial buy in from the creditors (including owners) then it may not be successful.

Renegotiating Contracts & Leases

An administrator has the power to renegotiate leases and other contracts. This may ease the financial burden of the building company.

Often administrators may ask you to sign agreements or make additional financial contributions or take a lesser payment in a bid to rescue the company so it can continue trading. If you are asked to sign or agree to anything you should immediately get advice about the contents of that agreement and what long standing ramifications it may have for you and your home.

Builder in liquidation

If you builder goes into liquidation the company will cease to trade. The role of the liquidator of a building company is to sell that assets of the company and repay the creditors with the proceeds. This can sometimes include seeking payment for partial building works where the builder did not reach the next stage to invoice but had carried out some works which have not been paid for.

Depending on the assets of the company will determine how much creditors are paid. It may be very minimal, or it may not be anything if the company had no assets. It is important that you put in a claim as a creditor to be considered for any amounts to be paid.

If you are unsure what you are entitled to, please seek advice.

Who does an Administrator or liquidator act for?

Insolvency practitioners are independent. Regardless of whether they were appointed by either the directors or creditors they are to act independently. The role of the liquidator or administrator is to preserve and maximise the builders’ assets.

It is crucially important to anyone dealing with an insolvency practitioner to obtain independent legal advice to be able to assert their legal position.

Creditor considerations

If you are a creditor to a building company in liquidation you may want to repossess goods you have supplied. This may include suppliers, subcontractors, or other service providers within the building industry.

It is crucial that creditors understand their legal rights before taking any steps to remove materials from a jobsite.

Landowners considerations

As a landowner this could impact you greatly.  Additionally, safeguarding your property and assets is crucial. We can advise you on how to approach all external parties, including insurers, lenders, and brokers.

Before taking any impulsive actions or making hasty choices which you may be pressured to do by administrators, it’s advisable to seek tailored legal advice. There’s a plethora of advice available online, which can sometimes be contradictory or inaccurate, and they may not lead to the best outcome with your specific circumstances.

Obtaining industry specific advice will ensure that you can not only deal with the liquidator or administrator, but also with the insurer and appoint a new builder if required.

Queries about insurance claims, deposits, progress payments, contract terminations and more can be quickly answered by our building lawyers.

Landowners dealing with insurers

We can assist you with making a comprehensive claim on the insurer or likewise appoint a new builder. Depending on the progress of your construction you may have different options to you. We can help you explore those options and ensure your project is completed as soon as possible.

Our building teams expertise

Our Building team at PCL Lawyers can address questions and set the record straight regarding the insolvency process.

We have extensive experience and provide practical and commercially sound legal advice that safeguards your interests as, ultimately, the Liquidators’ role is NOT to protect your interests. 

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.

About The Author - Emma Restall

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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