The construction sector is currently navigating high levels of insolvency, which industry experts anticipate will continue into early 2024.
This rising trend underscores the importance for builders and related professionals to be well-informed about the repercussions of insolvency on their operations, particularly regarding builders' licences.
It's essential for construction professionals to grasp how insolvency might affect their licensing, and to know the proactive measures available to them in these challenging times which may keep their businesses afloat.
State-specific laws and their implications for builders
In the ACT, the rules are clear-cut. The moment a company enters into a formal insolvency regime including voluntary administration, liquidation or a deed of company arrangement their builder's licence is suspended for a period of three months, as stated by the Construction Occupations (Licensing) Act 2004.
This gives businesses a short span to find a resolution, such as a deed of company arrangement following a voluntary administration. If the company recovers within this period, the licence is reinstated. If not, there's a real risk of the builders license being cancelled.
In NSW, the regulations are more stringent. The NSW Commissioner for Fair Trading has no choice but to cancel the licences of companies that go into liquidation, which also affects the company's directors and those who held the position up to a year prior. However, if the company has entered into voluntary administration or small business restructuring and the debt repayment proposal is accepted, the license may not be cancelled.
The Home Building Act 1989 outlines the conditions under which licences can be suspended, especially if there's a concern that the company won't be able to complete its building contracts.
Queensland's approach mirrors NSW's rigidity. According to the Queensland Building and Construction Commission Act 1991, company insolvency leads to an automatic licence cancellation – including for past and present directors.
There's a compulsory three-year hiatus before these individuals can apply for a new licence, with repeated insolvencies leading to a potential lifetime ban from holding a licence in the state.
Victoria's Building Act 1993 permits the Victorian Building Authority to suspend a builder's licence as soon as the company enters insolvency. Even if an internal review of the suspension is requested, the licence remains suspended throughout the review process.
In Western Australia, a builder's license may be subject to suspension if the licensee experiences insolvency. Insolvency refers to a situation where a builder is unable to meet its financial obligations. The Building Services Board, which oversees licensing matters, may suspend a builder's license if it determines that insolvency jeopardizes the licensee's ability to fulfill contractual obligations, maintain financial responsibility, or ensure the completion of projects to a satisfactory standard. This precautionary measure aims to safeguard the interests of consumers and maintain the integrity of the construction industry in Western Australia.
Practical advice for builders facing insolvency
Understanding the distinction between individual and company licences is important. For instance, in the ACT, a director may continue to operate in the construction industry using their personal builder's licence, even if they have been a director of a company that has become insolvent.
Victoria and Western Australia has a similar approach, while NSW and QLD regulations are more prescriptive – with NSW enforcing automatic cancellation of licences upon insolvency and QLD imposing strict anti-phoenix provisions that can even lead to exclusion from the industry for individuals with a history of insolvency.
Fortunately, recent reforms at the federal government level offer avenues such as small business restructuring for eligible companies. This provides a lifeline that enables directors to manage debts without resorting to liquidation, and can be a game-changer for some businesses by allowing them to retain their licences and continue operations.
For builders who are facing financial hurdles and the professionals who support them, it's essential to be aware of the state-based laws that apply to licensing and insolvency, and to explore all available options for maintaining a builder’s licence and their livelihood.
RSM is home to small business restructuring practitioners and licensed insolvency experts who are highly experienced in working with construction companies facing financial distress.
We can assist with a wide range of services, such as:
- cashflow evaluations
- financial audits
- restructuring advice
- voluntary administration
The key is to be proactive and act early to identify potential financial issues – consulting with skilled advisers who can work with you to explore all possibilities to safeguard your licence and secure the future of your business.
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