In brief

What’s insolvency got to do with it….

Times are tough in the Queensland construction industry.

In recent times we have seen the demise of names such as Glezeil, Carmichael Builders, SX Projects, TRAC Construction, Gary Deane Constructions and JM Kelly (Project Builders) Pty Ltd.

Insolvency affects all industries, but, given the hierarchical nature of construction contracts, when a construction company is unable to pay its bills, it can cause devastating results both up and down the contractual line:

WHO SHOULD READ THIS

• Industry participants in the construction sector.

THINGS YOU NEED TO KNOW

• The deadline for comments on the Improving Bankruptcy and Insolvency Laws Proposals Paper is 27 May 2016.

WHAT YOU NEED TO DO

In December 2015, the Department of Housing and Public Works Queensland released a discussion paper seeking feedback on the issue of security of payment in the building and construction industry.  The paper seeks feedback from the widest possible cross section of the building and construction industry on the following identified issues:

Key Points:

A Senate Economics References Committee has recommended that the Commonwealth enact uniform national security of payment legislation, albeit with a target of around 2018 for implementation.

Security of payment (SOP) reform discussion papers were released by the Queensland and New South Wales Governments in the run up to Christmas. That timing happened to coincide with the publication by the Senate Economics References Committee of its report "'I just want to be paid': Insolvency in the Australian Construction Industry".

Have the tough times in the construction industry changed? It would appear not despite an uptick in the New South Wales economy. “I just want to be paid” is the title of the report just released by the Senate Economics References Committee.[1]

This week’s TGIF considers the case of Bowesco Pty Ltd v Westpoint Management Ltd [2015] WASCA 184, which considered whether a guarantor had a right of subrogation enabling it to be repaid in advance of the second ranking creditor. 

BACKGROUND

The Need for Reform

Insolvency figures bring into stark light the reality of business in the construction industry. In the last financial year, 13% of companies entering external administration in the Northern Territory were from the construction sector.

Significant causes of contractor failure include inadequate cash flow, poor strategic management of the business, inadequate contract administration skills and a lack of working capital to see a project or a dispute through.

The latest wave of reforms to hit the construction industry in Queensland is causing more than just a ripple. You can now be automatically excluded from acting as a director or senior manager of a construction company for 3 years, even if you are not at fault.

You can lose your livelihood quickly

The construction game has always been competitive and risky. There are traps everywhere. Despite this, people still tend to be surprised and upset when things go bad.

The insolvency of one of the principals, contractors or subcontractors can seriously impact a construction project at all levels of the supply chain. Infrastructure and Projects partner, Ted Williams look at the issue and some practical thoughts on drafting contracts to help mitigate these risks.

“How did you go bankrupt?" Two ways. Gradually, then suddenly.” ? Ernest Hemingway