According to ASIC insolvency data, there were 2,975 building companies that entered external administration in 2023-24, representing some 27% of all insolvencies.
The collapse of Porter Davis on 31 March 2023, left some 1,700 homeowners across Queensland and Victoria having to deal with the fallout.
These are extremely sobering figures. The reality for homeowners is that they are often left dealing with liquidators without many options and faced with substantial losses.
What can you do if you suspect your builder is facing financial difficulty?
If your builder is showing signs that they are unable or unwilling to complete the contracted work, you should seek urgent legal advice about the options available to you under your contract.
Tell-tale signs of a builder facing insolvency risk can include:
- demands for early or advanced payments
- uncharacteristic, poor communication
- unexplained delays or lack of activity on site
- subcontractors and trades contacting you about not having been paid
You should also seek advice to help you understand when payments are due, so that you don’t inadvertently pay for work that has not yet been carried out.
The range of options your lawyer may advise you on include issuing contract notices, having recourse to security for existing breaches or potentially terminating your building contract.
What options are available to me if my builder is already insolvent?
If your builder has been placed into an external administration (such as liquidation, receivership or administration), depending on the terms of your building contract, you may be entitled to bring your building contract to an end, freeing you up to engage a new builder.
You should also speak to your lawyer for advice about your obligations to make further payments to the liquidator or administrator and whether you are entitled to access any security, such as cash retentions.
Your lawyer may advise you to lodge a proof of debt, to share in any distribution a liquidator may pay to creditors after realising assets. Typically, this is unlikely to result in a meaningful return, but you must take active steps to be included within the pool of creditors.
You may also want to consider obtaining a building defects report, for use in an insurance claim.
What is Domestic Building Insurance and am I covered by it?
Under the Domestic Building Contracts Act 1995 (Vic), builders must take out domestic building insurance before commencing any building work valued at over $16,000.
Under recent amendments to the legislation, builders are required to take insurance out before demanding or receiving a deposit.
In the event of a builder’s insolvency, owners can make a claim directly to the relevant insurance provider of their domestic building insurance cover, to seek compensation for the costs required to complete the building works and rectify any defects.
The insurer will arrange a loss assessor to inspect your property and report to the insurer on the likely costs associated with any repair or completion work.
Often, this can take some time (often months). Owners can be left disappointed with the delays and with the insurer’s assessment of costs to repair.
If you disagree with the insurer’s assessment, strict timeframes apply should you wish to apply for a review of an insurer’s decision to VCAT, including of any amount assessed. Insurers must also provide an internal complaints process.
Owners should also be aware that domestic building insurance is not a complete cover.
Strict policy limits apply. At the time of writing, the total limit for all claims is $300,000, with sub-limits that apply to incomplete work and time limits for structural and non-structural defects.
If you have been left with an unfinished or defective build, our Building and Construction team is able to assist you navigate the challenges discussed above.
