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8 Feb 2016

HHG Legal Group provides ongoing support to the construction industry in WA by working with industry and government representatives on proposals to reform how the law deals with contractor insolvency, including:

a) the establishment by statute of special purpose trust accounts, to quarantine progress payments, intended for suppliers of materials and services to a construction site, from the effects of a head contractor’s insolvency;

b) consequential amendments to the Corporations Act 2001 requiring liquidators to use best efforts to novate subcontracts so as to preserve the rights of owners and subcontractors, in the event of a head contractor’s insolvency;

c) reciprocal provisions in a proposed standard form home building works contract; and

d) related amendments to the home indemnity insurance provisions of the Home Building Contract Act 1991 designed to:

i) keep subcontractors employed on site, thereby reducing disruption to their workflow and cash flow;

ii) ensure affected owners get what they paid for (a built home); and

iii) reduce the burden on home indemnity insurers, by limiting their exposure in many cases to increased

construction costs resulting from the head contractor’s insolvency.

We consider these proposals to be essential to the proper and efficient functioning of the home building industry in WA, particularly in light of the following recent home builder insolvencies:

a) Capital Works Construction, trading as Free Life Homes and Visionaire Homes;

b) Scho Homes;

c) Benchmark Designer Homes; and

d) Gage Road Construction.

Further, WA’s only current home indemnity insurance provider, QBE Insurance, has reported a 116% increase in indemnity insurance costs over the past four years.

These developments have been matters of substantial concern to both the WA Building Commissioner and to the WA branch of the Master Builders Association.  See, for example, CEO, Michael Maclean’s comments in the WA Business News press release of 13 November 2015 titled: “Insurance Premiums Hit as Builders’ Failure Continues to Cost” and its 21 December 2015 article headed “No Scho Builds Insurance Pressure”.

At a federal government level, the impact of construction insolvencies on the right of subcontractors to be paid what their work is worth was the subject of the Commonwealth Senate Economic Reference Committee’s report titled “I Just Want to be Paid: Insolvency in the Australian Construction Industry”. This report, published in December 2015, is available here.

Notably, that report considers, amongst other proposals, a solution similar to our own proposal for special purpose trusts to be established.  These are referred to as “Project Bank Accounts” at pages xxiii to xxv under the heading “Subcontractors Have a Right to be Paid for Work Completed”.

Our own proposal takes these concepts a step further by synthesising proposals for the use of Project Bank Accounts, standard-form home building contracts, subcontract novation and home indemnity insurance reform, to protect the interests of both home owners and subcontractors in the event of home builder insolvencies.

To learn more about these and the many other ways that HHG Legal Group supports the construction industry in WA, contact construction law experts, Murray Thornhill and Daniel Morris on 1800 609 945 or email us.

*This is general information only, and does not constitute specific legal advice. Please consult one of our experienced Legal Team for specific advice relevant to your situation.

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