Many companies and directors we work with are from the construction industry. Unfortunately, the structure of the construction industry increases the risk of failure for many reasons including the power imbalance between head contractors and subcontractors; poor payment practices; the use of trade credit, and the status of many building contractors and suppliers as unsecured creditors.
Directors are often reluctant to consider their insolvency options (e.g. voluntary administration and small business restructuring) for fear of jeopardising future work opportunities and the loss of their builder’s licence. During the initial meeting I’m often asked:
“What happens to my builder’s license if my company is in external administration?”
The answer is “If you leave it too late and liquidation is the only option then it will be cancelled”.
The Home Building Act 1989 (NSW) at section 22(1)(d) provides that a licence must be cancelled if the holder of the contractor license is a corporation and:
it has become the subject of a winding up order under the Corporations Act 2001; or
it has been voluntarily wound up.
The cancellation of an authority under section 22 of the Home Building Act does not allow the holder a right of review, so cancellation will occur no matter the circumstances.
In New South Wales, the Office of Fair Trading will cancel the company’s and the director’s personal builder’s licence upon notification of a liquidator’s appointment. Upon cancellation, the director should take immediate steps to apply for a new builder’s license should they wish to continue working.
However, there is no guarantee a director will be able to obtain a new license if their previous license has been cancelled. NSW Fair Trading will assess the circumstances surrounding the cancellation, and if appropriate, may issue a new license to the applicant with restrictions on the type and value of work that can be undertaken, such as:
the work does not fall under the category of general building work or swimming pool building, and
the value of the contract price does not exceed $20,000 (inclusive of GST).
Section 33C(2) of the Act allows that the Secretary may consider an application by a person who is a director of a company in external administration for residential building work categories (except for general building work or swimming pool building), provided that the Secretary is satisfied the director took all reasonable steps to avoid the bankruptcy, liquidation or appointment of a controller or administrator.
As can be seen, if a builder in financial difficulty doesn’t properly address their insolvency issues and a winding up application is filed, it may be too late to take control and the builder’s license will be cancelled. It is therefore crucial that timely decisions are made, which may include restructuring the company’s debts via voluntary administration or small business restructuring.
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.
Notwithstanding this, NSW Fair Trading will need to know:
The license holder’s involvement in the company the subject of external administration.
The events and reasons leading to the appointment of an administrator, controller or receiver.
Details of any steps taken by the license holder to avoid the appointment of an administrator, controller or receiver.
Copies of reports to creditors; report on company activities and property (ROCAP); and a current statement of affairs or balance sheet.
For more information on this or any other insolvency question, please contact your local Worrells principal. With 24 principals and over 100 staff across 29 locations, we’re readily accessible and here to help.