On 24 February 2022, Probuild was placed in voluntary administration. Probuild was managing 18 construction and engineering projects across NSW, Victoria and Queensland and it employed around 750 staff and had engaged hundreds of subcontractor business across these sites. It is estimated that subcontractors on Probuild’s building projects are owed over $300 million.
Construction industry insolvencies are unfortunately very common and building company insolvencies usually do not result in any return for subcontractors. This will leave subcontractors with losses as a result of the Probuild collapse which could total hundreds of millions of dollars. So, what can you do if you are a subcontractor who was working on a project run by a building company which has collapsed.
Exercise all rights under credit terms
In regards to the Probuild administration, this may involve collecting assets which subbies have on site including materials supplied under retention of title terms. For other liquidations and administrations this can also include pursuing any personal guarantees against directors and if a guarantee has a charging clause lodging caveats over any guarantors’ properties.
Negotiate new contracts with the new builder
Often the best thing subcontractors can do is negotiate new contracts with new construction companies who are engaged on Probuild’s projects. This can sometime result in subcontractors recouping some funds if higher prices are paid as a result of subcontractors’ knowledge of the project and work already partially carried out which will be costly to get a new subbie to complete.
Lodge a subcontractors charge
A subbie can serve a notice upon the developer(s) who have engaged Probuild (known as a Subcontractors Charge) requiring a developer to pay monies owed to Probuild directly to the subbie.
Subcontractors charges can sometimes be effective, but in our experience more often than not they do not result in any return to a subbie. This is because to recover monies under a Subcontractors Charge various things need to be satisfied including there has to be a debt owed from a developer to Probuild which may be unlikely given large costs which developers will incur to complete Probuild’s projects and likely claims for liquidated damages both of which can be set off against any debt a developer is owed.
Get advice about your business early
A lot of subcontractors will themselves suffer financial difficulties as a result of the Probuild collapse. This will unfortunately result in a number of subcontractors themselves having to go into liquidation or voluntary administration. The best thing a subbie can do if they find themselves in financial difficulty is get advice early. At Pearce & Heers, we can assist with providing advice about:
- Options available other than liquidation or voluntary administration;
- Risks for directors of businesses; and
- Strategies to minimise risk and deal with debt problems.
Be aware of unfair preference claims
If a company makes a payment to a creditor in the six months before the relation-back day for a liquidation, this payment may be an unfair preference and recoverable by a Liquidator. A possible defence to an unfair preference claim is that the recipient of the payment did not have reasonable grounds to suspect the payer was insolvent when the payment was made. However, the following actions taken by a subcontractor may result in the subcontractor being unable to rely on this defence:
- Corresponding with the debtor about their failure (or inability) to pay.
- Entering into a payment arrangement, especially if multiple payment arrangements are entered into or payment arrangements have been breached.
- Stopping work and walking off the site.
Whilst Probuild is currently in voluntary administration, there is a risk it will be placed in liquidation. If Probuild is placed in liquidation, subcontractors need to be aware that they may be the subject of preference claims and if they are obtain professional advice as necessary.
Claim on any insurances
Some subcontractors may have trade credit insurance which may cover them for any loss as a result of the collapse of Probuild.
While there’s obviously a premium to pay for trade credit insurance, it may be worth the cost if it means a claim can be made to recover some amount from a bad debt. In general, subcontractors need to weigh up the costs of such policies against the risk of non-payment by their larger debtors.
Advice and assistance
At Pearce & Heers we specialise in helping people in the building industry who:
- Are in financial difficulty; and/or
- Would like advice on handling the risks of working in the industry.
If you’d like to talk about this article, or your circumstances in general, don’t hesitate to get in touch with us.