It is a requirement of the Queensland Building and Construction Commission (“QBCC”) that if a company, which is licensed with the QBCC, does not have net tangible assets which meet a minimum required amount, the company’s director, or directors, must execute a QBCC Deed of Covenant and Assurance. Under the terms of a Deed of Covenant and Assurance the director, or directors, of a company provide a surety or guarantee to the company, which the company can rely upon to meet the net tangible asset requirements of the QBCC licensing provisions.

The amount of the surety provided under the QBCC Deed of Covenant and Assurance is dependent on a company’s financial position and available net tangible assets.  The amount of the surety may change each time the company is licensed and it is determined by the information recorded in an Independent Review Report or Audit Report prepared by the company’s accountant.

If the company’s directors fail to execute a QBCC Deed of Covenant and Assurance, when requested by the QBCC, the QBCC will refuse to license the company.

The risk for a company’s directors who have executed a QBCC Deed of Covenant and Assurance, is that if a company is placed in liquidation, the directors are required to pay the amount of any surety which they have given under the QBCC Deed of Covenant and Assurance to the company, upon a demand being made for payment of this amount by the company’s Liquidator.  Company directors should also note that when a company is wound up, the QBCC will provide copies of all Deeds of Covenant and Assurance which have been executed and any associated documentation, to the company’s Liquidator within a short period of the commencement of the liquidation.

The property of a director who has executed a QBCC Deed of Covenant and Assurance is charged to secure payment of the surety which has been given under the Deed.  The result of this security is that (among other matters), a Liquidator of a company may be entitled to lodge a caveat over a property owned by the director and in most circumstances, if the amount payable under the Deed of Covenant and Assurance is not paid to the company in liquidation, apply to Court for an Order that the property subject to the caveat be sold.

Importantly for company directors, a QBCC Deed of Covenant and Assurance can only be revoked in writing by the QBCC.  Accordingly, company directors, and their advisors, should be diligent to ensure that the QBCC properly revokes any Deed of Covenant and Assurance, in circumstances where the Deed of Covenant and Assurance is no longer required to be relied upon.

Given the effects that a current QBCC Deed of Covenant and Assurance may have on a director of a company if the company is placed in liquidation, company directors may wish to obtain appropriate advice and assistance when faced with insolvency circumstances.

If you wish to discuss this article, or your circumstances, please don’t hesitate to contact Pearce & Heers Brisbane or Gold Coast office and our experienced staff will be able to assist you.