It is a requirement of the QBCC that if a licenced company does not have net tangible assets that meet a minimum required amount, the company’s director, or potentially another associated party, must execute a QBCC Deed of Covenant and Assurance.
While this process is often mandatory for a company to obtain or retain its building licence, directors should be aware of the personal risks they expose themselves to if this course of action is taken.
What are the effects of a QBCC Deed of Covenant and Assurance?
Under the terms of a QBCC Deed of Covenant and Assurance, the director provides a guarantee to the company. The company can then rely upon this guarantee to meet the net tangible asset requirements.
The amount of the guarantee may change each time the company is licensed, and it is determined by the information provided to the QBCC by the company or its accountant.
If the company’s director fails to execute a Deed when requested by the QBCC, the QBCC will likely refuse to license the company.
Risks associated with a QBCC Deed of Covenant and Assurance
The risk for the company director who executes a QBCC Deed of Covenant and Assurance is that, if a company is placed in liquidation, the director is required to pay the amount of any guarantee that they have given under the Deed to the company. This amount is payable upon a demand being made for payment being made by the company’s liquidator.
The property of a director who has executed a Deed is charged to secure payment of the guarantee that has been given under the Deed.
The result of this security is that a liquidator may be entitled to lodge a caveat over any real property owned by the director and, in most circumstances, if the amount payable under the Deed is not paid, a liquidator can apply to Court for an Order that the property subject to the caveat be sold.
The importance of correctly revoking a QBCC Deed
Importantly for company directors, a QBCC Deed of Covenant and Assurance can only be revoked in writing by the QBCC. If the Deed is not revoked by the QBCC in writing a director who has executed the Deed will remain liable even in circumstances where he or she is no longer involved with the company.
Even if the Deed is revoked in writing, the covenanter can still be liable under the existing Deed in certain circumstances.
Accordingly, company directors, and their advisors should be diligent in ensuring that the QBCC properly revokes any Deed, in circumstances where it is no longer required to be relied upon.
If you need any further clarification about what executing a QBCC Deed of Covenant and Assurance could mean for you and your company, please don’t hesitate to get in touch with us.