If you are a director of a licenced building company in Queensland, chances are that if you are building houses or other residential accommodation, your building work will be covered by the Queensland Building and Construction Commission (QBCC) home warranty scheme.
QBCC Home Warranty Scheme
The QBCC requires any licenced builder working on residential buildings valued more than $3,300 to have taken out insurance under the scheme. The insurance covers:
- Uncompleted jobs;
- Unrectified defective work; and
- Buildings that suffered from subsidence or settlement.
If work is not carried out properly, once a complaint is lodged by a homeowner, the QBCC will require the builder to complete the work or rectify any defects within a specified period. If the builder fails to act, the QBCC will generally engage a third party to complete the job or rectify the defects.
The costs to finish the job or rectify defects will be recovered from the building company and the directors, jointly and severally. This means that directors of building companies can be made personally liable for debts of the companies.
More information on how the scheme works can be found here.
QBCC Claims and Bankruptcy
As directors are liable for claims by the QBCC on a joint and several basis, liquidating the companies will not avoid personal liabilities of the directors. Over the years, many directors have either voluntarily declared bankruptcy, or have been made bankrupt by the QBCC as a result.
Directors however should be aware that going bankrupt might not necessarily release them them from all QBCC claims where complaints were lodged before commencement of bankruptcy. Section 71(1) of the QBCC Act provides:
“If the commission makes any payment on a claim under the insurance scheme, the commission may recover the amount of the payment, as a debt, from the building contractor by whom the relevant residential construction work was, or was to be, carried out or any other person through whose fault the claim arose.”
The key in deciding whether bankruptcy covers a QBCC claim is when the QBCC made payment on a claim under the insurance scheme, regardless of the timing of the complaint.
If the QBCC made payment prior to bankruptcy, going bankrupt will release a director from the debt as it is a pre-bankruptcy debt and is a provable debt. On the other hand, if payment is made after the commencement of bankruptcy, such debt is a post-bankruptcy debt and will not be provable in the bankruptcy and will still be payable. Such is the case even if the complaint was made by the home owner prior to commencement of the bankruptcy.
It is thus important to seek professional advice prior to making any decision, whether to liquidate your company, or declaring bankruptcy.