A particular focus of the inquiry will be the
consequences of such insolvencies for sub-contractors.
In the wake of a recent spate of contractors becoming insolvent,
the NSW Government has announced an inquiry into insolvency in the
construction industry and is seeking submissions from interested
parties. Submissions to the inquiry are due by 14 September
Over recent months a number of prominent contractors, including
Kell & Rigby, St Hilliers Construction Pty Ltd, Hastie Group
Limited and Reed Constructions Australia Pty Ltd, have been placed
in administration. This trend has led to concerns about the broader
impact of such insolvencies in the construction industry on the
development of infrastructure and projects in NSW.
Protection of subcontractors
A particular focus of the inquiry will be the consequences of
such insolvencies for sub-contractors which, in many cases, are
left unpaid in the position of unsecured creditors. In announcing
Minister for Finance and Services Greg Pearce noted that
"[b]etween 2009 and 2011, hundreds of companies in NSW
collapsed owing billions of dollars, slamming the brakes on vital
projects and investment... [u]p to 24,000 unsecured creditors,
including suppliers and sub-contractors, have been left
out-of-pocket, some by millions of dollars".
In light of the increasing incidence of contractor insolvency in
recent times, the present inquiry provides an opportunity to
undertake a comprehensive review of ways in which subcontractors
might be protected against insolvency higher up the contracting
Terms of reference
The tasks to be undertaken by the inquiry as set out in its
terms of reference include:
assessing the extent and cause of insolvency in the
considering payment practices affecting sub-contractors,
existing protections for subcontractors and the impacts of
insolvency on sub-contractors; and
considering legislative or other policy responses that can be
taken to minimise the incidence and impact of insolvency in the
options for improving the priority given to unsecured creditors
where the debt results from a sub-contracting relationship;
opportunities to simplify debt collection processes;
strategies to improve financial management skills in the
a mandatory insurance scheme to secure payments to
a discretionary mutual fund to compensate contractors from
losses arising from insolvency of a lead contractor or
the effectiveness of trust arrangements in protecting
sub-contractor payments retained by a lead contractor or principal;
mechanisms to ensure appropriate and effective financial
disclosure between contracting parties, including disclosing
payment of sub-contractors.
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
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When determining if a DOCA is to be terminated, public interest can, and often will, outweigh any benefit to creditors.
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