On 19 September 2012, the Norton Rose Construction and
Engineering team presented a breakfast briefing titled:
"Financial Distress in Construction Projects: What happens
when the wheels fall off?"
This briefing identified the warnings signs of insolvency, what
steps parties can take to minimise exposure, how best to respond to
a party's insolvency and the options available to prevent
insolvency in the first place.
Following the collapse of hundreds of construction companies in
Australia, the NSW Government has now released a Discussion and
Issues Paper Inquiry into Construction Industry Insolvency in
NSW (Issues Paper) in an attempt to address and protect the
interests of subcontractors in the construction industry.
The Issues Paper follows an annual report of corporate
insolvencies released by ASIC in September 2012,
'Insolvency statistics: External administrators'
reports 1 July 2011- 30 June 2012 '. These statistics
confirmed that the construction industry had sustained the single
highest number of insolvencies for the financial year 2011-12, with
the construction industry accounting for 22.1% of the more than
10,000 insolvencies that occurred across Australia.
The Issues Paper addresses a wide range of issues affecting the
construction industry in NSW. Some of those key issues are as
The extent and cause of insolvency in the construction
industry in NSW – the two most common forms of
business failure recorded by ASIC are poor strategic management of
the business and inadequate cash flow or high cash use.
The effectiveness of trust arrangements in protecting
subcontractor payments retained by a lead contractor or
principal – construction trust fund provisions are
considered as a potential protection that can be mandated in all
construction contracts. The Inquiry examined the statutory trust
provisions in Ontario, Canada and the UK concept of Project Bank
Accounts as example models for NSW legislative reform.
The options available for improving the priority given
to unsecured creditors where the debt results from a subcontracting
relationship – the Inquiry does not presently favour
an amendments to the Corporations Act 2001 (Cth) so as to give
unpaid subcontractors a preferred position in the ranks of
creditors in an insolvency.
The opportunities available to simplify the debt
collection processes – the Inquiry considered the
establishment of a mechanism similar to the Consumer Trader and
Tenancy Tribunal (CTTT) to provide a quick and efficient means of
resolving such dispute. It also considered the adoption of a
legislative framework for prompt payment provisions.
The Council announced planning policies to encourage more inner suburban retirement village and aged care development.
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