John Fiocco has recommended that WA law be changed so that, when a construction contractor or principal becomes insolvent, a trust is automatically set up to protect money that subcontractors have earned, from ending up in the hands of banks and other third party creditors. If that recommendation is enacted into law, we expect these deemed trust accounts would provide much the same level of protection as the more cumbersome and unwieldy project bank accounts for reasons discussed in this earlier article.
Often, though, the best protection for construction contractor payments does not come from deemed trust accounts or project bank accounts, but from Personal Property Securities Act (PPSA) registrations.
Construction contractors often avoid the PPSA believing it is complicated and expensive and that they have no access to it anyway unless they are in the business of either supplying building materials or plant and equipment for sale or hire. These are misconceptions.
Gaining the right to use the PPSA is as simple as including a few standard lines in your construction contract or general terms and conditions. Learn how to register security interests effectively and efficiently in a one-on-one consultation, offering step-by-step guidance through a sample registration under the PPSA by one of our friendly lawyers.
Nor do you need to supply anything physical or tangible like steel or stone or trucks in order to have the right to register a security interest. If all you have to supply is your labour, that is all you need. If you are worried about what asset would be left for you to seize as collateral if your principal became insolvent and all you ever supplied was your own labour, the WA Supreme Court has solved that problem too. In the case of Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (In Liq) (R&M Appt)  WASCA 163, the Court held that the debt owed to a contractor for their work was itself an asset (known as an account receivable) that could be seized by a contractor under the PPSA as collateral for the contractor's right to be paid.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.