THE ANSWER TO A COMMON CLIENT QUESTION
Many companies and directors we work with are from the construction industry. Its structure lends itself to a higher chance of insolvency for many reasons. For example, the power imbalance between head contractors and subcontractors; poor payment practices; the predominant use of trade credit; and the status of many building contractors and suppliers as unsecured creditors all contribute to a construction company's failure.
Directors are often reluctant to consider formal appointments out of fear of jeopardising future work opportunities by the loss of their builder's licence. During the initial meeting I'm often asked:
"What happens to my builder's licence if my company is in external administration?"
The answer is that builder licences are automatically cancelled when a company enters into a formal appointment but builders can apply for a new one and therefore, should not constitute a reason to avoid undertaking an insolvency appointment if it is the best course of action.
In New South Wales, the office of NSW Fair Trading will cancel the company's and the director/s' personal builder licence upon notification of an external administration. This cancellation is mandated by law and not by discretion, so cancellation will occur no matter the circumstances.
Upon cancellation, the director should take immediate steps to apply for a new builder's licence should they wish to continue working. Usually upon providing NSW Fair Trading with information surrounding the external administration's circumstances, Fair Trading will assess and if appropriate, issue a new licence to the director - albeit sometimes with restrictions on the type and value of the work that can be undertaken. Namely that:
- contracts not to exceed $20,000 in value, except for subcontract to licensed contractor
- not undertake building or swimming pool building.
While each state/territory has its own builders' licensing legislation and administration, NSW Fair Trading will need to know:
- The licence holder's involvement in the externally-administered company.
- The events and reasons leading to the appointment of an administrator, controller or receiver.
- Details of any steps taken by the licence holder to avoid the appointment of an administrator, controller or receiver.
- Copies of reports to creditors; report on company activities and property (ROCAP); and a current statement of affairs or balance sheet.
If the company has entered into voluntary administration and a Deed of Company Arrangement (DOCA) is proposed and accepted, NSW Fair Trading will only grant a licence upon the DOCA's finalisation; so, in this circumstance, it's best to keep the DOCA period as short as possible to enable a prompt return to trade.
For more information on this or any other insolvency question, please contact your local Worrells partner. With 25 partners and over 100 staff across 32 locations, we're readily accessible and here to help.
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.