No Action on Construction Sector Insolvencies 2

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Tuesday, June 21st, 2016
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Even as hundreds of companies go bust every month, no action appears to be likely with regard to insolvency within Australia’s construction sector in the short term as the government has not provided a response to recommendations for significant reform to deal with the issue.

With figures from the Australian Securities and Investments Commission showing that 369 building companies went into liquidation or external administration in the first three months of this year – 36 more than for the same period last year – insolvency within the Australian construction sector appears to be rife.

Yet despite the senate committee which looked into the issue having handed its report more than seven months ago in early December, the government has yet to provide a response.

This is notwithstanding a standard practice which sees the government typically respond to committee reports within three months.

Moreover, with the federal government now in caretaker mode, the sector will have to wait until after the new Parliament is enacted in order for any response to take place.

In a statement, minister for Small Business Kelly O’Dwyer confirmed that the government would respond to the inquiry’s findings if re-elected, but did not indicate when this would happen.

Sydney-based debt recovery expert Anthony Igra slammed the delay.

“There appears no urgency here and it amazes me yet again that the government will spend vast amounts of time and money investigating this problem and almost none implementing ways to address it,” he said. “To me, the entire exercise is starting to look like window dressing. For a government talking about ‘jobs and growth’ this seems very inconsistent. Addressing insolvency in one of the nation’s largest industries seems entirely consistent with that theme, and yet…nothing.”

Over recent years, the construction sector in Australia has been rocked by a number of high profile insolvencies, including Reed Constructions, Kell&Rigby, St Hillier’s, Hastie Group, Walton Construction and several others – with subcontractors and suppliers losing out on millions of dollars’ worth of debts owing as a consequence.

All up, data from the Australian Securities and Investments Commission indicates that 1,729 companies from the building sector went into external administration last year, accounting for 17.1 per cent of all external administration appointments across the economy.

With ABS figures indicating that the industry accounts for 16.2 per cent of all businesses, this figure does not appear to be out of control.

Nevertheless, last year’s inquiry found that failures within the industry were not the result of market forces but rather a reflection of imbalances of power within commercial relationships, harsh and oppressive conduct, high levels of phoenix activity and major issues regarding a culture of non-payment of subcontractors and suppliers.

It recommended beefed up action against directors of failed companies, harsher director penalties and the introduction of retention trusts and project bank accounts.

Should no response be received, however, this would not be a first.

Since the mid-1990s, evidence of the need for major reform to protect subcontractor payments has been well documented, last year’s senate report noted, yet little or nothing has come out of those reports.

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  1. David Chandler

    Insolvency in the Australian construction industry is undermining its future. There are over 200,000 construction enterprises in Australia. Historically construction enterprises have been spawned by breakout professionals or tradesmen who have decided they do not like the larger organisation they have been with, or they see better prospects out on their own. The housing industry is rife with tradies who could not work in the union dominated alternative. No matter the cause most enterprises start out with an idea about what but little about how. Our Universities and colleges teach about the what and not about the how. Many academics have never worked outside of an academic setting. Most are happy to teach the basics about the what but shy well away from the how. Construction is entering a phase where new enterprises will pop up everywhere that challenge construction's existing businesses and models. These disrupters will reshape the traditional construction practices and methods. Moves in off-site and prefab make this very clear, and the momentum is on. What is needed now is far better enterprise preparation and evaluation by clients and the broader supply chain of who they are dealing with. My recent Sourceable article pointed to this. I expect as many as 40% of contractors and consultants existing today will not make it through the next 10 years of change to this industry. Regulation will not be the answer as it applies to the weakest linkages in the chain. Its time for some self responsibility by everyone in the construction value chain to test these questions and not just bemoan the regulator who has no chance other than to enforce the law afterwards.
    https://sourceable.net/is-this-a-business-if-so-whats-the-story/

  2. Anne Paten

    Very timely piece, Andrew. The phoenix 'insolvency' is so common and of course it is not genuine insolvency at all. The money is organized in trusts, in children's names and made to 'disappear', just as the new companies are set up to continue doing 'business' after the insolvency is deemed official.

    Those hurt are the tradies and sub-contractors who are not paid and the owners who have paid their money to the builder, only to be left in a mess with a partially completed and defective building. It is called a 'get-out-of-jail' card. All problems gone, money made and free of any contractual obligations. This all perfectly legal, Government certified and sanctioned. Hence why this is much reluctance to changing the status quo!

    It's great if you can get away with it – and many thousands in the 'building industry' do every year. What's more, many continue this pattern and we know of hundreds who repeatedly become 'insolvent', to be resurrected and back in the building business the next day! It's a wonderful gravy train and it also feeds the ever-growing 'building dispute industry' and thus we do not expect any change any time soon.