Builder Gone Bust? Protect Your Home and Your Rights!

Bensons Property Group has just recently announced their voluntary appointment of an administrator.

Being another developer or construction business (in a long list of other businesses) that has and continues to struggle due to the financial impacts that COVID-19 has placed on the construction industry as a whole.

If you’re dealing with a builder going bust in Queensland, it can be an overwhelming experience. The term "going bust" typically means the builder has become bankrupt or their company has entered administration or liquidation. This situation often results in a breach of your residential building contract, which may allow you to terminate the agreement and seek recourse.

Fortunately, Queensland homeowners may be able to access the Queensland Building and Construction Commission (QBCC) Home Warranty Insurance Scheme.

Within this guide, our building and construction lawyers provide a detailed breakdown of what you need to know if your builder has gone bust, including your rights, the necessary steps, and the importance of seeking qualified legal advice.

Fixed Fee Termination Notices for Insolvency

If you’re facing a builder insolvency issue, Odyssey Legal is here to help. Our experienced team will guide you through the termination process, QBCC claims, and any related legal matters.

If your builder has gone bust, we can assist by reviewing your material, considering your circumstances, and drafting a termination notice for a fixed fee of $880.00 (incl. GST) plus outlays and disbursements (i.e. postage or asic searches).

The first step is to schedule a free consultation with our building and construction lawyers. Let us help you resolve this stressful situation so you can move forward with confidence.

Builder Gone Bust?

In recent years, the building and construction industry has faced significant challenges, including:

• Rising costs for materials and labour.

• Supply chain disruptions.

• Increased demand due to government housing grants.

• Economic pressures from natural disasters, pandemics, and international conflicts.

While builders often cite external factors, insolvency ultimately stems from insufficient cash flow to cover debts as they become due, a situation defined under section 95A of the Corporations Act 2001 (Cth).

Understanding Builder Insolvency

When a builder becomes insolvent, it can impact their ability to hold a building licence. Under section 56AC of the Queensland Building and Construction Commission 1991 (QBCC Act), companies in liquidation or individuals declared bankrupt lose their licences, rendering them unable to continue construction work.

As a homeowner, this is likely a breach of your contract, giving you the right to terminate. The steps you take from here are critical to protecting your rights.

Steps to Take if Your Builder Goes Bust

1. Verify the Builder’s Status

Before proceeding, confirm whether the builder has indeed gone insolvent (or bankrupt). Here are some tools to assist:

• QBCC Licence Search: Check the builder’s licencing status and history.

• ASIC Company Search: Identify if a company is in external administration.

• Insolvency Notices Search: Review publicly available records for insolvency notices.

• Bankruptcy Search: For sole traders, confirm if they’ve been declared bankrupt.

2. Seek Legal Advice Before Terminating Your Contract

Terminating a residential building contract must be done correctly to avoid unintended legal consequences. Consult a qualified construction lawyer to:

• Determine if termination is warranted under your specific contract terms.

• Draft a proper termination notice.

Terminating Your Building Contract

Different types of contracts have specific provisions for termination in cases of insolvency:

• QBCC New Home Construction Contract: Section 27 typically allows termination by providing written notice to the builder.

• Master Builders Contract: Usually includes clauses permitting termination upon bankruptcy or liquidation (e.g., Clause 22).

• HIA Building Contract: Commonly includes a termination clause (e.g., Clause 29) for insolvency events.

In the alternative, pursuant to section 4 of Schedule 6 of the Queensland Building and Construction Commission Regulation 2018 (QBCC Regulation), 'a fixed residential building contract will automatically come to an end if:

• the contract is validly terminated on the default of the licensed contractor; or

• the licensed contractor dies; or

• the licensed contractor is a company and the company no longer exists; or

• both of the following apply—

  (i) the licensed contractor is bankrupt or insolvent, or takes advantage of the laws of bankruptcy as a debtor under the Bankruptcy Act 1966 (Cwlth) or a similar law of a foreign jurisdiction; and

  (ii) the licensed contractor’s licence is cancelled.'

There is generally a delay between the builder going bankrupt or into liquidation and there licence being cancelled to bring the contract to an automatic end.

Therefore, you need to consider whether the timeframes (below) are close to lapsing and whether a termination notice should be issued to avoid missing these timeframes.

Making a Claim Under the QBCC Home Warranty Insurance Scheme

The QBCC Home Warranty Insurance Scheme provides protection for homeowners in cases of non-completion or defective work. Eligibility requirements include having a fixed-price residential building contract and properly terminating the agreement.

Types of Claims You Can Make

• Deposit Refund: If construction hasn’t commenced, you may recover your deposit.

• Non-Completion Claims: Covers the cost difference between remaining contract funds and the actual cost to complete the build.

• Defective Work Claims: Addresses rectification of faulty construction, including structural and non-structural issues.

The maximum amount payable under the QBCC Home Warranty Scheme is $200,00.00; however, in certain circumstances, this amount can be increased to $300,000.00.

Timeframes to make a Claim

Pursuant to the QBCC Regulation, you must make a QBCC claim within:

• If the works had commenced on site, then within two (2) years of the works commencing; and

• three (3) months of the contract being terminated or at an end pursuant to the QBCC Regulation.

RISKS YOU NEED TO BE AWARE OF

Pursuant to the QBCC Regulation, if:

• you do not lodge your claim within these timeframes; and/or

• you have engaged an alternative builder to perform the works; and/or

• you do not terminate the contract validly,

then you will lose your ability to make a claim to QBCC under the Home Warranty Insurance.

Unfortunately, not a lot of people are made aware of these risks and consequently, lose their ability to make a claim to QBCC due to the timeframes lapsing.

It therefore reiterates the importance of promptly obtaining legal advice to ensure your rights are protected and you can appropriately make a claim to the QBCC.

Documentation Needed for a QBCC Claim

When lodging a claim, you’ll need:

• A copy of the contract.

• Evidence of the contract being terminated or brought to an end.

• Evidence of payments made to the builder.

• Council approvals, plans, and variations.

• Proof of the builder’s insolvency (e.g., liquidation or bankruptcy notice).

What Happens After a Claim?

Once the claim is lodged with the QBCC, they will review the claim and determine whether it meets the specific requirements to be eligible under the insurance scheme, including:

• whether the contract was terminated validly.

• whether the claim was lodged within the required timeframes.

If your claim is approved, the QBCC will appoint a builder from their panel to complete the works. These panel builders meet strict eligibility criteria to ensure quality and compliance.

NOTE: You need to be aware that due to the volume of claims to QBCC following QBCC, this is unfortunately not a quick process. Often taking several months before the process has been completed. It therefore becomes a discretionary decision for you as to whether you wait for approval (more cost-effective) or simply incur the increased costs to have another builder finish the works (usually more timely).

If your claim is rejected, you do have the availability to seek a review of the decision, either by an internal review through QBCC or an external review through QCAT.

Prior to seeking a review, it is recommended that you obtain legal advice to ensure that you have sufficient grounds to seek a review.

Conclusion

• If your builder has gone bust, verify their insolvency and consult a construction lawyer immediately.

• Properly terminating your contract is crucial to preserving your rights.

• Eligible homeowners can seek assistance through the QBCC Home Warranty Insurance Scheme.

Dealing with builder insolvency is complex, but with the right legal guidance, you can navigate the process and protect your investment.

Free Consultation

If you’re facing a builder insolvency issue, Odyssey Legal is here to help. Our experienced team will guide you through the termination process, QBCC claims, and any related legal matters.

Schedule a free consultation with our building and construction lawyers. Let us help you resolve this stressful situation so you can move forward with confidence.