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What to do if your builder goes into liquidation or administration?

Did you know that Australia’s construction sector accounts for nearly 9% of Australia’s total GDP? However, several quality home builders have become insolvent in the past few years, with reports suggesting that building industry insolvencies have risen to a four-year high.

Whether you are undertaking some kind of home renovations or constructing a brand-new home, if your home builder goes into liquidation or external administration, it is important that you know what to do. This could be some sort of insolvency when a construction company is unable to pay debts and then goes into liquidation or administration.

What to do if your builder is in administration or liquidation?

If your home builder is or is likely to become insolvent, then the builder may become subject to external administration. This simply means that the builder will be unable to operate when insolvent. Here’s what to do if your builder becomes bankrupt or goes into administration or liquidation.

1. Make no further payments

When builders become insolvent, they will likely appoint an administrator or liquidator. They will cease work on your home project. Make sure that you do not make any further payments. You will have to correspond with the appointed authority to confirm that you are likely to be a creditor of the company for an amount that has not yet been determined.

2. Contact the appointed practitioner

The next thing is to make contact immediately with the insolvency practitioner that has been appointed to your builder. This could be either an administrator or a liquidator. The appointed practitioner might not be aware of the fact that you have engaged the home builder or your construction work is incomplete. So, get in touch immediately.

3. Engage an independent inspector

It’s a good idea to obtain an inspection report which should be outlined in three sections: completed works, incomplete/defective works and works which are yet to be completed as per the contract. So, you will need to engage an independent building inspector to assess the work and provide a report to support your claim.

4. Claim against the builder’s insurance

In the Victoria area, builders are required to have domestic building insurance for residential buildings of more than $16,000. This insurance protects homebuyers from any financial loss in the event of incomplete or defective construction work caused by the builder’s insolvency, death, disappearance, etc.

Therefore, make a claim against the home builder’s domestic building insurance to recover your financial loss. Follow these steps to make a claim against your builder’s domestic building insurance:

  • Provide written notice of the claim to the insurer within 2 weeks of becoming aware of the builder’s insolvency.
  • Provide a copy of the building contract and relevant documents, such as the estimated cost of completing the work.
  • Cooperate with the insurer’s appointed assessor to assess the estimated cost of completion.
  • Accept or dispute the insurer’s decision on the claim. You can seek legal advice if you receive an unfavourable decision from the insurer that you would like to challenge.

5. Seek legal advice

Another important thing you can do is to seek legal advice on the insolvency of the builder and the issues arising from that. Seek legal advice from an expert in construction law to ensure that you understand your legal position, claim and options.

An attorney can also provide guidance on the most practical approach to completing the construction work. Keep in mind that a failure to take prompt advice can cause you significant prejudice, so this advice must be sought promptly.

Who will complete the home project?

If your building work is not complete, it is may or may not be up to you to appoint a new builder. It’s good to take early steps in finding a builder, but you should wait to see if the insurer decides to nominate a builder. This is because it’s the insurer’s decision whether to nominate a builder to complete the project or pay out the owner a sum of money to complete the works with a builder of their choice.

For further information regarding this topic, please contact us.

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