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Regulatory Priority: Solvency of building companies

Taking action to prevent harms caused by insolvency and phoenix activity in the construction sector that undermines the viability of and confidence in the industry.

What we know:

*Phoenix activity is a significant issue and enables companies that collapse owing significant debts, taxes, superannuation and workers compensation premiums, to set up as new companies without settling all prior financial obligations.

What we expect:

*Licensed and registered practitioners must be solvent and remain so and must honour all applicable financial obligations to other third parties during the course of their accreditation.

What we have done:

  • Continued working with the Australian Taxation Office as part of the Phoenix Taskforce (PDF, 145.24 KB) to address illegal phoenixing activity with increased scrutiny of practitioners who liquidate companies or go into external administration and attempt to re-register under a new company.
  • With additional powers granted in 2020 to increase the scope to scrutinise building practitioners corporate ties for evidence of illegal phoenixing activity, 15 registrations or renewals have been refused where practitioners were found to be engaging in illegal phoenixing.
  • The Authority has been granted new legislative powers to act against builders who accept deposits under a major domestic building contract before they have taken out the required domestic building insurance that helps protect consumers if the builder becomes insolvent.
  • Strengthened and extended the existing financial probity requirements as part of the registration process to include anybody who has been an influential person (i.e. company directors, secretaries and other influential persons) in a company that has gone into external administration and consider if any phoenixing activity has taken place to determine whether a building company or building practitioner applicant is a fit and proper person.
  • Included checks to determine insolvency for applications received for accreditation as a plumbing practitioner.
  • Put in place policies that if a nominee director of a company registered with the Authority becomes suspended or is no longer considered a fit and proper person for registration due to not meeting financial or personal probity requirements, the company cannot enter into any major contracts unless there is another nominee director within the company that is registered and is still considered a fit and proper person.
  • Continued to take decisive action and prosecute practitioners who continued to hold office in a company that had gone into external administration or become insolvent and provide details of prosecution outcomes in Annual Reports and on the VBA website.
  • Issued regular updates to practitioners via the VBA Mail on additional scrutiny during the registration process to combat illegal phoenixing activities to protect consumers from practitioners who deliberately structure their company’s finances to avoid paying creditors, or those who have a history of ethical misconduct.
  • Released technical updates from the State Building Surveyor to keep practitioners and industry updated on technical issues and industry trends with the aim of improving the safety and efficiency of construction projects including updates on the code of conduct for building surveyors and issues associated with contract novation.
  • Established an Industry Harms Consultative Committee (IHCC) (PDF, 6157.96 KB) (page 57) to provide a forum to enable ongoing dialogue with key industry stakeholders on the regulatory priorities as well as emerging harms, risks and issues in the built environment and to seek insights on approaches and opportunities to best address these.