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Fit and proper person – external administration

New legislation has given the VBA stronger powers to consider illegal phoenixing activity when assessing whether an applicant is financially fit for registration as a building practitioner.

Illegal phoenixing is when companies go into external administration to avoid having to pay their creditors (including consumer warranty claims), before re-emerging as a new entity essentially run by the same individuals.

In the building industry, this can place creditors, employees and consumers at risk of financial loss and incomplete projects.

Stronger fit and proper person tests

We have strengthened the fit and proper person tests required for building practitioner registration by extending the existing financial probity requirements to include anybody who has been an influential person in a company that has gone into external administration. There will now be greater scrutiny of company directors, secretaries and other influential persons as part of the registration process.

We’ll be considering phoenixing activity when determining whether a building company or building practitioner applicant is a fit and proper person.

External administration status

As part of the building practitioner and building company application process, we will consider whether an applicant was a director, secretary or influential person for a company within two years before that company went into external administration. If so, they will need to declare this on the application form and complete an External Administration Declaration form (PDF, 2274.52 KB).

We encourage applicants to be upfront about their involvement in companies that have gone into external administration. It is an offence to provide false information on an application form.

Disclosing involvement with a company that went into external administration does not mean your application is automatically refused.

We accept there are legitimate reasons for a company to be put into external administration that don’t impact a practitioner’s ability to run a building-related business and do not disadvantage any of the company’s creditors. For example, an applicant may have been involved in a company restructure where all creditors of the company were repaid in full.

We will consider the facts of each applicant’s situation and act to protect the building industry and consumers where necessary.

If you are upfront about your situation, you can put forward supporting material explaining why your involvement with a company that went into external administration does not impact your ability to run a building-related business.

Involvement in companies that have gone into external administration will be discovered through the application verification process anyway – not disclosing your involvement in the first instance will only delay your application.