Subcontractors Charges

Subcontractors Charges

When a subcontractor’s customer is placed into liquidation, voluntary administration, bankruptcy or any other form of insolvency appointment, the subcontractor needs to consider the available options to maximise the return on their outstanding debt. This includes exploring any alternatives to seek payment direct from the developer.

In Queensland, there is the Subcontractors’ Charges Act 1974 that allows for a subcontractor to obtain a statutory charge over the outstanding debt. The process in effect involves the subcontractor seeking payment of outstanding accounts from the developer.

The amount payable by the developer to the insolvent entity is determined and generally the funds are paid into court for directions as to the distribution where there the amount payable by the developer is insufficient to satisfy the total claims of all subcontractors with valid subcontractor charges.

Insolvency practitioners are required to administer an insolvency appointment in accordance with the provisions in the Corporations Act 2001 (or Bankruptcy Act 1966 if it is a personal insolvency appointment) and the Subcontractors’ Charges Act 1974.

We are left in a difficult and disappointing position when a subcontractor does not satisfy the provisions of the Subcontractors’ Charges Act 1974 and we have no option but to reject the claim.

A decision to reject a claim is not taken lightly as my goal in any insolvency appointment is to see that creditors receive the greatest possible return. However, I have no option but to reject the claim if the forms are defective or there are other grounds justifying the decision.

From my considerable experience with appointment involving the construction and building industry, I encourage subcontractors to consider the following when pursuing a claim under the Subcontractors’ Charges Act 1974:  Give due consideration to engaging a solicitor with experience in the building industry to prepare the relevant forms and provide any legal advice that may be required. The majority of the claims that I have had to reject involved forms prepared by the subcontractor personally.

 Weigh up the following to determine if it is commercially viable to pursue such a claim:

• Attempt to estimate the potential number and dollar value of total subcontractor claims that may be submitted against the developer.
• Conduct inquiries to attempt to estimate the potential amount that may be payable by the developer.
• Consider communicating with other subcontractors to collectively pursue such a claim with the objective of adding efficiencies and cost reductions to the process.
• Be aware that a subcontractor may be required to commence legal proceedings to pursue the claim.
• Estimate the potential legal fees in proceeding with such a claim (e.g. initial advice, preparation of forms and any subsequent legal proceedings.

 There are strict time deadlines under this legislation and accordingly timely attention should be given to the above:

• For debts due under a contract or subcontract – within three (3) months are completion of the works; and
• For retention amounts – within three (3) months of the expiration of the maintenance period.

 A subcontractor cannot pursue such a claim at the same time as proceeding with a claim under the Building and Construction Industry Payments Act (“BCIPA”). Pursuing such a claim is not limited to instances where there is a liquidation or bankruptcy. In those circumstances, the subcontractor needs to ensure that his or her claim is not vexatious or without reasonable grounds otherwise there could be damages awarded.

Below are various points for a subcontractor to keep in mind when pursuing a claim under the Subcontractors’ Charges Act 1974:

 The legislation provides an avenue for a subcontractor to receive a form of security and priority to funds that would not ordinarily be made available to the subcontractor through the Corporations Act 2001 or Bankruptcy Act 1966.

 Care must be taken and advice should be sought when completing a Proof of Debt form to submit to the insolvency practitioner to not surrender any security that arises from pursuing such a claim.

 There are statutory forms that must be submitted and must be completed and certified correctly.

 To pursue such a claim the subcontractor needs to be licensed. If the developer does not agree it is liable for the debt, the subcontractor needs to commence court proceedings to enforce the charge.

If any subcontractor has any queries or requires assistance with any communications (e.g. the insolvency practitioner, other subcontractors, solicitors, QBCC, etc), assessment on whether it is commercially viable to pursue a claim for a charge or completing a Proof of Debt form, please do not hesitate to call.

Peter Dinoris

Liquidator, Trustee in Bankruptcy & Debt Agreement Administrator