NSW Inquiry into Construction Industry Insolvency - discussion paper

The NSW Government established this Inquiry by Mr Bruce Collins QC to try to find ways to  safeguard the interests of subcontractors in the construction industry. The terms of reference include how initiatives such as insurance schemes, trust arrangements, compulsory contract provisions or other mechanisms, could help.  The IPA has been assisting the inquiry, including issuing a survey to all liquidator members on issues concerning the nature and extent of insolvencies in the NSW construction industry. 

 
We have in particular referred the inquiry to IPA involvement in measures taken by Commonwealth agencies – ASIC and ATO – in relation to tax and phoenix misconduct in this industry. 

Mr Collins has released a Discussion and Issues Paper to obtain information concerning the legal, practical and financial effects of any proposed options that may be recommended to the government.  Submissions and comment are sought from all interested parties by 2 November 2012. 

IPA proposes to make a submission and any input from IPA members is requested.  

Comment on the paper

The paper reports latest ASIC statistics showing that for the financial year 2011-12, the construction industry accounted for 22.1% of the 10,000+ insolvencies in Australia. The next ranked industry is ‘retail trade’ accounting for 10.2%.  The ASIC data also shows that across all industries, NSW accounts for 44.7 per cent of construction industry insolvencies, followed by Victoria at 22.4% and Queensland at 21.1%.

The paper notes that there are views that a significant number of companies in the construction industry trade while insolvent.  Although recognising the difficulty in determining whether or not a contracting company is trading while insolvent, the paper says that enforcement of existing laws should be examined.  This is a point the IPA often makes itself.

The report considers the value of the Queensland Building Services Authority whose regime has appeared to reduce insolvency in the construction industry in Queensland. The Building Services Authority Act requires the licensing of all contractors seeking to undertake building work of any kind within Queensland; financial assessments carried out on all contractors; and continuing auditing requirements for all licence holders.  The IPA recommended the consideration of that Act to Treasury in one of its submissions on phoenix law reform.  The recommendation was not taken up. 

The paper also says that it is not at this stage recommending any proposal which intersects with Commonwealth laws. In particular the report says that the Inquiry is not recommending that any change be made to section 556 of the Corporations Act that may for example accord subcontractors equal status with employees.