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Probuild Collapse and Sub-contractor Recovery Options March 1, 2022

On 24 February 2022 builder Probuild was placed in administration.  This leaves in the vicinity of $5b worth of building projects in limbo around the country.

While the administrators, Deloitte, attempt to secure a new owner for the business and therefore achieve completion of the 18 major building projects that are now in limbo, sub-contractors have been locked out of work sites and are reportedly owed millions of dollars.

It is timely for sub-contractors across the industry generally to consider their rights of recovery against a head-contractor or builder.  It is important to remember that sub-contractors do not have to wait until their builder is in administration before exercising these rights.

 

The Building Industry Fairness (Security of Payment) Act 2017 (“BIFA”)

BIFA was introduced in 2017 to replace the Building and Construction Industry Payments Act 2004 (“BCIPA”).

BIFA includes a number of processes by which a sub-contactor can recover or secure payment of outstanding amounts. These include:

  1. An adjudication process;
  2. A payment withholding request; and
  3. A charge over property.

 

Adjudication Process

Under BCIPA there was always an adjudication process available for a sub-contractor to recover unpaid payment claim amounts.

This process is largely the same under BIFA.  BIFA did however alter some of the formal requirements relating to payment claims, payment schedules and the timing of some steps in the adjudication process.

The fundamental elements of the regime are:

  1. A payment claim may be issued under the contract.
  2. A payment schedule is issued if the respondent is not going to pay the amount claimed.
  3. An adjudication process may be commenced by the claimant.  The respondent may only rely upon reasons for withholding payment stated in the payment schedule.
  4. The parties are limited to any documents (submissions, statutory declarations and the like) properly made and in accordance with the strict time limits under BCIPA.

Once an adjudication award is made in favour of the claimant, the claimant may lodge the adjudication certificate as a judgment debt in a court of competent jurisdiction.

Strict time limits apply to the adjudication process.

In addition to registering the adjudication certificate as a judgment, there are other options available including a payment withholding request and registering a charge.

 

Payment Withholding Request

Amendments to BIFA that came into effect on 1 October 2020 introduced additional avenues for applicants in the adjudication process to recover adjudicated amounts, including:

  1. a head contractor registering a charge over property of the developer for unpaid adjudication amounts; and
  2. a claimant serving on a higher party in the contractual chain a payment withholding request (“PWR”) to withhold monies from the respondent.

Examples of the latter may be a subcontractor serving a PWR on a developer to withhold monies from payment to the head contractor or a head contractor serving a PWR on the financier of the principal.

Once the higher party is given a PWR, they must retain an amount up to the amount stated in the PWR.  However, there is no obligation to retain more than what the higher party owes the respondent. A higher party that fails to retain the amount becomes jointly and severally liable with the respondent for paying the adjudicated amount.

The amount claimed is also subject to a charge in favour of the claimant for securing payment.  The charge is declared under BIFA to be a statutory interest under the Personal Property Securities Act 2009 (Cth).

This process is in addition to the subcontractors charges process in BIFA (which is similar to the process under the now repealed Subcontractor’s Charges Act 1974).

 

Charge over Property

In circumstances where:

  1. the claimant files the adjudication certificate as a judgment; and
  2. the respondent or a related entity is the registered owner of the property on which the construction work was carried out or to which the related goods and services were supplied;

the claimant may request a charge over the relevant property by lodging the request with the registrar, along with a copy of the adjudication certificate and a statutory declaration confirming that the adjudicated amount has not been paid.

The charge expires 24 months after the day it is registered but the claimant may apply to the court to extend the charge for an additional period of not more than 24 months.

 

Take Away Messages

It is important for sub-contractors to understand the available options to secure and recover any monies owing to them.  Strict time limits and procedures apply under BIFA.

For advice or information regarding any building and construction issues including payment claims, contact Director of Dispute Resolution, Scott Eustace, at [email protected] or phone 3439 8880.

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