Company collapses imperil independent subcontractors

A debt recovery specialist has highlighted the perils of operating as a subcontractor, particularly in the construction industry, in light of the recent collapses of various construction companies.

According to debt recovery specialist Glen Bower, subcontractors in the construction industry are vulnerable, particularly as many are small, family-run businesses dependent on cashflow.

“There are less and less employees and more subcontractors, and a lot of those subcontractors go from one day being an employee to being a subcontractor,” Bower told the ABC.

“They become much more vulnerable because they don’t have the same rights in respect of their entitlement that employees have – they are merely unsecured creditors when things go wrong.”

“Their homes [are] on the line, the banks have got them stitched up, the bank may have provided an overdraft for working capital for these small family businesses, so cashflow is imperative.”

Bower’s comments come on the back of multiple company collapses in the construction industry, including Reed Constructions, the Hastie Group and St Hillier’s Construction.

“Because the market is contracting, people who don’t have the next job to go on to are now paying attention to outstanding monies,” Bower said.

“They’re now reviewing those outstanding payments and asking us to help recover them because the next job isn’t there to go on to; the cashflow isn’t there.”

“What that causes is a domino effect. If one company can’t pay, then the company that is owed can’t pay and so on and so forth.”

Bower points to a piece of legislation titled the Security of Payment Act, which, according to him, is “specifically designed to ensure continuity of payment to subcontractors”.

“It’s payment on account – on a pay now, argue later basis – to keep the subbies going and to stop them being starved of vital cashflow,” he said.

According to RECOUP Contractor Debt Recovery, which specialises in the Security of Payment Act for the building and construction industry, those who can make a claim include:

• Contractors against principals/developers.
• Subcontractors against contractors.
• Suppliers against customers.
• Plant and equipment hirers against clients.
• Consultants against clients.

Construction work and services can be claimed under the act even if the contract isn’t written, does not provide for progress payments, and has only a single payment to be made when the work is completed.

But according to Bower, the legislation is often “let down” at the enforcement stage.

“Quite often, we will get a judgment in favour of a subbie but then we go to enforce and the company that owes the money will then give us the runaround – even go into voluntary administration, liquidation – just to get out of meeting the obligations,” he said.