- Many building companies have gone under during the past year and half, despite high demand
- Suppliers, contractors and home owners are often left scrambling during the liquidation process
- There are ways to avoid building companies with poor financials and directors with a bad history
With labour and supply shortages, impacting cash flow, many building and construction companies have gone under over the past year and a half.
These include Probuild, Pindan, Oracle Homes, Caydon Property Group, Pivotal Homes and Jaxon Constructions to name just a few. Metricon, the largest builder in the country, reportedly had financial difficulties but following cash injections are believed to be in a more stable position.
This comes as ASIC data from the June quarter show that around 28% of all insolvencies during this period were from the construction sector.
So how does one avoid such a builder?
After all, the consequences of engaging with a builder that collapses, or ceases trading, is severe to homeowners. Even with a home warranty insurance in place, the insurer can take a long time to engage with another builder and undertake assessments.
This will involve identifying defects and consulting with the appointed insolvency practitioner of the collapsed company, regarding the progress of the contract.
Engaging with a new builder can also result in cost blowouts and delays in the construction process.
Unfortunately, in extreme situations, home owners can potentially bare the full brunt of aggressive creditors, such as contractors and suppliers. This can even include illegal activity such as entering a property to remove fittings and installation. Although the owner may have paid for these items, the builder will not have paid the supplier.
Warning signs
With this in mind, is obviously vital to avoid a builder that may be financially distressed.
There are several warning signs to look for, according to Damian Pearce of Pitcher Partners.
“Check the builder’s history and conduct reference checks – contact former clients and sub-contractors from the builder’s last few projects,” he said.
“If your proposed builder’s contractors are new, this could be a warning sign of difficulties with previous contractors.
“Also, have your accountant or lawyer conduct credit agency searches, which will outline a builder’s credit history and defaults.”
An accountant or lawyer can also do checks of their own.
These include searching ASIC records, which can reveal frequent changes of ownership or if there has been wind-up applications against the company. Also, this can reveal whether the company director(s) have a history of relationships with failed companies.
Business names can be searched with Consumer Affairs to flap problems, such as a complaint made against a company. This can also be used to double check registrations and qualifications of the builder.
Court files can also be searched against a company.
It is important to review building contracts carefully, in order to understand rights and obligations should a builder collapse.
