The Perfect Crime

Why do so many Queensland builders go broke? They do it in every state but South East Qld is the pinnacle of builder liquidations in Australia.

It's simple really, they follow a tried and true blueprint drawn by those who came before them. Its similar to reading a blueprint they use to erect a building. Understanding a blueprint is one of the few things bad builders are good at. The other thing is liquidation.

A Category 4 builder (60 million turnover) would owe subbies millions each month but its not hard to stretch out payments for 60 to 90 days with empty promises while the debt to subbies accumulates.

Here are a few of their classic excuses for not paying on time or stretching it out and what your answer could be:

• The director is away. A: That's no excuse, he knows accounts are due at this time each month.
• I am waiting for the director to sign the cheques. A: That's no excuse, he knows accounts are due at this time each month.
• We are waiting for the QS to sign off on your claim. A: That's no excuse, he knows accounts are due at this time each month.
• We are waiting on payments to come in. A: That's no excuse, he knows accounts are due at this time each month.
• We will pay you when we get paid. A: "Paid when get paid" is illegal in the industry.
• If a builder cannot pay claims on time, he is insolvent.
• This leaves subbies with only one option to safeguard the credit given to these shifty builders, debtor insurance.

Net Tangible Assets of a Licensed Builder

A major issue of builder insolvency stems from the pitifully small Net Tangible Assets (NTA) a builder is required to have under the QBCC Act. This enables them to be underfunded from day one.

A builder with a Category 4 license needs to substantiate 1.2 to 2.4 million in NTA to be able to turn over 60 million per year. That is a minimum of 2% to a maximum 4% of allowable turnover.

"NTA is the total physical assets of a company minus all intangible assets and liabilities".

It does not only consist of cash, in fact cash at bank would be a minor component of the NTA. It could be scaffold, vehicles and any other assets owned by the company which even in a firesale, would not be easy to dispose of quickly and turn into cash.

Do you think 4% of allowable turnover is enough to support a business turning over an average of 5 million per month? No I didn't think so but the QBCC does.

To meet the QBCC's tiny NTA, how easy would it be just to show the QBCC "all work in progress but FAIL to show them all creditors" to achieve the required result?

We have written proof of that happening between a builder and his loyal accountant.

Three years later that builder liquidated costing creditors (mostly subbies) over 45 million but worse still, it was ongoing misery for subbies for years due to them being sued for unfair preferential payments on top of their huge losses in the liquidation. That happens in all liquidations.

Did subbies get a dividend in the end? Don't be silly, of course not.

The NTA is a laughably small amount for such a huge turnover and it's so easy to beat the system. Question is with all the proof, why wasn't that director charged with Fraud and jailed?

When the road gets bumpy, many builders take the easy way out and liquidate the millions in debt owed to subcontractors away. Its free money so why wouldn't they do it?

A QBCC license in the wrong hands can be a license to defraud subbies and many of them do just that. Some do it numerous times but no building company director has ever done Jail time for fraud in my time in the industry.

If there are referrals from liquidators to ASIC for punishment of directors in the construction industry, especially for insolvent trading which most of those who liquidate are guilty of, ASIC does nothing with the referral and that emboldens others to rinse and repeat.

ASIC ENCOURAGES AND ENABLES INSOLVENT TRADING IN THE CONSTRUCTION INDUSTRY BY NEVER TAKING ACTION ON EVIDENCE REFERRED.

Why do builders get a free pass but bookshop owners are pursued?

It's the perfect crime where even if you are caught, there are minimal ramifications. Maybe bankruptcy or being excluded from holding a QBCC license for 3 years but hey, big deal, just put the phoenix in the wife's name.

Many already have a licensed phoenix company set up in a friends or family members name so away they go again operating as shadow directors.

How to end this corruption?

There is no easy answer but there are ways to stop this fraud or at least slow it down.

We need politicians with the guts to deliver on promises they make before or after elections.

• Implement Project Trust Account for every project so that builders cannot touch the money belonging to subcontractors.
• Developer pays into the trust, the trustee pays the builder first then the subbies. If it adds a layer of administration cost, then that's a small price to pay to stop what is now a billion dollar fraud against subcontractors. The Labor governments have no hesitation adding ridiculous costs to building with their net zero goals.
• The main players are builders, accountants, pre insolvency advisors, liquidators, lawyers, the QBCC but ASIC is not to be seen anywhere and subbies are the big losers. The way it is now is that it's an industry designed to bleed subbies dry.
• I saw a recent instance where liquidators were trying to get their hands on PTA money to cover shortfalls in their exorbitant fees. The court said no so the money seems to be safe in a PTA and that's what they are meant to be, safe haven for subbies money.
• Increase NTA to an acceptable amount, say 10% cash at hand up to a total of 20% NTA of allowable turnover. At least then, a Cat 4 builder could weather the storm for 4 or 5 months if developers were slow paying.
• Overhaul the QBCC Act so internal departments share information instead of each department sitting under their own little cone of silence and a substantial increase in the NTA requirements.
• Before the QBCC grants a builders license to a company, develop protocols to ensure all office holders have a sound knowledge of the industry.
• Example: What does a thoroughbred trainer who is a director of a new (phoenix) building company (after hubby liquidated his), know about running a construction company? They would know about as much as a bricklayer would know about training a thoroughbred.
• Refer all directors who have traded insolvent to ASIC for prosecution. You would see a big drop in builder liquidations.
• ASIC should automatically pursue prosecution against all directors where its proven that they trading while insolvent.

Before the 2020 state election, the Qld Labor Government promised subbies they would implement project trust accounts but under pressure from the MBA and other invested parties who support builders, they postponed and dragged it out for years and it's still not done and now with Labor on the nose, its won't be done by them.

Their attitude is we have used their vote based on empty promises. Who cares about subcontractors who fund the construction industry with unsecured credit which, for some of the bigger subbies, runs into millions each month.

LNP the time for change is now or this fraud will always be the biggest unpunished theft in our society, in our state. It will be repeated ad nauseum without any tangible consequences where the thieves just accumulate more wealth.

Subcontractors, be a part of SubbiesUnited's Private Members Forum and help us stop the rot!

Subbies add a level of protection to your business and join SubbiesUnited and make use of our private members forum for up to date information on builders not paying and in trouble.