New powers to combat phoenixing in NSW construction – Insolvency/Bankruptcy

The rise of phoenixing in the building and construction industry
in Australia in recent years has proved a significant challenge to
regulators. Mismanagement of time or cashflow can quickly propel
businesses into insolvency.

Construction insolvencies have spiked post-pandemic – according to the Reserve Bank of Australia
construction industry insolvencies currently account for almost 30%
of company insolvencies in Australia. This is double the already
high pre-pandemic levels.

Phoenixing is the practice of deliberately liquidating a company
to avoid its debts and liabilities. The business of that company is
then resurrected through a separate entity.

To combat this practice, the NSW Government has introduced the Building Legislation Amendment
Bill (Amendment Bill). The Amendment Bill inserts new
provisions into the Home Building Act (HBA). The new laws,
empower the Secretary to disqualify individuals trading as a
partnership, or persons managing or directing a company, from
holding a license to perform building work (excluding owner-builder
permits) where they have been involved in insolvencies or
intentional phoenixing.

The new Section 33A(1B) of the HBA allows the Secretary to
disqualify a person, or a company with which an individual is
associated, from holding a building licence if:

(b) the person was a director of a company and the company, or
one of its directors, has committed an offence under the Corporations Act; or

(b) the person was involved in the management of a company
within six-months prior to the company being wound up, entering a
deed of company arrangement or going into administration or
receivership.

The introduction of these new provisions aims to protect
creditors and the broader business community from the potential for
abuse of the corporate structure by holding individuals accountable
for their role in a partnership or company. The withholding of
licenses is to serve as a deterrence against phoenixing.

The alignment of the provisions of the HBA with the
Corporations Act shows a commitment by the NSW Government
to create a robust regulatory framework to bolster the integrity
of, and restore customer confidence in, the building and construction industry.

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guide to the subject matter. Specialist advice should be sought
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