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A Tale of Trusts: Separating Myths from Reality in SOP

Michael Chesterman
Michael Chesterman February 29, 2024

I have very much enjoyed a 3-month slumber from researching, reading, commenting, or writing any posts or articles (160 plus) on the multitude of issues impacting the construction industry. Essentially after undertaking these tasks for 6 years since joining Helix, I was ‘cooked’ and needed to step away from immersing myself in these issues.

However, not to the surprise of anyone who knows me, several recent developments regarding the effectiveness and efficiency of statutory trusts as a key SOP initiative have awakened me from this nap.

There are many fulfilling reasons why people choose to be involved in the construction industry.

To make a real difference in how people live and work, the building or construction of homes, offices, recreational facilities, commercial properties, infrastructure, etc. to a standard and quality that will not just survive their expected life cycle but be appreciated as significantly contributing to the environment most of us are fortunate to enjoy in Australia.

However, regardless of the level of satisfaction people working in the industry may have, it is an indisputable fact that everybody wants to, and deserves to be paid for their efforts.

In my view ‘Show Me the Money’ is a very reasonable catch-cry to live by.

Let’s quickly recap what I last had to say about trusts

In an article I published in November 2023 titled Trusts and Payment Guarantees: Myth or Reality?  I stated:

“I have recently published a journal titled ‘A Deep Dive into Security of Payment which is a summary of 105 articles I have authored and published concerning various Security of Payment (SOP) issues since 2017. My initial reading of the Building Industry Fairness (Security of Payment) Bill 2017 (‘BIF Bill’), tabled in parliament on 22 August 2017, motivated me to write my first Helix SOP article.  

When talking about statutory trusts as a SOP solution, I stated:

“Therefore, in looking at SOP from a high regulatory level, if the evidence reveals contractors generally are encountering unfair or unjust payment issues, then surely any proposed regulatory solutions should equally apply to all contractors and there be no distinction between subcontractors and builders.  

Furthermore, in these circumstances, imposing onerous obligations on builders to pay subcontractors when they are experiencing the same payment issues with developers and not offering them the same assistance is, to me, a wrong approach unless the evidence supports such a targeted market intervention.”

I also outlined three things I would like specific information on, namely:


Recent developments

This is the 28th article I have specifically written on Trusts as a SOP initiative. 26 can be found  in my previously mentioned journal and my previous article is also linked in this article.

I will address each of the above three things in terms of whether there have been any recent developments.

Trusts Software and Compliance Initiatives

On 14 February 2024, the responsible Minister introduced the Building Industry Fairness (Security of Payment ) and other legislation Amendment Bill

The proposed amendments are significant, so I have elected to quote the Minister in addressing these issues in her introductory speech for the introduction of this Bill.

“We heard from industry that there is an opportunity to facilitate compliance by improving accounting software capability and simplifying the trust account framework. Specifically, we heard there was uncertainty as to who was protected by and paid through a project trust account.”

The Bill has been referred to the Housing, Big Build, and Manufacturing Committee for detailed consideration.

More concerns that Trusts do not guarantee payments to subcontractors in insolvency situations

Case study 1PBS Building (Qld) Pty Ltd

In my previous article, I referred to the collapse of PBS Building (Qld) Pty Ltd (‘PBS’) in March 2023 owing $169 million across 500 creditors. The company’s Project Bank Accounts reportedly held less than 10% of the funds owed to subcontractors. 

In my previous article, I provided a link to an  update  on the QBCC website. A check at the time of publishing this article reveals that this update remains unchanged, with it last reviewed on 27 April 2023 and published on 30 June 2023.

According to this QBCC update, at the time RSM Australia Partners (‘RSM’) were appointed administrators, PBS had two projects that required a project trust account, with a related retention trust account:

  • Design and Construction Works – Bokarina Beach “The Curl” (Lot 901) Civil, Landscaping, Streetscapes and Homes
  • Stage 5 to 8 Homes for Latitude 25 RV Lifestyle Community.

According to an article in the Courier Mail entitled Liquidators find PBS QLD owes subbies $4m, but trust accounts hold less than $400k’, it is stated:

“It can be revealed there is $35,425.26 in the Latitude25 project trust account and $2516.35 in The Curl at Bokarina trust account.

There is $352,920.59 in the retention trust. The group’s Queensland arm alone has subcontractor debts declared at more than $4m.”

For the record, according to information published on 4 September 2023 on the website of RSM, the company is now in liquidation.

Significantly, I am unaware of the status of an application made by RSM as administrators seeking directions in the Supreme Court regarding the administration of Project Trust Accounts and a Retention Trust Account under the Building Industry Fairness (Security of Payment) Act 2017.

However, I do note a previous statement on the RSM website  (4 July 2023) namely:

“Project Trust Accounts: while the Administrators are of the preliminary view the Project and Retention Trust Accounts in NSW and Queensland have been properly maintained by the companies (my bold emphasis), they have sought directions from the Queensland Supreme Court on the administration of the Queensland Trust accounts given there is no precedent for administering these accounts in an external administration.”

If the project’s trust accounts were being properly managed as reported by the administrators and there is such a serious shortfall in monies held in the accounts as reported, then there can only be one explanation.

Monies from developers to PBS were not paid into the accounts. Now it is very important to recognise that there may be very justifiable reasons for this happening.

Additionally, PBS could not inject sufficient money into the trust accounts to ‘top up’ their payment obligations to subcontractors.

Concerningly, based on the information before me at this time, it appears that subcontractors who were entitled to be paid for project trust work they did for PBS will not be paid the amount owed to them.

Case study 2 – GCB Constructions Pty Ltd

According to an update on the QBCC website:

“On 26 July 2023, GCB Constructions Pty Ltd, QBCC licence number 1208941, appointed administrators, SV Partners.

At the time administrators were appointed, GCB Constructions Pty Ltd had five projects that required a project trust account, with a related retention trust account:

Air conditioning and Electrical upgrades – Robina SHS, Keebra Park SHS, Coombabah SS – Cooler Cleaner Schools Program

48 residential units – combination 3 and 4 bed over 29 levels – Drift Residences

Residential – 33 levels above ground and 4 level basement – Amaya

34-storey residential Apartment Building – Aria Canopy

8-level residential apartment building – COTE Palm Beach”

According to a recent article in the Courier Mail titled ‘Liquidator says GCB Constructions subcontractors to receive less than 11c in the dollar amid $52m failure, it is stated:

“Subcontractors of failed Gold Coast builder GCB Constructions will get less than 11 cents for every dollar owed in the $52m collapse – and it could take up to two years to get it – the liquidator has revealed.

In his latest report, liquidator David Stimpson of SV Partners said GCB, which stopped paying tax more than a year before it went under, had just $791,220 in assets to cover its $52m in debts.”

Elsewhere in the article it is sated:

“Major secured creditor, NAB, will retain funds held in all 22 of GCB’s bank accounts – many of which were linked to individual GCB projects.

GCB went into liquidation in November, after entering voluntary administration on July 24.”

I have had the benefit of reading the liquidator’s report. Significantly, it is stated:

“Cash at Bank

The Company held twenty-two (22) accounts with NAB with the majority of these accounts being project specific bank accounts. The main business account had a balance of $252 on appointment.

Any funds held in the Company’s accounts will be retained by NAB.”

There is no public record information I have been able to locate that provides specific information as to the status of the 5 project trust accounts and 1 retention trust account (as identified by the QBCC).

However, given the dreadful overall financial position of GCB Constructions as reported by the liquidator, I think it is highly unlikely that amounts legitimately due and owing to subcontractors who did project trust work on the relevant projects identified by the QBCC will receive payment.

Case study 3St Hilliers Contracting Pty Limited

According to an update on the QBCC website, it is stated:

“On 5 February 2024, St Hilliers Contracting Pty Limited ACN: 082 729 039 (St Hilliers Contracting), QBCC licence number 1185552, went into voluntary administration and appointed administrators, WLP Restructuring (WLP).

At the time administrators were appointed, St Hilliers Contracting had two projects that required a project trust account, with a related retention trust account:

Bernborough Ascot Retirement Living.

Kirwan Community Health Campus Extension.”

In an ABC NEWS article titled ‘No guarantees for 21 construction projects left in limbo after St Hilliers’ voluntary administration’, it is stated:

“There is uncertainty about which of St Hilliers’ construction projects will resume after the company went into administration.

It owes up to $10 million to subcontractors and suppliers and potentially up to another $20 million in other debt.

What’s next? The administrators have asked for a three-month extension before the next creditors meeting.”

This collapse is in its infancy in terms of information being provided to creditors and industry parties, so I have it on a ‘watch and see’ status.

No developments

I have not read anything since my last article titled Trusts and Payment Guarantees: Myth or Reality? that addresses the concerns, I outlined in this article that Statutory Trusts do not alter the preferencing laws under the Commonwealth’s Bankruptcy Act 1996 and Corporations Act 2001.

As I have stated numerous times, I am not a lawyer, so I invite anybody with an informed view on this matter to respond to my views.

I will not take it personally if anybody wants to take me to task!!!

Not intended as legal advice. Read full disclaimer.
Michael Chesterman
Michael Chesterman February 29, 2024

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