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Regulation is not reducing insolvency in the construction industry

Michael Chesterman
Michael Chesterman December 13, 2022

Regulation is not having the desired effect in reducing insolvency in the construction industry

This is not a ‘shock and awe’ article. I did not design it to scare readers into believing that the industry is about to see a lot of damaging contractor collapses.

I call out this irresponsible commentary in a previous article titled Views from the cheap seats on the construction industry are plentiful. Some are irresponsible.

However, I am always happy to refer to informative articles. See for example this article published in the AFR on 14 December 2022 titled ‘Contractor collapses expose industry ‘at breaking point”.

In this article I seek to be very considered and measured, relying on trusted data in arriving at my conclusion. The conclusion that regulation is not having the desired effect in reducing insolvencies in the construction industry.

However, I am also of the view that we must continue to strive for ‘future fit’ regulation. We must strive for the enactment of pragmatic and effective regulation to maximise the prospects of improved outcomes in this regard.

I will expand on the definition of ‘future fit’ regulation later in this article.


As the inaugural Compliance Manager of the Building Services Authority, I witnessed many construction companies proceeding into voluntary administration and liquidation. Invariably, subcontractors received a nil dividend on their debt.

Unfortunately, problems arise in attempting to address this significant industry issue. While well-intentioned, governments of all persuasions have been guilty of reworking existing legislative measures for addressing insolvency or payment problems. They repackage them and then present them to the industry as new solutions.

I believe, the Building Industry Fairness (Security of Payment) Act 2017 (BIFA) suffers from this repackaging.

In a November 2017 article titled ‘Construction Innovation — it’s not just about Apps!’ I state:

Note: The above abbreviation ‘PBA’ is Project Bank Accounts that were a feature of an earlier version of BIFA. ‘Statutory Trusts’ now replace the term PBA in BIFA. Both models are designed to isolate monies payable by clients to head contractors for the protection of subcontractors. The reference to 1974 is the year the Subcontractors’ Charges Act was passed, an initiative which is retained in BIFA.

The objective of BIFA  is to deliver improved payment outcomes for subcontractors and therefore reduce their risk of proceeding into some form of insolvency (I sincerely hope this is the case). However, it does nothing to address head contractor insolvency issues.

A client not paying a head contractor for work done could result in cash flow problems for them. This may cause head contractors to proceed into some form of insolvency.

What is ‘future fit’ regulation?

A report dated 19 June 2018 from the Deloitte Centre for government insights titled The future of regulation states:

Australian position.

Insolvency in the Australian construction industry is a major issue that governments of all persuasions have struggled to address.

In his final report of a review of Security of Payment Laws dated 21 May 2018, Mr John Murray AM, stated (page 16):

“Over the past decade, while the construction industry has accounted for 8–10% of GDP, it has also accounted for 20–25% of all insolvencies in Australia. Indeed, there are on average more than 1700 insolvencies in the construction industry every year, affecting thousands more creditors.”

I published an article in November 2022 titled Contractors should mitigate all major risks. Insolvency is risk #1. I provided an updated picture of insolvency in the industry (Australian) by referring to an excellent publication by the Australian Constructors Association (ACA). The publication is titled Credit where credit’s due Improving security of payment and liquidity in the construction industry.

This ACA article stated:

“Recent reports of widespread difficulties among contractors have highlighted the pressures faced by construction firms, and the statistics reveal a worrying trend. While the number of companies entering administration have been rising across the economy over the last several months, the trend is particularly pronounced in the construction industry (Figure 1). As a result, construction firms now account for over one quarter of total administrations in Australia, a proportion that is noticeably higher than its 17 per cent share of firms (Figure 2).”

Figure 1

Figure 1 - Administrations Australia - Insolvency in the construction industry

Source: Australian Constructors Association: 

Figure 2

Figure 2: Construction Share of Total Administrations Australia - Insolvency in the construction industry

Source: Australian Constructors Association: 

I then stated in my previous article:

“I want to point out an additional factor as stated in the article. The construction industry is seriously over-represented when it comes to insolvency. Another thing that struck me is that:

Notwithstanding numerous regulatory initiatives introduced by the three levels of government in all jurisdictions, coupled with whatever contractors are doing, the Australian-wide industry insolvency position deteriorated to a significant extent over these nine years. 

I found this data very depressing

Queensland position.

ASIC Queensland Insolvency Statistics - Insolvency in the construction industry

The 2020/2021 Financial Year data concerning companies entering external or controller appointed administration was affected by several COVID-19 related issues. I point this out in a previous article titled Good news = bad news in the construction industry. I believe there is a main reason for the record low level of insolvencies in the industry for 2020/2021. It is the ATO commencing very few court actions to recover debts.

I am therefore of the view that they should not consider the ASIC statistics representative of a ‘normal year’.

Here we are looking at nine years of ASIC data (financial years 2013/2014 – 2021/2022). Queensland industry is at best ‘treading water’ when it comes to reducing the terrible scourge of insolvency impacting parties.

Significantly, this is the case even though there is heavy regulation in the Qld industry to improve SOP for contractors. Thereby I conclude that relevant regulatory initiatives in place over this period have failed to have the desired effect in reducing insolvencies in the industry.

Watch this space! 

Commencing in February 2023, along with my friend Emily Taylor, we will be hosting a new Helix Podcast series.

We already have some people lined up but if anybody wants to feature in this series, please reach out to our team.

Finally, we want people to see this podcast as an opportunity for industry participants. While we will be talking about very serious issues, we want to give participants the opportunity to demonstrate that they are capable of ‘walking the talk’ when grappling with finding meaningful solutions to serious industry issues.

We will be announcing the start of the podcast next year on our Helix Legal LinkedIn,  Facebook andInstagram page. Be sure to follow our socials or subscribe.

Not intended as legal advice. Read full disclaimer.
Michael Chesterman
Michael Chesterman December 13, 2022

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