- The Qld Building Industry Fairness (Security of Payment) Act (“BIF”) was recently passed
The Qld Building Industry Fairness (Security of Payment) Act (“BIF”) was recently passed by the Qld government and has now received royal ascent.
At a high level, the major reforms affected by BIF include:
- Introducing an obligation on head contractors on commercial projects to quarantine funds in Project Bank Accounts;
- Modifying the obligations of contractors when dealing with claim disputes (previously covered by (‘BCIPA’));
- Re-introducing mandatory financial reporting for building companies to the QBCC; and
- Introducing new measures and powers to allow the government to stop corporate phoenixing.
The legislation responds to subcontractors concerns regarding security for payment on large construction jobs and has been quite controversial, in particular the introduction of PBA’s (discussed in previous updates both here and here).
In our third instalment exploring the potential impact of BIF, we look at reforms to BCIPA and the regulatory role of the QBCC
Financial requirements and amendments to the QBCC Act
The QBCC changes proposed by the Bill can be broadly categorised as follows:
- Reinstating mandatory annual financial reporting for building companies (repealed by the previous LNP government in 2014);
- Preventing corporate phoenixing (creating new companies to continue the business of an insolvent company that is placed into external administration in order to avoid repaying creditors);
- Introduction of mandatory and prohibited conditions for head contractors when engaging subcontractors (not yet released)
The proposed amendments to the Queensland Building and Construction Commission Act 1991 (Qld) aim to regulate corporate phoenixing by extending the concept of “excluded individual” to a person who was a director or an ‘influential person’ of a company within 2 years of it going into liquidation. ‘Influential person’ is defined as someone who “controls or substantially influences” the company’s conduct. Accountants and Lawyers will be pleased that definition does not appear to include professionals providing advice.
Most representative bodies are in agreement on the changes proposed for the QBCC consider the changes will assist mitigate the financial risk of industry participants. However the Minimum Financial Requirements (“MFR’s”) themselves remain subject to the same criticism’s that existed prior to the 2014 changes, namely:
- The financial information presented to the QBCC at the time of renewal may be significantly aged (potentially 4 months may have passed from the end of the financial period being reported to when the report is actually lodged with the QBCC).
- Net Tangible Asset calculations may be able to be inflated by way of ‘Deed of Covenant/ Assurance’ from director related entities with net unencumbered real assets. The problem here is that the value of the covenanted assets may dissipate and the licence holder has no registered security interest in the subject property or legal ability to control this risk.
In summary, the QBCC should not be relied upon as credit rating agency, make your own enquiries.