The construction industry has been hit really hard in the last few years, and the insolvency data is supporting this. In the wake of pandemic lockdowns, restrictions, strikes and supply chain issues, the construction industry has felt a huge financial pinch, and many businesses have not been able to survive the wave without becoming insolvent. In the case of bankruptcy, those in the construction industry face the same restrictions as those in any other industry. However, here’s how it will likely apply and translate to those in the construction sector, and how to get through it in the best possible way.
Why did the construction industry get hit so hard?
Many industries were, and are, grappling with the aftermath of the pandemic for different specific reasons, though similar overarching reasons. It’s less about the industry itself, and more about how the hardest hit industries tend to operate. While, yes, areas such as hospitality and tourism were more tangibly hit (people simply could not utilise or frequent their service), the insolvency spike is about the available contingency amount. Construction made up one fifth of businesses with cash buffers of less than a month’s worth of expenses; in the midst of years of disruption, that’s not a lot to work with. As a result, construction companies accounted for 26% of all insolvent businesses in 2021.
Additionally, construction is often tied to fixed price contracts (particularly where owners have required this for bank loan approvals), with the issues and costs associated with materials in the interim between contract signing and construction, this has left a lot of companies with little, if any, ‘fat’. Margins have tightened and the option of negotiation is not possible.
The overarching message though, if you are facing bankruptcy from being in the construction industry, you are not alone, and with the right support and navigation through the process, you will come out the other side.
How am I affected by bankruptcy in the construction industry?
If you’re facing bankruptcy in the construction industry, you are affected in much the same way as any person in any other sector is affected. You can read more about bankruptcy law and Covid here, and what bankruptcy means to tradies here.
The biggest impact for those in the construction industry is the automatic cancellation of your builders licence when your insolvent company enters bankruptcy. However, you are able to apply for a new one.
You do not have to action the cancellation. Upon notification of the administration of your company, NSW Fair Trading will cancel the building licence of both the company and director personally, without discretion.
When you re-apply, however, the specific circumstances of the bankruptcy will be taken into account, and NSW Fair Trading decides if the application is successful, and may place restrictions on the licence once it is. These restrictions may be that contracts do not exceed $20,000 in value, unless subcontracted by a licensed builder.
Additionally, when you petition for bankruptcy, there are some significant disruptions for a three year period as you’re classed as an ‘undischarged bankrupt’. Some of the applicable disruptions include, but are not limited to:
Restrictions on the value of your vehicle, tools of the trade or property in excess of the prescribed amounts set out in the Bankruptcy Act 1966 (depending on your circumstances).
Requirement to pay contributions from the income you earn above the prescribed amount.
Where this can be a particular strain for those in the construction industry is the need for tools, vehicles and even property as a central component of your earning ability, and navigating projects to sit exclusively within the prescribed amount. Of course, it’s not to say you cannot have these things in your possession nor that you cannot actively gain employment, but rather there are disruptive restrictions around doing so.