Creditors in the building and construction industry are being urged to make debt recovery a priority, following a decision in the NSW Supreme Court, which determined creditors will lose all rights once their debtor has gone into administration unless they obtain judgment beforehand.

According to Ms Millie Teh from the Commercial Disputes and Transactions team at law firm TurksLegal, “this groundbreaking judgment clearly answers questions around the Security of Payment and Contractors Debts Acts. Subcontractors owed money must act quickly as any delay in completing the debt recovery process could mean a complete loss.”

Ms Teh warned that this is a very serious concern for Australian subcontractors with a high percentage of Australian building companies regularly going into administration, often as soon as a building is completed.

Research from the ASIC revealed that in 2011 – 2012, construction companies accounted for over one-fifth (22.1%) of all Australian insolvencies.

Ms Teh used the example of the recent Modcol v National Buildplan Group [2013] NSWSC 380 case, in which Buildplan was liable to pay the subcontractor Modcol $1.3m under the Security of Payments Act, the alternative debt recovery process for the construction industry in NSW.

Two days before the summons was filed, Buildplan was placed into administration and Modcol sought to recover the payment of the debt from the project’s principal contractor (Health Infrastructure) under the Contractor Debts Acts (CDA).

Leave was initially granted by the court but later revoked when the Court determined that requiring Buildplan to pay the debt would, amongst other things, be contrary to the purpose of administration under the Corporations Act to keep the business trading and in addition, there was evidence of insufficient funds on the part of Health Infrastructure to discharge the debt.

“While the SOPA and CDA can be effective debt recovery regimes for creditors, this case has shown they should not hesitate or delay in issuing payment claims on debtors and furthering the process immediately if that is unsuccessful,” said Ms Teh.

Architecture & Design Team

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