The Construction Contracts Bill, which is due to be passed into law later this year, presents a number of dilemmas from an insolvency perspective.

Although the thrust of the Bill is aimed at improving cash flows between the parties to a construction contract, the Bill, in its current form, nevertheless fails to give adequate protection to contractors from insolvent head contractors and employers. In particular, the Bill does not provide for the creation of security interest in favour of contractors who are owed money by their head contractors or employers under their construction contracts.

Parliament has expressly rejected the establishment of mandatory bonding system (as exists in New South Wales) whereby head contractors would be required to put up a bond for a percentage of the contract price in order to provide contractors and subcontractors some form of security for payment.

There are further problems for contractors and subcontractors in relation to monies received from the head contractor or employer. In the event that the head contractor or employer is subsequently put into liquidation, any payments that were received by the contractor may be considered to be voidable preferences with the result that such payments may have to be paid back to the liquidator.

The Finance & Expenditure Committee has submitted its report regarding proposed changes to the Bill to Parliament. However at this stage it is unclear what, if any, changes will be made by Parliament.

This is a general summary only and should not be taken as a substitute for specific advice.

For further information, please contact Iain Thain:
iain.thain@phillipsfox.com

Web site: Phillips Fox