The recent collapses of Gold Coast-based GCB Constructions and Chelbrooke Homes have sent shockwaves through the construction sector with significant repercussions for the local area. Attwood Marshall Lawyers Commercial Litigation Partner and NSW Law Society Accredited Specialist in Dispute Resolution Charles Lethbridge looks at the crisis engulfing the Australian construction landscape and what affected subcontractors, creditors, and owners should be doing to minimise their losses.
Introduction
Last month’s collapse of Gold Coast-based GCB Construction is the latest in a string of company failures gripping the sector. Scarce building supplies, blocked supply chains, unprecedented demand and staggering trade cost blowouts are creating the perfect storm, leaving construction companies teetering on the edge of collapse.
According to Australian Property Investor Magazine, several building companies are collapsing every day in Australia. More than a third of the 7,578 companies that entered administration or had an external controller appointed for the first time in the 2022-23 financial year were in the building sector.
It’s an extraordinary situation because, on the one hand, Australia is experiencing a building and construction boom, with new houses and residential units being built rapidly to keep up with demand. However, on the other hand, several companies need help to stay solvent, notwithstanding the amount of work offered to them.
When a building company ‘goes under’ or goes into voluntary administration or is wound up, there are substantial and long-lasting impacts for all stakeholders involved, including subcontractors, creditors and shareholders.
GCB Constructions collapses, halting several major Gold Coast projects
GCB Constructions entered voluntary administration a day after the Queensland Building and Construction Commission (QBCC) cancelled its license for allegedly failing to pay its debts.
The company was forced to halt work on 25 July 2023, and a creditor of the company has reportedly commenced winding up proceedings, which is ongoing in the Supreme Court of Queensland.
The administrators have terminated six major development projects, including two hospitals, while other builders have taken over sites at Kangaroo Point, Bilinga, Benowa and Varsity Lakes.
GCB Construction’s collapse is likely to have a long-lasting impact on everyone involved, and the domino effect of major Australian builders collapsing is occurring at an alarming trend.
Since the company’s woes made headlines, Gold Coast building company Chelbrooke Homes has also entered liquidation. Brisbane construction company DCB Developments – with a client list including KFC, Guzman y Gomez and Hungry Jacks – also called in liquidators, owing almost $400,000 to its subcontractors.
The Australian Financial Review has reported warnings that the construction industry is facing its “grimmest” period in 45 years with predictions that it will only get worse.
There are steps struggling companies can take to address their financial problems before they spiral out of control. To mitigate the risks, they should seek expert legal guidance on insolvency, directors’ liabilities and how to take advantage of the insolvency’ safe harbour’ provisions.
Subcontractors and creditors also have avenues they can pursue to recover the debts they’re owed from companies that have succumbed to administration or liquidation.
The administration process – step-by-step
GCB Constructions went into administration, which is different to liquidation. When a company enters liquidation, business ceases, and liquidators commence winding up the company. However, with voluntary administration, an administrator (as opposed to liquidators) assesses the company’s viability to see whether they can save the company and provide a better return to creditors.
The administrator of GCB Constructions from SV Partners, Adam Kersey, told the ABC that he would be working with the developers to transition projects to new builders to minimise any loss to subcontractors. He also said that he would be undertaking enquiries into the company’s financial position, including the potential completion of any contracts by third parties.
The appointment of administrators to the company is a positive step by the directors of a company in financial trouble.
Generally, a voluntary administrator is appointed to a company when directors have passed a resolution that the company is insolvent or likely to become insolvent soon.
After taking control of the company, the administrator investigates and reports to creditors about the company’s business, property affairs and financial circumstances. The administrator investigates the company’s business to ascertain whether it is in the interests of creditors to allow the company to continue in some form, usually set out in a Deed of Company Arrangement (DOCA).
The administrator will try to determine possible solutions to the company’s problems and assess any proposals put forward for the company’s future.
What should creditors do?
When a business enters administration, creditors, including subcontractors, must contact the appointed administrator and inform them of the debt they’re owed.
The administrator must hold a creditors’ meeting within eight business days after the voluntary administration begins. They must notify all known creditors with written notice of the meeting and advertise it on ASIC’s published notices website.
Sub-contractors and other parties working on the company’s projects have certain rights and protections.
Depending on the size of the debt owed, creditors should attend the first creditors meeting to ascertain what plan the administrator has for the company and to become apprised of the preliminary view of whether the company can be saved and, importantly, when it will be able to pay their debt.
There will then be a second creditors meeting to decide the company’s future once the administrator has conducted investigations into the company’s affairs and formed an opinion on whether to enter a Deed of Company Arrangement. Under such a deed, the company aims to pay all or part of its debts, or there is a decision to wind up the company or return it to the directors.
Before the second creditors meeting, creditors should be provided with several documents, including a Notice of Meeting, the voluntary administrator’s report, the voluntary administrator’s statement and a claim form (a proof of debt), which creditors must complete and return to the administrator.
For owners who have paid a deposit on a development, it can be an understandably concerning situation. Owners can also contact the administrator to learn more about the development status, the potential for completion, and how deposits are handled.
[UPDATE: Since publishing this blog, GCB Constructions has been wound up and placed in liquidation. This news was reported by local media on 7 November 2023.]
Attwood Marshall Lawyers – experts in the building and construction sector
At Attwood Marshall Lawyers, we aim to support businesses and individuals facing difficult times. Our dedicated litigation and dispute resolution team can help companies and their directors understand their options and what processes they need to follow to either get their business through financial uncertainty or wind up a business as cost-effectively and efficiently as possible.
With multiple expert construction litigation lawyers, and a strong understanding of the legal options available to its clients in this industry, Attwood Marshall Lawyers is now one of the leading firms on the eastern seaboard specialising in the building and construction sector.
If you are involved in a dispute, need advice about debt recovery, or options for your business facing liquidation and bankruptcy, please get in touch with our Commercial Litigation Department Manager, Amanda Heather at (07) 5506 8245, email aheather@attwoodmarshall.com.au or free call 1800 621 071 to find out where you stand.
