The latest wave of reforms to hit the construction industry in Queensland is causing more than just a ripple. You can now be automatically excluded from acting as a director or senior manager of a construction company for 3 years, even if you are not at fault.
You can lose your livelihood quickly
The construction game has always been competitive and risky. There are traps everywhere. Despite this, people still tend to be surprised and upset when things go bad.
It gets much worse in Queensland. The consequences for not paying close attention to the financial health of your company can result in you losing your livelihood beyond what happens in a typical insolvency.
Under the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act), you can be excluded from acting in management of a construction company if:
- You are an influential person in a construction company that has been wound up or a liquidator or administrator has been appointed; or
- You personally become bankrupt or enter into a personal insolvency agreement.
Are you an influential person?
As a director, under corporations law, you may become personally liable for debts incurred while carrying on an insolvent business. You could also be in breach of other duties owed to the company depending on the circumstances.
Under the QBCC Act, you will also be excluded from acting in management of any other construction company if you are an ‘influential person’ to that business. You don’t have to hold the title or office of director to be excluded. You could be a senior manager, decision-maker, substantial financial stakeholder or other influential officer.
Any other company in which you are a director, secretary or ‘influential person’ also becomes an excluded company unable to carry out building work.
This regime is intended to protect consumers and the construction industry generally. However, companies sometimes fail through no fault of the individuals involved. Times are tight. Disaster can be only one bad project or one non-payment away.
When disasters happen, good honest people can suffer when they become excluded individuals. This regime can prevent you from picking up the pieces and moving on.
Is there anything I can do about it?
The simple answer is no.
Prior to 1 July 2015, you could apply to the QBCC or the Queensland Civil and Administrative Tribunal (QCAT) to be allowed to act in management of another construction company as a ‘permitted individual’.
You had to demonstrate that you took all reasonable steps to prevent the insolvency of the company. Cases where people became permitted individuals include where management was split between directors who separately handled the financial and construction sides of the business, with little or no overlap. Other cases include where the company failure resulted from one director ‘cooking the books’, or from the company receiving poor (or even negligent) legal or financial advice.
Despite it being difficult and rare to become a ‘permitted individual’, you still had one last resort to protect your livelihood.
As of 1 July 2015, you now have no avenue of appeal. This harsh reality means that even if it is by the fault of another director or your business partner, you will be excluded.
Even if you received poor advice, you will still be excluded. You cannot appeal to the QBCC. You cannot appeal to QCAT. You will be excluded from management for three years. Obviously this can severely impact your employment prospects, income, and livelihood and in the interim period.
You may however work for someone else while holding a site supervisor grade licence. This will be cold comfort for you if you got ‘off the tools’ long ago and your experience, capabilities, and value to the market lie in management and leadership of companies more generally.
How do I avoid this risk?
Obviously, avoiding company insolvency in the first place is the most important thing.
Get back to basics. Do what already works. Don’t take shortcuts and don’t assume that bad things won’t happen to you.
Basic steps to avoid losing your company, your licence, and your livelihood include:
- Choose your business partners, your clients, and your suppliers carefully.
- Negotiate, understand and manage your contracts (see our previous article here).
- Understand the legislative framework in Queensland and the powerful tools to get paid, including under the Building and Construction Industry Payments Act or the Subcontractors’ Charges Act (see our previous article here).
- Protect yourself against insolvency up and down the contractual chain (see our previous article here).
- If all else fails, ensure that your personal assets are suitably protected in the event of company insolvency.
- Don’t delay in seeking advice where necessary.