ONCE again, the collapse of a building company has thrown a light on the consequences for downstream contractors.
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Mayfield's Harvest Homes has gone into liquidation with estimated debts of at least $3.5 million, with very little chance of any of the company's construction subcontractors, as unsecured credtitors, retrieving their losses from the collapse.
As difficult as such situations will be for the customers of a failed builder, at least the home owner has a modicum of protection through mandatory home warranty insurance. This scheme, now known as "home building compensation cover", is run by the State Insurance Regulatory Authority, or SIRA, which also operates the green slip and workers' compensation systems in NSW.
Although not foolproof, recent changes to the system appear to have helped stabilise the industry, by putting limits on the number and value of projects that individual home builders can legally undertake, depending on their size. It should be noted, however, that this scheme is limited to buildings of three storeys or less, which is a major reason why the owners of faulty apartments have been left holding the can.
If the insurance changes are helping, another piece of government protection - "security of payment" legislation introduced in 1999 - still appears to be less than satisfactory when it comes to protecting subcontractors in the housing industry.
Thornton landscaper Matt Urban reports losing $50,000 in two recent collapses, including Harvest Homes, saying it was the "tradies and suppliers left out in the cold again".
While the security of payment scheme may give subcontractors a theoretical right to claim their debts, industry advisers say it is of little use against an insolvent company, where there will rarely be the money available to pay such a claim.
As the parliamentary inquiry into faulty apartments has already heard, it can be difficult to ascertain responsibility - or apportion blame - when things go wrong in the building game. With a lot of the heat going out of the housing market, the home-building industry may well be experiencing a related downturn. While every building company collapse will be different, the outcomes tend to be the same for unsecured creditors. A review of the security of payment laws would be a help in this regard.
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