Head contractor insolvency is one of the most financially damaging events a subcontractor can experience. Work has been performed, materials have been supplied, but the head contractor enters administration or liquidation before payment is made. What the subcontractor can recover depends on how quickly they act, what security of payment claims have been made, and what protections exist under the applicable state legislation.
Security of payment claims — lodge immediately
If you have not yet lodged a payment claim under the applicable security of payment legislation, do so immediately on becoming aware of the head contractor's insolvency. In most states, an administrator or liquidator can be served with a payment claim and must respond. If an adjudication determination has already been made in your favour, that determination is enforceable as a judgment debt and ranks ahead of other creditor claims in some circumstances.
Security of payment claims are time-sensitive. Each state legislation specifies reference dates from which claims can be made and timeframes within which claims must be submitted. If you miss the window, you may need to wait for the next reference date — which may not occur if the head contractor's affairs are wound up quickly.
Retention monies
Construction retentions — amounts withheld from progress payments to secure performance — may be held in trust by the head contractor (depending on the applicable state legislation and the contract terms). In Queensland, the Building Industry Fairness (Security of Payment) Act 2017 requires head contractors to hold subcontractor retention monies in a dedicated project trust account, which protects those monies from the head contractor's insolvency. In other states, retention monies may be unsecured and form part of the insolvent estate.
Check whether your contract includes a retention trust requirement, and whether the head contractor has complied with it. If trust monies exist, you have a priority claim to them.
The PPSA and plant and equipment
If you have supplied goods or plant to the project and have a registered PPSA security interest, you may be able to repossess those items from the insolvency estate. This is particularly relevant for plant hire companies and equipment suppliers. PPSA registration must have been made before the insolvency appointment — registration made after is ineffective.
Lodging a proof of debt
Register as a creditor in the administration or liquidation by lodging a proof of debt with the appointed administrator or liquidator. Submit all supporting documentation — invoices, payment claims, delivery dockets, correspondence. This is the mechanism through which you participate in any distribution from the insolvent estate. Unsecured creditors in construction insolvencies typically receive cents in the dollar, if anything.
Principal contractor payments
In some circumstances, subcontractors can make a claim directly against the project principal (the property developer or building owner) for amounts owed by the head contractor. The availability of this mechanism depends on the principal's contract with the head contractor and whether the principal has obligations to subcontractors under the applicable legislation or equity.
Contact Merion if your head contractor has entered administration or liquidation — the time-sensitive nature of SoP claims and PPSA rights means early advice is critical.