HBCF: Beware the unintended consequences of insolvency

COVID restrictions during July saw most Sydney construction sites shutdown for two weeks. During that time, much of the media coverage warned of the increased risk of insolvency for those builders affected by the shutdown.

Where a company is facing significant financial hardship, one of the options available to directors is to appoint an insolvency practitioner to manage the affairs of the company. This is almost always a difficult decision to make and usually follows a period of significant stress for all stakeholders involved. However, it is often the only viable option that remains.

One of the issues that we come across is where a builder has liquidated a company and then seeks to apply for a HBCF facility under a new entity.

The icare HBCF Eligibility Manual lists some ‘Fatal Scenarios’ that are deemed to make a builder ineligible for HBCF insurance. One of the Fatal Scenarios is where creditors have incurred losses due to the external administration of a company within the last 5 years.

That is, if you’ve been a director (or key manager) of a company that has been in liquidation within the past 5 years it is unlikely that you will be able to obtain a HBCF eligibility facility.

We find that more often than not, builders are not aware of the implications of liquidation and so the subsequent inability to get a HBCF eligibility facility can cause significant distress.

If your business is experiencing financial hardship, seek advice from your accountant or financial advisor as early as possible. The earlier that advice is sought, the more options that will be available to put your business back on the road to recovery. 

Our specialist eligibility team are available to answer any HBCF queries you have. Please contact us on (02) 8586 3555 or by email at nswwarranty@mbib.com.au