Builder in financial trouble? Here’s how to get as much of what you’re owed as possible.


In our previous blog post, we discussed the possibility of the builder you’re working for becoming insolvent. In particular, we talked about reducing the risk of being caught out and not getting paid for the work you’ve done.

Unfortunately, a builder may not even realise they’re in financial trouble until it’s too late. And even if they do know, they may try to keep it a secret for as long as possible.

So what should you do if you do get caught out?

If you don’t get paid

You’ve sent through your invoice, but it hasn’t been paid. Here are a few things you can try.

Send a friendly reminder

As you know, a building project generates a lot of paperwork. And your invoice may be at the bottom of the pile. So send them a reminder, and maybe re-send the invoice while you’re at it.

Give them a call

If they’ve received your invoice but aren’t paying it, chances are it’s because:

  • there’s a dispute
  • they can’t pay it.

Either way, it’s something you should find out.

Enter a payment arrangement.

Naturally, you want your invoice paid in full. But getting at least some of the money helps maintain your cash flow and reduce the outstanding amount, which is better than nothing.

However, putting off taking any action for a payment arrangement can limit your BCIPA or subcontractor’s charge rights. So you need to balance the payment arrangement’s timeframe with the rights you want to keep if you don’t get paid.

Seek adjudication under the BCIPA process

An adjudicator confirming you’re owed a debt is equivalent to a judgement owed by the debtor. But it’s worth talking to a lawyer when it happens, as you need to observe specific timeframes to comply with the BCIPA process.

Consider reporting your unpaid debt to the QBCC

When the QBCC receives a ‘monies owed’ complaint, they’ll ask the builder to show cause. The builder may have their licence suspended, forcing them to stop all work and perhaps enter liquidation. But remember: liquidation will have serious consequences for the builder’s ability to recover money its owed by principals, so consider whether it will actually help you get paid.

Issue a subcontractor’s charge

A subcontractor’s charge secures your debt over any money the principal/developer owes the builder. It means the principal/developer will have to pay your debt first, with the builder getting whatever’s left.

Subcontractor’s charges are easy to get wrong , so you should get help from a specialised building and construction lawyer. However, there are two things you need to know:

  1. You need to serve the charge within three months of completing the work.
  2. You need to file court proceedings within one month of serving the charge.

Issue a statutory demand

If your debt isn’t disputed, you can have your lawyer issue a statutory demand. Cheaper and faster than filing court proceedings to seek a judgement, this option gives your client 21 days to pay their debt. And if they don’t pay within that period they’re presumed insolvent, at which point you can start winding up proceedings against them.

File a claim to seek judgement

If your debt is disputed you’ll need to file a court claim to seek a judgement, which can then be used to start winding up proceedings against your client. However, returns to unsecured creditors during a liquidation are limited at best, so you should consider whether filing a claim will help you get paid. Don’t return to the site or supply materials on account without some payment

The builder may promise you all sorts of things to keep you on the site. But promises don’t pay the bills, and the last thing you want is to be out of pocket for the benefit of the builder or principal.

If the builder can’t pay you, maybe the developer can. After all, it’s in their best interests to get you back onsite, so ask them to pay at least some of your debt before you do any more work.

Stabilise your own cashflow

If your own business is struggling to pay its expenses and has unpaid or outstanding customer invoices, you may be able to quickly access funds with debtor finance. You can choose to finance some or all unpaid invoices, and for subcontractors you need a financier that will fund progress claims, and credit insurance is sometimes also included for extra. Lee Trego of Scottish Pacific specialises in debtor finance facilities for the construction industry.

If the builder enters administration or liquidation

If the builder is in serious financial trouble, chances are they’ll soon be going into administration or liquidation. And when that happens, you really need to keep your wits about you to have any chance of getting paid. Here are a few tips to help you.

Exercise the rights under your credit terms

This may include:

  • collecting materials you’ve supplied under retention of title terms
  • pursuing personal guarantees
  • lodging caveats over the company’s and director’s properties to give you priority for payment of your debts.

Be wary of lodging a ‘proof of debt’ if you already have a subcontractor’s charge

Holding a subcontractor’s charge makes you a secured creditor, which gives you priority over other unsecured creditors in terms of getting paid. But if you also submit a ‘proof of debt’ in a liquidation, you may end up becoming an unsecured creditor, which lowers your chances of getting paid significantly.

While a proof of debt does allow you to vote at a creditors meeting or prove for a dividend in the liquidation, these rights may not be very beneficial to you. So if you do have a subcontractor’s charge, speak to your lawyer before submitting a proof of debt. Or at the very least estimate your security at the full amount of your debt to avoid affecting that security.

Get payment for some (if not all) of your outstanding debt before finishing the job

Chances are a new builder will be brought in to finish any incomplete projects, or the developer will do it themselves. While the principal will have additional costs to get it finished, they may well owe money to the original builder for the work they did before going into liquidation.

If the principal hasn’t yet paid the original builder, it’s reasonable to request some payment towards your outstanding debt and having a subcontractor’s charge here can really help because any money the principal pays to you under your charge comes directly out of the money they owe the builder.

Consider pursuing a claim against the director for insolvent trading

Liquidators generally pursue insolvent trading claims against the director on behalf of all the company’s creditors. But if the Liquidator doesn’t pursue such a claim, you can take the same action in respect of your own debts. After all, you are a creditor.

We sincerely hope you’re never in a position where you need to consider actions such as these. But if the worst comes to the worst, taking the steps above and in our first blog post will help protect your business and give you the best chance of getting paid.

And of course, if you’re having trouble with a builder paying you, not sure what to do, or you’d like information about specialist building lawyers or accountants, don’t hesitate to get in touch with me:

Jarvis Archer



Posted on 22-02-17 in Business insolvency, Money management and bankruptcy.