Are Builders Personally Liable in Queensland?

Are Builders Personally Liable in Queensland?

When asking “Are Builders Personally Liable“, many Queensland builders operate through proprietary limited companies under the assumption that incorporation provides complete protection from personal liability.

While corporate personality remains a fundamental principle of Australian company law, that protection is neither absolute nor impenetrable.

In practice, builders may face significant personal exposure when companies collapse, particularly when statutory obligations, regulatory compliance, or insolvent trading provisions apply.

The High Court has emphasised that the legal consequences flowing from corporate insolvency extend well beyond mere commercial inconvenience.

In Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth [2019] HCA 20, Kiefel CJ, Keane and Edelman JJ observed at [2]:

The context in which the question arises is one where, for more than a century, employees have had priority in the distribution of property by liquidators over the holders of a floating charge or, as it is now described, a circulating security interest.

Although this decision concerned trust assets and employee priorities, it illustrates a broader principle: insolvency law is fundamentally protective of vulnerable stakeholders, and statutory mechanisms regularly displace private commercial arrangements.

For builders, this means corporate failure frequently triggers personal statutory accountability, particularly under the Corporations Act 2001 and Queensland’s building regulatory framework.

In the article below, our building and construction lawyers explain the key legal mechanisms that drive that exposure and outline practical strategies that Queensland builders can implement to reduce personal liability and protect long-term financial security.

Queensland Statutory Insurance Scheme and Director Exposure

When asking “are builders personally liable“, Queensland’s statutory insurance regime fundamentally reshapes the traditional risk boundaries for builders operating through corporate structures.

Unlike ordinary commercial creditors, the Queensland Building and Construction Commission (“QBCC”) possesses statutory recovery powers that allow it to pursue the recovery of insurance payouts directly from builders, notwithstanding corporate insolvency, deregistration, or liquidation.

The regulatory rationale underpinning this regime is made explicit in Shilleto v Queensland Building and Construction Commission & Ors [2024] QCAT 137, where Member Olding observed at [4] that:

The objects of the QBCC Act, set out in s 3, include: (a) to regulate the building industry – (i) to ensure the maintenance of proper standards in the industry; and (ii) to achieve a reasonable balance between the interests of building contractors and consumers; (b) to provide remedies for defective building work.

This legislative statement is critical. It confirms that consumer protection and industry regulation, not corporate risk limitation, lie at the heart of Queensland’s building control framework.

As a result, statutory mechanisms operate to ensure that the financial consequences of defective or incomplete work are not extinguished merely by corporate collapse.

The Court of Appeal decision in Mahony v Queensland Building Services Authority [2013] QCA 323 establishes that Queensland’s statutory recovery regime is designed to operate independently of corporate solvency, permitting recovery against those legally responsible for the building work.

Although the Court’s reasoning is primarily doctrinal, the case firmly establishes that liquidation of the building company does not defeat the regulator’s statutory right of recovery.

In practical terms, when asking “are builders personally liable“, this means that Queensland builders who trade through corporate entities remain exposed to personal recovery actions where the QBCC has paid out claims under the statutory insurance scheme.

That exposure is not merely theoretical: in litigation practice, it is common for recovery proceedings to be commenced years after company deregistration, often when the builder has resumed trading through new entities.

The regulatory approach is further reinforced by the Tribunal’s consistent application of strict statutory compliance thresholds. In Ahmet v Queensland Building and Construction Commission [2022] QCAT 417, Member Bertelsen confirmed at [2] that:

Ms Ahmet can only apply for assistance under the Queensland Statutory Insurance Scheme for structural defects if a claim is made within three months of the day she became aware or ought reasonably to have become aware of the defect in the work.

This strict temporal framework underscores the broader regulatory philosophy: the statutory scheme is not discretionary or forgiving but rather operates according to rigid legislative triggers.

Taken together, these authorities establish a clear regulatory environment in Queensland: statutory insurance operates as a consumer protection mechanism of first resort, and recovery against builders is an intentional and integral component of that system.

For corporate builders, the practical implication is stark. Insolvency or deregistration does not prevent the crystallisation of substantial personal financial liability, particularly where:

• The builder was the licensed contractor.
• The builder exercised operational control over the work; or
• Defects arise after corporate failure.

This statutory framework is a defining feature of Queensland construction risk and materially distinguishes Queensland from other Australian jurisdictions, where regulator-driven personal recovery is generally narrower in scope.

Insolvent Trading: The Primary Source of Director Personal Liability

Under s 588G of the Corporations Act 2001, directors are personally liable where a company incurs debts while insolvent, or where there are reasonable grounds for suspecting insolvency.

In the construction industry, where businesses operate on volatile cashflow cycles, this provision represents the most frequent pathway to personal exposure following corporate collapse.

The operation of the insolvent trading regime was analysed in detail in Hall and Ors v Poolman and Ors [2007] NSWSC 1330. In explaining the nature of insolvency, Palmer J approved earlier authority emphasising that solvency is assessed by reference to commercial reality rather than accounting formalism, stating at [103]:

Whether a company was unable to pay its debts as they fell due from its own money was a question of fact to be decided as a matter of commercial reality in the light of all of the circumstances ‘not merely by looking at the accounts and making a mechanical comparison of assets and liabilities’.

This observation is particularly significant for Queensland builders, whose companies often appear to show apparent balance-sheet strength while experiencing acute liquidity stress due to delayed progress payments, retention regimes, and rising material and labour costs.

Read more here – When is a Company Insolvent?

The Court further emphasised that insolvency is fundamentally a practical commercial concept, rather than a technical accounting exercise:

Clearly, his Honour was concerned to underline the statement of Thomas J to the effect that insolvency was not identified by some mechanical comparison of financial figures but was ascertained as a matter of commercial practicality and realism.

This approach materially lowers the threshold at which builders may be found to have crossed into insolvency.

In practical terms, ongoing reliance on extended supplier credit, deferred taxation liabilities, and delayed subcontractor payments may constitute strong indicators that debts are no longer being paid as and when they fall due.

Importantly, the decision illustrates how directors may be exposed even where they believe that short-term liquidity issues will be resolved. Palmer J found at [335] that by a particular point in time, the director:

… ought to have appreciated that there was no reasonable prospect of the [company] resolving in the short term its dispute… and of being able to realise assets quickly enough to pay [its] debts as they fell due.

When asking “are builders personally liable?“, for Queensland builders, this reasoning highlights the danger of continuing to trade in the hope of regulatory, contractual, or financing relief.

Once objective indicators suggest that debts cannot be paid in the ordinary course of business, directors may become personally liable for any further debts incurred, irrespective of any subsequent recovery.

In the construction context, this liability often coincides with QBCC regulatory intervention, statutory insurance claims, and licensing sanctions, compounding the financial and professional consequences of corporate insolvency.

Phoenix Activity and Corporate Restructuring Risk

Corporate restructuring following financial distress is not inherently unlawful. However, where restructuring is deployed to strip assets, defeat creditors, and preserve business continuity through new entities, directors and professional advisers may face substantial personal exposure.

In Australian Securities and Investments Commission v Somerville & Ors [2009] NSWSC 934, Windeyer AJ described at [7] the recurring factual pattern underpinning illegal phoenix arrangements:

In each case the company, sometimes through introduction of an accountant, and sometimes direct, sought advice of Somerville as to its position and courses of action open.

His Honour explained that the advice consistently led to a corporate migration strategy, observing at [9]:

In each of the transactions in question there then followed a course of action in which the old company ceased to trade, a new company was formed usually with a similar name, and an agreement was entered into between the old company and the new company transferring the assets of the old company to the new company.

Critically, these transactions were structured so that trade creditor liabilities remained behind, while the business itself continued through a new entity:

The trade creditor debts of the vendor company would remain with the vendor.

The Court found that these arrangements involved serious breaches of directors’ duties, rejecting the notion that legal formality or professional advice could sanitise the conduct. Windeyer AJ decided:

Breaches of ss 181, 182 and 183 established. Involvement of solicitor established.

For Queensland builders, this authority is particularly instructive. Asset transfers, entity migrations, and the recommencement of operations through new companies are frequently undertaken following insolvency and may expose directors to personal liability when the purpose or effect is to defeat creditors or regulators.

In Queensland, such exposure is amplified by QBCC enforcement coordination with ASIC, particularly where statutory insurance claims have been paid, or licence compliance is in issue.

In practical terms, phoenix-style restructuring frequently converts commercial insolvency into regulatory misconduct, attracting:

• Personal civil liability;
• Director disqualification;
• Asset clawback; and
• Potential criminal investigation.

Director Duties and Financial Oversight

Queensland builders who operate through corporate structures often assume that financial governance may safely be delegated to accountants, project managers, or administrative staff.

That assumption is inconsistent with modern Australian director duty jurisprudence.

Section 588E of the Corporations Act 2001 (Cth) provides for the presumption of insolvency if a company fails to maintain proper financial records as required by section 286. Specifically, subsection 588E(4) allows a court to presume the company was insolvent throughout the period for which records were not kept.

In Australian Securities and Investments Commission v Healey [2011] FCA 717, Middleton J emphasised that directors occupy the apex of corporate governance and cannot abdicate responsibility for financial oversight, stating at [14]:

A director is an essential component of corporate governance

His Honour further observed that the importance of directors’ roles extends beyond shareholders to the broader community, including creditors:

The role of a director is significant as their actions may have a profound effect on the community, and not just shareholders, employees and creditors.

Central to the Court’s reasoning was the obligation upon directors to engage personally with financial information, rather than relying on others. Middleton J stated at [17]:

All directors must carefully read and understand financial statements before they form the opinions which are to be expressed in the declaration required by s 295(4).

That obligation exists irrespective of a director’s professional background, as the Court made clear at [18]:

A director is not relieved of the duty to pay attention to the company’s affairs which might reasonably be expected to attract inquiry, even outside the area of the director’s expertise.

For Queensland builders, these principles have acute practical significance.

Construction businesses operate in a high-risk financial environment characterised by volatile cash flow, retention regimes, progress payment dependencies, and the risk of regulatory intervention.

Directors who fail to actively interrogate financial information, particularly during periods of stress, expose themselves to personal liability under insolvent trading provisions and QBCC statutory recovery mechanisms.

In combination with the strict regulatory architecture governing Queensland’s building industry, ASIC v Healey confirms that directorial passivity is no defence.

Builders who hold directorships must therefore treat financial oversight as a core operational responsibility rather than a peripheral administrative function.

Trust Structures, Trustee Liability and the Limits of Asset Protection

Many Queensland builders operate through discretionary or unit trust structures in the belief that this provides enhanced protection against personal liability.

While trusts may offer tax and asset segregation benefits, they do not provide immunity from personal exposure, particularly where the trading entity acts as trustee.

In Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth [2019] HCA 20, the High Court reaffirmed the fundamental principle that a trustee is personally liable for debts incurred in the execution of the trust, subject only to a right of indemnity from trust assets.

Kiefel CJ, Keane and Edelman JJ stated at [24]:

A trustee is personally liable for the debts incurred in the performance of the trust and is entitled to be indemnified out of the trust assets for liabilities properly incurred.

That right of indemnity is not absolute. The Court emphasised that the trustee’s entitlement depends upon proper performance of trust obligations, observing at [17]:

The trustee’s right of indemnity is proprietary in nature, but it is lost where the trustee has acted in breach of trust.

For Queensland builders, this distinction is critical.

Where a trustee company engages in insolvent trading, statutory non-compliance, phoenix-style restructuring, or regulatory misconduct, the trustee may lose its right of indemnity, exposing directors to direct personal liability without recourse to trust assets.

In practical terms, Queensland builders who trade through trusts must recognise that trusts shift risk they do not eliminate it.

Where financial stress, regulatory intervention, or insolvency arises, trust structures frequently magnify rather than reduce personal exposure, particularly when combined with QBCC statutory recovery mechanisms and insolvent trading provisions.

QBCC Post-Insolvency Recovery Actions

Queensland’s statutory insurance framework materially increases “long-tail” exposure for builders after company failure.

Where the QBCC (or its predecessor) pays a claim under the statutory insurance scheme, Mahony v Queensland Building Services Authority [2013] QCA 323 confirms that the statutory recovery right is triggered by the fact of payment, and is not contingent on re-litigating the underlying claim assessment in the recovery proceeding.

Gotterson JA stated at [34]:

It is sufficient for recovery under the section that the authority have made a payment on a claim under the insurance scheme.

His Honour continued:

The statutory right to recover is not conditioned upon the legal quality of a determination by the authority to make the indemnity payment or of any anterior step taken by the authority that had led to the decision to pay.

For Queensland builders, the practical point is that once an insurance payout has been made, the recovery mechanism can operate in a way that is structurally difficult to resist in debt recovery proceedings, particularly if review avenues were not pursued at the time.

The Court also made clear the nature of the right conferred, as stated at [34]:

Section 71(1) confers a right to recover as a debt from any of the designated persons ‘any payment on a claim under the insurance scheme’.

This is why corporate insolvency is often not the end of risk for Queensland builders: statutory recovery can remain live even after liquidation and is conceptually framed as debt recovery following payment, not a fresh merits review of the underlying claim.

Importantly, this statutory recovery mechanism operates independently of conventional insolvency principles.

The fact that a payment has been made under the statutory insurance scheme is itself sufficient to enliven the recovery right, meaning that arguments based on company liquidation, deregistration, or lack of contractual privity typically provide no defence.

In practical terms, once the QBCC has paid a claim, the recovery pathway is largely insulated from the corporate entity’s financial collapse.

Licensing Consequences and Statutory Time Limits

Queensland’s building regulatory framework is characterised by strict statutory compliance thresholds, particularly in relation to insurance claims, directions to rectify, and licensing consequences.

For builders facing insolvency, this rigidity significantly magnifies downstream exposure, as technical non-compliance often triggers statutory insurance payouts and subsequent personal recovery proceedings.

In Walker v Queensland Building and Construction Commission [2021] QCAT 32, Member Hughes emphasised the inflexibility of the statutory scheme, observing at [2]:

The Tribunal is required to apply the legislation as enacted, even if that produces a harsh result in a particular case.

This observation reflects a consistent regulatory philosophy within Queensland’s building regime: statutory compliance prevails over discretionary fairness.

Once legislative thresholds are satisfied, whether through complaint lodgement, defect awareness, or regulatory inspection, the statutory machinery is engaged, often leaving limited scope for mitigation.

For insolvent builders, this rigidity has acute consequences. Defects, delays, or compliance failures that may initially appear commercially manageable often trigger statutory insurance payouts, which in turn activate QBCC recovery rights and licensing sanctions.

In practical terms, this means that insolvency often accelerates regulatory escalation, converting latent project risk into crystallised personal liability.

The intersection between insolvency and licensing compliance is particularly hazardous.

Once a builder’s financial position deteriorates, regulatory scrutiny typically intensifies, increasing the likelihood of:

• Statutory insurance claims,
• Licence suspension or cancellation,
• Director banning orders, and
• Long-tail personal recovery proceedings.

For Queensland builders, the combined effect is that licensing compliance and insolvency risk cannot be treated as separate legal domains.

Instead, they operate as interconnected exposure mechanisms, each capable of rapidly magnifying the other.

Practical Consequences for Builders Once Insolvency Indicators Arise

For Queensland builders, insolvency rarely comes as a surprise. Instead, it typically develops through progressive financial deterioration, marked by worsening cash flow, increasing creditor pressure, tax arrears, and delayed project payments.

Once these indicators emerge, the law imposes strict and escalating personal responsibilities upon directors and controllers.

In Southern Cross Interiors Pty Ltd and Anor v Deputy Commissioner of Taxation and Ors [2001] NSWSC 621, Palmer J emphasised that insolvency is not determined by technical accounting metrics alone, but by commercial reality, stating at [54]:

Whether or not a company is insolvent … is a question of fact to be ascertained from a consideration of the company’s financial position taken as a whole.

His Honour further explained that courts must assess insolvency through the lens of real-world trading conditions:

In considering the company’s financial position as a whole, the Court must have regard to commercial realities.

For builders, this is critical. Construction businesses often experience volatile project cash flow, retention delays, and dependence on progress payments, which can mask deeper liquidity problems.

The Court made clear that temporary illiquidity must be distinguished from systemic failure, observing at [57]:

The evidence … taken as a whole, compels the conclusion that from [the relevant date] onwards [the company] was not suffering merely from temporary illiquidity; it was endemically unable to pay its debts as they became payable.

This distinction is fundamental. Once financial distress moves beyond short-term disruption and becomes endemic, directors are subject to immediate statutory obligations to prevent further harm to creditors.

Continued trading in those circumstances materially increases exposure to:

• Insolvent trading claims;
• Statutory recovery proceedings;
• Director penalty regime enforcement (including tax liabilities); and
• Regulatory licensing sanctions.

Importantly, the Court rejected the idea that builders can rely on creditor patience or industry payment practices to justify ongoing trading, further stating at [54]:

The commercial reality that creditors will normally allow some latitude in time for payment of their debts does not, in itself, warrant a conclusion that the debts are not payable at the times contractually stipulated.

For Queensland builders, this means that informal creditor tolerance does not defer insolvency risk.

Even where suppliers, subcontractors, or the ATO permit delayed payment, directors remain legally bound to assess solvency based on objective ability to meet liabilities when due, not on commercial indulgence.

In practical terms, once insolvency indicators arise, builders who continue trading expose themselves to rapidly compounding personal risk, particularly where:

• Projects continue to be contracted,
• Subcontractor debts escalate,
• Tax liabilities accumulate, and
• QBCC compliance risks emerge.

Accordingly, insolvency for builders is not merely a financial event; it is a legal inflexion point that can convert corporate distress into direct personal liability.

Are Builders Personally Liable – Practical Risk Minimisation

For Queensland builders, the legal framework governing insolvency, director duties, and statutory recovery is unforgiving.

However, the law also provides clear guidance as to how personal risk can be minimised through disciplined financial governance, early intervention, and compliance controls.

The following principles, grounded in judicial authority, represent the most effective strategies for managing exposure.

A recurring theme in post-insolvency litigation is director disengagement from financial oversight.

Builders frequently delegate financial management to accountants, bookkeepers, or project managers, assuming that technical expertise displaces legal responsibility. That assumption is fundamentally inconsistent with Australian corporate law.

In Australian Securities and Investments Commission v Healey [2011] FCA 717, Middleton J made clear that financial governance remains a core, non-delegable responsibility of directors, stating at [17]:

All directors must carefully read and understand financial statements before they form the opinions which are to be expressed in the declaration required by s 295(4).

For Queensland builders, this means that hands-on financial engagement is not optional. Directors must actively interrogate:

• Monthly management accounts;
• Aged creditor and debtor reports;
• Cashflow forecasts;
• Taxation liabilities; and
• Funding assumptions underpinning ongoing projects.

Failure to do so commonly results in delayed recognition of insolvency, significantly increasing exposure to insolvent trading claims and statutory recovery proceedings.

Treat Insolvency Indicators as Immediate Intervention Triggers

Insolvency rarely arises without warning. Courts have consistently identified objective financial indicators that signal escalating risk and require immediate intervention by directors.

In ASIC v Plymin, Elliott & Harrison [2003] VSC 123, Humphris identified a range of commercial indicators that strongly point toward insolvency, stating at [386]:

Humphris, an accountant called as an expert on behalf of Elliott, agreed that a checklist of matters put to him as being indicators of insolvency, was a fairly extensive list, albeit in general terms, and brought to mind very common features in insolvency situations. The list may be paraphrased as follows:

“1. Continuing losses. 2. Liquidity ratios below 1. 3. Overdue Commonwealth and State taxes. 4. Poor relationship with present Bank, including inability to borrow further funds. 5. No access to alternative finance. 6. Inability to raise further equity capital. 7. Suppliers placing [company] on COD, or otherwise demanding special payments before resuming supply. 8. Creditors unpaid outside trading terms. 9. Issuing of post-dated cheques. 10. Dishonoured cheques. 11. Special arrangements with selected creditors. 12. Solicitors’ letters, summons[es], judgments or warrants issued against the company. 13. Payments to creditors of rounded sums which are not reconcilable to specific invoices. 14. Inability to produce timely and accurate financial information to display the company’s trading performance and financial position, and make reliable forecasts.”

For builders, many of these indicators appear routinely in the ordinary course of distressed construction trading, including:

• Delayed BAS and superannuation payments;
• Extension of supplier credit terms;
• Subcontractor payment disputes;
• Increased reliance on deposits and retentions; and
• Short-term refinancing of trade debt.

Once these warning signs emerge, directors are expected to act decisively. Continued trading without intervention is commonly the factual basis for personal liability under s 588G of the Corporations Act.

Distinguish Temporary Cashflow Pressure from Structural Insolvency

Builders frequently experience temporary liquidity constraints due to delayed progress payments, retentions, or contractual disputes.

However, courts draw a clear distinction between a short-term cash-flow interruption and a systemic inability to meet liabilities as they fall due.

Once liquidity pressure becomes structural, directors are legally required to intervene.

In Southern Cross Interiors Pty Ltd and Anor v Deputy Commissioner of Taxation and Ors [2001] NSWSC 621, Palmer J explained that insolvency must be assessed by reference to the company’s capacity to meet obligations in the ordinary course of business, stating at [54]:

Commercial realities will be relevant in considering what resources are available to the company to meet its liabilities as they fall due, whether resources other than cash are realisable by sale or borrowing upon security, and when such realisations are achievable…

His Honour contrasted this with circumstances of genuine insolvency, where financial stress reflects enduring incapacity rather than temporary disruption.

This distinction is critical in the construction industry, where builders often rely on staggered payment structures, milestone-based claims, and retention releases.

For Queensland builders, the practical implication is that temporary delay does not, of itself, establish insolvency.

However, once delays become chronic, creditor arrears accumulate, taxation liabilities mount, and supplier credit tightens, the legal character of the financial position shifts from liquidity strain to structural insolvency.

At that point, directors must take immediate corrective action. Continued trading in the face of enduring incapacity to meet debts materially increases exposure to:

• Insolvent trading claims;
• Statutory recovery proceedings; and
• Director disqualification risk.

Accordingly, builders must maintain real-time awareness of cashflow sustainability, not merely short-term liquidity fluctuations.

Delay Is the Single Greatest Risk Multiplier

A consistent feature of insolvency litigation is delay. Builders often postpone decisive action in the hope that upcoming progress payments, contract variations, or refinancing will restore stability.

Judicial authority demonstrates that this optimism frequently magnifies liability.

In Australian Securities and Investments Commission v Healey [2011] FCA 717, Middleton J emphasised that directors must actively interrogate risk, stating once again at [18] that:

Even so, a director, whatever his or her background, has a duty greater than that of simply representing a particular field of experience or expertise. A director is not relieved of the duty to pay attention to the company’s affairs which might reasonably be expected to attract inquiry, even outside the area of the director’s expertise.

For builders, this translates into a duty to escalate concerns immediately, particularly where:

• Cashflow forecasting becomes unreliable;
• Creditor arrears accumulate;
• ATO payment plans are required; or
• QBCC compliance risks emerge.

Delay during these periods is often later characterised as reckless trading, significantly strengthening insolvent trading and recovery claims.

Integrate Financial Governance with QBCC Compliance Controls

In Queensland, financial distress and regulatory exposure are structurally interconnected. Once a builder’s financial position deteriorates, the probability of:

• Defective work disputes,
• Directions to rectify,
• Statutory insurance claims, and
• Post-insolvency recovery actions

increases dramatically.

Accordingly, builders must integrate financial risk management with regulatory compliance systems, ensuring that:

• Complaints are addressed promptly;
• Rectification work is prioritised;
• Site supervision is intensified during distress periods; and
• Documentation is maintained meticulously.

These controls not only reduce the risk of defects but also materially limit statutory insurance payouts, which are the primary trigger for post-insolvency personal recovery actions.

Are Builders Personally Liable and Safe Harbour Protection

For Queensland builders, the single most effective way to minimise personal exposure once financial stress appears is early escalation not after the ATO is pressing, not after suppliers go COD, and not after progress payments stop.

The law assesses solvency as a matter of commercial reality, and directors are expected to actively interrogate warning signs, not passively hope the next claim will fix the cash flow.

That expectation of active engagement is reinforced in Australian Securities and Investments Commission v Healey [2011] FCA 717, where Middleton J rejected any suggestion that volume or complexity excuses a failure to properly engage with financial information, as stated at [229]:

The complexity and volume of information cannot be an excuse for failing to properly read and understand the financial statements.

The same decision supports a practical governance point that is especially relevant to builders: directors must adopt an enquiring mindset and actively test the reliability of the company’s financial position and disclosures. Middleton J stated at [196]:

In my opinion, these references support an obligation on directors to have an enquiring mind, and look themselves at the financial statements.

How This Connects to “Safe Harbour” in Practice

Under s 588GA of the Corporations Act 2001, directors may obtain protection from insolvent trading liability if, after suspecting insolvency, they commence and implement a course of action reasonably likely to lead to a better outcome than immediate administration or liquidation, and they keep appropriate records and comply with baseline obligations.

The key practical point for builders is that safe harbour is not a “do nothing” shield. It rewards early, documented action.

Are Builders Personally Liable in Queensland – Practical Builder Steps

To align with the judicial expectation of active oversight (and to preserve the best possible position under safe harbour), distressed builders should move quickly to:

1. Diagnose solvency using commercial reality (not optimism). Courts have repeatedly warned against confusing temporary liquidity issues with insolvency.

In ASIC v Plymin, Elliott & Harrison [2003] VSC 123, the judgment quotes the High Court’s formulation that the conclusion should not be drawn from mere temporary tightness, as stated at [374]:

The conclusion of insolvency ought to be clear from a consideration of the debtor`s financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity.

2. Move from “hope” to an evidence-based turnaround plan.

For builders, that plan usually means: project-by-project cash flow, margin reality checks, immediate scope control on loss-making jobs, a creditor engagement strategy, and (where appropriate) restructure options assessed early.

3. Implement proper records and governance immediately.

The legal risk is amplified when directors cannot later prove what they knew and when they acted.

The obligation to read and interrogate financial materials is not satisfied by simply receiving them.

4. Get specialist advice early (and document it).

In practice, this means insolvency advice (turnaround vs appointment), tax advice (PAYG/GST/super), and, critically, in Queensland, parallel QBCC exposure management (complaints, rectification strategy, documentation integrity).

Builder-specific Risk Warning

For Queensland builders, delays tend to be particularly costly because insolvency often coincides with regulatory escalation (complaints, rectification disputes, insurance claims).

Early intervention is therefore not only about insolvent trading risk—it is also about limiting the factual pathway to statutory insurance payouts and later recovery actions.

How Queensland Differs from Other States

Although builders across Australia face insolvency risk, Queensland imposes uniquely high levels of personal exposure when compared to New South Wales and Victoria.

This is driven primarily by structural differences in statutory insurance design, regulatory enforcement powers, and post-insolvency recovery mechanisms.

For Queensland builders, understanding these differences is critical. Many risk assumptions imported from interstate practice simply do not apply.

Are Builders Personally Liable in Queensland?

Queensland’s statutory insurance scheme is administered by the Queensland Building and Construction Commission (QBCC). Unlike other states, the QBCC:

• pays out consumer claims from a statutory insurance fund, and
• then actively pursues recovery directly against builders and directors personally, particularly following insolvency.

This recovery regime is reinforced by:

• director exclusion event provisions;
• statutory recovery actions; and
• aggressive licensing consequences.

As a result, company liquidation does not conclude liability exposure. Instead, insolvency often marks the commencement of personal recovery actions.

In practical terms, Queensland builders face:

• post-insolvency personal debt recovery,
• licence cancellation or long-term exclusion, and
• regulatory litigation risk extending years beyond liquidation.

This places Queensland at the most severe end of the Australian builder liability spectrum.

Are Builders Personally Liable in New South Wales?

By contrast, New South Wales operates under a fundamentally different framework through the Home Building Compensation Fund (HBCF).

Under this model:

• consumer claims are met by private insurers, not the regulator; and
• post-insolvency recovery is primarily insurer-driven, not regulator-driven.

This significantly reduces direct personal exposure for builders and directors, particularly after company failure.

In The Owners SP 35042 v Seiwa Australia Pty Ltd [2007] NSWCA 272, the Court of Appeal emphasised the central role of statutory insurance and maintenance obligations, rather than regulator recovery, stating at [3]:

The respondent complained that the appellant had breached its duty under s 62(1) of the Strata Schemes Management Act 1996 by failing to maintain and keep in a state of good and serviceable repair that part of the common property…

Although the decision concerned statutory maintenance obligations rather than insurance recovery, it illustrates the broader structural distinction between New South Wales and Queensland.

In NSW, consumer protection is primarily achieved through statutory insurance and private enforcement mechanisms, rather than through regulator-driven post-insolvency recovery.

This contrasts sharply with Queensland’s statutory model, which places the regulator at the centre of both claims management and personal recovery enforcement.

As a result:

• directors face substantially lower personal recovery exposure once a company becomes insolvent;
• licensing sanctions are generally less severe; and
• post-liquidation regulatory pursuit is significantly more restrained.

Are Builders Personally Liable in Victoria?

Victoria’s Domestic Building Insurance (DBI) scheme operates on a similar model to NSW, with:

• consumer claims met by private insurers; and
• enforcement pathways focused on insurer recovery and civil litigation, not regulator-led personal pursuit.

While Victorian builders remain exposed to insolvent trading and contractual litigation risk, the regulatory pursuit of personal recovery is far more limited than in Queensland.

In practice, this results in:

• lower post-insolvency recovery rates against directors;
• reduced regulatory litigation; and
• significantly lower licensing exclusion consequences.

Are Builders Personally Liable in Queensland?

Are builders personally liable? When the three regimes are compared structurally, Queensland emerges as the most legally dangerous jurisdiction for builders in Australia.

For Queensland builders, insolvency therefore carries compounding consequences, combining:

• insolvent trading liability;
• statutory insurance recovery;
• director exclusion events; and
• licence cancellation.

This multi-layered exposure does not exist in equivalent form elsewhere in Australia.

Put simply, Queensland builders operate in Australia’s highest personal-risk construction environment.

This makes early legal, financial, and regulatory intervention not merely prudent, but essential personal asset protection.

These interstate contrasts underscore a critical reality for Queensland builders: risk management strategies that may be commercially sufficient in New South Wales or Victoria are often inadequate in Queensland.

When thinking “are builders personally liable“, the combination of statutory insurance recovery, aggressive regulatory enforcement, and strict licensing consequences means that Queensland builders must adopt more proactive financial governance, compliance discipline, and early intervention strategies than their interstate counterparts to protect personal financial security.

Are Builders Personally Liable – Frequently Asked Questions

These frequently asked questions address the issues Queensland builders most commonly raise when confronting insolvency risk and potential personal liability.

They provide practical, plain-English guidance on how the law operates in real scenarios and what steps can be taken to minimise long-term financial and licensing consequences.

Are builders personally liable if their company goes into liquidation?

Yes. In Queensland, liquidation does not automatically shield builders from personal liability. Directors may remain exposed through insolvent trading laws, personal guarantees, trust obligations, and statutory recovery actions by the QBCC. If statutory insurance claims are paid, the QBCC can often recover those amounts directly from the individuals responsible for the building work, even after company deregistration.

Can the QBCC recover insurance payouts from builders personally?

Yes. Queensland operates a unique statutory insurance scheme that allows the QBCC to recover insurance payouts directly from builders and directors personally. This recovery right is frequently exercised following insolvency and is independent of liquidation. As a result, builders often face substantial personal claims long after their company has collapsed.

Does closing a company prevent future claims by homeowners or the QBCC?

No. Closing or liquidating a company does not extinguish liability. Building defects, statutory insurance claims, and regulatory enforcement actions can arise years after construction. In Queensland, company closures often trigger increased regulatory scrutiny and recovery actions, rather than ending exposure.

What is phoenix activity, and why is it risky for builders?

Phoenix activity involves transferring a failing business into a new company while leaving debts behind. If done to defeat creditors, it can expose builders and directors to personal liability, regulatory enforcement, compensation orders, and criminal sanctions. Queensland regulators actively investigate phoenix conduct, particularly where statutory insurance claims follow company failure.

Are trust structures safer for builders than companies?

Not necessarily. Trustees are personally liable for trust debts, subject only to indemnity from trust assets. If a trustee breaches duties or trades while insolvent, that indemnity may be lost. In construction insolvency, trust structures frequently increase — rather than reduce — personal exposure.

What are the warning signs of insolvency for builders?

Common warning signs include ongoing losses, overdue tax liabilities, creditor arrears, reliance on payment plans, tightening supplier credit, and increasing disputes over progress claims. Builders experiencing these indicators should urgently assess their solvency and obtain professional advice, as delays substantially increase personal liability risk.

Does safe harbour protect builders from insolvent trading claims?

Safe harbour may provide protection if directors take early, documented steps reasonably likely to lead to a better outcome than liquidation. However, it requires active restructuring, proper records, tax compliance, and the payment of employee entitlements. It does not protect against QBCC recovery actions or regulatory sanctions.

Can directors be banned from the building industry after insolvency?

Yes. In Queensland, insolvency frequently triggers licence cancellation, exclusion events, and long-term regulatory bans. These consequences often arise independently of fault and may permanently restrict a builder’s ability to re-enter the industry.

Why is Queensland riskier for builders than other states?

Queensland allows direct regulator recovery of statutory insurance payouts, aggressive licensing sanctions, and extensive post-insolvency enforcement. NSW and Victoria rely primarily on private insurance models, which significantly reduce personal exposure. Queensland, therefore, represents the highest personal liability risk environment for builders in Australia.

How can builders reduce personal liability risk?

Builders can reduce exposure through active financial oversight, early identification of insolvency warning signs, disciplined cashflow management, strict QBCC compliance, proactive defect rectification, and early professional advice. Effective governance systems and early intervention materially reduce the likelihood of personal recovery actions and regulatory enforcement.