Building and construction debt recovery solicitors are lawyers who recover debts in the building and construction industry.
There are a number of ways building and construction debt recovery solicitors can recover building and construction debts through the Courts or the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (“BIFA”):
- Making a BIFA payment claim;
- Issuing a BIFA subcontractor’s charge;
- Issuing a creditor’s statutory demand; or
- Commencing legal action for breach of contract.
This article will explore each of these options in-turn below.
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Making a BIFA Payment Claim
A payment claim under BIFA is very similar to the now repealed BCIPA payment claim.
To be eligible to make a payment claim the debt needs to relate to “construction work” or “related goods and services” under a “construction contract”.
If you satisfy all of these requirements, then you may be able to make a valid payment claim.
There are strict time requirements for making a BIFA payment claim. If the payment claim is not related to a final payment, then the claim must be served the later of:
- The time allowed for in the construction contract; or
- Six (6) months after the work to which the claim relates was last carried out; or
- Six (6) months after the related goods and services to which the claim relates were last supplied.
If the payment claim is related to a final payment, then the claim must be served the later of:
- The time allowed for in the construction contract; or
- Twenty-eight (28) days after the end of the last defects liability period; or
- Six (6) months after the completion of the works; or
- Six (6) months after the complete supply of related goods and services to be supplied under the construction contract.
After properly serving a payment claim on the debtor company, they have 15 business days to provide the construction company with a payment schedule.
Failure to provide a valid payment schedule and you are free to commence legal action to recover the debt or seek to get the dispute settled by adjudication.
Read more about making a BIFA Payment Claim here.
Issuing a BIFA Subcontractor’s Charge
A subcontractor’s charge is a charge on money owed to the contractor by the head contractor.
For example –> You (subcontractor) –> Contractor (your debtor) –> Head Contractor (owes money to Contractor)
A subcontractor’s charge essentially leapfrogs over the contractor, and charges the debt owed to you with the head contractor.
Again, there are strict time limits for issuing a subcontractor’s charge. If the work has been completed, the notice of claim must be given within 3 months after practical completion for the work.
The notice of claim is sent to the head contractor. If there are still monies unpaid to the contractor in relation to your job, then the head contractor has to retain that money and not pay it to the contractor.
The contractor must then give a written response to you and the head contractor within 10 business days. If they fail to do so then you must commence legal action to recover the money.
Secured Money – Building and Construction Debt Recovery
The main advantage of issuing a subcontractor’s charge is that the charge is a “Security Interest” as defined at 51A of the Corporations Act 2001 (Cth) as:
- a PPSA security interest; or
- a charge, lien or pledge.
This means that if the debtor contractor goes into liquidation, you have elevated yourself to the status of a secured creditor in the liquidation. This has a lot of advantages.
Read more about issuing a BIFA Subcontractor’s Charge here.
Issuing a Creditor’s Statutory Demand
If you think that the insolvent debtor company has assets, then you can serve that company with a statutory demand for payment.
Failure to comply with a statutory demand allows you to commence proceedings to wind up the debtor company in insolvency.
All company assets, bank accounts etc. are frozen and realised to satisfy the creditors.
The liquidator is also able to void certain transactions, or in some cases make the director personally liable for the debt.
If the debtor company does not respond, then they are presumed to be insolvent and you can take steps to wind it up in insolvency.
What they are Required to do – Building and Construction Debt Recovery
Once served, the debtor company will have 21 days to do any of the following:
- Pay the amount claimed;
- Secure or compound for the debt;
- Request that the demand be withdrawn; or
- Make an application to the Court setting aside the demand.
If they pay, or reasonably secure or compound (enter into an arrangement to pay) for the debt, then the demand is extinguished.
If they have grounds to set the demand aside, then before making the application, they may simply request that the demand be withdrawn. Based on the strength of their application to set the demand aside, we can offer you advice if this happens.
If they ask that you withdraw the demand, and you do not, then you may be liable to pay their costs of the application to set the demand aside.
Lastly, they have four (4) main grounds for setting aside the statutory demand, they are:
- There is a genuine dispute as to the existence or amount of the debt; and/or
- They have a genuine offsetting claim; and/or
- There is a defect in the demand which is likely to cause substantial injustice; and/or
- Some other reason.
The Presumption of Insolvency
Failure to comply with a statutory demand raises the legal presumption that the company is insolvent. This legal presumption shifts the onus of proof on the debtor company to prove that they are not insolvent.
It is with this legal presumption of insolvency assisting, within three (3) months after non-compliance with the statutory demand, the company can be wound up.
Read our Complete Guide to Statutory Demands here.
QBCC Act
If a construction company becomes insolvent the section 56AC of the QBCC Act says if the company has a provisional liquidator, liquidator, administrator or controller appointed; or is wound up, or is ordered to be wound up – then the a director or secretary of, or an influential person for, the construction company currently or up to two (2) years prior – then they are excluded individuals.
This means that the company and the director, secretary, or influential person of the company, may all lose their building licenses in Queensland for three (3) years.
This is a really good incentive to pay you rather than be wound up and not be able to work for three (3) years.
Commencing Legal Action – Building and Construction Debt Recovery
A building and construction debt recovery solicitor can commence legal action in the Court with jurisdiction. An action for debt recovery is commenced by Claim and Statement of Claim. The cause of action will be a breach of the construction contract.
Once a claim and statement of claim is filed and served on the debtor, they have 28 days to file and serve a defence. If they do nothing, then a building and construction debt recovery solicitor can make an application to the Court to get default judgment, which is a Court order ordering the defendant (debtor) to pay the claimed amount, being the outstanding fees, costs and interest at a rate of 4% above the RBA Cash Rate, from when the debt was due and payable.
Service on a person is made by personally serving the debtor. This is done by instructing a process server to attend at the debtor’s address and personally hand them a copy of the documents.
Service on a company is done by posting the claim to the company’s registered office or serving the director of the company personally.
If the debtor does file a defence (and counterclaim – if any), then we will need to draft and serve a reply to the defence and an answer to the counterclaim (if needed).
If you get a judgment (with costs) then you are able to commence enforcement proceedings.
Enforcement of Construction Debts
You are able to enforce a judgment debt on a building and construction company in a few different ways. You can:
- Attempt to enforce through the Courts and obtain an enforcement warrant; and/or
- If you secured money with the subcontractor’s charge, then seeking an order that that money be paid out of Court; and/or
- Serve the debtor company with a creditor’s statutory demand; and/or
- Serve the guarantor or personal judgment debtor with a bankruptcy notice.
We will explain these in more detail below.
Enforcement Warrant
There are a number of different enforcement warrants that you can obtain from the Court, including:
- Enforcement warrant for seizure and sale of property
- Enforcement warrant for redirection of earnings
- Enforcement warrant for redirection of debts
- Regular redirections from financial institutions
- Order for payment of order debt by instalments
- Enforcement warrants for charging orders
- Enforcement warrants for appointment of a receiver
Not all of these will apply in every case as some only apply to the Supreme Court, and some do not apply to the Magistrates Court.
However, if you know that the company has unencumbered property, or money in the bank for example, then an enforcement warrant might be a good option.
More often than not, building and construction debt recovery lawyers will likely recommend enforcing the judgment debt with either a winding up application or bankruptcy.
Order that Money is Paid out of Court
If you have secured some money by way of a charge pursuant to a subcontractor’s charge, then the head contractor is obliged to pay undisputed money into Court.
Provided that there is no other right or a claim made by another person to all or part of the money, then the Court will make a payment to the creditor company.
This is done by making an application to the Court.
Serve a Statutory Demand
If the judgment debt is against a company then you can serve the debtor company with a creditor’s statutory demand.
A statutory demand can be made with an affidavit in support (as above) or can be made with a judgment in support.
As above, the debtor construction company has 21 days to pay the judgment debt, secure or compound for the judgment debt, or attempt to set the demand aside.
A statutory demand with a judgment is a lot stronger than a statutory demand with an affidavit in support and not as easily set aside.
Considering section 56AC of the QBCC Act, it is likely that a debtor construction company will take steps to ensure that they are not wound up in insolvency, including by payment of the debt.
If you have a judgment against a person, or against the director pursuant to a guarantee, then you can issue that person with a bankruptcy notice.
Serve a Bankruptcy Notice
If you have a judgment of over $10,000.00 and that judgment debt is less than six (6) years old, then you can apply to the Australian Financial Security Authority (“AFSA”) for a bankruptcy notice.
Once served with the notice, the debtor director will have 21 days to comply with the bankruptcy notice or he/she would have committed an “Act of Bankruptcy”.
It is this act of bankruptcy which allows a creditor to present a petition in the Federal Circuit Court for a sequestration order making the debtor director bankrupt.
The bankruptcy process involves the appointment of a bankruptcy trustee to administer the bankrupt estate of the debtor in an attempt to recover the debts or money owed to creditors.
The bankruptcy usually lasts for three (3) years. In this time the bankruptcy trustee can void transactions and attempt to realise assets to pay a divided to creditors.
Again, considering section 56AC of the QBCC Act, it is likely that a director of a construction company will take steps to ensure that they are not made bankrupt and risk being an excluded individual.
Building and Construction Debt Recovery
As we have shown above, using a building and construction debt recovery lawyer to issue a BIFA payment claim; or a BIFA subcontractor’s charge; or a creditor’s statutory demand; or commencing legal action; can greatly improve your chances of recovery.
Our experienced building and construction debt recovery solicitors can help a creditor at all stages of the building and construction debt recovery process including:
- Drafting and sending letters of demand of lawyer’s letterhead for impact;
- Attempting to contact and negotiate with debtors for a swift and cost-effective resolution;
- Commencing all applicable BIFA procedures to recover or secure the money;
- Commencing Court proceedings, defending claims, applications and obtaining judgment;
- Assistance drafting and reviewing building contracts including debt recovery and enforcement clauses; and
- PPSA charging clauses and registration as it applied to the building and construction industry.
Prevention is Better than a Cure
Sounds like an old tale your grandmother used to say!
When it comes to debt, it is 100% correct. It is better to take steps at the beginning of a contract to ensure that you minimise problems at the end of the contract.
Take Contract Administration Seriously
Ensure that you do all of your checks. Ask for references from people who have worked with the debtor company before. Ask them if they paid on time, be brash and ask the right questions.
Ensure that you have the signed contract and a signed guarantee (if applicable).
Ensure that you get any and all variations in writing and document everything. If you agreed on the phone, then send an email confirming what was said.
Keep proper records – get an actual bookkeeper with experience in the construction industry.
Read our article with 27 tips and tricks and Frequently Asked Questions.
Have the right Terms and Conditions
You should ensure that you have the right clauses in your contract. Some must-have clauses in your credit contract include:
- A charging clause;
- A director’s or personal guarantee;
- PPSA charging clause; and
- Default terms (indemnity costs, default interest, liquidated damages, etc).
With these in place, a debtor who might be a bit dodgy may think twice about ripping you off if you have a charge over his personal property for example.
Also, if the debtor does default, then you have given yourself the best chance of recovering your money.
We can look at your contract clauses here.
If you need to recover construction debts then time is of the essence. Contact a building and construction debt recovery lawyer TODAY
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OR CALL: 1300 545 133 FOR A PHONE CONSULTATION
Building and Construction Debt Recovery FAQ
Below are just a few answers to questions that we get asked a lot.
What are the Timelines for Payment Claims?
Section 75 of BIFA says that:
If the payment claim is not related to a final payment, then the claim must be served the later of:
- The time allowed for in the construction contract; or
- Six (6) months after the work to which the claim relates was last carried out; or
- Six (6) months after the related goods and services to which the claim relates were last supplied.
If the payment claim is related to a final payment, then the claim must be served the later of:
- The time allowed for in the construction contract; or
- Twenty-eight (28) days after the end of the last defects liability period; or
- Six (6) months after the completion of the works; or
- Six (6) months after the complete supply of related goods and services to be supplied under the construction contract.
What are the Non-Court Options?
There are a number of non-Court options including negotiation, mediation, conciliation, and of course adjudication.
We have been involved in a number of successful adjudication applications with Counsel, both as applicant and respondent.
What is a payment claim?
A payment claim is a written document (usually an invoice) which complies with section 65 of BIFA which says:
(1) A “payment claim”, for a progress payment, is a written document that—
(a) identifies the construction work or related goods and services to which the progress payment relates; and
(b) states the amount (the “claimed amount”) of the progress payment that the claimant claims is payable by the respondent; and
(c) requests payment of the claimed amount; and
(d) includes the other information prescribed by regulation.
(2) The amount claimed in the payment claim may include an amount that—
(a) the respondent is liable to pay the claimant under section 98(3); or
(b) is held under the construction contract by the respondent and that the claimant claims is due for release.
(3) A written document bearing the word ‘invoice’ is taken to satisfy subsection (1)(c).
Is an invoice a payment claim?
Yes, an invoice is a payment claim as long as it complies with section 65 of BIFA.
How long does a subcontractor have to wait for payment?
If there is a time stipulated in the contract, then that amount of time. If you are making a payment claim, then the claim must be issued in accordance with the times outlined above.
If you are making a subcontractor’s charge after the work has been completed, the notice of claim must be given within 3 months after practical completion for the work.
What do you do when a contractor won’t pay?
If a building contractor won’t pay, then you can do any of the things outlined in this article:
- Making a BIFA payment claim;
- Issuing a BIFA subcontractor’s charge;
- Issuing a creditor’s statutory demand; or
- Commencing legal action for breach of contract.
We strongly recommend seeking advice from a specialist building and construction debt recovery lawyer.
What can a subcontractor do to get paid?
If a subcontractor has not been paid, then it/he/she can do the following:
- Issue a BIFA payment claim for the payment of money and then step through the process;
- Issue a BIFA subcontractor’s charge and attempt to charge money payable to the contractor by the head contractor;
- Issue the contractor with a creditor’s statutory demand for payment; or
- Commence legal action in Court for breach of contract.
Again, we strongly recommend seeking advice from a specialist building and construction debt recovery lawyer.
Can a contractor sue without a contract?
Yes. Even if there is no written contract, there will likely still be a contract. This contract can be wholly verbal, or partly verbal and partly written (emails, text messages), or implied by conduct. It is just a lot more difficult to prove what the terms of the contract are.
Alternatively, a building contractor may be able to claim in restitution for quantum meruit. Quantum meruit basically says that if a contractor has been asked to do work, and then does that work, then the contractor is entitled to be paid a reasonable amount for that work.
Do you have to pay an unlicensed contractor?
No and yes!
Section 42 of the QBCC Act says:
… a person must not carry out, or undertake to carry out, building work unless the person holds a contractor’s licence of the appropriate class …
It then goes on to say:
a person who carries out building work in contravention of this section is not entitled to any monetary or other consideration for doing so.
Consideration is the money payable in exchange for the work to be performed.
However, this section allows for the contractor to claim reasonable remuneration in supplying materials and labour (but not his/her own labour).
What Costs are Involved in Building and Construction Debt Recovery?
It really depends on the amount of debt and the debtor.
If the matter is reasonably small, then it might cost less than $1000.00 (letter of demand and some minor negotiation).
If the matter is a large claim with a difficult debtor, then it may become very expensive.
You should get an estimate of fees from your building and construction debt recovery solicitor.
What is Building and Construction Debt Recovery?
Construction debt recovery refers to the process of collecting unpaid debts within the construction industry. It involves legal procedures aimed at recovering owed payments from contractors, subcontractors, or clients who have not fulfilled their financial obligations.
How Can Contractors Recover Debts in the Earthmoving Industry?
Contractors in the earthmoving industry can recover debts by employing various strategies. These may include issuing payment claims under relevant industry legislation, such as the Building Industry Fairness (Security of Payment) Act 2017 (BIFA). They can also consider legal action, subcontractor’s charges, or using statutory demands for payment.
What is the Building Industry Fairness (Security of Payment) Act 2017 (BIFA)?
The Building Industry Fairness (Security of Payment) Act 2017 (BIFA) is legislation that provides a framework for ensuring prompt and fair payments in the construction industry. It outlines procedures for making payment claims, resolving disputes, and recovering debts related to construction work.
How Can Construction Companies Benefit from Debt Collection Agencies?
Construction companies can benefit from debt collection agencies that specialise in the construction industry. These agencies understand the complexities of construction debt recovery and can effectively navigate legal processes, negotiations, and communications to secure owed payments.
What Legal Measures Can Civil Engineering Companies Take for Debt Recovery?
Civil engineering companies can take legal measures such as issuing payment claims, subcontractor’s charges, and statutory demands to recover debts. Seeking guidance from lawyers with expertise in construction debt recovery is recommended to ensure compliance with relevant laws.
What is a Subcontractor’s Charge in Building and Construction Debt Recovery?
A subcontractor’s charge is a legal mechanism that allows a subcontractor to charge money owed to the contractor by the head contractor. This can help secure the owed payment directly from the head contractor and improve the chances of debt recovery.
How Does the Security of Payment Act Protect Contractors?
The Security of Payment Act, such as the Building Industry Fairness (Security of Payment) Act 2017 (BIFA), provides legal protections for contractors by ensuring timely and fair payments for their work. It establishes mechanisms for payment claims, dispute resolution, and debt recovery within the construction industry.
What Role Do Debt Recovery Lawyers Play in the Construction Industry?
Debt recovery lawyers specialising in the construction industry provide legal guidance and representation for contractors seeking to recover unpaid debts. They assist in navigating complex legal procedures, negotiating with debtors, and pursuing legal actions to secure owed payments.
How Can Building and Construction Lawyers Assist with Building and Construction Debt Recovery?
Building and construction lawyers can assist with debt recovery by offering legal advice, drafting payment claims, issuing legal notices, and representing contractors in court proceedings. They have expertise in construction-related laws and can guide contractors through the debt recovery process.
What is a Letter of Demand in Building and Construction Debt Recovery?
A letter of demand is a formal written notice sent by a creditor to a debtor demanding payment of a debt owed. In construction debt recovery, a letter of demand can serve as an initial step before legal actions like statutory demands or court proceedings are pursued.
What is the Role of Professional Collection Services in Construction Debt Recovery?
Professional collection services in the construction industry specialise in recovering unpaid debts on behalf of contractors. These services leverage their expertise in debt recovery processes, negotiations, and legal actions to maximise the chances of successful recovery.
How Can Construction Lawyers Assist with Building Claims?
Construction lawyers can assist with building claims by providing legal advice, reviewing contracts, assessing claims’ validity, and representing parties in disputes. They ensure that claims are properly substantiated and pursued within the framework of relevant laws.
What is the QBCC Company Licence and How Does It Relate to Building and Construction Debt Recovery?
The QBCC Company Licence is a license issued by the Queensland Building and Construction Commission (QBCC) to entities operating in the construction industry. It is relevant to debt recovery as certain licensing requirements and regulations can impact a company’s ability to recover debts.
What are Some Common Terms Related to Building and Construction Debt Recovery?
Common terms related to construction debt recovery include payment claims, subcontractor’s charges, statutory demands, security of payment, Building Industry Fairness Act (BIFA), debt collection agencies, legal notices, and enforcement proceedings.
How Can Contractors Seek Legal Advice for Building and Construction Debt Recovery?
Contractors in Queensland seeking legal advice for debt recovery can consult specialised debt recovery lawyers or construction lawyers. These professionals offer guidance on legal options, strategies, and procedures for recovering unpaid debts within the construction industry.
If you need to recover construction debts then time is of the essence. Contact a building and construction debt recovery lawyer TODAY
OR CALL: 1300 545 133 FOR A PHONE CONSULTATION
