Residential Focus: Track record of insolvency – implications for licensing

Track record of insolvency – implications for licensing

A recent decision of the Tribunal, affirming a licensing decision under the Home Building Act 1989 (HB Act) of the regulator to refuse an application to renew a qualified supervisor certificate, reveals the keen focus of the regulator on using its licensing powers to clean up the industry.

The applicant before the Tribunal was the director, secretary and controlling mind of a company licensed under the HB Act and was its nominated supervisor.

The company was placed into voluntary administration in 2022. Its liquidator estimated that the company had been trading whilst insolvent since 2020 and had $2.3 million in debts.

In 2023, the applicant sought to renew his qualified supervisor licence certificate. This was refused as the regulator was not satisfied that the applicant had taken all reasonable steps to prevent the liquidation or appointment of a controller or administrator and deemed that the applicant was not fit to hold the authority.

Section 33B(a)(xv) to (xvii) of the HB Act requires the regulator to not issue an authority unless it is satisfied that an applicant (with some exceptions):

• is not concerned in the management of a Chapter 5 body corporate at the date of the application
• was not concerned in the management of a Chapter 5 body corporate within three years before the date of the application
• was not concerned in the management of a body corporate which became a Chapter 5 body corporate within 12 months after the applicant ceased to be a director and within three years before the date of the application.

(Chapter 5 body corporate refers to a body corporate that is, for example, being wound up, has had a receiver or a receiver and manager appointed, is under administration or is subject to a deed of company arrangement.)

There is a lifeline in section 33D, where the regulator is satisfied that the applicant took all reasonable steps to avoid the relevant insolvency.

The applicant attributed the failure of the company to:

• the COVID-19 pandemic, which impacted material prices and labour
• the mismanagement of the company's office manager
• a failure by the company's accountant to bring the office manager's financial mismanagement to his attention.

The applicant did not wish to return to running a company and sought a qualified supervisor certificate to increase his income earning potential.

The regulator’s position was that the applicant had not provided sufficient evidence for the Tribunal to be satisfied that the applicant had taken all reasonable steps to avoid the company going into administration. The regulator identified a long list of considerations regarding the company’s financial position which had not been addressed and that, although the applicant took the decision to place the company into liquidation based on its accountant’s advice, this did not constitute taking all reasonable steps to avoid the winding up. Reasonable steps may have included:

• selling assets
• increasing revenues through increasing fees for work
• increasing or holding revenues steady whilst at the same time decreasing expenses
• raising fresh capital from shareholders
• borrowing from an external party
• in the instance of funds already borrowed, refinancing and raising the limit of the facility.

The Tribunal agreed with the regulator that the applicant had failed to meet his responsibilities for overseeing the affairs of the company. Even if information had been requested of the accountant or office manager and withheld, the applicant should have taken the necessary steps to satisfy himself of the true financial position of the company. Had the applicant completed the company’s 2020/2021 and 2021/2022 tax returns, he would have been aware of the company’s financial position and could have taken one or more of the several steps identified by the regulator to avoid administration. The Tribunal noted that these are far more extensive than any failures that might be attributed to the Office Manager or the accountant.

In an industry that is well known for its phoenix activity, licence holders should take this decision as an indication of the lens that will be passed over their financial management of companies by the regulator where they have a record of association with Chapter 5 bodies corporate.

Author: Christine Jones

In the media

Planning changes begin today to deliver the homes NSW needs
The first stage of the NSW Government’s Transport Oriented Development (TOD) planning reforms is being delivered today, with the finalisation of the State Environmental Planning Policy (SEPP). The new SEPP will amend planning controls around 37 well-located metro and rail stations, helping to deliver more homes that are well designed and in well-located areas (29 April 2024).  Read more here.

1.2 million homes can’t be built with only a few hands
The Housing Industry Association (HIA) Managing Director, Jocelyn Martin stresses how “the delivery of the Government national Housing Accord which aims to build 1.2 million new homes, can only be realised by increasing skilled labour and apprentices in Australia and this year’s Federal budget must show leadership in addressing this key issue”. The HIA Trades Report that found across the building sector there is an acute shortage of skilled trades that is only being compounded by other government programs drawing workers away from the residential building industry (29 April 2024).  Read more here.

Cuts to taxes on housing will be increasingly necessary to improve housing supply as interest rates remain high
HIA’s Chief Economist, Tim Reardon, states that “today’s CPI figures are likely to see interest rates remain high for longer as inflation becomes increasingly embedded in the economy”. These high rates will continue to supress home building activity and make it increasingly challenging for the Australian Government to build 1.2 million homes over the next five years (24 April 2024).  Read more here.

Sales of new homes weak for the start of 2024
The HIA New Home Sales report has shown weak home sales for the beginning of 2024. HIA Senior Economist, Tom Devitt “the prospect of a pick-up in home building activity in 2024 is not likely given the low volume of new homes sales in the first three months of 2024” (16April 2024).  Read more here.

Proposed planning changes aim to boost BTR residences in Central Sydney
In a bid to address the housing crisis and enhance inner-city living, the City of Sydney is proposing significant changes to planning rules, encouraging developers to focus more on building rental properties. The proposed amendments to the Sydney Local Environment Plan 2012 are now open for public comment until 14 May, with the city seeking feedback from residents and stakeholders. Under the proposed changes, developers would be granted increased floor space allowances of between 20 per cent to 75 per cent for build-to-rent (BTR) developments (18 April 2024).  Read more here.

Push for NSW and WA to join national accessible building code to future-proof housing for ageing population
As Australian governments urgently build new homes to deal with the national housing shortage, there are concerns many of those new builds won't meet the needs of our ageing population. However, the introduction of mandatory design standards for all new builds – aimed at improving accessibility for people living with disability – could solve that problem (2 April 2024).  Read more here.

In practice and courts

Have your say – Land Acquisition Review
The Land Acquisition Review will consider how to improve the acquisition process of land for public purposes such as public infrastructure. The government will be reviewing the Land Acquisition (Just Terms Compensation) Act 1991. They are encouraging feedback to the Discussion Paper, ‘A review of land acquisition in NSW’, by completing the survey. Access the survey until 3 May 2024 here.

Published – articles, papers, reports

Smart Cities: Position Paper
Standards Australia released “Smart Cities: An Essential Enabler for Australia’s Future”. This paper explores the role of smart technologies and data in addressing critical challenges at the city level, including the energy transition to renewables, security of critical systems and emerging technologies, affordable housing supply, and the delivery of inclusive community services (17 April 2024). Read more here. Access the Position Paper here.

Cases

Absolute Tiling Solutions Pty Ltd v Certain Underwriters at Lloyds [2024] NSWSC 364
INSURANCE – professional indemnity insurance – plaintiff was design and construct contractor – claim made relating to external sandstone tiling designed and installed by plaintiff – insured activities included design but not installation – whether the liability resulted from the design or installation of the tiling system.
INSURANCE – professional indemnity policy underwritten by first defendant for three consecutive years – exclusion clause in respect of prior known circumstances – whether failure to disclose prior known circumstances – consequences of failure to disclose prior known circumstances after entry into the first of the three consecutive policies – application of continuous cover provision – application of ss 21 and 28 of the Insurance Contracts Act 1984 (Cth).
INSURANCE – whether plaintiff failed to comply with s 21 of the Insurance Contracts Act 1984 by failure to disclose that plaintiff performed external tiling or cladding works – whether the first defendant would have entered into policy if relevant failure had not occurred.
INSURANCE – construction of contract of insurance – exclusion clauses.
INSURANCE – brokers – claims for negligence and misleading or deceptive conduct – premises for claims not established.
BUILDING AND CONSTRUCTION – scope of rectification works – cost of rectification works.
Civil Liability Act 2002 (NSW), s 5D; Home Building Act 1989 (NSW), ss 18B, 18G; Insurance Contracts Act 1984 (Cth), ss 21, 28, 40.

Amirbeaggi v NSW Self Insurance Corporation (No 4) [2024] NSWCATAP 57
COSTS – appeal costs – special circumstances.
Civil and Administrative Tribunal Act 2013 (NSW), ss 50, 60; Home Building Act 1989 (NSW).

Barber v Commissioner for Fair Trading [2024] NSWCATOD 42
ADMINISTRATIVE LAW – qualified supervisor certificate in the category of disconnection and reconnection of fixed electrical equipment (appliances) licence – administrative review of decision to refuse licence - scope of work within the Instrument – qualification required.
Administrative Decisions Review Act 1997 (NSW); Civil and Administrative Act 2013 (NSW); Home Building Act 1989 (NSW).

Berens Construction Pty Ltd v Nilon [2024] NSWPICPD 22
WORKERS COMPENSATION – factual determinations – Whiteley Muir & Zwanenberg Ltd v Kerr (1966) 39 ALJR 505; Northern NSW Local Health Network v Heggie [2013] NSWCA 255 applied – Clause 2 of Schedule 1 to the Workplace Injury Management and Workers Compensation Act 1998 – deemed worker – Scerri v Cahill (1995) 14 NSWCCR 389 applied.

Construction & Design Australia Pty Ltd v Robinson (No 2) [2024] NSWSC 376
BUILDING AND CONSTRUCTION – Contract – cost plus contract for construction of residence – alleged breach of contract – whether builder entitled to claim payment of outstanding invoices – whether builder entitled to claim damages for loss of profits.
BUILDING AND CONSTRUCTION – Australian Consumer Law – whether misleading or deceptive conduct – whether builder represented that cost of building would be around and not substantially more than $550,000 or $750,000 – whether owners relied on any such representation when deciding to enter the contract.
BUILDING AND CONSTRUCTION – contract – damages – whether “alternative transaction” case or “no transaction” case available – where damages claimed “because” of the alleged misleading or deceptive conduct.
BUILDING AND CONSTRUCTION – contract – variation – oral variation – whether owners agreed to substitute blockwork for Rediwall construction – whether builder can rely on oral variation in defence of claim by owner.
Competition and Consumer Act 2010 (Cth), Sch 2 – Australian Consumer Law; Home Building Act 1989 (NSW); Home Building Regulation 1997 (NSW) (repealed); Home Building Regulation 2014 (NSW).

Diamante v Commissioner for Fair Trading [2024] NSWCATOD 55
ADMINISTRATIVE LAW – review of decision – refused to be a qualified supervisor certificate under Home Building Act 1989 – whether correct and preferable decision – whether applicant took all reasonable steps to avoid liquidation or administration – whether fit and proper person.
Administrative Decisions Review Act 1997 (NSW); Home Building Act 1989 (NSW).

GMI Construction Pty Ltd v Keshavarz [2024] NSWCATAP 68
APPEALS – whether Tribunal denied the appellant procedural fairness by refusing its adjournment application – Whether Tribunal’s discretion miscarried when refusing adjournment application – whether Tribunal erred in finding that certain defects were “major defects” and that it had jurisdiction in relation to the respondents’ building claim – whether the Tribunal's findings that certain defects were “major defects” were made without probative evidence to support them – Whether the Tribunal erred in finding that the appellant was a party to the home building contract with the respondents.
Home Building Act 1989 (NSW); Civil and Administrative Tribunal Act 2013 (NSW); Civil and Administrative Tribunal Rules 2014 (NSW).

Hunt v The Owners – Strata Plan No 1158/84199 [2024] NSWCATAP 65
LAND LAW – Strata Schemes Management Act 2015 – By-law regulating installation of air conditioning and permitting strata committee to approve – whether by-law protecting amenity of other lot owners is harsh oppressive or unconscionable.
ADMINISTRATIVE LAW – construction of by-law – principles applicable – circumstance in which extrinsic material may be relied on to determine meaning.
Civil and Administrative Tribunal Act 2013 (NSW); Strata Schemes Management Act 2015 (NSW).

The Owners – Strata Plan No 64757 v Sydney Remedial Builders Pty Ltd [2024] NSWCA 85
BUILDING AND CONSTRUCTION – Home Building Act 1989 (NSW) – whether application brought out of time – construction of s 3B – distinction between “completion” and “practical completion”.
Home Building Act 1989 (NSW) ss 3B, 3C, 18E, s 106 of Sch 4; Home Building Regulation 2004 (NSW); Supreme Court Act 1970 (NSW) s 101; Uniform Civil Procedure Rules 2005 (NSW) rr 20.24, 51.12.

The Owners – Strata Plan No. 85494 v PBS Building (NSW) Pty Ltd [2024] NSWSC 381
CIVIL PROCEDURE – pleadings – amendment – plaintiff sought to add further defects to existing cause of action – whether Second Defendant would be irremediably prejudiced if amendments allowed – whether Second Defendant has established viable and realistic cross-claims in respect of defects – whether order should be made for amendments to take effect from date of commencement of proceedings.
Design and Building Practitioners Act 2020 (NSW), s 37; Environmental Planning and Assessment Act 1979 (NSW), ss 6.20, 9.32; Home Building Act 1989 (NSW), s 18C.

The Owners - Strata Plan 88565 v ACN 103 211 141 Pty Ltd [2024] NSWSC 396
CIVIL PROCEDURE – pleadings – where r 9.1(1) of Uniform Civil Procedure Rules 2005 (NSW) has not been complied with – application of s 63 of the Civil Procedure Act 2005 (NSW) – where applicant seeks that cross summons and cross list statement be taken, nunc pro tunc, to have been validly filed and validly served.
CIVIL PROCEDURE – pleadings – striking out – tendency to cause prejudice – where cross defendant seeks that cross summons and cross list statement be struck out due to prejudice caused by delay.
Australian Consumer Law; Civil Procedure Act 2005 (NSW); Design and Building Practitioners Act 2020 (NSW); Environmental Planning and Assessment Act 1979 (NSW); Home Building Act 1989 (NSW)Uniform Civil Procedure Rules 2005 (NSW).

Legislation

Regulation and other miscellaneous instruments
Environmental Planning and Assessment Amendment (Transport Oriented Development) Regulation 2024 (2024-134) – LW 29 April 2024.
State Environmental Planning Policy (Housing) Amendment (Transport Oriented Development) 2024 (2024-135) – LW 29 April 2024
Property and Stock Agents Amendment Regulation 2024 (2024-120) – LW 12 April 2024

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Christine Jones

Faith Zalm

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