Fighting to survive: A battle plan for construction companies on a collision course with insolvency

Fighting to survive: A battle plan for construction companies on a collision course with insolvency

It is time for businesses on a collision course with insolvency to heed expert advice and take action.

With the number of company collapses expected to rise this year, it is time for those in the construction industry to lay the foundations for managing such a scenario. 

Now is not the time to ignore fiscal obligations. Engaging with advisors and dealing with taxation requirements is the only way many will avoid potentially catastrophic outcomes.  After businesses were given a break from being chased for tax debts during the height of the pandemic, the Australian Tax Office – the primary initiator of holding business owners accountable – is now ramping up its debt collection activity.

Construction industry businesses are hardest hit, forced to navigate a landscape indelibly fractured by rising costs and the ending of government stimulus, and now inflation amid the winding down of banking, landlord and tax office moratoriums. We are seeing these pressures hit the industry at all levels, from large construction companies dealing with subcontractors in distress to developers dealing with stressed builders. A concerningly high number of construction companies have already collapsed this year. Credit reporting agency, CreditorWatch, recently found the construction sector has the worst late payment record of any industry with one in 10 builders more than 60 days in arrears on their payments to suppliers.  In April, co-founder of The Association of Professional Builders Russ Stephens said he believed about 50% of Australian building companies were trading whilst insolvent. 

Most concerning is the size of those companies that have already failed – the recent collapse of Probuild, one of the country’s major construction groups, was followed by the nation’s largest home builder, Metricon, being forced to hold talks with clients and banks over its financial viability.  No geographic location seems to be immune either. On the Gold Coast, long hailed as the one of the country’s fastest growing regions, large construction firm Condev has collapsed, as has Hotondo Homes in Hobart and Perth’s Home Innovation Builders and New Sensation Homes. Last year the high-rise builder ABD Group went into liquidation, as well as Queensland outfit Privium Homes which impacted more than 2,000 home buyers and left creditors owed close to $43 million.

We know that there are more to come. But even if construction companies cannot pay their debt in full straight away, it is vital they take heed of the advice issued by the ATO and other expert advisors in the taxation space. There is a way through. Solutions can be tailored to suit various circumstances but only when taxpayers realise the critical nature of engaging with those who can help.

Where they do not engage, insolvency action is a very real possibility. The ATO is already on the front foot – the office recently wrote to those businesses with significant tax obligations outstanding who have not responded to calls and letters. So far, 29,552 awareness letters for disclosure of business tax debts and 52,319 awareness letters about the use of Director Penalty Notices have found their way to businesses and directors.

Our message to businesses in the construction industry is to not stick their heads in the sand. There are ways forward, payment plans can be constructed, there is a way to see light at the end of the tunnel. Quite simply, this is impossible to ignore. The only way in which the Australian economy will be normalised is via accountability – businesses owners paying their debts and under-performing companies facing up to these challenges.


Craig Shepard is a partner at KordaMentha, specialising in restructuring.

This article was originally published by KordaMentha and republished with permission.

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