Tough times ahead for building industry
TOUGH Queensland construction laws and coronavirus could combine to sound the death knell for many Rockhampton businesses in the industry, an insolvency specialist says.
SV Partners Rockhampton-based associate director Frank O'Neill said two requirements alone under the state's building legislation, in the current environment, could result in "an avalanche" of non-conforming and failing local construction businesses.
Mr O'Neill stressed that he was not wanting to be alarmist and was simply calling things as he saw them.
"The local construction industry will face extreme challenges as a result of this pandemic," he said.
"While Rocky's construction industry at the moment appears to be ticking along, projects are likely to stop or at the very least, slow down, at some point in the future."
Mr O'Neill said many companies would have to consider whether they were going to come out the other side of the pandemic with large losses and insurmountable debt.
"A standard option for companies in construction is to appoint voluntary administrators to negotiate a binding debt agreement with creditors, but this is not really an option for construction businesses in Queensland," he said.
"Because Queensland's state construction law prohibits directors of companies from holding a licence for three years if they appoint a voluntary administrator.
"There are also concerns many builders will lose their licences as a result of their failure to meet net tangible asset rules set down by Queensland construction legislation.
"And these two rules alone in the short term, may result in an avalanche of non-conforming and failing construction businesses, I'm afraid, in Rocky."
A Queensland Building and Construction Commission spokesman said routine financial reports were an important tool for monitoring the financial health of the building industry, and the response QBCC took when a building company lacked an adequate amount of working capital could vary with the circumstances.
"Like any regulator, the QBCC has a legal power to exercise discretion around penalties it chooses to impose," he said.
"The QBCC has already published a Regulatory Guide, which is a formal declaration of our intentions regarding the minimum financial requirements, in which we published our intention to apply discretion to a range of builders who do not have the legally mandated amount of assets in their business due to the circumstances surrounding them."
The spokesman said during the past week the QBCC had consulted with every building and construction industry association about whether it should strengthen its published intent as to whether it would apply discretion more broadly in light of coronavirus.
"Our focus is not on removing people from the sector but working with licensees using the laws available to us to allow them to strengthen their balance sheet, thereby working to keeping the industry sustainable.
"The excluded persons provisions are an important mechanism to stop issues such as illegal phoenixing, which is an issue that has caused significant damage to construction industries in other states.
"These laws work in conjunction with existing corporation laws."
Last week it was revealed that analysts at SV Partners had compiled data for the Commercial Risk Outlook Report, which found a number of Rockhampton businesses were experiencing high to severe levels of risk in early March.
But this outlook had significantly amplified in a matter of weeks due to the impacts of coronavirus.
At the time the Rockhampton region's insolvency data was collated, the report showed 1.9 per cent of businesses were at risk of insolvency immediately prior to the current economic volatility.