In June 2017, the Commonwealth Government released its response to the Senate Economic  References Committee Report on Insolvency in the Australian Construction Industry (“the Report”).

The Committee made forty-four recommendations in its Report to the Government in December 2015. Those recommendations sought to address the challenges encountered by the construction industry in dealing with the high rates of business insolvency and a culture of non-payment of sub-contractors.

In its Report, the Committee noted that:

• Over the past decade, the construction industry has accounted for between one-fifth and one-quarter of all insolvencies in Australia, which is disproportionately high relative to its share of national output.
• Factors which have contributed to this high rate of insolvencies include: the structure of the commercial construction sector; serious imbalances of power in contractual relationships; and harsh, oppressive, unconscionable commercial conduct.
• Illegal ‘phoenix’ activity remains a significant issue in the construction industry.
• The construction industry is burdened with nearly $3 billion in unpaid debts each year.
• The legislative regime covering security of payment in the construction industry is “fragmented and disparate”.

The Government’s response to the recommendations made in the Report was mixed, with a significant number of the recommendations noted as matters  that fall under the responsibility of State and Territory governments and authorities.

In relation to issue of illegal phoenix activity, the Government agreed that a ‘whole of government’ approach is required. Phoenix Taskforce members are examining options for law reforms to defer, detect and deal with illegal phoenix activity. The Government noted that ASIC and the ATO regularly engage with the participants in the building and construction industry to discuss and develop strategies to deter phoenix activity.

In relation to the payment systems in the building industry, the Government noted that a wide-ranging review of security of payment laws in the building and construction industry was announced by the Minister for Employment in December 2016. The review will deliver a final report with recommendations to be considered by the Government no later than 31 December 2017.

A copy of the Government’s response can be found here:
http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Insolvency_construction/Government_Response

Natalie Sullivan
informed