Out-of-pocket electrical sub-contractors can be more confident they’ll be properly paid out if another building company collapses, after a major test case around the Construction Contracts Act.
This follows the agreement to pay all the monies owing to sub-contractors affected by the Armstrong Downes Commercial 2012 Limited collapse earlier this year.
Sub-contractors affected by that collapse will now get the full $2.89 million held for them in retention payments, as specified by the Act.
“This was not guaranteed initially because the treatment of GST on retentions is a grey area,” Master Electricians chief executive officer, Bernie McLaughlin, said.
Master Electricians has been working with the government on behalf of the electrical contracting sector, suggesting ways the Construction Contracts Act can better reflect the changing nature of the construction industry. Recent amendments to the Construction Contracts Act are going through Parliament now.
“The amendments do much to resolve many of the issues sub-contractors previously faced and we applaud Government for tackling them,” McLaughlin said.
“But we still need to address the confusion over the treatment of GST payments, and the uncertainty of how retention funds should be held.
“Fixing those problems with some minor amendments to the Act would give sub-contractors, especially in the electrical and plumbing sectors, the confidence they need to know their retention funds are properly protected.”
Master Electricians worked with Master Plumbers and law firm Ford Sumner to lead the fight for all the sub-contractors with outstanding retentions affected by the Armstrong Downes Commercial collapse.
The company went into liquidation in May 2022 owing $30.4m to 203 unsecured creditors, and $670,599 to eight secured creditors.
“We had to do a lot of work because the retention funds held by Armstrong Downes Commercial excluded GST, resulting in a shortfall.
“Also, the liquidators wanted to deduct fees for making the retention payments, and many parties felt this was unreasonable. Everyone had to remember during this process that the retention funds were not actually Armstrong Downes Commercial’s property; the funds belonged to the subcontractors who were owed retentions,” McLaughlin said.
Ford Sumner partner, Jaesen Sumner, said this case has been an excellent testing ground for the sector, particularly for sub-contractors on whose behalf retentions are held.
“Retention funds are not company property and do not form part of the liquidation,” he said.
“But we’re delighted all the parties could work through these matters and eventually recognise the subcontractors’ position and, moreover, get to a space where retentions were paid in full.”
Sumner also acknowledged the steps taken by the liquidators to reach agreement. He said it avoided further time and delay that could have arisen if the matter had gone to Court.
“Through this we have identified the need for some minor tweaks to the Act, which will protect the future interests of all parties.”