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A fair go for subcontractors – BIF Act amendments 2020

September 29th, 2020

Subcontractor late payments Queensland

Working in the building industry with or as a subcontractor?  This year has seen significant changes made to building industry payment laws that may affect you.

In July the Building Industry Fairness (Security of Payment) Act (“BIF Act”) was amended in the hope of improving the process for dealing with late and non-payment of subcontractors in Queensland.  The changes aim to:

  1. introduce new protections for monies in dispute;
  2. simplify trust account frameworks; and
  3. strengthen the regulatory oversight of trust accounts.

So, how is the new BIF Act achieving those goals?

  1. New protections for monies in dispute in business

The new legislation introduces security of payment reforms to better protect monies in dispute.  Now where an adjudicated amount is not paid within the timeframes required by the BIF Act, subcontractors may have recourse to a “payment withholding request”, issued to a party above the respondent in the contractual chain, in order to protect money that may be payable.  If that party does not withhold the adjudicated amount they could be liable for the amount owed to the subcontractor.

The updated BIF Act also enables a head contractor to lodge a statutory charge over the property where construction work occurred, if owned by a BIF respondent who does not pay an adjudicated amount in the required timeframe.

  1. Simplified trust account frameworks

Changes to the BIF Act promise to simplify trust account frameworks in a number of ways.  Prior to the amendments, head contractors were required to open three bank accounts for each eligible contract, including a retention account.  The changes reduce the number of accounts required to one single “project trust account”.  If a retention trust is required, a contractor is now able to hold all retentions across a number of projects in a single account.  The former “disputed funds account” has been abolished in favour of added protections for subcontractors.

The new project trust regime will be rolled out in stages to allow time to adjust to the changes, a plan that has been temporarily affected by COVID-19.  Provisions dealing with project trusts and retention trusts will not commence until “a day to be fixed by proclamation”, wording that provides the government with flexibility to work around the changing pandemic situation.  We do not expect to see full implementation of the project trust regime until at least 2023.

  1. Strengthened oversight of trust accounts

Though responsibility for oversight of project bank accounts previously lay with the principal, they have no oversight role in the new project trust regime.  Instead, the Queensland Building and Construction Commission (“QBCC“) will monitor the trust regime.  To this end, changes to the BIF Act increase the QBCC’s regulatory functions, including audit powers over trust accounts.  QBCC will, among other things, be empowered to “freeze” trust accounts, and request the provision of information about trust accounts in cases of noncompliance.  Retention trust accounts will be subject to regular independent audits.

To further assist QBCC in its monitoring and oversight role, legislative amendments to the QBCC Act have also been proposed to take effect on 1 October 2020.  These changes will introduce new penalties, including for provision to the QBCC of false and misleading information about a licensee’s financial situation, and for failure to provide a supporting statement that states all subcontractors have been paid when requested.

The changes to building industry payment laws, as they are implemented over the next few years, will significantly impact the conduct of disputes involving subcontractors.  If this is you, our experienced legal team is here to help, contact us on 4036 9700.

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Reforms to combat illegal phoenix activity

August 30th, 2018

Illegal phoenix activity is a means by which unscrupulous company directors seek to avoid payment of a company’s creditors.  It typically involves the transfer of a business (or assets) from one company shell to another, without properly recognising the value of the assets transferred.  It leaves company creditors, often including employees, with claims which cannot be satisfied from company assets.

In the 2018/2019 budget, the Commonwealth Government announced a package of reforms to the corporations and tax law to combat illegal phoenix activity.  The government has now released an exposure draft of proposed legislation.  The proposed reforms include:

1.  introducing new phoenix offences which target both those who conduct and advisors who facilitate the illegal phoenix transactions including:

1.1.  making it an offence for company directors to engage in creditor defeating transfers of company assets;

1.2.  making pre-insolvency advisors and other facilitators of illegal phoenix activities liable to both civil and criminal penalties; and

1.3.  extending and enhancing the existing liquidator “callback” powers;

2.  preventing directors from resigning in some situations;

3.  extending Director Penalty Notice provisions to include GST and related liabilities; and

4.  restricting the voting rights of related creditors at meetings considering the appointment or removal of an external administrator.

An exposure draft of the proposed legislation has been released for public consultation.  The final text of the reforms is yet to be revealed.  The draft legislation can be accessed here.

For more information, please contact partner Tim McGrath.

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Buying a Franchise – 5 Top Tips

March 20th, 2018

Entering into a franchise arrangement and running your own business can be a very exciting time.  You receive the benefits of the established brand, and usually a well-documented operations manual to assist you to run the franchised business.  However, before you take that big step, consider my 5 Top Tips before entering into a franchise.

1.  Read the disclosure statement

Yes, this document has been provided for a very good reason, so you should read it.  Franchisors are required by law to give prospective franchisees a disclosure statement and the law prescribes what must be included in the statement.  Whilst the statement provides numerous pieces of useful information, I suggest you pay particular attention to the number of franchises that have been terminated in the last few years, whether there is any litigation that the franchisor is involved in, and carefully peruse the table provided by the franchisor outlining all estimated franchise costs.  The disclosure statement provides really useful and important information about the franchise – be sure to read it!

2.  Contact other franchisees

The disclosure statement also contains details of other franchisees operating the franchise in other territories throughout Australia.  Ring at least five other franchisees including the ones in the territories closest to you.  Ask them how their franchise is going, how much support they receive operationally, marketing-wise and in relation to training from the franchisor.  Ask them if they would enter into the franchise if they had their time again.  In my experience, this is often where you will receive the most honest and practical information in relation to the franchise you propose to purchase.

3.  Do a business plan and budget

A business plan is integral to the success of any business – especially a franchised business.  As part of the plan, consider your operating budget – this is often where other franchisees can assist, identifying costs of the franchised business that were not necessarily clear from the outset.  For example, how much did it cost to fit out the premises with the franchisors corporate branding, and what do they spend on marketing and training annually.

4.  Get the right advice

A lawyer and an accountant play an important role in advising a prospective franchisee before entering into a franchise agreement.  As professional advisors who have often read many franchise agreements, they are qualified to know when a clause is unusual or uncertain.  When advising my clients in relation to a franchise I provide a comprehensive review of the franchise agreement and draw to the attention of the franchisee any critical clauses and relevant dates.  Whilst a majority of franchisors are reluctant to agree to any changes to their franchise agreement, I always highlight changes that I would recommend be made to the agreement to benefit the franchise and encourage the franchisee to negotiate the proposed changes directly with the franchisor to save costs in the first instance.  I have found that franchisors of newer franchises are often more agreeable to discussing changes to a franchise agreement than those that are well-established.

Further, it is at this time, I would recommend the franchisee seek clarification from the franchisor in relation to any clauses that are uncertain or lacking in detail.  It is always best that a franchisee finds out this information before signing on the dotted line.

5.  Do not rush in

Entry into a new franchise or the purchase of an existing franchise is a big and often costly exercise.  Therefore, it is important that you do not rush into this decision.  It is vital that you complete your due diligence investigations in relation to the franchise and the business first, draft your business plan and budget, obtain independent legal and financial advice and spend a good amount of time reading the proposed agreement before you proceed.

For more information about franchise agreements, please contact Partner, Melissa Nielsen.

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