As yet another builder enters into liquidation, let this be a timely reminder for creditors to seek urgent legal advice if they suspect that their client may be having financial difficulties. Ri-Con Contractors Pty Ltd has reportedly entered liquidation, with debts totalling more than $4 million owed to more than 300 creditors. Whilst it is impossible to shield yourself 100% from the risk of your client going into liquidation, having good credit terms and seeking early legal advice about what options are available, may help reduce the impact on your business.
So, what are the warning signs?
Has the company started to regularly and consistently pay late?
Have you been told that they can’t pay until their client pays? (Reminder this is ‘pay when paid’ and it is illegal);
Have they stopped replying to your emails or returning your calls?
Are there multiple other contractors who have also not been paid?
Have suppliers stopped supplying the company with goods and materials?
Is the company involved in litigation? Or have other creditors started to take legal action?
If you answered yes to any of these questions, it’s time to consider seeking legal advice.
As a subcontractor, you may have the option to issue a subcontractor’s charge. This may allow you to leapfrog the contractor and go directly to the client for payment. But timing is vitally important and it is very easy for you to lose your rights. Therefore, we strongly recommend seeking legal advice early about this option.
Additionally, if the above warning signs have been observed for some time, you could run the risk of any payments already received being declared “preference payments” and subject to claw back by the liquidator if the company does go into liquidation. However, there are defences available. So, if you receive a letter of demand from a liquidator claiming that you have received a preference payment, please seek urgent legal advice about whether you have an available defence.
In short, be observant and diligent when it comes to slow paying clients. If you think there is a greater problem than “a little cashflow difficulty around Christmas time”, seek legal advice early to protect your interests.
If the alarm bells are ringing after reading this article, please don’t hesitate to contact Jennifer Raphael or Adam Brown at Axia Litigation Lawyers today for advice. And remember, if you are a HIA or Master Builders member, you receive a free 30-minute consultation as part of your membership package.
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