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New trust fund scheme promises to protect subcontractors against phoenix companies

A new trust-fund scheme will be created to ensure construction companies that collapse are prevented from keeping money that is owed to subcontractors after they complete a job.
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The initiative is in response to an inquiry the state government commissioned in 2012 to look at the causes of insolvency in the $40-billion building industry. Bruce Collins QC chaired the inquiry.

On Monday, the Minister for Fair Trading, Matthew Mason-Cox, will announce the new retention trust scheme – the first of its kind in Australia – which will require construction companies to hold retention money in a trust fund to protect payments for subcontractors. Head contractors who fail to comply with new requirements will face fines of up to $22,000.

Up to 5 per cent of the cost of a contract is generally retained by the contractor until the subcontractor has completed a job and corrected any defects. The new trust scheme will ensure that contractors who become insolvent cannot use the money for their own purposes.

“Head contractors will be responsible for holding retention money in their own accounts, and NSW Fair Trading will be checking audit reports that require head contractors to show they are keeping trust accounts as required,” Mr Mason-Cox said.

“This will end the widespread industry practice of using subcontractors’ trust money for the head contractor’s working capital purposes.

“At the end of the day, this money belongs to subcontractors and it’s about time it was protected as such.”

The scheme will initially apply to head contractors and their direct subcontractors for projects valued at more than $20 million.

“While most builders do the right thing and pay their subcontractors on time, we need to protect subcontractors’ retention money if a construction company collapses,” Mr Mason-Cox said.

“The changes will also provide greater transparency in relation to payments to subcontractors.”

The government is also looking into the possibility of making company directors personally liable.

“These reforms will deliver better outcomes for subcontractors while minimising red tape for the industry,” Mr Mason-Cox said.

Master Builders Association NSW executive director Brian Seidler said the industry supported the initiative.

“It’s a workable solution to ensure subcontractors’ retention money is secure,” he said.

The NSW government will also conduct a broader review of security payment laws.

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