o If, acting on that advice, the receivers or liquidators treat the money as the company’s and therefore distribute it to the secured and preferential creditors, they will have caused a breach of trust if an adjudicator, arbitrator, or court later concludes that the company was not entitled to withhold the retention. o This risk may result in insolvency practitioners defensively setting aside retention monies notwithstanding that there are good grounds for the company to appropriate the monies under the construction contract. This would add uncertainty, time, and expense to the process of realising assets for secured creditors. Our Views We have reservations about the merits and practicality of the new regime. It is inconsistent with the established treatment of secured and preferential creditors under other legislation and may create uncertainty for insolvency practitioners and industry participants. We are currently meeting with clients to discuss the amendments to the CCA that come into effect on 31 March next year. If you would like to talk with us further about retention monies or any other CCA issue that may affect your business, please contact us. Disclaimer: This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.
Endnotes 1 Construction Contracts Amendment Act 2015; c.f., the Building and Construction Industry Security of Payment Amendment (Retention Money Trust Account) Regulation 2015 (NSW) promulgated under the Building and Construction Industry Security of Payment Act 1999 (NSW). See also Bell Gully’s November 2015 update here. 2 The change was inserted into the Regulatory Systems (Commercial Matters) Amendment Bill. 3 This means any contract for carrying out construction work in which one of the owners is not a residential occupier of the premises at which the works are occurring. 4 MBIE has consulted on the appropriate threshold value to engage the regime – please see Bell Gully’s submission here. 5 MBIE has consulted on the appropriate accounting rules for liquid funds. See Bell Gully’s submission here. The legislation provides that the funds may be invested subject to the rules that apply to the investment of trust funds. 6 See, e.g., MacJordan Construction Ltd v Brookmount Erostin Ltd [1994] CLC 581 (CA).
Jesse Wilson
Jesse acts primarily on contractual and securities law disputes, and also has experience in commercial regulatory disputes, including investigations and proceedings under the Commerce Act, Fair Trading Act, Credit Contracts and Consumer Finance Amendment Act (CCCFA), and Anti-money Laundering / Counter Financing of Terrorism legislation (AML/CFT).
Jesse acts on contentious construction matters, including defending manufacturers of cladding and roofing products. He has also represented principals in claims against contractors.
To learn more about Jesse, please visit the firm's website.