One sign that a construction company in Queensland is experiencing financial difficulties is if they fail to meet the Queensland Building and Construction Commission’s (‘QBCC’) minimum financial requirements (‘MFRs’).
We all know or can understand that the collapse of construction companies can have serious impacts on subcontractors, suppliers and small businesses. And unfortunately, Queensland has a bleak history in terms of construction company insolvencies.
Since 2013, more than 50 building companies have collapsed in Queensland with 7000 subbies claiming they are owed over $500 million.
In the 2018/2019 financial year, the construction sector experienced [1]:
a total of 169 insolvencies in Queensland; and
a total of 873 insolvencies Australia-wide.
In response to the high profile insolvencies and corporate collapses with the construction sector, the Queensland Building and Construction Commission’s minimum financial requirements (‘MFRs’) were strengthened this year to require more stringent reporting requirements enabling the QBCC to access detailed financial information from licensees.
It is important to note that MFR does not just affect big construction companies. It affects all licensees (that means subbies and tradies too), especially those with large revenues.
In this article, we’re going to look at the new MFRs, including what they are and the serious consequences if you fail to meet them.
What are the New MFRs?
The MFRs are set out in the Queensland Building and Construction Commission (Minimum Financial Requirements) Regulation 2018. An applicant for a contractor’s licence (whether builder, subbie or head contractor) must meet the MFRs for the grant or renewal of a licence.
The new MFRs have been rolled out in two phases – the first phase on 1 January 2019 and the second on 1 April 2019.
The biggest changes are:
the reintroduction of mandatory annual reporting (which was removed in 2014 but is now back); and
the requirements for larger, higher risk licensees (categories 4-7) [2] to:
report decreases in Net Tangible Assets of 20 per cent or more; and
provide more detailed information, for example more details about debtors such as the age of debts.
Failure to comply with these requirements is an offence with penalties of up to $2,611.
Also if you have a maximum revenue below $800,000 (categories SC1-SC2), the QBCC may require you to provide an MFR report. If you fail to do so, it is an offence which attracts a penalty of up to $2,611.
Additional changes include:
Personal recreational vehicles, such as dirt bikes and golf carts, can no longer be used to meet minimum asset thresholds; and
Project Bank Account funds can be included as an asset.
Offences also exist if you fail to notify the QBCC of mistakes in your MFR reporting and if you fail to comply with QBCC notices, such as a notice to provide internal management accounts.
Steps can also be taken to suspend or cancel a licence if the MFRs are not met.
The new MFRs in effect
Earlier this year, we got to see the new MFRs in effect when one of Britain’s most prominent building companies was in strife when the QBCC found that its Queensland operation was not meeting the MFRs.
According to the QBCC commissioner, Laing O’Rourke Australia Construction Pty Ltd (“Laing O’Rourke”) was “operating outside its allowable annual revenue limit and this presents a serious risk of financial harm to the sector” [3]. Information provided by Laing O’Rourke “failed to show how the company was operating within the law, and with allowable asset levels”.
The QBCC suspended Laing O’Rourke’s licence for failing to satisfy the MFRs. Laing O’Rourke disputed the suspension saying that “the business maintains a strong financial position with independently audited accounts, which have been signed off in accordance with Australian accounting standards”.
Five days later, the licence suspension was lifted. Reports reveal that Laing O’Rourke “moved money internally and paid off some debts, enabling its net tangible assets to meet requirements” [4].
Laing O’Rourke has not been let off scot-free. QBCC has imposed a condition on their licence requiring the company to “provide internal management accounts to QBCC for each month end, commencing 31 March 2019, by close of business on the 14th of each month, until the Company’s externally audited accounts for 31 March 2019 are provided to QBCC” [5].
The new, tougher MFRs give the QBCC power to require this information, which is something they weren’t able to do previously.
A failure to satisfy the MFRs can have serious consequences as demonstrated by the Laing O’Rourke scenario.
More consequences to follow
According to the Department of Housing and Public Works, the MFR enforcement provisions under the QBCC Act are intended to be further strengthened, including executive officer liability and escalating penalties, to help ensure all parties involved in running a licensed company are motivated to meet the new MFRs [6].
Summary
As a Queensland licensee, it’s important to be across the changes to the MFRs. They impact licensees across all revenues and QBCC is committed to enforcing the new MFRs in an effort to reduce construction company collapses in Queensland.
If you would like to know more about your MFR obligations, please contact us on 07 3128 0120 or subcontractors@arbuildinglaw.com.au.
End Notes
[2] Category 4 to 7 licensees have a maximum revenue of $30,000,001 to greater than $240M NTA. Source: https://www.qbcc.qld.gov.au/financial-categories-minimum-financial-requirements
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