Building Contractor Insolvency in Queensland: What Directors of Construction Companies Must Do When the Money Runs Out

A Queensland building contractor facing insolvency has a narrower window to act than almost any other type of business director. In the 12 months to September 2026, Queensland alone has seen the collapse of Australian Off Road (Sunshine Coast, September 2026) and Zone RV (Sunshine Coast, December 2025), two manufacturing companies whose directors faced exactly this pressure. From the moment the first subcontractor cannot be paid, a clock starts running on personal liability for insolvent trading — seek advice from our Brisbane insolvency lawyers immediately, ATO Director Penalty Notices, employee entitlements, and potential disqualification. This guide explains what directors of construction companies need to know, and what needs to happen before the first creditor meeting is called.. Queensland directors of building companies should also understand their director duties and personal liability exposure

The Construction Industry Insolvency Problem

Queensland’s construction industry has the highest corporate insolvency rate of any sector in Australia. In the 2025-26 financial year, the construction sector accounted for 3,435 corporate insolvencies nationally, representing approximately 28% of all corporate collapses. The Queensland share of that figure is disproportionately high, driven by the legacy of the infrastructure pipeline and the cost escalation cycle that began in 2022.

What makes construction company insolvency different from other business failures is the cascading structure of liability. A building contractor sits in the middle of a chain: principals or developers above, subcontractors and suppliers below, the ATO and employees running parallel. When the cash flow stops, it stops everywhere at once.

This guide is written for directors. Not for subcontractors or creditors, although both groups have rights worth understanding. For directors, the question is more personal: what is my exposure, what can I do about it, and how quickly do I need to move?

When Does a Construction Company Become Insolvent?

The legal test for insolvency under section 95A of the Corporations Act is cash flow, not balance sheet. A company is insolvent when it cannot pay its debts as and when they fall due, using all available means.

In construction, the first indicators of insolvency are usually:

• Subcontractor and supplier invoices being held beyond 60 days
• Payroll funded from progress claim receipts before they arrive (float management)
• ATO accounts with unpaid PAYG withholding or superannuation guarantees
• Retention funds being used as working capital rather than held
• Requests to suppliers for extended credit or payment plans
• A project margin that has been consumed by variations and delay costs
• Personal director loans being drawn to fund operations

The moment a director has reasonable grounds to suspect insolvency, section 588G applies. From that point, every new debt incurred by the company is a potential personal liability for the director, unless a statutory defence applies.

Director Personal Liability in Construction Insolvency

Insolvent Trading Under Section 588G

Section 588G of the Corporations Act imposes personal liability on a director who allows the company to incur a debt while the company is insolvent, or where the debt causes insolvency, if the director knew or ought to have known that insolvency existed or would result.

The practical application in construction: if a director continues to engage subcontractors, order materials, or accept progress payments from principals during a period of insolvency, each transaction involving a new debt is a potential s588G liability. The liquidator who later reviews the books can trace every invoice back to the date reasonable grounds of insolvency arose. The director becomes personally liable to pay the difference between what those creditors received in the liquidation and what they were owed.

In construction, where subcontractor invoices can be substantial and are issued continuously, the aggregate liability can be significant. The Crispino v Lightowler [2026] VSC 500 judgment ordered a director to pay $2,504,836.99 in insolvent trading damages, in part because financial records were not maintained adequately, triggering the section 588E(4) presumption of insolvency.

The Four Section 588H Defences

Section 588H provides four personal defences to an insolvent trading claim. Directors should understand all four before dismissing them.

Defence	What Must Be Shown	Evidence Required
Reasonable grounds to expect solvency (s588H(2))	Director had reasonable grounds to expect company would remain solvent	Cash flow projections, client payment commitments, refinancing in progress
Reliance on information from another (s588H(3))	Director relied on information from a competent and reliable person suggesting solvency	Written accountant reports, director board minutes, financial analysis documents
Non-participation due to illness or other good reason (s588H(4))	Director did not take part in management due to illness or other good cause	Medical records, evidence of genuine non-involvement, board structure documentation
All reasonable steps taken (s588H(5))	Director took all reasonable steps to prevent incurring of the debt	Evidence of formal insolvency advice, board minutes resolving to stop trading, VA appointment steps

ATO Director Penalty Notices

Construction companies are high-risk targets for ATO Director Penalty Notices (DPNs). The reason is structural: construction cash flows are lumpy, payroll is large, and PAYG withholding and superannuation guarantee (SGC) are often the first liabilities to be deferred when cash is tight.

Under the Taxation Administration Act 1953, the ATO can issue a DPN to any director, making them personally liable for unpaid PAYG withholding, net amounts under the GST Act, and SGC. From 1 July 2026, superannuation guarantee must now be paid within 7 days of the payroll date (Payday Super). This means a construction company paying 52 times a year creates 52 separate DPN exposure windows annually.

The critical distinction is between lockdown and non-lockdown DPNs. A lockdown DPN issues when the relevant liability has not been reported within 3 months of its due date. A lockdown DPN cannot be remitted by placing the company in voluntary administration or liquidation. The only way out is to pay the debt in full. Many construction company directors discover their DPN liability has already locked down before they seek legal advice.

The Safe Harbour: Section 588GA

Section 588GA of the Corporations Act provides a personal liability shield for directors who are pursuing a genuine restructuring course of action. The safe harbour applies from the moment the director starts developing a restructuring plan, provided the following requirements are met throughout the safe harbour period:

• The company is taking steps reasonably likely to lead to a better outcome for the company than immediate administration or liquidation
• The company is meeting its employee entitlements as and when they fall due
• The company is lodging its tax reporting obligations (even if not paying the underlying liability)
• The director is obtaining advice from a qualified entity (accountant or lawyer) about the restructuring
• A documented restructuring plan exists and is being actively pursued

The safe harbour is not a free pass. In construction, it is particularly difficult to maintain because of the continuous accumulation of new subcontractor liabilities. Every new construction engagement creates a new potential liability if the company fails. The restructuring plan must be credible, not aspirational.

The safe harbour ends when any of the above conditions is no longer met, when the director fails to take the course of action, or when the company enters administration, liquidation, or receivership.

Voluntary Administration in Construction

Voluntary administration under Part 5.3A of the Corporations Act is one of the most important tools available to a construction company director. It provides a structured period of protection from creditor enforcement while the administrator assesses the company’s position and creditors vote on the outcome.

The Moratorium

During voluntary administration, section 440D of the Corporations Act stays most proceedings against the company without the leave of the court. This includes civil proceedings, executions, and enforcement actions. However, the moratorium has limits that are particularly relevant in construction:

• BIF Act adjudication applications that have already been commenced can continue if the adjudicator has already been appointed
• PPSA enforcement by secured creditors can proceed against specific collateral (plant, equipment, motor vehicles) under a PPSA security agreement
• Subcontractors’ Charges Act 1974 (Qld) proceedings are affected by the moratorium but the underlying charge may already be registered
• Retention money trust obligations under the Building Industry Fairness (Security of Payment) Act 2017 (Qld) run parallel to the administration

The Administrator’s Role and Project Status

The voluntary administrator takes control of the company’s affairs. In a construction context, the administrator must immediately assess each project in progress: can it be completed, abandoned, or handed to a completing contractor? Section 443A gives the administrator personal liability for debts incurred during the administration period, which creates a natural incentive to make rapid project completion decisions.

For directors, the appointment of a voluntary administrator removes personal liability for post-appointment debts. The personal liability exposure crystallises at the appointment date. This is why the timing of administration is critical.

Employee Entitlements: A Director’s Personal Exposure

Construction companies typically have large workforces with substantial entitlements: wages, annual leave, long service leave, and redundancy. When a construction company enters administration or liquidation, employees rank as priority creditors under section 556 of the Corporations Act, but their recovery depends on the quantum of assets available.

The Fair Entitlements Guarantee (FEG) scheme provides a backstop for employees of companies in liquidation, covering unpaid wages (up to 13 weeks), annual leave, long service leave, and redundancy. However, FEG has caps and exclusions.

Directors who cause the company to fail to meet payroll during the period of financial stress face specific exposure. If the company’s insolvency was prolonged by the director’s decision to continue trading, the failure to pay wages during that period may be caught by section 588G as an insolvent trading liability in favour of those employees.

The Phoenix Warning: ASIC and Director Disqualification

The construction industry is the primary target of ASIC’s phoenix activity enforcement program. Phoenixing, the practice of stripping assets from a failing company and transferring them to a new company to continue the same business while leaving creditors unpaid, is specifically addressed by section 588GAA of the Corporations Act (creditor-defeating dispositions) and the Treasury Laws Amendment (Combatting Illegal Phoenixing) Act 2020.

Directors who engage in illegal phoenix activity face ASIC disqualification proceedings under section 206C, civil penalties, and in serious cases criminal prosecution. ASIC’s 2025-26 enforcement data showed a 157% increase in director disqualifications, with construction sector directors significantly overrepresented.

The line between a legitimate business rescue (purchasing the assets of a failed company at market value and continuing operations) and illegal phoenixing is a factual question determined by ASIC and the courts. Directors who are considering any form of asset transfer from a distressed construction company must obtain independent legal advice before taking any steps.

The 6-Step Action Guide for Directors of Distressed Construction Companies

1. Obtain an immediate solvency assessment. Engage a commercial lawyer and an insolvency-experienced accountant on the same day. Confirm whether the company can be rescued, whether safe harbour applies, or whether formal insolvency is unavoidable. Every day of delay narrows the options.
2. Check DPN status with the ATO. Call the ATO on 1300 850 080 and ask for the current position on PAYG withholding, SGC and GST liabilities. Determine whether any lockdown DPN has already been issued or is imminent. If a lockdown DPN is approaching: paying the debt before it issues removes the personal liability.
3. Preserve financial records. The section 588E(4) presumption of insolvency operates against any director whose company failed to maintain adequate financial records under section 286. Every bank statement, invoice, contract, and payment record needs to be secured and preserved immediately.
4. Assess each project in progress. Determine which projects can be completed, which need to be handed over, and which BIF Act claims or adjudications are currently on foot. A voluntary administrator will need this information on day one. Having it ready accelerates the administrator’s decision-making and can preserve project value.
5. Consider the timing of formal insolvency. Voluntary administration stops the personal liability clock at the appointment date. In construction, where new liabilities accumulate daily, the decision about when to appoint an administrator is one of the most financially significant decisions a director can make. Appoint too late, and the insolvent trading exposure covers months of post-insolvency trading. Appoint at the right time, and personal liability is contained.
6. Understand your ongoing obligations during the administration. A director’s role continues during a voluntary administration, they are required to submit a RATA (Report As To Affairs) to the administrator within 5 business days of appointment, provide information and records, and cooperate with the administrator’s investigation. Non-compliance is a criminal offence.

Frequently Asked Questions About Building Contractor Insolvency in Queensland

Can I resign as a director to avoid personal liability for insolvent trading?

Resignation does not remove liability for debts incurred before the date of resignation. A director who resigns while the company is insolvent remains personally liable for debts incurred during the period they were a director. Resignation also triggers specific DPN risks: under section 269-15 of the Taxation Administration Act 1953, a resignation within 30 days of a DPN being issued does not relieve personal liability. Resignation cannot be used as a liability management tool.

What happens to my building licence if the company goes into administration or liquidation?

The QBCC administers contractor licensing in Queensland. A company’s QBCC licence is an asset of the company. An administrator or liquidator can continue to use the licence for the purposes of the administration. However, a director who is personally licensed and becomes associated with a company that fails may face a maximum allowable cost (MAC) event assessment. QBCC’s financial requirements for licensing include minimum net tangible asset tests. Directors of failed construction companies should obtain advice about their personal licence status separately from the company’s administration.

Are subcontractor retention monies protected in a voluntary administration?

Under the Building Industry Fairness (Security of Payment) Act 2017 (Qld), project bank accounts (PBAs) are required on certain Queensland government projects. Retention money held in a PBA is trust money and is protected from the administration moratorium. Retention money held outside a PBA is a general creditor claim and ranks in the priority waterfall under section 556. This distinction is critical for subcontractors and can affect the economics of the administration.

Can the ATO enforce during a voluntary administration?

The ATO’s status depends on what type of claim it holds. PAYG withholding and SGC liabilities that are already lockdown DPNs create personal liability that continues through the administration and beyond. The section 440D moratorium prevents the ATO commencing or continuing most proceedings against the company, but the ATO can still issue DPNs to directors during administration and will do so. Post-appointment tax liabilities are administration expenses and rank ahead of unsecured creditors under section 556.

How quickly does a voluntary administrator make decisions about construction projects in progress?

A voluntary administrator has a short decision window. Under section 443A, the administrator incurs personal liability for post-appointment debts from the day 5 of the administration onwards, unless they give notice under section 443B disclaiming liability for property. In practice, most experienced insolvency practitioners make project continuation decisions within 48-72 hours of appointment, sometimes the same day. The availability of complete project records, contract documents, and financial information determines how quickly the administrator can act. Directors who prepare this information before the appointment are acting in the best interests of all stakeholders.

Boss Lawyers advises directors, creditors, and businesses in building and construction insolvency matters across Queensland. If your construction company is under financial pressure, contact Mark Harley at 1300 267 711 or visit bosslawyers.com.au/service/building-construction-lawyers-brisbane/ for advice on your specific situation.

This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances.