Few things are as stressful for homeowners as discovering their builder has gone bankrupt mid-project. In Australia, the construction industry sees frequent insolvencies, leaving many property owners facing unfinished homes, legal confusion, and financial uncertainty. Understanding your rights under Building and Construction Law is critical to protecting your investment and getting your project back on track.

This article explains the practical and legal steps you should take if your builder becomes insolvent, and how Australian building and construction laws can work in your favour.

Confirm the Builder’s Bankruptcy or Insolvency Status

The first step is to confirm whether your builder has formally entered bankruptcy (for sole traders) or liquidation/administration (for companies). This information can usually be verified through:

• The Australian Securities and Investments Commission (ASIC)
• The Australian Financial Security Authority (AFSA)

Formal confirmation is essential before taking further action, as your legal rights depend on the builder’s insolvency status.

Review Your Building Contract Carefully

Your building contract is the foundation of your legal position. Under Australian Building and Construction Law, contracts often include clauses addressing insolvency, termination rights, and insurance.

Key items to check include:

• Termination provisions if the builder becomes insolvent
• Ownership of materials already paid for
• Warranties and defect liability clauses
• Payment schedules and retention amounts

If the contract allows termination upon insolvency, you may be able to legally end the agreement and engage a new builder without breaching the contract.

Do Not Terminate the Contract Without Legal Advice

Although it may be tempting to immediately terminate the contract, doing so incorrectly could expose you to legal claims. Insolvency law intersects closely with Building and Construction Law, and mistakes can be costly.

Before issuing any termination notice:

• Seek advice from a building and construction lawyer
• Ensure you comply strictly with contractual notice requirements
• Avoid actions that may be interpreted as unlawful termination

This step alone can save thousands of dollars in potential disputes.

Check Your Home Warranty Insurance

In most Australian states and territories, residential building work is covered by Home Warranty Insurance (also known as Domestic Building Insurance). This insurance is designed specifically to protect homeowners if a builder dies, disappears, or becomes insolvent.

Home warranty insurance may cover:

• Completion of unfinished work
• Rectification of defective work
• Loss of deposits or advance payments

Each state has different thresholds and conditions, so it’s important to review your policy documents or seek professional guidance.

Secure the Site and Document Everything

Once insolvency is confirmed, you should take immediate steps to protect your property and legal position:

• Secure the construction site to prevent damage or theft
• Photograph and video all completed and incomplete works
• Collect copies of invoices, receipts, plans, permits, and correspondence

Proper documentation is essential for insurance claims, legal proceedings, or negotiations with a new builder.

Understand Your Rights Against Subcontractors

Under Australian Building and Construction Law, subcontractors may attempt to recover unpaid money by asserting rights over materials or lodging security of payment claims.

Important points to consider:

• Subcontractors generally do not have a direct contractual relationship with the homeowner
• However, unpaid subcontractors may remove materials they supplied if ownership has not passed
• Some states allow subcontractors to lodge caveats or payment claims

Legal advice can help prevent disputes and ensure compliance with security of payment legislation.

Appoint a New Builder to Complete the Work

Once the contract is properly terminated and insurance matters are underway, you can begin the process of appointing a new builder. This usually involves:

• Obtaining an independent building inspection
• Preparing a detailed scope of remaining works
• Ensuring the new builder is licensed and financially stable

A new contract should clearly define responsibility for existing defects and compliance with building standards.

Seek Expert Legal Advice Early

Building disputes involving insolvency are complex and time-sensitive. A lawyer specialising in Building and Construction Law can assist with:

• Contract termination advice
• Insurance claims and negotiations
• Insolvency proceedings and creditor claims
• Dispute resolution and tribunal applications

Early legal intervention significantly improves outcomes and reduces long-term costs.

Suggested External Links:

• Australian Securities and Investments Commission (ASIC)
• Australian Financial Security Authority (AFSA)
• NSW Fair Trading – Home Building Insurance
• Victorian Building Authority (VBA)
• Australian Building Codes Board

If your builder has gone bankrupt,

do not wait until the problem escalates.

Contact a construction lawyer now for tailored legal advice and practical solutions.

Contact New South Lawyers today to protect your rights, minimise financial loss, and get your project completed with confidence.