The Australian Small Business and Family Enterprise Ombudsman’s (ASBFEO) inquiry into the construction industry supply chain resulted from calls from subcontractors, who lost money due to the insolvency of their contractor. Cases have also been referred by Members of Parliament representing constituents, who were paid late or not at all as a result of the insolvency of their contractor. Statutory trusts have been considered and proposed by a number of inquiries as a means of ensuring prompt progress payments to subcontractors, and ring-fencing payments in the event of insolvency of their contractor.
Mr John Murray AM commenced a Review of Security of Payments Laws on 21 December 2016. The Review was established by Senator the Hon Michaelia Cash in her then capacity as Minister for Employment. Mr Murray recommended introducing deemed statutory trusts as a way to protect payments due to subcontractors even where a contractor above them becomes insolvent.
That there is a systemic issue, is supported by the increase in insolvencies in the construction sector. Disproportionally this impacts the small businesses – the subcontractors at the end of the chain. Of all insolvencies, 64 per cent of insolvencies are businesses with less than five employees.
We have considered the various arguments for and against cascading deemed statutory trusts and, on balance, support their implementation in the construction sector. Our research has shown that the benefits of implementation outweigh the potential costs and impacts on working capital.