A developer’s worst dread is hearing that their builder is declaring company liquidation. What happens then if the builder you’re working with actually declare company liquidation?

I thought I’d share little knowledge I had on this subject in light of last week’s notification that Cosmopolitan Homes in NSW would be liquidated.

Your builder must additionally increase insurance when raising a contract. The house warranty insurance is the most crucial policy.

The developer/homeowner is given home warranty insurance to guard them against financial damage brought on by the builder’s non-fulfillment, flaws, and violation of statutory warranties. It is legally needed and only activates if a builder passes away, disappears, or goes bankrupt prior to finishing the house or correcting the flaws.

I’ll say it again: You can only make a claim on this coverage if your builder passes away, vanishes, or liquidation. These are rather drastic results for the builder, but they could also have very negative effects on you.

I believe we can all agree on what “dying” means. I’m not sure how “disappearing” is defined legally; I searched for an explanation but couldn’t locate one. How much time must he be away? Does a three-month vacation in Vegas qualify? What I am more knowledgeable about is the lengthy process of “getting insolvent.”

The good news is that you probably have home warranty insurance if you find yourself in a scenario where your builder has entered voluntary or court-ordered liquidation. The bad news is that your cover might not be sufficient to finish your building projects.

I’m going to let you in on a little-known fact: Your home warranty insurance policy only covers up to $300,000 for incomplete work, or 20% of the builder’s contract. The moment at which your builder goes bankrupt is therefore crucial but completely beyond your control. I’ll revisit this later.

Going into company liquidation is not easy for anyone. For voluntary liquidation, the builder must admit that he simply cannot continue trading. There may be a period of denial as he comes to terms with this. He should not be trading while insolvent because it is against the law. Delays in completing the stage of construction, disgruntled tradies who have not been paid or are constantly chasing payment, and the builder being overly anxious for his next drawdown are all signs of distress. So, when the builder finally faces reality and goes into company liquidation, he must appoint an accounting firm to oversee the process. They will be known as the liquidators. Their job is to notify all “creditors” of the situation. If you are under construction with the builder, you will be a creditor, as will anyone else he owes money to, such as staff, contractors, and suppliers.

The builder may be placed in judicially or statutorily mandated liquidation. This occurs when a request is made to the court for the insolvency of a firm. The court will appoint a liquidator if this occurs.

In any case, the company’s status on the ASIC website needs to change from “registered” to “under external administration and/or controller appointed” before you may submit a claim under the home warranty insurance policy. You can file your claim after the company’s status has been altered.

You’ll be required to fill out a schedule of payments you’ve paid to the builder up until this point when you submit your claim. You’ll be aware of how much money is still in your account for construction loans. Therefore, it’s a game of chance as to whether you can finish the work with the insurance payout.

An assessor appointed by the insurance company will visit the site and provide a building timetable for the unfinished projects. You can also get your own quotations. This is put up for bid to builders on the insurance company’s panel.

At this point, you can learn that the project’s necessary works are not covered by the claim and the remaining funds from your construction loan. There certainly isn’t a good moment for your builder to shut down with only 20% of the original builder’s contract left to play with.

How can you prevent a constructor from liquidation of a  company? You may certainly investigate them before signing up, though. Obtain a list of their tradies and ask them how the builder treats them. Does he pay on time? Is he nice to have? How long has he been their employer? Ask former customers about their experiences. Look up the builder’s status and any prior complaints on the websites of the Department of Fair Trading and ASIC, respectively.

You must ultimately have faith in your judgment and follow your gut instinct regarding a builder. We can’t possibly be aware of everything that occurs within a firm. Stay with a reputable builder once you find one!