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Tradies and the risks of bankruptcy

Commentary on the effect on a person of becoming bankrupt often focuses on the restrictions imposed by the Bankruptcy Act itself. This alert looks at the effect that being an “insolvent under administration” may have upon a person’s ability to work as a contractor under South Australian legislation.

Statistics released by AFSA on the occupations of business debtors for 2013-2014 show that the largest single category of debtors who made business related personal insolvency appointments in that year were “construction trades workers”. Within this group the most common cause of insolvency cited was “economic conditions”.

Trades licensing in South Australia

In South Australia licensing of building work contractors is governed by the Building Work Contractors Act 1995 and licensing of plumbing contractors, gas fitting contractors and electrical contractors is governed by the Plumbers, Gas Fitters and Electricians Act 1995.

The common scheme put in place by this state legislation includes the following key provisions:

  1. A person must not carry on business as a contractor except as authorised by a licence granted under the licensing legislation at the risk of being charged and, if convicted, having to pay fines of a maximum of $50,000 for a first or second offence and potentially being imprisoned for a third or subsequent offence.
  2. A person is only entitled to be granted a licence if, along with other criteria, the person is not an insolvent under administration within the meaning of the Corporations Act (and in the case of building work contractors, has not been during the period of two years preceding the application an insolvent under administration or subject to a composition or deed or scheme of arrangement with or for the benefit of creditors).
  3. It is cause for disciplinary action to be brought against a contractor if events have occurred such that the contractor would not be entitled to be licensed as a contractor, if the contractor were to apply for a licence.

“Insolvent under administration” is defined in the Corporations Act as including an undischarged bankrupt and also a person whose property is subject to control under section 50 or Division 2 of Part X of the Bankruptcy Act or who has executed a personal insolvency agreement under Part X of the Bankruptcy Act.

Approaches to disciplinary proceedings

The initiation of disciplinary proceedings by the Commissioner for Consumer Affairs upon a person holding a licence becoming an insolvent under administration may be virtually automatic.

There are, however, at least two courses available to a person who finds his or her licence is at risk as a consequence of becoming an insolvent under administration.

Firstly, it is possible to make submissions to the Commissioner for Consumer Affairs requesting that the Commissioner decline to bring disciplinary proceedings in the exercise of the Commissioner’s discretion. This may be appropriate, and potentially effective, where there is, for example, an appeal against the making of a sequestration order or an application for an annulment on foot which on its face has merit.

A second alternative, once disciplinary proceedings have been commenced in the District Court, is for the debtor to argue that a result other than disqualification is appropriate based on the facts of the case. The Court under both pieces of legislation may issue a reprimand, impose a fine, impose or vary licence conditions or place a time limit upon disqualification, rather than simply disqualify a contractor. The arguments available to a debtor as to penalty, of course, will depend on the individual circumstances of the debtor’s case.

Conclusion

Without taking action to ensure his or her licence remains current a person who previously depended on a licence for his or her livelihood before becoming insolvent will place himself or herself at risk of prosecution, a serious fine and, for a third or subsequent offence, imprisonment. Acting early if insolvency is imminent may minimise this risk, however.

Cowell Clarke has significant experience in acting for debtors faced with the twin prospects of becoming an insolvent under administration and having a trades licence placed at risk. If you have any queries about this or any other bankruptcy topic please do not hesitate to contact us.

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