Category: Building & Construction

The building and construction industry is experiencing the most severe wave of insolvencies in more than a decade. Across NSW and Australia, builders are collapsing at record rates, leaving subcontractors, suppliers and homeowners exposed to unpaid invoices, abandoned projects and cascading financial loss.

Recent data paints a stark picture. NSW alone recorded 1,567 construction company liquidations in the 2024–25 financial year, almost triple the number from a decade earlier. Nationally, the construction sector saw 3,596 collapses in FY2025, the highest on record, with the trend expected to continue into FY2026. Infrastructure NSW has similarly reported that financial stress across the sector is “acute”, with 3,596 construction companies entering external administration or controller appointments in the 12 months to June 2025.

In this environment, taking prompt action is not optional; it is essential.

Why Insolvencies Are Surging

Multiple pressures are converging on the industry:

• Fixed‑price contracts that no longer reflect material and labour costs;
• Labour shortages, with NSW facing a shortfall of nearly 98,000 skilled workers in 2025;
• Inflation and supply chain volatility, making pricing unpredictable;
• ATO enforcement, which has intensified post‑COVID and is driving insolvency appointments, particularly among SMEs;
• Cooling private development, especially in residential construction; and
• Thin margins, leaving little buffer for shocks.

The result is a sector where even well‑established contractors are under strain and smaller operators are disproportionately vulnerable. This is why it is important to ensure cash-flow is optimal and reliable.

Why Subcontractors and Suppliers Are at the Greatest Risk

When a builder collapses:

• Payment claims often go unpaid;
• Retentions may never be recovered;
• Work in progress becomes difficult to value;
• Creditors are left competing for cents in the dollar; and
• Projects stall, causing further financial pressure.

Subcontractors and suppliers are typically unsecured creditors, meaning they sit at the bottom of the recovery hierarchy. By the time administrators are appointed, it is often too late.

This is why early intervention is critical to avoid any possibility of going insolvent.

How Contractors Can Protect Themselves by Acting Before It’s Too Late

The most effective protection available to contractors is to use the Security of Payment Act (SOPA) promptly and strategically.

SOPA is designed to keep cash flowing in the construction industry. It gives contractors a fast, enforceable pathway to recover progress payments, but only if they act within strict timeframes.

1. Issue Payment Claims on Time

A compliant payment claim is the foundation of your rights. Delays or informal invoices can cost you the ability to pursue adjudication.

2. Respond Immediately to Delayed or Partial Payments

If a payment schedule is inadequate or missing, strict deadlines apply. Missing them can extinguish your rights.

3. Use Adjudication Early; Not as a Last Resort

Adjudication is generally fast, cost‑effective, legally enforceable and designed to bypass insolvency risk.

The High Court has repeatedly emphasised that adjudication determinations are intended to be “interim, quick and enforceable” (Probuild Constructions v Shade Systems [2018] HCA 4).

In an environment where builders are collapsing at record rates, waiting is the greatest risk.

4. Consider No‑Fee or Funded Adjudication

For contractors under cashflow pressure, it may be possible to consider using a third-party funder to assist in funding the legal fees and costs of pursuing the claim where the funder and the law practice will recover their fees and costs from the resolution sum. We conduct a thorough evaluation of your matter to determine whether you qualify for this option.

5. Monitor the Financial Health of Those You Contract With

Common red flags include:

• Repeated payment delays;
• Unexplained variation disputes;
• High turnover of staff;
• Rumours of ATO action; and
• Other subcontractors reporting non‑payment.

If you see these signs, act immediately.

Why Acting Early Matters More Than Ever

Contractors who enforce their rights early have a better chance at recovering more. Those who wait may recover nothing.

SOPA is designed to give you leverage before a builder collapses, not after.

Once administrators are appointed:

• Your claim becomes unsecured;
• Work performed may not be paid;
• Retentions may be lost; and
• You may be competing with dozens or hundreds of other creditors.

By contrast, an adjudication determination obtained before insolvency can be:

• Enforced as a judgment;
• Used to secure payment; and
• Used to negotiate from a position of strength.

The courts continue to reinforce this. Recent decisions, including the NSW Court of Appeal’s judgment in Ceerose Pty Ltd v A‑Civil Aust Pty Ltd [2023] NSWCA 215, confirm that adjudication remains a fast, effective and enforceable mechanism for recovering payment when respondents delay or dispute claims. Contractors who use SOPA early are far better protected than those who wait.

Ongoing reforms reinforce this direction

The regulatory landscape is also continuing to evolve. The NSW Government has signalled further reforms aimed at strengthening payment protections, improving industry oversight and reducing insolvency risk. In a 2023 parliamentary speech introducing amendments to the building and construction regulatory framework, the Minister stated that the Government is “committed to driving cultural change in the industry and ensuring that contractors are paid fairly and on time.” With additional changes expected in 2026 and beyond, contractors should assume that compliance obligations will only increase, not diminish.

How M&A Lawyers Can Assist

M&A Lawyers advises builders, subcontractors and suppliers across Australia, particularly in NSW, on all aspects of Security of Payment and construction disputes, including, but not limited to:

• Preparing compliant payment claims;
• Responding to payment schedules;
• Preparing adjudication applications;
• Enforcing adjudication determinations;
• Acting in construction‑related disputes, adjudication, tribunal and court proceedings; and
• Assessing eligibility for no‑fee funding arrangements.

Construction insolvencies are rising, and the risk is real. Contractors who take a wait and see approach are the ones most exposed when a builder collapses.

The solution is simple:
Act early. Use the Security of Payment Act. Protect your cashflow.