If you walk around any construction site, it’s immediately apparent that sub-contractors are the backbone of the building and construction industry in both Australia and around the globe and have the right to be paid at the end of the job.
In Australia alone the construction industry is worth a staggering $300 billion annually and wholly reliant on some 350,000 small to medium size sub-contractor businesses. Those contractors undertake 85% of all construction work. These include plumbers, electricians, brick layers, plasterers, concreters, carpenters, painters, as well as many other tradesmen.
But in this industry the subcontractors are routinely subjected to deliberate refusal to be paid with the unpaid debt now totaling as high as $20 billion annually in Australia alone! Wrongfully withholding money owed to small business is the best business in town!
Small contractors are ‘contracted’ to do mega millions of dollars of work, supplying all materials and skilled labour. By refusing to pay what they owe, head contractors use this money to finance other projects. As Queensland Housing Minister, Mick de Brenni stated, “Many subbies are being used as pseudo overdraft facilities!”
This is undoubtedly unethical, but there follows an additional payoff: head contractors get sub-contractors to complete all the work, collect the client’s money, then pocket what they are indebted to pay as stolen ‘treasure.’
Concentration of power in the hands of a relatively small number of head contractors has fostered a culture of corruption, with bullying, intimidation and terror tactics rife. Knowing that small business does not have the money to fight back, and subject to the threat of being refused future work if they lodge claims for payment, the lead contractors employ the “take it or sue us” line – criminal conduct the legacy of official licence to flout the ‘law.
Fraud via Insolvency and The ‘Phoenix Option.’
In Australia the construction industry accounts for around 10% of GDP, but disproportionately 25% of all insolvencies. According to university research, insolvent non-corporations, such as small sole traders are not included in ‘official statistics’ – adding another 60% to the total of construction bankruptcies, according to the 2016 study Construction Insolvency in Australia. Thus, instead of construction insolvencies accounting for 25%, they actually account for more than half!
ASIC and the ATO advised the 2015 Senate Inquiry into construction industry insolvency of an “emerging business model” involving company directors and their corporate and liquidator advisors organizing ‘restructuring’ of the business prior to insolvency. The Senate’ sanitised reference to ‘emerging’ is erroneous – the practices are entrenched – and frankly can only be classified as fraud. Business failure, badged as ‘insolvency’ has facilitated the theft of $3 billion annually from Australia’s 350,000 small business owners. In Australia there are literally mega thousands of such illegal ‘phoenix’ arrangements operating every year. The Senate Inquiry concluded that the construction industry’s high incidence of illegal phoenix activity had become a way of doing business in order to increase profits. The Senators explain: “because the consequences of non-compliance are so mild and the likelihood that unlawful conduct will be detected is so low.” Contempt for ‘non-compliance’ and ‘lawless’ conduct is flourishing.
Certainly the Senate Committee were on the money. The number of construction company directors prosecuted for insolvent trading, fraud and breaches of duties is almost nil. As for it being the fault of ASIC or liquidators’ reporting, this is true. There is clearly no commitment to protect those who are legally bound to be paid for their work. The ‘no penalty’ rule confirms the illusion of ‘laws’! And as for preventing impending harm, the guarantee of no consequences undeniably acts as NIL deterrence to future criminals.
Queensland: A Case Study
If we take Queensland as an example, building subcontractors number 84,000. They have more than 250,000 dependents. A quarter of a million people! When subcontractors are not paid, the fallout is catastrophic – for them and their families, their employees and their families, suppliers, local business, the entire community. That means millions of lives devastated every year.
Let’s briefly examine the so-called collapse of Walton Construc on in 2013. It left 1,350 trade sub-contractors and suppliers across Australia owed $300 million (the Creditors’ Report listed $90 Million) – 600 of these in Queensland. This ‘insolvency’ is not significant for its size – there were bigger ‘failures’ before it – and we’ve had another 120,000 since. Walton’s insolvency represents more than a watershed moment. It provides concrete proof of how the bureaucra c chiefs abet law breaking for their buddies.
One Walton Victim
Three years on from October 2013, Beau Hartshorn is still hurting. For his young business, this was to be the biggest ‘con-tract’ he had won. He could not know Walton’s ‘plan’, or that government had decreed it ‘legal’ to ruin his life. Walton’s ‘insolvency’ left Hartshorn’s landscaping business owed $600,000 for work on the $22 million Nambour Coles project.
As reported by Bill Hoffman in the Sunshine Coast Daily, this ‘knockout’ “killed his fledgling business, cost 10 employees their jobs and meant Beau was unable to pay suppliers he had come to count as friends. He still owes money to his grandparents.” He was forced to sell his home and he has lost everything. He now works for a small wage and earns enough to put food on the table at his parents’ place where he lives. “But nothing was quite as hard as telling his then 13-year-old daughter the two horses she had ridden and loved since she was four would have to be sold,” Hoffman wrote.
The postscript is that the Walton collapse was carefully contrived. From the moment Hartshorn was ‘contracted’ there was never any chance that he would be paid.