Business, licensing and insolvency

26 terms in business, licensing and insolvency

Builder’s licence

A builder’s licence is the authorisation a person or company must hold to carry out or contract for residential building work above a value threshold. Licensing, its classes and its thresholds are administered by each state and territory, so who must be licensed and for what is confirmed with the relevant authority. General information, not legal advice. See also: Nominated supervisor.

Nominated supervisor

A nominated supervisor, or qualified supervisor, is the licensed individual whose qualifications and experience support a company’s building licence and who supervises its work. Where a company holds a licence through a nominated person, losing that person can affect the company’s ability to contract, so it is a real business dependency. General information, not legal advice. See also: Builder’s licence.

Licence class

A licence class defines the type and scope of building work a licence permits, separating, for example, a builder’s licence from individual trade licences. Working outside the class of licence held can breach the licensing law, so the class is matched to the work the business actually takes on. General information, not legal advice. See also: Builder’s licence.

Employee and subcontractor

Whether a worker is an employee or a genuine subcontractor determines who is responsible for tax withholding, superannuation, insurance and leave, and it is decided by the substance of the arrangement rather than the label on it. Getting it wrong carries real liability, so the distinction is confirmed against the current tests with an adviser. General information, not legal or tax advice. Subcontractor management reference. See also: Sham contracting.

Sham contracting

Sham contracting is treating someone who is really an employee as an independent contractor to avoid the obligations that come with employing them. It is unlawful, and it exposes the business to back-payments and penalties, which is why the genuine nature of an arrangement matters more than how it is papered. General information, not legal advice. See also: Employee and subcontractor.

PAYG withholding

PAYG withholding is the amount an employer withholds from employees’ wages and remits to the ATO toward their income tax. It is money held on behalf of the employee and the tax office rather than the business’s own, and it is reported through the activity statement. General information, not tax advice. See also: Business Activity Statement.

PAYG instalments

PAYG instalments are regular prepayments a business or individual makes toward their own expected income tax, so the liability does not fall due in one lump at year end. They are reported through the activity statement, and the amount is based on the ATO’s calculation or a rate. General information, not tax advice. See also: PAYG withholding.

Superannuation guarantee

The superannuation guarantee is the compulsory superannuation an employer must pay on top of wages for eligible workers, into their nominated fund. The rate and the eligibility rules are set by law and change over time, so the current rate and rules are confirmed with the ATO or an adviser. General information, not tax advice. See also: Labour on-costs.

Workers compensation

Workers compensation is the compulsory insurance that covers workers for work-related injury and illness, providing income and medical support. It is administered scheme by scheme across the states and territories, and builders commonly require a subcontractor’s cover to be current before they start. General information, not insurance or legal advice. Construction insurance reference. See also: Certificate of currency.

Portable long service leave

Portable long service leave lets construction workers accrue long service leave across different employers in the industry through a state scheme, rather than losing it when they change jobs. Employers contribute to the scheme for eligible workers, and the rules and rates are set per jurisdiction. General information, not legal advice.

Australian Business Number(ABN)

An Australian Business Number is the identifier a business uses in its dealings with the ATO, other businesses and government. Suppliers and subcontractors quote it on invoices, and its absence can trigger amounts being withheld from a payment, so it is part of setting up any trading relationship. General information, not tax advice. See also: Tax invoice.

Taxable payments annual report(TPAR)

A taxable payments annual report is a report to the ATO of the payments a business has made to contractors during the year, required of businesses in the building and construction industry among others. It is a reporting obligation separate from the activity statement, and the current requirements are confirmed with the ATO or an adviser. General information, not tax advice. See also: Business Activity Statement.

Business structure

A business structure is the legal form a building business trades through, commonly a sole trader, a company or a trust, each with different tax, liability and licensing consequences. The structure affects how profit is taxed and how much the operator’s personal assets are exposed, which is why it is set up with professional advice. General information, not legal or tax advice. Company structure reference.

Trust account

A trust account holds money on behalf of others separately from a business’s own funds, so it is protected and used only for its purpose. In construction it appears in retention trust and project bank account arrangements that ring-fence money owed down the chain, and where such schemes apply is set per jurisdiction. General information, not legal advice. Retention and payment terms reference. See also: Retention trust.

Invoice finance

Invoice finance, or debtor finance, is borrowing against unpaid invoices to bring cash forward before customers pay. It can ease the structural gap a builder finances between paying trades and being paid, at a cost, and it is one option to weigh against managing the cash cycle itself. General information, not financial advice. Working capital reference. See also: Working capital.

Insolvency

Insolvency is being unable to pay debts as and when they fall due. It is a cash-flow test rather than a measure of the order book, which is why a builder with plenty of work can still be insolvent, and it is the trigger for the formal processes that follow. General information, not legal advice. See also: Insolvent trading.

Liquidation

Liquidation is the winding up of a company, in which a liquidator takes control, realises its assets and distributes the proceeds to creditors before the company is deregistered. It is generally the end of the company, and for a builder it is the event home warranty insurance is designed to protect the homeowner against. General information, not legal advice. See also: Voluntary administration.

Voluntary administration

Voluntary administration is a process in which an external administrator takes control of a financially distressed company to work out whether it can be saved, sold or must be wound up. It pauses many creditor actions while the administrator investigates and reports, and it can lead to a deed of company arrangement or to liquidation. General information, not legal advice. See also: Deed of company arrangement.

Deed of company arrangement(DOCA)

A deed of company arrangement is a binding agreement between a company and its creditors, coming out of voluntary administration, that sets how the company’s affairs will be dealt with, often to give creditors a better return than immediate liquidation. Whether one is put forward and accepted is decided by the creditors on the administrator’s report. General information, not legal advice. See also: Voluntary administration.

Receivership

Receivership is where a receiver, usually appointed by a secured creditor, takes control of some or all of a company’s assets to realise them and repay that creditor. It can run alongside other insolvency processes, and its focus is the secured creditor’s security rather than the company as a whole. General information, not legal advice. See also: Liquidation.

Phoenixing

Phoenixing is closing a company to avoid paying its debts and continuing the same business through a new entity, leaving creditors, subcontractors and the tax office unpaid. Illegal phoenixing is unlawful and targeted by regulators, and it is one reason suppliers register their interests and check who they are dealing with. General information, not legal advice. See also: PPSR.

Statutory demand

A statutory demand is a formal demand on a company to pay a due debt within a set time, and failing to comply or set it aside can be used as evidence the company is insolvent to support a winding-up application. It is a serious document with strict timeframes, so it is acted on promptly with advice. General information, not legal advice. See also: Insolvency.

Unfair preference

An unfair preference is a payment a company made to a creditor shortly before insolvency that put that creditor ahead of others, which a liquidator may be able to claw back. It means a subcontractor or supplier paid just before a builder’s collapse can, in some cases, be asked to return the money. General information, not legal advice. See also: Liquidation.

Insolvent trading

Insolvent trading is a company incurring debts when it is already insolvent, which can make its directors personally liable for those debts. It is why directors of a struggling building company need to act early and take advice rather than trading on in hope. General information, not legal advice. See also: Safe harbour.

Safe harbour

Safe harbour is a protection that can shield directors from personal liability for insolvent trading while they pursue a course of action reasonably likely to lead to a better outcome than immediate administration or liquidation. It applies only where its conditions are met, so it is used with professional advice rather than assumed. General information, not legal advice. See also: Insolvent trading.

Director penalty notice(DPN)

A director penalty notice is a notice the ATO can issue making a company’s directors personally liable for certain unpaid tax debts, such as PAYG withholding and superannuation. It removes the protection the company structure would otherwise give for those amounts, which is why they are treated as debts that must not fall behind. General information, not tax or legal advice. See also: PAYG withholding.