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Some building practitioners currently registered and trading in Victoria, and domestic builders in particular, may not be aware of the strict personal and financial probity requirements needed to maintain their annual practitioner registration.

Particularly with regard to builders, it is not clear that registered domestic builders who are also directors of building companies (which must maintain a corporate practitioner registration) are as aware as they could be of director duties owed to the companies which they are in charge of.  If they do not upskill in terms of knowledge, and a company insolvency is to eventuate, they may be at risk of losing their  practitioner registration.

This is despite the fact the builder may have an otherwise sound record in avoiding defective building work claims or contractual disputes, because if financial probity requirements are not met by a registered builder director then they may well find that the Victorian Building Authority is reluctant to renew their personal registration.

This is telling because while we rightfully expect registered builder directors of building companies (often referred to as “body corporates” in the legislation) to be across the requirements of the building legislation (such as the Building Act 1993 and the Domestic Building Contracts Act 1995), it is less clear that these practitioners will be “au fait” with such concepts as director duties under the Corporations Act.

Categories of “financial probity” and “personal probity” feed into what is meant by being a “fit and proper person” pursuant to the Building Act 1993.  This is the test for both gaining initial registration as a building practitioner in Victoria and maintaining that registration each year.

Pursuant to section 171(1) of the Building Act 1993 the VBA must register an applicant for registration in a (building practitioner) category or class if the VBA is satisfied that: “(d) the applicant is a fit and proper person having regard to – (i) the personal probity requirements set out in section 171D and (ii) the financial probity requirements set out in section 171E”.

Furthermore, and relevant to the issue of company insolvencies, the financial probity requirements in s171E include “whether the applicant or, in the case of an applicant that is a body corporate, any director of that body corporate was a director or secretary of, or an influential person in relation to, a body corporate within 2 years before the body corporate went into external administration within the meaning of the Corporations Act” (s171E(1)(fa)).

Section 171E(1) of the Building Act 1993 lists the financial probity requirements for practitioners to meet, and they are as follows:

• Where the applicant is eligible to be covered by the required insurance in regard to managing, arranging or carrying out domestic building work to a specified annual cost (for domestic builders);
• For any other category or class of registration, whether the applicant is covered by the required insurance;
• Whether the person is or has been an insolvent under administration, or an externally administered body corporate within the meaning of the Corporations Act;
• Whether the person has been or is disqualified from managing corporations under Part 2D.6 of the Corporations Act;
• Whether an insurer has ever declined, cancelled, or imposed special conditions in relation to the provision of professional indemnity insurance, public liability insurance or any other indemnity insurance in relation to the person in regard to work as a building practitioner in Victoria or an equivalent interstate jurisdiction;
• Whether the person has any outstanding judgment debt in relation to for instance a debt due to the VBA or in any domestic building dispute;
• Whether the person was a director or an ‘influential person’ in regard to a body corporate (ie a company) within 2 years of the body corporate going into external administration within the meaning of the Corporations Act;
• Whether the person is a director of a company that that has any outstanding judgment debt or unpaid amount referred to in (f); and
• Whether the person has failed to meet any other financial probity criteria prescribed by the regulations.

It is easy to see the sense in financial probity being a relevant category for assessing whether an individual is a fit and proper person to be a registered building practitioner.  Such a person is clearly performing a service to the public that carries serious responsibilities, and ramifications to the public if services are performed poorly or if consumers or trades/supplies are left “high and dry” with unpaid debts.

Further to that, if the practitioner is also a company director or influential person in a company trading in the building industry, if the company is not managed properly with its finances, this can lead to debts owing to third parties and hardship for consumers, trades and suppliers.

These financial probity requirements are strict and it means that, for instance, if a registered domestic builder was a director of a company that became insolvent, they will need to declare this when they go to renew their registration as a building practitioner.  It will then become a relevant consideration on whether the practitioner in their personal name is a fit and proper person to be re-registered under the financial probity factors.

One problem is that it is not clear what the time limit is on a person failing the fit and proper person test and having re-registration declined.  For instance, if one is declared bankrupt, there will be a period of time that the individual is prevented from being a director of a body corporate / company.  It is less clear how long a person will be prevented from renewing their building practitioner registration once they have registration declined for failing the financial probity criteria.

One could argue that there should be a published policy by the Victorian Building Authority in relation to the period of time that a past company insolvency will be relevant to the financial probity criteria in Section 171E(1) of the Act.

This could be seen as natural justice, and commensurate with the rationale behind minor criminal and regulatory offences being expunged from one’s record after the passage of a finite period of time.  As well, the personal probity considerations in Section 171D refer to the consideration of issues within the last 10 years.

The other consideration is that it is not clear how much understanding there is of registered building practitioners, particularly builders, with regard to their Corporations Act responsibilities as directors of building companies.

While industry associations run courses and continuing education on matters geared towards technical aspects of building and responsibilities to consumers under the building laws, one would have to look elsewhere for a course on financial responsibilities that are owed as directors of companies.

For instance, it may not be known by a registered builder who is a director of his own building company, that one must not transfer money to another related company (within a group of companies) without being in breach of directorial responsibilities to the first corporate entity.  As a director of a company, one must always act in the best interests of that specific company, rather than treating the responsibilities as being owed collectively to a group of companies.

In addition of course, an applicant for registration, or for re-registration as the case may be, must also pass the “personal probity” tests under Section 171D of the Building Act 1993, in order to meet the criteria of being a fit and proper person.

These factors in s171D include (in part) whether in the past 10 years:

• The person has been convicted or found guilty of any offence involving fraud, dishonesty, drug trafficking or violence that was punishable by imprisonment for 6 months or more;
• The person has been convicted or found guilty of an offence under any law regulating building work or building practitioners;
• The person has had any registration, license, approval, certificate or other authorization as a building practitioner suspended or cancelled for any reason other than a failure by the person to renew the registration, license, approval, certificate or other authorization.

This article is written for general information only and is not to be construed as a legal advice.

By Justin Cotton of Lovegrove & Cotton – Construction and Planning Lawyers

Lovegrove & Cotton Lawyers to the Building Industry

For thirty years, Lovegrove & Cotton have represented builders, building surveyors and building practitioners in Melbourne, Canberra, Sydney and Queensland.  Doyles Guide has ranked Kim Lovegrove as one of the leading construction lawyers in Australia. Justin Cotton, likewise, is a leading Australian construction lawyer and widely respected in the building fraternity. Lovegrove & Cotton can help practitioners resolve any type of building dispute and are preeminent in the area of building practitioner advocacy.  If you wish to engage the firm, feel free to contact us via our website or by emailing enquiries@lclawyers.com.au.