Tradies, buyers left ‘whistling in the wind’ by Porter Davis collapse

Collapsed home builder Porter Davis drastically slashed prices of new homes – some by $50,000 – until the day it went into liquidation, luring in buyers who are unlikely to get their money back.

The company, which left 1700 homes unfinished when it abruptly halted work last Friday, dropped the price of its signature Grange-style houses by $50,000 at the start of February in a bid to drum up sales ahead of a financial crisis that has brought insolvency specialists through the doors two months later.

A Porter Davis display home at Mickleham on Sunday.Credit: Luis Ascui

Prices of new Grange homes were slashed by 8 per cent and were still being advertised on Porter Davis’ website – “extended by popular demand” – even as the liquidators arrived at its Melbourne headquarters to give 410 employees the news they were being made redundant. The builder was unable to find a last-minute buyer or financial backer to cover a funding shortfall estimated to be as much as $20 million.

Other homes in Porter Davis’ range were discounted by between $20,000 and $40,000.

Hundreds of new buyers and existing owners are waiting to find out how and when their dream homes will be completed. Many are struggling with the financial fallout amid reports of looting and break-ins on some Porter Davis home sites. Subcontractors, suppliers and tradespeople, owed thousands of dollars for unpaid work, are also in limbo.

Consumer Action Law Centre chief executive Stephanie Tonkin said the first step for those caught up in the Porter Davis collapse as home buyers was to stop any payments that might be going to the builder.

“If you’ve made a payment via credit card, you could seek a charge-back from your bank,” she said. “If you’ve paid by direct transfer or cash upfront, unfortunately you’re considered a creditor as part of an insolvent business.”

Tonkin said home buyers affected by the collapse should contact the liquidator, Grant Thornton Australia, as soon as possible.

“Inform the liquidator of your position and lodge a claim of debt,” she said. “There is information available on the Porter Davis website for affected customers.”

John Goddard from Subbies United said Porter Davis’ sales tactics “smack of desperation” and the company’s directors should be questioned about taking deposits while the business was financially struggling and not paying subcontractors.

Liquidator Grant Thornton will hold an online meeting for customers and creditors on Tuesday at 10am. Partner Matt Burns said he would be looking at whether the company traded while insolvent.

Victorian Premier Daniel Andrews said on Sunday that the government would not act as financial backstop for buyers.

“There may be a role for the VMIA [Victorian Managed Insurance Authority] in providing advice, but we’re not the financier of last resort,” the premier said.

“We know, and acknowledge, that this is a really tough time for those people who’ve got a house that hasn’t been finished or indeed some that haven’t even started.”

‘It makes your blood boil when you see, week after week, a repeat of the same [insolvency] scenario and the solution is so obvious and protections can be made.’

John Murray, author of “Building Trust and Harmony” report.

The state-backed VMIA is set to be swamped by claims from 1500 hard-hit Victorians caught up in the Porter Davis collapse and potentially faces a bill of up to $80 million. Another 200 homeowners in Queensland will need to chase claims in that state.

The average cost of a building claim handled by the authority last year was $53,200, with average claims taking almost three years to resolve, a situation likely to push many Porter Davis customers to the wall. The authority provides mandatory insurance for home building and renovations valued above $16,000 where the builder becomes insolvent.

Tonkin said those affected should check if any insurance policy may apply to their situation and seek legal help. However, she warned that the likelihood of having deposits returned was small because each customer would be one of many creditors.

John Murray, who conducted a review of security-of-payment laws for the Turnbull government in 2017, said 85 per cent of construction work in Australia was carried out by subcontractors – small businesses that rely on cash to survive.

Under the current system, builders retain progress payments and use the money, which in effect should be paid to subcontractors for work done, as security for bank loans. If the builder becomes insolvent, the bank, usually the largest secured creditor, gets any remaining funds, Murray said. “Subcontractors are left whistling in the wind.”

Murray’s review suggested introducing “deemed cascading statutory trusts”, where progress payments are held in trust similar to what is required of real estate agents.

“But for the lack of political will, many fine subcontracting firms would not be exposed to the kind of financial stress that they are subjected to,” he said.

“It makes your blood boil when you see, week after week, a repeat of the same [insolvency] scenario and the solution is so obvious and protections can be made.”

The review’s recommendations were adopted by the federal Labor Party as policy, but are yet to be introduced by the Albanese government.

Porter Davis’ collapse adds to a growing list of major builders suffering from rising costs of products and labour, as well as less funding appetite from banks and investors in a slowing market. Another civil construction firm, Lloyd Group, was also placed in voluntary administration last Friday, upending 59 projects in Victoria and NSW, and putting 200 staff in limbo.

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