‘Weak’ ASIC leaves construction directors free to trade insolvent

Australia’s “weak as water” corporate regulator has never prosecuted a building company director for insolvent trading, despite its presence in “virtually all” construction liquidations.

Australia’s corporate regulator has never prosecuted a building company director for insolvent trading, despite its presence in “virtually all” construction liquidations.

Trading while insolvent can attract civil penalties up to $200,000; “unlimited” compensation for those who lost money; and a criminal sentence of up to five years jail and/or a $626,000 fine if a director is found to have acted dishonestly.

While ASIC has successfully prosecuted a handful of company directors in other industries, construction bosses have escaped unscathed, despite insolvencies in the sector reaching 15-year highs.

A company is considered insolvent if it cannot pay a debt when it falls due.

A director who continues to take on new debts in that position is likely to be breaching their duties.

SV Partners liquidator David Stimpson, who is regularly appointed as a liquidator in construction cases, said “virtually every insolvency” had some element of insolvent trading.

“Sometimes it’s only for a short time, but quite often – because of the nature of the industry – their business has been insolvent trading for quite a period of time,” he said.

“I would say there’s been zero criminal charges taken by ASIC, but they have certainly banned directors in cases where there has been insolvent trading.

“I think if there’s a blatant insolvent trading issue, you’ll tend to find there are more obvious criminal issues to pursue – for example breaching director duties or misappropriation of funds or assets.

“When you’ve got a material insolvent trading issue, you’ve probably got these issues as well.”

Liquidator, David Stimpson of SV Partners at his Brisbane office. Photo: Mark Cranitch

ASIC confirmed it had “not imposed civil penalties or criminal charges upon directors within the construction industry for insolvent trading”.

A statement from the regulator gave examples of 25 construction-related company directors, including seven in Queensland, that it had banned since 2014.

“ASIC is committed to using its regulatory tools of engagement, surveillance and enforcement to identify, disrupt and take action against those who engage in illegal phoenix activity within the construction industry or any industry more broadly,” the statement said.

That action has not included fines or criminal charges.

In 2021, Jacob Henley, whose Henley Construction Group was among nine of his companies to fold with combined debts of $13.8 million in 2017 was disqualified by ASIC.

The regulator said it considered six factors, including insolvent trading, withdrawing cash for personal advantage, failing to keep financial records and failing to provide records to the liquidators.

Mr Henley - who appealed the disqualification but then withdrew the appeal - never faced civil penalties or criminal charges and is free to start another building company as his disqualification ended on July 1.

Assistant Treasurer Minister for Financial Services, Stephen Jones during Question Time at Parliament House in Canberra. Picture: NCA NewsWire / Martin Ollman

Another liquidator, unconnected to the Henley liquidations, who spoke on condition of anonymity, said ASIC was “weak as water” and desperately underfunded.

The liquidator said they had repeatedly given the regulator evidence of outright fraud by construction companies, but received the same automated answer each time.

“It’s a touchy subject but when liquidators are having a beer together we always talk about how ASIC is really weak,” they said.

“Unless it’s a big name they’ve been after for a while, they don’t act.

“That’s what really frustrates the subcontractors who get burned all the time – the bad directors actually know that they can get away with this sort of stuff.

“It’s an unspoken thing in our industry because no-one wants to be saying ASIC is weak, but they are.”

Assistant Treasurer and Financial Services Minister Stephen Jones did not answer specific questions about the construction industry.

“The Albanese government is committed to a well-regulated financial sector with appropriate funding for the regulators so that consumers have confidence and security,” he said.