Porter Davis Homes insurance failure set to cost customers deposits

Liquidators dealing with the Porter Davis collapse say a number of customers could lose their life savings because the collapsed builder failed to purchase insurance.

The liquidator sifting through the wreckage left by collapsed building giant Porter Davis Homes has warned that some customers faced the prospect of losing their life savings because the company failed to purchase insurance even after would-be homeowners paid their deposits.

Said Jahani – national managing partner – financial advisory, at liquidator Grant Thornton told more than 500 Porter Davis clients in Victoria and Queensland during an online webinar on Tuesday that a number of customers could potentially lose their deposits.

The liquidator is working with the Victorian Managed Insurance Authority (VMIA) on the issue and the Queensland Building and Construction Commission (QBCC).

A VMIA spokesman said they understood that about 1500 Porter Davis Homes projects underway in Victoria had VMIA domestic building insurance.

However, a QBCC spokesman confirmed that any money paid before a building contract is signed cannot be recovered under the Queensland Home Warranty Scheme.

Porter Davis was placed into liquidation on Friday, with construction immediately halted on more than 1500 homes in Victoria and a further 200 in Queensland. Another 779 contracts had been signed but construction not yet commenced.

Mr Jahani said they have become aware of time lag issues between a deposit being paid by a customer and a contract being signed, through to the permit then being obtained to allow work to commence

“And the practice of Porter Davis was that once the permit had been obtained so that work could then begin, at that point the insurance policy would be purchased,” he said.

“So there are a number of customers who have fallen into that gap between paying deposit and work not yet starting on their site because they’re awaiting a permit who may not have insurance cover.”

Mr Jahani said they were working with the VMIA and QBCC to find an alternative solution.

“I would look to be patient for another week to see whether or not we can find a holistic solution through the sale process we are running which may allow you still to claim through the insurance policy but may also give you a more expedited or solution for your home,” he said.

“As you would probably appreciate, like most insurance policies there will be limits, there will be excesses, so we are investigating whether or not there is an ability for any claims to be made against the insurance policy of Porter Davis.”

The VMIA spokesman said they have received more than 1100 queries and over 800 claims have been submitted via its claims portal.

“To-date, we understand there are approximately 1500 Porter Davis Homes projects underway in Victoria with VMIA domestic building insurance,” he said.

“VMIA is not the only provider of domestic building insurance in the state, and homeowners who are unsure if they have insurance with VMIA can contact us to find out.

“Builders in Victoria are required to purchase a domestic building insurance policy on behalf of the homeowner for all domestic building projects over $16,000 before taking a deposit or any money.”

The QBCC spokesman said they were working on the next steps to assist homeowners.

“Where the homeowner has signed a fixed price contract with Porter Davis for the construction of a home and paid a deposit, but work has not started on site, the Queensland Home Warranty Scheme will refund the deposit to the homeowner,” he said.

“However, any money paid before a building contract is signed cannot be recovered under the Queensland Home Warranty Scheme. Every QHWS claim is unique and approval times for claims will vary, depending on a range of factors.”

As of Tuesday the QBCC has received 43 claims, including 10 for return of deposits and 33 non-completion claims.

Grant Thornton is handling the liquidation of 14 companies within the Porter Davis Homes Group which is based in Melbourne.

Some big developers are exposed to the collapse but in a relatively minor way. A Mirvac spokesman said the company had limited exposure within its total masterplanned community lots at less than 2 per cent.

A Stockland spokeswoman said it was working with Grant Thornton. “ We understand this is a difficult time for our customers and contractors, and we are committed to keeping them informed throughout the process, and as more information comes to hand,” she said.

Home buyers generally have contracts directly with Porter Davis but the listed developer also had contracts with the builder at several of housing estates and is working on options for these homes.

Porter Davis employed 470 people and its collapse is believed to have sparked a series of incidents of looting and vandalism targeting the builders homes.

Some owners have accused disgruntled tradies angry about the company’s collapse of damaging their properties.

Mr Jahani told the webinar that they were still determining whether Porter Davis’ existing insurance would cover theft or damage.

“Obviously we are well aware of the media reports and have seen some of the damage that unfortunately people have taken action into their own hands which obviously we are vehemently opposed to,” he said.

“At this point in time the company itself, Porter Davis Homes, does have insurance. We will need to investigate whether that insurance would respond to any vandalism or damage to your property.”

On Friday Grant Thornton blamed rising input costs, supply chain delays, labour shortages and dropping demand for the Porter Davis.

“Notwithstanding the financial support from shareholders and lenders, the group has exhausted options to secure the further funding required to allow Porter Davis to continue to operate viably,” Grant Thornton said in a statement.

“The directors were left with no option but to place the companies into liquidation.”

Grant Thornton will provide another update on the sale process next week. An initial report to creditors is expected by April 18.

Originally published as Porter Davis Homes insurance failure set to cost customers deposits