Nicheliving – A case study of the WA Building Services Board’s scope of inquiry into the financial position of applicants for registration as a building services contractor

The recent well-publicised challenges of Perth-based home builder, Nicheliving, have served as an interesting example of the matters that will be considered by the Western Australian Building Services Board (Board) when assessing applications for registration or renewal of registration as a building services contractor in WA.

Background

The registration of Projex Management and Construction Pty Ltd (Projex) (the registered building service contractor through which developer Nicheliving operated) happened to fall due for renewal at a time when it was being reported in the media that Nicheliving:

1. had approximately 230 incomplete homes under construction (some of which had been commenced up to 4 years ago)¹;
2. was the subject of:
   • 73 official complaints made to the WA Building Commissioner²; and
   • 7 separate court actions for unpaid sums from subcontractors and suppliers³; and
3. had received a notice from the Australian Taxation Office seeking nearly $4 million in unpaid taxes⁴.

In those circumstances, the Board rejected Projex’s application to renew its registration as a building service contractor under s. 18 of the Building Services (Registration) Act 2011 (WA) (Registration Act), with the Building Commissioner publicly stating that:

“The board was not satisfied in the end that Projex could meet the requirements of the legislation, meaning that the board was not satisfied that it can pay its debts when they fall due.”⁵

Relevant Statute

By way of very brief summary, under WA’s statutory framework, a company must be a “registered building service contractor” in order to carry out the majority of building work over the value of $20,000 in the State⁶.  One of the requirements for registration as a building service contractor is that the applicant “satisfies the financial requirements, if any, prescribed by the regulations…” – s.18(1)(b), Registration Act.

Regulation 18(1) of the Building Service (Registration) Regulations 2011 (WA) (Registration Regulations) prescribes these “financial requirements” to be “that the applicant must have the capacity to meet debts as and when they fall due“.

Regulation 18(2) of the Registration Regulations provides a number of factors that the Board may consider when assessing whether an applicant is able to “meet debts as and when they fall due“.  These considerations are:

• the net assets of the applicant;
• liquid funds available to the applicant;
• loan or overdraft facilities available to the applicant;
• the applicant’s equity in property or non-current assets that a loan facility may be raised against;
• the proposed scale of operation of the applicant;
• any other consideration relevant to the applicant’s financial capacity.

This gives the Board a broad scope of inquiry to test the solvency of an applicant for registration as a building services contractor. To date, there has been no judicial consideration of the Board’s application of r.18 of the Registration Regulations, including which considerations carry more weight compared to others and the method of assessment of the above factors.

Appeal

Projex appealed the Board’s decision not to grant registration on the basis that it did not satisfy the above financial requirements to the State Administrative Tribunal (SAT) and successfully argued for a temporary stay of the rejection, pending a full hearing.

The SAT heard evidence from the Board’s financial investigator and arguments in relation to the appropriate way to value the assets of a construction / development company (notably, whether or not “off the plan” sales contracts should be included as an asset of the company⁷, which would obviously have significant impact on the overall valuation and solvency of a builder/developer).

Whilst the proceedings were resolved by agreement between the parties (including on the basis that Projex withdrew its application for registration) and reasons for the SAT’s decision to grant the temporary stay have not yet been published, they will no doubt provide useful guidance for future decisions by the Board and applicants alike.

Until then, based on available media reporting at the time of this publication, it appears that the SAT was satisfied that while there was no evidence that the Board’s decision was “palpably wrong“, Projex has shown that it “may have a case that (the Board) was wrong” and in circumstances where Nicheliving’s ongoing business and ability to trade out of financial difficulty “may be significantly adversely impacted by the refusal of a stay“⁸, it was appropriate to stay the decision for the time being.

The position in other jurisdictions

The equivalent decision makers to the Board in other Australian jurisdictions (each an Authority) may also consider the financial position of an applicant for the equivalent of registration as a building services contractor. However, the scope of that inquiry varies greatly between them.  For example, in:

• NSW: There are no specific provisions for the Authority to consider the financial status of an applicant, only a general requirement that the applicant is a “suitable person” for the type of licence the applicant is applying for⁹. None of the considerations as to whether an applicant is a “suitable person” are financial in nature¹⁰.  However, applicants must obtain appropriate levels of professional indemnity insurance, which are unlikely to be granted to an applicant with solvency issues.
• Victoria: The Authority must be satisfied that an applicant is a “fit and proper person“, having regard to the financial probity requirements in s.171E of the Building Act 1993 (VIC). That inquiry includes, whether the applicant is or has been insolvent or under administration and whether the applicant (or its directors) has any outstanding judgment debts or debts associated with formal dispute determinations (such as adjudications etc.).
• Queensland: An applicant must satisfy “minimum financial requirements” for the relevant license sought¹¹. Those financial requirements are so extensive that they have entirely separate and specifically focussed regulations – Queensland Building and Construction Commission (Minimum Financial Requirements) Regulation 2018 (QLD) and can include the provision of the following to the Authority:
• statutory declarations about the applicant’s revenue and net tangible assets;
• internal management accounts; and
• signed financial statements.

Conclusion

While an ultimate hearing of Projex’s appeal against the Board’s decision will no longer proceed, we await the SAT’s published reasons for granting the temporary stay of the Board’s decision, in the hope that it will provide some needed guidance as to the nature, scope and requirements of the Board’s inquiries under Regulation 18(2) of the Registration Regulations.

This article was written by Tom Wilson, Special Counsel and Caitlin Grehan, Associate

¹ https://www.dailymail.co.uk/news/article-13696517/western-australia-nicheliving-ronnie-michel-elhaj-licence-homeowners.html

² https://www.abc.net.au/news/2024-07-18/perth-builder-nicheliving-building-license-revoked/104112874

³ ibid

⁴ Ibid.

⁵https://www.abc.net.au/news/2024-07-31/nicheliving-building-registration-revoked-houses-unfinished/104160556

⁶ For further information on the requirements for registration as a building services contractor, refer to our article in the September 2024 edition of the Critical Path,

⁷https://www.abc.net.au/news/2024-08-23/nicheliving-granted-stay-state-administrative-tribunal/104250386.

⁸ Ibid.

⁹ S.45(3)(c), Design and Building Practitioners Act 2020 No 7 (NSW).

¹⁰ R.33(1), Design and Building Practitioners Regulations 2021 (NSW).

¹¹Ss 31(1)(c) and 31(2)(c), Queensland Building and Construction Commission Act 1991 (QLD).