Who really loses when a builder goes under

When a large developer or head builder enters voluntary administration, coverage settles on two figures: the size of the debt, and the number of buyers left holding contracts on half-built apartments. Both are real. Neither is where the deepest damage sits.

The collapse of western Sydney developer Bathla Group in August 2026 is the current example. Administrators were appointed to Universal Property Group and two related construction companies on 25 August, against roughly $3.4 billion of claims, almost none of it owed to a traditional bank. We wrote up the three years of dated public warnings that preceded it in a separate piece. What follows is about the tier of the supply chain sitting underneath all of that: the subcontractors and trade suppliers.

They are the ones whose exposure does not end when the builder stops paying them. In Australian insolvency it can run backwards, into payments they have already banked, spent, and paid tax on.

Where a subcontractor actually sits

The order of payment in a winding up is set by the Corporations Act 2001 (Cth), and it is not a negotiation.

1. Secured creditors. Private credit funds, banks and mortgagees holding registered general security agreements and mortgages take their collateral first, outside the pool entirely.
2. Costs of the external administration. The administrators’ and liquidator’s expenses and remuneration, paid out of whatever free assets exist (s 556).
3. Priority employee claims. Outstanding wages and superannuation, then leave entitlements and retrenchment pay.
4. Ordinary unsecured creditors. Trade subcontractors, suppliers and consultants — and, in the same class, the Australian Taxation Office.

That last point is worth pausing on, because it is widely misreported. The Crown priority for tax debts was abolished in 1993. The ATO does not outrank a subcontractor in the queue; it ranks beside one. What the ATO has is leverage before the collapse — director penalty notices, garnishee notices, statutory demands — which is a different advantage entirely. Inside the winding up, a $145 million tax claim simply dilutes the same pool the trades are sharing.

In Bathla’s case the administrators’ first estimates put the shape of it beyond argument.

Named trade claims in the Bathla creditor list run from First Choice Tiling, owed more than $10 million, and Taurus Flooring at $2.1 million, down through dozens of smaller outfits owed six figures each. Every one of them is on that bottom row.

Getting paid is not the end of the exposure

Here is the part that surprises people who have been in the industry for thirty years. The loss on an insolvent builder does not stop at the invoices left unpaid on site. It can reach back into money that already cleared.

If the builder moves from administration into liquidation, the liquidator obtains the company’s bank statements and reviews every payment made during the relation-back period — broadly the six months ending on the date the winding-up application was filed or, where administration came first, the date the administrators were appointed. For a related entity — a director, an associated company — that window is four years.

Under s 588FA, a payment inside that window is an unfair preference if two things are true:

1. the builder was insolvent when the payment was made; and
2. the payment gave you more than you would have received as an unsecured creditor in the winding up.

Given the numbers on the bottom row above, the second limb is close to automatic — any payment you actually banked beats cents in the dollar. The whole fight is over the first limb and the defences. If the liquidator gets there, they can demand you pay the money back into the pool for the benefit of all creditors.

The catch-22 in the good faith defence

Subcontractors generally assume s 588FG(2) protects them: a defence for a creditor who acted in good faith, gave valuable consideration, and had no reasonable grounds to suspect the company was insolvent.

The cruel arithmetic of that defence is that the harder you chased your money, the weaker it gets. Stop-work notices. Statutory demands. Weekly catch-up payments negotiated in place of terms. Cheques that bounced and were re-presented. Payment plans. Each is a reasonable commercial response to a slow payer — and each is documentary evidence, in your own emails, that you suspected the builder could not pay.

The diligent subbie who fought for every dollar is routinely in a worse defensive position than the one who never looked closely at the ledger.

Two High Court decisions changed the odds in 2023

On 8 February 2023 the High Court handed down two judgments on the same day. One went against creditors, one went for them. Both matter to anyone holding a preference demand.

No set-off — Metal Manufactures Pty Ltd v Morton [2023] HCA 1

The Court held that statutory set-off under s 553C is not available as a defence to a liquidator’s unfair preference claim. The intuitive answer — “they still owe me $400,000, so net that against the $120,000 you want back” — is wrong. You repay the $120,000 in full, then prove for your $400,000 in the same queue as everyone else, for the same cents in the dollar.

No peak indebtedness — Bryant v Badenoch Integrated Logging [2023] HCA 2

The Court abolished the peak indebtedness rule. A liquidator dealing with a running account can no longer pick the high-water mark of the builder’s debt as the starting point and claim everything paid down from there. The whole continuous business relationship must be taken as a single transaction, which in many cases cuts the recoverable amount sharply — and makes the running account something worth protecting deliberately.

What subcontractors can do differently

You cannot control whether a head contractor runs an over-leveraged balance sheet. You can build structural buffers into how you extend credit, before you mobilise. Two subcontractors on the same job, priced the same way, can end up in completely different positions — and the decisions that separate them are all taken before anything goes wrong.

1. Treat scale as a risk factor, not a reassurance

   A developer with billions in pipeline value is not thereby solvent — Bathla said it had almost 26,000 homes in development four months before administrators walked in. Where the funding behind that pipeline is short-dated private credit, an expanding margin or a stalled milestone turns it into a cash crunch quickly. Monitor the whole corporate group rather than the single contracting entity: formations and deregistrations, director associations, court actions, overdue statutory accounts, published insolvency notices.

   Where: ASIC Connect and published notices, the ABR, state court registries and your state’s licensing register — or DISTintel.ai, which assembles them against one entity and alerts on the change.

2. Use the security of payment regime, on time, every time

   Every state has one. Serve compliant payment claims, and act the moment a payment schedule is short or fails to arrive inside the statutory period. Do not let a disputed claim drift into an informal arrangement — adjudication is fast, it exists precisely for this imbalance, and the right to use it lapses. A determination obtained before administrators are appointed is worth considerably more than one you were about to file.

   Where: NSW Building and Construction Industry Security of Payment Act 1999, and its equivalents in every other state and territory.

3. Register on the PPSR before the goods leave your yard

   If you supply plant, formwork, scaffolding or high-value materials — appliances, flooring, structural steel — register a purchase money security interest before delivery, while the goods are still identifiable and not yet affixed to the land. Perfected security lifts you out of the unsecured pool for those goods and gives you a position a liquidator has to work around rather than through.

   Where: the Personal Property Securities Register. Registration is cheap; the deadlines under the PPSA 2009 are short and unforgiving.

4. Structure the relationship so the running account holds

   Continuous supply against regular payments on ordinary terms is the pattern s 588FA(3) protects. Ad-hoc round-sum transfers, payments from a third party that is not your contracting counterparty, and money extracted under an explicit threat to down tools are the pattern liquidators pursue. Where you do have to escalate, recognise that you are trading a collection advantage now against a weaker s 588FG(2) position later — make that trade knowingly rather than by reflex.

   Where: your own ledger. Consistent terms, consistent supply, documented in the ordinary course of business.

The bottom line

When a multi-billion-dollar builder collapses, the institutional lenders have registered security, insolvency counsel and a seat at the table before the administrators are appointed. Subcontractors have none of that. They have a ledger, a statutory queue that puts them last, and a six-month window in which their own past receipts can be reopened.

Which is why the decision that matters is not what you do when a builder stops paying. It is what you knew about that builder before you priced the job. Credit intelligence on a head contractor is not an administrative afterthought in this industry. It is an operational control.