Builder insolvency is one of the most devastating things that can happen during a new home build. Work stops, the site is locked, your money is gone, and the home is half-finished. If your builder has collapsed, gone into administration, or simply disappeared, the steps you take in the first days matter enormously. The good news: Australia’s home warranty insurance schemes exist precisely for this situation.
Act immediately: the first 48 hours
The moment you learn your builder has gone into administration, receivership, or liquidation — or has simply stopped responding and you cannot locate them — take these steps immediately:
1. Secure the site Contact the administrator or liquidator (if one has been appointed) about site access. Your building contract likely gives the builder the right to occupy the site until practical completion. Consult a construction lawyer before re-entering the site or removing materials, as this can affect your legal position.
2. Photograph everything Document the current state of the build comprehensively — every room, every surface, every outstanding item. These photos establish the condition of the work at the time the builder stopped and are essential for your warranty insurance claim and any subsequent completion contract.
3. Locate your home warranty insurance policy Your builder was required to take out home warranty insurance (also called domestic building insurance or home building compensation insurance) before receiving your deposit. Find the certificate — it should be in your contract documents. If you do not have it, contact the relevant state authority (see below).
4. Contact your state building authority
- Queensland: QBCC (Queensland Building and Construction Commission) — 1300 272 272
- NSW: Home Building Compensation Fund (icare) — 13 77 22
- Victoria: Victorian Managed Insurance Authority (VMIA) — 1300 866 424
- South Australia: Mutual Community / CBS — check your specific policy
- Western Australia: Building Commission WA — 1800 245 782
- Tasmania: CBOS — 1300 654 499
- ACT: Access Canberra — 13 22 81
5. Contact your lender If you have a construction loan, your bank needs to know immediately. Construction loan drawdowns may be paused. The bank’s response will affect how you fund completion works.
How home warranty insurance works
Home warranty insurance (also called domestic building insurance) is a last-resort safety net for homeowners where the builder:
- Dies
- Disappears
- Becomes insolvent
The insurance does not cover defects where the builder is still alive and trading — it is specifically designed for situations where the builder cannot be required to complete or rectify because of death, disappearance, or insolvency.
What it covers
Depending on the state, home warranty insurance typically covers:
- Incomplete work — the cost to complete the build to practical completion if the builder is no longer able to do so
- Defective work — the cost to rectify defects in work the builder carried out, where the builder cannot be called on to fix them
Coverage limits vary by state. In Queensland, QBCC Home Warranty Insurance provides up to $200,000 for residential construction. In NSW, the Home Building Compensation Fund has similar limits. Always check your specific policy.
What it does not cover
Home warranty insurance does not cover:
- Commercial buildings
- Investment properties in some states
- Owner-builder work (though some states have separate provisions)
- Losses you have suffered that are not related to building completion or defect rectification
The claims process
- Lodge a claim with the relevant insurer (QBCC, icare/Home Building Compensation Fund, VMIA, etc.)
- Provide your documentation — certificate of insurance, contract, proof of payments made, photographs of current state of work
- The insurer will assess your claim and may commission an independent inspection of the work
- If approved, the insurer typically provides a payment to you to fund completion or rectification, rather than directly engaging a new builder themselves
The claims process takes time — often weeks to months. In the meantime you may be unable to proceed with the build. Understand the timeline and plan accordingly.
Recovering money you’ve overpaid
If you paid progress claims for work that was not completed (a common situation when a builder is in financial difficulty and has been drawing on payments early), you become an unsecured creditor of the insolvent company for the amount overpaid.
As an unsecured creditor:
- Register your claim with the administrator or liquidator immediately
- Provide documentation of all payments made vs work completed at the time of insolvency
- Expect to receive cents in the dollar, or nothing, from the insolvency process — unsecured creditors are last in line
This is why the rule “do not release a payment until the stage is complete” exists. If you have been releasing payments ahead of completion, home warranty insurance may cover some of this loss but only if it falls within the policy’s coverage.
Engaging a new builder
Once you have your insurance claim sorted and have access to funds, you will need to engage a new builder to complete the work. This is more complex than a standard new build contract:
- Get the site documented — commission an independent building inspection of all work completed so far, identifying any defects or non-compliant work
- Get the incomplete works scoped — a quantity surveyor can help determine what work remains and what it should cost
- Get at least three quotes — competition is important, and the new builder needs to understand the scope of inherited work
- Ensure the new contract addresses existing defects — the new builder should document what they are inheriting and what they are and are not responsible for
- Confirm new home warranty insurance — the new builder’s insurance must be in place before they commence
Do not rush this process. A poor choice of completion builder can compound your losses significantly.
What your state authority can do
Your state building authority (QBCC, NSW Fair Trading, VBA, etc.) has powers beyond processing insurance claims:
- Licensing action against the builder (if they are still licensed and the business has not been fully wound up)
- Investigation of whether the builder complied with licensing obligations
- Assistance navigating the insurance and recovery process
Contact your state authority early and stay in contact throughout the process. They have seen this scenario many times and can advise on practical next steps.
Legal advice is worth getting early
Builder insolvency involves contract law, insolvency law, insurance law, and building law simultaneously. A construction lawyer who is familiar with residential building disputes in your state can:
- Advise on your rights under the building contract and at law
- Assist with the insurance claim
- Advise on whether you have any personal claims against the builder’s directors (in some circumstances, if the company has traded while insolvent, directors may have personal liability)
- Review the completion contract with your new builder
Legal advice is an investment in the best possible outcome from a very difficult situation.
Key Takeaways
- If your builder collapses, act immediately: photograph the current state of work, locate your home warranty insurance certificate, and contact your state building authority on the same day
- Home warranty insurance covers incomplete and defective work where the builder has died, disappeared, or become insolvent — this is exactly what it is designed for
- Lodge your home warranty insurance claim promptly; the process takes time and funding for completion works depends on it
- For overpaid progress claims, register as an unsecured creditor of the insolvent company — but expect recovery to be limited
- Commission an independent inspection of all work before engaging a new builder to complete the project; the new contractor must understand what they are inheriting
- Engage a construction lawyer early to navigate the intersection of building, contract, and insolvency law that applies when a builder fails
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