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Subcontractors’ charges - is a subcontractor a secured creditor in an external administration?

The Subcontractors’ Charges Act 1974 (Qld) (the SCA) is a useful tool to secure a subcontractor’s right to payment out of monies payable by an owner or superior contractor to a contractor.

But what happens when the contractor enters administration? Does the SCA enable the subcontractor to pursue its debt with priority as a secured creditor, or does it have to wait in line with all of the contractor’s unsecured creditors? Further, creditors of a company in administration are not able to commence proceedings against the company without the leave of the Court.

In the matter of Casco Civil Construction Pty Ltd v Yeo & Co Pty Ltd (Administrators Appointed), the Supreme Court of Queensland confirmed that a subcontractor with existing rights under the SCA is a secured creditor, whether or not the charge had yet crystallised when the company went into administration.

There are some cases under interstate legislation which might suggest another result, but that is under different legislation.

The SCA gives a right to a subcontractor to make a claim of a charge against monies payable by the ‘employer’ or superior contractor (that is, the entity above the contractor who had contracted with the contractor for the performance of work). The charge creates a security, making the subcontractor a secured creditor, notwithstanding that the subcontractor is then obliged to bring Court proceedings within a limited period in order to maintain that security.

In Casco, the subcontractor sought leave to commence and proceed with its claim under the SCA for the monies that had been paid into Court by the ‘employer’ of the contractor, notwithstanding that the contractor was in administration.

Essentially, the argument the respondent put against leave being granted was that when a company is under administration, all unsecured claims should be frozen pending the completion of the administration. Therefore, the subcontractor should not be able to have access to the monies paid into Court.

The Court noted, “…the applicant is required to commence proceedings to protect its secured rights and it would be a severe curtailment of a subcontractor’s rights, given to it by legislation, to prevent it from doing so or not allow it to do so and, therefore, to turn what was a secured interest into an unsecured interest and make it an unsecured creditor, which would be completely contrary to the purposes of the Subcontractors’ Charges Act.”

 

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