Author
Marcus PetrovicDirector & Head of Client Strategy
If you're a subcontractor, tradie, or supplier who worked for a builder that's just gone into administration, you're probably owed money right now, and you don't know if you're going to see it. That uncertainty, and the pressure it puts on your own business, is exactly what this episode is about.
In this episode of the MG Academy Podcast, Marcus breaks down what's actually happening after the collapse of Bathla, what it means if you're a director, a subbie, or a tradie caught in the fallout, and the real restructuring options available if your own business is now under pressure as a result.
The Bathla Collapse and Its Ripple Effect
When a head contractor the size of Bathla goes into administration, the damage doesn't stop with that one company. It moves down the supply chain. Big construction companies that were owed money by Bathla suddenly can't pay their own creditors in full, or at all. Small and medium construction companies that were relying on payment from those larger firms now find themselves in the same position. And at the bottom of the chain, sub-contractors and tradies, the people who actually did the physical work, risk not being paid at all.
This is a pattern the industry has seen before. A single collapse doesn't stay contained. It becomes a domino effect that can reach businesses with no direct relationship to the company that failed.
Construction Insolvencies Are Rising
The data backs up what's happening on the ground. Using ASIC's insolvency appointment statistics, we compared the 12 months before and the 12 months after a major builder's collapse in Victoria and Queensland, two states with heavy exposure to the construction sector.
In Victoria, construction industry insolvency appointments rose from an average of 55.5 per month to 78.3 per month, a 41% increase. In Queensland, appointments rose from 34.5 to 49.0 per month, a 42% increase. Two different states, two very similar increases, which is a strong sign the pattern is tied to this kind of event specifically, not just general economic conditions.
If your business works in or around construction, and a head contractor you rely on has just gone into administration, this isn't a hypothetical risk. It's already showing up in the numbers.
What Is Voluntary Administration?
Voluntary Administration is a formal insolvency process where an independent, ASIC-registered administrator is appointed to take temporary control of a company that's insolvent, or likely to become insolvent. The administrator's job is to assess the company's financial position and work out the best way forward, both for the business and for the people it owes money to.
Once an administrator is appointed, a moratorium begins. This means unsecured creditors can't pursue the company or take further action to recover their debts while the administration process runs. The administrator then reports back to creditors with a recommendation, and creditors vote on one of three outcomes:
- Return to Director Control – the company resumes normal operations under its existing leadership
- A Deed of Company Arrangement (DOCA) – a binding agreement where creditors accept modified terms
- Liquidation – the company's assets are sold and the proceeds distributed to creditors
What Is a DOCA?
A Deed of Company Arrangement, or DOCA, is essentially a proposal to creditors. The company offers to pay a certain number of cents in the dollar toward what it owes, usually through equal monthly installments over an agreed period, rather than a single lump sum. In exchange, the balance of the debt still owing is written off once the agreed amount has been paid.
The obvious question is why a creditor would agree to receive only part of what they're owed. The answer is usually that the alternative, liquidation, would leave them with even less. Creditors vote on whether to accept a DOCA, and the administrator makes a recommendation based on what they believe is genuinely in creditors' best interests.
The Downward Spiral: Why Refinancing Rarely Works
When a business starts feeling this kind of pressure, the instinct for a lot of directors is to buy time. Often that means refinancing the family home to draw out equity and pump it into the business, hoping something changes before the money runs out.
The problem is what happens next. Once directors have drawn as much equity as the bank will allow, they hit a lending cap. From there, many turn to caveat lenders, short-term, high-interest, unsecured loans designed to bridge a temporary cash flow gap. Without a clear plan or exit, that money goes quickly too. At that point, the business is often forced into liquidation anyway, except now the director has also burned through their own personal wealth and taken on debt they likely can't repay. For construction businesses specifically, a liquidation can also mean losing the company's trade licence, and in some cases the director's own individual licence as well.
What Is a Small Business Restructure?
A Small Business Restructure, or SBR, is a different path, and one that's specifically designed for smaller companies. It's a formal process under Part 5.3B of the Corporations Act that lets an eligible company, one with total liabilities under $1 million, propose a plan to pay all or part of its unsecured debts while continuing to trade.
The process runs in four broad steps. Directors appoint a registered Small Business Restructuring Practitioner. The practitioner assesses the company's financial position and eligibility. The company then generally has 20 business days to prepare and propose a restructuring plan, setting out what creditors will receive and how it will be funded. Finally, creditors vote on the plan, and if it's accepted, the company implements it and keeps trading.
The critical difference from Voluntary Administration is control. Under an SBR, directors remain in charge of the business the whole way through, with the practitioner providing guidance rather than taking over.
Real Case Study: How an SBR Cut One Business's Debt by 75%
Marcus shared a real example from his own work. An electrician's business ran into trouble after one of its main customers, a construction company, collapsed. The electrician was owed a substantial amount for work already completed, and when that customer went into administration, the debt was effectively unrecoverable.
That left the business with around $300,000 in legacy debt, much of it mounting tax debt, alongside growing pressure from the tax office. The business could comfortably service its new, ongoing liabilities, but it had no way of dealing with the historical debt on top of that.
The business appointed a Small Business Restructuring Practitioner, who assessed the situation and worked out the maximum amount the company could realistically afford to pay. The outcome was a plan to pay 25 to 30 cents in the dollar on the legacy debt, in monthly installments over two years, while paying all new debts in full as they fell due. Creditors, including the tax office, accepted the proposal.
The result was a 70-75% reduction in the original debt, legal protection from creditor action through the moratorium that comes with an SBR, and directors who never lost control of their business. The company kept trading, kept its licence, and kept its doors open.
What This Means for Australian Professional Service Providers
If you're an accountant, lawyer, or financial advisor with a client who's been caught in a situation like this, whether they're owed money by a collapsed head contractor or they're facing pressure from their own creditors as a result, the earlier they get advice, the more options they have. A business that still has the ability to service its ongoing debts, even if it can't deal with a legacy debt on top, is often a strong candidate for an SBR rather than a more drastic outcome.
We work alongside referral partners, not in place of them, to help identify the right restructuring pathway for a client's specific circumstances.
Get in Touch
If your business has been affected by a builder's collapse, or you're seeing early warning signs of financial distress, don't wait until the only options left are the drastic ones. Watch the full episode above, and get in touch with our team to talk through what's actually available to you.
This is general information only and does not constitute legal or financial advice. Every situation is different. For advice specific to your circumstances, please contact us directly.
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