Building Licence Personal Guarantees: What Advisors Need to Know Before Recommending Liquidation

Building company clients may be carrying a personal liability they signed at the inception of their licence and have not thought about since. Across Australia, builders are required to demonstrate minimum financial requirements to hold their licence, and where those requirements are not met independently, personal guarantees from directors or related parties are common. What is far less common is for those guarantees to be revisited, reviewed, or even remembered.

In Queensland, the Queensland Building and Construction Commission (QBCC) can require a director or shareholder of a licensed building company to execute a Deed of Covenant and Assurance (DOC) where the company’s net tangible assets (NTA) fall below the minimum required threshold under the Queensland Building and Construction Commission Act 1991. The DOC is a personal guarantee of the company’s shortfall. Its value fluctuates with the company’s NTA over time. If the company enters liquidation, the liquidator can call on it immediately.

Victoria is introducing Minimum Financial Requirements (MFR) for domestic builders, phasing in from late 2027. Where a builder cannot meet the NTA threshold independently, personal guarantees from individuals, trusts, or related entities can be used to top up the calculation. The mechanism differs from Queensland’s DOC in structure, but the personal risk exposure for the director is the same.

In NSW, a company entering liquidation triggers automatic cancellation of the building licence, and that cancellation extends to directors and those who held that position within the preceding twelve months. In WA and the ACT, licence suspension follows an insolvency event within defined timeframes. Across every jurisdiction, the risk of a forgotten personal guarantee sits beneath the surface of what any current financial review will typically capture.

One of the most consistent patterns in these cases is the accountant change. A client who has been with the same firm for a decade likely had their DOC prepared, discussed, and explained at the time it was executed. A client who moved to your firm three years ago almost certainly did not hand over that documentation in the transition. Personal guarantees signed in the context of a building licence are not standard items in a client handover. They sit in old files, or on the QBCC’s records, unknown to any advisor reviewing the business today.

If you have taken on building company clients in recent years, a specific check of whether any DOC or equivalent personal guarantee exists should be part of onboarding review, not just the annual accounts.

A Queensland residential building company came to de Jonge Read® after receiving advice to proceed to liquidation. The company was no longer viable and had material debts, including a significant balance with a major bank. On face value, liquidation appeared the obvious path. On closer examination, four issues changed the picture entirely: a DOC the director had executed personally and forgotten, business lending secured against the family home, personal guarantees held by suppliers with the ability to caveat real property, and the three-year exclusion from holding a QBCC licence that liquidation would have triggered.

The referral came through the client’s accountant, who wanted a second opinion before proceeding. Working from a detailed analysis of the director’s personal and company position, de Jonge Read® identified that equity in the family home could be accessed before any default was registered. That equity became the foundation for a negotiated settlement process with more than twenty creditors, conducted individually. The company was not liquidated. The DOC was never called on. The family home was protected. The client retained his QBCC licence.

That case predates the Small Business Restructuring (SBR) regime, which commenced in January 2021. For eligible building companies, SBR now provides a further pathway. Directors remain in control of the business throughout. An automatic moratorium on creditor enforcement applies from appointment, which includes any DOC or personal guarantee held by creditors. A restructuring plan is proposed to creditors within 20 business days. If accepted, the remaining debt is extinguished. Because the company does not enter liquidation, the building licence is not automatically cancelled or suspended under most state frameworks.

Eligibility requires total liabilities below $1 million, current tax lodgements, and employee entitlements up to date. Not every client will qualify. But for those who do, the difference in outcome is material.

For any building company client operating under financial pressure, or considering winding down, three questions are worth asking: Is there a DOC or equivalent personal guarantee in place? Does the director know what it covers and what triggers it? And does the current strategy account for it?

de Jonge Read® provides confidential, obligation-free assessments for clients referred through their accountants and advisors. If a building client is facing pressure from the ATO, creditors, or a deteriorating revenue position, the earlier a proper review happens, the more options remain on the table. Call 1300 765 080, or reach out confidentially through djra.com.au.