How to resolve a domestic building dispute with a deregistered builder

Your builder may be deregistered after a disciplinary process by the Victorian Building Authority (VBA).

If the VBA decides that a builder should be deregistered, a builder may have their registration:

• Immediately suspended;
• Suspended at a future date; or
• Cancelled because there are not a fit and proper person to hold a building registration.

The VBA will give the builder a notice explaining their deregistration.

If a builder has their registration suspended, they can apply to review the decision and the VBA may end the suspension. The VBA may also end the suspension if the builder carries out requirements in the suspension notice or completes other re-registration requirements.

Your builder may be deregistered because their company no longer exists as a legal entity. If your building company is deregistered, this impacts your ability to sue it and claim compensation.

A building company becomes deregistered if it is closed down voluntarily, liquidated for not paying its debts, or removed from the Australian Securities and Investments Commission (ASIC) register.

If your building company is deregistered, existing legal proceedings against the company can’t continue without permission from the court, and new legal proceedings against the company can’t begin without permission from the court.

Can I reinstate a company to recover costs?

A company must be registered if you want to apply for compensation to recover the compensation from them. If you have been financially affected by the deregistration of a building company, you can apply to reinstate the company.

Once a company is reinstated, it continues to exist as if it had not been deregistered. With a company registered again you can continue existing, or begin new, legal proceedings to claim compensation.

There are two ways to reinstate a company:

1. Applying to ASIC for an administrative reinstatement; or
2. Getting a court order for reinstatement.

You may find useful the information in ASIC’s regulatory guide RG 83 Reinstatement of companies.

It is important to note that reinstating a company is not a simple process and you may not be successful. Seek legal advice before trying to reinstate a company. If you are unsuccessful and can’t reinstate a company, you may have to pay expensive legal costs.

Administrative reinstatement

• To apply for administrative reinstatement of a deregistered company, complete a Form 581 Application, make the relevant declarations, and pay the application fee. There is a useful guide at the end to help you complete and lodge the form.
• Reasons and supporting documentation must be provided to show that the company shouldn’t have been deregistered. Supporting documentation may include court documents showing that legal proceedings were underway at the time of deregistration, or company invoices or bank statements that show the company had outstanding financial responsibilities at the time of deregistration.
• You must include evidence that every director of the company at the time of deregistration was notified, or you made reasonable attempts to notify them about your reinstatement application.

Court order

• You can apply to court for an order to reinstate a company if ASIC refused your administrative reinstatement application, or you can’t meet the criteria. You can generally apply for a court order by filing affidavits (sworn written statements that are legal documents used as proof in court) to support your application. You must apply to the Victoria Supreme Court or the Federal Court of Australia.
• Reasons and supporting documentation must be provided to show that the company’s registration should be reinstated. Supporting documentation must include evidence that the company would be able to pay its debts if registration was reinstated. Find information about the solvency of a company (its ability to meet its financial requirements) by looking up the ASIC registers. If you are a creditor (someone who is owed money by the building company), you don’t need to give this information. Seek legal advice to find out in what circumstances you would be a creditor.
• Your application must seek a liquidator to arrange for company debts to be paid if the company was being wound up (ending its trading and existence) before deregistration. A company goes into liquidation when it can no longer pay its debts. You do not need to include this if you apply to stop the liquidation of a company at the same time as applying to reinstate the registration of a company.
• You must include evidence that every director of the company at the time of deregistration was notified about your court application and that if your application is successful, their roles and responsibilities as directors will resume.
• You must provide ASIC with a copy of your application.

What next if a company is reinstated?

✔ If you are successful in reinstating a company, you may need to go through a dispute resolution process or apply to the Victorian Civil and Administrative Tribunal (VCAT) to recover costs. Then, if a court orders a company to pay you compensation, you become a judgment creditor. When a company is reinstated, judgment creditors can claim their court ordered compensation. ASIC does not have to pay judgment creditors while a company is deregistered.

🗙 If you can’t reinstate a company, it’s unlikely you can recover the money you are seeking. You may also have to pay expensive legal costs.

Can I recover costs from a director of a deregistered company?

In some exceptional circumstances, you may be able to recover money from the director of a deregistered company.

Directors have certain obligations that continue after a company has stopped trading and has been deregistered. Seek legal advice to understand if this is an option for you.

In certain circumstances, directors may be personally liable to compensate you for financial loss or damage caused by them if they were negligent, or they personally took on responsibility for a company’s negligent actions. A director may be personally liable if they knew about the circumstances of negligent actions that caused you financial loss or damage.

If your builder is deregistered and your domestic building contract is under $10,000 when you signed the contract, following the process in your contract is your only option to get compensation. Information in this resource may be helpful to understand which costs you can recover.

If your builder is deregistered and your domestic building contract is over $10,000 when you signed the contract, you can get compensation by following the process in your contract, or under the law through a process of dispute resolution or by applying to the Victorian Civil and Administrative Tribunal (VCAT).

Your options will depend on whether your builder was deregistered when you first signed the contract, or after you signed the contract.

If your builder is deregistered, they must not give you the impression they are authorised to carry out domestic building work and sign a contract for a building project.

You may not realise your builder is deregistered. If your builder is misleading or deceptive about their authority to carry out domestic building work or sign contracts for building projects, they are likely breaking the law.

To minimise the risk of unregistered builder’s doing business, your builder must give you a Domestic Building Consumer Guide from Consumer Affairs Victoria before you sign a domestic building contract over $10,000. The guide has useful information about domestic building projects in general. The law is clear about consequences for your builder if they were deregistered when they signed a domestic building contract over $10,000.

If you are worried about your builder’s conduct, you can contact the Victorian Building Authority (VBA) or check VBA registers.

It is illegal for a builder to agree to do a domestic building project and sign a domestic building contract if they are deregistered. A deregistered builder cannot do domestic building work themselves or sign a contract for a domestic building project, even if they employ others to do the work.

What costs do I have to pay?

There are some costs you must pay your builder, even if they were deregistered when you signed your contract.

✔ You must pay your builder reasonable costs for materials used.

✔ You must pay your builder reasonable costs for work done by others.

🗙 Your builder is not entitled to be paid for any work they carried out.

🗙 Your builder is not entitled to be paid their profit margin in the contract.

If you paid a deposit to a deregistered builder, you may be able to get it back. You can get back costs for any work done by your deregistered builder and money paid towards their profit margin.

It can be difficult to work out what you have paid for and what you can get back. Domestic building projects are often priced as one lump sum, and a payment plan may divide that cost into stages.

You may need an expert to help you work out the amount you can get back from your builder. Find more information about engaging an expert in our ‘How to work with building experts to support a VCAT claim’ resource.

If your builder is deregistered after you sign a domestic building contract and before your building project is finished (including final payment), you may have the right to end your contract and get compensation.

It is important to end a contract correctly. The law makes contracts enforceable and incorrectly ending a contract carries significant legal risk, including the risk of being sued. Find more information about ending a contract in our ‘How to end a domestic building contract’ resource.

Master Builders: right to end the contract

• If your builder is deregistered, they will be unable to finish the building project. This will likely give you a valid reason to end the contract.

HIA: right to end the contract

• If your builder is deregistered, they will likely be in substantial breach of the contract. If your builder is in substantial breach of the contract, this will likely give you a valid reason to end the contract.

Finding a new builder to finish the building project

If you end your contract correctly, there will likely be incomplete building work that needs to be finished, and you may need to engage a new builder to finish the building project.

If you need to recover costs for new builder to finished building works, seek legal advice first.

Master Builders: recoverable costs

• If you hire a new builder to complete the works and it costs more than the outstanding balance of your original contract, your original builder must pay the difference. 
• If you hire a new builder to complete the works and it costs less than the outstanding balance of your original contract, you must pay the difference to your original builder. 

HIA: recoverable costs

• If you hire a new builder to complete the works and it costs more than the original contract, your original builder must pay the difference. You must notify them in writing, and they will have 7 days to pay the difference.
• If you hire a new builder to complete the works and it costs less than the original contract, you must pay the difference to your builder immediately.

For example, if you terminate your contract at the end of the lock-up stage:

• Under your original contract, you had $105,500 left to pay for the fixing stage and the completion stage.
• When you enter into a new contract to finish the fixing stage and the completion stage, it now costs $117,800. This might be because of inflation or because of defects in the original work that have to be fixed.
• You can ask the original builder to pay you the difference between the outstanding balance in the original contract and the new contract, which is $12,300.

Other contracts: recoverable costs

If your contract does not have a process for recovering costs, you still have a right to compensation. You can recover costs that flow reasonably and naturally from the issues directly caused by your builder’s deregistration.

Your contract may have other ways of calculating who is responsible for paying another builder to finish incomplete building work.

If your builder is deregistered after your domestic building project has ended, this may affect fixing defects or other issues with their completed building work. A deregistered builder can’t fix any building work for a building project while they are deregistered.

Your builder is still responsible for their building work. You may get compensation from your builder to cover the cost of getting any issues fixed by another builder.

If you need to get another builder to fix building works, seek legal advice first.

Defects liability period in a contract

• Your contract may have a defects liability period that starts from the date works are completed, or you move back in, whichever comes first. Your builder is responsible for fixing issues with the building work for that timeframe.
• To recover costs for another builder to fix issues covered by the defects liability period, you may need to go through a dispute resolution process or apply to the Victorian Civil and Administrative Tribunal (VCAT).
• Find more information about defects liability periods in our ‘How to complete handover and finalise the end of a domestic building project’ resource.

Implied warranties

Find more information about implied warranties in our ‘How to complete handover and finalise the end of a domestic building project’ resource.

You are protected by implied warranties under the law that cover the quality and standard of domestic building work. These warranties are implied into your contract as they exist under the law.

To recover costs for another builder to fix issues covered by implied warranties, you may need to go through a dispute resolution process or apply to the Victorian Civil and Administrative Tribunal (VCAT).