Subcontractors in the UK and Australia are preparing landmark class actions against their governments, claiming they were misled by protections that failed to safeguard payments when major contractors collapsed.
The actions are being brought with litigation funders and law firms after the 2024 collapse of ISG in the UK, which left over 拢1.1 billion in unpaid debts, and the 2021 collapse of Pindan in Western Australia.
These left subcontractors unpaid for completed work, despite assurances that Project Bank Accounts (PBAs) would provide protection.聽
In both cases, money intended for subcontractors was diverted into insolvency estates.
Louise Stewart, founder of construction FinTech ProjectPay, said: 鈥淪ubcontractors were promised protection that simply did not exist. PBAs only protect money already in the account. They fail to stop subcontractor payments being captured by insolvency administrators. Small businesses, families and taxpayers have all been let down and misled.鈥�
Speaking to 老九品茶Cloud, Stewart, who has previously served as chair of the Subcontractors Association in Australia and co-chaired ReBUILD Australia, described how funds due to ISG subcontractors on Ministry of Justice projects were transferred to administrators rather than the supply chain.聽
鈥淚SG subcontractors signed project bank account agreements and believed that should ISG collapse, that they would still get paid for the work they鈥檝e done, and that that money would not then be taken by the administrator, which is EY,鈥� she explained.聽
鈥淏ut that is not what鈥檚 happened.
鈥淲hat鈥檚 happening in the construction sector is widespread misuse of insolvency laws, and in what they would call in the USA, the intent to defraud subcontractors.”
She claimed: 鈥淭hey鈥檙e using money that they have been paid, which is intended to be used to pay subcontractors, but instead of being used to pay subcontractors, it鈥檚 being used on unrelated things – or in some of the worst examples, for personal enrichment.鈥�
Stewart founded London-based ProjectPay after both governments abandoned plans to adopt US-style laws which prevent insolvency administrators or secured creditors from seizing subcontractor payments.聽
Drafted in 2019, the reforms were dropped without explanation, despite government reports acknowledging PBAs were inadequate.
鈥淭his is a failure. This is a fundamental failure of these governments,鈥� she said.聽
鈥淎 government that says that they鈥檙e fueling a building boom, a construction boom.聽
“Well, I鈥檓 sorry, it won鈥檛 be a boom. It鈥檒l be a funeral for so many small businesses, unless this issue is addressed.鈥�
Iain McIlwee, CEO of the Finishes and Interiors Sector, added: 鈥淔or too long, subcontractors have been picking up the tab for the failings of others.聽
鈥淲e had Carillion and nothing happened. The numbers associated with ISG are again eye watering.聽
鈥淚t is not right that hard working specialists find themselves at the back of the queue when contractors collapse, shouldering far more than their share of the burden for poor procurement, contract administration and at times questionable business practices.聽
鈥淭he ISG case shows that we urgently need reforms that provide genuine protection.鈥�
The proposed actions could expand to cover all subcontractors, not just those on Ministry of Justice or government projects. Court filings are expected by the end of the year.
Alongside the legal challenge, ProjectPay has developed a FinTech platform that guarantees fast, secure payments to subcontractors without requiring legislative change.聽
Backed by Innovate UK funding and working with major banks, the platform is already being used on public projects in the UK, Australia and the US.
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