Retentions across the ditch; Penalties for non-compliance

Issues here

Currently in New Zealand retentions are required to be held on trust, so retention monies are not the principal / head contractor’s to spend, nor are the retention monies open to other creditors to lay a claim to if the principal / head contractor becomes insolvent. In our recent commentary on the retention regime in New Zealand, one of the issues highlighted is that there are no enforcement mechanisms or penalties for non-compliance on either principal / head contractor companies or their directors.

Across the ditch

New South Wales (NSW), which has a similar retentions regime to New Zealand, is forging new territory in relation to extending penalties for non-compliance and is proposing law changes that allow for sanctions on directors.

The retention regime in NSW is well ahead of New Zealand in terms of its protections of contractors / subcontractors. For example, it requires head contractors / principals to create a separate trust account for each contractor / subcontractor’s retention money, and penalties can be imposed on the principal / head contractor companies who do not establish such separate trust accounts, keep adequate records, or comply with notification obligations.

Reform is proposed through the NSW legislature which will secure even greater protections for contractors and subcontractors. In particular, there will be:

  • provision for the inspection of records, in connection with the operation of a trust account, by the subcontractor entitled to the retention money (which is an existing feature of the New Zealand retentions regime) and
  • penalties on the directors of principal / head contractor companies for non-compliance with the retentions regime.

Change in New Zealand?

There have been suggestions in the media that there will be a study next year to review compliance with the retentions regime. We hope that the upshot of this review may be greater protections for contractors and subcontractors. In terms of reform or regulations, lessons may be learned from the approach taken in NSW.

Contributors: Frank Brown, Solicitor and Mariam Baho, Law Clerk

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