What Usually Happens When a Builder Goes into Liquidation in NSW

When a residential builder goes into liquidation, homeowners often assume that the process will be reasonably straightforward: notify the Home Building Compensation Fund, find another builder and finish the home.

In practice, builder liquidation creates two separate problems that must be managed at the same time.

The first is physical: the unfinished home must be protected, inspected, rectified and completed.

The second is evidentiary: the homeowner must prove to the insurer what was incomplete, what was defective, what the first builder had already been paid for and what the covered loss should reasonably cost.

Unless the construction work and the HBCF documentation are managed together, the home may eventually be completed while the evidence needed for the insurance claim quietly disappears.

Builder insolvency is no longer an isolated problem

The number of unfinished homes and HBCF claims in NSW has increased as more construction companies have entered external administration.

The NSW Government’s 2024 review of the Home Building Compensation Fund reported that 87% of HBC claims were triggered by builder insolvency. It also reported that 1,372 NSW construction companies entered external administration for the first time in 2023–24, compared with 981 in the previous financial year — an increase of approximately 40%.

The pressure has continued. ASIC reported that construction accounted for 24% of companies entering external administration during the first eight months of the 2025–26 financial year, making it the industry with the largest share of appointments nationally. These figures cover the wider construction industry, not residential builders alone, but they demonstrate the continuing scale of insolvency pressure across the sector.

Each failed building company may leave several unfinished homes behind. All of those homeowners then begin looking for replacement builders, quotations, inspectors, reports and HBCF assistance at approximately the same time.

The result is a growing number of complex recovery projects and a very limited number of building companies prepared to take them on.

The construction stops, but the holding costs continue

Liquidation may bring construction to an immediate halt, but it does not stop the homeowner’s expenses.

Interest continues to accrue on the land and construction loan. Many homeowners are also paying rent because the unfinished home cannot be occupied. Council rates, storage costs, temporary fencing, site security, insurance, consultant fees and additional finance costs continue without moving the project any closer to completion.

A lender may also suspend further progress payments until the homeowner provides a new building contract, an updated valuation, revised insurance arrangements and a clear scope for completing the home.

The homeowner may therefore need to pay for inspections, urgent protection work, reports and replacement-builder quotations before further finance becomes available.

Every month spent looking for another builder can mean thousands of dollars in additional holding costs, even before any further building work begins.

The unfinished home may deteriorate while everyone is waiting

A partially completed house is not necessarily capable of remaining exposed for months.

Temporary protection may fail. Incomplete roofing, flashing, wall wrap, cladding, windows or waterproofing may allow water to enter the structure. Wind-driven rain can reach framing, insulation, plasterboard, flooring and electrical or mechanical services.

Once porous materials remain damp, mould can begin to spread across walls, ceilings, timber products and other building materials. Insulation may become wet or contaminated. Timber products can swell, distort or deteriorate. Metal fixings and structural components may begin to corrode.

Birds may enter through unfinished roof areas, eaves, duct openings and wall cavities. They can build nests inside the structure and contaminate framing, insulation and services with nesting material, feathers and droppings. In some projects, the replacement builder must clean and decontaminate the building before ordinary construction can even resume.

Water may collect in poorly drained areas. Unprotected materials may deteriorate under prolonged ultraviolet exposure. Appliances, fixtures and stored building materials may be stolen or vandalised.

By the time a replacement builder is appointed, the original incomplete-work scope may no longer be sufficient. Additional work may be required to:

• remove mould-affected or water-damaged materials
• clean bird droppings and nesting material
• dry wet framing and building cavities
• test moisture levels
• inspect affected electrical work and insulation
• replace damaged temporary protection
• investigate concealed water entry
• treat corrosion or contamination
• replace products that are no longer suitable for installation

This creates another insurance complication. The documents may need to distinguish between work that was incomplete when the first builder stopped, work that was already defective, and consequential deterioration that occurred while the project remained exposed.

Without an early, detailed site-condition record, it can become difficult to establish when the additional damage occurred and why the associated rectification became necessary.

Why most builders do not want to take over an unfinished home

Taking over another builder’s project is fundamentally different from starting a new home.

A replacement builder inherits a structure they did not design, price, supervise or construct. They may have incomplete plans, missing certificates and no reliable record of inspections carried out before the first builder went into liquidation.

The original subcontractors may no longer be contactable. Engineering inspections may not have been recorded. Waterproofing certificates, product warranties, commissioning records, test results and compliance documents may be missing.

The replacement builder may not know what is behind the walls, under the roof sheets, beneath waterproofing, inside service cavities or below finished surfaces.

Before providing a reliable quotation, the new builder must try to distinguish between:

• incomplete contractual work
• completed but defective work
• work that must be removed to investigate a concealed condition
• access required to rectify a defect
• reinstatement required after rectification
• deterioration that occurred while the site was inactive
• items already paid for but never supplied or installed
• changes or upgrades requested by the owner

The replacement builder must also protect themselves from being held responsible for work performed by the first builder.

For these reasons, many builders decline unfinished projects altogether. Others agree to complete only a narrowly defined visible scope, with extensive exclusions for existing work, concealed conditions, missing approvals and defects attributable to the first builder.

Finding a builder who is willing to take responsibility for completing the project can therefore take months.

“We only build. You deal with the insurer yourself.”

Even when a replacement builder accepts the project, the homeowner will often hear a response along these lines:

“We only build. You deal with the insurer yourself.”

From an ordinary builder’s perspective, that position is understandable. Their role is to complete construction. Preparing a detailed HBCF evidence package is a separate and specialised process involving contract analysis, payment reconciliation, technical documentation, photographs, location schedules, marked-up plans, trade reports and written responses to insurer questions.

However, this leaves the homeowner in a very difficult position.

The homeowner may have no construction or insurance experience, yet they are expected to determine:

• which areas must be inspected before they are covered
• which photographs should be taken during the work
• how every defect should be described and located
• what information each subcontractor should record
• which reports and test results are required
• how incomplete work should be separated from defective work
• how investigation, access and reinstatement costs should be documented
• how the replacement builder’s quotation should be structured
• what evidence is required if the insurer rejects or reduces an item

The insurer may expect the builder to provide the technical evidence. The builder may expect the insurer to tell the homeowner exactly what is required.

In many cases, neither party takes responsibility for creating the complete construction record.

The homeowner is left in the middle, trying to coordinate the insurer, liquidator, replacement builder, certifier, lender, consultants, subcontractors and legal advisers.

Completing the visible work is not enough

A replacement builder will naturally focus first on what is visibly unfinished.

They may arrange the remaining trades, install missing materials, complete fit-off, finish the external work and move the project towards Practical Completion and an Occupation Certificate.

However, the visible incomplete work may be only part of the problem.

The first builder may also have left concealed defects involving:

• waterproofing beneath tiles or other finished surfaces
• inadequately restrained plumbing inside wall cavities
• damaged or incorrectly installed electrical cables
• missing fire-separation or acoustic-wall components
• incorrectly installed insulation
• defective flashing behind external finishes
• incomplete termite-protection systems
• unsealed or unprotected service penetrations
• inadequate framing connections or tie-downs
• damaged roof condensation blanket
• incorrectly located drainage
• moisture problems beneath slabs or floor finishes
• defective materials concealed by roofing, cladding or internal linings

Some defects become apparent only when services are tested or commissioned. Others are discovered when completion work requires a wall, ceiling, roof section, floor area or service cavity to be opened.

This does not mean that the entire home should be demolished for inspection. Investigation should be proportionate and based on the construction stage, visible warning signs, available records, test results and the quality of the work already observed.

However, there must be a process for identifying, recording and responding to first-builder defects when concealed areas become accessible.

Otherwise, a genuine defect may be physically rectified but never properly supported as part of the HBCF claim.

Insurance evidence disappears as the home improves

This is one of the most serious risks in a builder-recovery project.

Before rectification, a defective component may be visible and capable of being inspected, photographed and measured.

During the work, the cause of the problem and the true extent of the necessary repair may become even clearer.

After rectification, the same area may be permanently concealed behind new plasterboard, tiles, roofing, cladding, flooring or cabinetry.

From a construction perspective, the problem has been solved.

From an insurance perspective, the strongest evidence may have disappeared.

A photograph of the finished room does not prove what was defective behind the wall. An invoice stating “rectification works” does not necessarily establish the location, cause, extent or responsibility for the original defect.

For each significant item, the evidence should create a clear connection between:

• the exact location
• the condition before rectification
• the reason the work was considered incomplete or defective
• the first builder’s relevant contractual obligation
• photographs before, during and after the work
• a marked-up plan or location schedule
• inspection findings and test results
• the required rectification methodology
• the work actually completed
• the materials used
• the associated quotation and invoice
• evidence of payment

Without that connection, the insurer may accept that the homeowner paid for building work but still decide that there is insufficient evidence to establish that the cost arose from a covered first-builder defect.

This is why taking a few general site photographs at the end of the project is not enough. Evidence must be created while the work is progressing and while the relevant condition remains visible.

The replacement builder’s quotation is not the insurance calculation

Another major source of confusion is the way the insurer determines the amount payable for Incomplete Works.

Many homeowners assume the insurer will simply pay either:

• the unpaid balance of the first building contract
• the amount quoted by the replacement builder

Neither figure necessarily represents the amount assessed under the policy.

The assessment may involve the original contract price, agreed variations, payments made to the first builder, the physical extent of work completed, the original contractual work remaining and the reasonable cost of completing that work, subject to the policy terms and limits.

A replacement builder’s quotation is important evidence, but it is not automatically the insurer’s final calculation.

Problems arise when the construction and financial records do not reconcile.

For example, the first builder’s progress claims may indicate that a particular construction stage was complete, while an inspection shows that substantial work within that stage remains unfinished. A variation may have been paid in full but only partly completed. Some items may have been supplied but not installed. Other items may have been substituted without adequate documentation.

If the homeowner submits only one lump-sum quotation, the insurer may be unable to determine which costs relate to:

• covered Incomplete Works
• first-builder defects
• investigation and testing
• access to concealed areas
• reinstatement following rectification
• damage occurring during the inactive period
• temporary protection
• owner-requested changes

The insurer may then reduce the assessment, while the homeowner is left with little understanding of which amounts were excluded, why they were excluded or what evidence could have changed the outcome.

Homeowners are rarely told exactly what evidence is missing

Homeowners commonly expect the insurer to provide a complete practical checklist explaining how the entitlement will be calculated and what must be submitted for every item.

In practice, insurer correspondence may use contractual, technical or assessment terminology that an ordinary homeowner cannot easily translate into building evidence.

An item may be described as:

• insufficiently particularised
• unsupported by contemporaneous evidence
• outside the original contractual scope
• not demonstrated to be defective
• inadequately costed
• not connected to the first builder
• unsupported by an appropriate rectification methodology

These expressions may explain the assessor’s concern, but they do not necessarily tell the homeowner what document is required next.

Does the insurer need a marked-up plan? A trade report? A photograph taken before the area was opened? A photograph taken after it was opened? A payment reconciliation? A revised quotation separating access and reinstatement? Test results? Evidence that the item was included in the original contract?

Most residential builders do not know the answer because HBCF claim preparation is not part of their ordinary work.

As a result, homeowners may repeatedly send additional documents without addressing the actual evidentiary gap.

The most dangerous mistake is waiting too long to notify HBCF

The formal rule appears straightforward. Current SIRA guidance states that the warranty period for Incomplete Works is 12 months after the builder failed to start or stopped the work. SIRA also says that homeowners should notify icare HBCF in writing as soon as there is a problem with work not starting or finishing, even if the building company is still trading.

The practical difficulty is determining exactly when the work is considered to have stopped.

Homeowners may believe the period began when the company formally entered liquidation, when the builder announced that they would not return or when the construction contract was formally terminated.

The insurer may adopt a much earlier date.

In a matter dealt with by ARK Houses, the insurer calculated the 12-month period from the date on which the homeowner paid the first builder’s final invoice, even though building work continued after that payment.

Evidence of the later construction activity was provided, but the insurer maintained its position. A Level 2 review did not resolve the issue.

The homeowner then had to commence proceedings in NCAT so that the actual date on which the building work ceased could be examined.

The homeowner had to assemble evidence including:

• invoices and payment records
• bank statements
• emails and messages with the first builder
• photographs showing later construction activity
• subcontractor attendance records
• delivery records
• a detailed project chronology
• witness statements
• evidence identifying the last work physically carried out on the site

What could have been a simple written notification became a major dispute about whether the homeowner was entitled to claim for Incomplete Works at all.

Notify first and complete the evidence afterwards

Homeowners should not wait until:

• the builder has formally entered liquidation
• the liquidator has provided a detailed report
• the construction contract has been terminated
• a replacement builder has been found
• a complete scope has been prepared
• every defect has been identified
• several quotations have been obtained
• the final amount of the claim can be calculated

A written Loss Notification is not the same as presenting a complete, fully quantified claim.

The purpose of the early notification is to notify the insurer that there is a problem and preserve the homeowner’s position while the supporting information is being collected. SIRA expressly advises homeowners to notify icare HBCF as soon as work is not starting or finishing, or defective work is suspected, and states that the written notification should be made within the warranty period.

The practical message is simple:

If the work has stopped, appears to have stopped, has become seriously delayed, or the builder’s future is uncertain, notify icare HBCF immediately in writing and retain proof of the notification and acknowledgement.

Do this even if the homeowner believes that the 12-month period has only just begun.

The insurer may later rely on an earlier date, including a date associated with the final invoice or payment. It is far easier to submit a precautionary notification than to spend months trying to persuade the insurer, an internal reviewer and ultimately NCAT that meaningful construction continued after the date selected by the insurer.

The detailed scope, quotations, reports, photographs and defect documentation can be developed afterwards.

Without a timely notification, however, even a strong Incomplete Works claim may become a dispute about whether the homeowner has any right to claim that component at all.

An NCAT appeal becomes another major project

NCAT can hear insurance claim appeals relating to residential building work in NSW. SIRA also offers a regulator compliance review, but that review considers whether the insurer followed the applicable legislation, regulations and guidelines; it is not a merits review and does not overturn the insurer’s claim decision.

An NCAT proceeding is not simply another email asking the insurer to reconsider.

The homeowner may need to prepare:

• the original building contract and variations
• every relevant invoice and progress claim
• payment records and bank statements
• correspondence with the first builder
• evidence establishing when work actually ceased
• photographs and marked-up plans
• building and trade reports
• replacement-builder quotations
• witness statements
• a detailed chronology
• insurer correspondence and review decisions
• written submissions explaining why the insurer’s decision should be changed

The matter may involve procedural directions, evidence timetables, conciliation and hearings. NCAT identifies insurance claim appeals as a type of home-building matter it can determine.

The homeowner may then wait months for the process to progress while mortgage interest, rent and other holding costs continue.

Meanwhile, the unfinished building cannot necessarily remain exposed. The owner may have to fund urgent protection and completion work from personal savings, further borrowing or family assistance before the insurance dispute has been resolved.

This is an enormous amount of work to correct a problem that may have been avoided through a brief written Loss Notification submitted at the first sign of serious trouble.

Paying for the work yourself does not automatically prove the claim

Many homeowners eventually use their own money to restart construction because they cannot wait indefinitely for the insurer’s decision.

This may be necessary to protect the property, but payment alone does not prove the insurance claim.

An invoice showing that the homeowner paid for work does not, by itself, establish that the work was:

• included in the first builder’s contract
• incomplete when the first builder stopped
• required to rectify a first-builder defect
• completed using a reasonable methodology
• appropriately separated from owner upgrades
• reasonably priced as part of the covered loss

If the original condition was not recorded before the work was completed, the insurer may see only the finished result and the final invoice.

The homeowner can therefore pay to rectify a genuine first-builder defect and still struggle to recover the cost because the evidence needed to prove the defect was not created before it was concealed.

Builder completion and HBCF documentation must be one coordinated process

A more effective recovery model treats physical completion and insurance documentation as two parts of the same project.

Before substantial building work resumes, the current condition should be recorded. The contract, variations, progress claims, payments, plans, approvals and available construction records should be reviewed.

The scope should distinguish between:

• incomplete contractual work
• first-builder defects
• investigation and testing
• access required to reach concealed defects
• reinstatement following rectification
• deterioration and urgent protection work
• owner-requested changes

The replacement construction scope should be based on the actual condition of the home, not simply the remaining balance of the original contract.

As work proceeds, defects should be documented when they are discovered. Relevant areas should be photographed before, during and after rectification. Locations should be linked to plans and schedules. Test results, trade findings, materials and rectification methods should be recorded while the information remains available.

The home can then be completed without sacrificing the evidence required for the HBCF assessment.

How ARK Houses approaches builder recovery

ARK Houses combines construction completion with HBCF documentation support.

The first step is not simply to send every trade back to the site. We establish the current condition, record exposure and urgent protection issues, identify what remains incomplete and determine which areas require further investigation.

We then separate incomplete work, defective work, consequential work and owner-requested changes before developing a controlled, sequenced construction scope. This reflects the builder-recovery process set out in our completion service: record, define, resolve and complete.

For a valid Incomplete Works claim notified within the applicable period, our objective is to substantiate the full amount available under the policy rather than leave legitimate completion costs unsupported because the scope, contract records or payments were not properly presented.

During construction, we also identify first-builder defects that become apparent through inspection, testing, commissioning, opening-up and completion work.

We photograph the condition while it is visible. We record the location and extent of the issue. We distinguish the defect from ordinary incomplete work. We document the required rectification and the work subsequently carried out.

Depending on the project, the documentation package may include:

• an initial site-condition record
• a contract, variation and payment reconciliation
• a measured Incomplete Works schedule
• a separate first-builder defect schedule
• marked-up plans and location schedules
• dated photographic evidence
• trade reports and test records
• completion and rectification methodologies
• costed scopes, quotations and invoices
• technical responses to insurer or assessor questions

Because the records are created while completion work is underway, they can show what was found, where it was found, why the work was necessary and how the associated cost relates to the first builder’s incomplete or defective work.

This documentation support is an additional service provided as part of the recovery process. The insurer remains responsible for determining whether the policy responds, which items are accepted and what amount is payable.

Companies that provide both services are rare

To be frank, there are very few building companies that are willing and able to provide both builder completion and structured HBCF documentation support.

Most residential builders are equipped to build. They are not set up to reconstruct another builder’s project history, analyse payments, investigate concealed work, preserve defect evidence and prepare a complete insurer-ready documentation package.

Some builders may take photographs occasionally, but unlabelled photographs stored on a phone are not the same as a location-based evidence record connected to the contract, scope, reports, methodology, quotation and invoice.

Others may repair a problem correctly but provide only a brief invoice after the work has been concealed.

By that stage, the homeowner may no longer have the evidence needed to recover the cost.

ARK Houses has developed its builder-recovery and HBCF documentation knowledge through practical experience. This is not information that can be obtained from a generic checklist. It has been developed by working through real completion projects, insurer assessments, requests for further evidence, disputed calculations, internal reviews and NCAT proceedings.

That experience allows the construction and documentation processes to be planned together from the beginning.

Finishing the home is only half the recovery

After builder liquidation, the most important question is not simply:

“Who can finish my home?”

The more important question is:

“Who can finish my home without overlooking the first builder’s defects, allowing the evidence to disappear or leaving me to manage the HBCF process alone?”

Every week of delay can increase holding costs and expose the building to further water damage, mould, contamination, theft and deterioration.

Every concealed repair completed without photographs and supporting documents can weaken the insurance claim.

And every month spent waiting to notify the insurer can create a potentially serious dispute about whether the Incomplete Works claim was made within time.

The safest sequence is clear:

Notify the insurer immediately. Record the condition before it changes. Separate incomplete work from defects and consequential damage. Document the work while it is being performed. Then complete the home under a controlled construction scope.

Submitting an early written notification is relatively simple.

Trying to reverse an insurer’s decision through internal review and NCAT after the applicable period is disputed can involve months of evidence preparation, procedural work and hearings.

Finishing the building is only half the recovery. The other half is preserving and presenting the evidence needed to give the homeowner the strongest possible basis for recovering the amount available under their HBCF cover.

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