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What happens if your builder becomes insolvent

From Modular Living Australia — the independent knowledge base Last updated: 8 Oct 2026

Construction has represented roughly a quarter of national company failures in recent years, and 3,435 construction companies entered external administration in 2025–26, down 4.5% on the year before.^[1][2] The first line of protection is your state's home warranty or indemnity scheme, and for a modular build the added risk is that part-built modules may sit in a factory you have no legal claim over.^[3][4]

Construction has been the single most insolvency-prone industry in Australia for several years running, representing roughly a quarter of all national company failures.^[2] For anyone partway through a building contract, that is not an abstract statistic — it determines whether the money already paid, and the home partly built, can be recovered.

This guide sets out the current scale of the problem, what actually happens when a builder enters administration, and — specific to this site — the added risk that applies when your home exists as part-finished modules sitting in a factory rather than a partly built structure on your own land.

The current scale of the problem §

The most recent official data shows the trend easing slightly, but from a very high base. Analysis of ASIC's insolvency statistics, published 13 July 2026, shows 3,435 construction companies entered external administration for the first time in the 2025-26 financial year — down 4.5% from 3,596 the year before, the first annual fall since the post-pandemic insolvency wave began.^[1] New South Wales (1,522) and Victoria (984) together accounted for roughly 73% of the national total.^[1] In the 2023-24 financial year, construction represented about 27% of all company failures across every industry in Australia — an unprecedented concentration in one sector.^[2]

A modest year-on-year improvement does not mean the risk has gone away. It means the industry is still failing at a rate several multiples higher than before the pandemic, and any individual builder — including a well-established one — can be affected by the same cost pressures that have driven the broader trend.

What actually happens when a builder collapses §

Insolvency arrives in different legal forms, and the form matters for what happens next.

Voluntary administration puts an independent administrator in charge of investigating the company's finances, with a mandate to find the best outcome for creditors. This can end in liquidation, or in a Deed of Company Arrangement (DOCA) — an agreement between the company and its creditors, sometimes including a restructured payment plan, that allows the business to keep trading.^[5]

Liquidation is more final. An independent liquidator takes control specifically to identify and sell assets and repay creditors, rather than to continue the business.^[5] In practice, work on site typically stops immediately, along with any subcontractors.^[6] The scale this can reach was demonstrated by the 2023 collapse of Porter Davis — then Australia's 12th largest home builder — which ceased all construction and entered liquidation with approximately 1,700 builds underway across Victoria and Queensland; the same day, a second major builder, Lloyd Group, collapsed with 29 projects underway.^[6] These are documented public collapses cited here as illustrative of the scale a single builder's failure can reach — not a comment on any builder currently trading.

A critical, easily missed detail: materials, tools and part-finished work in a builder's possession do not automatically belong to you, even if you have paid for them. They may belong to the liquidator, or to a supplier under a retention-of-title clause, and removing or using them without clarifying the legal position first can complicate your own claim.^[4]

Your first line of protection: the warranty scheme §

The first practical step when a builder is confirmed insolvent is to notify your state's home warranty or indemnity insurer and begin a claim.^[3] Which scheme applies, what it covers, and how much it pays out differs by state — see building insurance and warranty schemes by state for the current threshold and cap in each jurisdiction.

This protection has a hard precondition: if the builder never held valid cover for your specific project, there is no insurer to claim against.^[5] Confirming you hold a genuine, project-specific certificate of insurance — not just a generic company brochure — before paying a deposit is the single most consequential check available to you, and it costs nothing to make.

Once an administrator or liquidator is appointed, you may receive a formal letter notifying you of the appointment.^[7] From that point:

1. Gather every document relating to the contract — the signed contract, all variations, every progress payment invoice and receipt, and any correspondence about defects or delays.^[8]
2. Confirm you hold, and locate, the certificate of insurance for your specific project.^[8]
3. Contact the insurer to understand their claims process before taking any other action on site.^[8]
4. Contact the appointed administrator or liquidator to be recognised as a creditor and to ensure you receive further correspondence.^[3]
5. Engage an independent building consultant to inspect the completed work, document its condition, identify defects, and estimate the cost to complete — this evidence underpins both your insurance claim and your creditor position.^[8]
6. Get advice from a construction lawyer before terminating the contract or engaging a new builder — whether you are entitled to terminate, and what a financier's consent requirements are, depends on the specific contract terms.^[6]

State regulators sometimes run additional support. Victoria's Building and Plumbing Commission, for instance, works with government agencies and appointed building surveyors to support affected homeowners, and has previously administered one-off support payment schemes for customers of specific builders that collapsed.^[7] Check whether your state regulator has an equivalent programme active — these are typically announced in response to specific large collapses rather than being a standing entitlement.

The specific risk for off-site and modular buyers §

Everything above applies to any residential building contract. Off-site construction adds a distinct complication that a site-built contract does not have: your home may not physically exist on your land at all when the builder collapses.

If your modules are mid-manufacture in the builder's factory — or worse, in a third-party factory the builder contracts with — you are relying on a chain of legal relationships that a site-built buyer never has to think about. Questions worth resolving before signing, not after a collapse:

• Does the contract specify who legally owns a module once it is built but not yet delivered — you, or the builder?
• Is the factory owned by the builder, or by a separate manufacturing entity the builder contracts with? A collapse of one does not necessarily follow the same path as a collapse of the other, and your rights against each can differ.
• Does your home warranty or indemnity certificate actually cover the factory-stage value of the build, or only work completed on your land? This is a live question given how unevenly lenders and insurers have adapted to off-site payment structures — see progress payments and off-site construction.
• If modules are complete but undelivered when a builder collapses, who has practical and legal access to retrieve them — you, the liquidator, or a secured creditor with a claim over the factory's stock?

These are not hypothetical concerns. They follow directly from the same off-site financing mismatch that complicates progress payments: value is created off your land, under someone else's legal control, well before it becomes yours. A liquidator's job is to realise value for creditors generally, not to prioritise getting your specific module to your specific block — and a generic home warranty certificate, written with a site-built house in mind, may not clearly answer who owns a module sitting unfinished in a factory two hundred kilometres away.

Reducing your exposure before you sign §

1. Ask directly whether the builder holds current, valid home warranty or indemnity cover for projects of your value, and ask to see the certificate — not just a reference to having one.
2. Ask what happens, contractually, to modules that are complete but not yet delivered if the builder ceases trading — get the answer in writing.
3. Where possible, tie progress payments to independently verifiable milestones (photographs, third-party inspection, a factory-stage certification from your lender) rather than the builder's own say-so.
4. Check the builder's licence status and any public complaint or disciplinary history with your state regulator before signing — see owner-builder permits by state for the relevant regulator in each jurisdiction.
5. Do not pay more up front than your state's statutory deposit cap allows, regardless of what a builder requests.

Related guides §

• Building insurance and warranty schemes by state
• Progress payments and off-site construction
• Glossary

References §