What Happens If the Builder Goes Bust Mid-Job: A Subbie’s Guide

Slow payment is one problem. A builder actually going under mid-job is a different, scarier one — suddenly the person who owes you money doesn’t exist as a functioning business anymore. It happens more than most subbies expect, and there are some real (if limited) protections worth knowing about before it happens to you.

The short version (TL;DR)

• If a head contractor becomes insolvent, unpaid subcontractors generally become unsecured creditors — near the back of the queue behind secured lenders.
• Some states now require retention money to be held in trust accounts, specifically to protect it from a head contractor’s insolvency — NSW (projects over $20 million), Queensland (phasing in Project Trust Accounts), and WA (contracts of $1 million-plus) all have versions of this.
• Money properly held in one of these trust accounts is not available to pay the head contractor’s other debts if they go under — a real, meaningful protection where it applies.
• These trust protections currently apply mainly to larger projects — many smaller residential jobs subbies actually work on aren’t covered by the dollar thresholds.
• Security of Payment rights (payment claims, adjudication) still apply up until insolvency — the practical problem is that a genuinely insolvent company often can’t pay even a successful claim.

What actually happens when a head contractor collapses

Once formal insolvency (liquidation, administration, or receivership) begins, an external administrator takes control of the company’s assets and debts. Unsecured creditors — which is what most unpaid subcontractors are — are paid only after secured creditors (typically banks and financiers with formal security over assets) and certain priority claims like some employee entitlements. In practice, this often means unsecured subbies recover only cents in the dollar, if anything, from the general pool of remaining assets.

Where retention trust accounts actually help

This is the genuinely useful protection that’s emerged in several states specifically because of exactly this problem. Where it applies:

• NSW: head contractors on projects worth $20 million or more must deposit retention money into a dedicated trust account within 7 days of receiving it.
• Queensland: Project Trust Accounts have been phasing in since 2022, capturing retention money on eligible projects.
• WA: similar retention trust account requirements apply to eligible contracts worth $1 million or more under 2023 reforms.

Money properly held in one of these trust accounts creates a genuine beneficial interest for the subcontractor — it’s legally protected from being swept up in the head contractor’s general insolvency, which is a real, meaningful difference from retention simply sitting in the head contractor’s ordinary business account.

The gap: most residential work isn’t covered

Here’s the catch that matters for a lot of tradies: these trust account protections generally kick in at project value thresholds ($20 million in NSW, $1 million in WA) that are well above typical residential renovation or small commercial work. If you’re subcontracting on smaller jobs, retention money is likely still just sitting in the head contractor’s regular business account — with no special protection if they go under.

What you can actually do to protect yourself

• Invoice progressively and promptly rather than letting a large amount build up — the less money owed to you at any given moment, the less exposure if something goes wrong. See our cash flow guide for more on this.
• Watch for warning signs — slow payment becoming the norm, other subbies mentioning problems, a head contractor suddenly renegotiating terms, or unusual pressure to keep working without being paid up to date.
• Use your Security of Payment rights early, not as a last resort — see our guide to chasing late payments. Getting a payment claim in before insolvency proceedings begin gives you the best chance of actually being paid.
• Check whether your project is large enough to trigger trust account protections in your state — if it is, ask directly whether retention is being held in a compliant trust account.
• Register as a creditor promptly if a head contractor does enter formal insolvency — this is how you get any updates and any potential (even partial) distribution.

Frequently asked questions

Will I definitely lose money if a head contractor goes bust?
Not necessarily, but as an unsecured creditor you’re a long way back in the queue — recovery is often partial or nil unless your retention was specifically protected in a compliant trust account or you acted quickly with a payment claim before insolvency began.

Do all states have retention trust account protections?
No — NSW, Queensland and WA have versions of this, generally tied to project value thresholds, and the requirements and thresholds differ by state. Check your own state’s building/fair trading regulator for current requirements.

Does Security of Payment legislation still help once a company is insolvent?
The legal right to a payment claim still exists, but a genuinely insolvent company often lacks the funds to pay even a successful claim — which is why acting early, before insolvency proceedings formally begin, matters so much.

What’s the single most useful habit to reduce this risk?
Keeping the amount owed to you at any point in time as low as reasonably possible, through prompt and regular invoicing, directly limits how much you have exposed if a head contractor suddenly collapses.

This guide is general information only — not legal or financial advice. Insolvency law, retention trust account rules and thresholds vary by state and change over time; get specific advice from a construction lawyer or insolvency practitioner if you’re facing this situation.

Sources:
NSW Government — Retention money held by head contractors
DLA Piper — Security of payment: Australia