What to do when your builder collapses mid-project

The call usually comes on a weekday morning. The site is quiet, the subcontractors haven’t been paid, and a liquidator’s name is now on the builder’s letterhead. For a homeowner, it’s a crisis. For a small developer with a construction loan, presales and holding costs, it’s a crisis with a meter running.

This guide sets out what to do, in order, when a builder collapses mid-project: the first 48 hours, the insurance position in the three largest states, the difference between a homeowner’s and a developer’s options, and how the extra cost to complete is usually funded. It’s general information; your solicitor should drive the legal steps.

What should you do in the first 48 hours?

1. Confirm the insolvency. Search ASIC’s records for a company, or the AFSA bankruptcy register for a sole trader or partnership. Consumer Affairs Victoria and QBCC both suggest checking both registers if you’re unsure which applies.
2. Contact the insolvency practitioner. QBCC advises making contact immediately and warns the practitioner may not know about your contract. Tell them who you are, what was paid and what’s on site.
3. Secure the site. Change locks, check fencing, photograph and list materials and fixtures. In NSW, the Government says unpaid subcontractors can’t enter your site and take materials that have been paid for and form part of the works; report theft or damage to NSW Police on 131 444.
4. Stop unscheduled payments. The NSW Government notes payments should be made only as the contract requires, and extra payments may not be recoverable under home building compensation cover.
5. Notify your warranty insurer, in writing. NSW says to notify the insurer immediately because delay may affect a claim.
6. Collect every document. Contract, variations, invoices, receipts, the insurance certificate, progress photos and correspondence.
7. Call your solicitor before terminating. Consumer Affairs Victoria specifically advises legal advice before ending the contract, hiring another builder or paying subcontractors.

Does home warranty insurance cover you?

	NSW	Victoria	Queensland
Scheme	Home building compensation (icare HBCF)	Domestic building insurance; new Home Warranty insurance from 1 July 2026	Queensland Home Warranty Scheme (QBCC)
Triggers	Builder insolvent, dies, disappears or licence suspended	Builder dies, is insolvent or disappears; for VMIA policies from 1 July 2015, also failure to follow a final VCAT or court order	Fixed-price contract ended because the builder is bankrupt or in liquidation with its licence cancelled, among other grounds
When cover is required	Work over $20,000 incl. GST	Work over $16,000	Residential work as set by QBCC
Headline limit	Up to $340,000 for non-completion or defects	Repairs capped at $300,000; unfinished work may be limited to a share of the contract price	$200,000 non-completion maximum (per QBCC’s non-completion guidance)
Claim timing	Notify in writing straight away	Claim within 180 days of learning of the insolvency	Contract must end within 2 years of work starting; lodge within 3 months of the contract ending
Developers and larger projects	Applies to new apartment buildings up to 3 storeys when working for a developer, homeowner or owner-builder	New Home Warranty insurance applies to 3 storeys or less	QBCC says developers and anyone building 3 or more residences can’t claim non-completion

Consumer Affairs Victoria notes the VMIA is now part of the Building and Plumbing Commission, which may be the insurer for policies issued on or after 31 May 2010. Check your certificate to confirm who issued yours.

Why are developers usually on their own?

Warranty schemes are designed for homeowners. A developer building townhouses for sale, a spec builder on its own land or anyone building multiple dwellings will often find that non-completion cover doesn’t help, either because the scheme excludes them or because the project is outside the storey and dwelling limits. That leaves three sources of money to finish the job:

• the unpaid balance of the original contract, which is now available to pay a replacement builder;
• the construction lender, if it agrees to keep funding under a new building contract;
• the developer’s own equity, from cash or other completed property.

The gap between the first and the real cost to complete is where most projects stall.

How do you work out the cost to complete?

1. Get a quantity surveyor’s report on what’s been built, what’s defective and what remains.
2. Re-tender the remaining work. A replacement builder will price the unfinished scope, rectification of defects and the risk of taking over another builder’s work. That price is almost always higher than the unpaid contract balance.
3. Add the time cost. Holding costs, extra interest on the construction facility, insurance, security and any presale sunset clauses.
4. Subtract what you’ll recover. Any insurance payout if you’re covered, and a realistic dividend from the liquidation. ASIC explains unsecured creditors are paid after liquidation costs and priority employee entitlements, so plan on little.

The result is your funding gap. Size any new borrowing to that number, plus a margin, not to the full contract.

Which mistakes make a builder collapse worse?

The same few errors turn a manageable setback into a lost project:

• Terminating the contract the wrong way. An invalid termination can give the liquidator a claim against you and jeopardise insurance. Let your solicitor issue any notices.
• Paying subcontractors directly without advice. It can feel fair, and it may get trades back on site, but it can also mean paying twice for the same work. Victoria’s consumer regulator specifically warns to get legal advice first.
• Leaving the site open. Weather, theft and vandalism add to the cost to complete every week a site sits unsecured.
• Signing a replacement builder on a handshake. Get a full contract, the right insurance for your state and a fixed scope that includes rectifying defects.
• Borrowing to the contract balance instead of the real gap. If the funding is sized to the unpaid contract rather than the re-tendered cost, you’ll be back for more money halfway through.
• Ignoring presale sunset dates. Buyers on off-the-plan contracts may gain the right to rescind if completion slips past a sunset date. Work out those dates now.

What should a homeowner do differently?

If you’re building your own home rather than developing for sale, the insurance route is usually your first source of funds. Lodge the claim within your state’s window, cooperate with the insurer’s assessment and keep paying only what the contract requires. The insurer may manage completion or pay out a cost-to-complete figure up to the policy limit. If that limit, or the share of the contract price allowed for unfinished work, falls short, the remaining gap is yours to fund. These loans are for business purposes, so a homeowner completing a family home should speak to a home lender instead.

How is the cost-to-complete gap usually funded?

Option	Works when	Watch-outs
Construction lender continues	It approves the new builder and contract	Slow; may require more developer equity first
Replacement construction facility	A new lender takes over the project	Takes weeks to months to arrange
Equity from other completed property	The developer owns other property with equity	Puts that property at risk; needs a clear exit
Joint venture or equity partner	Someone will take a share for capital	Permanent cost; see joint venture contributions
Sell the site part-built	The numbers no longer work	Usually at a discount

We don’t fund construction progress draws. Where property-secured private lending fits is the third row: a first mortgage, second mortgage or caveat over completed property the developer already owns, releasing cash to meet the shortfall, pay out an expiring facility or satisfy a lender’s equity requirement. The structures are explained on our secured business loans pillar. Our comparison of construction loans vs property-secured developer funding explains how the two work together, and funding construction cost overruns covers the gap in more detail.

What does the exit look like after a builder collapse?

Usually one of:

• sale of the completed dwellings, or of residual stock once titles issue;
• refinance of the completed project into investment debt;
• sale of the other property used as security.

Allow for delay. Projects that have lost a builder rarely restart on the first planned date, so build slack into the term, or plan for an extension before you need it.

What could the numbers look like?

Illustrative example: a Gold Coast developer is building four townhouses. The builder enters liquidation at lock-up stage with $700k of the contract unpaid. The quantity surveyor’s report and re-tender put the cost to complete, including defects and extra holding costs, at $1.25m. The construction lender will keep funding the $700k balance under a new building contract but wants the developer to cover the $550k shortfall first. The developer owns a completed duplex worth about $1.6m with $500k owing. A second mortgage over the duplex, at an illustrative 70% LVR band ($1.12m total, leaving about $620k behind the existing loan), provides $580k with interest capitalised for 15 months. Less fees and costs, about $550k goes into the project. The townhouses complete, two settle with buyers and the developer repays the private loan from those sales.

Developers on the Gold Coast can read our Gold Coast private lender page. The pillar on developer finance secured on property covers the broader options, and our page on paying out an expiring private loan helps if a site loan falls due mid-crisis. Owners lifting a property before selling may find funding a value-add before sale useful.

Project stalled? See if you qualify

If you own completed property with equity and need to close a cost-to-complete gap, tell us about the project in about a minute. There’s no credit check to enquire, your details go to one direct lender rather than a panel, and a specialist who understands development reads it. Give accurate figures for the property and its existing loans so the first answer is a reliable one. Start your enquiry.