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SOS – Liability Of Directors In The Building Industry

A number of recent developments have led us to once again consider the need for asset protection for those engaged in the building industry. Most importantly the establishment of the Weathertight Homes Resolution Service ("WHRS" - the quasi court dealing with leaky homes) has dramatically altered the exposure of directors of companies to personal liability. Despite the normal legal principles which would suggest that company directors (along with agents, shareholders and other officers) are protected by the "corporate veil" of a limited liability company, in the case of Weathertight Homes proceedings it has now been made clear that this protection will not always apply. The adjudicators of the WHRS appear to have little hesitation in finding that directors can have personal liability for the actions taken by them whilst conducting the business of their company. Directors of companies involved in the following industries should take particular note:

  • Property Development;
  • Building;
  • Architectural;
  • Roofing;
  • Plumbing;
  • Weatherproofing; and
  • Project Management.

In a revision of the Weathertight Homes legislation the Building Issues Minister, Chris Carter, suggested some changes to the existing regime in an attempt to make the process simpler and faster for home owners. One of the most significant changes being considered is the possibility of automatic director’s liability when a company ceases to trade, is liquidated or becomes insolvent.

In light of these developments the need for directors of companies to consider some form of asset protection is dramatically highlighted. In many cases the best form of asset protection will be achieved when the directors establish a trust. Although there can be no "watertight" – excuse the pun – guarantee that assets will always be protected, it is generally accepted that the earlier a trust is established the greater the chance of protection.

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