Residential Focus: Insolvency And Licensing Refusal

Licensing has been a focus topic in our team lately and for good reason. If you’re a residential builder or a specialist trade in NSW, then no ticket, no play. 

While the facts of the decision in Leto v Secretary Department of Customer Service [2026]NSWCATOD 26 (Leto v Secretary) are obviously very specific, an insolvency in an applicant’s trading history is frequently a barrier to licensing and is frequently an inducement to do whatever is necessary to avoid insolvency, so as to retain a licence or the future prospect of one. 

This decision can be seen as instructive on a number of levels, firstly on the statutory construction point around whether a condition can be relevant to exercising the discretion and as a temperature check on the Tribunal’s views on the discretionary factors of:

• evident risk to the public
• all reasonable steps to avoid the liquidation
• sufficient risk mitigation measures.

Leto v Secretary Department of Customer Service

The decision concerned an application for administrative review of a decision to refuse a contractor licence. The applicant had been a director of a (licensed) company placed in administration in 2020. Accordingly, the applicant had been found to not satisfy the mandatory requirements in section 33B(1)(a)(xvi) of the Home Building Act 1989 (NSW) (HBA) to be granted a contractor licence.

Section 33B(1)(a) lists a number of factors which must cause the Secretary to not issue a licence. Among them is if the applicant is a director (or person concerned in the management of) of a company which became insolvent within 10 years before the application.

A discretion in section 33C(3) operates to soften the impact of that (and two other insolvency related) prohibition, provided the Secretary is satisfied of (all) three key matters, discussed under the headings below.

The main issue in contention was whether the discretionary factors in section 33C(3) were made out and whether a condition under section 33C(4) could be imposed, which would contribute to satisfying section 33C(3)(a).

Evident risk to the public — section 33C(3)(a)

In terms of the facts relevant to the section 33C(3) discretion, the applicant sought a contractor licence only to assist him in demonstrating experience and standing for the purpose of conducting building inspection services (for which there is currently no licence in NSW). The condition proposed under section 33C(4) was not to enter into contracts which exceed $20,000, which would ensure there was no risk to the public. Alternatively, the applicant contended there was power under section 36 to impose such a condition.

The respondent’s position was that a condition under section 33C(4) may only be considered after section 33C(3) is satisfied and not as an ingredient in satisfying section 33C(3). In relation to section 36, although the respondent agreed that it is a broad power to impose conditions, where there are two sources of power, the respondent’s position was that it would not have been intended to give rise to inconsistent outcomes.

The respondent pointed to the 124 unsecured creditors of the former company, estimated at more than $1.5m and suggested that there was an 'evident risk' that any future building contracts that the applicant entered into, if licensed, could not be completed. The former company also had an adverse history of 12 complaints and four home warranty insurance claims.

The Tribunal found that it needed to be satisfied that there is no evident risk to the public that the applicant will be unable to complete contracts entered into in the future to do residential building work or specialist work. That is, regardless of the stated intention not to do that work, in favour of building inspection work. The lack of assets and financial capacity to carry out work meant the applicant had not demonstrated that he had the financial means to undertake work of that kind, including to purchase the necessary tools and equipment.

In relation to the former company’s debts, the Tribunal considered the amount (or even the lesser amount contended for the by the applicant) to be significant. The compliance history, considered alongside the current financial situation, meant that the Tribunal could not be satisfied that there was no evident risk of future non-completion.

In relation to the interpretation arguments, the Tribunal found:

• "The Tribunal considers that all three requirements set out in s 33C(3) of the HBA must be fulfilled in order for the discretion to be exercised to grant the licence in circumstances where the Applicant does not comply with s 33B. It is only after those requirements are satisfied and the discretion exercised to grant a licence, that the conditions of that licence may be considered under s 33C(4) of the HBA.
• A condition cannot be imposed under s 33C(4) of the HBA in order to meet the requirements of s 33C(3)(a), (b) and (c). First the condition provision in s 33C(4) is separate to the requirements set out in s 33C(3). In contrast, 33C(2) has four requirements which must be met in order for the discretion to be exercised to grant a licence, including at s 33C(3)(d) that the licence is subject to a condition that the holder not enter into contracts over $20,000. Second s 33C(4) is framed in the past tense referring to a contractor licence “issued under subsection (3) may be issued subject to a condition”, indicating that the requirements in s 33C(3) must first be satisfied.
• While the Tribunal has not been directed to decisions considering s 36 of the HBA, on an ordinary reading, the provision states that an authority is subject to conditions set out in Schedule 3, prescribed by the Act or regulations or imposed by order of the Secretary and prescribes penalties for breaching them. If s 36 can be read as creating a separate power to impose a condition, the requirements in s 33C(3) must still be satisfied independently, for the reasons already given."

Reasonable steps to avoid the liquidation — section 33 C(3)(b)

For completeness, the Tribunal considered whether section 33 C(3)(b) and (c) had been met.

In relation to whether the applicant had taken all reasonable steps to avoid the liquidation, the Tribunal noted that the point of commencement of the enquiry was when the applicant was 'faced with the possibility' of insolvency or was 'aware' or 'should have been aware' of that possibility.

The Tribunal found the applicant’s evidence of the facts and circumstances that led to the liquidation to be inconsistent and unreliable. Further, there was no affidavit evidence of the change in the applicant’s business model and no documents to support the alleged attempts to enter into payment arrangements with subcontractors, or of cash injections into the business from the applicant’s wife. In relation to the unanswered statutory demand, which was the direct trigger for the winding up order, the applicant could not recall or explain that he took any steps in relation to it.

Accordingly, the Tribunal found that section 33 C(3)(b) had not been met.

Sufficient risk mitigation measures — section 33 C(3)(c)

The applicant’s evidence was that he had implemented several risk mitigation strategies in his new business to avoid any future risk of insolvency. These included regular financial management reviews with his accountant, use of MYOB with real-time bank feed monitoring to track cash flow and budgeting, revenue diversification through a range of building inspection services, lead generation through a franchise and contingency planning to respond promptly in the event of financial stress or economic downturn.

In relation to whether the applicant put in place sufficient risk mitigation measures, the Tribunal noted that the measures catered for a building inspection service and were not sufficient for carrying out residential building work, which was the relevant assessment to make.

The Tribunal noted that aside from the car and franchise of the new business, the applicant had no assets and had not demonstrated that he had the financial means to undertake residential building work, including for the purchase of necessary tools and equipment. Accordingly, the Tribunal found that the applicant had not demonstrated that he had put in place sufficient risk mitigation measures to avoid a future liquidation.

Takeaway

The existence of a discretion to assist applicants with an insolvency in their background should not be considered a free pass to a licence. The elements required for the Secretary to be satisfied must be robustly established with supporting evidence and, in particular, would require exceptional circumstances to be shown in relation to reasonable steps to avoid the liquidation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.