The House of Representatives has today given final approval to the Regulatory Systems (Commercial Matters) Amendment Bill (the ‘Bill’) which will become law on or before 31 March of this year. As we advised in our earlier post, the Bill has had no further changes through the latter half of the legislative process.
So what does this all mean? Well from 31 March 2017:
- All new, and any renewed, commercial contracts where the retention sum is more than de minimus will be subject to the changes.
- There are no regulations on ‘de minimus’ as yet.
- Existing contracts, and their retentions, are not caught.
- The default position is that all new retentions withheld (by Party A) must be ‘held on trust’.
- While those funds can be comingled with other money, it cannot be used for anything other than remedying defects in Party B’s performance.
- Those funds are not available to Party A’s creditors, even if they are secured or preferential creditors.
- Party A may, however, elect to put in place a ‘complying instrument’ – e.g. insurance, a bond or a guarantee.
- With both options there are onerous accounting and recording keeping obligations on Party A.
- Party B is entitled to inspect those records at all reasonable times and without charge.
The market has not yet responded with products that are complying instruments, but we would expect insurers and banks to do so.
In the meantime the clarification on the coverage of the changes will see a gradual process of retentions accumulating on trust and, no doubt, requests for inspection of accounting records. The particulars of these accounting records are contained in the Bill.
If you would like to know more about what these changes mean for you and your business, get in touch with our team here.