Construction under pressure: When one collapse triggers many

Published: September 24, 2026
Category: Latest News

With construction insolvencies remaining at record highs and the Bathla Group collapse threatening thousands of creditors, Chris Baskerville examines how financial distress cascades through the supply chain – and the critical warning signs businesses and advisers must monitor.

Construction remains Australia’s number one industry for corporate insolvencies. In FY2025-26, 3,472 construction companies entered external administration or had a controller appointed for the first time, accounting for 24.5 per cent of the national total.

And while construction insolvencies eased by around four per cent over the financial year, the latest CreditorWatch data suggests the pressure is far from over. First-time construction insolvencies jumped sharply to 868 in August this year, with much of the increase concentrated in residential building. Construction businesses also recorded a 60-plus-day payment arrears rate of 6.5 per cent over the past 12 months, up 13.3 per cent year-on-year, while the sector has the third-highest trade-payment default rate and second-highest ATO tax-default rate of any industry.

Against that backdrop, the recent collapse of Sydney developer Bathla Group – which has left more than 3,000 possible creditors facing uncertainty, including nearly 1,000 subcontractors, and at least $3.4 billion in reported debts – provides a timely reminder of why construction failures can have repercussions far beyond the company that fails.

For subcontractors and suppliers – and the advisers working with them – the issue isn’t simply whether money already owed will be recovered. It’s what the loss of that money, and potentially future work, does to the underlying business. History shows the full impact can take time to emerge.

What Carillion tells us about Bathla

When UK construction giant Carillion collapsed in 2018, it owed approximately £2 billion to some 30,000 suppliers, subcontractors and other short-term creditors.

The effects began almost immediately. Within 24 hours, subcontractors were laying off staff and disclosing significant exposures. The first subcontractor liquidation occurred within two weeks, while consequential failures continued for at least 18 months.

Bathla is not Carillion and every insolvency is different. However, the Carillion experience demonstrates something important about construction insolvencies: the dominoes don’t all fall at once.

A subcontractor may initially absorb an unpaid invoice, but that loss depletes working capital. Then another customer pays late, a tax bill falls due or a project stalls – and one company’s insolvency becomes another company’s cashflow crisis.

That’s why I believe the fallout from Bathla needs to be watched over the next 12 to 18 months, not just the next few weeks.

Why subcontractors are particularly exposed

The structure of the construction industry makes subcontractors particularly vulnerable to this domino effect. Subbies often bankroll the job before they get paid; they carry the cost of labour, materials and equipment and then wait for a progress payment. In effect, they become a cashflow buffer for the businesses above them.

When a builder or developer fails, payments can stop overnight – but the bills don’t. Wages, suppliers, equipment finance, tax and super still have to be paid.

Carillion provides an extreme example. Its payment arrangements allowed supplier terms ot extend to as long as 120 days, placing significant working-capital pressure on parts of its supply chain.

Changing payment behaviour shouldn’t simply be accepted as the new normal. Business owners and their advisers should watch for warning signs such as:

payment times stretching from 30 days to 45 or 60 days;
projects slowing or stalling and deadlines slipping; and
subcontractors pulling off sites or requests to carry additional credit.

And the fallout isn’t necessarily confined to subcontractors directly owed money. For example, I’m currently handling an insolvency involving a property marketing business affected by the collapse of another building firm. Construction distress can flow through to project marketers, consultants, suppliers and other businesses whose revenue depends on projects proceeding.

More work can also mean more risk

The pressures facing construction aren’t simply about a shortage of work. In fact, another major construction boom is taking shape.

Australia’s data centre development pipeline is estimated at more than $150 billion to 2030. That’s a significant opportunity for the sector, but CreditorWatch warns it could also intensify competition for skilled labour and materials, potentially adding further pressure to residential construction.

It’s a useful reminder that more work doesn’t necessarily mean less insolvency risk. Construction businesses can fail because they have too much work, badly priced work, thin margins, insufficient working capital or cash tied up for too long. Rapid growth can itself create cashflow pressure when labour and materials have to be funded well before payment arrives.

Look beyond the order book

For construction businesses – and the accountants, lawyers and advisers working with them – Bathla is a reminder to look beyond how much work is in the pipeline.

Debtor ageing, customer concentration, margins, tax and super obligations and short-term cashflow can provide a much clearer picture of emerging risk. A business can be busy and profitable on paper yet still run into trouble if too much cash is tied up in unpaid invoices or it is overly reliant on one or two customers.

Three questions are worth asking:

Who owes the business money – and are payment times getting longer?
How dependent is it on its largest customers?
What happens to cashflow if a major customer suddenly stops paying?

For advisers, these are conversations worth having with construction clients now. For business owners, they’re questions worth asking of themselves.

A full order book is not necessarily the same thing as a healthy business. Cashflow, margin and who owes you money can matter just as much as how much work you have ahead.

When I recently spoke to The Good Builder about the Bathla administration, builders and subcontractors raised some very practical questions about what happens when a major developer enters voluntary administration.

1. What happens to money I’m already owed?

If the work was performed before the administrators were appointed, the amount owing generally becomes a claim against the company. Subcontractors and trade suppliers will typically rank as unsecured creditors. It’s important to lodge a proof of debt and provide supporting documentation such as invoices, contracts and progress claims.

2. If I keep working on the project, will I get paid?

There is an important distinction between work done before and after the appointment. If an administrator specifically engages a subcontractor to continue working after appointment, the administrator is generally personally liable for properly incurred debts relating to that work. Don’t assume an existing arrangement simply continues – understand who is engaging you and on what terms before carrying out further work.

3. What happens if another builder takes over?

A replacement builder isn’t automatically required to retain existing subcontractors. There may be practical reasons for keeping particular trades – including continuity, project knowledge and certification of existing work – but there is no guarantee. The potential exposure can therefore extend beyond an unpaid invoice to the loss of anticipated future work.

4. How much exposure to one customer is too much?

My working rule is that if one customer accounts for more than 25 per cent of revenue, you’re in a high-risk position. The question is what would happen if that customer suddenly stopped paying. Stress-test the cashflow without your largest debtor and determine whether the business could still meet wages, tax, super and supplier commitments.

5. How long could I be waiting – and what should I do now?

There is no simple timetable for an administration of this scale, and creditors shouldn’t rely on a recovery to meet short-term cashflow needs. Model the position assuming little or no recovery and assess what that means for the business.

Carillion showed that the consequences of a major construction collapse can continue to emerge for many months, so the priority is protecting your own business rather than waiting to see what eventually comes back.

Chris Baskerville
Partner
Jirsch Sutherland