Cover comes with company restructure
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Tuesday, 9 July, 2002 - 22:00
SOME insurance companies are requiring homebuilders to restructure their building companies to gain indemnity insurance cover.
They are requiring builders who operate their company through a family trust to either restructure it so they can gain access to the builder’s assets, or to provide an up-front bank guarantee based on up to 20 per cent of the company’s projected turnover for the year.
Master Builders Association director Michael McLean said he’d heard of several instances where this had happened.
“The trouble is a builder then has to pay several thousand dollars in stamp duty to change his company’s structure to comply with the insurer’s request,” he said.
Geraldton builder Kevin Giudice said he had not been able to secure home indemnity insurance cover since HIH collapsed last year.
His company has been running for 20 years and has won several awards, including two MBA best country home awards.
“Insurers don’t want to deal with family trusts,” Mr Giudice said.
“The insurer told me [that] to get cover I would either have to restructure my company and operate as a sole trader or put up a bank guarantee worth 10 per cent of my turnover.
“They also told me my company’s history meant they were only asking for 10 per cent. Normally it’s 20 per cent.”
Mr Giudice’s questions about the bank guarantee were met with this response: “The insurer’s position in regards to the provision on a bank guarantee is that it would be lifted when the entity that they are providing consumer protection for meets their minimum equity requirements. As previously advised, the insurer has an issue with trusts because their advice is that capital cannot be retained within the trust”.
They are requiring builders who operate their company through a family trust to either restructure it so they can gain access to the builder’s assets, or to provide an up-front bank guarantee based on up to 20 per cent of the company’s projected turnover for the year.
Master Builders Association director Michael McLean said he’d heard of several instances where this had happened.
“The trouble is a builder then has to pay several thousand dollars in stamp duty to change his company’s structure to comply with the insurer’s request,” he said.
Geraldton builder Kevin Giudice said he had not been able to secure home indemnity insurance cover since HIH collapsed last year.
His company has been running for 20 years and has won several awards, including two MBA best country home awards.
“Insurers don’t want to deal with family trusts,” Mr Giudice said.
“The insurer told me [that] to get cover I would either have to restructure my company and operate as a sole trader or put up a bank guarantee worth 10 per cent of my turnover.
“They also told me my company’s history meant they were only asking for 10 per cent. Normally it’s 20 per cent.”
Mr Giudice’s questions about the bank guarantee were met with this response: “The insurer’s position in regards to the provision on a bank guarantee is that it would be lifted when the entity that they are providing consumer protection for meets their minimum equity requirements. As previously advised, the insurer has an issue with trusts because their advice is that capital cannot be retained within the trust”.