Executive Summary

The Queensland Building and Construction Commission (QBCC) requires construction companies to meet Minimum Financial Requirements (MFR) to maintain their licences. When a company lacks sufficient net tangible assets, directors often enter into a QBCC Deed of Covenant & Assurance (DCA), personally guaranteeing the company’s financial stability.

However, Browning v ACN 149 351 413 Pty Ltd (in liq) (formerly known as Enviren Constructions Pty Ltd) [2016] QCA 169 highlights the severe risks associated with such agreements and the importance of obtaining appropriate legal advice.

This case demonstrates the binding nature of these deeds and the significant personal liability they impose on directors and covenantors.

Case Summary

Background

  • The plaintiff, ACN 149 351 413 Pty Ltd (formerly Enviren Constructions Pty Ltd), was a licenced builder under the QBCC.

  • The defendant, Russell John Browning, was a former director and covenantor under a Deed of Covenant and Assurance executed on 19 December 2012.

  • The deed required Mr. Browning to cover financial shortfalls if the company went into liquidation.

  • The company experienced financial difficulties, leading to a share sale agreement in 2013, which transferred ownership and included a forbearance clause preventing claims against the parties.

  • The company was ultimately wound up in March 2015, and the liquidators sought to enforce the DCA, demanding $400,000 from Browning.

Key Legal Issues

  1. Can a Share Sale Agreement override a Deed of Covenant and Assurance?

    • Browning argued that the forbearance clause in the share sale agreement meant the company had agreed not to sue him.

    • The court ruled that the Deed of Covenant and Assurance remained enforceable, as it explicitly prohibited variations without QBCC approval.

  2. Was Browning still liable for the full $400,000 under the Deed?

    • The QBCC had previously determined that the Defined Amount under the deed was $400,000.

    • The court confirmed that the Defined Amount stated in the QBCC financial review was final, rejecting Browning’s argument that the amount was miscalculated.

  3. Did the defendant have any legal defence to avoid payment?

    • Browning claimed indemnity under the Share Sale Agreement, arguing that the company should reimburse him.

    • The court ruled that the DCA could not be overridden; section 108D of the QBCC Act prohibited a party from contracting out of the provisions of the QBCC Act and that Mr. Browning was still liable.

Outcome

  • The court granted summary judgment in favour of the company’s liquidator.

  • Browning was ordered to pay $400,000.00 plus costs and interests.

  • His attempt to seek security for costs was dismissed.

Key Lessons & Risks of a QBCC Deed of Covenant & Assurance

1. Personal Liability

Once a DCA is signed, the covenantor is personally responsible for the company’s shortfall in case of liquidation. Even if the company is later sold, merged, or transferred, the covenantor remains bound unless a formal revocation is granted by the QBCC.

Lesson: Business owners and directors must understand that they are taking on personal financial risk by signing a Deed of Covenant and Assurance. Selling the company does not automatically free them from liability.

2. A Deed of Covenant Cannot Be Overridden

Browning attempted to argue that a share sale agreement included a clause preventing legal claims against him. However, the court ruled that the Deed of Covenant was an enforceable financial obligation, and the forbearance clause in the sale agreement did not nullify it.

Lesson: A DCA cannot be overridden by agreements with buyers or third parties. Any variation or release must be formally approved by the QBCC.

3. Risk of Asset Seizure

A DCA functions as a guarantee, meaning that liquidators can enforce payment, potentially leading to asset seizures and bankruptcy proceedings.

Lesson: Before signing a DCA, directors should carefully assess their personal financial exposure or consider seeking alternative ways to meet QBCC financial requirements.

4. Difficulties in Revocation

The case highlights that a DCA is only revoked if:

  1. The QBCC formally acknowledges that the company meets financial requirements without it, or

  2. A new deed is executed by the respective parties, including the QBCC.

Even if the company changes ownership, the covenantor remains liable until one of these steps is completed.

Lesson: Business owners should ensure that any revocation of a DCA is properly documented with written confirmation from the QBCC.

Conclusion

A DCA is not a formality—it is a binding financial obligation with serious personal risks. The ACN 149 351 413 Pty Ltd v Browning case highlights how a former director was pursued for $400,000 even after he had sold the company, due to their failure to revoke the DCA and/or have the new director enter into a DCA.

If you are considering signing a Deed of Covenant and Assurance, ask yourself:

  • Can the company meet QBCC financial requirements without it?

  • Do I fully understand the personal financial exposure?

  • Have I explored alternative solutions, such as external financial guarantees?

  • Have I consulted a legal expert to review my risks?

At Odyssey Legal, our expert construction lawyers can assist with reviewing the DCA, providing independent legal advice, and signing off on Schedule B – ‘Statement by Covenantor’s Solicitor’. Contact us today!