Here’s what the Government’s new liability system overlooks
Wednesday, 26 November 2025
The Government's new building liability system is a step in the right direction for consumer protection, but it doesn't address the problem of phoenix companies, Master Builders says.
Ankit Sharma, the trade association’s chief executive, believes establishing a National Building Companies Register could be the solution.
The Government is scrapping the joint and several liability system for dealing with building defects and replacing it with a proportionate liability model.
On Monday, Building and Construction Minister Chris Penk announced the measures that will be introduced to support the new system and ensure homeowners remain protected.
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It will be mandatory for home owners to take out warranties on new builds and major renovation work, while building design professionals, such as architects and engineers.
Builders will not have to hold professional indemnity insurance, but penalties for defective work by Licensed Building Practitioners (LBPs) will be increased.
The question of phoenix companies
But some have voiced concerns about situations where building companies become insolvent, and Sharma told The Post the new system does not address the problem of phoenix companies.
A phoenix company is a new business that starts up using the assets and staff of a previously failed company, often with the same or a similar name.
Sharma said there were situations where a building company collapsed, leaving behind unfinished homes, unpaid subcontractors, and devastated homeowners, and then the same directors resurfaced under a new name and started trading again.
“Not every company failure fits that pattern, but the ones that do bring the entire sector under pressure and into disrepute.”
The new liability system might reduce the risk of phoenix companies, but the issue it focused on was standards, and it did not really address the issue of liquidations, and that was a risk, he said.
“Basically, it’s a step in the right direction but we think more consumer protection is needed, and the big question for me is how do we stop phoenix companies?”
A good first step would be to establish a National Building Companies Register, maintained by MBIE, that consolidated information already available through the Companies Office, Insolvency Service, and court records, he said.
Each time a company was set up, liquidated, or taken to court, the register would automatically update, and it would be a public-facing website so consumers and business partners could look up a company or director before signing a contract.
“It would be much more transparent, and would mean companies can’t just liquidate, and move on to set up another company without accountability - as has happened too often in the past.
“There should be stronger entry and business competence requirements for those setting up building companies because currently anyone can set up a building company.
“And there should be a fair and fast disputes system as there is now the potential for multiple parties to be involved, which increases the risk of disputes being tied up in court for years.”
Sharma said mandatory insurance would raise standards, but home warranties should look at being compliant with the COFI standard, and the industry itself needed to be more financially transparent.
That was why Master Builders, in partnership with CreditWorks, had developed FINZscore - New Zealand’s first financial viability rating system tailored specifically for builders, he said.
“It is not about policing or marketing, it’s about building business resilience. It helps honest builders demonstrate credibility, plan succession, and strengthen trust with customers.
“Together, initiatives like FINZscore and a National Building Companies Register would form the foundation of a more transparent, accountable, and confident sector and one where good builders rise to the top.”
Professional indemnity insurance timeframes
Dodgy builders and phoenix companies are not the only risks in the new liability system.
Builtin Insurance Brokers director Ben Rickard said requiring professional indemnity insurance for designers and engineers when they do the work was all very well, but the policy had to be in place when the defective work was discovered and the claim made against them by a homeowner.
It was no good if they had it at the time the work was done but did not have it when the defect was discovered and the claim was made - that made it worthless, he said.
“This could happen five years after the work was done, and who is making the designer maintain their cover that whole time?
“If they have died, retired, moved to Aussie or gone into liquidation, who is ensuring they keep paying every year for the cover in case a claim arises from a job they did four years previously? Certainly the liquidators won’t be doing so.”
Policies could be placed into “run off”, which was how cover was maintained into the future once work had stopped, but that was often done on a year by year renewal basis, he said.
“It can be done as a “multi-year” run off for a lump sum, but that amount of premium in one hit is quite high and puts lots of people off doing it.
“To truly close the gap for homeowners those with professional indemnity insurance cover should be required to extend it beyond the actual point the work was done for the subsequent six, seven or 10 years. But how do you do that for a company in liquidation, or an engineer who has died?”
Risk of new market monopoly
Combined Building Suppliers Co-operative chief executive Carl Taylor said the reforms would lift accountability and consumer protections, and move the industry toward a more balanced and fair liability model.
But he was worried the reforms could unintentionally create another market monopoly.
“If only a very small number of warranty or insurance providers become approved through government registration it risks creating a monopoly or duopoly that would dictate pricing and terms.”
The majority of builders did not belong to organisations such as Master Builders or Certified Builders, which currently dominated the warranty market, for various reasons, he said.
“The new regime must ensure there are accessible, competitive warranty options that don’t force builders into associations they don’t wish to join.
“CBS is calling for open access, fair competition, and transparent criteria for warranty providers to prevent a bottleneck in supply or price-setting behaviour that would ultimately hurt consumers, builders, or both.”