Construction asset protection involves separating valuable equipment and property from entities that carry trading risk. Key strategies include: creating an equipment holding entity that leases assets to your operating company, holding property in a separate trust, and regularly distributing profits to protected structures. Asset protection must be implemented before problems arise to be legally effective.
Key Takeaways
- Assets in your trading entity are exposed if projects go wrong
- Asset protection is about sensible separation, not hiding from creditors
- Equipment holding entities and trusts are common protection structures
- Protection must be implemented before problems arise
How to Protect Your Construction Assets When Projects Go Wrong
Your excavator, your trucks, your tools. You have spent years building up equipment worth hundreds of thousands of dollars. Where does it all sit if a project goes badly wrong?
For most construction business owners, the honest answer is: in the same entity that carries all the project risk.
That means if you get sued on a project, your equipment is potentially exposed. If a major client does not pay and you cannot meet your obligations, those assets could be at risk.
Why Asset Protection Matters More in Construction
Construction is inherently risky. According to ASIC data, the construction industry consistently has the highest number of company insolvencies of any sector in Australia, accounting for approximately 25% of all corporate insolvencies. Things go wrong that are not your fault:
- Principals do not pay and you are stuck with subcontractor obligations
- Projects run over budget due to client changes
- Subcontractors cause damage that becomes your problem
- Defect claims surface years after completion
- Supply chain disruptions blow out project costs beyond recovery
The question is not whether bad things will happen. The question is whether your valuable assets are protected when they do.
Asset Protection Is Not About Hiding Things
Let us be clear: asset protection is not about avoiding legitimate obligations or hiding from creditors.
It is about sensible separation between your trading operations (where risk is created) and your accumulated value (equipment, property, cash reserves).
Done properly and in advance, this is completely legitimate business planning. The Corporations Act and various state laws recognise the separate legal identity of companies and trusts. Done after problems arise, it can be challenged as an attempt to defeat creditors under provisions like section 37A of the Conveyancing Act.
This is why timing matters. Asset protection structures need to be implemented when things are going well, not when you see storm clouds on the horizon.
How Construction Businesses Typically Get Asset Structure Wrong
1. Equipment in the operating company
Your trucks and machinery are owned by the same entity that takes on project risk. If that entity faces a claim or insolvency, the equipment is available to creditors.
2. No separation of property
Business property sits alongside trading operations. Commercial property should almost never be held in an entity that trades.
3. Cash accumulating in wrong place
Profits building up in entities carrying trading risk. Good years leave cash exposed to future bad years.
4. Personal assets intermingled
No clear separation between personal and business assets, often complicated by personal guarantees.
If you have too much cash sitting in your trading company, read about protecting your profits
Structuring Options for Asset Protection
There are several ways to structure asset protection for construction businesses:
Equipment holding entity
A separate company or trust that owns equipment and leases it back to your operating entity at commercial rates. The operating entity uses the equipment but does not own it. If the operating entity fails, the equipment belongs to the holding entity and is not available to creditors. The lease payments also provide a legitimate way to move cash out of the trading entity.
Property in trust
Business property held in a separate trust that leases the premises to your operating company. Commercial property is a long-term asset that should never be exposed to short-term trading risk. A properly structured property trust can also provide asset protection for the next generation.
Profit distribution
Regular movement of profits from your trading entity to protected structures. Rather than letting cash accumulate in a risky entity, systematic distributions to trusts or holding companies moves value to safety while maintaining working capital.
The right approach depends on your specific situation, including QBCC requirements, financing arrangements, and tax implications. The structure that works for a $10M civil contractor is different from what suits a $60M commercial builder.
Case Study: Commercial Builder Protects $1.8M Equipment Fleet
A commercial building company with $28M turnover came to us after a near-miss on a project dispute. They had $1.8M in equipment sitting in their main trading company, which also held their QBCC licence and all their project contracts. A defect claim on a completed project had been threatened, and they realised that a successful claim could potentially force sale of their equipment.
We established an equipment holding trust that purchased the equipment from the trading company at market value. The trust now leases the equipment back to the trading company at commercial rates. The lease payments provide a tax-deductible expense for the trading company while moving cash to the protected trust. The equipment is no longer exposed to trading risk.
The defect claim was ultimately settled for a modest amount, but the restructure gave the owners peace of mind that their equipment – the foundation of their business – was protected regardless of the outcome. The structure also improved their borrowing position, as banks could see clear asset backing in the group.
Frequently Asked Questions
1. Is asset protection legal?
Asset protection through proper corporate structuring is completely legal when implemented in advance and for legitimate business purposes. The Corporations Act recognises the separate legal identity of companies and trusts. However, transferring assets after a claim arises, or with the intention of defeating creditors, can be challenged and potentially reversed under legislation like section 37A of the Conveyancing Act or the voidable transaction provisions of the Corporations Act.
2. How does an equipment holding trust work?
An equipment holding trust is a separate legal entity that owns your construction equipment. The trust leases the equipment to your operating company at commercial rates. Your operating company gets full use of the equipment, the lease payments are tax-deductible, and the equipment is protected from claims against the operating company. The trust can also finance equipment purchases, keeping debt separate from your trading entity.
3. Will asset protection affect my ability to get finance?
Properly structured asset protection can actually improve your financing position. Banks like to see clear asset backing and professional structures. An equipment holding entity provides clear security for equipment finance, separate from trading risk. However, banks will still typically require personal guarantees from directors, so asset protection works alongside, not instead of, other risk management strategies.
4. What about my QBCC Minimum Financial Requirements?
Asset protection structuring must be done carefully to ensure your QBCC-licensed entity still meets the Minimum Financial Requirements. Moving assets out of your licensed entity reduces its net tangible assets, which could affect MFR compliance. We always model the MFR impact before recommending any restructure involving a QBCC-licensed entity.
5. When is the right time to implement asset protection?
The right time to implement asset protection is when things are going well. If you wait until a problem arises or is foreseeable, the restructure may be challenged as a fraudulent conveyance. We recommend reviewing your asset protection position annually, and certainly before taking on any unusually large or risky project.
Get Your Asset Position Assessed
Our Construction Business Structure Review includes a complete assessment of your asset protection position. We map where your valuable assets sit, identify exposures, and recommend specific structural improvements.
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