The Bracks Government backed builders warranty insurance scheme has been rocked by another scandal, this time a former builders warranty insurance provider has pleaded guilty in the Country Court.
James Scott of Mentone Victoria pleaded guilty to one count of carrying on a financial services business without holding an Australian Financial Services Licence and 15 counts of dishonest conduct in relation to financial products.
Scott was a director of Homesafe Equities Pty Ltd, a company that issued builders warranty bonds in Victoria between June 2003 and March 2004. The bonds issued by Homesafe were insurance products that required Homesafe to hold an AFSL. Neither Scott nor Homesafe held such a licence.
Builders warranty bonds are supposed to protect homeowners against non completion and building defects for two to six years in the event that the builder becomes bankrupt or dies. Builders cannot obtain building permits without first obtaining a warranty bond.
Builders warranty insurance has been described as consumer advocates as “last resort insurance” that is virtually “clayton’s insurance”. The Bracks Government has virtually ignored consumer and industry calls to replace builders warranty insurance with an authentic building insurance scheme.
Meanwhile, the Liberal and National Party will scrap the scandalous builders warranty insurance scheme in Victoria if they win this month’s State election.
Nationals leader Peter Ryan said in a rally held in September that the scheme introduced by the Bracks Government in the wake of 2001’s HIH collapse was a joke and farce.
And Liberal leader Ted Baillieu said a Liberal Government would initially seek to change the existing last-resort scheme to first-resort insurance, removing a condition that consumers can only make a claim if their builder dies, disappears or becomes insolvent.
Meanwhile, Homesafe contended that it was the manager of what it called a ‘Captive Pool’ and that the insurance it provided by way of the bonds was fully reinsured.
The Australian Securities and Investment Commission alleged that, unknown to the builders who obtained the insurance certificates, there was no pool of money set aside in the ‘Captive Pool’ to pay any claims, and that contrary to what was claimed, full reinsurance was not in place in respect of any claims that might have been made.
Homesafe was placed into liquidation on August 13, 2004 following an application by ASIC to the Supreme Court of Victoria that it was unable to pay any claim made on the bonds it had issued.
Scott will reappear in the County Court on November 14, 2006 for sentencing. Scott’s father, Anthony Scott, has also been charged for his involvement in Homesafe and is due to appear in the County Court on November 23, 2006.
The Commonwealth Director of Public Prosecutions prosecuted the matter.
In September, another builders warranty provider, Dennis Genrty of Collingwood after ASIC found that he had not complied with financial services laws and that there was reason to believe he would not comply with financial services laws in the future. ASIC found that Gentry engaged in dishonest and misleading or deceptive conduct in relation to a financial product and financial service between June 2003 and September 2004.
By Nelson Yap
