The Victorian Government has announced plans to shore up oversight of the state’s compulsory builders’ warranty insurance (BWI) scheme after it was discovered Porter Davis left hundreds of affected customers with no protection after the home builder collapsed in March.

Victorian laws require a builder to obtain domestic building insurance – as BWI is referred to in the state – before taking a deposit or any other money for residential works of $16,000 or more.

Porter Davis’s potential breach of those laws was uncovered after liquidators combed through its accounts and subsequently found out it did not acquire the insurance but had taken deposits from more than 500 families.

As part of the package unveiled today the government will reform the Domestic Building Contracts Act 1995 and “strengthen” domestic building insurance requirements, a statement from the office of Premier Daniel Andrews says.

Building regulators will also have more powers to monitor whether builders are meeting their obligations under the law to take out the insurance prior to taking a deposit, with tough new penalties for failing to comply with these requirements.

Another reform measure will see the Victorian Building Authority (VBA) auditing builders in relation to the collection of deposit and purchase of domestic building insurance.

The statement says the “liquidation of Porter Davis exposed a concerning practice of builders not taking out the required insurance when accepting deposits”.

It says the reform package will also provide opportunities to review the role of all regulators and improve the information provided to consumers about a builder’s obligation to take out domestic building insurance.

“These reforms are part of a comprehensive review to modernise Victoria’s building system, delivering better protection for Victorians building a home, while providing clarity to the building industry,” Mr Andrews said.

Today’s announcement follows the immediate resignation of VBA CEO Sue Eddy last week as the embattled regulator faces scrutiny over its effectiveness as a building watchdog.

The statement today says the VBA board has appointed Anna Cronin as the new CEO to help the agency deliver on the reforms.

The Government has previously announced a one-off relief scheme to compensate the 560 families who lost their deposits after Porter Davis collapsed. They would be treated like they are covered by the state’s compulsory BWI scheme.

The VBA is currently investigating Porter Davis for potential breaches of the building legislation.

“As this is an open investigation we are unable to comment further,” the regulator says.