The Victorian Building Authority is investigating Porter Davis Homes for potential breaches of the law after the collapsed construction firm failed to take out Domestic Building Insurance (DBI) for 560 families it accepted deposits from, breaching its obligations.

Builders in Victoria must purchase a DBI policy on behalf of the homeowner before taking a deposit for projects over $16,000 under a Domestic Building Insurance Ministerial Order requirement.

“We’ll keep investigating the actions of Porter Davis to ensure this can’t happen again,” Victorian Premier Daniel Andrews said.

The Victorian government announced last week it will compensate Porter Davis customers left uninsured “through no fault of their own”. The one-off relief scheme means customers without DBI will be treated as if they had the cover Porter Davis had been obliged to take out on their behalf.

Hundreds of homebuilders signed contracts and paid deposits but later discovered the builder failed to take out the mandatory insurance cover on their behalf, and so their deposits were not covered when the firm collapsed.

DBI protects homeowners under certain circumstances if things go wrong, including builder insolvency.

Refunds of up to 5% of the contract value will be paid, the legal maximum deposit payment under the Domestic Building Contracts Act. The Department of Government Services will work with the Victorian Managed Insurance Authority to verify and approve claims and deliver deposit compensation.

“These claims will be processed as if these customers had DBI,” the government said. “The responsibility remained with Porter Davis to ensure domestic building insurance was obtained for its customers when a deposit was paid.”

The collapse of Porter Davis affected more than 2000 customers, mostly in Victoria and some in Queensland.