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Warnings latest construction company collapses will have knock on effect

By Jordan Bond of rnz.co.nz

A business owner caught up in the collapse of the Stanley Group of construction companies said it could sink his own firm as well, and have ripple effects outside of the 500 companies directly owed money.

Six Stanley construction group companies were placed into liquidation last week, and four associated Tallwood companies, with 120 staff in Waikato and Auckland laid off.

Today's first liquidators report shows the companies owe $9.5 million to external creditors, and are $13.5 million in deficit.

The liquidator, Waterstone Insolvency's Damien Grant, said the company under-quoted a large construction job for Housing New Zealand - under-estimating the cost by $2 million.

"Those issues are then compounded as you get into cashflow situations and end up juggling stuff. Then they had cost overruns in addition to that $2m, so that project really was the anchor that sunk the Stanley Group," Mr Grant said.

He also said it may not have held enough money in retention, as constructions companies are legally required to do.

"It appears that there will be a shortfall in the retentions held by the companies as prescribed by the Construction Contracts Act," Mr Grant wrote.

"It is too early to ascertain the extent of this default. Despite some of the financial arrangements maintained by the company it is the liquidator's initial opinion that the directors may be in breach of Subpart Two A of the Construction Contracts Act. It is too soon to determine if this is a material breach or not."

Troy Patchett of Auckland Ventilation believes there's a "slim-to-zero" chance his ventilation company will get any of the $60,000 he's owed by the Stanley Group. If the money doesn't come, it'll have a knock on effect - he won't be able to pay the people he owes money to.

"It just could be a chain of events, that if we don't receive any funds to pay off our suppliers or subcontractors then we may end up being liquidated ourselves."

About 250 companies are owed at least $10,000 each by the liquidated companies. The 10 largest creditors are owed an average of more than $300,000 each.

There are also potentially hundreds of other companies that won't be paid, like the creditors Mr Patchett owes - all caught up by association, because one large company's gone bust.

"They've got families, they've got bills and mortgages. It keeps you awake at night, not just from a financial point of view but from a moral point of view. You don't want to see other people in a position where they may not be able to soak up this loss."

He's frustrated that people can go into a deal in good faith with a reputable contractor, and come out the other side with nothing.

"It feels like they can just chuck in the towel, saying: 'We've stuffed up and we're going to close shop, and unfortunately you're not getting paid'. But there's a real roll on effect."

Another creditor, Dave Burt, said if there were any breaches the directors should be held to account.

"If there are any misappropriations as far as the retention fund goes, and if there's any evidence of reckless trading, I really want to see those directors held to account," Mr Burt said.

"If $9 million of others peoples' money has gone, someone needs to be held to account. You go and do a heist for nine million bucks - it'll be all over the news."

Mr Burt said ideally it should be a crown agency that pursues prosecution if there are grounds. He said creditors were getting legal advice - and if something was amiss, he won't hesitate to act himself.

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Some big firms have got together to work on how that could look. Source: 1 NEWS