Ebert contractors get some retention money after collapse, but not the full $9.3 million they're owed

Tuesday, 5 March 2019

Workers turned up to a new Ebert Construction site in August to find they were locked out.

Subcontractors working for collapsed Ebert Construction will receive about half of the total $9.3 million stated in the company's accounts for subcontractor retentions - but are unlikely to receive any money owed for work carried out.

Retentions are when the head contractor or client holds back approximately 5 per cent of the money subcontractors are owed, to ensure they complete any outstanding work before it is repaid.

Only about half the $9.3m had been required to be held under the provisions of new legislation brought in from April 2017 for retentions to be held 'in trust'.

Receiver PwC sought High Court direction about how the available $3.6m retentions money should be paid out to 131 eligible subcontractors, with 30 subcontractors missing out because their retentions were not correctly accounted for in the weeks before the collapse.

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Subcontractors will receive some money but not debts owed for work.

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* Failed construction firm Ebert owes subbies at least $33.8m**

PwC's next report due soon will be about the amount of money being recovered for all creditors.

'There is likely to be a significant shortfall…This means that other than any payment they may receive from the retention account, the subcontractors are unlikely to receive any other payments…' Justice Peter Churchman said in his ruling.

Separate to the retentions, unsecured trade creditors were owed $25 million.

Embattled director of Ebert Construction Kelvin Hale is one of the two secured creditors - meaning he is at the top of the queue for repayment.

The requirement to account for retentions 'in trust' was put into legislation via the Construction Contractors Amendment Bill in early 2017 after the Mainzeal collapse when subcontractors missed out on $18m worth of retentions.

'There was a concern that head contractors were effectively using subcontractors' retentions as working capital and that, on the collapse of a head contractor, subcontractors merely became unsecured creditors, often receiving nothing,' Justice Churchman said.

Approximately $2.2m in retentions has been paid out to the subcontractors with the balance of the $3.6m held back to ensure any defects in current projects are fixed.

The multi million dollar mansion of Hale at Lowry Bay, Wellington.

Although the new legislation required companies to keep retentions in trust, this did not necessarily mean the money had to be held in cash in a bank, as long as it was entered into the accounts of a company as a liability or represented by assets, Justice Churchman said.

However, in Ebert's case the $3.6m had been put aside in a bank account and was the company sole cash asset and available for distribution.

One of Ebert Construction' sites at Thorndon, Wellington.

A creditor owed $500,000, Taslo, told the court that it wanted fees to the receivers capped at $150,000.

Justice Churchman said rather than cap the fees, the receivers should submit their costs to the court for final approval.

There was potential for conflict of interest under a receivership because the administrators such as PwC were charged with looking after the interests of the secured creditor which appointed them.

But Justice Churchman concluded the secured creditors had no interest in the retentions, which were the property of the subcontractors.

The secured creditors were BNZ owed $6m and the company's shareholder and director Kelvin Hale owed $3.5m. They were first in line for any recovered money.

Until its collapse Ebert had 15 projects under way, a staff of 100 and forecast turnover of $171m, and 151 subcontractors.