Arrow debts rise to $40m - administrators advise liquidation

Tuesday, 4 June 2019

Bob Foster, left and Ron Anderson pulled the plug on Arrow International after 30 years.

Arrow International's voluntary administrators at accountancy firm BDO have identified nearly $40 million in debts and are recommending to creditors that the group of companies be placed in liquidation.

A watershed creditors meeting will be held in Auckland on June 6 with video connections to locations in Wellington, Christchurch and Queenstown.

Directors Ron Anderson and Bob Foster sought voluntary administration in February with the loss of about 200 jobs, although many employees were taken on by other contractors to complete projects.

The Arrow group traded at a loss between 2016 and late 2018 due to intense construction industry competition, and the award of a disputed $4.5m payment in February meant the companies couldn't fulfil obligations to creditors.

Construction resumed at Hawke's Bay Airport under different contractors after the collapse of Arrow.

* Arrow International collapse: Building minister looks at industry protections

* How Arrow fell from grace after 30 good years**

Administrators Andrew Bethell and Andrew McKay said the recovery of $3.3m so far was sufficient to meet secured creditor ANZ's debts, employee entitlements, and there were sufficient funds to pay subcontractor retentions on contracts entered after April 2017. About $1.1m or 20 per cent of retentions had been repaid.

An Arrow project in central Wellington was taken over by the joint venture partner for completion.

It was too early to estimate funds available for 84 unsecured creditors owed $36m.

'This will largely depend on the level of recoveries…and the outcome of the sale of two investment properties.'

Theoretically the value of assets was abut $40m but most of this was in shares of subsidiaries and not recoverable.

The reasons for collapse included high industry competition, new subcontractor retention payment rules reducing working capital, funding an Australian company, a large loss-making project, high overhead structure, less work, unprofitable developments, failure to find an investor, and the $4.5m payment to March Construction.

The only option was liquidation and it was unrealistic for the companies to be returned to the directors, they said.

Arrow was likely to have been insolvent before February 2019 when placed in administration but more investigation was required to determine when - the company missed its subcontractor payments in January.

The administrators had not identified any breaches of directors' duties.

There was $5.6m held in a trust account on behalf of subcontractors for retention payments to be returned when projects were completed.

Arrow International NZ had 20 projects that are listed in the administrators' report, including apartments in Auckland and Wellington, as well as places like Coronet Peak and Millbrook near Queenstown.

The Portlink industrial subdivision in Christchurch was major asset that had been put up for sale to help scale back the company.

The administrators had investigated selling the business as a going concern but it was not an option so they aimed to get projects back underway as quickly as practical to reduce principal and subcontractor claims and transfer staff.

There were three main companies involved - Arrow International (NZ) the construction arm, Arrow International Group, and Construction Labour & Resources (CLRL).

CLRL was trading profitably but its staff relied on Arrow NZ projects. Arrow International Group held guaranteed construction performance bonds of Arrow International (NZ) which 'had some challenges on certain construction contracts in the past three years due to prevailing market conditions'.

Arrow International (NZ) was the largest company and in 2016 posted a $1.9m loss on turnover of $344m; in 2007 the loss widened to $8.6m on lower revenue of $192m; and in 2018 returned to a $229,000 profit on declining turnover of $178m, with an improved profit in February 2018 of $2.9m on turnover of $212m.

Despite the improvement, the current assets $51m were still behind current liabilities of $53m, which swelled with the disputed $4.5m disputed payment.

The administrators' fees have taken $927,000 so far.