Horror run as building firms go bust

More than 60 construction-related Christchurch companies have been liquidated this year, owing creditors an estimated $40 million.

Analysis of hundreds of insolvency records found about 160 companies in the building industry registered in Canterbury have gone bust since January 2015.

The building industry’s woes have been well publicised, with the collapse of firms including Stonewood Homes, H & R Garlick, Goodlife Homes and Urban Construction. At least six Christchurch construction-related firms liquidated in 2016 owed creditors more than $1m when they went under. Stonewood Homes’ collapse left debts totalling nearly $20m.

Canterbury Registered Master Builders president Ivan Stanicich said there was no denying the number of companies going under was a ‘‘bloody problem’’.

‘‘The law is an arse . . . and it lets people protect their interests by shutting the doors when it’s tough.’’

Bigger and more established businesses did not do this, Stanicich said.

After the earthquakes the Earthquake Commission (EQC) approved contractors to carry out thousands of home repairs, he said. ‘‘It’s evident now that many of those contractors weren’t up to it and now EQC is crying foul because they’re no longer in business any more.

‘‘It doesn’t take an Einstein to figure out that would happen.’’

Stanicich said Auckland, the next ‘‘boom-and-bust city’’, needed to learn from the construction industry in Christchurch.

EY liquidator Rhys Cain said there were probably more failed construction firms that had traded in Canterbury at some point, but they were difficult to trace.

There were numerous explanations why Canterbury companies had failed, Cain said.

‘‘The most common difficulty they are showing is poor cashflow management, very tight margins, lack of experience in managing a business, difficulties in obtaining and retaining quality staff,’’ he said.

Firms came to Christchurch ‘‘because of the post-quake building boom’’.

‘‘Some would’ve just thought you’d come down here and you’d be rolling in gold and it’s just not quite like that. You’ve got to have a good business brain,’’ Cain said.

Most liquidators would have seen examples of cowboy operators liquidating to avoid their liabilities.

‘‘The reality there though is that it doesn’t matter what industry you’re in, there are always some bad eggs . . . the majority of people in the industry of course are good operators,’’ Cain said.

The number of building firm liquidations Cain was dealing with was ‘‘running at a higher percentage than usual’’.

‘‘You’ve got to be really careful about that, because what you’ve got to remember is that preearthquake there might have been, let’s say, 50 building companies in Christchurch and maybe two of them might fail in a year. Now say there are 1000 building companies and say 50 failing – as a percentage it might be roughly about the same, but because there’s a greater number it just looks bad,’’ Cain said.

Commerce and Consumer Affairs Minister Paul Goldsmith on Thursday released the first part of a review into insolvency law, which includes measures to address issues around voluntary liquidations.

The report said insolvency practitioners were under-regulated and recommended a licensing body be formed. It said companies or shareholders should not be able to appoint liquidators.

The Government should also void the transfer of a company’s assets once a liquidation application had been filed and introduce a publicly searchable unique identification number for existing and future directors, the working group recommended.

Building and Housing Minister Nick Smith said the Government was concerned about the ‘‘commercial incentives’’ in the construction industry towards shortterm limited liability companies.

The work announced by Goldsmith would bolster the law, Smith said. ‘‘[It’s intended] to make it more difficult for companies, including those in the building sector, to regularly wind up and start afresh,’’ he said.

A wider Building Act review would look at liability issues and a discussion paper was being developed, he said.

Smith said the Law Commission has proposed a cap on councils’ liability and a system of new build warranties or guarantees.