Council lent $3m to troubled company
The Waitaki District Council is confident the $3 million it lent to an irrigation company, which is now in receivership and voluntary administration, is secured against its assets and income.
Alex Parmley, council chief executive, said in a media release yesterday that as part of their investment approach to the region’s economy, the council made the decision in 2018 to lend up to $3m, plus an allowance for accrued interest in the development and expansion of the Kurow Duntroon Irrigation Scheme which was undertaken by Kurow-Duntroon Irrigation Company Ltd (KDIC).
The company has been found liable to pay $13m to Monadelphous Engineering NZ Pty Ltd (Menz), the contractor hired to construct the $45m upgrade of the irrigation scheme from canals to a pipeline, over delays to the work. The project involved laying 59 kilometres of piped irrigation infrastructure that would double the scheme’s irrigation area from just under 2000 hectares to 4000ha, with a capacity to expand to service 5500ha.
The project received support from Crown Irrigation Investments Limited (CIIL), in the form of a $388,000 development grant and a $34.4 million secured loan.
It received a further $3m from the council and Menz were hired in November 2018 for the construction of the pipeline. There were delays in starting the work relating to access to the Waitaki Dam, and Menz submitted an extension of time claim and KDIC paid $453,000.
In August 2019, the council issued an abatement notice on the pipeline around the Kurow bluffs because the pipeline did not meet the conditions of the resource consent. The pipeline had to be relaid below the ridge of State Highway 83 in accordance with the resource consent. This was completed in November 2021 and resulted in further extension of time claims being submitted by Menz plus costs associated with the relaying of the pipeline.
Following failed negotiations between KDIC and Menz, Menz served a notice of adjudication on November 9, 2021.
The adjudicator considered Menz’s claims against KDIC and KDIC’s claims against Menz. The determination, which is binding on KDIC, was that KDIC is liable to pay Menz more than $13m plus interest.
BDO, the administrators appointed, said in a report that on May 17 the KDIC board decided, after reviewing the adjudication, to appoint voluntary administrators and soon afterwards CIIL appointed receivers.
BDO said, in their opinion, a review of the KDIC’s financial position indicated that prior to the adjudication being received, the company was solvent and had sufficient working capital to meet its ordinary obligations.
‘‘However, upon receipt of the adjudication determinations the company lacked sufficient resources to settle the sums due to Menz and was therefore insolvent.’’
Parmley in the media release said a substantial amount of work and professional advice went into ensuring, for the council, that all foreseeable risks were taken into account and measures put in place to minimise them.
‘‘Following a dispute with its contractor Monadelphous Engineering and an adjudication process which resulted in a significant amount being owed by KDIC, KDIC was placed into voluntary administration and receivership.
‘‘[The council] is among a number of creditor organisations owed money by KDIC but is the second secured creditor which means the amount owing to WDC is secured against the assets and income of KDIC.’’
Parmley said KDIC’s assets are valued at more than what the council and the other secured creditor are owed.
‘‘WDC is supportive of the administrator’s proposal and its rights as a secured creditor are protected under the administration.’’
The outcome of a meeting where creditors decide the future of the company, which was to be held in Christchurch on Tuesday, is unknown.