Background – Construction industry and receiverships of construction companies
The receivership of construction companies is notoriously difficult, due in part to the model in which most construction companies operate.
Simplified, under the Construction Contracts Act (2002) a construction company will issue a payment claim to their customer detailing how much work they believe they have carried out for the relevant period (often monthly) the customer of the Company will then assess the work carried out and issue a payment schedule in response outlining their position on what work they believe has been carried out.
Construction companies will often issue payment claims monthly and have their subcontractors invoice them monthly.
When dealing with the receivership of a construction company, it is often the case where the customer of the construction company will refuse to pay the construction company’s last month of payment claims.
The rationale behind this varies on a case-by-case basis but ranges from legitimate disputes which may have occurred prior to receivership to overclaiming by the construction Company or poor performance.
We have also seen examples where Customers may issue payment schedules with a $0.00 balance, citing setoffs (which are often yet to be quantified) caused due to the receivership of the Construction Company.
If not managed properly, this can lead to a situation where the Company has one month (or more of creditors) with no clear receivables to collect.
When dealing with the receivership of an insolvent construction company it is essential to deal with outstanding payment claims immediately, working with the customers to facilitate the handover of the contract and maximise the value of the payment claims received for the benefit of creditors.
Our client had factored in construction debts of Highbrook Construction which were subsequently heavily disputed.
The customer of Highbrook Construction was claiming numerous setoffs and damages associated with the Company’s poor performance of construction contracts.
Upon appointment, we reviewed documentation from the Company, and the customer of the Company and met with the customer of the Company to discuss the outstanding debt.
The result of this was a legal settlement with the customer and Highbrook Construction which resulted in a payment to our appointor for approximately 75% of their core debt, and the conclusion of the receivership within 7 days.