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Receivership of construction companies

Published in: Commercial eSpeaking, Spring 2018. No 50

Protecting your property and getting paid

In light of Ebert Construction’s recent receivership, not taking protective measures opens subcontractors up to recovery and enforcement issues. If you are a subcontractor, you should think about how to prevent your tools and equipment (including cranes and scaffolding) from being seized and sold by a receiver, and to ensure you have the best chance of getting paid.

 

Protecting your tools and equipment

The first step to take is very practical. If you can, always take your tools and equipment home with you each night. When a construction company goes into receivership, the receivers lock the gates to the relevant construction sites which prevents you from collecting your tools and equipment.

If this is not practical (if you have supplied scaffolding, for example) there are other steps to take to ensure you recover your gear. Make sure any tools or equipment left on site are clearly labelled and distinguishable as your property.

If you have entered into a construction contract that could last for more than one year, you must also register a security interest on the Personal Property Securities Register (PPSR). If you do not do this, the receiver could sell your property and use the proceeds to pay other creditors.

To register on the PPSR you must:

  • Have a written contract that confirms you own all your property including any materials you supply
  • Ensure the other contracting party signs the contract, and
  • Register a security interest as an owner of that property on the PPSR. To be safe, you should register before you bring any property on site.

To find out more about the PPSR, go here.

 

Getting paid

Sometimes your head contractor may wish to retain monies owing to you as security for the performance of your obligations under the contract. Preferably, and where possible, you should avoid giving retentions as there are other ways to provide security to the head contactor – for example, you could offer a performance bond. A bond is issued by your bank and, therefore, your money remains in your bank account and cannot be used by the head contractor for working capital or to pay its creditors.

If a retention is required, make sure you leverage off the ‘right’ to have your retention monies held in trust under the Construction Contracts Act 2002.

To obtain the best level of protection, however, and if you have the ability to do so, you should also take these additional steps rather than simply relying on the Act.

  • Insisting that retention monies are placed in a separate bank account for your benefit (or for the benefit of you and other subcontractors, as applicable)
  • Ensuring your contract records that retention monies are to be held in a separate bank account and that your interest in them can be registered on the PPSR, and
  • Ensuring the security interest is registered on the PPSR.

 

Caught up in the Ebert Construction receivership?

If you have been adversely affected by this receivership, you must complete this specific form listing all of your property that has been left on any Ebert Construction sites and email it to restructuring@nz.pwc.com

We understand the receivers will be releasing their first report by late September. The report should provide further information about the financial health and future of Ebert Construction.

Take steps to secure your property and ensure you get paid

The fragile state of the construction industry means that Ebert Construction may not be the last of the big players to face difficulties. If the receiver shows up and you haven’t taken steps to protect your tools and equipment, and any money you are owed, there is a real risk that you could lose your property and never get paid.

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