The Mainzeal collapse

One year on – what’s changed for sub-contractors and how can they protect themselves?

On 6 February 2013, Mainzeal Property & Construction Limited was placed into receivership. A year on, the situation is clearer and closer to a resolution for unsecured creditors, but not by much.

Waiting for Mainzeal

After selling off Mainzeal’s assets, the company’s secured creditors will probably get their money back. However, about $70m is still owed to unsecured trade creditors — $51m for work that’s been completed and $19m for retentions. Mainzeal’s liquidators are now chasing China-based shareholders over some related party loans that were transferred to Mainzeal prior to its collapse. If the courts agree that these transactions were invalid, there could be up to $70m available to pay Mainzeal creditors, some of which will flow to former sub-contractors who are also still owed money. This action is being blocked by the related companies; however, without this money, unsecured trade creditors will see very little of what they’re owed.

Prevention

The Mainzeal collapse has been a wakeup call for many sub-contractors, who are now taking precautions to reduce the risk of losing money when a principal contractor fails. These precautions include:

• Proactive credit control procedures.
• Payment claims that comply with the Construction Contracts Act.
• Registering interests on the Personal Property Securities Register (PPSR).
• Using bonds in lieu of retentions.
• Payment guarantee insurance, such as Builtin’s Sub-Contractors Payment Guarantee, which pays 75% of the money owed to a sub-contractor if their main contractor goes bust.

It’s a reality that, when a company fails, many of their suppliers will be left out of pocket.

The question to consider is: if this happened to you, how much could you afford to lose and what are you doing in your business to minimise this loss?

About Builtin New Zealand

Builtin New Zealand is a specialist in insurance, bonds and independent guarentees for the construction industry. For more information visit www.builtin.co.nz/insurance, email Ben Rickard at ben@builtin.co.nz or call him on (07) 579 6259 or 027 5212 014.