By Bernard Hickey
New Zealand's third largest commercial building firm, Mainzeal, has been put into receivership in a major shock for the construction sector.
More than 400 Mainzeal workers, hundreds of sub-contractors and dozens of major construction projects are now in limbo. Mainzeal's last remaining director, Richard Yan, asked the firm's bank, BNZ, to put it into receivership on Waitangi Day. PriceWaterhouseCoopers' Colin McLoy and David Bridgman are the receivers.
"We are committed to doing the best we can for suppliers, staff and subcontractors of Mainzeal," McLoy said in a statement from PwC, pointing to a PwC website for more information.
Prime Minister John Key told reporters before a scheduled all day caucus meeting he was surprised at the collapse, but was confident it would not slow the Christchurch rebuild and that Mainzeal's workers and assets would find jobs and be sold to competing construction firms.
He said his main concern was for the sub contractors.
The receivership will affect the Christchurch rebuild in various ways. Mainzeal is part of a joint venture with MWH Global to work with Vero, AA Insurance and SIS Insurance to rebuild homes and other buildings.
See more here at MWH Mainzeal's project summary, which says Vero is managing around 19,000 claims in Christchurch and the joint venture had assessed the damage for more than 6,000 residential properties and 1,800 commercial properties.
Mainzeal's website, which has yet to publish an announcement on the receivership, details the projects it is working on, including the NZ$250 million Manukau Institute of Technology (MIT) project, the Benmore Haywards Pole replacement for the HVDC power link between the North and South Islands and the Hub for Victoria University.
Mainzeal is thought to have worked on NZ$7.5 bln of projects over the years.
Earthquake Recovery Minister Gerry Brownlee told 3News' Firstline that Work and Income was on standby in Christchurch to handle the 90 Mainzeal workers there if Mainzeal chose to shut down rather than trade on through. He expected they would be employed quickly.
He said he was less concerned than others about the effects of Mainzeal's receivership on the rebuild.
"There will be others who step into the void," Brownlee said, adding he didn't think the receivership would hold up the rebuild much.
However, he said was concerned to see how quickly Mainzeal decided to trade on or shut down.
Boardroom conflict
The receivership announcement followed hard on the heels of the resignation of independent directors (former National Prime Minister) Jenny Shipley, (former Brierley CEO Paul Collins) and Tauranga businessman Clive Tilby.
They put out a joint statement explaining their decisions to resign from Mainzeal Group (which is not in receivership) the day before the receivership of its subsidiary Mainzeal Property and Construction Ltd.
"We did so because we did not have sufficient confidence in our ability to continue to perform our duties as independent directors, as the undertakings given and the basis on which we had undertaken serve as Directors had changed and so we had no option but to tender our resignations," they said, adding they resigned from Mainzeal Property and Construction in December at the request of the shareholder Richard Yan.
"We agreed to accept the role of Directors of Mainzeal Group Ltd based on the undertakings and assurances given by the shareholder at that time. Sadly these have now changed which have led to our resignations," they said.
"That company had passed through a very difficult year in the construction sector, the impact of legacy issues around leaky buildings, a large contract with disputed payments and a Chinese supply chain scheduling and delivery challenge. The 4 Directors resigned the Mainzeal Group board on Tuesday when it became apparent financial undertakings from its shareholder, Richina Pacific, for Mainzeal Property and Construction were no longer in place and the further equity commitments were uncertain or conditional."
Leaky, leaky, leaky
The NZHerald's Anne Gibson reported Mainzeal was reparing apartment buildings on Hobson Street in Auckland.
Leaky buildings have dogged this builder, with most of the rest of the sector, for many years. And when big commercial jobs go wrong, they are extremely expensive to fix. Smaller builders might go to the wall, but Mainzeal hung in there - and returned to the sites where repairs were required. Perhaps its highest-profile rerun was on Hobson St, not far from Spaghetti Junction where it was fixing the two-tower Hobson Gardens, wrapped in white plastic for what seems like an age.
Even Dame Jenny Shipley's upmarket townhouse near Auckland Domain leaked: the irony there was that it was also built by Mainzeal and she chaired Richina Pacific, Mainzeal's owner. Extensive repairs were made when windows were ripped out and replaced in the eight-storey, 15-year-old, 27-unit Parkwood.
Lack of working capital
The independent directors said a working capital facility with the BNZ was withdrawn as a result of the lack of support from Mainzeal's shareholders, leading to the appointment of receivers.
“As independent directors of MGL, the holding company, we have done everything we could to try and avoid this painful outcome. We are fully aware and very saddened by the subsequent impacts the receivership may have on Mainzeal employees, creditors, subcontractors and others," they said.
“It is deeply disappointing that we were unable to secure the support that would have allowed Mainzeal to continue to operate. Mainzeal Property and Construction was a very good company, had a significant workload of building in Christchurch and if we had managed to gain the undertakings necessary, it was working toward a positive cash flow and profitability in 2013.”
Peter Gomm has also resigned the boards of Mainzeal Group ltd and Mainzeal Property and Construction, but will remain as CEO.
(Adds Christchurch rebuild detail, project details, Brownlee's comments, Leaky building details, Key's comments)
45 Comments
From Olly Newland's website put up yesterday afternoon:
"Typically massive receiverships such as this one have flow on effects that no one can really comprehend so early on in the story. It will be months before we know the extent of the losses or what caused them, although remedial work on leaky properties is being cited as one of the chief causes.
The workers may be able to find work elsewhere such as in Christchurch, but the many sub contractors, who must surely be owned money, may stand to lose their shirts. This collapse may be the Reserve bank’s answer to pressure on the exchange rate and rising house prices as it reminds us that the recession isn’t over just yet".
Mainzeal recently moved into upmarket refurbished premises near Victoria Park.
Will be interesting to see what has gone on here with the private equity Richina outfit being behind Mainzeal - perhaps much wider problems internationally have something to do with it.
400 people wondering about their jobs this morning - not good! Will be plenty of subcontracting companies worried about their position too - wonder how many projects Mainzeal have on the go in Auckland.
OCR cut anyone?
I agree bigblue. But it wasn't just Mainzeal who were responsible for sub-standard work, but surely all of their contractors and sub-contractors at the time as well. So they all get what they deserve. Of course, the people who are hard done by are the new contractors who (let's say) are actually competent at their work. They may now be out of pocket due to Mainzeal's leaky claims relating to past building work. I can think of one development in Grey Lynn that leaked and at the time M stood by their work and covered remedial costs. Rumour has it that complex is leaking again. In fact, it would be interesting to know the percentage of building Mainzeal have been involved with that haven't had weather tightness issues.
Quote from above Earthquake Recovery Minister Gerry Brownlee told 3News' Firstline that Work and Income was on standby in Christchurch to handle the 90 Mainzeal workers there if Mainzeal chose to shut down rather than trade on through. He expected they would be employed quickly. He said he was less concerned than others about the effects of Mainzeal's receivership on the rebuild. "There will be others who step into the void," Brownlee said, adding he didn't think the receivership would hold up the rebuild much. Sad indicment on the speed of progress more than two years on.
Aside from the fact the Auckland region has always been a bit of a problem child the real issue here is Richard Yan. The guy has destroyed a huge amount of (other peoples) wealth over the last decade or so.
I really feel for the staff, and particularly the subbies....the ripple effect is going to be huge.
Perhaps the 'subbies' might now realise that the rort of charging $30-50 bucks per worker, just to turn up, without actually doing anything, probably isn't a very good idea.
It has all happened before, just prior to the GFC, when the bosses all drove Ford Exporers, and couldn't be bothered to answer thier phone, then all of a sudden they are calling you up, asking if you had any work.
There are probably some genuine subbies out there, but having employed quite a few of them over the years, can't say i have met many.
"We are committed to doing the best we can for suppliers, staff and subcontractors of Mainzeal," McLoy said in a statement from PwC, pointing to a PwC website for more information.
ha! i love it when recievers step in and make assurances like these - all the while knowing at the massive fees they draw out themselves will reduce any leftovers available to said suppliers, contractors etc.
What - because of failed loans to the BNZ subsidiary?
Overall, external debt owed to related parties by the banking sector, as well as direct intercompany external borrowing, is equivalent to just over half of New Zealand’s gross external debt – estimated to be by far the highest proportion in the OECD. Read Article
How exactly is this a result of political blundering?
Latley they seemed to have lots of managers and not many builders. Rather Hawkins or some of the others (but not Fletcher$) if building. They took some big losses like on Vector Arena and must of had massive overhead. Maybe just bad business.
The Government and the Local Authority equivalent may not have been running this company but it would certainly seem they were signing the contracts that did (view outstanding work on the last page but one of this PDF document). - was this in lieu of the lack of direct government payouts for "leaky home" repairs or just part of the government's socialist/Keynesian hubris to win re-election? We certainly couldn't afford these projects from the net tax take.
This sorry little saga is the result of a highly politicised (and hence cash-flow-delayed) blamefest. And it's the 'carry' - interest on w/c - that does in most contractors.
It only takes a late quality-related claim (leaky buildings) that is then politicised (commissions of inquiry, apportionment of blame, a leisurely process) and the whole vicious cycle clicks into gear:
- more claims are attracted after the initiating ones have risen into media awareness.
- Brakes instantly go on payments (retentions held onto, new retentions imposed)
- Legal Eagles let loose on every contract, adding time delays and massive fees
- Local Gumnut is involved, and common taters should be able to gauge for themselves what happens when the ineptocracies go into CYA mode
- Central Gumnut is involved, and an intricate dance of 'let the Other Guy catch the Falling Knife' ensues
The wonder is that MZ held out so long, given all this.
But ask yerselves, why would anyone with $ to invest, do so into such an inhospitable environment?
And then, quelle surprise, there seem to be few takers for the Glorious Christchurch CBD Rebuild?
Fool me once, shame on you.
Fool me twice......
Anyone care to bet on Talent2's survival?
I note that "container shipley" was the Chair of Richina Pacific- [Mainzeal's parent] until recently - Also ain't it funny how the "rats" abandoned ship at such proximity to the ultimate collapse of Mainzeal Construction - methinks they should still be held to account as this situation obviously did not simply arise in the last few weeks or months !!!
Or it could just be the recent Court decision that extended the leaky-building-gravy-train rights to commercial buildings.....
And if I were a Director, having That Steaming Pile of Doo-doo dumped on My front doorstep, I'd sidle quickly out the back door, too.
As Hugh P says, letting issues become politicised is always a recipe for delay (and time=money in the real as opposed to the pollies' world).
So I'd put it all down to two simple factors:
1 - delays and hence 'carry' plus cost inflation on the original leaky buildings scope
2 - a late and massive increase in leaky building liability scope
No conspiracy theories needed, just the usual bumbling and protracted processes of Gumnuts....
So it's all ok for a contractor to subcontract work out knowing very well it is in financial strife and unlikely to pay any accounts....isn't that fraud?
http://www.stuff.co.nz/the-press/news/8276573/Contractors-owed-millions-by-Mainzeal
Shit happens. Hardly one mans fault. I give him credit for staying the course as opposed to taking the loser route and resigning. No honor in that. To those subbies that are steering down the barrel - that's the risk they took. Especially if they didn't protect themselves with other revenue streams etc.. Sick of the poor me attitude in nz at the moment. and it doesn't all rest at the top. There will be multiple points that havevlead to this. Some internal, some out of the boards control. And not anticipated. Or foreseen. Once again we get this mob mentality from the so called experts baining for blood. Just like a bunch of parasitic leeches. They make me sick. Collectively they probably haven't done a goddamed thing of consequence in there entire life. I repeat shit happens
Brian Gaynor -Mainzeal collapse needs investigation
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=108…
Consequently, it is vitally important that PwC and the regulators carry out a wide-ranging investigation of the Mainzeal collapse because the Richina Pacific group of companies has had a huge number of related party transactions in the past.
What happened to the preference shares deal with the group's Chinese fund management business?
Has any dividend been paid, or other payment been made, by Mainzeal to its parent company in recent months?
Is the New Zealand construction company owed any money by other Richina Pacific entities?
Why hasn't Mainzeal lodged recent financial accounts at the Companies Office, which is a requirement of overseas-controlled companies?
It's always the same when construction businesses falter. There is a massive clean out and sadly the subbies are the big losers. As Gaynor puts it there has always been a timing issue with cash receipts and when contractors are paid. Receivership is therefore always going to be an appealing option. An inquiry will achieve nothing. Failure to file accounts is also not a biggie, s slap on the wrist.
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