Following our Initial Note, the receivers of Ebert Construction Ltd (Ebert) released their first report on 1 October 2018. Then, on 3 October 2018, Ebert put itself into liquidation, with the liquidators subsequently issuing their first report on 10 October 2018. These developments have provided further information about Ebert’s financial position and the insolvency process.
Receivers’ First Report
The Receivers’ initially secured Ebert’s project sites, before making arrangements for subcontractors to collect their tools and equipment. There may, however, be unresolved issues in respect of more substantial plant and equipment on site, such as scaffolding and cranes. These issues are likely to concern ownership and security interest rights. It would appear the receivers have left such issues to be resolved between the relevant principals and those claiming rights in plant and equipment.
The Receivers subsequently determined that it was not feasible to complete active projects, and therefore returned control of all sites to principals. This is likely to have resulted in a formal termination of the contracts and reservation of rights by the principals (eg for the increased costs of having another contractor take over) – for whatever that may be worth. In addition, Ebert’s staff numbers were reduced to three employees who have been retained because of their institutional knowledge of the company, its systems and assets.
The Report notes that, at the time of receivership, subcontractors were owed at least $33.84m, including $9.3m in retentions. It also confirms that Ebert had been placing retention funds for construction contracts entered into after 31 March 2017 into a separate bank account with a total balance of $3.68m (see further below).
While it is too early to confirm the exact amounts which will be recovered, the Report indicates that there will be a substantial shortfall for secured creditors. The receivers do not anticipate that there will be any recovery for unsecured creditors, apart from those with preferential claims (such as employees, IRD and the receivers themselves – who are all expected to be paid in full), and creditors with a valid claim for the separate retention funds set aside by Ebert (discussed further below).
The Receivers next report is due in March 2019.
Liquidators’ First Report
The Liquidators’ first report overlaps substantially with the Receiver’s first report. However, there are some important points to note:
- Creditors have until 9 November 2018 to prove their debts/claims and establish any priority. A creditor form (Appendix D) must be completed, although information already provided to creditors will be made available. The prudent course would still be to submit a creditor form.
- Appendix B contains a list of known creditors. By our calculation, these total 620, of which 51 are secured and 569 are unsecured (excluding employees). The high number of trade creditors, many of whom are SMEs, reflect the fact that the construction industry in New Zealand is relatively fragmented and lacks scale.
- It is too early for a creditor’s meeting, which is unlikely to be called by the liquidators until it has completed its initial investigation and reported back in two months.
- The Receivers remain in control of the business and assets of the company.
- The Liquidators have received $50,000 from Ebert Investments Ltd, a related party, to fund their initial investigation, including into the conduct of the Company. If there were any insolvent transactions or legislative breaches, they say they will take “appropriate action”.
The Liquidators’s next report is expected in about 2 months (ie December).
Retentions held on trust
Ebert’s receivership is the first high-profile insolvency which requires application of the new retentions trust regime in the amendments to the Construction Contracts Act 2002 (CCA). Those amendments deem retention monies under contracts entered or renewed after 31 March 2017 to be held on trust for the recipient. Unfortunately, the statutory amendments did not include any machinery for administering and distributing those retentions, or determine how the cost of that would be funded; nor is their any Ministry or other guidance. Without this it is uncertain whether the Receivers are responsible for performing this function or whether they can meet the cost of doing so from company assets (at the expense of other creditors).
As a result, the Receivers have had discussions with MBIE, and have indicated they will seek the Court’s directions on these matters, which will result in a delay to the distribution of these funds. However, such a “test-case” will be highly beneficial for the future application of the new retentions trust regime – and may yet result in Parliamentary intervention to address this gap in the present legislation.
Receivership vs liquidation
Ebert’s receivership was initiated by the Bank of New Zealand, as a secured creditor of Ebert. The Receiver’s primary duties are to act in the best interests of its appointing creditor, the Bank of New Zealand.
Ebert’s liquidation was initiated by a special resolution of its shareholders in accordance with s 241(2)(a) of the Companies Act 1993. This requires approval by 75% of the shareholders. The reasons for Ebert’s shareholders taking this action are unclear. The liquidators have commented publicly that the decision was made by the shareholders as the “right thing to do”. The decision may also have been pre-emptive against any creditor seeking orders placing Ebert into liquidation.
While there is a significant overlap between the activities that the receivers will undertake and that the liquidators will undertake, there are some important differences with liquidation.
- The principal duty of a liquidator is to take possession of, protect, realise and distribute the assets of the company to its creditors. Unlike receivers who have a duty to a nominating creditor, the liquidators’ obligations exist for the benefit of all creditors (subject to certain priority rules).
- In a receivership, there is no right to a meeting of creditors. However, in a liquidation, there is a requirement for the liquidator to call a meeting of the company creditors, and a creditors’ committee for the liquidation can be formed.
- Receivers do not have power to investigate the company, and has no power to bring the directors of a company to account. By contrast, there are powers available to liquidators to recover funds from transactions which are deemed voidable, and/or recover money from directors where those directors are liable for negligence, default or breach of duty or trust in relation to the company.
The liquidators of Mainzeal currently have proceedings before the High Court seeking recovery from its directors in excess of $75 million, on the basis that the liquidators allege Mainzeal ought to have ceased trading significantly earlier than when it was placed into liquidation. The liquidators of Ebert will no doubt be investigating and considering a similar option for recovery of funds.
- Companies Office
- Ebert’s LinkedIn
- Receiver’s Website
- Notice of Appointment of Receivers
- Notice to Subcontractors and Suppliers
- Ebert’s First Report
- Liquidator’s First Report
Our website also has a number of Insights that may be useful, including:
- Ebert Construction Receivership – What you need to know
- Limiting the flow-on effects of contractor insolvency
- The construction landscape in New Zealand
- Clarification of retentions requirements
If you are affected by Ebert’s receivership and liquidation, Hesketh Henry can advise on your rights and options. We have one of New Zealand’s leading construction law teams, with the necessary contractual, regulatory, and insolvency expertise to assist.
Disclaimer: The information contained here is of a general nature and should be used as a guide only. It is not a substitute for obtaining legal advice. Any reference to law and legislation is to New Zealand law and legislation.