COMMENT: Why Mainzeal sub-contractors have to wait to retrieve their tools

Many Mainzeal sub-contractors are frustrated at being locked out of work sites, preventing them from retrieving their tools, but the action by receivers is necessary to avoid a potentially damaging "free-for-all", according to the Law Society’s commercial and business law committee convenor, Stephen Layburn.

The Mainzeal Property and Construction Ltd receivership has raised questions about the ability of subcontractors to access building sites controlled by Mainzeal Construction to recover their property (such as tools and scaffolding equipment).  

Legally, matters such as this are affected by a range of sometimes overlapping rights and obligations. 

The terms of the construction contract under which the contractor operates the site and is, in turn, engaging with sub-contractors will also be highly relevant.

Without looking at the various forms of construction contract, if we take a simple hypothetical example where a construction contractor is undertaking work on a property that is owned by a separate (unrelated) property owner, the head contractor will have control of the site for the duration of the contract. 

This control is needed for a variety of contractual and practical reasons – including management of the interaction between the various sub-contractors working on the site.

Typically, any other party entering the site –including sub-contractors – does so at the invitation of the head contractor as controller and occupier of the site for the duration of the construction contract. 

It follows that the head contractor also exercises control in respect of people who have no authority to enter the site. 

Ultimately, that control can include the issue of trespass notices warning such people to stay off the construction site.

Where a building contractor goes into receivership, the appointment of a receiver triggers a number of rights and obligations, including giving the receivers control over the rights previously exercised by the contractor.

However, this will not usually cause the contractor’s occupation and control of building sites to be immediately relinquished.

This is because most construction contracts will provide a breathing period (typically 10 working days) for the contractor to find a replacement contractor that is acceptable to the principal to undertake the work. 

During that breathing period, the contractor is not (simply because of the appointment of the receiver) in default under the contract.

Sensibly, such a breathing period allows the receiver a short window of time within which to gain control of the contractor’s activities (including building sites) and make an assessment of the state of the relevant contract and the position both in terms of the obligations to the principal and the relationships with the various subcontractors. 

Despite the apparent hardship to sub-contractors – who have obvious concerns for their tools and equipment – this breathing space is also important in preventing chaos as various interested parties clamber to recover their property. 

Without it, there is a risk of people accidentally grabbing someone else’s property, damage to other property and goods and the sort of health and safety issues that would result from a free-for-all. 

If the receiver decides (for example) to continue with a specific project, they will need to come to arrangements with subcontractors.

Arrangements can be made

A receiver is not liable for pre-receivership debts of the contractor – but there may be scope for arrangements to be made to enable a project to be completed and such important issues as a contractor’s workforce being retained to complete the scheduled work.

Without knowing all of the details of the arrangements affecting the scaffolding contractor which made the news headlines over the weekend, it seems quite natural that the access to the site without approval of the receivers was halted with the issue of a trespass notice. 

Equally, it was not a surprise to see that as soon as order was restored, arrangements were made to enable some scaffolding equipment to be removed from the site in a controlled manner.

In doing so, it is likely that the receiver understood the need for the scaffolding contractor to be able to put the equipment that was no longer required on the site to use elsewhere. 

Also, it is likely that the receiver will need the scaffolding contractor’s services for completion of what work remains to be done on site. 

As the Mainzeal Construction receivership is relatively large and seems likely to affect a large number of people – with reports suggesting that there are more than 50 sites involved – it is likely that the receivership will continue to attract attention.

Businesses affected by the receivership would be advised to ensure that they have their own records in good shape so that they can respond to dialogue with the receivers quickly and clearly and, if in doubt about their rights and obligations, to seek professional advice.

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15 Comments & Questions

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There is an example in our history of this very chaos referred to above. Back in the 1970's the giant of the property developers was JBL Investments. They had an apartment and shopping complex almost completed when one of their banks decided to call in a small loan prematurely for which they did not have the cash on hand. The word went out on the grapevine to all the subbies on Friday afternoon and by Monday morning the building was a total wreck. Anything that couldn't be removed was smashed, such as toilet pans and baths, window frames were ripped from the walls and gib-board peppered with holes in a fit of collective malice. The bank concerned didn't get their money and were left with a useless unsaleable asset.
So yes, shutting the sites and taking a measured approach, while frustrating for all concerned, is fair to all.

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Well,no, it is not fair to all. It is fair to the receivers but it creates further hardship for sub-contractors who have already been misled into doing work and making commitments they will not be paid for.

There should be an enforceable requirement for receivers to release property they do not own asap and not simply at their own discretion.

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Hi Alan, while I agree with you that morally it isn't fair, it is the legal position until ownership is established. How does the receiver know if the subbie asking for his gear takes other person's gear as well if there hasn't been an audit/stocktake? There have been instances on worksites where an unpaid subbie has taken loose stock owned by someone else in lieu of his own lost value. The subbie needs to put in a claim like everyone else. Having said that, the release of work tools and equipment, but not stock, should not be unduly delayed.

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Good stuff... What interested me was whether these subbies could become the next Mrs Hubbard. I'll never forget that $23 of groceries she was declined. While a perfectly understandable omission by the statutory manager (SM), one can only wonder whether it was significant in shaping her attitudes around whether she could rely on them to do the right thing by her. Later as she became a very powerful figure within that context her attitude and her experience with the SM became and continue to be a very significant thing for the SM.
Likewise, I see whatever the workload for PWC, the nuances of the position, the wind could quite easily swing around and blow quite hard in the subbies' favour. A subbies' tools represent a fairly emotive issue.
We have a lot of work to do as a country, particularly in Christchurch. Good relations lead to efficiency.

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You only need to get stung once to learn the lessons.
You always take your tools home with you every night when you knock off, machinery included. Been there, done that. Never, ever again.

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I understand that on a couple of sites there were even vehicles involved. Whatever the receivers rights surely depriving an owner of his vehicle is conversion?

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What a load of self-effacing tripe! Surely if someone is in posession of something they don't own and the owner asks for it back further withholding is theft, isn't it? Or do these people work to some other moral code?

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Totally agree. If you are holding something that doesn't belong to you, to which you have no rights, and the owner wants it back but you are refusing to hand it over then you have stolen it.

If it were me then I would do exactly what I did the last time somebody stole something from me (an iPhone) - head over there with a baseball bat and a couple of big friends and get it back.

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Do you know what self-effacing means?

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The dilemma of the 'subbies' can be quickly resolved by changing the relevant legislation relating to receivership, such that the unpaid subbies have first call on any funds recovered by the receiver.
This would also have the advantage that banks would not foreclose on a whim, as seems to happen so often. Perhaps some of the directors of banks should by legislation be required to come from the business/development world and bring some real world experience into the boardroom.
Don't worry about the red herring that banks wouldn't then lend to developers, etc, as they will still fall over themselves to lend.

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I wonder where the Construction Contracts Act applies here? I hope ît helps all the subsides....

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Listen to Phil's call - NewstalkZB 9:15-9:30am Wellington this am.

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Sadly possession is 11 tents of the law. The receiver is entitled to sell any goods held that do not have a security claim over them (www.ppsr.govt.nz) and treat the offender "owner" as an unsecured creditor. I have to agree with #3 above, take your tools home.

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Goods but not tools or equipment used by subbies (unless it's been on site for more than one year). PPSA is not as easy as it appears to be.

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Just watched a Mainzeal ute park outside Les Mills, Wgtn, at 2.47 and a staff member going into gym, so they are obviously really, really, busy.

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