What next for Ebert’s new liquidator
The new liquidator for Ebert Construction says creditors will be contacted in the “very near future” as he takes over investigating what happened at the failed construction firm.
BDO’s Iain Shephard is hoping for a quick transition as he – alongside Jess Kellow – take over as liquidators of Ebert, replacing Grant Thornton’s David Ruscoe and Tim Downes.
There is now $100m worth of unsecured creditor claims, Mr Shephard confirmed, because since Grant Thornton's initial report, project owners had filed more claims in the liquidation.
Creditors voted on Tuesday afternoon to replace shareholder-appointed Messrs Ruscoe and Downes, who said at the meeting they would fully co-operate with the new liquidators.
Mr Shephard told NBR it was important for creditors to know he would simply be doing the same job Grant Thornton had already started. At the outset of the meeting Mr Shephard said he no issues with Grant Thornton and its professionalism.
However, creditors voted to switch to Mr Shephard and Ms Kellow anyway, the duo nominated by Tempest Litigation Funders.
Tempest director Damien Grant had been imploring creditors to vote for change, holding meetings up and down the country suggesting Grant Thornton would not be robust in its investigation.
In response Ebert’s directors had sent a letter to creditors arguing Grant Thornton should remain.
Updating some 50 creditors attending at Tuesday’s meeting, Mr Ruscoe said more than 120 proxy votes had been received in advance of the gathering.
The liquidator noted that a project in Wellington’s Abel Smith St had been built at a loss, and told creditors “something doesn’t feel right” about it. The apartment block has been the subject of a billboard erected by a Wellington developer.
He also told creditors that it appeared director Kelvin Hale’s Lowry Bay home appeared to be paying Ebert out of a trust but that would require further probing.
In response to questions, Mr Ruscoe said he had been approached by three to four litigation funders about taking over any potential actions that arose from his investigation.
Following his removal, Mr Ruscoe said changing liquidators isn't uncommon in the insolvency industry, noting that it had replaced the liquidators of former Hawkins unit H Construction North Island.
At the meeting a creditors' committee was formed, with Mr Grant, barrister Murray Tingey and Keith Blind appointed. Mr Tingey was not able to immediately comment on who his client was but confirmed he had also acted for Tempest.
Mr Blind of ICE Fire Protection, who is also president of the Fire Protection Association (New Zealand), confirmed he was acting on behalf of 15 creditors but could not say how much in debt they were owed.
He told NBR after the meeting they voted in favour of change simply because change was good and to protect the position of the creditors he represented. He hoped to meet other creditors very soon.
Mr Blind said one of the key issues for creditors was the development of the retentions regime because it appeared not to have been followed, which was a major disappointment.
Creditors with security interests also attended the meeting – not to vote but to get an update on the retention’s situation.
On Monday Justice Peter Churchman approved PwC receivers Lara Bennett, John Fisk and Michael Longman’s proposal plans, which aim to release between $1.4-2m before Christmas.
The balance of the retentions account is $3.67m although more than $9m is owed overall. There are 152 subcontractors who could have a claim, arising from 213 separate contracts.
His decision points out that in June and July this year, in the two months preceding the receivership, Ebert's systems for reconciling and transferring retentions started to break down.
The court assessed several categories of retentions, and who could get what.
While there are no issues with retention payments relating to May, for June Ebert did not pay out about $475,000 to 80 subcontractors, for work in respect of 12 projects. Those subcontractors whose retentions were calculated but not transferred would not get paid out, the court said.
For July, it didn’t calculate or pay retentions for 12 projects, totalling $380,000 to 70 subcontractors and relating to 12 projects. The judge said in this case the subcontractors also didn’t have any interest in the money in the retentions account.
It also recorded about $68,901 in retentions for four subcontractors as “released” but didn’t actually pay them out. The judge ruled because there was intention for these to be paid out, these subcontractors could get paid out alongside others.
There were also 14 wrongly classified contracts totalling $170,340, and the judge ruled those subcontractors couldn’t be included in the retentions scheme, saying it was an “unfortunate consequence” of Ebert’s failure to correctly classify the contracts.
The judge directed that since there was such as shortfall the receivers shouldn’t bother calculating interest on the retentions, despite subcontracts being entitled to interest by law.
He allowed PwC to be the receiver of the fund, refusing to cap its fees but stating that they will need to be reviewed. So far the fees billed were reasonable, the judgment says.
The fees will be deducted and then receivers can make interim payments to subcontractors on an equal sharing arrangement, meaning there will be no preference but funds will be split in relation to how much each subcontractor is owed.
A BDO construction survey in May found that the new retentions regime was poorly understood and many companies were failing to hold retentions in trust.
While the act places the onus for enforcement on those who have retentions deducted from progress claims by giving them the ability to inspect trust records, 74% of the firms surveyed said they have never asked for such inspections.