In February 2022, one of Australia’s biggest construction companies Probuild was placed into voluntary administration despite still having $5 billion worth of building projects underway.
The decision to place the company into voluntary administration came about as it was revealed that the businesses owes huge amounts of money to subcontractors. It is a concerning turn of events as Probuild employs hundreds of tradespeople who are now unemployed.
Similarly, in March 2022 Gold Coast construction giant Condev also appoint a liquidator as market and material costs threaten the company’s bottom line.
The Queensland firm called a last-bid meeting in the first week of March with developers from around the country in a bid to raise cash for ongoing operations.
Unfortunately, the meeting did not provide the solution thought to be around $25 million for Condev, forcing founders Steve and Tracy Marais to begin placing the business in voluntary administration.
Although Condev is still solvent and has a positive reputation, the companies decision to appoint a liquidator was made due to forecasts illustrating that the market conditions and material costs overwhelming the company’s bottom line.
“We are absolutely devastated for the Condev family of employees, our tradespeople and our affiliates. Unfortunately, we were not able to reach the unanimous support we needed to keep the business operational in the future,” says Condev co-founder Steve Marais.
Derek Cronin, from Cronin Miller Lawyers works at the Marais’ lawyers, revealed that there are currently plans being arranged to appoint a liquidator.
“Our clients have considered that the only option open to Condev is to appoint a liquidator to manage Condev’s affairs. Although we are instructed that the company is currently solvent, the decision was made based on forward projections dictated by increasingly challenging market conditions including the exponential rise in material costs,” says Derek Cronin, from Cronin Miller Lawyers.
The collapse of Probuild and Condev is concerning. It is rare for a construction company to collapse due to a lack of work. In most cases such as Probuild and Condev it’s usually due to problems such as difficulty managing cashflow, under quoting, unapproved variations, or legal disputes involving directors, customers or subcontractors.
At the present time there is also the extra weight of building delays, supply chain disruptions, and ever-increasing material costs.
It is possible that the company quoted a job early in early to mid-2021 that is currently under construction, and the price and time to secure materials is well beyond what it was back then. These are circumstances very few people could have planned for and margins are getting squeezed.
Thankfully there are a few things a construction company owners can do to regain control.
The first is to take a hard look at contract structures, project incomings and outgoings, and potential risks. Your trusted business advisor, who is typically your business accountant or bookkeeper, is often your first point of contact when you need help.
Your business advisors can assist you with this process, and may recommend a financial audit which is a great way to get a ‘cost to complete’ figure and balance it against income projections so you can act quickly if the two don’t marry up.
Where it’s clear that your business is financially stressed, knowing the options available will help you take early action and reduce potential damages, including to your personal assets.
If your business believes that it is in the best interests of your business to explore a plan B and look at all your options, they will often recommend you contact a restructuring expert like us to confidentially speak with you about your options.
A restructuring expert will regularly conduct cashflow reviews and put together an Options Report if the business is struggling. An Options Report takes into consider the current challenges the business is facing, so the restructuring expert can map out the various options available to restructure or turn around the business.
Even though it might seem easier to keep pushing on and hope things will get better, the consequences of waiting can be devastating, as we’re now seeing with Probuild’s clients, employees and subcontractors.
It doesn’t cost anything to start a conversation. You would be amazed at how far genuine guidance can go in helping you make important and time-critical business decisions that affect your future and the future of your business.
The ATO Reveals That There Is A Large Number of Unpaid Construction Tax Bills
The Australian Tax Office (ATO) has revealed that over the duration of the covid-19 pandemic, Construction-related businesses have built up a mountain of unpaid tax bills.
This means that there is the potential for a huge number of business failures to occur in 2022 that could take otherwise-healthy creditors down with them, insolvency practitioners warn.
Last year outstanding debts to the ATO increased by almost one-third to $58.8 billion last year over the two years affected by the pandemic, while over the same time court wind-ups of businesses – half of which are typically triggered by the ATO – fell by three-quarters.
The covid-19 pandemic has generated a huge headache for the ATO, which has tried to assist companies through tough trading conditions. In its 2021 annual report the ATO said it collected $11.5 billion in revenue, below its own $15 billion target, for reasons including a cautious approach to compliance.
However, for industries such as building, where ATO enforcement plays a big role in weeding out poorly run companies and supporting the health of the industry as a whole, this was a problem, said John Winter, chief executive of the Australian Restructuring Insolvency & Turnaround Association.
“It is a huge moral hazard issue. It provides no mechanism to signal to the market that you shouldn’t build up debts you can’t pay,” says John Winter, chief executive of the Australian Restructuring Insolvency & Turnaround Association.
The team at C&D Restructure and Taxation Advisory are here to help. As part of the Vault Group we can offer the full suite of financial products and advice to help you navigate the business landscape. Schedule a meeting here via Calendly or give us a call on 1300 1 VAULT (1300 182 858)
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