Building company liquidations: 283 in 11 months this year

A PWC spokesman says the sector was under more stress now because of cost escalations, delivery and labour issues. Photo / Fiona Goodall

New Zealand had 283 building company liquidations in 11 months this year, Commerce and Consumer Affairs Minister David Clark has confirmed.

Andrew Bayly, National’s construction spokesman, said he was concerned about high failure rates so he asked Clark for the numbers via questions in Parliament.

Clark told Bayly the 283 liquidations were from January 1 till November 24.

Liquidations are not just because of financial failures but also when businesses’ assets have been sold, when a company’s work is complete and for other reasons.

Clark’s statement to Bayly said: “The term failed has been interpreted as meaning those firms that were incorporated under the Companies Act 1993 and went into liquidation: 283 companies identified as a construction company via a self-selection of a business industry classification code on the companies register by the company were placed into liquidation during this time.”

Commerce Minister David Clark provided the data. Photo / Mark Mitchell

Bayly said in response that the figures show that one construction firm had failed for every working day of this calendar year.

“My belief is that this is only a sign of worse things to come. I describe the situation of the building and construction sector that employs 295,000 people as that of riding on a surfboard on the front of a wave. The only question is whether the board will hit the sand or if we find a way to surf out of the wave.”

In the 2020 year, there were 198 building company liquidations and 224 last year, he said.

Megan Woods, Building and Construction Minister, said the housing development and construction sector had always been prone to boom-bust cycles.

“But without a long-term series of data it’s too early to draw any conclusions, especially as construction liquidations are quite common. In fact according to the recent StatsNZ business demographic survey we have seen significantly more new construction businesses starting up, with a fairly average volume of business closures,” Woods said.

Megan Woods listed ways the Government was supporting house building. Photo / Mark Mitchell

Despite Covid and high inflation globally, New Zealand was much better placed than during previous downturns like the global financial crisis, she said.

“We’ve acted quickly to moderate the impact of some of the supply side issues through initiatives like the immigration rebalance, apprenticeship boost, the plasterboard taskforce and the Commerce Commission’s market study into residential building supplies.”

A range of measures would support a pipeline of work for housing development and construction services, and to keep confidence high. These include a large Government build programme, new funds to support housing and infrastructure investment, including Whai Kāinga Whai Oranga and the housing acceleration fund, ·tax changes to support productive investment in new supply over speculative investment in existing properties, changes to the first home grant and loan to better support first home buyers into home ownership, Woods said.

The Herald reported in June how construction companies and developers around the country had folded amid the pressures plaguing the building industry.

Bay of Plenty’s Oceanside Homes, two South Auckland developers and Wellington’s Armstrong Downes Commercial have all gone under.

“We are likely to get close to 300 building company liquidations this year,” Bayly predicted today.

But an expert in the field said building company liquidations were not unusual and no definite conclusions could be reached generally from liquidations.

John Fisk, a partner at accounts and consultants PwC, said high numbers of businesses operating in the sector resulted in high liquidation numbers.

Construction accounted for 25 per cent or the most liquidations from January to May. Illustration / RITANZ

“Given how many businesses operate in the construction sector and how broad it is, we tend to see a high proportion of insolvencies in the sector regularly. The recent issues with supply chains, increased costs and interest rates are all contributing to the recent uptick,” Fisk said.

He cited data from the Restructuring, Insolvency and Turnaround Association of New Zealand which showed that in the year to May 31, 25 per cent of liquidations were in the construction sector.

Between January and May this year, 25 per cent of all insolvent liquidations were in the construction industry. That’s more than double the number for the next highest sector, the accommodation and food services sector at 12 per cent, the association said.

National Party building and construction spokesman Andrew Bayly. Photo / Mark Mitchell

Data from the Ministry of Business, Innovation and Employment showed 120 companies with a construction code in the Companies Office were liquidated between January to the end of June.

That’s lower than for the same six months last year when 128 companies were liquidated. There were 95 for the same period in 2020 and 123 in 2019.

Fisk says the sector was under more stress now because of cost escalations, delivery and labour issues.

“It’s probably one of the sectors that we’re seeing that’s suffering more than others at the moment but that’s from a pretty low base given that we’ve seen in the last two years historically low insolvency numbers,” he said earlier this year.

Wellington’s Armstrong Downes was this year’s biggest building sector failure in terms of money owed to creditors. The December 7 six-monthly liquidators’ report for this company said 203 unsecured creditors were received for $30.4m.

The builder formed in 2012 worked in the greater Wellington Region, acting as the head contractor in a group of companies which took on medium to large-scale residential and commercial construction projects.

It did not employ staff or own assets. Staff were employed and assets were held in related entities. It traded up until April.

At this time, the company had eight active construction projects. Two were suffering big losses from cost escalations and being on fixed-price contracts.

These increases meant that the contracts were unprofitable and the issues included getting materials, labour shortages and unforeseen technical complexities. Armstrong Downes tried to restructure the contracts but its efforts were unsuccessful so shareholders appointed liquidators at Waterstone.

The liquidators have identified no tangible assets to realise for the benefit of the creditors. The financial reports of the company reflect that it owned no tangible assets. The only realisable assets were receivables either from works done and retentions owing and cash at bank upon appointment, the report this month said.