An elevator at the Auckland Central Remand Prison. Photo / Sarah Ivey
An elevator at the Auckland Central Remand Prison. Photo / Sarah Ivey
The Australian liquidator of a company contracted to do building work in New Zealand wants $12.5m from the client, the Department of Corrections.
But Corrections wants $12m from that same company and the two parties are now locked in a dispute about who owes what.
Perth-based Dermott McVeigh of AviorConsulting was last week appointed liquidator of Decmil Construction NZ, wholly owned by Perth construction and engineering business Decmil Australia, established in 1978.
McVeigh undertook an urgent review of the New Zealand company's financial position and concluded the Corrections owed it $12.5m.
Corrections contracted Decmil to design and build prison accommodation units in five locations, he said.
"Following a dispute in relation to the contract, Corrections terminated the contract on February 25 and have not paid approximately $12.5m of outstanding claims," McVeigh claimed in a statement he released yesterday.
In 2017 Decmil won a tender to supply rapid-build prison units in a 976-bed contract. But issues arose between the builder and the department and there were delays and deficiencies in construction.
McVeigh said Corrections terminating the contract and not paying outstanding invoices caused Decmil to become insolvent and led to his appointment last week.
Corrections disputes it owes the money.
"We have now been notified by lawyers acting for the Corrections that as a result of the company's insolvency, it has demanded payments of about $12m in relation to performance guarantees that were originally provided in support of the contract," the liquidator said.
Corrections contracted Decmil to design and build prison accommodation units in five locations. Photo / Michael Craig
Preliminary investigations indicated Decmil had a strong claim against Corrections for amounts that remain owed, McVeigh wrote.
"Further, we believe that Corrections does not have a contractual right to demand payment of the performance guarantees and doing so will prejudice all creditors of the company. We need to resist the payment of the performance bonds because any amounts paid to Corrections under the bonds will reduce the amount available to pay ordinary unsecured creditors who have provided services to the company in good faith," he said.
He also cited a potential power imbalance.
"I am very concerned by the actions of the Department of Corrections to attempt to improve its position at the expense of ordinary unsecured creditors and I have therefore instructed my solicitors to apply to the High Court of New Zealand for an interim injunction to prevent the performance bonds from being paid," he said.
Before his appointment, Corrections was in negotiations with the company to start an arbitration process to resolve the dispute.
"I am considering the negotiations that took place prior to my appointment, however my preliminary view is that Correction's actions to demand payment of the performance bonds may mean that the dispute cannot be resolved through arbitration and that court proceedings may be necessary," he said.
"It is likely that I will need to conduct a court examination of various individuals to better understand the circumstances surrounding termination of the contract," he said.
The Herald has sought further information from Corrections.
When the liquidation notice was advertised a few days ago, one New Zealand subcontractor expressed concern about getting paid.
"This should have been a Government-backed job," said the creditor, citing work at Turangi Prison and at a Waiheke Island school.
"I cannot understand how the Goverernment would allow this company to undertake work, let them go into liquidation and leave all sub contractors high and dry," the person said.
