Scarbro first liquidators’ report: $14m debts estimated, creditors named in list

The Hadlow, a 124-residence apartment block in Grey Lynn, is the biggest project to be affected by the construction company Scarbro's insolvency. Photo / Alex Burton

The first liquidators’ report is out on three failed Scarbro construction businesses in the biggest insolvency of a builder in New Zealand this year.

That estimates the businesses owe around $14 million but have assets of $21m, although the realisation of those comes with a warning not to expect too much.

Andrew Grenfell and Conor McElhinney of McGrathNicol are running the insolvent Dryden Place, Ellerslie-headquartered businesses whose land and buildings they plan to sell.

Scarbro Build is estimated to owe $9.2m, Scarbro Construction Holdings $3.5m and Scarbro Construction $1.3m.

Debts are to unsecured creditors, retentions held back by the builder yet to pay suppliers and those who contributed skills and labour on its contracts, intercompany loans of nearly $3m and other related party loans of more than $4m.

The $21m assets also appear on that statement of company affairs.

But it has no final total of estimated deficit or credit on the statement of financial position. Scarbro Construction Holdings is the richest with $12m, Scarbro Build has $7.3m and Scarbro Construction $2.2m.

Assets include ANZ bank accounts, retentions the company holds which haven’t yet been paid out, accounts due to be paid of more than $4.3m, fixed assets of $3.9m and intercompany receivables of $7.2m.

However there was a grim note with the $7.2m figure: “Intercompany receivables outstanding are unlikely to have any recoverable value,” the report warned.

And in a further blow, it said: “Other current assets primarily relate to deferred tax and future tax benefits if the companies were to make a profit in the future. These future tax losses will be written off by the Inland Revenue upon the completion of the liquidations.”

The Hadlow was being built in Grey Lynn when the companies failed. Photo / Alex Burton

The liquidators haven’t given any numbers of realisable values because it might be detrimental to its realisation process, they said.

ANZ Bank of New Zealand is a preferential creditor with a security agreement. The businesses have an overdraft of $350,000. ANZ also issued construction performance bonds of $2.4m to the builder. Another business, Assetinsure, issued construction bonds of a further $2.9m, the liquidators said.

McGrathNicol will now determine the position of five building projects in Auckland at the time they were appointed.

The report comes after the April 6 appointment of the liquidators by Scarbro directors Garry Scarborough and Peter Davis.

The directors told the liquidators that despite four of its five projects being close to completion, deferral of new upcoming projects, ongoing impacts of Covid-associated disruptions, construction price increases, labour shortages and adverse weather events during recent months meant reduced margins, and in one instance significant losses, on the fixed-price contracts.

“These factors have contributed to the companies’ insufficient cashflow and funding options to be able to continue to trade. The shareholders therefore resolved to place the companies into liquidation,” McGrathNicol’s report said.

All five contracts the businesses were working on were fixed-price.

Scarbro Construction’s biggest job was for a Conrad Properties entity, building an almost-finished 124-residence The Hadlow, 406-428 Great North Rd above the Northwestern Motorway between Commercial Rd and the Grey Lynn Library.

Jamie Hutchens, a Conrad director, said all The Hadlow’s residences were pre-sold, deposits paid.

“We anticipate a small delay of a further six to eight weeks of completing the project. Purchasers will be advised shortly. We have needed to clarify the correct timeframes, details and processes with the liquidators in order to give our purchasers a clarified position,” Hutchens said.

Conrad was working with the liquidators and expected work would restart there soon, Hutchens said on Friday.

Scarbro was also working on Auckland apartments for the state housing provider Kāinga Ora as well as 16 Bali-style villas at Matakana.

The builder won contracts worth $39m to build 89 units for the Crown on the Shore. Grenfell said Scarbro was partway through that work.

Scarbro was building this new North Shore apartment block for Kāinga Ora when it declared insolvency.

The biggest was on Cadness St, Northcote, where it won a $28m contract for the 55-unit N30. Work had started a year ago and is only months away from finishing, but Kāinga Ora must now find new contractors.

The second was an $11m contract to build 34 one- and two-bedroom units in a five-level concrete block on Kaipatiki Rd, Glenfield, for the state agency. The builder estimated that would take it 16 months.

That project is less advanced but the site is also idle until new contractors are appointed.

Patrick Dougherty, Kāinga Ora construction and innovation manager, said this month the liquidation was a “sad outcome”.

“We are in the very early stage of assessing the status of each project and will work with the liquidators on the way forward,” Dougherty said.

Other contractors are understood to be keen to pick up that work and are in negotiations over that.

The fifth job was for Hyde Park Trustee in Mt Wellington and was construction work on retail premises.

* Earthmoving and transport companies Scarbro Civil and Scarborough Bros. are unconnected to the companies in liquidation, although Paul Scarborough of those first two companies is the brother of Garry Scarborough of the companies in liquidation.