The Paddington, on Wellington’s Taranaki St. Photo / Supplied
What could have been the end of a $130-million Wellington development causing a “domino effect” of liquidated businesses has resulted in a construction success story and “game-changing” technology.
Work froze at $130m development, The Paddington, on Wellington’s Taranaki St in May when construction company Armstrong Downes Commercial went into liquidation, owing a total $9.2m to 320 unsecured trade creditors across eight different projects.
Citing substantial losses in an economic environment of spiralling costs, procurement challenges, and labour shortages, original liquidators Grant Thornton took control of The Paddington and would-be returning subcontractors’ “assets as soon as practicable”, a statement read in May. Waterstone Insolvency took over in June.
Thames Pacific - a large-scale residential developer behind The Paddington - paid the previous month’s claim hours before Downes went into liquidation, leaving the company and almost 35 subcontracting companies with monies owing.
Thames Pacific director Steven Suturious said the company’s only option was to move quickly; regaining site control from the liquidators and to finish the job themselves, he said.
Starting a construction business overnight, the company paid subcontractors an additional month’s payment, leaving Thames Pacific left to recover costs associated with the liquidation process.
“There isn’t much anyone can do in the event of a liquidation. Subcontractors would have gone into liquidation themselves as there’s usually a domino effect with newer or undercapitalised subcontractors. Here, they would have simply joined the list of creditors owed money.”
Waterstone Insolvency principal Damien Grant said since the subcontractors had been paid, Thames Pacific - in their place - and all other unsecured creditors would be paid by May 2023. While the liquidation process was still ongoing, payment could be anything between 10-20 per cent of the original sum owed, he said.
Operating since August 2021, VDM Construction & Retaining Ltd was commissioned to complete the backfilling of the development’s main alleyways, and all the digging, trenching, and levelling.
Director Kobus van der Merwe said it was a stressful time. Being a new company it didn’t have the resources for legal services to recover funds and he was “very grateful to Thames Pacific who handled the situation extremely well”.
G and S Roofing Ltd was tasked with completing all of the roofing on all 151 units. Left in limbo, director Jon Lucas said at the heart of the problem was a broken payment and compliance system, which was resource-heavy and hard to understand.
All payment claim information existed across multiple platforms and there was no clear process for how to get paid. It meant the claims weren’t compliant and the company had no legal leg to stand on, he said.
If small businesses knew their rights and could submit claims faster there could be more cash flow reassurance, Lucas said.
Having a background in law and technology, coupled with owning a trade business, Lewis Gyson decided to use his experience to overcome the “arduous and overwhelmingly painful task of handling complex and varying payment requirements manually”.
“I resent the administration that goes into getting paid, and I resent the fact that many subbies aren’t aware that there is legislation designed to protect them - The Construction Contracts Act.
“Simple invoicing doesn’t protect them under the Act. So I needed to build something that encapsulated a simple software solution with a compliance layer baked into it.”
Cue Payment Claims, a software that streamlines the payment and compliance process for all parties so they’re protected under the Construction Contracts Act.
“I don’t want a single subbie or contractor to miss out on payment and I want transparency to fix those problems quickly. We built a system that makes submitting a Construction Contracts Act-compliant payment claim as easy as sending an email. I think it’s wrong that construction hasn’t had a solution like this - so building it made sense.”
Hearing what had happened with The Paddington, Gyson contacted Thames Pacific and 35 subcontractors were successfully onboarded in one day.
“I knew there would be a huge amount of administration involved in getting the subbies onboarded and managed. I had already been building a solution for the previous six months so the timing was perfect.”
Subcontractors were onboarded and naturally nervous about starting work again, he said.
Trust was one of the fundamentally lacking aspects of construction, with subcontractors failing to realise they had protections under the legislation, as well as simple transparent solutions to getting paid, he said.
“If a payment claim is compliant, the process to go after a debt is actually very simple. We’re helping our customers manage that process, simply.”
Efficiency and transparency also unlocked cost savings, he said.
“When you’re not bogged down in administration, you spend time on other parts of your business, focusing on quality and growth.”
For VDM Construction, the user-friendly technology cut van der Merwe’s invoicing time in half, allowing more time for the family. Employees were also happier getting work done as they knew they would be paid on time.
For Lucas, knowing the company was legally protected made him feel confident to engage in commercial construction projects again.
“This could be a game-changer for the industry.”