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Live blog - Mainzeal put into receivership after leaky building, Chinese supply issues; Big projects, 400 workers and many subcontractors in limbo

Posted in Property Updated

By Bernard Hickey

New Zealand's third largest commercial building firm, Mainzeal, has been put into receivership in a major shock for the construction sector.

More than 400 Mainzeal workers, hundreds of sub-contractors and dozens of major construction projects are now in limbo. Mainzeal's last remaining director, Richard Yan, asked the firm's bank, BNZ, to put it into receivership on Waitangi Day. PriceWaterhouseCoopers' Colin McLoy and David Bridgman are the receivers.

"We are committed to doing the best we can for suppliers, staff and subcontractors of Mainzeal," McLoy said in a statement from PwC, pointing to a PwC website for more information.

Prime Minister John Key told reporters before a scheduled all day caucus meeting he was surprised at the collapse, but was confident it would not slow the Christchurch rebuild and that Mainzeal's workers and assets would find jobs and be sold to competing construction firms.

He said his main concern was for the sub contractors.

The receivership will affect the Christchurch rebuild in various ways. Mainzeal is part of a joint venture with MWH Global to work with Vero, AA Insurance and SIS Insurance to rebuild homes and other buildings.

See more here at MWH Mainzeal's project summary, which says Vero is managing around 19,000 claims in Christchurch and the joint venture had assessed the damage for more than 6,000 residential properties and 1,800 commercial properties.

Mainzeal's website, which has yet to publish an announcement on the receivership, details the projects it is working on, including the NZ$250 million Manukau Institute of Technology (MIT) project, the Benmore Haywards Pole replacement for the HVDC power link between the North and South Islands and the Hub for Victoria University.

Mainzeal is thought to have worked on NZ$7.5 bln of projects over the years.

Earthquake Recovery Minister Gerry Brownlee told 3News' Firstline that Work and Income was on standby in Christchurch to handle the 90 Mainzeal workers there if Mainzeal chose to shut down rather than trade on through. He expected they would be employed quickly.

He said he was less concerned than others about the effects of Mainzeal's receivership on the rebuild.

"There will be others who step into the void," Brownlee said, adding he didn't think the receivership would hold up the rebuild much.

However, he said was concerned to see how quickly Mainzeal decided to trade on or shut down.

Boardroom conflict

The receivership announcement followed hard on the heels of the resignation of independent directors (former National Prime Minister) Jenny Shipley, (former Brierley CEO Paul Collins) and Tauranga businessman Clive Tilby.

They put out a joint statement explaining their decisions to resign from Mainzeal Group (which is not in receivership) the day before the receivership of its subsidiary Mainzeal Property and Construction Ltd.

"We did so because we did not have sufficient confidence in our ability to continue to perform our duties as independent directors, as the undertakings given and the basis on which we had undertaken serve as Directors had changed and so we had no option but to tender our resignations," they said, adding they resigned from Mainzeal Property and Construction in December at the request of the shareholder Richard Yan.

"We agreed to accept the role of Directors of Mainzeal Group Ltd based on the undertakings and assurances given by the shareholder at that time. Sadly these have now changed which have led to our resignations," they said.

"That company had passed through a very difficult year in the construction sector, the impact of legacy issues around leaky buildings, a large contract with disputed payments and a Chinese supply chain scheduling and delivery challenge. The 4 Directors resigned the Mainzeal Group board on Tuesday when it became apparent financial undertakings from its shareholder, Richina Pacific, for Mainzeal Property and Construction were no longer in place and the further equity commitments were uncertain or conditional."

Leaky, leaky, leaky

The NZHerald's Anne Gibson reported Mainzeal was reparing apartment buildings on Hobson Street in Auckland.

Leaky buildings have dogged this builder, with most of the rest of the sector, for many years. And when big commercial jobs go wrong, they are extremely expensive to fix. Smaller builders might go to the wall, but Mainzeal hung in there - and returned to the sites where repairs were required. Perhaps its highest-profile rerun was on Hobson St, not far from Spaghetti Junction where it was fixing the two-tower Hobson Gardens, wrapped in white plastic for what seems like an age.

Even Dame Jenny Shipley's upmarket townhouse near Auckland Domain leaked: the irony there was that it was also built by Mainzeal and she chaired Richina Pacific, Mainzeal's owner. Extensive repairs were made when windows were ripped out and replaced in the eight-storey, 15-year-old, 27-unit Parkwood.

Lack of working capital

The independent directors said a working capital facility with the BNZ was withdrawn as a result of the lack of support from Mainzeal's shareholders, leading to the appointment of receivers.

“As independent directors of MGL, the holding company, we have done everything we could to try and avoid this painful outcome. We are fully aware and very saddened by the subsequent impacts the receivership may have on Mainzeal employees, creditors, subcontractors and others," they said.

“It is deeply disappointing that we were unable to secure the support that would have allowed Mainzeal to continue to operate. Mainzeal Property and Construction was a very good company, had a significant workload of building in Christchurch and if we had managed to gain the undertakings necessary, it was working toward a positive cash flow and profitability in 2013.”

Peter Gomm has also resigned the boards of Mainzeal Group ltd and Mainzeal Property and Construction, but will remain as CEO.

(Adds Christchurch rebuild detail, project details, Brownlee's comments, Leaky building details, Key's comments)

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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54 Comments

From Olly Newland's website

From Olly Newland's website put up yesterday afternoon:
 
"Typically massive receiverships such as this one have flow on effects that no one can really comprehend so early on in the story. It will be months before we know the extent of the losses or what caused them, although remedial work on leaky properties is being cited as one of the chief causes.
The workers may be able to find work elsewhere such as in Christchurch, but the many sub contractors, who must surely be owned money, may stand to lose their shirts. This collapse may be the Reserve bank’s answer to pressure on the exchange rate and rising house prices as it reminds us that the recession isn’t over just yet".
www.ollynewland.co.nz

Updated with Brownlee

Updated with Brownlee comments and details on projects.

Olly should know all about

Olly should know all about subbies losing their money as he has helped a lot of people lose a lot of money in the past. I am sure he thinks about that everyday and regrets it and is gradually paying them back.

Landmark ?

Landmark ?

Mainzeal recently moved into

Mainzeal recently moved into upmarket refurbished premises near Victoria Park.
Will be interesting to see what has gone on here with the private equity Richina outfit being behind Mainzeal - perhaps much wider problems internationally have something to do with it.
http://www.richina.com/
400 people wondering about their jobs this morning - not good! Will be plenty of subcontracting companies worried about their position too - wonder how many projects Mainzeal have on the go in Auckland.
OCR cut anyone?

FFS what is a rate cut going

FFS what is a rate cut going to do?

ex agent:   I am sure Olly

ex agent:   I am sure Olly would love  to know what subbies "lost money" in the past through him because the answer is  "none" and  consequenty he has never needed to pay anyone back .

Are you the lawyer or

Are you the lawyer or something else that cannot be uttered on a family show - either way, can you start speaking for yourself and let other do the same, if he so wishes.

Was Newland (Landmark) ever

Was Newland (Landmark) ever in the business of constructing anything and employing builders and sub-contractors?

Stack up merchants through a

Stack up merchants through a rising property bubble as I recall, that hit the wall when the bubble collapsed in the late 1980's.
To the best of my knowledge, Landmark and Olly were never considered developers as such.
I would be most interested in learning (or more properly ... relearning ... its quite a while ago now) more about the Landmark saga.
Hugh Pavletich

Looks like they built a bunch

Looks like they built a bunch of crappy leaky buildings and it has come back to bite them - and so it should - if you build something that leaks you should be responsible for it!

They took responsibility for

They took responsibility for plenty of defective projects where the fault was theirs...unfortunately it looks like the scale of the problem was ultimately too big

I agree bigblue.  But it

I agree bigblue.  But it wasn't just Mainzeal who were responsible for sub-standard work, but surely all of their contractors and sub-contractors at the time as well.  So they all get what they deserve.  Of course, the people who are hard done by are the new contractors who (let's say) are actually competent at their work.  They may now be out of pocket due to Mainzeal's leaky claims relating to past building work.  I can think of one development in Grey Lynn that leaked and at the time M stood by their work and covered remedial costs.  Rumour has it that complex is leaking again.  In fact, it would be interesting to know the percentage of building Mainzeal have been involved with that haven't had weather tightness issues.
 

  Quote from

 

Quote from above

Earthquake Recovery Minister Gerry Brownlee told 3News' Firstline that Work and Income was on standby in Christchurch to handle the 90 Mainzeal workers there if Mainzeal chose to shut down rather than trade on through. He expected they would be employed quickly.

 

He said he was less concerned than others about the effects of Mainzeal's receivership on the rebuild.

 

"There will be others who step into the void," Brownlee said, adding he didn't think the receivership would hold up the rebuild much.

 

Sad indicment on the speed of progress more than two years on.

  Business geminates, grows,

 
Business geminates, grows, blossoms, wanes, dies, and fertilizes empty spaces for a generation of new business.
What is wrong with this beautiful cycle?

Those spaces weren't empty

Those spaces weren't empty and the tree just crushed the smallest plants and strip limbs of some of the bigger ones. So not so beautiful for some.

I'm now envisioning Jenny

I'm now envisioning Jenny Shipley toppling to the ground.... crushing all in her path.
It's not a pretty sight.

I wouldn't call it

I wouldn't call it "beautiful", but you are right in that demise is part of business life cycle. Mainzeal is neither the first, nor the last company to go under...

Aside from the fact the

Aside from the fact the Auckland region has always been a bit of a problem child the real issue here is Richard Yan. The guy has destroyed a huge amount of (other peoples) wealth over the last decade or so.
I really feel for the staff, and particularly the subbies....the ripple effect is going to be huge.
 

Perhaps the 'subbies' might

Perhaps the 'subbies' might now realise that the rort of charging $30-50 bucks per worker, just to turn up, without actually doing anything, probably isn't a very good idea.
It has all happened before, just prior to the GFC, when the bosses all drove Ford Exporers, and couldn't be bothered to answer thier phone, then all of a sudden they are calling you up, asking if you had any work.
There are probably some genuine subbies out there, but having employed quite a few of them over the years, can't say i have met many.
 
 

The subbies who built the

The subbies who built the buildings that leaked?
 

FYI Updated with comments

FYI Updated with comments from Key

He (Key) said his main

He (Key) said his main concern was for the sub contractors.
 
Or are their mortgages the matter of greater concern?

key was surprised.says it

key was surprised.says it all.

lol, whenever something

lol, whenever something negative happens, he's always surprised. whenever anything positive happens, it was planned ;)
Mind you, same with all pollies right?

"We are committed to doing

"We are committed to doing the best we can for suppliers, staff and subcontractors of Mainzeal," McLoy said in a statement from PwC, pointing to a PwC website for more information.
 
ha! i love it when recievers step in and make assurances like these - all the while knowing at the massive fees they draw out themselves will reduce any leftovers available to said suppliers, contractors etc.

Dreamtime. NAB today

Dreamtime. NAB today announced a 21% fall in profit due to write-downs.

What - because of failed

What - because of failed loans to the BNZ subsidiary?
 
Overall, external debt owed to related parties by the banking sector, as well as direct intercompany external borrowing, is equivalent to just over half of New Zealand’s gross external debt – estimated to be by far the highest proportion in the OECD. Read Article
 

No. In response to SorreLL's

No. In response to SorreLL's request to write-off the Mainzeal Debt. Can you imagine the HeadOffice response to the subsidiary's request to be benevolent at a time when the Parent is bleeding out it's backside?

ohh - I would have thought

ohh - I would have thought BNZ had already written down it's exposure to Mainzeal before they called in the receivers. Isn't that what the RBNZ's prudential financial management guidelines demand?

You do realise there is a

You do realise there is a world of difference between an accounting adjustment in the external accounts to accommodate a "write-down" which is a euphemism for an increase in "provisioning for doubtful debts" and actually walking away.

Haven’t we had about a

Haven’t we had about a gutsful of political incompetence screwing up the development and construction sectors ?
 
Back early 2010 I covered some of these issues within “Houston: we have a housing affordability problem”…
 
http://www.interest.co.nz/news/49029/opinion-houston-we-have-housing-affordability-problem
 
… and too, the Christchurch recovery circus with “Christchurch: The way forward” with hyperlinks to earlier articles …
 
http://www.scoop.co.nz/stories/AK1206/S00251/christchurch-the-way-forward.htm
 
There is a long and sorry history to all this political bungling.
 
It will be a great day indeed when normal and affordable property markets are restored in this country – and with it, sensible commercial disciplines.
 
Hugh Pavletich
 

How exactly is this a result

How exactly is this a result of political blundering?
 
Latley they seemed to have lots of managers and not many builders. Rather Hawkins or some of the others (but not Fletcher$) if building.  They took some big losses like on Vector Arena and must of had massive overhead. Maybe just bad business.

Bob ...as Anne Gibson of the

Bob ...as Anne Gibson of the NZ Herald has pointed out, leaky homes appear to be part of it. And the points you note too.

Funny how many bloggers here

Funny how many bloggers here blame the Government for Maizeals demise . The Government was not running this Company and cannt be held responsible , its what happens in a Capitalist society , businesses can and do often fail

The Government and the Local

The Government and the Local Authority equivalent may not have been running this company but it would certainly seem they were signing the contracts that did (view outstanding work on the last page but one of this PDF document). - was this in lieu of the lack of direct government payouts for "leaky home" repairs or just part of the government's socialist/Keynesian hubris to win re-election? We certainly couldn't afford these projects from the net tax take.

Mainzeal and Novopay must be

Mainzeal and Novopay must be part of the same club.

This sorry little saga is the

This sorry little saga is the result of a highly politicised (and hence cash-flow-delayed) blamefest.  And it's the 'carry' - interest on w/c - that does in most contractors. 
 
It only takes a late quality-related claim (leaky buildings) that is then politicised (commissions of inquiry, apportionment of blame, a leisurely process) and the whole vicious cycle clicks into gear:
 

  • more claims are attracted after the initiating ones have risen into media awareness.
  • Brakes instantly go on payments (retentions held onto, new retentions imposed)
  • Legal Eagles let loose on every contract, adding time delays and massive fees
  • Local Gumnut is involved, and common taters should be able to gauge for themselves what happens when the ineptocracies go into CYA mode
  • Central Gumnut is involved, and an intricate dance of 'let the Other Guy catch the Falling Knife' ensues

 
The wonder is that MZ held out so long, given all this.
 
But ask yerselves, why would anyone with $ to invest, do so into such an  inhospitable environment?
 
And then, quelle surprise, there seem to be few takers for the Glorious Christchurch CBD Rebuild?
 
Fool me once, shame on you.
 
Fool me twice......
 
Anyone care to bet on Talent2's survival?

Was it the leaky buildings

Was it the leaky buildings that broke the camels back?
Remedial cost incurred todate and potential being so financialy onerous that Mainzeal have very little choice?

I note that "container

I note that "container shipley" was the Chair of Richina Pacific- [Mainzeal's parent]  until  recently -     Also ain't it  funny how the "rats" abandoned ship at such proximity to the ultimate collapse of Mainzeal Construction - methinks they should still be held to account as this situation obviously did not simply arise in the last few weeks or months !!!

Yes Shipley is a great

Yes Shipley is a great opertunist and self promoter.
Just throwing ones her hands up in air is not enough. Those special privledges and high reneumeration are not for nothing. They must be held accountable and front the media.

If anyone needs to front in

If anyone needs to front in all of this it is Yan. I have little doubt he was the one pulling the strings in all of this.

Or it could just be the

Or it could just be the recent Court decision that extended the leaky-building-gravy-train rights to commercial buildings.....
 
And if I were a Director, having That Steaming Pile of Doo-doo dumped on My front doorstep, I'd sidle quickly out the back door, too.
 
As Hugh P says, letting issues become politicised is always a recipe for delay (and time=money in the real as opposed to the pollies' world).
 
So I'd put it all down to two simple factors:
1 - delays and hence 'carry' plus cost inflation on the original leaky buildings scope
2 - a late and massive increase in leaky building liability scope
 
No conspiracy theories needed, just the usual bumbling and protracted processes of Gumnuts....

So it's all ok for a

So it's all ok for a contractor to subcontract work out knowing very well it is in financial strife and unlikely to pay any accounts....isn't that fraud?
http://www.stuff.co.nz/the-press/news/8276573/Contractors-owed-millions-by-Mainzeal

Shit happens. Hardly one mans

Shit happens. Hardly one mans fault. I give him credit for staying the course as opposed to taking the loser route and resigning. No honor in that. To those subbies that are steering down the barrel - that's the risk they took. Especially if they didn't protect themselves with other revenue streams etc.. Sick of the poor me attitude in nz at the moment. and it doesn't all rest at the top. There will be multiple points that havevlead to this. Some internal, some out of the boards control. And not anticipated. Or foreseen. Once again we get this mob mentality from the so called experts baining for blood. Just like a bunch of parasitic leeches. They make me sick. Collectively they probably haven't done a goddamed thing of consequence in there entire life. I repeat shit happens

Brian Gaynor -Mainzeal

Brian Gaynor -Mainzeal collapse needs investigation
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1086...
 
Consequently, it is vitally important that PwC and the regulators carry out a wide-ranging investigation of the Mainzeal collapse because the Richina Pacific group of companies has had a huge number of related party transactions in the past.
What happened to the preference shares deal with the group's Chinese fund management business?
Has any dividend been paid, or other payment been made, by Mainzeal to its parent company in recent months?
Is the New Zealand construction company owed any money by other Richina Pacific entities?
Why hasn't Mainzeal lodged recent financial accounts at the Companies Office, which is a requirement of overseas-controlled companies?
 

Fat chance bigblue...the

Fat chance bigblue...the carpet has been lifted and the sweaping is underway...whitewash standing by...
"... Shipley, strongly supporting Yan. She argued that the company had a positive outlook under his stewardship." herald    harrrrrrrrrrrrrrhahahaaahaaa

It's always the same when

It's always the same when construction businesses falter. There is a massive clean out and sadly the subbies are the big losers. As Gaynor puts it there has always been a timing issue with cash receipts and when contractors are paid. Receivership is therefore always going to be an appealing option. An inquiry will achieve nothing. Failure to file accounts is also not a biggie, s slap on the wrist.

 Failure to file accounts

 Failure to file accounts should result in fines proportional to the size of the company IMHO. Make company directors personally responsible and it wouldn't happen.