Behind the Tools - Business Summits
Du Val Group have been placed into interim receivership after the Financial Markets Authority High Court action last week. PWC ‘s John Fisk, Stephen White and Lara Bennett have been appointed interim receivers, and are expected to provide an interim report within ten days. The court has also approved an asset preservation order. There are sixty-six companies listed in the Government Gazette notice.
Du Val and associated businesses are developers of apartments and multi-dwelling developments around Auckland.
These types of speculative businesses have no place in the New Zealand construction sector if they put sub-contractors financial security at risk. After Mainzeal and many others, main contractors protection needs to be strengthened in the New Zealand construction sector to ensure payments are more secure. Retentions is only one part of the issue, and although legislation has been developed, it becomes toothless if there is no compliance. Any organisation that does not comply with retention law to protect subcontractors money has no place in the construction sector.
Your Rights
We are aware many subcontractors are caught up in this – owed money and retentions. It is a good time to remind you of your rights under The Construction Contracts Act and its amendments, which came into force for all contracts started, or amended after 5th October 2023. As subcontractors you have significant rights. This is your money, held on trust by the contractor. You have the right to know
- How the money is used and kept – Section 18D requires retention funds to be deposited into a compliant bank account.
- A schedule of your funds held on trust, at least every three months. Section 18FC.
If you do not receive a retention schedule, and notification of how the funds are held in trust. Ask for it – this is your money.
Main Contractors Responsibilities
Main Contractors have significant responsibilities under the Act.
- Keep funds in a separate account and must inform the bank that it is a retention account
- Funds can not be used for working capital
- Section 18C requires robust requirements for accounting and records detailing payments in and out.
- Under Section 18FC records must be available for inspection by the party for whom retention money is held.
The retention regime has the effect that all retention money is held on trust. This means that several of the trustee obligations under the Trusts Act 2019 apply to the principal and its directors, in particular duties:
- to know the terms of the trust: s23;
- to act honestly in good faith: s25; and
- not to act in the in trustees’ own interests: ss31 – 37.
This could entitle you to a claim directly against the directors for breach of those duties which is a powerful piece of leverage to prompt the development company to carry out its obligations. If you receive a response along the lines that “our contract commenced prior to October 2023”, citing the Trusts Acts 2019 requirements and the directors’ obligations disposes of that issue relatively quickly.
Lender responsibilities
The statutory trust arrangements over retentions may mean that lenders end up being a party to an injunction application for retention funds to be deposited in a lawyer’s trust account, if these funds had not been drawn down.
It is not uncommon for developers to not drawdown retentions until they are due and owing, for example, to avoid interest payments. However, many cases in Canada deal with the question of whether the bank was aware of the nature of the funds. If a bank is aware that the funds are trust funds, the bank is a participant in a breach of trust which makes it liable to the beneficiaries. In any case, the trustee is in breach of the trust for failing to preserve trust assets. If the trustee is a corporation, the developer or principal’s officers and directors who are its operating mind will be personally liable.
If the project is being funded by development finance, then the lender should know a part of the funds, not yet drawn down, is retention money. It is likely that some local and overseas funders may not be aware of our statutory trust regime, and if that’s the case then its best they know as soon as possible.
If you know the lender involved and are not getting satisfactory response from the developer, it may pay to reach out to them by email with your concerns asking them to protect your retentions and provide evidence of this.
Penalties for Non-compliance
Breach of the Trusts Act 2019 with civil liability against the directors personally.
It is a criminal offence not to comply with the Act.
- If convicted, a party is liable for a fine not exceeding $200,000.00 for each offence.
- Each director is liable to fine not exceeding $50,000.00 for each offence.
What To Do If You Are Affected.
Contact your industry association, they are there to assist and have the experience and contacts to help you.
If you are not receiving retention schedules on any contracts where retentions are held – ask for them. If you don’t receive them, lodge a complaint with MBIE and seek legal advice from Master Electricians and Master Plumbers preferred supplier for legal retentions, Ford Sumner, who are well versed on obtaining this information and taking steps to protect and/or recover your retentions.
The attached link provides helpful information on retentions, and has links to the complaint form, and contact information.
We have included the email address and complaint form below.
Don’t wait until a business fails, if you don’t get your retention questions answered by your main contractor – lay a complaint with MBIE, contact your lawyer or Ford Sumner about taking enforcement action to protect your retentions.
When the Act came into force.
The Hon Megan Woods said “The changes made today provide important protections for subcontractors so they can be certain their payment is kept safe, can’t be used for any other purpose, and will be paid out should the head contractor’s business fail … [the changes] ensure that there are strict penalties in place for companies who fail to meet their obligations to those who carry out work for them”.
If You Are Finding The Current Environment Challenging And Overwhelming – Contact your industry organisation, or talk to someone – a colleague, family member or a mate. You don’t have to deal with this on your own.