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Aussie company collapses up to 50 per cent since April, Creditorwatch finds

It’s no secret there has been a “massive rise” in Australian companies collapsing but new findings show they have skyrocketed by a whopping 50 per cent since April.

The construction industry has faced a particular crisis with dozens of firms going under this year, but everything from billion dollar tech starts up to grocery delivery companies have become casualties of this “disturbing trend”.

Overall, companies going into external administration are up 46 per cent year-on-year, while court actions are up 54 per cent year-on-year, the latest data from credit reporting agency CreditorWatch found.

The huge jump has been blamed on interest rate rises causing “cheap money” to dry up, while spooked investors are pulling back on spending their cash on start-ups as valuations have taken a dramatic dive, with a slew of staff cuts battering the sector .

Meanwhile many businesses are already suffering depleted cash reserves as a result of the pandemic and the Australian Taxation Office (ATO) has ramped up its debt collection, according to the agency.

‘Ramping up legal action’

CreditorWatch has issued a chilling warning that the rise in business insolvencies will continue this year as multiple impacts batter the economy including ongoing supply chain issues, declining consumer confidence, rising interest rates, inflation and labor shortages.

CreditorWatch chief executive Patrick Coghlan said the hands-off approach to debt collection adopted by the ATO and many lenders during the pandemic is clearly over.

“The massive rise in external administrations is certainly a disturbing trend – now up 50 per cent since April. Our data shows that court actions are back to pre-Covid levels and the ATO has also stated that it is ramping up legal action for outstanding debts,” he said.

“With business and consumer confidence declining and inflation and interest rates on the rise, this doesn’t bode well for businesses, particularly small and medium enterprises whose cash reserves were depleted during the pandemic and are now operating on much tighter margins.”

No longer ‘awash with cash’

Aussie start-ups have been particularly hard hit, with the casualties piling up in the tech sector.

The latest was an Australian tech company called Metigy, which left staff “shell-shocked” by its sudden collapse last week, after it planned to raise money with a valuation of $1 billion.

Businesses that are trying to raise money for growth are particularly at risk in the current environment, added CreditorWatch chief economist Anneke Thompson.

“When interest rates were low and the world was awash with cash, investors were hungry for investment opportunities, and willing to move up the risk curve to find good returns,” she said.

“Now that cash is being consumed by ever-increasing prices and debt costs a lot more, the appetite for risk is dropping.

“Start-up businesses or those in the growth phase are always considered riskier. We have already seen this phenomenon hit the tech sector, and many well-known companies are being repriced to reflect this.”

Other recently failed Australian start-ups include grocery delivery service Send, which went into liquidation at the end of May, after the company spent $11 million in eight months to stay afloat.

There was also a Victorian food delivery company that styled itself as a rival to UberEats and Deliveroo that collapsed in July as it became unprofitable, despite making more than $6 million worth of deliveries since it launched in 2017 and had 18,000 customers.

Meanwhile Australia’s first ever neobank founded in 2017, Volt Bank, went under last month with 140 staff losing their jobs, while 6000 customers were told to urgently withdraw their funds.

A venture capital firm issued a sobering message about the state of Australia’s start-up industry, warning that more new companies would go bust and pulling back on funding as a result.

CreditorWatch also identified five regions where businesses are most at risk of going under with the suburbs of Merrylands, Canterbury and Auburn in NSW on the list, alongside Surfers Paradise and Ormeau in Queensland.

Construction collapses to continue

After four consecutive months of increases to interest rates and inflation continuing to rise, it is now clear that a slowdown in demand in many industries is inevitable, added Ms Thompson.

She said construction companies will continue to be impacted by late payments and reduced demand, particularly smaller operators.

The most recent company impacted was Melbourne-based Blint Builder which collapsed this week with approximately $1 million in outstanding debt owed to 50 creditors, according to the liquidators.

It joined smaller operators like Hotondo Homes Horsham, which was based in Victoria and a franchisee of a national construction firm – which collapsed in July affecting 11 homeowners with $1.2 million in outstanding debt.

It was the second Hotondo Homes franchisee to go under this year, with its Hobart branch collapsing in January owing $1.3 million to creditors, according to a report from liquidator Revive Financial.

Others include two major Australian construction companies, Gold Coast-based Condev and industry giant Probuild, which went into liquidation earlier this year.

There was also Norris Construction Group, which was in Geelong, collapsed in March with $27 million in debt. It owes $3.2 million to around 140 staff that it is unlikely to be able to repay, according to the liquidator’s report.

Meanwhile, Snowdon Developments was ordered into liquidation by the Supreme Court with 52 staff members, 550 homes and more than 250 creditors owed just under $18 million, although it was partially bought out less than 24 hours after going bust.

Other casualties this year include Inside Out Construction, Solido Builders, Waterford Homes, Affordable Modular Homes and Statement Builders.

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Melbourne construction company Blint Builders collapses owing $1m to 50 creditors

A Melbourne-based builder has collapsed with approximately $1 million in outstanding debt owed to 50 creditors, according to the liquidators.

The construction firm called Blint Builders went into voluntary liquidation after news.com.au revealed a number of homeowners were experiencing a “horrendous” amount of stress as they had poured hundreds of thousands of dollars into half finished homes that had sat untouched for months.

Cliff Sanderson from insolvency firm Dissolve has been appointed to handle Blint Builder’s liquidation.

He said Blint’s owner had told him that the company had “ceased to trade”.

“In our conversations with him, which are yet to be verified, he told us there are 50 creditors with approximately $1 million in debt and I expect that number to go up and the money will go up in excess of that,” he told news. com.au.

‘Horrifying strain’

Mr Sanderson said he was also told that “half a dozen” homeowners were impacted by Blint’s demise, but was waiting on more information to be supplied by the builder.

One family impacted are Dean and Nolle Fuller, who have five children between them, and have already shelled out $480,000 to Blint, since signing on in January.

The couple had demolished their existing home last November and had engaged Blint Builders to build two townhouses for $1.5 million, due to be delivered early next year.

No work has been done on the site since June and it has been broken into after construction stopped leaving it a “mess”, Mr Fuller said.

“In that time, we have had two lots of vandalizing and trespassing and damage caused to our property, which has been lodged with police,” Mr Fuller told news.com.au.

“We have had a truck back up and dump three to four square meters of rubble and waste material on the property and the truck also smashed the gates down.

“Recently someone turned up and stole the electrical meter box within the property.”

The project manager said the experience had caused an “unbelievable amount of stress and anxiety”.

Another family who are under “horrendous strain” are Tony and Jo Firman and their two children, who are building a home specially designed for her as she has multiple sclerosis.

The couple said they have paid $1.14 million so far to the builder and the house is at lock up stage but no work has happened since early June, according to Mr Firman.

“Even with the full insurance payout it might not be enough money. We skimped and saved and borrowed quite a substantial amount of money. We are worried we won’t make enough money to repay the loan and be able to live,” Mr Firman told news.com.au earlier this week.

Landlord owed $14k

Blint Builder’s office in the Melbourne suburb of Highett was also seized by the landlord.

Legal documents posted on the front door show the landlord has executed their right to re-entry, terminating the lease and demanding all property be removed and the keys be returned.

The legal notice also revealed that Blint Builders owe the landlord close to $14,000 in unpaid rent and rates.

Mr Sanderson said statistically it was rare for a dividend to be paid to unsecured creditors from a home builder as they “rarely have any assets”.

“Recently released ASIC corporate insolvency statistics reveal that the construction sector accounted for 28 per cent of all insolvencies for the June 2022 quarter,” he said.

“Construction is the largest sector in the statistics, second is accommodation and food with 16 per cent of the total, while 28 per cent is the highest ever percentage of total insolvencies for construction, equal with the December 2021 quarter.

“On average going back to 2013, construction makes up 19 per cent of total insolvencies.”

construction crisis

Overall, the construction industry has been plagued with a spate of collapses caused by a perfect storm of supply chain disruptions, skilled labor shortages, skyrocketing costs of materials and logistics, and extreme weather events.

Earlier this year, two major Australian construction companies, Gold Coast-based Condev and industry giant Probuild, went into liquidation.

Victorian construction companies have been particularly hard hit by the crisis.

Two building companies from Victoria were casualties of the crisis having gone into liquidation at the end of June, with one homeowner having forked out $300,000 for a now half-built house.

Then there have been smaller operators like Hotondo Homes Horsham, which was also based in Victoria and a franchisee of a national construction firm – which collapsed earlier this month affecting 11 homeowners with $1.2 million in outstanding debt.

It is the second Hotondo Homes franchisee to go under this year, with its Hobart branch collapsing in January owing $1.3 million to creditors, according to a report from liquidator Revive Financial.

Norris Construction Group, which was in Geelong, collapsed in March with $27 million in debt. It owes $3.2 million to around 140 staff that it is unlikely to be able to repay, according to the liquidator’s report.

Snowdon Developments was ordered into liquidation by the Supreme Court with 52 staff members, 550 homes and more than 250 creditors owed just under $18 million, although it was partially bought out less than 24 hours after going bust.

Others joined the list too including Inside Out Construction, Solido Builders, Waterford Homes, Affordable Modular Homes and Statement Builders.

The most recent collapse was NSW building company Willoughby Homes, which went into voluntary administration last week, leaving at least 30 homes in limbo.

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Qld Hutchinson building boss warns more construction companies will fold

One of Australia’s biggest building bosses has issued a sober warning about the state of the construction industry with expectations many more businesses will collapse in coming months.

The chairman of Queensland construction company Hutchinson Builders, Scott Hutchinson, put it bluntly.

“I bet more builders go broke in Australia,” he told Australian Financial Review.

Mr Hutchinson blamed the way Australia’s construction system worked, with most of the onus placed on the builders themselves rather than developers.

He explained how developers tried to attract customers to their projects with competitive deals with little understanding of the very tight margins that builders had to fulfill to turn a profit.

Construction companies mostly have to oblige these developers as there is no shortage of builders but there are limited projects out there, Mr Hutchinson said.

Developers also can take on clients with very little financial stake while builders bore the brunt of the risk.

They [builders] will roll the dice with their fingers crossed every day of the week,” he said.

There’s no denying it, Australia’s building industry is in crisis; many companies have gone into liquidation so far this year amid rising costs for construction materials but also being stuck in fixed contracts, driving them out of business.

Two months ago, news.com.au spoke to Russ Stephens, co-founder of the Association of Professional Builders (APB), who warned that the industry was in dire straits with as much as 80 per cent of building firms haemorrhaging money.

More than half of the estimated 12,000 construction companies in the country are reportedly trading at a loss, with many on the brink of collapse.

And those who work in the industry are having regular mental breakdowns and crying to colleagues and family members as the pressure to survive mounts.

“[Building firms are] losing huge amounts of money,” Mr Stephens said.

“Eighty per cent of builders in Australia have lost money in the last 12 months. That’s horrific,” he said.

He said around 50 per cent of building companies wouldn’t be able to pay back all their debts at once if creditors asked for their money back at the same time.

“About 25 to 30 per cent [of these companies] can’t pay their bills on time,” he said.

An industry insider told news.com.au earlier this year that half of Australia’s building companies are on the brink of collapse as they trade insolvent.

Overall, the construction industry has been plagued with a spate of collapses caused by a perfect storm of supply chain disruptions, skilled labor shortages, skyrocketing costs of materials and logistics, and extreme weather events.

Earlier this year, two major Australian construction companies, Gold Coast-based Condev and industry giant Probuild, went into liquidation.

Victorian construction companies in particular have been hit hard.

Two building companies from Victoria were casualties of the crisis having gone into liquidation at the end of June, with one homeowner having forked out $300,000 for a now half-built house.

Then there have been smaller operators like Hotondo Homes Horsham, which was also based in Victoria and a franchisee of a national construction firm – which collapsed earlier this month affecting 11 homeowners with $1.2 million in outstanding debt.

It is the second Hotondo Homes franchisee to go under this year, with its Hobart branch collapsing in January owing $1.3 million to creditors, according to a report from liquidator Revive Financial.

Snowdon Developments was ordered into liquidation by the Supreme Court with 52 staff members, 550 homes and more than 250 creditors owed just under $18 million, although it was partially bought out less than 24 hours after going bust.

Others joined the list too including Inside Out Construction, Solido Builders, Waterford Homes, Affordable Modular Homes and Statement Builders.

The most recent collapse was NSW building company Willoughby Homes, which went into voluntary administration last week, leaving 44 homes in limbo.

News.com.au also raised questions about Sydney-based Ajit Constructions on Thursday after the builder hadn’t commenced construction for months, cleared up its offices without telling customers where it was going and disconnected its phone line.

There are between 10,000 to 12,000 residential building companies in Australia undertaking new homes or large renovation projects, a figure estimated by the APB.

A healthy construction industry is vital to a strong economy and ongoing growth, with the sector accounting for the employment of almost 9 per cent of Australian workers and 7.5 per cent of Australia’s GDP, according to CreditorWatch.

– with Sarah Sharples

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Geelong building company Norris Construction Group collapses owing $27m

A collapsed Victorian construction company has $27 million in debt and owes $3.2 million to around 140 staff that it is unlikely to be able to repay, according to the liquidator’s report which revealed what went wrong.

The Geelong-based company called Norris Construction Group, which included seven associated companies, went under in March with KordaMentha appointed to handle the liquidation.

Its report, which was filed with the Australian Securities and Investments Commission, revealed the range of reasons for the company’s failure.

It included the “misprising of projects” and a “crisis of confidence” experienced by the business during lockdowns in Victoria between March and October 2020 resulting in projects being tendered at “very low prices”.

This resulted in “heavy losses” on a very large number of projects, the report to creditor’s said.

It also outlined “cultural issues amongst the executive team leading to staff losses and staff turnover” as well as hiring new staff on “high remuneration packages”.

The pandemic also contributed to the company’s demise, as well as “noncompliance” with lodging statements and returns with the ATO and unpaid taxes, alongside “insufficient working capital” to meet its short term obligations.

The company had completed work on the Manufutures hub at Deakin University and the Marngoneet and Chisholm Road prisons and worked across Melbourne and southwest Victoria.

Millions owed to employees

From the overall group, 235 former employees are owed $4 million in wages and entitlements but will have to rely on the federal government’s Fair Entitlements Guarantee (FEG) to get their money back.

However the scheme, which is available for employees of companies that become insolvent, caps back pay and does not pay superannuation.

Aside from the $3.2 million owed to employees of Norris Construction Group, there was between $187,000 and $277,000 owed to 235 staff from the overall group including wages, redundancy payouts and superannuation.

But KordaMentha partner Andrew Knight said four out of the five companies that employed staff had “insufficient” assets to pay back the money owed.

“We understand that for four of the five employing entities, FEG has processed and paid over 90 per cent of the employee claims,” he said.

“FEG is still working on claims in the fifth entity, Norris Construction Group, which are more complex due to the quantity of claims as well as the relevant Award which applies to these employees. We estimate the majority of these claims will be resolved and paid within the next month.

“Unfortunately, there are some entitlements that are not covered by FEG, for example superannuation and amounts in excess of caps, and payment of those are dependent on the outcome of the liquidations.”

While an auction of the company equipment and assets in May raised more than $17 million, and is expected to paid to Westpac, the bank will still suffer a “shortfall”, said Mr Knight as its owed $22 million.

The ATO also has an outstanding debt of $5 million, the report revealed.

However, the ATO debt was unlikely to be repaid, Mr Knight added.

“The amount due to the ATO is unsecured, and given the likely shortfall to the employees and the secured creditor, it’s unlikely unsecured creditors including the ATO will be paid a dividend,” he said.

The creditor’s report also flagged it was investigating any potential offenses of director’s duties including trading while insolvent.

construction crisis

Overall, the construction industry has been plagued with a spate of collapses caused by a perfect storm of supply chain disruptions, skilled labor shortages, skyrocketing costs of materials and logistics, and extreme weather events.

Earlier this year, two major Australian construction companies, Gold Coast-based Condev and industry giant Probuild, went into liquidation.

Victorian construction companies have been particularly sensitive to the crisis.

Two building companies from Victoria were casualties of the crisis having gone into liquidation at the end of June, with one homeowner having forked out $300,000 for a now half-built house.

Then there have been smaller operators like Hotondo Homes Horsham, which was also based in Victoria and a franchisee of a national construction firm – which collapsed earlier this month affecting 11 homeowners with $1.2 million in outstanding debt.

It is the second Hotondo Homes franchisee to go under this year, with its Hobart branch collapsing in January owing $1.3 million to creditors, according to a report from liquidator Revive Financial.

Snowdon Developments was ordered into liquidation by the Supreme Court with 52 staff members, 550 homes and more than 250 creditors owed just under $18 million, although it was partially bought out less than 24 hours after going bust.

Others joined the list too including Inside Out Construction, Solido Builders, Waterford Homes, Affordable Modular Homes and Statement Builders.

The most recent collapse was NSW building company Willoughby Homes, which went into voluntary administration last week, leaving at least 30 homes in limbo.

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RLB forecasts emerging construction cost inflation will ease in 2023

The rate at which construction costs are soaring – contributing to a spate of high-profile building company collapses – will ease next year, according to new forecasts from global consultancy firm RLB.

Construction cost inflation in Melbourne is forecast to halve, dropping from 8 per cent this year to 4 per cent in 2023, and in Sydney it is predicted to slow from 6.9 per cent to 3.9 per cent.

An even bigger decline is forecast for the Gold Coast with cost growth dropping from 11.5 per cent to 5.5 per cent. Similarly, in Brisbane it should drop from 10.5 per cent this year to 5.1 per cent in 2023, according to forecasts published this week in RLB’s second quarter 2022 International Report.

RLB research and development director Domenic Schiafone said the expectation that costing will ease through next year was due to curtailing demand, likely to be caused by inflationary pressures.

“This easing of demand should allow manufacturing and logistics to get back to ‘normality’ or pre-Covid levels,” he said.

“The easing of demand should also see a softening of material prices with the high level of ‘demand-led price premiums’ reducing.”

Association of Professional Builders co-founder Russ Stephens, whose clients are residential home builders, agreed to escalate costs could halve next year, but off a much higher base.

He said the cost to build a residential home had increased a lot more than non-residential or commercial builds due to the larger percentage of timber used, and that temporary price hikes created by supply and demand were not reflected in the reports we were seeing.

Australia’s typical house build cost has soared more than $94,000 in 15 months, according to figures revealed in analysis by the Housing Industry Association and News Corp Australia earlier this month.

The national inflation rate hit 6.1 per cent in the year to June with new dwellings and automotive fuel the most significant contributors, new figures released by the Australian Bureau of Statistics this week showed. New dwellings were up 20.3 per cent.

Warning to Australians wanting to build

While construction cost inflation is expected to ease sometime next year, in the meantime the pain will continue.

Mr Stephens said because costs were increasing so quickly, consumers needed to be aware prices quoted for builds would not last long.

“If they’ve had a price quoted that is older than 30 days they should expect to have that price renegotiated,” he said.

He also said consumers would see more builders including rise and fall clauses, also known as cost escalation clauses, in contracts.

“It gives the ability for a builder to pass an increase in cost of materials on to the consumer,” Mr Stephens explained, adding it was common in other countries but Australia didn’t typically use them.

“What I would say to consumers is that’s not necessarily a negative thing because if the builders don’t put those clauses in they’ll have to put more contingency in to the price to protect themselves against potential increases.

“So rise and fall clauses are probably a good thing for consumers because it means they will only pay the cost of the increase rather than an inflated prediction of what increases might be, especially as we’re seeing evidence now that the increases will start to slow down next year.”

Factors contributing to the construction industry crisis

The construction industry is facing challenges so great that high-profile building companies are dropping like flies.

Mr Schiafone said fragmented supply chain issues were not resolved and labor shortages across the nation have continued as a result of the pandemic.

The consultancy’s report noted lead times for some products from overseas were currently

16 to 20 weeks, when traditionally they were half that at eight to 10 weeks.

Additionally, the need for construction labor and materials after recent flood damage will enhance existing shortages across the country, he said.

Mr Schiafone said higher fuel prices, increasing power costs and timber shortages were all symptoms of the war in Ukraine and were likely to linger for some time yet.

RLB global chairman Andrew Reynolds said significant cost escalation, global delivery uncertainty, aberrant weather events causing significant construction delays, and labor shortages were common challenges in the industry across the world.

Failed building companies

The latest company to collapse was prominent Melbourne apartment developer Caydon earlier this week, blaming “one difficult market situation after another”.

The next day, on Wednesday, ASX-listed developer Cedar Woods shelved a major inner-city Brisbane townhouse and apartment project due to rising costs and delays.

It came less than a week after Perth developer Sirona Urban killed off a $165 million luxury tower, where more than 50 per cent of apartments had been bought off the plan, blaming skyrocketing construction costs and labor shortages.

It was the second major apartment project to fall over in Australia last week.

A Melbourne developer, Central Equity, abandoned plans to build a $500 million apartment tower on the Gold Coast, blaming the crisis in the building industry and surging construction costs for making the project unprofitable.

Earlier this year, two major Australian construction companies, Gold Coast-based Condev and industry giant Probuild, went into liquidation.

The grim list has continued to grow from there as a number of other high-profile companies also collapsed, including Inside Out Construction, Dyldam Developments, Home Innovation Builders, ABG Group, New Sensation Homes, Next, Pindan, ABD Group and Pivotal Homes.

Others joined the list too including Solido Builders, Waterford Homes, Affordable Modular Homes and Statement Builders.

Then two Victorian building companies were further casualties of the crisis, having gone into liquidation at the end of June, with one homeowner having forked out $300,000 for a now half-built house.

Hotondo Homes Horsham, which was a franchisee of a national construction firm, collapsed a fortnight ago affecting 11 homeowners with $1.2 million in outstanding debt.

It is the second Hotondo Homes franchisee to go under this year, with its Hobart branch collapsing in January owing $1.3 million to creditors, according to a report from liquidator Revive Financial.

Meanwhile, a Sydney family face never being able to build their dream home after their builder Jada Group collapsed in March owing $2.4 million and the cost of their home’s construction jumped to $1.9 million, a whopping $800,000 more than the original quote.

Snowdon Developments was ordered into liquidation by the Supreme Court with 52 staff members, 550 homes and more than 250 creditors owed just under $18 million, although it was partially bought out less than 24 hours after going bust.

Dozens of homeowners and hundreds of tradies were left reeling after a Victorian building firm called Langford Jones Homes went into liquidation on July 4 owing $14.2 million to 300 creditors.

News.com.au also raised questions about NSW builder Willoughby Homes, which is under investigation by the Government after builds stalled and debts blew out to 90 days.

There are between 10,000 to 12,000 residential building companies in Australia undertaking new homes or large renovation projects, a figure estimated by the Association of Professional Builders.

– with Sarah Sharples

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