Subcontractors bear brunt of Mainzeal meltdown
The scale of the fallout from the shock receivership of one of our biggest construction companies is likely to take weeks to emerge, but today sites throughout the country are locked down.
Twenty-four hours into the receivership of Mainzeal Property and Construction and there are no quick answers or easy assurances from the receivers on the size of the company's liabilities.
Yesterday, receiver Colin McCloy was swamped with calls and questions from clients and subcontractors about the financial state of New Zealand's third-largest construction company.
Whether it has the resources to pay its 400 employees and hundreds of subcontractors will be revealed only in the coming weeks.
One of the first actions of the receivers has been to lock down 40 Mainzeal building sites around the country.
"We were just appointed yesterday. So what we are doing, we are just assessing what we have in terms of the financial standing of Mainzeal and then we will work out a strategy for each of the sites. That is going to take a few days to work through," McCloy said.
And what of the causes of the company's failure.
Mainzeal's owner is Chinese businessman Richard Yan, and it has American investors.
He has cryptically blamed "a series of adverse events" for his decision to place the company in receivership.
Yan was educated at Auckland Grammar and Auckland University and has focused much of his investment in China.
Mainzeal has been owned by Yan's company, Richina Pacific, since about 1996. Richina Pacific's performance has been lucklustre to say the least. It has a variety of investments in hotels, car parks, a tannery, the Blue Zoo aquarium in China, as well as Mainzeal in New Zealand.
Commentators mention Mainzeal's inability to make a $1.8m payment as the straw that broke the camel's back. There is talk also of more than $30m of leaky-building claims against Mainzeal, and that it has not really recovered from $21m of extra costs it was landed with at Vector Arena. There is speculation of a dispute between Mainzeal and Siemens over payments for Mainzeal's work on the upgrade of the high-voltage line from Benmore to Wellington.
From the comments of former directors of Mainzeal Property and Construction - Dame Jenny Shipley and Wellington investor and former Brierley's chief Paul Collins - it seems they were expecting an injection of capital into the company from shareholders.
Yan and Co look like they were unwilling to commit that capital to Mainzeal when the crunch came.
Initial comments suggest the hardest hit will be the hundreds of subcontractors working on Mainzeal projects.
They are usually well down the pecking order for payment and this receivership is unlikely to be any different while employees are at least preferential creditors.
The many small contractors are the least able to weather the failure of a big customer like Mainzeal. A Christchurch concrete supplier is now anxious
about being paid a hefty $264,000 owed by Mainzeal. Another, Christchurch company Smith Crane & Construction, is owed about $1.5m but will be better placed than other subcontractors to survive Mainzeal's collapse. More of these stories of debts will surface during the next few weeks and the scale of the fallout will be much clearer.
Mainzeal has been one of the earthquake recovery's biggest construction players. It is close to completing the demolition of Clarendon Towers in the CBD and QE 11 sports complex at North Beach.
In December its website named several project in progress in the South Island, including the expansion of the Farmers department store at Hornby Mall, and earthquake repairs at Hillmorton Hospital. The Canterbury District Health Board is seeking legal advice in the redevelopment contracts it has with Mainzeal.
It is hoped that the earthquake-related residential repairs and rebuilds for the customers of Vero will not be disrupted too much.
Mainzeal is in a joint venture to project-manage those. It does not do the residential repairs itself but the joint-venture contracts those out and they are paid for by Vero. It says it has not been using Mainzeal for residential projects and its rebuild schedule will continue.
However, Mainzeal is involved in some of the commercial-building earthquake repairs and rebuilds, and subbies working with Mainzeal on those might not be paid.
An insider says staff are already scouting for new positions and commentators reckon Christchurch's rebuild should be able to soak them up. Employees in other main centres may not be so lucky.