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Case Studies

Stellar Homes

Voluntary Administration

Background

Several significant factors lead to the appointment of Voluntary Administrators:

  • Demand in the building market rapidly declined from the expiration of the Government Building Grant in December 2013
  • Significant construction delays due to weather in early 2014
  • Under-quoting in an attempt to secure client contracts
  • Serious illness of key personal
  • Secured creditor agreement too restricting to allow for further funds to be borrowed
  • The Company became cash-starved

Action

  • Facilitated sale of the majority of ongoing, preliminary and future contracts
  • Sale included all intellectual property and a majority of the Company’s assets
  • Extension of convening period to allow the Director additional time to formulate an elaborate Deed of Company Arrangement

Result

  • A majority of home owners transferred to a renowned builder following the sale of the business which:
    • allowed for their homes to be finalised
    • Permitted home owners with the opportunity to make adjustments to their plans without penalty
    • Provided home owners access to a higher quality builder
  • Former employees and subcontracts were selected and offered continued work with the purchaser
  • The Company ultimately fell into liquidation thus:
    • allowing employees immediate access to the Fair Entitlements Guarantee Scheme
    • providing the Liquidators with further opportunities to recover funds for unsecured creditors than would be permitted in a Deed of Company Arrangement scenario

 

Alpine Constructions

Liquidation

Background

Major construction company in South Australia

Corporate structure was too Complex and multiple projects too difficult to manage effectively

  • Numerous entities existed within the Corporate Group
  • Only Alpine Construction actually traded in the building industry
  • Development projects were owned by the trading company
  • The other entities were all financially dependent on Alpine
  • They had no capacity to repay loans provided by Alpine

Action

  • Detailed reports were prepared for each project
  • Operating  personnel met regularly to review projects
  • Impressive quality assurance and ISO standards were implemented
  • Appointed as Administrators to oversee realization strategies

Early warning signs

  • Change in Customer Mix & Margins
    • 50% of the annual projects value was with 1 client
    • The gross profit margin on the New Port job was only 2%
    • Numerous disputes resulted in the non-payment of claims
    • Cash flow dried up
    • Liquidation resulted
  • Changing Business Model
    • The Company changed its focus by:
      • winning the Newport Quays contract
      • Becoming one of 3 developers at the Lochiel Park, the “Green Village” project
    • The Company did not:
      • increase its depth of expertise / technical skills
      • change its operating systems to deal with additional complexities
      • expand working capital
  • Unresolved Disputes with Major Client
    • Work commenced late
    • At the completion of Newport Quays Stage 1, disputes were “parked” and stage 2 commenced
    • Agreement between the parties that the disputes would be resolved subject to the completion of Stage 2A
    • No control over external development  delays which had a significant effect on the profitability of Alpine
  • Certification Problems
    • A number of contracts required Certificates to be signed off, verifying sub-contractors had been paid
    • Based upon these Certificates, clients paid Alpine progress claims
    • Due to the Alpine’s financial position,
    • certificates were signed and then sub-contractors were paid
  • Inadequate Financial Information
    • Working capital ratios were inflated by including non-recoverable debts from related entities and no allowance for disputes with debtors (Newport Stage 1)
    • The Special Purpose (audited) financial statements did not adopt suitable accounting standards
    • Fixed assets were written up to director’s valuation
    • The monthly management reports were unreliable

Conclusions following review of the company

  • Consolidated results were not discussed at management meetings
  • Cash flows and budgets were not prepared for the Company as a whole
  • Administrative overheads were NOT allocated to individual projects including high salary costs for key personnel
  • Insolvency was inevitable