Collapsed construction company Willoughby Homes taken to court to be liquidated
The stark reality of a construction company collapsing has been exposed after the company proposed that trade creditors should be given 10c back for every dollar owed to them.
Sydney-based builder Willoughby Homes was taken to court on Wednesday afternoon with creditors calling for it to go into liquidation because the business was ‘desperately insolvent’.
Gyprocing firm Regno Trades took legal action against Willoughby Homes early last month over an unpaid debt of $184,000.
This means that if they followed through on Willoughby Homes’ offer to receive 10c in the dollar, Regno Trades would only recoup $18,400, leaving them with $166,000 out of pocket.
Two working days before the hearing, Willoughby Homes appointed David Mansfield and Jason Tracy of Deloitte’s turnaround and restructuring service as voluntary administrators, leading creditors to suggest it was a 11th hour attempt to save the company.
Court Clerk Claire Gistham of the Supreme Court of Victoria has granted the directors of Willoughby Homes an adjournment until the end of the month to propose a formal Deed of Partnership Arrangement (DOCA), which is essentially a plan for creditors get their money back.
In the heated court case, creditors’ representatives argued the company had “failed so miserably” and should be liquidated immediately as there was “a damning case of insolvency”.
During the hearing, it was also revealed that Willoughby Homes owed up to $4.4 million to landlords, trade creditors and the tax office.
Despite this, the construction company has “minimal assets” and currently only has $14,000 in cash in its accounts.
It comes after an in-depth investigation by news.com.au over the last month found Willoughby Homes has been non-functional for some time, with debts to creditors unpaid, building sites stalled for just as long only a year, the insurance of the building of the company not being reinstated and finally, all its offices being emptied and the telephone lines going directly to voice mail.
Regno Trades acted as plaintiff while three supporting creditors also joined the case – H&R Interiors owed $73,925, a former employee owed $53,000 in unpaid wages and Finese Electrical and Air Conditioning, owed $73,925. $4531.
Another creditor, Kamaljit Pawar, has also joined the case. The Sydney man built a house with Willoughby Homes in 2014 which had significant flaws and he has been fighting to get them fixed ever since.
There are 44 homeowners affected, 16 of whom have homes at “various stages of construction” while the other 28 customers have handed in deposits but no construction has started.
A number of creditors and employees are also affected. It is understood that the employees owe $67,000 in unpaid superannuation and approximately $600,000 is owed to deposit holders. Over a million is owed to the Australian Taxation Office.
There has been some debate over the total amount the company actually owes, with directors putting the figure at $2.3million, but Mr Pawar’s lawyer, Rodney Kent, said he had reviewed the documents and said it was higher.
“There are substantial defaults” amounting to $4.5 million, he said.
Mr Kent also added that Willoughby Homes owner Steve Willoughby had four properties and possibly five, which could be sold to pay off debts.
SC Peter Fary, acting for the plaintiff and three supporting creditors, asked that Willoughby Homes be put into liquidation because it had ‘failed miserably’.
“This is not the first liquidation request, in fact it is not even the first liquidation request this year,” he said.
“One has to wonder why the director didn’t get the company to address its insolvency sooner.”
He said it made no sense for the business to remain in administration as Willoughby Homes was unable to carry out building work.
“Is it seriously suggested that a company without capital will continue to contract in the administration where it has failed so miserably before?” he asked the court.
“These issues are another question of commercial morality,” he added, urging the clerk to consider “whether, from a commercial morality perspective, it is appropriate for this company to continue to exist.” .
Mr Fary said Willoughby Homes had ‘minimal assets and significant liabilities’.
At the hearing, it was said Willoughby Homes only had $14,000 in cash as well as some motor vehicles, property and equipment it could sell to pay off its debts.
Administrators called at the ’11th hour’
Lawyers representing creditors also criticized the last-minute appointment of directors last Friday when they said it seemed likely the company had been insolvent for months.
“This is an 11 a.m. appointment, last-minute appointment of a director should be treated with skepticism,” Mr Fary said.
“There is no escaping the conclusion from these facts that there is likely to be an insolvent commercial debt of a significant magnitude.
“One can easily deduce that the insolvency dates back some time.”
Mr Kent agreed, adding: ‘It’s so late in the day and so inappropriate… Deposit holders lost their money in circumstances where signing contracts was completely illegal.’
However, the administrator’s legal team argued that this was far from an 11th hour date.
QC Hugh Smith, representing the directors, said: “We’ve all been involved in 11 a.m. dates, that’s not it.”
The administrators were appointed late on Friday, giving them two working days – Monday and Tuesday – to sort out the company’s finances.
“As such, it’s not an 11 a.m. date,” Mr Smith insisted.
In another twist, the trustees insisted that one category of creditors – the depositories – be repaid in full while all other credits received only 10c on the dollar.
Deloitte directors only held a meeting for deposit holders on Monday ahead of the court hearing and claimed a vote was 100% in favor of the resolution to keep the company in administration so they receive the promised funds.
However, Registrar Gistham questioned the QC on how many people actually voted, which turned out to be just 15 people.
“The priority here is quite extraordinary, on the one hand you have 100 cents on the dollar, and on the other hand 10 cents on the dollar,” Mr. Fary said.
‘My client is as vulnerable as anyone else, all of their businesses are equally at risk of going bankrupt if they are not paid,’ Mr Kent added.
Later, in a conversation with news.com.au, Mr Kent added: “It is disappointing that their first meeting only involved some creditors and not all creditors. I have never seen this before. My client didn’t even know this meeting was taking place.
After objection, counsel for the administrator said he would reconsider whether 10c in the dollar was appropriate versus 100c in the dollar for deposit holders.
The clerk adjourned the case until August 31.