Merhis Corp put into liquidation as tax bills rise for Sydney’s west developer
Mr Hathway said he would only know the full extent of the tax liability after he got more information from the ATO. Comments have been sought from Mr Merhi through his Sydney-based accounting firm, Lion Sterling.
The liquidation is the latest – and possibly the last – deal between Mr Hathway and the Western Sydney developer. In 2019, the liquidator accused a subsidiary of Merhis Corp of trading while insolvent, before they reached an agreement for the group to repay creditors.
We told financiers: be careful who you lend to. You are lending to a risky player and you can potentially inherit their risk.
— David Chandler, NSW Building Commissioner
Financier Wingate put the Parramatta Merhis project it was funding into receivership last month, meaning it came under the scrutiny of its Deloitte administrators and was not among the assets subject to liquidation.
The developer’s tax debts prevented him from borrowing more money to fix flawed projects – such as Wingate’s Parramatta project – which he needed to do to complete the project and allow sales to settle.
“We’ve been telling financiers for two years now – be careful who you lend to,” said NSW Building Commissioner David Chandler. Financial analysis tuesday.
“You are lending to a risky player and you can potentially inherit their risk.”
Wingate declined to comment.
Mr Hathway attributed a 2018 law change aimed at tackling the phoenix – whereby directors transfer assets from an existing company to a new one and wind up the old company with no assets to pay its debt – as the one of the reasons why Merhis Corp ran into problems.
This change required apartment buyers to pay the GST on their purchases in advance to the tax office. More recent legislation allowing the building commissioner to suspend the issuance of a certificate of occupancy for substandard work was another reason for tighter controls on developers, Mr Hathway said.
“The state government, to its credit, has appointed this [building] commissioner,” he said. “The next thing he should consider is licensing those builders.”
In 2020, Mr. Chandler called Merhis Corp’s 16–multi-storey tower at 93 Auburn Road in Sydney’s west Auburn ‘an abomination’ and said it was one of the examples that convinced lawmakers to pass the Residential Buildings Act and the Separate Act on design and construction practitioners.
Although Merhis Group’s problems appear to be its own fault, it is unlikely to be the last construction company to fail.
The latest official data shows the number of construction companies entering external administration rose to 271 in the March quarter from 224 in the same period a year earlier.
Figures released by the Australian Securities and Investments Commission earlier this month show that total construction-related insolvencies remain below the 302 insolvencies in the March quarter of 2020 and 341 in the same period of 2019.
A decision by the ATO to move lightly on enforcement action against two-year unpaid tax debts from the pandemic led to a spike in unpaid debts by nearly a third to $58.8 billion the year last. Company liquidations, about half of which are attributable to the ATO, fell by three-quarters over the same period.
This prompted insolvency practitioners in February to warn of a wave of slumps in construction in particular – where companies are caught between fixed-price contracts and soaring input costs – when measures to enforcement by the tax office resumed.
Mr Hathway said the ATO was now increasing its shares. “Their usual rate of liquidation notices hasn’t quite reached yet,” he said.