Subcontractors welcome greater protection from company liquidations

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Subcontractors have welcomed the Government changing the law to help protect them in the event of a construction company collapse.

The Government has passed a measure that means money owed to subcontractors will be deemed to be held in trust and be unable to be scooped up by banks or receivers if a developer or main contractor runs into financial trouble.

Subcontractors lost more than $18 million in retention payments owed to them following the collapse of Mainzeal.

The retention payment system allows the main contractor or developer to hold up to 10% of the sum due to a subcontractor, interest free for up to two years, as a guarantee of the quality of the work.

Specialist Trades Contractors Federation president Graham Burke says the passing of the Construction Contracts Amendment Bill was good news for subcontractors.

 

Subcontractors’ confidence

“This decision means a great deal to thousands of subcontractors who can be more confident that if a construction company fails, they will receive the retention money owed to them.

“The Federation, which represents more than 5700 contracting firms in New Zealand, welcomes the pragmatic and reasonable solution from the Government, particularly in light of the surge in construction activity, especially in Auckland and Christchurch.

“During economic upswings, firms often grow rapidly to meet demand and may over-extend themselves. If they are up to their borrowing limit with the bank, then there is the opportunity to use the retention payments they are holding as working capital,” Mr Burke says.

“If the company fails, historically those retentions have been used to pay the liquidator and secured creditors such as the bank or IRD.

“We are very pleased that the amendment has placed a legal obligation on developers and main contractors to protect retention payments which belong to subcontractors.”

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