Mainzeal had low profit margins but construction companies can be cash cows, if they are properly governed, because they always get paid first and then pay their subcontractors at a later date. Thus, subcontractors effectively fund the construction group until they get paid. However, the subcontractors are in a terrible position if the company goes bust because they are unsecured creditors and are unlikely to be paid until all obligations to secured creditors have been met.
Bella Vista Homes went into voluntary liquidation on November 30 last year, leaving behind unfinished houses and millions of dollars in outstanding debts to creditors. The latest liquidators’ report showed Bella Vista Homes had just $28 with which to pay more than $4m to creditors.
Julian Oxborough is losing $70,000 a month as one of his cranes stands idle because of the collapse of Ebert Construction. Hardly anyone saw Ebert’s collapse coming. Despite warnings that more construction companies are due to fall, it was one of the country’s larger building companies and had every appearance of being solid.
The company started to experience cashflow difficulties in recent times due to disputes, delays and cost overruns on two large multi-million dollar sub-contract projects recently completed by the company. The company’s inability to recover the payment claims lodged by the company on these projects have resulted in large losses on these projects which had an inevitable flow-on effect on the company’s cashflow.
Businesses tend to assume that all invoices will be paid on time and in full. The truth is you have to work very hard to even get close to that figure, and you’re going to need expert help to achieve it.