Attempt by Hartner lawman to suppress court outcome fails
Hartner Construction Ltd and the group’s receivers have agreed not to oppose an application for leave by a creditor to wind the company up â€” but fought publication of this fact in a High Court hearing on Thursday.
The fight ended unsuccessfully: Justice Rod Hansen gave the order allowing the creditor leave to apply to put Hartner into liquidation and the application was to be filed within hours. The judge rejected any notion that a gagging order on the application should run for the next week.
The hearing was held at the same time as unsecured creditors were being told in a separate meeting at the Tamaki Yacht Club by receiver John Waller their chances of a return from the group’s collapse were minimal.
One reason for that is the timing of the receivership appointment â€” 1 February â€” which has cost subcontractors millions of dollars.
The attempt by Alotech Walls & Ceilings Ltd (itself in receivership and in liquidation) to wind up Hartner has been one of several running battles the Auckland construction head contractor has had over the past year in a bid to stay afloat.
Alotech is claiming $1.3 million, but Hartner claims a full hearing would show Alotech owed it money.
Receivers hadn’t had time to consider this, says lawyer
In court, Hartner’s lawyer, Michael Fisher, said the receivers had not had time since their appointment to assess the Alotech claim and decide whether to oppose it or not.
This conveniently ignores the fact that the PricewaterhouseCoopers team of insolvency practitioners went to Hartner’s office in Onehunga on 17 December, more than six weeks before the receivership appointment was formalised.
Mr Fisher surprised Justice Rod Hansen by saying the High Court Rules prohibited any publication on liquidation in the seven days after filing those proceedings.
Justice Hansen: “What the rules say is, it may not be advertised within seven days. The rules do not say there shall be a total gagging order about liquidation proceedings having been filed, do they?”
In his order declining the application for a gag, the judge said he was not persuaded “that any significant prejudice to Hartner in receivership or its creditors will ensue if the fact of the making of this order and the circumstances surrounding it are made known.
“On the other hand, I consider there is the potential for considerable damage if publication of this information was suppressed.”
Hartner still looking for work
Mr Fisher wanted the silence â€” about a case which has been well publicised over a long period, about a company now in the hands of outsiders because of its insolvency, and which was still advertising its candidacy for the 277 Broadway tender on Monday â€” because, “at the moment, the company is a going concern in that there are construction projects going on.”
Publication of this application, which was only for leave to apply for Hartner’s liquidation, “may undermine the confidence of the people they are trying to gain confidence of.”
Hartner’s Monday advertisement to subcontractors pricing the 277 contract bore the construction company’s name, without mentioning it was in receivership. Mr Fisher in his courtroom presentation also gave no indication that this company was actively seeking forward contracts, not just tidying up the mess it is already in.
Receiver versus liquidator
A central point of difference between receivership and liquidation is that a receiver is appointed by a secured creditor, in this case the National Bank, owed $8.5 million, and acts in the interests of that creditor, whereas a liquidator is required to act in the interests of all creditors.
Alotech’s liquidators may be able to find supporters to force the Hartner liquidation application through the court, though this will take time if Hartner’s receivers can be convinced the company’s defence is real and claim against Alotech s strong.
A liquidator eventually appointed to Hartner might also try to recover money paid over in transactions from the end of last year. But would a penniless liquidator have a chance of recovering money paid by a receiver to a bank on its debenture? Most unlikely.
The 1 February appointment of the receivers was crucial to the bank recouping the maximum return.
By that date, the developer had collected as much as possible for December from clients. Under most contracts, the builder will get paid 10 days after certification. On the Princes Wharf contract, where Kitchener Group is the developer, certification was mid-month and the developer was paying Kitchener on the 25th if possible.
By that time, as well, all the subcontractors would have submitted their claims and the head contractor would know the claims it is going to make for the next month.
Once the subcontractors file their claims, they become an asset of the head contractor. Two days earlier, these subcontractors’ claims wouldn’t have been in, and wouldn’t have been a Hartner asset.
At the first creditors’ meeting, the debtors’ ledger was put at only $Â¾ million and January’s work was put at $4Â½-5 million. Hartner was pushing subcontractors to up their work rate, which would take the contract closer to completion, but also improve its own position financially against that of the subcontractors.
The next step is for the receivers to invoice for January. Defects â€” and perhaps last-minute vandalism by enraged subcontractors â€” mean not all that money will flow in. But they’re still likely to collect at least half, which means the bank ends up about $2Â½ million better off than if it appointed the receivers two days earlier.