The nature of payment problems in the new zealand construction industy.pdf

There was further investigation into the liquidators

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There was further investigation into the liquidators’ reports to determine how well these categories of companies honour payment obligations after liquidation proceedings. The reports show that all the companies in the general construction category were unable to pay their trade creditors after the liquidation proceedings. Liquidated property development companies fared slightly better but with one company (out of 22) that partly paid (11.89 cents per dollar) to its creditors. 17 (77%) of the property developers could not pay their creditors and the remaining had either no trade creditors or did not disclose the amount they owe their trade creditors. Of note is that the only property development company that made partial payment to its creditors took 6 months to pay after the liquidation proceedings. Evidently the time lag between the liquidation proceeding and final settlement is an unnecessary delay that could not augur well for the creditors. In the construction trade services category, one (out of 16) company paid its trade creditors fully, about 20% paid pro rata (20 cents per dollar), and 75% (12 out of 16) could not pay their creditors at all. Further investigation show that settlement of trade creditors took an average of 18 months since the commencement of liquidation proceedings to be finalised. The foregoing provides evidence of both payment delays and losses when construction companies are liquidated. Although there is no clear indication of the delays and losses experienced by individual construction participants (head contractors, subcontractors, sub- subcontractors etc), or which tier (upper or lower) is affected in liquidation. It is however clear that trade creditors are at the receiving end in any liquidation proceeding. In the following section, construction disputes are analysed in the hope that this will permit a determination of the construction parties affected by payment delays and losses. Analyses of Legal Disputes in Construction The result of the information extracted from construction disputes which were filed in the High Court between 2008 to 2010 in New Zealand, are presented in the following paragraphs. There were 40 legal disputes which were heard or transferred to the High Court within the period. The cases relate to payment disputes between parties to construction contracts (principal, lead contractors and sub contractors). A breakdown of the cases is presented in Table 2. The table provides information on the parties and the amounts in dispute, the nature of the payment in dispute and the final status (in terms of delays and losses). On observation, the table shows that nearly 82% (33 out of 40) of the cases considered are payment disputes between principals and contractors; while the remaining 8% and 10% of the disputes are between principals and subcontractors; and contractors and subcontractors respectively.
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  • Fall '19
  • The Land, Australasian Journal of Construction Economics and Building

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