General liquidation creditors should not bear the cost of sorting out entitlements to Construction Contracts Act retentions when the there is a shortfall in building companies’ retention funds, the High Court ruled.
With Rilean Construction (Central Otago) Ltd in liquidation insolvent and Construction Act retention moneys sitting in a law firm’s trust account with no one apparently willing to meet costs of managing payouts, the High Court appointed EY’s Rhys Cain as receiver to handle distribution.
Gary Dent’s and Steve McLean’s Queenstown property company went into liquidation in 2020 with accounting firm Ernst Young appointed liquidators. There were four projects on Rilean’s books; the most problematic being a 56 apartment complex, Remarkables Residences. Rilean’s tracking system for Construction Act retention payments indicated there should be $140,200 held in trust with a law firm for ten Remarkables subcontractors yet paid in full. In fact there was a shortfall; primarily a failure to account for GST payable on those retentions. In addition, remedial work for defects by one subcontractor exceeded retentions held on its behalf.
With the law firm simply holding retention money as a bare trustee, it was left to EY to do the leg work sorting out claims against the fund. EY said this cost should be carried by contractors entitled to payment out of the fund, not just buried as a general expense of the Rilean liquidation. Associate judge Paulsen agreed.
EY associate partner Rhys Cain was appointed receiver of the Remarkables retention fund and authorised to pay pro rata valid claims by subcontractors after deduction of EY fees for managing and administering the fund.
Cain v. Rilean Construction (Central Otago) Ltd – High Court (17.08.21)
21.137