Contractor insolvencies are continuing in the construction industry in 2024. This follows recent challenges relating to supply chain issues, labour shortages, and increased material costs. Such challenges are part of the broader macroeconomic climate of high inflation and interest rates.

We outline below steps that a Principal can take at different stages of a project to mitigate the impact of Contractor insolvency on its project, and to protect its interests.

Key takeaways

Our prediction

With New Zealand’s economy in recession, we predict an increase in insolvency-related disputes and litigation over next 12-months.

Why?

A variety of factors combine to give rise to the expected uptick in insolvency-related claims:

It is being reported that the Latvian State Security Service (the VDD) has discontinued a criminal investigation started in November 2023 into the sale of a helicopter by a company indirectly co-owned by the designated person Petr Aven .

More than 75% of the U.S. population lives in states that have legalized cannabis for adult and/or medical use.

Pursuant to a 2022 directive from President Joe Biden, a 2023 recommendation of the U.S. Department of Health and Human Services, and a scientific review released in January supporting the HHS's recommendation, the U.S. Drug Enforcement Administration is now evaluating whether to reclassify cannabis as a Schedule III drug.

New Zealand needs to consider promoting passive overseas investment in developed assets. We are pleased to see that the New Zealand Government has signalled changes to allow for foreign investment in established build-to-rent developments (while still retaining the residential restrictions more generally).

In contrast with a majority of bankruptcy courts that routinely dismiss cannabis-related cases for perceived violations of the Controlled Substances Act (CSA), the U.S. Bankruptcy Court for the Central District of California in the recent opinionIn re Hacienda, No. 2:22-BK-15163-NB, (Bankr. C.D. Cal. July 11, 2023), refused to conform to the same historical standard. Instead, the Bankruptcy Court struck down the U.S. trustee’s motion to dismiss not once but twice in favor of confirming a marijuana business’ Chapter 11 plan of reorganization.

Background

The Supreme Court’s long awaited decision in Yan v Mainzeal Property and Construction Ltd (In Liq) offers some much needed clarity on directors’ duties in New Zealand. Our initial summary of the decision and its implications is here. This article provides a more detailed review of the state of directors’ obligations post-Mainzeal.

The long awaited Supreme Court decision on the Mainzeal appeal is out, addressing issues of “fundamental importance to the business community”. The judgment essentially upheld the factual findings of the lower Courts that the Mainzeal directors had breached directors’ duties under the Companies Act 1993, and it provides important clarity of the legal principles - and practical steps - that are relevant to directors of companies facing financial difficulties.

Important learnings

In the recent case of Re Avanti Communications Limited (in administration) (Re Avanti), the court considered the nature of fixed and floating charges. Whether a charge is fixed or floating has implications for both lenders and administrators in terms of determining to what extent a chargor can recover from the charged assets and to what extent a borrower can deal with its assets.

Background of case:

In MOAC Mall Holdings v. Transform Holdco, the Supreme Court of the United States addressed whether Section 363(m) of the Bankruptcy Code―which limits the effect of certain appeals on orders authorizing the sale or lease of bankruptcy estate property―is a jurisdictional provision.