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:
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).
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
Snapshot
Introduction
The Ontario Superior Court of Justice’s decision in Carillion Canada Inc. clarifies how the principles in Montréal (City) v. Deloitte Restructuring Inc. (Montréal) should be applied to contingent obligations that are only quantified after the debtor company files for creditor protection.
In the receivership proceedings of Distinct Infrastructure Group Inc.
On July 13, 2022, the Court of Appeal for Ontario allowed an appeal from the Order of a bankruptcy judge in Sirius Concrete Inc. (Re), 2022 ONCA 524 (Sirius), which ruled that certain funds paid by a trade creditor formed part of the bankrupt’s estate. The issue on appeal was whether a constructive trust should be imposed over certain funds due to a claim of unjust enrichment arising from alleged fraudulent misrepresentations made by the bankrupt on the eve of its bankruptcy filing.