A building firm which collapsed owing unsecured creditors around $8.5 million may have been trading whilst insolvent for almost a year, the company’s administrators say.

In its report into the affairs of Perth based Capital Works Construction Pty Ltd and its related labour hire firm Capital Construction Hire Pty Ltd, Deliotte Restructuring Services Administrators Jason Tracy and Gary Doran indicated whilst the final issue of insolvency would have to be ultimately decided upon by the courts, it appeared that the companies had incurred substantial trading losses in recent years and had most likely been insolvent since June 2014.

“On the basis of our preliminary investigations, it appears that the Companies may have been insolvent from at least 30 June 2014 based on the continued trading losses, significant trade creditor debts outside of terms of trade, working capital deficiency, net asset deficiency and the Companies’ failure to meet statutory payment requirements” the administrators said in their report.

The administrators also reported that:

• Combined, the two entities made a small loss of $79k in 2012/13 followed by a much greater loss of $3.289 million in 2013/14.
• As at 30 June 2014, the companies had a net asset deficiency of almost $5 million and a working capital deficiency (short term assets less short term liabilities) of $6.406 million.
• Financial accounts and records appeared not to have been adequately maintained in accordance with the requirements of Section 286 of the Corporations Act.
• A preliminary investigation had revealed there may have been ‘a number of possible contraventions’ of director’s duties under Section 180-184 of the Corporations Act.
• It was unlikely that any dividend would be made available to unsecured creditors, who are owed as much as $8.5 million including $6.5 million owed to trade creditors.

It is unlawful under the Corporations Act for a company director to allow the company to incur debts whilst it is known or should have been known that the company was insolvent.

Trading under the names of Freelife Homes and Visionaire Homes, Perth based project home builder Capital Constructions employed around 24 people.

At the time of being placed into administration in early May, the company was building homes for around 229 customers mostly across metropolitan Perth and had around 84 other new homes still waiting to be commenced.

The administrators have since reached agreement with another builder, Central Systems Pty Ltd, to complete all of the homes which are in progress.

In their report, the administrators concluded that the business had been undercapitalised, suffered from poor financial management and a lack of financial control, and was based on an unviable business model involving excessive focus on sales and unrealistically low margins.

The latest developments come amid a Senate Inquiry into the cause of high levels of insolvency within the construction sector.