In late February, news broke that Watersun Homes had slipped into voluntary administration, signalling it may sail off into the sunset.
In the ensuing weeks, unsettling elements surfaced: the deafening silence of the directors, the extreme secrecy surrounding the downfall and most disturbingly, the disregard for the many thousands of lives shattered.
When the first limited information filtered out, it sent shock waves across Victoria. Watersun had building contracts with home owners in Melbourne and all across the state. Initially, it was suggested that Watersun’s administration had left 300 home owners in the lurch, $10 million owed to creditors and 100 employees out of work. But as is standard with such collapses, the original statistics were understated and ‘alternative facts’ camouflaged the magnitude of this construction fiasco.
After the announcement, the directors went into hiding. They locked the Southbank office doors, scratched the Watersun sign from the building’s façade, immediately shut down the website and sank into silence. As we later learned, many owners and creditors had been subjected to this subterfuge for months, their attempts to communicate thwarted, their calls unanswered and messages ignored.
The directors refused to attend the first creditors’ meeting (mandated under Corporations Act 2001) in March. Instead, claiming fears for their safety, they prepared a short statement to be read out. Blaming cost blowouts and expansion into regional areas, the suggestion was that they had exhausted all avenues prior to appointing administrators. Their postscript: they “regretted the impact on employers, home owners and creditors.” Little consolation for the casualties!
There was no any indication furnished as to the company’s future direction. This, combined with the directors remaining hushed and holed up, predictably fuelled further questioning: “What is buried beneath the cover of silence and secrecy?”
Meeting maintains mystery
The first creditors’ meeting provided no word on the disposal of the company’s assets in order to meet outstanding debts. Also the decision on whether Watersun Homes would continue trading or go into liquidation was deferred until the next creditors’ meeting in April. Watersun’s indecision indeed was a decision - to be woolly and wavering - with all caught up in this catastrophe left in the dark.
At the first meeting, only two resolutions were on the agenda. The first was whether to confirm Rodgers Reidy as the administrators. Evidently, this went unchallenged. As to the second, whether a committee was appointed to assist with the administration, this is unknown because minutes of the meeting were not released.
The only piece of information announced was that no figure had been calculated as to the amount Watersun owes to home owners. Consequently, how many millions of dollars of damage has been inflicted upon these unsuspecting consumers is unspecified.
Thus, this meeting brought no clarity. It did nothing to allay the anxieties of the blameless home owners and sub-contractors owed millions of dollars. Constrained under the shadowy skies of insecurity and living in limbo, for those crushed much mystery remains. The question: “Why the prolonging ploy?”
Although the first creditors’ meeting was scant on detail, new statistics divulged the soaring scale of the disaster. It was revealed that Watersun Homes had 420 building projects on the books, debts of $20 million to around 900 creditors (sub-contractors owed $16 million), 90 employees owed $1 million, plus a debt to the Australian Taxation Office of $484,000. Of interest would be how many of the 420 building contracts were signed when Watersun was tiptoeing into administration? It should be easy to determine, but will it be?
Most telling, the debt was double the original amount declared, not counting what is owed to home owners!
In total 1,400-plus Victorian home owners, sub-contractors and Watersun staff were directly affected. But add in the partners and their families - based on an average family of five, it's easy to come up with an estimate here of 7,000-plus at the outset. Also, if we consider sub-contractors and other creditors, along with their employees and their families, the number hammered escalates dramatically. Think 900 creditor businesses times five employees which equals 4,500. Just imagine the sum of all the victims and their families. The upshot is unmitigated devastation.
Then we have the dynamic force of the domino principle across all the businesses, employees and families dependent on the income and spending of those burned by the Watersun crash - 11,500 persons times spending on an average of $80,000 a year. Across many thousands of businesses (and their employees), the flow on is incalculable.
The pyramidal structure combined with the interdependence of businesses means incidentally losses spill over to thousands otherwise not touched. Imagine the compounding effect across the interlinked communities of so many businesses and families, their livelihoods and lives intertwined. Collectively, they are looking down the barrel of colossal financial and emotional hardship - threatened by massive monetary losses through no fault of their own. The aggregate is impossible to gauge, but factoring the total fallout multiplies to mega millions of dollars. On any scale, it's a skyrocketing disaster.
Was the writing on the wall?
ASIC did not receive notice to deregister Watersun Homes until February 2017. However, for the ‘regulator’ the classic signals were flagged. Let’s examine the facts:
- In announcing its administration, Watersun cited “insufficient funds” - a clear sign of a company in distress.
- It is now known that the company owes $20 million. That much debt is a definite danger sign.
- When the company’s directors, Gary Caulfield and Tanya Lewis (of parent company of Watersun Homes, WSH Group) signed off on the company’s 2014 accounts in 2016, they advised ASIC of a net loss of $674,326 on revenues of almost $66.9 million.
- Stressing “significant uncertainty” as to whether it could continue as a going concern, it admitted that during the financial year and after “the company was in breach of the financial covenants governing financial liabilities.” Whilst demonstrating compliance with directors’ duties, this an alert to Watersun’s viability.
- The company changed its name from Watersun Homes to an unknown name in November 2016 - a cautionary notification of possible impending insolvency.
- There was a change of directors, with multimillionaire developer Benni Aroni, a long-term director and co-founder of WSH Group Pty Ltd (company behind Watersun Homes) resigning his responsibilities over two years.
As events unfolded, markers designating Watersun’s demise were undoubtedly on the wall!
Although an incomplete narrative, from our present perspective it’s possible to pick up on some of the sounds of silence. Alarm bells were ringing, though muted to barely measurable. These sounds were undetectable to most about to be whacked by the turbulent waves in the wake of Watersun’s downfall, not ‘discoverable’ by those directly damaged, not discernible to others.
If we review Robert Gottliebsen’s insider revelations, they shed light on how long ago the sun began to set on Watersun. As quoted in The Australian, he believes, with the benefit of hindsight that from 2014 it “was in bad shape and had no hope”, the warning signs to subcontractors “up in neon lights!”
The sinister signs detected by Gottliebsen were real, but only ‘for all to see’ retrospectively.
Home owner hardships
As noted in ABC online, Sarah Sims from Geelong heard rumours and sensed something was wrong. Having waited 16 months after signing her contract with Watersun, and no soil turned to begin her family's ‘dream home’, she became so distraught she tried to cancel the deal. When threatened with being taken to court, she was so intimidated she abandoned any idea of legal action. Meanwhile, Sarah’s block of land remains visibly vacant.
Alison from Bendigo found out Watersun had entered into administration through a Facebook group. She and her partner signed the contract for their new home in April 2015 with the assurance they’d be moving in by October 2016. But their house remains unfinished.
Geelong Radio heard of several sub-contractors owed hundreds of thousands of dollars by Watersun, all holding little hope of ever being paid. Worse, some fear the collapse could leave their own businesses in tatters.
"I know of one subbie who employs five blokes but his supplier won't hand over any more materials because he owes them money," a contractor was quoted as saying. "Watersun hasn't paid him so he can't pay his bills, and with his supplies cut off he can't take on more work to cover his losses.”
Another local tradie said that for years he had suspected all was not well with the company. He said Watersun staff deflected questions about its financial state and sometimes gave misleading answers. They handed over a portion of what was owed, promised the rest in a few weeks but "of course, that money would never appear!”
According to The Bendigo Advertiser, Nathan Tresize of Superior Concrete and Construction knew of uncompleted Watersun houses throughout Bendigo, feeling “for the families that had invested their hopes, dreams and savings in those properties.”
Working for Watersun for about two years and owed $17,000 since September 2016, Tresize was unwavering, saying “They have always been slow payers.” Justifiably upset, he said this would “hurt us, as a small family business, considerably.”
There were other ominous indicators foreshadowing Watersun’s failure. Only after the event did the cloudy ambiguity clear to reveal the depressing reality. Sadly, this came too late for those cast as casualties who, deprived of information, were denied any opportunity to mitigate their losses.
On March 2, Geelong media exposed disquieting reports that Watersun had advertised for staff one day before it went into liquidation. More cruelly, there were reports of Watersun accepting deposits on new homes less than 24 hours before announcing its administration.
Another issue relates to the administrators. They did not, as is normally the case, release the Creditors’ List five days prior to the first creditors’ meeting, which raises another dubious matter. Watersun appointed the administrators, and given that their client is Watersun, they may not be objective in taking account of the interests of home owners and creditors. This especially disconcerting given the enormity of outstanding debt.
Lastly, we have learned that the WSH Group have other entities trading profitably in commercial construction. One has to ask: “Why did these companies not support the domestic building company through difficult times?”
Watersun sealed watertight
This story shines a light on just how Watersun was sealed watertight. The directors were ‘waterproofed’ - Watersun’s super weapon synchronizing silence and secrecy. Not a scrap of official information seeped out to empower the besieged to dodge the damage of the hidden tidal wave about to destroy their lives.
Watersun has managed to circumvent critical scrutiny, primarily protected by government’s appalling legislation and almost nil oversight. For the victims, their fate was to be dumped up the proverbial creek, left in a leaky boat - and without a paddle. Their lives now shattered, they are forced to live precariously in the shadows. As always, business protected and the victims the ‘protected not.’