Gods May Do What Cattle May Not

This post is entitled with a translation of the Latin phrase “Quod licet Iovi, non licet bovi”. It basically means that what is allowed for one group in society, is not necessarily allowed for the others. The Mainzeal receivership has upset many people because it is a clear indication of how New Zealand business actually functions as opposed to how many people wish it functioned. 

In this case, the “Gods” are the Mainzeal directors, executives and main shareholder. The cattle, sadly, are the employees, subcontractors and leaky building owners. There is a double standard where debts must be paid to the Gods, but the cattle are unsecured creditors and will have security guards and the Police sicced on them if they take active measures  to get paid!

Whenever a company goes into receivership or liquidation, there is much gnashing of teeth. Campbell Live shows an interview with a subbie owed hundreds of thousands of dollars, Bryan Gaynor writes a column that points out he was right 5 years ago and no one listened and Kathryn Ryan on Radio New Zealand has a chat to a subcontractor who cannot access his tools while the receivers tally things up.

The conceit in all of this media interest in the plight of the “cattle” is that it’s an issue they only care about when something newsworthy is associated with the clear display of where the balance of power lies in New Zealand. If you haven’t been playing along at home, you’ll realise that the power in New Zealand resides in the banks and everything is focused on returning as much money to them before anyone else save the receivers themselves sees a single cent of what they are owed.

One of the reasons why the construction sector is so prone to newsworthy tales of subbies losing everything is because it is one of the most unequal sectors of the economy. Enormous leverage is held by the big boys and there is a lot of activity that really should be more aggressively investigated by the Commerce Commission and Serious Fraud Office. But because this is New Zealand, under a National government, it would be very discomforting for home truths about how construction contracts work to be revealed in the midst of a multi billion dollar attempt to rebuild Christchurch.

What seems to have happened with Mainzeal is the main shareholder Richina Pacific propping it up with frequent cash injections – using it as a trading vehicle while making sure very little is available in the event of a receivership or liquidation. The avoidance of leaky building liability which would have been costing them millions could turn out to be the major reason behind operating in this fashion. A reputation for average work and poor project management was simply fuel on the fire.

This is not the first major company collapse, and it will obviously not be the last. Failure is not a bad thing for an economy in the long run. But in the short term there will be substantial losses for subcontractors – primarily tradesmen. How do they respond to substantial bad debt writedowns? Rationally. They will reduce employee numbers, reduce their debt, only bid for work with solid clients and deposits upfront, move towards labour-only contracts and even move to Australia where most of their former co-workers or employees have ended up.

I am not surprised that something like this has happened. The government lobbed a hospital pass at local councils and contractors with its miniscule contribution to the leaky homes crisis. The government replaced contractor’s liens with a pretty on paper but not very useful Construction Contracts Act. The government made sure insolvency law protects the banks while ignoring the de facto employment relationships between most main contractors and sub-contractors in the construction sector.

We need to realise that Christchurch will never be rebuilt. We need to realise that the new apprenticeships scheme is a decade late and an order of magnitude below the level of skilled workers needed to replace and maintain housing stock let alone actually rebuild Christchurch or large infrastructure projects.

The changes to the Construction Contracts Act recently introduced in the House are not sufficient to reduce the level of “taking the mickey” by main contractors around the country. I look forward to following how the “Gods” involved in this company collapse make out over the next few years. What will become of Richard Yan? What will become of the Mainzeal executive team? What will happen to Jenny Shipley & Co? How many cents on the dollar will unsecured creditors receive?

I think iPredict should start a contract, but I doubt there would be a market for anything about 10 cents in the dollar. The only I advice I can give to people who don’t understand how power works in New Zealand business is to stay out of the construction sector. You’ll be eaten alive by the sharks and then the banks will have their pick too.

 

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