20 Jun 2020

Creditors seek to have liquidator removed over prison contract stoush

8:16 pm on 20 June 2020

A bitter struggle has developed over who should be in charge of winding up a company involved in an aborted contract to help build prisons in this country.

Inside Paremoremo Prison

Photo: RNZ / Claire Eastham-Farrelly

Decmil NZ is a wholly owned subsidiary of Australian-listed large project management services company Decmil Group Ltd (DGL).

It was contracted in 2017 to deliver three accommodation units with a total of 366 beds at Rolleston and Tongariro prisons. The contract was varied in 2018 to provide an additional five units at Christchurch Men's, Christchurch Women's and Rimutaka prisons.

The deal, totalling $198 million, turned sour late last year because of quality and timing issues, and the Department of Corrections terminated the contract in February.

Parent company DGL appointed Perth-based Dermott McVeigh as liquidator, claiming the termination of the contract and non-payment by Corrections had led to Decmil NZ's insolvency.

McVeigh said he was still to formally determine whether the termination of the contract, due to issues around quality and delays, was legitimate.

"My legal advice is that they were not [entitled to terminate], they were entitled to charge liquidated damages for the delays and those delays were increasing but at no stage were they simply entitled to terminate."

"That is probably the most important point because it's only if their termination is valid that they get to charge the extra costs to complete the contract. If their termination is not valid then the damages claims swing back in favour of Decmil," he said.

The units were said to be unsuitable for prison accommodation because of cracking in panels, which Decmil NZ and Corrections had been working to fix and deal with the subsequent delay.

"They were working through the problem … so we're still unsure why the political winds changed so sharply on the department's side [and they terminated]," McVeigh said.

He said as liquidator he had been talking to people under oath to seek more information, but Corrections has refused to allow their staff to be examined.

Move to change the liquidator

McVeigh said as he started asking questions, Corrections started moves to have him replaced.

"It came about two or three days after I said I thought there was a claim against [the Department] and that I intended to investigate it."

Corrections has found an ally to replace McVeigh in the form of the debt-buying company Tempest Litigation Funders, which has bought Decmil NZ debt off a creditor.

Tempest director Damien Grant has said McVeigh should be replaced because he is based in Australia and has been appointed by Decmil NZ's parent.

"We don't know McVeigh but because he's based in Australia we have no visibility on him or his practice or his experience or his competence," Grant said in a video posting on You Tube.

"It is remarkable and inappropriate to have an Australian-based practitioner administering such a large insolvency."

Grant said he has received substantial backing from creditors to replace McVeigh, which will be decided at a meeting on Wednesday.

"I am very confident that if a vote was held, the majority of the creditors would vote to replace Mr McVeigh."

McVeigh said the issue was effectively contractual not criminal, but Corrections was acting outrageously and the joint campaign with Grant to remove him was "reprehensible".

"This seems to be an effort from Corrections to slip out of the claim and that if they had friendly liquidators put in place they won't continue to investigate them."

Grant has denied he is working with the department and said his only contact has been to check if his suggested replacement liquidator would be appropriate.

McVeigh said Grant was in it for the money, whereas he wanted what was best for creditors.

"He bought a debt for $1000… He has no interest in this whatsoever he has deliberately bought his seat at the table… he's just after the commercial return here.

"This is not fun, people have lost significant amounts of money here and I'm trying to get that back for them."

Corrections did not reply to questions about the move to replace McVeigh as liquidator or its contacts with Grant, because the issue was now a matter of a formal dispute.

But it referred to a statement in May by the deputy chief executive for Finance, Property and Technology, Andrew Robertson, which said Decmil NZ was liable for the extra costs incurred by Corrections to complete the project and arbitration had been agreed as the way to recover this money.

"In the interests of protecting the New Zealand supply chain, Corrections has made payments to subcontractors for validated works where Decmil has defaulted in doing so, and we will be seeking to recover this money," Robertson said.

The projects have still not been completed.

Grant has been contacted for comment.