Thousands of tradies have downed tools as the collapse of $1.4 billion construction giant Probuild threatens to spark a wave of misery for workers and delay major building projects.
Administrators from Deloitte were appointed to 18 companies under the WBHO Australia Group banner on Tuesday night, after its South Africa-based parent pulled the plug on the company.
Workers for the construction group, which is building major projects like Victoria Police’s new 46-level HQ in Melbourne and Greenland Centre in Sydney, were earlier sent home after being told a collapse was coming.
With 750 direct employees and thousands of subcontractors working for the firm across its multibillion-dollar project book, the collapse threatens to leave many tradies out of work and delay major construction projects.
Deloitte administrators are now scrambling to find a buyer for the group so it can continue operating without the support of its South African parent company, Wilson Bayly Holmes (WBHO).
WBHO decided to cut off its Australian arm from millions of dollars in financial support earlier this week after a string of huge losses tied to major projects, saying Australia’s construction sector has become increasingly high risk amid a “hard-line” approach to tackling COVID-19.
It comes after Treasurer Josh Frydenberg blocked an earlier attempt to sell the group to one of China’s big construction groups last year, citing national security concerns.
Construction union CFMEU is now asking Probuild for more information about how workers at the company will be affected, while the company said it will try to raise additional capital to “continue as a premium Australian building company”.
Probuild collapse threatens thousands of jobs
As one of Australia’s largest construction firms, the collapse of Probuild and its associated companies has put thousands of jobs connected to the group at risk.
Deloitte administrator Sal Algeri said on Thursday the $1.4 billion-a-year construction giant is a “major contributor” to the construction sector and the broader economy.
“The COVID-19 pandemic has created challenging trading conditions for many businesses, and for WBHOA, which has also been impacted by certain loss-making projects,” he said.
“Our immediate focus will be to undertake an urgent assessment of the entities’ financial positions and work with key stakeholders to stabilise the business and projects where possible.”
Administrators will now try to recapitalise by selling the business to a new owner, although if no new investors surface the group may have to be liquidated, leaving thousands of workers and big projects in the lurch.
Probuild said on Wednesday it believes recapitalisation is possible.
“The Probuild brand is strong and we intend to keep it that way,” it said.
“We have several options for raising the necessary capital to continue … these will all be pursued.”
CFMEU construction national assistant secretary Nigel Davies said the union is seeking information on the collapse.
“The union will work to ensure the interests of our members in the construction industry are made the primary consideration,” he said.
Financial records show the company had more than $400 million in liabilities last year, suggesting the list of creditors seeking payments from the collapsed group is extensive.
In its statement, South African parent WBHO said it would honour its obligations to secured creditors, warning the collapse will have a “significant impact” on its financial position.
But subcontractors are not counted as secured creditors in most cases, meaning thousands of individual trades workers could be left without pay and entitlements if the company fails to find a buyer.
Construction giant blames Australia
The WBHO board determined that cutting off the Australian arm from further support was preferable because it has already spent more than $100 million propping up the group.
“The Australian businesses have not been able to complete projects on time and have not been able to recover variation and delay claims, resulting in material losses,” WBHO said in a statement.
The company tried to sell its Australian arm last year, but after Treasurer Josh Frydenberg blocked the bid, WBHO tried to reduce its project book to lessen risk.
That didn’t work, hence the decision earlier this week to cut the Australian group off from financial support.
WBHO took aim at both the Australian construction industry and federal and state governments in its statement, saying the sector has become high risk lately, in part due to a “hard line” approach to stopping COVID.
“The Australian construction environment has become increasingly competitive and contractual,” it said.
“In our view, the potential risk on large mega-building projects outweighs the current margins available.”
WBHO said that a “combination of border restrictions, snap lockdowns and mandatory work-from-home regulations” has had a “considerable impact” on property markets and related industries.
But Erik Locke, chief at Incolink, a workers entitlement program for the construction sector, said that argument doesn’t stack up.
“That’s not necessarily a fair assertion,” he said.
“In Victoria the construction industry was able to work almost uninterrupted through COVID-19.”
Mr Locke is hopeful that if Probuild is liquidated, then other companies will step in to take over its project book, allowing contractors working on those sites to be paid.
But because there aren’t protections in place requiring building giants to pay subcontractors their outstanding wages and entitlements when they collapse, many workers could be left with “cents on the dollar”, he said.
“Probuild have been a part of the fabric of our construction industry. This news is a hammer blow for our many members, friends and family who work in one of the most insecure industries,” Mr Locke said.