Regulators allowed the company at the centre of one of Queensland’s biggest building industry collapses to keep trading for nine months after it defaulted on a $75,000 debt.
The Queensland Building and Construction Commission (QBCC) was advised of a magistrates court default judgement against the Cullen Group in March 2016, but decided to make no changes to the company’s licence.
The Cullen Group collapsed in late December of that year, owing more than $42 million to more than 600 creditors.
“I don’t think there’s enough checks and balances in place,” said Rick Low, a subcontractor who successfully sued the Cullen Group.
“I don’t think they [QBCC] were ready for how much work came through the pipeline.”
The QBCC ordered an independent audit of the Cullen Group in early 2016 and decided its financials were secure enough for it to retain its licence to deal with projects of up to $60 million a year.
Asked whether the regulator was misled by the audit, QBCC commissioner Brett Bassett told 7.30: “We are always interested in making sure that the people who provide information to the QBCC, that might be provided by accountants, is factually correct,” he said.
‘That’s a lot of creditors’
The liquidator of the Cullen Group, Michael Caspaney, has found the company was trading while insolvent for almost all of 2016.
“They were using a whole group of subcontractors and when they couldn’t pay them, they just went to another lot, then another lot,” he told 7.30.
“It ended up there were 658 creditors, and that is a lot of creditors.”
He said the March 2016 default judgement against the Cullen Group was a sign the company was possibly insolvent.
“That’s a very obvious indicator that the company can’t pay its bills,” he said.
But the QBCC commissioner says that was not significant enough to change the Cullen Group’s licence conditions.
“One debt does not necessarily mean a company is trading while insolvent,” Mr Bassett said.
QBCC did issue a notice of proposed licence suspension against the Cullen Group if it did not pay the $75,000 to Mr Low’s company, All Pro, before July 18, 2016.
“And it was only as a result of our interaction that the day before the suspension was due to take effect, that the money was paid,” Mr Bassett said.
The liquidator found that in early 2016 the Cullen Group had committed itself to $43 million worth of new projects with a bank overdraft facility of only $2 million.
“It is my opinion that the company could not sustain this level of work,” Mr Caspaney wrote in the 2017 solvency report.
Building industry ‘seeing a proliferation of phoenix activity’
The financial state of the Cullen Group and another failed company, Queensland One, will be the subject of a public hearing before the Federal Court in Brisbane next year.
The hearings are also likely to address the liquidator’s findings in both companies of possible illegal phoenix activity – that is, the creation of new companies to avoid paying creditors.
Just before the collapse of the Cullen Group, the company’s operations manager Geoff Belford was appointed a director of Onpoint Construction Pty Ltd.
The following month, QBCC issued a public warning against dealing with this company.
“The QBCC warns all persons dealing with Onpoint Construction Pty Ltd to exercise extreme caution and seek legal advice before making any payments, to protect their interests,” QBCC said on January 6, 2017.
The Australian Restructuring, Insolvency and Turnaround Association says illegal phoenix trading is a particular problem in the building industry.
“There’s no doubt that right across the building industry we are seeing a proliferation of phoenix activity,” the association’s John Winter said.
“In fact it’s the one sector where it’s almost unconstrained.”
Subcontractor Hayden Quaife, who did work for Cullen on the multi-million-dollar Boheme apartment complex on the Gold Coast, says building company liquidations have cost his roofing business millions of dollars.
“It’s getting worse. In the past four to five years it’s been exponential, absolutely disgusting,” he said.