Felmeri directors lob last minute rescue plan, but customers in limbo over insurance
Felmeri customers say they’re in the dark over whether insurer QBE will cover the cost of completing their unfinished homes under an eleventh hour rescue plan.
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Customers of failed building company Felmeri Group say they remain in the dark over whether insurer QBE would cover the cost of completing their unfinished homes under a last-ditch rescue plan lobbed by the company’s directors.
A deed of company arrangement proposal was sent from Felmeri’s administrators to creditors on Thursday night, with the company’s directors promising a $3m injection of capital into the business from an unnamed third party in order to save it from falling into the hands of liquidators.
As part of the proposal, Felmeri directors Frank Felmeri and his son, also named Frank, would take back control of the company, complete construction of a road at O’Halloran Hill in Adelaide’s south and look to re-enter contracts with 37 customers at a Bowden townhouse development run by Frank junior’s brother-in-law Hamidoula Popal.
All other contracts would be terminated.
Approval of the DOCA at a meeting of creditors on Monday would potentially relieve QBE from its obligation to pay out dozens of customers with building indemnity insurance, given Felmeri would no longer be considered insolvent.
Felmeri customer Edward Gilmore, who was left with an incomplete house at O’Halloran Hill when Felmeri fell into administration on May 19, said he and many other customers remained in limbo as to whether their insurance would stand if a DOCA was approved.
“If the DOCA goes ahead and Felmeri still exists, they’re technically still solvent, and as such QBE can’t tell us if we would even be covered,” he said.
“And that’s the most stressful thing. We know that there are people there with a vested interest to not see the business go under ... so we’re quite concerned that if it was to be put forward, that we’d be in this massive limbo.”
A QBE spokeswoman said the insurer would “continue to review all current and future claims” lodged by Felmeri customers.
Mr Prior had previously requested the DOCA be submitted by Felmeri’s directors by Monday in order to give him enough time to review it and provide a recommendation to creditors ahead of next week’s meeting.
Given the delay, he suggested creditors either vote for another adjournment to Monday’s meeting or otherwise appoint liquidators to wind up the company.
“I do not consider it in the interests of creditors that a DOCA be executed without further analysis or consideration,” he says in a letter sent to creditors on Thursday night.
“If creditors are minded to give consideration to the DOCA proposal, they may resolve to adjourn the meeting for a period of, say, two weeks, to allow me to analyse the proposed DOCA, and for further information to be provided and investigated or considered.”
He said the additional information included seeking clarification over QBE’s stance on the DOCA and its insurance liability.
Mr Prior has previously warned 20 of the 120 customers affected by Felmeri’s collapse did not have the required building indemnity insurance, while others could still be left out of pocket given the insurance only covers up to $150,000 in additional costs required to complete individual builds.
One Felmeri creditor, who declined to be named, said it was important customers made their voices heard at Monday’s meeting.
“If you go through the actual rules of what is required for QBE to provide insurance, there’s nothing in there about it going to a DOCA - they only talk about insolvency or the builder dying or disappearing,” he said.
“But I do think QBE’s got a responsibility. People have paid for this insurance, and just through a technicality, let’s call it, if a DOCA goes through, they’re left high and dry.”
While the Felmeris had previously said they were in talks with a national construction firm, and later a local South Australian builder, to complete certain projects, their final proposal relies on them retaining their own building licence to complete construction.
Mr Prior said that was a risk given the current investigation being undertaken by Consumer and Business Services.
“It is unclear whether the company will retain its building licence upon completion of the current investigation and, in any event, the current conditions on the licence prevent the company from entering into new building contracts,” the letter says.
“There is a real risk regarding the company’s ability to retain its licence and to enter into new building contracts.”
Mr Prior said he was unable to provide an estimate of the likely return to creditors under the terms of the DOCA proposal.
His most recent estimate suggests Felmeri’s debts stand at more than $20m.
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