Landlord Dexus claims two Grocon firms unable to pay debts

Major office landlord Dexus has questioned whether two subsidiaries of construction giant Grocon can pay debts allegedly owed to Dexus, a court has heard.

The sensational allegation was aired in the Federal Court on Monday as part of a wider debt dispute between the Dexus group and Grocon Constructors (VIC) and Grocon Constructors (QLD).

Grocon has been riding the building boom in Australia but concerns remain it may have over-extended itself. Credit: Glenn Hunt

The Grocon subsidiaries took Dexus to court in February after the landlord sent the entities statutory demand notices for millions of dollars in alleged debts.

The court stoush is another blow for the group that in recent years has built the Commonwealth Games Village on the Gold Coast and is presently developing several projects including an office tower in Sydney's Darling Harbour known as The Ribbon and the $2 billion shopping centre and office development at Barangaroo Central on Sydney Harbour.

Concerns about Grocon's fortunes have been brewing in recent years after it emerged the company had sought alternative funding arrangements, including high interest mezzanine financing, after over-extending itself on two major projects in Queensland.

Separately, Grocon Constructors (QLD) was fined $27,000 in 2018 for its alleged late payment of subcontractors to its $650 million Commonwealth Games Village project on the Gold Coast. The subcontractors had all been paid when the fine was issued. Grocon Constructors (QLD) also had its building licence cancelled in late 2018 for allegedly failing to satisfy financial requirements.

Operating entity, Grocon Group Holdings posted a $27.5 million loss for the year to June 30, 2017, according to accounts filed in February 2018. The group also had $32 million in cash at that time. The accounts also show Grocon and its auditors expressing concern about the company's ability to continue as a going concern. Separate accounts for key subsidiary Grocon Constructors showed it reported a $77 million loss over the same period. More recent accounts for both public reporting entities are not yet available.

Dexus and Grocon have been locked in an out-of-court legal battle for months regarding a dispute relating to payments Dexus alleges are due on an entity it manages, the Dexus 480Q Trust. The dispute is thought to relate to many millions of dollars allegedly relating to overdue payments on the 480 Queen Street development in Brisbane.

Dexus and its wholesale property fund purchased the tower from Grocon in 2013 on a fund through basis while it was under development. According to Dexus's half year accounts, the building is worth $775 million.

Grocon's subsidiaries took Dexus to court in February to set aside statutory demands from Dexus to pay its alleged debts.

Property industry sources doubted Grocon was not able to pay the debt but was yet to do so because it disagreed with the amount claimed by Dexus.

Counsel for Grocon's subsidiaries, Sam Rosewarne, told the court on Monday that Dexus chief legal officer Brett Cameron made the allegation that the two Grocon subsidiaries were unable to pay their debts in an affidavit filed in the matter.

"The opinion is the company is unable to pay its debts," Mr Rosewarne said.

Grocon is seeking to have the allegation struck out of Mr Cameron's affidavit arguing the inclusion of the allegation is legally improper and also untrue.

Mr Rosewarne told the court the inclusion of the opinion by Mr Cameron was improperly included in the affidavit because it was drawn from "without prejudice" discussions between Dexus and Grocon's subsidiaries.

Dexus is seeking an exemption from the usual rules regarding these sorts of private discussions between parties, with its barrister Stewart Maiden, QC, telling the court "we have not breached that privilege".

The hearing continues. Dexus declined to comment as the matter was before the courts. A spokeswoman for Grocon described the case as "a fairly standard business dispute" and declined to comment further.

In regards to when Grocon's 2018 accounts would be filed, the spokeswoman said the accounts would be filed in due course, "it's business as usual", she said.