Next collapses amid construction industry crisis

Commercial builder Next is the latest casualty of dire conditions hitting the industry, calling in administrators with debts of more than $15m.

Construction at Next’s $35m student accommodation project in Kensington. Picture: Next Group website

Creditors have been left chasing more than $15m in unpaid debts following the collapse of commercial construction company Next.

The Sydney-based builder has called in administrators Hall Chadwick to oversee the company’s affairs, with recent flooding across NSW, labour and materials shortages and project delays caused by Covid-19 blamed for the company’s demise.

Established by Joseph Di Girolamo in 2007, Next specialises in aged care, student accommodation, hotel and hospitality projects across NSW.

A $35m student accommodation project in Kensington, in Sydney’s south-east, and a 100-bed aged care facility at the Uniting Edinglassie facility near Penrith, are both at a stand-still as Mr Di Girolamo finalises a deed of company arrangement (DOCA) proposal to be put to creditors.

Hall Chadwick’s Sule Arnautovic said secured creditors Westpac and performance bond provider Assetinsure were collectively owed $10m, while dozens of trade and other unsecured creditors were owed a further $5m.

However that number could rise significantly as customers consider their own defect and liquidated damages claims against the company for recently completed projects.

“In terms of the unsecured creditors, it’s early days to talk about how much they are potentially owed, but excluding any sort of contingent liabilities that flow from claims on projects, if you’re just talking about trade creditors, statutory creditors, it’s around about $5m,” Mr Arnautovic said.

“But as I say in the building game, you’ll have all these various project customers having liquidated damages claims and rectification claims, so it’s very far from certain.”

About a dozen direct employees are owed about $400,000 in unpaid entitlements, but Mr Arnautovic said there was a “reasonable prospect” that they would be paid in the coming weeks.

He said that while a DOCA proposal could include a commitment by Mr Di Girolamo, the group’s sole director, to oversee completion of unfinished projects and compensate customers for defects and damages, it was unlikely the business would be salvaged in its current form.

“There’s contemplated to be a further injection of funds from other third party assets,” he said.

“I’m not aware if the company, as it is previously, is going to continue to trade into the future - whether it’ll focus on different types of developments, maybe smaller developments.

“But what the director is exploring is avoiding liquidation of the group, and trying to restructure by way of a DOCA that sees an assistance program with the current projects, and then the company and the director will assess how and what sort of work they do into the future.”

The DOCA is expected to be put to a vote of creditors in the next four to six weeks.

Next is the latest in a string of construction company collapses in recent months, which has included Gold Coast-based builder Condev in March and Melbourne-based Probuild in February.

And the industry remains vulnerable to more failures, with builders continuing to operate at the slimmest of margins through fixed price contracts that make it difficult to absorb cost increases caused by labour and materials shortages, and project delays caused by Covid-19 and severe weather conditions.

“I think generally in the building area, inclement weather issues, Covid delay issues, material pricing, labour shortages, and essentially project delays as a result of those various matters, have created a few issues,” Mr Arnautovic said.

“I suspect there’s going to be more insolvency activity in this area.

“If you have an issue where you’ve got a builder and a customer who are at loggerheads on what constitutes an agreed variation, or an agreed delay, you can have some real issues, especially in small and mid-tier businesses who may not be capitalised like say a Lendlease.”