Digging your own Grave

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It’s a story that’s unfortunately too common, yet most contractors don’t believe it will happen to them. How can a respected earthmoving company with a perfect trading record and a reputation for getting the job done, find itself in receivership?

Tony Geldart has been in the earthmoving business since migrating to Australia from England in the mid 1970s. During the 1980s and 1990s, his company, Geldart Contractors, grew into a respected multi-million dollar business that completed large civil engineering projects in Australia and New Zealand. He has encountered numerous tough characters and dangerous situations along the way, but the rugged life of mud and machines seems tranquil compared to the cold world of corporate law.

In 1996, a Victorian water authority awarded Tony Geldart’s business a contract to install sewerage drains at a beachside housing estate in South West Victoria. The water company chose Tony because of his professional history and because they felt “he was the least likely to go broke.” It was a lucrative $1 million job, but shortly after starting the project, problems emerged.

Tony’s tender allowed for the removal of 600 cubic metres of bluestone rock. He based this figure on information provided by the water company; information that he feels was misleading. Tony Geldart recalls, “We only discovered afterwards that they [the water board] had geo-technical information showing how much rock was actually there. But instead of providing us with that information, they had what was called a dig day; where they had each tenderer dig test holes to check the ground conditions.”

Most of the dig holes were not on the proposed sewer lines. The water board told Tony that they had chosen test locations away from the proposed sewer locations because of underground services. Two weeks into the job, Tony discovered there was more rock on the site than there should have been. He had a meeting with the water company. He was concerned about digging a trench for a rising main that linked the beachside estate to the main township.

Tony estimated that this part of the job would cost $168,000. The water company rejected Tony’s quote. Instead, they gave Tony a ‘rock clause’, which meant Tony reduced his price to $100,000, to cover the cost of laying the new pipework. The water board instructed Tony to include rock removal in his final bill.

Tony eventually removed 2100 cubic metres of bluestone. He held regular meetings with the company and he believed he’d be paid for the extras. The minutes of these meetings confirm the company agreed to pay for the extra rock removal. The contract was based on the Australian Standard AS 2124, where under latent conditions, the rock would be paid as an extra.

With the project 95% complete, the water board owed Tony almost $500,000. He sent the company a letter asking for payment for the extra rock removal. He said he was prepared to use the company’s geo-technical information to quantify his claim. The company was unwilling to hand over their geo-technical documents and refused to pay his extras bill.

Tony became worried. He employed a solicitor who advised him to stop the job and create a dispute situation, which Tony did. In response, the water board seized Tony’s materials and called him to a meeting at a consultant’s office in Melbourne.

At the meeting, the water company representatives handed Tony a legal document. He recalls, “There were two guys from the consultants and one from the water board. They sat me down and said, ‘Look, the best way out of this is if you just sign here to say you’re terminating the contract. We won’t pay you any more money. We’ll just finish the job and that will be the end of it.’ I thought they would negotiate – maybe they’d argue about the bill. Then we’d finish the job and get our money. However, they held everything – my money and materials. That just stifled my cash-flow.”

In desperation, Tony appointed the accountancy firm Ferrier Hodgson to administer his company and to help him trade out of his difficulties. The administrator froze Tony’s assets. At a meeting seven days later, the administrator told Tony he had twenty-eight days to inform his creditors.

He recalls, “It was a terribly stressful time. I had no idea what was happening. They took over and didn’t tell us anything. We no longer had any control over the business: they seized the chequebooks, they signed the cheques, and they set up creditors’ meetings. However, one of my saving graces was that I wrote to the creditors, four or five times, and told them what was going on. In all that time, I’ve only had one creditor ring me up and abuse me. We weren’t going down easy.”

After the first creditors’ meeting, the bank appointed a company receiver and cancelled Tony’s overdraft. He was $800,000 in debt, which included machine finance, his bank overdraft, and his family home. He was also forced to lay-off his 29 employees and sub contractors.
The receiver’s actions angered Tony. He had nearly completed a $1.7 million tunnel contract in New Zealand at the time, and had several other ongoing contracts. He felt he could recover if he had access to his funds. He pleaded with the bank.

He recalls, “Over the years I’ve borrowed and repaid over $16 million. I’ve never had a problem. At the time, I said to the manager, ‘what about my track record – doesn’t that account for anything?’ the bank official said to me, ‘that was yesterday,. I’ve learnt from that. I use that expression quite a lot myself these days.”

Once the bank had appointed the receiver, Tony was unable to claim any income from his contracts. He still hasn’t been paid for the New Zealand project. The liquidator sold Tony’s $550,000 assets for $78,000.

There were many instances where he felt that the receiver was not acting in his or the companies best interest. He says, “There were a lot of things that I felt were unfair. For instance, I owned a machine that a friend offered to buy for $45,000. The receiver rejected the offer, saying we could hold out for a better price. However, six weeks later, they sold the machine for $22,000. On that one item, I lost $23,000. There were many other instances where I felt the receiver just wanted to wrap things up, regardless of how it affected us.”

Tony’s solicitors and accountants gave him conflicting advice and he admits to being confused at times, however there was some advice that he didn’t act on, and now he’s glad. He’s particularly pleased that he didn’t sell the family home. He says, “Our solicitor advised us to stop making our house repayments, because the bank was going to repossess the house anyway. However a friend who was once in a similar situation advised me, ‘whatever happens, don’t give up your home, it’s too hard to get back from there’. I was determined to keep paying our home loan. That was the best decision I ever made.” The equity from their home enabled Tony and his wife Dot to avoid bankruptcy.

In the beginning, the bank was quite hostile to Tony’s pleas that he had done anything wrong. However, one bank official, tried to help. Tony’s wife Dot says: “The bank official felt that the receiver had made things worse for us and that he’d help in any way he could. It was such a relief to find someone who believed us; we had felt very isolated. Other people along the way tried to help us. For instance, the administrator of our file at the receiver’s office, kept on our case. When she left to have a baby, everything just stopped. When she returned she pushed things along. These little things helped restore our faith in people.’

After two years of negotiations, Tony convinced the bank to pursue a claim against the water board. The bank agreed to fund the legal action if Tony assisted. for this, the bank would in return, reduce his debt. This was a great relief to Tony and Dot, as both were feeling the strain. Tony says, “During this time I really got to know my body well. Some days I’d be driving to work and I’d be hit by the overload. I felt completely overwhelmed. I’d ring ahead and tell the guys to carry on for the day without me. I’d then go home and rest my mind. I’ve really learnt how to handle stress. I’ve found it’s important to pace yourself in times like this.”

Over the next five years, Tony and the bank pursued the water board for compensation. He employed an independent civil engineering consultant, who confirmed his claim that the water company should have known the correct rock quantities at the site.

However, the water company refused to concede fault. Tony feels this was a legal game to wear him down.“The receivers were going through the motions; they were just appeasing the banks. They wanted to run us out of time. Once we got to the point where we had proved to everyone that we had a winnable case, the receiver’s barrister said ‘if you take action against the water company now, they’ll ask why you waited so long.’ They were trying to take advantage of the seven-year statute of limitations law.”

Tony is still angry at the cavalier manner in which company receivers seemingly operate. He is convinced that the receiver ruined his business. He says, “I dig holes for a living, I’m not a lawyer or a financial consultant. I was happy to go along with the advice I was receiving, but in hindsight, I made a number of mistakes, the biggest of which was to allow the bank to appoint a receiver. I should have appointed a receiver that was friendly to us. Receivers don’t have to answer to anyone. If you have a dispute with Telstra or the bank, you can always refer it to the ombudsman, but with company liquidation, you have no recourse – they monitor themselves. It’s just not good enough. The only thing that kept me going was that I knew that I hadn’t done anything wrong. The bank funded our case against the water board, but we still spent over $40,000 of our own money.”

Tony’s business has since recovered. In 2001, he was placed in the final eight of a Yellow Pages small business award. This has helped him develop the LiteGuard™ trench shield system – a lightweight trench support system that allows contractors to work safely in confined areas.

His new business is thriving, but the events that almost destroyed his life still infuriate him. He is currently writing a book that he hopes will help others avoid the pitfalls of company receivership.
He says, “I received so much conflicting advice and made many mistakes. I don’t want others to have to go through what we have. I’ve always worked hard, paid my bills and taxes. I’ve been honest and done the right thing. However, sometimes being honest isn’t enough.”