Customer’s despair after $18m collapse of building company Simsai Construction

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When a major construction company went bankrupt last year, 100 projects were on hold and one debtor’s debts were estimated at $18 million.

Liquidators are investigating whether Western Australia-based construction company Simsai Construction has been insolvent for more than two years, leaving at least 15 employees owing wage and pension entitlements and a large tax debt, according to a report filed with regulator ASIC.

Then there were the hopeful Australians who built houses.

Karen Franke was a customer who signed up with Simsai Construction and was left with a piece of dirt and no house.

After separating from her partner, Mrs. Franke was keen to build her own house.

The mother from Perth signed a contract with house builder Simsai Construction in December 2020.

She had agreed to pay $201,000 to build a three-bedroom, two-bathroom home in Hamilton Hill, in the southwest of the city.

But Mrs Franke claimed that there had been numerous delays in her house project.

She claimed that the contractor had not completed any work for nearly two years because it had become clear that her construction would be “complicated” due to the slope of the site.

“Plus, the prices had really skyrocketed, so they didn’t want to do it under the contract. So they made excuses, ignored me several times and told me the contract had expired and was no longer valid,” she said.

“I went to a lawyer and spent $3,300, but I knew it wouldn’t get me anywhere.”

Simsai Construction sent an email in February 2022 outlining the skyrocketing prices in the industry and their impact on Ms. Franke’s construction project.

“If you look at some of the newer 3×2 homes we have built with smaller rooms and only high ceilings in the living area, the prices for construction alone are over $200,000. With the larger rooms and possible scullery and additional living area, I would imagine a base price of around $350,000. Plus there is brickwork, site access issues, shoring and site work,” the email to Ms. Franke said.

“It’s just very unfortunate that construction prices have risen so much in the last year.”

Their new house was not supposed to be finished until 2021.

In March 2022, Ms. Franke was then informed that Simsai was in the process of finalizing a price increase and other construction matters.

Because Mrs. Franke was eager to start her construction, she also hired a company to complete the earthworks in April 2022, even though the contract stipulated an amount of $3,750 for the work to be done.

But an email from Simsai Construction later that month informed her that the existing contract had “expired” – which her lawyers said was not true – and that due to “current market conditions, we are not currently accepting such special projects.”

The email went on to say that if she wanted to use another contractor, they would be happy to provide her with copies of the plans and reports.

70,000 dollars lost

In May 2022, Ms. Franke’s lawyer demanded that Simsai start construction work by the end of June, but this was in vain, nothing happened.

“The company’s disorganization and slowness were a mess from the start,” she said.

“I felt completely abandoned. All this effort I’ve put in all this time and all I have is a flat piece of earth that cost quite a lot. The excavation cost about $16,000, that was to haul all the earth and level the site.”

The 67-year-old’s lawyer estimated that she spent an estimated $25,000 on the construction work, including down payments, an engineering report, excavation work and tree replanting, and warned Simsai Constructions that she would seek damages if the project did not begin.

Because construction didn’t get off the ground, she also lost the HomeBuilder grant and the Washington State construction grant totaling $45,000.

In total, losses amounted to $70,000, Ms. Franke said, making her “horrible” experience even worse. She never got a penny back.

Company collapses

In December last year, Simsai Construction entered court-ordered liquidation proceedings following a dispute with the Australian Taxation Office over debts of almost $4.5 million.

The Perth-based company was working on about 100 homes when it filed for bankruptcy in early November.

The company operated the brands First Home Buyers Direct, Express Homes WA and Multi Develop 360.

Thomas Birch and Jeremy Nipps of insolvency firm Cor Cordis were appointed liquidators.

A report filed in March by liquidator Birch said Simsai Construction had estimated debts of between $10 million and $18 million, but it was unlikely that creditors would get any of the money back.

After the ATO made a claim, the company’s employees – 15 of whom the liquidators have so far identified in their report – were left with outstanding claims totalling $304,000 and unpaid superannuation benefits totalling $1.77 million.

Insurer QBE had also submitted a provisional claim of $4.1 million, but expected the final amount to be up to $12 million after all customer claims were processed.

The liquidators discovered assets estimated to be worth only $182,000 to $200,000.

“A pile of dirt”

Pensioner Mrs Franke said she was now standing on a pile of earth and did not know if she would ever be able to build again.

“The whole ground is sinking now, it’s just a pile of earth and part of it has collapsed a little bit because they had to do it on two levels at the last minute,” she explained.

“The ground is now giving way and is partially burying the trees that I paid a lot of money for. I’m not sure they will recover.”

The dust is very unhealthy because she is allergic, she added.

She checked with other builders and learned that building the same house today would cost up to $450,000.

Instead, she now has to live with her ex-partner in a house with a large mortgage, and with interest rates skyrocketing, the repayments have become “exorbitant”.

What went wrong

Simsai Constructions had attributed this to the market impact of Covid-19, increased material and labour costs, a decline in labour and material supply and government subsidies for home loans, the liquidator’s report said.

But Mr Birch said that while these factors had impacted cash flow, the construction company had failed due to “poor cash flow management”.

Three factors in particular contributed to the company’s bankruptcy, including alleged “inappropriate transactions related to the board of directors,” market conditions that led to rising labor and material costs, and insufficient cash flow to meet liabilities such as pensions, the report said.

It was also revealed that preliminary investigations found the company was likely insolvent from July 31, 2021 and remained insolvent “at all times” until liquidators took control in November last year.

On this basis, claims for insolvency of around four to five million dollars could exist, it said. However, it appears “uneconomical” to pursue the directors for alleged insolvency of companies, the liquidators concluded in their report.

The liquidator’s report also revealed that the directors had loans valued at between $1 million and $2 million outstanding and that the directors intended to recover that money if possible.

They had previously indicated that the directors were willing to repay outstanding debts, possibly by selling their private homes.

However, it was expected that the liquidation would take one to two years.

No money back

The liquidators informed Ms Franke that she might have a claim under the insurance policy.

She contacted QBE but was informed in December 2023 that “the insurers conducted an extensive search of your property and advised that the builder – Simsai Construction Group Pty Ltd – did not have insurance on your property” and no claim could be made.

She believes there is no protection for consumers if construction companies go bankrupt.

“What must the public, or better yet the government, do to protect us from builders who (allegedly) continue to trade despite being insolvent, causing hardship and huge losses to innocent consumers without producing the end product – a home?” she added.

sarah.sharples@news.com.au

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