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Blind Sided - What to do when you are owed

By Brendan Taylor

Headline:  “Creditors owed $600 million in RCR Tomlinson collapse”

In November Perth-based engineering and construction company RCR Tomlinson went into administration owing hundreds of WA small businesses and contractors for work completed or underway.

You are one of these contractors. You are owed say $50,000 for work done. Surely this can’t be true. It is a large company. You had read that it had projects worth over $1 billion. Your heart stops. You panic. What do you do next?

This looks like another case of a large company collapsing leaving a trail of destruction through small businesses, many of which are already dealing with tight cashflows and reduced profits in a flat economy.

 

Don’t think that this only happens in Perth. It will surely not affect me.

 

We have seen it in Albany, many times. Great Southern Plantations and Timbercorp both collapsed around the same time. Many local businesses were affected, either directly or as a flow on effect from those that were directly affected.

 

So, what should businesses and contractors do if they are owed money and they hear this news?

And, how can you try to prevent this happening to you in the future?

What to do when you are owed?

  • Find out whatever information you can about the situation. They always name the administrators. You could call them. They usually say very little and make general statements, but any guidance would be useful.

  • Determine whether you should stop working immediately. Sometimes the administrators will require you to continue on the contract. If you stop you might breach a contract and put at risk any chance of being paid. You should ask the administrator this question. The administrator has the power to guarantee payment for work continued.

  • If any of your equipment is on site make sure that it is secure and clearly identifiable as yours. If you have any doubts then remove it if possible.

  • If you have already completed your job and you are just waiting on payment, you will be contacted by the administrator within a month or two.

  • There will be an initial creditors' meeting within the first two weeks. There is no need to attend that meeting.

  • For subsequent creditors meetings you can either attend or give your proxy vote to the administrator to vote on your behalf.

  • You should expect that any administration, reconstruction, insolvency or liquidation will take many months or even years.

  • You should expect not to receive your full amount owed. In fact it is common that unsecured creditors get very little in the end.

  • You might be asked to join a class action whereby you contribute funds for a litigation against the company or its directors. You need to consider whether this is putting good money after bad. There have been a few of these succeed in the past, but the timeframe is usually years.

  • You need to have a review of your own finances and cashflows.

  • Then you need to get on with other jobs.

How to avoid this in the future

  • You should always do credit checks on companies that you are undertaking project work for, even if you have worked for them before. The credit check companies are Veda and Illion (formerly Dunn and Bradstreet). There are others. They have data about any poor payment history, including ATO accounts.

  • Ask questions before undertaking work. Ask the company direct, other contractors and just ask around the industry groups in general.

  • Where you are providing goods or products on consignment make sure you register your ownership interest on the Personal Property Securities Register (PPSR).  This proves your interests in the assets if anything happens to them.

  • Set your payment terms and stick to them. Most of these large companies ignore your terms and choose their own.  However, if you have a regular follow-up system and become the squeaky wheel, you improve your chances of being paid first - it’s human nature.

  • Be wary about having all your eggs in one basket. Try to spread yourself across a number of businesses.

 

And, as always, you should call us with any of your concerns. The chances are we have heard some whispers or have some useful contacts to help you out.

Good luck!


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