Contractors must wait in line as Reed Construction prepares to sue NSW government following $70 million collapse

Collapsed builder Reed Construction is confident of winning a legal claim of between $50 million and $60 million from the NSW govermnment with Reed Group owner Geoff Reed saying he will use the money to pay back around $70 million owed mainly to sub-contractors.

“Reed Constructions Australia Pty Ltd was forced into voluntary administration following the Roads and Maritime Services’ (RMS) premature and unreasonable action in terminating its contracts with Reed Constructions, combined with both RMS and Department of Education and Communities Ministers announcing  that their respective departments do not owe Reed any money,” said Geoff Reed in a statement on the company website.

“This assertion by the Ministers is not only premature and an apparent breach of the confidential Expert Panel process, but also contrary to Reed’s genuine belief that in excess of $60 million are owed by these Departments.”

Reed says its financial difficulties have been caused by “issues solely relating to the matters in dispute with the NSW Government”.

Last week Reed joined a long list of failing building companies after being placed in the hands of administrators with debts of about $70 million.

Other prominent building groups to collapse recently include 100-year-old builder Kell & Rigby and St Hilliers Construction.

Ferrier Hodgson partners John Melluish and Ryan Eagle were appointed administrators of Reed Construction as well as administrators of RST Nominees Pty Limited on June 15, 2012.

Most of the $70 million is owed to around 2,000 sub-contractors, who are listed as unsecured creditors, ranking behind employees.

Sub-contractors are being represented by debt-collecting company Recoup.

Melluish and Eagle say they will undertake an “urgent assessment of the financial position of the companies”.

“We will be doing everything we can to provide key stakeholders with clarity about the future of the company,” says Melluish.

“Reed Constructions suffered a number of losses on contracts largely arising from an inability to recover additional costs.”

A first meeting of creditors will be held on June 27 in Sydney.

Last month Reed Constructions was dropped as the contractor of four major NSW road projects after it failed to meet a deadline to prove that more than $200 million of works could be finished on time.

Reed claims it is owed money from the road projects as well as on work done on the government’s Building for the Education Revolution projects, a claim rejected by the NSW Department of Education.

Problems at Reed Constructions were highlighted as far back as February by NSW opposition leader John Robertson, who warned that the firm was on the brink of collapse with more than 1,500 jobs at risk.

The Reed website directs readers to the administrators’ statement.

Other businesses within the Reed Group will continue to operate as normal.

This article first appeared on Property Observer.