How a $20 million fraud took down construction firm Hastie Group

Construction firm Hastie Group and 44 of its subsidiaries have been placed in voluntary administration, leaving thousands of jobs at risk after the business discovered “accounting irregularities” worth as much as $20 million.

But this is only the latest development in a string of bad announcements for the company, which has seen its shares tumble by 93% during the past year – it has been attempting to recapitalise itself for months.

Hastie last traded at just 16 cents, down from as high as $2.45 at this time last year.

Industry unions are already riled by the announcement, which has left thousands of employees without work. The business has 7,000 employees overall, with 4,000 in Australia.

Ian Carson, David McEvoy and Craig Crosbie of PPB Advisory were appointed as administrators after the company announced the accounting irregularities last week.

In a statement, Carson said the move is a disappointment, but there was no other option “given the extreme financial situation”.

“We are obliged to confirm Hastie Group’s ability to fund trading before we can resume business. We need time to assess the details of the situation and to determine the viability of the ongoing businesses.

“In the meantime, we remain acutely aware of Hastie Group’s role on major construction projects and are assessing those urgently. We will provide an update to employees and other affected parties as soon as possible.”

All New Zealand businesses will continue to operate as normal, although receivers and managers have been appointed to one company there.

This comes after the company announced it had found “irregularities” in its finances – as high as $20 million.

“These irregularities date from the financial year 2009 and appear to have resulted from the deliberate actions of a current employee (on suspension),” the company said last week.

Accounting irregularities totalling $3 million were discovered during the audit process for the first half of the year and were taken as a net loss. But “fresh information” prompted a new investigation.

PPB was contacted this morning, but no reply was available prior to publication.

The collapse comes during what has been one of the worst years in recent history for the construction market, with record numbers of insolvencies, while fraud has also been on the rise fuelled by global economic turmoil.

This is the latest development in a line of bad news for the company.

Earlier this month, Hastie’s shares were suspended due to a “review event” prompted by the company’s banking syndicate. The review event was set aside, but Hastie was still in negotiations over financing – it submitted two proposals on May 18 and gave no further update.

In its latest financial report, for the half-year ending December 31 2011, the company recorded a net loss before tax of $159 million up from a loss of $95 million during the previous corresponding period.

The result led to the company breaking some of its banking covenants, which caused debt repayments to be accelerated.

And yet Hastie had even more problems last month surrounding a dispute in the Middle East with Dutco Balfour Beatty over a building project. DBB wanted to terminate the company’s contract and called for payment of performance bank guarantees worth $6.2 million.

A second update on May 3 said DBB had been paid $7.4 million under the bank guarantees.

As a result of all of this, Hastie said anticipated EBIT for the second half of the year would be “reduced to approximately $0”.

Non-executive directors Lindsay Phillips and Harry Boon resigned from their positions last week.