Administrators of the collapsed Probuild building empire say they will investigate a transaction last year in which almost $50m was transferred from other parts of the business to the group’s struggling civil construction division.
Company documents show Probuild’s civil construction company, WBHO Infrastructure, borrowed $48.7m from other parts of the group last year as it struggled to survive massive losses caused by one of its key projects, the western roads upgrade in Melbourne.
The loan included $29.2m from Probuild’s building arm, Probuild Constructions (Aust), sparking industry fears money that could have been used to pay subcontractors was instead used to prop up the infrastructure arm of the business, and leading to renewed calls from the construction union for reforms protecting payments to subbies.
An additional $19.5m came from the head company of the Australian Probuild group, WBHO Australia.
Industry sources say that only about $5m of the loan has been repaid.
Through a spokesperson, Probuild’s administrators, Deloitte partners Sal Algeri, Jason Tracy, Matt Donnelly and David Orr, said they could not comment on the group’s finances because they were focused on “stabilising the businesses and securing sales to maximise the outcome for employees and all creditors”.
“But yes the issue will be examined,” the spokesperson said.
On Monday, the administrators said they had reached an “in principle agreement” to sell most of Probuild’s Victorian assets to NSW company Roberts Co, resumed work on a hotel project in East Melbourne and handed the Westside Place Ritz Carlton project in Melbourne’s CBD back to its developer, Far East Consortium.
Probuild’s directors called in the administrators a fortnight ago after the group’s owner, South Africa’s WBHO, decided to stop financially supporting it, despite previously providing a letter to the Australian companies promising support until the end of June.
In a statement to the Johannesburg Stock Exchange, WBHO blamed the collapse on factors including Covid-19 restrictions and a decision by the Foreign Investment Review Board in January last year to block the sale of the business to China’s state-owned China State Construction Engineering Corporation for a reported $300m, saying the Australian businesses “have not being able to complete projects on time and not been able to recover variation and delay claims”.
The company’s statement was “not short on self-justification”, federal court judge Jonathan Beach said last week in a ruling allowing the administrators more time before they have to call a meeting of Probuild’s creditors.
Dave Noonan, the national secretary of the construction division of the CFMEU, said the circumstances of the $50m loan should be established.
“The industry is rife with rumours that Probuild was compelled to provide cash to the failing WBHO civil business,” he told Guardian Australia. “We’d like to see this cleared up.
“This is a builder that’s had a good reputation for a long time and it’s very disappointing to see them go down in this way.”
Noonan said he was speaking only as a union official and could not comment on behalf of the development arm of super fund Cbus, Cbus Property, where he is a director.
Cbus Property is the developer of one of Probuild’s worst-performing projects, a residential skyscraper in Brisbane on which Probuild has chalked up $42m in losses over the past two years.
Financial reports show that both Probuild Constructions (Aust) and WBHO Australia were in poor financial shape when they made the loan to WBHO Infrastructure.
Weighed down by the Brisbane losses, Probuild Constructions last year declared a profit of $3.1m but had significant negative operating cashflow of $85m.
WBHO Australia declared a $31.6m loss and was also haemorrhaging cash, with negative operating cashflow of $225m.
WBHO has been contacted for comment.
Noonan said Probuild’s failure meant uncertainty for the dozens of subcontractors and hundreds of workers employed by the company.
“Like every major builder, the vast amount of work is done by subcontractors, that’s the way the industry works,” he said.
“If they don’t get paid, the workers lose their jobs – and perhaps their entitlements.”
He said the government should implement a key recommendation of a 2017 review of payments in the building industry conducted by former Master Builders boss John Murray and force builders to hold payments for their subcontractors on trust.
Under the model suggested by Murray, the head contractor would only be allowed to pay themselves after they had paid subcontractors.
Murray told Guardian Australia he could not comment on Probuild’s circumstances.
Speaking generally, he said a trust regime was needed because “if that money is not ringfenced, the builder is able to use that money as they see fit, for other projects or as free working capital”.
“The current security of payment legislation is just a dog’s breakfast, it’s an absolute disaster because it disincentivises people to use the legislation.”
Master Builders and other industry groups have consistently opposed the idea and the federal government has not acted on Murray’s recommendation.
“I had underestimated the level of opposition towards that concept, but also the lily-livered, jelly-kneed politicians who lack the appetite for reform,” Murray said.
