A total of 18 businesses in the WBHO Australia Group, including construction giant Probuild, have been placed into administration.
Deloitte has been appointed administrators by WBHO Australia (WBHOA), which directly employs around 750 people and has thousands more contractors working on its projects.
The company has annual revenues of $1.4 billion and has 18 major commercial and public sector projects in varying stages of development across Victoria (13), New South Wales (3), Queensland (1) and Western Australia (1).
While originally established in Western Australia in 1987, WBHOA is now based in Melbourne, with offices in Sydney, Brisbane and Perth.
The Australian firm is owned by South African construction giant Wilson Bayly Holmes-Ovcon Limited (WBHO), and it was a decision by the parent company to pull the plug on financial support for its Australian operations that led to the financial administration.
"WBHO has determined that, with effect from 22 February 2022, the company through WBHOC will no longer provide financial assistance to WBHOA," the South African company told investors.
"This has led the WBHOA board to commence with an application for the administration of WBHOA."
The South African parent company said it had injected more than 2 billion rand ($183 million) into its Australian offshoot over the past four years, plus given it loan guarantees.
COVID delays blamed for company's demise
It blamed Australia's stringent COVID-19 restrictions as a major factor in WBHOA's unprofitability.
"Of particular concern, is the project delivery capability of the business, which has been negatively affected by unplanned COVID-19 restrictions, the contractual environment and the increased difficulty in raising guarantee facilities necessary to secure new work," the parent company said.
In particular, the parent company blamed COVID-19 restrictions and lockdowns for some costly project delays.
"The Australian businesses have not being able to complete projects on time and not been able to recover variation and delay claims, resulting in material losses in the financial period to date and the requirement for further funding and balance sheet support from WBHOC," it added.
It also said its previous efforts to sell the business had been frustrated by regulators.
"During 2020, the company entered into negotiations with a third party to sell the Probuild business. This transaction was progressed to agreed terms by December 2020, but approval from the Australian Foreign Investment Review Board was not obtained," WBHO said.
"Following on from this, WBHO implemented its strategy to downsize the business, and considered other sales options, which proved fruitless due to concerns potential acquirers had as to the impact of the regulatory approach to COVID."
The South African company's share price plunged more than 27 per cent yesterday on the Johannesburg Stock Exchange after its announcement.
Administrators seek buyers
Deloitte turnaround and restructuring leader Sal Algeri said he and his fellow administrators were hoping to find a buyer, or buyers, for the businesses.
"The COVID-19 pandemic has created challenging trading conditions for many businesses, and for WBHOA, which has also been impacted by certain loss-making projects," he noted in a statement.
"We will also also be commencing a sale and recapitalisation process, in order secure a new owner for the businesses."
A Deloitte spokesperson told the ABC that the affected building sites are under WBHO Australia employee management.
"Some work is continuing, with the administrators focused on getting all sites back to full activity ASAP," he added.
Construction sector crisis?
Despite a boom in construction since the pandemic, success is not guaranteed, even for the biggest of builders.
Grocon Group constructed some of the tallest buildings in Australia before it went under in 2020, blaming a single project for sinking the decades-old company.
New figures from credit reporting agency CreditorWatch show construction is the sector with the highest rate of arrears, with 12.4 per cent of businesses more than 60 days behind in making payments.
The agency said payment arrears are one of the first indicators that a business is facing financial difficulty.
With business-related court actions up nearly 60 per cent last month, it warned that delayed payments are an early sign for suppliers that their debtors may not pay up.
"The construction industry has been especially hit hard by the pandemic," CreditorWatch CEO Patrick Coghlan noted.
"This sector has unique payment structures which are contributing to a high rate of arrears."
Oliver Judd, the CEO of the National Electrical and Communications Association, which represents electrical contractors, said many of his members will be left out of pocket.
"A virus or recession won't be the root cause within an industry that sees big companies collapse year in, year out, no matter the state of the economy," he argued in a statement.
"Company directors and executives of prominent corporations sail off into the sunset, largely financially and legally unscathed, leaving small and often family-run businesses out of pocket.
"The collapse of a principal contractor then leaves a trail of destruction in its wake.
The association is calling for a national scheme to protect the moneys owed to contractors for work performed on major projects.
