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Christchurch modular house builder owes Inland Revenue $298,000, calls in liquidator

Nov 27, 2023Nov 27, 2023

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It seems like a dream - homes that look as good as this, delivered to sites in a built-up format. But sometimes, it's a nightmare. Photo / supplied

They’re meant to be the answer to all our house-building worries: modular or transportable homes, built in a controlled environment under set specifications, designed to cut waste and costs and delivered built-up to the site in a dream-like scenario.

Prefabricated, modular, kitset, transportable, container, tiny - whatever the name, some people hope a relatively new style of building could revolutionise the sector, help ease our housing shortage and bring down prices.

Yet some of the businesses behind this construction technique continue to fail, often unable to pay those they owe, with the latest unable to afford PAYE taxes and GST on its sales.

A number of factors are combining to create problems in the building sector, causing a string of failures.

Only four years ago, John Maxwell Phillips established Christchurch's Kiwi Modular Homes to answer the demand in that growing city.

But a liquidator's report just out showed he accrued an unpaid tax bill of $298,000 and suffered staff, supply and profitability problems so this month called in Thomas Rodewald of Tauranga insolvency specialist Rodewald Consulting.

Rodewald wrote that the company in voluntary liquidation had accrued that big IRD debt so the owner and director had called on him.

Before financial troubles, Phillips’ company said it could deliver complete houses from 25sq m cabins to four-bedroom places.

"Each module is delivered complete with claddings, roofing and internal linings fixed and pre-finished. That includes bathrooms, kitchens and all other internal fittings such as lights, taps and wardrobes," Kiwi Modular said on its website.

Phillips only formed the business in 2019 to specialise in house construction but the pandemic and other issues hit him hard.

Phillips said he had more than 30 years of experience and knowledge from the construction sector and he wanted to reduce waste and build in a more sustainable and higher-quality way for much better prices.

But when he failed to pay his taxes, IRD served legal proceedings against the business, prompting Phillips to declare insolvency.

The big IRD debt had been accrued and included mounting penalties and interest on unpaid amounts so on April 26, IRD served liquidation legal proceedings on the company, although those proceedings were terminated at IRD's behest when liquidation was declared.

"The reason for the failure of the company which led to the appointment of the liquidator is due to a number of factors including supply issues, Covid-19 issues, staffing issues and lack of profitability," Rodewald wrote in the report this week.

Kiwi Modular Homes owes $197,000 in PAYE taxes, $82,000 in GST and got a small business loan from IRD of $17,000 according to a statement of affairs as of last Monday.

Trade creditors are owed an estimated $128,000. Secured creditors are owed a further $70,000 while employees are owed $15,000 in wages and holiday pay.

Deposits received for homes total $91,000.

All up, creditors are estimated to be owed $367,000 with little to offset those debts.

Other modular home builders to fail lately include Podular which was headquartered in Auckland and Australian Integrated Modular Build which had been working for state homeowner Kāinga Ora.

In 2021, two transportable home businesses failed even after forging government connections: NZHousing and Affordable Homes Construction of Dairy Flat, owned and directed by Ian Ralph Fotheringhame of Orewa, hit liquidation and receivership.

Six tiny homes were being built when New Plymouth's NZ Tiny Homes failed last year. That business had built 135 homes in three years, selling for an average $150,000.

Rodewald said Kiwi Modular Homes had $3000 cash, $18,000 plant and equipment, $16,000 stock on hand and work in progress and a vehicle estimated to be worth around $4000.

Work and Income's Covid-19 employer wage subsidy site shows the company got an initial $25,000 for four employees when the pandemic broke out, an $16,000 extension, then a further August 2021 payment of $8400, meaning all up it got Covid Government cash of $49,000.

But that wasn't enough, in the end, to ensure survival.

The company had forecast that modular homes would outpace those built via more traditional methods: "Because sustainability, efficiency and better value are important to us, we believe modular building will be the most popular method in New Zealand."

Each module was 1.2m or 2.4m so components could be bolted or unbolted on.

The business of Somerfield, Christchurch said it had a unique method to assemble houses.

"The modules connect together in any configuration much like Lego blocks. The bespoke design is delivered, lifted into place and joined together using our patented and innovative joining system," Kiwi Modular said.

Customers could have peace of mind that they could always add or change configurations as their lives changed, Kiwi Modular said.

But Rodewald said: "Very little stock was on hand. Buildings under construction are subject to an equitable lien." Realisations might total $30,000 to $60,000.

A creditors’ list shows those owed money include national businesses Mitre 10 and Bunnings as well as locals like Yaldhurst's Ace Doors, Aquaflow Plumbing & Drainage of Rangiora, Riccarton's Johnston Engineering, Christchurch's Titan Cranes, Riccarton's Window Innovation, Bromley's Dakins Group, Hornby's FIL engineers, Blenheim Rd's The Flooring Centre, Papanui Rd's Welsford Limited Chartered Accountants and many others.

Inland Revenue has called for builders and others in the sector concerned about mounting tax bills to contact them.

About 50,000 construction sector businesses were behind on their tax so two months ago, it launched a new campaign to encourage those businesses to pay.

Spokesman Richard Philp said in March: "We know around 50,000 customers within the construction industry have at least one outstanding return and/or some form of debt to Inland Revenue. So, we’ve developed a toolbox – a one-stop shop to help tradies get their tax affairs in order."

It launched the campaign to encourage tradies to get their tax back on track.

"The construction industry is crucial to New Zealand's economy and continues to grow," the tax department said.

Philp added: "We know businesses in the construction sector have struggled with increases in the cost and availability of materials, supply chain constraints and labour shortages over the last few years."

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