Comment: After my article about work stopping at Du Val Group’s Hillside development in Mt Wellington, it seems the company’s been stung into action.
I reported on Friday that scaffolders who said they hadn’t been paid were removing their gear. The site was otherwise empty and unsecured. The open door of the site office swung in the breeze.
This weekend, I visited Hillside-Verge apartments again. The gates are now shut, the site office staffed. And a new company, Affordable Scaffolding, had been brought in to put up replacement safety framing.
Is this more than a Potemkin village? The new scaffolding may seem like a facade, behind which is a company facing increased problems.
We revealed last week that a syndicate of up to eight contractors represented by the lawyer Alistair van Schalkwyk is threatening liquidation action against the high-profile Auckland housing developer, owned and directed by the socialite power couple Kenyon and Charlotte Clarke.
The contractors claim they’re owed more than $1m for work on the Parry Rd and Hillside-Verge Apartments in Mt Wellington.
It wouldn’t be Du Val’s first time in court: the firm’s 242-unit Lakewood Plaza in Manukau already has liquidation claims against it of $16.2m, in a dispute involving Du Val and its construction contractor Downey Management.
And it’s not just contractors who say they’re out of pocket: there are now staff and investors coming forward. We’ve been told of one woman who put in up to $1.2m – all the proceeds from selling her house.
The company has previously said it will apply for an initial public offering on the NZX stock exchange; perhaps that’s brought it under greater scrutiny.
Today, two more lawyers have confirmed they are separately representing investors whose payments have been paused by Du Val Property Group or Du Val Mortgage Fund.
The litigator Jeremy Johnson tells me he’s acting for two investors, each of whom has put in about $500,000.
According to an information memorandum for investors, Du Val Property Group had $210m in liabilities in September – a good $21m more than it had in assets.
Johnson says that made the company’s balance sheet technically insolvent at that date. The company categorically rejects that (see response below).
According to its financial forecast, its assets will exceed liabilities by $4.7m towards the end of this year. Profitability would keep on increasing from there; it promises to be $509m in the black by September 2033.
Take it or leave it, but none of these forecasts provide much assurance to investors. That’s because Du Val has stopped their payments. “It highlights that the company has significant cashflow issues, which raises the question of cashflow solvency,” Johnson says.
Du Val told me last week that it was solvent, and chief executive Charlotte Clarke reiterates that to BusinessDesk: the firm has never had an “event of insolvency”.
She says that as part of its restructure, Du Val has adopted IFRS reporting standards defining how housing developers may treat inventory and borrowings. She says this allows Du Val to treat inventory at cost, rather than sale value or registered valuation, until developments were complete and projects settled.
Another lawyer, William van Roosmalen, is representing an elderly couple who, he says, have put most of their retirement savings – nearly $1m – into the Du Val Mortgage Fund Limited Partnership. They anticipated a 10 percent return every quarter, he says, but the money dried up two years ago.
He fears Du Val is running low on cashflow. “If one of the groups of creditors goes down the liquidation route, that is probably the quickest way to an outcome,” he says. “But there’s no guarantee it will work. Unless there is an undisputed statutory demand, it is difficult to place a company into liquidation.
“If the debt is disputed, then the courts will be reluctant to liquidate. While a company might be balance sheet insolvent, the courts have historically given greater weight to cashflow solvency – that is, are they paying their debts?”
In March last year, the Financial Markets Authority issued Du Val with a formal warning, saying investors had been given a misleading impression of the reasons for Du Val Capital Partners suspending cash distributions on the Mortgage Fund and proposing instead to convert cash distributions into units in the fund, pending a potential public listing.
Paul Gregory, the authority’s executive director of enforcement, said investors had not had the information necessary to make properly informed decisions to accept or reject the proposal.
“In particular, investors were misled about the reason Du Val has suspended the prominently advertised cash distributions, which was because Du Val’s Board could not approve a cash distribution which would leave the fund unable to meet its other obligations.
“And, that the proposal to convert cash distributions into units in the fund is not permitted under the terms of the limited partnership agreement governing the investment, and investors are therefore not obliged to accept that decision.”
And in 2022, the High Court had upheld another Financial Markets Authority direction order against Du Val Capital Partners, whose promotion of an investment in the Du Val Mortgage Fund Limited Partnership was found to constitute conduct that was in breach of the fair dealing provisions.
Du Val’s appeal against the direction order had been groundbreaking but, ultimately, unsuccessful.
The company was more successful in November last year, when it won a High Court costs award in a dispute over the supply of a software platform for signing up new investors to its mortgage fund. The National Business Review reported that the software supplier Invsta had issued a statutory demand for payment after Du Val Capital Partners cancelled the contract for supply of mortgage fund sign-up software.
On another matter, Kenyon and Charlotte Clarke have also sued the National Business Review, claiming defamation.
Du Val chief executive Charlotte Clarke says the board of Du Val Mortgage Fund advised that distributions had been deferred in compliance with the Limited Partnership Agreement. “The reasons for this have been clearly explained to the investors it affects.
The Mortgage Fund’s operations had been comprehensively disclosed in the Information Memorandum. “This investment was only made available to wholesale investors who understand the risk associated with investments of this nature and, the fund board advises that it continues to operate in compliance with the Limited Partnership Agreement.”
As for Du Val Property Group Ltd, as part of its restructure, the company had adopted IFRS reporting standards that define its recognition and treatment of inventory and borrowings while developing housing. “Inventory is recognised at cost rather than sale value or registered valuation until developments complete and projects settle,” she says. “None of this constitutes insolvency.”
She assures creditors: “They will be paid as they always have been.”
Clarification: An earlier version of this article conflated Du Val Group, Du Val Property Group and Du Val Mortgage Fund as essentially the same entity. They are related but distinct companies.
