Financial irregularities found in failed house builder

G.J. Gardner franchise owes $1.8m with little likely to be repaid. Photo / Supplied

Financial irregularities have been uncovered in a failed G.J. Gardner Homes Auckland franchise which owes creditors $1.8 million.

An initial report by Anthony McCullagh and Stephen Lawrence, of PKF Corporate Recovery, on Affordabuilt, trading as G.J. Gardner Homes Franklin and Papakura, found it insolvent and raised questions about how it was run. David Gulland is listed as director of Affordabuilt.

"The management accounts could not be relied upon, there was excessive spending throughout various expense lines in the accounts, excessive drawings had been taken and the company was insolvent both on the balance sheet and on a cash-flow basis," they said.

Angry creditors say they are owed $1.84 million with little hope of recovering much. BNZ, Fisher & Paykel, GE Finance, Marac Finance, Metalcraft Industries, Panasonic NZ, PlaceMakers Takanini, Rentokil and Wattyl are among 107 creditors and the deficit is estimated to be $1.5 million.

Liquidators were appointed by master franchisee Deacon Holdings after a High Court application. In 2004, Deacon entered into an agreement with Affordabuilt to run the Franklin and Papakura house-building businesses.

But problems arose last year, the five-year franchise agreement was not renewed "and Deacon was concerned with the manner in which the company was trading and its financial position", McCullagh and Lawrence said.

"We understand in May 2009, Deacon allowed the company 12 months in which to correct its cash-flow and profitability issues and advised that if it could not remedy the issues within this time-frame then termination of the franchise agreement could result," they said.

Deacon received complaints from companies supplying Affordabuilt, and a neighbouring G.J. Gardner Homes franchisee said it was having problems getting credit from suppliers because of Affordabuilt's actions.

In May, Deacon took action. Affordabuilt agreed to a financial review but when Deacon discovered the level and age of creditors, it made an urgent High Court application to have an interim liquidator appointed.

The liquidators secured the office premises, assets in a show home, works on a building site and arranged security over some building sites.

Affordabuilt owned bare land with a BNZ mortgage. Liquidators have put it up for sale.

G.J. Gardner Homes Franklin/Papakura is now owned and operated by Mike O'Meeghan and Jeff and Bob de Leeuw.

Grant Porteous, Deacon managing director, said: "It is important to note the problems that have affected the Papakura/Franklin franchise of G.J. Gardner Homes do not reflect wider problems at other G.J. Gardner Homes franchises."