Langford Jones Homes is one of many builders to enter into liquidation. With the increased cost of materials and late payments from customers, it’s not hard to see how this can happen. But the liquidators of Langford Jones Homes are investigating a string of transactions which could be reversed and see the directors in Court.
How Did Liquidation Happen?
At the time of liquidation, in June 2022, the builder owed $23 million. Given the size of the debt, it is no surprise that more than 400 creditors are impacted. The effect of the liquidation is also hitting homeowners hard, with 66 homes in progress being abandoned.
The liquidation was voluntary, meaning that the owners of the business agreed it was insolvent and did not require Court intervention.
The Transactions being Investigated
Once the builder entered into liquidation, liquidators were appointed to take the place of the directors. This gives the liquidators the power to review all company documents, financial records and assess whether any wrongdoing has occurred.
The latest report from the liquidators revealed that the business used its funds to buy a number of residential properties. The business funds used to purchase those properties were approximately $2.044 million. However, there are a number of other properties which are still under investigation.
These homes were then transferred to or an interest partially given to family members or related companies of Langford Jones Homes.
Why These Transactions could be Illegal
The liquidators are checking whether these transactions constitute a breach of directors’ duties. Directors’ duties are a set of duties or rules which are binding on all directors under the Corporations Act 2001 (Cth).
The main duty in question is whether the directors failed to exercise their powers and discharge their duties with reasonable care and diligence. It is relevant whether they made the decision to purchase the properties in good faith, whether they had a personal interest in those transactions and whether they believed that it was best for the business.
There are also questions over whether cash transfers from Langford Jones Homes to its related companies are illegal.
What You Can Do as a Builder and Business Owner
We have seen many businesses collapse which are similar to Langford Jones Homes. This is not a new story.
Here are some tips to help minimise the risk of you and your business being in the same situation:
- Have agreements in place and signed for any transactions between your business and any related business, family or friend.
- Make sure that any transactions are correctly categorised and listed in the books of the business. All loans should be listed as a loan and have a loan agreement to back it up.
- Take other steps to ensure that transactions are done at an arm’s length. For example, if assets are being purchased, ensure that they are valued first.
- Keep notes or resolutions which detail the reasons behind decisions being made. These notes should show that you have thought about and assessed the benefit of those transactions for the business.
- Frequently review your payment terms with suppliers and your customers. As soon as you start to notice that customers may not meet their payments, begin negotiating with your suppliers. This should stop your cash flow getting worse.
- For builders, ensure that you check your contracts and whether they allow for price increases to be passed onto the customer. This is imperative for ensuring that a profit is still being made on the build.
We are the dispute resolution specialists. If you require more information or wish to discuss a particular concern, please do not hesitate to contact one of our dispute resolution specialists at Taurus Legal Management on (03) 9481 2000 or email us at info@tauruslawyers.com.au.