INVESTIGATION: Failing Walton firm shown mercy by watchdog
QUEENSLAND'S building industry regulator repeatedly gave Walton leeway on deadlines to file statutory reports in the 12 months before the troubled construction company went into liquidation in 2013 owing $72 million.
National Australia Bank was also aware of the company's precarious financial state as early as July 2012, giving Walton two months to produce key financial information.
The bank warned that a failure to meet the deadline would trigger an independent review to get full visibility of the business.
That review, conducted by Deloitte, eventually took place in early 2013. It found in part that Walton Construction had negligible tangible assets, including uncertified debtors of $8.4 million, and was using retained subcontractor funds to operate the business.
The Deloitte report identified that bank guarantees provided by NAB against Walton's successful completion of projects were recoverable by September 2013.
Ultimately 600 Queensland subcontractors lost a total of $30 million when the company went into administration on October 3, 2013, after divesting many of its assets through sale agreements to companies set up by its business advisors, the Mawson Group.
In August 2013, despite a history of late reporting and serious concerns held by NAB about his financial viability, Walton sole director Craig Hall Walton was granted a licence by the Queensland regulator for Peloton Builders, a company set up to take over Walton's profitable Queensland projects.
TRADE subcontractors across Queensland want to know how the Building Services Authority missed the warning signs, resulting in small businesses performing work and incurring debt for materials.
Key documents dating back to the middle of 2012 obtained by the Daily have revealed a series of exchanges between the Melbourne-based Walton Construction and what is now the Queensland Building and Construction Commission. These resulted in the builder being granted at least three extensions to its deadline to file key reports.
Subcontractors contend that if the regulator had responded to the alarm bells, the heavy losses they suffered 12 months later could have been mitigated. Certainly the $2.9 million lost by Coast subbies working on the Nambour Coles project would have been avoided.
LES Williams, a partner in civil engineering firm WK Civil, was forced to lay off 20 workers, ultimately lost $500,000 and had to move into semi-retirement after initially losing $700,000 because of the collapse.
"It took away our working capital,'' Mr Williams said.
The QBSA, now the Queensland Building and Construction Commission, also allowed Walton to change the dates of its reporting period for the 2011-12 financial year because it would have been in breach of its licence if it had filed normally to the end of June.
On August 31, 2012, Mr Walton wrote to Ryan Baker at the QBSA outlining how the breach would be avoided.
"I refer to our letter to the BSA dated 9 May 2012 and your subsequent correspondence in response thereto dated 18 May 2012," he said.
"In accordance with the commentary provided to you in our letter, WCQPL (Walton Construction Qld Pty Ltd) is to exceed its AATO (allowable annual turnover) for the year ended 30 June 2012 based on its Net Tangible Assets (NTA) per its audited balance sheet at 30 June 2011. The final accounts for the year ended 30 June 2012 are still subject to review and finalisation.
"We confirm that as at 31 May 2012, the company had not breached the AATO requirements. As indicated to you in our letter, construction activity in June 2012 resulted in the AATO being exceeded, hence supporting our decision to prepare our financial statements at 31 May 2012 for purposes of this review.
"We understand that BSA has verbally expressed its concern regarding the timing of lodgement of this information. We refer to our letter in which we highlighted our understanding of the need to lodge financial statements with you that cannot be more than three months old. To this end, we are providing you with our 31 May 2012 financial statements, which have been reviewed and signed off by our auditors on 31 August 2012. We therefore meet both the time of preparation requirements i.e. three months and the date of BSA lodgement (i.e. within 30 days of this date).''
Walton's auditor, Antony Barnett of GMK Partners, provided a heavily qualified report as part of the process, making clear that it was not an audit.
He said nothing had come to his attention that caused him to believe the report provided by Walton to the QBSA did not "present fairly in all material aspects the position of The Walton (Qld) Trust as at 31 May 2012 and of its financial performance for the year ended on that date in accordance with the accounting policies historically adopted by the trust".
However, Mr Barnett said he could express no assurance on the comparative figures for the 11-month period ended May 31, 2011.
Builders in Queensland are licensed to perform a certain amount of work in a financial year based on their Net Tangible Assets, which if breached can lead to licence suspension.
Changes in net tangible assets must be reported and lead to a reduction in the licensed level of activity.
DOCUMENTS obtained by the Daily show a variation of more than $1 million in the income Walton reported to the QBSA at the end of May 2012 and its audited report to ASIC to the end of June that year.
An amount of $1.1 million represented as trust distribution income in the accounts to the end of May 2012, and presented to the QBSA, appears to be missing from Walton's ASIC filing.
Walton's accountant, Antony Barnett of GMK, in a report to the QBSA sent on August 31, 2012, said "in determining NTA (net tangible assets) of the client I have included Related Entity Loans and or investment asset amounts with the accounts of the client and I have independently verified such assets are collectible by the client as at and for the year ended date as stated above".
Seven months later another GMK director Cameron Falt wrote to Craig Walton, stepping him through a process to write down as unrecoverable more than half of loans totalling more than $10 million to three Walton trust funds.
AHEAD of the August public examination in the Victorian Supreme Court into people involved in the Walton collapse, subcontractors remain fearful that the roles played by the QBSA, the National Australia Bank, the previous liquidator and key clients will not be fully examined.
At issue is security of payment for 85,000 building industry subcontractors, who in Queensland employ 250,000 workers.
Mr Williams, the Subcontractors Alliance spokesman, said original Walton liquidator Lawler Draper Dillon spent $925,000 drawn from the company's remaining assets and more than $100,000 provided by the Queensland government without properly explaining the collapse.
Lawler Draper Dillon, which has changed its name to PKF Lawler, was ultimately removed as liquidator last year by the Federal Court for apprehended bias relating to its past dealings with the Mawson Group, Walton's financial advisors.
Mr Williams said on the basis of documents now to hand, it was apparent that in mid-2012 Walton began restructuring his company at the same time it was being shown repeated leniency by the Queensland regulator.
He said the business was heavily reliant on new work to maintain cash flow.
That assessment is supported by the Deloitte Report codenamed Project Yarra and produced for the NAB. It found there was "an inherent risk that a material assumption (particularly around contract revenue and expenses) does not occur as expected and places significant strain on the business".
The Deloitte Report to the NAB further found that "analysis of a number of the WC Group's significant completed projects shows a poor track record in delivering projects" on budget.
And it concluded that achievement of the Walton Construction Group's 2013 financial year forecast gross margin of $15.9 million was predominantly reliant on Queensland achieving its forecast to offset the forecast under performance in New South Wales and Victoria.
"Given the slowdown in the Queensland market, this is uncertain,'' the report found.