Courier Mail - Construction group caves under debt

12 May 2011

Courier Mail

Construction group caves under debt

ONE of the largest construction groups in North Queensland has lost a long battle to stay afloat, collapsing yesterday with debts of nearly $135 million and leaving up to 250 employees with an uncertain future.

Listed Cairns-based CEC Group announced that the Commonwealth Bank had appointed corporate recovery firm McGrath Nicol as receivers and managers to restructure and then sell parts of the business. The bank is a secured lender owed $64 million.

The move follows CEC's announcement last week that it had appointed SV Partners as voluntary administrators over its embattled building arm, CEC Constructions Pty Ltd.

The group, launched in 1977 as an earthmoving business, grew to more than 20 companies and had offices in Townsville, Mount Isa and Cooktown. By 2008 it had nearly 400 employees and generated $208 million in revenue. Several ex-politicians served as board chairmen, including former Queensland premier Rob Borbidge and one-time state treasurer Keith De Lacy.

But CEC has struggled since the global financial crisis with a weakened housing market, sluggish tourism sector and series of natural disasters. It joins a long list of failed regional developers, including Tom Hedley's group, CMC Constructions, Resort Corp and Glenwood Homes.

CEC implemented a cost-cutting and restructuring program to cope but could not stem annual net losses of $11.3 million last year and $25 million in 2009.

The group revealed this week its net profit in the December half had plunged 510 per cent to a loss of $69.2 million as revenues nosedived 42 per cent to $33.3 million.

Chief executive Roy Lavis, who owns nearly a quarter of the company with his wife, predicted as recently as last October that his firm would get through the hard times.

"We've had a tough spin the last couple of years, but there's light at the end of the tunnel and we're going to get out of it," he said then.

Mr Lavis did not return calls yesterday.

Over the past three years CEC had slashed its bank debt from $168 million to $64 million but the group's facility expired on January 31. The Commonwealth Bank provided several extensions but a spokesman said yesterday that CEC had failed to submit a "viable solution" to meet its loan agreements, breached covenants and not made any interest payments since late January.

"CEC has described a possible employee buy-out proposal, however CEC has not provided any substantive detail on how any funds would be raised to complete the proposal. We believe the buy-out remains untenable and suggest that the group is, in fact, insolvent," the spokesman said.

Chris Honey and Keith Crawford, the joint receivers and managers with McGrath Nicol, said they would work with stakeholders "to stabilise and prepare the group's operating business for sale while we develop a strategy to maximise the recovery from the group's significant real estate assets".

Those property holdings are valued at about $60 million.

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