The much-delayed City Rail Link (CRL) is having an enormous impact on businesses affected by its mammoth construction works. A cluster of financially devastated Albert St businesses are struggling for their financial future due to a blow-out in the completion of the CRL construction works.
City Rail Link Limited was set up in June 2017 and is a joint venture between the Government and Auckland Council. Initial excavation work on Albert St commenced in July 2017.
The CRL is New Zealand’s biggest ever transport-related infrastructure project. It is designed to double Auckland’s rail capacity. It comprises a 3.45-kilometre dual-tunnel underground rail link sunk up to 42 metres beneath the centre of Auckland’s CBD.
Debt levels are rising to potentially unsustainable levels, while banks view Albert Street as high risk and have ceased lending or extending overdrafts.
Subsequently, at least six Albert St owners have been forced to close due to the disruption to their business caused by the $4.4 billion project.
Moreover, Albert St businesses are obliged to continue paying their staff their wages, rent for the premises, council rates, GST, excise tax as well as their trade supplies.
Local Albert St businesses affected by the CRL project have long called for help as construction continues to impact their businesses.
Locked in a lengthy and increasingly bitter struggle for financial compensation, the Albert St business group is highlighting the toll the protracted construction works have taken on their finances.
Back in August 2019, reports emerged that the $4.4 billion project had offered just $72,000 to help cash-strapped businesses battling survive behind its ever-present trenches.
Reports indicate Michael Barnett, chief executive of the Business Chamber, described the $72,000 funding for owners as "a shameful response to the businesses who have been grossly disadvantaged by this project."
Barnett was reported as saying that the derisory assistance offered to date illustrated the "total lack of understanding" of who "creates wealth and employment for our community" by the Auckland Council leadership team.
City Rail Link Limited defend its offers of assistance, pointing to numerous programs it has made available to businesses struggling with depressed trading conditions caused by the lengthy construction.
Leading business group, Heart of the City, has launched a petition to Parliament seeking financial compensation for their losses, while Auckland Central National MP Nikki Kaye has agreed to deliver the petition to the parliament.
Transport Minister Phil Twyford announced the Government has agreed to set up for a hardship fund for Albert St businesses affected by the CRL works under a proposal initially put forward by Auckland Mayor Phil Goff.
Goff, who previously deflected calls by Albert St business owners for financial assistance, changed his stance on the issue. His new position advocates for a fund to be set up to assist embattled Albert St owners.
The new fund will assist small businesses impacted by the project taking longer than initially anticipated, providing they meet set eligibility criteria.
However, small businesses will need to prove they experienced financial hardship as a result of slippage in the project delivery. They will not be compensated for any inconvenience resulting from the extensive construction work.
Many businesses faced with major infrastructure projects such as the CRL will experience depressed revenue and subdued trading results. This disruption can plunge them into operating at a loss until the construction work is completed and the business finds its feet again.
However, if those businesses are losing more money than they are generating, they’ll need to implement some changes to keep those businesses running in the short term.
One option is to raise or borrow money to cover costs until the construction is finished.
Another option is to reduce their expenses by identifying discretionary spending they can cut to reduce the drawings they are taking from the business, while trying to negotiate better interim payment terms with their suppliers.
In times of external financial stress, a further option may be to negotiate short-term rent assistance, a deferred payment plan, or a rent holiday with their landlord.
Many are considering selling assets they’re no longer using.
Businesses confronted with the delays associated with the CRL should take care to avoid these common mistakes:
• Keeping your head in the sand about the potential insolvency risks associated with trading while in a loss position.
• Not having a fallback plan in place to survive the loss in revenue triggered by the construction work
• Buying products or services your business is not in a position to pay for. If you source materials or business inputs from your supplier when you know you can’t pay the invoice when it falls due, you are operating while insolvent, leaving yourself open to prosecution and bankruptcy.
There are essentially three basic options for businesses hit by the CRL construction delays and facing insolvency. They are:
• Voluntary Administration: An administrator is appointed to review the company’s operation with the intention of restructuring the business to avoid its eventual liquidation. Businesses often emerge from voluntary administration in sounder financial shape to continue trading.
• Receivership: A receiver is appointed by a secured creditor to deal with the company’s secured assets. This usually results in those assets being sold off and the business closed. A company can simultaneously be in receivership, voluntary administration and liquidation.
• Liquidation: A liquidator is appointed to investigate and deal with all the business assets. Creditors have the option of applying to the High Court for the company to be placed into Liquidation. Alternatively, the company’s shareholders can pass a special resolution to place the business into Voluntary Liquidation.
Historical data supports the claims that infrastructure renewal projects stimulate the local economy. These projects typically deliver new jobs while attracting an influx of visitors to a community.
By doubling Auckland’s existing rail capacity, the City Rail Link (CRL) project should stimulate local employment, boost business turnover and enhance property values.
The CRL is also envisaged as delivering indirect benefits such as the social benefits of community revitalization together with increased consumer expenditure, all of which drive demand.
The problems experienced by local Albert St businesses affected by the CRL construction brings into sharp focus the importance of community engagement. Any infrastructure renewal project set in a major CBD inevitably poses challenges for existing local businesses while holding out the promise of long-term future benefits. The trick appears to be striking a fair balance between the two!
In many cases, the director of a company will also be a shareholder – but the roles are separate and have different powers and responsibilities. There can also be different levels of control within those roles.
In this article we will look at the differences and discuss how those can be managed to lessen the chances of an impasse on any issue.
The Shareholders of a company have the rights and obligations set out in Part 7 of the Companies Act 1993 (the Act). For the most part, those powers can be exercised by an ordinary resolution passed by a simple majority of those shareholders entitled to vote and voting on the question.
There are, however, certain powers which can only be exercised by a “special resolution”. Those powers are –
a. To adopt a constitution or, if it has one, alter or revoke the company’s constitution:
b. Approve a major transaction:
c. Approve an amalgamation of the company:
d. Put the company into liquidation.
The special resolutions in a, b and c above can be rescinded by another special resolution but a special resolution to liquidate the company cannot be rescinded in any circumstances.
If a formal meeting of the shareholders is held, a special resolution requires the votes of not less than 75% of shareholders, who are entitled to vote, to vote in its favour.
If the resolution is to be passed in lieu of a meeting, the requirement is that not less than 75% of shareholders who, together, hold not less than 75% of the shares, vote in favour of the resolution.
One of the powers given to the shareholders pursuant to section 155 of the Act, is the appointment, by an ordinary resolution, of the company’s directors.
In general terms, the directors of a company make the decisions about the management of the business and affairs of the company and, for the most part, they do not have to seek shareholder approval for those decisions. The directors do however need the approval of shareholders for major transactions, which includes the following –
a. The acquisition of, or an agreement to acquire, assets, the value of which is more than half the value of the company’s assets before the acquisition;
b. The disposition of, or an agreement to dispose of, assets of the company the value of which is more than half the value of the company’s assets before the disposition
c. A transaction that has, or is likely to have, the effect of the company acquiring rights or interests or incurring obligations or liabilities, including contingent liabilities, the value of which is more than half the value of the company’s assets before the transaction.
On the face of it, the shareholders hold the upper hand when it comes to the big decisions – including the ultimate decision to liquidate the company.
However, depending on how the shareholding is structured, unless there is agreement between the shareholders, there can be situations that create an impasse between the shareholders when it comes to making that decision.
If there is only 1 shareholder there is no problem but, in many smaller companies, there might be 2 or 3 shareholders. In those circumstances, to pass a special resolution in lieu of a meeting, to liquidate the company all three shareholders need to agree.
Even if one shareholder holds the bulk of the shares you cannot reach the required 75% of shareholders requirement.
In a recent matter referred to us, the majority shareholder held 65% of the shares with the remaining 35% held by two others. The majority shareholder was not able to appoint liquidators by way of a special resolution.
The structuring of the shareholding in a company can effect the ability of the shareholders to make the major decisions for the company. Amended constitutions and shareholder agreements can be used to try and mitigate those problems but specialist advice should be obtained before finalising and signing either of those documents.