Engineering firm collapses into administration as contract disputes restrict cashflow

An engineering company has collapsed into administration after falling into legal issues with building contractor John Holland over a number of projects underway in a defence base in Queensland.

Jirsch Sutherland partner Sule Arnautovic was appointed to JFTA earlier this month, suggesting the business could either be saved through a deed of company arrangement, a creditor’s trust, or through a sale process.

Arnautovic explains JFTA had been working on a defence base contract, but ran into problems when John Holland alleged the project was not completed to specifications.

“The appointment was the result of a contractual dispute with John Holland. There have been a number of claims in the range of $5-7 million, which have caused cashflow issues.”

“Essentially John Holland through some of its consultants provided plans to JFTA, which then built a pipeline following those specifications. However, there was a flaw in the pipeline.”

Arnautovic explains JFTA believes it should be paid because it built the pipeline due to the specifications it was given.

“Due to some conditions in the soil, it caused an issue that punched a few holes in the pipeline. They had to redo the works, it’s very specialist work.”

JFTA, which is over 30-years-old, has about 80 employees and forecasts turnover of $40 million for the current year. It focuses on end-to-end services in design, engineering, construction, equipment manufacturing and supply, along with maintenance support.

It also provides petrochemical services and fluid handling. The company was contacted this morning – it continues to trade – but referred enquiries to Jirsch Sutherland.

Arnautovic explains the firm’s creditors include its 80 employees, along with about 100 statutory creditors, and secured creditors worth $7.5 million. The administrators are currently working on a number of different plans to keep the company alive.

“The company is currently looking at either a deed of company arrangement or a creditor’s trust, and we’re also running a parallel sale component as well. We have to achieve a restructure, but the creditors need to decide on how that goes forward.”