Photo by Josiah Kemp on Unsplash
In a rare move, the government has placed the Auckland-based Du Val Group, one of New Zealand’s largest property developers, under statutory management. This action follows the group’s interim receivership earlier in August 2024, marking one of the largest corporate failures in the country’s recent history.
Founded by Kenyon and Charlotte Clarke in 2013, the Du Val Group quickly established itself as a major player in large-scale residential property projects across Auckland. However, the complexities of its financial entanglements and mounting liabilities have since led to its downfall. Let’s take a look at where we’re at now.
A Short History of Du Val Group
The Du Val Group was established in 2013 by Kenyon and Charlotte Clarke with “a vision to build large-scale residential projects in key Auckland locations.” Over the years, the group expanded rapidly, focusing on the development of large-scale apartment and townhouse projects. By 2021, the company had gained substantial traction, becoming one of Auckland’s most recognised developers. However, the group’s rapid expansion was not without challenges.
In 2021, the Financial Markets Authority (FMA) launched an investigation into Du Val Group following concerns about misleading advertisements related to a $20 million mortgage fund. The FMA argued that the advertising gave the impression that the investment was low-risk, a claim disputed by Kenyon Clarke, who asserted that no complaints had been received and that the fund had successfully raised $20 million. Despite Clarke’s defense, the investigation cast a long shadow over the company, affecting its operations and reputation.
The Collapse Into Receivership
The situation escalated on August 2, 2024, when the High Court placed several entities within the Du Val Group into interim receivership at the request of the FMA. This decision came after police raided the Clarkes’ Remuera home and issued asset preservation orders to protect the group’s remaining assets. The High Court appointed John Howard Ross Fisk, Stephen Robert White, and Lara Maree Bennett from PwC New Zealand as interim receivers, with the responsibility of assessing the group’s financial position and reporting their findings.
The complexity of the case soon became apparent. Du Val Group was comprised of approximately 70 entities, including 46 subsidiaries and 20 special purpose vehicle (SPV) limited partnerships. The group owed at least $250 million to various creditors, including 120-150 investors, home buyers, and commercial lenders. The scale of these liabilities, combined with the intricate web of corporate structures, made this one of the most complicated insolvency cases that PwC had ever handled.
Du Val Placed Under Statutory Management
On August 21, 2024, the New Zealand government took the extraordinary step of placing the Du Val Group under statutory management. Statutory management is a rare and drastic measure, typically reserved for situations where normal insolvency processes are deemed inadequate to protect the interests of creditors and investors. The decision followed a recommendation from the FMA, which was based on the findings of the interim receivers and the ongoing investigations into the group’s financial activities.
Commerce and Consumer Affairs Minister Andrew Bayly explained that statutory management was necessary to prevent further harm and to ensure the orderly administration of the group’s affairs. “The situation is complex and of such a scale that immediate intervention is required to prevent broader harm,” Bayly said. The government’s move effectively suspended all ongoing insolvency processes, consolidating the management of Du Val’s affairs under the statutory managers—Fisk, White, and Bennett.
Implications of Statutory Management
The statutory management of the Du Val Group has far-reaching implications for the company’s stakeholders and the wider property development sector in New Zealand. One of the immediate effects is the suspension of all insolvency processes, allowing the statutory managers to take total control of the group’s operations. This unified approach is intended to streamline the management of the company’s assets and liabilities, preventing the chaos that could arise from multiple insolvency proceedings occurring simultaneously.
The statutory managers have made it clear that their priorities include continuing construction on active projects and maintaining the operations of rental properties owned by the group. “Our initial focus will be to preserve and realise the best value for all stakeholders,” said John Fisk. The managers are working to ensure that contractors and subcontractors, many of whom have gone unpaid for extended periods, receive the payments owed to them. There is also a strong emphasis on protecting the interests of investors, many of whom have significant sums tied up in the group’s developments.
Ongoing Investigation and Legal Considerations
The FMA’s investigations into the Du Val Group are ongoing, with a particular focus on whether the company or its directors engaged in fraudulent or reckless practices. The Corporations Act provides the legal framework for such investigations, offering remedies in cases of complex corporate failure. According to the FMA, the situation at Du Val meets the criteria for statutory management under the Act, both in terms of the potential for fraudulent activity and the inadequacy of normal insolvency laws to manage the group’s wind-up.
The case has also raised important questions about the adequacy of New Zealand’s current insolvency laws and regulatory oversight. The Du Val Group’s collapse is being viewed as a potential precedent for how the country handles future corporate failures, particularly in the high-stakes property development sector. There are growing calls for a review of existing regulations to ensure that similar situations can be managed more effectively in the future.
Public and Industry Reactions
The statutory management of Du Val Group has drawn significant attention from the public and industry stakeholders. Investors and creditors, many of whom have been left in financial limbo, are anxiously awaiting the outcome of the statutory managers’ review. The broader property development community is also closely monitoring the situation, as the collapse of such a prominent player has the potential to shake confidence in the sector.
Several subcontractors have publicly criticised Du Val’s financial management, with some arguing that the company should have been placed in liquidation much earlier. The FMA’s decision to pursue statutory management, rather than allowing the group to enter into liquidation, has been seen by some as an attempt to protect the interests of a broader range of stakeholders, including investors, creditors, and homebuyers.
However, the move has not been without controversy. In a recent court hearing, a lawyer representing Kenyon and Charlotte Clarke described the statutory management process as having “Cold War vibes,” arguing that it represented an excessive level of state intervention. The Clarkes have also opposed the release of certain documents related to the FMA’s investigation, citing concerns about confidentiality and the potential impact on their ability to receive a fair trial.
Long-term Impact on the Industry
The collapse of the Du Val Group and its subsequent placement under statutory management may have long-term consequences for New Zealand’s property development sector. The case serves as a stark reminder of the risks associated with rapid expansion and the importance of robust financial management practices. It also underscores the need for strong regulatory oversight to protect investors and ensure the stability of the market.
For the property development industry, the Du Val case may prompt a reevaluation of risk management strategies, particularly in relation to complex financial structures involving multiple entities and special-purpose vehicles. The case may also lead to increased scrutiny of developers by regulators, with a greater emphasis on transparency and accountability.