Pindan Constructions' insolvency has left major construction works unfinished and about 500 subcontractors owed payment for work they have done across Pindan's 68 pending projects.

Pindan's external administrators, EY, are left with the task of finding a way to get as many projects finished and subcontractors paid as possible. And they will need to move quickly because unfinished building sites cost money just to maintain.

If those works were financed as is typical, the owners will keep on losing money by servicing loans and diluting their capital investment.

It is even worse for those who have made time-sensitive commitments to customers or investors. Consider, for example, off-the-plan apartment buyers who have planned to move in or rent out their new apartment by a certain date. Other kinds of projects will have similar problems with clients left in limbo. Disappointed investors will inevitably lose money and may even have their own legal claim down the line. The ripple effect in any large insolvency is always painful.

Labour has been paid for up front in the form of wages. Materials will have either been supplied COD or on credit, creating a double-bind for subcontractors who are not entitled to get paid for those prepaid supplies until they reach the next project milestone.

Expect legal problems around the ranking of Pindan's many creditors, both secured and unsecured. Working out what payments ought to be made for partially completed fixed price work also creates a raft of legal problems.

One way forward may be to find new subcontractors prepared to take on Pindan's contracts quickly (the technical term is to novate those contracts). At least they might then keep the subcontractors on site, paid and working towards completion of as many unfinished works as possible. Given WA's labour shortage, though, this may present a particular challenge for EY.

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