By NEIL HARTNELL
Tribune Business Editor
Cavalier Construction’s insolvency took down its equipment supplier affiliate even though the latter had generated a net profit in each of the previous four years, its liquidators have revealed.
Andrew Davies and Kendrick Christie, the Crowe Bahamas accountants and partners, in their first report to the Supreme Court on Bobcat Bahamas’ winding-up disclosed that it was placed into liquidation only because it lost the services and back office support provided by Cavalier when the latter collapsed in January 2020.
“The company’s financial books and records show the company had made a net profit the last four financial years ended December 31, 2019,” the Crowe Bahamas duo said of Bobcat Bahamas.
“However, the directors made the decision to wind the company up on the basis the company was heavily reliant on Cavalier Construction Company Limited for its back office and operational support, and Cavalier had ceased trading on January 15, 2020, when it terminated all employees.”
They added: “Cavalier was also a significant revenue generator for Bobcat Bahamas, using their machines on any construction projects it was involved in which would no longer be the case going forward.
“Bobcat Bahamas also operated exclusively from premises owned by Cavalier without paying rent, which would have created a complicated situation with Cavalier under liquidation with a separate legal entity operating from their property.
“The directors confirmed they considered various options to continue Bobcat Bahamas as a going concern, but ultimately felt the practical realities of this scenario combined with the likely insolvent status of Cavalier would have created a complicated dynamic that would ultimately not have been manageable so the decision was made to place the company in liquidation at the same time as Cavalier.”
Disclosing that Bobcat Bahamas had made a collective profit, albeit minimal, for the prior five years before the liquidation, Messrs Davies and Christie added: “Total operational profits for the five-year period ended December 31, 2019, amounted to $281,997 with a corresponding increase in total assets from $946,201 as at December 31, 2015, to $1.157m as at December 31, 2019.
“Gross profit as a percentage of total sales remained fairly consistent for the five years reviewed with an average gross profit percentage of 23.9 percent over that period. The company had no operating loans but did have an overdraft facility secured under a debenture with a fixed and floating charge over Bobcat Bahamas assets.
“As at the commencement of the liquidation, the company had drawn down $111,590 of the available $300,000 revolving demand credit facility it had with the secured lender (CIBC FirstCaribbean International Bank Bahamas). The terms of this overdraft facility included Cavalier acting as a cross guarantor.”
Cavalier suffered more than $1m in operating losses over a four-year period before it collapsed into insolvency due to an “unmanageable liquidity shortfall” in early 2020.
The company, arguably the leading name in Bahamian construction for the previous 64 years, ultimately failed due to a combination of factors including an obsolete business model, inability to restructure and absence of any new major projects in the pipeline.
The liquidators also revealed that the company ran into a cash flow crunch after it was unable to collect so-called “retention payments” from clients it had completed construction projects for.
Retention payments represent monies that are withheld from contractors until a project is finished and/or any defects have been remedied. None of the clients owing such payments are identified in the report, although the liquidators reveal that Cavalier’s last management accounts to end-September 2019 show more than $2.02m in such monies as due to it.
With Cavalier enduring “significant reductions in its net asset position” and “mixed operational results”, the joint liquidators said the company’s failure had been blamed on “operational changes in the delivery of construction services that have led to the obsolescence of the general contractor as a viable business model in the Bahamian market.
“Larger projects are now, more often than not, carried out under construction management arrangements by developers and owners, who will employ a construction management team, who then sub-contract smaller packages of work to contractors/subcontractors. This effectively cuts out the traditional general contractor out of the market” such as Cavalier.
Among the contributing factors were “a reduction of the amount of work available and won by the company. At the commencement of the liquidation, Cavalier had significantly completed the remaining contracts on its books and had no new work of any significance lined up.
“The company had a number of long-standing employees and, as a result, was unable to restructure effectively by reducing head count due to the financial costs associated with terminating employees under Bahamian employment legislation.”
Besides an inability to find new investors/shareholders, the liquidators also said: “The company had recently been building luxury homes for high net worth individuals, which involved certain complexities to the project they would not expect with commercial projects the company had previously undertaken.”
And there were “challenges the company was experiencing in collecting outstanding retention receivables on projects where the delays were beyond the company’s control. This contributed to an unmanageable shortfall in liquidity that meant the company could no longer effectively trade having exhausted all lines of credit and cash reserves”