Debts undermine builder

Construction company Australia's Residential Builder has collapsed with debts exceeding $7.21 million and unsecured creditors tipped to be facing a total loss.

The revelations come as administrators attempt to negotiate the sale of ARB to a major-volume builder, although it is unclear how this would affect subcontractors and would-be home owners caught in the collapse.

The Port Melbourne-based firm, which builds about 300 houses a year in western suburbs such as Melton, Bacchus Marsh and Taylors Hill, was placed in administration in early August.

The first creditors' report issued by administrators Hamilton Murphy warned that following preliminary examinations ARB had debts of more than $7.21 million to at least 240 creditors and that it was likely the return to unsecured creditors would be "nil".

Michael Caspaney of Hamilton Murphy said negotiations were under way for the sale of ARB to another builder but declined to identify it by name because 18 other industry players had expressed an interest in buying ARB.

However, subcontractors were told that while administrators would "encourage" any buyer to use existing tradies it could only be a recommendation. Mr Caspaney also warned that pressing the issue posed "a real risk" of deterring a buyer.

Prompted by creditors' concerns, administrators also promised that investigations would be conducted into whether ARB was trading while insolvent and how a company could go broke when it received progress payments on its construction work.

ARB director Graeme Varcoe said he became concerned about ARB's business affairs as early as June last year when he became aware of "major cash-flow issues".

Despite repeated failures to sell the business, Mr Varcoe said right up until the appointment of administrators he believed he could trade out of the company's financial problems but was frustrated due to "unforseen circumstances".

The collapse comes as activity in Victoria's construction industry recently hit a four-year low, with the number of building approvals plunging 24 per cent in June.

Housing Industry Association chief economist Harley Dale said the "very soft" residential conditions were hurting the construction and associated industries.

"It's a reality that in many markets in Australia the new homes market is still flat or declining. There's been a consistency to the weakness that has become very concerning considering the importance of construction to the health of the economy," Mr Dale said.

cvedelago@fairfaxmedia.com.au