Retentions are generally held as security for the contractor's performance of the contract. Since 2017, there has been an obligation to hold retentions in a trust, and since 2023, further statutory protections have applied. These include the automatic imposition of a trust on retention money and fines on companies and directors who fail to ensure compliance with retention-related obligations.
In a recent case under the old Construction Contracts Act 2002 (CCA) statutory framework, the Court resolved a dispute between subcontractors and the liquidators of the companies (Burt v Grant [2025] NZHC 2486). The case turned on its particular facts, and the details of the decision therefore matter less than what it says about the Court's approach to disputes concerning retentions. The Court approached the issues with a high degree of sympathy for the subcontractors who had not received retentions, finding that various statutory trusts arose in their favour over sums received from various sources related to retentions. This meant that liquidators were not free to treat the trust money as part of the company's general pool of assets.
The case serves as a reminder to anyone holding retentions to treat them with care and in accordance with the requirements of the CCA. It also signals to aggrieved parties who do not receive their retentions that they may be able to pursue their grievances through the courts.
If in doubt about how to treat retentions, seek legal advice and, if necessary, directions from the Court. Insolvency practitioners are also advised to record the fees and expenses for administering retention monies separately to those incurred in relation to a liquidation or receivership more generally.