Island Life by David Slack

Semi-detached Liability

Are you worried you're about to go broke? Before you pull the pin, you might want to drop in to the Ministry of Economic Development's web site. Even in your hour of darkness, it turns out you can depend on the kindness strangers. They're just full of encouraging suggestions.

For starters they ask: have you thought of selling some of your assets? They even tell you how to do it. You can advertise in the local paper, or have a garage sale, or sell at an auction, for example. (Assuming your ISP hasn't cut you off, you could even click over to TradeMe.)

Maybe you're just spending too much. Helpfully they ask if you've had a good hard look at your situation. Is there any expenditure you can reduce or eliminate? (While you're at it, let's not forget the possibility that you're actually flush and don't know it. Why not have a look down the back of the couch before they repossess it and see how many loose coins you can dredge up.)

There's plenty more of this on their web site and an impressive selection of options to choose from: budgeting, creditors' pool, refinancing, compromise with creditors, summary installment order and even: continue trading.

But if you think the hard men and women at MED have gone all soft and romantic, let me disabuse you. Their last word is clear, direct, and ominous. When all fails, there's bankruptcy.

This option clearly isn't to everyone's taste though, and the papers over the last few days suggest that Matthew Ridge doesn't much like the look of it.

I only know what they newspapers tell me about this story, which is, according to the Herald, that

David Worley, chief executive of Placemakers, said yesterday that a last-minute $25,000 payment arrived just before bankruptcy court action against Ridge to recover the money.

Meanwhile, some of his property development companies aren't looking that flash. It's enough, apparently, to put you off property development for life.

One of the companies, M3, of which he is the sole director, was registered in May 2002 and went into liquidation in April this year owing $1.3 million. Another company in which he has an interest and which was developing an apartment project in Remuera went into liquidation on Thursday. The property's been sold, but the builders and subcontractors are still looking for a fair whack of money.

The part of the story that's hardest to untangle is this:

His company developing the units, Basset Rd, "failed to obtain primary funding as a result of financiers' reservations" about builder Freemont Design and Construction, [Ridge] said.

But what does that mean exactly? Does it mean he had funding lined up and then it fell over? Does it mean he was part way through the project and then funding was halted? Does it mean there was some doubt about the validity of some of the bills? We just don't know, and without knowing that, it's impossible to know exactly where the fault lies. Perhaps he's blameless. I have no idea, and neither, unless he's planning to be more forthcoming about this, will anyone else who might one day be doing business with him.

When I was working for DB, I met quite a few property developers. I still meet the odd one, but for the most part, the nearest I get to them these days is when I pay ten dollars for a half hour downtown carpark.

The occasional one is an inspired individual. They can look at a building or a piece of dirt and see something being put there that would never occur to anyone else. Build it, and they do, indeed, come.

But for every one of that kind, you get a few dozen who only know how to take your watch and then rent you a short stay in a time-telling kiosk. I remember a guy telling me years ago - after I'd had the unpleasant job of concluding his career with the company - that he was now going to become a property developer. By this, he meant that his brother and he were going to sell their late father's house in Ellerslie and put a couple of units on it. Thanks to a few thousand visionaries like that, Auckland has street after street of in-filled ugliness.

That's unlovely enough, but when you see developers setting up deals where the risk seems to be dropping onto just about any shoulder but theirs, you wonder what exactly it is that they're contributing. I have no idea whether that characterisation applies to Mr Ridge or not, but I do know that in all the years I've been watching developers go about their business, the story that impressed me most was this one.

This guy was a builder, I think, and his name was Tom. He built this tourist hotel in a town in Northland. They did not come. So he, and his business, went through. Bankruptcy or company liquidation, I'm not sure. The whole idea of that arrangement is of course, that you can walk away and, with some limitations, start again. But he didn't just look at it from a legal point of view. It was a matter of honour to him. So he got going again, and as he got back underway, he started paying off everyone who'd been left out of pocket.

In the end, he paid out everyone. Then he built another hotel.

If you look at the origins of the limited liability company, you see some entirely sensible economic thinking: risk-sharing can be good for enterprise, and enterprise can be good for growth. The trouble is, like many legal constructs, it also enables undertakings of more dubious merit.

A couple of generations ago, the notion of bankruptcy or failure was inhibiting, as much as anything, because of the shame it might attract. That may have been an undue impediment, but today, I don't know that it counts for very much at all. Mate, I don't know about you, but I don't go for that.