In a recent case, the High Court has provided important clarification on the treatment of retention monies, reinforcing the statutory trust obligations under the Construction Contracts Act 2002 (CCA).

Retention monies under the CCA are trust property. In Burt v Grant [2025] NZHC 2486, the High Court has held that as a consequence, retention monies are to be held separately from a company’s assets in liquidation. Liquidators cannot treat recovered retention sums as company assets, nor apply them to their fees or use them to satisfy other creditors. The Court reinforced that retention monies are held on trust for a subcontractor from the moment it is deducted from a payment, regardless of whether it is held separately from other funds. Further, it is possible for directors of construction companies to be deemed constructive trustees and face personal liability for breaches of trustee duties.  

Enforcement of this judgment has been stayed pending appeal. However, the decision reaffirms that retention monies should be treated with care. 

The applicants were the liquidation committee representing the creditors, which included subcontractors. The respondents were the liquidators of Stanley Construction Limited and Stanley Construction (Auckland) Limited (Companies). In September 2019, the Companies entered liquidation, while owing subcontractors over $2.17 million in retentions. The liquidators claimed against the Companies’ directors to recover the retentions, alleging that the directors were constructive trustees, and then applied the amounts recovered towards their remuneration. They argued that, as preferential creditors under Schedule 7 of the Companies Act 1993, they had priority over company assets, including retention monies.

The Court disagreed. It held that because retention monies are held on trust, they do not form part of the companies’ assets subject to Schedule 7 priorities. This means that retention monies do not form part of the general pool of company assets which can be used to meet liquidators’ costs. The payments made by the directors to settle the liquidators’ claims represented a restoration of trust funds, and once received, the liquidators assumed trustee obligations. They were therefore required to administer the trust in accordance with the companies’ rights and liabilities as trustees. While the Court confirmed it had jurisdiction to order that liquidators’ costs be met from trust assets, the issue of costs was left for the hearing and remains to be determined following appeal.