Real estate collapse: the Du Val Group

The Du Val Group, once a prominent player in the build-to-rent and apartment construction sectors, was placed into statutory management in August 2024.  

PwC’s Statutory Managers’ First Report revealed that the group owed close to $240 million, including to investors, creditors, contractors and Inland Revenue. The receivers also point to overall poor governance practices including missing minutes and un-audited financial accounts.

Founders Kenyon and Charlotte Clarke built Du Val as a leading residential developer, but the company’s financial records showed alleged irregularities, including related-party transactions and dubious valuations.  

The Financial Markets Authority (FMA) intervened in 2023, flagging the group's misleading investor communications, particularly concerning its mortgage fund, which had halted cash distributions. This marked the beginning of a series of legal actions and investigations that would ultimately expose deeper financial mismanagement and lead to Du Val’s interim receivership and then statutory management.   

PwC has highlighted significant discrepancies in accounting records and questioned the absence of proper audit trails, particularly in related-party transactions worth millions. Directors should always ensure robust financial controls are in place, with transparent, auditable records. The absence of this basic financial governance can lead to not only corporate failure but legal repercussions for those involved. 

Inadequate risk management was another feature, and the Du Val collapse underscores the importance of risk management at the board level. The company's reliance on high-debt financing and its failure to manage cash flow for key projects left it vulnerable to insolvency. Directors must engage with management to ensure robust financial risk assessments, particularly in high-risk industries such as property development.

Du Val's strained relationship with its investors came to a head when payments from its mortgage fund were suspended without sufficient communication. This issue, flagged by the FMA, highlights how essential transparency is in maintaining trust. For directors, this means ensuring that communications – especially financial ones – are accurate, clear and consistent. Misleading statements not only jeopardise investor trust but also attract regulatory scrutiny.
 
What has been described in some media as Kenyon Clarke’s brash public persona, including his use of social media to flaunt wealth amidst the company’s financial distress, further damaged Du Val's credibility. Good governance practice recognises that ethical leadership extends beyond the boardroom and into public interactions. The behaviour of senior executives and board members can significantly impact an organisation’s reputation. In the Du Val case, Clarke’s cavalier attitude may have exacerbated tensions with stakeholders, including creditors and investors.

The FMA’s repeated warnings about misleading conduct appear to have gone unheeded by Du Val’s directors. While it is obvious that regulatory compliance by directors and boards is not “optional”, following the spirit, rather than the letter, of those requirements and understanding the outcomes they’re designed to achieve, including small investor protection, is important. A proactive, principles-based approach to compliance and regular legal reviews may have prevented many of the issues Du Val faced. 

 

Lessons for NZ boards
The Du Val Group's implosion provides a cautionary tale. Directors should prioritise:

• • Regular financial audits and risk assessments, ensuring transparent accounting practices. 
  • Effective communication with investors and stakeholders to maintain trust. 
  • Ethical leadership, with a focus on publicity, conduct and responsible corporate communications. 
  • Understanding the spirit of the law and proactively considering the requirements (including with strong board oversight), especially in the face of regulatory challenges from bodies like the FMA.