‘No reason to doubt Chinese aid’
Directors of failed construction firm Mainzeal had no reason to question promises from its Chinese parent the company would get the financial support it needed to stay afloat, former Prime Minister Jenny Shipley told the High Court yesterday.
Mainzeal went into liquidation in February 2013 after Chinese company Richina Pacific didn’t provide the final funding it needed and the Bank of New Zealand pulled the plug.
Mainzeal owed at least $115 million to unsecured creditors, many of them subcontractors on building projects.
Liquidators BDO say Mainzeal directors should have known there was a significant risk it wouldn’t get back millions of dollars lent to the Chinese parent company from 2004 onwards and that the company was technically insolvent at the end of 2010, or possibly before.
Directors breached their duties by not stopping trading in January or July 2011, before subcontractors lost more money, BDO says.
Shipley, who was chairwoman of Mainzeal and also on the Richina board, argued in court that the Richina group had substantial assets in China and New Zealand and had been providing both money and assurances of their continuing support right up to January 2013. Directors had no reason to doubt there would be future funds available.
“We had undertakings on multiple occasions. That was absolutely understood by the directors involved, and these created no doubt that, when support was required, it would be forthcoming.”
BDO lawyer Mark O’Brien focused in court on loans from Mainzeal to Richina to fund the purchase of the Shanghai Leather Company in late 2004 and 2005. The loans grew over the years from $7m to $8m to $35m to $40m of accumulated debt. O’Brien questioned the lack of any formal legal security or guarantees for the loans, but Shipley said Mainzeal’s charter made it clear its parent would cover its financial responsibilities. “And in my experience, that is what happened.”
Shipley said Richina provided money for the refurbishment of Mainzeal House in Wellington and sent pre-paid Chinese construction materials to New Zealand, which Mainzeal used in its projects.
“Over and above the accounting treatment, the supply of materials represented real value to Mainzeal, as a form of parent support and a competitive advantage in the market.”
In July 2011, when BDO says the directors breached their responsibilities, Shipley said there was no reason to think Richina wouldn’t pay money it owed.