Mainzeal’s day of reckoning
Four Mainzeal directors, including former prime minister Dame Jenny Shipley, have been found liable for $36 million of damages over the collapse of the onceproud construction company.
Shipley, prime minister from 1997 to 1999, is liable for a maximum of $6m, High Court Justice Francis Cooke ruled in Auckland.
The directors are covered by liability insurance, which will pay their damages.
Mainzeal was put into liquidation in 2013 owing creditors, including many smaller New Zealand builders, more than $110m.
The court found the company had been trading while insolvent, and creditors would have been better off had Mainzeal been put into liquidation earlier.
Shipley and fellow directors Richard Yan, Peter Gomm and Clive Tilby breached their legal duties, Justice Cooke found, but he ruled Yan bore a higher level of responsibility for the losses, having ‘‘induced’’ the other directors to breach their duties.
The directors had allowed capital to be extracted from Mainzeal as loans to related companies in the Richina Pacific Group to buy assets in China, the court found.
‘‘It [Richina Pacific] extracted amounts from Mainzeal by way of loan through vehicles that did not themselves have the ability to repay,’’ Justice Cooke said.
‘‘This money was used by the Richina Pacific group for its considerable advantage – it was used to acquire assets in China that are now extremely valuable.’’
It was New Zealand subcontractors helping Mainzeal put up buildings whose money was used to allow that to happen, he said.
‘‘A company of this size would not normally be able to trade without capital. Mainzeal was only able to do so because it used money owing to subcontractors as its working capital.
‘‘The directors continued to trade Mainzeal in this state, in reliance on Mr Yan’s assurances that support would be provided when needed. But the assurances were not reliable.
‘‘By the end of 2009, the amount so borrowed, including interest, was over $42m. Excluding the value of these loans from Mainzeal’s balance sheet meant that Mainzeal was insolvent, and was continuously so from 2005 through to its failure in 2013.’’
Allowing a company to continue to trade in such circumstances was not necessarily a breach of directors’ duties, but in 2009 Richina Pacific did a restructure separating its New Zealand and Chinese assets.
‘‘From this point, there was no assured group support – the verbal assurances provided were not legally binding, they were not recorded in writing, they were expressed in conditional form, and were also subject to the stringent limitations of Chinese law which restricted funds being repatriated from China,’’ Justice Cooke said.
The case was taken by liquidators Andrew Bethell and Brian Mayo-Smith from BDO.
‘‘When the company collapsed in 2013, unpaid subcontractors and creditors were owed more than $115m,’’ Bethell said.
‘‘It has been a long, hard road to get to this point and, as a result of the court case and the damages awarded of $36m, creditors of the failed company will now receive some compensation for the losses they suffered.’’
In a statement via legal firm Chapman Tripp, Shipley, Tilby and Gomm said they were considering their options.
‘‘The court’s basis for finding liability appears to have novel aspects which will require careful consideration. The directors will not comment further at this stage,’’ the statement said.