Mainzeal reveals risk to directors

The directors of failed construction company Mainzeal are still free to be directors but the company boards they belong to may have other plans.

In the High Court at Auckland on Tuesday, former prime minister Dame Jenny Shipley and fellow Mainzeal directors Richard Yan, Peter Gomm and Clive Tilby were ordered to pay $36 million in damages for breaching their legal duties and allowing the company to trade while insolvent.

Mainzeal collapsed in 2013, owing subcontractors and other creditors at least $110m.

Its liquidators pursued the directors, who are understood to have liability insurance.

Shipley no longer holds many directorships but remains on the board of milk and water exporter Oravida and China Construction Bank, which she chairs. She resigned from her chairmanship of Genesis Energy last year.

Institute of Directors chief executive Kirsten Patterson said it would be a while before her organisation had a settled position on the case, which could potentially be appealed.

But reputation was very important to a director’s career. Patterson said that in civil cases like this one, the boards of any organisations that the Mainzeal directors were on would have to consider their position.

‘‘They [the former Mainzeal directors] haven’t been prohibited under the Companies Act from serving as directors so that will be an issue for the boards on which they serve, and the shareholders who appoint them.’’

One of the lessons from Mainzeal’s collapse was the risk of liability if things went wrong.

‘‘The risk and responsibility that comes with serving as a director is often not widely understood,’’ Patterson said.

A survey by the institute last year found only 76 per cent of organisations that responded had liability insurance for their directors, a figure which the institute felt was too low, although this included school boards of trustees and directors of nonprofit groups.

Patterson said it was also a reminder that directors who were concerned or did not agree with the rest of the board should cover themselves by asking for independent advice, getting documentation and resigning if necessary.

In a statement, Shipley, Tilby and Gomm said they were considering their options.

Shipley is liable for $6m of the $36m owed, but High Court Justice Francis Cooke ruled that Yan, Mainzeal’s sole remaining director, bore a higher level of responsibility for losses, having ‘‘induced’’ the other directors to breach their duties.