Mainzeal quartet liable for breaches

Former Mainzeal directors, including ex-prime minister Dame Jenny Shipley, are liable for reckless trading before the construction company collapsed, the Court of Appeal has ruled.

A group of the country’s leading judges also said the legislation governing insolvent trading in New Zealand is “unsatisfactory in a number of respects” and called for the Companies Act 1993 to be reviewed.

The country’s second highest court yesterday delivered its decision in the long-running proceeding after the High Court ordered Shipley, Peter Gomm, Clive Tilby and Richard Yan to pay $36 million for breaching directors’ duties ahead of Mainzeal folding in 2013.

The High Court’s order in 2019 represented just a proportion of the entire deficiency in the Mainzeal liquidation of about $111m.

Mainzeal’s former directors appealed, while the liquidators also cross-appealed, seeking an increased award of compensation at a multiday hearing starting in July last year.

The Court of Appeal’s president Justice Stephen Kos, Justice Forrie Miller and Justice David Goddard agreed with the High Court the directors of Mainzeal had carried on in a manner likely to create a substantial risk of serious loss to creditors.

However, the breach of section 135 of the Companies Act 1993 came no later than January 31, 2011.

“As the [ High Court] Judge held, there was no net deterioration in the company’s position between 31 January 2011 and the date of liquidation in early 2013,” the Court of Appeal’s judgment reads.

The court said because of this no compensation was recoverable in respect of the directors’ breach of s135.

But the court had a different view about the liquidators’ claimed section 136 breach of the legislation, which had earlier failed in the High Court.

The judges found the four significant construction contracts entered into after January 31, 2011, certain obligations to subcontractors on those projects, and all obligations entered into from July 5, 2012, onwards violated the Act.

The liquidators, Andrew Bethell and Brian Mayo-Smith of BDO, said in a statement the Court of Appeal’s decision was “likely to lead to a significant increase” in the award for damages for the creditors.

There was no immediate comment from any of the directors to media after the decision.