Mainzeal ruling goes to appeal
Mainzeal director Richard Yan is appealing the recent High Court ruling and penalty of $36 million after a hearing into the collapse of the construction company.
The court upheld charges of reckless trading and ordered the directors pay the money as compensation, without stating exactly how it should be apportioned except that Yan’s share was to be the largest.
David Chisholm, QC, representing Yan, confirmed the court papers had been filed. Other directors, including Dame Jenny Shipley, were expected to confirm their position soon.
Yan is appealing the High Court ruling that he had conflicts of interest, and therefore his breaches were largely the cause of Mainzeal’s $100m deficit when it was liquidated.
The notice of appeal says the court failed to use its discretion in having sufficient regard to Yan’s honesty and commitment to Mainzeal; there had been no net deterioration in Mainzeal’s position during the later period; and there were other causes for its failure.
The appeal claims that the court made errors about the causes and liabilities relating to Yan, highlighting that he was not a director between November 2004 and April 2009.
It was during this period when two major loans were given by Mainzeal to its parent company.
Nor should the $36m penalty have been given on the basis of the total $110m loss to creditors from Mainzeal’s collapse. It should have been confined to the amount caused by the relevant breach of duty as outlined in section 301 of the Companies Act, according to the notice of appeal.
‘‘The High Court erred in conflating the loss suffered by Mainzeal flowing from the breach on the one hand and the losses suffered by creditors of Mainzeal upon liquidation on the other.’’
The total losses by Mainzeal did not flow from the breach of duty that the High Court found occurred in mid or late 2010.
‘‘The directors’ actions at the time of the breach did not cause the losses suffered by creditors . . . the directors could not force Richina [majority shareholder] to capitalise Mainzeal or give a legally enforceable undertaking to pay intercompany loans owed to Mainzeal by other group companies. A threat to resign by Mr Yan [and the other directors] would simply have caused an earlier liquidation and greater losses to creditors.’’
Richina was unable to support Mainzeal because of its own financial problems, and ‘‘the ability to procure funds from China was exhausted by 2013’’, Yan’s appeal says.
Even if support for Mainzeal had been provided by Richina, it may have been prevented from providing it because of Chinese foreign currency laws.
The court had made other wrong conclusions when it ruled Yan was personally liable as a director of Mainzeal because of his role with major shareholder Richina where he was just one of several investors, the appeal claims. ‘‘The High Court’s findings were made without Mr Yan having an adequate opportunity to be heard both as to evidence and submission,’’ the appeal notice says.
The Appeal Court will be asked to set aside the convictions under section 35 of the Companies Act, and awards costs to Yan.