Mainzeal director fights bankruptcy application
The last remaining director of collapsed construction giant Mainzeal is fighting bankruptcy and refusing to secure an $18 million liability he has been ordered to pay liquidators.
In November, the High Court allowed bankruptcy proceedings to go ahead against Richard Yan.
Those proceedings, brought by the company’s liquidators, took place before Associate Judge Peter Andrew at the High Court in Auckland yesterday, more than a year after a judgment found Mainzeal directors – former prime minister Dame Jenny Shipley, Peter Gomm and Clive Tilby, along with Yan – liable for reckless trading.
In February 2019, Justice Cooke ordered a total of $36m in damages against Shipley, Gomm, Tilby and Yan, with Shipley, Gomm and Tilby individually liable for a maximum of $6m each. The insurer of Shipley, Gomm and Tilby has secured $18m but Yan is resisting putting up security for his $18m share. The directors were also ordered to jointly pay costs to Mainzeal in excess of $2.3m.
Associate Judge Andrew reserved his decision on the bankruptcy proceedings.
Mainzeal was put into liquidation in 2013, owing nearly 1400 unsecured creditors more than $110m.
Of that sum, $45m was subcontractors’ money, used by Mainzeal as working capital. Following a civil case brought by liquidators Andrew Bethell and Brian Mayo-Smith from BDO in 2018, Justice Cooke found the company traded while insolvent, and creditors would have been better off had Mainzeal been put into liquidation earlier. The ruling is being appealed by the directors.
BDO has also appealed the award of $36m in damages against the directors. The liquidators had argued that directors should pay damages of at least $73m.
Yan, who has resided in Shanghai since 2016, was represented in court yesterday by David Chisholm QC.
Security of $18m could not be provided by Yan because he had no assets or means in New Zealand to pay, Chisholm said. Yan was entitled to a halt of the bankruptcy proceedings until the outcome of the appeal, due to start on July 27, was known. Yan had a right to exercise his right to appeal and being ordered to pay security or being made bankrupt before then would ‘‘stifle’’ that, Chisholm said. If Yan’s appeal was unsuccessful, he would be insolvent in New Zealand but if he was successful he would be solvent.
Yan is a shareholder of trusts that own two central Auckland properties, which liquidators say are valued at about $10m. Those were the only assets in New Zealand he was linked to, Chisholm said.
Yan’s China-based company, Richina, bought New Zealand company Mainzeal and borrowed $20m from it to buy companies in China. Liquidators claim some assets may have increased by as much as 145 times the acquisition price.
Chisholm said it was ‘‘disingenuous’’ for the liquidators to suggest Yan had control of funds he could access to secure the $18m.
The liquidators had chosen to go down the bankruptcy route as a ‘‘negotiation lever’’ to collect debts from Yan. ‘‘It is an abuse of the bankruptcy process to use it as a debt collection exercise,’’ Chisholm said.
A New Zealand bankruptcy could not be enforced in China, he said.
Mark O’Brien QC, representing the liquidators, said if Yan wanted a stay or halt to the bankruptcy he ought to be required to pay or secure the $18m. ‘‘He says he can’t, that is disputed,’’ O’Brien said.
Mainzeal took steps to enforce Justice Cooke’s judgment and a bankruptcy notice for the judgment sum was issued by the court on August 8 last year. On September 12, Yan filed a protest and an application to set aside a bankruptcy. On October 25, he also applied for a stay of enforcement. His applications were opposed and were dismissed by the court on November 27.
High Court rules stipulated that Yan had committed an act of bankruptcy, O’Brien submitted.
Evidence at trial indicated Yan owned directly or beneficially, and controlled, a significant interest in Richina Pacific and it was apparent Yan was able to access money when he needed or wanted it, O’Brien said.
Yan had committed an act of bankruptcy and there was an imperative in having an official assignee take control of and investigate his affairs, O’Brien said.