The liquidators of Mainzeal Property and Construction Ltd have won a substantial victory in the High Court against several of the company's former directors, including former Prime Minister Jenny Shipley.
Mainzeal collapsed in February 2013 owing unsecured creditors around $110 million.
The liquidators sued four former directors, including Shipley, who was the company's chairperson, Richard Ciliang Yan, Clive Tilby and Peter Gomm, who was also the company's former chief executive, alleging they breached their duties under the Companies Act by allowing Mainzeal to continue trading while it was insolvent.
The case was heard at the High Court in Auckland and in his judgment released on Tuesday, Justice Francis Cooke said that Mainzeal was only able to keep trading because it used money owed to sub-contractors as its working capital.
Although the company had assurances from Yan that financial support would be provided when needed from Richina Pacific, a company associated with Yan, those assurances were unreliable, Justice Cooke said.
"In these circumstances, Mr Yan and the other directors are liable for breaches of their duties under section 135 (of the Companies Act)," the judgment said.
"They caused or allowed Mainzeal to undertake business in a manner giving rise to a substantial risk of serious loss to creditors, being the very loss that eventuated.
"I have determined that the amount the directors should contribute to the deficiency in liquidation is $36 million, approximately one third of the total loss arising from the deficiency.
"I have further determined that Mr Yan should have the principal liability for the full amount, and that each of Dame Jenny, Mr Gomm and Mr Tilby should be liable for a maximum amount of $6 million each, jointly with Mr Yan."
'Novel aspects which will require careful consideration'
Shortly after the court's judgment was released, law firm Chapman Tripp released the following statement, reprinted here in full, on behalf of Shipley, Gomm and Tilby:
"Dame Jenny Shipley, Mr Clive Tilby and Mr Peter Gomm, directors of Mainzeal Property and Construction Limited (in liquidation) represented by Chapman Tripp, acknowledge the judgment delivered by the High Court today in relation to Mainzeal.
"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 as they take advice and consider their options."
Reserve Bank staff to 'read the court judgement with interest'
Shipley is chairman of China Construction Bank (New Zealand) Ltd, a subsidiary of a Chinese government controlled bank. Interest.co.nz asked the Reserve Bank whether, in light of the Mainzeal court judgment, she could still be considered a fit and proper person to be a director of a registered New Zealand bank.
"We’ll read the court judgement with interest," a Reserve Bank spokesman said.
45 Comments
Ms Shipley was qualified as a schoolteacher. Cannot seem to find any other academic qualifications. Still you don’t need to be a chartered accountant to be aware of when a company is insolvent. In fact a third form bookkeeping lesson would explain that in less than an hour to even the slowest of pupils. As a country NZ desperately needs to upgrade the calibre of our MP’s if this could be considered as an example of all you need to be to be PM.
High profile directorships are an incestuous, ego driven club where competence rarely features. Rather, it's all about the perceived status of the director. There are a handful of directors in NZ who occupy multiple high profile boards and couldn't possibly do them all justice (Tony Carter - Fletchers, Air NZ, ANZ, F&P Healthcare amongst others. If there was any integrity in corporate NZ governance, Shipley would immediately be barred from holding directorships.
The speed of the collapse at the very end made it evident that there had been problems for a long time. The company was seriously mismanaged, and the directors made the age old mistake of thinking they could trade themselves out while not making any changes to fix the problems.
This judgement only goes part of the way to help out those harmed by the actions of the Mainzeal directors.
A lot of moves were made to complete projects at the time. It was a nightmare, along with activities they had been concealing on one construction site. Even the liquidators were pretty cheeky thinking they could extract money that was to go to contractors as payments and hold up projects.
Probably. But there will be fine print and variants of interpretation. Just as the Hanover Finance lot found out and, of a different nature, a whole lot of Canterbury EQ claimants. There are escape clauses such as reckless or illegal activities, such as trading whilst insolvent, one imagines.
Looking at the institute of directors website they probably have insurance covering the liability, and I would assume the legal team from the insurer has been involved. Operating while illiquid is a wrongful act and they had better hope they have insurance that covers the liability.
"D&O insurance covers directors for wrongful acts in relation to their role as company directors in relation to liability for claims made against them and associated legal costs."
I'm not expert on how encompassing "wrongful acts" is but if you look at the case number it has been filed as a civil case. It's not unusual for civil and potentially criminal matters to get rolled in to a civil claim.
The case appears to have been hard fought, and in the decision there was a fight over whether there were insurance policies (this is a tactic used when there is a valid policy covering the liability).
There are many with questionable ethics. Although the first person I would question the ethics of is Jenny Shipley, and perhaps extend that questioning to many former and current MPs.
Insurance companies refusing to payout when they've been paid for a service and legal strategy are matters that are too big for an individual to take on.
So looks like the 6million liability is on the directors personally after the insurance is paid out. Shipley's been an MP and company director for going on 35 years, probably averaging a couple $100k/year. I wonder if $6 million might come close to wiping her out financially.
I would just like to point out the criminal charges and penalties beneficiaries face if they did something morally comparable, but with nothing like the same consequences. There should be criminal charges for Dame Jenny et al, a removal of the title. THe judge's comments re the defendants' good faith and honesty are a joke. There are definitely two laws, one for the rich and one for the poor. Utterly shocking.
Yeah, very disappointed with the acting in "good faith" reported comment in the judgment - then going on to say they'd been trading while insolvent for years.
Seen similar judgments in my area where the J's make 'nice comments' about council's incompetence.
We need more J's that call a spade a spade..
This is long overdue. It has been said the nz has a poor corporate governance culture, well I say we also have a very poor corporate regulatory culture, theres plenty of other directors that have ruined countless billions in shareholder and debtor wealth, they too should be nailed in this fashion. What I would like to see is a lot more civil legal action, the mere risk of it would surely improve director performance?
interesting read on the history of this company and it goes back a long way, normal process took money out to fund other things and put none back in
even more interesting used that money to fund china company BUT could not get the money out of china to repay the debt.
maybe because we have soft laws its easier that way and you can still walk away wealthy with assets tucked away
Yeah - it associated company cladding company owed it millions as well. Ultimate holding companies included tax haven to the left and right. Harvard MBA structuring to it best. The whole think fell because they couldn't shorten their overdraft by $1m with the bank. Sad to think that if they hadn't wasted $3-4m on the failed Oracle software project it might have been a bit different.
There is a serious lack of understanding around Board Governance that delivers pitiful decisions dysfunctional management.
When the board votes on a issue/proposal and one director whom has the experience/knowledge objects, fiercely debates and warns of the consequences of their actions and is ignored and is outvoted by Directors whom should never have held Directorships the business is serious trouble.As the Directors leave the meeting Good Governance Practice is that they leave unanimously agreed! What a joke and how powerless the one and only Director that has that experience and integrity is ignored which in Mainzeal's case was not Shipley.
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