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Former Mainzeal directors in final-hour appeal of judgment

Tuesday 26th March 2019

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Directors of collapsed construction company Mainzeal, including former Prime Minister Jenny Shipley, are appealing last month’s High Court judgment.

The decision found them liable for up to $6 million each following $110 million of losses suffered by creditors when the company went into liquidation.

Former Mainzeal chair Shipley and two other former directors, Clive Tilby and Peter Gomm, say the High Court was wrong to say they breached their duties under section 135 of the Companies Act. They say that they shouldn’t have to pay anything to sub-contractors and other creditors.

Making the announcement on the last day for appeals to be lodged, the directors’ QC, Jack Hodder, criticised the way Justice Francis Cooke awarded damages.

“The judge took a novel approach to the case, an approach that wasn’t open to him.”

This involved awarding damages using a formula based on the final amount owed to creditors, rather than the more “orthodox” Mason v Lewis approach. The latter involves working out how much less creditors would have been owed had the directors pulled the plug earlier.

Shipley and the other directors argued that creditors were actually better off in 2013 than they would have been if Mainzeal had been liquidated earlier - and the judge agreed.

Hodder also said the judge was wrong to argue the directors should have known Mainzeal’s Chinese parent Richina Pacific wouldn’t come up with money to bail the company out when it was in dire straits.

He says there had been $12 million of support in the year before the company failed, and plenty of commitment to financial help.

“We argue there was sufficient group support for Mainzeal. We said $12 million was supplied in the last 12 months, and there were indications there would be support for Mainzeal at all times.”

Justice Cooke ruled that the three directors were reckless, “had adopted a policy of trading while insolvent”, and “used money owed to trade operators, particularly sub-contractors, as working capital.

“The assurances relied upon were ambiguous, conditional, and subject to the constraints of Chinese law, which restricted the ability to return money to New Zealand from China,” Justice Cooke said in the judgment.

Hodder argues the three directors “have good grounds to appeal”.

“The company was not carrying on business in a manner likely to cause serious loss to creditors.”

He says winning the appeal would mean the directors had nothing to pay - and creditors would get nothing. Anything less, for example reduced damages, "would be a very partial win.”

Yesterday, a fourth Mainzeal director, Richina Pacific boss Richard Yan, also appealed the High Court judgment.  While Shipley, Gomm and Tilby were found liable for up to $6 million each, Yan is potentially liable for the full amount, $36 million.

Liquidator BDO now also has the option to cross-appeal within 10 working days. The appeal is likely to be heard later this year and could take about a week, Hodder estimated.

He said the directors won’t be making any further comment.


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