Jenny Shipley says Mainzeal directors in

Monday 15th October 2018

Directors of failed construction firm Mainzeal had no reason to question promises from its Chinese parent the company would get the financial support it needed to stay afloat, former Prime Minister Jenny Shipley told the High Court today.

Mainzeal went into liquidation in February 2013 after Chinese company Richina Pacific didn’t provide the final funding it needed and the Bank of New Zealand pulled the plug.

Mainzeal owed at least $115 million to unsecured creditors, many of them subcontractors on building projects.

Liquidators BDO say Mainzeal directors should have known there was a significant risk it wouldn’t get back millions of dollars lent to the Chinese parent company from 2004 onwards and that the company was technically insolvent at the end of 2010, or possibly before.

Directors breached their duties by not stopping trading in January or July 2011, before subcontractors lost more money, BDO says.

Shipley, who was chair of Mainzeal and also on the Richina board, argued in court that the Richina group had substantial assets in China and New Zealand and had been providing both money and assurances of their continuing support right up to January 2013. Directors had no reason to doubt there would be future funds available.

“We had undertakings on multiple occasions. That was absolutely understood by the directors involved, and these created no doubt that when support was required, it would be forthcoming.”

BDO lawyer Mark O’Brien focused in court on loans from Mainzeal to Richina to fund the purchase of the Shanghai Leather Company in late 2004 and 2005. The loans grew over the years from $7-to-$8 million to $35-to-$40 million of accumulated debt.

O’Brien questioned the lack of any formal legal security or guarantees for the loans, but Shipley said Mainzeal’s charter made it clear its parent would cover its financial responsibilities.

“And in my experience, that is what happened.”

In her brief of evidence, Shipley said Richina provided money for the refurbishment of Mainzeal House in Wellington and also sent pre-paid Chinese construction materials to New Zealand, which Mainzeal used in its construction projects.

“Over and above the accounting treatment, the supply of materials represented real value to Mainzeal, as a form of parent support and as a competitive advantage in the market.”

In July 2011, when BDO says Shipley and the other directors breached their responsibilities, Shipley said there was no reason to think Richina wouldn’t pay money it owed.

“Nothing had changed to make the board think it needed to cease trading. Our liquidity and legacy claims (including significant leaky buildings claims) were being managed, we had a good forward book of work, and Richard (Yan, Richina NZ's chairman) continued to reinforce that the group’s commitment to funding and supply of materials was ongoing, unchanged, and expanding in its scope.”

Shipley said right up until mid-January 2013, just days before the company went into liquidation, Yan, who was also on the Mainzeal board, was reassuring directors that the Chinese company would support the New Zealand arm.

It was only on Jan. 29, 2013 that Yan sent a “completely unexpected” formal letter saying directors of the Chinese company wouldn’t be providing any more support in the form of pre-paid materials, and suggesting a board meeting to consider asking the bank to appoint receivers.

“This letter... was a huge disappointment to me given Richard’s repeated assurances as recently as 22 January,” Shipley said.

She called Mainzeal's struggles in 2012 a "perfect storm" and said Yan's letter had "totally undermined our credibility" with BNZ.

"I believed that I had done all I could to work in the best interests of all shareholders, creditors and staff of Mainzeal."

(BusinessDesk)

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