The court order requiring Pike River to pay $3.41 million to the families of its mine explosion victims raises many legal and moral questions.
Why won't Pike River meet its $3.41 million obligation, even though it has received $90.7 million in insurance payouts?
Why has each family received only $18,700 from the company when families in the United States received US$1.5 million ($1.9 million) each in a similar situation?
Why has the Bank of New Zealand received all of its money back - plus interest - yet there is nothing left for the bereaved families?
What are the legal and/or moral obligations of New Zealand Oil & Gas (NZOG), Pike River's directors and the government as far as the $3.41 million court order is concerned?
The story begins in 1988 when NZOG, chaired by Tony Radford, purchased Pike River from NZX-listed United Resources, which was also chaired by Radford.
Radford, who has been chairman of NZOG since June 1981, is a stubborn Australian who has ruled the company with an iron fist.
Progress was slow at Pike River until a feasibility study, funded by additional equity from outsider shareholders, was completed in the early 2000s.
In September 2005, Saurashtra Fuels, a large Indian coal exporter, and Gujarat NRE, which is listed on the Indian sharemarket, put new equity into the company.
Pike River had its first major problem a year later when several independent directors resigned because of conflict of interest issues between the coal miner and directors representing NZOG on its board.
Pike River listed in July 2007 after raising $85 million from the public through the issue of shares at $1 each.
After the IPO the public owned 42.5 per cent, NZOG 31.1 per cent, Saurashtra 8.5 per cent, Gujarat 10 per cent and existing minority shareholders 7.9 per cent.
The existing corporate and minority shareholders had much greater upside potential because they gave themselves 22.5 million free options, exercisable at $1.30 a share, whereas the IPO participants received no options.
The company had seven directors - chairman John Dow, Professor Ray Meyer, Stuart Nattrass, Radford, Gordon Ward, Dipak Agarwalla of Saurashtra and Arun Jagatramka of Gujarat.
Radford and Meyer were on the NZOG board and Ward had been a NZOG employee for 20 years. He was chief executive and managing director of Pike River from January 2007 until just before the mine disaster and, according to the prospectus, "Gordon has been responsible for all aspects of the Pike River Project (since 1998)".
The prospectus was bullish and said the company was "on target to produce its first coal late in the quarter ending March 2008, with annual saleable production expected to reach more than 1 million tonnes in the 2009 calendar year".
However, the main characteristics of the mine development were unfulfilled promises, tunnel problems, huge delays and financial difficulties. No coal was produced and sold in the December 2009 year forecast period.
Ward left NZOG on October 1, 2010 and was replaced as chief executive and managing director by Peter Whittall, who had been general manager of mines since joining Pike River in February 2005.
Forty-nine days later, on November 19, 2010, the mine exploded and 29 men lost their lives.
NZOG, as the major secured creditor, appointed John Fisk of PricewaterhouseCoopers as Pike River's receiver on December 13, 2010.
On that date the company had $11.3 million in cash, $110.4 million of creditor claims and no sustainable source of operating revenue.
But in the two years to December 13 last year, the company generated cash of $103.9 million from these sources;
Insurance receipts, $90.7 million
Proceeds from sale of the mine to Solid Energy, $7.5 million
Coal sales, $4.1 million
GST refunds $1.3 million
Interest income, $300,000.
Under receivership law, preferential and secured creditors have clear priority regardless of the moral claims of unsecured creditors.
Thus, in the two years to December 13 last year, the receivers distributed $80.1 million - out of the $114.1 million paid out - to preferential and secured creditors.
A maximum of $18,700 per employee was classified as preferential, and $1.4 million is still owed to employees on an unsecured basis.
However, Bank of New Zealand ($23.5 million) and Solid Energy ($400,000) have been paid in full as secured creditors.
NZOG has been repaid $50 million but it was still owed $36.7 million, including accrued interest, in December last year.
An agreement was reached to pay $10.7 million to unsecured creditors, even though they ranked behind secured creditors.
Mine expenses, including electricity and police handover expenses, were $8.4 million, wages and salaries $5.8 million and receiver costs $2.6 million.
A $500,000 relief fund was established for the descendants of the deceased miners, and this has been distributed to a miners' trust.
At the end of the two-year period Pike River still owed creditors $51.8 million, including $36.7 million to NZOG, and had only $1 million of cash remaining.
Cash reserves have since dwindled to $500,000.
The $3.41 million court order is unsecured as far as receivership law is concerned, and even if Pike River had $10 million in cash, the $3.41 million would rank behind secured creditors.
There is no legal obligation for the receiver, the directors, NZOG or anyone else to make any payment to the bereaved families.
But the issue looks quite different when viewed from a moral perspective.
The royal commission of inquiry into the mine tragedy was highly critical of the board and senior management of the company.
It concluded that "the board of directors did not ensure that health and safety was being properly managed and the executive managers did not properly assess the health and safety risks that the workers were facing".
It also criticised the Government, saying "the Department of Labour did not have the focus, capacity or strategies to ensure Pike was meeting its legal responsibilities under health and safety laws. The department assumed Pike was complying with the law, even though there was ample evidence to the contrary".
NZOG must take some responsibility, as Radford played a leading role in the development of Pike River and Ward was appointed chief executive and managing director when three of the four Pike River directors, including him, were NZOG representatives.
Ward was an accountant and auditor with little, if any, mine development expertise.
NZOG's hard line attitude towards last week's court order is difficult to understand, particularly as it now has $168.6 million cash compared with $133.7 million at the time of the mine explosion.
This cash pile makes it particularly vulnerable to litigation funders, such as ASX-listed IMF (Australia), that may be willing to finance legal action on behalf of the bereaved families.
This is where the April 2010 Upper Big Branch Mine disaster in West Virginia - which also involved a gas explosion and the death of 29 miners - may give some guidance.
A report on the US disaster came to fairly similar conclusions to the Pike River royal commission
Subsequently the US Attorney announced a settlement with Alpha Natural Resources, which owns the Upper Big Branch Mine, to pay fines of US$220 million. This included US$46.5 million, or US$1.5 million each, to the 29 victims' families and the two survivors.
The Pike River directors, NZOG and the Crown have a strong moral obligation to ensure the $3.41 million court order is paid to the families of the 29 deceased miners and the two survivors.
If litigation funders take up the case, and are successful, these parties will regret that they didn't take the opportunity to settle this issue.
Brian Gaynor is an executive director of Milford Asset Management which owns 0.11 per cent of Pike River on behalf of clients.