NZ Herald
  • Home
  • Latest news
  • Herald NOW
  • Video
  • New Zealand
  • Sport
  • World
  • Business
  • Entertainment
  • Podcasts
  • Quizzes
  • Opinion
  • Lifestyle
  • Travel
  • Viva
  • Weather

Subscriptions

  • Herald Premium
  • Viva Premium
  • The Listener
  • BusinessDesk

Sections

  • Latest news
  • New Zealand
    • All New Zealand
    • Crime
    • Politics
    • Education
    • Open Justice
    • Scam Update
  • Herald NOW
  • On The Up
  • World
    • All World
    • Australia
    • Asia
    • UK
    • United States
    • Middle East
    • Europe
    • Pacific
  • Business
    • All Business
    • MarketsSharesCurrencyCommoditiesStock TakesCrypto
    • Markets with Madison
    • Media Insider
    • Business analysis
    • Personal financeKiwiSaverInterest ratesTaxInvestment
    • EconomyInflationGDPOfficial cash rateEmployment
    • Small business
    • Business reportsMood of the BoardroomProject AucklandSustainable business and financeCapital markets reportAgribusiness reportInfrastructure reportDynamic business
    • Deloitte Top 200 Awards
    • CompaniesAged CareAgribusinessAirlinesBanking and financeConstructionEnergyFreight and logisticsHealthcareManufacturingMedia and MarketingRetailTelecommunicationsTourism
  • Opinion
    • All Opinion
    • Analysis
    • Editorials
    • Business analysis
    • Premium opinion
    • Letters to the editor
  • Politics
  • Sport
    • All Sport
    • OlympicsParalympics
    • RugbySuper RugbyNPCAll BlacksBlack FernsRugby sevensSchool rugby
    • CricketBlack CapsWhite Ferns
    • Racing
    • NetballSilver Ferns
    • LeagueWarriorsNRL
    • FootballWellington PhoenixAuckland FCAll WhitesFootball FernsEnglish Premier League
    • GolfNZ Open
    • MotorsportFormula 1
    • Boxing
    • UFC
    • BasketballNBABreakersTall BlacksTall Ferns
    • Tennis
    • Cycling
    • Athletics
    • SailingAmerica's CupSailGP
    • Rowing
  • Lifestyle
    • All Lifestyle
    • Viva - Food, fashion & beauty
    • Society Insider
    • Royals
    • Sex & relationships
    • Food & drinkRecipesRecipe collectionsRestaurant reviewsRestaurant bookings
    • Health & wellbeing
    • Fashion & beauty
    • Pets & animals
    • The Selection - Shop the trendsShop fashionShop beautyShop entertainmentShop giftsShop home & living
    • Milford's Investing Place
  • Entertainment
    • All Entertainment
    • TV
    • MoviesMovie reviews
    • MusicMusic reviews
    • BooksBook reviews
    • Culture
    • ReviewsBook reviewsMovie reviewsMusic reviewsRestaurant reviews
  • Travel
    • All Travel
    • News
    • New ZealandNorthlandAucklandWellingtonCanterburyOtago / QueenstownNelson-TasmanBest NZ beaches
    • International travelAustraliaPacific IslandsEuropeUKUSAAfricaAsia
    • Rail holidays
    • Cruise holidays
    • Ski holidays
    • Luxury travel
    • Adventure travel
  • Kāhu Māori news
  • Environment
    • All Environment
    • Our Green Future
  • Talanoa Pacific news
  • Property
    • All Property
    • Property Insider
    • Interest rates tracker
    • Residential property listings
    • Commercial property listings
  • Health
  • Technology
    • All Technology
    • AI
    • Social media
  • Rural
    • All Rural
    • Dairy farming
    • Sheep & beef farming
    • Horticulture
    • Animal health
    • Rural business
    • Rural life
    • Rural technology
    • Opinion
    • Audio & podcasts
  • Weather forecasts
    • All Weather forecasts
    • Kaitaia
    • Whangārei
    • Dargaville
    • Auckland
    • Thames
    • Tauranga
    • Hamilton
    • Whakatāne
    • Rotorua
    • Tokoroa
    • Te Kuiti
    • Taumaranui
    • Taupō
    • Gisborne
    • New Plymouth
    • Napier
    • Hastings
    • Dannevirke
    • Whanganui
    • Palmerston North
    • Levin
    • Paraparaumu
    • Masterton
    • Wellington
    • Motueka
    • Nelson
    • Blenheim
    • Westport
    • Reefton
    • Kaikōura
    • Greymouth
    • Hokitika
    • Christchurch
    • Ashburton
    • Timaru
    • Wānaka
    • Oamaru
    • Queenstown
    • Dunedin
    • Gore
    • Invercargill
  • Meet the journalists
  • Promotions & competitions
  • OneRoof property listings
  • Driven car news

Puzzles & Quizzes

  • Puzzles
    • All Puzzles
    • Sudoku
    • Code Cracker
    • Crosswords
    • Cryptic crossword
    • Wordsearch
  • Quizzes
    • All Quizzes
    • Morning quiz
    • Afternoon quiz
    • Sports quiz

Regions

  • Northland
    • All Northland
    • Far North
    • Kaitaia
    • Kerikeri
    • Kaikohe
    • Bay of Islands
    • Whangarei
    • Dargaville
    • Kaipara
    • Mangawhai
  • Auckland
  • Waikato
    • All Waikato
    • Hamilton
    • Coromandel & Hauraki
    • Matamata & Piako
    • Cambridge
    • Te Awamutu
    • Tokoroa & South Waikato
    • Taupō & Tūrangi
  • Bay of Plenty
    • All Bay of Plenty
    • Katikati
    • Tauranga
    • Mount Maunganui
    • Pāpāmoa
    • Te Puke
    • Whakatāne
  • Rotorua
  • Hawke's Bay
    • All Hawke's Bay
    • Napier
    • Hastings
    • Havelock North
    • Central Hawke's Bay
    • Wairoa
  • Taranaki
    • All Taranaki
    • Stratford
    • New Plymouth
    • Hāwera
  • Manawatū - Whanganui
    • All Manawatū - Whanganui
    • Whanganui
    • Palmerston North
    • Manawatū
    • Tararua
    • Horowhenua
  • Wellington
    • All Wellington
    • Kapiti
    • Wairarapa
    • Upper Hutt
    • Lower Hutt
  • Nelson & Tasman
    • All Nelson & Tasman
    • Motueka
    • Nelson
    • Tasman
  • Marlborough
  • West Coast
  • Canterbury
    • All Canterbury
    • Kaikōura
    • Christchurch
    • Ashburton
    • Timaru
  • Otago
    • All Otago
    • Oamaru
    • Dunedin
    • Balclutha
    • Alexandra
    • Queenstown
    • Wanaka
  • Southland
    • All Southland
    • Invercargill
    • Gore
    • Stewart Island
  • Gisborne

Media

  • Video
    • All Video
    • NZ news video
    • Herald NOW
    • Business news video
    • Politics news video
    • Sport video
    • World news video
    • Lifestyle video
    • Entertainment video
    • Travel video
    • Markets with Madison
    • Kea Kids news
  • Podcasts
    • All Podcasts
    • The Front Page
    • On the Tiles
    • Ask me Anything
    • The Little Things
  • Cartoons
  • Photo galleries
  • Today's Paper - E-editions
  • Photo sales
  • Classifieds

NZME Network

  • Advertise with NZME
  • OneRoof
  • Driven Car Guide
  • BusinessDesk
  • Newstalk ZB
  • Sunlive
  • ZM
  • The Hits
  • Coast
  • Radio Hauraki
  • The Alternative Commentary Collective
  • Gold
  • Flava
  • iHeart Radio
  • Hokonui
  • Radio Wanaka
  • iHeartCountry New Zealand
  • Restaurant Hub
  • NZME Events

SubscribeSign In

Advertisement
Advertise with NZME.
Premium
Home / Business / Business Reports / Capital markets report

Capital Markets report: Lessons for directors from Mainzeal

By Matt Kersey
NZ Herald·
27 May, 2021 04:59 PM4 mins to read

Subscribe to listen

Access to Herald Premium articles require a Premium subscription. Subscribe now to listen.
Already a subscriber?  Sign in here

Listening to articles is free for open-access content—explore other articles or learn more about text-to-speech.
‌
Save

    Share this article

    Reminder, this is a Premium article and requires a subscription to read.

Directors should be cautious and can learn from Mainzeal.

Directors should be cautious and can learn from Mainzeal.

COMMENT:

The director community in New Zealand will not have been surprised to see that the Mainzeal saga reached another milestone — but without fully resolving the key issues.

In March, the Court of Appeal confirmed liability of both the executive and non-executive directors, but the directors have already applied to appeal the decision to the Supreme Court.

This means that the issues resolved by the Court of Appeal may be revisited yet again, leaving open the possibility that the directors will ultimately be relieved of liability.

What was the decision?

Advertisement
Advertise with NZME.

The Court of Appeal held that the directors breached the two core duties which protect creditors from the risks of insolvent trading, not to recklessly trade and the duty in relation to obligations, but overturned the controversial measure of damages for reckless trading.

It was "wishful thinking" for the directors to continue to trade on as usual when Mainzeal was in a very vulnerable state. In particular, the Court attacked the assumptions on which the directors had relied, particularly by assuming that related company debts were recoverable and that assurances of support could be counted on.

Ultimately, however, the directors were "saved" by a finding that, despite the reckless trading, the financial position of the company was not proved to have worsened and therefore creditors as a whole did not suffer any loss.

In this part of the case, the directors were successful and overturned the liquidators' original success.

Advertisement
Advertise with NZME.

This should be of some comfort for directors generally, if they can manage to restore value to the balance sheet when facing insolvency.

The Court of Appeal upheld the Liquidator's appeal regarding the duty in relation to obligations. The Court considered the manner of trading presented such precarious conditions that directors could not reasonably have been able to have any confidence that it could meet its obligations.

The company's ability to meet those obligations depended on them receiving shareholder support as and when financial difficulties arose. It was not reasonable in the circumstances for the directors to believe that shareholder support would be forthcoming.

The High Court must now reconsider the quantum of loss. It seems at least possible that liability will increase from the original award of $36 million, although how that will be allocated among the directors remains to be seen.

Matt Kersey, partner at Russell McVeagh.
Matt Kersey, partner at Russell McVeagh.

The Court also criticised the current laws governing insolvent trading. It called for a review of these laws, to ensure that they provide a coherent and practical regime to protect creditors when directors decide to keep trading in precarious financial circumstances.

Directors equally will consider that they should be able to take reasonable, informed steps to trade out of difficulty and avoid the unsatisfactory outcome of an insolvent liquidation, without overwhelming concerns about liability.

Directors currently face significant financial and reputational exposure, so clearer guidance in this area would be welcomed.

Lessons for directors:

Don't make assumptions when it comes to the company's financial position

Advertisement
Advertise with NZME.

The directors ought to have been cautious before deciding to continue to trade. In this case, they were not. They failed to take urgent corrective action to address the "profoundly unsatisfactory financial position of the company and the risks this created for current and future creditors", for example, by obtaining better shareholder support. They should have given the shareholders an ultimatum requiring their support.

Properly consider the financial position and trading strategy

A decision to trade on is likely to breach the reckless trading provision unless the manner in which the directors choose to do so has realistic prospects of success. Directors cannot simply use new creditors' money to service debts to existing creditors: they must be able to pay any new debts incurred.

Any decision to continue to trade in a precarious financial situation must be made after a sober assessment of the company's position. Evidence of financial and legal advice will usually be necessary to demonstrate directors have properly considered the company's financial position.

Formal insolvency processes cannot be avoided when necessary

Directors of an insolvent company should not conduct their own informal administration or liquidation without the consent of creditors or after ensuring non-consenting creditors are paid in full. That creates the risk that the company's assets are not distributed in accordance with lawful priorities.

Professional advice is recommended

One enduring lesson for directors is the complexity of significant litigation and therefore the time often needed to resolve liability claims in corporate collapses of this scale.

Directors should be looking carefully at the financial and legal advice they obtain, the quality of information produced within their organisations, and whether they are adequately insured to protect against the significant exposure which may lie down the path of insolvency.

- Matt Kersey is a partner in Russell McVeagh.

Save

    Share this article

    Reminder, this is a Premium article and requires a subscription to read.

Latest from Capital markets report

Premium
OpinionLiam Dann

Liam Dann: After Orr – is it time for a Reserve Bank reset?

Premium
Opinion

Beyond the Budget: Brutal truths

Premium
Capital markets report

The hunt for equity: Kiwi expats wanted


Sponsored

Solar bat monitors uncover secrets of Auckland’s night sky

Advertisement
Advertise with NZME.

Latest from Capital markets report

Premium
Premium
Liam Dann: After Orr – is it time for a Reserve Bank reset?
Liam Dann
OpinionLiam Dann

Liam Dann: After Orr – is it time for a Reserve Bank reset?

OPINION: The challenges facing the Reserve Bank.

13 May 05:02 PM
Premium
Premium
Beyond the Budget: Brutal truths
Opinion

Beyond the Budget: Brutal truths

13 May 05:01 PM
Premium
Premium
The hunt for equity: Kiwi expats wanted
Capital markets report

The hunt for equity: Kiwi expats wanted

13 May 05:01 PM


Solar bat monitors uncover secrets of Auckland’s night sky
Sponsored

Solar bat monitors uncover secrets of Auckland’s night sky

06 Jul 09:47 PM
NZ Herald
  • About NZ Herald
  • Meet the journalists
  • Newsletters
  • Classifieds
  • Help & support
  • Contact us
  • House rules
  • Privacy Policy
  • Terms of use
  • Competition terms & conditions
  • Our use of AI
Subscriber Services
  • NZ Herald e-editions
  • Daily puzzles & quizzes
  • Manage your digital subscription
  • Manage your print subscription
  • Subscribe to the NZ Herald newspaper
  • Subscribe to Herald Premium
  • Gift a subscription
  • Subscriber FAQs
  • Subscription terms & conditions
  • Promotions and subscriber benefits
NZME Network
  • The New Zealand Herald
  • The Northland Age
  • The Northern Advocate
  • Waikato Herald
  • Bay of Plenty Times
  • Rotorua Daily Post
  • Hawke's Bay Today
  • Whanganui Chronicle
  • Viva
  • NZ Listener
  • Newstalk ZB
  • BusinessDesk
  • OneRoof
  • Driven Car Guide
  • iHeart Radio
  • Restaurant Hub
NZME
  • About NZME
  • NZME careers
  • Advertise with NZME
  • Digital self-service advertising
  • Book your classified ad
  • Photo sales
  • NZME Events
  • © Copyright 2025 NZME Publishing Limited
TOP