Mainzeal case: $36m penalty stands against Jenny Shipley, other directors

Former Prime Minister Dame Jenny Shipley. Photo / File

Former Prime Minister Dame Jenny Shipley and other directors of failed national builder Mainzeal Construction have lost an attempt to reduce financial penalties.

The High Court at Auckland rejected the case brought by Jennifer Mary Shipley, Richard Ciliang Yan, Peter Gomm, Clive William Charles Tilby and others against a $36 million penalty imposed on them.

But the full case is yet to go to the Court of Appeal.

In late February, Justice Francis Cooke ruled that four directors of the failed construction company should pay $36 million to unsecured creditors. The Mainzeal directors had traded recklessly, Justice Cooke said, particularly by allowing the mostly loss-making company to trade for several years while technically insolvent.

The judge ordered Shipley, Tilby and Gomm were liable for up to $6m each of the $36m total. In the case of a fourth director, Richard Yan, who was also the founder and main shareholder of Mainzeal's parent company, Shanghai-based Richina Pacific, Justice Cooke said he should be liable for the full $36m. The four directors have already filed appeals yet to go to the Appeal Court.

In the latest decision, heard in May, the application by the plaintiffs to alter the amount awarded in the original judgment was dismissed.

The judge calculated the amount that he considered each of the defendants was liable to pay but because the expert evidence from each of the parties did not specifically address the facts as the judge found them to be, he invited them to correct the calculation he had made if they considered them wrong.

Both the defendants and the plaintiff argued that the calculations were in error. The court accepted that some errors were made, but in the end found that those errors cancelled each other out with the result that there was no need to alter the judgment sum from the first decision.

The loss the directors caused was the starting point for their liability, the judge said.

Liquidators Andrew Bethell and Brian Mayo-Smith also applied to seek higher penalties.

The directors argued the court's assessment of the losses for creditors caused by their breach of duties were "exaggerated because the court used the gross amount owing to the creditors without taking into account expected recoveries from the assets of the companies in liquidation".

FULL DECISION BELOW