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Home / Business / Companies / Construction

Mainzeal Supreme Court judgment: Directors of failed firm, including former PM Jenny Shipley, to pay nearly $40m plus interest

Sam Hurley
By Sam Hurley
NZ Herald Print Editor·NZ Herald·
25 Aug, 2023 01:05 AM5 mins to read

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New Zealand’s top court has ruled former Mainzeal directors liable to pay $39.8 million plus interest and costs in compensation to the creditors and subcontractors who were left $111m out of pocket when the company collapsed a decade ago.

The Supreme Court heard the final appeal over a week in March 2022 for the long-running litigation between the liquidators of the collapsed construction company and its four former directors, including ex-prime minister Dame Jenny Shipley.

The judgment, which is being described by the liquidators as a “landmark” decision, was delivered at 9am in Wellington today.

Shipley’s legal team, who also represented directors Clive Tilby and Peter Gomm, said their clients were “deeply disappointed” with the result and “continue to regret the collapse of Mainzeal and its serious consequences”.

The court had earlier granted leave for a challenge of the Court of Appeal’s decision in 2021 by the directors of what was NZ’s third largest construction firm and also granted leave for the liquidators to cross-appeal.

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The Supreme Court dismissed the directors’ appeal and found they were aware of Mainzeal’s precarious position as the company struggled to make a profit after 2008. It found that the directors breached their duties under both section 135 and 136 of the Companies Act.

From January 31, 2011, the court found the directors allowed Mainzeal to trade in a way which created a serious risk of substantial loss to creditors, which would have been apparent to them if they had acted with reasonable skill and diligence.

The court allowed, in part, the liquidators’ cross-appeal.

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Former prime minister Dame Jenny Shipley was a director of Mainzeal. Photo / Dean Purcell
Former prime minister Dame Jenny Shipley was a director of Mainzeal. Photo / Dean Purcell

The Supreme Court ordered the multimillion-dollar payment plus interest at 5 per cent from the date of liquidation in February 2013. It means the Mainzeal directors have been ordered to pay more than $50m.

Compensation was ordered against former chief executive Richard Yan in full, with the liability of Shipley, who was the chair of the board, Tilby and Gomm capped at $6.6m plus an estimated $3m interest each.

Lawyers for Shipley, who was prime minister from 1997 to 1999, Tilby and Gomm said in a statement on behalf of their clients: “They are of course deeply disappointed that their appeal has been dismissed.

“They note that the court took no issue with their honesty and good faith, and their absence of conflicts of interest, in their conduct as directors,” Jack Hodder KC and Michael Arthur’s joint statement read.

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“They continue to regret the collapse of Mainzeal and its serious consequences for its staff, customers and creditors.”

The lawyers said their clients accept the court has declared the law on “important and difficult questions with potential relevance for the hundreds of thousands of company directors in New Zealand”.

“They will now take some time to consider the consequences of the court’s judgment.”

Mainzeal was incorporated in 1987 and from 1996 it was a subsidiary of companies associated with Yan, the Richina Pacific group. From 2005, the firm was balance sheet insolvent.

Yan and his legal team are yet to make a statement.

Richard Yan, pictured in 2006. Photo / File
Richard Yan, pictured in 2006. Photo / File

From 2009, and particularly through 2010, Mainzeal also began to face leaky building claims which the Supreme Court’s judgment said “posed a substantial risk” to the company’s solvency that became more serious as time went by.

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Mainzeal’s liquidator Andrew McKay, of BDO, said in a statement on behalf of the creditors, of which some 1400 were unsecured, the Supreme Court’s decision confirms the directors breached their duties while allowing the company to trade while insolvent.

“This is a landmark judgment which reinforces the obligations directors have to fulfil their duties diligently and responsibly.”

NZSC releases judgment in Yan v Mainzeal:https://t.co/5hq3rHaZqc pic.twitter.com/oBQ5S2ln5m

— Courts of New Zealand (@CourtsofNZ) August 24, 2023

McKay said the Mainzeal directors “knowingly, and recklessly exposed creditors to illegitimate risk” with their trading while insolvent and used “rob Peter to pay Paul” strategies.

“The creditors have waited a long time for this decision which brings to a close over eight years of prolonged court proceedings, including trials in the High Court, Court of Appeal and Supreme Court,” he said.

“At every stage of this long process, the defendants and their insurance company, QBE, have denied wrongdoing which has only delayed justice for the creditors. Given the clear facts of the case, established in each of the trials, it is disappointing that the Mainzeal directors have failed to take any responsibility for their actions which illegitimately used creditors’ money and put them at risk, losing over $111m.”

Mainzeal's Jenny Shipley and Richard Yan, pictured in 2008. Photo / Greg Bowker
Mainzeal's Jenny Shipley and Richard Yan, pictured in 2008. Photo / Greg Bowker

McKay thanked the legal team and litigation funder, LPF Group, for pursuing such a large case with costs of nearly $10m.

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“We are committed to recovering the damages awarded by the court including in part from the insurers, enforcement action against the directors to ensure creditors receive compensation for their financial losses,” McKay said. “We appreciate that this has been a challenging time for many creditors, and we hope that the Supreme Court’s ruling provides them with a sense of justice being served.”

The Court of Appeal had ruled the former Mainzeal directors remained liable for reckless trading before the firm folded but they successfully overturned a $36m penalty ruling.

It also said in its March 2021 judgment the legislation governing insolvent trading in New Zealand is “unsatisfactory in a number of respects” and called for the Companies Act 1993 to be reviewed.

The Court of Appeal’s decision came after the High Court had ordered the directors to pay $36m for breaching directors’ duties.

The High Court’s order in 2019 represented just a proportion of the entire deficiency in Mainzeal’s liquidation of about $111m for some 1400 unsecured creditors.

Sam Hurley is a news director and senior reporter. He joined the Herald in 2017 and has previously worked for 1News and Hawke’s Bay Today.

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