'Reckless' director must pay $7m

By IRENE CHAPPLE

A director of a shipping company that collapsed six years ago has been ordered to pay more than $7 million to creditors.

The award against German director Klaus Lower - which, with interest and costs, totals more than $10 million - is believed to be New Zealand's biggest personal penalty for reckless trading.

Belly Gully partner Mark O'Brien, who acted for the liquidator who brought the case, said it showed New Zealand courts were willing to make significant orders to punish errant directors.

O'Brien did not know of any previous award that exceeded $1 million.

The case also clarifies some responsibilities of directors heading a company which is in financial strife.

The decision will be appealed, but Lower's lawyer, Peter Davey, said he could not give more detail before speaking to his client.

Lower, who is in Germany, was not contactable yesterday.

South Pacific Shipping owed tens of millions to creditors when it went into liquidation in 1998, six years after it was established.

Lower was the majority shareholder in the company.

Two other directors, Ross Fast of Christchurch and Australian Stuart McAllum, negotiated confidential settlements with liquidator PricewaterhouseCoopers after the company's collapse.

Justice William Young said claims against the other directors were settled or not pursued "largely for economic reasons", and Lower was the only remaining defendant.

Gary Traveller, of PricewaterhouseCoopers, said he had been given legal advice the money could be chased through the German courts and he was confident of retrieving it.

South Pacific Shipping operated a cargo shipping line to the Pacific Islands and between Australia and New Zealand, operating up to 11 German-owned cargo vessels.

Lower had an ownership interest in eight of them.

The boats were chartered to South Pacific through other overseas companies in which Lower was a large shareholder.

The company was not profitable and made forecasts that were not met.

Its directors' meetings were infrequent, and Justice Young's judgment commented on Lower's "unwillingness or inability to implement orthodox governance practices".

Traveller said the company should have stopped trading in late 1993 or early 1994, when "the projections of profit were hopelessly adrift and the trading environment was becoming increasingly difficult".

Instead, it expanded its charters and assumed $1 million in liabilities of a related company.

Justice Young said the potential for Lower to derive "substantial collateral advantages" from the charter arrangements and vessel ownership "encouraged him to gamble with the funds of his creditors".

Traveller did not know how many cents in the dollar would be repaid to creditors, whose claims were around $20 million. Millions more is owed to related companies which will not rank for payment.

Directors' Institute chief executive David Newman said the case served to remind directors of their responsibilities.