COMMENT:

The current Auckland High Court proceedings — Mainzeal Property and Construction Limited v Richard Yan, Dame Jenny Shipley, Sir Paul Collins & others — should be the closing chapter of a particularly depressing corporate saga.

It is a story of huge promises, poor execution, woeful corporate governance and the collapse of one of the country's largest construction companies.

It also includes a large outflow of money to China, the delisting of an NZX company and the disenfranchisement of New Zealand shareholders.

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The story begins in 1981 when Richard Ci Liang Yan came to New Zealand on an Auckland Rotary Club sponsorship for his final year at Auckland Grammar.

Yan, who was born in Tianjin, China in 1963 and brought up in Beijing, was billeted by several established Auckland families.

He went on to obtain two degrees at the University of Auckland between 1982 and 1984 and worked for Mainzeal during his holiday breaks.

Yan moved to Australia and then to the United States, where he obtained an MBA from Harvard Business School. He developed relationships with several wealthy individuals in the United States and convinced them to invest in a fund that would identify investment opportunities in China.

The fund was called Richina.

Back in New Zealand, Mainzeal listed on the NZX in 1973 but delisted 10 years later following a management buyout by Peter Menzies and John Roy. The company relisted again in December 1987, one of the few companies to come to the market immediately following the October 1987 crash.

Shortly after relisting, the construction group accumulated a 50 per cent stake in Mair Astley, an NZX listed company which had several New Zealand leather operations and was planning to invest in a new tannery in Shanghai.

Yan spotted this Chinese tannery opportunity when he returned to New Zealand and in March 1995 his Richina fund purchased 51 per cent of Mainzeal from NZI and Peter Menzies.

In May 1996, Mainzeal acquired 100 per cent of Mair Astley and the combined Mainzeal/Mair Astley group was renamed Richina Pacific.

Richard Yan was a man on the move with huge ambitions, particularly in China.

The Shanghai tannery opened at the end of 1998 but didn't achieve its financial projections.

Richina's second Chinese investment was a new aquarium in central Beijing, next to the Beijing Workers' Stadium. Prime Minister Jim Bolger opened the new aquarium, called Blue Zoo Beijing, on November 29, 1997.

Nine days later, immediately after he arrived back from China, Bolger was ousted as Prime Minister by Jenny Shipley.

The new Beijing aquarium also failed to achieve its profit forecasts.

Shipley joined the Richina Pacific board in April 2004, nearly five years after she was defeated by Helen Clark's Labour Party.

Yan told shareholders that the former Prime Minister would be a great asset to the company as she would open doors at the top echelons of the Chinese Government.

Shipley told the 2005 Richina Pacific annual meeting that Mainzeal, which she chaired and was 100 per cent owned by the NZX listed company, was applying for a Chinese property development licence.

Richina Pacific's annual meetings slowly developed from great optimism in the 1990s to total frustration in the 2000s. Each year, Yan was chasing a new pot of gold in China. One year it was the tannery, then the aquarium, followed by industrial water supply, chemicals, taxis, a hotel and a department store. Then it was property development, followed by financial services.

Meanwhile, Richina Pacific had become unnecessarily complex, with its registration moving from Auckland to Bermuda, its head office from Auckland to Kuala Lumpur, chairman John Walker was based in New York, CEO Yan lived in Auckland, most of its assets were in China, its financial accounts were in US dollars and it remained listed on the NZX.

In December 2008, when Richina Pacific's sharemarket value had slumped to just $36 million, it held an extremely acrimonious special meeting in Auckland to approve the company's delisting from the NZX and yet another complex restructuring.

As part of the delisting Richina Pacific would be divided into four separate divisions:

• China — including leather, the aquarium and other China-based businesses
• New Zealand — mainly Mainzeal, which was chaired by Shipley
• Property — the group's property assets outside NZ
• Investments — including a finance company and hotel management business.

The notice of meeting, which contained nearly 200 pages, was incredibly complex, with details regarding the migration of group entities from the British Virgin Islands to Bermuda, voting rights for the four new divisions listed above and the ability of NZ shareholders to appeal to the Bermuda courts over the Christmas period if they were unhappy with the transaction.

The Herald report on the December 2008 special meeting stated that "the two-hour meeting saw board member and former Prime Minister Jenny Shipley defend the business, particularly Mainzeal". It went on to report: "Paul Collins of Active Equities controls just over 5 per cent of Richina and he endorsed the proposal to split the business into four separate units and delist from the NZX."

The motions were passed by a large majority, mainly because of overseas shareholder support.

Richina Pacific shareholders had decided to remove the protections of NZX listing rules and create a more complex structure by establishing four new divisions with individual voting rights.

This columnist still owns 1026 Richina Pacific shares but hasn't had any correspondence — annual reports, notices of meeting etc — from the Bermuda based company for nearly eight years.

New Zealand shareholders have been totally disenfranchised, even though Richina Pacific's chairman wrote to shareholders that they "will be protected by appropriate safeguards for minority interests in the bylaws of the resulting entity" following NZX delisting.

These comments couldn't be further from what transpired.

Meanwhile, Mainzeal was having huge problems with Auckland's Vector Arena, now called Spark Arena. The final construction contract price was $72.6m but it cost $94.8m to complete, leaving Mainzeal with a loss of $22.2m.

After the arena's completion, Mainzeal was subject to several significant leaky building claims and the construction company collapsed in February 2013.

The liquidators' report showed that Mainzeal had lent $72.7m to other entities in the Richina Pacific group of companies, with $27.0m to Richina Pacific (China) Investments and $21.6m to King Facade, which is also in liquidation.

King Facade is a wholly owned NZ subsidiary of Mainzeal that provides and installs building facades as a subcontractor to its parent company. King Facade had loaned $5.8m to Richina Global Real Estate.

It appears to this columnist that Mainzeal had transferred substantial sums of money to Richina Pacific's overseas operations, particularly in China. Little, if any, of this money has been returned to New Zealand.

Where did the money go? Did any of it go either directly, or indirectly, to the original wealthy US investors in Yan's Richina fund?

How could directors allow these large sums of money to leave New Zealand without adequate security?

Ironically, Richina Pacific promised dissenting shareholders at the December 2008 delisting meeting that they would receive 45.47 cents for each of their Richina Pacific shares but only a few select shareholders seem to have been offered this facility.

The Auckland High Court proceedings are for substantial claims against Mainzeal directors, mainly in relation to alleged reckless trading. But the proceedings also include claims of breaches of directors' duties in relation to the restructure of the business, which seems to be in relation to Richina Pacific's December 2008 special meeting resolutions.

The Richina Pacific/Mainzeal saga is unbelievably depressing, regardless of what Justice Francis Cooke decides.

Richina Pacific shareholders have lost all their money and have been totally disenfranchised. Mainzeal unsecured creditors are owed $117m, large sums of money have gone offshore and not returned, while the restructuring of the Richina Pacific group was incredibly expensive and futile.

The Richina Pacific/Mainzeal story is as bad as it gets. It was full of promises and hope but ended up being a big fat zero for most stakeholders.

- Brian Gaynor is an executive director of Milford Asset Management and still holds 1026 worthless Richina Pacific shares.