No point bankrupting Mainzeal's Richard Yan, court told

Richard Yan's lawyer says there's no point bankrupting his client and he can't pay security for the upcoming Mainzeal appeal. ­­­­­­

Associate judge Peter Andrew presided over Yan's bankruptcy hearing in the High Court at Auckland today. Yan, who has been resident in China since 2016, did not attend.

The hearing precedes an appeal of the 2019 Mainzeal judgment which goes to the Court of Appeal on July 27. Justice Francis Cooke had found against Mainzeal's directors in a landmark decision on director's liability. He ruled Yan should pay $18 million and the other directors $18m.

Insurer QBE has put up security for the directors including other defendants Jenny Shipley, Peter Gomm and Clive Tilby while they appeal, and $2.3m has already been paid in costs.

Yan has not paid anything personally toward his $18m, and says that he can't. Accordingly, Mainzeal liquidator Andrew Bethell has moved to bankrupt him in New Zealand.

Personal connection

Bethell's lawyer, Mark O'Brien QC, told the court that bankruptcy was sought now while Yan still visits his wife Tina and son in New Zealand.

He said that the Official Assignee who administers bankruptcy will have an easier time getting money out of Yan while he still has a "real and personal connection" to New Zealand, but when his son finished school, they were likely to return to China.

He said the bankruptcy needed to take place immediately, rather than wait for the Court of Appeal and then perhaps the Supreme Court to rule on the director's liability case.

Today's hearing was unorthodox for a bankruptcy in that Bethell as creditor argued that Yan has money but won't pay, while the former construction company director says that he cannot. Usually the person being pursued for bankruptcy argues he or she is solvent.

Bethell's lawyer pointed to evidence at trial where Yan discussed what appeared to be substantial holdings in China, but Yan's lawyer countered that he was talking about his family's interests and not his personally.

Yan contends he simply can't get money out of the Chinese companies which he is director of, and suggests it would be a breach of fiduciary duties to do so.

The squeeze

Yan's lawyer David Chisholm QC said the bankruptcy procedure was an abuse of process as his opponent tried to "put the squeeze" on Yan. If the liquidator really wanted the money it should use a different method such as a court examination of his affairs.

Chisholm told the court his opponent was being disingenuous by presuming that Yan could get money out of assets that he was a trustee of, and disputed an "extreme reference" to Yan's 88-year-old father having three full-time carers.

"The fact that you have access to a rich uncle doesn't mean you can pay. Bankruptcy shouldn't be used as a negotiating lever like the liquidators are using it for," he told the court.

The judge pointed out that it might be said that Yan's family seems to have substantial means, referencing a $10m property in the evidence before him.

"They have property, but the extent of that is not in evidence," Chisholm said, noting that Yan had offered his shares in an Oamaru property as security.

Yan's evidence was that even if he had $18m of assets in New Zealand, the court heard, he wouldn't be able to get it out due to regulatory difficulties. ­­­­

Upcoming appeal

Today's hearing gave several hints as to what Yan will be arguing in the appeal court in three weeks' time.

Chisholm said that while it wasn't associate judge Andrew's job to decide the merits of the appeal, Yan had faced a miscarriage of justice.

The Queen's Counsel pointed out that the liquidator was successful on just one of eight causes of actions it pleaded, and noted that Yan hadn't been a director of Mainzeal for the full length of time when breaches of directors' duties were alleged.

Chisholm added that certain allegations were not put to Yan during trial, and noted that Justice Cooke had taken an alternative reasoning to the case.

"He ignored the pleaded case and recorded that the plaintiff's didn't adopt his alternative theory," he said.

"We are in a situation where we dispute the judgment and we want to exercise our appeal rights. If we are unsuccessful on appeal we will be insolvent in New Zealand," Chisholm said.

O'Brien said "obviously we don't accept his appeal, we are fighting it." But he conceded it was arguable and genuine. The lawyer said that even if Yan was bankrupt the Official Assignee was likely to allow him to continue appealing.

Associate judge Andrew has reserved his decision.

Today's hearing was the second on Yan's bankruptcy. Associate Judge Roger Bell decided in November that he could not halt proceedings.