Northland council starts bankruptcy proceedings against sawmill that reneged on ratepayer loan

The Northland Regional Council is struggling to recoup a six-figure sum loan it gave to a defunct timber company six years ago. Photo / Tania Whyte

The Northland Regional Council (NRC) is starting bankruptcy proceedings against the directors of a defunct timber company after failing to recover a debt of more than $850,000.

Resource Enterprises Ltd (REL) borrowed $750,000 from NRC in 2014 but the company went belly up three years later, forcing NRC's previous councillors to record the amount, plus the outstanding interest of $69,933, as an "impairment loss".

The loan was approved despite red flags being raised for the council in a review of REL's proposal for funding.

In October, the High Court ordered REL to pay NRC $860,580 together with interest from August 20, 2019.

A letter of demand was sent to REL directors Maher Mohammad Jammal, who lives in Dubai, and New Zealand-based Harkirat Singh Gill but no payment has been received.

NRC is now commencing bankruptcy proceedings, beginning with Gill.

Council chief executive Malcolm Nicolson said he was not in a position to answer questions pertaining to the latest proceedings. He would also not comment on whether NRC has formally written off the outstanding amount, and if anyone would be held accountable for approving the loan despite the red flags.

The Marsden Pt-based company opened in 2014 but stopped operating in May 2017, in large part because of a significant increase in the price of local logs, as well as factors pertaining to international wood trading.

In seeking capital, REL put its proposal to the NRC's economic development arm, Northland Inc. Of the $4million REL needed to set up a mill, NRC provided $750,000, with the rest secured through the ASB.

NRC loaned the money despite red flags being raised by Forme Consulting Group, engaged by Northland Inc, to review REL's proposal.

In August last year, NRC councillors voted to record the loan as an "impairment loss" but that in no way discharged the financially struggling company of its legal liability to repay the loan.

In the High Court, Jammal and Gill challenged a Deed of Priority that afforded ASB priority in terms of debt repayment and argued they did not receive independent advice at the time of its execution.