Pip Dunphy effectively blew the whistle on Solid Energy's pending insolvency when she resigned her chairmanship less than a year into the role.

Dunphy believed the state-owned coal company was heading for insolvency and the corporate knacker's yard. Finance Minister Bill English believed the board's position on the company's finances was not on the money.

She stood her ground and walked without stating her reasons publicly. But her move was quietly cheered elsewhere in the senior governance community where directors say they have at times felt unduly pressured to bend to behind-scenes Beehive and official pressure to go along with positions they don't wholeheartedly agree with. Walking is the principled thing to do - even if it jeopardises future directorships. Not many have the balls to do that.

Dunphy's own differences with the Government were revealed when Labour leaked an email from her successor Andy Coupe.


English confirmed the concerns: "Whether the company was a going concern, whether it was technically solvent, what the obligations to the creditors were, what liabilities directors might be facing, what the ongoing role of the banks was going to be? So all of those issues are under negotiation right now."

But chairmen of state-owned enterprises don't give up on a prime governance gig unless there is something seriously astray.

This week Dunphy was proved right when it was announced Solid Energy would be wound up under a proposed deed of company arrangement, which will be voted on next week, that will see its saleable assets realised over the next couple of years and its bankers expected to get back 35-40c in the dollar on the face value of the debt.

This leaves the Government facing a financial bath of $412 million based on the company's equity three years ago, although much of the effective losses at capital level will already have been written off.

Fundamentally nothing substantial has changed in the financial position of the company since Dunphy - a top-notch finance professional - and her board reached their view that the company should be wound up.

What has changed in the intervening months is the development of a scheme by Solid Energy's administrators Korda Mentha to reach agreement not just with the banking syndicate but also major customers like Fonterra, KiwiRail and Port of Lyttelton to an arrangement which buys time for assets to be realised rather than through a firesale.

The arrangement is also expected to ensure obligations to staff and trade creditors are paid in full.

Where English deserves praise is for the Government standing its ground and not bowing to pressure from the Bank of Tokyo, which tried to claim that because Solid Energy was a SOE it was Government-guaranteed.


The Korda Mentha report demonstrably showed Solid Energy was insolvent with $95 million in negative equity on its balance sheet at June 30, compared with positive equity of $12.5 million on its books in June last year. In June 2012, Solid Energy's equity was recorded at $423 million.

When Dunphy resigned the Government revealed it had earlier provided the Solid Energy directors with limited indemnities. As State-Owned Enterprises Minister Todd McClay said in February, 2015: "A limited and specific indemnity was provided to directors last year. The terms of this are confidential but it was not related to Solid Energy's solvency. No other or general indemnities have been provided to directors in the last 12 months. Indemnity insurance is not something the Crown provides."

It's understood indemnities have been given in the past when Crown Law has been intent on reaching a commercial solution to a major wrangle that might otherwise have ended up in the courts causing huge reputational damage and exposing the taxpayer to further losses.

This week it was disclosed that rehabilitation costs at mine sites are also covered by a $139 million indemnity which minimises the risk to local councils.

What is interesting is that Dunphy's principled resignation did not rule her out of the Government appointment game for long.

She was appointed by the Government to the Transpower board in May.

Her other major directorships include the Fonterra Shareholders' Fund, the New Zealand Superannuation Fund, Abano Healthcare and the Academic Colleges Group.

She is a former chair of Mint Management.

This suggests that English in the end respected her decision and her judgment.

Other directors could usefully learn from this.