Supreme Court to hear appeal in long-running litigation after collapse of construction firm Mainzeal

The Supreme Court will hear the final appeal in the long-running litigation between the liquidators of collapsed construction company Mainzeal and its former directors, including ex-prime minister Dame Jenny Shipley.

The country’s highest court yesterday granted leave for an appeal of the Court of Appeal’s decision from March by the liquidators. It also granted leave for the directors of what was NZ’s third largest construction firm to cross-appeal.

“Leave is intended to encompass all of the questions raised in the notices of application for leave to appeal and cross appeal and in the submissions for leave to appeal and cross appeal,” the Supreme Court’s one paragraph judgment read.

A hearing date is yet to be allocated.

The Court of Appeal ruled the former Mainzeal directors remained liable for reckless trading before the firm folded and was placed into liquidation in 2013, but they successfully overturned a $36 million penalty ruling.

The Court of Appeal’s decision came after the High Court ordered Shipley, Peter Gomm, Clive Tilby and former chief executive Richard Yan to pay $36m for breaching directors’ duties.

The High Court’s order in 2019 represented just a proportion of the entire deficiency in Mainzeal’s liquidation of about $111m for some 1400 unsecured creditors.

Mainzeal’s former directors challenged the ruling to the Court of Appeal, while the liquidators also cross-appealed, seeking an increased award of compensation at a multi-day hearing starting in July 2020.

The Court of Appeal agreed with the High Court that the directors of Mainzeal had carried on in a manner likely to create a substantial risk of serious loss to creditors.

However, the breach of section 135 of the Companies Act came no later than January 31, 2011, the court said.

“But, focusing on the creditors and the business as a whole, that risk did not materialise. As the [High Court] Judge held, there was no net deterioration in the company’s position between 31 January 2011 and the date of liquidation in early 2013,” the 186-page judgment reads.

The Court of Appeal said because of this no compensation was recoverable in respect of the directors’ breach of s135 and set aside the High Court’s order.

But it reached a different view about the liquidators’ claimed section 136 breach of the legislation, an argument which had failed in the High Court.

The judges found four significant construction contracts entered into after January 31, 2011, certain obligations to subcontractors on those projects, and all obligations entered into from July 5, 2012, onwards violated the Act.

The Court of Appeal ordered to send the proceeding back to the High Court to quantify compensation because it did not have all the information required to assess the amount of the directors’ potential liability. It ordered compensation to be calculated on the basis of a “new debt” approach.

The Court of Appeal also said in its March judgment, the legislation governing insolvent trading in New Zealand is “unsatisfactory in a number of respects” and called for the Companies Act 1993 to be reviewed.

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