Dame Jenny Shipley said the collapse of major construction firm Mainzeal was brought about by a “perfect storm” of factors.
Mainzeal’s liquidators are suing some of its former directors including Dame Jenny for $75 million, alleging they traded recklessly.
The company went into liquidation in 2013 and was one of the country’s largest construction companies.
Dame Jenny returned to give evidence today, denying breaching her duties as a director amid allegations the board shouldn’t have continued trading while Mainzeal’s coffers were empty.
She spoke for the entirety of the day – reading through an 82 page account of the board’s decisions and experience since 2004.
She said the board had repeated assurances from its parent group Richina Pacific Limited (RPL) that they had their support despite poor performance, including a $20m hit from its Vector Arena project.
“I do not at all accept the liquidators’ assertion that Mainzeal was insolvent at the end of 2008.”
She strongly rejected claims by the liquidators that the company should have stopped trading in July 2011 after mounting challenges including leaky building claims.
“The plaintiffs’ focus on Mainzeal’s own balance sheet in isolation misses the point entirely. The directors of Mainzeal, consistent with the charter and our experience over several years, did not consider that Mainzeal’s solvency depended entirely on its own balance sheet. It was part of an investment group as it had always been. It received support from that group. The group had substantial assets.
“The advice the board was receiving from management at the time was that Mainzeal’s legacy claims problem was peaking in about the middle of 2011, but with a number of claims nearing resolution”
They also began to see opportunities in Christchurch as the city looked to rebuild after the earthquakes.
By mid-2012 Mainzeal’s position was looking more dire as issues and delays escalated.
“By the time of our August 1 meeting, neither the Siemens nor Crawfords disputes had been resolved. The Geyser project remained stalled because of a late glass delivery out of China. As our turnover was decreasing, demands on our working capital were increasing. As a result of these issues, Mainzeal continued to project further negative cashflow movements.
“Mainzeal was still relying heavily on Richina’s ongoing support. It made several contributions around that time, including legal fees in the Crawfords case, some $900,000 of redundancy costs, and further working capital funding.
Richina reported it wouldn’t be able to fund pre-paid goods after August however its chief executive Richard Yan said the company remained willing and able to support Mainzeal.
She said by December 2012 ,while she new the situation was serious, she believed Mainzeal had a good future.
“It was an extremely stressful time. I knew that, without BNZ’s ongoing support, or if Richina could not provide adequate and timely support, the board would have no choice but to determine that Mainzeal was insolvent. However, we did have support in place and good business prospects going forward.
In January 2013 the board of a newly restructure Mainzeal group met and Dame Jenny said, while they agreed cashflow was very tight, they had a plan underway to sell assets and they had the support of their bank BNZ and cash injections from RPL.
“I summarised the board’s position, as recorded in our minutes, that we believed there were sufficient strategies and ideas in place to be confident that Mainzeal was a going concern.
At that point she said they had the support of the Richina group, BNZ and PwC.
“A properly recapitalised Mainzeal would have the opportunity to shake free of the legacy leaky building issues and focus on growth.”
After their board meeting Mr Yan called to voice his concerns about a personal guarantee he’d made on the future of the company that included his family trust assets.
“He said that he could not continue to support Mainzeal unless the guarantee which affected his wife Tina was waived by BNZ. He was expressing a deep concern for his family, which I understood.”
BNZ declinde to waive the guarantee.
“Unexpectedly, in the early morning of 29 January, I received a formal letter of advice from Richard that, having asked directors of the CHC whether they could continue to guarantee parent support for Mainzeal in the form of pre-paid materials, they in fact declined to do so. Richard asked for a board meeting to consider asking the bank to appoint receivers.”
She said this letter was completely unexpected and a “huge disappointment” given assurances he’d made just a week before that Mainzeal could still count on RPL’s support.
“I called John Walker to confirm whether Richard’s letter in fact reflected the considered view of the RPL board. John confirmed that the RPL board had not met and come to any such conclusion.”
Despite both board’s efforts they were unable to convince the bank of RPL’s ability to support the company.
“We held a number of board meetings over those next six days which were at times very tense; particularly when we sought explanations from Richard for his out-of-the-blue letter.”
“Despite our ongoing best efforts to find a solution, we were not able to satisfy BNZ sufficiently to ensure its ongoing support. Richard’s letter had totally undermined our credibility.”
She said recorded a personal memorandum about her time as director of mainzeal and outlined what she called “the perfect storm that Mainzeal had been subject to”
“I recorded, as I believed, that I had done all I could to work in the best interests of all shareholders, creditors and staff of Mainzeal.”
“At midday on 5 February 2013, it was with my greatest regret that I formally resigned from my directorship of Mainzeal Group Limited as I could not give the detailed commercial undertakings BNZ was seeking and had exhausted every avenue.
“We hoped that they would find ways to save the company, the 450 loyal employees and many subcontractors, creditors and customers. To my great regret that did not occur and Mainzeal was put into receivership on the evening of 5 February
The hearing continues next week when Dame Jenny will be cross-examined.