Suffrage 125: big problems for our first female prime minister

Oh, what a wonderful photo. The 3 female prime ministers of New Zealand, together, marking 125 years of women’s suffrage (or, as many men point out, men’s suffrage of women, but I digress) and showing the world how women can do anything – in New Zealand anyway.

But things are not great for Jenny Shipley, former prime minister and now former director of the collapsed company, Mainzeal.

Stuff  reports: quote:

Former Prime Minister Dame Jenny Shipley and her fellow directors of failed construction firm Mainzeal are defending “reckless trading” allegations in the High Court in Auckland.

Plaintiffs for the liquidators of Mainzeal are making a claim of $75 million against its former directors in order to repay creditors.

Mainzeal Property and Construction, of which Shipley was a director from 2004 to December 2012, went into liquidation in February 2013. end quote.

Resigning as a director when you have traded recklessly, or while insolvent will not save you, as the rules around reckless trading apply during the period of your directorship. Shipley is in big trouble. quote:

The plaintiffs in the case include liquidated companies Mainzeal Property and Construction, King Facde, previously known as Richina Land and Mainzeal and liquidators Andrew Bethell, Brian Mayo-Smith of BDO.

Defendants include Shipley, China-based shareholder Richard Yan, Peter Gomm, Clive Tilby, Sir Paul Collins, Siew Kwan, Richina Global Real Estate and Isola Vineyards.

In his opening O’Brien said Mainzeal’s collapse was largely attributable to a severely undercapitalised balance sheet and “systemic governance failures”.

He claimed Mainzeal directors were responsible for “reckless trading” and failed to exercise reasonable care, diligence and skill.

From around 2008 Mainzeal generally made losses, was responsible for an increasing number of leaky buildings and had ongoing construction disputes, he said.

The directors were both responsible and culpable for the loss to Mainzeal and its creditors and should therefore be required to pay for the loss, he said. end quote.

The court case has a long way to go, and it is not up to me to try to pre-empt the outcome. But, suffice it to say that the directors are in very big trouble, and our first female prime minister, Jenny Shipley, is right in the thick of it.

There have been a lot of celebrity directorships in the last 20 years or so, but why anyone, including Shipley herself, imagined she had the skills to run a large construction company is anyone’s guess.

Trouble is, being a celebrity appointment does not shield her from the responsibilities that directors bear. The 1993 Companies act was formed as a result of the heady days of the late 1980s, where company directors just did what they liked and walked away with all their personal assets intact, under the cover of limited liability.

The 1993 Act changed all that. While not removing the cover of limited liability entirely, it did introduce situations where directors could have their limited liability dissolved, if it could be proved that they were guilty of certain types of activities.

Trading recklessly is one. Trading while insolvent is another.

This means that her personal assets may be up for grabs by Mainzeal creditors.

There is little doubt that Mainzeal was trading while insolvent. quote:

The involvement of the first defendant, Richard Yan, began in May 1995 when an investment company he was associated with acquired a majority take in the then NZX-listed company.

In 2003 Yan started Richina Pacific (RPL) to acquire and develop investments in New Zealand and in China. RPL, incorporated in Bermuda, listed on the NZX in 2003 and was Mainzeal’s parent company until a group restructure in December 2009.

Under Mainzeal’s constitution RPL was entitled to exercise powers that normally fell to the board, O’Brien said.

By the end of 2008, the total related party advances owed to Mainzeal was over $39m, he said. end quote.

These advances were basically unrecoverable. quote.

Mainzeal’s auditors advised directors, that in order for it to continue operating it required a significant equity injection, which was communicated to the NZX, he said.

“At the time of the delisting it was recognised that Mainzeal was really insolvent.”

The advice was taken and RPL was delisted in December 2008. No equity was provided and Mainzeal debts continued to grow, he said. end quote.

And on it went, until the company collapsed in early 2013. The directors had several years of trading while insolvent, but they continued regardless until the company collapsed owing over $75 million to creditors.

I cannot say how this court case will go, and the judge has allowed 8 weeks for the hearings. But let’s just say, from this point, things do not look good for our first female prime minister.

 


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Accountant. Boring. Loves tax. Needs to get out more. Loves the environment, but hates the Greens. Has been called a dinosaur. Wears it with pride.

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