A Court of Appeal decision has found the liquidators of Mainzel Group “are entitled to an award of compensation in respect of the director’s breaches”.
Liquidators of the failed Mainzeal group of companies, Andrew Bethell and Brian Mayo-Smith of BDO said this latest decision is likely to lead to a significant increase in the award for damages for the creditors who lost over $111m when the company collapsed in 2013.
“Many creditors were put into serious financial difficulty when the directors, including Dame Jenny Shipley and Richard Yan knowingly, and recklessly exposed creditors to illegitimate risk and allowed the company to continue trading while insolvent over an extended period of time,” said Mr Bethell.
“The Court found that the directors were liable for breaching both S.135 and S.136 of the Companies Act. The Court of Appeal has ordered compensation is calculated on the basis of the “new debt approach” for new obligations entered into by the company in accordance with S.136 of the Companies Act and that interest is to be added to that amount.
“The Court has also opened up the real prospect of all directors being jointly and severally liable for the full amount of damages. This is likely to be substantially higher than the D&O insurance policies held by the directors and will facilitate recovery of creditors’ losses,” he said.
Mr Bethell adds, “This case against the former Mainzeal directors is vitally important because it establishes the standard of corporate governance and care that is required by company directors in New Zealand towards the company and its creditors.
“The Court held that when the directors implemented the illegitimate ‘rob Peter to pay Paul’ strategy, they breached S.136 which states directors must not incur any obligation unless they believe on reasonable grounds that the obligation can be met.
“Given the clear facts of the case, it is disappointing the directors continue to deny any responsibility for using creditors’ money and putting them at risk. Our appeal sought to confirm the former directors were liable for their actions in allowing Mainzeal to trade while insolvent and today’s Court of Appeal decision has confirmed their breach of directors’ duties,” said Mr Bethell.