Significant governance risks existed at failed construction company Mainzeal almost a decade before the company collapsed, according to evidence from veteran company director Sandy Maier.

But directors, including former Prime Minister Jenny Shipley, didn’t act.

Mainzeal Property and Construction, one of New Zealand’s largest building companies at the time, went into liquidation in February 2013 owing creditors, including numerous sub-contractors, more than $115 million.

In his statement of evidence prepared for the high-profile case brought by Mainzeal liquidators BDO against the former directors, Maier argued there were warning signs as early as 2004, when Shipley became an independent director on the Mainzeal board.

These included the fact that independent directors had virtually no control over multi-million dollar related-party loans, and relied solely on assurances – which turned out to be wrong – that the money would be repaid.

Maier first came to New Zealand from the US in 1986 as chief executive of Citibank and has been on more than 500 boards in his career. He said in his evidence that between 2004 and 2008 the debt owed to Mainzeal by related company MLG Trading rose to almost $30 million. At the same time, MLG got into financial difficulty, going from having more than $2 million in its coffers, to having almost $45 million of negative equity.

“The role of a director is not simply to rely on the auditors’ figures without questions or separate assessment.”

Yet Mainzeal directors didn’t tell shareholders and contractors about the problems.

“Despite MLG’s clear inability to repay that debt, the MLG loans were not impaired in MPC’s statements,” Maier said.

He said it was irrelevant that auditors signed off the company’s annual accounts and didn’t signal any problems until 2010.

“The role of a director is not simply to rely on the auditors’ figures without questions or separate assessment. A director is required to look beyond the numbers to consider their reliability and test the risks that may affect the company’s position.

“I would have expected to see the collectability of the MLG loans identified as a key risk… In fact, I would have expected to see concerted efforts to secure repayment.”

He said the way the company was structured gave its ultimate parent company Richina Pacific too much power, and the board too little.

“I would have expected to see efforts to gain better control of the business. Obtaining control and having all the information necessary to make informed decisions about the business are fundamental milestones for a board.

“The directors’ efforts should have been focused on achieving transparency of the shareholder [Richina Pacific]’s motivation, the possibility of gaining tighter control of MPC [Mainzeal] from its shareholder and ascertaining the risk of non-payment.

“By December 2008 I would have viewed these risks as significant and increasing.”

BDO is trying to recover $75 million from the former directors – or rather the professional liability insurance companies standing behind them.

The Mainzeal directors – Shipley; Paul Collins, the former Brierley Investments chief executive knighted in the 2015 New Year’s honours list; Peter Gomm; and Clive Tilby – reject BDO’s arguments. Jack Hodder QC argued in court last week they were “intelligent, thoughtful, involved and conscientious directors of Mainzeal”.

He said Mainzeal and its stakeholders “would likely have suffered greater loss” if they had pulled the plug on the company earlier.

Nikki Mandow was Newsroom's business editor and the 2021 Voyager Media Awards Business Journalist of the Year @NikkiMandow.

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