Property company Mainzeal was likely insolvent for most of the eight years before it collapsed in February 2013 owing more than $157 million to subcontractors and other creditors, Staples Rodway director Bill Apps says.
Giving evidence in the High Court case against members of the Mainzeal board, including former Prime Minister Jenny Shipley and former Brierley Investments boss Paul Collins, Apps said he believed the directors breached their obligations somewhere between January 2011 and July 2011 – two years before they put the company into liquidation.
Failing to pull the plug on Mainzeal Property and Construction in 2011 likely cost creditors between $30 million and $75 million, depending on the accounting method used, Apps said in his statement of evidence.
“I consider MPC was insolvent significantly prior to 2011 and should have ceased trading from January 2011 if not sooner, and in any event no later than July 2011,” the chartered accountant said.
“It should have been evident to the directors by late 2010 or early 2011 that MPC was not likely to generate significant profits in the near future and in fact significant losses were more likely to occur, meaning that the early cessation of trading would have avoided the further incurrence of significant losses in the 2010 and 2011 years.”
As well as the losses, net assets were negative every year from 2006 onwards, if you take out non-recoverable related party receivables, he said.
Defective workmanship claims were also coming in regularly, particularly for leaky building remedial work, and the company wasn’t able to recover millions of dollars it was owed by related companies.
Calculating the damage to creditors during 2011 and 2012 using the measure of “new debt arising from continued trading” Apps said the company racked up more than $75 million of additional losses after January 2011 and almost $70 million after July that year.
The defendants strongly dispute any argument that a reasonable director would have contemplated ceasing trading in either January or July 2011. They argue that the creditors benefitted from the delay in appointing administrators to Mainzeal, not the reverse, and that the company’s finances didn’t deteriorate during 2011 and 2012.