15 Oct 2018

Ex-PM Shipley: Parent company's assurances reliable

8:15 pm on 15 October 2018

Former Prime Minister Dame Jenny Shipley has told a court that major construction company Mainzeal had every reason to trust its parent company to financially back it up, before it collapsed.

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Photo: RNZ / Tom Furley

Mainzeal's liquidators are suing some of its former directors, including Dame Jenny for $75 million, alleging they traded recklessly while knowing there was not enough money in the coffer.

The company went into liquidation in 2013 and was one of the country's largest construction companies.

Dame Jenny was told she might be on the stand for a while as she sat down for cross-examination today.

She denies breaching her duties as a director amid allegations the board shouldn't have continued trading while Mainzeal's coffers were empty.

Dame Jenny said the Mainzeal board was repeatedly assured by the firm's Chinese parent company, Richina Pacific Limited - or RPL, that it had their support despite poor performance.

However, in the lead up to its liquidation, RPL seemed to pull some financial support and Mainzeal's bank ceased funding.

Under cross examination today the liquidator's lawyer Mark O'Brien QC asked Dame Jenny whether she was familiar with the words of former US president Ronald Reagan, 'trust, but verified'.

"I do recall that statement and as a person, an individual, I am very committed to both elements of it," Dame Jenny said.

Mr O'Brien put it to her that assurances could not always be relied on.

"Surely you have had an assurance given to you, during the course of your life that has not been met?" he asked.

Dame Jenny responded by asking for a particular example, in which Mr O'Brien pointed out RPL's assurance.

She replied that she had "constantly probed" and sought to satisfy herself that the assurances were meaningful and reliable.

Mr O'Brien also put it to her that other than a charter the board agreed to at their first board meeting there was no formal contractual agreement of support from the parent company.

Dame Jenny said that she trusted her knowledge of the visible assets.

"Every director of Mainzeal went to China and saw the physical assets. They had knowledge of the scope and value of those assets as early as 2004."

"It's vacuous to suggest that they had no reference point," she said.

Dame Jenny was asked if she had ever sought formal written commitments from the parent company other than for a pre-paid goods arrangement.

She maintained that while there was no written document, the charter was enough.

Dame Jenny said RPL had shown its support on numerous occasions - notably helping them in the wake of $20 million losses on Vector Arena.

"If RPL was of a mind to close the company down, there was plenty of opportunity there, quite the opposite happened because they saw Mainzeal as crucial to the strategy."

Mr O'Brien then pushed her on whether one of the group's companies MLG, which owed money to Mainzeal, also known as MPC, would have been insolvent had it not had the support of parent company Richina.

"MLG or MPC could have been deemed to be insolvent, if taken in isolation.

"However, as I made clear, on every occasion, when we considered the financial statements, we weighed up whether we could pay out debts as they fell due and whether there were real assets, where both the liabilities and contingent liabilities exceeded the value of the asset.

"I was satisfied based on the advice I'd received that that was the case."

After some back and forth between the pair, Justice Cooke urged Dame Jenny to answer the question.

Dame Jenny said the group relied on expert advice from its legal and accounting staff.

The cross-examination continues before Justice Cooke tomorrow.