Mainzeal court case throws Companies Act into limelight

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The Institute of Directors is backing calls for a review of insolvency laws, following a Court of Appeal ruling on the failed construction company Mainzeal.

09082016. Photo Rebekah Parsons-King. Pike River families want mine's CEO to face charges. Court of Appeal Wellington.

The Court of Appeal says the current insolvency law is unsatisfactory and needs to be reviewed. Photo: RNZ / Rebekah Parsons-King

The court found the former directors of the company acted recklessly for continuing to trade the business while insolvent, but overturned penalties against them for $36 million.

However, it ruled the directors breached a separate part of the Companies Act by entering into new contracts with various parties in 2011 while the company was unable to meet its obligations.

It has sent the case back to the High Court to determine damages on that count.

The Court of Appeal commented that the current insolvency law was unsatisfactory and needed to be reviewed to provide a clear and coherent regime that protects creditors.

Institute of Directors general manager Felicity Caird agreed, saying the Companies Act was nearly 30 years old and the Mainzeal case presented a good opportunity to review directors’ responsibilities.

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“There’s some complexities around the role that [has] evolved over time, so taking a step back and looking at director duties, looking at… a range of types of companies in New Zealand from the small director running their own business through to your big publicly listed companies.”

She said the review should consider if a director’s current obligations were fit for current and future purposes.

One of the Mainzeal liquidators, BDO partner Andrew Bethell, supported a review, but said the insolvency legislation was still satisfactory.

“They are pretty clear rules and the reality is, I think, in the Mainzeal case, the directors fell well short of [their obligations] whichever you way you look at it, so they are most certainly adequate in this case.”

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