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The Mainzeal Case

The Mainzeal case: A wake up for Directors of companies of all sizes…

Since writing this article the defendants have lodged an appeal. Case law may yet get rewritten!


You will all have seen the considerable publicity around the suing of the Mainzeal Directors by the Liquidators after the spectacular collapse of the company.  The judgement is in and the Directors are now liable for some $36,000,000, yes $36 million.

On a personal basis that is some $6,000,000 for each of the Directors with one Director owing $18,000,000 and also liable for any shortfall by the other Directors.

The Judge said that the Directors were not entitled to rely on the recovery of $42,000,000 of funds due from related parties that was largely undocumented and unsecured. The judge also noted that it was known to the Directors, or ought to have been known, that these funds were held in China and may not be accessible.

At the time of liquidation, the claims from creditors were in the range of 117 million to 157 million.

The judge suggested the Balance Sheet could be adjusted for the related party loans to show a historical deficit of assets to liabilities, one of the clearest of the definitions of insolvency.

 An insolvency that leads to liquidation can happen in broadly three ways:

Type A.   Poor profitability for years. (gradually)

Type B.   All at once around an event (all at once)

Type C.  A material understatement of liabilities or overstatement of assets. (through better understanding or revised estimates)

It is type A, the gradual path to liquidation that is most problematic for Directors. It inevitably involves trading in the period after insolvency and before liquidation. That triggers personal liability for the Directors.

If a type B (all at once) adverse event occurs, then you need to act to ensure that it doesn't become a type A problem.

Type C (a sudden better understanding) is a different problem altogether. Regular assessment by external experts is probably the Directors best friend. Should this type of event occur it needs to be addressed so that it isn't the start of a type A, gradual path, to liquidation.


Should the Mainzeal case scare Directors?

The result is probably a fair outcome. The case does not put Directors at risk where they take reasonable commercial risks and things don't go well.

Every time you sell something there is an implicit credit decision. When you sell to a company the law says that the purchaser's Director should only be buying when they have a reasonable expectation of paying your bill when it falls due. Clearly the Judge thought this wasn't the case when people were dealing with Mainzeal.

Perhaps an aggravating factor in the Mainzeal case was that the unrepaid related party advances appear to have funded some pretty successful investments.

As a Director of a small, medium or large business I think you need to be able to address five simple questions regularly. I suggest that every time a Board meets they address and document the following...

1.            Do we have a plan that shows we expect to finish the year with net assets and adequate cashflow?  

2.            Have we updated that plan for significant decisions made since? And for significant events?

3.            Do we have current financial statements every time we meet as Directors? And have we addressed the questions of the quality of assets and liabilities?

4.            Are we tracking to budget? and are any variances permanent or just timing?

5.            Do we still expect to finish the year with net assets and adequate cashflow?

We can and do help businesses of various sizes with these questions on a regular basis. Give me a call if you would like to discuss how we might help you.

It may be that the nature of your business requires some specialist analysis and advice around certain contracts and guarantees. As a Director you need to get yourself familiar with the business to know if there are such issues in your business. If there are find any needed experts to assist you.


Protecting your asset base

We spend a lot of time structuring business and private assets to manage and reduce risks. One of the best ways of doing this is to have Trusts.  Once established how you operate them is then the key.

Do give me a call if you would like to discuss how we might help you with protecting your assets.

We can also provide an independent review of your current structure. There is quite some peace of mind to be had when a fresh set of eyes reviews your situation. We have a simple six-point test which quickly gives you insights into both how secure your personal assets are, and how robust your group structure is. Do give me a call if you would like to discuss this.

All of these are fairly simple things to do. The time and expense of doing so can be thought of as a simple insurance policy.


Liquidators Reports

Liquidators file reports with the Companies Office. You can go to the Companies Office website to view them. The reports detail the creditors and give at least some idea of any remaining assets as well as the secured and unsecured creditors.

The liquidator also sets out the events leading to the appointment of a liquidator.

Where these read along the lines of "the business was unprofitable for some time" then the Mainzeal decision may strike fear into the hearts of the Directors. It may also strike hope into the hearts of creditors where they think the Director is of substance and the creditors have an ability to, and a willingness to, tackle the legal process.



How do other more recent liquidations sit alongside this Mainzeal judgement?

A few companies serve as examples.

Wynyard. Did this happen all at once? It is hard to say. It looks like the answer to the five simple questions above got murkier and murkier very quickly at the end. Was it a Type B event, all at once?

CBL. Some material before the Courts suggests that liabilities have been understated 'forever' and that Director liability to creditors due to trading while insolvent would apply. It is important to note that this information has been rejected by the Directors and not yet tested by the Courts. If this evidence about CBL was accepted by the Court, then as well as issues of Director liability around trading while insolvent there might also be charges for Directors around "incorrect" listing and issuer statements.

You can think of other local construction cases. I know in one recent situation the liquidation was the fairly immediate reaction by Directors to an unfavourable court judgement around a construction contract.



Liquidation date

Preferred or secured creditors

Unsecured creditors

Timing of insolvency?


Wynyard (NZ) Limited




All at once?

This was the operating arm of the listed group.

CBL Corporation Limited

Entered voluntary administration 23/2/2018

Trading suspended the same day.




All at once or a sudden better understanding?

Are shareholders creditors?

Ebert Construction Limited


At least 10,574,000

At least 35,124,000

Unclear. The receivership was called by the Directors.

A substantial shortfall to secured creditors expected, with nothing for unsecured creditors.


There has never been a better time for Directors to ensure that:

The five simple questions are answered regularly;

Consider Director and Officer insurance, and of course;

Your group is structured and operated correctly;

Ensure you are personally worthless.


So take care out there…   and do give me a call if we can help.

Matthew Underwood                04 890 0825

Matthew Underwood Ltd          Chartered Accountants & Business Advisers

Accessing Retirement Savings to pay Creditors

The Ministry of Business, Innovation and Employment is seeking written submissions on the questions raised below. Here is what our office submitted.


Do you agree that a deliberate policy decision needs to be made to create a uniform approach to retirement savings in bankruptcy in New Zealand?

Not necessarily.

However, it is not a good look for one branch of the crown to have to pursue policy determination through the Courts.


Are there additional factors or features of the current context that we should consider in our assessment of the problem?

An individual could invest in financial assets personally. The point of the Kiwisaver scheme was to make this easier and cheaper for individuals to do. This was expected to encourage savings for retirement and various incentives have also been provided to further encourage individuals.

An individual could also form a trust and invest in financial assets directly. These could include PIE investments that collect the tax incentives of non-Kiwisaver PIE investments.

If Kiwisaver investments are to be available to creditors in the event of bankruptcy many advisors would recommend people that are running a business to make PIE investments into their Trust instead.

The Kiwisaver scheme was designed to allow people to invest with all the details taken care of.


Do you agree that the policy outcome should try to preserve some of the core principles of retirement savings policy and insolvency law?

I'm not sure you have stated anywhere what these are.

I would agree that the 2 year rule for voidable transactions should continue to apply to dispositions of personal wealth. 


Are there any additional outcomes that we should seek to achieve through this policy process?

 Why not bring asset protection to the masses!


Do you agree with the proposal to realise a portion of a bankrupt's retirement savings?

Yes and No.

Personal retirement savings should be outside the realm of bankruptcy at least to the extent of being in a Kiwisaver.


Or should a bankrupt's retirement savings be protected and not be made available to repay creditors?



Or should a bankrupt's retirement savings be fully realised in order to repay creditors?



Of the options presented above, what is your preferred option and why?

Protect all Kiwisaver funds from creditors.

That has the added benefit that there is no drag on the state later.


If Option 3 is chosen what percentage of a bankrupt's retirement savings should be available to creditors and what percentage should be retained? Please explain.

Only the late contributions.

This is required in order to stop short-term games where all available funds are thrown at Kiwisaver as Bankruptcy approaches.


Do you have any comments on the implementation and workability of any of the options?

Keep it simple and keep it properly defined.

Let's make sure the Official Assignee doesn't need to go to Court again on policy matters.


Are there any other options that would achieve the outcomes sought that we have not considered here? If yes, please explain.



Do you agree with the proposal to allow retirement savings to form part of a Summary Instalment Order process?

You have not specified what the details of this term "Summary Instalment Order" (SIO) are. Not every reader will know.

If the Kiwisaver funds are to be protected then that protection should not extend to potential further contributions while subject to a SIO.


We welcome your comments on any of the other additional issues we have outlined above.


Kiwisaver funds are protected, except perhaps for the last two years prior to bankruptcy or the acts of being bankrupt.

You don't get to add to your Kiwisaver while subject to SIO / working through your bankruptcy.


Are there any issues we have missed that you would like us to consider?

Should there be some sort of penalty to prevent a person who has gone bankrupt cashing in their Kiwisaver scheme due to overseas residency? Perhaps a separate rule for Australia residence versus other.

Maybe in this circumstance something is returned to creditors.

Earthquake Fallout: All good except the mail!


After the big earthquake by Kaikoura very early in the morning of Monday November 14th the office was closed for two days while the building was checked and cleared. We are all back at work and no damage was sustained.

The one big issue we are having is that our mail service has been interrupted. A Molesworth Street building is at risk of collapse and our Post Office Box is within the cordon.

We believe we have all the mail that was already in the mailbox, but there may have been other mail already delivered by bag to be sorted at Thorndon for collection Monday morning.

All other mail has been redirected by NZ Post to their Kaiwharawara courier depot, and we are arranging to collect it from there "regularly". This arrangement has only really surfaced today, Tuesday 22 November, and we only collected five pieces of mail.

Unfortunately we are in the last stages of the GST refund cycle and one or two large cheques have been caught up in the disruption. We have diverted our IRD mail to another mailbox until our usual mailbox is once again open for service.

We are sorry that this problem has occurred, and will be pleased to work with you if you have any specific issues around it.

At the same time we need to keep the issues in perspective and wish all our clients, friends and relative in the quake stricken area best wishes with their issues.

Warren Buffet on Managing Your Money


If there was one guy in the world you would be happy to take financial advice from it would have to be Warren Buffet. Warren's nickname is the Sage of Omaha, and he is certainly one of the richest men in the world. Happily Warren is also very generous with his advice.

I'd like to pass on Warren's advice on managing your money.

Most of you will know I had the privilege of going to see the Berkshire Hathaway Annual General Meeting last year. Watching Warren Buffet and Charlie Munger speak off the cuff for four or five hours on a range of topics presented to them was a joy. Equally the group from the Wellington Branch of the Shareholders Association were great fun to travel with.

This year Warren put his AGM on the internet with a live broadcast on yahoo finance so we didn't need to travel to see him. We did enjoy travelling as a group though and may go somewhere "financial" again next year. This year's AGM was live and remains available for replay.  A few of last year's travellers watched this year's AGM from the comfort of our respective lounges while sharing a skype call. We chose the replay to avoid being up all night. It certainly wasn't the whole Omaha CenturyLink Centre experience but we could talk to each other more during the presentation.

Warren was full of advice and observations on a range of topics and included a big spiel on managing your money. The URL for the Yahoo finance replay is https://finance.yahoo.com/brklivestream/ and Warrens advice on managing your money starts at 2 hours 42 minutes. Click along the time bar to the correct hours and minutes to watch what he says. It could be the best 13 minutes of investment advice you ever get. I personally guarantee it is worth every cent you have paid for it.

If you think we can help you better manage your business please give us a call.

I've attached the screenshot from www.longbets.org that Warren presents during his advice.

If you enjoyed that I made some rough notes as I watched around a few other topics, feel free to road test the references if any of the topics appeal to you.


Time index

Subject found there.


CNBC likelihood Cyber, Nuclear, Biological and Chemical


Happy in life, best self employed


Barbershop $1m guarantee re storm


Tell me about coke and sugar…


Socialisation of the costs of solar power… and cross border price differences


Derivatives, dangerous…


Question on float… in a low interest rate environment, a quarter of a percent is about the same if positive or negative.


Q on railways and exposure to economic growth… Coal secular, stocking issues, loves BNSF, would buy a second thing at that price… maybe for more…


At 44 seconds, I got nothing to add…


Solar power, and cross subsidies


Effect of Oil price drop…


Question around higher education


Defensive pills for BRK?


On leasing…


On the Sequoia Fund

Note great quote on "integrity intelligence and energetic"

If they don't have the first one hope they don't have the other two… Valiant Fund




Fund Managers: The Protégé Partners Wager Results

Listen to the money management advice from 2:42

What I would like you to do is imagine that in this room we have the entire who own all of America, all the stocks in America are owned by this group…. Catch the rest of this quote…




Personal 13G


Conflict of interest


The outlook for free cashflow Net income plus incr in float…


Due Diligence




Purchase of Van Tile…


AMEX forecasts…


Positive Train Control


"Reported Earnings"


Fixed income and Credit Default Swaps…


The worth of Ajit…


Amount of cash held…


Rerun of buybacks


Great Lengths of Customer Service


We pride ourselves in being prepared to go to great lengths to help our clients.

We also like to think we work with the best technology to keep things simple.

We also like to do the right things for long term positive outcomes.

We were reflecting on something we did recently and thought it reflects well on how easy it is to do business in New Zealand…


Our client is in a country where they are not able to get an international fax line. We don't know why that is, and it wasn't within our grasp to solve their problem by changing things at their end.

They are quietly getting their new New Zealand banking arrangements underway and were at a stage where they were relying on faxed instructions. These would then be followed up by a phone call from the Bank. No, we weren't involved in setting that up.

We were asked if we could help by receiving the clients faxes and sending them on to the bank in question. We know and trust our client and happily ruled out that this might be a scam.

When we set the new office up recently we went totally VOIP and Cell and there is no fax machine / fax line in the office. We did however put in a fax service with the VOIP provider where they catch the faxes and email a file to us. We suspect that at the price this is all electronic and there is no manual intervention. We used to have a fax card bolted to our server, back in the day when we had a server.

So how could we help?  That fell into three parts:

1.       How could we help, if at all? and,

2.       How could we help in a way that took us out of the rather lengthy manual chain.

3.       How could we talk them around to a better business process in the longer term.

After a quick team discussion Zach leapt into action and asked our VOIP guys, 2talk, about an outwards fax service, something we hadn't bothered with to date.  No problem, send an email with specific headers and an attached file and the image would be faxed onwards. Only "our" registered email addresses would work for this.

Zach carefully set up and then tested this outward fax. Zach was very pleased with himself although when pushed he did agree we had basically found a difficult way to get an image from us to us, slowly and with image degradation.

Ok, we can help at all, step one passed.

How can we make this really work for the client? We added their addresses to our "VOIP" account and then they were able to use the service directly and have their emails converted into faxes delivered to NZ.

So that was two out of three and not bad. We all felt pretty good about getting a strange set of constraints solved and a customer solution implemented.

The overall difficulty of their banking arrangements wasn't lost on us and we are now working on the third part of the equation, getting the client on to Xero, and then having a bank that interfaces to Xero nicely. Won't the client reflect back on today as the bad old days once they can load their bills directly to Xero, attach the invoices as a PDF, batch pay them in Xero, and log on to their Kiwibank internet banking to approve the payments without fiddling with a file. Are the other banks there yet?

Experiences like this remind you that doing business in New Zealand really is easy. Always happy to help! Thanks too to Martin and Bill for their guidance and help with our VOIP setup.

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