Court hastened Mainzeal's collapse, lawyer

02:01, Feb 08 2013
Jenny Shipley
MAINZEAL COLLAPSE: Former director Dame Jenny Shipley says the situation changed at the end of January.

A Supreme Court decision allowing negligence claims on leaky commercial buildings may have been "the straw that broke the camel's back" for Mainzeal, a leaky building expert says.

He believes Mainzeal could well follow in the footsteps of other construction firms that went into receivership due to leaky building claims, and be sold off or reform itself to trade again under another name.

Mainzeal was put into receivership on Wednesday. Former director Dame Jenny Shipley said the company had gone through "a very difficult year in the construction sector", with the impact of leaky buildings, a large contract with disputed payments, and problems with supplies from Chinese companies.

Leaky buildings lawyer Tim Rainey said a Supreme Court decision late last year ruling that the law was the same for residential and commercial buildings effectively opened the gate for negligence claims on leaky commercial buildings.

Mainzeal would have already faced contractural liabilities related to leaky buildings, but negligence claims could be much more extensive.

Parties did not have to be in the contractural relationship or agreement to sue for negligence, and could sue for up to ten years after the alleged negligence occurred, as opposed to the six year limit on contractural claims.

"Mainzeal were exposed to more claims from more people over a greater period of time than they were previously and that may have been a factor in them deciding to go [into receivership]."

"Certainly if I was advising them I would have told them their exposure had been expanded. [I'd say], ' You've got all these residential claims, who knows, you may be facing non-residential claims. Maybe it's time we looked very closely, especially with all the other issues, to put this in the past."'

Brookfield Multiplex, a large multinational construction firm facing substantial leaky building claims including for leaky Takapuna, Auckland, hotel and residence, Spencer on Byron - which was the subject of the Supreme Court decision, had gone into liquidation following the court decision, Rainey said.

If the history of "countless other" construction firms facing leaky building claims that had collapsed was anything to go by, Mainzeal could well rise from the ashes as a new company, without any of the liabilities facing Mainzeal today.

"It would not be unprecedented for there to be a hiving off of the old or bad parts of Mainzeal, with the 'good business' either being sold by the receivers or reconstituted in some way and carrying on."

Mainzeal had been more exposed to leaky building claims than the two bigger construction players, Fletcher Building and Hawkins Construction, he said.

Mainzeal was one of the last construction firms facing leaky building claims still standing.

"It had historically stood by its buildings and faced up to its responsibilities. It had settled and resolved or done work to resolve a number of leaky building claims in the past."

On that basis he didn't believe Mainzeal's receivership was a move to avoid leaky building claims. "By the looks of it [the decision] just may have been the straw that broke the camel's back in conjunction with other financial issues."

Auckland Council says it is liable with Mainzeal and other parties for a leaky residential building claim, but that the claim is insignificant in the context of the construction firm's collapse.

Sally Grey, who manages the council's leaky building claims, said the council faced one claim along with Mainzeal and other defendants.

"It's not just us. We will continue to resolve that. While it's obviously really important to the homeowners involved, in the context of the receivership this claim is really quite insignificant. It will be dealt with."

Media today reported that the claim could cost the council several million dollars, but Grey said it was too early to put a dollar figure on it.

"The claim isn't that old. There are other parties involved and I don't think anyone can speculate what our liability might be."

The claim would come before the courts and she did not want to prejudice any party's position before that.

Grey said it was up to the claimants to identify themselves and the building, not the council.

Mainzeal workers have been locked out of construction sites around the country, including the leaky Hobson Gardens apartment building in central Auckland, which was being reclad at a cost earlier estimated at $15 million.

Grey said Hobson Gardens was a settled claim, and the council had insurance to cover any further costs.

"We don't what the owners might choose to do because Mainzeal have not quite finished the repair. We are not expecting that the council itself... would be looking at paying more."

Council spokesman Glyn Walters said it met Mainzeal receivers Pricewaterhouse Coopers this morning, and PwC would advise it next week on how to proceed with two council construction projects Mainzeal was working on. They are an upgrade of Shed 10 on Queens Wharf, and a new library on Waiheke Island.

Walters said Mainzeal had largely completed a new giraffe enclosure at Auckland Zoo.

The council's exposure to the collapse of Mainzeal - through the leaky home claim and its own building projects - was "really quite small", he said.

"We're a very large organisation with a very large bottom line and this is a relatively small issue for us."


Mainzeal's former independent directors say they were well aware of the company's financial position.

The three - Dame Jenny Shipley, former Brierley chief executive Paul Collins and Clive Tilby - released a statement saying that a statement on TVNZ's ONE News last night that the three independent directors did not know until the end of last year that Mainzeal needed capital is incorrect.

''We were well aware of the company's financial position at all times.''

They said the company had a three year business plan and banking arrangements to continue and equity support from the shareholder up until late January which would have seen the company return to profitability.

But at the end of January assurances the independent directors and the bank relied on changed.

''All directors, including the independent directors and the director and shareholder Richard Yan and the management, worked hard on the particular business challenges we faced through the middle and latter part of 2012 and with the support of our bankers had arrangements in place and equity support from our shareholder up until late January of this year.

''Furthermore we had a three year business plan, banking arrangements in place, negotiations were going on with the shareholder and commitments were being made by the shareholder regarding future support for the company which would see it return to a cash flow positive position and profitability in 2013.''

''Unexpectedly at the end of January this year the written undertakings and assurances that the company, the independent directors, and the bank had relied on, changed.

''This led to the bank withdrawing support and despite exhaustive efforts by many people, a binding commercial solution was not able to be achieved. At that point the independent directors felt they had no choice but to resign.

''Mr Yan put the company into receivership citing difficult trading conditions and the withdrawal of shareholder support from Richina Pacific as the explanation.''

"The independent directors remain deeply saddened that this has occurred and will assist in anyway required in the official process now underway.''

The independent directors have not given financial details on how big a capital injection was needed.

Industry sources suggest the company faced more than $30 million of leaky building claims, a disputed contract and had suffered from millions of  dollars of unplanned extra costs at the Vector Arena.


The Canterbury District Health Board is the latest organisation to reveal an impact from Mainzeal's collapse. The board has development projects with Mainzeal and is seeking legal advice on its position.

"The CDHB is seeking legal advice in relation to the Mainzeal announcement and how it might affect a number of the redevelopment contracts the company has with the board,'' CDHB chief executive David Meates said.

''We hope to have a better understanding of the situation and what will happen to those CDHB projects currently being managed by Mainzeal before the end of the month."

Mainzeal's website states work in progress with the CDHB included boiler house seismic strengthening, Hillmorton Hospital earthquake repairs and extension and refurbishment of an inpatient unit.