Mainzeal failure raises questions

CLEARING OUT: Wellington carpenter Scott Reece leaves the Mainzeal site at Victoria University with his gear yesterday.
CLEARING OUT: Wellington carpenter Scott Reece leaves the Mainzeal site at Victoria University with his gear yesterday.

Major questions hang over the collapse of Mainzeal Property and Construction, as subcontractors and investors in its major shareholder ask where their cash has gone.

Subcontractors began to get access to their tools yesterday after the firm's receivers, PricewaterhouseCoopers, locked down all Mainzeal project sites.

A PWC spokesperson said it was still too early to say which sites might be reopened.

But there was a late ray of hope yesterday when internationally owned construction firm CeresNZ announced it was interested in Mainzeal, particularly its South Island assets.

CeresNZ manager Bernie de Vere said it was early days but it was "in everyone's best interest to get these projects back on track as soon as possible".

The receivers are expected to make an initial statement early next week.

Meanwhile, many subcontractors are thought to be caught up in the collapse, with some owed hundreds of thousands of dollars.

Some of the money they are owed stems from "retention fees," which construction firms commonly withhold from the sub- contractor to ensure the work is completed and to the standard required.

Trades organisations say they will approach the Government to ask for law changes that would require construction companies to put retention fees into a trust fund before payment is made.

Electricity Contractors Association president Neville Simpson said retentions were a festering sore for "subbies".

He estimated Mainzeal could be holding $35 million to $40m in outstanding retention payments from the last 12 months.

"That money is not protected, and [construction companies] use that money."

Another industry player said he expected many small companies could go under as a result of Mainzeal's receivership.

"Even if they get paid by someone, the reality is it will be three to six months before there will be any clear resolution around that, and that will be enough time to kill most of them."

The Mainzeal saga may also directly affect shareholders in Richina Pacific, the company which originally directly owned Mainzeal before a company restructuring in 2009.

Richina Pacific was listed on the NZX until the company staged a buyback and went private, splitting the original company into four.

Companies Office records show under the new complex structure, Mainzeal Property is owned by its parent, Mainzeal Group, and that in turn is owned by Richina (NZ) LP, not Richina Pacific.

Under the buyback, an unknown number of small shareholders had parcels that were too small to participate.

Wellingtonian Tony Instone still holds about 20,000 shares which at the time of the buyback were valued at about $9000.

He said he had been trying to get information out of the company for 18 months but had never received an email reply.

"Even as a private company, I would have expected an annual report to shareholders.

"There would have been some substantial shareholders about who are probably stuck with a whole lot more than I've got."

Details are scarce about Richina Pacific because its website has been taken down and its annual reports are not publicly accessible.

But Bruce Sheppard, a former Shareholders Association chairman and now a member of the Financial Markets Authority board, said Richina Pacific may now be no more than a shell company.

His many questions for Richina and Mainzeal directors include:

Did they trade while the company was insolvent?

Why was a plethora of Mainzeal- related companies created in the last 12 months?

Did Mainzeal provide inter- company guarantees for a Richina company?

Sheppard noted that even in the last public report on Mainzeal's financial position in 2007, the company appeared to be in a deteriorating position.

Turnover had halved from about $400m to $200m but there was no sign of major bank debt in Mainzeal's balance sheets then.

"There are presumably liabilities in Mainzeal under guarantee to other parties. Who are those other parties?" Sheppard said.

He is critical that the three independent directors - Dame Jenny Shipley (chairwoman), Paul Collins and Clive Tilby - resigned so suddenly this week.

Shipley and Collins refused to answer media questions.

In a written statement, all three independent directors said the shareholder Richina NZ had altered its promise of equity which left them no choice other than to resign.

They have stated that they knew at all times what Mainzeal's financial position was.

Tilby did not want to distract from the receivership process by commenting, but he did stress that the directors were "devastated" at the outcome.

Neither Yan, Mainzeal's last remaining director, nor Mainzeal chief executive Peter Gomm were able to be contacted for comment.

Contact Catherine Harris
Business reporter

The Dominion Post