Council may be liable for advisor's failed business
A council economic development adviser has been accused of reckless trading in a disastrous ginkgo venture, with a liquidator saying he believes there is a good case to take him and possibly the council to court.
The liquidator of Nature Green NZ also alleges in his report that Ron Massey used his Napier City Council office and signed correspondence using his council position when operating as a director of the company, so the council may also be liable for its losses of more than $1.2 million.
The company, formed in 2003 and put into liquidation last July, was the brainchild of Mr Massey and director John Knight. Both strongly reject the accusations in liquidator David Petterson's report. Mr Massey resigned as a director in November 2010.
Dried ginkgo leaf is used in alternative medicines. The pair aimed to sell trees to prospective growers, buy the leaf back, dry it, and manufacture extract, or sell the leaf in raw form.
The liquidator's report says 33 ginkgo growers around the country are owed about $850,000. This is on top of the $3.5m to $4m they are estimated to have spent establishing their orchards.
It also says a public claim by Mr Massey in 2006 that Nature Green had secured contracts for $2.5m was either overstated or misleading, as was a claim he made in 2010 that the business was to make a turnover of $3m.
Tonnes of dried leaf bought by the company were stored incorrectly and had to be dumped. Two drying machines the company bought from China did not work and had to be canned, and the one major sale of leaf the company made resulted in lower-than-expected returns because it was of poor quality.
Mr Petterson's report alleges some questionable actions by Mr Massey and Mr Knight. It claims the pair "consistently ignored warning signs of failure for the business".
The report recommends that court action should be taken against them. Mr Petterson will make a decision over court action after meeting the liquidators' committee, comprising creditors, growers and shareholders.
He said: "I intend to seek legal advice as to the potential liability of the Napier City Council with regard to the conduct of Mr Massey and any duty of care the council may have to Nature Green and its creditors."
The council said this week that it would defend its position if the matter went to court.
The report also alleges:
Mr Massey, a business mentor, "purported" to have resigned as a director of the company in 2010 but continued to operate as a director in all but name.
The directors failed to establish whether there was a viable market for the gingko before selling the trees to growers, and "in my opinion the role of Mr Massey and Mr Knight in the company's failure cannot be understated".
Over the company's brief existence, Mr Knight, a real estate agent, was paid about $550,000, as well as international travel costs and expenses, "some of which appear to be personal in nature".
The directors consistently ignored warning signs of failure, traded without seeking advice and regardless of risk to creditors, traded while insolvent, traded recklessly and "should be held to account for the losses sustained by the creditors to the extent of $1.2m".
Mr Massey and Mr Knight failed to meet their obligations to shareholders, creditors and customers, and responsibility for the losses "sits squarely at their feet".
Mr Massey said he strongly disagreed with the characterisation of his involvement after his resignation as a director and criticism of his actions. He also felt the choice of Mr Petterson's quotes from emails was "selective and lacks context", and he would oppose any court action.
Mr Knight said he had always acted with integrity "with never any intention to make any personal gain other than legitimate payments for my services in accordance with my contract with the company".
He said he regularly sought advice from the company's lawyer and accountant, as well as a horticultural adviser.
While the company had been undercapitalised, and markets had taken longer than expected to materialise, he "strongly refuted" claims he had traded recklessly or deliberately while insolvent. Any court action would be "vigorously defended".
The Dominion Post