Mainzeal collapse: Law must change

SIMON DAY
Last updated 05:00 10/02/2013

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The collateral damage to subcontractors and building owners caused by the liquidation of construction company Mainzeal illustrates the need for changes to New Zealand's corporate law, according to a construction dispute expert.

"Situations like this where large companies are folding is happening far too often, leaving both homeowners and subcontractors high and dry," said lawyer, Paul Grimshaw. "This needs to change."

Yesterday, a subcontractor attempting to rescue his equipment from a building site of bankrupt Mainzeal was stopped after being issued a trespass notice by the property's owners.

Camelspace scaffolding has $1 million worth of equipment trapped at the Hobson Gardens apartments, in central Auckland, but has been locked out of the property since Mainzeal went into receivership last week. Camelspace is also owed around $300,000 by Mainzeal.

"I am resigned to the fact that I will get little or none of that back, but we need to get on with our other clients who can pay their bills," Camelspace commercial director Phil McConchie said.

The company is losing thousands of dollars a day in rental costs for the equipment held hostage at Hobson Gardens.

"The $300,000 we can suck up, but nobody can suck up an open-ended cost," he said.

But McConchie said he understands the predicament of the building owners, who had their leaky apartment building three-quarters repaired before Mainzeal went under. "There are no winners in this. I feel for them too."

Mainzeal, one of New Zealand's largest construction firms, was placed into receivership on Thursday by its sole director, Richard Yan.

The company's collapse was blamed on a "series of adverse events" and a downturn in commercial construction by Yan, but former directors pointed to legacy issues of the company's involvement with leaky homes.

The law must be changed to protect those caught in the middle of reckless construction companies, Grimshaw said.

"Developers are forever starting up a $100 company, completing the development, and folding the company," he said.

"The Government needs to look at having large companies post security such as bonds so that if the company goes into liquidation the little man isn't left hanging out to dry."

A more radical solution would involve changing limited liability laws for companies, the "corporate veil", that removes directors' personal accountability for the actions of the company, Grimshaw said.

Directors would be required to place a personal guarantee on their company and would have to earn the limited liability currently granted to all companies.

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"They should only be able to hide behind the corporate veil when they have been doing this for a number of years, so they have a proven track record," he said.

"So the company and its directors are on the hook for the first two, three or four years before you are shrouded by the corporate veil." OVERSEAS FIRMS EYE MAINZEAL CONTRACTS / Business

- Sunday Star Times

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