Mainzeal in receivership; Jenny Shipley and Paul Collins resign from the board

BusinessDesk report by Pattrick Smellie
One of New Zealand’s best-known commercial construction firms, Mainzeal, yesterday placed its operating business in receivership as a combination of leaky homes suits and a botched supply chain from China combined to take the company down.

In a dramatic afternoon on Waitangi Day, Mainzeal Property and Construction (MPC) was placed in the hands of receivers at the accounting firm PwC.

At the same time, the former Prime Minister Dame Jenny Shipley, former head of Brierley Investments Paul Collins and a Tauranga businessman, Clive Tilby, resigned from the board of Mainzeal Group, which owns MPC, which they had already left last December. The joint statement said all three had resigned from MPC last December at the request of Richard Yan, the ultimate shareholder in Mainzeal and a celebrated Auckland business leader who came to New Zealand from China in 1981 for tertiary education and stayed while building business links back to China.

Yan is chairman of the Richina group of companies based in Auckland and Shanghai, and spoke at the launch of the government’s China trade strategy in Auckland last year.

Shipley, Collins and Tilby said in a statement that MPC had been “meeting its obligations as they fell due and had facilities with its bankers that enabled it to continue to operate. We agreed to accept the role of directors Mainzeal Group Ltd based on the undertakings and assurances given by the shareholder (Yan) at the time. Sadly, these have now changed, which have led to our resignations.”

The company had been “working towards a positive cashflow and profitability in 2013.”

BusinessDesk understands the receivership is over the failure to make a $1.8 million payment on an outstanding $20 million credit facility, and that this was the last straw in a string of difficulties the company had faced in recent years. MPC had been emerging from the aftermath of a multi-million leaky building suit involving Hobson Towers, a two-tower, 97-unit block in Hobson St, Auckland. More recently, it’s understood MPC had been caught in supply chain difficulties involving the New Zealand arm of the King Façade Decoration Engineering Co, a Shenzhen-based company supplying product to the New Zealand market.

Yan’s company, Richina, was in a joint venture with King Façade to supply Mainzeal with product, according to King Façade’s New Zealand website.

Mainzeal is a well-known New Zealand construction company, and a major player in the Christchurch post-quake rebuild.

In a statement, receivers PwC said Yan had advised them that MPC had suffered “a series of events that adversely affected the company’s position, coupled with a general decline in commercial construction activity.”

Insurance group Vero, which uses Mainzeal as a major partner in the commercial reconstruction of Christchurch, said it had “not been using Mainzeal for any domestic projects.”

“They have been involved in a small number of our commercial reinstatements. We will continue to work closely with our customers to ensure their progress is not impacted.

“This will not affect the overall recovery in Christchurch, the company said in a statement.

Mainzeal’s website shows it had been reacting to the lack of demand for commercial construction by moving into construction of affordable housing projects, which has emerged as a key political issue in 2013.

One of Mainzeal’s Wellington projects: The Hub at VUW

Subcontractors locked out of VUW and Kapiti projects

Joint Media Statement – February 6
Today the Bank of New Zealand appointed receivers to Mainzeal Property and Construction Ltd (MP&CL) and Mainzeal Living Ltd (MLL). Mainzeal Group Ltd was not put into receivership. However the independent Chair of MGL, Dame Jenny Shipley confirmed that, as of midday February 5th 2013, 4 directors resigned as members of the board of Mainzeal Group Limited. We did so because we did not have sufficient confidence in our ability to continue to perform our duties as independent directors, as the undertakings given and the basis on which we had undertaken serve as Directors had changed and so we had no option but to tender our resignations.”

At this time these Director were not directors of Mainzeal Property and Construction Ltd. The three directors resigned the board of Mainzeal Property and Construction Ltd – the company in receivership – in December 2012, at the shareholder’s request. At that time MP&CL was meeting its obligations as they fell due and had facilities with its bankers that enabled it to continue to operate. We agreed to accept the role of Directors of Mainzeal Group Ltd based on the undertakings and assurances given by the shareholder at that time. Sadly these have now changed which have led to our resignations.

That company had passed through a very difficult year in the construction sector, the impact of Legacy issues around leaky buildings, a large contract with disputed payments and a Chinese supply chain scheduling and delivery challenge.

The 4 Directors resigned the Mainzeal Group board on Tuesday when it became apparent financial undertakings from its shareholder, Richina Pacific, for Mainzeal Property and Construction were no longer in place and the further equity commitments were uncertain or conditional.

As a result the working capital facility with the BNZ was withdrawn and despite intensive negotiations between the shareholder, the parent company Richina Pacific, the directors of MGL on behalf of MP&C and the bank, a solution was not possible and the BNZ has appointed receivers.

All former directors say, “As independent directors of MGL, the holding company, we have done everything we could to try and avoid this painful outcome. We are fully aware and very saddened by the subsequent impacts the receivership may have on Mainzeal employees, creditors, subcontractors and others.”

“It is deeply disappointing that we were unable to secure the support that would have allowed Mainzeal to continue to operate,” say the directors. “Mainzeal Property and Construction was a very good company, had a significant workload of building in Christchurch and if we had managed to gain the undertakings necessary, it was working toward a positive cash flow and profitability in 2013.”

Peter Gomm has also resigned the boards of Mainzeal Group ltd and Mainzeal Property and Construction but will remain as CEO.

Dame Jenny Shipley
Paul Collins
Clive Tilby

Read also:
US subsidiary interested in buying Mainzeal
Concern about subcontractors

 

4 comments:

  1. Scott, 7. February 2013, 13:44

    Excuse the naivete, but can someone explain to me that while Mainzeal Property & Construction (MPC) have been put into receivership, its owner, Mainzeal Group Limited (MGL), has not? Why cannot MGL, or its owner, Richina, bail out MPC – surely it has the funds? Surely it should? To what degree are the respective owners, directors, and senior managers of these companies liable for such failures?

     
  2. Maximus, 7. February 2013, 16:25

    Scott – it is precisely because construction firms have many layers, such as you have noted, that the owners and directors are able to stay at arm’s length from the creditors – and determined to do so. Otherwise, every time a job went west, the directors would lose their house / cars / worldly possessions. I’m wondering about the effect of having Jenny Shipley on board – she’s hardly a exemplar of business nous. I wouldn’t have her anywhere near any business of mine.

    While it is extraordinary, and tragic, that one of NZ’s biggest construction companies has itself been demolished by this leaky building disaster, it is, in a black humour manner, somewhat of a situation of karma, as Mainzeal used to regularly screw other companies to the wall till they squeaked in the big 80s recession. They were nasty to work with for a number of years – and have only been a nice company for the last decade. What goes around, comes around…

     
  3. Scott, 8. February 2013, 17:40

    Thanks for taking the time to reply Maximus.

    Of course, it all revolves around the notion of limited liability I have since learnt. Nevertheless, the core issue remains – let’s call it the ‘asymmetry of accountability’: while ‘employees’ are more or less fully accountable for their decisions, those with decision-making/executive power appear to have insufficient direct accountability for their decisions.

    The suffering of ex-employees and ex-subbies of MPC is most probably far deeper than that of the holders of power. Just as, when the times are good, the holders of power reap benefits in undue excess to those accruing to the ‘employees’. Seems that as a good honest worker, you can’t win.

     
  4. Brian Gaynor, 10. February 2013, 9:03

    Dame Jenny Shipley joins a long list of prominent politicians who have joined the boards of troubled or unsuccessful companies. These include: Wyatt Creech and John Luxton at Blue Chip; Sir Roger Douglas, Fran Wilde and Philip Burdon at Brierley Investments; Don Brash and John Banks at Huljich Wealth Management; Sir Douglas Graham and Bill Jeffries at Lombard; Sir William Birch at Viking Pacific (now Vetilot) and Ruth Richardson at Dairy Brands and Syft Technologies. [Extract from article in NZ Herald - read the complete article here.]

     

Write a comment: