August 2023 - McCaw Lewis

After nearly a decade of litigation, the Supreme Court has dismissed appeals from the four former Mainzeal directors that they breached their duties under the Companies Act 1993. The decision has sent shockwaves through the NZ business landscape, setting a significant precedent for company law and having the potential to redefine the responsibilities of company directors. So, what does it mean for company directors going forward?

Background

Mainzeal, once a prominent player in the New Zealand construction space, went into liquidation in 2013, and left behind it a long trail of unpaid debts and unfinished construction projects.

The liquidators subsequently filed a lawsuit against the four former Mainzeal directors – Richard Yan, Dame Jenny Shipley, Peter Gomm and Clive Tilby – alleging that they had breached their fiduciary duties under companies legislation by allowing the company to continue to trade while insolvent, failing to act in the best interests of the company and its creditors, and allowing the company to enter into contracts that it could not fulfil.

The decision

The court has ultimately ordered the four directors to contribute nearly $40m towards Mainzeal’s assets. Ultimately this endorses the previous decisions on the matter, and awards a similar amount of compensation as that awarded in February 2019 in the High Court.

This decision emphasises how important it is that directors understand and fulfil their duties under companies legislation – particularly where they are on the boards of companies that are in potential financial difficulty. More important, it is prompting discussions and potential reforms in the area.

What now?

So, what are the key takeaways if you are a company director?

Make sure you understand your company’s financial position – particularly in the current economic environment. It’s not enough to simply make decisions in good faith; you need to do so with all the relevant information available. Set up systems that allow you to monitor your financial position, and get good advice.
If you have any concerns about the financial stability of your company, get advice early. The Supreme Court judgment is clear that directors will be allowed a reasonable time to take stock and get financial and legal advice, even if that means that the company is technically trading while insolvent in the short term. Get a plan in place for managing and mitigating any potential issues, and avoid taking on any substantial new company obligations.
If you then decide to continue trading, make sure you follow sound corporate governance principles, get ongoing advice, continually monitor the situation and keep reviewing that decision until you can be confident you are in the clear.

Importantly, the Supreme Court did endorse the view put forward by the Court of Appeal that a review of New Zealand’s companies legislation, particularly around insolvent trading, is appropriate – so watch this space.

Laura Monahan is a Director in our Commercial Team and can be contacted on 07 958 7479.

Following on from our article “Is My KiwiSaver Relationship Property” we continue our Relationship Property Series by addressing the question “is my inheritance relationship property”.

To answer this question, we need to understand the term known as “intermingling”. Understanding what intermingling is, and how it occurs, will help ensure your inheritance is applied as intended. This article outlines several common examples of intermingling, and actions you can take to prevent this from happening.

The starting point for inheritance is that it is classified as a gift, which makes it “separate property” under the Property (Relationships) Act 1976 (the Act). However, an inheritance that is “intermingled” with relationship property can lose its status as a gift.

Common Examples of Intermingling

Intermingling occurs when property (or its proceeds) become so entangled with other relationship property, that it becomes impracticable to classify it as separate property. The whole property then becomes relationship property.

Examples of when inheritance can become intermingled are:

Using inheritance to repay a relationship debt/loan. A typical situation is parties using inheritance monies to service a house mortgage;
Depositing inheritance monies into bank accounts used by the relationship, for instance, joint bank accounts;
Purchasing assets with inheritance monies, which are then used in the relationship. Buying a car that becomes the family vehicle, would be a common example.

In each of these scenarios, while it may make financial sense in the moment, as time goes on it becomes harder and harder to distinguish if the inheritance monies are separate, or relationship property. If it becomes too hard to tell, the chances are your inheritance has “disappeared”, and become intermingled with other relationship property.

Keeping Inheritance Separate

If you are looking to protect or manage your inheritance in these sorts of situations, common ways to do so are as follows:

Using/investing the inheritance in something completely separate from the relationship, such as a term deposit in your own name;
Entering into a contracting out agreement with your partner under the Act, often referred to as a “pre-nup” or “pre-nuptial agreement”. This agreement would specify how the inheritance, regardless of its use, is treated upon separation. A contracting out agreement can be entered into at any point before, or during, the relationship;
Setting up a trust to deal with the inheritance, separate from the relationship.

Knowing which option to take can be confusing at the best of times, but being aware of those options is a great first step. As with most things, it is better to seek advice early. The experienced team at McCaw Lewis can help you navigate any aspect of your relationship property matters and answer any questions you may have.

Andrew Hong is a Senior Solicitor in our Dispute Resolution Team and can be contacted on 07 958 7447.

Month: August 2023

The Mainzeal Decision: What does it mean for Directors?

Is My Inheritance Relationship Property?

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