The lawyer for three former directors of the collapsed construction firm Mainzeal says it was reasonable for them to rely on assurances the firm would get financial support from its parent company.
Photo: CC BY-SA 3.0 / By Schwede66 - Own work
The directors, Dame Jenny Shipley and Peter Gomm and Clive Tilby, are appealing lower court decisions which found them liable for reckless trading while the company was technically insolvent and the imposition of multi-million dollar penalties.
Dame Jenny Shipley. Photo: RNZ
The Court of Appeal found the directors were wrong to keep Mainzeal operating without legal assurances from its former chief executive, Richard Yan, that the Chinese parent company, Richina Pacific, would repay millions of dollars in loans it owed to Mainzeal.
However, the directors' lawyer Jack Hodder QC told the Supreme Court it was reasonable for the directors to believe that the parent company would pay up - based on letters Yan had sent the directors.
"It wasn't a casual acquaintance who was offering a pot of money for a particular purpose to come out of left field.
"They had been working with them and he [Yan] had been committed to the Mainzeal operation for a long time."
Yan later withdrew that support and Mainzeal was placed into administration by its bankers in 2013.
Hodder said arguments which said the directors should have obtained a legally enforceable document that Richina would pay its debts to Mainzeal were based on hindsight.
"The question is: without that was it still a rational thing to do to assume the support would be coming, given the understanding that the size of the assets in the CHC [Richina Pacific was often referred to as Chinese Holding Company] and the understanding that Mr Yan controlled it, and the understanding that he could work his way through the Chinese bureaucracy and regulations to get funds out, as and when required."
The Supreme Court hearing is set down for a week.
The court will hear from Yan's legal counsel this afternoon.