A lawyer for Mainzeal's liquidators says the company was in a crisis that the directors failed to recognise.
File pic Photo: RNZ / 123RF
Liquidators Andrew Bethall and Brian Mayo-Smith are appealing the Court of Appeal ruling which found the directors' decision to continue trading the company recklessly, while technically insolvent for nine years, did not result in a material loss to creditors.
The directors include former prime minister Dame Jenny Shipley.
But the lower court found the directors breached a separate part of company law when they entered into long term construction contracts without reasonable grounds that they would be able to meet these obligations.
The Court of Appeal ordered the case to be sent back to the High Court for new damages to be calculated.
The liquidators, who are backed by the litigation funder LPF, are seeking higher penalties to be distributed among creditors.
Earlier this week, the directors' lawyers told the Supreme Court the lower court decisions were "profoundly wrong" as the directors acted rationally when continuing to operate Mainzeal because they thought it was salvageable.
They also argued they had reasonable verbal and written assurances from its former chief executive, Richard Yan, that the Chinese parent company, Richina, would repay $44 million in loans it owed to Mainzeal.
Yan later withdrew that support and Mainzeal was placed into administration by its bankers in 2013.
Today, the liquidators' lawyer, Mark O'Brien QC, told the Supreme Court that Mainzeal did not secure any legally enforceable guarantees from its parent company that the loans would be repaid.
He said the directors should have known, in the years leading up to its failure, that without being able to readily collect the loan repayments it was in a deficit position.
"And yet they allowed the company to continue trading and they allowed it to continue to bid and secure major new contracts."
The liquidators' lawyer reiterated a line used in the lower court decisions that the company had a "policy of insolvent trading" which served that existing creditors were paid for a time until it stopped.
"But it put new creditors [after 2011] and the company itself at great risk."
O'Brien said the company was in a crisis but the directors failed the first step of a crisis - which is to recognise it.
The liquidators will continue with their submission for the rest of the day.