I’m pleased to see the appeal by the Mainzeal directors has a fixture next month. The guts of their prosecution was for trading while insolvent, for which they were fined a total of $36million.
The conviction reflected the Court’s total failure to understand the construction industry.
Given its massive recent losses on some large projects almost certainly Fletcher Construction was and remains technically insolvent, but with a substantial parent company to meet those liabilities, it boxes on.
Mainzeal was a major contractor. It goes with the territory when undertaking large construction projects, which by their nature can take years to complete, that for a host of reasons, many which can never be anticipated, things will go wrong.
All major contractors periodically take big hits on jobs. They have relatively few tangible assets, their principal one being goodwill, that is an established reputation.
Following such losing projects, the standard sensible approach is to take on yet more projects and trade one’s way out. That’s what Mainzeal did only to come a cropper again, until reaching the point of no return. This suggest a failing of management, not the Board, but that’s supposition and they may have been simply unlucky. Anyway, liquidation followed and in its wake the prosecution of the directors.
But if one was to examine the company’s entire history, I’d wager heavily they’ve taken some big hits on some jobs over the years, then functioning on an overdraft, gone on to restore order with fresh profitable projects.
Mainzeal has played on important role in our recent decades construction industry and New Zealand’s been immensely better off for their existence.
But whether subbies or materials suppliers, it’s part and parcel of involvement in the construction industry to periodically cop losses.
My company loses serious money every year from retailers going belly-up. It goes with the territory of commercial space ownership but we certainly don’t run to the police. They’ve given it their best shot and we’re sympathetic to their plight.
This was an ill-considered prosecution in respect of the non-executive directors and I hope they prevail in their appeal.