Insolvency
practitioners chasing down funds for creditors of the Mainzeal Group are having
their difficulties pinning down Richard Yan, the driving force behind Mainzeal. Some debts were settled only after liquidation
orders were sought against Yan-controlled companies and further recoveries delayed
while the legality of Yan-initiated restructuring of Mainzeal funding lines is
examined.
Bank of New Zealand
appointed receivers of Mainzeal Construction in February 2013 to recover $11
million owed. Three weeks later
Mainzeal shareholders put their company into liquidation with insolvency
specialists at BDO appointed liquidators.
BNZ has since been repaid. Liquidators have been realising the remaining
Mainzeal assets. Debts supposedly owed
to Mainzeal from other companies controlled by Mr Yan are proving difficult to
recover.
The Court of Appeal
was told Mr Yan is at the centre of a web of companies, linked by common
ultimate shareholdings. These include
Richina Global Real Estate Ltd (a company controlled by Mr Yan through a
company registered in the British Virgin Islands and which has been a conduit
for Mainzeal funding), Isola Vineyards Ltd (formerly known as Waiheke Vineyards
Ltd) and King Facade Ltd (formerly Richina Land Ltd). Mr Yan had effective control of each of these
companies. Mainzeal Construction did
have independent directors on its board, but the court was told Mr Yan retained
effective control up to the time Mainzeal was put into receivership.
Liquidators review of
Mainzeal’s group financial position as at December 2011 identified that Isola
owed some $5.6 million to Richina Global and Isola further owed some $4.4
million to King Facade, part of the Mainzeal liquidation. Mainzeal unsecured creditors are owed in the
region of $100 million. In order to
extract funds out of these related companies, Mainzeal liquidators asked the
High Court to liquidate both Richina Global and Isola.
Liquidation requires
proof that the debtor company is insolvent and that the debt is due, but
unpaid.
In respect of Richina
Global, Mainzeal liquidators claimed three separate unpaid debts existed. First: a $136,800 intercompany debt owed by
Richina Global. Richina denied any money
was owed. It was only nine months after
Mainzeal demanded payment and filed liquidation proceedings that Mr Yan
provided evidence that Mainzeal had been “paid” by Richina Global paying some
of Mainzeal’s debts. Secondly: a debt of
$579,800 arising when Mainzeal compensated BNZ for foreign exchange losses
incurred by Richina Global. The Court of
Appeal ruled that this debt should be treated as secured in that funds to meet
that debt were sitting in a law firm’s trust account earmarked for payment. The law firm had been instructed to make
payment but the funds had been retained in trust pending a court ruling as to
who was entitled to receive the money. Thirdly: an intercompany debt of $5.78 million owed by
Richina Global to King Facade. Mr Yan disputed the debt is due. He says payment was postponed in a
rearrangement of intercompany debt negotiated in December 2012.
In respect of Isola
Vineyards, Mainzeal claimed two separate unpaid debts. First: an intercompany debt of $2.47 million
due from Isola to Mainzeal. The High
Court ruled this debt was repaid by payment to Mainzeal receivers. The receivers used the money to repay BNZ,
but Isola had cleared its obligation to pay Mainzeal. Secondly: an intercompany debt of $4.4 million
owed by Isola to King Facade. Again, Mr
Yan said payment of this debt was postponed by the December 2012 debt
rearrangement.
Liquidation orders
against both Richina Global and Isola Vineyards were refused. The claimed debts were either not due,
secured or genuinely disputed.
The status of the
December 2012 debt rearrangement is yet to be resolved. It was negotiated between related
parties. The effect of the rearrangement
is to have Richina Global assume Isola’s $4.4 million debt to King Facade. And a debt owed by Richina Global to Mainzeal
reduced by $15.1 million. The amended terms
for payment are most unusual. The debt
is interest free, due for repayment in 2022 and repayment is conditional on
Richina Global being profitable in 2022.
Yan
v. Mainzeal Ltd – Court of Appeal (20.5.14)
14.023