Management of failed infant milk exporter Wenztro were ordered to pay all the company’s debts totalling $765,600 for what was described as blatant, ongoing and serious breaches of directors’ duties. Wenztro was hopelessly undercapitalised, failing to properly execute even one of its planned infant milk exports to China. Part of one botched export order did make it to China with Wenztro liquidators unable to find what happened to the proceeds.
Wenztro was formerly known as Trojan Foods (NZ) Ltd. A narrative of mismanagement unfolded through nine days of evidence in the High Court implicating: lawyer Brian Robert Ellis; James Neil Black a twice bankrupted businessman who was bankrupt when Wenztro was trading and barred from running a business, plus; Gerald Norman Williams, a businessman who had previously been banned from acting as a company director.
Looking to exploit food safety scares following melamine poisoning in retail milk sales throughout China, Wenztro Co-Operation Ltd jumped on the bandwagon. In 2010, Wenztro contracted to supply 18,300 cans of infant formula to a Chinese importer. Wenztro’s website touted the company as having a team with extensive experience in the New Zealand dairy industry, with offices in the heart of New Zealand’s dairy industry, a quality assurance system in place and a distribution network across Asia. In fact, there was no team (a single employee was paid six months late only one thousand dollars of her promised $60,000 salary), the company operated out of Mr Ellis’ law office in central Auckland, any product had to be sourced from other suppliers and its marketing outreach consisted of contacts in Hong Kong.
The High Court was told Wenztro shareholders put no cash into the business. Sourcing the 18,300-can order proved problematic as suppliers demanded cash up front. The order when delivered was mislabelled and could not be sold in China. The Chinese importer cancelled, suing to recover advance payments made. Much of this money was spent meeting Wenztro’s operating costs. Meanwhile the botched order made its way to Hong Kong. There was evidence of product being smuggled into China following online sales. Liquidators could find no trace of the proceeds.
Justice Wylie ruled the three directors were in breach of their duties as directors: trading recklessly, incurring obligations the company could not perform and failing to exercise proper care and skill in management of Wenztro. The three were held jointly and severally liable; payment can be recovered in unequal shares if any one director cannot contribute his share.
Mr Ellis was the only director to give evidence. Justice Wylie said he was neither reliable nor credible as a witness.
Finnigan v. Ellis, Williams & Black – High Court (22.05.18)
18.113