Yan v Mainzeal Property and Construction Ltd (in liquidation)

Mainzeal operated in a difficult construction market and was balance-sheet insolvent for years. Money extracted for other parts of the group weakened its position, while operating profits were limited or absent.

The board continued to trade largely because related companies had given assurances of support. Those assurances were not legally enforceable, and the support was not delivered in the form needed when the company collapsed.

The Court found breaches of the duties addressing substantial risk of serious loss to creditors and obligations incurred without reasonable grounds for payment. Continued trading exposed new creditors while the company lacked a dependable support structure.

The directors' appeals failed. The Court fixed compensation at $39.8 million plus interest, subject to individual limits for three directors.

Mainzeal's board did take steps to discuss support, but the underlying problem remained. The company had no reliable legal right to the money on which continued trading depended. Related entities were overseas, group arrangements were complex and the assurances did not provide the dependable capital needed to protect new creditors.

The case therefore goes beyond the absence of a formal guarantee. A board must consider whether the support provider has the ability and practical willingness to perform, whether funds can move when required and whether the amount covers the downside shown in the forecasts.

Repeated reassurance can feel stronger over time because it has worked before. The Court's decision shows why directors must keep testing the assumption instead of treating past survival as proof of future support.

The purpose is not to create paperwork after the event. It is to give directors a common factual basis for deciding whether the company can keep taking on obligations.