Insolvency - 'It doesn't happen overnight'

By DANIEL RIORDAN aviation writer

Tasman Pacific (alias Qantas NZ) may have been insolvent two months before it collapsed, the company's liquidators said yesterday.

If that is the case, the directors might be liable for any debts incurred over that period.

The receivers' report into the failed airline was issued on Wednesday. It revealed debts of more than $100 million at the time of receivership on April 21.

Secured and preferred creditors will get their money back - about $24 million - but the receivers estimate there may be only $3 million to pay unsecured creditors, collectively owed more than $80 million.

That represents a payout of less than 4c in the dollar, although that figure could change depending on how debts still to be identified compare with the value of any further asset sales.

The liquidators, Jeff Meltzer and Arron Heath of Meltzer Mason Heath, are updating the receivers' report to June 8, the date of liquidation. They expect to have their report ready by July 31 and will meet creditors and Tasman Pacific directors on August 14.

Mr Meltzer said once that update had been prepared, he and Mr Heath would begin investigating the company's path to ruin.

They would seek to calculate not only the final level of debt but also how it got that high.

He said it was significant that the oldest debt identified by receivers was from February.

"What interests me is how it occurred - not the fact it was February but over what period should it have been recognised that the trigger point was at that time.

"Obviously there wasn't enough money to meet those debts. Now that just doesn't happen overnight. What were the circumstances that brought that to that point?

"I don't know what their internal management reporting systems were, but that's what we'll be looking at, comparing information coming out of the internal systems to what was actually happening out in the marketplace."

Mr Meltzer, who was appointed by Tasman Pacific's sole shareholder, Zazu, said a company was deemed insolvent when unable to pay debts as they fell due "in the normal course of business."

He said it was too early to say for sure if February was the date of insolvency.

Getting a better handle on that would involve "ageing" the debts, recognising that some creditors would have been paid weekly, others fortnightly and some monthly.

Ignorance of the company's true situation is no defence - directors are deemed to have known their company was insolvent from that point forward to the date of receivership.

The powers of a liquidator are similar to those of a court of law and far greater than a receiver's.

They include the right to interview and formally examine under oath anyone considered to have information that might be useful in investigating the trading of the company. A liquidator also has the right to see any records of the company.

Mr Meltzer said directors had indicated they would cooperate fully with his investigation.

There were no set penalties for negligent or reckless trading while insolvent. However, the limit on any penalty that could be applied was set by the level of debt incurred from the date of insolvency to receivership, said Mr Meltzer.

Tasman Pacific's current directors are chief executive Kevin Doddrell, investment banker David Belcher, professional director Ian Farrant as an alternate for Dunedin businessman David Skeggs, and accountant Fred Watson.

Five directors resigned in the three weeks before the receivership: Australians Ken Cowley and Ken Parker, Trevor Farmer and his alternate Rob Campbell, and Bryan Skeggs, an alternate for his brother David.

Legal experts say the resignations would not release the directors from any personal liabilities they might have to creditors - if it could be shown they remained on the board past the point at which they should have known the company was trading while insolvent.

Meanwhile, the receivers say they are still negotiating with Qantas Airways over the money Qantas owes the failed airline - but will not be drawn on the sum involved.

Qantas came close to buying its NZ franchisee at the behest of Tasman Pacific's directors, but pulled out of due diligence in what proved the last straw for the NZ airline.

However, it had undertaken to cover Tasman Pacific's trading costs during the due diligence period, beginning April 6. Qantas pulled out two days before the airline went under.

Not included in the receivers' estimate of total debt are the effects of any legal actions against the company. Mr Meltzer said he believed this referred to litigation by airline pilots and any action the liquidators might take against directors.

Southern Skies Properties Limited

Air wars - the cast list

www.nzherald.co.nz/travel