Directors of failed SOE face lawsuit

Legal action has been launched against the directors of a defunct Government company alleging they failed to act in the best interest of the creditors - who in turn say they were "under instructions" from the Labour Cabinet.

Terralink, a state-owned enterprise mapping company, went into liquidation in 2001 after the then finance minister, Michael Cullen, refused to bail it out.

Dr Cullen called in receivers PricewaterhouseCoopers to take over Terralink, previously part of the Survey and Land Information Department, soon after the board told him it had insufficient money to pay its debts.

Nearly 70 staff were laid off, but nearly eight years on the company has yet to be wound up.

Now, Wellington insolvency specialists ShephardDunphy have taken legal action against Terralink directors Basil Walker and David Wickham to recoup a "substantial and sustainable" financial sum.

The pair are seeking an out-of-court settlement.

"It remains the liquidator's position that the claims should be settled by the directors without the necessity of a trial hearing," ShephardDunphy partner Iain Shephard wrote to the Companies Office.

No trial date has been set. But Mr Shephard is unable to complete the liquidation - estimated to yield no more than 20c in the dollar to unsecured creditors - until the matter is settled.

As such, no further dividend can be paid until "the claims against the directors are dealt with by way of litigation or settlement", Mr Shephard wrote.

The most recent report says witnesses have finished their briefs of evidence, after the liquidator examined 650 boxes of Terralink board memos, minutes and correspondence.

It says more than 25 "comprehensive and lengthy interviews" have been held with Terralink staff that have "raised a number of serious concerns", including the performance of the directors, insolvent trading and the demise of the firm.

The report says the decision to go ahead with a formal legal claim against the directors was made after a "prudent" cost-benefit analysis.

"Any claim the liquidators make will be both substantial and sustainable and will only be undertaken with the belief that it will positively improve the funds available for distribution to the unsecured creditors," Mr Shephard wrote before the legal action was taken.

Mr Shephard is overseas and was unable to answer questions.

Dr Walker and Mr Wickham did not return phone messages.

A briefing to State Owned Enterprises Minister Simon Power revealed the Crown has been named as a second defendant in the insolvent trading portion of the claim.

"In summary, the directors and former CEO allege that they were acting under instructions from the Crown in the period leading up to the receivership. The Crown rejects this and is defending this claim," the briefing paper says.

Mr Power said the Crown was waiting for the outcome of the discovery process and it was inappropriate to comment further.

Mark Burton was the SOE minister at the time of the financial collapse of Terralink in 2001, the first state-owned enterprise to fail.

He and Dr Cullen declined to comment as the matter was before the courts.