Builder used $289,000 deposits on debts and racehorses

A former Master Builders Association president has been ordered to repay more than $289,000 to two families after a High Court judge found he misused their construction deposits, breaching multiple duties as a company director 

John Stewart MacDonald, who ran John S. MacDonald Builders Ltd (JSMB) in Hamilton for 25 years, placed the company into liquidation in January 2021, leaving more than $1.6m in debts. In a judgment delivered on 28 April 2025, High Court Justice Wilkinson-Smith ruled that MacDonald had traded recklessly and incurred obligations he knew his company could not meet.  

Two trusts – Batley Family Trust and V P & N Singh Family Trust – each entered contracts with JSMB in late 2020. The Batley Trust paid a $115,000 deposit for a home near Lake Karapiro, while the Singh Trust paid $172,500 for two residential units in Hamilton. Construction had stalled by December 2020 and, by the time MacDonald wound up the company in January 2021, only a small portion of work had been completed at either site. 

In both cases, the Court found that deposits intended to fund construction were instead diverted to cover existing debts, pay wages and fund personal expenses – including renovations on MacDonald’s home and racehorse interests. 

Real dishonesty 

Justice Wilkinson-Smith said MacDonald’s actions amounted to “real dishonesty” and found he had breached his statutory duties under sections 135 and 136 of the Companies Act 1993. She described JSMB’s financial situation at the time as “dire” and said it was “impossible” that MacDonald was unaware of it when signing contracts with the plaintiffs. 

Wilkinson-Smith said: “It is apparent from the speed at which the deposit payments were disbursed to meet other debts, that JSMB was using new incoming funds to pay off older debts. It is also clear that Mr MacDonald allocated JSMB funds for extraneous personal interests, including renovations on his own home, paying interest on personal loans and funding his racehorse interest.” 

Accounting evidence presented by expert Elizabeth Groenewegen showed JSMB had been balance sheet and cashflow insolvent from at least March 2017, with ongoing deficits and persistent overdraft use. At times, the company had as little as 39 cents in realisable assets for every dollar owed to creditors. 

The judgment noted that both families initially received contractual assurances that their deposits would be applied against future construction invoices. However, a crucial clause to that effect was quietly removed from the hard copy contract signed by the Batley Trust in November 2020, a fact not disclosed to the clients at the time. 

Robbing Peter to pay Paul 

Justice Wilkinson-Smith found this omission, along with MacDonald’s subsequent conduct, demonstrated knowledge of the company’s inability to fulfil its obligations. “This is a classic example of robbing Peter to pay Paul,” she said. 

The Court ordered MacDonald to repay $116,777.55 to the Batley Family Trust and $172,500 to the Singh Family Trust, plus interest. She also said there was a strong basis for awarding indemnity costs, criticising MacDonald for prolonging litigation despite the strength of the plaintiffs’ case. 

While MacDonald initially filed a defence claiming the pandemic was to blame and questioning the plaintiffs’ right to sue him directly, the judge dismissed these arguments. She said the Supreme Court’s Mainzeal decision in 2023 had clarified creditors’ rights to seek compensation under the Companies Act – even directly from directors. 

MacDonald did not appear at the trial in March 2025. The judgment detailed a history of non-compliance with court directions, including his failure to submit evidence or participate in the pre-trial timetable, leading to an eventual three-day hearing in his absence. 

A February 2024 liquidators’ report showed JSMB owed $1.2m to unsecured creditors and $580,301 to preferential and secured creditors. Only $70,203 had been recovered by that point, with ANZ Bank receiving a 16.4 cents in the dollar distribution. 

Justice Wilkinson-Smith has given MacDonald an opportunity to file submissions on costs. However, the plaintiffs have already signalled their intent to seek indemnity costs to reflect the extended and costly litigation process. 

JSMB phoenixed 

In July 2023, MacDonald started another company, JSM Build Ltd, which is still active and most recently filed an annual report in February 2025. The process of a company going bankrupt, only to reappear under a different name, is known as ‘phoenixing’. 

In August 2024, Commerce and Consumer Affairs Minister Andrew Bayly said he planned to crack down on phoenixing via reform of the Companies Act. 

“I am sure many Kiwis have heard stories of companies that go bankrupt, leaving behind debts, only for effectively the same company to pop up somewhere else under a different name,” he said. “This is […] clearly not fair or right.   

“The Government’s package of reforms includes changes to improve insolvency law and combat phoenixing, so that when companies go bust, it’s fairer for creditors and other changes that will make it harder for directors to dodge their debts and continue practicing.” 

The bill to reform the Companies Act is expected to be introduced at some point in 2025.