Adams v The Commissioner of Inland Revenue HC Wellington CIV 2007-485-2300

[2008] NZHC 2494

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV 2007-485-2300

IN THE MATTER OF     the Insolvency Act 1967

AND

IN THE MATTER OF     the Bankruptcy of RICHARD DALE ADAMS

BETWEEN  THE COMMISSIONER OF INLAND REVENUE

Judgment Creditor

ANDRICHARD DALE ADAMS Judgment Debtor

Hearing:         11 August 2008

Appearances: R.D. Adams - Bankrupt in Person

P.H.B. Latimer - Counsel for Judgment Creditor
J. Haig - Official Assignee

Judgment:      12 August 2008 at 4.30 pm

JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

This judgment was delivered by The Registrar on 12 August 2008 at

4.30 p.m. pursuant to r 540(4) of the High Court Rules 1985.

Solicitors:           Langford Law, Solicitors, PO Box 344, Wellington 6140

MK Crimp, Technical and Legal Support, IRD, PO Box 1462, Wellington

COMMISSIONER OF INLAND REVENUE V RD ADAMS HC WN CIV 2007-485-2300  12 August 2008

[1]      Richard  Dale  Adams  (“the  applicant”),  was  adjudicated  bankrupt  on  the petition of the Commissioner of Inland Revenue (“the Commissioner”) at the High Court at Wellington on 3 March 2008.

[2]      On 14 May 2008 the applicant applied for an annulment of this adjudication. His Notice of Application indicated that it was brought pursuant to s. 309(1)(a) Insolvency Act 2006 (which follows s. 119(1)(a) Insolvency Act 1967).

[3]      On  9  June  2008  the  Commissioner  filed  a  Notice  of  Opposition  to  the annulment application.

[4]      S. 309(1) Insolvency Act 2006 states:

“309.  Court may annul adjudication

(1)       The Court may, on the application of the Assignee or any person interested, annul the adjudication if—

(a) the Court considers that the bankrupt should not have been adjudicated bankrupt; or

(b)  the Court is satisfied that the bankrupt's debts have been fully paid or satisfied and that the Assignee's fees and costs incurred in the bankruptcy have been paid; or

(c)  the Court considers that the liability of the bankrupt to pay his or her debts should be revived because there has been a substantial change in the bankrupt's financial circumstances since the date of adjudication; or

(d)  the Court has approved a composition under subpart 1 of Part

5.”

[5]      As I have noted the present application is made solely in reliance upon s.

309(1)(a) Insolvency Act 2006 upon the ground stated in the application itself that

“the bankrupt should not have been adjudicated bankrupt”.

[6]      On 6 August 2008 the Official Assignee filed his report pursuant to s. 309

Insolvency Act 2006 and s. 119 Insolvency Act 1967.  That report indicates that the

total creditors of the bankrupt are $423,635.74 and that no funds have been received in the bankruptcy to date.   The report goes on to state that on 25 June 2008 the bankrupt submitted an application to be self-employed whilst bankrupt.  On this, the Official Assignee sought further information which was said to be necessary in order for a proper decision to be made but to date the applicant has not provided this information.

[7]      Importantly, the Official Assignee in his report at paragraph 4 states:

“4.      IN  the  interests  of  Mr  Adams’  creditors,  the  Official  Assignee continues to object to an annulment of the bankruptcy being granted.”

[8]      Given  that  the  present  application  is  brought  pursuant  to  s.  309(1)(a) Insolvency Act, Brookers Insolvency Law & Practice Volume 1 at para. IN309.05 addresses this provision in the following way:

“IN309.05

Grounds

(1)  Where adjudication should not have been made

Despite the discretion it gives to the Court, subs (1)(a) should be interpreted narrowly. Generally, it will not provide grounds for interfering   with   a   discretion   exercised   on   a   properly   brought adjudication petition unless there was some defect in procedure, abuse of process, or where some material fact was not brought before the court making the adjudication order: Re Hunter, ex p CIR (2000) 19 NZTC

15,722.”

[9]      With his present application for annulment the applicant filed an affidavit in support dated 30 April 2008.  This affidavit is not extensive, running only to a little over one page.   From this affidavit, it would appear that the applicant’s concerns regarding the original hearing of the adjudication application relate to a complaint that he was not informed of the date for that hearing and neither he, nor a solicitor on his behalf, appeared at that time.  In particular he states:

“5.On receiving the petition for bankruptcy, I instructed Rainey Collins solicitors to appear in court on my behalf, and request an adjournment.   I was in touch with the IRD regarding the situation, and believed from my discussions with IRD that they were amenable to an adjournment, pending receipt of a detailed proposal from me.

6.Rainey Collins reported to me that they had obtained an initial adjournment to 4 March 2008.  I did not specifically instruct them to attend the hearing on 4 March 2008 but as I had paid them a substantial retainer  I  assumed  that  they  would  attend  court  on  4

March 2008 and obtained (sic) further adjournment, while a formed proposal to IRD was being formulated.

7.In fact no one contacted me prior to 4 March for my instructions and no one attended Court on my behalf.   Inevitably I was adjudicated bankrupt.

8.I believe from my discussions with Ms Dittmer of IRD, that they were amenable to a further adjournment.  …”.             (emphasis added)

[10]     As to this last point Odette Dittmer for the Commissioner filed an initial affidavit dated 12 June 2008 which deals with the negotiations with the applicant at the operative time and states:

“16.    The next contact Inland Revenue had with Mr Adams was when he contacted LTS (IRD Legal Team) on 1 February 2008 and indicated that he wanted to submit a payment proposal.  Annexed and marked “F”is a FIRST system printout recording my conversation with LTS. This proposal was received by me on 5 February 2008, a copy of which is annexed and marked “G”.

17.In order to consider Mr Adams’ proposal, I advised LTS to adjourn bankruptcy proceedings for four weeks.  I understand that a lawyer

from  Rainey  Collins  appeared  on  behalf  of  Mr  Adams  when  this occurred.

18.Mr Adams’ payment proposal was subsequently declined by Inland Revenue and I advised LTS to proceed with the bankruptcy proceedings.  As I was unable to contact Mr Adams by telephone, I left a telephone message for him advising him that his proposal had been declined.

19.I also issued a letter to Mr Adams on 28 February 2008 confirming this.  A copy of this letter is annexed and marked “H”.

20.Mr Adams was adjudicated bankrupt on 3 March 2008.  I understand that neither Mr Adams, nor his solicitor, appeared at this hearing.”

[11]     As to the progress of the bankruptcy proceeding in this Court, on 8 February

2008 when it was first called Ms R Volkes appeared for the applicant and Ms Padmanabhan appeared for the Commissioner.  At that time, by consent, the matter was adjourned for just under 1 month to 3 March 2008 so the Commissioner had time to properly “consider a settlement proposal”.

[12]     The applicant was represented by counsel at this 8 February 2008 call.  That counsel would have been fully aware that the matter had been adjourned to a call on

3 March 2008 is clear.  A minute to this effect is on the Court file.

[13]     On 3 March 2008 there was no appearance for the applicant.   Ms Guidera appeared for the Commissioner.  She indicated to the Court that the earlier settlement proposal from the applicant was not acceptable and was not proceeding.  She sought an order for adjudication.   The amount certified by the Commissioner as being outstanding from the bankrupt, Mr Adams at that point was $332,612.65.  This had represented an undisputed judgment obtained against the bankrupt in the District Court at  Wellington  on  25  June  2007  for  $248,868.94  plus  additional  tax  due, penalties,  interest  and  costs.    A  bankruptcy  notice  had  been  served  upon  the applicant on 24 October 2007 and no steps had been taken by him to set aside that

bankruptcy notice.  An act of bankruptcy thus had been committed and the order for adjudication was made unopposed.

[14]     In this case there has been no suggestion by the applicant that the bankruptcy petition by the Commissioner was in any way improperly brought nor that there has been any defect in procedure or any real abuse of process.

[15]     In addition, as I see it, the applicant has not seriously suggested that any significant material fact was not brought before the Court when the adjudication order was made which would have had a significant impact upon the decision which was made.

[16]     His only real complaint is that he was not present or represented at the final hearing on 3 March 2008.   But his counsel had been present on 8 February 2008 when the matter was adjourned to 3 March 2008.

[17]     And the evidence before the Court does not support any suggestion that at the time the adjudication order was made there was an extant undertaking given to the applicant by the Inland Revenue Department that it would adjourn the matter on 3

March 2008.  Para. 23 of the affidavit of Odette Dittmer dated 12 June 2008 directly refutes any such suggestion:

“23.I note that, contrary to Mr Adams’ assertion at paragraph 8 of his affidavit, I have never indicated to Mr Adams that Inland Revenue would have been amenable to a further adjournment.   I merely conveyed to Mr Adams that had either he or his lawyer appeared in Court on 3 March 2008 and argued for an adjournment, Inland Revenue would have considered the merits of their argument.”

[18]     Finally, there is no evidence before the Court that the applicant was solvent or  in  any  position  to  pay his  outstanding  creditors  either  on  3  March  2008  or subsequently.  I will say more on this aspect later in this judgment.

[19]     For all these reasons, I reject the contention advanced by the  applicant  that s. 309(1)(a) Insolvency Act 2006 applies here and that he should not have been adjudicated bankrupt when the order was made on 3 March 2008.

[20]     Although that effectively deals with this matter, for the sake of completeness I will deal briefly with the vague suggestion advanced by the applicant before me that  he  is  solvent  and  although  his  application  does  not  refer  to  s.  309(1)(b) Insolvency Act 2006, his adjudication should be annulled under that paragraph on the basis that he is able to pay his debts in full.

[21]     S. 309(1)(b) allows an annulment of an adjudication if the Court is satisfied that the bankrupt’s debts have been fully paid or satisfied.   This is to include the Official Assignee’s fees and costs incurred in the bankruptcy.

[22]     At the outset, it is instructive to turn to para. [2] of the applicant’s own affidavit dated 30 April 2008 where he acknowledges:

“2.      I accept that at the time of the adjudication I owed a substantial sum to the IRD (over $300,000), partly as a result of assessments and penalties imposed by default.”

[23]     Before me, the applicant endeavoured to argue that he has assets as a range of related entities including the Richard Adams No. 2 Trust, Big Rock Properties Limited, Honeysuckle Accommodation Limited and Honeysuckle Limited own various properties in which there may well be some significant equity.

[24]     As I understand the position the applicant himself is trying to advance, it is that he holds shares in Honeysuckle Limited, Honeysuckle Accommodation Limited and Big Rock Properties Limited which in turn own substantial properties.  But, no independent  evidence  or  verification  of  the  asset  and  liability position  of  these companies has been provided to the Court.   Nor have any financial accounts or statements from the individual company’s accountants as to their respective positions been provided.   A brief statement prepared I presume by the applicant, showing claimed values of properties owned by these entities (without valuations or annual

accounts for any of the companies) was annexed to the applicant’s affidavit and handed up to the Court on 11 August 2008.  In addition certain properties said to be owned by the “Richard Adams No. 2 Trust” were listed (again without supporting valuations) and various liabilities noted.

[25]     All of this, however is quite unhelpful here.  There is no full statement of the applicant’s position.   He has omitted a number of substantial liabilities from the material he has provided.  There is no share valuation for the companies in which he claims an interest.   He complains that his accountant has not done the necessary work.    There  is  simply  nothing  before  the  Court  to  show  the  applicant’s  true financial position.

[26]     In addition, I note that the Official Assignee in his report to this Court dated 5

August 2008 has objected to an annulment of the applicant’s bankruptcy.   That report has noted that no funds have been received in the bankruptcy to date and it indicates that the Official Assignee still awaits further information from the applicant on his earlier request to be “self-employed” whilst bankrupt.

[27]     Before me, Mr Haig for the Official Assignee submitted that the Official Assignee takes the clear view that there is no doubt that the applicant is insolvent. He also noted in passing that there is at least one expired and unremedied Property Law Act Notice over a property owned by one of the entities which the applicant mentioned above, and securities over other properties which are also in default.

[28]     I conclude that there is no evidence before the Court of any kind to indicate that the applicant personally has assets which would be available to meet his outstanding debts, debts which, according to the Official Assignee are substantial, now total $423,635.74, and will continue to grow with costs, interest and penalties.

[29]     There is no possibility, as I see it, on the limited material before me that the Court can be satisfied that on or at any time after 3 March 2008 the applicant’s debts have been or could be fully paid or satisfied in terms of s. 309(1)(b) Insolvency Act

2006,  or  that  it  is  in  the  interest  of  the  bankrupt’s  creditors  for  an  order  for annulment to be made here.

[30]     For all these reasons the present application for an annulment fails.

[31]     If there is any issue with respect to costs then these are reserved and can be the subject of appropriate memoranda from counsel.

‘Associate Judge D.I. Gendall’