AMG Nominees Limited v Kelly

[2017] NZHC 2725

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2016-404-1385 [2017] NZHC 2725

UNDER	the Insolvency Act 2006
IN THE MATTER OF	the bankruptcy of STEPHEN ROBERT KELLY
BETWEEN	AMG NOMINEES LIMITED Judgment Creditor
AND	STEPHEN ROBERT KELLY Judgment Debtor

Hearing:	31 October 2017
Appearances:	T Cunningham-Adams for the Judgment Creditor N J Bell-Booth for the Judgment Debtor
Judgment:	31 October 2017

ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL

Solicitors:

Evolution Lawyers (T Cunningham-Adams), Glenfield, Auckland, for the Judgment Creditor

Ponsonby Law Ltd (N J Bell-Booth), Grey Lynn, Auckland, for the Judgment Debtor

AMG NOMINEES LIMITED v KELLY [2017] NZHC 2725 [31 October 2017]

[1]      AMG Nominees Ltd applies for an order adjudicating Mr Kelly bankrupt. This proceeding has been running for some time.  The bankruptcy application was filed on

27 July 2016.  In other words, this proceeding is approximately 1 year 4 months old. The history of the proceeding is relevant.

[2]      On the eve of the hearing, Mr Kelly instructed Mr Bell-Booth. Mr Bell-Booth sought an adjournment on the basis that the development at Birkenhead in which Mr Kelly is involved will result in sales of properties from which funds will flow and allow Mr Kelly to meet the debt the subject of this proceeding.  The creditor advises that it does not oppose the application for an adjournment, but it indicates that the matter remains for me to decide in my discretion whether I should grant an adjournment.   By the creditor not opposing, I take it that the creditor abides the decision of the court. It is neither vigorously opposing the application nor on the other hand consenting.

[3]      AMG Nominees Ltd obtained judgment against Mr Kelly in the District Court at Auckland in April 2015 for $154,039.12.  A bankruptcy notice was issued in June

2016.  The amount claimed in the bankruptcy notice was $120,957.73.  The creditor had taken into account payments that Mr Kelly had made in December 2015 and had also charged interest on the balance.

[4]      Mr Kelly was served with the bankruptcy notice on 4 July 2016.  He applied to set aside the notice on 19 July 2016.  In his affidavit in support of the application he indicated that he did not dispute the judgment debt, maintained that he had negotiated an arrangement with Mr Thomas, the director of the creditor, and that he would pay instalments of $5,000 per month.  He contended that he had prepaid up to the end of August 2016, and he had offered a property trade with Mr Thomas.  The amount for which judgment was entered had not allowed for some payments he had made before judgment.  He said that the correct amount owing under the judgment was about $83,000.

[5]      His setting aside application failed.  Associate Judge Doogue dismissed his application in a minute of 26 October 2016.  On 21 October 2016 Mr Kelly filed a memorandum, seeking leave to withdraw his application.  Associate Judge Doogue

ordered Mr Kelly to pay costs on the setting-aside application.   The amount is

$5,735.00. That debt is in addition to the debt the subject of the creditor’s application in this case.  Mr Kelly had no option but to withdraw his setting-aside application because he filed it and served it out of time, although he was in fact only one day late. Nevertheless, the case law is clear that the 10 day limit must be adhered to.1

[6]      The creditor filed the application for adjudication on 27 July 2016.   It was entitled to do so even though Mr Kelly had applied to set aside the bankruptcy notice. That is because Mr Kelly had already committed an act of bankruptcy when he had not complied with the bankruptcy notice by midnight on 18 July 2016.  Because an act of bankruptcy had occurred, there could not be an extension of time for complying with the bankruptcy notice under r 24.10 of the High Court Rules.

[7]      The amount claimed in the application is $120,957.73. Since then, the creditor has filed further evidence indicating that the amount outstanding has reduced.  In an affidavit of 17 July 2017 by Mr Thomas, there is a schedule showing amount due as

$83,053.99. Ms Cunningham-Adams says that as at today, with interest added on, the debt is now $86,601.74.  Mr Kelly has not made any payments between Mr Thomas’ affidavit of 17 July 2017 and today.

[8]      Mr Kelly has been represented by several lawyers.  His first lawyers filed his setting-aside application for him.  When the creditor’s application was first called, he was represented by Mr Bowler, a lawyer whom Mr Kelly frequently instructs. In June

2017, he had instructed another lawyer, Mr Locke.   Later, Mr Locke ceased to be instructed and Mr Kelly filed documents in court showing he acted for himself.  As I have already noted, Mr Kelly instructed Mr Bell-Booth at the last minute.

[9]      The case was called before me on 4 May 2017, even though it had been extant since July 2016.  The application had been held in abeyance to await the outcome of the application to set aside the bankruptcy notice.     The creditor says that it had

difficulty serving Mr Kelly.   When the application was first called on 4 May, by

1      Sanco (NZ) Ltd v Memelink HC Wellington CIV-2008-485-2691, 10 March 2009; Re Guthrie ex parte Build West Ltd HC Auckland B92/02, 23 August 2002; and Reynolds v Bartlett [2014] NZHC

447.

consent it was adjourned to 1 June 2017. The adjournment was granted on Mr Kelly’s

indication that he would make a part-payment on 17 May 2017.

[10]     Mr Kelly filed a notice of opposition to the application.   The grounds of opposition were that Mr Kelly was able to pay his debts and it was just and equitable that the court not make an order.  Mr Kelly did not dispute that he had committed an act of bankruptcy.  He swore an affidavit stating his belief that he was solvent.  He explained that he was managing a development carried out by the Chelsea View Estate Trust. The trustee was Chelsea View Estate Trust Limited. Mr Kelly says that that is a discretionary form of trust.   He is a director of the trustee company and a discretionary beneficiary along with his family.  The trust is developing a property at lot 1, Huka Road, Birkenhead.  He said that the value of the project is $7.5 million. He said that the trust had completed sales to a value of $3.3 million.  The subdivision had been approved by the Auckland Council and settlements of the properties would be brought to fruition within the next six weeks. He stated that the subdivision was at the stage where the council’s certificate under s 224(c) of the Resource Management Act was ready for submission to Land Information New Zealand and he expected it to be submitted at the beginning of the following week.  The secured debt against the development was some $3.2 million. The Trust had sufficient sales and equity for proposed management fees and beneficiaries’ dividend which was projected to be in the order of $300,000.  His affidavit also set out a schedule alleged to be a correct statement of his current financial position.  That schedule was somewhat confusing. It is not clear to me exactly how much Mr Kelly is presently worth. He acknowledged that while he was expected to pay $35,000.  He had not made that payment but said that he was confident that sum would be made within seven days from management fees for the development.

[11]     Mr Thomas’ affidavit of July 2017 was sworn in response to Mr Kelly’s. Mr Thomas noted that Mr Kelly has a record of broken promises of payment. He says that if Mr Kelly had adhered to his original payment proposals the debt would have been paid off by now.  He similarly notes that there had been no payments of the

$35,000.

[12]     On 1 June 2017, I gave directions for this case to be heard as an opposed application on 23 August 2017.  That fixture was vacated by consent, apparently on intimations that Mr Kelly had made arrangements to pay off the debt.  A fresh fixture was fixed for 31 October 2017.  Mr Kelly was directed to prepare a casebook and file and serve submissions.  He did not comply with those directions until Mr Bell-Booth tendered documents today. Mr Kelly did file a memorandum with the court last week saying that he sought an adjournment on health grounds.  With his memorandum he sent a medical certificate dated 9 August 2017 from a neurosurgeon.  Mr Kelly says that he has a virus.  I do note that he has attended in person today.

[13]     I note also that there are other insolvency proceedings on foot involving Mr Kelly.  In CIV-2017-404-804 a Judith Anne Davidson has applied for Mr Kelly’s adjudication in bankruptcy.  The amount of the debt is relatively modest, $9,200.00. That application was started on 23 June 2017.  In the call before me on 22 September

2017, I adjourned it to 19 October 2017 because Mr Kelly advised the court that he would pay the sum in the bankruptcy notice by that date.   He did not make that payment.  The matter was called on that date and directions were given for that case to be heard as an opposed adjudication application on 5 February 2018.  I note again Mr Kelly makes promises to pay and does not keep them.

[14]     There is also a proceeding against Chelsea View Estate Trust Ltd.  Mr Bell- Booth reminded me that I had adjourned that adjudication proceeding to 8 December

2017.   That adjournment was apparently granted because of anticipated sales by that company which would produce funds for creditors.   I cannot presently recall how much the creditor in that case is claiming.

[15]     Mr Bell-Booth submitted that there are three agreements for sale and purchase of lots within the Huka Street development.  The sale price is $1.1 million each for two properties, and $1.29 million for a third property.   Settlement is due in late November 2017.  The creditor in this case has apparently proposed that as a sign of good faith Mr Kelly should make a part-payment and the matter would be finally paid off by mid-March 2018.

[16]     In response to my enquiry, I was advised that Mr Kelly has a Visa card debt. He owes legal fees to lawyers who have acted for him in the past and he may have a personal tax liability.  He has not prepared a full and clear statement of his personal position.  Mr Kelly has arranged for his company, Chelsea View Estate Trust Ltd, to sign a guarantee in favour of the creditor.  In a memorandum Mr Kelly maintained that that constituted security which would defeat the creditor’s right to apply for his adjudication in bankruptcy.

[17]     The  reason  why  full  security  is  a  bar  to  applying  for  bankruptcy  that bankruptcy is primarily a remedy for an unsecured creditor. A guarantee offered by a surety is not security for that purpose.   A creditor is entitled to seek an order of adjudication as an unsecured creditor, because they will be entitled to share in any assets obtained from the bankruptcy of the debtor. The fact that the creditor may have recourse to other people – guarantors, for example – is neither here nor there when it comes to establishing the creditor’s status to apply for adjudication.

[18]     There is a lack of strong evidence from Mr Kelly that gives any assurance that the settlements will in fact take place. I treat the submissions made on his behalf with scepticism, because Mr Kelly has made promises like that in the past and he has not kept them.  His promises that the debts will be paid when the sales go through are similar to the promises he made in the affidavit he swore in May 2017.  That turned out to be unreliable.  I have no confidence that anything he says now would be any more reliable.

[19]     Mr Kelly has been stringing his creditors along on the basis that payment will be made soon, even though he does not have money now.  Invariably, excuses are offered  and payment has not been made. In short, Mr Kelly shows all the symptoms of an unreliable and insolvent debtor. He has clearly been insolvent since the District Court gave judgment to the creditor in April 2015.  It is a matter of serious concern that Mr Kelly has continued to operate in business while insolvent for the last two- and-a- half years.  I am concerned that he is chronically insolvent.  In my judgment that state ought not to continue. I have no confidence in his ability to pay his creditors. Given his chronic instability and his inability to deal with his creditors collectively, he should be adjudicated bankrupt.

[20]     There are no matters that count against his adjudication in bankruptcy.  All matters clearly point to his insolvency being redressed by an adjudication of bankruptcy.  I make an order adjudicating Mr Kelly bankrupt.  The time of the order is 11:05am.  I have a certificate from the creditor.  The costs to the creditor are under category 2. The creditor is to prepare a memorandum setting out costs. Disbursements are to be approved by the Registrar.

……………………………….

Associate Judge R M Bell