Anderson v Jones

[2021] NZHC 843

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2020-485-646

[2021] NZHC 843

UNDER

the Insolvency Act 2006

IN THE MATTER

of the bankruptcy of Kevin Robert Anderson

BETWEEN

KEVIN ROBERT ANDERSON

Applicant

AND

KIERAN JONES and STEVEN KHOV

Respondent

Hearing:

12 April 2021

Appearances:

J Dean for applicant (Judgment Debtor)

A Simkiss for respondent (Judgment Creditors)

Judgment:

21 April 2021

JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

[1]    This is an application by the judgment debtor, Mr Kevin Anderson, for an order setting aside a bankruptcy notice dated 11 November 2020 served on him by the judgment creditors, the liquidators of Reborn Holdings Ltd (in liquidation) (RHL), Messrs Kieran Jones and Steven Khov.

[2]    Mr Anderson was, and still is, the sole shareholder and director of RHL. RHL’s business involved acquiring relatively low value assets (essentially older vehicles), repairing or restoring them and selling them on.

[3]    The company expended a substantial amount of money purchasing plant and equipment, vehicles for rejuvenation and engaging a mechanic to carry out the necessary work.

ANDERSON v JONES [2021] NZHC 843 [21 April 2021]

[4]    Unfortunately, the company’s business plan unravelled when it became involved in an employment dispute with the mechanic. In the litigation that ensued the mechanic secured a substantial award of damages, on the basis of which he then commenced winding up proceedings. A winding up order was made on 21 May 2019 appointing Messrs Jones and Khov as liquidators.

[5]    Following their appointment, the liquidators identified a transaction that they regarded as voidable.

[6]    On 23 October 2018, the company and Mr Anderson had entered into an agreement whereby the company sold and Mr Anderson purchased the company’s (relatively recently revalued) assets for $125,000. On settlement no money changed hands, the effect of the transaction being to reduce the credit balance of Mr Anderson’s shareholder current account by that amount. Mr Anderson nominated another company with which he was and is connected by the name of Combined Projects (2016) Ltd (CPL) to take ownership of the assets.

[7]    On 18 February 2020 the liquidators served notice of their intention to set the transaction aside pursuant to s 294 of the Companies Act 1993. That notice expired without Mr Anderson having taken any steps. Accordingly, the transaction was set aside.

[8]    The liquidators then issued proceedings seeking an order pursuant to s 295(a) of the Companies Act 1993 which provides that when a transaction is set aside under s 294 the Court may make “… an order that a person pay to the company an amount equal to some or all of the money that the company had paid pursuant to the transaction”.

[9]Mr Anderson did not enter an appearance.

[10]   Accordingly, on the liquidator’s application, judgment was entered against Mr Anderson on 14 July 2020.

[11]   This was a default judgment. It was of course open to Mr Anderson to move to have it set aside. He has not done so.

[12]   Having secured judgment against Mr Anderson for $125,000 plus costs, the liquidators served the bankruptcy notice that is the subject of this application.

[13]   Whilst in his affidavit evidence Mr Anderson deposes that he does not recall the originating documents in the liquidators’ proceeding pursuant to s 295(a) being served on him, he does not deny service, and, on the evidence, I am satisfied that service was effected.

[14]   On receipt of the bankruptcy notice Mr Anderson put the matter in the hands of his solicitors and this application followed.

[15]   Mr Dean very properly accepted that he could not conscientiously argue that there was any procedural defect or other irregularity associated with the liquidators having secured judgment against Mr Anderson. He did submit that Mr Anderson may have had grounds for defending the liquidators’ claim. However, he accepted that, in the context of this application, it was not open to the Court to revisit the merits of their claim.

[16]   The contention that the Court should set aside the liquidators’ bankruptcy notice was advanced by Mr Dean on the sole ground the Court should exercise its inherent jurisdiction to do so because the proceeding constituted an abuse of process.

[17]   There is a considerable body of law relating to when a proceeding may be or become an abuse of process, and it would not assist to attempt a summary of all such circumstances here.1

[18]   For present purposes, it is only necessary to say that bankruptcy proceedings are a summary process and that the adjudication of an individual bankrupt is a very serious step. I accept the broad thrust of Mr Dean’s submission that if it could be demonstrated that Mr Anderson was under an incapacity so that he was unable to challenge the steps being taken by the liquidators commencing with the service of the notice pursuant to s 294 of the Companies Act, the proceedings commenced by the

1      See Re Wise, ex parte Benecke HC Auckland B227-228/95, 21 June 1995 at 6; Krukziener v Hanover Finance Ltd HC Auckland CIV-2007-404-002896, 12 August 2008, at [29]; Izard Weston v Ayers [2017] NZHC 3000, at [10]. Generally, the Court will intervene to avoid a miscarriage of justice.

liquidators against him for a money judgment pursuant to s 295(a) of the Companies Act or subsequently to apply for an order setting aside the money judgment there might be a basis for an argument that it is an abuse of process for the liquidators to proceed with bankruptcy proceedings on the basis of that judgment.

[19]What, then, is the evidence concerning this claimed incapacity?

[20]   In his original affidavit Mr Anderson said that he was unable to deal with the liquidators’ proceeding because at that time he had only recently had a heart attack and was  undergoing  very  serious  medical  treatment.  It  turns  out,  however,  that   Mr Anderson’s recollection of the dates was faulty.  He had  his  heart  attack  in May 2017. Liquidators were appointed to RHL in May 2019, Mr Anderson was served with the s 294 notice in February 2020, and the bankruptcy notice was served in November 2020.

[21]   Very late in the piece, Mr Anderson filed a second affidavit attaching various reports from medical personnel spanning the period February 2018 – March 2021. Taken collectively this material establishes that Mr Anderson suffered from a variety of health issues over that period of time, and still does. No useful purpose would be served by outlining the details of Mr Anderson’s health conditions here.

[22]   However, as  Ms  Simkiss  for the liquidators  submitted, and Mr Dean for  Mr Anderson accepted, nowhere in any of this material do any of the health professionals say — or even come remotely close to saying — that Mr Anderson’s health as at the time the originating documentation in the proceeding was served, or, for that matter, at any subsequent time, was he unable to understand the nature of the claim against him or take steps in relation to the same.2

2      In fact, a geriatrician noted in February 2018 that “there are no current cognitive concerns”. In April 2019 a doctor did note that between the beginning of 2016 to the end of 2018 Mr Anderson was “not well enough to run multiple businesses”, and in February 2021 a community social worker noted “some evidence of cognitive impairment”, but these comments do not establish at the relevant time period that Mr Anderson was unable to understand or take steps in relation to the claim against him.

[23]   Moreover, it is clear from the evidence that Mr Anderson did appreciate what was occurring and was able to address it because, in June 2020, he approached the liquidators’ solicitors in an attempt to negotiate a settlement.

[24]   I do not doubt that Mr Anderson suffers from multiple health problems. But to set aside a bankruptcy notice on the basis Mr Anderson was effectively incapacitated or unable to respond adequately to the steps leading up to the bankruptcy proceeding would require cogent evidence. Ultimately, I am not satisfied Mr Anderson has provided such evidence.

[25]   In those circumstances, I do not think the Court is in a position to conclude the bankruptcy proceeding is an abuse of process.

[26]The application to set aside the bankruptcy notice is dismissed.

[27]   Costs are reserved. If counsel cannot resolve these they may file memoranda in the usual way.

Associate Judge Johnston

Solicitors:

John Dean Law Office, Wellington for applicant (judgment debtor) MinterEllisonRuddWatts, Auckland for respondent (judgment creditors)