Asteron Trust Services Limited v Moroney

[2013] NZHC 1460

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-4331 [2013] NZHC 1460

IN THE MATTER             of the Insolvency Act 2006

IN THE MATTER             of the bankruptcy of John Anthony Gerard

Moroney

BETWEEN  ASTERON TRUST SERVICES LIMITED Judgment Creditor

ANDJOHN ANTHONY GERARD MORONEY

Judgment Debtor

Hearing:                   17 June 2013

Counsel:                  JRF Cochrane for judgment creditor

MJ Utting for judgment debtor

Judgment:                17 June 2013

(ORAL) JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application to adjudicate JAG Moroney bankrupt]

Solicitors:           Bell Gully, Auckland 1140

Thode Utting & Co, Auckland 0752

ASTERON TRUST SERVICES LIMITED v MORONEY [2013] NZHC 1460 [17 June 2013]

The creditor’s application

[1]      The judgment creditor applies for an order adjudicating John Anthony Gerard

Moroney a bankrupt.

[2]      The judgment creditor obtained judgment against the judgment debtor in the High Court at Auckland on 29 June 2012 for $6,070,553.66, being the amount of claim and contract interest and costs.  In addition, disbursements were fixed.

[3]      The judgment creditor applied for the issue of a bankruptcy notice.   The bankruptcy notice was duly issued and served on the judgment debtor on 8 August

2012.  The judgment debtor made application to set aside the bankruptcy notice on

16 August 2012.   Associate Judge Bell made an order dismissing the judgment debtor’s  application  on  20 February  2013.    In  his  minute  the  Associate  Judge recorded that the judgment debtor had a further four days in which to comply with the bankruptcy notice.

[4]      The judgment debtor did not comply with the bankruptcy notice and thereby committed an act of bankruptcy.

[5]      The judgment creditor filed the current application on 4 March 2013.   The application was called on 16 April 2013 when directions for this hearing were made.

[6]      The judgment debtor advances two principal grounds in opposition, namely:

a)        Negotiations  are  currently  underway  for  the  purchasing  of  the mortgages;

b)The value of the judgment debt is less than the value of the secured properties.

[7]      Counsel for the judgment debtor, in his written submissions, clarified the grounds in opposition as follows:

a)        The debt does not exceed the value of the charge by at least $1,000 (Insolvency Act 2006, s 14);

b)Given negotiations that are currently ongoing and which are likely to bring resolution to this matter, it would be just and equitable that the court does not make an order to adjudicate the judgment debtor bankrupt (Insolvency Act 2006, s 37(c)).

The jurisdictional requirements

[8]      The  jurisdictional  requirements  that  must  be  met  before  an  order  of adjudication is made are contained in ss 13, 14 and 36 of the Insolvency Act 2006. Section 13 provides:

13.      When creditor may apply for debtor's adjudication

A creditor may apply for a debtor to be adjudicated bankrupt if—

(a)       the debtor owes the creditor $1,000 or more or, if 2 or more creditors join in the application, the debtor owes a total of $1,000 or more to those creditors between them; and

(b)       the debtor has committed an act of bankruptcy within the period of 3 months before the filing of the application; and

(c)       the debt is a certain amount; and

(d)       the debt is payable either immediately or at a date in the future that is certain.

[9]      Section 36 provides:

36       Court may adjudicate debtor bankrupt

The  Court  may,  at  its  discretion,  adjudicate  the  debtor  bankrupt  if  the creditor has established the requirements set out in section 13.

[10]     The jurisdictional requirements are met in this case.

Valuation of securities

[11]     Section 14 provides:

14       Application by secured creditor

The Court must not make an order of adjudication on the application of a secured creditor unless the creditor has established that the amount of the debt exceeds the value of the charge by at least $1,000.

[12]     The scope and effect of s 14 needs to be considered in the context of this case.  In Bridgecorp Ltd (in rec) and (in liq) ex parte Nielsen, Heath J did not regard compliance with s 14 as a matter going to jurisdiction.1   He held that it was a matter of evidence which must be satisfied before an order of adjudication could be made. He held that the securities or charge referred to in s 14 must be in respect of property of the judgment debtor.  As a consequence, a failure to refer to the security or charge in the application for an adjudication order, held over property which was not owned by the judgment debtor, could not invalidate the proceeding.  He observed:2

A  deliberate  decision  appears  to  have  been  made  to  exclude  securities granted by principal debtors, co-covenantors or guarantors, in respect of property that the debtor does not own.

That conclusion was supported by Associate Judge Bell in Trustees Executors Ltd v

Laybourn.3

[13]     That approach is consistent with the fact that a guarantor is not usually able

to rely on the principal debtor’s ability to satisfy the debt.4

[14]     This ground of opposition therefore will be considered when I analysis the facts and their application to the law.

[15]     The second part of the case, however, requires a consideration of s 37 of the

Insolvency Act 2006.  Section 37 provides:

37       Court may refuse adjudication

The Court may, at its discretion, refuse to adjudicate the debtor bankrupt if—

1   Bridgecorp Ltd (in rec) and (in liq) v Nielsen [2010] 1 NZLR 820 at [45].

2 Ibid, at [31].

3   Trustees Executors Ltd v Laybourn HC Auckland CIV-2010-404-1994, 6 May 2011.

4   Re Rider(1882) 22 Ch 74 at 80. Cited with approval by the Supreme Court in Regal Castings Ltd v Lightbody [2009] 2 NZLR433 at [116].

(a)       the applicant creditor has not established the requirements set out in section 13; or

(b)      the debtor is able to pay his or her debts; or

(c)       it is just and equitable that the Court does not make an order of adjudication; or

(d)      for any other reason an order of adjudication should not be made.

[16]     Of necessity, because the exercise of a discretion is involved, the case must be looked at having regard to the specific facts involved.

[17]     In Eide v Colonial Mutual Life Assurance Society I summarised the general principles involved in the exercise of the discretion under s 26 of the Insolvency Act

1967 (which is now s 37 of the Insolvency Act 2006) and noted that the important matters were the following:5

1)“A creditor who establishes the jurisdictional facts set out in s 23 is not automatically entitled to an order. On the other hand, it is for an opposing debtor to show why an order should not be made.” McHardy v Wilkins & Davies Marinas Ltd (Court of Appeal, Wellington, CA 54/93, 7 April 1993) at p 3.

2)“. . . in the exercise of the discretion under s 26 it is proper for the Court to consider not only the interests of those directly concerned – the petitioner, other creditors, the debtor – but also the wider public interest.” McHardy v Wilkins & Davies Marinas Ltd (supra) at p 3.

3)In determining whether an order should be made, the wider public interest   must   be   taken   into   account   to   determine   whether adjudication is “conducive or detrimental to commercial morality and the interests of the general public.” Re Nisbett, ex parte Vala [1934] GLR 553 at p 556.

4)“. . . on a bankruptcy petition the Court must have regard to public interest in a way which transcends the interest of the immediate parties to the proceeding. . . . The public interest in exposing and controlling an insolvent debtor is one which exists quite independently of  the  separate  question  of  debt  collection  by  his immediate creditors.” Re Fidow [1989] 2 NZLR 431 at p 444.

5)        Absence of assets is a factor but:

“. . . even the undoubted absence of assets will not necessarily preclude an order, for the circumstances may be such that the debtor ought in the public interest to be visited

with   the   disqualifications   that   go   with   bankruptcy.”

McHardy v Wilkins & Davies Marinas Ltd (supra) at p 3.

6)        Another matter:

“. . . is the potential for further investigation. A bankruptcy makes available to creditors an array of procedures for investigating  the  financial  circumstances  of  the  debtor. Those procedures are likely to prove more effective than an investigation conducted by other means.” Re Fidow (supra) at p 444.

7)        There is a need:

“. . . for the Court to balance the various considerations relevant to the case, and to determine whether in the end the debtor has succeeded in showing that an order ought not to be made”. McHardy v Wilkins & Davies Marinas Ltd (supra) at p 4.

[18]     That approach was expressly approved by the Court of Appeal.6

Background

[19]     The judgment that was entered against the judgment debtor arose under a deed of guarantee and indemnity that he gave to the New Zealand Guardian Trust Company Ltd on 6 March 2007.  The guarantee is in respect of the indebtedness of Clan Na Gael Holdings NZ Ltd and Limerick Land Ltd.  That indebtedness arises under a loan agreement dated 1 December 2009.  On 25 November 2010, the New Zealand Guardian Trust Company Ltd assigned its rights under the loan agreement and guarantee to the judgment creditor.

[20]     The indebtedness of Clan Na Gael Holdings NZ Ltd and Limerick Land Ltd was secured by:

(a)      a   first   registered   mortgage   over   the   property   known   as   the Whangaruru Campground, which was owned by Clan Na Gael Holdings NZ Ltd and a property at Oakura Road, which was owned by Limerick Land Ltd; and

(b)a second-ranking general security agreement over all present and after acquired property of Clan Na Gael Holdings NZ Ltd and Limerick Land Ltd.

[21]     The two companies failed to make repayment in accordance with the loan agreement.   Property Law Act notices were issued to the companies and to the judgment debtor.   The default in the Property Law Act notices was not remedied. The judgment creditor then obtained judgment against the judgment debtor.

[22]     The judgment debtor filed an appeal against the judgment.   On 22 March

2013 the Court of Appeal gave notice that the judgment debtor’s appeal was deemed

abandoned.

[23]     The  judgment  creditor  requested  the  issue  of  a  bankruptcy  notice.    The judgment debtor was then served with the bankruptcy notice.  He applied to set that aside. As already mentioned, the application was dismissed by Associate Judge Bell.

[24]     On 4 December 2012, the judgment creditor obtained advisory reports from a firm of registered valuers, Telfer Young Northland Ltd.  The reports expressed the view that at a mortgagee the sale the Whangaruru Campground was likely to realise between $2.2million and $2.5million.  The Oakura Road property was said to very likely to realise between $600,000 and $650,000.

[25]     The judgment creditor carried out a tender process in December 2012.   It followed eight weeks of marketing by Bayleys Real Estate agents.  At the conclusion of the tender process, the best offer received was for $800,000 for the Whangaruru Campground and $300,000 for the Oakura Road property.

[26]     On 12 December 2012, Asteron placed Clan Na Gael Holdings NZ Ltd and

Limerick Land Ltd into receivership.

[27]     On 28 March 2013, the judgment creditor entered into a sale and purchase agreement for each of the properties.   The agreements are conditional on due diligence by the purchasers.  The purchase prices are $2.5million for the Whangaruru

Campground and $400,000 for the Oakura Road property.  I was advised from the bar that the date for compliance with the due diligence condition had been extended to a date in August.  What is significant, however, is that the sales of these properties will nowhere near satisfy the judgment that has been obtained against the judgment debtor.

[28]     The judgment debtor has referred to rating valuations for the two properties. The Whangaruru Campground property had a rating valuation of $6.35million in

2009 and the Oakura Road property had a rating valuation of $1.96million, also in

2009.  Those rating valuations have been referred to prospective purchasers.

[29]     Mr KV Harris, a credit recovery manager for Suncorp Mortgage Company New Zealand Ltd which provides mortgage administration services to the judgment creditor, has filed an affidavit in which he explains the position relating to the rating valuations.   He draws attention to the fact that the valuations are carried out on a three-yearly basis for rating purposes only.  The most significant factor here is that their existence has not produced any prospective purchaser who has been prepared to make an offer of anything like the figures that are referred to in the rates valuation. He referred to an attempted sale of the Whangaruru Campground by Clan Na Gael Holdings NZ Ltd in April 2011.  Three tenders were received, namely:

a)        A conditional offer by the Murray Family Trust for $1,270,000;

b)        Another conditional offer by the Murray Family Trust for $1,510,000;

and

c)        An unconditional offer by Elizabeth Lambert for $5,500,000.

Mr Harris said that the Lambert offer turned out not to be genuine.  No deposit was ever paid  and  the  agreement  never settled.    Ms Lambert  was  bankrupted.   The Official Assignee disclaimed the agreement on 23 November 2012.

[30]     The evidence placed before me establishes that the judgment debt far exceeds the amount that could be obtained by realising the securities held by the judgment creditor.

[31]     In the course of submissions, Mr Utting invited me to receive an email which presented a new offer.  Its introduction into evidence was opposed by Mr Cochrane. I stood the case down to allow the parties to see if there was evidence of an offer that might be acceptable and might resolve the proceeding.  Counsel indicated that they would have an answer before 3pm.

[32]     Unfortunately, no concrete proposal acceptable to the judgment creditor has been forthcoming.

Analysis

[33]     As I have already found, the jurisdictional requirements for the making of an order of adjudication have been met in this case.

[34]     I  have  further  concluded  that  s 14  provides  no  answer  to  the  judgment creditor’s application because securities, which are held by the judgment creditor, are not over the judgment debtor’s property.

[35]     The above, therefore, leaves for consideration the court’s discretion under s 37.  The judgment debtor’s case has been built on the premise that he might be able to arrange a settlement acceptable to the judgment creditor and which involved the release of the securities.   Unfortunately,  there  is  no  current  foundation  for that position.  Counsel discussed the various factors that I referred to in Eide v Colonial Mutual Life Assurance Society Ltd.7 There are, in fact, no new factors which would justify the exercise of discretion to not adjudicate in this case.

Orders

[36]     According  I  order  that  John  Anthony Gerard  Moroney  be  adjudicated  a bankrupt.

7      Above, n 5.

[37]     This order is made at 3:13pm

Costs

[38]     The  judgment  creditor  is  entitled  to  costs  based  on  Category  2  Band B

together with disbursements as fixed by the Registrar.

JA Faire

Associate Judge