Bank of New Zealand v Holland

[2017] NZHC 663

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

CIV 2016-404-001607

[2017] NZHC 663

UNDER

the Insolvency Act 2006

AND

IN THE MATTER OF

the bankruptcy of HELEN PATRICIA HOLLAND

BETWEEN

BANK OF NEW ZEALAND

Judgment Creditor

AND

HELEN PATRICIA HOLLAND

Judgment Debtor

CIV 2016-404-001604

IN THE MATTER OF

the bankruptcy of RICHARD KRISTIAN HENRY HOLLAND

BETWEEN

BANK OF NEW ZEALAND

Judgment Creditor

AND

RICHARD KRISTIAN HENRY HOLLAND

Judgment Debtor

Hearing:	5 April 2017
Appearances:	TJG Allan/CJL Wei for the Judgment Creditor H P Holland and RKH Holland in person
Judgment:	7 April 2017

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

This judgment was delivered by me on

07.04.17 at 3:30pm, pursuant to Rule 11.5 of the High Court Rules.

BANK OF NEW ZEALAND v HELEN PATRICIA HOLLAND [2017] NZHC 663 [7 April 2017]

[1]        The Bank of New Zealand (the Bank) applies for orders to adjudicate Mr and Mrs Holland (the debtors) bankrupt.

Background

[2]        On 14 June 2016 the Bank obtained summary judgment against the debtors jointly and severally for the sum of $380,560.74.

[3]        Bankruptcy notices were served on 4 August 2016. By orders dated 2 August 2016 the Court had authorised substituted service of the bankruptcy notices upon the debtors’ solicitor Mr A Thomas.

[4]        On 18 August 2016 the debtors applied to set aside the orders for substituted service and the bankruptcy notices. They claimed insufficient attempts had been made to effect personal service of those notices on them.

[5]        Those applications were heard on 2 December 2016. The Court’s decision issued on 8 December 2016. Regarding the application to set aside the substituted service order the Court held, inter alia, there were reasonable grounds for believing that the debtors were avoiding service and were uncooperative with that process and that substituted service was appropriate.

[6]        The debtors’ application to set aside the bankruptcy notices concerned whether appropriate reasons existed to restrict the Bank’s recourse to the adjudication process. That enquiry also focussed upon the Court’s decision granting summary judgment in favour of the Bank. It was the Court’s decision that the Bank’s mortgagee sale of the debtors’ property had been properly conducted including by use of the tender process to effect sale. The evidence noted there were eight bidders and that recourse to the mortgagee process had been deferred for seven months while the debtors themselves endeavoured to effect a private sale of the said property.

[7]        The debtors filed an appeal of the High Court’s grant of summary judgment. The Court of Appeal Registrar refused to waive the appeal filing fee. On 30 August 2016 the debtors filed an application for review of the Registrar’s decision. On 12

September 2016 Wild J declined to review the Registrar’s decision not to waive a filing fee on the appeal.

[8]        The filing fee was not subsequently paid and the appeal is now deemed to have been abandoned.

[9]        Upon their application to set aside the bankruptcy notices the debtors continued to maintain there was a sufficiency of evidence, including some obtained after the delivery of this Court’s order for summary judgment, to prove that the summary judgment decision was unsafe. Reference was made to emails provided in the debtors’ separate proceeding against the real estate agency that had been engaged first by the debtors and subsequently by the Bank to manage the mortgagee sale process. It is asserted those emails support the debtors’ claims that use of the tender process was inappropriate and that the property had been sold at undervalue.

[10]      It was the Court’s conclusion regarding those factors raised upon the application to set aside the bankruptcy notices that claims of new email evidence did not provide proper reasons to set aside the bankruptcy notices. Further that consideration of sale process and price achieved had been sufficiently reviewed upon the summary judgment application.

[11]      Regarding the debtors’ claims of a potential recourse to funds in the outcome of their proceeding against the real estate agent the Court noted in that regard s 17(7) of the Insolvency Act 2006 would not appear to contemplate a cross claim except against the creditor.

[12]      Finally the Court noted the debtors’ appeal to the Court of Appeal was at least then, at an end.

[13]For these reasons the debtors’ setting aside applications were dismissed.

The adjudication application hearing

[14]      The adjudication application was heard on 4 April 2017. The written submissions of the debtors filed on 29 March 2017 addressed the just and equitable provisions of s 37 of the Act. These will be reviewed shortly. However, and prior to the hearing commencing the Court received a copy of the debtors’ interlocutory application to set aside the Court’s 14 June 2016 summary judgment decision. The Court file noted that no filing fee had been paid. Later during the morning adjournment Mrs Holland then paid the filing fee.

[15]      In the Court’s view the late filing of that application did not provide proper cause to delay consideration of the bankruptcy applications. The Court’s view was that regardless of the outcome of the present application the debtors would not be prevented from pursuing their new setting aside judgment application, if it could be pursued at all.

Legal principles

[16]      The requirements of s 13 of the Act are met. The debtors’ have debts of more than $1,000.00. Effectively the act of bankruptcy occurred on 8 December 2016 when the Court dismissed the debtors’ bankruptcy proceeding challenges and because the debtors have since failed to pay the debts stated in the bankruptcy notice. The applications for adjudication were filed on 20 December 2016.

[17]The judgment debtors rely on s 37 of the Act. That provides:

Section 37 – the Court may refuse adjudication

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

…

(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.

The debtors’ case

[18]      On behalf of the debtors, Mrs Holland submitted considerations of justice and equity should persuade the Court not to make orders for adjudication. Mrs Holland submitted the judgment entered against the debtors concerned the shortfall following the mortgagee sale of their property. The debtors and the Bank then reached an agreement for the payment of that shortfall. Later when summary judgment was sought, the debtors by their applications to set aside the bankruptcy notices challenged that process by which the Bank completed its mortgagee sale of the debtors’ property. The debtors filed lengthy affidavits by their challenges of the bankruptcy notices. Mrs Holland submitted that while the judgment creditor had obtained judgment it had done so in circumstances where it had not provided full disclosure of documents that may have helped the defence.

[19]      Mrs Holland submitted there is a challenge to the Bank’s claim of having relied upon the advice of a reputable real estate agent regarding the method of sale to be used. Mrs Holland disputes that claim and says that after the summary judgment hearing documents were obtained from discovery in the separate proceeding the debtors took against the real estate agent, supporting the position that it was in fact the Bank who was telling the agent what to do by way of a sale process rather than the reverse.

[20]      Mrs Holland submitted that the Bank was in breach of its mortgagee duties under s 176 of the Property Law Act 2007 when it directed that a valuation, higher than the one it had earlier obtained, was not to be given to prospective purchasers; and therefore that the summary judgment is flawed and that it is not just and equitable to base adjudication orders on it. The debtors are, she submits, committed to the belief that the property was sold at undervalue, that the Bank and the real estate agent were responsible for this, and that a better outcome would have been achievable.

[21]      Mrs Holland submits there is genuine merit in the debtors’ claim against the real estate agent because a prospective purchaser may have been prepared to pay more had that person been shown another valuation report. In response the Court enquired as to what duty required the real estate agent, then acting for the Bank, to give that

information. Mrs Holland’s reply was that the agent in question had earlier been engaged by the debtors before being engaged by the Bank and therefore disclosure of the said valuation was a requirement of obligations then owed to the debtors.

[22]      Mrs Holland also submitted the present adjudication applications are oppressive and therefore bankruptcy orders ought not to be made. The judgment against the debtors has not, Mrs Holland says, arisen out of commercial activity from which the community/public needs to be protected.

[23]      Mrs Holland advised the Court that only recently her six month work contract had concluded. She advised that if bankrupted she would lose accreditation as a barrister and solicitor. She is presently looking for further contract work.

[24]      Mr Holland advises that while he has for some time been unemployed he has recently obtained employment. He gave no details in that regard.

Considerations

[25]      A bankruptcy notice was served and although challenged it was not set aside; and the debt is for a certain amount and is payable immediately.

[26]      The debtors rely on s 37 of the Act. While clearly they are unable to pay the Bank’s debt they claim they have valid grounds for which the Court should not adjudicate them bankrupt.

[27]      Considerations of justice and equity are factors which in this case affect the Bank and the debtors, but also wider public interests.

[28]      It is for the debtors to provide proper reasons why a bankruptcy order should not be made. They claim the process is oppressive. They indicate reasons why they believe the judgment against them can still be challenged.

[29]      The Court’s task in these cases is to balance relevant considerations to determine whether a debtor has succeeded in showing that an order ought not to be made.1

[30]      Issues between the debtors and the Bank have a lengthy background. In 2006 the Bank lent funds to the debtors to enable them to freehold their Dilworth Trust Board property and to pay debt and tax due. That debt totalled about $2M. By 2010

$300,000 - $400,000 had matured but had not been repaid. The Bank served Property Law Act notices on 29 October 2010.

[31]      As noted by the Courts judgment dated 14 June 20162 before service of the Property Law Act notices the Bank had provided the debtors with an opportunity to sell their Dilworth property. The debtors spent about seven months attempting to do this and had engaged the services of three real estate agents. They undertook improvements to the house. Despite their best efforts only one offer of purchase was made. The Bank then decided to initiate the mortgagee sale process.

[32]      The property was sold by tender. The debtors have issues regarding their perceptions of failings by the Bank and the real estate agent in the mortgagee sale process undertaken. In essence, those challenges concern the use of the tender sale process used. Mrs Holland submits that the property was sold for undervalue. As earlier noted the Court did not accept that there was sufficient evidence of these contentions. Rather, they are really about the debtors’ perceptions of what in hindsight should have been done. To the contrary, evidence from a registered valuer indicates that a fair value was likely obtained by the sale in that market.

[33]      Regardless, following that mortgagee sale a shortfall remained. The Bank and the debtors agreed this be converted into a term loan. For three years thereafter the debtors met their loan agreement repayment obligations but then began defaulting from June 2015. That default was the subject of the Bank’s subsequent summary judgment application. In the debtors defence of the summary judgment claim issues were raised regarding the mortgagee sale process about four years earlier. They are

1 Baker v Westpac Banking Corporation CA 212/92 at page 4.

2 [2016] NZHC 1275.

raised again upon these bankruptcy applications. Those same issues were to be the subject of grounds to be advanced by the debtors’ appeal of this Court’s grant of summary judgment. That appeal was abandoned. As earlier noted the debtors on the morning of this hearing have filed an application to set aside the summary judgment.

[34]      It seems to this Court at this time that these issues are really attempts to relitigate the debtors’ concerns about the mortgagee sale processes used but do not persuade the Court upon its consideration of the bankruptcy applications.

[35]      The fact remains that the debtors are impecunious. The Bank’s debt remains unpaid. It seems the debtors may owe in the region of $800,000.

[36]      Upon their opposition to the adjudication applications the debtors have continued to raise the same arguments as in their earlier proceedings however they still remain unable to repay any of the debts owing.

[37]The debtors’ appeal has lapsed and effectively has been abandoned.

[38]      The debtors retain their third party proceeding against the real estate agent but no evidence has been provided regarding when that claim might be heard. The debtors have only recently completed discovery obligations and an issue remains about whether they have done this sufficiently.

[39]      That proceeding was filed in September 2015. Bankruptcy will not prevent the proceeding being pursued against the real estate agent. The Official Assignee would be well able to pursue that if of the view there was merit in doing so.

[40]      The unavailability of employment is a factor often raised on behalf of an insolvent facing bankruptcy. In this case there is no evidence that either of the debtors will be unemployable if bankrupted. Mrs Holland may not be able to practice on her own account but that will not prevent her from obtaining employment using the skills she has as a lawyer.

[41]      Mr Holland advised the Court that he proposes submitting a repayment proposal to creditors. However that is not a matter to be addressed here and at this

time as the Court has no indication of the full extent of Mr Holland’s debts or of his means to effect repayment of those. It seems he only recently has become employed after a lengthy period of unemployment. Also it does not appear that he has access to any assets.

[42]      What is clear to the Court is that the Bank has provided the debtors with ample opportunities to repay their debt.

[43]      The Court has made reference to the setting aside judgment application filed immediately before this hearing began. Earlier expressed is this Court’s view that application should not persuade this Court to defer or affect consideration of the bankruptcy applications, notwithstanding that s 38 of the Act enables the Court at any time to halt a creditor’s adjudication application.

[44]      However and even if the Court was inclined to utilize s 38 it seems there are hurdles too high for the debtors to persuade the Court that it is appropriate to halt the present applications.

Conclusions

[45]      The Court does not consider the judgment debtors have met the requirements under s 37 of the Act sufficiently to persuade the Court to refuse the Bank’s applications. It remains clear that the debtors cannot pay their debts and are well short of being able to do so in the near future.

[46]      It is the Court’s decision that it is just and equitable for orders of adjudication to be made.

Judgment

[47]      There are orders adjudicating Richard Kristian Henry Holland and Helen Patricia Holland bankrupt. Those orders are timed at 3:30pm, on this day the judgment issued.

[48]      Costs upon the adjudication applications are fixed on a 2B basis and are payable to the Bank.

Other

[49]      Any applications arising out of this judgment are to be filed and served in writing and in response to which the Court requests any reply be received within  two working days.

Associate Judge Christiansen