Bank of New Zealand v Liddle HC Auckland CIV 2010-404-1988

[2010] NZHC 853

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-001988

UNDER  the Insolvency Act 2006

IN THE MATTER OF     the bankruptcy of WESLEY JOHN LIDDLE

BETWEEN  BANK OF NEW ZEALAND Creditor

ANDWESLEY JOHN LIDDLE Debtor

Hearing:         11 May 2010

Appearances: D Broadmore for Creditor

W J Liddle (Debtor in person) Judgment:  11 May 2010

ORAL JUDGMENT OF ASSOCIATE JUDGE BELL

Solicitors:

Buddle Findlay (S Barker), PO Box 2694, Wellington

Copy to:

W J Liddle (Debtor in person) c/o Level 7, 369 Queen Street, Auckland

BANK OF NEW ZEALAND V W J LIDDLE HC AK CIV-2010-404-001988  11 May 2010

[1]      This is an application for an adjudication in bankruptcy.

a)       The creditor, the Bank of New Zealand, says that the debtor owes it

$919,358.04, being a shortfall that the creditor suffered after conducting a mortgagee sale of properties where the debtor had guaranteed the mortgages.

[2]      The creditor pleads the act of bankruptcy in its application, as follows:

The debtor has committed an available act of bankruptcy as follows:

(i)On  12  February  2010,  the  debtor  (as  an  “Insolvent”)  made  a proposal to his creditors (“the Proposal”) under Subpart 2, Part 5 of the Insolvency Act 2006 (“the Act”);

(ii)       An “Insolvent” is defined in s 325(1) of the Act as a person who is not a bankrupt, but who is unable to pay his or her debts as they become due; and

(iii)      Pursuant to s 22 of the Act, the Proposal dated 12 February 2010 was notification to the creditors of the debtor that he had suspended, or was about to suspend, payment of his debts.

[3]      That pleading relied on s 22 of the Insolvency Act.  Section 22 of the Act says this:

A debtor commits an act of bankruptcy if the debtor notifies any of the debtor’s creditors that the debtor has suspended or is about to suspend payment of the debtor’s debts.

[4]      It is to be noted that that creates a means by which a creditor can move immediately to have a debtor adjudicated bankrupt and it is not necessary for the creditor first to obtain judgment against the debtor and there is therefore no need for the preliminary determination of liability.

[5]      On the question of the debtor’s liability to the Bank, there is evidence that the Bank did suffer a shortfall on the sale and in the proposal which has been put in evidence, it is clear that the debtor admits some liability to the Bank and the proposal provided that he estimates his liability as in the order of $700,000.

[6]      While it is clear that Mr Liddle owed the Bank some money, the question is whether what he did amounted to an act of bankruptcy under s 22, that is whether he

notified his creditors that he had suspended or was about to suspend payment of his debts.

[7]      The Bank has put in evidence a proposal dated 12 February 2010 which is signed  by Mr  Liddle  and  with  it  a  statement of  his  affairs  and  affidavit.    The statement of affairs and affidavit set out Mr Liddle’s assets, which are said to be about $3000, and debts and liabilities, which are put in the order of $1,219,750.  He also deposes to having been a trustee of a family trust which owns shares in a company, Corinthian Homes Ltd.

[8]      The proposal, in effect, is that Mr Liddle would pay a trustee sums over a five year period and after deduction of commission, there would be distributions to the creditors.  It is a very modest proposal.  Gross payments each year are $4,500 and, not surprisingly, the creditors rejected it.  The issue I am required to consider is whether that proposal amounts to a notice to suspend payments.

[9]      There are decisions of the Courts on the point that need consideration.  One is a decision of the English Court of Appeal, Ex Parte Oastler re Friedlander (1884)

13 QBD 471. In that case, a man who had been trading in England went to Paris and was approached by his creditors in Paris and then in a conversation stated that he had started in business six or seven years prior without any capital and that he was unable to pay the debts of the firm and that he offered a 20 per cent dividend. He also stated he could obtain assistance from his brother-in-law who, however, would not assist him until he had made some arrangements with his creditors and after he had obtained his discharge. The question arose in that case whether that amounted to an act of bankruptcy under the English bankruptcy legislation which, for present purposes, is in the same terms as s 22 of our Insolvency Act.

[10]     Baggallay LJ  held that the statement in a conversation did not have the requisite formality to amount to a notice of suspension of payment of debts but Cotton LJ gave an alternative ground, and I quote from his judgment at pp 474 to

475:

But the debtor did not in fact intimate either that he had suspended payment of his debts, or that he had any intention of stopping paying his creditors. He only said, My assets are insufficient to pay my debts in full.   If my creditors will make an arrangement with me, I can obtain assistance from my friends.  That was not an intimation that he had suspended, or that he was about to suspend, payment of his debts;  it was only an intimation that the creditors would get more in that way than they were likely to get in any other way.  To my mind, there is a great difference between saying, “If all my assets are distributed my creditors will not get 20s. In the pound,” and

saying, “If any creditor comes to me in the ordinary course for payment I

shall not pay him,” or “I have suspended the payment of my debts.”

Lindley LJ agreed with both judges.

[11]     The decision going the other way is the decision of Master Kennedy-Grant in Re Connor, ex parte Carter Holt Harvey Ltd [1996] 1 NZLR 244. In that case, people who had operated a business ran into financial difficulties and wrote letters to the creditor, Carter Holt Harvey Ltd. I quote from one of the letters quoted by the Master at p 245 where it says:

You are aware of our situation.   The bank appointed a receiver in February ending any hope of our continuing to trade either to realistically  meet  our  obligations  through  trading  or  to  sell  the business as a going concern.

[12]     Further on, the Master quoted a letter from the debtor’s solicitors of 24 April

1995, which was to similar effect.   Master Kennedy-Grant concluded, with some hesitation, that these letters did amount to a notice to suspend payment of debts.

[13]     In this case, the proposal made by the debtor is certainly an admission of insolvency but it is a further step to go from an admission of insolvency to say that the debtor is giving notice of his intention to suspend debts.  That becomes apparent also by looking at s 23 of the Insolvency Act, which is when an admission of insolvency to creditors can amount to an act of bankruptcy if it is accompanied by other matters, that is, that the admission is made at a meeting of creditors and the majority of the creditors require the debtor to file an application for adjudication, or the debtor agrees to apply for his own adjudication and does not do so.

[14]    The proposal the creditor relies on in this is certainly an admission of insolvency, but it does not go the next step and say that the debtor is suspending payment of his debts.

[15]     The further ingredients identified by Cotton LJ are, in my view, missing in this  case,  and  I  accordingly  find  that  the  creditor  has  not  proved  the  act  of bankruptcy under s 22.  Because no act of bankruptcy has been proved, I dismiss this application.

R M Bell
Associate Judge