Bank of New Zealand v McCall HC Auckland CIV 2010-404-006255
[2011] NZHC 474
•12 May 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2010-404-006255
IN THE MATTER OF the Insolvency Act 2006
AND IN THE MATTER OF the bankruptcy of DAVID DONALD McCALL
BETWEEN BANK OF NEW ZEALAND Judgment Creditor
ANDDAVID DONALD MCCALL Judgment Debtor
Hearing: 19 and 20 April
Counsel: J E M Lethbridge for judgment creditor
J S T Nguy for judgment debtor
Judgment: 12 May 2011 at 2:30 PM
JUDGMENT OF ASSOCIATE JUDGE ABBOTT
This judgment was delivered by me on 12 May 2011 at 2:30pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Grove Darlow & Partners, PO Box 2882, Auckland 1140 for judgment creditor
Jesse & Associates, PO Box 106773, Auckland 1143 for judgment debtor
BANK OF NEW ZEALAND V MCCALL HC AK CIV 2010-404-006255 12 May 2011
[1] This judgment is given in relation to an application by Bank of New Zealand (BNZ) for an order adjudicating David Donald McCall bankrupt, and an interlocutory application by Mr McCall for stay/adjournment of BNZ’s application to allow him to pursue a proposal to his creditors.
Background
[2] BNZ’s application is made on the basis that Mr McCall committed an available act of bankruptcy in that he failed to comply with a bankruptcy notice requiring him to satisfy a judgment that BNZ obtained against him on 20 August
2010 for the sum of $399,990.08, together with accrued interest and costs. The application was served on Mr McCall on 18 February 2011. It had its first hearing on 29 March 2011. On that day Mr McCall filed an application for stay on the grounds that he intended to file a proposal to his creditors under Part 5 of the Insolvency Act 2006.
[3] BNZ opposed the stay and any adjournment of its application on the grounds that Mr McCall’s affidavit supporting his application did not adequately explain his delays, and failed to provide any substantial evidence to justify it. BNZ also said that Mr McCall was hopelessly insolvent (there does not appear to be an dispute on this). Both BNZ’s substantive application and Mr McCall’s interlocutory application were adjourned to 19 April 2011 to allow Mr McCall time to file a proposal, and for BNZ to consider its position in light of the content of any proposal and file formal opposition if that was its position.
[4] Mr McCall filed a proposal on 15 April 2011.
[5] The applications were called on 19 April 2011 in the course of a list day. There was insufficient time to hear them at the end of the regular list. They were stood down and heard at 4:00pm the following day, 20 April 2011. As the hearing did not finish until late, judgment was reserved on the basis that an application for
adjudication would be made unless the court agreed to Mr McCall’s application for
stay or further adjournment.
The application for stay/adjournment and opposition
[6] Mr McCall does not contest BNZ’s judgment against him, or the fact that he has committed an available act of bankruptcy by failing to comply with the bankruptcy notice. His application is founded solely on his wish to be afforded an opportunity to put a proposal before his creditors (which, if successful, would still need to be approved by this court). He says that he has been suffering health difficulties which have prevented him addressing BNZ’s debt, or responding to BNZ’s application, earlier.
[7] BNZ challenges Mr McCall’s contention that he has been prevented from taking steps earlier because of health. Although a medical certificate has been produced to the effect that Mr McCall has been suffering from depression and has been told not to work for a period 4 weeks from 22 March 2011, counsel submitted that this was hearsay and insufficient to assist the court: the certificate was a photocopy only rather than an original, and there was no direct evidence from the doctor concerned.
[8] More significantly, however, BNZ’s opposition is based on the contention that the proposal put forward by Mr McCall was not only late but wholly unrealistic, lacking critical information and not credible. In particular it failed to provide adequate details about Mr McCall’s other alleged debts (so that BNZ and other bona fide creditors were unable to assess the bona fides of two alleged secured creditors Merchant Land Limited and Mike Thompson Trust No. 2) and did not explain how Mr McCall was to raise the 25¢ in the dollar that he proposed paying.
[9] Counsel referred to the fact that there was no detail as to the nature of the secured interest – both debts were said to be as a consequence of personal guarantees, suggesting that if there was security it was provided by the principal debtor, rather than by Mr McCall. She also submitted that there was evidence of a business association between Mr McCall and one of these creditors, Merchant Land
Limited, as their business address was the same: 160 Grafton Road. Nothing at all was known of the other alleged creditor, Mike Thompson Trust No. 2.
[10] Counsel for BNZ also referred to significant discrepancies between the statement of assets and liabilities accompanying the proposal and the affidavit sworn less than 3 weeks earlier in support of the application for stay/adjournment. She submitted that there was more than sufficient evidence before the court for the court to conclude that it would not be in the public interest to approve the proposal, even if there was any substance to Mr McCall’s statement of secured creditors.
Discussion
[11] The court frequently grants adjournments of applications for adjudication to allow debtors opportunity to seek approval of proposals made to creditors under Part
5 of the Insolvency Act 2006. However, that is entirely a matter of discretion, and the court will weigh a number of factors in coming to its decision. Timing is often a relevant consideration, as it can reflect on the credibility of the proposal, and can be a factor to weigh when balancing the various interests of the creditor, the debtor, other creditors, and the public as a whole. The potential merit of a proposal must also be a relevant factor. Creditors should not have to incur the cost and delay of challenging a meritless proposal.
[12] I shall deal first with the issue over Mr McCall’s health, and his ability to present his case in support of the application for stay and adjournment properly. I am not satisfied on the evidence before the court that Mr McCall was sufficiently impaired by health not to be able to provide his counsel with full instructions. Although I am not in a position to reach any firm conclusions on the state of Mr McCall’s health, I note that it did not prevent him swearing an affidavit in support of his application on 28 March 2011, or filing his proposal on 15 April 2011. If there was a real issue about his capacity, I would have expected an affidavit from his doctor. No explanation has been advanced as to why an original certificate could not have been produced. Further I note Mr McCall’s evidence that he has had support (which I take to include assistance in these matters) from friends, associates and his
solicitor. I see no reason to believe other than that he was able to advance his case properly, with this support.
[13] Counsel for Mr McCall submitted that he was unable to get instructions from Mr McCall on BNZ’s opposition to his application and supporting affidavit, which were filed on 18 April 2011. He says that he contacted Mr McCall immediately after the hearing on 19 April 2011 and was told that Mr McCall was on his way to see his doctor. Counsel was not in a position to offer any explanation for his inability to reach Mr McCall after that. If Mr McCall was incapacitated after that I would expect that either he or one of his friends of associates would have advised his counsel.
[14] I have come to the view that this is not an appropriate case to allow Mr McCall time to pursue his proposal. Several major factors lead me to this view. First there is a major issue of credibility over Mr McCall’s financial position:
(a) In his affidavit in support of his application, Mr McCall states:
“I have signed a contract to a company called Merchant
Land Limited for the purchase of a property at Unit 100, 2
Arawa St, Grafton. I have signed a personal guarantee for this in the sum of $3,100,000.”
(b)In his statement of assets and liabilities filed in support of his proposal, Mr McCall lists “Merchant Land Limited (personal guarantee)” as a secured creditor for $2,000,000. There is no explanation given for the difference.
(c) In the same affidavit, Mr McCall says:
“... I believe that a number of other miscellaneous smaller creditors together with Merchant Land Limited but excluding the present applicant creditor comprising 50 percent in number and 75per cent in value of my creditors will support my proposal, and that the necessary statutory majorities will be achieved.”
(d)In his statement of assets and liabilities in support of the proposal, Mr McCall lists “Mike Thompson Trust No. 2 (personal guarantee)”
as a secured creditor for $5,000,000. This debt is not explained, and clearly was not part of the pool of creditors to which Mr McCall was referring in his earlier affidavit.
(e) One of the reasons for this could be that in his statement Mr McCall says that the estimated value of securities was the same as the value of the secured creditors (including Merchant Land and Mike Thompson). On that basis BNZ’s judgment debt of a little over $400,000 comprised the majority of the remaining debt (all unsecured) totalling
$498,000.
(f) Although counsel for Mr McCall sought to argue that he had not had opportunity to get instructions from Mr McCall on other aspects of BNZ’s opposition, there was no suggestion that the affidavit of
28 March 2011 was wrong. Indeed counsel continued to rely on it.
(g)It is significant that none of the alleged creditors appeared at the hearing on 19 April 2011, or the adjourned date of 20 April 2011. There is reason to believe that the principal of Merchant Land Limited (a Mr S Kelly) is an associate of Mr McCall. It must have been possible to have obtained support from him if there was any substance to the claimed debt, and the claim that Merchant Land was supporting Mr McCall.
(h)The apparent business association between Mr McCall and Mr Kelly, coupled with lack of any reference to Merchant Land’s far greater debt in this email correspondence, leaves open an inference that any indebtedness was not reached on an arm’s length basis.
[15] As well as the concerns over the bona fides of the alleged debts and potential association between Mr McCall and these debtors, there is a further and more concerning issue, namely that Mr McCall would seem to be incurring further debt. In that respect the following is relevant:
(a) BNZ produced copies of a chain of email messages passing between
BNZ or its solicitor and Mr Kelly (on behalf of Mr McCall) on 15 and
16 March 2011. In that correspondence Mr Kelly put a proposal to BNZ for payment of its debt, linked to settlement of some property sales. There was no reference to Mr McCall’s indebtedness to Merchant Land. Within two weeks Mr McCall gave his affidavit stating that he had that liability.
(b)The only explanation for Mr McCall’s inclusion of the debt to Mike Thompson Trust No. 2 in his statement of assets and liabilities consistent with his affidavit of 29 March 2011, is that this liability was incurred after that.
(c) Even if these debts were truly arm’s length arrangements, and are only contingent liabilities under a guarantee, it seems clear that Mr McCall continues to incur liabilities when he has a substantial judgment debt that he cannot meet, and total unsecured debts in the order of half a million dollars.
[16] The inevitable conclusion appears to be that either the alleged secured debts are contrivances to give Mr McCall their value to get his proposal accepted, or that he is continuing to incur liabilities when he unable to meet existing debt. In neither case can it be in the public interest to allow the proposal to proceed.
[17] I also take into account the prejudice suffered by BNZ if it has to continue its challenge to a proposal that is lacking in substance and is unlikely to receive court approval, even if Mr McCall can persuade his trustee that the debts as presented in his statement of assets and liabilities should be accepted for the purpose of voting on the proposal.
[18] In my view the appropriate course is to have all of these matters investigated by the Official Assignee.
[19] Mr McCall’s application for stay/adjournment is declined. I make an order
accordingly adjudicating Mr McCall bankrupt. This order is made at 2:30pm today.
[20] BNZ is entitled to costs both on its application for adjudication and on
Mr McCall’s application on a 2B basis, together with disbursements as fixed by the
Registrar.
Associate Judge Abbott
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