Bank of New Zealand v Stewart
[2015] NZHC 2864
•16 November 2015
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
CIV-2015-470-98 [2015] NZHC 2864
UNDER the Insolvency Act 2006 IN THE MATTER OF
the bankruptcy of FREDERICK JOHN McKAY STEWART
BETWEEN
BANK OF NEW ZEALAND Applicant
AND
FREDERICK JOHN MCKAY STEWART Respondent
Hearing: 16 November 2015 at 2:15pm Appearances:
AL Harlowe for Applicant
Respondent in personJudgment:
16 November 2015
ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL
Solicitors:
Buddle Findlay, Auckland, for Judgment Creditor
Copy for:
Judgment Debtor, Tauranga.
BANK OF NEW ZEALAND v STEWART [2015] NZHC 2864 [16 November 2015]
[1] The Bank of New Zealand applies for Frederick John McKay Stewart to be adjudged bankrupt. The bank obtained judgment by default against Mr Stewart in the District Court at Tauranga for $95,501.11. Mr Stewart was one of two defendants. The other was Trevor Colin Egerton. They had guaranteed the indebtedness of Grey Street Television Studios Ltd to the bank. Mr Stewart was a shareholder of that company.
[2] A bankruptcy notice based on the District Court judgment was served on Mr Stewart on 29 July 2015. The bankruptcy notice was in a standard form. It complies with s 29 of the Insolvency Act 2006 and the High Court Rules. Under the bankruptcy notice, Mr Stewart had until 13 August 2015 in which to comply with the notice. He could comply with the notice by paying the sum set out in the notice, which included the amount of the judgment, costs of the certificate of judgment and interest. He could also comply with the notice by entering into a new agreement with the bank or obtaining the court’s approval for the terms of payment, or he could satisfy the court that he had a counterclaim, set-off or cross-demand against the bank which exceeded the amount claimed by the bank and which he could not have put forward in the proceeding in which the judgment was obtained against him.
[3] Mr Stewart did not do any of those things. He accordingly did not comply with the notice within the 10 working days given for compliance. That was an act of bankruptcy under s 17 of the Insolvency Act. The bank applied for Mr Stewart to be adjudged bankrupt, relying on that act of bankruptcy. In its application it says that the amount now owing is $68,645.99. That takes into account the original amount of the judgment, interest that has been incurred on it, and also payments that the bank has received in reduction of the debt from other people. The bank’s application says that it has no security for the debt.
[4] Section 11 of the Insolvency Act gives the court jurisdiction to make adjudication orders against debtors:
11 Adjudication by court
(1) A court may adjudicate the debtor bankrupt if—
(a) a creditor of the debtor has applied under section 13 for the debtor’s adjudication; and
(b) the debtor has committed an act of bankruptcy.
[5] Section 13 sets out certain requirements which a creditor is required to meet if it seeks a bankruptcy order. They are:
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.
[6] Even though a creditor has satisfied the requirements of s 13 of the Insolvency Act, an adjudication does not follow automatically. The court has a discretion. That discretion is set out in ss 36 and 37 of the Insolvency Act:
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.
37 Court may refuse adjudication
The court may, at its discretion, refuse to adjudicate the debtor bankrupt if—
(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.
[7] Mr Stewart does not seriously contest that the bank has satisfied the requirements of s 13. On the basis of the evidence provided by the bank, I am in any
event satisfied that those requirements have been met. That leaves the question of the exercise of the discretion.
[8] Before I go on to consider whether I should exercise the discretion in Mr Stewart’s favour, I say something more about the facts giving rise to Mr Stewart’s indebtedness to the bank.
[9] Mr Stewart was associated with a company, Grey Street Television Studios Ltd. That company and the bank entered into a business term loan agreement in October 2012. The amount of the loan advanced was $90,400. The company drew down the full amount of the loan. Mr Stewart was one of those who signed the loan agreement on behalf of the company. I do not, however, understand that he was a director of the company. As security, the company gave the bank security over all its present and future acquired assets by way of a general security agreement under the Personal Property Securities Act 1999. The bank also obtained guarantees. Mr Stewart signed two guarantees. The first was on 19 October 2012. The second one was signed on 4 April 2013. In the District Court the bank relied on the guarantee signed on 4 April 2013. I note that the registered office of Grey Street Television Studios Ltd is 52 Wairakei Avenue, Papamoa. That is Mr Stewart’s address. It is where all the documents for the District Court proceeding and in this case have been served on him.
[10] The company, Grey Street Television Studios Ltd, defaulted in making repayments under the loan agreement. The bank made written demand in August
2014. It also made demand on Mr Stewart under his guarantee. The bank did not receive payment.
[11] In September 2014 it appointed receivers. They were Paul Thomas Manning and Kenneth Peter Brown of BDO Tauranga Ltd. The receivership came to an end in November 2014. The report from the receivers shows that they received payments, mostly for the sale of assets of the company, but after paying all expenses including their remuneration, they had only $1,500 available to pay the bank.
[12] The bank accelerated the loan in March 2015. The bank then brought proceedings on the guarantee.
[13] The bankruptcy application was first called on 19 October 2015. Mr Stewart appeared then. He had filed documents which indicated that he opposed the bank’s application. He headed those documents “Praecipe (motion) to dismiss” and “affidavit in support of motion to dismiss”. I had trouble following those documents. I urged Mr Stewart to obtain legal advice. I gave him time to file further documents. He did so, although those documents tend to summarise what he had endeavoured to state in his earlier documents. I have continued to have trouble fully understanding the written documents that Mr Stewart has put before the court. Much is irrelevant, nonsense or wrong.
[14] On the other hand, the bank’s lawyers have examined Mr Stewart’s materials. They have identified matters which they understand Mr Stewart puts in issue. I will summarise them from what is set out at paragraph 4.3 of the bank’s submissions:
1 Mr Stewart disputes that he is the judgment debtor;
2 he disputes that he is liable to the bank under the judgment;
3he disputes that the bank ever gave credit to him or the company with anything of substance;
4he disputes that he was notified of the District Court proceeding which gave rise to judgment;
5 he disputes that the High Court has jurisdiction;
6the bank was reckless in appointing receivers for the company and that the bank allowed the receivers to sell the company’s assets at an under-value in breach of s 19 of the Receiverships Act 1993;
7John David McKay may have breached a fiduciary duty owed to him to disclose all material facts;
8 the bank failed to disclose all material facts and evidence;
9the bank has admitted certain allegations contained in his affidavit and an unrebutted affidavit becomes a judgment in commerce; and
10 he has offered to settle this matter with the bank.
[15] At the hearing, Mr Stewart relied on a document that he had handed in to court when the case was called on 19 October 2015. I will also consider that.
[16] I consider the various points identified by the bank:
1 Mr Stewart disputes that he is the judgment debtor
[17] The question of identity seems to be the most significant point that Mr Stewart relies on. He contends that he is not the debtor in this proceeding. He is putting his identity in issue. Just to be clear on the point, he is not saying that someone other than him is the guarantor for the indebtedness of Grey Street Television Studios Ltd to the bank. The bank has provided an affidavit to explain the background to the judgment. The bank has put in evidence both guarantees. They were signed by a person named “Frederick John McKay Stewart”. The demands that the bank sent were addressed to Frederick John McKay Stewart. The District Court proceeding named Frederick John McKay Stewart as the defendant. The bank’s affidavits of service for both the District Court proceeding and in this court show that Frederick John McKay Stewart was served at the address in Wairakei Street, Papamoa. The document that Mr Stewart handed in to court on
19 October 2015 is a birth certificate for a person named as Frederick John McKay
Stewart, apparently born on 7 November 1944.
[18] There is, accordingly, identity of the person who gave the guarantee to the Bank of New Zealand in support of the indebtedness of Grey Street Television Studios Ltd, the person against whom the bank obtained judgment in the District Court and the person named in the bankruptcy notice as the judgment debtor in this proceeding.
[19] Mr Stewart has, however, adopted a tactic of dissimulation. He pretends that he is not Frederick John McKay Stewart. He says that he is a son of Abraham. He also says he is of the clan Stewart, and insists that I should address him as Lord Frederick Stewart. He tendered to the court at the outset of the hearing documents which purported to be a Royal Warrant of Appointment. In his submissions, he referred to Frederick John McKay Stewart as a body corporate that is no longer in existence.
[20] Those are no more than dissimulation. They are a red herring. I am satisfied that the man who has appeared in court today is Frederick John McKay Stewart who incurred the liability under the judgment obtained by the Bank of New Zealand. He is the debtor in this case.
2 Mr Stewart disputes that he is liable to the bank under the judgment
[21] The bank submitted that by virtue of s 63 of the District Courts Act 1947, the judgment in the District Court is final and conclusive. More to the point, Mr Stewart has not shown any grounds for setting aside that judgment. On the evidence, I am satisfied that the bank obtained judgment regularly against Mr Stewart. Mr Stewart has not shown any arguable basis for suggesting that it would be reasonable to refer the matter back to the District Court for judgment to be reconsidered. This is not one of those rare cases where the court can look behind a judgment in the context of a bankruptcy proceeding.
3Mr Stewart disputes that the bank ever gave credit to him or the company
[22] The bank’s evidence is clear that funds passed from the Bank of New Zealand to the account of Grey Street Television Studios Ltd. That was done by a conventional way for transferring funds from one person to another. The bank put bank statements in evidence. They show that there were debits in the accounts of the Bank of New Zealand with corresponding credits in the accounts of Grey Street Television Studios Ltd or its lawyers. Those were transfers of funds for value. Under his guarantee, Mr Stewart undertook to answer for the indebtedness of Grey Street Television Studios Ltd. The guarantee is binding and effective.
4Mr Stewart disputes that he was notified of the District Court proceeding which gave judgment against him.
[23] The bank has included in its casebook the affidavit of service from the process-server who served Mr Stewart. Mr Stewart contended that he wanted the process-server to be made available to be cross-examined on his affidavit. He did not serve on the bank’s lawyers a notice requiring the process-server to be made available for cross-examination. I note that the bank used the same process-server to serve all the documents on Mr Stewart. The process-server’s affidavits have confirmed that he was familiar with Mr Stewart, having served him on earlier occasions, and that includes service of the District Court proceeding.
[24] I am satisfied that there is nothing in Mr Stewart’s contesting service. I note that he simply contests being served. He has not stated unequivocally that he was not served.
5 Mr Stewart disputes that the court has jurisdiction over him
[25] As to Mr Stewart’s challenge to the jurisdiction of this court, bankruptcy is a matter of statute. The High Court derives its bankruptcy jurisdiction from the Insolvency Act.
[26] As for personal jurisdiction over Mr Stewart, he is a New Zealander. He has New Zealand domicile and residence. He gave the guarantee in New Zealand. He dealt with the Bank of New Zealand in New Zealand. The New Zealand District Court gave judgment against him in New Zealand. There is no overseas connection whatsoever in this case. It is appropriate for a New Zealand court to deal with Mr Stewart’s insolvency.
[27] Some of Mr Stewart’s materials seem to resort to arguments of the sort raised by Māori contesting sovereignty. Those arguments invariably are unavailing. They do not apply in this case as Mr Stewart does not appear to be Māori.
6Mr Stewart alleges that the bank was reckless in appointing receivers and allowing the receivers to sell company asset at an under-value in breach of s 19 of the Receiverships Act
[28] Mr Stewart contends that the bank was reckless in appointing receivers and allowing the receivers to sell company assets at an under-value in breach of s 19 of the Receiverships Act.
[29] Mr Manning, one of the receivers, explains in an affidavit that in December
2013 he met with the directors of Grey Street Television Studios Ltd. He emphasised that the directors, not the company, agreed that BDO Tauranga Ltd would give insolvency advice to the directors. BDO Tauranga Ltd would be the accountant for the company. Mr Manning says that the company was not trading when he was appointed receiver. He notes that while BDO Tauranga Ltd had provided advice to the directors, that did not disqualify him and Mr Brown from acting as receivers. I note that none of the grounds for disqualification under the Receiverships Act appear to apply.
[30] As to the sale of the assets, Mr Manning describes conventional steps taken by receivers in selling assets. The directors had advised them that the assets were worth $30,000. The receivers obtained a valuation which found the assets, on a forced sale basis, to be worth $23,000. In the event, they sold for about $17,000. Mr Manning confirms that the bank was informed of progress, but the bank was not actively involved in the advertising and selling of the assets.
[31] This is a conventional situation where the receivers are agents of the company, not agents of the bank. Mr Stewart has not shown any basis for believing that the receivers did breach their duty under s 19 of the Receiverships Act. But, even if the receivers did, Mr Stewart’s remedy would be against the receivers, not against the bank. The simple point is that the bank did not arrange the sale of the assets, and the receivers were not its agent.
7John David McKay may have breached a fiduciary duty to disclose all material facts
[32] Mr McKay is a solicitor in a Tauranga firm of lawyers. He witnessed Mr Stewart’s signing the first guarantee of 19 October 2012. He gave a certificate to say that he had given Mr Stewart appropriate advice. Mr Stewart does not identify any way in which Mr McKay’s advice was defective or deficient. Even if there had
been any deficiency in his advice, the bank has not relied on that guarantee. It has instead relied on the later guarantee signed in April 2013.
8Mr Stewart alleges that the bank failed to disclose all material facts and evidence
[33] Mr Stewart’s allegation that the bank failed to disclose all material facts and evidence is generalised. He has not pinpointed anything that was material which the bank ought to have disclosed but has not done so. So far as the bankruptcy application is concerned, the bank has followed standard practice. If anything, it has provided more evidence than may strictly have been required, but I have found that additional evidence helpful. The bank has given the background to Mr Stewart’s incurring his liability under the judgment. I see nothing in Mr Stewart’s allegations of non-disclosure by the bank.
9Mr Stewart alleges that the bank, by not refuting allegations he has made, is deemed to have admitted them.
[34] Next, Mr Stewart alleges that the bank, by not refuting his allegations, is deemed to have admitted them. That submission is simply wrong.
10 Mr Stewart alleges that he has offered to settle with the bank
[35] Mr Stewart’s letter proposing a settlement is dated 10 August 2015. It is hard to understand exactly what Mr Stewart is trying to say in that letter. It contains legal terminology, but it is really no more than gibberish. It does not contain any meaningful offer.
[36] Finally, there is the document that Mr Stewart tendered on 19 October 2015. The document is in the form of a birth certificate showing Mr Stewart’s birth. Mr Stewart has attached stamps to it. He has also signed on it “Accepted for value
19 October 2015”. On the rear of the document there is typewriting. It is headed “Non-negotiable surety bond NZ$200,000”. It is addressed to the High Court and “Presiding Judge Fiduciary”. It purports to be a bond for payment. Mr Stewart has signed it as “principal/underwriter”. It has been co-signed by three persons named
as “sureties”. Surety 1 is “Turner”, Surety 2 is “Stewart” and Surety 3 is “Pereira”.
Each of them has given their IRD number by way of identification.
[37] I asked Mr Stewart to explain it. Mr Stewart had a strange account that by reason of a birth certificate a person is somehow credited with a sum of money which passes into the banking system and can be invoked later on to discharge debts. I could not follow his explanation. It was bizarre. I am not satisfied that the bond document can be taken seriously. I cannot see that it will result in Mr Stewart discharging his liability to the bank under the judgment. Nor can I see any way by which it can raise any set-off so as to extinguish the debt to the bank. Frankly, the document is more valuable as a birth certificate than in creating any means of satisfying Mr Stewart’s liability to the bank.
[38] It remains to consider generally the exercise of the discretion under s 37 of the Insolvency Act.
[39] So far, Mr Stewart has not put forward anything useful for the court to take into account in the exercise of that discretion. In Baker v Westpac Banking Corporation, in a decision of the Court of Appeal of 13 July 1993, Richardson J said this about the exercise of the discretion:1
The principles governing the exercise of the discretion under s 26 to grant or refuse an order of adjudication in bankruptcy are well settled and have been discussed by this Court in recent years in Ellis v NZI Finance and McHardy v Wilkins & Davies Marinas Ltd (in receivership). It is proper for the court to consider not only the interest of those directly concerned - the petitioner, other creditors and the debtor - but also the wider public interest. 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. The court will give proper weight to the commercial judgment of the petitioner but the oppressive use of the bankruptcy process may be a ground for refusing an order. Another ground may be the undoubted absence of assets but that will not necessarily preclude an order given the range of interests involved including the public interest in continuing oversight of a bankrupt’s affairs and the disqualifications that go with bankruptcy. In the end the court must balance the various considerations relevant to the case and determine whether a debtor has succeeded in showing that an order ought not to be made.
1 Baker v Westpac Banking Corporation CA202/93, 13 July 1993 at 4 (citations omitted). That was a case under the Insolvency Act 1967, but the passage has been cited many times in decisions under the Insolvency Act 2006.
[40] I mention two matters which I will disregard but which are sometimes taken into account in bankruptcy applications. One matter is misconduct of the debtor. On some occasions a debtor has acted so recklessly in running up liabilities that bankruptcy is imposed as a matter of punishment. There is nothing in the circumstances of this case that requires me to take a punitive approach. Another matter is protection of the community. Some debtors are reckless in running up liabilities. The community requires protection from them. I see nothing in the circumstances of this case that suggest that, outside his liability to the Bank of New Zealand, Mr Stewart is a general danger to the commercial community.
[41] There are, however, other relevant considerations. The first is the need to ensure accountability for obligations incurred. The courts have said on many occasions that guarantors need to accept that there must be accountability for failure to honour guarantees. Guarantors cannot be given hope that they can escape the consequence once they are called upon them. In this regard, I refer to the decision of
Salmon J in Bank of New Zealand v Aitcheson.2
[42] The next is the question of Mr Stewart’s apparent insolvency. Mr Stewart has not put anything before the court as to his financial position. I assume, therefore, that he is unable to meet his liability under the judgment. Bankruptcy offers him a way of addressing his insolvency. It is in the community’s interests that the Official Assignee take charge of his assets, realise them, and apply them towards his liabilities. That is because Mr Stewart has not been able to manage his indebtedness himself so as to clear his debts.
[43] On the other hand, insolvency also offers a release for Mr Stewart. Most bankruptcies result in discharge of the bankrupt. The effect of the discharge is that the bankrupt is released from further liability. In the normal course of events, an automatic discharge comes three years after the debtor provides the Official Assignee with a statement of his affairs. Mr Stewart has not been able to deal with
his debt to the bank. An adjudication in bankruptcy offers him a way through the
2 Re Aitcheson (a debtor), ex parte Bank of New Zealand HC Auckland, B1235/98, 9 July 1999.
process. While his assets will pass into the control of the Official Assignee, with a discharge he will be free of the debt and able to re-enter normal commercial activity within the community.
[44] By reason of those factors, I am satisfied that the appropriate order to make is to adjudicate Mr Stewart bankrupt. The time of the order is 4:58pm. I make an order that the bank is to have costs of the application. Those costs are to be paid out of Mr Stewart’s estate.
…………………………………………
Associate Judge R M Bell
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