Bankruptcy of Stainton
[2024] NZHC 826
•17 April 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2016-404-1855
[2024] NZHC 826
UNDER
AND
the Insolvency Act 2006 IN THE MATTER
AND
of the bankruptcy of NIGEL STAINTON
IN THE MATTER
of an application for orders directing the issue of a letter of request
OFFICIAL ASSIGNEE
Applicant
Hearing: On the papers Attendances:
G Neil for the Applicant
Judgment:
17 April 2024
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 17 April 2024 at 4 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Meredith Connell, Auckland
RE BANKRUPTCY OF NIGEL STAINTON [2024] NZHC 826 [17 April 2024]
Introduction
[1] The Official Assignee has applied for orders directing the issue of a letter of request to the High Court of England and Wales (Business and Property Courts) to act in aid of and be auxiliary to the High Court of New Zealand in connection with the bankruptcy of Mr Nigel Stainton. An affidavit has been filed in support by Christoffel Johannes Viljoen, a Deputy Assignee at the Auckland Office of the Insolvency and Trustee Service, setting out the background and the reasons for the application.
[2] The application relates to a one-twelfth interest in three London commercial properties that Mr Stainton held at the time of his adjudication.
[3] The application was initially made on a without notice basis. After convening a telephone conference, I made directions requiring service of the application on Mr Stainton. An affidavit of service has been filed confirming that service was effected on Mr Stainton on 20 December 2023. Mr Stainton has not filed any notice of opposition or appearance and so the Official Assignee has requested that the application be determined on the papers. I do so below by setting out the background and the relevant legal principles before considering the application.
Background
[4]Mr Stainton was adjudicated bankrupt on 9 February 2017.
[5] The petitioning creditor was the Commissioner of Inland Revenue (CIR) in respect of a debt of $316,383.23. This was subsequently increased by the CIR to
$322,089.01. The Court awarded costs of $4,056 giving a total owing of $326,145.01. No other creditor claims have been received and the Official Assignee has not identified any other creditors of Mr Stainton in New Zealand or elsewhere.
London Properties
[6] Mr Stainton provided a statement of affairs on 21 March 2017 recording his beneficial interest in the London properties but indicated that he was unable to sell his share at that time.
[7] Pursuant to ss 101 and 102 of the Insolvency Act 2006, the interest in the London properties vested in the Official Assignee on Mr Stainton’s adjudication.
[8] The managers of the London properties, Cluttons LLP, have since confirmed Mr Stainton’s beneficial interest in them. The interests are said to be held on a bare trust arising out of probate.
[9] The Official Assignee has not yet been able to obtain a copy of any will or other document explaining how the beneficial interests in the London properties came to be held by Mr Stainton.
[10] The most recent indication of the value of the London properties that the Official Assignee has is from 2015 and is only for the property in South Molton Street, London, which was valued at £9,100,000. Mr Stainton’s one-twelfth share at that stage was therefore worth at least approximately £758,000.
[11] The Official Assignee has not yet commissioned an updated valuation but expects to do so if he becomes empowered to deal with the properties in the United Kingdom as a result of the High Court of England and Wales granting the orders and directions that are sought in the letter of request.
[12] For a period during the bankruptcy, income was received from the London properties but those payments have ceased and have been consumed with the costs of administering the estate.
[13] Cluttons LLP have indicated to the Official Assignee that if part or all of Mr Stainton’s interest in the London properties is to be sold, there would likely be interest from within the beneficiary group.
Current status of bankruptcy
[14] Mr Stainton was automatically discharged from bankruptcy on 20 July 2020 pursuant to section 290 of the Insolvency Act 2006. However, property which passes to the Official Assignee pursuant to ss 101 and 102 does not revest in the bankrupt on discharge. Furthermore, even as a discharged bankrupt, Mr Stainton must continue to
assist the Official Assignee as required by the Court or the Official Assignee in the realisation and distribution of property that has vested in the Official Assignee.1
[15] The Official Assignee relies on Matthews v Memelink, where the High Court confirmed that the Official Assignee is entitled to bring proceedings in respect of property in which a bankrupt has claimed a beneficial interest at the date of his adjudication notwithstanding his subsequent discharge from bankruptcy.2
[16] The Official Assignee has not applied to be, and therefore has not been, released from the administration of Mr Stainton’s estate pursuant to s 408 of the Insolvency Act 2006. The Official Assignee therefore retains the full range of discretions and powers prescribed by s 217 and sch 1 of the Insolvency Act 2006.
[17] Previously there had been issues with funding for obtaining advice on the Official Assignee’s rights and remedies under English law but these have now been resolved. The Official Assignee has now engaged London based solicitors and counsel, and advice has been provided. The Official Assignee is now in a position to move forward with the realisation of Mr Stainton’s interests in the London properties.
Cross-border assistance pursuant to the Insolvency (Cross-Border) Act 2006
[18] The application is made pursuant to arts l(l)(b) and 25(2) of sch 1 to the Insolvency (Cross-Border) Act 2006 (ICBA):
(a)Article l(l)(b) of sch 1 provides that sch 1 applies where ''assistance is sought in a foreign State in connection with a New Zealand insolvency proceeding.''
(b)Article 25(2) of sch 1 provides that the High Court “is entitled to communicate directly with, or to request information or assistance directly from, foreign courts or foreign representatives.”
1 Insolvency Act 2006, s 307.
2 Matthews v Memelink [2012] NZHC 2284 at [50].
[19] The applicant refers to Official Assignee v Ma where a similar application for orders directing the issuance of a letter of request for assistance to a foreign court was granted on the application of the Official Assignee under sch 1.3 In that case the Court held:4
[3] The Official Assignee has proved by affidavit that the respondent (the bankrupt) was adjudicated bankrupt on 1 June 2018 on his own application lodged on 29 May 2018. The bankrupt disclosed ownership of a property in Australia situated at 41Frederick Street, Balwyn, Victoria. The Inland Revenue Department of New Zealand is the largest creditor on the bankrupt's list of creditors, both in New Zealand and Australia. Legal proceedings have already begun in Australia in relation to the debt owed to the Inland Revenue Department. The Official Assignee reasonably believes that the bankrupt has property in Australia that needs to be investigated and seeks the assistance of the Australian Tax Office in this regard. That assistance can be provided only when the bankruptcy in New Zealand has been recognised by the Australian Courts.
[4] Article 25, schedule 1, Insolvency (Cross-border) Act 2006 authorises the High Court in New Zealand to seek the assistance of courts in other jurisdictions for the implementation and enforcement of insolvency proceedings in relation to property held in other Jurisdictions.
…
[6] I am satisfied, on the evidence of the Official Assignee, that the Official Assignee in New Zealand and the High Court in New Zealand does require the assistance of the Court in Australia to investigate the bankrupt's ownership of assets in Australia and to potentially take whatever steps might be necessary to recover the proceeds of any property sale for the benefit of the Official Assignee in New Zealand.
[20] Counsel for the Official Assignee submits that in the present case, similarly to Official Assignee v Ma, the assistance of a foreign court, this time the High Court of England and Wales, is required to enable further investigation of Mr Stainton's interests in the London properties (including how he obtained the interests and their value), and to enable the realisation of those interests for the benefit of Mr Stainton's bankrupt estate and its creditor, the CIR.
Reliance on inherent jurisdiction
[21] The Official Assignee further submits that the Court ought to exercise its inherent jurisdiction contemporaneous with its powers under the ICBA in granting the
3 Official Assignee v Ma [2018] NZHC 1304.
4 At [3]–[6]
application as the exercise of its inherent jurisdiction will provide a mechanism for any vesting of property pursuant to s 101 of the Insolvency Act 2006 to be recognised extra-territorially.
[22] The High Court may exercise its inherent jurisdiction in respect of matters regulated by statute or by rules of the Court, so long as it can do so without contravening any statutory provision, as confirmed in Taylor v Attorney General5 and Donselaar v Mosen.6 In Taylor v Attorney General the Court of Appeal cited the judgment in R v Connelly:7
There can be no doubt that a court which is endowed with a particular jurisdiction has powers which are necessary to enable it to act effectively within such jurisdiction. I would regard them as powers which are inherent in its jurisdiction. A court must enjoy such powers in order to enforce its rules of practice and to suppress any abuses of its process and to defeat any attempted thwarting of its process.
[23] In exercising the inherent jurisdiction of the Court to grant the Application, it does not appear that the Court would be acting in conflict with any legislative provisions and the powers may be necessary to enable the Court to give effect to s 101 of the Insolvency Act 2006 which vests all property of the bankrupt “whether in or outside New Zealand” absolutely in the Official Assignee. If necessary, I therefore consider I am able to rely on the inherent jurisdiction of the Court together with the powers under the ICBA.
The position under the law of England and Wales
[24] In requesting assistance from the High Court of England and Wales, the Official Assignee submits there are two routes through which it may be sought. These are under either:
(a)section 426 of the Insolvency Act 1986 (UK); or
(b)the Cross Border Insolvency Regulations 2006 (UK) (CBIR).
5 Taylor v Attorney-General [1975] 2 NZLR 675 (CA).
6 Donselaar v Mosen [1976] 2 NZLR 191 (CA) at 192.
7 R v Connelly [1964] AC 1254 (HL) at 1301.
[25] The Official Assignee submits that both routes are reasonably arguable and could be pursued by the Official Assignee contemporaneously in one application. The relevant provisions of the Insolvency Act 1986 (UK) and CBIR are set out below.
Section 426 Insolvency Act 1986 (UK)
[26]Section 426 of the Insolvency Act 1986 (UK) materially provides that:
[4] The courts having jurisdiction in relation to insolvency law in any part of the United Kingdom shall assist the courts having the corresponding jurisdiction in any other part of the United Kingdom or any relevant country or territory.
[5] For the purposes of subsection (4) a request made to a court in any part of the United Kingdom by a court in any other part of the United Kingdom, or in a relevant country or territory is authority for the court to which the request is made to apply, in relation to any matters specified in the request, the insolvency law which is applicable by either court in relation to comparable matters falling within its jurisdiction.
[27] Under the Co-operation of Insolvency Courts (Designation of Relevant Countries and Territories) Order 1986 (UK), New Zealand is listed as a ''relevant country'' for the purposes of section 426 of the Insolvency Act 1986 (UK).
[28] The Official Assignee submits that applying these principles to this case, the Official Assignee is not barred from, and has a right and obligation in, taking recovery action in respect of Mr Stainton's interests in the London properties.
[29] The Official Assignee submits that based on the facts as currently known, it is not anticipated that there is any reason for the English courts to refuse assistance. The English authorities relied on by the Official Assignee (England v Smith8 and McGrath v Riddell9) are clear that the English courts will provide assistance unless there are powerful reasons not to.
Relevant CBIR provisions
[30] The relevant provisions of the UK's CBIR largely mirror sch 1 to New Zealand's ICBA.
8 England v Smith [2001] Ch 419 (CA).
9 McGrath v Riddell [2008] UKHL 21.
[31] Article l(l)(a) of sch 1 to the CBIR provides that a ''foreign representative'' may seek assistance from the English courts in connection with foreign insolvency proceedings. From the definition in art 2(j) it appears the Official Assignee ought to be recognised as a “foreign representative” for the purposes of the CBIR.
[32] Article 2(i) of sch 1 to the CBIR defines a “foreign proceeding” as a “collective judicial or administrative proceeding in a foreign State, including an interim proceeding, pursuant to a law relating to insolvency in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganisation or liquidation.” The bankruptcy proceedings in New Zealand appear to fall within the definition of “foreign proceedings” for the purposes of the CBIR.
[33] The High Court of New Zealand may apply for assistance directly to the English courts under art 25 of sch 1 to the CBIR or the Official Assignee may apply for recognition of these proceedings under art 15 of sch 1 to the CBIR.
[34] To apply to the English courts for the recognition of the New Zealand bankruptcy proceedings as ''foreign main proceedings'', the Official Assignee must demonstrate that the proceedings in New Zealand are taking place in the state in which Mr Stainton has his centre of main interests. Whilst the term ''centre of main interests'' is not defined in the CBIR, there is a rebuttable presumption that the debtor's habitual residence is the centre of the debtor's main interests (art 16(3) of sch 1 to the CBIR). As Mr Stainton resides in New Zealand (and has done for many years), his centre of main interests appears to be New Zealand.
[35] Article 11 of sch 1 to the CBIR provides that ''[a] foreign representative appointed in a foreign main proceeding... is entitled to apply to commence a proceeding under British insolvency law if the conditions for commencing such proceeding are otherwise met.'' This provision appears to enable the Official Assignee to start proceedings in English courts to realise Mr Stainton's interest in the London properties.
[36] As the Official Assignee submits, it therefore appears there are two routes by which assistance may be sought, either pursuant to s 426 of the Insolvency Act 1986 or pursuant to the CBIR.
[37] The draft letter of request seeks the assistance of the High Court of England and Wales by authorising or directing in accordance with either or both provisions a number of matters including that Mr Stainton’s bankruptcy is recognised in England and Wales and that Mr Stainton’s interests in the London properties is vested in the Official Assignee as his trustee in bankruptcy. At this stage I do not determine which of the available routes is the most appropriate. If the High Court of England and Wales makes directions seeking further submissions on the appropriate or preferred route from this Court then further submissions can be sought from the Official Assignee.
Form of letter of request
[38] There is no form set out in the ICBA for the letter of request. Counsel for the Official Assignee refers to r 9.26 of the High Court Rules relating to the issue of letters of request for the taking of evidence by deposition in other countries as providing some guidance. The commentary to this rule notes that there is no standard form for the letter of request but, for letters to convention countries, account should be taken of the terms of the relevant convention in drafting the letter. In addition, the commentary says where the country concerned has diplomatic representation in New Zealand, prior consultation as to acceptability and form in conjunction with the Ministry of Foreign Affairs and Trade would be wise. The commentary further refers to the need for an undertaking as to official expenses.
[39] The Official Assignee proposes a similar procedure to that for r 9.26 and has annexed a draft letter of request to his application for the Court’s consideration on that basis.
[40] The Official Assignee submits that no undertaking as to official expenses ought to be required by the New Zealand Court because that would be inconsistent with
s 65ZC of the Public Finance Act 1989 (PFA) as recognised in a number of cases, for example in Official Assignee v Sharma & Family Trustee Ltd.10
[41] Instead, the Official Assignee seeks a direction that reasonable security be posted to cover any costs that the Court may reasonably incur in relation to the letter of request. The Official Assignee suggests these costs may include the cost of couriering the letter to the High Court of England and Wales and suggests that if security is to be required, that it be limited to the payment of $500.
[42] I consider that it is appropriate to require security of $500 as proposed with any excess to be refunded to the Official Assignee when appropriate. In the unlikely event that actual costs exceed $500, further costs or security can be sought from the Official Assignee.
[43] In the memorandum in support of the application, the Official Assignee explains how the orders and directions that are set out in paragraph 6 of the letter of request reflect the statutory position and powers of the Official Assignee under New Zealand law.
[44] The draft letter of request further records that a copy of Mr Viljoen’s affidavit is intended to be provided to the High Court of England and Wales together with the letter of request.
[45] The reasons for the application as set out in Mr Viljoen’s affidavit are that the letter of request is required to enable the Official Assignee to progress the realisation of Mr Stainton’s interests in the London properties. These reasons include that:
(a)Mr Stainton's interests in the London properties are beneficial interests that are held by trustees on trust for him. The Official Assignee has been informed that they were passed to Mr Stainton from his father.
(b)The Official Assignee has not been able to obtain any document relating to the transfer of the beneficial interests in the London properties to Mr
10 Official Assignee v Sharma & Family Trustee Ltd [2016] NZHC 1843, at [13] to [22].
Stainton from his father. Empowering the Official Assignee to gather information relating to Mr Stainton's interests in the London properties will enable the Official Assignee to seek documentation from the trustees that confirms the passing of the beneficial interests to Mr Stainton, when the transfer occurred and also the terms of the trust upon which the interests in the London properties are held for Mr Stainton.
(c)Additionally, empowering the Official Assignee to act in England in relation to Mr Stainton’s bankruptcy and in relation to his interests in the London properties ought to enable the Official Assignee to:
(i)seek (and take) the vesting of the legal interests in the London properties so either the Official Assignee or Mr Stainton holds both the beneficial and legal one-twelfth interests in them;
(ii)in the absence of consensual vesting, apply to the English court for orders compelling the vesting in the Official Assignee or Mr Stainton;
(iii)seek to negotiate the sale of Mr Stainton's interests in one or more of the London properties to the other beneficiaries of the trust or to others, and to complete any such negotiated sale;
(iv)in the absence of a negotiated sale of Mr Stainton's interests in one or more of the London properties, to apply to the English court for orders to compel the sale of Mr Stainton's interests in one or more of the London properties (or the sale of the whole of one or more of the London properties on the open market); and
(v)be conferred standing to otherwise apply to the English court for orders to assist the Assignee to gather information relating to Mr Stainton's interests in the London properties, to realise those interests and (if orders of the English court are required)
to seek directions regarding the distribution of the proceeds of realisation.
(d)The application (if granted) ought to, generally speaking, enable the Official Assignee to take the steps required to obtain recognition of Mr Stainton's bankruptcy in the English court, address any extant issues relating to Mr Stainton's interests in the London properties, and to realise and distribute the proceeds of those interests.
[46] These reasons appear to provide a proper basis for issuing a letter of request and I am satisfied that the form of the letter of request proposed by the Official Assignee is appropriate.
[47] Mr Viljoen has further recorded in his affidavit that the Official Assignee may need to provide certain undertakings to the English Court in the course of applying to it to give effect to the letter of request if issued by this Court. I agree as proposed by the Assignee that this matter can be addressed by the Official Assignee when it applies to the English Court under guidance from the Official Assignee’s English solicitor and counsel.
[48] Finally, I record that under the Insolvency Act 2006, Mr Stainton’s bankrupt estate is required to pay the Official Assignee’s fees and expenses of administering the bankrupt estate and post adjudication interest on the creditor claims (if there is sufficient remaining in the bankrupt estate to pay such interest).11 As noted above, Mr Stainton has been served with the application and has not filed any opposition or notice of appearance. On this basis I am satisfied that the fact that Mr Stainton’s bankrupt estate is required to pay the Official Assignee’s fees and expenses ought not to prevent the application being granted.
Conclusion
[49] I am satisfied it is appropriate for a letter of request to be issued to the High Court of England and Wales as Mr Stainton has not opposed the application, there
11 Insolvency Act 2006, s 274(1) and s 265(1).
appears to be a proper basis for it and a prospect of realising part or all of Mr Stainton’s share in the London properties so that the CIR may be repaid.
Result
[50] The application for orders directing the issue of a letter of request to the High Court of England and Wales (Business and Property Courts) in the terms annexed in draft to the application is granted.
Associate Judge Sussock
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