BLACKWATER PROPERTIES LIMITED Judgment Creditor AND HARRY SHAND CRAWFORD Judgment Debtor
[2024] NZHC 2661
•13 September 2024
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2024-409-156
[2024] NZHC 2661
UNDER the Insolvency Act 2006 IN THE MATTER
of the bankruptcy of Harry Shand Crawford
BETWEEN
BLACKWATER PROPERTIES LIMITED
Judgment Creditor
AND
HARRY SHAND CRAWFORD
Judgment Debtor
Hearing: 12 September 2024 Appearances:
H M Cassin for Judgment Creditor Judgment Debtor in person
Judgment:
13 September 2024
JUDGMENT OF ASSOCIATE JUDGE LESTER
BLACKWATER PROPERTIES LIMITED v CRAWFORD [2024] NZHC 2661 [13 September 2024]
[1] Mr Crawford’s company, at the time called Crawford Group Limited (CGL), agreed to buy three residential properties from Blackwater Properties Limited (Blackwater) and a fourth property from Mr and Mrs Smith to create a development block. Mr Crawford guaranteed CGL’s obligations to Blackwater under its sale and purchase agreement. Mr and Mrs Smith did not have a guarantee from Mr Crawford.
[2] CGL did not settle and ultimately, Blackwater and Mr and Mrs Smith obtained judgment for the difference between what CGL had agreed to pay for the properties and the value of those properties as at cancellation. Blackwater also obtained judgment against Mr Crawford under his guarantee.1
[3] This Court’s quantum judgment against CGL and Mr Crawford was released on 14 February 2024. The next day, Mr Crawford changed the name of CGL to Christchurch Group Limited and placed CGL into liquidation on 19 March 2024. The liquidator’s report discloses that Christchurch Group Ltd is a shelf company with no assets but it seems at the time of the purchases from Blackwater and Mr and Mrs Smith, CGL held shares in other companies associated with Mr Crawford.
[4] The judgment entered against Mr Crawford and CGL in favour of Blackwater was for $942,349.77 plus interest, costs and disbursements. The judgment entered against CGL in favour of Mr and Mrs Smith was for $476,310.45 plus interest, costs and disbursements.
[5] Blackwater served Mr Crawford with a bankruptcy notice which he met with an application to have the bankruptcy notice set aside on the grounds that it was an abuse of process, having been issued by Blackwater to, in his words “teach him a lesson”.
[6] Ultimately, the challenge to the bankruptcy notice was withdrawn and Blackwater proceeded with an application to have Mr Crawford adjudicated bankrupt. Blackwater had to obtain an order for substituted service and its application for adjudication was served on 2 July 2024 . Mr Crawford filed an intention to oppose
1 Blackwater Properties Ltd v Crawford Group Ltd [2024] NZHC 149.
the bankruptcy on similar grounds to those he raised in his challenge to the bankruptcy notice.
[7] Blackwater’s opposed application for adjudication was heard on 12 September 2024. Mr Crawford’s counsel had agreed to file submissions 10 days before the hearing in support of the opposition. However, no submissions were filed. Mr Crawford’s counsel advised on the morning of the hearing that he could not appear due to him undergoing urgent surgery and Mr Crawford appeared in-person. However, counsel’s urgent surgery does not explain the failure to file submissions as directed.
[8] Mr Crawford’s notice of intention to oppose the adjudication is skeletal to say the least. His notice says:
2 I intend to dispute the creditor’s application —
(a)on the following grounds: Insolvency Act s37 (c) and (d); and
(b)on the evidence contained in my affidavit filed in support of this notice.
[9] Sections 37(c) and (d) of the Insolvency Act 2006 (the Act) provides the Court may, at its discretion, refuse to adjudicate the debtor bankrupt if:
(a)it is just and equitable that the court does not make an order of adjudication; or
(b)for any other reason an order of adjudication should not be made.
[10] It is not satisfactory for a notice of opposition to simply refer to matters contained in an affidavit.
[11] When Mr Crawford’s affidavit in support of the application is examined, it appears to raise the following issues.
[12] Firstly, Mr Crawford believes the bankruptcy notice was issued for the improper purpose of teaching him a lesson. Mr Crawford refers to the claim that the director of Blackwater:
… has previously been involved in aggressive bankruptcy tactics with other persons which resulted in his business associates nearly being murdered.
[13] Mr Crawford asserts that those business associates obtained a bankruptcy order which was annulled upon further consideration by the Court. Mr Crawford says he believes Blackwater is “over zealous in its use of the legal system”.
[14] Secondly, Mr Crawford refers to Blackwater still owning the properties in question and therefore suggests that in due course they will recover their losses upon the property values increasing.
[15] Thirdly, Mr Crawford says that the debt arose from a one-off event that created the debt and so he believes it does not indicate his disregard to creditors.
[16] Fourthly, Mr Crawford notes that the liquidation of CGL is not complete and he says there may be recoveries that may reduce his personal liability. He suggests it is not fair to bankrupt him prior to determine if any debt remains.
[17] Fifthly, Mr Crawford refers to an issue that arose during cross-examination in relation to a drain running across the property owned by Mr and Mrs Smith. He says that he and his lawyers were not aware of this drain prior to the hearing and that the existence of the drain had not been disclosed to him by Mr and Mrs Smith, the real estate agent or the conveyancer and that Mr Crawford intends to instigate proceedings to recover losses occasioned by that misleading conduct. Mr Crawford says that if he is adjudicated bankrupt, he will not be in a position to advance that claim to the detriment of his creditors. He says given the expense of diverting the water course the price paid for the properties was too much with a flow-on effect as to the quantum of damages.
[18] Mr Crawford then refers generally to the impact of bankruptcy on his ongoing life in the business world but then he says that his financial position is dire, that apart
from his furniture he has less than $1,000 in his bank account and he has two credit card debts totalling $43,900.
[19] Finally, Mr Crawford refers to having made a settlement offer to Blackwater. Mr Crawford advises that a family member would make $100,000 available to settle Blackwater’s debt.
Legal principles
[20]Section 36 of the Act provides:
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.
[21] It is not disputed that the requirements under s 13 of the Act have been met but rather, as I have said, Mr Crawford relies on the residual discretionary provisions in ss 37(c) and 37 (d) of the Act.
[22] The Court can consider not only the interests of those directly concerned, the petitioner, other creditors, the debtor but also the wider public interest. A creditor who establishes the grounds for adjudication is not automatically entitled to that order. However, it is for the 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 the order.
[23] Another ground to decline adjudication 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 and the continuing oversight of a bankrupt’s affairs and the disqualifications that go with bankruptcy.2
2 Baker v Westpac Banking Corporation CA 212/92, 13 July 1933 at pg 4.
[24] Rabobank Australasia Ltd v Tootell concerned an opposed adjudication application where the insolvency arose from a single commercial venture, that being one of the issues raised by Mr Crawford here.3 The Court noted:4
The public interest requires that in relation to Mr Tootell’s undisputed insolvency, his creditors obtain the clarity and possible benefit that may flow from the investigation which the Official Assignee will conduct upon Mr Toottell’s adjudication in the bankruptcy.
[25] Another factor is that the Courts have consistently placed weight on the need for personal guarantees to be honoured. The tenor of the authorities is that the Court has endorsed the commercial importance of holding guarantors to the consequences of their promises.5
Grounds of opposition relied on by Mr Crawford
Bankruptcy being used for an improper purpose
[26] The idea that Mr Armstrong, the director of Blackwater, has previously been involved in aggressive bankruptcy tactics is factually incorrect. I am familiar with the adjudication referred to by Mr Crawford in his evidence as I was the Judge that made the adjudication order and the subsequent annulment order. The judgment creditor in that case was a Trust. Mr Armstrong was, at the time the adjudication order was made, an independent trustee of that Trust, although he was not a trustee at the time the bankruptcy commenced. The adjudication in that case was unopposed by the debtor. The bankruptcy was annulled after the debt was paid in full. There is nothing in this earlier adjudication proceeding to support Mr Crawford’s claims that the bankruptcy procedure was misused.
[27] Mr Crawford also suggests that Mr Armstrong is “pestering the liquidator” in an attempt to obtain information about Mr Crawford. Mr Crawford says, “Fortunately the liquidator has not folded to the aggressive attention of Mr Armstrong”. The liquidator has filed an affidavit in which he explains meeting with Mr Armstrong once in relation to the liquidation of CGL. The liquidator explains it is not uncommon to
3 Rabobank Australasia Ltd v Tootell [2013] NZHC 2975.
4 At [77].
5 BNZ v Davey [2023] NZHC 1362.
meet with large creditors in a liquidation. He says he has not had any further contact with anyone on behalf of Blackwater since that meeting nor has there been attempts to contact him from Blackwater.
[28] There is the air of unreality about Mr Crawford’s complaints. Mr Crawford and CGL owe Blackwater as at the date of the application for adjudication (31 May 2024) $1,051.837.74. Mr Crawford can hardly be surprised that a creditor owed that sum made an enquiry of the liquidator. Nor can Mr Crawford be surprised that the creditor is seeking to pursue bankruptcy. There is nothing in the circumstances that supports the claim by Mr Crawford that Blackwater has been “over zealous”.
Properties remain in the ownership of Blackwater
[29] That the property market may ultimately catchup with the values that CGL was prepared to pay for the properties is irrelevant. The loss was suffered at the time CGL failed to settle.
[30] Mr Crawford suggests that the failure to settle the purchases was due to mortgage funding becoming harder to get, meaning there was no market for the units CGL intended to build. Mr Crawford says that bankrupting him is unnecessary as, “All that happened was bad timing”.
[31] I do not accept that characterisation of events. Mr Crawford had CGL commit to significant obligations with Blackwater and Mr and Mrs Smith. It is evident CGL had no ability to meet those obligations. The shares CGL held in other Crawford companies at the time of the purchase were transferred to other Crawford entities after the purchasers issued their proceedings. Blackwater protected itself by obtaining a guarantee from Mr Crawford. If Mr Crawford had not put in place the means for CGL to settle the purchase then that is a matter for him, but the whole tenor of Mr Crawford’s opposition is that CGL’s failure to settle and the loss to the vendors was “a one-off, get over it”. This point is also relevant to Mr Crawford’s claim that what eventuated does not indicate he has a disregard to creditors. I do not agree with that assertion. Mr Crawford had CGL commit to pay over $3.5 million for the four properties when at the time CGL signed the agreements it had no ability to settle and
apparently no backup plan. These actions showed a disregard by Mr Crawford for the vendors and was commercially irresponsible.
Finalisation of the liquidation
[32]This is another wholly unrealistic ground of opposition. Mr Crawford says:
I understand any recoveries may reduce my personal liability but that wont be known until the liquidators complete the liquidation.
[33] Just what recoveries there may be when CGL was an assetless shelf company is unknown. The liquidator’s report does not suggest there are any realistic prospects of recovery of funds into the liquidation. If there were such prospects then Mr Crawford, had he been a responsible director, would have been aware of such potential claims. He does not refer to any.
The value of the properties affected by a drain
[34] Mr Crawford’s affidavit gives the impression he has just discovered what he suggests was a pre-contractual misrepresentation in respect of a drain that passed across the property owned by Mr and Mrs Smith. Mr Crawford explains that adding Mr and Mrs Smith’s property to the development parcel represented a better redevelopment prospect. The three Blackwater properties by themselves would not have been so desirable.
[35] Mr Crawford says that he needs to investigate issuing proceedings to recover losses occasioned by what he describes as misleading conduct, presumably by Mr and Mrs Smith or their real estate agent. He says:
If I am bankrupt I wont be in a position to advance that claim to the detriment of my creditors. Given the expense of diverting the watercourse the price paid was clearly too much. Either the price would have been reduced or we would not have purchase the block of properties. I believe it only fair to allow me to pursue this claim to recover sufficient money from the vendor to recover the loss.
[36] Just how Mr Crawford will fund this litigation given his claim that he is impecunious, noted at [18] above, is unexplained. However, the fatal difficulty for Mr Crawford on this proposed claim is that he knew of the issue of the drain at the
time of the quantum hearing. That issue was the subject of cross-examination and re-examination.
[37] Mr Armstrong, in his evidence for this application, notes the issue of the drain came up in the quantum hearing and that Mr Crawford has not raised the matter since. Nor did CGL or Mr Crawford appeal the quantum judgment or raise the drain issue in his application to set aside the bankruptcy notice. The notes of evidence from the quantum hearing record Mr Crawford saying that the drain could be replaced or moved, and that, “We’ve done it before”. He was asked, “So you’d have to move the drain to deal with it?” and Mr Crawford answered, “At a very minimal cost, yes”. With full knowledge of the drain issue, Mr Crawford confirmed under cross-examination that he saw the land as a good development opportunity, confirmed that he actually still wanted to buy what he considered to be a good site and he went on to confirm that moving the drain was very straightforward. In re-examination, Mr Crawford said the presence of the drain “really has no effect”, referring to the proposed townhouse development.
[38] Having in sworn evidence confirmed that the drain could be moved for little cost and that moving the drain was straightforward, Mr Crawford’s mooted claim is weak and there is no realistic prospect of it proceeding given Mr Crawford has no apparent ability to fund the litigation.
Negative impact of bankruptcy
[39] Mr Crawford notes that he is disabled as a result of an accident he had as a child which makes it hard for him to do things able bodied people can do. He said he built a business despite his disability and that making him bankrupt would be a serious detriment as it would be difficult for him to start over again. He says, “It would not be fair to bankrupt me as I have no other means of supporting myself and my partner”.
[40] Mr Crawford then goes on to say that his financial position is dire, with the details noted at [18] above.
[41] Mr Crawford at the hearing said his disability made it hard to obtain employment and he wanted to be self-employed. When I asked him in what field he
wanted to trade, he said the only field he knew was construction. How Mr Crawford intends to continue a career in the construction sector given his financial position and the outstanding judgment is again unexplained.
[42] Mr Crawford is, at the moment, a director of 14 companies. Between 5 May 2023 and 17 May 2024 he resigned as director of a further six companies. If he intends to trade in the construction sector by having shelf companies enter contracts in the hope of being able to settle in the future, that is not a business practice this Court should be condoning.
[43] As to the significance of Mr Crawford allegedly not having any assets, he has not provided a statement of assets and liabilities. Mr Crawford, when questioned by me at the hearing, referred to having a personal guarantee for nearly the entire purchase price (over $330,000) of a Porsche car which was purchased on finance. Mr Crawford said the car was in the possession of the financier.
[44] Mr Armstrong notes that at the time the contracts were entered into, CGL was the ultimate shareholder in a number of Mr Crawford’s other companies, many of which Mr Armstrong understands owned property development sites. Those shareholdings were transferred by Mr Crawford following Blackwater initiating the Court proceedings and some transfers occurred in May 2023 after the time had passed for any statement of defence to be filed to Blackwater’s claims. Other shareholdings were transferred as recently as April and May 2024.
[45] This conduct cuts across any claims that Mr Crawford is genuine in attempting to continue to trade to meet his debts — the transfer of assets out of CGL and the timing of those transfers is a matter calling for investigation by the liquidator of CGL.
[46] This conduct also reinforces my view that Mr Crawford’s affairs should be investigated by the Official Assignee.
The offer
[47] It is not for the Court to impose on Blackwater the settlement offer of $100,000, less than one-tenth of what it is owed. Mr Crawford said he wants to make an effort
to pay what he owes and to make a proposal — but on his own evidence, he has no realistic prospect of paying what he owes Blackwater.
Conclusion
[48] None of the factors raised by Mr Crawford warrant denying the application for adjudication. Mr Crawford is, on his own evidence, hopelessly insolvent. However, despite that hopeless insolvency, he asks the Court to allow him to continue to trade in the construction sector. That is an entirely unrealistic suggestion. There seems to be no recognition by Mr Crawford of the harm he has done to the vendors.
[49] Accordingly, there is an order adjudicating Harry Shand Crawford bankrupt. The timing of that order is the time that this judgment is released being 4:00pm on Friday 13 September 2024.
Costs
[50] There is no reason why costs should not follow the event. There is an order of costs against Mr Crawford on a 2B basis together with disbursements as fixed by the Registrar.
Associate Judge Lester
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