Body Corporate 126001 v Draper
[2025] NZHC 1441
•5 June 2025
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-001660
CIV-2024-404-001735 [2025] NZHC 1441
BETWEEN BODY CORPORATE 126001
Judgment Creditor
AND
PATRICIA JOY DRAPER
Judgment Debtor
GARY KEITH HANNAM
Judgment Debtor
Hearing: 20 May 2025 Appearances:
T J G Allan / B Bao for the Judgment Creditor P J Draper in Person and for G K Hannam
Judgment:
5 June 2025
JUDGMENT OF ASSOCIATE JUDGE COGSWELL
This judgment was delivered by me on 5 June 2025 at 4.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors:
Grove Darlow, Auckland
BODY CORPORATE 126001 v DRAPER & HANNAM [2025] NZHC 1441 [5 June 2025]
Introduction
[1] The judgment creditor, Body Corporate 126001, seeks orders adjudicating the judgment debtors, Patricia Joy Draper and Gary Keith Hannam, bankrupt under s 36 of the Insolvency Act 2006 (the Act).
[2] The facts relevant to both applications are the same, as are the oppositions to the orders for adjudication sought. Accordingly, I deal with both matters together in this judgment.
Background
[3] The litigation between the parties has a long history. It relates to disputes over the judgment debtors’ penthouse apartment in a unit title apartment in Auckland (the unit)1. It is leaky. The judgment creditor is the body corporate for the building.
[4] Costs orders were made against the judgment debtors arising from their unsuccessful challenge to the judgment creditor’s High Court proceedings seeking approval of a scheme under s 74 of the Unit Titles Act 2010,2 and their subsequent unsuccessful appeal of that judgment to the Court of Appeal.3
[5] On 9 April 2024, Gordon J awarded scale costs and disbursements in the High Court litigation in favour of the judgment creditor to the sum of $170,534.12.4 The Court of Appeal ordered the judgment debtors to pay costs on a band A basis.5
[6] These applications rely on the costs orders of this Court. The judgment debtors have not met those orders. The judgment creditor issued bankruptcy notices in reliance on the High Court costs award. Those bankruptcy notices were not satisfied.
1 Owned by the GK Hannam Family Trust
2 Body Corporate 126001 v Hannam [2023] NZHC 3604. Issues surrounding remediation of the unit are settled by the High Court judgment approving the s 74 scheme. The judgment debtors, as owners in the Body Corporate, are bound by the Court’s order regarding the s 74 scheme.
3 Hannam v Body Corporate 126001 [2024] NZCA 274.
4 Body Corporate 126001 v Hannam [2024] NZHC 738. Gordon J also awarded scale costs of
$53,416.50 in favour of Western Park Subsidiary Body Corporate (493826).
5 Hannam v Body Corporate 126001, above n 3 at [168].
In their failure to comply with the bankruptcy notices, both judgment debtors committed acts of bankruptcy. The judgment creditor now seeks adjudication of both the judgment debtors as bankrupt.
[7] Both judgment debtors filed a notice of intention to oppose the application for adjudication against them. They are in similar terms.
[8] At the date of hearing the position is that the judgment creditor is, in the absence of orders dismissing the bankruptcy, entitled to proceed.
Relevant legal principles
[9] Section 13 of the Act provides that a creditor may apply for a debtor to be adjudicated bankrupt if:
(a)the debtor owes the creditor $1,000 or more;
(b)the debtor has committed an act of bankruptcy;
(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.
[10] In the present case, there is no dispute that these criteria are satisfied. The relevant act of bankruptcy is the failure to comply with a bankruptcy notice pursuant to s 17(1) of the Act. That section provides that a debtor commits an act of bankruptcy if:
(a)a creditor has obtained a final judgment or final order against the debtor for any amount;
(b)the execution of the judgment or order has not been halted;
(c)the debtor has been served with a bankruptcy notice; and
(d)the debtor has not, within 10 working days after service, complied with the requirements of the notice or satisfied the court that he or she has a cross-claim against the creditor.
[11]Each of those requirements is satisfied as explained in [3]–[8] above.
[12] Where the jurisdictional facts in s 13 are established, the court’s discretion to then adjudicate a debtor bankrupt is provided for in ss 36 and 37:
36Court 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.
37Court may refuse adjudication
The court may, at its discretion, refuse to adjudicate the debtor bankrupt if—
(a)the application creditor has not established the requirements set out in s 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 for adjudication; or
(d)for any other reason an order of adjudication should not be made.
[13] In Baker v Westpac Banking Corporation, Richardson J summarised the principles governing the exercise of the court’s discretion in this way:6
It is proper for the court to 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 jurisdictional facts set out in [s 13] 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 the 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 the debtor has succeeded in showing that an order ought not to be made.
6 Baker v Westpac Banking Corporation CA212/92, 13 July 1993 at 4.
The judgment debtors’ position
[14] The judgment debtors oppose the bankruptcy on just and equitable grounds, relying on the following facts:
(a)The unit is the only asset of their related trust.
(b)Neither judgment debtor has any personal assets or funds.
(c)The judgment debtors have offered to transfer the unit to the judgment creditor in exchange for a discharge of all liabilities to it.
(d)There is an independent third party interested in purchasing the unit which, if that transaction proceeded, would repay the amounts outstanding to the judgment creditor.
(e)A bankruptcy will incur further costs for a willing buyer as the Official Assignee will then be in possession of the unit which will further delay the owners from being able to sell the unit.
[15] The judgment debtors’ opposition is supported by sworn affidavits by them both. They provide evidential support for the facts relied on in resisting their bankruptcy.
[16]I turn now to those facts relied upon by the judgment debtors.
Debtors claim no assets
[17] The judgment debtors ask the Court to exercise its discretion not to bankrupt them as they have no personal assets available to satisfy the judgment. The latest set of trust accounts note that the trust is also insolvent.
[18] That may well be so, but in the context of this application I do not consider that to provide grounds to decline the adjudication order sought.
[19] The fact of inability to pay, together with the consequences that follow, is a fundamental underpinning of the bankruptcy scheme itself. The bankruptcy application concludes with the Official Assignee being appointed, whose role is to investigate the bankrupt’s affairs with a view to determining if there are any funds available for distribution to the bankrupt’s creditors.
[20] Without more, a submission that the judgment debtors do not have assets available is not a ground in the context of these applications to resist bankruptcy.
[21] There are also two sets of transactions that may warrant investigation by the Official Assignee should bankruptcy be ordered.
[22] Ms Draper owns a half share of an apartment at unit 3A, 444 Great North Road, Auckland. She owns it with her daughter. Four days after this Court authorised the issue of bankruptcy notices to Ms Draper and Mr Hannam, a mortgage was registered over her half share in favour her daughter. For her part, Ms Draper says that this was to recognise her daughter’s contribution to the outgoings associated with the unit and that she herself has no equity in the unit as a result.
[23] Mr Hannam gives evidence that he made a transfer of all of his personal property to the Hannam Trust7 in 2020. His personal property was gifted to the trust. The trust is administered by a Swiss company.
[24] These transactions may be the subject of investigation by the Official Assignee if bankruptcy is ordered. They are a reason why bankruptcy is appropriate. The investigations may identify assets available to the judgment debtors’ creditors.
Transfer of the unit to the judgment creditor
[25] The judgment debtors argue that bankruptcy should be declined on the basis that they are prepared to offer a transfer of the unit to the judgment creditor in satisfaction of the amounts outstanding to it.
7 The affidavit defines the GK Hannam Family Trust as “the Trust” and it is assumed that this is the trust referred to in his evidence when he mentions the “Hannam Trust”.
[26] I do not consider this ground sufficient to decline an adjudication either. The unit is known to be suffering from serious weathertightness problems and will require a substantial investment of funds to remediate those issues.
[27] There is no evidence before the Court of the value of the unit at the present time beyond a CV which I am told does not take into account the actual state of the unit and the obligations attached to it as a result of the s 74 scheme. There is likewise no authority to support the proposition that a bankruptcy should be declined on the grounds that the judgment debtor is entitled to foist a distressed asset onto the judgment creditor in satisfaction of its debt.
[28]I do not consider that bankruptcy should be declined on this ground.
Third party purchase of unit
[29] The judgment debtors also submit that they have an independent third party proposed purchaser who is interested in acquiring the unit and assuming liability for all debts attaching to it. This purchaser has been considering the unit for many months and no firm proposal has been put by him.
[30] I do not consider that this is a ground to decline adjudicating the judgment debtors bankrupt. There is no agreement on foot and the judgment creditor is entitled to seek bankruptcy on the basis of the act of bankruptcy committed by both judgment debtors.
[31] Should the independent third-party purchaser end up purchasing the unit from the Official Assignee, and should the funds received be sufficient to repay all debt owed by the judgment debtors, then they could seek an annulment of their bankruptcy. This is not a ground to support the declinature of adjudication at this time.
Adverse effects in making orders for adjudication
[32] The judgment debtors argue that if they are adjudicated bankrupt, further costs will be incurred for potential purchasers and that other owners will be delayed from
being able to sell their units. The judgment creditor argues instead that it is in the public interest to make an order for adjudication.
[33]In relation to this ground, I accept the judgment creditor’s submissions that:
(a)An adjudication order will not automatically be declined because there are no obvious assets available for creditors. There are other important considerations including the following. First, the potential for further investigation that may reveal further assets available. Second, the public interest in exposing and controlling an insolvent debtor is one which exists quite independently of the separate question of debt collection by his or her immediate creditors.8
(b)It is not in the public interest that a debtor should be able to default on their debts and for there to be no apparent consequence. Such an approach would subvert the expectation that individuals will repay their debts. One of the objectives of bankruptcy is to make the debtor accountable for their debts. Accountability also means that there is a process that acknowledges the harm that is done to those who suffer loss at the hands of defaulting debtors.9
(c)A submission that the debtors have no assets will be closely scrutinised to ensure, for example, that the debtor has been forthcoming with all assets, that assets have not been transferred overseas, and that assets do not exist in the name of another person for the debtors' benefit.10
[34] As such, the public interest weighs in favour of adjudicating the judgment debtors bankrupt.
8 Re Fidow (a debtor) [1989] 2 NZLR 431 (HC) at 443–445.
9 Re Hamon, ex parte Coromandel Independent Living Trust [2016] NZHC 392 at [13].
10 Rossall v Auckland Finance Ltd HC Auckland CIV-2002-404-580, 30 April 2004 at [13].
The judgment creditor’s position
[35] The judgment creditor’s position seeking an order adjudicating the judgment debtors bankrupt is sufficiently discussed in my analysis above.
[36] The judgment creditor goes on to note that the judgment debtors also owe further sums for the cost of remedial weathertightness work undertaken to their unit, together with interest (noting that there is no judgment obtained for those sums). I note, but do not take any account of in my consideration, the impact of those further amounts potentially outstanding and owing to the judgment creditor by the judgment debtors.
[37]The judgment creditor’s position is simply that:
(a)the judgment debtors are not able to pay their debts as they fall due; and
(b)it is in the public interest to order the judgment debtors’ adjudication as bankrupt.
[38] The judgment creditor asks the Court to consider two unsworn affidavits made by the judgment debtors as part of a without prejudice attempt to settle their obligations to the judgment creditor. Even if without prejudice privilege attaches to those affidavits, I decline to consider them and do not need to pierce the privilege to reach my decision on these applications.
[39] The judgment creditor also submits that in terms of the cross-border insolvency regime, the Official Assignee would be entitled to investigate the affairs of the bankrupt in New Zealand, but also in Kenya and the United States, both of whom have adopted the United Nations Commission on International Trade Law. Similarly, there is a route for the Official Assignee to investigate the bankrupts’ affairs in Switzerland. A Swiss company administers the GK Hannam Family Trust. The ability to make these investigations is a ground supporting the adjudication orders sought.
[40] The judgment creditor in conclusion submits that one of the objectives of bankruptcy is to hold the debtor accountable for their debts. It says that it is not in the
public interest that the judgment debtors should be able to default on judgment debts to the Body Corporate, as there would appear to be no consequence. For that to occur would subvert the expectation that individuals repay their debts.
Result
[41] The judgment creditor has demonstrated the jurisdictional requirements for orders adjudicating the judgment debtors bankrupt.
[42] Having considered the judgment debtors’ opposition to the sought orders, I decline their grounds to oppose bankruptcy. I do not consider that the grounds relied on by the judgment debtors sufficient to refuse the judgment creditor’s otherwise valid applications for adjudication.
Orders
[43]I order that Patricia Joy Draper is adjudicated bankrupt.
[44]I order that Gary Keith Hannam is adjudicated bankrupt.
[45]The orders set out at [43] and [44] are timed at 4.00 pm today.
[46] The judgment creditor is entitled to costs on a 2B basis together with disbursements.
Associate Judge Cogswell
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