Body Corporate 205963 v Boyko HC Auckland CIV-2010-404-7842
[2011] NZHC 170
•2 March 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2010-404-7842
IN THE MATTER OF the Insolvency Act 2006
AND IN THE MATTER OF THE Bankruptcy of LARISA BOYKO
BETWEEN BODY CORPORATE 205963
Judgment Creditor
ANDLARISA BOYKO Judgment Debtor
Hearing: 8 February 2011
Appearances: C Harris for Judgment Creditor
L Boyko in Person
Judgment: 2 March 2011
RESERVED JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by me on 2 March 2011 at 5 pm pursuant to
Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date ..........................
Solicitors:
Jackson Russell, Auckland
BODY CORPORATE 205963 V BOYKO HC AK CIV-2010-404-7842 2 March 2011
Background
[1] Ms Boyko was served with a bankruptcy notice on 13 December 2010 by the judgment creditor, Body Corporate 205963. She took prompt steps to file and serve an application to obtain the Court’s approval of terms of payment of the amount claimed in the bankruptcy notice. The application, supported by affidavit, was filed and served within the 10 working day period specified in the notes endorsed on the bankruptcy notice. The application was listed for a first mention hearing date on 8
February 2011.
[2] The judgment creditor filed documents in opposition on 1 February, having already filed an application for an adjudication order on 21 January. The essential ground of its application is that Ms Boyko failed, within the time allowed, to pay the judgment debt or otherwise to comply with the requirements of the bankruptcy notice and therefore committed an act of bankruptcy under s 17(1) of the Insolvency Act 2006. The adjudication application was given a hearing date of 3 March 2011.
Issues requiring determination
[3] At the hearing on 8 February both sides sought a ruling on the question whether or not Ms Boyko’s application for approval to terms of payment has deferred the commission of an act of bankruptcy. I heard argument. I indicated to counsel for the judgment creditor and to Ms Boyko that I would reserve the question for decision. I vacated the hearing date of 3 March 2011.
[4] I was also invited by Ms Boyko to allocate a fixture for a defended hearing of her application. Counsel for the judgment creditor opposed that course. I heard argument on the application. I went on to indicate that I was satisfied that Ms Boyko’s application should be declined and that I would issue my decision setting out my reasons.
[5] I relisted both matters for mention to 22 March 2011 at 11.45 am.
[6] I will deal first with the question whether or not Ms Boyko’s application has the effect of deferring the commission of an act of bankruptcy, the answer to which turns on whether the application operates either as compliance with the requirements of the bankruptcy notice, or as an application that extends the time for compliance.
[7] If the answer to the above question is that Ms Boyko’s application does operate as one or other, counsel for the judgment creditor accepts that the consequence will be that the application for adjudication is premature under s 13 and must be dismissed. If the answer is that Ms Boyko’s application does not operate as either, the consequences are twofold. First, the judgment creditor’s application may proceed and secondly, Ms Boyko’s application must either fail or at best may be raised as a defence to the judgment creditor’s application on the just and equitable ground.
[8] I am satisfied that the answer is an affirmative one and will come to my reasons. I begin however by referring briefly to the positions of both parties and the relevant legal provisions.
Position of Parties
[9] Ms Boyko does not dispute that she is liable for the judgment debt of $8,480 on which the bankruptcy notice is based or that the debt remains outstanding. But she argues that she has complied with the bankruptcy notice by making her application within the time allowed. She points to the notice and in particular to the notes endorsed on it that allow a debtor to make an application for approval to terms of payment within 10 working days of receipt of the bankruptcy notice. Her essential argument, though not expressed exactly in these terms, is that her application must operate as a suspension of the act of bankruptcy and therefore that she cannot have committed an act of bankruptcy.
[10] Counsel for the judgment creditor relies on a twofold submission:
a) First that Ms Boyko’s application does not amount to compliance with the bankruptcy notice. Compliance is secured only by payment or by court order; and
b)Secondly, that the only way a debtor can secure an extension of time for compliance with a bankruptcy notice is by application to set aside the bankruptcy notice under r 24.10 of the High Court Rules. Ms Boyko’s application is not such an application.
Relevant Legal Provisions
[11] I set out the relevant statutory provisions below, emphasising in bold the provisions that are particularly material.
[12] Section 13 of the Insolvency Act 2006 states:
When a 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.
[13] Subsections (1) and (2) of s 17 state:
Failure to comply with bankruptcy notice
(1) A debtor commits an act of bankruptcy if—
(a) a creditor has obtained a final judgment or a final order against the debtor for any amount; and
(b) execution of the judgment or order has not been halted by a court; and
(c) the debtor has been served with a bankruptcy notice; and
(d) the debtor has not, within the time limit specified in subsection (4),—
(i) complied with the requirements of the notice; or
(ii) satisfied the Court that he or she has a cross claim against the creditor.
(2) The form that the bankruptcy notice must take is set out in section 29.
[14] Subsection (4) of s 17 states:
(4) The time limit referred to in subsection (1)(d) is,—
(a) if the debtor is served with the bankruptcy notice in New Zealand, 10 working days after service; or
(b) if the debtor is served outside New Zealand, the time specified in the order of the Court permitting service outside New Zealand.
[15] Section 29(1) states:
Form of bankruptcy notice
(1) The bankruptcy notice must—
(a) be in the prescribed form; and
(b) require the debtor, in relation to the judgment debt or the sum ordered to be paid under a final order,—
(i) to pay the amount owing, plus costs; or
(ii) to give security for the amount owing that satisfies the Court or the creditor; or
(iii) to compromise the amount owing on terms that satisfy the Court or the creditor; and
(c) state what are the consequences if the debtor does not comply with the notice; and
(d) be served on the debtor in the prescribed manner.
[16] High Court Rule 24.8(3) prescribes that a bankruptcy notice must be in form
B2. Form B2 reads:
Bankruptcy Notice
1Within [10 working days, or, if the notice is served outside New Zealand, the period specified in the order for service] after you are served with this notice (excluding the day of service)—
(a) you must pay to the judgment creditor, [full name, address], $[amount], either in person or at the address for service of the judgment creditor (or the solicitor for the judgment creditor). This amount is the amount the judgment creditor claims is due (or remains unpaid) on a final judgment or final order, on which execution has not been stayed, that the judgment creditor obtained against you in the [name of court] on [date]; or
(b) you must secure or enter into a new formal agreement with the judgment creditor or, alternatively, obtain the High Court's approval of terms of payment; or
(c) you must satisfy the High Court that you have a counterclaim, set-off, or cross-demand against the judgment creditor—
(i) that equals or exceeds the amount claimed by the judgment creditor;
and
(ii) that you could not put forward in the action or proceeding in which the judgment or order was obtained.
2The judgment creditor also claims costs against you of $[amount], which includes a fee of $150 for serving this notice.
Notes
Please carefully read the following information. Consequences of not complying with notice
If you do not comply with paragraph 1, you will have committed an act of bankruptcy on which bankruptcy proceedings may be taken against you.
Procedure for counterclaiming, etc
If you consider you have a counterclaim, set-off, or cross-demand against the judgment creditor that comes within paragraph 1(c), or you wish to seek the court's approval of terms of payment, you must, within 10 working days from the date of receiving this notice, apply to the High Court. Your application must be supported by affidavit.
You must, within the same time, also serve a copy of the application and supporting affidavit on the judgment creditor.
Costs
If you do not dispute the claim for costs, you must, within 10 working days, pay the costs claimed to the judgment creditor, either in person or at the
address for service of the judgment creditor (or the solicitor for the judgment creditor), unless—
(a) the amount claimed has been secured or has become the subject of a new formal agreement to the judgment creditor's satisfaction or to the satisfaction of the High Court; or
(b) the amount of any counterclaim, set-off, or cross-demand that you advance is sufficient to cover the costs claimed as well as the amount specified in paragraph 1(a).
3A certified copy of the judgment or order on which this bankruptcy notice is based is attached.
(Deputy Registrar)
If you dispute the claim for costs, you must, within 10 working days, apply to the High Court to fix costs.
If you do not pay the costs claimed or dispute the claim for costs, you will commit an act of bankruptcy for which you may be adjudicated bankrupt.
This notice is issued by [name and address of judgment creditor] in person by [full name and address for service of solicitor for judgment creditor]*.
*Select one.
Note:
The amount claimed for costs in paragraph 2 must be determined as if the proceeding were a category 2 proceeding specified in Schedule 2 of the High Court Rules and the time allocation were the time allocation for item
17 and band B specified in Schedule 3 of the High Court Rules.
[17] Rule 24.10 states:
24.10 Setting aside bankruptcy notice
(1) If an application to set aside a bankruptcy notice cannot be heard until after the expiration of the time specified in the notice as the day on which the act of bankruptcy will be complete, the time is treated as extended until the application has been determined.
(2) An act of bankruptcy is not committed by reason only of non- compliance with the notice until the application has been determined.
Decision
Does Ms Boyko’s application operate as compliance with the requirements of the bankruptcy notice? Alternatively, does the application operate as an application that extends the time for compliance?
[18] A debtor who obtains the Court’s approval of terms of payment within 10 working days of being served with the bankruptcy notice complies with the requirements of the bankruptcy notice: see second limb in paragraph 1(b) of the bankruptcy notice in form B2.
[19] A debtor who makes application for approval of terms of payment within that
10 working day period complies with the procedure for making the application: see notes endorsed on the bankruptcy notice in form B2.
[20] Reading the bankruptcy notice as a whole (as I must) it seems to imply necessarily that compliance with that procedure operates as sufficient compliance with the bankruptcy notice for the period pending determination or other resolution of the application. The entitlement to make such application would ring hollow if that were not so. But the question whether a notice carries this implication is not one I need to determine. It is plain that Ms Boyko’s application operates in any event as an application that extends the time for full compliance.
[21] That part of s 17, which provides that an act of bankruptcy is not committed if a debtor complies with the requirements of the bankruptcy notice (for example by obtaining approval to terms of payment) or satisfies the court that he or she has a cross claim, has the effect of suspending an act of bankruptcy. That part is covered formally so far as the procedure is concerned by the notes in the bankruptcy notice and r 24.8(3). The procedural set out in the notes that governs the making application to the Court for approval of terms of payment, or for the purpose of satisfying the Court in respect of a cross claim, operates as an application to set aside under r 24.10. This is because, if granted, the application for approval would result inevitably in an order to set aside the bankruptcy notice.
[22] I am satisfied therefore that the extension of time that the rule allows operates here and defers the commission of an act of bankruptcy until the application for approval is determined. It follows that Ms Boyko has not committed an act of bankruptcy, and that the judgment creditor’s application was not one it was entitled to make: see s 13. The application has been made prematurely and as such is invalid and should be struck out.
[23] I come next to Ms Boyko’s application for approval to pay the amount claimed in the bankruptcy notice by instalments.
Application for approval to terms of payment
[24] Ms Boyko candidly acknowledges that she is unable to pay the judgment debt. She seeks approval to terms of payment in order to avoid committing an act of bankruptcy on which a new application for adjudication may be based. As I indicated at the hearing, there is no prospect of such approval and I so find. My brief reasons for this finding follow.
[25] The proposed terms of payment would permit Ms Boyko to pay the judgment debt of $8,480 debt at the rate of $20 a week over a period of approximately 8 years.
[26] Ms Boyko submits that as the bankruptcy notice allows for the option to obtain the High Court’s approval of terms of payment her proposal is of a kind that is contemplated by the notice and therefore that it should be approved. The submission rather begs the question whether the proposal is one that the court should foist on the judgment creditor. By Ms Boyko’s own acknowledgement the time frame she proposes is inordinate. But also of concern is the futility of her proposal. No useful purpose would be served by allowing it. She acknowledges that she has other unpaid debts to the judgment creditor, which greatly exceed the amount of the judgment debt that is the subject of her application. Those debts include a costs award made by the Court of Appeal ($5,689) and a repair levy owed to the judgment creditor ($69,540). She freely accepts that she is unable to pay these debts. She is hopelessly insolvent. Were I to approve the terms of her payment proposal the judgment creditor would be entitled to pursue a further bankruptcy notice and a fresh
application for adjudication. Approval of the present application would merely delay the time when adjudication would almost inevitably follow.
Result
[27] I make orders as follows:
a) As the judgment creditor’s application for an order of adjudication is premature, it is struck out;
b) Ms Boyko’s application for approval to terms of payment is declined.
[28] That leaves only the issue of costs. As each side has been partially successful and Ms Boyko has represented herself it seems appropriate that cost should be left to lie where they fall. If either side takes issue with such approach, a brief memorandum is to be filed and served by 1pm on 21 March 2011 and I will hear further from the parties on the issue of costs. For that purpose the matters of costs on the two applications is to be allocated a mentions hearing and the hearing allocated at 11.45 am on 22 March 2011 stands for that purpose. If neither side files a memorandum within the specified time on 21 March, the matter is not to be listed
and costs will lie where they fall.
Associate Judge Sargisson
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