Body Corporate 68792 v Memelink
[2017] NZHC 905
•8 May 2017
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2013-485-5775 [2017] NZHC 905
UNDER the Insolvency Act 2006 IN THE MATTER
of the bankruptcy of Harry Memelink
BETWEEN
BODY CORPORATE 68792
Substituted creditorBODY CORPORATE 378945
Substituted creditorAND
HARRY MEMELINK Debtor
Hearing: 15 March 2017 Appearances:
P J S Withnall for Body Corporate 68792
D A Bleier for Body Corporate 378945
Q S Haines for H MemelinkJudgment:
8 May 2017
RESERVED JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] On 7 November 2016 I gave judgment on an application by Body Corporate
68792 (the Body Corporate) to adjudicate Mr Memelink bankrupt.1 The application had been the subject of an earlier judgment on 16 August 2016,2 in which I had adjourned the Body Corporate’s application on condition that Mr Memelink make certain payments to the Body Corporate, and pay into court the balance of the body
corporate levies claimed by the Body Corporate in its statement of claim.
[2] In my judgment of 7 November 2016 I declined to make an adjudication order, substantially on the ground that Mr Memelink had a separate proceeding in
1 Body Corporate 68792 v Memelink [2016] NZHC 2658.
2 Body Corporate 68792 v Memelink [2016] NZHC 1906.
BODY CORPORATE 68792 v MEMELINK [2017] NZHC 905 [8 May 2017]
this court against the Body Corporate (“Proceeding 141”) in which Mr Memelink
seeks substantial damages.3
[3] In my judgment of 7 November 2016 I made the following orders:
[25] (a) … of the amount paid into court by Mr Memelink, the sum of $84,652.60 is to be paid out immediately to the Body Corporate. The balance of the funds in court is to be placed on an interest-bearing deposit and to remain in court pending further order of this court. (b)
… an order halting the Body Corporate’s adjudication proceeding against Mr Memelink pending the final determination of proceeding 141 in this court, subject to the following conditions:
(i) Mr Memelink is to promptly pay all amounts levied by the Body Corporate and falling due for payment on and after 1 December 2016, as those sums fall due for payment.
(ii) Mr Memelink is to diligently pursue his claims in proceeding 141.
(iii) Not later than 21 November 2016, Mr Memelink is to file an affidavit setting out full details of all of his assets, liabilities, income and outgoings. I direct that pending further order of the court that affidavit is not to be available for inspection by anyone but Mr Naylor and Mr Withnall, on those persons first filing (and serving on Mr Memelink) written undertakings that they will not disclose the contents of the affidavit to any person (apart from each other) without Mr Memelink’s written consent or further order of the Court.
(iv) Having heard from counsel and Mr Memelink on the question of costs, I order Mr Memelink to pay costs in respect of the hearings on 18 October, 1
November and 7 November 2016, in the total sum of
$2,500.00. Those costs are to be paid in full by not later than 21 November 2016.
(v) Leave is reserved to the Body Corporate to apply by memorandum to have this halt order lifted in the event of Mr Memelink failing to comply with any of the foregoing conditions, or in the event of Mr Naylor and Mr Withnall forming the view that the affidavit filed by Mr Memelink in accordance with condition (iii) above show that he is or may be insolvent.
3 Memelink v Body Corporate 68792, CIV-2016-485-141.
[4] Pursuant to the leave reserved at para (v) above, the Body Corporate and Body Corporate 378945 (which had been substituted as creditor with the Body Corporate by order made on 28 June 2016) now apply to lift the halt order and proceed with their applications to have Mr Memelink adjudicated bankrupt. The Body Corporate says that the halt order should be lifted because Mr Memelink has failed to comply with the conditions set out at para [25](b) of my judgment of
7 November 2016. Specifically, the Body Corporate says that Mr Memelink has failed to pay all amounts levied by the Body Corporate and falling due on and after
1 December 2016 (para [25](b)(i)), and the affidavit as to his means which he filed pursuant to the condition at para [25](b)(iii) is deficient in a number of respects. The Body Corporate also contends that Mr Memelink has failed to comply with condition
25(b)(ii) of the 7 November 2016 judgment, in that he has failed to diligently pursue his claims in Proceeding 141.
[5] Counsel filed detailed memoranda on the application to lift the halt order, and the matter came before me in the list on 7 March 2017.
[6] When the matter was called that day, I was advised by Mr Haines that Mr Memelink had made some further payments — a payment of $10,000 made to the Body Corporate from the trust account of Mr Memelink’s solicitor, and a further sum (in respect of ongoing levies) of nearly $6,000 paid by Mr Memelink direct to the Body Corporate.
[7] I directed that details of Mr Memelink’s alleged failure to comply with condition 25(b)(i) of the 7 November 2016 judgment (payment of ongoing Body Corporate levies) should be provided by sworn affidavit, with provision for Mr Memelink to file a reply affidavit. I adjourned the matter for argument on
15 March 2017.
[8] In my minute of 7 March 2017 I recorded that I told Mr Haines in the course of the hearing that I did not consider it a proper function of the court sitting in its bankruptcy jurisdiction to enter into the detail of reconciling levies and payments as between Mr Memelink and the Body Corporate. I expressed the view that if Mr Memelink had concerns over whether the levies claimed by the Body Corporate
had been properly charged, his appropriate recourse was to seek relief from the Tenancy Tribunal or the District Court as appropriate. I recorded that the clear intent of condition 25(b)(i) of the 7 November 2016 judgment was that Mr Memelink should pay ongoing levies, with liability for those levies to be argued elsewhere if necessary.
[9] I raised with counsel in the course of the hearing on 7 March 2017, whether the time might have come for an order to be made directing payment out to the Body Corporate of the remaining monies paid by Mr Memelink into court, with interest thereon, on the basis that any such payment would be without prejudice to Mr Memelink’s entitlement to contend that he was not liable for the sums paid out, and to take appropriate recovery action against the Body Corporate. I invited counsel to consider whether the case might be resolved in that manner, and to make submissions on it at the hearing scheduled for 15 March.
[10] When the case was called on 15 March Mr Haines advised that Mr Memelink would be content for the funds presently held in court to be paid out to the Body Corporate, on the “‘without prejudice” basis I had mentioned at the hearing on
7 March. However the suggestion was opposed by Mr Withnall for the Body Corporate and Mr Bleier for Body Corporate 378945. In their submission, there have been too many defaults already by Mr Memelink, and the appropriate course now is to lift the halt order and make an order adjudicating him bankrupt.
[11] In the course of argument on 15 March 2017 I raised with counsel the question of the court’s jurisdiction to make an adjudication order in circumstances where the amount claimed in a creditor’s application, while owing at the date the application was filed, had been paid by the time the court came to consider the making of an adjudication order. Counsel filed memoranda addressing that issue following the hearing, which I have now considered.
Evidence in support of the application to lift the halt order
[12] In support of the application to lift the halt order, Mr Naylor, the court appointed administrator of the Body Corporate,4 provided an affidavit sworn on
13 March 2017. In it, Mr Naylor addressed Mr Memelink’s alleged failure to
comply with condition [25](b)(i) of the judgment of 7 November 2016.
[13] Mr Naylor explained that operational levies totalling $12,225.60 are payable monthly in respect of Mr Memelink’s units. These are charged and paid pursuant to a monthly recurring invoice issued as at 1 July 2016. In the case of Mr Memelink, the invoice was emailed to him on 9 August 2016. Payment of the monthly invoices is due on the first day of each month.
[14] The monthly levy due on 1 December 2016 was paid by Mr Memelink on
6 December 2016. The next $12,225.60 levy fell due for payment on 1 January
2017, but no payment was received until 31 January 2017. Further, the amount received on that day was only $11,877.96 (a shortfall of $347.64).
[15] Mr Memelink again failed to pay the operational levies of $12.225.60 which fell due for payment on 1 February 2017. He made separate payments of $5,182.48 and $5,938.98 on 3 February 2017 and 16 February 2017 respectively. After those payments, there was a shortfall of $1,104.14 owing in respect of the operational levies due on 1 February 2017.
[16] A further $12,225.60 fell due for operational levies on 1 March 2017. Again, no payment was made by Mr Memelink that day. On 6 March 2017 a payment of
$5,938.98 was made by Mr Memelink (the same amount as he had paid on
16 February 2017). A further payment of $10,000 was made on 7 March 2017.
[17] Mr Naylor summarised the position in respect of operational levies as at the date of his affidavit, as follows. Operational levies of $12,225.60 were payable by Mr Memelink on 1 March 2017. After payment of the $5,938.98 on 6 March 2017,
the balance owing for the March operational levies was $6,286.62. Applying the
4 Mr Naylor was appointed administrator by order of this court made on 9 September 2016.
$10,000 paid by Mr Memelink the following day towards that balance, Mr Memelink was in credit (at least in respect of the March 2017 operational levies) in the sum of $3,713.38.
[18] Applying the $3,713.38 “credit” to the January 2017 arrears of $374.64 and the February 2017 arrears of $1,104.14, the credit balance was reduced to $2,235.
[19] In addition to the late-paid operational levies, Mr Naylor gave evidence of unpaid special levies. First, the Body Corporate made a special levy on 17 October
2016 in respect of warrant of fitness remedial works. Mr Naylor explained that the carrying out of this work is critical to maintaining the insurance on the building, and to avoid Council fines or the immediate closure of the building by the Fire Service. Mr Naylor said that a total of $5,095.14 was payable by Mr Memelink in respect of the five units owned by him. Payment was due on 1 November 2016.
[20] Mr Memelink did not pay the $5,095.14 on 1 November 2016, and he has not paid any part of that levy since. If the balance of $2,235 from the $10,000 paid by Mr Memelink on 7 March 2017 were applied in reduction of this special levy, the net amount due from Mr Memelink to the Body Corporate would be $2,860.14.
[21] On 7 December 2016 the Body Corporate made a further special levy ($21,383.85 payable by Mr Memelink), in respect of fire sprinkler compliance remedial works.
[22] Payment of the fire sprinkler levy was due by Mr Memelink on 10 January
2017. No payment has been received from him, notwithstanding reminders emailed to him on 17, 24, and 31 January 2017, and on 1 March 2017.
[23] However Mr Naylor stated that he did indicate to Mr Memelink that if he committed in a timely way to arranging to have the fire sprinkler work done himself, this special levy (other than a small sum of $63.64) would no longer be payable. Mr Memelink would still have to pay for the work, but the payment would be made to the Fire Service contractor retained by Mr Memelink, and not to the Body Corporate.
[24] Mr Naylor’s evidence was that Mr Memelink has not been prepared to take up that offer, leaving the Body Corporate with no option but to treat the special levy as still due and owing.
[25] Mr Naylor confirmed that the other unit owners were levied for this work in the same way as Mr Memelink, in accordance with their respective proportionate shares.
[26] Mr Memelink elected not to file any affidavit in opposition. Instead, Mr Haines filed a memorandum on 14 March 2017 asserting that, even on Mr Naylor’s evidence, Mr Memelink was then currently compliant with his ongoing obligations to the Body Corporate. He submitted that, to the extent that the special levies have not been fully paid by Mr Memelink, they relate to works which have not yet been performed. And in respect of the second special levy, the Body Corporate’s invoices would be reversed (presumably on the basis of Mr Memelink committing to carry out the relevant work himself). Mr Haines advised that Mr Memelink still disputes the sums claimed by the Body Corporate, and still seeks an accurate reconciliation from the Body Corporate of sums paid and sums invoiced (especially in relation to the roof of unit 15, where Mr Memelink says he has paid some
$120,000 for the work when the actual cost of the work was only some $65,000).
[27] Notwithstanding those concerns, Mr Haines advised that Mr Memelink has accepted that the most pragmatic way of resolving matters would be for the funds currently lodged in the High Court to be paid out to the Body Corporate on a without prejudice basis, with a view to the matter being removed from the bankruptcy court on a permanent basis. With that end in mind, Mr Haines advised that Mr Memelink had arranged for funds to be deposited into his solicitors’ trust account for the purposes of making the ongoing payments in a more timely manner.
[28] Body Corporate 378945 had obtained two judgments against Mr Memelink, one on 18 February 2016 in the District Court for $81,340.83, and the second in the Tenancy Tribunal on 4 May 2016, for $16,331.96. Both of those judgments had been satisfied by the time the case was called on 16 August 2016, although there remained a possible question of liability for costs. At the hearing on 15 March 2017 Mr Bleier
confirmed that those debts have been paid, but advised that, as of 15 March 2017, there was a further sum of $4,882 owing for unpaid levies due in January 2017. Body Corporate 378945 was also awaiting a costs judgment from the Tenancy Tribunal.
Counsel’s submissions
The Body Corporate
[29] Mr Withnall submitted that the situation has changed considerably since my judgment of 7 November 2016. He submitted that it is now clear that Mr Memelink is unable to pay his debts as they fall due.
[30] Mr Withnall referred first to Mr Memelink’s affidavit of means filed (in accordance with condition [25](b)(iii) of the 7 November 2016 judgment) disclosed a weekly income which would be nowhere near sufficient to cover even the monthly operational levies of approximately $12,220 charged by the Body Corporate. Nor did Mr Memelink disclose his expenses in his affidavit of means. In effect, Mr Memelink has been playing a cat and mouse game, disclosing only the bare minimum which he thinks will be necessary to enable him to avoid or further delay payments which are clearly due.
[31] Mr Withnall referred to the defaults outlined in Mr Naylor’s affidavit, and submitted that Mr Memelink is a danger to the commercial community, such that the court’s appropriate response is to make an order for adjudication. If the court were to direct the payment out to the Body Corporate of the funds held in court, on the basis that the adjudication application would then be dismissed (subject only to costs issues), Mr Withnall submitted there would be every reason to believe that in a few weeks’ time the Body Corporate would be in exactly the same position, with further defaults in the payment of levies. That is a real concern for a Body Corporate, as body corporates are not set up to deal with non-paying unit owners. While Mr Haines has proposed that some arrangement will be made for ongoing levies to be paid through the trust account of Mr Memelink’s solicitors, that would obviously be dependent on Mr Memelink putting the solicitors in funds. The Body Corporate has no reason to be confident that that will occur.
[32] On the question of whether the court should remain in some sort of “oversight” role notwithstanding that all currently outstanding sums either have been or can now be paid to the Body Corporate, Mr Withnall submitted that the court has jurisdiction to make an adjudication order notwithstanding the payments made by Mr Memelink. That is what the court should do — the court sought an assurance about Mr Memelink’s ongoing solvency, and the affidavit of means which he filed failed to provide that assurance.
[33] Mr Withnall referred to my judgment of 16 August 2016, in which I noted that Mr Memelink had conceded that the court had jurisdiction to make an adjudication order. The reason the court did not make the order then was substantially to enable Mr Memelink to advance Proceeding 141 to a conclusion. However in the period of nearly six months since then, little has been done to advance Proceeding 141 to trial.
[34] Mr Withnall also referred to the numerous warnings Mr Memelink has been given about failure to comply with court orders, including in my minute of
18 October 2016, where I described the decision to grant an adjournment as “a close run thing”.5 Mr Withnall submitted that the line has now been well and truly crossed, with Mr Memelink failing to comply with each of the conditions of the halt order made in the 7 November 2016 judgment, failing to pay ongoing levies on time, and failing to diligently pursue Proceeding 141. In the latter respect, Mr Withnall referred to a minute of a conference convened on 22 February 2017 in Proceeding 141 where the court recorded that a (late) amended statement of claim had still not been filed, and that no application had been made for an extension of
time.
[35] In respect of Mr Memelink’s affidavit of means filed in this proceeding, Mr Withnall emphasised the failure to disclose at all Mr Memelink’s expenses, and the lack of any basis for the court to assess the large values Mr Memelink put on certain company shares owned by him (no statements of financial position were provided for the companies concerned, and there was accordingly nothing on which
the court could assess whether or not the values adopted by Mr Memelink were
5 Minute, 18 October 2016 HC Wellington CIV-2013-485-5775.
reasonable). Mr Withnall submitted that the affidavit of means represents nothing
more than a wilful refusal to comply with the court’s order.
[36] Mr Withnall submitted that it is now clear that Mr Memelink is “as good as insolvent”. However, the Official Assignee’s powers are required to get to the bottom of his financial affairs. Also, the continual late payment of his debts by Mr Memelink suggests an absence of commercial morality, another factor which points towards adjudication as the appropriate outcome.
[37] Mr Withnall pointed to the length of this bankruptcy proceeding, which (with a number of creditors substituted over the years) goes back as far as 2013. He submitted that it is of the essence of bankruptcy proceedings that they should be brought to finality within a reasonable period (citing Re Guest v BNZ Finance [1991]
2 NZLR 477).
[38] Finally, Mr Withnall submitted that, whatever might be the outcome of the application to lift the halt order, the Body Corporate is entitled to a substantial award of costs. He submitted that Mr Memelink has been guilty of repetition of the same behaviours over a lengthy period — late payment of accounts which are due, failure to comply with court orders, and no sign of contrition or any realistic attempt to explain his defaults. Costs were awarded to the Body Corporate in the judgment of
7 November 2016, and the present situation is worse than it was then. And there is no basis for any suggestion by Mr Memelink that he was confused about his obligations under the judgment of 7 November 2016.
Body Corporate 378945
[39] Mr Bleier was content to adopt Mr Withnall’s submissions.
Mr Memelink
[40] Mr Haines emphasised that Mr Memelink has paid into court the funds he was ordered to pay, and submitted that the affidavit of means which Mr Memelink provided sufficiently complied with the court’s order. The order did not require an affidavit from a chartered accountant, and Mr Memelink did provide in the affidavit
a list of his properties, with values. The affidavit was sufficient to demonstrate his ability to pay.
[41] With regard to Proceeding 141, Mr Haines accepted that no amended statement of claim had yet been filed. He advised that there were delays associated with Mr Memelink’s wish to join other parties in Proceeding 141.
[42] In the course of his oral submissions made on 15 March 2017, Mr Haines advised that a further $25,000 was readily available to make any necessary top-up of amounts owed. The $25,000 was held in Mr Memelink’s solicitors’ trust account, with instruction to settle everything that was then due. As for the future, there is no order which could be made in practice which could compel Mr Memelink to keep paying levies as they fall due.
[43] Given the payments Mr Memelink has now made (or stands ready, willing and able to make), Mr Haines submitted that the most pragmatic answer would be for the court to direct the payment out to the Body Corporate of the remaining funds held in court, and for Mr Memelink to make any remaining payments which may then be required. On that basis, the bankruptcy adjudication proceeding could be dismissed.
[44] On the issue of jurisdiction, Mr Haines submitted that any adjudication order could only be made on the basis of debts which are owing as at the date of the adjudication order. If the creditor’s debt has been paid in full there is no jurisdiction to order adjudication.
[45] As for the claim by Body Corporate 378945, Mr Haines advised that Mr Memelink does not challenge the amount claimed, and payment of that sum and the balance of the sums set out in Mr Naylor’s affidavit could be made by 10.00am on 16 March 2017. Mr Haines said that Mr Memelink would agree to the following:
(a) to pay to the Body Corporate the sum of $2,860.14 (the balance required to clear all operational levies payable to the Body Corporate as at 1 March 2017), by 16 March 2017;
(b)to pay the sum of $21,383.85 claimed by the Body Corporate in respect of the fire sprinkler compliance levy made on
7 December 2016, by 16 March 2017;
(c) to pay the $4,882.58 claimed by Body Corporate 378945 by 16 March
2017; and
(d)to consent to an order for payment out to the Body Corporate of the funds held in court, together with interest accrued thereon.
[46] The payment of the $21,383.85 to the Body Corporate (item (b) in para [45] of this judgment) would be made on the basis that it would have to be reimbursed by the Body Corporate if Mr Memelink carried out the work himself within ninety days.
Submissions for the Body Corporate in reply
[47] In reply, Mr Withnall submitted that there was no reference to land in Mr Memelink’s affidavit of means. Mr Memelink failed to provide the “full details” of his assets and liabilities which were required by the order of 7 November 2016, and (to the extent that Mr Memelink may consider that assets of any trust with which he is associated are available to him) he should have made available particulars of relevant trust income. But no trust income was disclosed in the affidavit of means.
[48] As for Mr Memelink’s proposal to make certain payments by 10.00am on
16 March 2017, the proposal fails to address the ongoing solvency issue. Mr Memelink’s instruction to make these payments reflects a denial of what is likely to occur in a few weeks time. If the payments are to be funded from further borrowing, Mr Memelink may only be making the financial position worse.
The parties’ supplementary written submissions on the court’s jurisdiction where the debt claimed by the creditor has been paid
The Body Corporate
[49] Mr Withnall submitted that the court must have been satisfied that the
Body Corporate and Body Corporate 378945 were creditors of Mr Memelink when
the substitution order was made under s 44 of the Insolvency Act 2006 (the Act). And at the hearing of the adjudication application on 16 August 2016 counsel for Mr Memelink accepted that the court had jurisdiction to make an adjudication order. The case proceeded on that basis.
[50] The orders made on 16 August 2016 (when the adjudication application was adjourned to 18 October 2016) contemplated that if the conditions imposed on that adjournment were not “strictly complied with” there would still be jurisdiction for the court to make an adjudication order. Mr Memelink was expressly warned about the risk of such an order being made.
[51] The failure of the halt order conditions has brought the adjudication application back into play. It cannot be the case that Mr Memelink should benefit from his own wrongdoing leading to a failure of the halt order when the adjudication application comes before the court again for consideration. In principle, the date on which the adjudication application is to be considered, for jurisdiction purposes, is the date it was heard (16 August 2016). Subsequent events, such as subsequent payments made, go to the exercise of the court’s discretion under s 37 of the Act.
[52] Also, s 36 of the Act contemplates that the court will still have jurisdiction notwithstanding the full payment of the debt by the debtor. And s 37(a) of the Act is permissive —the court may exercise its discretion to adjudicate the debtor bankrupt notwithstanding that not all of the elements of s 13 of the Act have been established.
[53] Nor is it apparent, for jurisdiction purposes, that the debt must be the same debt at all times. Jurisdiction initially conferred by a debt can, while that jurisdiction exists, be conferred further and additionally as other debts come into existence.
[54] That is particularly relevant in the case of adjudication applications by bodies corporate, where levies struck under the Unit Titles Act 2010 are payable in periodic instalments over time (typically over a year). Liability arises at the time the debts are struck, and they become due for payment on a date in the future that is certain. Accordingly, the jurisdiction which existed at the date of the 16 August 2016 judgment has been successively further conferred each and every time each month’s
operational levies fell due, and on the dates each of the two special levies fell due. Jurisdiction is now conferred in respect of the operational levies falling due on
1 April, 1 May and 1 June 2017 (referring to Heath and Whale Insolvency Law in NZ
(2nd ed.) para 3.6 p 32).
[55] Finally, it is a well established principle of bankruptcy law that a creditor has the right to refuse payment of this debt after an adjudication application has been brought (referring to Re J (a debtor) [1967] NZLR 763 at 764). In this case, the Body Corporate does not, at least in the absence of a satisfactory arrangement entered into voluntarily by Mr Memelink, consent to the funds currently lying in court being paid out to the Body Corporate. It seeks, first and foremost, an adjudication order. For the purposes of jurisdiction, any payment out of the funds held in court could not be regarded as a payment of the debt owing to the Body Corporate on which the Body Corporate’s adjudication application was made. It has to be ignored for those purposes (otherwise the court would not, as it does, still have the ability to adjudicate bankrupt a solvent debtor).
Mr Memelink
[56] Mr Haines maintained the submission that the court does not now have jurisdiction to make an adjudication order. The Body Corporate’s application sought an order for adjudication based on the non-payment of the sum contained in the Body Corporate’s application, and Mr Memelink has now paid that sum. As the Body Corporate has failed to include in its pleading the material now relied upon, there is no basis for the Body Corporate to seek an order for adjudication.
[57] Secondly, Mr Haines submitted that the court has jurisdiction to order adjudication if and only if the debtor is unable to meet his financial obligations as they fall due (or in a reasonably timely manner). Mr Haines advised that Mr Memelink now has the following debts or potential liabilities:
(a) CIV-2016-485-567 — sealed orders in the amount of $14,474.50.
(b)CIV-2016-485-782 — order for costs on a Scale 2B basis. Judgment delivered on 16 March 2017, orders not sealed.
(c) CIV-2016-485-566 — order for costs on an indemnity basis.
Judgment delivered on 15 March 2017.
[58] Mr Haines advised that Mr Memelink currently had the sum of $60,000 in his solicitors’ trust account, that sum being sufficient to settle the outstanding liabilities referred to (as well as allow for some of the future levies of the Body Corporate as they fall due).
[59] Finally, Mr Haines submitted that Mr Memelink has demonstrated a considerable history of being able to meet and settle his obligations when called upon to do so by the court. He placed in the court a sufficient sum to settle the Body Corporate’s entire claim a considerable time ago, and in that situation the payment of that sum into court was tantamount to payment to the Body Corporate. In those circumstances, it is not possible for the Body Corporate to reject payment of sums already lodged with the court, as those sums are ostensibly being held by the court as a trustee for the Body Corporate. Mr Memelink has now settled his obligations as set out in the Body Corporate’s application for adjudication, and he has demonstrated through his affidavit that he has considerable equity.
Discussion and conclusions
Jurisdiction
[60] I deal first with the jurisdiction issues, namely whether the court has jurisdiction to make an adjudication order in circumstances where the debt on which the creditor’s adjudication application was based has been paid by the time the court comes to consider the making of an adjudication order.
[61] When the adjudication application was dealt with in the judgments of
16 August 2016 and 7 November 2016 that was not the case — a substantial part of the amount claimed by the Body Corporate was either unpaid or had been paid into court. Mr Memelink now invites the court to direct the payment to the
Body Corporate of the funds held in court, without prejudice to his right to sue for recovery of the money paid out in the event that a court holds (in Proceeding 141 or otherwise) that Mr Memelink was not liable for the money paid out.
[62] In my view the court does have jurisdiction to make an adjudication order in the circumstances of this case. Section 37 of the Act provides:
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.
[63] The learned authors of The Law of Insolvency in New Zealand note that s 37(b) does not require the court to refuse to adjudicate bankrupt a debtor who is able to pay his or her debts, and it is conceivable that an order of adjudication could be made in the case of a solvent debtor.6
[64] In Lawson v Perkins7 Asher J noted that the reference in s 37 of the Act to a debtor being able to pay his or her debts is only one of four reasons for refusal of an adjudication order set out in s 37. His Honour considered that it “therefore does not automatically follow that because a debtor is able to pay his or her debts that adjudication should be refused. Rather, the presence of the overall discretion indicates that there may be circumstances where a debtor who is able to pay his or her debts should nevertheless be adjudicated bankrupt”.8
[65] His Honour returned to the same point later in the judgment, when he said:
[26] There may indeed be circumstances in which an order could conceivably be made against a solvent debtor. If a solvent debtor had
6 Lynne Taylor & Grant Slevin, The Law of Insolvency in New Zealand, (Thomson Reuters, Wellington, 2016) at [5.3.2].
7 Lawson v Perkins [2009] NZFLR 330 HC.
8 At [21].
deliberately sought to make execution impossible or extremely difficult the court might consider exercising its discretion in favour of adjudication. If the debtor had a large number of creditors and there was a public interest in the administration of the debtor’s assets, the court might also order adjudication. And there is the circumstance referred to in Holdgate9 of a debtor not establishing that there are assets from which the debt could be paid within a reasonable time.
[66] I accordingly conclude that I have jurisdiction to make an order adjudicating Mr Memelink bankrupt. Whether I should do so will involve consideration of whether:
(a) Mr Memelink has breached the conditions of the halt order in circumstances justifying the lifting of the halt order; and if so
(b)whether I should exercise my discretion to make an order for adjudication.
Should the halt order be lifted?
[67] I am satisfied that it should.
[68] I accept Mr Withnall’s submission that Mr Memelink has failed to comply
with the conditions imposed at paras [25](b)(i) and (ii) of my judgment of
7 November 2016. He has clearly failed to pay all amounts levied by the Body Corporate and falling due after 1 December 2016 promptly — to take one example, the levies due on 1 January 2017 were only partly paid, and the part- payment was not made until 31 January 2017. On any view of it, that was not “prompt” payment.
[69] He has also failed to comply with the condition that he diligently pursue his claims in proceeding 141. It is clear that he did not file his amended statement of claim in proceeding 141 in accordance with the timetable directions made in that
proceeding, and by the time of the conference convened in proceeding 141 on
9 Holdgate v Blocassa [2007] NZCA 132. In this case, the Court of Appeal held at [19] “that the debtor must be able to pay his or her debts as they are incurred … either immediately or within a reasonable time. If unable to do this, the debtor may be declared bankrupt even though he or she has more assets by value than liabilities”.
22 February 2017 the amended claim had still not been filed. Nor had any application been made for an extension of time to do so.
[70] It may be that Mr Memelink’s affidavit of means was also deficient, in that it failed to provide full details of his outgoings. Also, a bold assertion in the affidavit that shares held by him in three named companies are worth $3,927,382 (without any supporting details), was near-useless for the purpose of assessing his ongoing solvency. However it is not necessary for me to make any finding on the alleged breach of the condition at para [25] (b)(iii) — the breach of the conditions at para [25](b)(i) and (ii) is sufficient for me to order, as I do, that the halt order made on
7 November 2016 be lifted.
Exercise of discretion to make an adjudication order
[71] The starting point is that the creditor is prima facie entitled to an adjudication order if the jurisdictional facts in s 13 of the Act are established.10 Thereafter the decision whether to make an order is to be made in the exercise of the court’s discretion. The court will consider a number of factors in the exercise of its discretion.
[72] The following factors, which will ordinarily be relevant to the exercise of the court’s discretion, were identified by Master Williams QC (as he then was) in Re Epirosa:11
(1) what are the wishes of all affected parties, including the applying creditor, other creditors, and the debtors?
(2) does the debtor have the ability to meet his or her debts over time and, if so, does that meet the requirements of achieving finality within a reasonable period?
(3) what were the circumstances in which the debt was incurred, and do those circumstances suggest that the creditor is acting unreasonably in pursuing adjudication?
(4) will adjudication be pointless?
(5) will the debtor, if adjudicated, be rendered unable to support himself or herself?
10 Baker v Westpac Banking Corporation CA212/92, 13 July 1993 at 4, per Richardson J.
11 Re Epirosa, ex parte Diners Club NZ Ltd HC Wellington B498/91 and B532/91, 6 March 1992.
(6) does the debtor have such a standing in the community that significant issues of stigma or embarrassment will result?
[73] While those factors will frequently arise, the court’s task is to consider all of the facts of the case before it, and balance the relevant factors in deciding whether it is just and equitable to make an order, or whether there is other sufficient reason to follow that course.12
[74] Looking at the list of relevant factors identified in Re Epirosa, numbers (2), (3) and (4) appear to be relevant in this case, with the second factor (ability to meet debts over time) particularly important in circumstances where the debts have been paid (or clearly can be paid).
[75] Asher J considered the exercise of the discretion in the case of a debtor who was apparently able to pay but refused to do, in Lawson v Perkins.13 In that case, the creditor accepted that the judgment debtor was solvent, but contended that an order of adjudication should nevertheless be made. Counsel submitted that Mr Lawson did not deserve to have the court exercise the discretion in his favour, having regard to the allegedly spurious defence he had raised, his attempts to avoid service, and
general behaviour which counsel characterised as flagrant.
[76] Asher J noted that the wording of s 37, and the scheme of the Act as a whole, confirmed that the Act’s focus is on insolvent persons, and not on general debt collection. The elaborate provisions in parts 3 and 4 of the Act relating to dealing with a bankrupt and a bankrupt’s property can have no relevance to a solvent debtor. His Honour considered that those provisions are designed to facilitate a proper recovery for debtors from an insolvent estate, to ensure that the insolvent’s affairs are properly wound up and future business dealings controlled, and to provide for an orderly discharge. As his Honour noted, this has nothing to do with debt collection, for which there are specifically designed execution processes available to the creditor. Nor are the bankruptcy processes designed to punish debtors. Asher J considered that there was no doubt about the basic principle — where the debtor is
able to pay his or her debts, and payment can be obtained by execution against the
12 Strachan v Moodie [2014] NZHC 3167, following Re Rabobank Australia Ltd, ex parte Tootle
[2013] NZHC 2975.
13 Lawson v Perkins, above n 7
assets of the debtor, an order for adjudication is unlikely (citing Re Stirling, ex parte Webb Ross & Co; Re Hall, ex parte City Construction Ltd, [1990] 1 NZLR 577; Attorney General v Payne, HC Wn CIV-2004-485-1723, 25 May 2005; and Re Siemer ex parte Mentha & Stiassny, CIV-2007-404-00-116, 6 November 2008).14
[77] The situation in Lawson v Perkins was one of simple refusal by a solvent debtor to pay. Asher J concluded that to adjudicate the debtor bankrupt in those circumstances would be a misuse of the bankruptcy process. There were execution procedures available to Ms Perkins which, if pursued, should eventually produce the money owed to her.15 Further, His Honour rejected a submission for Ms Perkins that the fact that Mr Lawson’s refusal to pay arose from an order of the court constituted a special reason for making an order for adjudication. The learned Judge observed that “the bankruptcy jurisdiction is not to be used as a means of enforcing orders of the court”.16
[78] In Re Stirling, ex parte Webb Ross & Co,17 one of the grounds on which the debtor opposed a bankruptcy application was that he was able to pay all of his debts, including the debt owed to the creditors. The debtor went further, offering to pay the full amount of the judgment and costs into court pending the outcome of a separate claim he had commenced against the creditors. Referring to s 26(2) of the Insolvency Act 1967, Smellie J noted that the court may dismiss a bankruptcy petition if it is satisfied that the debtor is able to pay his debts. His Honour held that the word “able” in that context was not to be construed as “able and willing”. The scheme of the 1967 Act was to provide an appropriate means of dealing with insolvency, and not mere debt collection. Creditors of solvent debtors have their remedies in execution. His Honour noted that if an adjudication order were made despite the debtor’s ability to pay, the order would operate to the prejudice of other creditors, and that would be contrary to the rule that bankruptcy petitions are for the
benefit of creditors as a class and the public in general.18 Mr Stirling had been
paying his other debts as they fell due, and there was little doubt as to his continuing
14 At [20].
15 At [27].
16 At [28].
17 Re Stirling, ex parte Webb Ross & Co [1990] 1 NZLR 569 (HC).
18 Citing Re A Debtor [1935] Ch 353, at p 357.
ability to do so. An order for adjudication, if made, would inevitably delay payments to all creditors, while proofs of debt were filed and the Official Assignee set about the task of getting in assets. His Honour concluded that the intention of the legislature was that bankruptcy was not to be visited upon a person able to pay his debts. The 1967 Act was an enactment which strengthened the dichotomy between insolvent debtors and solvent debtors — creditors of the latter have their remedies in execution, remedies which are not to be used against insolvent debtors.
[79] On the available evidence, I do not think it can be said that Mr Memelink is “unable” to pay his debts, as opposed to being unwilling to pay those of them that he considers he should not have to pay. I accept Mr Haines’ submission that Mr Memelink has demonstrated a considerable history of being able to meet his obligations when called upon by the court to do so. What is unusual about him is the number of disputes in which he seems to be involved, his frequently passionate (but sometimes misguided) belief in the righteousness of his position, and his propensity for delaying payment until he has no other realistic choice. The position now appears to be that he has paid all that is presently owing to the Body Corporate and to Body Corporate 378945 (subject to those parties’ claims for costs, which are not yet quantified), and $60,000 is held in his solicitors’ trust account to cover costs awarded in other cases. His counsel has advised that that sum should be sufficient to cover the outstanding costs awards.
[80] His affidavit of means was unsatisfactory in a number of respects, most notably in his failure to provide proper details of his income and outgoings sufficient to explain how he can meet ongoing levies from the Body Corporate as well as his other expenses. Also, there is no evidence supporting the substantial values attributed to his company shares and a patent which he says he owns. Against that, Mr Memelink states in his affidavit that he is owed a total of $285,000 by three named parties, and it seems clear that the trust of which he is a trustee owns a number of properties, including units in respect of which the Body Corporate has been seeking to recover outstanding levies. Given the number of properties said to be owned by the trust, it seems more likely than not that the trust would have some equity in the properties, and if Mr Memelink now pays (or has paid) those levies
personally, he would in the ordinary course be entitled to be indemnified out of the trust assets.
[81] On the evidence available, it seems more likely than not that Mr Memelink is at least “balance sheet” solvent. The solvency issue is whether he is able (ie not “willing”) to meet his debts as they fall due for payment or at least within a reasonable period.
[82] The fact of the matter is that Mr Memelink has now either paid what is owing to those creditors, or he holds sufficient funds and is now ready and willing to pay. I think it is more likely than not that he has (reluctantly) come to that position not because he was unable to pay earlier, but because he fervently believes he should not have to pay.
[83] He is then, more likely to be an unwilling debtor rather than an “unable to pay” debtor.
[84] That brings me to the decisions in Lawson v Perkins and Re Stirling, where Asher J and Smellie J both noted that the bankruptcy jurisdiction is not intended to be used as a means of debt collection. Creditors of solvent debtors have their remedies in execution, and where payment can be obtained by execution against the debtor’s assets an order for adjudication is unlikely.
[85] Is execution available to the Body Corporate in this case? The answer appears to be: “Well it would be, but the Body Corporate has not obtained any judgment on which it could proceed to execution”. (The levies are owed to the Body Corporate by the registered proprietors of the five separate units, one of whom is Mr Memelink, and if the Body Corporate were to obtain a judgment against the registered proprietors that judgment could presumably be executed against the units. At least there is nothing which shows that that is not the case.)
[86] The problem for the Body Corporate is that it was substituted as the creditor in the adjudication application, and it never held a judgment for a substantial part of
the levies it has claimed. And Mr Memelink has paid those parts of the amount claimed in respect of which the Body Corporate did hold judgments or orders.
[87] The absence of a judgment in respect of the unpaid amounts is important for another reason, and that is that liabilities for the (new) amounts is contested by Mr Memelink. This is not a typical adjudication application where the creditor relies on a judgment, and I think that is a mater which I can properly take into account in the exercise of my discretion.
[88] Mr Withnall submits that Mr Memelink’s (inevitably late) payments can only have been made from further borrowing, and accordingly they cannot provide any evidence of his solvency. But there is no evidence of that, and it may well be that Mr Memelink does have access to funds from the trust referred to in his affidavit (in which he says that his “share” is 100 per cent). And if he has been borrowing to pay his debts, his solvency would presumably depend on the term or terms of the lending, and whether Mr Memelink or the trust has assets from which the loan or loans could be repaid on maturity. The liquidity of any such assets would be relevant in the case of any short term lending.
[89] Mr Withnall is right to be critical of Mr Memelink’s failure to be fully forthcoming in his affidavit of means, but I do not think that failure, while reprehensible, can trump the simple fact that Mr Memelink apparently can pay his debts, and has now done so (or has demonstrated that he stands ready to do so). That failure, and Mr Memelink’s various other failures to comply with court orders or conditions, can be compensated for by an appropriate award of costs against him. As Asher J noted in Lawson v Perkins, the bankruptcy processes are not designed to punish debtors.
[90] To the extent that the Body Corporate is concerned that Mr Memelink would be unable to pay future debts as they arise, it is not the role of this court in its bankruptcy jurisdiction to monitor such future payments without certainty that these
cannot be paid.19 As I have said, bankruptcy has nothing to do with debt collection.
19 Insolvency Act 2006, s 13(d): the debt is payable either immediately or at a date in the future that is certain.
[91] Looking at the third of the Epirosa factors listed in para [72] of this judgment (what were the circumstances in which the debt was incurred, and has the creditor been acting unreasonably in pursuing adjudication?), at first sight there appears to be some force in Mr Withnall’s argument that bodies corporate are not well set up to deal with unit owners who fail to pay their levies — a considerable burden can be placed on other unit owners, especially if there is urgent work required to common areas. But the Unit Titles Act 2010 allows for bodies corporate to recover interest at
a rate up to 10 per cent per annum on unpaid levies,20 and s 124 allows them to
recover their reasonable costs. In this case, a significant part of the Body Corporate’s problem is that, instead of proceeding to obtain a judgment against Mr Memelink for the full amount of the unpaid levies, interest and costs, it elected to “coat-tail” on a bankruptcy application filed by another creditor of Mr Memelink, by applying to be substituted as creditor in that proceeding.
[92] In those circumstances I think the force of Mr Withnall’s point is reduced. Remedies are available to a body corporate to compel full payment of levies which are in fact payable, and I do not think there is any justification for treating bodies corporate under the Unit Titles Act 2010 as some sort of “special kind of creditor”, whose claimed debts are entitled to any greater form of protection than debts owed to other creditors.
[93] The fourth Epirosa factor is whether an adjudication order would be pointless. The cases show that an order might be pointless if (for example) no assets will be available for the creditors, and there is nothing in the bankrupt’s conduct justifying investigation by the Official Assignee (using the powers available to her
under the Act).21
[94] The first of those considerations supports the view that an adjudication order would be pointless. Mr Memelink can and has paid. I think the second consideration also favours a “pointless” conclusion — once it is accepted that
Mr Memelink can pay, I do not think there would be any useful purpose in the
20 Unit Titles Act 2010, s 128.
21 McHardy v Wilkins & Davies Marinas Ltd (in receivership) CA 54/93, 7 April 1993, although the undoubted absence of assets will not necessarily preclude an order: Re Fidow [1989]
2 NZLR 431.
Official Assignee enquiring into questions such as whether he might have assets which have not been disclosed.
[95] The strongest point for the Body Corporate is that Mr Memelink has established a considerable track record of late or non-payment. The argument is that his behaviour in that respect has reached the point where there is now a need to protect those in the commercial community who may have dealings with him in the future.
[96] I accept that the Body Corporate has a real concern in this area, but the fact is that Mr Memelink has on occasion been successful in the litigation in which he has been involved in the past, and of course the Body Corporate does not hold any judgment for the disputed levies. And Mr Memelink does appear to have a genuine belief in the merits of his arguments on the levies dispute. I do not think it can be said that this is a situation of a debtor cynically using the creditor as a “bank”, by delaying payment until the eleventh hour.
[97] The length of these bankruptcy proceedings (going back to 2013) was another matter raised by Mr Withnall. I agree that the time has come to bring this proceeding to an end. With the halt order lifted, and Mr Memelink having paid all of the amounts claimed (whether directly or by payment into court), the choice is between making an adjudication order, or dismissing the adjudication applications with costs payable to the creditors. (I do not see it as a function of this court sitting in its bankruptcy jurisdiction to “oversee” future levy payments which Mr Memelink might or might not make.) In the view to which I have come, dismissal of the applications with costs orders in favour of the creditors is the appropriate course to take.
[98] Failing to comply with court orders, including the conditions on the halt order, is of course a serious matter. But I think it can be adequately addressed by the removal of the halt order, which I have directed, and the making of an appropriate award of costs against Mr Memelink. I do not consider Mr Memelink’s defaults in this respect to be an abuse of the bankruptcy process, of the kind considered by Asher J in Lawson v Perkins.
[99] Mr Withnall referred to Re J (a debtor) [1967] NZLR 763, in support of the proposition that a creditor has the right to refuse payment of a debt after an adjudication application has been brought. In one respect the judgment in Re J (a debtor) appears to be no longer applicable. The court in that case was concerned with the “relation back” period, which under the Insolvency Act 1967 deemed the bankruptcy to have commenced on the date of the pleaded act of bankruptcy. Under s 55 of the Act, a bankruptcy is now deemed to commence on the date and at the time when the debtor is adjudicated bankrupt, and not at the time of an earlier act of bankruptcy. In circumstances where Mr Memelink appears to be able to pay his debts within a reasonable time I do not consider the case requires that I make an adjudication order.
[100] In summary, I am not persuaded that an adjudication order should be made. All amounts owing to the two substituted creditors either have or can now be paid, and Mr Memelink’s various defaults in this proceeding can be marked by an appropriate order for costs.
Result
[101] I make the following orders:
(a) the halt order made on 7 November 2016 is lifted.
(b)the balance of the funds paid into court by Mr Memelink, and any interest earned on those funds, is to be paid out to the Body Corporate. That payment is to be without prejudice to any contention Mr Memelink may advance in proceeding 141 (or in any other proceeding) that he was not liable to pay these funds, and is entitled to an order for their recovery.
(c) the applications by the Body Corporate and Body Corporate 378945 for adjudication orders are dismissed.
(d) the Body Corporate and Body Corporate 378945 are entitled to costs.
Counsel for those parties may file memoranda addressing the quantum
of costs to be awarded, within 15 working days of the date of this judgment. Counsel for Mr Memelink may submit a memorandum in response within 15 working days after service of the memoranda filed for the Body Corporate and Body Corporate 378945.
Associate Judge Smith
Solicitors:
Simpson & Co, Otaki for the debtor
Postscript
I record that in a memorandum dated 4 April 2017 Mr Withnall sought leave to file a further affidavit, which would show that Mr Memelink had failed to pay the levies due on 1 April 2017. As Mr Haines advised in reply on 11 April 2017, those levies were paid by 4 April 2017. I do not think any further evidence establishing those matters (assuming them to be so) could affect my decision set out above. The leave sought is accordingly refused.
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