Body Corporate 81012 v Memelink
[2022] NZHC 1244
•31 May 2022
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2021-485-419 [2022] NZHC 1244
BETWEEN BODY CORPORATE 81012, BODY CORPORATE 68792 and BODY CORPORATE 378945
Plaintiffs
AND
HARRY MEMELINK and
CISCA JOHNETTE FORSTER AS
TRUSTEES OF THE LINK TRUST (NO.1)Defendant
CIV-2020-485-462 BETWEEN
THE OFFICIAL ASSIGNEE IN THE BANKRUPTCY OF HARRY MEMEMLINK ESTATE 889243
First Plaintiff
THE OFFICIAL ASSIGNEE IN THE BANKRUPTCY OF HARRY MEMELINK ESTATE 895147
Second Plaintiff
AND
HARRY MEMELINK,
CISCA JOHNETTE FORSTER and ROY WILLIAM BASSETT-BURR AS
TRUSTEES OF THE LINK TRUST (NO.1)
Defendant
CIV-2020-485-374 BETWEEN
LYNX TRUSTEES LIMITED (IN LIQ)
Plaintiff
AND
HARRY MEMELINK
First Defendant
BODY CORPORATE 81012 & ORS v MEMELINK & ANOR [2022] NZHC 1244 [31 May 2022]
CISCA JOHNETTE FORSTER and ROY BASSETT-BURR AS TRUSTEES OF THE LINK TRUST (NO.1)
Second Defendants
Hearing: 4-11 April 2022 Counsel:
A S Olney for Plaintiffs in CIV-2021-485-419
P Chisnall and C Jolliffe for Plaintiffs in CIV-2020-485-462
G A Neil and R M Hindriksen for Plaintiff in CIV-2020-485-374 D G Livingston for Defendants in all matters
Judgment:
31 May 2022
JUDGMENT OF CHURCHMAN J
[Reissued on 7 June 2022]
TABLE OF CONTENTS
Introduction [1]
Background [3]
CIV-2021-485-419 (receivership proceeding) [5]
CIV-2020-485-374 (liquidation proceeding) [10]
CIV-2020-485-462 (bankruptcy proceeding) [13]
The receivership proceeding [17]
Issues [17]
Contested matters [23]
The law [38]
Analysis [41]
Delayed appointment? [81]
Identity of receivers [88]
Terms of appointment [107]
The liquidation proceeding [112]
Issues [117]
Analysis [120]
The bankruptcy proceeding [125]
Official Assignee’s reimbursement of Trust debts, remuneration, and
beneficiaries’ current account [125]
Second cause of action [157]
Third cause of action [163]
Costs [164]
Introduction
[1] This decision is yet another chapter in the ongoing saga of litigation involving Harry Memelink, the Link Trust (No.1) (the Trust), Lynx Trustees Limited (in liq) (Lynx), and others with whom he and those entities interact. The hearing involved three different proceedings which were joined for hearing together.1
[2]The three proceedings are:
(a)CIV-2021-485-419 Body Corporate 81012 & Ors v Memelink & Anor
(the receivership proceeding);
(b)CIV-2020-485-374 Lynx Trustees Limited (in liq) v Memelink & Ors
(the liquidation proceeding); and
(c)CIV-2020-485-462 Official Assignee & Anor v Memelink & Ors
(the bankruptcy proceeding).
Background
[3] The Trust was established on 15 February 1995. At all relevant times the trustees have been Mr Memelink and Lynx, or Mr Memelink and Cisca Forster. Mr Memelink was adjudicated bankrupt in 2018, and has not yet been discharged.2 Liquidators for Lynx were appointed on 10 September 2019.
[4] As noted by Dobson J in earlier related proceedings,3 it is clear that Mr Memelink’s bankruptcy has not constrained his efforts in directing the business of the Trust or incurring debts. These debts are sought to be recovered by resort to Trust property, including the sale of properties owned by the Trust (of which there are 14), and in respect of which caveats have been lodged by the Official Assignee.
1 See minute of Eaton J, BCs 81012, 68792 and 378945 v Memelink & Anor, 19 November 2021.
2 Collins & May Law v Memelink HC Wellington CIV-2018-485-363, 29 August 2018.
3 Body Corporate 68792 v Memelink and Forster [2020] NZHC 2691 at [6].
CIV-2021-485-419 (receivership proceeding)
[5] In the receivership proceeding, three Body Corporates (BC) (81012, 68792, and 378945) seek the appointment of receivers over the Trust in order to recover unpaid levies on trust properties and related debts. This is the second time that there has been such an application. In 2020, BC 68792 applied for the appointment of receivers, resulting in the judgment of Dobson J of 13 October 2020. Dobson J ordered Mr Memelink to pay outstanding levies owed to BC 68792 within two months or receivers would be appointed.4
[6] At the last minute, the outstanding levies were paid. However, they were only paid up to the date of Mr Memelink’s bankruptcy (28 August 2018), rather than to the date in 2020 when Dobson J dealt with the matter.5 Since this time, the Trust has not paid any levies, and there are costs orders which also remain unpaid. Receivers were never appointed pursuant to Dobson J’s decision because of the last-minute payment. In a minute issued on 3 November 2020, Dobson J expressed the view that his original judgment may afford a precedent for the consideration of similar orders in respect of further unpaid levies.
[7] BC 81012, as of 17 March 2022, claims outstanding debts of $141,017.45, arising from the Trust’ failure to pay levies over a period of two years, as well as interest and costs orders.6 Once again, there was a last-minute payment with
$141,017.45 being paid by Mr Memelink some 10 days before this hearing commenced. Payment of this sum brought the arrears up to date until the end of September 2021. There was a total of $37,509.44, plus accrued interest, outstanding as at the date of the hearing.
[8] BC 68792, as of 17 March 2022, claimed an outstanding balance of $864,000 arising from the Trust’ failure to pay levies over a period of two years, as well as costs orders.7 Mr Gambitsis’ reply affidavit put the outstanding figure at $911,682.98. That has not been paid.
4 Body Corporate 68792 v Memelink above n 3.
5 Memelink v Official Assignee [2020] NZHC 2709.
6 Plaintiffs’ Amended Statement of Claim dated 17 March 2022, at [20].
7 At [30]. See also Affidavit of Anthony John Gambitsis, dated 12 August 2021 at [8], which puts the number roughly $100,000 higher.
[9]BC 378945, as of 17 March 2022, claimed an outstanding balance of
$11,078.13 arising from the Trust’s failure to pay levies from 26 November 2021, and unpaid cost orders.8 Once again, some 10 days before the hearing commenced, Mr Memelink paid some $11,000.
CIV-2020-485-374 (liquidation proceeding)
[10] In the liquidation proceeding, the liquidators of Lynx are seeking to be indemnified out of Trust property for debts arising in respect of BC 68792’s claim against Lynx as a trustee, and their reasonable remuneration after 15 September 2020. They seek interest on both sums, costs, and orders for sale of properties to satisfy the debts.
[11] On 30 September 2020, Johnston AJ entered judgment by consent as to liability in respect of certain Trust debts, the liquidator’s remuneration up to 15 September 2020, and all other debts arising out of Lynx’s trusteeship.9 Johnston AJ then granted leave to Lynx to provide further submissions on judgment for further expenses after 15 September 2020, and its claims in regard to Trust property.
[12] By a minute dated 13 April 2022, Johnston AJ determined the liquidators’ application for the interim fixing of their remuneration and expenses, granting the application on the terms sought.10 Included in that approval was liquidator’s remuneration for the period 10 September 2019 to 6 October 2021 in the sum of
$120,079.50 plus GST and legal expenses of $327,305.44 plus GST. As noted below at [116], this judgment has been recalled, and the issue is to be redetermined.
CIV-2020-485-462 (bankruptcy proceeding)
[13] In the bankruptcy proceeding, the Official Assignee seeks to be indemnified for debts incurred by Mr Memelink in his capacity as trustee. Like the liquidators of Lynx, the Official Assignee seeks orders for sale of trust properties to satisfy admitted
8 Plaintiffs’ Amended Statement of Claim dated 17 March 2022, at [35].
9 Lynx Trustees Limited (in liq) v Memelink [2020] NZHC 2401.
10 Body Corporate 68792 v Lynx Trustees Ltd (In liq) HC Wellington CIV-2019-485-389, 13 April 2022.
debts, including his costs in the administration of the bankruptcy as a preferential creditor, and interest within the terms of the Interest on Money Claims Act 2016.
[14] The Official Assignee put the current admitted claims as of 5 April 2022 incurred by Mr Memelink as trustee of the Trust, as being $286,453.42, plus interest and costs. Admitted personal claims against Mr Memelink come to $112,352.54.11 There are other claims which the Official Assignee is still investigating, that are as yet not admitted, which the Official Assignee seeks summary judgment for as to liability. The Official Assignee also seeks summary judgment as to liability for remuneration for costs incurred in the administration of the bankruptcy, amounting to $665,534.73 as of 5 April 2022. These costs are also still accumulating, and when the overall quantum is determined, the Official Assignee intends to file a separate interlocutory application in respect of costs. Further, the Official Assignee seeks from Lynx, by way of a summary judgment, a sum of $4,064,848 plus interest, that the Trust owes to Mr Memelink, to settle claims arising from his bankruptcy.
[15] In the alternative, the Official Assignee has submitted that the receivers sought to be appointed by the body corporates could undertake the task of sale of Trust assets to meet debts in the bankruptcy. Following which, the Official Assignee requests that all creditors rank equally in respect of the claims against the Trust. He submits that this would be appropriate as it would ensure equality between creditors, efficiency, and reduction of costs. The Official Assignee has confirmed that there is no cross- over between his claims, and the claims of the liquidators in the liquidation proceeding.
[16] Other than for the now abandoned claim that the second defendant (Lynx) was not a trustee, the statement of defence to the first amended statement of claim substantially admits all of the pleadings relating to the first cause of action. In relation to the “Further Trust Claims”, the defendants admit that the most recent draft accounts of Link Technology 2000 Ltd (in liq) record advances to the Trust in the sum of
$1,212,986 but say that this company is also indebted to the Trust for unpaid rent. No figure for the unpaid rent is provided.
11 Updating Affidavit of Robert Gordon McDonald dated 5 April 2022, at [6.1]; this amount does not include the recently confirmed McKinley claim of $24,999.92.
The receivership proceeding
Issues
[17] The relief sought by the plaintiffs in the receivership proceedings is the appointment of two named Wellington insolvency practitioners (Ian Bruce Shephard and Jessica Jane Kellow) as receivers of the Trust. The amended statement of claim dated 17 March 2020 also seeks that the receivers be given the authority to exercise certain powers conferred upon liquidators pursuant to pt 16 of the Companies Act 1993. The plaintiffs seek to manage the receivership as if the Trust was a company in liquidation, with the settlor and the trustees as the directors, and the beneficiaries of the Trust as shareholders.
[18] The amended statement of claim acknowledges that the powers of receivers are subject to the requirement that they deal with Trust assets in co-operation with the Official Assignee as the trustee in bankruptcy of Mr Memelink and the liquidators appointed to Lynx.
[19] The appointment of the receivers is for the limited purpose of procuring payment of the outstanding levies and costs orders detailed in the amended statement of claim. A further purpose is said to be for the receivers to take all steps to facilitate a process by which future levies will be paid in a timely way.
[20] The amended statement of claim also seeks relief by way of a direction that the receivers’ reasonable costs in effecting the purposes of the receivership will be recoverable from Trust assets.
[21] As an alternative to the appointment of Mr Shephard and Ms Kellow as receivers, an order was sought removing the defendant as trustees of the Trust and replacing them with Mr Shephard and Ms Kellow. This was not pursued in oral argument and I assume it has been abandoned. The plaintiffs also sought costs.
[22] The defendant admits many of the pleadings in the statement of claim, and I will summarise the matters that are contested.
Contested matters
[23] At [5] of the amended statement of claim, the plaintiffs pleaded that the Trust owns residential and commercial property and that it conducts a property rental and leasing business. The statement of defence admitted the contents of [5] but then pleaded that the defendant “is not a trading trust, it is simply a discretionary family trust which owns properties, some of which return rent.”
[24] The issue of whether the defendant is a trading trust or some other form of trust was conceded by Mr Livingston, during the course of oral argument, to be irrelevant to the exercise of the Court’s discretion as to whether or not to appoint a receiver.
[25] In any event, I am satisfied that [5] of the amended statement of claim accurately records the business activities of the Trust as a residential and commercial landlord.
[26] [7] of the amended statement of claim records that Mr Memelink is an undischarged bankrupt having been bankrupted by order of the Court on 28 August 2018. The defendant admits this but then claims that Mr Memelink’s statement of affairs was provided to the Official Assignee over three years ago – so that he has therefore been automatically discharged from bankruptcy pursuant to s 290(1) of the Insolvency Act 2006. This paragraph acknowledged that the Official Assignee had determined that a subsequent statement of affairs provided in February 2019 was the determinative statement of affairs but said that Mr Memelink disputed the claim that he was an undischarged bankrupt.
[27] The Official Assignee has determined the effective date of Mr Memelink’s discharge from bankruptcy as being 6 September 2022. The basis of this is that the Official Assignee only received enough information by 6 September 2019 to satisfy the Insolvency Act’s requirement for a statement of affairs.12 Prior to this date, the Official Assignee submits that he had not received enough information as to the value of Mr Memelink’s shares.
12 Insolvency Act 2006, ss 46 and 67; the Assignee may reject a statement of affairs that is in the Assignee’s opinion is incorrect or incomplete.
[28] Under s 290(1) of the Insolvency Act 2006, a bankrupt is automatically discharged from bankruptcy three years after they have filed a statement of affairs under s 46 or s 67. Generally, time will start running from when the bankrupt has provided information of a sufficient quality to be considered to have “substantially complied” with the requirement to file a statement of affairs.13
[29] In relation to whether there has been substantial compliance with the obligation to provide information of sufficient quality, the Court has considered that this is a matter of fact and degree.14
[30] The Insolvency (Personal Insolvency) Regulations 2007 prescribe the form for a statement of affairs. Regulation 8 applies to a statement of affairs of a debtor in Mr Memelink’s position and requires the provision of a large amount of information.
The statement of affairs is a key document.15
[31] In the plaintiffs’ bundle of documents, there is a letter dated 17 February 2021 from the Official Assignee to Mr Memelink’s solicitor, Mr Livingston, setting out clearly the Official Assignee’s position as to the effective discharge date being 6 September 2022 and the reasons for it. Although Mr Memelink continues to dispute this, there is no evidence justifying his assertion that sufficient information was provided to the Official Assignee to satisfy the statement of affairs requirement, prior to 6 September 2019. It is therefore clear that Mr Memelink is still an undischarged bankrupt.
[32] [8] of the amended statement of claim pleads that at the time of Mr Memelink’s bankruptcy, Lynx was the second trustee of the Trust. The statement of defence denied this alleging that Lynx was not incorporated at the time a deed was made appointing Lynx as a trustee. The evidence discloses that the deed appointing Lynx as a trustee was executed the day after Mr Memelink’s bankruptcy.
13 Official Assignee v Cameron [2014] NZHC 2820.
14 At [33].
15 McKee v Official Assignee [2013] NZHC 340.
[33] However, it is abundantly clear that the appointment of the company as trustee was subsequently ratified by the actions of the Trust. Mr Livingston ultimately conceded this during his oral submissions. It is therefore no longer an issue.
[34] The defendant accepts that Lynx was placed in liquidation by the High Court on 10 September 2019 but claims that the debt in respect of which the company was liquidated “remains disputed”.
[35] In relation to the unpaid body corporate levies, the defendant asserts, in respect of the levies for BC 68792, that they were not set pursuant to the Unit Titles Act 2010.
[36] The defendant denies the contention that Mr Memelink has habitually brought and advanced meritless litigation and claims against each of the plaintiffs and has habitually caused each plaintiff to incur ongoing and unreasonable costs.
[37] The defendant denies the allegation that it had not paid any BC levies since August 2018, asserting that it has paid some levies. It denies liability to BC 68792 for
$864,000 or any other sum. The defendant also denies the plaintiffs’ assertion that its failure to pay BC levies over an extended period imperils the solvency and operation of each of the three body corporates.
The law
[38] There is no dispute that the Court, acting in its inherent jurisdiction may appoint a receiver.16 Once appointed, the receivers are officers of the Court acting within the limits of the Court order. The Trusts Act 2019 also now provides a specific statutory jurisdiction for the Court to appoint a receiver to administer a trust (s 138). Section 8 of that Act confirms that the statutory jurisdiction does not affect the inherent jurisdiction.
16 See Lynne Taylor The Law of Insolvency in New Zealand (2nd ed, Thomson Reuters, Wellington, 2021) at 34.2.1.
[39] Acting under the inherent jurisdiction, the Court may appoint receivers when no other practical solution is available.17 The discretion should be exercised sparingly, Equity and Trusts in New Zealand states:18
The appointment should only be made as a matter of last resort where there is no other adequate legal or equitable remedy available, or when the Court is satisfied that the existing law and contractual arrangements are such that no other means of achieving the desired object can be obtained.
[40] The jurisdiction provided by the Trusts Act has a less restrictive test, namely that the Court must be satisfied that the appointment of a receiver is:19
(a)reasonably necessary in the circumstances of the trust; and
(b)just and equitable.
Analysis
[41] The decision of Dobson J in Body Corporate 68792 v Memelink and Forster provides a useful starting point as it analyses a similar application for the appointment of receivers relying on the inherent jurisdiction, in virtually identical circumstances.20
[42] The plaintiff in that case was the same BC 68792 that is one of the plaintiffs in these proceedings. The Trust then owned, and still owns, 52 per cent of the units in that commercial/industrial body corporate. Dobson J noted that, for years, the Trust had refused to pay levies on the grounds that some amounts were not properly chargeable.
[43] The judgment notes similar patterns of behaviour as in the present case. It records that seven affidavits in support of the defence were filed and served on the last working day before the hearing. In the present case, 1,000 pages of documentation were filed and served on the first day of the hearing.
17 Above n 16; citing Rea v Omana Ranch Ltd [2012] NZHC 2639, [2013] 1 NZLR 587 at [10].
18 Andrew Butler (ed) Equity and Trusts in New Zealand at 33.1.4.
19 Trusts Act 2019, s 138.
20 Body Corporate 68792 v Memelink and Forster, above n 3.
[44] Dobson J referred to an acknowledgement by Mr Memelink in a July 2018 affidavit that:21
I have always elected to carry out business in a manner that keeps the maximum amount of money in my bank as possible. To achieve this, I elect to pay my bills at the last opportunity. By keeping funds in my account, I am able to be in a position to act on opportunities in a dynamic way.
[45] Such behaviour is evident in the present case. Dobson J also specifically noted that the body corporate was in a parlous financial state. It was his view that this was caused substantially by the Trust’s default in payment of levies and what was said to be the extraordinary level of administrative and legal fees incurred in pursuing payment from it, and responding to Mr Memelink’s challenges. The Court noted:22
…there is a self-destructive element in some of the initiatives Mr Memelink has pursued and the vigorous opposition he has mounted to attempts by the Body Corporate to recover lawfully payable levies.
[46]On s 124 of the Unit Titles Act 2010, Dobson J observed:23
Section 124(2) of the Unit Titles Act 2010 provides that the amount of any unpaid levy, together with any reasonable costs incurred in collecting it, is recoverable as a debt due to the body corporate by the person who was the unit owner at the time the levy became payable. In Butcher v Body Corporate 342525, the Court of Appeal rejected an argument that this did not constitute an arrangement to “pay now, argue later”. There are numerous other authorities that recognise the relationship between a body corporate and unit owners can only be sustained if the unit owners’ obligations under s 124(1) of the Unit Titles Act is indeed to be applied on the basis that they must the levies without deduction or cross-claim, and then argue about other entitlements thereafter.
[47]Relying on the decision of Bank of New Zealand v Rowley and Skinner,
Dobson J confirmed that the appointment of receivers was appropriate.24
[48] Specifically, Dobson J also rejected an argument, which was again raised in this case, that the rights of Mr Memelink to demand information provided a ground for denying BC 68792 the relief of appointment of receivers.25 For the same reasons, I come to the same conclusion in the present case.
21 At [16].
22 At [21].
23 At [22]. (footnotes omitted)
24 Bank of New Zealand v Rowley and Skinner [2012] NZHC 3540 at [25]-[26].
25 At [32].
[49] In these proceedings, counsel for the defendant, Mr Livingston, yet again tried to reopen arguments the defendant had previously advanced about the legality of body corporate decisions going back as far as 2003. This is an example of the defendant simply ignoring Court decisions he does not like.
[50] In a decision of 20 April 2021,26 Cooke J struck out proceedings which the defendant had instituted but failed to progress. In those failed proceedings, the defendant had attempted to assert a number of the same arguments advanced in this case, and also considered by Dobson J. Cooke J concluded that there had been inordinate and inexcusable delay which had seriously prejudiced the ability of the Court to do justice. Mr Memelink appealed that decision to the Court of Appeal, which rejected the challenge, upholding all of the findings of Cooke J.27
[51] Mr Livingston did not dispute the existence of the Court’s jurisdiction to appoint receivers where that was necessary for the wellbeing of the Trust, to preserve assets at risk, or to aid in enforcement. However, he sought to restrict that right by limiting it to circumstances where there had been a failure to pay a judgment debt so that a receivership would aid in enforcement. He relied on the fact that BC 68792 had not yet obtained a judgment debt for what he said were the disputed levies. This submission has two defects. Firstly, it is a direct challenge to the findings of the High Court and Court of Appeal discussed in the last paragraph. Secondly, it proceeds on the assumption that a debt is only payable when a judgment has been obtained to enforce it.
[52] Mr Livingston also argued that a reasonable opportunity should be afforded to the Trust to settle any “judgment debts”. No such “judgment debts” were identified.
[53] The attempt to limit the power to appoint receivers to circumstances where there is a judgment debt is also inconsistent with Dobson J’s view discussed above, and the authorities referred to in his judgment. A body corporate is not required to obtain a judgment before levies become payable.
26 Memelink v Body Corporate 68792 [2001] NZHC 835.
27 Memelink & Forster v Body Corporate 68792 [2021] NZCA 640.
[54] The next issue is whether there is any other adequate legal or equitable remedy available, or other means of achieving the desired objectives, or, in terms of the statute, is it reasonably necessary and just and equitable that receivers be appointed.
[55] In this case, the desired objective is to achieve payment of the outstanding levies and costs, and ensure that levies are promptly paid in the future.
[56] In addition to the debt owed to BC 68792, (and contrary to the assertions of counsel for the defendant), there are unpaid costs and interest on the debt owing to BC 38745. An appendix to Mr Olney’s closing submissions for the plaintiffs put that at $9,490.43 after having given credit for the payment of $12,137.98 received on 25 March 2020. Mr Olney advised that no similar calculation was done in respect of BC 81012 as that BC did not wish to pursue a claim for interest.
[57] It is clear that Mr Memelink’s failure to pay the BC levies is causing distress to the other BC owners. Dr Julia Hennessey, one such unit owner, and Chairperson of BC 378945, deposed in an affidavit in support of the plaintiffs’ application, the following:
Our ability to enjoy our home has been very badly affected by Mr Memelink’s conduct for many years …
The manner in which Mr Memelink conducts the business of Link Trust brings endless chaos, disruption and disharmony to us as a group of owners …
My husband and I tried to live peacefully in our home and Mr Memelink’s incessant conduct causes ongoing distress to us …
[58] Another unit owner, Mr Collins, gave similar evidence about constant disruption of meetings, habitual threats by Mr Memelink to sue him, and false allegations that he had committed perjury or was a dishonest lawyer. He also refers to Mr Memelink bombarding him with emails and noted that on 4 November 2021, Mr Memelink sent him 99 emails between 9.02pm and 11.37pm about a leak in the roof above his unit.
[59] I am satisfied that Mr Memelink’s failure to pay the levies and other debts, and his behaviour of the nature referred to above, has caused the body corporates, particularly BC 68792, to be in a parlous financial state.
[60] Mr Memelink’s disruptive conduct in respect of BC 68792 has been the subject of prior judicial comment.
[61] In the case of Lynx Trustees Limited v Body Corporate 68792 [2019] NZHC 1521, Simon France J said at [4]:
The body corporate in question has been subject to court directed administration since 18 March 2015. There have been three administrators. Previous judgments record the onerous nature of the task due to what is seen as the obstructive and unreasonable conduct of persons associated with [Lynx Trustees Limited].
[62] In that case, Simon France J refused to set aside a statutory demand by BC 68792 of Lynx for the sum of $289,004.59 (as of 1 February 2019) relating to unpaid body corporate levies. He held at [14]:
Section 124(2) of the Unit Titles Act 2010 makes unpaid levies recoverable as a debt. The Deloitte report provides an independent audit to which the applicant agreed to be bound, and which identifies levies due. The applicant has not advanced any credible basis on which the Court can conclude there is a substantial dispute as to the money being owed. In particular, the affidavit of Mr Bassett-Burr makes claim but provides no supporting material. By contrast, the Deloitte report sets out its processes and the material relied upon to calculate on a consistent basis the sums due from each unit holder.
[63] As discussed above, Mr Memelink has a long history of raising disputes about the claimed illegality of levies and using that as an excuse for not paying anything. At the same time, he fails to take appropriate steps to challenge under the provisions of the Unit Titles Act 2010, such decisions as he alleges are illegal. Nothing in the information before me in these proceedings indicated that he was likely to change that pattern of behaviour.
[64] As a further ground in support of the application to appoint receivers, Mr Olney referred to what he described as the “weak governance” of the Trust and its likely insolvency.
[65] In respect of Mr Memelink’s status as an undischarged bankrupt, Mr Olney relied upon the observations of the Court of Appeal in Commissioner of Inland v Newmarket Trustees Limited where it said:28
…it is important to recognise that an insolvent trustee company, like a bankrupt trustee, would normally be considered unfit to be a trustee.
[66] Based on the evidence that emerged in cross-examination, Mr Olney submitted that, while formally being appointed as a trustee, Ms Forster played no substantive role in the conduct of the Trust’s affairs. He referred to the fact that she:
(a)was not familiar with the latest accounts of the Trust and was not involved in the provision of information to the accountant who prepared that document;
(b)was not familiar with the detail behind the entries in the draft accounts;
(c)had taken no steps to satisfy herself that the Trust has met its income tax requirements;
(d)did not review the Trust’s tax returns and did not know who signed off those tax returns;
(e)was not familiar with the Trust’s obligations under its loan agreement;
(f)was not familiar with the content of the Trust’s position in litigation brought and defended in her name;
(g)notwithstanding her view that there was no dispute about unpaid levies in respect of BC 81012 and BC 378945 had taken no steps to cause those levies to be paid;
(h)took no steps to ensure that costs judgments against the Trust were paid promptly.
28 Commissioner of Inland v Newmarket Trustees Limited [2012] NZCA 351; [2012] NZLR 207 at [69].
[67] Mr Olney also drew my attention to the fact that Ms Forster had entered guilty pleas in 2014 to two charges of using a document to obtain a pecuniary advantage.
[68] I accept Mr Olney’s submission that Ms Forster is a trustee in name only. The only reason for that role would appear to be her close relationship with Mr Memelink.
[69] It is clear that Ms Forster defers entirely to Mr Memelink, appears to have little knowledge or interest in the affairs of the Trust and could therefore not be expected to act with the level of insight, responsibility and good faith expected of a trustee both by equity and the Trusts Act 2019.29
[70] Section 96(2)(b) of the Trusts Act 2019 disqualifies an undischarged bankrupt from being appointed as a trustee of a Trust, subject to the proviso in s 96(3) that an undischarged bankrupt may be appointed as a trustee with the consent of the Court. That section does not specifically say that, once a trustee has been appointed, a subsequent bankruptcy will disqualify them from continuing in the role of trustee. However, it is clearly undesirable that a trustee is an undischarged bankrupt.
[71] In the present case, that problem is compounded by the fact that, for the reasons discussed above, Mr Memelink is effectively the only trustee because of the inability or failure of Ms Forster to act in any meaningful way as a trustee.
[72] I accept that these matters support a conclusion that it is just and equitable that receivers be appointed.
[73] Mr Olney also referred to the lack of transparency in relation to the financial circumstances of the Trust and the possibility that it is presently insolvent.
[74]He drew my attention to the fact that there:
(a)was no reliable record of the Trust’s current financial position with the latest relevant document being the draft annual report for the year ending 31 March 2020;
29 See s 25.
(b)was no satisfactory explanation as to why there were no final up to date accounts;
(c)are items of concern in the draft accounts including an entry in the sum of $281,107 under the heading “Other income” which was said by Mr Memelink to have come from the sale of assets and equipment undertaken by Mr Memelink himself, when the depreciation schedule for plant and equipment showed no changes; and
(d)did not appear to have been any tax paid on other claimed sales notwithstanding the purported sale price being greatly in excess of the heavily depreciated closing value of all plant and equipment at $64,700.
[75] Mr Olney also referred to the fact that Mr Memelink, in cross-examination, acknowledged that shares shown in the Trust’s account at a value of $605,000 were all in companies that were in liquidation and that the shares were held by him personally rather than by the Trust.
[76] Mr Olney, during cross-examination, had put it to Mr Memelink that the entry of $1,083,068 in the balance sheet as being the value of three loans owing to the Trust by the QSH Family Trust was irrecoverable, but he denied that. I was surprised to hear that statement from Mr Memelink as I happened to preside over a case a month ago which made a number of findings in respect of the second mortgage that secured those loans. Those findings concluded that the property was lawfully sold by the first mortgagee for some $813,000 at a time when there was some $765,000 owing on the first mortgage, and that the maximum amount potentially recoverable by the Trust was the sum of approximately $50,000; being the difference between the sale price and the balance required to repay the first mortgage. Whether there was in fact any surplus available to go to the Trust as second mortgagee had not yet been determined by the Court.
[77] Mr Memelink acknowledged that he had claimed that the value of the property concerned was in the order of $2.4 million. That is some three times higher than I found the property was worth at the time of the sale by the first mortgagee. When I
put it to Mr Memelink that, given the findings made in that case, his claim that something over $1 million was recoverable as an asset of the Trust was unsustainable, his response was to say that he had not read the judgment yet, and in any event, he had given instructions to appeal it.
[78] I accept that there is substance in the matters referred to by Mr Olney as set out above, and there must be a real concern as to the current solvency of the Trust. This also supports the need for the appointment of receivers.
[79] I am therefore satisfied that for these reasons, there is no other legal or equitable remedy available or any alternative way of achieving payment of the debts owed and facilitation of ongoing payments of levies. It is also just and equitable that receivers be appointed. I therefore grant the application for the appointment of receivers.
[80] That leaves three issues for the Court to determine. Firstly, whether the appointment of receivers should be delayed as sought by the defendant; secondly, the identity of the receivers; and thirdly, the powers of the receivers.
Delayed appointment?
[81] In his 13 October 2020 decision, Dobson J deferred the appointment of receivers to give Mr Memelink the opportunity of satisfying the outstanding BC levies. A complicating feature was that, at the time of the Dobson J’s decision, there was a pending hearing before Johnston AJ in relation to quantification of liability for certain pre-bankruptcy levies.
[82] In the event, Mr Memelink paid the levies down to the date of his 2018 bankruptcy and thus avoided the appointment of receivers. Levies for the period 2018- 2020 remained unpaid and have continued to grow subsequently.
[83] Unsurprisingly, Mr Livingston urged me to follow a similar course to that followed by Dobson J and defer the appointment of receivers. However, it is clear that Mr Memelink has no intention of paying any of the currently outstanding levies because of his insistence that it is only “judgment debts” that are payable.
[84] There is no requirement, under the Unit Titles Act, or any other legal principle, that in order for liability for payment of levies to arise, a body corporate has to obtain judgment.
[85] As noted above, the scheme under the Act has been recognised by the Courts on many occasions as being one of “pay now, argue later”.30
[86] Mr Memelink’s belated attempts to challenge the lawfulness of levies many years after the events, has been rejected by both the High Court and Court of Appeal.31
[87] Because Mr Memelink refuses to accept any liability to pay the outstanding BC levies and costs, there is no point in delaying the appointment of receivers. Accordingly, I decline Mr Livingston’s invitation to delay the appointment of receivers to allow the Trust to “settle any judgment debts”.
Identity of receivers
[88] Mr Olney, on behalf of the three body corporates, submitted that the receivers should be Mr Shephard and Ms Kellow. They are both experienced insolvency practitioners and were, in fact, the two people appointed by Dobson J to be receivers in his October 2020 decision.
[89] They are based in Wellington. They have filed a document confirming they are willing to accept appointment. Their physical location was submitted to be an advantage given that each of the three body corporates were based in Wellington as were the trustees of the Trust, and the Trust advisors.
[90] It was submitted that as Mr Shephard and Ms Kellow had been briefed to take on the role in 2020, they would not be starting from scratch.
[91] Mr Olney’s submission as to the identity of the receivers was supported by Mr Livingston for the defendant, principally on the grounds of economy, and it was submitted that there was no requirement for particular background knowledge.
30 See Butcher v Body Corporate 342525 [2018] NZCA 19 at [67]-[68].
31 Above n 26 and n 27.
[92] Mr Neil, counsel for Lynx, the plaintiff in the liquidation proceeding, supported the appointment of receivers but proposed that the receivers be the two liquidators appointed for Lynx, Jared Booth and Tony Maginness. He submitted that they were both licensed insolvency practitioners with experience as receivers. He noted that they were appointed liquidators of Lynx by the High Court on 10 September 2019 on the application of BC 68792.
[93] Mr Neil submitted that the appointment of what he described as “third party receivers” would introduce a further unnecessary cost layer to the proceedings. He said the liquidators have knowledge of the assets of the Trust and the secured creditors. He also noted that, although domiciled in Auckland, the liquidators had offices in Wellington. He submitted that appointing them as receivers would provide “greater expediency and cost-efficiency”.
[94] It was submitted that no issue as to independence arose as the proposed orders were framed to require the approval of the Court to the distribution of monies.
[95] Mr Neil also referred to the case of Hughes, in the matter of Substar Holdings Pty Ltd (in liquidation)32 as being an Australian example where liquidators of a corporate trustee were appointed as receivers of the property of the corresponding trust. Although he did acknowledge that that case involved a different fact scenario to the present case.
[96] Mr Neil filed a consent to act signed by Mr Booth and Mr Maginness. That set out their hourly rate as receivers as being between $430 and $570 with lesser amounts for more junior staff. This compared to the hourly rates for Mr Shephard and Ms Kellow of between $445 and $495 per hour, although Mr Neil indicated that Messrs Booth and Maginness would be prepared to match the rates of Mr Shephard and Ms Kellow.
[97] Mr Chisnall, counsel for the Official Assignee in the bankruptcy proceeding, supported the terms of the draft orders for appointment of receivers that Mr Neil filed, including the appointment of the liquidators as receivers.
32 Hughes, in the matter of Substar Holdings Pty Ltd (in liquidation) [2020] FCA 1863.
[98] Mr Chisnall indicated that the Official Assignee’s position was that, should the receivership application be successful, it would be appropriate for the receiver’s appointment to be extended to cover recovery of the admitted Trust claims for the Official Assignee.
[99]It was submitted that if this occurred, then:
(a)all the creditors of the Trust are treated equally;
(b)there is only one sale process run for each property;
(c)the costs associated with realising property are minimised.
[100] Mr Chisnall referred me to an authority for the proposition that in cases involving bankrupt trustees a receiver has been appointed to realise authority, in particular, in BNZ v Rowley and Skinner.33
[101]Mr Chisnall’s submissions also said:
The Official Assignee would be seeking orders of the Court as to the sales process to be conducted by the receivers and would ask that the Court to order that prior to making any realisation to creditors out of the net realisation of Trust assets, the receivers must obtain a further Court order (on notice to the Official Assignee) as to the distribution of the assets. The Official Assignee asks that the Court orders that all creditors rank equally in respect of claims against the Trust.
[102] Given the three body corporates and the property that the outstanding levies and costs relate are located in Wellington, it seems preferable for the receivers also to be located here. The Trust is also located here, as are its advisors.
[103] The liquidators would not appear to have any particular practical advantage by way of background knowledge that would justify appointing them ahead of Mr Shephard and Ms Kellow. Mr Shephard and Ms Kellow have some understanding of the task required of them given their briefing in 2020.
33 BNZ v Rowley and Skinner [2012] NZHC 3540.
[104] Given Mr Memelink’s prior actions, it seems highly likely that there will be some form of litigation initiated by him in respect of whatever actions the receivers take. Such litigation will take place in Wellington and the receivers would be likely to be called as witnesses.
[105] The non-appointment of the liquidators would not seem to result in any unnecessary duplication of work and, on balance, is likely to be more efficient and economical.
[106]Accordingly, I appoint Mr Shephard and Ms Kellow as receivers.
Terms of appointment
[107] By memorandum dated 7 April 2022, Mr Neil filed a proposed set of draft orders in relation to the appointment of the receivers. In his closing submissions, Mr Olney agreed that the proposed draft terms were appropriate with the only change required being to delete Jared Waiata Booth and Tony Leonard Maginness from the first line of the proposed orders and replace them with Ian Bruce Shephard and Jessica Jane Kellow.
[108] Mr Olney proposed, in addition to the matters set out in the draft order tabled by Mr Neil, the addition of further terms as follows:
(a)to exercise the power conferred upon liquidators pursuant to ss 261 and 267, and ss 273 and 274 of the Companies Act 1993 as if the Trust were a company in liquidation, the settlor and the trustees were the directors of a company and the beneficiaries of the Trust were shareholders of a company in liquidation;
(b)pay such levies and costs owing to each of the plaintiffs that, in their view, ought to be paid, (on a without prejudice basis where applicable) and to establish arrangements for the ongoing and timely payment of debts as they fall due;
(c)in respect of disputed levies and costs not paid, to identify the issues in dispute, identify appropriate processes for resolving those disputes efficiently and cost-effectively; and
(d)to assess and document the Trust’s financial position.
[109] The first of these terms is drawn from the terms set by Dobson J at [37](a) of his decision of 13 October 2020.34
[110] I am satisfied that the proposed terms set out in the draft order filed by Mr Neil, and referred to above (with the substitution of Mr Shephard and Ms Kellow as receivers), together with the additional terms proposed by Mr Olney and set out above, as well as the additional terms sought by Mr Chisnall and detailed in [101] above are appropriate and are required to achieve the objectives for which the receivers are to be appointed.
[111]Accordingly, Mr Shephard and Ms Kellow are appointed on those terms.
The liquidation proceeding
[112] As noted above, in the liquidation proceeding, the liquidators of Lynx are seeking to be indemnified out of Trust property for debts arising in respect of BC 68792’s claim against Lynx as a trustee, and their reasonable remuneration after 15 September 2020. They seek interest on both sums, costs, and orders for sale of properties to satisfy the debts.
[113] On 30 September 2020, Johnston AJ entered judgment by consent as to liability in respect of certain Trust debts, the liquidator’s remuneration up to 15 September 2020, and all other debts arising out of Lynx’s trusteeship.35 Johnston AJ then granted leave to Lynx to provide further submissions on judgment for further expenses after 15 September 2020, and its claims in regard to Trust property.
34 Body Corporate 68792 v Memelink and Forster, above n 20.
35 Lynx Trustees Limited (in liq) v Memelink [2020] NZHC 2401.
[114] By a minute dated 13 April 2022, Johnston AJ determined the liquidators’ application for the interim fixing of their remuneration and expenses, granting the application on the terms sought.36 Included in that approval was liquidators’ remuneration for the period 10 September 2019 to 6 October 2021 in the sum of
$120,079.50 plus GST and legal expenses of $327,305.44 plus GST. This order was sealed.
[115] However, Mr Neil filed a subsequent memorandum advising that upon service of the sealed order, Mr Memelink applied to recall the orders pursuant to the inherent jurisdiction of the High Court. Associate Judge Johnston heard from the Liquidators and Mr Livingston, in respect of the recall application on 11 May 2022.
[116] On 24 May 2022, Johnston AJ recalled his order fixing the liquidators’ renumeration and expenses, on the basis that the trustees, had as a result of an administrative error, not been granted the opportunity to be heard. 37 Therefore, the issue regarding the quantum of the liquidators renumeration remains to be determined, and will be determined in the parallel proceeding before Johnston AJ.
Issues
[117] The remaining issue in the present case relates only to the liquidators seeking to obtain an indemnity for
(a)debts to BC 686792 incurred by Lynx as a trustee after 28 August 2018; and
(b)their renumeration and expenses after 15 September 2020.38
[118] The first amended statement of claim alleges that Lynx remains indebted to BC 68792 for $365,233.07.39 This figure is described as a partially admitted claim
36 Body Corporate 68792 v Lynx Trustees Ltd (In liq) HC Wellington CIV-2019-485-389, 13 April 2022.
37 Body Corporate 68792 v Lynx Trustees Limited [2022] NZHC 1156.
38 The quantum of those renumeration and expenses remains to be determined by Johnston AJ in the associated proceedings (CIV-2019-485-389).
39 This figure is slightly less than the claim in the first amended statement of claim, as counsel subsequently corrected an error identified as to interest.
comprising of levy arrears, interest on levy arrears, legal costs, audit fees, administrator costs, and court awarded costs. The liquidators seek declarations that:
(a)the sum of the indemnified debt of Lynx to BC 68792 is $365,233.07;
(b)the assets of the Trust stand charged in favour of Lynx with payment of its liability to BC 68792;
(c)such of the Properties as the Court considers necessary be sold to satisfy Lynx’s lien or charge or that the liquidators be appointed as receivers to achieve this purpose;
(d)Lynx has leave to apply to the Court for further orders in relation to the realisation of the assets of the Trust;40 and
(e)costs.
[119] The defendant admits essentially all of the pleadings in the first amended statement of claim. The defendant continued to raise arguments relating to the legality of actions of the BC in relation to the Unit Titles Act 2010, which have been previously found without merit.41
Analysis
[120] I accept the submission by the plaintiffs that it is well settled that a former trustee has a continuing right of indemnification for obligations incurred as a trustee and that the indemnity is supported by an ancillary lien or charge over the assets of the Trust.42
40 This is presumably relevant given that the quantum of the renumeration and expenses claim is yet to be determined.
41 See Memelink v The Official Assignee, above n 5.
42 Andrew Butler Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at 16.6.2 and 34.2.2; Trusts Act 2019, 81. Lynx also has a continuing indemnity arising out of the Deed of Change of Trustee of 26 August 2019.
[121] The right to indemnification and ancillary lien or charge are assets belonging to Lynx, which can be distributed by the liquidators to Lynx’s creditors.43 It is also well established that Lynx was a trustee of the Trust, having been incorporated for that purpose, and having acted in that role. It took ownership of Trust properties, entered into agreements, and conducted litigation on the Trust’s behalf. The argument that Lynx was not a trustee was correctly abandoned.
[122] I accept Mr Neil’s submission that Lynx is liable to pay the sum claimed, given the Court’s previous findings as to the appropriate method for disputing levies, and the evidence put before the Court by the liquidators.44 The defendant’s submissions as to the legality of levies imposed by the BC are without merit and their quantum has been appropriately calculated. As noted above, these are arguments that have previously been run in an attempt to avoid payment of levies, and in disregard of previous Court orders. I do not accept that there is a ‘substantial and genuine dispute over the debt’ as submitted by Mr Livingston, or that the position as to the extent of the debt is in any way uncertain, with the exception of the liquidator’s renumeration/expenses, which are to be determined in parallel proceedings. My view is that the levies imposed were within the BC’s power to impose.
[123] Lynx continued to be a registered owner of units in the BC until 23 December 2020, over a year after it was wound up and after it was removed as a Trustee. It continued to incur debts to the Trust up to and beyond 10 September 2019. In the circumstances the liquidators are entitled to claim for debts incurred up until the date of liquidation.
[124] I am satisfied that the defendants have no arguable defence to the claim and accordingly declare that the plaintiffs are entitled to be indemnified out of Trust property for the debts sought, their reasonable renumeration and expenses as yet to be determined by Johnston AJ, as well as interest, costs and orders for the sale of properties to satisfy the debts. Receivers are to be appointed for the reasons identified above, and on the basis that creditors are to be treated equally.
43 Andrew Butler Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at 16.6.12; citing Octavo Investments Pty Ltd v Knight (1979) 144 CLR (HCA) and Official Assignee v O’Neill (1898) 16 NZLR 628.
44 See Body Corporate 68792 v Memelink, above n 3.
The bankruptcy proceeding
Official Assignee’s reimbursement of Trust debts, remuneration, and beneficiaries’ current account
[125] By a first amended statement of claim dated 11 October 2021, the Official Assignee advanced three separate causes of action against Harry Memelink and Cisca Forster as trustees of the Trust as first defendant and Lynx as second defendant. The second defendant has not opposed the relief sought against it.
[126] The first cause of action sought recovery of funds under the trustee indemnity in respect of amounts proved in the bankruptcy that are Trust debts.
[127] In addition to cl 14 of the Trust Deed, the Official Assignee also relied on s 81 of the Trusts Act 2019, which provides that a trustee may reimburse themselves out of trust property for all expenses reasonably incurred when acting as a trustee.
[128] The first cause of action divided claims into two categories, the first called “Admitted Trust Claims”.
[129] The first amended statement of claim detailed the Admitted Trust Claims at a sum of $318,663.69. That figure was made up of four separate remaining claims:
(a)Geoff Fawcett - $196,000;
(b) Body Corporate 378945 - $7,210.35;
(c)Estate M B Horlor - $90,453.42;
(d)Phillip McKinley - $24,999.92.
[130] The first amended statement of claim referred to other claims including, significantly, claims made by QH Law (Quentin Haines) for $1,150,000 and
$93,425.59 respectively as well as a claim in respect of Link Technology 2000 Limited (in liquidation) in the sum of $1,212,986).
[131] In the first cause of action in the first amended statement of claim, the Official Assignee seeks:
(a)a declaration that the first defendants are the current trustees of the Trust;
(b)a declaration that the property specified in the first amended statement of claim are held by Mr Memelink and Lynx on trust for the first defendants as the present trustees of the Trust;
(c)a declaration that the Official Assignee as plaintiff is subrogated to the position of the bankrupt and therefore that the indemnity vests in the Official Assignee as property of the bankrupt;
(d)judgment for the plaintiff against the first defendants under the indemnity for the admitted trust claims incurred by the bankrupt as trustee of the Trust being:
(i)$286,453.42 (the amount noted in Mr McDonald’s updating affidavit of 5 April 2022);
(ii)interest under the Interest on Money Claims Act 2016 on the sum of $286,453.42 from 25 July 2021 to the date of payment;
(e)judgment against the first defendants under the indemnity for the amount of any further claims admitted in the bankruptcy which are claims against the bankrupt as trustee of the Trust;
(f)an order that the Trust properties stand charged in favour of the Official Assignee to the extent of the judgment sum obtained, and the amount of any further trust claims;
(g)an order that the Official Assignee is entitled to discharge debts out of Trust properties; and
(h)costs.
[132] The Official Assignee also sought various orders in equity to implement the declarations that it sought.
[133] The second cause of action related to the Official Assignee’s costs. It noted that the Official Assignee had incurred significant costs in the administration of the bankruptcy and that as at 11 October 2021 the costs and disbursements in the bankruptcy totalled $619,428.66. As at 5 April 2022, this amount had increased to
$665,534.73 being made up of:
(a)the Official Assignee’s time costs of $219,947.85; and
(b)disbursements (largely legal fees and costs and insurance costs) of
$445,586.88.
[134] In addition to judgment in the sum of the Official Assignee’s actual costs in the administration of the bankruptcy, the Official Assignee sought an order that the Trust properties stood charged in his favour to the extent of his actual costs in the administration of the bankruptcy and that he is entitled to discharge these amounts out of the Trust properties. Again, the Official Assignee also sought equitable orders to implement this proposed declaration.
[135] The third cause of action related to the beneficiary current account. In the 13 October 2020 decision, Dobson J had concluded that, as detailed in the draft financial statements for the Trust for the period to 31 March 2020, Mr Memelink had a current account in the sum of $4,064,848. Demand for that sum was made on 6 October 2021 but nothing had been paid. The relief sought by the Official Assignee was therefore judgment in the sum of $4,064,848 and interest on that sum pursuant to ss 9 and 10 of the Interest on Money Claims Act 2016 from 6 October 2021 to the date of judgment.
[136] By application dated 26 October 2021, the Official Assignee sought summary judgment as to quantum and liability in respect of the first cause of action and
summary judgment as to liability only in respect of the second cause of action. Leave to proceed by way of summary judgment was granted on 2 March 2021.
[137] The Official Assignee made further application on 3 March 2022 to seek summary judgment in respect of the third cause of action. No notice of opposition was filed to this application and the hearing proceeded on the basis that it was an application for summary judgment.
[138] The defendants did not file any statement of defence to the first amended statement of claim and on 30 March 2022 I issued a minute directing the prompt filing of a statement of defence and any affidavit evidence in support. On 1 April 2022, a statement of defence to the first amended statement of claim was filed. Beyond the since abandoned point that Lynx Trustees Limited was never validly appointed a trustee, the statement of defence largely admitted all of the plaintiff’s pleadings.
[139] In relation to the “Further Claims”, the defendants admit that the most recent draft accounts of Link Technology 2000 Ltd (in liq) record advances to the Trust in the sum of $1,212,986 but say that this company is also indebted to for unpaid rent. No figure for the unpaid rent is provided.
[140] Critically, the defendants accepted that the plaintiff had an indemnity in terms of the trust deed and that s 81 of the Trusts Act 2019 provided that a trustee could reimburse himself out of trust property for all expenses reasonably incurred when acting as a trustee.
[141] By the time of the hearing, the claim by BC 378945 in the sum of $7,210.35 had been paid and was no longer pursued. In respect of the McKinley claim of
$24,999.92, Ms Jolliffe advised that Mr Memelink had filed an application under s 238 of the Insolvency Act 2006 seeking a review. That application had been heard by Johnston AJ but no decision had yet been released. The Official Assignee asked that if the decision was released prior to the decision in this matter and it confirmed the sum then summary judgment was also sought in respect of that matter.45 Johnson AJ’s judgment has now been released, in which the McKinley claim was confirmed.
45 Memelink v Official Assignee [2022] NHZC 953.
[142]In respect of the Fawcett claim, the issue was whether the debt should be for
$196,000 or $193,000 (as contended for by the Trust). The statement of defence to the amended statement of claim asserted that there had been part payment of the Fawcett debt, without providing details. The defendant’s claim that the debt should be
$193,000 is refuted by a document dated 11 May 2018 signed by Mr Memelink in his personal capacity and as a trustee of the Trust.46 It acknowledges a repayment of
$3,000 but specifically records the amount outstanding at the time of the execution of the document as being $196,000. There was no evidence of any further repayment since that date.
[143] Ms Jolliffe also noted that in October 2020, Mr Memelink challenged the admission of some claims by the Official Assignee but did not pursue the challenge in respect of the admission of the Fawcett claim in the bankruptcy.
[144]I am satisfied that the correct sum of the debt is $196,000.
[145] In the prayer for relief in respect of the first cause of action, the plaintiff sought interest on the “admitted debts” pursuant to the Interest on Money Claims Act 2016 from 25 July 2021 to the date of payment. No specific section of that Act was referred to. The statement of defence did not take any issue with the claim for interest, nor did it raise a positive defence that interest was not payable.
[146] During argument, Mr Livingston claimed that interest was not payable because s 25 of the Interest on Money Claims Act 2016 had not been complied with. That section requires a party seeking interest pursuant to that Act to, as far as possible, specify the section under which the interest is claimed. Mr Livingston conceded that the plaintiff could amend the pleadings to cure any such defect. No leave was sought to amend the statement of defence to allow the defendants to rely on s 25, presumably on the basis that if leave had been granted the plaintiff would have immediately applied for leave to amend the statement of claim to cure the defect. I decline to allow the defendants to raise this defence belatedly and award interest on $196,000 from 25 July 2021 pursuant to s 9 of the Interest on Money Claims Act 2016.
46 Document 340 in the Plaintiff’s Bundle of Documents.
[147] At the hearing, the defendants did not challenge the quantum of the Horlor claim at $90,453.40 but instead submitted that the claim had been made by the estate of the late Mr Horlor after Mr Horlor’s death and that Mr Horlor had not wished to file a claim in the bankruptcy. It was also submitted that the claim was made after the specified times for filing a claim in the bankruptcy.
[148] The claim was filed online by Camilla Watson, the executor of the late Mr Horlor’s estate on 14 July 2020. It was admitted by the Official Assignee on 11 May 2021 and notice was given by the Official Assignee to Mr Memelink’s solicitor of the admission on 9 June 2021. The detailed evidence supporting the claim was provided to Mr Memelink’s solicitor on 2 December 2021. That included a copy of the signed acknowledgement of the debt signed by Mr Memelink and the other then trustee of the Trust, Patrick Renshaw. Details of the annual interest due on the original
$70,000 at 5 per cent per annum were also provided at the same time.
[149] At the hearing, the argument advanced by Mr Livingston was that the Official Assignee had a statutory duty under s 233 of the Insolvency Act 2006 to specify a period of time in which a creditor may file a claim. That is not what s 233 says. It says:
233 Creditor must submit creditor’s claim form
(1)A creditor, including a creditor who has a preferential claim, who wishes to claim in the bankruptcy must submit a creditor’s claim form to the Assignee within the specified time.
(2)In subsection (1), specified time means the time for submitting the claim form that is specified by the Assignee by notice to the creditor or that is specified by the Assignee by advertisement in the prescribed manner.
…
[150] It was not disputed that, in this case, the Official Assignee had not ever specified a “specified time” either to the Trust or by way of advertisement.
[151] There is nothing in the Act that requires the Official Assignee to set a “specified time” in all cases. Therefore, the failure of the Official Assignee to do so cannot extinguish the obligation on Mr Memelink to pay the debt. I am satisfied that the debt
was properly admitted by the Official Assignee in the sum of $90,453.42. Interest is also payable on that sum at 5 per cent as from 25 July 2021.
[152] The defendants have no defence, and I am satisfied that, in respect of these two claims, the Official Assignee is entitled to judgment in accordance with the prayer for relief.
[153] The Official Assignee also sought judgment against the first defendants under the indemnity, for the amount of any further claims in the bankruptcy by the time the matter was determined, which are claims against the bankrupt as trustee of the Trust.
[154] The concept that the Official Assignee is entitled to such an indemnity was not seriously disputed by Mr Livingston. His concern seemed to be that a declaration to this effect might deprive Mr Memelink of the opportunity to dispute aspects of such a claim. That argument has no substance. Section 238 of the Insolvency Act 2007 provides as follows:
238 Court may cancel creditor’s claim
(1)The court may make an order cancelling an admitted creditor’s claim or reducing the amount claimed, if it considers that the claim was improperly admitted.
(2)The court may make the order on the application of the Assignee, the bankrupt, or any creditor.
(3)The court must not make an order under subsection (1) unless the creditor who submitted the claim has been served with the application.
[155] Mr Memelink is well aware of this section having in the past used it to challenge the Official Assignee’s decision to admit claims, most recently in respect of the McKinley claim. The plaintiff is therefore entitled to the declaration sought at (e) of the prayer for relief in relation to the first cause of action.
[156] The plaintiff only sought summary judgment as to liability in respect of those debts that had not yet been admitted in the bankrupt estate but could be in the future. I make such a declaration. If such debts are contested, then the s 238 procedure is available to challenge their admission.
Second cause of action
[157] At the hearing, the argument ultimately advanced by Mr Livingston in relation to the second cause of action was that the Official Assignee was not entitled to summary judgment as to liability in respect of its fees and expenses because the fees and expenses had yet to be determined. It was submitted that the Official Assignee had sought to recover his actual costs which was different to reasonable costs and fees properly incurred.
[158] In relation to the claim that the Trust’s properties stand charged in favour of the Official Assignee in respect of his costs in the administration of the bankruptcy and that he was entitled to discharge these amounts out of Trust properties by way of sale, Mr Livingston argued that the sum of $499,457.19 held by the Official Assignee as at 2 December 2021 meant that the Official Assignee was not in danger of not having his fees and expenses settled. What Mr Livingston proposed was that the Official Assignee could discharge admitted creditor claims from the funds it held and then seek judgment on its fees and expenses.
[159] The Official Assignee rejected this submission noting that funds recovered must be used first to pay preferential claims in the bankruptcy and that then unsecured creditors ranked equally in the bankruptcy. It was submitted that the Official Assignee could not fully meet the current claims without also providing for all other creditors in the bankruptcy. It was noted that the order of preference prescribed in the Act was mandatory unless varied by agreement of all creditors in accordance with In Re Campbell (a bankrupt).47
[160] The Official Assignee also pointed to the fact that as at 11 October 2021 (the date of the amended statement of claim), the Official Assignee’s costs and disbursements were already $619,428.66 (now $665,534.73) and therefore significantly exceeded the funds held. It was emphasised that the Official Assignee sought judgment for liability only in respect of costs and disbursements with quantum to be subsequently determined in a separate interlocutory application.
47 In Re Campbell (a bankrupt) [1937] NZLR 1.
[161] If there is to be a challenge by Mr Memelink to the reasonableness of the Official Assignee’s costs and disbursements then a separate interlocutory application would appear to be the appropriate forum for such a matter to be contested.
[162] It is clear that there is no possible defence to the Official Assignee’s summary judgment claim in respect of the claim for indemnity for the Official Assignee’s costs and disbursements in relation to the administration of the bankruptcy.48 I make such a declaration. The other matters set out in the prayer for relief are necessary to give effect to the indemnity that the Official Assignee is entitled to and accordingly I give summary judgment against the first defendant in accordance with the pleadings set out in the prayer for relief in the second cause of action.
Third cause of action
[163] Beyond the granting of leave to proceed by way of summary judgment, the plaintiff does not seek any further order in respect of the third cause of action.
Costs
[164] The various plaintiffs have sought costs. They are entitled to costs having been successful in these proceedings. I invite the parties to agree costs within 14 days from the date of this decision. If they are unable to reach agreement then the plaintiffs are to file memoranda of no greater than three pages in length with the defendants having five working days to respond to such memoranda. I will deal with the question of costs on the papers.
48 Section 274 of the Insolvency Act says quite clearly that the fees and expenses properly incurred by the Official Assignee carrying out their duties and exercising their powers are recoverable.
[165] I reserve leave to the plaintiffs to apply for any further directions required to implement any aspect of this decision.
Churchman J
Solicitors:
Meredith Connell, Auckland for Plaintiff in CIV-2020-485-374 Steve Hill Law, Lower Hutt for Plaintiff in CIV-2021-485-419 Anthony Harper, Christchurch for Plaintiff in CIV-2020-485-462
Livingston & Livingston, Wellington for Defendants in all proceedings
Counsel:
A S Olney for CIV-2021-485-419
P Chisnall for CIV-2020-485-462
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