Carr v Main Farm Limited (in receivership)

[2013] NZHC 222

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2012-409-001444 [2013] NZHC 222

IN THE MATTER OF     The Insolvency Act 2006

BETWEEN  EWAN ROBERT CARR Judgment Debtor/Applicant

ANDMAIN FARM LIMITED (IN RECEIVERSHIP)

Judgment Creditor/Respondent

Hearing:         7 February 2013

(Heard at Christchurch)

Appearances: R Lynn for Judgment Debtor/Applicant

G J Toebes for Judgment Creditor/Respondent

Judgment:      15 February 2013

JUDGMENT OF ASSOCIATE JUDGE OSBORNE [as to setting aside of bankruptcy notice]

Introduction

[1]      This is an application by Mr Carr to set aside a bankruptcy notice which

Main Farm has issued.

[2]      Mr Carr’s evidence establishes that he is unable to pay the debt owed to Main

Farm.  His application requires the Court to consider two possibilities:

(a)      He  has  a  cross-claim  which  equals  or  exceeds  the  demand.    To succeed on this ground Mr Carr would need to satisfy the Court that one or more of the claims which he says he has against third parties

should be treated as a cross-claim against Main Farm.

CARR V MAIN FARM LIMITED (IN RECEIVERSHIP) HC CHCH CIV-2012-409-001444 [15 February 2013]

(b)Mr Carr has available security or is otherwise able to compromise the demand.

[3]      Mr Carr’s notice of application raised a third issue – as to Main Farm’s failure to produce a certified copy of judgment.  What Main Farm had produced was a sealed copy of the relevant High Court judgment.  Mr Lynn appropriately chose not to pursue this ground of application, accepting that there had been no prejudice to Mr Carr. Accordingly, by s 418(1) Insolvency Act 2006, bankruptcy proceedings against Mr Carr are not to be invalidated by the defect.   Instead, the Court may make an order under s 418(2) of the Act as to the  remedying of the defect,  which is a jurisdiction which I will exercise in the order I make.

[4]      Mr Lynn submitted orally that, in the event I found Mr Carr’s other grounds to be not established, I might nevertheless strike out the demand on the basis of a residual discretion.  This would happen on the premise that any bankruptcy would adversely impact on Mr Carr’s ability to pursue claims against Mr Humphries and others.  A resort to such jurisdiction was not invoked in the notice of application.  It would be inappropriate to explore such arguments of which the respondent was not on notice.   In any event, if there is any substance to an  argument of the  kind suggested by Mr Lynn, then it is an argument which Mr Carr will be able to pursue if and when an adjudication application is made.   For the time being, Main Farm is simply pursuing its right, ex debito justitiae, to have a bankruptcy notice issued in relation to a judgment debt.   It would take something in the nature of abuse of process, rather than a perceived unfairness, to cut across the creditor’s right.

The central background

[5]      Mr Carr was unsuccessful in a proceeding brought by Main Farm in 2010 (tried in 2011) in which Main Farm sought an order that Mr Carr transfer a water permit.  On 2 December 2011, Mr Carr was ordered to pay costs and disbursements of $37,752.30.  The bankruptcy notice relates to that judgment debt with accruing interest.

Broader background

[6]      It is necessary to examine a broader background as Mr Carr’s asserted cross- claim calls for a consideration of the relationship between Mr Carr and Main Farm which goes beyond the water permit issue which this Court resolved in 2011.

[7]      I turn to summarise the matters of background upon which Mr Carr relies.  In suggesting this background was to be taken into account, Mr Lynn accepted that the existence of different entities and persons associated with Rodney John Humphries and his related interests does not give rise to an argument that one or more of them is a sham.  Rather, Mr Lynn asserts that the background should lead to a lifting of the corporate veil so as to establish mutuality of the parties involved and to allow set-off so as to extinguish the debtor to the Main Farm as judgment creditor.

[8]      I now summarise:

Around  2000,  three  men  (Mr  Carr,  Mr  Humphries  and  Mr  Howard

Paterson)  came  together  (with  their  associated  interests)  to  form  a business known as the Big Sky Group.

In May 2000, Big Sky Dairy Farms Limited was formed.

Around the same time, Big Sky purchased the shares in Main Farm (from Mr Carr) pursuant to which purchase the High Court subsequently found in 2011 Mr Carr should also have transferred the water permit to which I

have referred.

Thereafter, Main Farm was the owner of the farm property in question and Big Sky carried out the business of dairy farming from that farm (and

elsewhere).

There were other companies in the Big Sky Group, most of which have gone into either receivership or liquidation or both.   Mr Carr was successful in having the group placed into interim liquidation in 2007 and

subsequently reapplied to have liquidators appointed in 2009, with the

liquidation ongoing.

Mr Carr views the relationship between himself and Mr Humphries as having progressively deteriorated following the death of the other shareholder,   Mr  Paterson,   in   2003,   with   a  dramatic  deterioration occurring in October 2006 when Mr Carr views himself as having been

shut out of the companies.

Mr Carr asserts against Mr Humphries a number of illegal or unlawful acts, including the creation of fraudulent mortgages, theft from company accounts, breaches of director’s duties and breaches of trust.  Mr Lynn’s submissions focus particularly on the concept of “fraudulent mortgage”. In the statement of claim filed by Mr Carr and his family trust in a proceeding issued in October 2010, Mr Carr alleges that Mr Humphries committed a fraud on Big Sky Dairy Farms Ltd and its shareholders by arranging for a Mr Stuart Herron to sign a (second) mortgage in favour of Edgewater Motel Ltd (a company controlled by Mr Humphries and his interests) and backdating that mortgage to cover the loans that Mr Humphries’ interests have provided to Big Sky Dairy Farms Ltd at the time.   Mr Carr alleges that the second mortgage allowed Edgewater to gain a secured interest behind the Bank of New Zealand and to rank in priority to all other of the unsecured creditors of Big Sky Dairy Farms Ltd.

(Mr Carr has exhibited an affidavit of Stuart Herron filed in a Dunedin proceeding on behalf of Mr Carr and his interests.  In that affidavit Mr Herron deposes that when he was presented with the Edgewater mortgage document for execution he had previously resigned as director of Big Sky Dairy Farms Ltd, that he protested that he had no authority to sign the document but was put under considerable pressure to sign and did so.  He

then informed Mr Carr what had happened).

In  March  2005,  Mr  Carr  obtained  from  Mr  Humphries  options  to

purchase the assets of the Big Sky Group and the Danseys Pass Hotel.

In October 2006, Mr Carr moved to exercise his option to purchase but a

further dispute then arose with Mr Humphries as to the purchase price.

An interim liquidator was appointed to the Big Sky Group on 2 March

2007.

The Bank of New Zealand caused Big Sky Dairy Farms  Ltd and its

related companies to be put into receivership on 12 March 2007.

Big Sky Dairy Farms Ltd was put into liquidation on 2 June 2009.

The receivers of the Big Sky Group have subsequently sold all its assets to a third party, with settlement in September 2010.

In October 2010, Mr Carr and his family trusts issued proceedings (CIV-

2010-412-000736) against Mr Humphries and others in relation to losses sustained through the investment in the Big Sky Group.

In  March  2012,  Mr  Carr  submitted  a  proof  of  debt  to  the  Official Assignee in which he asserted a debt of $295,925 (comprising “management and consultancy” of $239,675 for the period July 2003 to September  2005)  and  $56,250  (which  represented  “management  and

labour (Big Sky Livestock)” for the period July 2003 to September 2005).

Setting aside – the jurisdiction and principles

[9]      Where a debtor has been served with a bankruptcy notice, the debtor may seek within ten working days after service of the notice to satisfy the Court that the debtor has a cross-claim against the creditor; s 17(1) Insolvency Act 2006.

[10]     Section 17(7) of the Act then provides:

17       Failure to comply with bankruptcy notice

(1)       ...

(7)      In subsection (1)(d)(ii), cross claim means a counterclaim, set-off, or cross demand that—

(a)       is equal to, or greater than, the judgment debt or the amount that the debtor has been ordered to pay; and

(b)      the debtor could not use as a defence in the action or proceedings in which the judgment or the order, as the case may be, was obtained.

[11]     If a bankruptcy notice is to be set aside upon the basis of a cross demand, the debtor must point to a genuine triable demand.1

[12]     The Court of Appeal has said of this criterion that:

... the words “genuine” and “triable” require the debtor to demonstrate that

he has a claim of true substance which he genuinely proposes to pursue.2

[13]     The setting aside jurisdiction under s 17 of the Act depends for its operation upon a degree of mutuality between debt and cross demand.  In Re Elvin, ex parte Sandilands,3 Gallen J elaborated on the degree of mutuality in these terms:

There must be some coincidence, some nexus or correlation between the circumstances out of which the opposing claims arise, some relationship between the parties and this must to some extent be a pragmatic decision which needs to be considered in relation to each particular case.4

[14]     I will return to the particular requirement of mutuality in relation to this case in more detail below, as Mr Lynn addressed detailed submissions to that requirement in recognition of the fact that Mr Carr’s asserted cross-claim does not lie against

Main Farm.

1      Thomasen v Nigro CA 124/76, 19 July 1978; Clark v UDC Finance Ltd [1985] 2 NZLR 636 (HC).

2      Sharma v ANZ Banking Group (New Zealand) Ltd (1992) 6 PRNZ 386 at 389 (per Cooke P

delivering the judgment of the Court).

3      Re Elvin ex parte Sandilands [1990] 3 NZLR 124.

4      Ibid at 127.

The asserted cross-claim

[15]     In his written submissions Mr Lynn put the broad issue under the cross-claim heading in this way:

Can the Judgment [Debtor] Mr Carr, set-off claims against one or both of two third parties (Big Sky Dairy Farms Ltd (in receivership) and a Mr Rodney John Humphries and his related interests) against the judgment debt due to the Judgment Creditor?

The factual basis of Mr Carr’s claims in summary

[16]     The demand under Main Farm’s bankruptcy notice is for $38,716.74.   Mr Carr asserts a cross-claim of $295,925.  This represents the total sum claimed by Mr Carr against Big Sky Dairy Farms Ltd for services between 2003 and 2005, as identified in Mr Carr’s proof of debt filed in March 2012.  Mr Carr then argues that as an unsecured creditor of Big Sky Dairy Farms Ltd (in liquidation and in receivership), he would or may well have received payment of the sum claimed in the proof of debt but for the receiver’s treatment of Edgewater as a second secured creditor.  The records of the receivership show that after the Bank of New Zealand was  paid  some  $22,096,431.80  as  a  secured  creditor,  Edgewater  was  paid

$11,069,240.74.  Edgewater’s only right to receive payment in that way arose from the mortgage documentation which Mr Carr has challenged.   In his High Court proceeding issued in October 2010 against Edgewater, Mr Humphries and others, Mr Carr included a cause of action in which he seeks damages from Edgewater, Mr Humphries and others for what is alleged to be the fraud committed on Big Sky Dairy Farms Ltd and its shareholders by the execution of Edgewater’s mortgage documentation.  Big Sky Dairy Farms Ltd is not a party to Mr Carr’s litigation.

[17]     Mr Carr’s 2010 proceeding (CIV-2010-412-000736) is at present stayed.  Mr Carr and his co-plaintiffs had agreed to pay $25,000 into Court by 8 August 2012 as security for costs for the first stages of the litigation but were unable to do so.  On 6

September 2012 the proceeding was stayed by consent until such time as security for costs is paid.  Now, five months later, the proceeding remains stayed.

[18]     In summary, the central cross-claim asserted by Mr Carr is (as identified in paragraph 5 of Mr Lynn’s written submissions) the $295,925 expenses claimed by Mr Carr in his proof of debt filed in the Big Sky Dairy Farms Ltd liquidation.   It appears that Mr Carr also seeks to bring into account his other unquantified claims in the 2010 proceeding against Mr Humphries and others for what are said to be frauds committed by Mr Humphries and his associated parties in the course of the joint venture.  Edgewater is again set to be the main entity so affected because, as a result of Edgewater’s mortgage, Mr Humphries has become “the main beneficiary” of the sale of the assets of the Big Sky group.  The sale of the assets of the Big Sky Group involved a sale of the farm owned by the plaintiff in this proceeding, Main Farm. This provides what Mr Carr suggests is a “direct connection” between the Main Farm proceedings and Mr Humphries, as a result of which it would be unjust for Mr Humphries to benefit from the costs award in the Main Farm proceedings.

Claims of true substance genuinely pursued?

[19]    By reason of other findings which I will shortly come to, it is strictly unnecessary that I determine whether Mr Carr’s asserted cross-claims are claims of true substance which he genuinely proposes to pursue.  I would not consider that Mr Carr’s present inability to provide security for the 2010 proceeding cuts across a finding in that regard.  Given that final determinations in relation to Mr Carr’s claim will be for another day, if the 2010 proceeding goes to trial, I refrain from making a specific finding on this issue.

The quantum of the cross-claim

The amount of the cross-claim

[20]     There is uncertainty as to what sum unsecured creditors of Big Sky Dairy Farms Ltd would have received if Edgewater had not been paid out $22m as a second mortgagee.  To the extent that Mr Carr relied on a cross demand relating to his failure to obtain such distribution, the onus was on him to point to evidence establishing that the distribution of Mr Carr would have exceeded the bankruptcy

notice demand of $38,716.74.  The mathematics suggest that Mr Carr would have had to receive only a 13 percent distribution of the $295,925 claimed in his proof of debt.  That may seem modest and possibly achievable.  On the other hand, without detailed evidence as to the extent of unsecured creditors, the combined costs of the receivership and the liquidation, and some real assessment of likely net proceeds, the history of liquidations means that no reliable assumptions can be made as to any level of distribution.

[21]     That  leaves  the  unquantified  amount  of  Mr  Carr’s  claims  against  Mr Humphries and his interests generally.  Mr Lynn submitted in relation to those that while they were unquantified they were “substantial” - he submitted that if they are successful  they  are  almost  certain  to  exceed  the  bankruptcy  notice  demand  of

$38,716.74.   I recognise some cogency in that submission having regard to the substantial nature of the Blue Sky operations.  A group of companies operating three dairy sheds and milking approximately 2,500 cows represents for each of the three “shareholders” a substantial investment and potential loss.  If Mr Humphries and/or his interests were ultimately found to have engaged in fraudulent or otherwise unlawful conduct affecting the value of Mr Carr’s investment, there is a reasonable likelihood that damages would be substantial.

[22]     Again,  by  reason  of  the  findings  which  I  am  shortly  to  come  to,  it  is unnecessary that I reach a firm determination as to whether the cross-claims are equal to or greater than the judgment debt.   Had it been necessary to do so, it is likely that I would have found that the second set of cross-claims satisfied that aspect of the test.

Mutuality of cross-claim and judgment debt

[23]     Mr Carr’s asserted cross-claim must fail because it lacks any real aspect of mutuality with the judgment debt.

[24]     The judgment of the Court of Appeal in  Re Elvin, ex parte Sandilands5

indicates that to meet the requirements of s 17 of the Act (s 19 of the Insolvency Act

1967) there must be mutuality of both parties and circumstances in respect of the opposing claims.

[25]     The starting point is the nature of the debt on which the bankruptcy notice was issued.  It is a judgment debt for costs.  It arose because Mr Carr unsuccessfully defended Main Farm’s claim.  Main Farm claimed that Mr Carr was contractually required to transfer a water permit to Main Farm as part of a farm sale.  While the sale of the Main Farm property by the receivers was part of a broader transaction involving the properties within the Big Sky group, the evidence of the receiver confirms that it was only Main Farm which gave the covenant to the purchaser in relation to the assignment of the water permit.   Main Farm was a separate vendor under the agreement for sale and purchase.  It was only Main Farm which received the consideration for the transfer of the water permit to the purchaser.

[26]     Within any grouping of companies which conduct business operations, it is frequently the case that some own assets and some conduct operations.  In the case of Big Sky, Main Farm was a property owner and lessor.   When it was unable to obtain from Mr Carr the water permit that was associated with the land, it issued a stand-alone proceeding to enforce its rights.   When it was successful in the proceeding, having incurred the costs involved, it received the usual award of Court costs and disbursements in partial recompense of the costs of the proceeding.

[27]     To overcome the distinct nature of the judgment debt involved in this case, Mr Lynn submitted that the corporate veil should be lifted (that is to say the separate corporate identity of Main Farm should be overlooked) so as to establish mutuality of the parties involved in the claim and cross-claims and so as to establish sufficient mutuality of subject matter.

[28]     I will begin this consideration by looking at the parties.

5      Re Elvin, above n 3.

[29]     Mr Lynn submitted that the affairs of Big Sky Dairy Farms Ltd and of Main Farm “go hand in hand”.  He referred to the fact that entities such as Main Farm held land while Big Sky Dairy Farms Ltd carried out the farming operations.  He noted that neither could operate without the other and that ultimately both the land and the business were sold to a third party.

[30]   Such features of themselves are unexceptional and do not amount to a justification for lifting the corporate veil or otherwise treating separate companies as a single entity for the purposes of assessing cross-claims.

[31]     Similarly, when the time came for the sale of the land and the business, it is unexceptional that the receivers or other managers should group the assets (both property and operations) for the purposes of maximising proceeds of sale.  The fact that the assets of the various companies were so grouped for sale does not detract from the distinct nature of each company. The deliberate and careful documenting of the interests of Main Farm in the sale process, including in relation to the water permit, reinforces the continuing recognition of the separate entities and interests involved.

[32]    Mr Lynn submitted that the argument for veil lifting was reinforced by observations made by the receivers in their reports on the four companies in receivership.  For instance, Mr Frost stated in a report dated 26 April 2007:

Because the affairs of the four companies are very closely intertwined, this report cover [sic] the position of all four companies on the basis  that a pooling argument is likely to [sic] successful.

Mr Lynn did not provide evidence nor develop submissions as to the extent to which the receivers subsequently embarked on any pooling.  Equally, Mr Lynn did not refer to the particular statutory regime which would have been invoked and the specific criteria which would apply in that situation.   In this context, an observation by Gallen J in Re Elvin, ex parte Sandilands resonates.  His Honour, having emphasised the need for nexus or correlation between the circumstances out of which opposing claims arise and some relationship between the parties, observed:

I do not think that the decisions as to the nature of counter-claims, set-offs or cross-claims in other contexts, necessarily assist.6

[33]     Equally, I do not find the tentative early observations of the receivers in the Big Sky receivership to be of significant assistance to the Court in determining the mutuality or otherwise of the claims involved in this case.

[34]     Mr Lynn also emphasised the shareholding structures involved in the group, with Main Farm being a wholly owned subsidiary of Big Sky.  Mr Lynn submitted that Big Sky in effect received all the benefits of the sale of assets in the Big Sky group, including the sale of the Main Farm property.   Mr Lynn submitted that the fact that the proceeds of sale would flow directly back to Big Sky, constituted a further reason for the Court to find that there was a mutuality of parties.  I disagree. The clear structuring both of the original corporate entities and of the sale process, to which I have already referred, means that there was no running together or blurring of the separate entities which would justify veil lifting.   It was Main Farm which sold and received the benefits of sale of its property and took on the burden of obligations relating to the sale of the property and water right.  The fact that Main Farm might later have distributed any profit or remaining funds to its shareholder (of which there is no evidence) does not detract from the continuing recognition by those involved of its separate entity.

[35]     Both counsel referred to Grant v NZMC Ltd7     and Hamilton Ice Arena v Perry Developments Ltd8  as leading authorities in relation to equitable set off.  The judgment of Tipping J in particular in Hamilton Ice Arena v Perry Developments Ltd recognises the extinguishment rationale of set off.  His Honour observed:

The need for such close inter-relationship was and still is underscored by the fact that an equitable set-off extinguishes the plaintiff’s right to judgment, either entirely or pro tanto, according to the amount which the defendant is entitled to set off.  There is a detailed discussion of the principles pertaining to equitable set off in the judgment of this Court delivered by Somers J in Grant v NZMC Ltd ...9

6      Re Elvin, above n 3, at 127.

7      Grant v NZMC Ltd [1989] 1 NZLR 8 per Somers J for the Court at 12-13.

8      Hamilton Ice Arena v Perry Developments Ltd [2002] 1 NZLR 309.

9 At [5].

and later in the judgment, having referred to the requirement of mutuality as to the same parties and in the same right, his Honour added:

The need for identity of parties is also consistent with the proposition that the   cross-claim  is   regarded   in   equity   has   [sic]   fully   or   pro   tanto extinguishing the plaintiff’s right to judgment on the claim.  The concept of extinguishment is difficult if the cross-claim is made by a different party.10

[36]     The cross-claim asserted by Mr Carr in this case lacks any extinguishing quality.  It is distinct in nature and effect.  Mr Carr’s claims allegedly arise from the operations of the Big Sky group and the dealings between the “partners” over an extended period.  The judgment debt derives specifically from Mr Carr’s failure in litigation over a single transaction whereby he sold an asset to Main Farm at the outset.

[37]     Mr Lynn’s submissions suggested that an injustice would result if Main Farm (and thereby those behind it) received the benefit of the costs judgment in the water permit proceeding without Mr Carr being able to effectively set off the cross-claim. I find no injustice in that situation.   Mr Carr has already initiated proceedings in relation to the wrongs he alleges. Those proceedings are the vehicle by which he can obtain redress from the individuals involved if he is found to be so entitled.  In the meantime, it is just that he pay the (proportional) costs associated with his unsuccessful resistance of the water permit litigation.

Displacement of the rights of set off?

[38]     Mr Toebes for Main Farm presented submissions, in alternative to the matters I have just considered, to the effect that s 310 Companies Act 1993 provides a mandatory regime for set off in the present situation.  In view of the findings I have

made, it is unnecessary that I consider that argument further and I do not do so.

10 At [8].

Provision of security

[39]     In the alternative to his cross-claim argument, Mr Carr invokes the provisions of s 29(1)(ii) as to the giving of security. The relevant part of s 29(1) reads:

29(1)    The bankruptcy notice must–

(a)      ...

(b)      require the debtor, in relation to the judgment debt or the sum ordered to be paid under a final order,—

(i)       ...; or

(ii)      to give security for the amount owing that satisfies the Court or the creditor; or

(iii)     ...

[40]     Mr  Carr  has  suggested  that  there  are  two  possible  sources  of  security. Neither was acceptable to Main Farm as creditor and it is accordingly for the Court, under s 29(1)(b)(ii) of the Act, to be satisfied as to the security offered.   Neither counsel referred me to the authority as to the considerations which the Court should take into account in considering whether to be satisfied as to particular security. Given that the demand under a bankruptcy notice relates to a judgment debt, the approach I adopt is that it is for the debtor to satisfy the Court on evidence properly adduced  that  the security offered  will  give reasonable assurance of prompt  and complete satisfaction of the debt.   The concept of what is “prompt” should have regard to the 10 working day period for compliance with a bankruptcy notice under s 17(4) of the Act.  The Court will also consider the period that has elapsed since the judgment which gives rise to the judgment debt.

[41]     Normally it would be inappropriate for a Court to authorise the giving of security instead of immediate payment if there is evidence that the debtor has the ability to immediately pay the judgment debt in any event.   In his initial affidavit filed in support of his interlocutory application, Mr Carr appeared to assert that he was now able to immediately pay the judgment debt, he stating:

Although I have previously offered to provide security until that debt has been paid, and I am in a position to pay the costs award to Main Farm Ltd, it now occurs to me that it may be more appropriate for me to provide security

to Main Farm Ltd to secure the debt until the proceedings I have issued ... have been resolved.

[42]     Mr Carr did not make an assertion of solvency in his notice of application. By the time he filed a second affidavit (in October 2012) his circumstances appear to have changed in that he deposed that it was no longer the case (in October 2012) that he was able to pay the judgment debt.  He deposed that he hoped to be again shortly. The  matter  proceeded  to  hearing  in  February  2013  on  the  basis  that  Mr  Carr remained insolvent in terms of the Insolvency Act.

[43]     It is therefore necessary to consider the two forms of security offered by Mr

Carr.

Assets in a brick manufacturing and distribution operation

[44]     In his initial affidavit, Mr Carr made only a brief reference to this asset (and another) which he indicated he had previously offered to provide to the creditor as security.  The reference in Mr Carr’s initial affidavit was to “company assets” in a brick manufacturing distribution operation.

[45]     In his affidavit in opposition, the receiver noted the absence of any detail provided by Mr Carr and noted also the uncertain nature of the reference to a company owning the assets.

[46]     It was only then that Mr Carr (in reply) chose to provide “evidence to the Court of the assets which I own”.  I summarise.  Mr Carr deposes that he purchased various assets, primarily machinery and equipment, from a company called Earth Bound Block Company Limited in May 2009.  He deposes that the purchase price was $90,000.  He attaches a schedule of what he says were the 12 items or groups of items of plant and equipment he purchased.   Mr Carr deposes that the assets in question currently secure a loan of approximately $10,000 from a third party to Miss Ruth Kendall (who is Mr Carr’s partner).

[47]     Mr Carr has not provided a current valuation of the assets.   He has not provided details of the security in relation to the third party loan or the circumstances in which that security could be realised.

[48]     I find that the proposed security is so lacking in supporting detail that it should not be further considered by this Court.   In particular, what Mr Carr has provided by way of evidence  does  not  satisfy me that  it  would  be  appropriate security.

An advance made to Ruth Kendall

[49]     The second form of security offered by Mr Carr is:

A charge over a substantial advance that I have made to my partner, Miss

Ruth Kendall.

[50]     Mr  Carr,  in  his  initial  affidavit,  said  that  Miss  Kendall  has  substantial property assets and equity and was in a process of securing a new funding line to allow the repayment of existing facilities and of Mr Carr’s advances.   Mr Carr deposes the process had been heavily delayed by seismic activity in Christchurch, but would ultimately be successful. That affidavit was sworn on 9 August 2012.

[51]     In his affidavit in opposition, the receiver deposed that no details had been provided concerning the “substantial advance” despite requests being made for confirmation that money is owed to Mr Carr.  A letter sent by Mr Carr’s counsel in March 2012 referred to Miss Kendall owing Mr Carr “considerable sums of money well in excess of the total owed to [Main Farm Ltd] and to [Otago Regional Council]”.  The letter refers also to a 28.5 ha property owned by Miss Kendall, in relation to which the barrister stated that it was expected the valuer would be able to provide an updated valuation within the next two to three weeks.

[52]     The receiver exhibited a search copy of the title to Miss Kendall’s property. It shows that the property is the subject of a mortgage to the ANZ National Bank Ltd and is subject to two caveats placed by Lucy Rose Herron in May 2011.

[53]     The receiver asserted that the offer for security over the “loan” deposed to by

Mr Carr was not a satisfactory security.

[54]     In his reply affidavit, Mr Carr offered more detail, stating that he was owed

$369,000 by Miss Kendall.    He deposed that this was evidenced by an Acknowledgement of Debt, a copy of which he exhibited  - dated the same date as his affidavit.   It acknowledges an “upon demand” debt which bears no interest. It does  not  refer  to  any  security.    He  deposed  that  the  debt  had  arisen  through substantial work and advances which he had made to Miss Kendall since February

2009.  He deposed to work he had been doing to assist her in the development of a

33 section residential farm park development which had been delayed by the seismic activity in Christchurch.  He deposed that he believed that it was now only a matter of a month or two until the properties would obtain the required finance but that was of course “caveated” by there being no further major intervening seismic events. This affidavit was sworn in October 2012.  At the time of the hearing last week, Mr Carr provided no up-to-date information as to the “required finance” which he had in October 2012 expected would be attained within a “month or two”.

[55]      I accept without reservation the appropriateness of the receiver’s rejection of this proposed security.   The concept that Main Farm should be satisfied with the offer of a charge over an unsecured debt is plainly uncommercial and unrealistic.  It is not a satisfactory security.   The Court has been given no information, let alone reliable information, as to any equity in Miss Kendall’s property.  The Court has no information as to the implications of the caveats registered against its Title.  Even were Main Farm to take an assignment of the debt as some form of security, the path to realisation is wholly uncertain.

Conclusion as to security

[56]     No satisfactory security has been offered by Mr Carr.  He accordingly does not bring himself within the provisions of s 29(1)(b)(ii) of the Act.

Outcome

[57]     Mr Carr has not established any basis upon which the Court should intervene to set aside or otherwise alter the implications of a bankruptcy notice.

Costs

[58]     Counsel both accepted at the conclusion of the hearing that this was a case in which costs should follow the event and that a 2B award would be appropriate.

Order

[59]     I order:

(a)       Mr Carr’s application for an order setting aside the bankruptcy notice

issued by Main Farm Ltd (in receivership) is dismissed;

(b)The time for payment in terms of the bankruptcy notice is extended to the 10th working day following the date of this judgment;

(c)      Main  Farm  Ltd  (in  receivership)  shall  cure  the  defect  in  this proceeding whereby Main Farm Ltd (in receivership) has not filed a certified copy of the Judgment giving rise to the Judgment Debt as required by r 24.8(3) High Court Rules by filing and serving such a certified copy within five working days of today’s date;

(d)If Mr Carr fails to make payment in terms of the bankruptcy notice within 10 working days from today’s date and if Main Farm Ltd (in receivership) has within five working days filed and served a certified copy  of  the  Judgment,  Main  Farm  Ltd  (in  receivership)  will  be entitled to file an application for the adjudication of Mr Carr in bankruptcy.

(e)       The   applicant   is   to   pay   costs   on   a   2B   basis   together   with disbursements to be fixed by the Registrar with a certificate for the

respondent’ s counsel’s reasonable costs of travel and accommodation.

Solicitors:

JTLaw, PO Box 25443, Wellington 6146

GCA Lawyers, PO Box 3241, Christchurch

Associate Judge Osborne