Collins & May Law v Memelink
[2019] NZHC 36
•29 January 2019
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2018-485-000686
[2019] NZHC 36
UNDER the Insolvency Act 2006 IN THE MATTER
of the bankruptcy of HARRY MEMELINK
BETWEEN
COLLINS & MAY LAW
Judgment Creditor/Respondent
AND
HARRY MEMELINK
Judgment Debtor/Applicant
AND
OFFICIAL ASSIGNEE
Respondent
Hearing: On Memoranda filed 26 November 2018 and 28 November 2018 Appearances:
D G Dewar for Judgment Creditor (Collins & May Law) and for Supporting Creditor (M R Bott)
C Matsis for Supporting Creditors (Bodies Corporate 68792, 81012 and 378945)
G W D Manktelow for Bankrupt (H Memelink) P R W Chisnall for Official Assignee
Judgment:
29 January 2019
JUDGMENT OF JUSTICE OSBORNE
(on application to set aside stay on advertising)
Mr Memelink’s bankruptcy
[1] Mr Memelink was adjudicated bankrupt on 28 August 2018. He has subsequently applied for annulment of his adjudication. That application is opposed by the judgment creditor and others and is yet to be heard.
COLLINS & MAY LAW v MEMELINK [2019] NZHC 36 [29 January 2019]
The stay orders
[2] In the meantime, Mr Memelink had also filed an interlocutory application seeking orders staying advertising of his adjudication and the administration of his bankrupt estate.
[3] The Court on an urgent basis (without notice) made the requested interim orders on 7 September 2018.1
[4] On the application of creditors and the Official Assignee, the Court on 29 October 2018 rescinded the order staying the administration of Mr Memelink’s bankruptcy. The Court adjourned the remaining aspect of the application (for rescission of the stay on advertising) pending the filing of further evidence and submissions.
The statutory regime on adjudication
[5] Section 65 Insolvency Act 2006 requires that an adjudication be advertised. It provides:
65 Assignee must advertise adjudication
(1)The Assignee must advertise the adjudication of the bankrupt as soon as practicable after it has occurred.
(2)The Assignee must advertise the adjudication in the prescribed manner.
(3)Subsection (1) is subject to section 66.
[6] Section 65(3) of the Act makes advertising subject to the provisions of s 66 of the Act. Section 66 allows a stay of advertising (as in fact ordered by the Court on 7 September 2018). It provides:
66Order that Assignee must not advertise pending appeal or application for annulment
The court may order that the Assignee must not advertise the adjudication if the bankrupt has appealed against an order of
1 Counsel for Mr Memelink served the application and associated documents on the Official Assignee on a “Pickwick” basis. However the Assignee did not appear and the matter accordingly proceeded on a without notice basis.
adjudication or if the bankrupt has applied for an annulment of the adjudication.
[7] The powers under s 66 of the Act were considered by this Court in Re Parlane, ex parte Young.2 In that case the bankrupt had applied for orders suspending his adjudication and bankruptcy pending an appeal and requiring the Official Assignee not to advertise the adjudication until after the determination of the appeal. The bankrupt, in applying for the stay on advertising, asserted that advertising (together with the administration of his bankruptcy) would cause his personal and business reputation substantial harm.
[8] Much of the Court’s judgment was concerned with the application for suspension of the adjudication. The Court then considered the application under s 66 of the Act. The Court refused to stay advertising. The Court explained:3
Advertising is a very important function of the Assignee’s functions as it enables the Assignee to establish and satisfy himself as to the extent of creditors. There might be rare cases where the impact on others (possibly businesses, possibly close relatives) might call for a period of non-advertising. The only issue raised by Mr Young relates to the impact on the companies of which he is a director. I do not view that as an appropriate basis to order no advertising in this case. The legislation effects a disqualification of a bankrupt from the role of director – given my decision to not suspend the adjudication that disqualification applies. Mr Young is in a position to protect the reputation of the companies by resigning his directorships.
The grounds of Mr Memelink’s application and the creditors’ and Assignee’s applications for rescission
[9] Mr Memelink’s application was for both a suspension of the administration of bankruptcy and a stay of advertising. He adopted four common grounds for both applications:
(1)He was applying for annulment of his bankruptcy.
(2)Collins & May Law, as “petitioning creditor”, had been paid in full.
2 Re Parlane, ex parte Young, HC Auckland CIV-2010-404-005478, 25 July 2011.
3 At [40].
(3)The Official Assignee wished to limit costs in the event an annulment were made.
(4)Mr Memelink wished to prevent a “fire sale” of his assets.
[10] Mr Memelink provided an affidavit in support of his application. It is almost completely devoted to a description of his creditors and those claiming to be creditors, with reference to those who had been identified by Mr Memelink in an insolvency proposal he filed in Court in mid-2018. Mr Memelink concluded by deposing that he believes he is solvent and that his assets exceed his liabilities. He does not identify in his affidavit any concern relating directly to advertising of his adjudication.
[11] Mr Memelink subsequently filed a defective application for annulment. On 15 October 2018 he filed, through Mr Manktelow, a satisfactorily amended originating application. He seeks adjudication under s 309(1) of the Act both on the grounds that he should not have been adjudicated bankrupt (s 309(1)(a)) and on the basis that the Court should consider that his liability to pay his debts should be revived (s 309(1)(c)).
[12] With the filing of Mr Memelink’s grounds of annulment, it could be inferred that the primary basis of Mr Memelink’s desire to have a stay of advertising flowed from the fact that he was submitting that he should not have been adjudicated bankrupt at all.
[13] The interim stay of advertising was granted on the papers on 7 September 2018, without reasons provided.
[14] This application for an order setting aside the stay of advertising was then made by the supporting creditors, being Body Corporate 68792, Body Corporate 81012, Body Corporate 378945, Jeffrey Fawcett and Gambitsis Crombie Ltd. The primary ground advanced in the creditors’ application was that there is no reliable basis upon which Mr Memelink’s debts will be established without advertising.
[15] The creditors’ application for rescission was supported by affidavits, including that of Anthony Gambitsis. He deposes that Mr Memelink is a debtor of his
accountancy firm (for approximately $25,000). His firm is opposing the application for annulment because of the complexity of Mr Memelink’s affairs and the lack of advertising around the bankruptcy. He wants the Official Assignee to be able to review and assess the bankrupt estate once the group of creditors is properly known.
[16] The Official Assignee also applies for an order setting aside the stay of advertising. The Assignee asserts that such orders are necessary to allow her to understand the true nature of the property which is vested in the Assignee by way of adjudication and that, due to the extent and complexities of Mr Memelink’s bankrupt estate and related entities, the Assignee needs to be able to take steps to investigate his property affairs to assist the Court in determining the annulment application.
[17] A Deputy Assignee, Sonia Gardner, was assigned to the bankruptcy of Mr Memelink. She prepared the Report of the Assignee (in response to the annulment application) on 3 October 2018. Her report recognised that, because the adjudication had not been advertised and Mr Memelink had not supplied a completed statement of affairs, she has been unable to establish the true level of debt owed by Mr Memelink. She recorded that while the bankrupt had advised her that he would be arranging payment to a number of creditors upon annulment of his bankruptcy, she had received no detail as to who they might be. Her report identifies creditors with filed claims of
$530,116.18 and potential creditors who have not filed claims worth $5,128,522.37. The Assignee objected to annulment.
[18] Ms Gardner provided a second affidavit on 3 December 2018. It took into account an affidavit filed in the meantime by Mr Memelink.
[19] Ms Gardner recorded that the Assignee, as a matter of urgency, had requested information from Mr Memelink about the companies in which he is a director and shareholder, in his personal capacity. Ms Gardner recorded that at 3 December 2018 Mr Memelink had not provided the requested information.
[20] Ms Gardner concluded her affidavit with specific reference to the stay of advertising, deposing:
The Court’s order staying advertising has meant that Mr Memelink’s adjudication has not been published on our website. This means that any one accessing the website for such information will not find any reference to Mr Memelink being adjudicated bankrupt.
There is considerable complexities to Mr Memelink’s bankruptcy and business affairs. At the time of his adjudication, Mr Memelink and the Trust had various matters before the Court and Tribunals. Some of these matters are now just being brought to the attention of the Official Assignee.
[21] Mr Memelink filed a notice of opposition to the applications for rescission of the stay of advertising. In his grounds of opposition he asserts:
(1)He should not have been adjudicated bankrupt.
(2)He has applied for annulment of his bankruptcy.
(3)Advertising of the bankruptcy will lessen funds available to the creditors.
(4)The original stay orders were obtained “at the suggestion and with the consent of the Official Assignee”.
[22] Mr Memelink filed an affidavit in respect of advertising. He refers to steps he has taken to sell a property with the Official Assignee’s permission and to settle some debt. He deposes:
I am continuing to rationalise my affairs with the assistance of my family, if necessary, by sale of further property.
I am concerned that advertising will not only destroy my business reputation and my ability to earn an income in the security industry where standards are high. Advertising will also destroy my ability to realise assets at anything other than fire sale prices and thereby impair my ability to repay proper creditors. Advertising will make it very difficult for me to recover financially subsequent to annulment of bankruptcy due to my loss of reputation.
I am extremely depressed at the circumstances surrounding my bankruptcy and by the way I was let down by my then solicitor and Officer of the Court, Mr Quentin Haines.
[23] Mr Memelink exhibited a medical certificate dated 30 October 2018 in which his general practitioner, having seen Mr Memelink “with depression”, recorded that Mr Memelink felt that his bankruptcy situation was the main cause of his depression.
[24] Mr Memelink’s brother-in-law, Roy Bassett-Burr, has also provided an affidavit for Mr Memelink. He records that he is the principal of the company that is trustee with Mr Memelink of a family trust. He is also Mr Memelink’s brother-in-law. Mr Bassett-Burr’s affidavit did not raise matters pertinent to the advertising.
[25] A month later, Mr Bassett-Burr provided a further affidavit in which he deposed that he had read Mr Memelink’s affidavit. He refers in detail to Mr Memelink’s medical situation. He deposes that he thinks that Mr Memelink has left much out of his affidavit through pride. He concludes:
Harry is not functioning well at present as I think is shown by among other things, by some of the emails that he sends and some of the decisions that he is making. His family and I are concerned that advertising of Harry’s bankruptcy may be a tipping point in his health condition as he is clearly ill at a number of levels both physically and mentally.
Submissions
[26]The Court imposed a timetable for submissions.
[27] For Mr Memelink, Mr Manktelow submits that the Court should exercise its discretion to continue the stay of advertising for five reasons:
(1)The circumstances of the bankruptcy occurring are reasonably singular in that Mr Memelink had the money to pay the “petitioning creditor” but received wrong advice from his counsel that it was too late to pay the debt.
(2)The New Zealand Law Society has commenced an investigation into the solicitor in question using Mr Memelink’s properties as security for personal loans.
(3)Mr Memelink has not “frozen” upon being bankrupt but, as his affidavits disclose, he has made a determined effort to sort out his affairs, with those efforts continuing.
(4)The trustees of Mr Memelink’s family trust have provided an undertaking to the Court in relation to the proceeds of sale of the property sold.
(5)There is the personal welfare of Mr Memelink to be considered.
[28] For the supporting creditors, Mr Dewar referred to this Court’s decision in Re Parlane ex parte Young,4 on advertising as a very important aspect of the Assignee’s functions, in enabling the Assignee to be satisfied as to the extent of creditors.
[29] Mr Dewar submits that by reason of some matters covered in the affidavit evidence, Mr Memelink cannot be relied upon to provide accurate information. He adds that it does not seem conceivable that the Court could contemplate an application to annul a bankruptcy without being satisfied that all affected creditors have at least had the opportunity to learn through advertising of the bankruptcy itself.
Discussion
[30] The Assignee’s concerns as to an inability to comprehensively understand Mr Memelink’s bankrupt estate are important. The issue raised in this part of the case is whether there should be advertising of the fact of bankruptcy. For the time being the Assignee has a bankrupt estate to administer but is far from having complete information about the estate. That is partly caused by Mr Memelink’s own failure to provide a comprehensive statement of affairs. It is also clearly contributed to by the extent of Mr Memelink’s commercial dealings and his involvement of various entities (companies and trust) in a way which has led to arguments over whether a particular debt is that of Mr Memelink or of someone else.
[31] These various matters make it important, if there is to be a continuing orderly administration of Mr Memelink’s affairs, that the Assignee be enabled to obtain a full appreciation of those who might claim to be Mr Memelink’s creditors and the reasons upon which they assert that Mr Memelink is personally indebted.
4 Above n 2.
[32] The fact that Mr Memelink on his own evidence wishes to continue with efforts to sell properties (presumably belonging to other entities) and to repay debt emphasises the importance of the Assignee being fully informed on matters which will clarify the true ownership of assets and debts.
[33] Mr Memelink for his annulment application relies in part on s 309(1)(a) of the Act – upon the basis that he should not have been adjudicated bankrupt. It may be that in some circumstances an annulment application based on that ground alone would lead the Court to exercise a discretion to stay advertising (upon the basis that the bankrupt’s contention that he ought not to have been adjudicated at all may be vindicated). However, in this case, Mr Memelink’s annulment application also relies on the ground in s 309(1)(c). As that ground involves a consideration of the bankrupt’s financial circumstances, the usual need for the Assignee to begin a full investigation of the circumstances of the bankrupt estate will be called for on the annulment application. The Court needs to be satisfied that the Assignee’s report on the annulment application is fully informed.
[34] There are accordingly compelling reasons for allowing advertising to proceed. It is the method implicitly recognised by the legislation as assuring the Assignee that she obtains the fullest and most reliable information about claims on the bankrupt estate.
[35] That leaves for consideration Mr Memelink’s personal circumstances and in particular his health. I am not persuaded on the basis of the information provided as to Mr Memelink’s health that such is a sufficient reason to cut across what would otherwise be the appropriate means of ensuring the Assignee has full information concerning Mr Memelink’s financial affairs. The evidence provided by Mr Memelink indicates that he has the support of his general practitioner and counselling in relation to those matters. Mr Memelink is also aware through previous minutes of the Court that he has the right in relation to any trustee responsibilities to delegate his trusts and the right in relation to his personal property affairs to appoint an attorney. Additionally he has the benefit of representation by counsel.
Conclusion
[36] I am not satisfied there is a proper basis for continuing the stay of advertising, which is normally required by s 65 of the Act to occur as soon as practicable after adjudication. Equally, I am satisfied that compelling grounds for rescinding the stay of advertising have been made out by the creditors.
Orders
[37]I order:
(1)The order staying advertising made by this Court on 7 September 2018 is rescinded.
(2)The costs of the bankrupt’s interlocutory application and of the creditors’ and Assignee’s applications, together with disbursements, are reserved.
Osborne J
Solicitors:
C Matsis, Gault Mitchell Law, Wellington G Manktelow, Lower Hutt
P R W Chisnall, Port Nicholson Chambers, Wellington Counsel: D G Dewar, Lower Hutt
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