Commissioner of Inland Revenue v Ali
[2019] NZHC 2019
•16 August 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-000048
[2019] NZHC 2019
BETWEEN THE COMMISSIONER OF INLAND REVENUE
Judgment CreditorAND
KAHDIM ALI
Judgment Debtor
Hearing: 2 August 2019 Appearances:
J V Angelson for the Judgment Creditor T J P Bowler for the Judgment Debtor
Judgment:
16 August 2019
JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by me on 16 August 2019 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors: Neilsons, Auckland
COMMISSIONER OF INLAND REVENUE v ALI [2019] NZHC 2019 [16 August 2019]
Introduction
[1] In this proceeding, the judgment creditor, the Commissioner of Inland Revenue, seeks an order adjudicating the judgment debtor, Mr Kahdim Ali, bankrupt. She also seeks an order for costs.
[2] Mr Ali opposes the application. He accepts he committed an act of bankruptcy. But he says he is solvent and able to pay his long-standing debts to IRD within a reasonable time. In the alternative, if the Court does not accept that he is solvent, he seeks an adjournment for eight weeks. This is on the basis that it would be sufficient time for him to obtain a code compliance certificate from the Council for works he has undertaken on his family home and to put the house on the market and sell it. He contends the proceeds, after payment of the debts secured against the title, will be sufficient to pay all other debts including those owed to IRD.
[3] For reasons set out in this judgment I am satisfied that I should make the order for adjudication the Commissioner seeks. Mr Ali has not discharged the onus of showing grounds for declining the application. He has not demonstrated his solvency and ability to pay his debts within a reasonable time. There is no certainty that the adjournment requested would be the final one sought.
Background
[4] In the application for adjudication the Commissioner relies on an act of bankruptcy committed upon Mr Ali’s failure to comply with the bankruptcy notice that was served on him in respect of a judgment debt for $492,480.21 for unpaid GST and income tax as well as $120,612.69 owed in additional assessments, penalties and interest. The relevant proceeding was CIV-2017-004-1781, in which judgment by default was entered on 7 November 2018 in the District Court.
[5] Mr Ali did not take steps to appeal the judgment or to seek that it be stayed. On 22 February 2019 the Commissioner issued a bankruptcy notice (dated 18 January 2019) against Mr Ali for payment of the judgment debt. He took no steps
to apply to have the bankruptcy notice set aside or to comply with it. The result was that he committed an act of bankruptcy on 8 March 2019.
[6] On 1 April 2019 the Commissioner filed her application to have Mr Ali adjudicated bankrupt on the ground of his failure to comply with the bankruptcy notice based on the judgment. Mr Ali filed documents in opposition on 15 May 2019.
The application for adjudication
[7]Section 13 of the Insolvency Act 2006 provides:
When creditor may apply for debtor’s adjudication
A creditor may apply for a debtor to be adjudicated bankrupt if—
(a)the debtor owes the creditor $1,000 or more or, if 2 or more creditors join in the application, the debtor owes a total of $1,000 or more to those creditors between them; and
(b)the debtor has committed an act of bankruptcy within the period of 3 months before the filing of the application; and
(c)the debt is a certain amount; and
(d)the debt is payable either immediately or at a date in the future that is certain.
[8] The Court has several options when hearing a creditor’s application. One option is to exercise the discretion it has to adjudicate the debtor bankrupt, pursuant to s 36, if the creditor has – as here – established that the criteria set out in s 13 are satisfied. The starting point is that the creditor is prima facie entitled to an order of adjudication in those circumstances.1
[9] However, the Court also has a discretion to refuse to adjudicate pursuant to s 37:
Court may refuse adjudication
The court may, at its discretion, refuse to adjudicate the debtor bankrupt if—
1 See Baker v Westpac Banking Corporation CA212/92, 13 July 1993.
(a)the applicant creditor has not established the requirements set out in section 13; or
(b)the debtor is able to pay his or her debts; or
(c)it is just and equitable that the court does not make an order of adjudication; or
(d)for any other reason an order of adjudication should not be made.
[10] A further option available to the Court is to halt the application pursuant to s 38, on any terms and conditions and for any period it thinks appropriate.
[11] The onus is on an opposing debtor who has failed to satisfy the requirements of s 13 to show why an order of adjudication should not be made.2 This includes providing sufficient evidence of the ability to pay the debts within a reasonable time, if that is the ground relied upon.3
Mr Ali’s case
[12] There is no dispute that the technical requirements for an order for adjudication, as set out in s 13, are met. Mr Ali has not appealed the judgment against him. He has not sought an order to halt the application for his adjudication.
[13] It is not in dispute that: (a) Mr Ali owes the Commissioner $1,000 or more; (b) he committed an act of bankruptcy within the three months preceding the filing of the Commissioner’s application; (c) the debt is for a certain amount; and (d) the debt is now well overdue.
[14] By notice dated 15 May 2019 Mr Ali opposes an adjudication order. He argues there are grounds to refuse to adjudicate.
[15]He submits I should take the following factors into account:
(a)He says he is in fact solvent. He owns a property in Auckland with his wife, a house. The equity in the house exceeds the value of the
2 Baker v Westpac Banking Corp, above n 1, at 4.
3 See Holdgate v Blocassa Ltd [2007] NZCA 132 at [19].
judgment debt. He is in the process of completing works before he can obtain a code compliance certificate from Auckland Council, following which he will sell it and repay the debt.
(b)His other debt obligations are a mortgage on which approximately
$260,000 is owing, a personal loan for $40,000 plus some interest, and a debt of approximately $80,000 secured by a caveat. Combining those debts with the tax money owed to IRD produces an end debt figure of around $1 million. He states the house will be worth approximately
$1.2 million. He submits there will be no shortfall, and the sale of the house will suffice to repay the judgment debt.
(c)As evidence he has attached a valuation assessing the market value of the house for mortgage lending purposes at $1.15 million as at 7 July 2017. Its veracity has not been challenged.
(d)Given Mr Ali is a self-employed builder and the primary income earner for his family, he submits it would not be just and equitable to adjudicate him bankrupt.
Discussion
[16] As I have indicated, the requirements of s 13 are established. The Commissioner is prima facie entitled to the order she seeks.
[17] Further, I am satisfied that Mr Ali has not discharged the onus of showing he can repay his debts within a reasonable time. My reasons are as follows:
(a)Mr Ali has failed to provide adequate details on oath of his financial position including all his assets and liabilities and sources of income. The information he has provided about the current state of his indebtedness assumes that he is likely to realise enough from the net proceeds from the sale of the house to meet all his secured and unsecured debt. The information provided does not set out a clear statement of all his liabilities.
(b)Further, the valuation of the house is out of date. The valuation is from mid-2017 and records that it assumes that, at the time of sale, the work on the house will be completed and there will be a code compliance certificate. These steps are still outstanding, and the excuses Mr Ali gives – including a recent rat infestation and an insurance claim – do not explain why it has taken since 2017 to prepare the house for sale. There is no certainty – indeed it is a matter of speculation – as to how much longer Mr Ali will take to complete the work on the house, secure a code compliance certificate and put the house on the market.
(c)There is unlikely to be sufficient money realised from Mr Ali’s share of the sale proceeds to meet his debts. Mr Ali does not address the fact that he is not the sole owner of the house, despite his case depending on all the net proceeds of sale being available to him. He has not provided sufficient evidence that all the net proceeds will be available to him. Plainly, without Mrs Ali’s share of the proceeds, he has not the slightest prospect of clearing his debts; and it is wholly unclear whether, even with her share, he can meet his debts.
(d)The tax debt on which the judgment debt is based dates as far back as 2009. The judgment debt on which the bankruptcy notice is based has been outstanding since November 2018. My natural inference is that Mr Ali is unable to pay his debts.
[18] The presumption is that a creditor is entitled to an order of adjudication. Mr Ali has not discharged his onus of proving he can pay his debts within a reasonable time. I am not satisfied I should exercise my discretion not to adjudicate him bankrupt.
[19] I am also not convinced that it would not be unjust or inequitable to adjudicate Mr Ali bankrupt. While it is unfortunate, the stage has been reached where Mr Ali’s private interests are outweighed by the public interest in bringing his financial affairs under the control of the Official Assignee to take necessary steps to ensure a sale proceeds in a timely way and the proceeds are properly applied to meet the debts of
Mr Ali’s creditors. Any share that Mrs Ali has in the proceeds will be identified by the Official Assignee and held for her.
[20] In the event that I am mistaken about the sufficiency of the sale proceeds for meeting Mr Ali’s debts, it will be open to him to apply to have his bankruptcy annulled.
Adjournment
[21] It will be plain from what I have said so far that I do not consider this is a case where it would be appropriate to grant the Mr Ali seeks an adjournment seeks. There is little reason for confidence that Mr Ali will have his affairs in order within the eight weeks that he seeks to the point where he will have sold the house (or even put it on the market), or indeed that there will be sufficient returns to pay his debts if the house were sold within the eight weeks.
Conclusion
[22] In the circumstances it is difficult to see any basis on which to refuse the Commissioner’s request for an order or adjudication or any proper basis on which to grant an adjournment or to defer an order of adjudication.
[23]As I indicated at the hearing, I re-list the matter in the next bankruptcy list for
10.45 am on 5 September 2019. At that time the Commissioner may seek an order of adjudication upon production a certificate of unpaid debt.
[24] I reserve costs. These will be dealt with when the matter is recalled on 5 September 2019.
Associate Judge Sargisson
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