Commissioner of Inland Revenue v Kelly

[2012] NZHC 2921

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2012-404-00203 [2012] NZHC 2921

IN THE MATTER OF     the Insolvency Act 2006

AND IN THE MATTER OF the Bankruptcy of Francesca Kelly

BETWEEN  THE COMMISSIONER OF INLAND REVENUE

Judgment Creditor

ANDFRANCESCA KELLY Judgment Debtor

Hearing:         6 November 2012

Appearances: J A Kleinbaum for creditor

D Greig for debtor

Judgment:      6 November 2012

(ORAL) JUDGMENT OF ASSOCIATE JUDGE ABBOTT

Solicitors:

J A Kleinbaum, Inland Revenue Department, Legal & Technical Services, Takapuna

D Greig, Jones Fee, PO Box 1801, Auckland

THE COMMISSIONER OF INLAND REVENUE V FRANCESCA KELLY HC AK CIV 2012-404-00203 [6

November 2012]

[1]      This application for adjudication comes before the Court for the fourth time today.  The application is based on a bankruptcy notice served on 21 February 2012 seeking payment of a judgment obtained by the creditor on 2 December 2011 for

$110,481.14 in respect of unpaid income tax for the 2008 and 2009 financial years.

[2]      Before this application was filed, the debtor filed an application to set aside the bankruptcy notice.  That application was based on a proposal put to the creditor. The  application  to  set  aside  was  dismissed  after  the  Commissioner  of  Inland Revenue (Commissioner) rejected the proposal.

[3]      The debtor has not formally opposed this application.  Instead she has sought adjournments to allow her time to try to source funds to enable her to clear the debt. Most recently (before today) she was hoping to receive funds from a claim for accident compensation. That claim has been declined.

[4]      Mr Greig appears for the debtor today, and seeks the Court’s indulgence for a further adjournment.   The basis for the application is that the debtor has recently been diagnosed with a neurological condition, and the view of the debtor and her personal doctor is that this prevents her from continuing her full-time employment. She has insurance cover against such a possibility, and has recently made a claim under that policy.  She seeks an adjournment to allow that claim to be determined on the basis that if it is determined in her favour she expects to receive a sufficient payment to enable her to clear the present debt.  Mr Greig has filed a comprehensive memorandum on her behalf, setting out the background to the claim, and identifies a potential lump sum payment of $294,607.

[5]      Mr Kleinbaum, for the Commissioner, says that the Commissioner wishes to proceed.  He refers to the frequent adjournments to date and the lack of any certainty (at least at this stage) as to the outcome of the present insurance claim.  He says that in terms of certainty of payment for the Commissioner this is in no way different from the most recent claim made for accident compensation.

[6]      Whilst one must have sympathy for the debtor for her present health position, I am not persuaded that it is appropriate to grant a further adjournment.   Whilst I accept that the insurance claim has been made in good faith, and that there are grounds  for  making  it,  the  merits  of  the  claim  remain  uncertain  (Mr  Greig realistically acknowledges that the insurance company will need to investigate whether this is a permanent disability) and the time for completing the claim process, obtaining a decision, and for any payment to which the debtor may be entitled to be made, is equally uncertain.

[7]      I have to weigh that against the state of the debtor’s indebtedness.   In his memorandum, Mr Greig has produced a letter from the debtor’s accountant identifying a total indebtedness of $322,730 (including the judgment to the Commissioner, further tax for subsequent years of a similar amount, and bank credit card and other debts of close to another $100,000).  It is clear to me that the debtor is insolvent, and the present uncertain insurance claim may be insufficient to clear that debt.  There is also a need to consider the equal treatment of all creditors, and in my view, that is better done by the Official Assignee in the administration of her estate.

[8]      If the insurance claim is successful, and is at or even in excess of the lump sum entitlement to which Mr Greig has referred, it remains possible for the debtor to apply for annulment following determination of the insurance claim and receipt of the insurance proceeds.    In my view that is the appropriate course, taking into account all of the different factors.

[9]      For  the  reasons  I  have  just  set  out,  the  application  for  adjournment  is declined.

[10]     Mr  Kleinbaum  has  handed  the  Court  a  solicitor’s  certificate  proving  the debtor’s indebtedness as at today at $110,517.44.

[11]     I am satisfied that the creditor has established his grounds for adjudication.  I

make the following orders:

(a)       The debtor is adjudicated bankrupt.

(b)The debtor is to pay costs on the application on a 2B basis, together with disbursements as fixed by the Registrar.

[12]     The above orders are made at 11.35 am.

Associate Judge Abbott