Croad and Dunphy (as liquidators of Double Zero Limited and Vision Limited)

[2012] NZHC 347

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2011-485-2437 [2012] NZHC 347

IN THE MATTER OF     the Insolvency Act 2006

AND IN THE MATTER   OF the bankruptcy of MALCOLM EDWARD RABSON

Judgment Debtor

BETWEEN  ANDREW CROAD AND CHRISTINE MARGARET DUNPHY (AS LIQUIDATORS OF DOUBLE ZERO LIMITED AND VISION LIMITED) Judgment Creditors

Hearing:         23 February 2012 (Heard at Wellington)

Counsel:         H.L. Thompson - Counsel for Judgment Creditor

M.E. Rabson - Judgment Debtor in person

Judgment:      7 March 2012

JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

This judgment of Associate Judge Gendall was delivered on 7 March 2012 at 3.30 pm under r 11.5 of the High Court Rules.

Solicitors:           McMahon, Butterworth, Thompson, Solicitors, PO Box 106073, Auckland

A CROAD AND CM DUNPHY (AS LIQUIDATORS OF DOUBLE ZERO LIMITED AND VISION LIMITED) HC WN CIV-2011-485-2437 [7 March 2012]

Introduction

[1]      The judgment debtor, Malcolm Edward Rabson (Mr Rabson), has applied to set aside a Bankruptcy Notice served on him by the judgment creditors, Andrew Croad  and  Christine  Dunphy  as  liquidators  of  Double  Zero  Holdings  Limited (Double Zero) and Vision Limited (Vision).  He has also applied for a stay of the High Court judgment upon which the bankruptcy notice is based.   The balance amount claimed now under the Bankruptcy Notice is $68,669. The debt represents an order made by French J in an earlier decision against Mr Rabson under s 301 of the Companies Act 1993, less a part payment made to the liquidators.

[2]      On  5  December  2011  Mr  Rabson  filed  an  application  to  set  aside  the

Bankruptcy Notice on the following grounds:

a.         The judgment debtor has a valid cross claim for an amount of rent owing, which exceeds the judgment debt;

b.The judgment on which the notice is based is subject to an appeal to the Court of Appeal;

c.         The judgment debt is invalid and excessive, and does not accurately reflect an amount owed or applied for.

Background

[3]      Double Zero and its subsidiary, Vision, were put into liquidation on 5th February 2010  and  7  February  2010  respectively.  The  judgment  creditors  were appointed  as  liquidators  of Double Zero on  5  February 2010,  and  Vision  on 7

February 2010. The judgment creditors are employees of Shephard Dunphy Limited. At the time of their appointment, the judgment debtor was a director of both companies.   The judgment debtor is also a director of Casino Properties Limited (Casino Properties) which owns a property at 4-10 Hautonga St, Petone (the property).  At the time of liquidation, Vision occupied the building on the property under an informal tenancy agreement.

[4]     Following the orders for liquidation, the liquidators carried out certain investigations which revealed that prior to liquidation the judgment debtor had transferred $240,000 out of Vision’s bank account equally on the one hand, to the Malcolm Rabson Family Trust a trust Mr Rabson controlled, and on the other hand to the family trust of his co-director.  Out of the $120,000 transferred to Mr Rabson’s Family  Trust,  nearly  $62,000  was  subsequently  repaid.    This  left  a  balance  of

$58,084.31.  It is also alleged by the liquidators from their enquiries that funds from earlier sales by Mr Rabson of company assets were unaccounted for.

[5]      The judgment creditors then issued proceedings against the judgment debtor Mr Rabson personally under s 301 of the Companies Act 1993, requiring him to account for company money and property. French J heard the case in this Court and, in delivering an oral judgment on 11th April 2011, ordered Mr Rabson to repay to the judgment creditors as liquidators a sum of $58,084.31 plus costs and disbursements of $29,194. The judgment debtor Mr Rabson did not appear at the hearing, as he

claims now that he did not know it was taking place. Mr Rabson then appealed to the Court of Appeal against this judgment, but has taken no steps to prosecute the appeal.

[6]      On 16 April 2011, Vision served a statutory demand on Casino Properties, having established that the judgment debtor Mr Rabson had caused some of the moneys included in the judgment debt obtained against him to be transferred to that company. Casino Properties applied to have that statutory demand set aside.   In a decision I gave in this Court on 7 September 2011, I allowed the application except as to $18,579.00, which Casino Properties has since paid to the liquidators.

[7]      In that 7 September 2011 judgment I noted at [23] that the reasons I had outlined in the judgment might raise:

... a possible arguable dispute here that the respondent’s lease may have continued beyond 1 December 2009, and thus some amounts for rent and rates and other charges might have been due to the applicant (Casino Properties) and properly set off against the $52,000 payment

[8]      I also noted in that judgment that the most favourable view of the evidence would see Vision Ltd owing Casino Properties Ltd, at most, $33,420.60 in the form of rental, rates and other costs for the property up to 1 March 2010. This amount was

deducted from the $52,000 which had been transferred from Mr Rabson’s Family

Trust  Bank  account  to  Casino  Properties,  leaving  the  balance  noted  above  of

$18,579.40 unaccounted for.   Casino Properties has since paid this amount to liquidators.

[9]      On 21 November 2011, the judgment creditors issued the bankruptcy notice in question here on the basis of the judgment against Mr Rabson personally. The judgment debt had been partly satisfied in the intervening period by the $18,579.00 payment from Casino Properties.   This left a balance of $68,699.21 still owing however.  The present application seeks to have that bankruptcy notice set aside.

[10]     Finally, it needs to be noted that, on 5 December 2011, Mr Rabson arranged for a tax invoice to be issued by Casino Properties, purporting to be for rent and rates on the property due from the judgment creditor liquidators who were suggested in some way to be tenanting the property.  The claimed rental, rates and GST for the property  for  the  period  5  February  2010  to  17  November  2010  amounted  to

$112,532.80. The invoice was in fact addressed to “Andrew Croad- Shephard Dunphy”, presumably in his capacity as liquidator for Vision.   Curiously, Casino Properties then issued a statutory demand against the company Shephard Dunphy Limited for this amount.  That demand was served on 22 December 2011.

Counsels’ Submissions and My Decision

[11]     The  present  application  is  effectively  brought  pursuant  to  s  17  of  the Insolvency Act 2006. This provides that a debtor commits an act of bankruptcy if a creditor has obtained a final judgment or order against the debtor, the debtor has been served with a Bankruptcy Notice and the debtor has not, within the specified time limits, complied with the requirements of the Notice or satisfied the Court that he or she has a cross-claim against the creditor. Section 17(7) defines a cross claim as a counter-claim, set-off or cross-demand that is equal to, or greater than the judgment debt, and one which the debtor could not have used as  a defence in the proceeding in which the judgment or order was obtained.

[12]     Here, there is no suggestion by Mr Rabson that there are irregularities in the Bankruptcy Notice issued against him or that it may not have been served in compliance with the rules as to service in the High Court Rules.

[13]     Brookers Insolvency Law and Practice at para IN17.10 addresses the question of a s 17(1)(d)(ii) cross claim against the creditor and states:

IN17.10 “cross claim against the creditor” — s 17(1)(d)(ii)

The second option in s 17(1)(d) Insolvency Act 2006 is that the debtor, within the time limit specified, satisfies the Court that he or she has a cross claim against the creditor. Section 17(7) provides further guidance on the meaning of a cross claim. It requires that the cross claim must be “equal to, or greater than, the judgment debt” and it is one which “the debtor could not use as a defence in the action or proceedings in which the judgment or order … was obtained”.

These requirements are discussed further below, but in summary ss 17(1)(d) and 17(7) Insolvency Act 2006 requires the debtor to:

(i)        Demonstrate that he or she has a cross claim of true substance which he or she genuinely proposes to pursue (Sharma v ANZ Banking Group (1992) 6

PRNZ 386; [1992] 3 NZBORR 183 (CA), see further IN17.10(5) below);

(ii)       Establish that the cross claim is equal to or is greater than the judgment debt

(see further IN17.10(6) below);

(iii)      Establish that he or she could not, by law, use the cross claim as a defence in the action or proceeding on which the judgment or order providing the basis for the bankruptcy notice was entered (Clark v UDC Finance Ltd [1985] 2

NZLR 636, 639 see further IN17.10(3) below); and

(iv) If he or she relies on factual inability to set the cross claim, he or she must establish some cogent circumstances because the primary emphasis is on the legal nature of the impediment (Hardie v Booth [1992] 1 NZLR 356, 362, see further IN17.10(3) below).

[14]     The  judgment  debtor’s  cross  claim  here  is  essentially  that  the  judgment creditors are still indebted to Casino Properties for the amount stated in the 5th December 2011 invoice and a set-off should occur here. The total set off amount owing to Casino Properties is claimed to be $112,532.80, an amount which clearly exceeds the judgment debt. In response, the judgment creditors dispute that rent is owing for the property either by themselves or by anyone else.    Essentially as a primary defence for any party who it is said owed rent for the 10 month period in question, they argue that Mr Rabson and the landlord of the property completely

denied any access to the property over this period.

[15]     For a cross claim to be successful in this context it is clear that it must be

“genuine” and “triable”.1  Thus, “[w]hat is required is an analysis of the material

1 Clark v UDC Finance Limited at 637; Sharma v ANZ Banking Group (New Zealand) Limited (1992)

6 PRNZ 386, 389.

placed before the Court to see if there is a proper foundation for the allegations of cross-claim which are made”.2

[16]     Mr Rabson’s cross claim involves a set-off of the judgment debt. As to whether Casino Properties is actually owed any money in the form of rental, I stated in my 7 September 2011 judgment only that:3

...I am satisfied here, but only by a rather fine margin, that the applicant has shown that there is arguable a genuine and substantial dispute but only as to the $33.420.60 noted above.

[17]     Refusing to set aside a statutory demand on the basis that there might be a genuine and substantial dispute as to rent owing is not the same as declaring that this amount, or any amount, is in fact owing. Mr Rabson seems to have endeavoured to rely on this judgment as conclusive evidence that such an amount is owing to Casino Properties.  That is entirely unjustified.

[18]     If  Vision,  and  by  extension  the  liquidators’  company  Shephard  Dunphy Limited,  is  indebted  to  Casino  Properties  for  the amount  stated,  the  liquidators personally cannot also be indebted to Mr Rabson for the same debt. In separate proceedings Mr Rabson, on behalf of Casino Properties, served a statutory demand on Shephard Dunphy Limited on 22 December 2011. The demand sought to recover the same debt but from the company. This clearly amounts to two separate claims against two separate entities for the same amount.

[19]     Further, there is no evidence of an assignment of this claim to Mr Rabson in his personal capacity. Such an assignment would be inconsistent with the position that Mr Rabson has taken on behalf of Casino Properties, in serving the statutory demand for payment of this alleged debt on Shephard Dunphy Limited. Mr Rabson cannot sustain two claims made by two separate entities against two other separate entities in respect of the same debt.

[20]      Therefore, it is simply not appropriate here for the amount allegedly owing

to Casino Properties to be used to offset Mr Rabson’s personal liability under the

2 Re Blackler; Saker v Blackler HC WN CIV 2008-485-124 26 May 2008 at [5].

3 At [27].

judgment.   And, as I will deal with below, Mr Rabson’s appeal to the Court of Appeal against the French J judgment was deemed to be abandoned, in any event is weak on the merits, and has little chance of being revived.

[21]     For all these reasons the application by Mr Rabson as judgment debtor to set- aside the Bankruptcy Notice must fail.

Stay in Proceedings

[22]     The judgment debtor Mr Rabson also appears to seek a stay of the judgment of French J, pending what he says is his appeal of that decision to the Court of Appeal. Notice of that appeal was filed and served on 11 April 2011 but Mr Rabson took no steps to file or serve the case on appeal or to apply for a hearing date. Rule

43 of the Court of Appeal Civil Rule 2005 states that:

An appeal is to be treated as having been abandoned if the appellant does not apply for the allocation of a hearing date and file the case on appeal within 6 months after the appeal is brought.

Accordingly, that appeal was deemed to be abandoned.

[23]     As I understand the position, Mr Rabson has now applied to the Court of Appeal in an endeavour to revive the earlier appeal which has lapsed for want of prosecution, and this matter is to be heard on 3 April 2012.   I am not satisfied, however, that there are sufficient grounds under r 15.13 or otherwise to stay the judgment of French J here. Even if Mr Rabson is granted an extension of time by the Court of Appeal to bring and prosecute his appeal, I consider the merits of that appeal to be weak, and such that they do not warrant a stay of the judgment.  As I see it, no possible miscarriage of justice is likely here if the earlier judgment of French J is allowed to stand.   That judgment was properly obtained, Mr Rabson, on the evidence before this Court knew of the hearing, had every opportunity to appear and his failure to do so was inexcusable, there is no substantial ground of defence and finally, significant and possibly irreparable harm might be caused to the judgment creditors if this matter and any adjudication application is further delayed and Mr Rabson’s personal financial position might worsen.

[24]     And it seems clear from the evidence before the Court that the judgment creditors in the past have attempted to negotiate with Mr Rabson a stay of execution

of the French J judgment on the basis that he would pay the full amount of the judgment debt into a solicitors’ trust account to be held pending the outcome of his appeal to the Court of Appeal.  These attempts as I see it were clearly in line with the common approach taken by the Courts in applications to stay a money judgment where often such conditions were imposed – see e.g. Contributory Mortgage Nominees Ltd v Harris Road No. 10 Limited, CIV-2010-404-3078, HC, AKLD,

31/1/06, AJ Faire at [8]. But Mr Rabson clearly refused these offers in the past, and continues this refusal now. This Court must assume therefore that he cannot or will not pay the balance of the judgment (even to a third-party stakeholder) pending the outcome of his application for leave to appeal.

[25]     Accordingly, for all these reasons, Mr Rabson’s application for a stay of execution of the judgment of French J must fail.

Conclusion

[26]     For all the reasons outlined above the judgment debtor’s applications before

the Court must fail.

[27]     An order is now made that the judgment debtor, Mr Rabson, is to have until

14 March 2012 to comply with the Bankruptcy Notice served upon him, failing which  the  judgment  creditors  may  bring  appropriate  proceedings  against  the judgment debtor seeking his adjudication in bankruptcy.

[28]     As to costs, the judgment creditors have succeeded in opposing the present applications, and I see no reason why they should not be entitled to an order for costs in the usual way.

[29]     Costs are therefore awarded to the judgment creditors on these applications on a category 2B basis together with disbursements as fixed by the Registrar.

‘Associate Judge D.I. Gendall’