Evia Rural Finance Limited v Cribb

[2012] NZHC 579

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV-2011-419-631 [2012] NZHC 579

UNDER  the Insolvency Act 2006

IN THE MATTER OF     the bankruptcy of ROBERT CLIFFORD HOANI CRIBB

BETWEEN  EVIA RURAL FINANCE LIMITED Judgment Creditor

ANDROBERT CLIFFORD HOANI CRIBB Judgment Debtor

Hearing:         21 March 2012

Appearances: P J Morris for Judgment Creditor

R Wallace for Judgment Debtor
G Caro for Official Assignee

Judgment:      21 March 2012

ORALJUDGMENT OF ASSOCIATE JUDGE BELL Application to suspend bankruptcy

Solicitors:

Stace Hammond (P J Morris), P O Box 19-101 Hamilton, for Judgment Creditor

Email:   [email protected]

D B Hickson, P O Box 56-613 Dominion Road, Auckland 1446, for Judgment Creditor

Email:   [email protected] / [email protected]

Copy for:

R F Wallis, P O Box 26-080 Epsom, Auckland 1344, for Judgment Debtor

Email:   [email protected]

Guy Caro, Official Assignee’s Office, Auckland

Email:   [email protected]

EVIA RURAL FINANCE LIMITED V CRIBB HC HAM CIV-2011-419-631 [21 March 2012]

[1]      On 6 March 2012 I heard the application by Evia Rural Finance Ltd that Mr Cribb be adjudicated bankrupt.   I gave a decision that Mr Cribb be adjudicated bankrupt.

[2]      Counsel for Mr Cribb asked for a stay for two weeks to allow an appeal to be considered.  I ordered a stay.  Mr Morris tactfully suggested that I simply direct that the  order  lie  in  court  for  two  weeks.     That  arises  out  of  the  jurisdictional requirements under s 416 of the Insolvency Act which allow the court to make an order suspending a bankruptcy pending the hearing of an appeal, if an appeal has been filed. At that time no appeal had been filed.

[3]      Mr  Cribb  has  now  applied  under  s  416  of  the  Insolvency Act  for  his bankruptcy to be suspended pending the hearing of an appeal. He has given instructions for an appeal to be brought against my decision.  I have been shown a copy of the notice of appeal which is dated 21 March 2012, and I have been advised that that appeal has been sent to the Court of Appeal.

[4]      It is appropriate to note at the outset that an order for adjudication is not per se stayed or suspended because there is an appeal against the order for adjudication. Instead s 416 separately provides that the court may, on application, suspend the order for adjudication pending the appeal.  It is clear from the decision of the Court of Appeal in Lindsay v Vaucluse Holdings Ltd[1] that the court has a discretion whether to order a suspension.   Tipping J gave the decision of the Court of Appeal.   He referred to a decision of Barker J in Re West Ex parte Watson,[2] where Barker J had granted a suspension on the premise that he had no option but to do so because otherwise the right of appeal would be rendered nugatory.  Tipping J indicated that that approach was not correct.  That decision was made under s 9 of the Insolvency

Act 1967 but it is clear that s 416 applies in a similar way. Tipping J said:[3]

A bankrupt  may  pursue  an  appeal  against  the  order  of  the  adjudication without any necessity for it to be suspended in the meantime. The section is couched on the basis that a Court may suspend the operation of the order, not that it must do so. It is therefore clearly implicit that an appeal may proceed, notwithstanding there has been no suspension. Indeed it may often be quite contrary to the public interest and the interests of the creditors to have any suspension pending the hearing of the appeal.

[1] Lindsay v Vaucluse Holdings Ltd CA272/99, 13 December 1999.

[2] Re West Ex parte Watson HC Auckland B855/78, 30 April 1980, Barker J.

[3] Lindsay v Vaucluse at [4].

[5]      On an order of adjudication, there is a change of status of the bankrupt. There are changes in property rights and the bankrupt incurs a number of disabilities. The disabilities he comes under include restraints on being able to obtain credit; he is restricted in his movements in that he cannot leave the country without the consent of the Official Assignee; he is unable to carry on a business; and he is disqualified from  holding office as  a director  of a company.    Those are some  of  the more significant disabilities.  He also comes under duties to assist the Official Assignee in the  administration  of  the  bankruptcy,  which  may  require  not  only turning  over property but making information available, providing a statement of his affairs and taking part in examinations.

[6]      In this case Mr Cribb advances these aspects as reasons why his bankruptcy should be suspended pending the hearing of the appeal:

(a)      His appeal is brought in good faith, has an arguable point, and will be pursued expeditiously;

(b)      There is an important question of law involved in the case;

(c)      There is no particular requirement in the public interest why his circumstances regarding his estate need to be investigated by the Official Assignee;

(d)He also raises the prospects of there being some recovery for Kaimai Palms Golf Resort Ltd.  That is the company in liquidation of which he was a director.  It is the failure of that company which has led to Mr Cribb’s insolvency.

[7]      In my judgment I found that Mr Cribb had committed an act of bankruptcy. It was accepted that Evia Rural Finance Ltd was a creditor of Mr Cribb, and that it had a judgment against him.  There is no challenge to the validity of the debt or the judgment.

[8]      I also found that Mr Cribb was insolvent, with debts not only to Evia Rural Finance Ltd but also to other creditors, and that the amounts he owed were substantial.

[9]      None of those findings seem to be under challenge in the appeal which is to go  to  the  Court  of Appeal.    Instead,  the  appeal  challenges  the  exercise  of  the discretion under ss 36 and 37 of the Insolvency Act.  Mr Cribb had argued that his situation was governed by the decision of Thomas J in Greenwood ex parte Taylor.[4]

[4] Greenwood Ex parte Taylor HC Auckland B511/92, 1 September 1992.

[10]     Mr Cribb has a right of appeal against the decision that he be adjudicated bankrupt.   That right must be respected and must be preserved for him.    He has advanced an arguable point to take on appeal.  As the appeal is against my decision, it is hardly for me to comment on the strength of the appeal and I do not do so.  I simply note that Mr Cribb wants to exercise his right of appeal and he has advanced an arguable point, and I leave it at that.  I consider his application for suspension on the basis that he may succeed on his appeal: it is possible that the Court of Appeal may decide that I was in error in adjudicating him bankrupt.   It is against that possibility that I consider his application for suspension.

[11]     Mr Cribb has advanced the prospects of some recovery for his company.  I have been informed that there have been further changes in the liquidation of Kaimai Palms  Golf  Resort  Ltd.    Until  recently the  liquidators  were  a  Mr  Parsons  and Ms Keneally who were appointed on 22 September 2010.  Their role as liquidators has come to an end.  It appears that the liquidation is now going to be run by two Auckland insolvency practitioners from Waterstone Insolvency, Mr Khov and Mr Grant. That change has apparently been instigated by Mr Cribb.  Mr Cribb entertains

the hope that assets can be recovered for the company.

[12]     Mr Parsons, the outgoing liquidator, has commented on some of the claims made by Mr Cribb.  Mr Cribb has said that:

(a)        the company may have a claim for a GST refund;

(b)there  are  debts  owing  to  the  company  of  a  substantial  sum, approximately $1m, that can be collected;

(c)       there is a claim under a policy of mortgage repayment insurance;  and

(d)there is a potential claim against the receivers for the sale of the assets at an under-value.

[13]     Mr Parsons is an experienced insolvency practitioner.  I accept that if there were merit in a claim, as an experienced insolvency practitioner he would be able to assess whether it is worth following up.   He comments that the claim for a GST refund arises out of a payment that Mr Cribb had made under a personal guarantee. Mr Parsons’ view is that that payment did not involve a taxable supply but was simply satisfaction of a guarantee and there would not be any GST refund available.

[14]     Mr Cribb has attached to his affidavit copies of the invoices which are said to give rise to debts owing to the company of over $1m.  The invoices were all issued in the name of the company in February 2012.  It is surprising that these invoices have  been  issued  by  the  company  after  it  has  gone  into  liquidation  because Mr Parsons, the liquidator, does not seem to have issued them and Mr Cribb, as director, would not have had power to issue invoices in the name of the company because his powers came to an end under s 248 of the Companies Act.  The invoices include charges for interest for 75 months.  That indicates that the matters for which the invoices were issued are more than six years old.  There is going to be a problem with the ages of the debts.  These are sums where alleged debtors may legitimately say that the claims are out of time under the Limitation Act.   The fact that these invoices have been generated only in February 2012, after the company has been in liquidation for a substantial period of time, in itself raises its own questions as to their validity.

[15]     Mr Parsons did not  address the question of  a claim under the mortgage repayment insurance.

[16]     Mr  Parsons  expresses  scepticism  as  to  the  claim  that  the  assets  of  the company  were  sold  at  an  under-value  to  a  related  party.      I  note  that  as  an experienced solvency practitioner Mr Parsons’ comments have to be listened to with some respect.

[17]     Those matters are all potential claims by Kaimai Palms.  If there is any merit in those claims, they can be pursued by the company.  The pursuit of those claims does not require that Mr Cribb be suspended from his bankruptcy in the interim.  It is often the case that companies in liquidation pursue claims brought even though the people behind the company have suffered bankruptcy, often as a result of guarantees of company liabilities.   That is the situation here.   I do not see that these claims generate any need for Mr Cribb’s bankruptcy to be suspended.

[18]     Mr  Cribb  also  advanced  the  factor  of  the  stigma  that  goes  with  an adjudication of bankruptcy.   It is the case that there is a stigma that attaches to bankruptcy.   But that needs to be put into perspective in this case.   Mr Cribb is seriously insolvent.  He has tried, without success, for some years to raise funding to address his liabilities.  Despite his efforts he has not been successful.  There is no secret about the failure of his Kaimai Palms development.   Some stigma would attach to the failure of that development.  It would come as no surprise to anyone that he has serious financial difficulties himself as a result that failure.

[19]     The difference between that and his being bankrupted is simply that with an adjudication of bankruptcy his affairs have been put under the control of the Official Assignee rather than being uncontrolled as they were before his adjudication.  The difference in stigma between being an insolvent out of bankruptcy but still being unable to meet liabilities and one under the administration of the Official Assignee is slight.

[20]     Mr Cribb has not advanced any arguments that the restrictions that apply to his bankruptcy would present an unfair fetter on his freedom pending the hearing of

the appeal.  If the appeal is successful the order for adjudication will be set aside and he will be free of all the disabilities that he was under earlier.  I accept Mr Caro’s submission that in some respects a successful appeal is similar to a successful application for annulment under s 309(1)(a)  of the Insolvency Act.

[21]     I see no need to suspend the effects of the bankruptcy in the interim pending the hearing of the appeal.  I also accept the argument for Evia that there may be some benefits for the administration of the bankruptcy to start.  That will give the Official Assignee the opportunity to investigate Mr Cribb’s affairs.

[22]     Added to that, under r 24.51 of the High Court Rules, the Official Assignee is a party to  an  appeal  against  adjudication  decision.   That  will  give the Official Assignee the opportunity to appear at the hearing of the appeal.  If the bankruptcy is suspended in the interim that will mean the Official Assignee will not be able to contribute usefully to the hearing of the appeal.  If the bankruptcy is not suspended, that may allow the Official Assignee to play a more useful part in the appeal.

[23]     I  am  not  persuaded  that  there  are  good  grounds  for  suspending  the bankruptcy in the interim and I dismiss the application.

[24]     Following my decision for dismissing the application for suspension under s 416, Mr Morris applies for costs.  I make an order for costs to Evia Rural Finance Ltd on a 2B basis. The costs are costs of the same form as the costs I awarded on the order for adjudication.   I regard the present hearing as arising directly out of the order for adjudication and as part and parcel of that proceeding.

[25]     I further add that there is a small jurisdictional point that arose.  At the time of the hearing of the application for suspension it was not certain that the notice of appeal had reached the Court of Appeal and that it had been filed.   If I had been minded to grant Mr Cribb’s application I would have delayed the start of his suspension until I had been advised that the application had been filed with the Court of Appeal.

.........................................

R M Bell

Associate Judge