Evia Rural Finance Limited v Cribb

[2012] NZHC 570

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV-2011-419-631 [2012] NZHC 570

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:         6 March 2012

Appearances: P J Morris for Judgment Creditor

R Wallace for Judgment Debtor

Judgment:      6 March 2012

ORAL JUDGMENT OF ASSOCIATE JUDGE BELL

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]

EVIA RURAL FINANCE LIMITED V CRIBB HC HAM CIV-2011-419-631 [6 March 2012]

[1]      This  is  an  application  for an  order that  Robert  Clifford  Hoani  Cribb  be adjudicated  bankrupt.    Evia  Rural  Finance  Ltd  is  a  creditor  of  Mr  Cribb  for

$1,423,497.08 under a judgment of this court given on 11 April 2011.  Evia served a bankruptcy notice on Mr Cribb on 20 May 2011.  Mr Cribb did not comply with the bankruptcy notice and an act of bankruptcy occurred. This application has been filed within the three months of the act of bankruptcy.

[2]      The creditor’s application indicates that the creditor has security for part of the debt. It has put in evidence a report from a registered valuer showing that five sections in a subdivision at Katikati have a value of $485,000.   The report was prepared in June 2011.   If those values are accepted, then Evia is an unsecured creditor for more than $900,000.

[3]      Mr Cribb opposes the application.  Essentially, his grounds for opposition are that  the  judgment  on  which  the  bankruptcy notice  was  based  was  subject  to  a compromise agreement, which remains on foot, and prevents the creditor pursuing bankruptcy against him.   He also says that the present application is brought for tactical reasons and ought to be declined in the exercise of the court’s discretion.

[4]      After he was served with the bankruptcy notice Mr Cribb applied for an order to set the notice aside.   Unfortunately he filed his application out of time.   That meant that the act of bankruptcy had already occurred by the time that he filed his application.   Associate Judge Faire dismissed the setting aside application.   The matters which Mr Cribb wanted to raise in his setting aside application are, broadly, similar matters to those he wishes the court to consider on the application for his adjudication.  On the hearing of an adjudication application, there is a wider range of matters that the court considers than are considered on an application to set aside a bankruptcy notice.  I am not confident that all the matters that Mr Cribb wanted to raise in his setting aside application could be properly raised under such an application, but they can be raised at the hearing of the present application.   The matters which Mr Cribb wanted to raise earlier have been taken into account today.

[5]      Mr Cribb was a property developer.   In 2001 a company now known as Kaimai Palms Golf Resort Ltd, which he had established, took over a failed property development at Katikati. The development was known as Kaimai Palms.  Mr Cribb says that the development consisted of a golf course in a sorry state, a clubhouse, and

150 residential sections, of which 70 had been sold.   He bought the development from the receivers of prior owners and he undertook further development.  That was lengthy, time-consuming work.  It included what seems to have been a very difficult exercise of converting all the lots into freehold titles and then obtaining appropriate resource  consents  and  other  clearances  from  local  authorities.    The  work  he undertook was funded by finance companies, in particular Bridgecorp.  Some of the Bridgecorp borrowing was later refinanced from other finance companies.  One of those later finance companies that lent money to Kaimai Palms Golf Resort Ltd was Evia Rural Finance Ltd.   Evia made its advance under a term loan in November

2007.  The advance seems to have been for about $800,000, together with capitalised interest. Under a separate document, Mr Cribb gave a written guarantee in support of the borrowing.

[6]      Evia had security by way of a mortgage over five lots within the subdivision. That is the security that Evia has referred to in its application.

[7]      In   2007,   the   development   struck   problems.      Bridgecorp   went   into receivership in July 2007, and later in the year other finance companies also failed. In common with many other developers, Mr Cribb was unable to obtain ongoing funding from financiers for his development.  That was also accompanied by a drop in property values.  Mr Cribb’s evidence is that one way of addressing this was to inject his own funds into the development to meet ongoing liabilities and to fund the development.   Nevertheless, defaults occurred.

[8]      In April 2010, receivers were appointed by another financier, Guardian Asset

Securities Ltd, under a general security agreement that had been given in October

2006.  Mr Cribb takes strong exception to the conduct of the receivership.  He says that the receivers sold off the assets subject to receivership to a company whose directors and shareholders are people associated with Guardian Asset Securities Ltd. The transfer was for a sum of about $9.25 million.   Mr Cribb says that the value of

the development was substantially in excess of that; something in the order of $50 million.  He says there has been a gross breach of their duties by the receivers.  He entertains the hope that the receivers can be held to account.

[9]      At this stage I simply record that that is Mr Cribb’s grievance – and I do not use ‘grievance’ pejoratively – but I emphasise also that the receivers have not given any evidence in this proceeding.  I have not heard from them.   I am  not to be understood to be either upholding or rejecting Mr Cribb’s complaint about the receivers.  I do no more than note that this is one of the matters which he wants the court to take into account in the exercise of its discretion.

[10]     Kaimai Palms was put into liquidation by court order in September 2010.  It appears from the reports made by the receivers and liquidators that the only assets left in the company are the five sections over which Evia has first mortgage security. There appear to be other mortgagees, obviously ranking lower in priority.   It is common ground that there is no equity available for unsecured creditors.

[11]     As far as the loan with Evia is concerned, Kaimai Palms defaulted in paying instalments in December 2008.   Those defaults have not since been remedied. Although the company was in default from December 2008, Evia did not issue any Property Law Act notices until October 2010, and it did not begin legal proceedings against Mr Cribb until November 2010.  There was a background reason for that.  It will be necessary to go into the steps that Mr Cribb has taken to try and rescue the development.

[12]     Mr Cribb says that he effectively has no assets now.   In addition to his liabilities to Evia under his guarantee, he also owes money to a Mr and Mrs Limmer. The initial amount of their debt was $500,000.  That was a shortfall, payable after they had sold properties under their mortgage.  The Limmers’ evidence is that the debt has now risen to $740,000, but it appears that they have provided some kind of undertaking to Mr Cribb that they would accept $200,000 in settlement.  They have not been paid.

[13]     Another  creditor  is Auckland  Mortgage  Trust  which  has  security  over  a property at Tamahere, Hamilton.  Mr Cribb says that the security is likely to cover the amount of that debt.   And there is another creditor, Compass Capital Ltd, a Bridgecorp subsidiary, which is said to be owed about $7.5 million.

[14]     I have simply expressed these as the face value of the debts. Mr Cribb has negotiated with several of these creditors for them to accept less than the face value of their debts.  That includes arrangements he has negotiated with Evia.  However, if Mr Cribb were adjudicated bankrupt, his creditors would likely prove for the face value of the debts, not just for the amounts that Mr Cribb has negotiated as amounts they would accept if they were paid.  The total face values of the debts are in the order of $12 million to $13 million, with perhaps Auckland Mortgage Trust being fully secured, and Evia being partly secured.  Quite clearly, Mr Cribb is insolvent.

The defence of a compromise agreement

[15]     With the failure of finance companies in New Zealand, Mr Cribb explored options  for  raising  finance  from  overseas  to  rescue  the  development.    He  was assisted in that by Mr Ian Gladwell, who had been a director of Compass Capital Ltd.   Mr Cribb found two potential sources.   One of them was a business called Zender Minol d.o.o.  It has an office in Salzburg, Austria.  The letters “d.o.o.” are an acronym[1]   in  Serbo-Croatian.    It  is  a  company  incorporated  in  a  Balkan  state. Mr Cribb negotiated with Zender Minol a heads of agreement under which it would provide funding to allow the New Zealand creditors to be paid off if those creditors

were to take a cut in the face value of their debts.   Zender Minol would take a shareholding, and there would be further funding to allow the development to proceed.

[1] They stand for društvo s ograničenom odgovornošću.

[16]     While  the  heads  of  agreement  and  also  a  shareholders’ agreement  were negotiated, Zender Minol did not come to light with the promised funding.  Mr Cribb believes that he has grounds for a claim against Zender Minol for its failure to come to light with the funding.  He says that that is also a matter to be taken into account

in the court’s discretion whether to adjudicate him bankrupt.  I note that if Mr Cribb

were to make any claims against Zender Minol, the company does not appear to have any assets in New Zealand.  He would probably have to take proceedings in some other jurisdiction, either the state in which the company is incorporated or in Austria where it appears to carry on business.

[17]     While trying to put this funding arrangement together, Mr Cribb proposed that Evia also take a cut in the debt due to it under the term loan and the guarantee.

[18]     In  June  2010,  Mr  Smit  of  Evia  sent  Ian  Gladwell,  who  was  acting  for Mr Cribb, an email recording that Evia would be willing to accept $650,000 in settlement  of  the  funds  payable  to  Evia  by  both  the  company  and  Mr  Cribb personally.  He noted that at that stage Evia had not begun any legal steps to enforce its debt against the company or against Mr Cribb.

[19]     At that time, Kaimai Palms was in receivership but the receivers had not completed their receivership.  The company had not been put into liquidation - so at least at that stage Mr Cribb hoped that he still might be able to put together his proposed rescue package.  However, it seems that any hope of that rescue package then operating was dashed on completion of the receivership as the receivers had disposed of the assets of the company.

[20]     I revert to Mr Smit’s evidence about his conversation with Mr Gladwell. Mr Smit  says  that  according  to  Mr  Gladwell  he  was  holding  correspondence advising that finance had been confirmed but Mr Gladwell was unable to confirm when the payment would be made.  In fact no payment was received.  In October Evia instructed its solicitors to make demand on Mr Cribb.   Mr Cribb replied in October 2010 maintaining that a compromise agreement had been reached.

[21]     Although  Evia  had  said  in  June  2010  that  it  would  accept  payment  of

$650,000 as settlement, payment had not come to light by October 2010.   In my judgment, Evia was entitled to take the position that, in the absence of that money being forthcoming, it was entitled to look to other remedies to collect money from Mr Cribb.  Evia’s attitude was that if the $650,000 had been forthcoming, it would have accepted that in settlement, but in the absence of any payment from either

Mr Cribb or anyone paying the debt on his behalf, then it would look to its remedies against him. That has generally been its consistent attitude right through until today.

[22]     When Mr Cribb replied in October 2010 saying that he had a compromise with Evia, Evia’s lawyers sent two letters to Mr Cribb.   One was an open letter refuting any suggestion that there had been any compromise or settlement, and advising that summary judgment proceedings had been prepared.  The second letter was sent on a “without prejudice” basis, advising Mr Cribb that if he was successful in his trying to obtain his funding then Evia would accept $650,000 in settlement of its loan providing payment was effected by 31 October 2010.

[23]     No payment was forthcoming by the end of October 2010 and Evia went ahead with its summary judgment application.  The summary judgment application was called on 6 December 2010. At Mr Cribb’s request it was adjourned.   It was called again on 7 February 2011 and again at Mr Cribb’s request, was adjourned by consent.  It was called again on 14 March 2010. Again, at Mr Cribb’s request, it was adjourned to 11 April 2011.   Each time the case was adjourned, Zender Minol had provided a letter to Mr Cribb.   The Zender Minol letters typically expressed their earnest desire to see that payment was forwarded; said that the matter was being dealt with as a matter of urgency; said that payment was going to be made but was normally going to be the day after the case was to be called in court; and blamed the delays on the banking system.   Rather fetchingly, one of the letters uses a malapropism for banks – calling them “banksters”.   The letters are replete with banking terminology which neither I, nor counsel, fully understood.    The correspondence also refers to funding having come from different sources.   There were  references  to  different   banks  where  the  funds  would  originate  from. Throughout this period it was plain to both Mr Cribb and to Evia that Mr Cribb would not be good for his guarantee and if judgment were enforced it was unlikely to produce anything significant for Evia.

[24]     Given that state of affairs, and given the letters from Zender Minol that there would be some payment forthcoming, it was understandable that Evia would be prepared to allow some adjournments in the hope that something would be forthcoming, rather than nothing.  I am satisfied that throughout the position of Evia

was that it had not entered into any settlement agreement beyond indicating that if it were paid $650,000, then it would accept that sum in settlement.  It had not given away its right to pursue Mr Cribb under his guarantee while that sum was not paid.

[25]     When the case was called in April 2011, Evia sought summary judgment. Mr Cribb did not oppose.   Evia obtained summary judgment, but Associate Judge Matthews made an order that the judgment was not to be sealed for a further two weeks, to allow an opportunity for payment to be made.  The contemplated payment was $650,000 plus legal costs.

[26]     Mr Cribb contacted Mr Smit at Evia.  He suggested that Zender Minol would pay if Evia would send an invoice to Zender Minol for the sum of $650,000 plus legal costs.  Mr Cribb said that if Evia obliged by sending an invoice, that invoice would contain Evia’s bank account number so that payments could be paid directly into that account.   Evia have put into evidence an email that Mr Cribb sent to Mr Smit on 11 April 2011. The email says:

Zender have suggested that you make out an invoice for payment in their name, they will arrange payment direct if that suits you. Send the invoice to me and I will drive it from my end.  This was in consideration because of the extension  granted  today  and  I  understand  completely  Evia’s  frustrations which are also theirs.

Mr Smit had a tax invoice prepared and sent to Zender Minol for payment, giving Evia’s bank account details for payment. I will come back to that email and the surrounding arrangements because Mr Cribb says that certain legal consequences flowed from that.

[27]     After  Evia  sent  the  invoice  to  Zender  Minol,  an  engineering  company connected with Zender Minol, Frucom Engineering GmbH, which operates from the same premises in Salzburg, sent a letter on 21 April 2011.     Frucom said that it acknowledged the transfer of the debt as agreed between Evia and Mr Cribb.  The letter went on to say that the agreed sum was to be paid on or before 27 April to the bank account that Evia had nominated in its invoice.

[28]     No payment was forthcoming, but Mr Cribb sent another email to Evia on

26 April 2011 saying that there was a commitment to the funding being made but apparently deadlines had been missed and the matter would be put off yet again.

[29]     Mr Cribb instructed Hamilton lawyers who wrote on his behalf to Evia’s lawyers on 28 April 2011.  That letter also referred to an apparent assignment of the debt obligation as well as other arrangements to be made for the transfer of funds to be  made  through  the  trust  account  of  Taupo  accountants.    The  lawyers  were concerned to set up arrangements for e-dealings to allow for the discharge of mortgages.   However, there were no payments forthcoming from Frucom or from Zender Minol.

[30]     Frucom sent another e-mail in June 2011, again making reassuring noises about  payment,  giving  apologies,  and  also  asserting  that  the  debt  had  been transferred from Evia to Frucom.  Evia’s lawyers responded on 17 June 2011.  They made the point clear that no funds had been received.  They also made it clear that there  had  been  no  assignment  of  the  debt  and  Evia  had  not  entered  into  any agreement to assign its loan or securities to Frucom.  However, they did indicate that if payment were made, Evia was willing to transfer its mortgage to the person nominated by Kaimai Palms instead of discharging the mortgage as would usually occur.  They added that they thought this point was moot because no payment had been forthcoming.

[31]     On 9 May 2011, Evia had requested a bankruptcy notice. As earlier recorded, it was served on Mr Cribb on 20 May 2011.  Mr Cribb says that Zender Minol took the view that Evia should not press ahead with enforcement when Zender Minol had given a commitment to pay the sum of $650,000.  Evia was said to be out of order in continuing to pursue Mr Cribb on the judgment it had obtained against him.

[32]     That position has remained largely unchanged, up until now.   In particular, there has not been any payment at all from Zender Minol.   As indicated by the correspondence sent by Zender Minol/Frucom, the argument has been put forward that there is a binding arrangement for the transfer of the debt from Evia to Zender Minol.     In  2011,  Zender  Minol  maintained  that  the  debt  had  actually  been

transferred.  But that was not the position asserted at the hearing today.  I simply note that the assertion that the debt had already been transferred would be an odd one from a commercial point of view.  It would mean that Evia, holding a judgment for

$1.4 million against Mr Cribb, had assigned it in return for a promise for payment from Zender Minol.   Zender Minol, at least in the eyes of Evia, had a consistent record of not delivering on promises to pay.  It was based in Europe.  Presumably any claim against it could only be enforced in the jurisdictions where it had its registered office or where it carried on business.   It was very much a “bird in the bush” that Evia was offered.  I regard it as commercially unrealistic to accept that Evia had given away its judgment against Mr Cribb, a man resident in New Zealand, for the uncertainty of a claim against an entity in Austria which had not performed. That is the commercial aspect to it.  But there is a legal aspect to it as well.

[33]     There is nothing in the evidence or in the passage of events that shows that Evia did transfer its debt to Zender Minol.  There would need to be something which indicates assignment of that asset.  There is nothing in writing to show that that was done.

[34]     The argument put today is that instead of there being an actual assignment of the debt there was instead an agreement to assign the debt.  This agreement to assign the debt is said to have arisen out of the request to Evia to issue the invoice of 11

April 2011.   The argument went that Zender Minol promised to pay the sum of

$650,000 and Evia accepted that offer to pay.  Its acceptance of that offer to pay can be seen in the issue of the invoice of 11 April 2011.   Having accepted Zender Minol’s offer to pay, it is then said that there is an implied term of that arrangement, that Evia would transfer over to Zender Minol the debt owed by Mr Cribb plus the debt owed by Kaimai Palms and the associated mortgage securities.

[35]     I am not satisfied that there was any such contract.  The evidence I have, in particular Mr Cribb’s email of 11 April 2011, is simply that he requested Evia to issue the invoice as a way of getting payment from Zender Minol.  All that Evia did in issuing the invoice was to respond to a suggestion that if the invoice were issued, that might produce payment when there had not been payment until then.

[36]     It is relevant to bear in mind the position that Evia was in.   It had had the prospect of payment held out to it repeatedly, and had been prepared to play along with this to see if some form of payment would be forthcoming – this is in the face of rather extravagant promises of payment and complaints about the banking system. It was being prevailed upon again to allow more time for payment and was being asked to humour the debtor to see if payment would be forthcoming.  Preparing an invoice and issuing it did not mean that it was entering into any contract.   It was merely a gesture made in the hope that the debtor and the people financing it would eventually come to light with the funds which had been long promised.

[37]     It is clear that in issuing the invoice, Evia did not have an intention to enter into a contract with Zender Minol other than on the consistent basis that it had taken throughout.  It was not going to release the company, or Mr Cribb, or the mortgages until the sum of $650,000 had been paid.  In issuing its invoice of 11 April 2011, I do not regard it as having changed its position in the slightest.

[38]     Any alleged agreement to assign the debt would bind Zender Minol and Evia. If there had been such an agreement – and I do not find that there was one – Zender Minol might be entitled to seek specific performance of that agreement and would be able to raise arguments that, pending settlement, Evia was not entitled to take any steps to enforce the agreement against Mr Cribb because that would go in derogation of the promise by Evia to transfer title to Zender Minol.

[39]     The question remains how Mr Cribb could raise this in opposition to the adjudication application.

[40]     As a matter of contract law, Mr Cribb was not a party to any agreement for the assignment of the debt.  He, after all, was the debtor.  He may have had a role as a  go-between  in  setting  up  the  arrangement,  but  there  was  nothing  in  the arrangement to show that he was to be a beneficiary of that arrangement under the Contracts (Privity) Act 1982.  Contractually, he is not entitled to resist steps that Evia was taking to enforce the debt against him.  The fact that there might be an alleged arrangement to transfer the debt in the meantime is simply irrelevant as a matter of contract law between Mr Cribb and Evia.  However, for this case, I am prepared to

accept that that factor might be a matter that the court could take into account in its discretion under the Insolvency Act.  That is, while it might not be a defence as a matter of contract law, it might be a factor to be weighed into account if I had to exercise my discretion.  Because I do not find that there was in fact a contact along the lines alleged between Zender Minol and Evia, I do not have to consider that factor in the exercise of my discretion.

[41]     Accordingly, the affirmative defence which Mr Cribb has raised in opposition to the application fails.

Exercise of the discretion

[42]     That leaves the question of the exercise of the discretion.  In Baker v Westpac Banking Corporation,[2]  in the Court of Appeal, Richardson J stated the standard approach  taken  in  the  exercise  of  the  discretion.    That  was  a  case  under  the Insolvency Act 1967, but the statement has been applied also under the Insolvency Act 2006.[3]  At page 4 of that decision Richardson J said:

It is proper for the court to consider not only the interests of those directly concerned - the petitioner, other creditors, the debtor - but also the wider public interest.  A creditor who establishes the jurisdictional facts set out in s23 is not automatically entitled to an order. On the other hand, it is for an opposing debtor to show why an order should not be made.  The court will give proper weight to the commercial judgment of the petitioner but the oppressive use of the bankruptcy process may be a ground for refusing an order.  Another ground may be the undoubted absence of assets but that will not necessarily preclude an order given the range of interests involved including the public interest in the continuing oversight of the bankrupt’s affairs and the disqualifications that go with bankruptcy.   In the end, the court must balance the various considerations relevant to the case and determine whether the debtor has succeeded in showing that an order ought not to be made.

[2] Baker v Westpac Banking Corporation, CA212/92, 13 July 1993, Richardson J.

[3] See Re Vance ex parte Lamb HC Wellington, CIV-2009-485-891, 10 November 2009, per Gendall

AJ, at [10].

[43]     In referring to the range of interests involved, Richardson J was taking an interests-based approach.

[44]     In considering how the discretion is to be exercised, I have found it helpful to consider the different aspects of bankruptcy to decide whether it is a proper response

to  a debtor’s  insolvency.    There  are,  in  my judgment,  five relevant  features  of

bankruptcy:

(a)       The  administration  of  the  bankrupt’s  estate  in  the  interests  of creditors.  The affairs of the bankrupt are placed under the control of the Official Assignee.  The property and rights of the bankrupt vest in the Official Assignee and the Official Assignee is given powers under the Insolvency Act to gather in the assets of the bankrupt, realise them, and distribute them to creditors.  The Official Assignee is given an extensive array of powers to carry that out.  That includes powers of investigation as well as powers to set aside voidable transactions and claw back assets that a bankrupt may have disposed of during his period of insolvency.

(b)The public interest in protecting the community from a person who has operated insolvently, to ensure that the person is not left free to carry on trading or to incur more liabilities when he or she is not able to discharge them.

(c)      Accountability:    The  accountability  aspect  is  that  if  a  debtor  has incurred debts, he cannot simply walk away from them. It must be brought home to him that there are consequences in not being able to repay credit that has been extended.  That policy has been applied in cases of guarantees, particularly guarantees of company obligations.

(d)Punishment:    Another  feature  is  that  bankruptcy  can  be  applied punitively.  That trend in bankruptcy law is applied to cases where the court takes the view that the bankrupt has been at fault, or reckless, in incurring debts and not being able to discharge them.  I distinguish the punitive aspect from the accountability aspect.   There can be accountability, even if a bankrupt is entirely blameless and his state of insolvency is not attributable to any fault on his part.  The punitive aspect is reserved for cases where the bankrupt can be regarded as guilty of misconduct – in other words, the punitive aspect is applied

only in some cases.  The fact of adjudication does not by itself entail that the bankrupt is guilty of misconduct.

(e)      The bankrupt’s discharge from liabilities.   There is a strong public interest in the discharge aspect to bankruptcy because it means that the burden of debt is removed from the bankrupt and he is free to re- enter commercial life.

[45]     I do not regard Mr Cribb as a person the public needs to be protected from in the sense that he would, if not adjudicated bankrupt, run up more credit recklessly. The circumstances of his insolvency do not call for the punitive aspect of bankruptcy to be considered.   He has become insolvent because he has taken part in property development, a high risk activity.   He has suffered the fate of many property developers following the crash in 2007/2008 where finance companies fell over, sources of funding dried up, property values dropped and he has been unable to meet his liabilities as a result.   The fact that he has ended up in that position might be worthy of commiseration. But he is not to be condemned solely on account of the fact that he went into the Kaimai Palms property venture.  Those matters, protection of the public and punishment, are removed from consideration.

[46]     Mr Cribb was adjudicated bankrupt on an earlier occasion, many years ago.  I do not regard the fact that he has been adjudicated bankrupt in the past as in any way relevant to the present application.   It is so long ago that it is not relevant to the consideration of matters today.

[47]     In opposition, Mr Cribb raises these matters:

(a)       He  wants  to  have  the  opportunity  to  pursue  matters  against  the receivers appointed by Guardian Asset Securities Ltd.  It is his view that if the receivers were brought to account they would restore funds to Kaimai Palms, which would allow other creditors to be paid off;

(b)He entertains some hope of suing Zender Minol because it defaulted on the arrangements that made in 2010 before the receivership had

been completed.  He says if it had come to light with the funding, the disaster of the receivership might have been avoided.  He says that it is his earnest desire that by exploring these remedies he can see his creditors paid;

(c)      He also puts into consideration his good character.  He has attached to his evidence numerous commendations.   He points to his skill and asks the court to take into account the fact that he undertook the development at Kaimai Palms conservatively.   He had low gearing. He injected his own funds into the project to keep it going;

(d)He says that, on the first aspect of bankruptcy, there is nothing to be gained by him being adjudicated bankrupt because he has put his all into the company.  No investigation by the Official Assignee is likely to bring anything to light.  He did have a family trust, but everything in that family trust has now gone;

(e)      As to accountability, he says that he accepts his responsibility for the liabilities because he wants to see them paid; and

(f)      As to discharge, he says that is unnecessary, given the prospects of recovery.

[48]     My assessment is that on the administration of his affairs for the benefit of creditors, there is only a low chance that any investigation of his affairs is likely to bring any fresh assets to light.  There is no evidence of his making away with assets. I do take into account that what Mr Cribb says in his evidence is general only, and that an enquiry by the Official Assignee may be more searching than anything that has been conducted in this proceeding.   As one of the factors that weigh in the discretion, I do not put a high value on it, but I do not discount it altogether.

[49]     I do attach weight to the question of accountability.   This is a case where, even though no condemnation is due, Mr Cribb has incurred significant liabilities. The  question  of  accountability  serves  an  important  function.    It  reinforces  the

responsibilities that people take on when they enter into undertakings and assures more responsible commercial conduct.   People are more careful as to the arrangements and commitments that they enter into.

[50]     The aspect that predominates is that I view Mr Cribb’s position as a very unenviable one, given his very large liabilities.  He has tried to negotiate reductions, but that is very much on the basis that some funding will be forthcoming.  But I do not regard his proposals to see his way out as having good and viable prospects.

[51]     First, his proposal to sue receivers would be difficult litigation.   There are others who could undertake the litigation instead - for example, Compass Capital, which ranks second as a security-holder would obviously be vitally interested if there were a viable case to be brought.   Maybe other creditors, if they could be persuaded of the merits of the case.  Mr Cribb has better hopes of being able to see that  that  matter  is  pursued  by  persuading  other  creditors  to  undertake  it.    The litigation would be arduous and expensive.  I do not view him as being in a strong position to be able to see it through.

[52]     It was also suggested that there was the prospect of the liquidator receiving more assets, by pursuing debts of the company.   The liquidator said that he would pursue the matter if funding of $25,000 were provided.  Again, there is no evidence that Mr Cribb is able to provide the liquidator with that.     I appreciate that as a director of a company that has failed, he is motivated to restore its good name.  He can do what he can and obviously that is praiseworthy but I do not see that he is in any position to assist the liquidator in a realistic fashion.   Similarly, I regard his proposals to make claims against Zender Minol as being no more than expressions of hopefulness.

[53]     I was also referred to the case of Taylor.[4]     In that case Thomas J declined to make an order adjudicating Mr Taylor bankrupt.  He made it clear that the court has a

[4] Greenwood ex parte Taylor, HC Auckland, B.511/92, 1 September 1992.

wide discretion whether to make an order for adjudication.  He said:[5]

[5] Ibid, at 8.

It  may  well  be  that  in  the  more  buoyant  economic  times  which  have preceded the current recession, debtors who defaulted in their obligations could expect to be adjudicated bankrupt.  But in the harsher economic clime which now prevails, a person may find him or herself insolvent through no fault or foible of their own.   In such circumstances bankruptcy need not follow as a matter of course.  The Court in the exercise of its discretion may decline the “remedy”, certainly in the absence of a public interest factor which might otherwise warrant an adjudication of bankruptcy.

For my part I consider that adjudicating a person bankrupt when that person is essentially a victim of the current downturn in this country’s economy may, in certain circumstances, be unnecessarily severe.  In Mr Taylor’s case I believe that the collapse of his business can be directly traced to the political and economic developments which took place at the time.   But for those developments, Mr and Mrs Taylor would probably have a thriving business today.  Bankruptcy will not now realise one cent in the dollar for Mr and Mrs Greenwood.  Moreover, it is difficult to perceive any public interest element which would be served by making Mr Taylor bankrupt.  He cannot get a job and it is unlikely that he will get credit. To make Mr Taylor bankrupt would be purely punitive and serve no practical or useful purpose.

He declined to make an order.

[54]     I have taken that into account.  Counsel for Evia has pointed out that the case can be distinguished on its facts because Mr Cribb has greater liabilities than Mr Taylor and Mr Cribb took part in a riskier business than Mr Taylor.

[55]     In the end, each case turns on its own facts.  I acknowledge that Thomas J exercised his discretion one way.  However, I regard Mr Cribb as being a different case.   In particular, he has much greater liabilities and more creditors.   It will be advantageous if the slate is wiped clean by having Mr Cribb adjudicated bankrupt now rather than leave him with these debts which will plague him forever, and which I realistically regard him as having no hope of ever satisfying.

[56]     Accordingly, I make an order adjudicating Mr Cribb bankrupt.  The time of the order is 5:30pm.

[57]     For Mr Cribb, Mr Wallis asks for 10 days so that he can explore an appeal.  I order a stay of the bankruptcy for a period of 10 days.  If there is any application for a further extension of the stay pending appeal, that matter may be referred to me. Mr Wallis should file documents with the Registrar in Hamilton but should ask for an urgent telephone conference at short notice.   I ask that counsel be available at short notice at 9 o’clock one morning to take part in the conference, if required.

[58]     There is an order for costs in favour of Evia on a 2B basis.  I record that the hearing today took one day.

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

R M Bell

Associate Judge