F M Custodians Limited v McHaffie

[2019] NZHC 733

IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY

I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE

CIV-2019-425-000009

[2019] NZHC 733

IN THE MATTER

OF AN APPLICATION FOR ADMINISTRATION UNDER PART 6 OF THE INSOLVENCY ACT 2006

AND IN THE MATTER

OF THE BANKRUPTCY OF HELEN MAY

MCHAFFIE (deceased)

BETWEEN

F M CUSTODIANS LIMITED

First Applicant

AND

JAMES SYDNEY DYNES

Second Applicant

AND

DAVID HUGH BARRIE MCHAFFIE AND ROGER HAMILTON SMAIL

Respondent

Hearing:	25 March 2019 via telephone conference
Appearances:	S C Nicol for the Applicants D H B McHaffie in person
Judgment:	8 April 2019

JUDGMENT OF NATION J

[1]                 In these proceedings, FM Custodians Ltd and the second applicant (Mr Dynes) apply for orders that:

(a)  the estate of Helen May McHaffie is administered under part 6 of the Insolvency Act 2006;

(b)  the administrators of her estate are removed and the Public Trust is appointed in their place; and

F M CUSTODIANS LTD & DYNES v MCHAFFIE [2019] NZHC 733 [8 April 2019]

(c)  the applicants’ costs in respect of this application are met from funds held in the estate.

[2]The orders are sought on the basis:

(a)  the debts in the estate exceed its assets;

(b)  the administrators have failed to apply to the Court for an order to administer the estate under part 6 of the Insolvency Act within 15 working days after receiving a request in writing to do so; and

(c)  there is no reasonable probability the assets of the estate will be sufficient for the payment of the deceased’s debts.

[3]                 The proceedings were served on the respondents as administrators of the estate, Mr McHaffie on 29 January 2019 and Mr Smail on 5 February 2019.

[4]                 Mr Dyne’s solicitor, Michael O’Regan, filed an affidavit in support of the application. In his affidavit, he produced evidence that Mr Dynes has an unsatisfied judgment against the late Mrs McHaffie pursuant to a judgment obtained on 12 September 2012 on which $431,758.45 was due as at 19 December 2018. He also referred to the fact there was another major creditor in the estate, FM Custodians.

[5]                 On 5 December 2018, Mr More, a partner in the firm of Scholefield Cockroft Lloyd, solicitors of Invercargill, confirmed his firm had been acting for the trustees in the estate but that, as at 5 December 2018, the trustees, Mr McHaffie and Mr Smail, had fallen out.

[6]                 On 19 December 2018, Mr Hutchison for FM Custodians swore an affidavit referring to the apparent assets and liabilities of the estate and an apparent balance then of $143,993.88 due to FM Custodians. In his affidavit, he referred to attempts that had been made to obtain payment of debts from the estate with an abatement reflecting the insolvent nature of the estate. It was his evidence that the administrators would not agree. Mr Smail had agreed to the process of abatement as the applicants

had requested. Their co-executor, Mr McHaffie, Mrs McHaffie’s husband, would not agree.

[7]                 There was a first call of the proceedings before Gendall J on 25 February 2019. Ms Nicol appeared for the applicants. Mr More appeared for Mr Smail. There was  no appearance for Mr McHaffie but he advised me in this latest conference this was because the telephone conference was brought forward from the original time allocated without his being advised of the change.

[8]                 In a memorandum filed for that conference dated 25 February 2019, Mr More confirmed he had been acting in the administration of the estate. The two major creditors of the estate were FM Custodians in the sum of $144,053.88 and Mr Dynes in the sum of $431,758.45. He advised there could be other debts. He described how Mrs McHaffie received half of the proceeds of sale of Clinton farmland which had been owned by Mr and Mrs McHaffie and that they also owned a section at Conroys Road near Cromwell.

[9]                 Mr More confirmed that the executor, Mr Smail, a retired solicitor, was unsuccessful in convincing his co-executor, Mr McHaffie, that there were insufficient assets available to meet the debts due by the estate. Mr Smail wanted to wind up the estate through paying creditors on a pro-rata basis.

[10]             In his memorandum, Mr More explained the background to Mr McHaffie’s strong sense of grievance at the way a judgment had been obtained against him by Mr Dynes, a judgment which had ultimately been relied upon to have Mr McHaffie declared bankrupt. Mr McHaffie had also been severely injured in a serious motor vehicle accident which made it difficult for him to realise the value of his family interest in the company Aspiring Air Ltd.

[11]             Mr More indicated that, as solicitor in the estate, he was not in a position either to support or to oppose the application to appoint the Public Trust as trustee in place of the existing trustees.

[12]             In a minute of 25 February 2019, Gendall J recorded that no notice of opposition to the current application had been filed and the 10 working day period from service allowed for in the High Court Rules had lapsed. It thus seemed to his Honour that it appeared unlikely there would be any opposition to the present application. He noted that counsel for the applicants would be seeking to have the matter dealt with by way of formal proof. It was agreed that an affidavit of assets, debts and liabilities of the estate should be filed.

[13]             Gendall J directed that the matter was to be set down for a further call in a Duty Judge list so the matter could be dealt with by way of a formal proof hearing or for the Court to make other directions. A copy of Gendall J’s minute was sent to all relevant parties, including Mr McHaffie, on 25 February 2019.

[14]             The proceedings were thus called by way of telephone conference before me on 25 March 2019.

[15]             There had been discussions between Court staff and Mr McHaffie. Mr McHaffie says he filed with the Court electronically a bundle of what he considered to be relevant documents on 21 March 2019. That bundle, in paper form, was received by the Court on 25 March 2019. It appears no copies had been served on AWS Legal, solicitors for the applicants. Mr McHaffie had not filed any notice of opposition in response to the application nor any affidavit in response.

[16]             During the telephone conference, Ms Nicol for the applicants indicated that all evidence in support of the applications was now with the Court. She submitted that, as the time had expired for Mr McHaffie to file any notice of opposition to the application or any affidavit in opposition, he would require the leave of the Court to do so. Having heard Mr McHaffie refer to the history of the matter and grievances he had about that, particularly with regard to the way in which a judgment had been obtained against him, she made the point that, if the Public Trust were appointed as a new trustee, he would be free to make representations as to any steps that he considered should be taken by them as a trustee.

[17]             Mr McHaffie accepted that the information in an affidavit filed recently by Mr More, as the former solicitor for the administrators, as to assets and liabilities in the estate, might well be correct. His concerns were as to the history of the matter. Mr McHaffie also indicated that the Public Trust had no involvement in any of the history to the current situation which causes him concern. Mr McHaffie indicated that all the information he wished the Court to consider would be in the documents that he had very recently filed with the Court. He requested that I read them, which I have.

[18]             Documents attached to the affidavit of Mr O’Regan indicate that Mr Dynes obtained a judgment against Mr and Mrs McHaffie in the sum of $265,755.72 on 12 September 2012, there having been no appearance for Mr and Mrs McHaffie when the proceedings against them were heard on 12 September 2012.

[19]             Mrs McHaffie died on 23 September 2014. It appears from Mr More’s memorandum and correspondence filed by Mr McHaffie that, since then, Mr McHaffie has been aggrieved at the judgment obtained against both himself and Mrs McHaffie and, at various times, has sought his own legal advice in relation to the matter. However, he has taken no steps to have that judgment set aside, steps that would have been difficult for him to take in part because he was adjudicated bankrupt in June 2013 and because of the way he was unfortunately severely injured and has been disabled through the accident he suffered.

[20]             Mr McHaffie has filed with the Court lengthy correspondence between himself and the Official Assignee’s office in which he sought disclosure of documents he considered were relevant to the obtaining of the original judgment against him and ultimately the debt in respect of which he was declared bankrupt. In particular, he was interested in a general security agreement over the shares of Aspiring Air Ltd, which he eventually found in his own records.

[21]             In a letter of 12 December 2018 to Mr More, Mr McHaffie suggested that, as solicitor for the estate, Mr More had a fiduciary obligation to apply to the Court for an interim injunction to halt the present proceedings. In a letter of 18 June 2018, he suggested that he had an actionable claim against Mr Smail arising out of the way Mr McHaffie and his wife had a debt to Mr Dynes.

[22]             The advice given by Mr More to the administrators of Mrs McHaffie’s estate was that any application to set aside the judgment would have limited prospects of success. If the judgment was set aside, any funds available to Mr McHaffie as a result would have likely been placed in his creditors’ pool and, even if the judgment was set aside, the debts in the estate would exceed its assets. The advice to the administrators from Mr More was that it would not be prudent to spend any of the estate monies to seek the setting aside of the judgment.

[23]             No notice of opposition has been filed in respect of the application currently before the Court. Had Mr McHaffie done so however, it is unlikely that he could successfully oppose the application.

[24]             Affidavits before the Court confirm that, as at 18 January 2019, Mrs McHaffie’s estate had a liability to FM Custodians in the sum of $144,053.88 and to Mr Dynes in the sum of $431,758.45. In an affidavit of 12 March 2019, Mr More confirms that the assets in the estate comprised cash assets as at 11 March 2019 of

$216,333.71 and a banking accommodation with the BNZ in the sum of $4,417.56 as at 21 February 2019. The estate is insolvent.

[25]             Affidavits filed in support of the application and documents now filed with the Court by Mr McHaffie establish that the administrators in Mrs McHaffie’s estate are in conflict and unable to make the decisions required to administer the estate for the benefit of creditors.

[26]             The evidence also establishes that creditors have requested the administrators to apply to the Court to administer the estate under the Insolvency Act through a notice sent to the administrators’ solicitors on 15 November 2018. The administrators or their solicitors failed to apply to the Court for administration under the Insolvency Act and through a letter of 5 December 2018 indicated they would not be doing so, given the conflict between the administrators.

[27]             If Mr McHaffie considers the administrator of Mrs McHaffie’s estate should be issuing proceedings or taking any other step for the benefit of creditors of her estate

or any potential beneficiaries of the estate, he will be free to make representations in that regard to the Public Trust as the administrator of the estate.

[28]             Against that background, I do not consider it would be necessary, appropriate or in the interests of justice to extend the time for Mr McHaffie to file a notice of opposition to the application which has been filed or any affidavit in support of such potential opposition.

[29]             The evidence before the Court satisfies me that it is appropriate to make the orders as sought.

[30]             As per the requirements of the Insolvency Act, I find that the evidence of the debts to FM Custodians and to Mr Dynes would be sufficient to support a bankruptcy petition had Mrs McHaffie been alive. The administrators of her estate did not apply for an order that the estate be administered within 15 working days of receiving the written request to do so from counsel for the creditors. More than two months have passed since administration was granted; indeed, probate was granted on 9 March 2015, more than four years ago. I am satisfied there is no reasonable probability that the estate will be sufficient for the payment of the debts of the deceased and that creditors will not be prejudiced by the estate being administered in the normal way.

[31]I accordingly make orders:

(a)  the estate of Helen May McHaffie is to be administered under part 6 of the Insolvency Act 2006;

(b)  David Hugh Barrie McHaffie of Gore, a pilot/farmer, and Roger Hamilton Smail of Balclutha, retired, are removed as trustees of Helen McHaffie’s estate and the Public Trust is appointed in their place; and

(c)  the first and second applicants’ costs in respect of this application are to be met from the funds held in the estate.

Solicitors:

AWS Legal, Invercargill

Scholefield Cockroft Lloyd, Invercargill Copy to the Respondent.