Fawcett
[2015] NZHC 720
•16 April 2015
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
CIV-2010-419-000587 [2015] NZHC 720
UNDER the Insolvency Act 2006 IN THE MATTER
of the bankruptcy of CHRISTOPHER LOUIS FAWCETT
Hearing: 15 April 2015 Appearances:
P V Cornegé for Official Assignee
C L Fawcett in PersonJudgment:
16 April 2015
JUDGMENT OF VENNING J
This judgment was delivered by me on 16 April 2015 at 11.30 am, pursuant to Rule 11.5 of the High
Court Rules.
Registrar/Deputy Registrar
Date……………
Copy to: Official Assignee, Hamilton
P V Cornegé, Hamilton
C L Fawcett, Hamilton
RE FAWCETT [2015] NZHC 720 [16 April 2015]
Introduction/background
[1] Christopher Fawcett applies to be discharged from bankruptcy. This is Mr
Fawcett’s third application for discharge. He was adjudicated bankrupt on 15
September 2010 and was due to be automatically discharged on 4 October 2013. However the Official Assignee formally objected to his discharge. The Ministry of Business Innovation and Employment also laid two criminal charges against Mr Fawcett arising out of his activities during the course of his bankruptcy.
[2] Mr Fawcett’s first application to be discharged was considered by Peters J
after Mr Fawcett’s examination on 11 December 2013.1 In a decision delivered on 7
May 2014 the Judge dismissed the application for discharge but directed that Mr Fawcett could make a fresh application on the earlier of the determination of the criminal charges or after 1 December 2014.
[3] Mr Fawcett then rather optimistically brought a second application for discharge on 1 September 2014 seeking “an indulgence” from the Court to hear it before 1 December 2014 because of the developments in the criminal prosecution.2
Associate Judge Doogue declined the application as he considered the Court did not have authority to inquire into the application for discharge filed in contravention of the judgment of Peters J.3
[4] This third application for discharge from bankruptcy followed after 1
December 2014, even though the criminal charges are yet to be heard.
[5] Given the length of time that has passed the Official Assignee does not, now, oppose Mr Fawcett’s discharge from bankruptcy. However, the Official Assignee submits the discharge should be granted on condition that Mr Fawcett be restricted from engaging in business for two years as he is a danger to the commercial community and has not properly complied with the restrictions placed upon him by
bankruptcy.
1 Re Fawcett [2014] NZHC 924.
2 The charges are yet to be heard.
3 Re Fawcett [2014] NZHC 2663.
[6] Mr Fawcett argues that he should be discharged unconditionally.
The effect of Peters J’s decision
[7] At the outset of the hearing I raised with counsel and Mr Fawcett the effect of the earlier decision of Peters J. In the course of that decision the Judge made a number of factual findings concerning Mr Fawcett’s activities in relation to certain trusts and other entities he was involved with.
[8] Peters J noted the submissions of the Official Assignee that following adjudication Mr Fawcett:4
(a) was a property manager for JEC [JEC No 3 Limited] and that he dealt directly with third parties in that capacity;
(b) made decisions in respect of JEC’s property; and
(c) removed JEC’s director, Mr McHardy, and substituted Mr Spackman when Mr McHardy refused to continue taking instructions from Mr Fawcett, for instance to provide to Mr Fawcett signed blank cheques drawn on JEC’s current account.
[9] The Judge also noted the Official Assignee’s submission that Mr Fawcett was involved in the management of Kingsland Station Limited (Kingsland) which was itself involved in a property development in that he participated in discussions regarding the establishment of a joint venture, the provision of finance, the day to day management of the Kingsland property, and the resolution of disputes between JEC and a third party.
[10] Peters J concluded that the matters raised by the Official Assignee raised serious issues as to the manner in which Mr Fawcett had conducted himself since adjudication and whether he had complied with the obligation imposed by s 149 of the Insolvency Act 2007. She accepted the submission for the Official Assignee that the evidence before the Court disclosed Mr Fawcett was closely involved in the management of the affairs of both JEC and Kingsland, and particularly the latter.
For those reasons the Judge declined the discharge at that time.
4 At [25].
[11] No appeal was taken from that decision. It is not for this Court to revisit those factual findings on this application for discharge. The focus of this application must be on the relevance of the findings to whether the discharge should be conditional and on Mr Fawcett’s activities since that date and his plans for the future. Mr Fawcett’s examination before me was therefore able to be brief and to be focused on those issues.
Principles
[12] In ASB Bank v Hogg the Court of Appeal said in respect of the Court’s
discretion (concerning an application for early discharge) that:5
In conferring a discretion expressed in the broadest terms the legislation recognises that each case will be different, that the relevant factors may vary from case to case and that the exercise of the discretion must be governed by the circumstances of the particular case having regard to the guidance provided by a consideration of the scheme and purpose of the legislation. In providing for automatic discharge after three years the legislation recognises that it is not in the public interest that the bankruptcy should endure indefinitely. … The Court is to consider the Assignee's report as to the affairs of the bankrupt, the causes of the bankruptcy, the manner in which the bankrupt has performed the duties imposed on him or her under the Act and his or her conduct both before and after the bankruptcy, and also as to any other fact, matter or circumstance that would assist the Court in making its decision. …
[13] In Re Whitelaw White J summarised the following principles as applicable to a case where the Official Assignee had objected to the discharge:6
(a) The onus is on the Official Assignee to satisfy the Court that it is in the public interest that the bankruptcy which would otherwise automatically be discharged after three years should continue for a further period.
(b) The Court has a broad discretion to exercise having regard to all the circumstances of the particular case.
(c) In the absence of good reasons, a bankrupt should normally obtain a discharge.
(d) Public interest factors may, however, mean that an order of discharge should be refused.
5 ASB Bank v Hogg [1993] 3 NZLR 156, at 157.
6 Re Whitelaw HC Hamilton CIV-2004-419-1647, 10 September 2010, at [20].
(e) As indicated by the matters on which the Official Assignee is required to report under s 109(2) of the Insolvency Act 1967, the Court should consider the manner in which the bankrupt has performed the duties imposed on him under the Act and his conduct both before and after the bankruptcy and any other matters that may assist the Court in making its decision.
(f) The relevant matters therefore include: the interests of the bankrupt; the interests of the creditors; the public interest; commercial morality and the conduct of the bankrupt.
The Official Assignee’s submission
[14] The Official Assignee’s submission that Mr Fawcett should be subject to a restriction from carrying on business after discharge is primarily based on Mr Fawcett’s pre and post adjudication conduct and the risk he poses to the public generally.
[15] The Official Assignee submits it is of concern that Mr Fawcett made a number of attempts to put assets beyond the reach of creditors. In doing so Mr Fawcett acted in a cavalier manner with little regard for his creditors. The Official Assignee also relied on Peters J’s findings concerning Mr Fawcett’s activities during his bankruptcy.
Mr Fawcett’s submission
[16] For his part Mr Fawcett submits that he took and acted on legal advice in making the various arrangements and transfers of property prior to his bankruptcy. Also, he notes no independent creditors have suffered loss as a result of his actions.
[17] At the age of 60 Mr Fawcett is in receipt of a job seeker’s benefit. He is living in rented accommodation (owned by a family trust) and has no dependants. Mr Fawcett is a qualified teacher but once discharged, he would like to establish a business as a property consultant. Mr Fawcett said that he has no desire to carry out any property development himself or through any other entity. Through the course of questioning by Mr Cornegé it was established that neither Mr Fawcett, nor any of his family trusts, are in a position to borrow funding from any financial institution to enable him or them to carry out property developments in any event.
Decision
[18] As noted the Official Assignee no longer opposes a discharge from bankruptcy given that just over four and a half years have passed since Mr Fawcett filed his statement of affairs on 10 October 2010. That is a reasonable position to take in the circumstances of this case.
[19] The issue is whether the discharge should be conditional as sought by the Official Assignee or unconditional as argued for by Mr Fawcett. The following factors are particularly relevant in my view.
The reason for Mr Fawcett’s bankruptcy
[20] Mr Fawcett does not have a history of regular commercial failures. Mr Fawcett was in fact formerly a very successful residential property developer. At one point he owned 53 properties. However, his bankruptcy followed a change in emphasis when he sold a number of his residential properties and became involved in a major coastal development at Tairua. Mr Fawcett gave a personal guarantee to support the development at Tairua. With the advent of the Global Financial Crisis and the failure to obtain titles from the Thames District Council within time, Mr Fawcett was not able to meet the call made on his guarantee by the financier, the Southland Building Society. Ultimately that led to his bankruptcy.
The position of creditors
[21] In total Mr Fawcett’s creditors were owed $1,406,962, the major creditor being the Southland Building Society in the sum of $1,337,279 (together with costs of $5,569).
[22] However, although Mr Fawcett initially resisted it, ultimately a number of properties were transferred to the Official Assignee for Mr Fawcett’s bankrupt estate. As a consequence it is likely that creditors’ claims will be fully paid. The Official Assignee has confirmed in his report that $921,093 has already been paid to creditors and it is likely that the balance of the sale proceeds of the assets in Mr Fawcett’s estate will be sufficient to pay all creditors, and meet the Official Assignee’s time
and costs. Indeed it may well be the creditors will receive full interest payments. It therefore seems likely the creditors will not suffer any ultimate loss as a result of Mr Fawcett’s actions.
The effect of Mr Fawcett’s actions prior to bankruptcy
[23] Next, I do not place very much emphasis on Mr Fawcett’s actions prior to adjudication, namely his attempts to transfer assets away from his personal estate. It seems that he took advice about his actions at the time. The Official Assignee refers to the following correspondence from Mr Fawcett’s solicitor:
Kit, I must stress yet again that we are going to inordinate lengths to attempt to protect some of your assets from potential creditors in the future. These lengths are a best attempt only and in no way can I guarantee that they will be watertight. I have already mentioned to you that any action taken to defeat creditors within a 2 year period can be overturned under the Insolvency Rules.
[24] Further, whatever steps Mr Fawcett may have taken then, as noted, properties have ultimately been transferred to his bankrupt estate and no creditors will ultimately suffer any loss as a consequence of Mr Fawcett’s actions.
The effect of Mr Fawcett’s actions during bankruptcy
[25] There is then the post adjudication activity referred to and dealt with by Peters J. In relation to those matters of course Mr Fawcett still faces the extant charges. They will be dealt with in the usual way and will have their own consequences.
[26] The findings of Peters J justified the extension of Mr Fawcett’s bankruptcy at the time and justified the opposition by the Official Assignee to his discharge. However, there is no evidence before the Court of any further actions since the delivery of that decision in May 2014 of concern to the Official Assignee. The parties that suffered loss as a consequence of his actions during the bankruptcy are parties associated with him rather than independent third parties.
General considerations
[27] Mr Fawcett’s bankruptcy has already been extended by 50 per cent past the statutory period of three years.
[28] It is in the interests of Mr Fawcett, at the age of 60, that he be able to earn an income so that he will not be dependent on a Social Welfare benefit and further, that he may be in a position to assist his family as he wishes.
[29] I note that at the conclusion of the examination Mr Cornegé accepted that any condition the Court might impose on Mr Fawcett should only be directed at restricting future property developments, but he conceded that practically it seemed unlikely that Mr Fawcett would be in a position to carry out such developments in any event.
[30] If Mr Fawcett was in a financial position to carry out property developments and had expressed a wish or intention to do so, the Court might have been minded to impose a condition preventing him from doing so for a period of a year but there seems to be no practical force or effect in imposing such a condition in the present circumstances.
[31] For those reasons I do not consider it necessary to impose further restrictions on Mr Fawcett.
Result/decision
[32] The application is granted. Mr Fawcett is discharged from his bankruptcy. I
decline to impose any condition on the discharge.
[33] Costs are to lie where they fall on this application.
Venning J
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