Grant and Drennan as Liquidators of Honk Apartments Limited (in liq) v Official Assigness in Bankruptcy of the Property of Susan Spencer HC Auckland CIV 2010-404-4114
[2010] NZHC 2076
•11 November 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2010-404-004114
UNDER the Companies Act 1993
IN THE MATTER OF Honk Apartments Limited (In Liquidation) BETWEEN DAMIAN GRANT AND PETER
DRENNAN AS LIQUIDATORS OF HONK APARTMENTS LIMITED (IN LIQUIDATION)
Applicants
ANDOFFICIAL ASSIGNEE IN BANKRUPTCY OF THE PROPERTY OF SUSAN SPENCER
Respondent
Continued …
Hearing: 11 November 2010
Appearances: R Dillon for the Applicants in CIV-2010-404-004114 and
Respondents in CIV-2010-404-00629
G Neil and K Kuang for the Respondent in CIV-2010-404-004114 and Applicant in CIV-2010-404-006629
Judgment: 11 November 2010
ORAL JUDGMENT OF WOODHOUSE J
Solicitors:
Mr R Dillon, Gaze Burt, Solicitors, Albany
Mr G Neil, Meredith Connell, Office of the Crown Solicitor, Auckland
GRANT AND DRENNAN V OFFICIAL ASSIGNEE IN BANKRUPTCY OF THE PROPERTY OF SUSAN SPENCER HC AK CIV-2010-404-004114 11 November 2010
Continued …
CIV-2010-404-006629
UNDER the Companies Act 1993 and Property Law
Act 2007
IN THE MATTER OF the bankruptcy of Susan Spencer
BETWEEN OFFICIAL ASSIGNEE IN BANKRUPTCY OF THE PROPERTY OF SUSAN SPENCER
First Applicant
ANDOFFICIAL ASSIGNEE IN BANKRUPTCY OF THE PROPERTY OF KIM SPENCER
Second Applicant
ANDDAMIAN GRANT AND PETER DRENNAN AS LIQUIDATORS OF HONK APARTMENTS LIMITED (IN LIQUIDATION)
First Respondents
ANDHONK APARTMENTS LIMITED (IN LIQUIDATION)
Second Respondent
[1] Honk Apartments was placed in liquidation on 20 April 2010. Prior to that the Official Assignee in bankruptcy of the property of Susan Spencer had taken steps to enforce judgment against Honk Apartments and recover other assets of Susan Spencer apparently disposed of to defeat her creditors.
[2] There are two properties of particular relevance on the present applications of the liquidators in CIV-2010-404-004114 (4114) and of the Assignee in CIV-2010-
404-006629 (6629). These are Lindsay Crescent in Hamilton and Gladstone Road in Waihi. The Assignee had taken steps to enforce a judgment against Lindsay Crescent and was investigating matters in relation to Gladstone Road. The liquidation brought an end to the enforcement steps being taken by the Assignee: Companies Act 1993, s 251.
[3] The liquidators sought directions in 4114 because of the complications arising in respect of the proceedings that had been taken by the Assignee. The Assignee in turn sought orders in 6629 effectively seeking to nullify the effect of the liquidation and pursuant to ss 344-350 of the Property Law Act 2007.1 What the Assignee seeks is, in essence:
a) To bring Lindsay Crescent back into the Assignee’s control as property of Ms Spencer in bankruptcy and freed of mortgages said to have been fraudulently granted in favour of associated companies, Honk Farms Limited and TG Nominees Limited, and in favour of Westpac New Zealand Limited.
b)To set aside mortgages granted in favour of Honk Farms and TG Nominees over Gladstone Road.
[4] Parties likely to be directly affected by the orders sought by the Assignee, apart from Honk Apartments Limited, which is now effectively represented by Mr Dillon on behalf of the liquidators of Honk Apartments, are Honk Farms, TG Nominees and Westpac. So far as Westpac’s interest in Lindsay Crescent is
1 Being the sections in Part 6, sub-part 6: “Setting aside of dispositions that prejudice creditors”.
concerned, the matter is covered in a memorandum on behalf of Westpac dated 8
November 2010. Westpac has a mortgage over Lindsay Crescent, but has other security, and for that reason is content to allow its mortgage over Lindsay Crescent in effect to be discharged (see paragraph 2 of the memorandum).
[5] Honk Farms and TG Nominees have both been served. They did not take any formal steps within the requisite period pursuant to the directions of Associate Judge Faire on 6 October 2010 and service on them on 7 October 2010. There was an appearance for Honk Farms and TG Nominees at a mentions hearing on 15 October
2010. Notwithstanding the default by those two companies, Lang J granted leave to Honk Farms and TG Nominees to file documents in opposition provided that was done no later than 29 October 2010. No steps have been taken and there has been no appearance today by, or on behalf of, Honk Farms, TG Nominees, or any director or shareholder of either of those companies.
The facts
[6] The evidence in support of the applications by the Assignee is in an affidavit of Cindy Goldberg Seaman which, with numerous annexures, is contained in three large ring-binders. Ms Seaman is a Deputy Registrar employed in the Auckland office of the Insolvency and Trustee Service. Ms Seaman is the Deputy Assignee with responsibility for the administration of the bankrupt estates of Susan Spencer and her husband, Mr Kim Spencer. I will provide a largely chronological factual narrative based on the evidence. A reasonable amount of detail is required having regard to the nature of the orders sought under the Property Law Act. In this regard, and in respect of the law, I have been materially assisted by the memorandum filed by Mr Neil for the Assignee and the further submissions and assistance this morning from Mr Neil and from Mr Dillon for the liquidators.
[7] On 13 December 2006 a bankruptcy notice was served on Ms Spencer by Mr Miles Prestidge. On 23 February 2007 Mr Prestidge filed an application for adjudication of Ms Spencer in bankruptcy.
[8] On 3 April 2007 Ms Spencer’s creditors, by a majority, voted to accept a proposal by her under part 15 of the Insolvency Act 1967. In the proposal Ms Spencer recorded that she had creditors of approximately $2.2 million. She claimed to have two assets only, the property at Lindsay Crescent and another one at Clarke Street, Waihi, with a total realisable value of approximately $87,000. In other words, on the basis of Ms Spencer’s own proposal, she was insolvent. An application was made to the Court for approval of the proposal.
[9] In August 2007 Mr Spencer was bankrupted. His property included a debt due from Ms Spencer of $450,000. The Assignee for Mr Spencer opposed the Part
15 proposal. The proposal in the event was withdrawn on 25 February 2008.
[10] The Assignee for Mr Spencer pursued Ms Spencer for the debt. She started taking steps to put assets out of reach of the creditors and otherwise acted to hinder, delay or defeat creditors (to adapt the words of s 346 of the Property Law Act 2007).
[11] Ms Spencer granted a second mortgage over her property at Clarke Street, Waihi, in favour of a company she controlled. This mortgage, if sustained, had the effect of extinguishing the equity in the property. This mortgage was granted on 11
April and registered on 14 April 2008.
[12] Ms Spencer and her mother were registered proprietors of the property at Gladstone Road, Waihi. The evidence indicates that although they were registered as trustees of a trust, it was a trust effectively controlled by Susan Spencer. Gladstone Road was transferred by the trustees to Honk Apartments Limited with the transfer registered on 21 April 2008. One of the two directors of Honk Apartments is Mr David Tauber. The sole shareholder of Honk Apartments is Honk Farms, of which Mr Tauber is the director.
[13] On 19 May 2008 the Assignee for Ms Spencer obtained an asset preservation order relating to Lindsay Crescent. This was served on Ms Spencer on 21 May
2008.
[14] On 26 May 2008 the Assignee for Ms Spencer obtained an asset preservation order relating to Gladstone Road. This was served on Honk Apartments on 27 May
2008.
[15] On 28 May 2008 a transfer of Lindsay Crescent from Ms Spencer to Honk Apartments was registered. The consideration for the sale was $70,000, the amount owing on a mortgage. The estimated value of Lindsay Crescent at that date was approximately $230,000.
[16] On 1 July 2008 Ms Spencer was adjudicated bankrupt on an application by the Assignee for Kim Spencer.
[17] On 11 July 2008 the Assignee for Mr Spencer obtained judgment against the
Assignee for Susan Spencer in a sum of approximately $591,000.
[18] On 14 October 2008 the Clarke Street mortgage earlier referred to was set aside pursuant to a Court order.
[19] On 24 September 2009 a freezing order over Lindsay Crescent was obtained and served the same day on Honk Apartments.
[20] On 4 November 2009 the Assignee for Ms Spencer obtained a judgment against Honk Apartments in the sum of approximately $182,000.
[21] On 2 December 2009 the Assignee for Ms Spencer registered charging orders absolute against the titles to Lindsay Crescent and Gladstone Road.
[22] On 19 February 2010 first mortgages to Honk Farms over Lindsay Crescent and Gladstone Road, and second mortgages to TG Nominees over Lindsay Crescent and Gladstone Road were registered. TG Nominees, as with Honk Farms, is a company under the apparent control of Mr Tauber.
[23] On 20 April 2010, as earlier noted, Honk Apartments was placed into liquidation. This occurred on a shareholder’s resolution, and therefore a resolution
by the sole shareholder, Honk Farms. It appears from the information now before the
Court that Honk Apartments is insolvent.
The orders sought
[24] Before turning to the substantive orders sought by the Assignee, and other orders sought by the liquidators, it is appropriate to deal with an application by the Assignee to join two parties to the proceeding in 6629. I am satisfied the orders should be made. In consequence there is an order adding the Assignee in bankruptcy of the property of Kim Spencer as second applicant in 6629 and Honk Apartments Limited (In Liquidation) as second respondent in 6629.
[25] There is also a procedural order required under s 248(1)(c) of the Companies Act 1993. This is to enable proceedings to be commenced or continued by the Assignee for Susan Spencer and the Assignee for Kim Spencer. The application is not opposed by Mr Dillon on behalf of the liquidators. There will accordingly be an order in terms of paragraph 1 of the amended notice of originating application dated
10 November 2010.
[26] The remaining orders are substantive orders sought under s 348(2) of the
Property Law Act 2007, orders to assist the liquidators and costs.
[27] In respect of the applications under sub-part 6 of part 6 of the Property Law Act I am satisfied that the grounds for the orders sought are fully made out. These are orders setting aside dispositions. In terms of the requirements under the Property Law Act, and as indicated by my summary of the facts, the dispositions in question were made after 31 December 2007, they were made by a debtor, Ms Spencer, who was insolvent at the time, and they were made with intent to prejudice creditors.
[28] The liquidators do not oppose the orders sought under the Property Law Act. They responsibly take that position having had an opportunity to consider the evidence adduced by the Assignee in support of the applications and, in particular, the evidence in the affidavit of Ms Seaman.
[29] In respect of the property at 33A Lindsay Crescent, Hamilton, comprised and described in computer freehold register identifier SA66C/802 there are orders pursuant to s 348(2) of the Property Law Act 2007 as follows:
a) The property shall vest in the Assignee in bankruptcy of the property of Susan Spencer (nee Hamilton) free of mortgages 7828884.4 to Westpac New Zealand Limited, 8422673.1 to Honk Farms Limited and 8422676.1 to TG Nominees Limited.
b)The Registrar-General of Land shall cancel the entry or memorial on the computer register pursuant to which mortgages 7828884.4 to Westpac New Zealand Limited, 8422673.1 to Honk Farms Limited and 8422676.1 to TG Nominees Limited are registered.
[30] In respect of the property at 58 Gladstone Road, Waihi, comprised and described in computer freehold register identifier SA64D/627 there are orders pursuant to s 348(2) of the Property Law Act 2007 as follows:
a) All interests of the mortgagees in and under mortgage no. 8422673.1 to Honk Farms Limited and mortgage no. 8422676.1 to TG Nominees Limited are vested in Honk Apartments Limited (In Liquidation).
b)The Registrar-General of Land shall cancel the entry or memorial on the computer register pursuant to which mortgage no. 8422673.1 to Honk Farms Limited and mortgage no. 8422676.1 to TG Nominees Limited are registered.
[31] The Assignee for Susan Spencer and for Kim Spencer and the liquidators of Honk Apartments Limited are entitled to costs in respect of the proceedings in 4114 and 6629. Those parties are entitled to actual and reasonable costs in both proceedings.
[32] Further, in respect of 58 Gladstone Road, Waihi, there are the following orders pursuant to the application of the liquidators in 4114 and with the consent of the Assignee for Kim Spencer and the Assignee for Susan Spencer:
a) The property shall be sold by public sale under the control and conduct of the liquidators.
b)The proceeds of sale shall be disbursed in the following priority and manner:
i)Payment or reimbursement of the reasonable costs of sale including real estate agents’ fees, reasonable legal costs of and incidental to sale, and reasonable liquidators’ costs of and incidental to sale (with the liquidators’ costs to be assessed at no more than $150 per hour plus GST).
ii)Payment of any amount due under the mortgage no. 7828892.1 to Westpac New Zealand Limited secured over the property.
iii)The costs of the liquidators, the Assignee for Kim Spencer and the Assignee for Susan Spencer of and incidental to the proceedings in 4114 and 6629 as ordered in terms of the order in [31] above. In the event that the sum available is insufficient to meet the actual and reasonable costs in full the sum is to be shared pro-rata.
iv)Any balance remaining shall be held by the liquidators for two months pending any claim by the Assignee for Susan Spencer or the Assignee for Kim Spencer or any other person claiming to be entitled. If no claim is made the balance shall be disbursed by the liquidators to the person or persons otherwise entitled in accordance with the liquidation.
[33] Leave is reserved to the parties to apply for further directions if required,
including any necessary modification of the orders recorded above.
Peter Woodhouse J
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