Havenleigh Global Services Limited v Henderson
[2015] NZHC 1761
•29 July 2015
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2010-409-000559 [2015] NZHC 1761
IN THE MATTER of the Insolvency Act 2006 AND
IN THE MATTER
of the bankruptcy of
DAVID IAN HENDERSONBETWEEN
HAVENLEIGH GLOBAL SERVICES LIMITED AND FM CUSTODIANS LIMITED
Judgment Creditors (Substituted
Creditors)AND
DAVID IAN HENDERSON Judgment Debtor
Hearing: 16 and 17 July 2015 Appearances:
M S R Palmer, QC and P V Cornegé for Official Assignee
D I Henderson (Bankrupt) in PersonT Cooley as counsel assisting the Court (excused from the hearing)
Ruling:
29 July 2015
PRE-EXAMINATION RULING (NO.1) OF ASSOCIATE JUDGE OSBORNE
as to information obtained on summonses and notices
HAVENLEIGH GLOBAL SERVICES LIMITED v HENDERSON [2015] NZHC 1761 [29 July 2015]
Introduction
[1] David Ian Henderson (Mr Henderson) was adjudicated bankrupt on
29 November 2010.
[2] He was to have been automatically discharged from bankruptcy in January
2014.
[3] The Assignee, in November 2013, filed a Notice of Objection to
Mr Henderson’s discharge, pursuant to s 292 Insolvency Act 2006.
[4] The Court has allocated 10.00 am, 3 August 2015 as the commencement of the public examination of Mr Henderson as required by s 295 of the Act, and Mr Henderson has been summoned accordingly.
[5] On 19 June 2015, the Assignee filed her report as required by s 296(1) of the
Act.
[6] By s 296(2) of the Act, it is provided:
296 Assignee’s report
(1) …
(2) The Assignee must report as to—
(a) the bankrupt’s affairs; and
(b) the causes of the bankruptcy; and
(c) the bankrupt’s performance of his or her duties under this
Act; and
(d) the manner in which the bankrupt has obeyed orders of the court; and
(e) the bankrupt’s conduct before and after adjudication; and
(f) any other matter that would assist the court in making a
decision as to the bankrupt’s discharge.
Mr Henderson’s interlocutory applications
[7] This judgment is in relation to that part of a Notice of Interlocutory Application of Mr Henderson in which he seeks two sets of orders in relation to the Assignee’s report. Mr Henderson seeks orders:
(a) striking out all of the evidence contained in the Official Assignee’s report or annexures that was obtained through a s 165 summons issued unlawfully; and
(b)striking out all of the evidence contained in the Official Assignee’s report or annexures that was obtained through a s 171 notice issued unlawfully.
[8] The Assignee opposes the applications.
The powers invoked by the Assignee
[9] Part 3, sub-pt 5 of the Act expressly deals with “powers of Assignee and Court to examine bankrupt and others”.1 Sections 165–169 provide for the private examination of the bankrupt and others. Section 165 provides:
165 Assignee may summon bankrupt and others to be examined
(1) The Assignee may at any time, before or after a bankrupt’s
discharge,—
(a) summon any of the persons listed in subsection (2) to appear before the Assignee, another Assignee, or a District Court Judge to be examined on oath in relation to the bankrupt’s property, conduct, or dealings; and
(b) require that person to produce and surrender to the Assignee or District Court Judge before whom that person appears any document in that person’s possession or control that relates to the bankrupt’s property, conduct, or dealings.
(2) The persons referred to in subsection (1) are—
(a) the bankrupt:
(b) the bankrupt’s spouse:
1 Insolvency Act 2006, ss 165–186.
(c) a person known or suspected to possess any of the bankrupt’s property or any document relating to the bankrupt’s property, conduct, or dealings:
(d) a person believed to owe the bankrupt money:
(e) a person believed by the Assignee to be able to give information regarding—
(i) the bankrupt; or
(ii) the bankrupt’s property, conduct, or dealings:
(f) a trustee of a trust of which the bankrupt is a settlor or of which the bankrupt is or has been a trustee.
[10] Section 171 provides additional power to the Assignee to obtain specified documents, in these terms:
171 Assignee may obtain documents
In addition to the power contained in section 165(1)(b), the Assignee may, by notice in writing, require the bankrupt, the bankrupt’s spouse, or any other person to deliver to the Assignee any document relating to the bankrupt’s property, conduct, or dealings in that person’s possession or under that person’s control.
[11] Mr Henderson submitted that the Assignee, in seeking the information which is the subject of these interlocutory applications, ought to have exercised powers which require the Court’s intervention. Thereby the information-gathering process would be “subject to the Court’s supervision”. The powers Mr Henderson refers to are those in ss 150 and 182 of the Act.
[12] Section 150 of the Act provides:
150 Warrant to search for and seize bankrupt’s property
(1) The court may issue a search warrant to the Assignee or any other person if there is reason to believe that any relevant property is concealed in a locality.
(2) The warrant may authorise the Assignee or other person named in the warrant, together with any assistants that may be necessary, to—
(a) enter and search the locality; and
(b) seize and take possession of any relevant property; and
(c) if necessary, use force to enter the locality, whether by breaking open doors or otherwise; and
(d) break open any box or receptacle at the locality, by force if necessary.
(3) In this section and in section 151,—
locality means any building, aircraft, ship, carriage, vehicle, premises, or place
relevant property means—
(a) any property of the bankrupt; or
(b) any document relating to the bankrupt’s property, conduct,
or dealings.
[13] Section 182 of the Act provides under the heading “Investigation of company controlled by bankrupt and associate”:
182Assignee may examine company documents, personnel, and shareholders
(1) If authorised by the court, the assignee or a person appointed by the assignee may exercise the power set out in subsection (2) in relation to a company that is associated with the bankrupt under subpart YB of the Income Tax Act 2007.
(2) The Assignee may—
(a) examine the documents of the company:
(b) examine any past or present director, employee, or shareholder of the company on oath about the company’s affairs.
(3) The examination of a person under subsection (2)(b) must be recorded in writing, and the person examined must sign the written record if required to do so by the Assignee.
[14] In submissions as to these alternative powers, Mr Henderson focused most of his attention on s 182 of the Act, to which I will return.2
[15] Mr Henderson made passing reference to the search and seizure powers under s 150. He referred to the “checks and balances” involved in the legislation,
including the fact that a warrant must be obtained from the Court.3 Search and
2 Below at [58]–[59].
3 Reference may be made to the legal advice provided by the Attorney-General, see David Parker
seizure under s 150 of the Act cannot be viewed as having been reasonably available to the Assignee – by s 150(1) a search warrant may be issued only if there is reason to believe that relevant property is concealed in a locality. There is no suggestion of concealment in this case. Rather, the Assignee was seeking documents from people who were believed to simply hold them. To the extent that the Assignee was seeking information (rather than documents or other property), s 150 of the Act plainly did not apply.
Mr Henderson’s more specific grounds of application
[16] Mr Henderson’s notice of application relied simply on the proposition that the evidence obtained pursuant to the Assignee’s summonses and notices was unlawfully obtained.
[17] In his submissions, Mr Henderson identified more particularly matters which he asserted involve unlawfulness. Those particular matters related to:
(a) the scope of the summons/notice;
(b) the absence of provision for witnesses’ expenses;
(c) the conduct of examinations; and
(d)the manner in which the Assignee has used the obtained information in her report.
The scope of the summons/notice
[18] Under ss 165(1)(b) and 171 of the Act, the documents which may be sought are those:
… relating to the bankrupt’s property, conduct or dealings.
[19] Under s 165(1)(a), the person summonsed may be examined:
Report of the Attorney-General under the New Zealand Bill of Rights Act 1990 on the
Insolvency Law Reform Bill (5 December 2005) at [50]–[51].
… in relation to the bankrupt’s property, conduct or dealings.
[20] This is a formulation of antiquity, going back in identical terms to the English legislation of the 19th century.
[21] Mr Palmer QC, for the Assignee, referred me to the Court of Appeal judgment in R v Russell in which the Court considered the predecessor provision to s
165(1) of the (2006) Act, namely s 68(1)(c) Insolvency Act 1967.4 The Court noted:
That section is extraordinarily wide in its ambit. The Official Assignee was investigating the bankrupt. The activities of Jojac were undoubtedly “capable of giving him information respecting the bankrupt”. We are satisfied that the Judge correctly concluded that the process was lawful and within the ambit of the section.
[22] The Court of Appeal’s observations in R v Russell cannot be automatically applied to the new (amended) provision in s 165(1) of the current Act. Whereas the current Act authorises the Assignee to issue a summons for examination “in relation to the bankrupt’s property, conduct, or dealings”, the former provision referred more expansively to:
… information respecting the bankrupt, his trade, dealings or property, or concerning his income from any source, or his expenditure …
(emphasis added)
[23] In R v Russell, the Court of Appeal’s reference to “an extraordinarily wide ambit” is explained at least in part by the fact that under the 1967 Act, a person could be summoned to be examined as to any information “respecting the bankrupt …”. The Assignee’s power under s 165(1) of the 2006 Act no longer expressly includes such subject-matter. But under s 165(2)(e), the persons able to be summoned expressly include a person believed by the Assignee to be able to give information regarding the bankrupt in the alternative to a person believed to be able to give information regarding the bankrupt’s property, conduct, or dealings. Thus, by what is clearly a careful distinction in s 165(2)(e), the 2006 Act implicitly recognises that at the time of issuing a summons the Assignee may be pursuing information as to a
bankrupt’s property, conduct, or dealings by pursuing the examination of people with
4 R v Russell CA 449/96, 26 June 1997 at 4 per Robertson J, delivering the judgment of the Court.
knowledge of the bankrupt. This is so even when the Assignee is uncertain how far that knowledge extends.
[24] Thus, the specific purpose of a summons under s 165(1)(a) of the 2006 Act must be in order to examine a person in relation to the bankrupt’s property, conduct, or dealings, but not including the purpose of pursuing information simply “respecting the bankrupt” (as would have been permissible under s 68 of the 1967
Act). But the combined effect of ss 165(1)(a) and 165(2)(e) is that the fact that the proposed examinee is believed to have information respecting the bankrupt is a sufficient basis for the issue of a summons.
[25] The authorised subject-matter of an examination under s 165(1)(a), namely in relation to “the bankrupt’s property, conduct, or dealings”, is by its very nature expansive.
[26] In earlier litigation, I had to consider a different argument raised by Mr Henderson as to a suggested limited scope of s 165(1)(a) subject-matter.5 In particular, Mr Henderson focused on the concept of “conduct”. Mr Henderson had initially argued that the concept of “the bankrupt’s conduct”, as referred to in s 165 and other sections, must have a relationship to the bankrupt’s property. I found:
[43] … The word itself as used in the legislation is not further defined or limited in that way. There is no reason in terms of the text itself to limit the sweep of the term.
[44] A broad construction of the need for the term “conduct” is reinforced by reference to the purpose of the Insolvency Act and of the particular provisions dealing with information and documents.
[45] These are provisions concerned with the need of the Assignee to be as fully informed as possible in matters relating to the bankrupt’s affairs so as to enable the Assignee to carry out any one or more of the functions which arise under the Act. Contrary to Mr Henderson’s apparent perception at the time of his District Court examination, those functions are not focused solely on identifying the bankrupt’s remaining property and recovering assets for the benefit of creditors. For instance, when the time arrives for the bankrupt’s otherwise automatic discharge from bankruptcy, the Assignee must consider the matters on which she is to report to the Court in any report under s 296(2) of the Act. Under that provision the Assignee must report as to:
5 Re Henderson, ex parte Havenleigh Global Services Ltd (in liquidation) [2014] NZHC 499.
(2) The Assignee must report as to—
(a) the bankrupt's affairs; and
(b) the causes of the bankruptcy; and
(c) the bankrupt's performance of his or her duties under this Act; and
(d) the manner in which the bankrupt has obeyed orders of the Court; and
(e) the bankrupt's conduct before and after adjudication;
and
(f) any other matter that would assist the Court in making a decision as to the bankrupt's discharge.
[46] A question facing the Assignee is whether the bankrupt’s past conduct creates a risk of future conduct to the detriment of the community. The Assignee may suspect that a bankrupt has entered into the management or control of a business in breach of s 149 of the Act. The Assignee will then wish to have information which informs her as to the bankrupt’s conduct and his dealings with other people. Such information may establish a degree of management or control of a business by the bankrupt.
[27] I adopt those conclusions. They apply not only to the specific expression
“conduct” but apply also to the expression “dealings”.
The attacked summonses
Information used in the Assignee’s report
[28] It is common ground that the information relied upon by the Assignee in her report includes information sourced from the record of the examination of three persons summoned for private examinations under s 165 of the Act, namely Raj Patel, William White and Jacob Saunders. The Assignee incorporates into her report those records of examination.
[29] I directed Mr Henderson to file and serve a marked-up copy of the Assignee’s report in order to show the passages of the report which, on Mr Henderson’s submission, should be removed. Mr Henderson’s marked-up copy of the report identified for removal material sourced from the examination of Messrs Patel, White and Saunders.
Private Examination of Mr White
[30] Mr Henderson’s submissions first focused on the summons to Mr White, with which I will also start.
[31] In the second paragraph of the summons, the proposed subject-matter of
Mr White’s examination is stated as being that:
… relating to your involvement in any business activities which involve directly or indirectly the bankrupt …
[32] Mr Henderson submitted that the subject-matter of examination as stated was beyond the provisions of s 165. He submitted that the stated purpose lent itself to Mr White’s being examined not only as to his business activities which involved Mr Henderson. He submitted the stated purpose would include any business activities (such as those of Grace MotorWorks Ltd (“Grace MWL”)) which might have nothing to do with Mr Henderson.
[33] On a reading of the second paragraph of the summons according to its plain meaning, the Assignee’s intention was to examine on activities which involved Mr Henderson (whether directly or indirectly). I do not view the stated subject- matter as falling outside the provisions of s 165. Even had the stated subject-matter been arguably too wide (which I do not find), the Court’s appropriate task would have been to consider the actual subject-matter of the examination itself in order to determine whether the examination dealt with irrelevant material. I will return to that enquiry after considering the documentary material referred to in the summons.
[34] Mr Henderson objects to the breadth of the documentation required to be produced under the third paragraph of the White summons. He notes particularly a requirement to produce documents relating to the dealings or property not only of Mr Henderson, but also of Grace MWL. Of the three categories of particular documents identified in the summons, Mr Henderson accepts that the third category “Emails sent to or received from Mr Henderson (since 29 November 2010)” falls within s 165(1)(b). Mr Henderson submits that the requirement for production of Mr White’s employment agreement and the company’s delegations of authority in relation to the bank accounts are beyond the scope of s 165.
[35] The subject-matter of documentation as stated in the third paragraph is too broad to the extent that in its terms it requires documents which relate to “the dealings or property of Grace MWL”, whether or not they relate to the dealings or property of the bankrupt. To that extent, I consider the summons was inappropriately drafted. It should have indicated in some way that such documents of Grace MWL were required only if they also related to the bankrupt’s property, conduct or dealings. Mr Palmer did not address submissions specifically to the use of the formula “the dealings or property of Grace MWL”. Rather, he focused his submissions on the nature of examination reasonably required when the Assignee is endeavouring to identify whether there exist documents which connect the bankrupt by his conduct or dealings to a particular person (be it natural or corporate).
[36] Section 165 of the Act clearly permitted the Assignee (and Mr Henderson did not suggest otherwise) to pursue by private examination information and documents relating to Mr Henderson’s dealings with Grace MWL. Mr Palmer placed the request for “delegations or authority to operate bank accounts of Grace MWL” in this category – if there had been a delegation of authority to Mr Henderson such would clearly amount to a dealing with the company. Mr Palmer submitted that the examiner was also entitled to ask questions and seek documents which would contextualise any dealings which Mr Henderson had with Grace MWL or particular employees or officers. The request for a copy of Mr White’s employment agreement is not directly connected to Mr Henderson. Mr Palmer places this information in a “context” setting, potentially allowing the examiner to understand where Mr White fits in the Grace MWL structure. This would allow the examiner to understand if there is direct evidence of Mr Henderson’s dealings with Mr White, whether those were dealings also with Grace MWL and, if so, at what particular level of its operation.
[37] I view information in documents of the nature sought in the summons as involving legitimate context for the more specific questions to be asked of Mr Henderson’s conduct or dealings. Such information and documents have a potential to enable the examiner to more accurately assess the nature of any dealings Mr Henderson had with Grace MWL.
[38] This approach is consistent with the purpose of the Assignee’s power to conduct private examinations. That purpose has been summarised, accurately in my view, by Kalev Crossland as the author of “Personal Bankruptcy and Insolvency” in Laws of New Zealand where he says:6
261. Purpose of Assignee’s power to examine. The purpose of the Assignee’s power to summon and examine certain persons as to the property and transactions of a bankrupt is to enable the Assignee to obtain information and to be as fully informed as possible in respect of the property and transactions of the bankrupt. It is in part a recognition that in many cases information as to the bankrupt’s affairs and dealings will be incomplete. Accordingly, except to the extent that the Court will intervene to prevent the Assignee will be widely interpreted.
[39] The case primarily cited for this commentary is the decision of the Court of Appeal in Re Smith (a bankrupt).7 In that case the wife of a bankrupt appealed against a refusal to set aside a summons issued for her examination under s 68 of the
1967 Act (the predecessor provision to s 171 of the 2006 Act). The Court of Appeal held that on an application to set aside a s 68 summons, the applicant must demonstrate to the Court that the issue of the summons was oppressive and not fair in the circumstances.8 The Court placed the need for the Assignee to be fully informed as to the dealings of the bankrupt in the context of the frequent situation that the Assignee’s knowledge of the bankrupt’s affairs and dealings will often be
incomplete. The Court recognised a need to equip the Assignee with the same information as would have been available to the bankrupt prior to the intervention of bankruptcy, assuming proper records had been kept.9 On application of the stated principles, the Court dismissed the wife’s appeal.
[40] The subject-matter of a summons will be legitimate if it is such as will provide relevant, informative context to questions which deal more directly with the bankrupt’s property, conduct or dealings.
6 Laws of New Zealand, Personal Bankruptcy and Insolvency, (Reissue 1) at [261] (citations omitted).
7 Smith v Official Assignee [1992] NZFLR 241 (CA), also reported as Smith (a bankrupt) (1991) 8
FRNZ 328 (CA).
8 At 244, 331.
9 At 245, 332.
Payment of expenses
[41] Section 167 of the Act provides:
Expenses of person summoned by Assignee
A person who is summoned by the Assignee for examination –
(a) is entitled to be paid the prescribed expenses of attending the examination; and
(b) does not default in attending if those expenses have not been paid or tendered to him or her before the examination.
[42] One must follow a somewhat circuitous route to determine what expenses may be payable to an examinee.10 While Mr Henderson did not direct detailed submissions towards the expenses which should have been paid, it appears that the examinees would have been entitled to a witness fee of $25 or $50 (depending upon the time involved) and would have been entitled to reasonable public transport costs.11
[43] Mr Henderson, in the course of his submissions, endeavoured to provide evidence “from the Bar” as to discussions which (he said) Mr White had had with the Assignee as to witness expenses. The suggestion is that Mr White was misled to believe that he had no such entitlement. Mr Henderson noted that the summons issued did not record or explain the entitlement to expenses under s 167 of the Act. He submitted that the summons became an unlawful summons through the Assignee’s failure to provide expenses to Mr White, combined with the express threat contained in the summons that Mr White could be arrested in the event he refused to attend without lawful impediment. Mr Henderson referred to the provision in s 167(b) of the Act whereby a summonsed person does not default in attending if his or her expenses have not been paid or tendered before the examination.
[44] Mr Henderson’s complaint in this regard must fail upon the basis that it is not
supported by evidence. Even were it so supported, I would not have been satisfied
10 Insolvency (Personal Insolvency) Regulations 2007, reg 13 provides for “expenses of attending examination”, requiring the examinee to be treated as if a witness for the purposes of the Witnesses and Interpreters Fees Regulations 1974.
11 Witnesses and Interpreters Fees Regulations 1974, Schedule, cls 3 and 8.
that a failure to tender witness expenses would have been a substantial basis to rule that the Court should not, at Mr Henderson’s public examination, have access to the examination records. Any failure to tender expenses does not go to the reliability of the examination record. The Court is conducting a public examination in the public interest (as well as creditors’ interests) – any breach of the Assignee’s responsibilities with regard to witness expenses should not impair the Court’s access to the examination record. Any rights the examinee has to the payment of expenses under s
167 of the Act remain and may be enforced.
The conduct of Mr White’s examination
[45] Mr Henderson submitted that the examination of Mr White had been conducted according to an unlawful process and that the record of examination should be excluded also on that basis.
[46] According to the record, Mr White’s examination was conducted on 15 April
2015 between 9.32 am and 10.27 am. Present were the Deputy Assignee, Kelly Serrant, and Dennis Parsons and Katherine Kenealy, both described as agents of the Official Assignee. All questions asked of Mr White were asked by either Mr Parsons or Ms Kenealy. In submissions Mr Henderson indicated that he understands that Mr Parsons is an accountant from Hamilton. He did not refer to Ms Kenealy’s employment circumstances.
[47] Mr Henderson submitted that where a person is summoned for examination before an Assignee under s 165(1)(a) of the Act, the power to examine cannot be delegated. The term “Assignee” as used in s 165(1)(a) has the meaning defined in s 3 of the Act (namely a person appointed to Assignee or Deputy Assignee positions under the Act). Mr Henderson submitted that if the Assignee is allowed to “delegate” examination responsibilities to others, who may not be “properly trained” or answerable to the Official Assignee, the strict privacy of the examination would
be jeopardised.12 Mr Henderson submitted that Parliament could not have intended
that the Assignee would have others conduct the questioning at a private examination.
12 See Insolvency Act 2006, s 169.
[48] Mr Palmer submitted that there is nothing in the provisions of the Act to preclude the examining Assignee from having another person ask questions on the Assignee’s behalf. Mr Palmer noted that the express requirement of s 165(1)(a) of the Act is that the person in question be summoned to appear before an Assignee or a District Court Judge. The provision is silent as to who may examine.
[49] I was not referred to any authority on the issue. In my view the correct application of the legislation is clear. The person involved is summoned to appear before either an Assignee or a District Court Judge “to be examined”. The conduct of the examination is in the control of that Assignee or District Court Judge. If Mr Henderson’s submission were correct, then in the cases where the examination was before a District Court Judge it would be for that Judge alone to ask all the questions, a suggestion which appears to have little practicability and is one which, on my experience of examination records, has not occurred in practice. The Court has the conduct of the examination, but may permit others to ask questions which achieve the purpose of the examination. Whether the examination is before an Assignee or a District Court Judge, it makes sense that someone with either specific expertise or understanding of the issues is permitted to ask the questions. The Assignee or District Court Judge conducting the examination has the responsibility of conducting it according to the law, affording the process the safeguard of being conducted by either an officer of the Court or the District Court Judge.
[50] This approach parallels what is also the correct approach under s 295 of the Act, in relation to public examinations. In terms of s 295(1), it is the Court which must conduct the examination. Section 295(1) provides that the bankrupt must be “publicly examined by the Court concerning his or her discharge.” Notwithstanding that express wording of s 295(1), questions may be asked of the bankrupt (with the Court’s permission) by other persons (as provided for in s 177 of the Act). In short, the Act itself recognises in relation to a s 295 examination the distinction between the “examination by the Court” and the asking of questions.
[51] I conclude, in relation to a private examination under s 165 of the Act, that it was permissible for the Assignee, while conducting the private examinations, to permit other persons to ask the questions.
The subject-matter of Mr White’s examination
[52] The typed transcript of Mr White’s examination occupies 19 pages.
[53] Mr Henderson submitted that the content reveals that the examination focused on people and matters irrelevant to a consideration of “the bankrupt’s property, conduct or dealings”. To illustrate his point, Mr Henderson took me to a number of passages of transcript which contain no express reference to Mr Henderson, but deal with matters such as the structuring and financing of Grace MWL. For instance, Mr Henderson took me to page 12 of the transcript where Mr White gave answers as to the location of the company’s bank accounts and the source and destination of payments.
[54] As I may ultimately, upon the public examination, have to reach factual determinations as to matters involving Grace MWL, I here refrain from detailed examination of passages in the examination records. It is sufficient to state, for present purposes, that there is an apparent connection between Mr Henderson’s property, conduct, and dealings, Grace MWL itself, and Mr White. Early in the examination Mr White identifies himself as a sole director of Grace MWL. Shortly afterwards, in answer to a question as to how Grace MWL is financed, Mr White replies: “The company is financed by our good friend Mr Henderson.” The examination proceeds with further questions and answers as to the detail of Grace MWL’s workings and occasional references to Mr Henderson.
[55] The Assignee was entitled to pursue knowledge to support or clarify reasonable suspicions as to dealings which Mr Henderson may have had with Grace MWL. Whatever conclusions I may reach upon the public examination of Mr Henderson, the record of Mr White’s private examination indicates a level of involvement between Mr Henderson and Grace MWL which a responsible Assignee might consider worthy of further investigation or submission.
[56] An aspect of Mr Henderson’s submissions indicated, at least in part, a concern for the privacy of other individuals. A number of others are referred to in the course of Mr White’s examination. The fact that others are discussed or identified is not a basis for challenging the production of the records of private
examinations at the public examination. If the involvement of those individuals in some way informs the ultimate conclusions in relation to the bankrupt’s property, conduct, or dealings, the material will be properly before the Court. The Court has the appropriate powers to protect to any extent appropriate the legitimate privacy interests of any persons affected by the examination.
[57] In a related submission which was focused upon the rights of other persons, Mr Henderson submitted that the Assignee should have pursued significant parts, if not the whole, of the subject-matter of Mr White’s private examination by instead obtaining Court authorisation pursuant to s 182 of the Act to examine Grace MWL and to examine Mr White as its director.
[58] There is nothing in the circumstances of Mr Henderson’s bankruptcy which required the Assignee to utilise s 182 of the Act for the purpose of examining Mr White. Section 182 is not free from difficulty in that it first requires a relatively complex analysis under Subpart YB of the Income Tax Act 2007 as to whether a particular company is “associated with the bankrupt”. A detailed analysis might have resulted in the conclusion that Grace MWL was so “associated”. But, if it was, the s 182 power of investigation is simply one of the powers available to the Assignee. Its focus as intended by Parliament may be reflected in the heading which precedes ss 182 and 183, being: “Investigation of company controlled by a bankrupt and associate”. Unlike the earlier sections (ss 165 to 181) where the required subject-matter of investigation is the “bankrupt’s property, conduct, or dealings”, s 182 is not so constrained. The provision clearly authorises examinations where the focus is upon investigating the affairs of the company either instead of, or in addition to, the affairs of the bankrupt.
[59] Provided the subject-matter pursued by the Assignee relates to the bankrupt’s property, conduct, or dealings, the power to summon for private examination under s 165 of the Act is available in relation to the persons identified in s 165(2). It matters not that the Assignee may have been able to bring herself within s 162 of the Act as well.
Private examinations of Raj Patel and Jacob Saunders
[60] Mr Henderson’s complaints as to the subject-matter of the private examinations of Mr Patel and Mr Saunders were based on the same issues as raised in relation to Mr White’s examination.
[61] For the same reasons as apply to Mr White’s examination, the subject-matter was appropriate to a s 165 private examination.
Documents obtained pursuant to s 171 of the Act
The persons to whom a s 171 notice may be directed
[62] Section 171 of the Act, which I have fully set out earlier, identifies three requirements in relation to any notice to be given, namely:13
(a) Notice may be given to the bankrupt, the bankrupt’s spouse, or any other person.
(b)The notice must seek a document in that person’s possession or under that person’s control.
(c) The document must relate to the bankrupt’s property, conduct, or
dealings.
[63] Mr Henderson submits that s 171 of the Act does not permit the giving of such a notice to a corporate entity. First, Mr Henderson submits that the term “other person” takes its meaning from the preceding words “the bankrupt” and “the bankrupt’s spouse”. As the two earlier entities are natural persons he submits that
“any other person” must also be a natural person.14 I do not find such an approach to
interpretation as of assistance in this case. In fact it would be likely to cut across a purposive approach to interpretation.15 The bankrupt and the bankrupt’s spouse are
amongst the most obvious of persons who may hold documents relating to the
13 At [10] above.
14 Specifically invoking the ejusdem generis principle of interpretation.
15 As required by Interpretation Act 1999, s 5(1).
bankrupt’s property, conduct or dealings. The apparent intention of Parliament in providing the alternative – “or any other person” – was to include a literal catch-all, encompassing any person holding such documents. To fulfil that purpose it cannot matter whether the other person is an individual or company. As documentation as to the bankrupt’s dealings will frequently be held by companies, including professional bodies and banks, any interpretation of s 171 which would preclude the giving of notice to a company would strip the Assignee of an important aid in the pursuit of her responsibility to assemble a comprehensive understanding of the
bankrupt’s property, conduct and dealings.16
[64] Mr Henderson notes, secondly, that s 171 of the Act expressly refers back to s 165(1)(b) of the Act. As s 165 provides for a summons to attend for examination, it can apply only to natural persons, Mr Henderson submits that s 171 should also be so limited in its application. I do not recognise the degree of linkage between the two sections which Mr Henderson’s submissions assume. The words used in s 171, namely “In addition to the power contained in s 165(1)(b)” are plainly intended to provide an additional power in its own terms. There is no suggestion in the wording of the legislation that limitations which may attach to a summons under s 165 should apply to a notice under s 171 of the Act. The power to obtain documents by a requirement in a notice is substantially less intrusive than a summons for examination.
[65] Mr Henderson submits, thirdly, that s 171 should not be construed so as to apply to companies as to do so would create a surplusage of provision within the Act. He suggests that the power to examine company documents under s 182 of the Act serves the same purpose as that for which the Assignee utilised s 171. Mr Henderson submits that if the Assignee’s construction of s 171 is correct, it would “cover every single example” and s 182 would be completely redundant. For the reasons earlier discussed, it is plain that the power under s 182, while potentially
overlapping with that under s 171, has additional work to do.17 For instance, it is not
16 The provision under s 261(1) Companies Act 1993 empowers the liquidator of a company by notice in writing, to require a director of shareholder … “or any other person” … to deliver company records to the liquidator, similarly without any qualification that the “person” must be a natural person.
17 At [58]–[59] above.
limited by the s 171 requirement that the documents sought must relate to “the bankrupt’s property, conduct or dealings”. Even were the two sections to be available in identical circumstances, that would not entitle the Court to disregard the choice of powers given by Parliament to the Assignee.
[66] Through 2014, the Assignee issued a number of s 171 notices.
The s 171 notices served on Xero
[67] Mr Henderson, in his evidence in support of this application, recorded his belief that the s 171 notices were unlawful. He identified as a significant example a notice issued to Xero on 24 July 2014.
[68] In paragraph 99 of the report, the Assignee deals with the notice to Xero. The notice referred to the Assignee’s power under s 171 of the Act to call for any document relating to the bankrupt’s property, conduct, or dealings in Xero’s possession. The notice then recorded:
Investigations by the Official Assignee confirm Mr Henderson is involved directly or indirectly in the operation of two companies, Spinach Design Limited and AFB Treasury Limited. Both of these companies use Xero to record their financial transactions.
This investigation seeks to determine the nature and extent of the undisclosed assets of Mr Henderson and the source and disposition of funds which have flowed through these companies.
The Assignee then in her notice requested Xero to provide a username and password for both Spinach Design Ltd (“Spinach”) and AFB Treasury Ltd (“AFB”).
[69] Xero, rather than providing the requested username and password, provided physical documents in the nature of a report showing credits and debits of each account for the period up to 29 August 2014 (Xero’s records), including transactions between AFB and Spinach. In a subsequent notice dated 31 March 2015, the Assignee requested the same type of information in the same format as previously supplied but for the additional period to 31 March 2015.
[70] The documents obtained by Xero are treated by the Assignee as the source of information incorporated in various parts of her report.18
[71] At the time the first notice was served on Xero, the Assignee had already conducted a number of private examinations including of Mr Patel. The Assignee refers at paragraph 129 of her report to relevant information obtained from Mr Patel, particularly in relation to Mr Henderson’s instructions in relation to AFB. Dealings between AFB and Spinach were also identified.19
[72] Mr Henderson has deposed in relation to the notice issued to Xero:
It claims, quite falsely, that the Official Assignee’s investigations confirm that I am involved “directly or indirectly in the operation of two companies Spinach Design Ltd and AFB Treasury Ltd”.
They seek to determine the “source and disposition of funds which have flowed through these companies”. Such enquiry is outside the provisions of section 171 and more properly considered under the provisions of section
182.
The notice did not seek “any documents relating to the bankrupt’s property, conduct or dealings” – but rather a user name and password.
Nor was material sought in the possession or control of the compliance manager of Xero, or indeed any other person at Xero.
[73] Mr Henderson asserts on these grounds (with parallel grounds relied on for other s 171 notices issued by the Assignee) that the Assignee’s notice was unlawful. Mr Henderson added that the s 171 notices were “purposefully false and defamatory”.
[74] For the Assignee, Mr Palmer rejected the allegations of bad faith on the part of the Assignee and of irrelevance of subject-matter. I have read the Assignee’s report in full. Having regard to its contents, Mr Henderson falls far short of establishing a lack of good faith on the part of the Assignee in issuing the s 171 notices. I will again be measured in what I say in relation to the state of information available to the Assignee as I am likely to have to reach firm conclusions on at least
some of these matters following the public examination. I therefore focus on the
18 Assignee’s Report at paragraphs 119, 123, 125, 127, 130 to 133.
19 Assignee’s Report at paragraphs 124 to 125.
foundation which the Assignee had for her decision to investigate Mr Henderson’s role in relation to AFB and other companies with whom AFB had financial dealings. Mr Patel’s examination had indicated that Mr Henderson was a beneficiary of funds distributed from AFB. In turn AFB received funds from other entities. Mr Henderson (not Ms Buxton) would provide the instructions in relation to payments and receipts. At least seven other companies (including Spinach) were involved in such transactions with AFB.
[75] The Assignee asserts against this background:
(a) the source and disposition of funds flowing through the companies in question was therefore relevant to Mr Henderson’s property, conduct and dealings;
(b)section 15 Electronic Transactions Act 2002 (which applies to the Insolvency Act) entitles a legal requirement to be met by electronic means; and
(c) a username and password are encompassed within the definition of “document” in s 3 Insolvency Act. Xero is a cloud-based software system. The arrangement reached between Xero and the Assignee meant that the Assignee was provided with Xero’s records.
[76] I find that the Assignee was justified in viewing Xero as able to deliver documents relating to Mr Henderson’s property, conduct or dealings. Through the extended definition of “document” under s 3 of the Act, the documents which the Assignee is empowered to require under s 171 include the electronic record held by Xero. The subject-matter of those documents (“the source and disposition of funds which have flowed through these companies”) was clearly identified in the notice of
24 July 2014. Given that a practical arrangement was reached between Xero and the Assignee whereby Xero provided physical forms of the electronic record, the Assignee’s request for a “user name and password” for each of the companies became superfluous. The Assignee was entitled to seek and view the electronic record itself.
[77] There is a suggestion in Mr Henderson’s submission that the Assignee should have narrowed down Xero’s requirement so as to identify specific entities within the expected record and to redact remaining entities. I reject that approach as impracticable and unsound as a matter of logic. For the purpose of her investigation, the Assignee reasonably needed to see the full record of dealings. As with the summonses, the Assignee, in order to take an informed position in relation to Mr Henderson’s bankruptcy and discharge, reasonably required knowledge of the context of dealings in which Mr Henderson may have been involved. A legitimate purpose of such investigation is to allow the Assignee to ensure, so far as it is possible, that she has knowledge of all the relevant background that the bankrupt
himself would know and understand.20
[78] In short, the comprehensive records that Xero held in relation to AFB and Spinach were an obvious and justified subject-matter of a s 171 requirement when the Assignee issued her notice.
The s 171 notices served on other persons
[79] Although Mr Henderson focused on the Xero notice as his principal example, his challenge for parallel reasons was to all the s 171 notices issued by the Assignee. I have reviewed each. I do not find the Assignee to have been unjustified in her decision to issue any of those notices.
[80] Mr Henderson, in his oral submissions, raised a separate concern as to a notice issued to the Canterbury Earthquake Recovery Authority (CERA). By that notice, the Chief Executive of CERA was required to provide all emails between CERA and Mr Henderson (at various identified email addresses) between November
2010 and May 2014.
[81] Mr Henderson objected to the CERA notice upon the basis that the emails in question may have included emails of a personal nature with individuals at CERA.
Mr Henderson did not provide an evidential basis for that suggestion. Given that the
20 See the concept of the “reconstitution” of knowledge as discussed in Cloverbay Ltd (joint administrators) v Bank of Credit and Commerce International SA [1991] Ch90, [1991] 1 All ER
894 ((1A); filed in Re Northrop Instruments and Systems Ltd [1992] 2 NZLR 361 (HC) at 363 per McGechan J. See also Smith v Official Assignee above n 7, at [32].
emails sought were in relation to Mr Henderson’s email dealings with an organisation such as CERA, the Assignee in requiring from CERA the comprehensive record of Mr Henderson’s dealings did not pursue documents outside the provisions of s 171 of the Act.
Outcome
[82] Mr Henderson has not established that any s 165 summons or s 171 notice issued in relation to his bankruptcy was unlawfully issued. Equally, there is no basis upon which the Court should strike out any of the evidence contained in the Assignee’s reports or annexures which was obtained through such summonses or notices.
[83] In the circumstances, it is unnecessary that I consider an alternative submission of Mr Palmer. In the event I was to have held (which I do not) that any information or documents were unlawfully obtained, Mr Palmer submitted that the Assignee’s reliance on such material obtained through a defective procedure for the purposes of her report was justifiable on the proportionality approach under s 30
Evidence Act 2006, or by analogy to that approach. Given my conclusion at [83]
above I refrain from further examining that submission.
Orders
[84] I order:
(a) Mr Henderson’s application for an order striking out such evidence contained in the Official Assignee’s report or annexures as obtained through a s 165 summons is dismissed.
(b)Mr Henderson’s application for an order striking out such evidence contained in the Official Assignee’s report or annexures as was obtained through a s 171 notice is dismissed.
(c) The costs of the applications are reserved.
Solicitors:
Anthony Harper, Christchurch
Kensington Swan, Auckland
Copy to Mr D I Henderson, Christchurch
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