Havenleigh Global Services Ltd v Henderson
[2016] NZHC 2969
•9 December 2016
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2010-409-000559 [2016] NZHC 2969
IN THE MATTER of the Insolvency Act 2006 AND
IN THE MATTER
of the bankruptcy of DAVID IAN HENDERSON
BETWEEN
HAVENLEIGH GLOBAL SERVICES LIMITED AND FM CUSTODIANS LIMITED
Judgment Creditors (Substituted
Creditors)AND
DAVID IAN HENDERSON Judgment Debtor
Public
Examination:
Submissions:
3-7, 11-14, 19-20 August, 27 October 2015
10-12 October 2016
Appearances:
J N Foster and C R Vinnell for Official Assignee
D I Henderson (bankrupt) in personT Cooley (counsel assisting the Court) (attending for submissions)
Livingspace Properties Ltd (in liq) and FM Custodians Ltd
(objecting creditors) (excused from attendance)Judgment:
9 December 2016
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
under ss 298 – 299 Insolvency Act 2006
HAVENLEIGH GLOBAL SERVICES LIMITED v HENDERSON [2016] NZHC 2969 [9 December 2016]
The public examination of a bankrupt ...............................................................[1] The statutory regime ............................................................................................[4] Sections 298 – 299 Insolvency Act [4] The Court’s discretion under s 298 of the Act [7] The Court’s discretion under s 299 of the Act [12] What is the subject-matter of a public examination? [15] What is not the subject-matter of the public examination? [16] The circumstances of Mr Henderson’s adjudication in bankruptcy .............[19] The immediate cause of bankruptcy [19] The broader background to Mr Henderson’s bankruptcy [22] Extent of indebtedness at adjudication [28]
(a) Form of claims submitted by creditors [40] (b) Calculation of interest [41] (c) “Overstated claim” – Allied Farmers Investments Ltd
(Allied Farmers) [42] (d) “Overstated claim” – Bank of New Zealand (BNZ) [44] (e) “Overstated claim” – SCF (now CAM) [45] (f) “Overstated claim” – Dominion Finance Group Ltd (Dominion) [47] (g) “Overstated claim” – Equitable [48] (h) “Overstated claim” – FM Custodians Ltd (FM Custodians) [49] (i) “Overstated claim” – Inland Revenue Department (IRD) [50] (j) “Overstated claim” – Strategic Finance Limited (Strategic) [51] (k) Unlisted creditors’ claim – Mr Henderson’s sister and brother-in-law [52]
(m) Cross-claim – Allied Farmers [53] (n) Cross-claim – SCF [54] Summary of the extent of Mr Henderson’s indebtedness [55] Objections to discharge......................................................................................[59] Mr Henderson’s pre-adjudication conduct......................................................[61] First bankruptcy – 1996 to 1999 [61] The direct causes of Mr Henderson’s present bankruptcy ............................[72] Personal guarantees of the debts of companies and an associate [74] Personal taxation liability – the RFD advances [94]
Mr Henderson’s business approach as explained to the Ministry of
Economic Development [116] Corporate structure established between 1999 and 2010 [121] Standard of corporate management [124] Corporate management approach [129] Administration [133] Rulings and judgments of matters previously litigated ................................[152] Behaviours identified in judgments and rulings [152] Early taxation offences [153]
Mr Henderson’s agent-liability for GST on the Christchurch City
Council sale – August 2008 [154] (a) Issue [154] (b) The Taxation Review Authority decision [157] (c) Related litigation – PVIL v Commissioner of Inland Revenue [167] (d) Further related litigation – Commissioner of Inland Revenue
v Forbes [170] (e) Mr Henderson’s evidence at public examination [172] Financial Reporting Act offences – September 2008 [175]
(a) Issue [175] (b) The District Court and appeal judgments [179] Personal guarantee to Strategic – December 2008 [181] (a) Issue [181] (b) The Strategic judgment and appeal [184] (c) Mr Henderson’s evidence in the public examination [188] Tax liabilities of Atlas and other companies – mid-2009 [194] (a) Issue [194] (b) The High Court judgment [198] Mr Tubbs’ recovery of documents and information – July 2009 [202] (a) Issue [202] (b) Court orders of August 2009 [207] (c) Mr Henderson’s examination [208] Non-payment of rent to Tuam Ventures and lease cancellations – September 2009 [209] (a) Issue [209] (b) The judgment [211] Mr Oorschot’s recovery of documents and information – September 2009 [219] (a) Issue [219] (b) The Court orders of September 2009 [226] (c) Mr Henderson’s submissions [227] Diversion of PAYE deductions made by Dweller – April to October 2010 [228] (a) Issue [228] (b) The judgments [231] (c) Mr Henderson’s submissions [242] Mr Henderson’s income of $144,337.59 – 1 April 2010 – 31 March 2012 [244] (a) Issue [244] (b) The final decision of December 2014 [247] (c) Evidence at the public examination [252] Spinach’s and Gibbston’s non-payment of PVL’s statutory demand –
July 2012 [260] (a) Issue [260] (b) The High Court, Court of Appeal and Supreme Court judgments [263] RFD’s non-payment of Sol’s statutory demand – August 2013 [273] (a) Issue [273] (b) The judgments in the High Court and the Court of Appeal [279] (c) Mr Henderson’s evidence and submissions at public examination [282] Assignee’s need for production of Mr Henderson’s documents:
March 2014 – April 2015 [285] (a) Issue [285] (b) The outcome of the ordered production [289] Travel appeal – May 2015 [290] (a) Issue [290] (b) The appeal judgment [291]
Matters not previously litigated ......................................................................[296] Unmet assessments of the IRD [297] Non-filing of tax returns [304] Failure to maintain adequate books and records [310] Insolvent trading and breaches of financial reporting requirements [315] Evaluation of Mr Henderson’s pre-adjudication conduct............................[321]
Discussion [334] Conclusion [336] Mr Henderson’s insight into the commercial failure and his bankruptcy ..[339] The Assignee’s submissions [340] Mr Henderson’s submissions [342] Discussion [345]
(a) Guarantee liabilities as a cause of insolvency [349] (b) Taxation liabilities [356] (c) Administrative abilities [365] (d) Financing of future ventures [368]
Credit where credit is due................................................................................[374] Success in business [374] The design and integrity of buildings [376] Post-earthquake dealings in relation to insurance and CERA designations [379] Information for receivers and liquidators [384] Mr Henderson’s entrepreneurial skills [388] An interest-based approach to discharge .......................................................[390] Public and community interest [393] Mr Henderson’s interests [399] Interests of creditors ........................................................................................[402] Commercial morality and the conduct of the bankrupt [404] Balancing of the interests [408] Conclusion – drawing the threads of the various interests together ...........[416] Restrictions under s 299(1) Insolvency Act [416] Conditions under s 298(1) Insolvency Act [424] The date at which discharge becomes effective [429] Mr Henderson’s conduct during bankruptcy ................................................[433] The issue as raised by the Assignee [433] Mr Henderson’s response [434] The Court’s approach to post-bankruptcy conduct in this case [435]
An unusual event reported – November 2016 [440]
Orders................................................................................................................[446]
The public examination of a bankrupt
[1] David Ian Henderson (Mr Henderson) was adjudicated bankrupt on 29
November 2010. He was to have been automatically discharged from bankruptcy on
12 January 2014.1 The Official Assignee objected.2
[2] The Court was therefore required by s 295 Insolvency Act 2006 (the Act) to conduct a public examination of Mr Henderson. There was a delay in the commencement of the public examination.
[3] The Assignee filed her Report (under s 296 of the Act) on 19 June 2015, followed by a Supplementary Report on 31 July 2015. The public examination of Mr Henderson took place (insofar as Mr Henderson was examined) from August
2015. There was then further delay before submissions were presented in October
2016.
The statutory regime
Sections 298 – 299 Insolvency Act
[4] By s 298 of the Act, the Court may grant or refuse the discharge of a bankrupt, conditionally or unconditionally. By s 299 of the Act, the Court may restrict the bankrupt from engaging in business after discharge.
[5] For the Assignee, Ms Foster submits that the Court should: (a) refuse an order of discharge; or
(b)(if the Court discharges Mr Henderson) restrict Mr Henderson from engaging in business after discharge.
[6] Mr Henderson submits that he should be immediately discharged without condition or restriction.
1 Insolvency Act 2006, s 290(1) applying.
2 Pursuant to Insolvency Act 2006, s 292(1), Notice of Objection filed on 28 November 2013.
The Court’s discretion under s 298 of the Act
[7] The judgment of the Court of Appeal in ASB Bank v Hogg contains the authoritative statement as to the breadth of the Court’s discretion in relation to discharge under s 110 of the Insolvency Act 1967 (now s 298 of the Act):3
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. In providing for earlier discharge, s 108 recognises that continuing the bankruptcy to the end of the three years may not be in the public interest. Whether or not it is will be a matter for decision on the particular facts. In that regard, guidance is provided by s 109(2) which lists matters on which the Assignee is to report to the High Court in such a case. 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. Clearly the Court apprised of the matter will consider the legitimate interests of the bankrupt, the creditors and wider public concerns, but it is neither required nor entitled to impose threshold requirements in the exercise of the discretion so as to derogate from the breadth of the powers conferred under s
110. The applicant has the onus, in the sense of adducing evidence, to show good cause for ordering an early discharge, but his obligation goes no further
than that.
[8] In Re Whitelaw, White J reviewed and summarised the approach which the
Court adopts in relation to what is now s 298 of the Act:4
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.
3 ASB Bank v Hogg [1993] 3 NZLR 156 (CA) at 157–158.
4 Re Whitelaw HC Hamilton CIV-2004-419-1647, 10 September 2010 at [20] citing ASB Bank v Hogg, above n 3; Re Anderson HC Hamilton B213/89, 14 April 1992; and Re Edwards HC Auckland CIV 65/98, 13 May 2003 (upheld on appeal: Edwards v Official Assignee CA 236/03,
1 April 2004).
d)Public interest factors may, however, mean that an order of discharge should be refused.
e)As indicated by the matters on which the Official Assignee is required to report under [s 296(2) of the Act], 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.
[9] Ultimately, as recognised by the Court of Appeal at the commencement of the passage in Hogg, it is the circumstances of the particular case, having regard to the guidance provided by a consideration of the scheme and purpose of the Act, which govern the exercise of the discretion in relation to discharge.5
[10] The authorities, as reviewed and summarised in Re Whitelaw involve what may be described as an “interest-based” approach.6 I regard that approach, as identified in the Court of Appeal’s judgment in Hogg, as binding upon me. As Mr Cooley (as counsel assisting the Court) submitted, the interest-based approach also recognises the breadth of discretion available to the Court and the fact that the exercise of the discretion is very much fact-dependent.7
[11] The discretion extends, in terms of s 298, to the imposing of conditions on a discharge.
The Court’s discretion under s 299 of the Act
[12] The Court, if ordering discharge, may in its discretion under s 299 of the Act prohibit a bankrupt from engaging in business after discharge. The list of interests and other factors identified in Re Whitelaw are relevant also in relation to a business
prohibition order.
5 ASB Bank v Hogg, above n 3.
6 Re Whitelaw, above n 4.
7 An alternative approach, focussing on the purposes of bankruptcy, appears to have been favoured by Associate Judge Bell in a number of cases including Darby v Official Assignee [2013] NZHC 22 at [13] – [26]. The judgment of the Court of Appeal in ASB Bank v Hogg, above n 3 brings the “scheme and purpose of the legislation” into account in its interest-based approach.
[13] I also recognise as a more comprehensive list of potentially relevant matters those identified by Sinclair J in Ramsay v Sumich, when considering an application for leave to be involved in the management of the company under s 188(a)(i) Companies Act 1993:8
(1) The protection of the interests of the public from injury; (2) The interests of creditors;
(3) The interests of shareholders;
(4) The interests of company employees; (5) The interests of investors;
(6) The interests of other persons who have dealings with the company; (7) The nature of the disqualifying offence;
(8) The nature of the applicant’s involvement; (9) The general character of the defendant;
(10) The conduct of the defendant during the intervening period since disqualification;
(11) The nature of the business that the defendant desires to or has become involved with;
(12) The structure of the company;
(13) The risk of or actual injury to the public;
(14) Whether or not leave was sought to become involved in the management of the company and whether as a director or otherwise.
[14] Sinclair J provided his list in the context of prohibitions under the Companies Act. While some of the matters identified have a focus on an application for leave to be involved in a specified company, they are for the most part considerations which may be taken into account whenever the Court has before it the possibility of a
business prohibition.
8 Ramsay v Sumich [1989] 3 NZLR 628 (HC) at 633.
What is the subject-matter of a public examination?
[15] The appropriate subject-matter of the public examination is indirectly identified in s 296(2) of the Act which identifies the matters which the Assignee must cover in her report. It is there provided:
(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.
What is not the subject-matter of the public examination?
[16] The public examination, with its focus on the bankrupt’s insolvency, conduct and dealings, is not a forum for the investigation of complaints which the bankrupt may have as to the conduct of the Assignee or her officers. Bankrupts from time to time have such complaints. They have avenues by which they may pursue them. Mr Henderson has issued proceedings alleging misconduct on the part of the Assignee’s officers in relation to the administration of Mr Henderson’s bankrupt estate. The existence of those complaints and the proceedings may properly be viewed as a background matter in this proceeding but the appropriate proceeding in which the validity or otherwise of Mr Henderson’s complaints is to be determined is that other
proceeding.9
[17] Examples of allegations made by Mr Henderson which cannot properly form part of this public examination include allegations that officers of the Assignee set out to embarrass Mr Henderson and that an officer has misled the Court and others in
relation to the handling of computer software containing Mr Henderson’s personal
9 Henderson v Attorney-General (as representative of the Ministry of Economic Development)
CIV-2014-409-445.
documents. Mr Henderson chose in his submissions to focus significantly on these allegations. He frequently returned to them despite the Court’s repeated reminder as to the proper subject-matter of the public examination. On the other hand, some of the interaction between the Assignee’s staff and Mr Henderson had potential relevance. An example of such interaction is documentary evidence filed by both Mr Henderson and the Assignee and oral evidence of Mr Henderson as to his dealings with two officers of the Assignee, Terry Marshall and Grant Slevin, in relation to work Mr Henderson might undertake. Such discussions would inform any question of the bankrupt’s misconduct in relation to his responsibilities under s 149 of the Act. As it happens, the need to consider issues of misconduct as a bankrupt fell away as I reached the conclusions set out in this judgment.
[18] A further, repeated aspect of Mr Henderson’s submissions was the proposition that the Assignee had failed in her duty as an officer of the Court to present an impartial and fair s 296 report. Mr Henderson described the Assignee’s reports as having “infected” the public examination. He called upon the Court to consider referring the Assignee to a disciplinary body for sanction. The focus of the process which gives rise to this judgment had to remain upon the bankrupt, in the light of the evidence. It is not the function of this judgment to pursue a parallel investigation into the quality or bona fides of the Assignee’s report. Any demonstrated inadequacies in the report, procedural or more fundamental, might lead the Court to take some steps in appropriate circumstances, but that would be as a step distinct from the process of giving judgment on the subject-matter of the public examination.
The circumstances of Mr Henderson’s adjudication in bankruptcy
The immediate cause of bankruptcy
[19] Mr Henderson’s adjudication in bankruptcy (through this proceeding) flowed from an unsatisfied judgment debt. In February 2010, Gold Band Finance Ltd (Gold Band) obtained summary judgment against Mr Henderson for $811,994.05. Mr Henderson’s debt arose from his guarantee of a loan which Anthem Holdings Ltd had obtained from Gold Band. Mr Henderson committed an act of bankruptcy in
April 2010 when he failed to comply with Gold Band’s bankruptcy notice. Gold
Band applied for an order of adjudication.
[20] Matters were subsequently resolved between Gold Band and Mr Henderson. Havenleigh Global Services Ltd (Havenleigh) (which had in October 2009 obtained judgment for $70,318.91 against Mr Henderson) was substituted as creditor in the proceeding. Before the adjudication hearing, Mr Henderson, on an informal basis, put an “Outline of Creditor’s (sic) proposal under Insolvency Act 2006” to his creditors. Mr Henderson was unable to obtain the necessary majority support for his
proposal. He was then adjudicated bankrupt.10
[21] At the date of his bankruptcy, the most up-to-date information in relation to Mr Henderson’s debts was contained in a schedule attached to Mr Henderson’s proposal. Mr Henderson stated that he did not consider he would have any assets available for creditors if adjudicated bankrupt. In his schedule of creditors he estimated his (undisputed) debts as amounting to $164,753,625.89 (with an estimated value of security for those debts totalling $77,960,000). Mr Henderson identified “disputed debts” of $3,070,126.95.
The broader background to Mr Henderson’s bankruptcy
[22] Mr Henderson was previously adjudicated bankrupt in August 1996. He was automatically discharged from that bankruptcy in August 1999. Mr Henderson subsequently established further commercial interests. The Assignee’s research of companies associated with Mr Henderson indicates that Mr Henderson has been a director of 120 companies (most of those after 1999).
[23] In the decade before his second (the present) bankruptcy, Mr Henderson’s associated companies became involved in property development, accommodation and hospitality. Upon discharge from his first bankruptcy, Mr Henderson became increasingly involved with a company known as Property Ventures Ltd (PVL). He became a director of PVL in 2002, later becoming Managing Director. He also
became, through his related interests, PVL’s majority shareholder. He was later to
10 Havenleigh Global Services Ltd v Henderson CIV-2010-409-559, 29 November 2010.
describe the Board of Directors of PVL as having “a mandate to pursue some very entrepreneurial property development opportunities”. The development opportunities pursued by PVL fell into three categories:
(a) At Queenstown, in a property development project which came to be known as “Five Mile”;
(b) In Christchurch, in an area of development that came to be known as
SOL Square (“SOL” standing for “South of Lichfield”);
(c) Student-focused accommodation facilities at Christchurch, Dunedin and Invercargill (called Livingspace).
[24] While PVL’s interests were being pursued, Mr Henderson developed other business interests through companies outside the PVL group. He entered into numerous personal guarantees of company debts, including those of the PVL group.
[25] Difficulties began to be experienced with funders in the second half of 2007. The financial position of the PVL Group and other entities associated with Mr Henderson declined as the Global Financial Crisis (the GFC) developed in 2008 and worsened. Ultimately, of the companies under Mr Henderson’s control, 17 were placed in receivership, 52 went into liquidation and a further 36 were struck off without being put into liquidation or receivership.
[26] In a period between October 2009 and February 2010, Havenleigh and Gold Band obtained judgments against Mr Henderson as referred to at [19] – [20] above. On 5 March 2010, PVL was placed in receivership. Other judgments against Mr Henderson personally followed. The High Court made an order putting PVL into liquidation on 27 July 2010. In the meantime, the creditor’s application had been filed which led to Mr Henderson’s adjudication on 29 November 2010.
[27] The Assignee has researched the available information as to the reported losses to creditors of companies of which Mr Henderson has been director. She reported that the losses to creditors of companies placed in receivership totalled
$198,251,790 and losses to creditors of companies that went into liquidation totalled
$219,160,093. There is a significant overlap between the two figures because some companies went into both receivership and liquidation. The final realisation of some residual securities may have yet to occur and the figures may reduce. On any assessment, however, the losses within the various groups have been very substantial. The fact that the PVL liquidators are pursuing claims against former directors for a sum in excess of $100 million suggests (whether or not responsibility for losses can ultimately be sheeted home to any of the directors) that the losses of PVL alone, even after recoveries, remain substantial.
Extent of indebtedness at adjudication
[28] The most detailed research into Mr Henderson’s personal indebtedness at the time of his adjudication was that conducted by Mr Henderson himself for the purposes of the informal proposal to his creditors shortly before adjudication. Mr Henderson’s contributions, as identified at [21] above, were:
(a) Total creditors (both disputed and undisputed) – $164,753,625.89; (b) Creditors (undisputed) – $161,683,498.94.
[29] Mr Henderson claimed no personal assets from which he could have made any immediate payment. He and his wife, Kristina Buxton, have at least one family trust, namely the FTG No. 2 Trust. Mr Henderson is a discretionary beneficiary.11
[30] At the time of Mr Henderson’s adjudication it was already apparent that it was unlikely that any dividend would be paid to creditors unless Mr Henderson was
to arrange a payment from outside his personal assets. The Act in such
11 The evidence adduced includes a deed dated 20 August 2003 establishing the “FTG Trust” and a Deed of Variation of Trust dated 30 January 2007 by which the name of that trust was changed to “FTG No. 2 Trust”. The trustee was FTG Trustee Services Limited of which Mr Henderson was (until his bankruptcy) the sole director and shareholder. During his examination Mr Henderson appeared to suggest that there may have been an earlier “FTG Trust”, settled in 1999. He has produced neither deed nor other documents relating to any separate trust. The only reliable evidence indicates that the FTG No. 2 Trust is the single, relevant trust in relation to the dealings of Mr Henderson which are the subject of his examination.
circumstances did not require the Assignee to examine creditors’ claim forms and the
grounds of their claims.12
[31] In the course of the administration of Mr Henderson’s estate, the Assignee had prepared her own list of known creditors with known details. The Assignee’s summary as at 12 June 2015 was:
(a) Claims submitted by creditors – $229,782,340;
(b) Amounts still claimed by creditors at 12 June 2015 – $213,084,599. [32] Following evidence given by Mr Henderson in the public examination, the
Assignee rechecked the status of creditors’ claims. The Assignee’s recalculations
reduce the 12 June 2015 total by $44,736,055.
[33] Notes to the Assignee’s calculations recognised that the balances for two major creditors – Crown Asset Management Ltd (CAM) (previously South Canterbury Finance Limited (in rec)) (SCF) and Equitable Property Holdings Limited (Equitable) – do not allow for the sale of loans and securities. Recoveries in that regard would reduce pro tanto the liabilities in Mr Henderson’s estate.
[34] On the other hand, Mr Henderson is a defendant in the claim brought by the liquidators of PVL against former directors for approximately $100 million. The potential exposure of Mr Henderson’s estate on that claim has been deliberately omitted from the Assignee’s debt calculations.
[35] Notwithstanding the Assignee’s decision, by reason of lack of funds in the
estate, to not work through the formal admission of claims, the Assignee from 3
December 2012 embarked on a lengthy period of correspondence with Mr
Henderson concerning the accuracy of particular claims. The Assignee produced her
12 June 2015 table following that correspondence.
12 Insolvency Act 2006, s 234(1).
[36] Mr Henderson took issue with the Assignee’s total calculation of confirmed debts. He did so before the commencement of the public examination, signalling disputes over the Assignee’s calculations to the extent of $177,729,123 (which would have still left undisputed debt in the region of $35,355,476). This led to the Assignee undertake further enquiries of claimants and to file immediately before the commencement of the examination her Supplementary Report with updated figures.
[37] Mr Henderson continued through his public examination to dispute both the components of and the total indebtedness. In the course of the examination, Mr Henderson gave evidence that some of the Assignee’s figures were too high. In other cases, Mr Henderson stated that he had made arrangements to pay the creditors or reduce the indebtedness. He stated that the present level of his estate’s indebtedness would now be down to $30 million or $40 million (apart from the PVL claim). Mr Henderson stated that he intended to complete his own table of figures which would be presented with columns showing realisations and other adjustments. He proposed to adopt his own schedules from the original creditors’ proposal and to annotate those. Mr Henderson indicated that he would present such a schedule as part of his evidence and answer any questions and issues around it.
[38] No such schedule was ever produced. In the absence of such an exercise undertaken by Mr Henderson, it is appropriate that the Court has substantial regard to the detailed exercise Mr Henderson undertook in presenting his creditors’ proposal around the time of his adjudication and to the Assignee’s investigation.
[39] I take account of the following matters raised by Mr Henderson which, in his submission, impact on the reliability of the Assignee’s figures:
(a) Form of claims submitted by creditors
[40] In correspondence with the Assignee, Mr Henderson took issue with the form of claims (particularly claims filed electronically) made by some creditors. In the context of debts which generally have a commercial origin and documentation, I do not view any matters of form as likely to have substantially altered the overall financial picture.
(b) Calculation of interest
[41] Mr Henderson expressed a concern to the Assignee that her calculations may have included interest on creditors’ claims for the post-adjudication period. In her review, the Assignee did not find any post-adjudication interest claims. She recognises that the imprecise nature of some claims might have entailed some inclusion of such interest but she identified on the other side of the ledger also a measure of under-claimed (pre-adjudication) interest. Having regard to the extent of recognised indebtedness at the time of Mr Henderson’s adjudication, the level of any post-adjudication interest claims is immaterial in the present context.
(c) “Overstated claim” – Allied Farmers Investments Ltd (Allied
Farmers)
[42] First, Mr Henderson questions the Assignee’s inclusion of a figure of
$5,112,211 which Mr Henderson had included in his creditors’ proposal. He explained in evidence that he has not seen the settlement statement in relation to the realisation of security which was held for that debt. The Court has not been provided with the documentary evidence which would clarify that matter.
[43] Secondly, the Assignee included in the June 2015 table as a contingent claim an Allied Farmers claim of $83 million relating to the guarantee liabilities over PVL’s Five Mile project. Mr Henderson gave evidence that the Five Mile loan fell into arrears in early-2008 and was at the time $53 million (including pre-paid interest). Penalty interest then ran at 27 per cent per annum. Mr Henderson stated that the $59 million was recovered from sales in 2008 – 2009 (implicitly by the receivers). Mr Henderson could not state precisely what amount was owing at the date of his bankruptcy, other than it was less than $83 million. Again, this is not a context in which the Court can reach a reliable conclusion as to the precise balance owing.
(d) “Overstated claim” – Bank of New Zealand (BNZ)
[44] Mr Henderson included the BNZ as a creditor for $8 million in his creditors proposal. The June 2015 table, after allowing for a $6,500,000 recovery by the receivers, has the debt at $1,565,914. Mr Henderson says that there is still an
insurance claim to be settled and a property to be sold, which “will mean that that will be eliminated”. Again, the Court does not have the evidence to assess the probability of full recovery.
(e) “Overstated claim” – SCF (now CAM)
[45] The June 2015 table has the SCF debt at $14,107,894. Mr Henderson stated that there would have been sales in the meantime but that the more relevant matter is that the debts owed to SCF have since been acquired by the FTG No 2 Trust.
[46] In his written submissions, Mr Henderson stated that he was aware that the SCF debt was acquired for $100,000 on the basis of the settlement of a number of claims. The details of settlement were a subject neither of his evidence nor any exhibit produced.
(f) “Overstated claim” – Dominion Finance Group Ltd (Dominion)
[47] The June 2015 table has the Dominion debt at $58,622,158. Mr Henderson gave evidence that he believes that Dominion has effected a substantial settlement of claims against the valuers who valued relevant company assets. He says that he has been unable to obtain details of the settlement.
(g) “Overstated claim” – Equitable
[48] The June 2015 table has the debt to Equitable at $31,420,258, taking into account recoveries of slightly over $8 million from the realisation of securities and insurance claim proceeds. Mr Henderson states that there is a fourth secured property yet to be sold and insurance proceeds still to be received. In this instance, again, he says that an entity associated with the FTG No 2 Trust has purchased the debt. His evidence is that “at the end of the day, there will be no balance owing”. He said that he intended to provide (at his examination) documentation relating to these matters. He did not do so.
(h) “Overstated claim” – FM Custodians Ltd (FM Custodians)
[49] The June 2015 table has FM Custodians at $11,669,567, with a note that an additional $5 million may be received from an insurer. Mr Henderson’s evidence is that there is indeed an insurance claim to be finalised but also a building sale yet to occur. He says that he believes there will be a “complete” recovery.
(i) “Overstated claim” – Inland Revenue Department (IRD)
[50] The June 2015 table had the IRD as a preferential unsecured creditor for
$1,762,669 and as an unsecured creditor for $2,271,320. Mr Henderson chose not to give evidence as to the status of those assessments, saying that he would make submissions in relation to them. His written submissions on the extent of his indebtedness did not, in fact, refer to the IRD debts.
(j) “Overstated claim” – Strategic Finance Limited (Strategic)
[51] The June 2015 table has Strategic at $2,187,122 (which apparently takes into account recoveries). Mr Henderson’s debt to Strategic became the subject of summary judgment on 16 August 2010.13 Mr Henderson observed in relation to the debt to Strategic that it had been the subject of an appeal which he filed but which was subsequently not pursued following his bankruptcy. It falls to be fully allowed
as a judgment debt.
(k) Unlisted creditors’ claim – Mr Henderson’s sister and brother-in-law [52]
Mr
Henderson’s evidence establishes that in August 2008, when his
associated companies were financially struggling, Mr Henderson borrowed
$1,500,000 from his sister and brother-in-law to assist those entities. The debt was not identified by Mr Henderson in his list of creditors at adjudication. Consequently, it was not identified by the Assignee in her tables. The various calculations of Mr Henderson’s indebtedness through to his examination were therefore understated to
that extent.
13 Strategic Finance Ltd v Henderson HC Christchurch CIV-2009-409-1731, 16 August 2010, summary judgment for $2,370,126.97 (with costs reserved).
(m) Cross-claim – Allied Farmers
[53] In his evidence, Mr Henderson stated that he has a cross-claim which could be set up against Allied Farmers by reason of a failure of Hanover to honour mortgage obligations owed to PVL in relation to the Five Mile project. Mr Henderson stated that the mortgagee was “to provide further funding once we had met key performance indicators, which were met”. Any contractual entitlement of PVL in relation to such further funding cannot be measured by this Court on the evidence adduced.
(n) Cross-claim – SCF
[54] Mr Henderson stated that SCF had obligations to provide further funding on a Tuam Street property and in relation to a Christchurch hotel property known as “Hotel So”, which were spelt out in a contractual document. Mr Henderson observed in his evidence, however, “We’re less concerned about those, it was more the others”. He went on to refer to claims relating to the way in which SCF had dealt with him and others before SCF’s receivership. Mr Henderson referred to these as “very real issues” which must be taken into account. Again, the Court does not have in evidence the documents on which Mr Henderson premises such cross-claims. The Court cannot measure whether there would be a tenable cross-claim. In his submissions, Mr Henderson stated (without support through evidence) that the SCF debt had been “acquired for $100,000 on the basis of settlement of a number of claims”.
Summary of the extent of Mr Henderson’s indebtedness
[55] The fact that there were no realisable assets within Mr Henderson’s bankrupt estate has meant that the scrutiny to which the Assignee must often submit creditors’ claims has not occurred in this case. Some exploration of Mr Henderson’s concerns as to the creditors’ claims was suggested in the examination when Mr Henderson indicated he would go on to produce his own table and calculations. Such a step would have been helpful, particularly as it is Mr Henderson’s evidence that he has been active in assisting and exploring realisations with creditors. Mr Henderson did not take that step.
[56] In the context of the examination the Court is therefore unable to adopt, as to the probable extent of the indebtedness of Mr Henderson’s bankrupt estate, a particular figure. The appropriate course is to recognise that the indebtedness is likely to fall within a range. The bottom figure of the range will be well in excess of Mr Henderson’s $40-$50 million estimate as Mr Henderson was substantially influenced in arriving at that estimate by a view that the figure at which the corporate debts he had guaranteed were compromised and sold reflects the indebtedness which ought to be taken into account. It does not. The Court has regard to the debt for which liability existed – not the figure at which someone may later have purchased the impaired debt and/or remaining assets.
[57] At the other end of the spectrum is the figure representing the maximum level of indebtedness. It appears, at least in a few cases, that creditors with security over corporate assets have yet to finalise realisations. That said, the substantial majority of realisations has already occurred. There may be other adjustments to make, including in relation to items such as post-adjudication interest, and those cumulatively may amount to some millions of dollars.
[58] I consider it appropriate to regard the total indebtedness of Mr Henderson’s
bankrupt estate as falling somewhere in the range of $100 million to $150 million.
Objections to discharge
[59] On 26 November 2013, the Assignee (pursuant to s 292 of the Act) gave
notice of objection to Mr Henderson’s discharge from bankruptcy. On 6 December
2013, three creditors gave notice of their intention to object, subject to the Court’s leave if required under s 292(1) of the Act. The objecting creditors were Dweller Ltd (in liq) (Dweller), Livingspace Properties Ltd (in liq) (Livingspace), and FM Custodians (as custodial trustee of the Canterbury Mortgage Trust Group Investment Fund).
[60] The Assignee had not until then had occasion to examine the proofs of debt of the objecting creditors. The Assignee in early 2014 examined the proofs of Livingspace and FM Custodians and admitted them. They therefore fall to be treated
as “creditors” within the meaning applying under s 295 (and related provisions of the
Act).
Mr Henderson’s pre-adjudication conduct
First bankruptcy – 1996 to 1999
[61] Mr Henderson was first adjudicated bankrupt on 29 August 1996. The
Assignee’s summary of that bankruptcy indicates:
(a) Mr Henderson’s indebtedness arose substantially from personal guarantees which he had given in the course of operating a number of entities;
(b) his debts as admitted were $440,354.59 by the Assignee;
(c) the only property recovered by the Assignee during the bankruptcy was a preferential payment of $6,938.38 recovered from the Inland Revenue Department (IRD);
(d)a very small dividend (arising from that recovery) was paid to creditors;
(e) Mr Henderson was automatically discharged from bankruptcy in
August 1999.
[62] Mr Henderson was examined as to how he organised his affairs before his present bankruptcy. Ms Foster for the Assignee questioned Mr Henderson upon the basis that, both before his first bankruptcy and subsequently, he has effectively protected family assets from the consequences of personal guarantees by company structures or trusts. Mr Henderson did not accept that such was the purpose of his structuring but he accepted that it may have been the effect.
[63] Mr Henderson stated that he disputed the (first bankruptcy) indebtedness figure of $440,354.59. He did not accept that the only payment made to creditors
was a dividend from the $6,938.38 recovery. Mr Henderson has not produced any calculations of his own or documentary evidence.
[64] Mr Henderson, in his examination, continued that it was not his intention to walk away from his 1996 debts. He stated that, both during and after his first bankruptcy, he worked extensively with the Assignee’s office to deal with creditors and to reduce the debt to creditors. He described himself as “an enormously cooperative bankrupt”, with a focus on returning funds for the creditors. He did not provide a specific instance of a repayment for either the general benefit of creditors or any named creditor. He repeatedly referred to the excellent relationship which he had enjoyed during his first bankruptcy with Robin MacDuff of the Insolvency Service. He suggested that Mr MacDuff might have been called to speak of such co- operation, but the extent of any resources effected through Mr Henderson’s efforts outside his bankrupt estate would not be reflected in any records or information kept or held by the Assignee or Mr MacDuff.
[65] Mr Henderson’s evidence in relation to work undertaken to repay creditors was very generalised. It may be contrasted with the records of the Assignee which indicate the making of a very modest distribution as a result of the recovery of a single ($6,938.38) asset.
[66] Mr Henderson’s general assertions as to satisfaction of debt may be best explained by evidence he gave as to the first bankruptcy which, in this regard, has a close parallel to the present. Mr Henderson stated, “during the course of the bankruptcy, debts were acquired from entities associated with me, in post-bankruptcy I continued to deal with these creditors to satisfy them”. I asked Mr Henderson to clarify what he meant by the reference to other entities, to which Mr Henderson answered, “[a]h, I believe, Sir, that there was an entity that was run by a colleague that acquired some of these debts, Sir.” When questioned on the identity of the purchaser of the debts, Mr Henderson responded, “Sir, I can’t recall exactly who that was. It would have been a friend or colleague of mine, Sir, but I can’t recall I’m, sorry.” And shortly afterwards Mr Henderson stated that the creditors who had been paid out by his colleague had received “full repayment of their debts”. He has
provided no documentary or particularised evidence of a single instance of full repayment of a debt.
[67] Mr Henderson’s evidence in relation to the present bankruptcy is that the debts of a number of creditors have been purchased at a discount by other entities (including at least one – the FTG No 2 Trust – associated with Mr Henderson). The recorded reference to “debts [being] acquired from entities associated with me” suggests that an approach may have been adopted in the first bankruptcy similar to that adopted in some cases in the present bankruptcy. Associated entities may have acquired impaired debts at a discount. Given Mr Henderson’s commercial nous, it is improbable that such debts would have been acquired at face value.
[68] Had Mr Henderson’s debts been fully satisfied or even compromised to the
approval of all creditors, he would have been eligible for annulment under s
309(1)(b) Insolvency Act. Mr Henderson confirmed that he made no attempt to have his bankruptcy annulled.
[69] I conclude that in relation to Mr Henderson’s first bankruptcy there was no significant recovery for creditors. That circumstance arose from the fact that the personal guarantee liabilities which substantially made up Mr Henderson’s indebtedness were not backed by any assets owned by Mr Henderson personally.
[70] A final feature of Mr Henderson’s first bankruptcy is that it occurred at a time when a related company, Tannadyce Investments Ltd (Tannadyce), was in dispute with the IRD. The issues had begun over a Tannadyce GST claim. Mr Henderson says that the IRD’s actions (including search and seizure and the issuing by the IRD of notices against banks and other parties) completely diminished his ability to do business. That situation was followed by the IRD assessing Tannadyce for tax of just under $1 million. Mr Henderson says that this is the context in which he was adjudicated bankrupt in late-1996. Mr Henderson says that the IRD put improper pressure on him through his bankruptcy and that, subsequently, through an investigation by an independent party, the situation was resolved by IRD withdrawing its Tannadyce tax assessment and refunding $65,000 to Tannadyce.
[71] I recognise that the pressures which Mr Henderson would have been experiencing by reason of the Tannadyce/IRD issues would have had an impact on his ability to focus on his personal financial issues. But there is no compelling explanation as to why the financial situation confronting Tannadyce as a limited liability company would have created Mr Henderson’s inability in 1996 to meet personal indebtedness of $440,354.59. The reality was that Mr Henderson himself had arranged his personal affairs in such a manner as to leave him with no assets to meet his liabilities. He was insolvent because of that arrangement.
The direct causes of Mr Henderson’s present bankruptcy
[72] The direct causes of Mr Henderson’s bankruptcy – those which involved his personal liability – are in three categories:
(a) insolvency through his inability to honour his personal guarantee of company indebtedness;
(b) insolvency caused by his inability to honour his guarantee of an
associate’s indebtedness; and
(c) insolvency arising from his inability to meet his taxation liabilities. [73] The major indirect causes of Mr Henderson’s present bankruptcy lie in the
way in which the companies associated with Mr Henderson managed their affairs, as affected by the GFC.
Personal guarantees of the debts of companies and an associate
[74] Mr Henderson on his own evidence had no personal assets at the time of his second adjudication (as had been the case on his first adjudication). In the period before the present adjudication, as in the last, Mr Henderson provided a number of personal guarantees in relation to company debt.
[75] From at least 2005, the Taurus Group (Taurus) provided accounting and financial services to Mr Henderson and his associated entities. Taurus was
responsible for drafting for Mr Henderson statements of his financial position from time to time. Mr Henderson signed each statement. The Assignee has obtained three such documents prepared by Taurus. The documents (after setting out particularised
shareholdings and assets) provide the following totals in relation to Mr Henderson:
(a) Statement of position at January 2006
Assets
$51,321,799.00
Liabilities $19,926,250.00 Approximate net worth $31,395,549.00 (b)
Statement of position at March 2007
Assets $53,998,143.00
Liabilities $12,660,715.00 Approximate net worth $41,337,428.00 (c)
Statement of position at July 2007
Assets $55,028,143.00
Liabilities $23,109,985.00 Approximate net worth $31,918,158.00
[76] A fourth statement of position came into the examination in unusual circumstances on the first morning of the hearing of closing submissions. The statement of position is on a standard form bearing Marac’s name, completed in handwriting and signed by Mr Henderson, with attached a schedule of “Dave Henderson Companies” also signed by Mr Henderson. It is undated but was sourced from a Canterbury Legal Services file opened in July 2007 (for a Marac loan drawn down that month). The statement of position (after setting out particularised
shareholdings and assets) provides the following totals:
Assets $55,410,143.00 Liabilities $25,155,891.00 Estimated surplus $30,254,252.00
[77] The Marac statement of position was handed up in Court by Mr Henderson as an exhibit to a (copy) affidavit of Grant Smith (of Canterbury Legal Services) dated
6 October 2016. Mr Smith deposed that the statement of position and schedule had
clearly been prepared and provided together. The provision had impliedly been to Marac (which in turn granted the loan). I took the copy affidavit in but asked Mr Henderson to have the Canterbury Legal Services file produced so the Court could view the surrounding correspondence or other documents. Towards the end of his submissions, Mr Henderson advised me that he no longer wished to adduce the affidavit evidence. Given the relevance of the Marac statement of position, I made the decision to admit the copy affidavit in any event as a document in the examination. Mr Henderson has not made available the file on which Mr Smith says he located the exhibited documents.
[78] The evidence establishes that Taurus provided to financiers copies of the statements of position it had prepared in support of applications for finance for which Mr Henderson was to provide a personal guarantee:
· Dominion received the January 2006 statement of position and subsequently advanced some $25 million to companies associated with Mr Henderson. (Dominion later became a creditor in Mr Henderson’s bankruptcy claiming $58,622,158).
· Strategic received the March 2007 statement of position and advanced
$2,035,000 to a company nominated by Mr Henderson. (Strategic later became a creditor in Mr Henderson’s bankruptcy for $2,370,126.95 having obtained its opposed summary judgment on 16 August 2010.14
· Marac must have received the Marac statement of position in July 2007 – it advanced that month a sum which, in the absence of Mr Smith’s file, the Court cannot identify.
[79] Mr Henderson accepts that he personally had none of the assets as represented when his 2006 – 2007 statements of position were completed. In January 2007, he had gone so far as to execute declarations of bare trust of shares referred to in his statements of position. Properties listed in the statements of
position had never been owned beneficially by Mr Henderson. On his own
14 Strategic Finance Ltd v Henderson, above n 13.
statements, Mr Henderson’s declared income position over the period was no better than his asset position. In the period 2001 to 2007, Mr Henderson filed tax returns declaring that he had received no income in any year.
[80] Mr Henderson has had a number of opportunities to explain the use of the incorrect statements of position and his willingness to provide personal guarantees. At a meeting on 12 January 2011 with the Insolvency Service (shortly after his adjudication), Mr Henderson confirmed that he had no assets. He stated that his personal guarantees were always that he would use his best endeavours to return money to lenders and that the lenders would all have known that there was no actual money backing his guarantees. However, he adduced no evidence to support his contention.
[81] In his written closing following the public examination, Mr Henderson had this to say:
In the end my bankruptcy was driven by parties who held Personal Guarantees. I accept that they were fully entitled to call on their Guarantee and to press on with adjudication in the face of my inability to meet it.
[82] This statement, made in the course of submissions, must be contrasted with the opposition Mr Henderson presented, before his bankruptcy, when lenders sought to enforce the guarantees he had given.
[83] I have referred to the summary judgment obtained by Strategic in August
2010 pursuant to Mr Henderson’s guarantee.15 Strategic commenced that proceeding a full year before Mr Henderson was adjudicated bankrupt. Mr Henderson’s 2010 attempts to resist enforcement of that Strategic guarantee cannot be reconciled with the submission he now makes, namely that he accepts the full entitlement of the lenders to call on their guarantees. Mr Henderson initially (in October 2009) was prepared to and did sign an acknowledgment of debt recognising that he had no defence to the guarantee claim and undertaking not to enter a defence. He therefore effectively bought time in which to negotiate a payment arrangement. I accept Ms
Foster’s submission that Mr Henderson’s interim arrangements concerning, and later
15 Strategic Finance Ltd v Henderson, above n 13.
defence of, the Strategic litigation were steps intended to delay the obtaining of judgment. When the negotiations came to nothing, Mr Henderson (notwithstanding his admission of the debt) raised a number of defences, asserting:
(a) it had been agreed between Strategic and himself that he would have no personal liability on his guarantee;
(b)when he signed the loan documents, including the separate deed of guarantee, he did not read them; and
(c) when he signed the deed of acknowledgement of debt in 2009, it was agreed (with Strategic) that Strategic would withdraw its summary judgment application.
[84] French J found that Mr Henderson’s claims to have never read the loan documentation were negated by an express written acknowledgement when he received the documents that he would “be “looking at them” in a few minutes”.16 (During his public examination, Mr Henderson explained his statement as to “looking at [the loan documents] in a few minutes” in these terms, “Well, Sir, in my view there would be a considerable difference between looking at them and reading them Sir”). Finally, French J found that Mr Henderson’s contention that Strategic was to withdraw its summary judgment application upon his execution of the 2009 deed of acknowledgement was contrary to the unambiguous wording of the
acknowledgement itself, was “nonsensical” and was contrary to the conduct of both parties.17
[85] This resulted in the entry of summary judgment in favour of Strategic some
10 months after Mr Henderson had first signed his acknowledgement of debt in the course of the proceeding and 20 months after his debt liability had crystallised. Mr Henderson’s response to the judgment entered on the Strategic guarantee was to file
an appeal (subsequently, following his bankruptcy, abandoned).
16 At [43].
17 At [45].
[86] There was initially in the public examination a very close parallel in what Mr Henderson said about his personal guarantees to that which he had asserted (unsuccessfully) in his defence of the Strategic summary judgment claim. Mr Henderson began by explaining to me the purpose of the various guarantees which he gave. He said that the purpose was for the financiers to have someone who was willing to stand up and take responsibility for the situation and work with the creditor to resolve any later problems. When Ms Foster suggested to him that the personal guarantee documents which he signed committed him to a liability to repay the amounts being advanced if the principal debtor could not, he agreed. But he then suggested there was an understanding between him and the financiers which was not reflected in the documents. His position was explained in this exchange with Ms Foster:
Q. Why would you be prepared to sign documents that didn’t reflect the
understanding between you and the lender?
A. Because the understanding between the lender and I in terms of the personal guarantee was not that I would be able to meet that obligation, but the obligation was structured such that if there was a problem I would have good reason to be there working hard, taking responsibility to resolve the situation.
[87] This answer is similar to an explanation in his 2011 response to a report by the Ministry of Economic Development’s National Enforcement Unit (NEU) in which Mr Henderson asserted that the extent of his personal guarantees was that he would use best endeavours to return money. When I put his “best endeavours” statement to Mr Henderson, he explained it by reference to “the context”:
The context in which I have put that … is that there was never an intention by any party in taking my guarantee that absent a realisation of the asset that the debt related to, that they would call on that guarantee and expect a payment from me.
But elsewhere in his examination, Mr Henderson acknowledged that he had understood the guarantees to be contracts which he had entered into and which were enforceable in their terms. That had not stopped him defending Strategic’s claim on its guarantee, even after he had expressly acknowledged the debt.
[88] I am satisfied on the evidence relating to Mr Henderson’s personal guarantees
that:
(a) as in the case of the Strategic guarantee, liability existed in the express terms of each guarantee and that Mr Henderson had an immediate personal liability upon default in relation to each loan;
(b)false statements of Mr Henderson’s asset position were with Mr Henderson’s knowledge put to financiers in support of the borrowing which Mr Henderson was to guarantee; and
(c) Mr Henderson (but not his financiers) knew at all material times that he had no assets or recorded income to which the financers might have resort in the event of default.
[89] For these reasons, I accept the submission of Ms Foster that Mr Henderson’s conduct in relation to the loans arranged with the support of his personal guarantee amounted at least to gross recklessness.
[90] This circumstance is exacerbated by a further matter. The Board minute of PVL for November 2006 records that PVL had agreed to pay Mr Henderson a guarantee fee on guarantees he provided. The fee is recorded as $300,000 or 1.75 per cent of the loan, whichever is the lower. The loans to which these guarantees related were very large – in his examination, Mr Henderson was able to concede from memory that by 2007 he had guaranteed PVL loans from BNZ, SCF, Hanover, Equitable, Dominion, Property Finance Funding Nominees Ltd, Canterbury Mortgage Trust (CMT) and Otago Mortgage Trust (OMT). That the fees were the subject of a contractual commitment by PVL is reflected in a memorandum of Mr Forbes written to directors in December 2007 in which he refers to “unpaid loan guarantee fees” as one aspect of PVL’s exposure to “Dave”. Mr Henderson in his examination stated that he had never received any fees for these numerous guarantees. The fact remains that the Board of PVL clearly understood Mr Henderson’s guarantees to be viable, valuable guarantees and that he should accordingly be compensated for assuming such liabilities.
[91] Mr Henderson’s entry into guarantee liabilities which he was incapable of meeting has been a feature of both his bankruptcies. In relation to personal guarantees, Mr Henderson appears not to have learnt any lesson from the circumstances of his first bankruptcy. To the contrary, between his bankruptcies he appears to have embarked on the use of personal guarantees which, in the event of default by the principal, would leave him insolvent. The pledging of his personal credit in such circumstances and in the light of his false statements of position displayed reckless disregard for the interests of the creditors involved.
[92] Ms Foster questioned Mr Henderson as to what he would do differently in the future. She referred him to a statement he had previously made that he would not in future give personal guarantees. In further questioning he explained:
You know, I’m mindful that I gave those [guarantees] rather freely and as I’ve said the prime reason I gave those was because I do believe in standing behind deals and I so I gave those so they could have comfort. If there was a problem I would be there working away trying to fix that.
[93] Mr Henderson’s answers were an odd mix. On the one hand he appeared to be at a point of recognising some lack of caution (“I gave those rather freely”) which leads him to accept he should not in future provide guarantees. On the other hand he appeared to still maintain (despite a High Court judgment to the contrary) that the financiers involved in accepting the guarantees understood that they were not truly guarantees but were rather something akin to a letter of comfort, assuring only Mr Henderson’s commitment to seeing things through.
Personal taxation liability – the RFD advances
[94] I here focus on Mr Henderson’s personal tax obligations. In December 2010 the IRD provided to Mr Henderson’s tax agent (Graeme Stewart) and copied to the Assignee a statement of account in relation to Mr Henderson’s income tax liabilities. The account related to the financial years ending 31 March 2001 to 31 March 2007. The IRD claimed a total of $2,271,319.74 comprising income tax of $813,861.01 together with penalties and use of money interest.18 For those years Mr Henderson
had filed income tax returns which recorded nil income and nil expenses.
18 At the time Mr Henderson was adjudicated bankrupt, the IRD’s adjudication process in relation
[95] The Service Delivery Group (SDG) of IRD investigated money which had been paid to Mr Henderson or to his credit in the 2001 – 2007 period from RFD Investments Limited (RFD). Mr Henderson had been the sole director of RFD. Sums he received from RFD were recorded as loans within RFD’s financial statements (without interest). RFD throughout the 2001 – 2007 period returned losses. It did not pay income tax at any point after its incorporation. It was put into receivership on 18 June 2010.
[96] The SDG issued a Notice of Proposed Adjustment in September 2009. It proposed to assess as Mr Henderson’s income the loans from RFD (and also amounts referred to in the statements of another entity, Elgin Investments Limited). Mr Henderson issued a Notice of Response in November 2009, followed by the SDG’s Statement of Position in June 2010 and Mr Henderson’s Statement of Position in August 2010. Mr Stewart, as a taxation consultant, represented Mr Henderson in the dispute.
[97] The dispute was referred to the Adjudication Unit of the IRD in October 2010. The Determination of the Adjudication Unit was published in December. The loans from RFD were assessed as a tax avoidance arrangement with the consequence that the SDG’s proposed adjustments were accepted as correct. The IRD statement of account of December 2010 ($2,271,319.74) was based directly on the adjudication.
[98] The effect of the IRD Adjudication was to recognise that in the years between his bankruptcies Mr Henderson had, by tax avoidance arrangements and non- payment of any income tax, incurred increasingly substantial debt to the IRD. On Mr Henderson’s own evidence, the “debt” to RFD was unmatched by any assets. On
30 July 2006 Mr Henderson had provided a statement of his personal assets and liability position to the IRD. The statement showed as at 2004 a net liability position
of $705,550.
to the 2001 – 2007 years was almost at the point of completion. The IRD did not assess Mr Henderson’s personal taxation obligations beyond 31 March 2007 because of Mr Henderson’s supervening bankruptcy.
[99] The Assignee, in her report on this public examination, cites as the causes of Mr Henderson’s insolvency both the personal guarantee liabilities I have referred to and Mr Henderson’s taxation liabilities. The Assignee posited that the taxation liabilities alone would have rendered Mr Henderson insolvent even without his personal guarantee liabilities.
[100] On the evidence adduced, the Assignee’s position is correct. At the time he was adjudicated bankrupt, Mr Henderson’s taxation liabilities (at that point about to be the subject of the Adjudication Report) on their own rendered him insolvent. In the public examination, it then is relevant to consider Mr Henderson’s sense of responsibility in relation to that aspect of his insolvency.
[101] The IRD investigation into payments received by Mr Henderson from RFD and the resulting Adjudication established that Mr Henderson was liable for income tax in the amount ($2,271,319.74) identified in the December 2010 statement of account.
[102] The way in which that liability had arisen is summarised in the Adjudication
Report:
3.97From the RFD general ledger provided to the Adjudication Unit, it is clear that the Taxpayer used his current account with RFD on an almost daily basis, to pay for his living expenses, including credit card bills, utility bills, groceries, accommodation and dry-cleaning expenses.
3.98In the tax years ended 31 March 2001 to 31 March 2007, the Taxpayer received funds from RFD to pay for his personal living expenses. For each of those years, the Taxpayer returned nil income, from RFD or any other source. The funds were loans, but the only repayment appears to have been of $750, with approximately $1.5 million outstanding. The Taxpayer has provided no evidence that there is any real prospect of the loans being repaid, or of demand having been made by RFD. RFD borrowed money at commercial rates over that period, while lending money to the Taxpayer with no repayment or payment of interest. Other than post dated records, the Taxpayer has not provided any real evidence that RFD believed itself indebted to the Taxpayer, and has in fact confirmed in a statement of assets and liabilities that he considered himself indebted to RFD.
3.99The loans were made in circumstances where the Taxpayer has no other declared income and seems to have little prospect of repaying
the loans. Over that seven year period, the Taxpayer received no income from RFD as one of its directors and the shareholder. The arrangement has the effect of the Taxpayer gaining the benefit of the money, without paying tax on that money.
[103] On this basis the Adjudication Unit concluded that Mr Henderson’s “loans” from RFD were a tax avoidance arrangement. The issue taken by Mr Henderson was not whether payments had been made but whether there was a commercial rationale for them. In reaching its determination the Adjudication Unit recorded (and rejected) the argument advanced on behalf of Mr Henderson, that the operation of an advance account (of the nature used in RFD) was “common commercial practice in New Zealand”.
[104] In her Report for this examination, the Assignee identified the tax liability as one of the causes of Mr Henderson’s bankruptcy. Mr Henderson’s response through the public examination has been confusing. He stated to me that he did not believe he had ever had information relating to the 2001 – 2007 assessments. He stated that the IRD December 2010 statement of account had been sent (directly) to the Assignee. (In fact the statement of account was sent to Mr Henderson’s tax agent, Mr Stewart, and was copied to the Assignee).
[105] Mr Henderson also stated to me that he did not recall receiving from the IRD an assessment (as against determination). There was this exchange between the Bench and Mr Henderson :
Q. Did you have income in those 10 years?
A. I had income, Sir, but I understand was all tax paid income, Sir. Q. As an employee?
A. Ah, as, partly as an employee but through dividends or distributions of trusts and so forth, Sir.
[106] Mr Henderson continued that, whatever his personal tax obligations (in relation to 2001 – 2007) were, “that was resolved”. He explained further –
…I assume whoever was responsible for handling [my tax] had determined what it was and had either filed the necessary returns or not filed them as depending on what their obligations were.
[107] Given that the Determination of December 2010 identified that the payments from RFD’s general ledger for 2001 – 2007 had been incurred on behalf of Mr Henderson for a range of personal expenses (such as school fees, doctors’ bills, health club fees and groceries), I questioned Mr Henderson as to how payments made for him were treated within RFD’s accounts. Mr Henderson responded that they were made to him as a discretionary beneficiary of the FTG No. 2 Trust or the FTG Trust. Mr Henderson stated that he would give directions that payments should be treated not as income distributed to him but as trust distributions. He stated, however, he did not know how the payments were recorded. He “imagined” that if distributions were occurring from companies they would be paid as “tax paid dividend”.
[108] Mr Henderson’s evidence before me in relation to his personal taxation liability was confusing precisely because he sought to characterise the payments he had received as trust distributions rather than loans advanced by RFD. Mr Henderson was realistic enough later in an answer to Ms Foster to accept that the Adjudication Report “seems to suggest” that he had represented to the IRD that the income he was receiving from RFD was as a loan rather than income.
[109] I find that the way in which Mr Henderson took money out of RFD on uncommercial terms and exposed himself to personal taxation liability exceeding $2 million was a significant cause of his insolvency. I find that the Adjudication Unit approached the RFD payments specifically as loans because that is the way Mr Henderson (through his tax agent in the year before his bankruptcy) accounted for them and argued in relation to them.
[110] Mr Henderson’s suggestion made at public examination that the payments were in fact trust distributions was a suggestion made possible these further years on because of the failure of Mr Henderson and others associated with him to document at the time the precise character of particular payments or transactions. Such absence of proper recording of transactions lends itself to later re-explanation of the transactions. But the suggestion that the RFD payments were trust distributions cannot stand against Mr Henderson’s (or his tax agent’s) specific identification in
2010 of loans, not trust distributions. Even if one were to ignore the provisions of
the Tax Administration Act 1994 as to the non-disputable nature of a ruling, there is no basis in substance for Mr Henderson’s implication that the RFD payments to him were truly distributions from a trust and therefore not taxable.
[111] A further, unsatisfactory peculiarity of Mr Henderson’s evidence in relation to the Adjudication Report was the suggestion that the IRD’s assessment of a tax liability for the 2001 – 2007 years arose only “post-bankruptcy”. At this point of his public examination Mr Henderson became critical of both the IRD and the Assignee. Having asserted that his 2001 – 2007 taxation liabilities had been assessed “post- bankruptcy” he stated in relation to the IRD that the Department, “wanted to assert a debt in my bankrupt estate where I might be struggling to defend such an assessment or rebut it.” And he stated in relation to the Assignee “I have repeatedly asked the Official Assignee when I have seen an entry on her asserted debts in my estate for detail around this and I’ve never had it.”
[112] In other words, Mr Henderson was imputing to the IRD some manipulative conduct in the way and timing of its pursuit of the tax debts and was at the same time criticising the Assignee for a failure to properly scrutinise the IRD claim. Subsequently, in further questioning by Ms Foster, Mr Henderson (confronted with the Determination) accepted that he had known of the IRD assessments when he entered into the dispute process (before his bankruptcy). In the light of that concession and the contemporary record from 2010, Mr Henderson’s attempt in the public examination to criticise the IRD for pursuing its tax claim when “Mr Henderson might struggle to defend it” was without justification. As Ms Foster submits, it was disingenuous. Mr Henderson and his tax agent had been actively involved in the dispute process with IRD for a year before Mr Henderson’s bankruptcy. Mr Henderson had taken the full opportunity to pursue his arguments against the assessment (albeit unsuccessfully).
[113] Similarly, Mr Henderson’s criticism of the Assignee for not providing him with detail as to the taxation liability is misconceived. The Determination of December 2010 was addressed to Mr Henderson’s tax agent at the conclusion of a lengthy period during which that agent had acted for Mr Henderson. The Assignee could add nothing to the detailed understanding which Mr Henderson and his tax
agent would have of the process and outcome. Once the process was concluded, the Assignee’s responsibility in relation to admissibility of the debt was governed by the provisions of the Tax Administration Act and the Insolvency Act.
[114] Much about Mr Henderson’s approach to this taxation liability and other responsibilities was reflected in the final passage in his evidence relating to the tax assessment. I had put to Mr Henderson the Court’s concern that he had earlier in his evidence, on oath, stated that he did not recall seeing the assessment but had now had to accept that he had seen it. In response, Mr Henderson stated:
I accept I recall now that there – I would have thrown this at accountants, an assessment at accountants. Indeed, it may have even come in to the accountants, Sir. There would have been discussion about it. It may not have actively involved me, Sir. I’m happy to go back and dig out the files from the accountants around this time. But it wasn’t something – I’m fighting fires at this time, Sir, fighting serious fires and trying to resolve issues and this wasn’t something that was foremost or critical for me, Sir. I would have – I don’t doubt, and I’ll see what correspondence exists for it, there would have been advice from Mr Stewart to say, “No, they’re wrong. I can fix this,” and it might have been as simple as that, Sir.
[115] Summarised, Mr Henderson was saying that he personally would not have attended to a matter such as his personal taxation liability. He was therefore speculating as to what others may have done. The lack of personal responsibility involved is significant, especially when the amount of unpaid tax is so substantial.
Mr Henderson’s business approach as explained to the Ministry of Economic
Development
[116] In early 2009 the (then) Ministry of Economic Development (MED) received a complaint from the Companies Office as to the non-filing of PVL’s 2008 financial statements. The MED’s National Enforcement Unit (NEU) wrote to Mr Henderson (as PVL’s Managing Director) identifying PVL’s and Mr Henderson’s obligations under the Financial Reporting Act. The NEU noted the possibility of imposition of fines.
[117] Mr Henderson took umbrage. He telephoned the NEU’s senior investigator who made a note of Mr Henderson’s call as including the following observations from Mr Henderson:
· PVL had downsized and Mr Henderson was working long hours, struggling with many demands made by the IRD;
· he did not like being given such a letter;
· he asked the investigator whether he had ever been to Christchurch – he stated that the investigator should come to his (Christchurch) office and see all the work there currently was to do;
· he was an entrepreneur creating jobs and that the investigator needed him
to “keep the country going”;
· given the investigator worked for an organisation that promoted economic development, the investigator should be supporting Mr Henderson rather than imposing fines.
[118] In her Report for the public examination, the Assignee identified the corporate structures which Mr Henderson had either created or had been associated with following his discharge from his previous bankruptcy in late-1999. She identified Mr Henderson’s directorship of many companies. She exhibited a report of the NEU issued on 10 November 2009. The report was to the Registrar of Companies (the Registrar). It examined whether Mr Henderson should be made the subject of a notice under s 385 Companies Act. Such a notice might have prohibited him from being a director or promoting a company or being involved in the management of a company for five years.
[119] Mr Henderson provided a draft (written) response of March 2011 (the 2011 response to NEU). Mr Henderson’s response contained an overview of his career to date and specific statements about his recent business interests. Subsequently (in July 2011) the Registrar notified Mr Henderson that he would no longer be considered for prohibition having regard both to the restrictions he was already under by reason of his bankruptcy and the impact which the Canterbury Earthquake Sequence may have had in relation to the availability of documents and his ability to respond to allegations.
[379] The first two major events in the Canterbury Earthquake Sequence (4
September 2010 and 22 February 2011) by their timing straddled Mr Henderson’s
adjudication in bankruptcy.
[380] A number of Henderson companies which owned Christchurch property were damaged by the earthquakes. Insurance issues arose. Some properties were also affected by designations under the Canterbury Earthquake Recovery Act 2011. There was a need for both insurance and designation issues to be worked through with insurers and with CERA respectively.
[381] Mr Henderson, with his intimate knowledge of the properties and their development potential, was an ideal person to assist the various companies (and their receivers and/or liquidators) in relation to insurance and designation issues. In doing so, he conferred with Mr Marshall of the Insolvency Service. For the Assignee, Mr Marshall took no issue in relation to assistance on the urgent earthquake issues provided the relevant director or receiver/liquidator was making the ultimate
decisions for the property owner. Mr Henderson’s subsequent involvement led to issues being raised (for instance by insurer’s solicitors) as to that involvement. Those issues were worked through and resolved by the Insolvency Service confirming its position in relation to Mr Henderson’s involvement.
[382] Mr Henderson’s evidence indicated that he became and remains aggrieved that the Assignee, rather than giving explicit credit for work in relation to insurance and designation matters, set out in her Report and subsequent submissions a range of criticisms of Mr Henderson’s conduct.
[383] As with some other areas of Mr Henderson’s conduct, Mr Henderson’s earthquake-related assistance was not work which the Assignee suggested Mr Henderson had undertaken improperly. The Assignee’s criticisms were addressed to other matters. Mr Henderson was entitled to adduce evidence, as he did, to suggest that any misconduct was at least partly balanced out by his good works. I have no doubt that, if entities associated with Mr Henderson (whether under administration or otherwise) are in the future affected by adverse events, Mr Henderson would be prepared to assist in efforts to maximise recoveries just as he did following the earthquakes. In itself, however, that strength on Mr Henderson’s part does not mitigate the risks which arise from Mr Henderson’s conduct of business.
Information for receivers and liquidators
[384] A specific factor identified by the Assignee as a ground of objection to discharge was that Mr Henderson had failed to cooperate with liquidators or receivers of his associated companies. I have identified (at [202] – [208] and [219] – [227] above) two specific instances in which Mr Henderson’s lack of such cooperation led to the making of Court orders (in favour of Mr Tubbs and Mr Oorschot respectively).
[385] Above, at [312] I have set out quotations from the reporting of liquidators and receivers of companies of which Mr Henderson was director. Those reports have a relevance both to Mr Henderson’s failure of contemporaneous record keeping and his subsequent failure (upon receivership or liquidation) to cooperate initially in the provision of records and information.
[386] In his evidence and submissions, Mr Henderson (in addition to explaining initial failures of cooperation by having been “swamped”) stated that he had gone on to achieve a good working relationship with receivers and liquidators such as Mr Tubbs and Mr Oorschot. He submitted that the Assignee had failed to give him appropriate credit for later cooperation alongside her criticism of earlier failures.
[387] It is correct that the Assignee reported and made submissions on Mr Henderson’s failings of cooperation. In doing so, she relied upon decisions of this Court and of the documentary record of receivers’ and liquidators’ reports up to December 2012. It was open to Mr Henderson, as he did to a limited extent, to give his own evidence as to later cooperation. As it happens, the later cooperation falls far short of balancing out the significance of initial failure of cooperation. Special importance must be attached to the prompt provision of all relevant information immediately after receivership or liquidation. Some, but less significant, credit attaches to the provision of information one or more years after receivership or liquidation.
Mr Henderson’s entrepreneurial skills
[388] Mr Henderson’s entrepreneurial skills will not have disappeared on the occasion of his second bankruptcy or subsequently. He must retain those skills. An independent expectation that he will, upon his discharge from bankruptcy, return to exercising those skills is exemplified in the references from Sir Bob Parker and Mr Moore. The former states a desire to have Mr Henderson involved in the rebuilding of Christchurch, reapplying his vision and understanding of urban redevelopment. The latter states that, if he were Mayor of Christchurch now, he would have Mr Henderson advising him constantly about what would work for the city and what innovative ideas Mr Henderson could add to the mix. The range of Mr Henderson’s imagination was captured by Mr Moore who described him as a man with “1,000 ideas flowing around in his head at any one time [who] took on too much”. There is clearly an expectation on the part of such observers that Mr Henderson will return to an active involvement, at least in urban development.
[389] There is something of a tension between these clearly expressed views and some points of Mr Henderson’s evidence as to the prospects of his future engagement in property development. In his examination, Mr Henderson characterised his chances of being involved in property development in the future in any significant way as “very, very low”. The evidence does not persuade me that that is the case. The evidence suggests a level of support and enthusiasm for Mr Henderson’s re-engagement and exercise of his entrepreneurial skills. It is probable that either Mr Henderson or financial backers will find the means to develop projects (be they property development or other business opportunities, such as the biogas project which through Grace remains in the control of Mr Henderson’s related interests) which Mr Henderson considers and promotes as viable.
An interest-based approach to discharge
[390] In the Australian decision in Re Reilly, ex parte the Debtor, Lockhart J said:104
In considering whether a bankrupt should receive a discharge it has been laid down repeatedly that the Court must have regard not only to the interests of the bankrupt and his creditors but also to the interests of the public and the commercial morality. In the exercise of its discretion the Court must also consider the conduct of the bankrupt relevant to his bankruptcy.
[391] As did Penlington J in Re Anderson, I find that an interests-based approach of assistance in considering both the issue of Mr Henderson’s discharge and (assuming there is to be a discharge) the imposition of any conditions under s 299 Insolvency Act.105
[392] I also adopt the three point analysis of Robertson J in Re Webb.106 The three matters his Honour identified were:
(a) in the absence of misconduct, the bankrupt should normally receive his discharge (after three years);
104 Re Reilly, ex parte the Debtor (1979) 23 ALR 357 (FCA) at 365.
105 Re Anderson HC Hamilton B213/89, 14 April 1992.
106 Re Webb HC Gisborne B69/88, 4 August 1989.
(b)where the object of bankruptcy has been achieved both in relation to the bankrupt and the community generally, the discharge should be granted;
(c) it is not generally in the interests of the community to discharge a bankrupt by granting an order of discharge subject to conditions which impose such a burden upon him that he can have no hope of bettering his condition.
Public and community interest
[393] In considering the public interest, I respectfully adopt the observation of
Asher J in re Kelly v Structured Finance Ltd, in which his Honour said:107
The public interest is best approached from the perspective of protecting the public from the insolvent debtor. The issue is not the punishment of the debtor, but avoiding the risk of further conduct to the detriment of the community, in particular in this case the commercial community.
[394] In relation to the community interest, I must have regard to the business activities in which Mr Henderson is likely to engage upon discharge from bankruptcy. To what extent is the public interest likely to be affected by his unrestricted engagement in such activities?
[395] I must also take into account the fact that this is not Mr Henderson’s first bankruptcy. Given past experience there is an obvious risk that a similar situation might again arise. A strong argument can be made that the public should be protected from not only the irrecoverability of debts but also the drain on government and judicial resources which has flowed from Mr Henderson’s insolvency. On the other hand, there is also Mr Henderson’s evident entrepreneurial skill, which carries with it a public interest in his being able to once again contribute
to and apply those skills, particularly in Christchurch as it continues to rebuild.
107 Kelly v Structured Finance Ltd [2009] 2 NZLR 785 (HC) at [63]. The observation was made in the context of the consideration of a proposal under Part 5 Insolvency Act 2006. It was adopted by Associate Judge Doogue in Re Armitage ex parte Established Investment Ltd (in liq) HC Auckland CIV-2007-404-4280, 8 April 2011 at [16] in relation to discharge from bankruptcy. (Decision upheld by the Court of Appeal: see Armitage v Established Investment Ltd (in liq) [2012] NZCA 439).
[396] Mr Henderson has a legitimate interest in not only obtaining the discharge from bankruptcy which would normally have been available after three years, but also in obtaining a discharge which is either unconditional or only has such restrictions attached as are necessary to legitimately protect other interests.
[397] This philosophy was encapsulated as long ago as 1904 in relation to the United Kingdom Bankruptcy Act 1890. It was applicable then and applies equally in New Zealand today. In the judgment of the English Court of Appeal in Re Gaskell, Vaughan Williams LJ observed:108
… the overriding intention of the Legislature in all Bankruptcy Acts is that the debtor on giving up the whole of his property shall be a free man again, able to earn his livelihood, and having the ordinary inducements to industry. Sometimes it is not right that the bankrupt should be free immediately; he must pass through a period of probation; and theoretically there may be cases in which he ought not to be free at all, but prima facie he is to give up everything he has, and on doing that he has to be made a free man.
[398] This passage has been frequently cited with approval by New Zealand courts, including by Robertson J in Re Webb (to which I have referred at [392]). The courts recognise that the legislative intention not only protects the interest of the bankrupt but also provides a public benefit through the integration of bankrupts back into the commercial life of the community.109
Mr Henderson’s interests
[399] Mr Henderson’s likely areas of resumed business activities lie in the entrepreneurial areas on which he has focused since his first bankruptcy – namely property development, urban renewal through hospitality development, accommodation and ad hoc projects such as the biogas project.
[400] Mr Henderson is now 61 years of age. Having been bankrupted, it is in his interest that he be permitted to recommence business activities from which (in the absence of the Assignee’s permission) he has been excluded while bankrupt.
Inasmuch as he identifies as an entrepreneur, it is in Mr Henderson’s interest that he
108 Re Gaskell [1904] 2 KB 478 (CA) at 482.
109 See South Pacific Timber (1990) Ltd v King [2015] NZHC 382 at [38]; Jamieson v Official Assignee, [2012] NZHC 949, [2012] NZCCLR 8 at [11] – [16]; Bridgecorp Ltd (in rec and in liq) v Nielsen [2013] NZHC 1848 at [60]; Re Anderson, above n 105 at 16.
have a breadth of discretion in relation to responsible risk-taking that entrepreneurial activities may require.
[401] On the other hand, the Court must also take into account the fact that aspects of Mr Henderson’s conduct which led to his bankruptcy (such as the giving of personal guarantees without asset backing and the conduct of business activities without proper regard to solvency issues and taxation liabilities) were allowed by Mr Henderson to persist alongside poor administration for a long period. The evidence establishes that, although Mr Henderson may express aspiration towards dealing with such shortcomings, he does not have the skills or discipline necessary to appropriately minimise the risk of personal insolvency and damage and loss to corporate or personal creditors (including the IRD). The Court (in a way which Mr Henderson himself will view as paternalistic) must consider business prohibition as appropriate in Mr Henderson’s own interests (beyond the community’s interest).
Interests of creditors
[402] I turn to briefly consider the interests of creditors. In this context, the creditors to whom I refer are the creditors of Mr Henderson’s bankrupt estate rather than those who may extend credit to Mr Henderson or his entities in the future. (The interests of the latter category are taken into account in my earlier discussion of the public and community interest.)
[403] Any restriction the Court places on Mr Henderson’s business activities upon discharge from bankruptcy will not directly affect the interests of the creditors in his bankrupt estate, either for better or for worse. As Associate Judge Bell recognised in Darby v Official Assignee, the Assignee is able to exercise her powers in the administration of Mr Henderson’s estate even after his discharge.110
Commercial morality and the conduct of the bankrupt
[404] A singular feature of Mr Henderson’s case is that he has been bankrupt for
almost six years. In other words, his bankruptcy has lasted almost three years
110 Darby v Official Assignee, above n 7, at [18] applying Palmer v Official Assignee [2011] 1
NZLR 846 (HC) at [13] – [61], especially [45] – [47].
beyond the period at which a bankrupt may be automatically discharged under s
290(1) of the Act.
[405] Mr Henderson referred me to the Minister’s speech on the third reading of the bills which led to the enactment of the Insolvency Act 2006. The Hon Lianne Dalziel stated:111
The bills are designed to promote innovation, responsible risk-taking and entrepreneurialism by not excessively penalising business failure… They are designed to enable individuals in bankruptcy to participate fully again in the economic life of the community.
[406] The Minister’s speech reflects two underlying wisdoms, namely that:
(a) the entrepreneurialism which must be allowed to flourish when bankruptcy legislation is implemented is that which is responsible in its risk-taking (and other aspects): and
(b)bankruptcy (and company liquidation) will always involve a degree of penalty for the individual or organisation – penalty is an appropriate result of insolvency law but may become excessive if the period of insolvency is allowed to persist beyond the period required to protect the interests involved.
[407] To the extent that one purpose of bankruptcy may yet lie in punishing the bankrupt for any misconduct, the six-year period shortly to expire will have in my judgment adequately given effect to such purpose. While there were several aspects of Mr Henderson’s conduct leading up to and contributing to his bankruptcy (and the liquidation of PVL and other companies) which were blameworthy there were, as Mr Henderson submits, sanctions imposed in some jurisdictions. The remaining relevance of Mr Henderson’s conduct (it matters not that it may correctly be characterised as misconduct) exists in relation to the Court’s consideration in the community’s interest of prohibitions under s 299 of the Act or conditions under s 298
of the Act.
111 (26 October 2016) 634 NZPD 6171.
Balancing of the interests
[408] On the basis of material produced by Mr Henderson, the particular skills for which his contribution has been valued lie in a visionary approach supported by significant entrepreneurial skills. At least one of the references and Mr Henderson’s own evidence recognises that the skills side of Mr Henderson’s ledger is somewhat offset by a significant deficit in administrative competence and regulatory compliance.
[409] When I consider the probability of Mr Henderson’s re-engagement in the nature of business in which he has previously been engaged and the risk that Mr Henderson might not substantially alter his established business approaches, I am forced to conclude that the public and community interest would not be adequately protected by an unrestricted discharge of Mr Henderson from bankruptcy.
[410] While there were parts of Mr Henderson’s evidence in which he expressed pessimism for the future of his gaining the financial and other support necessary for the resumption of the activities of the nature he was involved in between his first and second bankruptcies, the substantial likelihood is that he will so engage if the opportunity presents itself. Mr Henderson did not unequivocally commit himself to refraining from any particular aspect of previous activity.
[411] Equally, Mr Henderson has not adduced evidence of any particular difficulty he would encounter in making himself available in an employed, consultancy role to provide vision to existing organisations or to assist in the development of the vision of new organisations. There is no evidence to suggest that the skills he has are not transportable into an employed situation or one in which he and his family interests have no direct financial involvement and control. In short, Mr Henderson has not adduced such evidence as might indicate that a prohibition under s 299 of the Act would stand in the way of a meaningful and rewarding contribution to the business life of the community.
[412] In considering the community interest in relation to Mr Henderson’s discharge from bankruptcy, the Court must consider not only the business in which Mr Henderson might in the future be engaged but also Mr Henderson’s likely
response should such business encounter financial difficulty. His two bankruptcies have been associated with or caused by the failure of many companies and businesses. Mr Henderson’s entrepreneurialism involves risk. One of the significant risks is the risk of failure, as has occurred in two periods well separated from one another.
[413] As evidenced by the successful MED prosecutions which preceded both the liquidation of PVL and the adjudication of Mr Henderson in bankruptcy, Mr Henderson failed in relation to the PVL Group to respond properly to the liquidity problems which befell the group from 2007.
[414] The specific focus of my questions to Mr Henderson in relation to the 2008
MED prosecution was as to what Mr Henderson would do differently in the future. Even to such a direct question, Mr Henderson did not identify an action he would take. Rather, his first answer was to indicate that he would “consider” one of the statutory opportunities (such as a form of administration). Secondly, in response to my question to answer “hand on heart” whether he would hand over his organisation to an arm’s length administrator to get on with actions which might involve winding up or selling down, Mr Henderson did not answer directly – rather he stated that he thinks that that would be the prudent way to go now.
[415] I am not persuaded on the basis of that evidence or from his public examination as a whole that Mr Henderson would find himself able to initiate a process of liquidation or administration if he perceived an opportunity, by way of reallocating resources and arranging debt payments, to trade his way out of insolvency. I conclude on the evidence of this examination that he would back his judgement on the prospects of financial survival ahead of the judgement of others and against any urging to adopt a formal response to insolvency under either the Companies Act or the Insolvency Act. There is a probable, identifiable risk from the perspective of the public interest that Mr Henderson, in the event of future unrestricted trading, would respond to a situation of insolvency in a manner similar to that he adopted in the period leading up to his adjudication.
Conclusion – drawing the threads of the various interests together
Restrictions under s 299(1) Insolvency Act
[416] I am satisfied that, in conjunction with an order of discharge, there should also be an order under s 299 of the Act prohibiting Mr Henderson, in the community’s interest, from a range of business activity and a further condition under s 298 of the Act.
[417] Section 299(1) of the Act provides:
299Court may restrict bankrupt from engaging in business after discharge
(1) The court, when it makes an order of discharge or at any earlier time, may prohibit the bankrupt after discharge from doing any or all of the following things without the court’s permission:
(a) entering into, carrying on, or taking part in the management or control of any business or class of business:
(b) being a director of any company:
(c) directly or indirectly being concerned, or taking part, in the management of any company:
(d) being employed by a relative of the bankrupt:
(e) being employed by a company, trust, trustee, or incorporated society that is managed or controlled by a relative of the bankrupt.
[418] Parliament has in s 299 provided for the protection of the public interest by reference to activities which involve the overall control or governance of personal or corporate businesses. Section 299 does not contain a provision permitting the Court to restrict a discharged bankrupt from engaging in particular business practices. So, for instance, s 299 contains no power to prohibit Mr Henderson from being involved in a particular type of business such as that of a property development company or from arranging second-tier finance for a company with which he is involved or from providing a personal guarantee for the loans of a company. Rather, what the Court may do under s 299 is to restrict the former bankrupt’s involvement in the management or control of businesses or corporate entities.
[419] I am satisfied, by reason of the manner in which Mr Henderson conducted his business affairs in the decade before the liquidation of PVL and associated entities, and his personal bankruptcy, that the public interest demands the imposition of a restriction under s 299 of the Act. I am satisfied, having regard to Mr Henderson’s various failings, that the restriction should be in relation to each of the classes of activity identified in s 299(1) of the Act. Mr Henderson’s failings had a significant impact on the businesses and companies in which investors other than Mr Henderson’s families had interests. To the extent that Mr Henderson’s family interests are involved (whether through the FTG No 2 Trust or otherwise), those entities also shared to some extent issues of solvency and were susceptible to the shortcomings of management and governance identical to those of entities which had a co-ownership model.
[420] Nothing in the substantial evidence produced in the public examination points to an exercise of dominant control of the family’s trust interests by Ms Buxton. Until his adjudication, it is clear that for the most part control lay legally and in practice with Mr Henderson. There was evidence of continuing control by Mr Henderson in relation to such detailed matters as which personal bills of the family would be paid by the trust following Mr Henderson’s bankruptcy. Once Mr Henderson is discharged, it is probable that (unless restricted) he would resume control both of the policy and of the day-to-day decisions affecting the family trust and its assets and interests generally.
[421] If the Court is satisfied (as I am) that a balancing of interests reasonably requires that (in the event of Mr Henderson’s discharge from bankruptcy) a restriction be placed upon him under s 299 of the Act, I must determine whether it is to be for a specified period or without a time limit (being the alternative under s
299(2)(a) of the Act). In addressing the duration of a restriction, I have been strongly drawn to the conclusion that it would not be appropriate to specify a time limit on the prohibition having regard to the fact that the behaviours which led to the prohibition are ingrained. Under s 299(2)(b) of the Act, the Court would be able at any time in the future (on Mr Henderson’s application supported by appropriate evidence) to vary or cancel the prohibition.
[422] Counsel did not refer me to any decision in which an unlimited business prohibition was imposed. The apparent lack of such instances may reflect the philosophy contained in the judgment of Vaughan Williams LJ in Re Gaskell112 that bankrupts (upon discharge) should have the ordinary inducements to industry, even if the bankrupt needs first to “pass through a period of probation”. I discern such an approach in the judgment of Associate Judge Doogue in Bryers v Official Assignee.113 Mr Bryers shares with Mr Henderson the experience of having served
close to double the usual statutory period of bankruptcy.114 Associate Judge Doogue,
recognising that it is not the object of orders such as are available under s 299 of the Act to punish the bankrupt, limited the duration of a s 299 order to seven years. The consequence was that Mr Bryers, when his years in bankruptcy were included, would have been excluded from the management of businesses in New Zealand for approximately 12 years.115
[423] In the circumstances of this case, I have come to the conclusion by a fine margin that Mr Henderson’s business restriction should be for a specified period. The restriction imposed on Mr Bryers entailed a total of 12 years’ exclusion from business management and employment by relatives. I am satisfied that it is just that Mr Henderson’s total period for exclusion be no longer but, equally, that it be no shorter. Given that Mr Henderson has been bankrupt (on this occasion for six years), an appropriate duration of restriction under s 299 of the Act will be six years.
Conditions under s 298(1) Insolvency Act
[424] Section 298(1) of the Act provides:
(1) When the court hears an application under section 294 for discharge, or conducts the examination of the bankrupt under section 295, the court may, having regard to all the circumstances of the case,—
(a) immediately discharge the bankrupt; or
(b) discharge the bankrupt on conditions (which may include a condition that the bankrupt consents to any judgment or order for the payment of any sum of money); or
112 Re Gaskell, above n 108.
113 Bryers v Official Assignee, above n 91.
114 At [67].
115 At [70] – [72].
(c) discharge the bankrupt but suspend the order for a period; or
(d) discharge the bankrupt, with or without conditions, at a specified future date; or
(e) refuse an order of discharge, in which case the court may specify the earliest date when the bankrupt may apply again for discharge.
[425] Accordingly, the Court has power under s 298(1)(b) and s 298(1)(d) to impose conditions upon any discharge (in addition to the powers of restriction under s 299 of the Act).
[426] The restrictions which the Court may under s 299 of the Act impose on a bankrupt’s discharge relate primarily to the capacity in which a discharged bankrupt may engage in business. They do not address particular aspects of conduct in which the discharged bankrupt might engage. In this case, both on Mr Henderson’s evidence and on the evidence as a whole, two particular aspects of Mr Henderson’s past conduct create (through the prospect of repetition) a risk to the community.
[427] First is Mr Henderson’s conduct prior to his two bankruptcies of providing personal guarantees without asset-backing. I am satisfied that it is appropriate and just that a condition be imposed on Mr Henderson’s discharge to preclude such conduct in the future. In reaching that conclusion, I have taken into account the fact that whereas s 299(2)(b) expressly vests in the Court the power to later vary or cancel a s 299 prohibition, s 298 vests no such power of variation in the Court in relation to a condition imposed upon discharge. In relation to Mr Henderson’s conduct in relation to personal guarantees, I do not consider the permanence of the condition I will impose to be disproportionate to the problem which needs to be addressed.
[428] Secondly, there is established on the evidence generally and on Mr Henderson’s own evidence in particular the unsatisfactory extent to which Henderson-controlled companies became dependent upon second-tier finance. I have considered whether there should be a second condition relating specifically to second-tier finance. Having regard to the imposition of business restrictions under s
299, I have concluded that it would be inappropriate to structure a condition limiting
Mr Henderson’s involvement in any second-tier finance when (because of the s 299 restriction) all management, control and governance of businesses with which Mr Henderson may have become involved will reside with others.
The date at which discharge becomes effective
[429] Under s 298(1)(d) of the Act, the Court may discharge the bankrupt, with or without conditions, at a specified future date.
[430] Mr Henderson’s desired outcome was that he be discharged unconditionally
under s 298 and without restrictions under s 299 of the Act.
[431] Exactly how Mr Henderson should approach his employment opportunities under the regime which will be in place, as a result of conditions under s 298 and a s 299 order, is not straightforward. The meaning and scope of the Court’s order is of fundamental importance to Mr Henderson’s ability to meet the Court’s requirements. Some concepts involved, including the “management or control of any business” under s 299 of the Act are concepts on which Mr Henderson has challenged the Assignee’s views through to the conclusion of the public examination. They are matters on which Mr Henderson has stated that he has taken legal advice. But it is unclear to the Court (Mr Henderson not having produced evidence of any written advice) that Mr Henderson has yet received informed and accurate legal advice as to the concepts involved. The responsibility to inform himself lies with Mr Henderson (and his legal advisers if he chooses to retain such).
[432] To ensure that Mr Henderson does not enter the new regime without the opportunity to fully come to grips with the orders made and to fully inform himself (with the benefit of legal advice) as to permitted and forbidden activities, there needs to be a period which reasonably allows Mr Henderson to digest this judgment and to obtain appropriate advice as to the implementation of the orders contained in it. A reasonable period is to late-January 2017.
Mr Henderson’s conduct during bankruptcy
The issue as raised by the Assignee
[433] In her objection to discharge, the Assignee asserted that there existed evidence that Mr Henderson had:
·breached prohibitions and restrictions imposed upon him as a result of his bankruptcy;
·received income and acquired assets during his bankruptcy which had not been disclosed to the Assignee; and
· had failed to cooperate in the liquidations of his associated entities.
Mr Henderson’s response
[434] Mr Henderson denies that he engaged in the management of any business outside the terms of the Act or the parameters he had discussed with Mr Marshall of the Insolvency Service. He maintained, in relation to information as to his financial affairs, that the form provided by the Assignee for completion has no statutory basis and that he was therefore not required to complete it.
The Court’s approach to post-bankruptcy conduct in this case
[435] REDACTED. [436] REDACTED. [437] REDACTED.
[438] As matters stand, a detailed analysis of the evidence given in relation to particular aspects of Mr Henderson’s post-bankruptcy conduct would extend the length of this judgment far beyond what it already is. Given the other conclusions I have reached, it would be an inappropriate use of judicial resource to embark on the
detailed analysis of particular business transactions needed to reach conclusions as a matter of probability. I therefore make no such findings.
[439] I am also satisfied that none of the particular aspects of post-bankruptcy conduct alleged against Mr Henderson would, if established, either individually or collectively justify the extending of his bankruptcy beyond six years. The conditions and restrictions which the Court may impose on discharge in Mr Henderson’s case should properly be informed not by any failures of Mr Henderson while bankrupt, but rather by the failings in his business practices which led to his adjudication in
2010. I accordingly refrain from reaching any conclusion that Mr Henderson while bankrupt was involved in management of a business in breach of the Act.
An unusual event reported – November 2016
[440] An unusual event was reported in the Christchurch Press newspaper when this judgment was at the point of being finalised. It related to the Sol Square property owned by Tuam Ventures, which is in receivership and liquidation. It was reported that, “at a mortgagee auction on Wednesday [24 November 2016], Henderson himself placed the winning bid of about $3.6 million for the complex of Tuam Street buildings”. The article continued that “he cannot run his own company while still bankrupt, but is not prevented from working for one in a consultancy or management capacity”.
[441] I issued a Minute dated 30 November 2016 by which I stated that the public examination (which I had not brought to an end) would be reconvened on 6
December 2016. The Minute attached the article from the Christchurch Press. I recorded that the subject-matter of the resumed examination was the event or events referred to in the article. I continued:
I envisage my examination will last no longer than 30 minutes. Should Mr Henderson or the Assignee wish to then make submissions on the answers given by Mr Henderson, I will hear those submissions immediately following the examination. I do not envisage a total hearing of longer than one hour.
[442] I recorded that I still anticipated delivering my judgment before the
Christchurch vacation. Shortly afterwards, counsel for the Assignee filed a
Memorandum attaching documents in relation to enquiries the Assignee had been making which touched upon matters relating to the sale and purchase of the Sol Square property.
[443] Mr Henderson filed a truculent Memorandum in which he took issue with the Court’s decision to reconvene the examination. He stated that, “I currently have commitments” for the appointed time but that “I am available for a telephone conference”. He said that he wished to brief counsel for the reconvened examination and that it appeared to him that the reconvened examination would take “one or two days to properly deal with the matters now raised by his Honour and the Assignee”. Mr Henderson characterised the reconvening of the public examination as “fundamentally judicial bullying” in which “the Associate Judge in this matter … appears to have set up personally … to scan the media, internet, and possibly other equally unreliable sources”. He did not add any factual information as to whether he had placed the successful bid of approximately $3.6 million or whether he had stated that he was permitted to consult and manage.
[444] The issues which arise if a bankrupt considers himself at liberty to manage businesses do not require further elaboration. What Mr Henderson’s substantive response to questions would have been I do not know.
[445] As the preceding part of this judgment indicates, I had (before the Press article appeared) concluded that evidence adduced as to past instances of possible misconduct during bankruptcy (whether by being involved in management or otherwise) did not need to be further considered in this judgment. The Press article raised a fresh subject-matter for possible consideration. I have since concluded that the public examination should not be extended to consider any recent involvement of Mr Henderson in the purchase of the Sol Square property. I therefore vacated the reconvened hearing date.
Orders
[446] I order:
(a) The public examination of David Ian Henderson (Mr Henderson) is at an end;
(b) Mr Henderson will be discharged from bankruptcy at 10.00 am, 27
January 2017;
(c) As a condition of his discharge, Mr Henderson shall not from the date of this judgment enter into any contract by which he personally guarantees the debt or other obligation of another person or entity;
(d)Mr Henderson is prohibited until 9 December 2022 from doing any or all of the following things without the Court’s permission:
(i)entering into, carrying on, or taking part in the management or control of any business or class of business;
(ii) being a director of any company;
(iii)directly or indirectly being concerned, or taking part, in the management of any company;
(iv) being employed by a relative of Mr Henderson;
(v)being employed by a company, trust, trustee, or incorporated society that is managed or controlled by a relative of Mr Henderson.
(e) As the Court has now delivered this judgment, the restrictions on publication contained in earlier judgments and rulings in relation to the public examination are (to the extent still in place) now at an end.
Associate Judge Osborne
Solicitors:
Almao Douch, Hamilton
Anthony Harper, Christchurch
Brookfields Lawyers, Auckland
Copy to Mr D I Henderson, Christchurch
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