Henderson
[2018] NZHC 1116
•18 May 2018
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2010-409-000559 [2018] NZHC 1116
UNDER the Insolvency Act 2006 IN THE MATTER
of an application by DAVID IAN HENDERSON to trade as a sole trader
DAVID IAN HENDERSON
Applicant
Hearing: 20 April 2018 Appearances:
D M Lester for Applicant
T Cooley, counsel appointed
Judgment:
18 May 2018
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
on application under s 299 Insolvency Act 2006
Introduction
[1] David Ian Henderson was adjudicated bankrupt on 29 November 2010. He was not automatically discharged from bankruptcy in the usual way because the Official Assignee objected. Following a public examination, Mr Henderson was discharged from bankruptcy on 27 January 2017.
[2] The Court, on discharging Mr Henderson from bankruptcy, placed comprehensive business restrictions upon him, under s 299 Insolvency Act 2006 (the Act) for a period of six years (“the prohibition”).1
1 Havenleigh Global Services Ltd v Henderson [2016] NZHC 2969 [“the discharge judgment”].
Re HENDERSON [2018] NZHC 1116 [18 May 2018]
[3] In 2017, Mr Henderson filed 18 applications for permission to be involved in the management or other activities of 12 entities which would otherwise have been precluded under the prohibition. On 16 March 2017, the Court gave judgment on those applications (“the refusal of permission judgment”).2 The Court was not satisfied, on the limited evidence filed that the public and community interests would be safeguarded if permission was granted. The Court also found that the evidence in support of Mr Henderson’s intended roles, responsibilities and duties was insufficiently defined to make the grant of permission appropriate.3 The Court adjourned the 18 applications with leave to Mr Henderson to have them brought on if a suitably amended form of application and supplementary evidence were filed. Mr Henderson did not amend his applications. They were subsequently dismissed.
This application
[4] Mr Henderson now applies for permission to trade as a sole trader, project manager and consultant in the construction, land development and hospitality industries. In his application, he offered to accept a number of conditions to attach to such permission. Mr Lester, for Mr Henderson, recognised in the course of his submissions that further or amended conditions may also be appropriate.
Conditions proposed
[5] Mr Henderson, in his application, sought permission to trade on nine conditions being:
1.That the applicant’s written contract of service with his clients make it express that his role is limited to advice, consultation and negotiation on behalf of his clients and that he is unable to enter contracts with third parties as agent on behalf of his clients.
2.That the applicant not have signing authority on the bank account of his business.
3.That all creditors of the business be kept within agreed trading terms.
4.That all obligations to the IRD, both as to payments and returns, in relation to the business were to be completed within statutory time limits.
2 Re Henderson [2017] NZHC 474, [“the refusal of permission judgment”].
3 Refusal of permission judgment at [125] – [126], [128].
5.That any other statutory reporting, IRD returns and creditor maintenance be undertaken by an independent accountant, who will also have sole signing authority on the applicant’s business account.
6.That the applicant not consult to any company of which a relative is sole director.
7.That in the event the independent accountant determines that the applicant has breached any of the above conditions, or in the event that the accountant’s retainer is terminated, the accountant is to file a report with this court within 10 working days in respect of those matters.
8.That each engagement undertaken by the applicant be pursuant to a written contract in a form approved by the court.
9.That, save as modified by this application, the restrictions imposed by the court on the applicant in Havenleigh Global Services Limited v Henderson [2016] NZHC 2969 remain in place.
Further conditions proposed through counsel
[6] Mr Lester provided a further set of conditions which he submitted the Court might appropriately impose. The conditions were contained in the form of a sample consent given by the Official Assignee in 2016 to a bankrupt who wished to enter into business.4
Restrictions from engaging in business after bankruptcy
[7] When the Court concludes the public examination of a bankruptcy in relation to discharge,5 the Court has, under s 298 of the Act, power to order or refuse discharge and, if ordering discharge, to impose conditions.
[8] Under s 299 the Court, upon an order of discharge, may restrict the bankrupt from engaging in business after discharge. Section 299 provides:
299 Court 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:
4 Under reg 10 Insolvency (Personal Insolvency) Regulations 2007.
5 Under s 295 Insolvency Act 2006.
(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.
(2)The court may—
(a)prohibit the bankrupt for a specified period, or without a time limit:
(b)at any time vary or cancel the prohibition.
The prohibition
The terms of the Court’s order
[9]In the discharge judgment, the Court:
(a)discharged Mr Henderson from bankruptcy from 27 January 2017;
(b)imposed a condition as to Mr Henderson’s not entering into personal guarantees; and
(c)imposed a restriction (until 9 December 2022) from engaging in business after discharge under each of the limbs of s 299(1) of the Act (the prohibition).6
[10] Accordingly, under s 299(1) of the Act, Mr Henderson requires the Court’s permission to undertake any of the prohibited activities.
6 Havenleigh Global Services Ltd v Henderson, above n 1, at [446].
The reasons for Mr Henderson’s prohibition
[11] In the refusal of permission judgment I summarised matters which weighed with the Court in relation to Mr Henderson’s governance and management practices and which led to the prohibition order:7
(a)Substantial personal shortcomings in relation to company management and administration;
(b)As Chief Executive Officer, a failure to have in place a fully functioning support structure, compounded by a tendency to override others’ responsibilities and decisions;
(c)The use of personal guarantees, unbacked by personal assets, in order to support borrowing by limited liability companies;
(d)A failure to respond appropriately to the insolvency of companies and particularly prioritising the keeping of insolvent companies running;
(e)Neglecting statutory requirements upon companies;
(f)Arranging companies’ affairs so as to avoid paying tax, thereby building up tax debts which he and associated companies could not satisfy;
(g)Diverting GST and PAYE collected by one company to another so that the Inland Revenue Department (IRD) did not receive it;
(h)Moving money between closely controlled companies to achieve such purposes at (f) and (g) above;
(i)Failing to return to the IRD substantial income for the period 1 April 2010 to 31 March 2012;
7 Refusal of permission judgment at [15].
(j)Refusing to recognise the authority or reasoning of rulings and established liabilities; and
(k)Stonewalling in the face of liquidators’ and receivers’ lawful demands for documents and information.
Relevant considerations
[12] In the refusal of permission judgment I considered in detail the case law relevant to the Court’s approach when permission is sought under s 299 of the Act.8 That review of the law equally informs this judgment.
[13] I concluded from the authorities that the following considerations arise when permission is sought under s 299 of the Act:9
(A)Over-arching considerations
(a)The starting point is that the prohibition was imposed not as punishment but for the purposes of:
(i)protection (particularly of the public);
(ii)deterrence; and
(iii)maintenance of appropriate business standards;
(b)The applicant bears the onus of showing that the restrictions should not apply to the particular work; and
(c)To gain permission, which by its nature may cut across such protection and undermine such deterrence, the applicant must demonstrate that the interests intended to be protected will not be significantly less protected if permission is granted.
8 Refusal of permission judgment at [21] – [96].
9 Refusal of permission judgment at [97].
(B)Relevant considerations
(a)Deficiencies leading to prohibition – applicant’s unfitness;
(b)Consequences of deficiencies;
(c)Applicant’s comprehension of deficiencies and acceptance of the need for the prohibition;
(d)Applicant’s subsequent conduct (for better or worse);
(e)Structure of the identified entity;
(f)Business and financial performance of the entity;
(g)Definition of applicant’s intended role in the entity;
(h)Risks associated with applicant’s intended role;
(i)Applicant’s needs;
(j)Third parties’ needs;
(k)View of relevant authorities; and
(l)Identification of safeguards/conditions.
(C)Procedural and evidential requirements
(a)The application should clearly identify the company or other subject entity, its structure and business, the role the applicant seeks to take, and any measures proposed to be implemented to eliminate risks for other interests; and
(b)The applicant should also adduce evidence capable of satisfying the Court that an exception should be made to the policy considerations underlying the prohibition.
The difference between Mr Henderson’s previous and present applications
[14] Mr Henderson previously applied for permission to be involved as a director and/or in the management of twelve corporate entities. The orders sought would have permitted Mr Henderson in relation to each entity to engage in conduct covered by most subsections of s 299(1) of the Act, and in particular under:
·Section 299(1)(a) – entering into, carrying on, or taking part in the management or control of a business;
·Section 299(1)(b) – being a director of a company;
·Section 299(1)(c) – directly or indirectly being concerned, or taking part, in the management of a company;
·Section 299(1)(e) – being employed by a company that is managed or controlled by a relative of Mr Henderson (his wife, Kristina Buxton).
Mr Henderson in those applications was not seeking permission under s 299(1)(d) (relating to employment by a relative) as all the entities covered by the applications were bodies corporate.
[15] In the application now before the Court, Mr Henderson does not seek permission to be employed as the manager of any body corporate. Rather, his focus is upon establishing a business as a consultant (to the construction, land development and hospitality industries). That focus is reinforced by the first condition sought by Mr Henderson in these terms:
Mr Henderson’s written contract of service with his clients must express that his role is limited to advice, consulting and negotiation on behalf of his clients and that he is unable to enter contracts with third parties as agent on behalf of his clients.
[16] However, one aspect of the application is for permission to be engaged in management (albeit as an independent contractor) because the application is for permission to be able to trade as both “a project manager and a consultant”.
The hearing and evidence
[17] The Official Assignee filed a memorandum recording that he did not seek to be heard in relation to Mr Henderson’s application and would abide the Court’s decision.
[18] The Court appointed Mr Cooley as counsel to assist in the nature of a contradictor.
[19] Pursuant to Court directions, both Mr Lester and Mr Cooley filed written submissions before the hearing.
[20] At the hearing, Mr Henderson was cross-examined by Mr Cooley and re- examined by Mr Lester.
Application for permission to trade as a consultant in the construction, land development and hospitality industries
[21] Mr Henderson applies for permission to trade as a sole trader as a consultant in the construction, land development and hospitality industries. The first condition he seeks would:
(a)limit his role to “advice, consulting and negotiation on behalf of his clients”;
(b)not permit him to enter contracts with third parties as an agent on behalf of his clients;
(c)include as a client any company of which a relative of Mr Henderson is sole director.
[22] Mr Henderson filed one affidavit in support of his application. It contained 21 paragraphs. It was a relatively brief document.
[23] Mr Henderson covered the following matters relating to the proposed consultancy business in his affidavit:
(a)Mr Henderson described the application as being “limited to my seeking the consent of the Court to be able to work as a sole trader providing consultancy services to property developers”, whereas the application, as confirmed by Mr Lester, is to provide consultancy services to entities in the construction and hospitality industries also;
(b)Particular work which Mr Henderson would undertake would relate to building redevelopment and particularly development involving urban renewal in the hospitality and accommodation areas. This would involve:
… advising property owners to assess the feasibility of their intended projects, assisting with the preparation of the concept, i.e. the mix between hospitality, office and commercial accommodation, assistance in liaising with consultants such as architects and town planners, assisting with the town planning process, assistance with the negotiation and liaison with builders and project management and assistance with marketing and pre-sales and the like.
(c)Mr Henderson identifies these stated activities as being where his experience lies. Mr Henderson states that he has had significant success in such work exemplified by the Sol Square development;
(d)Later in his affidavit, Mr Henderson states:
The consultancy I intend to create is almost unique in straddling some advice that may be provided by an architect, a town planner, a builder and a commercial real estate agent. I am not saying that I will be providing exactly those types of services, but rather the nature of the role captures some of the types of advice that a property owner would have to obtain from different consultants at a significant cost, whereas to some extent I can provide a “one stop shop” in relation to such development projects. (his emphasis).
[24] In cross-examination by Mr Cooley, the following additional aspects of Mr Henderson’s intended services were clarified:
(a)Mr Henderson anticipates that he would be involved in the negotiation of finance and funding arrangements on behalf of clients having regard to his knowing a lot of funders (including banks) throughout New Zealand;
(b)The key areas on which Mr Henderson would be consulting in which any sums of significance are being expended are negotiations involving the acquisition of property, the construction or redevelopment of a property, or the sale of a property;
(c)Where Mr Henderson provides services to clients in relation to their funding arrangements, the funders will want a quantity surveyor’s peer review of Mr Henderson’s clients’ quantity surveying report, together with valuation input, and the funder would also want a general security agreement from Mr Henderson’s client at which point the client would have the loan offer reviewed by the client’s legal team.
Application for permission to trade as a project manager
[25]Mr Henderson also seeks permission to trade as a “project manager”.
[26] The notice of application itself does not provide definition of what is intended to be covered by “project management”. The first condition of permission proposed by Mr Henderson (limiting him to advice, consulting and negotiation on behalf of clients) would suggest some narrow concept of “management” is envisaged.
[27] “Project management” is a role of variable content as reflected in the explanation contained in Keating on Construction Contracts:10
10 Stephen Furst and Vivian Ramsey (eds) Keating on Construction Contracts (10th ed, Sweet & Maxwell, London, 2016) at 1-009.
Project manager
In some large construction contracts, the employer may engage a project manager in addition to the architect and some or all of the consultants … A project manager’s role is organisational but its exact relationship with the architect, consultants, contractor and sub-contractors varies from one contract to another. Contractors sometimes also employ a person called the property manager.
[28] Implicit in such a concept is the involvement of the project manager both in consultation and organisational arrangements with other disciplines but also in management of contractor and sub-contractors. Project management is, as the term denotes, a management role.
[29] The potential breadth of a project manager’s role in New Zealand is exemplified in the conditions of engagement for project management services published by the New Zealand Institute of Quantity Surveyors on its website.11 The Institute’s standard conditions provide that a project manager acts as the client’s agent and is the sole representative of the client within the agreed scope of responsibilities. The project manager is authorised to act as the client’s agent to direct, coordinate, liaise and monitor all aspects of the client’s project. The standard conditions of engagement identify a wide range of services across planning, studies, financial, design and construction for which the project manager might be responsible. These include the certifying of payment for project services and the arranging of tenders for project work and the managing and conducting of construction activities and the administering of all contracts and sub-contracts. The Institute’s conditions of engagement do not represent a single definition of “project management” but their provisions illustrate the breadth of the role and the extent of control (including power as an agent to bind the principal) which the project manager may have.
[30] Mr Henderson referred to his wish to be a property manager at two points of his affidavit.
11New Zealand Institute Of Quantity Surveyors “Conditions of Engagement Project Management Services” (July 1995)
In the passage cited above at [26], Mr Henderson identified “assistance with the negotiation and liaison with builders and project management” as one of the services he wishes to provide. Later, in his affidavit he deposed:
While I will not be making the final decisions in respect of projects, I will be giving advice to the decision makers which may mean in a particular case that my activities fall within the meaning of being involved in management – hence this application.
[32] In short, Mr Henderson’s reason for including reference to “project management” in his application is to cover off any suggestion that, by giving advice to decision-makers, he will be engaging in what might be described as “project management”. As such, it is not an application for permission to be engaged as a project manager in the broader sense of that term as identified at [27] – [29] above.
Proposed arrangements with clients
[33] Mr Henderson’s proposal is that he be an independent contractor to his clients (self-employed as a sole trader) and not an employee.
[34] Mr Henderson proposes that there be, in relation to each client, a requirement of a written consultancy agreement which makes clear the limitations of his permitted role. Mr Henderson exhibited a form of consultancy agreement which he would accept.
[35] Mr Henderson explained in his affidavit why he seeks permission to be a sole trader rather than an employee:
5.The nature of the role that I seek to take on means that it is not suited to being an employee. The types or [sic] projects to which I expect I would be consulting take place over unpredictable time periods where there can be periods of intense work followed by periods of inaction which make an employer/employee relationship impractical. Further, most property developers or those contemplating a development do not want the administrative responsibilities of becoming an employer for potentially quite a short term.
6.Some of the engagements I would envisage would occur may only involve a very limited amount of work, say a few days or even a few hours, where a property owner is simply looking for high level assistance. Other projects may be more intensive and long term…
… what I envisage is a true consultancy.
[36] Accordingly, Mr Henderson’s characterisation of the consultancy role identified in the present application is very different to the conduct for which Mr Henderson sought permission in 2017. At that time, as recorded at [14] above, Mr Henderson wished to become an employee in companies managed or controlled by his wife; to become a director of named companies, and to become involved in the management of named companies.
The structure of Mr Henderson’s proposed business
[37] Mr Henderson proposes to become self-employed as a sole trader. He would not employ staff.
[38] He would accept a condition that he not rent premises – I take it from this that he will have in place arrangements which mean that any office or similar space which he needs will be provided to Mr Henderson at no charge.
[39] The business is to be operated on a cash basis as far as possible. Mr Henderson would be required where any credit is incurred to make the prospective creditor aware of Mr Henderson’s previous bankruptcy, the terms of his initial prohibition and the terms and conditions of permission granted to trade. In relation to projects on which he is consulting he will not personally incur costs or enter into any contracts (save his consultancy agreement with the client itself).
[40] To the extent Mr Henderson’s business has creditors, they will be kept within agreed trading terms.
[41] All obligations of Mr Henderson to the Inland Revenue Department, both as to payments and returns, will be completed within statutory time limits. Where there is the possibility of withholding tax deductions, arrangements will be made to have withholding tax deducted at source.
[42] Mr Henderson offers to retain on a professional basis an approved financial supervisor (“supervisor”) upon the following arrangements:
(a)There will be a single trading bank account established with a sub- account for taxes payable to the Inland Revenue Department.
(b)The supervisor will have electronic access to the bank accounts and will have the sole authority to operate the account (electronically or otherwise).
(c)All money arising as income from the business will be banked into the trading bank account.
(d)The supervisor will with appropriate regularity set aside a set amount into the sub-account for taxes due to the Inland Revenue Department.
(e)Mr Henderson, without detracting from his own statutory responsibilities, will empower the supervisor to undertake all creditor maintenance of the business, statutory reporting in relation to the business and reporting and accounting to the Inland Revenue Department. Mr Henderson’s retainer of the supervisor would include requirements to:
(i)maintain sufficient records to ensure that the supervisor is aware of all work undertaken and is able to account for all income received and expenses so that all tax, financial obligations and other regulatory requirements are met;
(ii)prepare financial statements and all tax returns including GST and income tax;
(iii)provide an initial short statement to the Court on the progress of Mr Henderson’s business and Mr Henderson’s cooperation;
(iv)submit trading accounts to the High Court Registrar initially on a two-monthly basis.
(f)The supervisor would file a report with the Registrar of the Court within ten working days of any breach of Mr Henderson’s conditions or of the termination of Mr Henderson’s retainer of the supervisor.
[43] Mr Henderson proposes that he retain as his supervisor Brenton Hunt, a chartered accountant with a public practising certificate. Mr Henderson has exhibited a letter addressed by Mr Hunt to this Court in which Mr Hunt states that he (and his company, Tax Matters Ltd) have previously acted as financial supervisors for bankrupts who have been granted permission by the Assignee to become sole traders while bankrupt.
[44] Mr Hunt states that he has read the draft application and Mr Henderson’s affidavit. He undertakes to this Court to comply with the conditions stated in the application and any other conditions imposed by the Court.
Discussion of the considerations relevant to the application
[45] In considering Mr Henderson’s application, I follow for convenience the order of relevant considerations identified at [13] above.
Overarching considerations (A(a) – (c))
[46] The purpose of Mr Henderson’s prohibition was not as punishment for Mr Henderson’s previous conduct but for the purposes of protection (of the public) deterrence and the maintenance of appropriate business standards.
[47] If the public interest elements can be safeguarded, the Court ought not to stand in the way of Mr Henderson’s engagement in the workforce in a role which utilises his significant skills.
[48] The discharge judgment itself stands as a record of this Court’s findings as to Mr Henderson’s unfitness to carry out the breadth of roles he had leading up to his bankruptcy. The imposition of the six-year prohibition in relation to the full range of conduct identified in s 299(1) of the Act was by its nature the most important means
of achieving the purposes of deterrence and maintenance of appropriate business standards.
[49] Having regard to the situations in which Mr Henderson proved himself to be unfit, I am satisfied that permission to be a self-employed consultant with the strict conditions proposed by Mr Henderson and some additional imposed by the Court, will maintain the purpose of protection lying behind the prohibition.
[50] In particular, the public interest will be protected if Mr Henderson’s role for clients is as a consultant who may advise clients in the construction, land development and hospitality industries and negotiate on their behalf but without the right to enter into, carry on or take part in the management or control of the client’s business (be that under a heading of “project management” or any other form of management). The reasons rendering Mr Henderson’s management of businesses inappropriate dominated the discharge judgment. The self-assessment of Mr Henderson at his public examination summarised well why ongoing protection from Mr Henderson’s involvement in management was required:
… I’m a lousy administrator and so one of the key focuses for me going forward, if I was ever to be involved with business again at any level, would be to ensure that I had appropriate people around me to deal with administrative tasks that I’m no good at…So we could say it would be, it would be strong support in terms of the administrative/bureaucratic end of it.
[51] Mr Henderson’s proposal is that he become a sole trader without employees. If he were to become involved in the management of client businesses, he will not have the “appropriate people around him to deal with administrative tasks”, at least within his own business. Equally, the nature of the permission he seeks means that the Court has no knowledge of the particular entities or of the management structures of those entities, such as would allow the Court to assess whether the public interest will be protected through each client entity having such sound management structures as to mitigate Mr Henderson’s weaknesses. To the extent Mr Henderson will be a manager of his own business, the supervisor’s control and influence will give Mr Henderson a high level of support. It will provide a good level of assurance that Mr Henderson’s relatively simple business model will function appropriately.
[52] Insofar as Mr Henderson bears the onus of showing that the restrictions should not apply to particular work, his evidence falls well short of establishing that the restrictions should not apply to roles which involve him in the management of aspects of clients’ operations.
Relevant considerations (B(a) – (h))
[53] I am satisfied that, subject to the conditions to be imposed, the general approach adopted in Mr Henderson’s present application appropriately addresses the deficiencies which this Court identified and which led to the prohibition and the consequences of those deficiencies. In particular:
(a)Mr Henderson will not be involved in the management of a business (other than his own consultancy business);
(b)Mr Henderson’s supervisor will have control and responsibility for statutory and financial obligations which would normally fall, in relation to a business, to the sole trader;
(c)Mr Henderson will still be prohibited from working for relatives or entities controlled by them;
(d)The prohibition against providing personal guarantees will remain in place;
(e)Mr Henderson in terms of the prohibition will operate as a sole trader a single business, that of a consultant, and will not have any responsibility or control over financial dealings between entities.
[54] As the Judge who conducted Mr Henderson’s public examination before he was discharged from bankruptcy, I am fully informed as to the matters which led to the findings as to Mr Henderson’s unfitness and the way in which that had impacted on others.
[55] Mr Henderson’s comprehension of his deficiencies and his acceptance of the need for the prohibition is a matter to be weighed in the assessment of whether relevant interests will be protected if the prohibition is relaxed. While the public examination of Mr Henderson established a degree of comprehension on his part of his deficiencies (such as through his preparedness to undertake not to enter into personal guarantees again), Mr Henderson did not satisfy the Court that he would be able to appropriately respond to the numerous situations and difficulties which a business might confront.12
[56] Subsequently, the nature of Mr Henderson’s first application for permission (heard in early-2017) led the Court to observe:13
The extremely brief content of the present applications does not indicate that, even now, Mr Henderson truly recognises the issues of unfitness raised by his past conduct. The approach and content of his current documents suggest that he may be in denial. In his submissions, Mr Henderson went so far as to suggest that the discharge judgment does not itself identify specific issues of unfitness on the part of Mr Henderson other than in relation to his giving of personal guarantees. Mr Henderson appears to have failed to read those extended parts of the judgment which deal with his shortcomings, including the summarised (bullet point) introduction at [152] of the discharge judgment.
[57] In the present application, in which he has been assisted and represented by counsel, Mr Henderson has confronted his areas of unfitness in the structuring of the proposed consultancy role. There is now before the Court a comprehensive approach, including the insertion of a supervisor. Through that approach Mr Henderson has recognised (albeit belatedly) that his areas of deficiency have to be addressed. In reaching this conclusion, I am far from satisfied that Mr Henderson accepts each of the conclusions of unfitness reached in the discharge judgment. But I am satisfied by the nature of the present application and his evidence that he recognises that the Court’s findings bind him and that he must have in place and work within a regime which addresses the deficiencies as established.
[58] Mr Henderson’s conduct since the prohibition was imposed is a relevant consideration. In relation to the present application, there is no evidence as to Mr Henderson’s subsequent conduct. Mr Henderson was not examined in relation to his conduct.
12 See the discharge judgment, for instance, at [414] – [415].
13 The refusal of permission judgment at [129].
[59] The Official Assignee, through counsel, entered an appearance to record that he did not wish to be heard in relation to the application and would abide the Court’s decision. Subsequently, counsel for the Assignee filed a memorandum concerning complaints made to the Assignee or information received by the Assignee which might suggest that Mr Henderson had in some way acted in breach of the prohibition. I issued a Minute noting that such matters simply stood as allegations and that no evidence had been filed in the context of the present application in relation to those allegations. That remains the situation. The allegations do not influence this judgment.
[60] There is a further matter which does not influence this judgment but may be relevant to any subsequent breach of conditions. I accordingly record it at this point. In the period from around Mr Henderson’s discharge, interests associated with Mr Henderson have become active again in relation to developments at SOL Square. This has seen newspaper reporting of plans or progress with comments attributed to Mr Henderson as to his plans. The Court recognises that because of Mr Henderson’s background with the developments, there may be a tendency for representatives of the media or others to contact Mr Henderson although the ownership or control of particular entities or businesses may lie with Ms Buxton or others. Following the issuing of this judgment, Mr Henderson will continue to be prohibited from working for a relative or an entity controlled by a relative. Mr Henderson will therefore continue to be unable to provide services to some of the entities or businesses with which he has in the past been closely associated.
[61] I recognise that, through the continuing prohibition of work for Ms Buxton or other relatives, the affected entities will continue to need to take their advice from persons other than Mr Henderson. That may not be seen by the family interests as in their best interest (although I observe that Ms Buxton has not provided evidence in relation to that or any other aspect of Mr Henderson’s application). The continuing prohibition flows from the Court’s need to confront the reality (identified in the discharge judgment) that Mr Henderson exercised a real measure of control and influence over the family’s trust and business interests.
Relevant considerations (B(i)) – applicant’s needs
[62] The Court recognises that Mr Henderson needs to be gainfully employed. Mr Henderson should have the opportunity to earn income through appropriate relaxation of the prohibition.
[63] Mr Henderson did not assist the Court in his application through providing any detailed information as to his likely income. In answer to Mr Cooley, he described the most likely fee arrangement for his consultancy as being based on a traditional hourly rate with the possibility that, in time, he may command remuneration connected to the profitability of a project.
Relevant considerations (B(j)) – third party’s needs
[64] Two sets of third party interests or needs might be considered, namely those of his family and others with whom Mr Henderson might work.
[65] Neither in his application nor through Mr Lester’s submissions did Mr Henderson suggest that there was a need for the Court to consider the needs of Ms Buxton as Mr Henderson’s immediate family. There is no evidence that Ms Buxton has financial needs which she is incapable of meeting through her own resources or those of family trusts.
[66] That leaves the interests of others for whom Mr Henderson may provide services if the prohibition is relaxed. Mr Henderson’s career has been spent in areas directly involving the skills which would be the subject of any permission granted. His evidence is that his application follows approaches, particularly from property owners who wish to avail themselves of his skills in assessing the feasibility of intended projects and then, if appropriate, pursuing those projects. The Court heard, through the public examination of Mr Henderson, including in the form of references from previous mayors of the city, that there is a potential benefit for many if Mr Henderson’s skills are available to others.
[67]That is a consideration I take into account.
Relevant considerations (B(k)) – review of relevant authorities
[68] The only relevant authority to state a position in relation to this application has been the Assignee, who abides the Court’s decision. Matters referred to the Court through the Assignee’s memorandum as to complaints received (above at [59]) do not represent the expression of any particular view of an authority.
Relevant considerations ((C)) – procedural and evidential requirements
[69] Mr Henderson (through the information identified at [33] – [44] above) has satisfactorily identified matters relating to the structure of his intended business model and the role he will perform. Mr Henderson also appropriately identified measures to eliminate risks for other interests which I am satisfied, with some amplification and modification, will ensure that the protection intended through the prohibition is not significantly reduced.
Continued prohibition in relation to relatives
The application
[70]By his application, Mr Henderson offered to accept a condition:
That, the applicant not consult to any company of which a relative is sole director.
[71] Mr Henderson implicitly recognised that the need for that restriction to remain in place arose through the findings in the discharge judgment where I observed:
[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.
Discussion
[72] The proposed condition, which would preclude Mr Henderson from consulting to any company of which Ms Buxton is the sole director, falls appreciably short of eliminating the risk which would arise from Mr Henderson’s ability to have de facto control of an entity of which Ms Buxton has part or all of the legal control. The Court has not been provided with evidence on this application of the entities or businesses over which Ms Buxton has control. From previous proceedings, the Court knows Ms Buxton to have control over a number of trusts and companies (legal or otherwise). She may also have further interests personally, in partnership or otherwise.
[73] The authorities which the Court considered in the refusal of permission judgment address the protection of public interest by requiring the applicant to demonstrate that the client or employing entity will have a governance and management structure which allows the entity to operate and manage itself free from legal or de facto control by the applicant. Detail is also required of the nature of the business.
[74] Mr Henderson has not provided information as to the structures of the various entities in which Ms Buxton is involved. Nor of the businesses they conduct or may conduct. Issues of risk remain in relation to all such entities whether Ms Buxton’s control is as sole director or otherwise.
[75] By way of example, Tomanovich Holdings Ltd (Tomanovich) was one of the companies which Mr Henderson in 2017 unsuccessfully sought permission to assist. In answer to Mr Cooley, Mr Henderson explained that Tomanovich has some current litigation in relation to which Ms Buxton gives the instructions; he stated that it has no business and it owns the residential property at which the couple live in the Gibbston Valley. Later on, in answer to questions from the Bench, Mr Henderson drew a distinction between trusts which trade and trusts which simply hold assets, without “aspiration or intention to trade”. The difficulty for the Court is that Mr Henderson did not give evidence-in-chief in relation to the “family” entities, their assets and their intended activities. That said, he gave some clarification of what might happen to Tomanovich’s Gibbston Valley property – in answer to Mr Cooley’s question as to
what work Mr Henderson might be prohibited from undertaking if he cannot work for Ms Buxton he explained:
Sir, the property we live on in Gibbston Valley is a 70 acre rural property that probably sooner rather than later will need to be subdivided and developed for residential real estate. That’s an example.
As well as being an example of the business Ms Buxton or her entities might embark upon, the Gibbston Valley opportunity illustrates the sort of business Mr Henderson might control if the prohibitions under s 299(1)(d) – (e) are relaxed to allow him to work for Ms Buxton (directly or indirectly).
[76] The Court is not satisfied that it is appropriate to grant permission to Mr Henderson, through his consultancy business, to work for Ms Buxton or entities associated with her. If the prohibitions relating to s 299(1)(d) – (e) are to be relaxed, a more focused application with detailed evidence would be required. It is unlikely that any permission would be granted to Mr Henderson to work for an entity which did not have a decision-making regime which is demonstrably independent of Mr Henderson and a business structure which reasonably assures compliance (by someone else of demonstrated competence and reliability) with all regulatory obligations.
Application to be granted in part
[77] The Court will grant Mr Henderson’s application in part. The permission granted will be only to the extent expressed in the orders set out at [79]. For the above reasons, the Court will not permit the breadth of activities for which Mr Henderson seeks permission. He will not be permitted to act in matters of project management or any other form of management. To ensure that the extent of the Court’s permission is clearly understood, the orders made contain an express adoption, in relation to Mr Henderson’s future activities, of this Court’s answer to the question “What constitutes involvement in management of a company?” in Mani v Registrar of Companies.14
[78] The permission granted to Mr Henderson in this judgment also precludes Mr Henderson from undertaking work as a consultant to Ms Buxton or entities associated with Ms Buxton. He will continue, by reason of the prohibition, to be prohibited from
14 Mani v Registrar of Companies [2016] NZHC 3002 at [81] – [96].
being employed by Ms Buxton or by a company, trust, trustee or incorporated society that is managed or controlled by Ms Buxton.
Orders
[79]I order that during the period of prohibition (to 9 December 2022):
Permission
(a)David Ian Henderson (“Mr Henderson”) is permitted to be self- employed, as an unincorporated sole trader (“his business”), providing consultancy services to the construction, land development and hospitality industries (“the permitted activities”) subject to the following conditions:
(i)“consultancy services” in the permission hereby granted is limited to the provision of advice to the client and undertaking negotiations on behalf of the client;
(ii)“consultancy services” in the permission hereby granted excludes any work which requires Mr Henderson to be involved in the management of the client’s business or work, with management in this condition having the meaning identified in Mani v Registrar of Companies;15
(iii)Mr Henderson shall not engage in the permitted activities for Katrina Buxton or for any company, trust, trustee or incorporated society which is managed, owned or controlled (in whole or in part) by Katrina Buxton;
(iv)Mr Henderson, in his business, shall observe the requirements set out in [79](b) below;
15 Mani v Registrar of Companies, above n 14, at [81] – [96].
(v)Mr Henderson shall retain and continue to retain on a professional basis as the approved financial supervisor, Brenton Hunt (“supervisor”), upon the arrangements set out at [79](c);
(vi)The Court may, on five days’ notice to Mr Henderson, review these orders and conditions and may on such review make such orders as it considers just including but not limited to orders of revocation, amendment or confirmation;
(vii)Leave is reserved to the Registrar of Companies and to the Official Assignee, if they receive information relevant to the performance by Mr Henderson or the supervisor of their obligations in terms of these orders and conditions, to bring such matters to the attention of the Court by filing and serving a memorandum supported, if matters of fact are referred to, by affidavit evidence.
Mr Henderson’s business
(b)As further conditions of the permission at [79](a):
(i)Mr Henderson will conduct his business only within the permitted activities;
(ii)Mr Henderson will not undertake any work for a client without first entering into a consultancy agreement which contains all the detail expressed or provided for in the “Consultancy Agreement” at Schedule 1;
(iii)Mr Henderson will promptly upon its execution provide the original of each signed consultancy agreement to Mr Hunt for safekeeping;
(iv)Mr Henderson will not employ staff;
(v)Mr Henderson will not rent premises;
(vi)In consultation with the supervisor, Mr Henderson will open one bank account for use solely in relation to his business (“the business bank account”). The business bank account is to have one sub-account dedicated to money set aside for taxes;
(vii)All money paid on account of services provided by Mr Henderson as part of his business will be banked into the business bank account;
(viii)Mr Henderson will vest in the supervisor sole authority to effect payments out of the business bank account (including sub- accounts);
(ix)Mr Henderson will operate his business on a non-credit basis as far as possible;
(x)Mr Henderson, where required to incur credit, will make the prospective creditor aware of his previous bankruptcies, the terms of the prohibition and [79](a) and (b) of these orders and conditions;
(xi)All creditors of Mr Henderson’s business will be kept within trading terms to be agreed with any such creditor before Mr Henderson incurs any debt with the creditor;
(xii)Mr Henderson will not personally incur costs or enter into any contracts with clients to whom he consults (save that he will enter into a consultancy agreement with each client);
(xiii)Mr Henderson will register with the Inland Revenue Department (“IRD”) for GST purposes;
(xiv)Mr Henderson will ensure that all his obligations to the IRD (including but not limited to payments and returns) are completed within statutory time limits. Mr Henderson will, where there is a possibility of withholding tax deductions, make arrangements for the withholding tax to be deducted at source;
Supervisor’s role
(c)As further conditions of the permission at [79](a):
(i)The supervisor’s role is to be defined by a written contract of services to be entered into between the supervisor and Mr Henderson containing every requirement set out in these orders and conditions. If the supervisor during the period of prohibition, intends to cease or ceases practising as a chartered accountant with a public practising certificate, he is forthwith by memorandum upon either event to notify the Court of such intention or cessation and Mr Henderson is within five working days thereafter to file a memorandum setting out his proposal as to any replacement supported by affidavit evidence if a replacement supervisor is proposed;
(ii)The supervisor (Brenton Hunt) is released from the undertaking previously provided to the Court (in relation to Mr Henderson’s draft application) and, as a pre-condition to these orders becoming operative, is to file in Court a written acknowledgement in the form attached as Schedule 2;
(iii)The performance of the terms of the supervisor’s undertaking will constitute conditions of the permission, and a breach by the supervisor will constitute a breach of the conditions by Mr Henderson;
(iv)In the event Mr Hunt does not file the written acknowledgement required at [79](c)(ii), leave is reserved to Mr Henderson to apply, with supporting evidence, for the Court’s approval of a replacement supervisor who has signed the acknowledgement;
(v)The supervisor will file in Court and serve a report within 10 working days of any breach of Mr Henderson’s conditions or of the termination of the supervisor’s retainer by Mr Henderson;
(vi)As between the supervisor and this Court, the supervisor’s obligations are obligations of the supervisor personally and not of any company with which he is associated.
Associate Judge Osborne
Solicitors:
D M Lester, Barrister, Christchurch Brookfields, Auckland
SCHEDULE 1
CONSULTANCY AGREEMENT
Parties:
David Ian Henderson of Christchurch (the consultant)
of(the Client)
Project Address:
Description of the Client’s project and all services to be provided by the consultant:
Fee arrangement:
Point of reporting:
Within the Client’s organisation, the consultant shall report to and take his instructions from:
Fixed limitation of retainer:
1.This agreement is specific to the address shown above. Any consultancy sought concerning another address or project will require a separate agreement.
2.The consultant’s role is limited to advice to the Client and negotiation on behalf of the Client. The consultant is not permitted to enter contracts with a third party as agent on behalf of the Client. The consultant is not permitted to bind the Client. All contracting decisions will lie with the Client.
3.This Consultancy Agreement shall expire 12 months after the above date, unless an alternative expiry date (no more than 24 months after the above date) is here expressed. Alternative expiry date:
Signed:D I Henderson Signed:(Client)
SCHEDULE 2
To: The High Court, Christchurch
I, Brenton Hunt, have read the judgment of the Court dated 18 May 2018 [2018] NZHC 1116 and I have read and accept the conditions imposed on David Ian Henderson and on me in relation to Mr Henderson’s consultancy business. I acknowledge that I am required to:
(a)Maintain sufficient records to ensure that I am aware of all work undertaken by Mr Henderson and will be able to account for all income received and expenses so that all Mr Henderson’s tax, financial obligations and other regulatory requirements are met.
(b)Maintain the sole authority (whether through signature, electronic transaction or otherwise) in relation to Mr Henderson’s business bank account and as transactions are effected to satisfy myself as to the true nature of such transactions.
(c)Set aside in the business bank account’s sub-account for tax money such sums at such times as will enable the supervisor to fulfil Mr Henderson’s tax obligations.
(d)Prepare the financial statements and the completion of all returns to the Inland Revenue Department and make all payments to the Department on time, ensuring that no taxation obligation of Mr Henderson is in arrears at any time.
(e)Promptly after becoming aware of a deficient practice, notify Mr Henderson of any changes Mr Henderson should make to have his business meet best practice standards.
(f)Provide to the Court an initial statement on the progress of Mr Henderson’s business and Mr Henderson’s cooperation by 31 August 2018.
(g)Submit to the Court quarterly trading statements initially for the quarters ending 31 September 2018, 31 December 2018, 31 March 2019 and 31 June 2019, such statements to be submitted within 10 working days of the end of the quarter.
(h)Hold and maintain up-to-date a file in chronological order of all consultancy agreements provided to me by Mr Henderson pursuant to his obligation at [79](b)(iii) and to provide the file to the Court for inspection upon the Registrar’s request.
(i)Submit to the Court Mr Henderson’s completed annual financial statements for the years ending 31 March 2019, 31 March 2020, 31 March 2021, 31 March 2022 and 31 March 2023 promptly upon the completing of such annual returns to the Inland Revenue Department. The statements are to be accompanied by a statement as to Mr Henderson’s co-operation during the financial year in question.
(j)Report to the Court within ten working days of its occurrence any event whereby Mr Henderson becomes in breach of any condition attaching to these orders or Mr Henderson fails to accept my advice as to best practice standards or there is a termination of Mr Henderson’s retainer of me.
(k)Provide any documents for the Court as attachments to a Memorandum bearing the heading to the judgment.
Dated this day of May 2018
Signed by:
Brenton Hunt
Financial Supervisor of D I Henderson
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