Henderson v Official Assignee
[2017] NZCA 411
•18 September 2017 at 3 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA30/2017 [2017] NZCA 411 |
| BETWEEN | DAVID IAN HENDERSON |
| AND | OFFICIAL ASSIGNEE |
| Hearing: | 12 September 2017 |
Court: | Harrison, Miller and Gilbert JJ |
Counsel: | D M Lester for Appellant |
Judgment: | 18 September 2017 at 3 pm |
JUDGMENT OF THE COURT
A The appeal is dismissed.
BThe appellant is ordered to pay costs to the respondent costs for a standard appeal on a band A basis and usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by Harrison J)
Introduction
David Ian Henderson was adjudicated bankrupt in November 2010. In January 2011 he filed his statement of affairs with the Official Assignee. Under the Insolvency Act 2006 he would be automatically discharged from bankruptcy within three years of the latter date. However, the Assignee objected. The High Court was then required to conduct a public examination of Mr Henderson after taking into account a report filed by the Assignee on a number of issues including Mr Henderson’s post adjudication conduct.
Associate Judge Osborne discharged Mr Henderson from bankruptcy subject to conditions following an extensive public examination.[1] Mr Henderson appeals against his conditional discharge on three interrelated grounds. His primary ground is that the Associate Judge erred in imposing the conditions without first making a finding on his post-adjudication conduct. Mr Henderson also asserts that in making this error the Associate Judge breached his rights to natural justice and displayed apparent bias against him.
Background
[1]Havenleigh Global Services Ltd v Henderson [2016] NZHC 2969 [Public examination] at [446].
Mr Henderson has been adjudicated bankrupt twice. His first bankruptcy was in 1996. He was discharged in 1999. His second bankruptcy in November 2010 arose from his failure to satisfy a judgment debt for $70,318.90 in favour of Havenleigh Global Services Ltd. That company was substituted as the applicant in a bankruptcy proceeding earlier commenced by another creditor Gold Band Finance Ltd with which Mr Henderson compromised a claim for $811,994.05.[2] However, it soon transpired that these debts were minimal when compared to Mr Henderson’s liabilities to others. Claims by third parties against his bankrupt estate exceeded $160 million.[3] His final indebtedness was settled in the range of $100 million to $150 million.[4]
[2]At [19]–[20].
[3]At [28].
[4]At [58].
The Associate Judge conducted Mr Henderson’s public examination. It was a lengthy process lasting 12 days in August and October 2015. The Assignee was represented by counsel who also questioned Mr Henderson. He represented himself. The Associate Judge’s careful analysis of the evidence and relevant principles is reflected in a judgment of 134 pages delivered in December 2016.
The causes of Mr Henderson’s bankruptcy were undisputed. He had assumed substantial liabilities through personal guarantees given to largely second-tier financiers for loans to various companies under his control. Mr Henderson undertook major property developments in Queenstown, Christchurch, Dunedin and Invercargill.[5] He acted principally through Property Ventures Ltd (PVL), in which he was a major shareholder and later managing director. In late 2007 PVL and related companies under Mr Henderson’s control started to experience difficulties in meeting debt repayment obligations which Mr Henderson had guaranteed.[6] PVL’s receivership followed in March 2010.[7] The Associate Judge outlined in detail the nature and extent of Mr Henderson’s personal guarantees for his companies borrowings.[8]
[5]At [23].
[6]At [25].
[7]At [26].
[8]At [74]–[93].
There was a related cause for Mr Henderson’s bankruptcy. He failed consistently to meet his personal taxation liabilities to the Inland Revenue Department. The Department claimed on his adjudication a total of $2,270,319.74 including penalties and use of money interest for years when Mr Henderson filed returns recording nil income and nil expenses.[9] His companies also diverted PAYE and GST payments, for which they were legally bound to account to the Department, for their own purposes.[10] Mr Henderson was responsible for this corporate misuse of taxation payments to finance various commercial developments. He applied public monies as private working capital.
[9]At [94].
[10]At [154]–[174] and [228]–[243].
Mr Henderson has an unusually active history in both the criminal and civil litigation. He has committed numerous offences under the relevant taxation legislation. Included among them are 25 convictions for PAYE offences entered on four earlier occasions and 12 convictions for other taxation offences on seven separate occasions.[11] He has also been the subject of a number of money judgments in the District Court, High Court and the Taxation Review Authority. He has been a frequent appellant before this Court and the Supreme Court. The full details of Mr Henderson’s litigation history are chronicled in the High Court judgment.[12]
[11]At [153].
[12]At [152]–[295].
The Associate Judge’s unchallenged findings on Mr Henderson’s commercial history and conduct justify citation:
[336] Mr Henderson carefully structured his personal affairs both before and in the decade following his first bankruptcy so as to have no assets. But he provided personal guarantees for huge sums. Consequently those creditors entitled to call on his guarantees would almost inevitably receive no payment on account of the guarantee if the company-borrower defaulted in adverse economic times. The distinct likelihood existed that a company‑borrower would default in each of the many cases where the financier was a second-tier lender, usually lending for a short to medium term. The occurrence of an economic down-turn (as occurred with the GFC) was a predictable at least in terms of occurrence (if not in magnitude), and one for which a property development enterprise of substantial scale should have prepared. It was precisely in the event of a major economic downturn that second-tier lenders might not roll over loans; others might not step in to refinance the loans; the company borrowers would default; and Mr Henderson’s guarantees would be enforced.
[337] The fact that the Henderson companies embarked upon a programme of sustaining payments to financiers and suppliers at the expense of meeting Revenue obligations such as PAYE and GST masked for a period the onset of corporate insolvencies. The evidence is that Mr Henderson, as managing or sole director of key companies, was centrally involved in such decision‑making. Those decisions increased what would have already been Mr Henderson’s huge level of insolvency arising through his guarantees.
[338] Furthermore, Mr Henderson was involved in company tax arrangements which led to personal tax liabilities. He received income for which he did not account to the IRD. The structuring of his personal affairs once again meant, that as those liabilities became confirmed through adjudication processes, he was insolvent on the basis of his tax liabilities alone.
The Associate Judge discharged Mr Henderson from bankruptcy subject to these relevant conditions:
[446] I order:
…
(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.
…
Jurisdiction
As noted, a bankrupt is automatically discharged from bankruptcy on the expiry of three years from the date of filing a statement of affairs unless the Assignee objects.[13] In that event the High Court is obliged to conduct a public examination.[14] The Assignee must prepare and file a report as to the bankrupt’s affairs, the causes of the bankruptcy, the bankrupt’s performance of his or her duties, the manner of the bankrupt’s abeyance of court orders, the bankrupt’s conduct before and after adjudication, and any other matter that would assist the Court in making a decision as to the bankrupt’s discharge.[15]
[13]Insolvency Act 2006, ss 290 and 292.
[14]Section 295.
[15]Section 296(2).
The Court is empowered after conducting the bankrupt’s public examination, to make a number of orders “having regard to all the circumstances of the case” including immediate discharge, discharge on conditions at a specified future date, or outright refusal to discharge.[16] This broad statutory discretion is a legislative recognition of the differences between each case, and subject only to the overriding obligation to consider the legitimate interests of the bankrupt, the creditors and wider public concerns.[17] By reference to the Assignee’s report the Court is required to examine the bankrupt until it is satisfied that “the bankrupt’s conduct, dealings and property have been sufficiently investigated”.[18]
[16]Section 298.
[17]ASB Bank v Hogg [1993] 3 NZLR 156 (CA).
[18]Insolvency Act, s 179(2).
Significantly, when making an order for discharge, the Court may take these steps:
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:
(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.
As Ms Foster emphasises for the Assignee, the process of public examination is distinct from ordinary civil proceedings. The public examination conducted by the Court is inquisitorial and investigatory by nature.[19] The statutory procedure does not entitle the bankrupt to call witnesses for examination or cross-examination.[20] The Court may however exercise its inherent powers in allowing a bankrupt to adduce additional evidence which should be taken into account.[21]
Decision
[19]R v Zion [1986] VR 609 (VSC) at 615; Re Baird (A Bankrupt) [1994] 2 NZLR 463 (HC) at 467; Gray v Legal Services Board (1998) 11 PRNZ 687 (HC) at 694.
[20]Insolvency Act, ss 173–181.
[21]Bryers v Official Assignee [2014] NZHC 2920, [2015] 2 NZLR 273 at [36]–[38]; Havenleigh Global Services Ltd v Henderson [2015] NZHC 1762 at [90]–[92].
We note that none of the grounds of appeal advanced by Mr Lester for Mr Henderson raises any challenge to the Associate Judge’s comprehensive findings of fact, his identification and application of the relevant statutory principles, or his conclusions — except in one material respect. Mr Lester submits that the Judge erred when exercising his discretion to discharge Mr Henderson in declining to take into account his conduct after adjudication. This was one of the subjects on which the Assignee had reported and on which she based her continuing opposition to Mr Henderson’s discharge. In Mr Lester’s submission the Associate Judge’s omission was an error of law and a breach of the rules of natural justice.
Mr Lester relies on this passage of the judgment as evidence of the Associate Judge’s error:
[439] I am also satisfied that none of the particular aspects of post‑[adjudication] 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.
The brief context for Mr Lester’s submission is as follows. In objecting to Mr Henderson’s discharge the Assignee referred to evidence that he 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 Assignee, and failed to cooperate in the liquidations of his associated entities.[22] Mr Henderson denied these allegations. He asserted that Terry Marshall, a Christchurch officer of the Assignee, had permitted him to participate to a limited extent in business activities or had advised him of the parameters of lawful conduct which could be undertaken before requiring formal consent.[23] Mr Henderson wished to question Mr Marshall at the public hearing. However, the Assignee did not tender an affidavit from Mr Marshall. He was not required for examination and Mr Henderson had no power to compel Mr Marshall’s attendance.
[22]Public examination, above n 1, at [433].
[23]At [434].
In Mr Lester’s submission, a resolution of this factual issue in Mr Henderson’s favour may have shaped the conditions imposed; the Associate Judge may have imposed less stringent conditions if he had made findings on Mr Henderson’s post-adjudication conduct. The Associate Judge led himself into error, Mr Lester says, in determining that it was not necessary to permit examination on each allegation of post-adjudication misconduct — if the Associate Judge had found Mr Henderson operated within the limits of Mr Marshall’s alleged consent, it would be illogical to subject Mr Henderson to stricter conditions following discharge than those applied informally during his bankruptcy. In this way the Associate Judge also breached the rules of natural justice and Mr Henderson’s rights under s 27(1) of the New Zealand Bill of Rights Act 1990.
We reject Mr Lester’s submission. It mischaracterises the Associate Judge’s powers and his reasoning. The Assignee was bound to report on a number of issues under s 296(2) of the Insolvency Act, including Mr Henderson’s conduct following adjudication. But the Court was under no corresponding obligation to make findings on each of those six issues. While the Associate Judge was bound to take into account the Assignee’s report, he was not bound to make specific findings on its particulars. His duty was to decide whether “having regard to all the circumstances of the case” — including the subject matter of the report — Mr Henderson should be discharged and, if so, on what conditions.
There was a good reason for the Associate Judge’s decision not to take post‑adjudication conduct into account. He was satisfied that the root causes of Mr Henderson’s bankruptcy were profound and endemic to his character. He found that throughout his commercial history and continuing to the end of the public examination in October 2015, Mr Henderson “display[ed] a recklessness towards his tax responsibilities”;[24] that Mr Henderson showed “no significant insight into the recklessness of his giving personal guarantees and … the cause of his own bankruptcy”;[25] and that he did not understand his responsibilities towards a commercial enterprise and was unlikely to act differently in the future.[26] The Judge was satisfied that if Mr Henderson was discharged from bankruptcy he was likely to “continue to take the entrepreneurial risks which have been a central part of his business life”.[27] We repeat that none of these findings about the causes of Mr Henderson’s bankruptcy and his ongoing failures of insight are challenged on appeal.
[24]At [359].
[25]At [354].
[26]At [366]
[27]At [373].
When compared with these factors, the Assignee’s allegations about Mr Henderson’s post‑adjudication conduct were relatively inconsequential. They were directed at compliance issues — in particular, breaches of prohibitions and receiving undisclosed income. They did not go towards the core risk which Mr Henderson presented to the commercial community or the wider public interest. Again, the Associate Judge’s findings on the public interest issue are not challenged.[28]
[28]See [393]–[415].
Mr Lester could not state his proposition higher than an assertion that if the Associate Judge had heard more detailed evidence from Mr Marshall and made a finding on post-adjudication conduct, he may have changed the nature and duration of Mr Henderson’s discharge conditions. Even if, contrary to our primary finding, the Associate Judge was under an affirmative obligation of the nature alleged, Mr Henderson was required at the very least to show the probability of a different result. Mr Lester realistically accepted that any finding on post-adjudication conduct could not possibly have affected the primary condition — a permanent prohibition on Mr Henderson giving any personal guarantees.[29] Nor could it possibly have affected the duration of the six‑year prohibition on managing or controlling a company or acting as a director of any business;[30] Mr Henderson himself admitted to being a “lousy administrator”.[31] The other conditions are ancillary. In our judgment a finding on Mr Henderson’s post‑adjudication conduct could not possibly have affected the material conditions imposed upon his discharge.
[29]At [446(c)].
[30]At [446(d)(i)–(iii)].
[31]See [134] and [363].
Mr Lester realistically accepted that Mr Henderson’s alternative argument of breach of natural justice would stand or fall with his primary ground of error of law. We do not need to address this argument further other than to note that the Associate Judge gave Mr Henderson numerous opportunities to lead evidence, none of which he took.
Finally, Mr Lester submitted that the Associate Judge’s affirmative finding on post adjudication conduct at [439] displayed apparent bias. Mr Lester submitted that the statement suggests the Associate Judge did not appear to contemplate a finding other than that Mr Henderson had failed to meet his obligations; and that there was no other alternative in his mind. A fair-minded observer might reasonably apprehend that the Judge did not bring an impartial mind to resolving the issue of conditions to be imposed on discharge.[32]
[32]Saxmere Co Ltd v Wool Board Disestablishment Co Ltd [2009] NZSC 72, [2010] 1 NZLR 35.
It is unnecessary for us to dwell on this submission. It could not possibly succeed. If anything, the Associate Judge’s exercise of his discretion to abstain from inquiring into post-adjudication conduct was likely favourable to Mr Henderson in the face of the Assignee’s report. It does not suggest, either in its content or context, any bias against Mr Henderson’s position. Moreover, as we have noted, the Associate Judge’s rationale for the conditions imposed and their duration have no logical nexus to the discrete paragraph to which Mr Henderson now objects.
Mr Henderson’s grounds of appeal must fail.
Result
The appeal is dismissed.
Mr Henderson is ordered to pay costs to the Assignee as for a standard appeal on a band A basis together with usual disbursements.
Solicitors:
Canterbury Legal, Christchurch for Appellant
Anthony Harper, Christchurch for Respondent
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