Holdgate v Blocassa Ltd

[2007] NZCA 132

IN THE COURT OF APPEAL OF NEW ZEALAND

CA131/06
[2007] NZCA 132

BETWEENANDREW NICHOLAS HOLDGATE

Appellant

ANDBLOCASSA LIMITED

First Respondent

ANDTHE OFFICIAL ASSIGNEE

Second Respondent

Hearing:7 February 2007

Court:Chambers, Robertson and Arnold JJ

Counsel:K F Gould for Appellant

I F Williams for First Respondent
N Malarao for Second Respondent

Judgment:17 April 2007 at 3pm

JUDGMENT OF THE COURT

A        The appeal is dismissed.

BThe appellant must pay the respondents costs of $3,000 each, plus usual disbursements.

REASONS OF THE COURT

(Given by Arnold J)

Introduction

[1]       The appellant, Mr Holdgate, was adjudicated bankrupt.  He applied for an annulment of the adjudication under s 119(1)(a) of the Insolvency Act 1967, on the ground that he was solvent and able to pay his debts.  Associate Judge Doogue dismissed the application: CIV 2005-404-2693 2 June 2006.  Mr Holdgate appeals against that decision. 

Background

[2]       The appellant is an experienced earth-moving contractor.  He and an associated company were sued by the first respondent, Blocassa Limited, as a result of earth-moving works which he carried out.  Venning J held that the appellant was liable to Blocassa in the sum of $90,375.82: CIV 2003-404-005551 13 April 2005.  The Judge also awarded costs against the appellant. 

[3]       The appellant filed an appeal against Venning J’s judgment.  Shortly after, Blocassa issued a bankruptcy notice against him on the basis of the unpaid judgment.  The appellant then applied to the High Court for a stay of execution of Venning J’s judgment.  Ellen France J dismissed that application: CIV 2003-404-005551 15 September 2005. 

[4]       The appellant did not pursue his appeal against Venning J’s decision in a timely fashion.  Ultimately, by notice dated 17 March 2006, the appellant was notified that his appeal was treated as being abandoned by virtue of r 43(3) of the Court of Appeal (Civil) Rules 2005.

[5]       On 7 December 2005 Associate Judge Abbott adjudicated the appellant bankrupt on Blocassa’s petition.  On 20 December 2005 the appellant filed an application for an order that the adjudication be annulled.   He filed a brief affidavit in support claiming that he was solvent.  He referred in particular to his equity in two properties that he owned and to the fact that he had recently received $175,000.  He said that he was seeking a conditional order annulling the order for adjudication upon payment of the judgment sum to Blocassa and the Official Assignee’s costs.

[6]       Blocassa filed a notice of opposition on 23 January 2006.  At the same time the Official Assignee, through a Deputy Assignee Ms Horgan, filed a report.  It noted that the appellant had previously been adjudicated bankrupt in 1991 and 1997, and stated that the appellant had refused to provide a statement of affairs and had not been forthcoming about his financial position.  Ms Horgan filed further reports in February and March 2006 in which she updated the position.  She indicated that the appellant had not co‑operated, despite his legal obligation to do so, and said that the Official Assignee was concerned that the appellant might be continuing to trade. 

[7]       Despite this, Ms Horgan indicated that the Official Assignee had no objection to the application for an annulment being granted provided that:

(a)Appropriate arrangements were made with, or for the payment of, all known creditors;

(b)       Blocassa’s costs and disbursements were paid;

(c)       The Official Assignee’s costs and disbursements were paid; and

(d)       No creditor objected to the annulment.

[8]       The appellant then filed a second affidavit in which he deposed that he had sufficient funds to meet Blocassa’s debt and costs and the Official Assignee’s costs.  He disputed that he owed some of the debts referred to in the Official Assignee’s report.

[9]       The application was to be heard on 8 March 2006.  It came before Associate Judge Sargisson.  She was concerned at, among other things, the lack of detailed evidence as to the appellant’s financial position.  Accordingly she directed the appellant to file and serve a further affidavit providing a more complete statement of his assets and liabilities: CIV-2005-404-2693 8 March 2006. 

[10]     The appellant did not immediately comply with this direction.  Rather, he filed an application to review the Associate Judge’s decision, on the ground that there was sufficient evidence before her to justify the making of the order for annulment.  That application was heard by Courtney J and dismissed: CIV‑2005 404-2693 23 March 2006. 

[11]     Subsequently the appellant filed a third affidavit dated 28 March 2006.  In that affidavit he indicated that he would provide his counsel with bank cheques totalling $117,822.12 payable to the Official Assignee to meet Blocassa’s claim and the Official Assignee’s costs and disbursements.  He also deposed that he had trade debtors who owed him more than $300,000 and that he owned earth-moving machinery which was worth in excess of $400,000 net.

[12]     Associate Judge Doogue then issued a minute, following a directions conference on 29 March 2006, in which he set a timetable for the filing of further material.  He said:

[4]       I put the applicant on notice that there must be strict compliance with the timetable from this point failing which consideration will inevitably have to be given to taking steps to enforce the timetable order.  I do not want to say anything more than that other than to point out that it cannot be in his interests to drag the chain on making proper disclosure.

[13]     Following that, the appellant filed a fourth affidavit, dated 5 April 2006, in which he confirmed the contents of his previous affidavits and attached a hand-written statement of position. In that he claimed that he had equity in the two properties, cash on hand, personal items, earth-moving machinery and trade debtors totalling approximately $1.6 million in value.

[14]     On 23 May 2006, Ms Horgan filed a fourth report on behalf of the Official Assignee.  That indicated that the appellant’s liabilities totalled $418,995.28, although the appellant disputed $130,195 of this.  She advised the Court that the Official Assignee had received formal valuations of the two properties owned by the appellant.  On the basis of these, the Official Assignee calculated that the appellant had a net equity in the properties of $570,036.  As to the items listed in the appellant’s statement of position and the trade debtors, Ms Horgan advised that the appellant had provided no details of the location of the cash or the equipment, and insufficient details of the trade debtors.  Ms Horgan said that the appellant’s refusal to co-operate had made it very difficult to administer his estate.

Associate Judge’s decision

[15]     Having referred to the relevant statutory provisions, the Associate Judge described the approach which he was required to take as follows (at [10]):

The Court hearing an application to annul is required to judge the matter as if the Judge originally making the order for adjudication was possessed of the same information that is available at the hearing of the annulment application.

[16]     The Associate Judge considered the evidence concerning the appellant’s financial circumstances and concluded:

[18]     The result is that the Court is left with the evidence of the Official Assignee which discloses a situation in which the bankrupt owns real estate with an excess of value over liabilities of approximately $285,000.  Using the Official Assignee’s data, then, on a balance sheet basis, the bankrupt should have been able to establish his solvency.  But on a liquid-assets basis he would not.  No reliable evidence is before the Court to establish that the bankrupt could have promptly sold his land to meet his debts or that he had the ability to raise by borrowing against the land sufficient cash to meet the debts he owed. 

[19]     That being so, I do not accept that the bankrupt is able to establish that the order of adjudication ought not to have been made.  The application will be dismissed.

[20]     In any event, I would not be prepared to exercise my discretion in favour of making the order.  [The appellant] has substantial debts, one of which is the subject of a High Court judgment.  His actions make it clear he has no inclination to meet even that debt.  He appears to be an intractable debtor.  It would not be in the public interest for his bankruptcy to be annulled.

[17]     We understand from Mr Gould that in the course of argument, he proffered a bank cheque for an amount sufficient to satisfy the debt to Blocassa and the Official Assignee’s costs.  He said that the cheque was not accepted as it was not known precisely what other debts the appellant owed.

Discussion

[18]     Mr Gould’s position is straightforward.  He says that, even if the appellant’s claim that he has assets totalling $1.6 million is ignored as being unsubstantiated, it is clear from the Official Assignee’s analysis that the appellant was solvent at the time of adjudication.  On any view of it, Mr Gould says, the appellant’s equity in the two properties exceeded his liabilities to his creditors. 

[19]     Section 26 of the Insolvency Act provides that a Court may dismiss a bankruptcy petition if it is satisfied that the debtor is able to pay his or her debts.  This means that the debtor must be able to pay his or her debts as they are incurred, either immediately or within a reasonable time.  If unable to do this, the debtor may be declared bankrupt even though he or she has more assets by value than liabilities.  Put another way, a debtor will not necessarily avoid bankruptcy by showing a positive balance sheet.  It is the capacity to pay either immediately or within a reasonable time that is critical.  These propositions emerge from the authorities discussed  in Brooker’s Insolvency Law (Looseleaf edition) at [IA26.08].

[20]     Section 119(1) of the Insolvency Act, confers a discretionary power to annul an adjudication.  It provides:

119When Court may annul adjudication

(1)In any of the following cases the Court may by order, on the application of the Assignee or any person interested, annul the adjudication -

(a)    Where the Court is of the opinion that the order of adjudication should not have been made:

(b)    Where the Court is satisfied that the debts of the bankrupt have been fully paid or satisfied:

(c)    Where the Court is of the opinion that the liability of the bankrupt to pay his or her debts should be revived because since the date of adjudication there has been a substantial change in the financial circumstances of the bankrupt:

(d)    Where the Court has approved a composition under Part 12 of this Act.

…..

[21]     In this case the application was made under s 119(1)(a).  In exercising its discretion under that provision, a Court must approach the matter on the basis of the facts as they were at the time of adjudication.  Those facts may not necessarily have been before the Court which made the adjudication, but they must be the true facts at that time.  These principles emerge from the language of s 119(1)(a) and from Re Guest, ex parte BNZ Finance Ltd [1991] 1 NZLR 250 at 253-5 (HC) and Re Hunter; ex parte Commissioner of Inland Revenue; Re Collins; ex parte Commissioner of Inland Revenue (2000) 19 NZTC 15,722 at [57]-[59] (HC).

[22]     As with other discretionary decisions, an appellate Court will interfere only if the Court below acted on a wrong principle, took account of irrelevant factors, failed to take relevant factors into account, or was “plainly wrong”.

[23]     Mr Gould did not suggest that there was any error of principle on the part of Associate Judge Doogue.  Rather, the effect of his argument was that the Associate Judge was “plainly wrong”.

[24]     We reject that submission. 

[25]     In his affidavits, the appellant claimed that he had assets amounting to $1.6 million.  Apart from the two properties, however, there was no independent evidence to support his claims.  For example, he claimed that he had $150,000 in cash but offered no substantiation in the form of bank records, although his counsel did produce a bank cheque at the hearing for something over $100,000. 

[26]     More importantly, as Mr Williams submitted, the appellant said that he owned earth-moving machinery and a motor vehicle which he used in his business.  In his statement of position he said these items were worth over $600,000 after deduction of borrowings.  However, in the trial before Venning J, the appellant and another defence witness said that the earth-moving machinery which the appellant used for his business was owned by a company called Arrowlane.  The appellant has offered no explanation as to how the machinery moved from Arrowlane’s ownership to his in a comparatively short period of time, nor has he proffered any documentation substantiating the transfer.

[27]     Furthermore, as has been noted, it is apparent from the Official Assignee’s reports that the appellant has not co-operated with the Official Assignee by providing details of his assets.  Indeed, he seems to have been deliberately obstructive. 

[28]     In these circumstances, we consider that the Associate Judge was entitled to disregard the appellant’s claim that he had assets amounting to $1.6 million.  The appellant simply did not provide sufficient supporting material to substantiate that assertion.  The only assets in respect of which there was independent verification were the two properties.  Accordingly we turn to those.

[29]     The evidence before the Associate Judge was that if the properties were sold at valuation, the appellant would be able to meet his debts, including one which was disputed.  However, Mr Gould had advised Associate Judge Sargisson at the hearing on 8 March 2006 that the properties were not available to meet the appellant’s debts.  This is recorded at [6] of the Associate Judge’s minute:

Mr Gould acknowledges that the equity in the two properties is not to be used for debt repayment purposes.  He indicated from the bar that [the appellant] has cash funds which he is holding and intends to use to pay [Blocassa] and the Official Assignee.

[30]     Although Associate Judge Doogue does not refer to this in his judgment he must have been aware of it as it is clear from his minute of 31 March 2006 that he had read Associate Judge Sargisson’s minute.

[31]     At the hearing before us Mr Gould said that the appellant needed to sell the properties to obtain sufficient funds to meet his debts.  Apparently the appellant has continued with the subdivision of the properties despite the fact that he has been declared bankrupt.  How the subdivisions have been funded during this period is unclear.  We understand that the subdivisions will need to be completed before any sales can occur, but again, it is not clear how the further work would be funded if an annulment were granted.  It may be that the appellant would incur yet further debts to complete the subdivisions.  Nor is it clear how long it would take for the subdivisions to be completed.  The Court has not been provided with the necessary information.

[32]     We consider that Associate Judge Doogue was entitled to dismiss the appellant’s application for an annulment on the information before him.  No new facts have emerged as to the appellant’s position at the time of adjudication that affect this conclusion.  Accordingly we dismiss the appeal.

[33]     We conclude by noting that the appellant’s failure to provide the necessary information to the Official Assignee has been allowed to continue for too long.  The Official Assignee has the power to require the appellant to produce the necessary information (see s 68(1) of the Insolvency Act).  Consideration should be given to the use of that power.

Decision

[34]     The appeal is dismissed.  The appellant is to pay each of the respondents costs of $3,000 plus usual disbursements.

Solicitors:

Tripe Matthews & Feist, Wellington for Appellant
Clendon Feeney, Auckland for First Respondent
Meredith Connell, Auckland for Second Respondent