Huang v Qeynos New Zealand Limited (fka Carters)
[2022] NZHC 1426
•17 June 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-001754
[2022] NZHC 1426
BETWEEN KANG HUANG
Applicant
AND
QEYNOS NEW ZEALAND LIMITED
(formerly known as Carters) First Respondent
THE OFFICIAL ASSIGNEE
Second Respondent
Hearing: 30 May 2022 Appearances:
B J Norling and L Wong for the Applicant
P J Morris and E K J Gamet for the First Respondent No appearance for the Second Respondent
Judgment:
17 June 2022
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 17 June 2022 at 3.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors:
Norling Law Ltd, Auckland
Stace Hammond Lawyers, Hamilton
HUANG v QEYNOS NZ LTD [2022] NZHC 1426 [17 June 2022]
Introduction
[1] Kang Huang was adjudicated bankrupt on the application of Qeynos New Zealand Limited (Qeynos), then known as Carter Holt Harvey Limited (Carters), on 11 May 2018. He was in prison at the time, having been convicted of fraud charges. Mr Huang did not submit a statement of affairs to the Official Assignee — triggering the three year period until his automatic discharge — until 6 July 2020, after he had completed his prison sentence. He now applies for an early discharge from bankruptcy before the three years expires on 6 July 2023.
[2] Qeynos opposes the application for early discharge. The Official Assignee does not oppose and abides the decision of the Court.
Background
First bankruptcy
[3] Mr Huang was adjudicated bankrupt for the first time on 15 June 2010 on the application of ASB Bank.
[4] Mr Huang was a director of a company operating in the building and construction industry, Bushpark Property Development Limited (Removed) (Bushpark). The business failed and Bushpark was placed into liquidation on 27 March 2009.
[5] Bushpark had taken out loans for the development work. When Bushpark failed, the lender turned to Mr Huang as the guarantor to repay the loans. Mr Huang could not repay these loans, resulting in his first bankruptcy.
[6]Mr Huang was discharged from his first bankruptcy on or around 29 June 2013.
Imprisonment
[7] During Mr Huang’s first bankruptcy, he became involved in property development.
[8] Mr Huang devised a scheme with a former lawyer, Richard Chen, and a former bank employee, Charly Jiang, to obtain funding from commercial banks for the development through the provision of false documents or information across multiple home loan applications.
[9] Mr Huang was subsequently prosecuted by the Serious Fraud Office (SFO) in 2016 for his involvement in this fraud. On 21 December 2017, he pleaded guilty to all 10 charges against him, including eight charges of obtaining by deception, one charge of corruptly giving consideration to an agent, and one charge of dishonest use of a document (Fraud Charges).
[10] Mr Huang was sentenced to four years and seven months’ imprisonment with a minimum non-parole period of two years and three months. All but $394,000 of the
$52 million obtained via the bank loans has since been repaid, as the properties obtained for the development were able to be sold.
Current bankruptcy
[11] QB Construction Limited (Removed) (Company) was incorporated in 2015 and Mr Huang was appointed on 21 July 2016 as its sole director. Mr Huang was also the only shareholder from 2016 onwards.
[12] The Company was involved in a building development in Queenstown (the Development) for the landowner. Carters was a general trade creditor and supplier to the Company. Mr Huang provided a personal guarantee to Carters.
[13] The financial institutions that had advanced loans to the Company for the Development recalled the funds. Mr Huang says that this was because of the ongoing SFO investigation taking place at the time. The Company could not finish the Development.
[14] The Company owed money to Carters for building supplies. It was unable to settle the debt. In July 2017, Carters obtained judgment against Mr Huang under his personal guarantee for the debt of $451,888.87 (Judgment Debt) and then initiated
bankruptcy proceedings against him. Subsequently, on 11 May 2018, Mr Huang was adjudicated bankrupt.1
Delays with discharge from bankruptcy
[15] Generally, bankruptcy lasts for three years after the bankrupt completes the prescribed statement of affairs and submits it to the Official Assignee.2 The Official Assignee provides the statement for completion to the bankrupt as soon as possible after adjudication.3
[16] Here, upon Mr Huang’s adjudication, the Official Assignee sent the statement to Mr Huang’s address for service in the bankruptcy proceedings. But Mr Huang no longer resided at that address and was at the time in prison.
[17] Had Mr Huang promptly submitted a statement of affairs, he would have been eligible for automatic discharge in or around 11 May 2021. He remains an undischarged bankrupt because he did not submit his statement of affairs until 6 July 2020, once he was released from prison.
Legal principles
[18] A bankrupt may at any time apply to the Court for an order of discharge from bankruptcy.4
[19] When the Court hears an application for discharge under s 294 of the Insolvency Act 2006 (the Act), the Court may, having regard to all the circumstances of the case:
(a)immediately discharge the bankrupt; or
1 Carters, a division of Carter Holt Harvey Ltd v Huang [2018] NZHC 1027 [11 May 2018].
2 Insolvency Act 2006, s 290.
3 Insolvency Act 2006, s 68.
4 Insolvency Act 2006, s 294(1).
(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
(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.
[20]The leading case on the Court’s approach to early discharge of bankruptcy is
ASB Bank v Hogg.5 The principles set out by Court of Appeal are:
(a)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.
(b)In providing for earlier discharge, s 108 (see now s 294 of the Act) recognises that continuing the bankruptcy to the end of the three years may not be in the public interest.
(c)Whether or not it is in the public interest will be a matter for decision on the particular facts. In that regard, guidance is provided by s 109(2) (see now s 296 of the Act) which lists matters on which the Assignee is to report to the High Court in such a case.
(d)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 them under the Act and their conduct both before and after the bankruptcy.
5 ASB Bank v Hogg [1993] 3 NZLR 156 (CA), cited by the Court of Appeal more recently in
Armitage v Established Investments Ltd (in liq) [2012] NZCA 439.
(e)The Court’s appraisal of the matter will consider the legitimate interests of the bankrupt, the creditors, and wider public concerns.
(f)The applicant has the onus, in the sense of adducing evidence, to show good cause for ordering an early discharge, but their obligation goes no further than that.
[21] The approach to the decision whether to grant discharge has been described as an “interest-based” approach.6 The Court should have regard to the interests of the bankrupt and the creditors, and the interests of the public and commercial morality.7
[22] While the two authorities confirming the interest-based approach (Havenleigh Global Services Ltd v Henderson and Re Whitelaw) were concerned with objections by the Official Assignee to the automatic discharge of the bankrupts rather than applications for early discharge, the same considerations apply. The difference, as noted by Associate Judge Bell in McKee v Official Assignee, is that when a bankrupt applies for an early discharge, the onus is on the bankrupt to show why they should be discharged ahead of the standard three years.8 Where the Official Assignee contends that the bankruptcy should continue for a further period beyond the standard three years, the onus is on the Official Assignee.
[23]I will consider the interests involved in this order:
(a)interests of creditors;
(b)Mr Huang’s interests;
(c)Mr Huang’s conduct and commercial morality; and
(d)the public interest.
6 Havenleigh Global Services Ltd v Henderson [2016] NZHC 2969 at [10], citing Re Whitelaw HC Hamilton CIV-2004-419-1647, 10 September 2010 at [20].
7 Re Whitelaw, above n 5, at [20].
8 McKee v Official Assignee HC Auckland CIV-2008-404-3442, 26 February 2013 at [24].
Interests of creditors
[24] Under this heading, I am concerned with creditors who proved claims in Mr Huang’s bankruptcy, not people or organisations that he may become indebted to in the future.
[25] The Official Assignee says that the administration of Mr Huang’s bankruptcy is complete.9 Mr Huang has no assets of significant value. His assets were seized by the SFO, and there have been no distributions made to creditors that proved in the bankruptcy.10
[26] The Assignee states that there is no purpose in Mr Huang’s bankruptcy continuing any longer. Accordingly, it serves no purpose, in terms of the creditors in the bankruptcy, to decline Mr Huang’s application for early discharge.
[27] As Associate Judge Bell observed in McKee v Official Assignee, that is an important concession because the purpose of the statement of affairs is to assist the Official Assignee in the administration of the bankruptcy.11 Ordinarily, delay in the statement of affairs being filed would delay the Official Assignee administering the bankruptcy in the interests of creditors. In that case, as here, even though the statement of affairs was not filed immediately, the Official Assignee was able to complete the administration and there is nothing further to do. There is therefore no reason to use the delay in providing the statement of affairs as a ground for prolonging Mr Huang’s bankruptcy.
Mr Huang’s interests
[28] Mr Huang is 54 years old. Since his release from prison, he has lived with his elderly parents. He receives a Work & Income NZ (WINZ) benefit of $387.65 per week.
9 Report of the Official Assignee dated 21 February 2022.
10 Affidavit of Mr Huang in reply affirmed 19 April 2022 at [2.2] and Report of the Official Assignee.
11 McKee v Official Assignee, above n 7, at [26].
[29] He deposes that he has been unable to find meaningful employment, not only because of his convictions but also because of the restrictions imposed by bankruptcy. In particular, he is unable to open a bank account, having been declined by several banks. His WINZ benefit is deposited into his parents’ bank account.
[30] Mr Huang deposes that when he has approached friends to gain employment, he has been told that even if they wanted to employ him, they would be unable to pay him because he does not have a bank account. He deposes that he sought assistance from WINZ, the Official Assignee and the Public Trust about getting a bank account but no one has been able to help him.
[31] Under examination, Mr Huang confirmed that his main reasons for applying for an early discharge of mortgage are so he can open a bank account, and so he will not need to inform potential employers that he is an undischarged bankrupt.
[32] Mr Huang stated that when he is discharged, he intends to try to find a job doing technical drawings for construction projects. He stated that he does not intend to undertake property development on his own account again, saying that even if he wanted to, his reputation is “totally ruined” and no bank would lend him money. He stated that the one option left available to him is to look for employment.
[33] Plainly it is in Mr Huang’s interests to secure employment and have a bank account. I accept that being an undischarged bankrupt may present an additional barrier to gaining employment.
[34] However, aspects of Mr Huang’s conduct which led to him being declared bankrupt twice (such as the giving of personal guarantees without asset backing) suggest that Mr Huang 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. Mr Huang says that he does not intend to become involved, personally or as a director of a company, in property development again. I must consider whether a business prohibition is appropriate in Mr Huang’s own interests (as well as the community’s interests) until the three-year period has expired. I will return to this point.
Mr Huang’s conduct and commercial morality
[35] Mr Huang deposes that he deeply regrets the scheme he devised that resulted in the prosecution by the SFO in 2016, and his convictions. Mr Huang pleaded guilty to all the Fraud Charges. He deposes that during his time in prison he reflected on his actions, and he acknowledges that his actions were deceitful and not to the standard of a good member of society.
[36] Mr Huang has been held accountable for this offending by serving a term in prison. It is not for this Court to seek to punish him again. But the conduct that led to these convictions, as with the conduct that led to his bankruptcies, is relevant to the overall assessment of the risk he may present to the business community when he is discharged from bankruptcy.
[37] Mr Huang contacted the Official Assignee on 2 July 2020 to enquire about working as a self-employed draftsperson. On being informed by the Assignee on 3 July 2020 that he needed to file a statement of affairs, he promptly completed and submitted his statement of affairs on 6 July 2020. The Official Assignee confirms that since making contact, Mr Huang has cooperated, and there has been nothing untoward in terms of his conduct. That is now a period of nearly two years. This is positive and weighs in Mr Huang’s favour.
[38] The focus of Qeynos’ objection is on Mr Huang’s behaviour that led to his first and second bankruptcies. Qeynos emphasises that in both cases Mr Huang gave personal guarantees without sufficient personal assets to back the guarantees. Further, Qeynos submits that Mr Huang has failed to unequivocally accept responsibility for his own bankruptcies.
[39] Qeynos also challenges Mr Huang’s explanation for why he did not file a statement of affairs immediately on being declared bankrupt. Qeynos suggests that Mr Huang should have known that a statement was required from the experience of his first bankruptcy. Further, he could have communicated with the Official Assignee from prison via internet or phone.
[40] Qeynos also submits that Mr Huang took an evasive and unhelpful approach to the proceedings that led to his second bankruptcy, opposing their application for summary judgment and withdrawing that opposition shortly before the hearing, evading service, and opposing the bankruptcy application.
[41] I consider that Mr Huang has unequivocally expressed regret for his fraud offences, both in his affidavit and under examination, where he acknowledged that he was “the major offender” and that he “committed the offence that broke the law”.
[42] However, it is correct that nowhere in his affidavit or under examination has Mr Huang clearly recognised that it was entering into personal guarantees without assets to back up those commitments that caused his bankruptcies. He attributes his second bankruptcy to his offending, which led to the SFO investigation that caused lenders to withdraw their funding; to the other owner of the Development not paying his company; and to an article in the New Zealand Herald which he considers damaged his reputation and business. There is a residual concern therefore that Mr Huang does not fully recognise that his bankruptcies were due to his own actions.
[43] As to Mr Huang’s reason for not promptly filing a statement of affairs, he deposes that he assumed that he did not need to do so as two asset recovery officers visited him in prison in or around April 2018, just prior to his adjudication, and asked him to complete a declaration of assets. He says the form looked very similar to the statement of affairs used by the Official Assignee. Under examination, Mr Huang stated that it never occurred to him that he needed to complete a statement of affairs, adding that when he was put in prison his mind was totally blank and he was depressed.
[44] I accept Mr Huang’s evidence that, without the prompt of being sent the form from the Official Assignee, and in the circumstances of being recently imprisoned, he did not think to contact the Official Assignee about completing a statement of affairs. There is no dispute that the Official Assignee sent the form to his former home in Flat Bush, which had been sold one year prior. The Official Assignee was entitled to write to Mr Huang at his address for service in the bankruptcy proceeding, but the Assignee
acknowledges in their report that they could have ascertained that Mr Huang was in prison and contacted him there.12
[45] I also consider it relevant that Mr Huang has taken steps to enhance his employability and address risk-taking behaviours. He has completed a New Zealand Certificate in Foundation Skills (Level 2) at Manukau Institute of Technology; the academic requirements for a New Zealand Certificate in Construction Trade Skills (Level 3); a NZQA Besafe site passport and Certificate in Workplace First Aid and in Safe Working in a Confined Space; a budgeting skills course and programmes addressing gambling and risk-taking behaviours.
The public interest
[46] In considering the public interest, I adopt the observation of Asher J in Re Kelly v Structured Finance Ltd,13 adopted by Associate Judge Doogue in Re Armitage ex parte Established Investments Ltd (in liq),14 in relation to discharge from bankruptcy:15
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.
[47] When considering the public interest, Associate Judge Osborne in Havenleigh Global Services Ltd v Henderson16 considered that he must have regard to the business activities in which the bankrupt is likely to engage upon discharge from bankruptcy. He also took into account the fact that it was not the bankrupt’s first bankruptcy, stating:17
… 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.
12 Insolvency Act 2006, s 68.
13 Re Kelly v Structured Finance Ltd [2009] 2 NZLR 785 (HC) at [63].
14 Re Armitage ex parte Established Investments Ltd (in liq) HC Auckland CIV-2007-404-4280, 8 April 2011 at [16], upheld by the Court of Appeal in Armitage v Established Investments Ltd (in liq) [2012] NZCA 439.
15 Re Armitage ex parte Established Investments Ltd (in liq), above n 13, at [16].
16 Havenleigh Global Services Ltd v Henderson, above n 5.
17 At [395].
[48] On the other hand, there is a public interest in the bankrupt being once again able to learn a living and contribute to society. In a passage that has been frequently cited with approval by New Zealand courts, the English Court of Appeal in Re Gaskell observed:18
… 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.
[49] 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.19
[50] In my view there is a strong public interest in Mr Huang ceasing to be a beneficiary, gaining employment, and beginning the journey to becoming an independent and productive member of society.
[51] Against that is the risk, despite Mr Huang’s stated intention not to engage in the same business activities, that he does just that and repeats the same behaviours, resulting in further harm to the commercial community and risk of another bankruptcy.
Weighing these interests
[52] Mr Huang has expressed regret for his previous fraudulent activity, and in my assessment that is genuine. However, it is concerning that he does not clearly recognise that he was responsible for his two bankruptcies by giving personal guarantees without asset backing.
[53] For this reason, I consider it appropriate that Mr Huang is discharged from bankruptcy early, but on conditions that will protect the business community and provide Mr Huang with a probation period of sorts to explore employment options.
18 Re Gaskell [1904] 2 KB 478.
19 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 HC Hamilton B213/89, 14 April 1992 at 16.
These conditions will expire on the date Mr Huang would be automatically discharged in any case, namely on 6 July 2023.
Orders
[54]I order:
(a)Mr Huang is discharged from bankruptcy;
(b)as a condition of his discharge, Mr Huang will not enter into any contract by which he personally guarantees the debt or other obligation of another person or entity, until 6 July 2023;
(c)Mr Huang is prohibited until 6 July 2023 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 a company;
(iii)directly or indirectly being concerned, or taking part in, the management of any company;
(iv)being employed by a relative;
(v)being employed by a company, trust, trustee, or incorporated society that is managed or controlled by a relative.
[55] As to costs, although Mr Huang has been successful in that he has secured an early potential discharge of his bankruptcy, Qeynos has had a degree of success by highlighting risks to the business community, resulting in the conditions above. In this respect, Qeynos could be said to have acted on behalf of the business community.
[56] Accordingly, my preliminary view is that costs should lie where they fall. However, if either party wants to make submissions for an order for costs, they may do so within 10 working days and I will reach a decision on the papers.
Associate Judge Gardiner
3
4
0