Jarvis v Mullane HC Auckland CIV 2008-488-144
[2008] NZHC 2573
•17 September 2008
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2008-488-144
BETWEEN DOUGLAS GORDON JARVIS & FREDERIKA HEDI JARVIS Plaintiffs
ANDCORRINA LILI MULLANE Defendant
Hearing: 21 July 2008
Appearances: D R James for Plaintiffs
R C Mark for Defendants
Judgment: 17 September 2008 at 11.30 am
JUDGMENT OF ASSOCIATE JUDGE ROBINSON
This judgment was delivered by me on 17 September 2008 at 3 pm, Pursuant to Rule 540(4) of the High Court Rules
Registrar/Deputy Registrar
Date……
Solicitors: R C Mark, PO Box 172, Kerikeri
Palmer Macauley, PO Box 576, Kerikeri
DOUGLAS GORDON JARVIS & FREDERIKA HEDI JARVIS V CORRINA LILI MULLANE HC AK CIV
2008-488-144 17 September 2008
[1] The plaintiffs issued and served a bankruptcy notice on the defendant requiring her to pay $14,462 being the amount claimed as owing under a final judgment obtained by the plaintiffs against the defendant in the Kaikohe District Court. The defendant applies to set aside the bankruptcy notice.
[2] There are two grounds advanced by the defendant to support her application to set aside the bankruptcy notice. The first ground is that the plaintiffs as secured creditors are not entitled to issue a bankruptcy notice. The second is that the bankruptcy notice is not in the correct form.
[3] The plaintiffs registered a charging order absolute obtained to enforce payment of the money owing under the judgment against title to land owned by the defendant on 23 November 2006. It is submitted on behalf of the defendant that because of s 14 Insolvency Act 2006, the plaintiffs will be disqualified from applying for an order of adjudication of the defendant as the plaintiffs have security in the form of the charging order. S 14 Insolvency Act 2006 provides:
Application by secured creditor
The Court must not make an order of adjudication on the application of a secured creditor unless the creditor has established that the amount of the debt exceeds the value of the charge by at least $1,000.
[4] Secured creditor is defined in s 3 as follows:
Secured Creditor
Secured creditor means a person entitled to a charge on or over property owned by a debtor.
Consequently, it is submitted that as the plaintiffs are secured creditors whose security would exceed the value of their debt by more than $1,000 they cannot bring proceedings for adjudication. Consequently, the plaintiffs cannot issue a bankruptcy notice.
[5] In Re Gate 9 PRNZ 568 it was held following the decision of Wallace J in Re Coll HC Ak B 1738/92 that a charging order created a charge within the meaning of s 2 Insolvency Act 1967. Consequently, a creditor who had the benefit of a charging order was a secured creditor for the purposes of the Insolvency Act 1967.
[6] S 2 Insolvency Act 1967 defined a secured creditor in the following way:
Secured creditor means a person holding a mortgage, charge, lien, or security on the property of the debtor, or any part thereof, as a security for the debt due to him from the debtor whether given directly or indirectly through another person as security for a debt due to the creditor.
[7] The definitions under both the Insolvency Act 1967 and the Insolvency Act
2007 include as a secured creditor a person holding a charge on or over property of the debtor. In the circumstances, applying the decisions of Re Gate and Re Coll, I conclude that for the purpose of s 14 Insolvency Act 2006, the plaintiffs in this case are secured creditors because they have registered a charging order to secure payment of the debt over property of the defendant.
[8] However, the fact that the plaintiffs are secured creditors does not disentitle the plaintiffs from issuing a bankruptcy notice. S 29 defines as a creditor a person entitled to enforce a final judgment or final order. Clearly, the plaintiffs in this case are a creditor who satisfies that definition.
[9] In Re Gate the secured creditor did issue a bankruptcy notice. The security for the creditor was a charging order over the debtor’s property. There is no suggestion in the decision that the secured creditor was not entitled to issue the bankruptcy notice.
[10] However, in the course of the judgment, Tompkins J stated at page 572:
It follows that a charging order absolute registered against land can never survive bankruptcy, because a charging order by itself can not result in land being sold, and therefore can never be “completed” for the purposes of ss 1.
[11] The provision referred to by Tompkins J is s 50 ss 1 Insolvency Act 1967. The equivalent of s 50 Insolvency Act 1967 is s 108 Insolvency Act 2006: This section provides:
108 When execution creditor may retain execution proceeds
(1)This section applies to a creditor who has, before adjudication, - (a) issued execution against the bankrupt’s property; or
(b) attached a debt due by the bankrupt.
(2)The creditor may retain the benefit of the execution or attachment (including the proceeds) only if the creditor completed the execution or attachment –
(a) before adjudication; and
(b) before the creditor had notice that an application for adjudication had been filed or that the bankrupt had committed an act of bankruptcy (other than an act of bankruptcy arising out of the creditor’s execution or attachment).
(3)The creditor may retain as against the Assignee a payment made by the bankrupt in the course of the execution or attachment to avoid the execution or attachment as if –
(a) the payment was the proceeds of the execution or attachment;
and
(b) the execution or attachment was completed when the payment was made.
(4)The right of a creditor under this section to retain the benefit of an execution or attachment is subject to sections 194 to 197.
[12] By virtue of that section, once the creditor serves a bankruptcy notice which is not complied with, the creditor thereby has notice of the act of bankruptcy committed by the debtor. Consequently, by virtue of s 108(2) the creditor is unable to retain the benefit of any execution against the bankrupt’s property.
[13] Furthermore should the plaintiffs apply for the defendant to be adjudicated bankrupt, s 21 Insolvency Act 2006 prevents the plaintiffs from issuing an execution process against the debtor in respect of the debtor’s property. Pursuant to s 35
Insolvency Act 2006, execution process includes issuing or proceedings for a writ for the sale of the defendant’s property.
[14] It therefore follows that once the plaintiffs issue proceedings to adjudicate the defendant bankrupt, provided the plaintiffs have not enforced the charging order by completing a sale of the property, the plaintiffs cannot proceed with a writ for the sale of the property. By virtue of s 108, the defendant had no proceeds available prior to the act of bankruptcy to satisfy the debt. The plaintiffs would therefore be able to satisfy s 14 in that the value of the defendant’s security is nil resulting in a situation where the debt clearly exceeds the value of the security by at least $1,000.
[15] I therefore conclude that the plaintiffs although entitled to the benefit of a security provided by the charging order, can still issue a bankruptcy notice and this ground of objection by the defendant cannot succeed.
[16] The second ground advanced by the defendant in support of her application to set aside the bankruptcy notice is that the bankruptcy notice served on her was not in the correct form. The bankruptcy notice served on the defendant was in the form required by the Insolvency Act 1967. That Act has been repealed by the Insolvency Act 2006. Section 17(2) Insolvency Act 2006 requires that “the form that the bankruptcy notice must take is set out in s 29”.
[17] S 29 Insolvency Act 2006 provides as follows:
Form of bankruptcy notice
(1) The bankruptcy notice must –
(a) be in the prescribed form; and
(b) require the debtor, in relation to the judgment debt or the sum ordered to be paid under a final order, -
(i) to pay the amount owing, plus costs; or
(ii) to give security for the amount owing that satisfied the Court or the creditor; or
(iii) to compromise the amount owing on terms that satisfy the
Court or the creditor; and
(c) state what are the consequences if the debtor does not comply with the notice; and
(d) be served on the debtor in the prescribed manner.
(2)The bankruptcy notice may name an agent to act on behalf of the creditor in so far as the notice requires –
(a) Any payment to be made to the creditor; or
(b) Any other step to be taken that involves the creditor. (3) In this section, -
(a) Creditor includes a person entitled to enforce a final judgment or final order; and
(b) Final order includes an arbitration award that the debtor pay money to the creditor, if the Court has given permission to enforce the award.
[18] The form of bankruptcy notice is prescribed by r 826 High Court rules. That rule provides that the bankruptcy notice must be in form 90. The rule also requires a certified copy of the judgment or order on which the bankruptcy notice is based to be attached to the bankruptcy notice.
[19] There are significant differences between the form of bankruptcy notice served on the defendant and the form required by the rules. In particular the notice served on the defendant gave her fourteen days after service excluding the day of service to comply with the notice. The notice prescribed by the High Court rules provides for ten working days excluding the day of service to comply with the notice.
[20] The notice prescribed by the High Court rules includes reference to a copy of the judgment on which the bankruptcy notice is based to be attached to the notice. No such reference is made in the bankruptcy notice served on the defendant.
[21] The bankruptcy notice served on the defendant however does comply with s 29(b),(c) and (d).
[22] It is pointed out on behalf of the plaintiffs that there is no prejudice to the defendant in the plaintiffs failure to use the correct form of notice. In particular, there is no difference in the calculation of time in the circumstances of this case. The time for complying is the same whether calculated as being fourteen days after service or ten working days after service.
[23] In Re Fiddy (1913) 32 NZLR 1346, a petition based on a defective bankruptcy notice was dismissed. The bankruptcy notice was not in the prescribed form in that the place of residence or business of the creditor issuing the bankruptcy notice was not included. This was considered by the Court to be a defect in substance.
[24] Section 418 Insolvency Act 2006 contains the following provision relating to defects in proceedings:
Defects in proceedings
(1)A proceeding under this Act must not be invalidated or set aside for a defect (which includes misdescription, misnomer, or omission) in a step that must be taken as part of, or in connection with, the proceeding, unless a person is prejudiced by the defect.
(2)The Court may order the defect to be corrected, and may order the proceeding to continue, on the conditions that the Court thinks appropriate in the interests of everyone who has an interest in the proceeding.
[25] This section is a re-enactment of s 11 Insolvency Act 1967. That section was considered by the Court of Appeal in Best v Watson [1979] 2 NZLR 492 where the Court concluded that the section empowered the Court to rectify defects, misnomers, inaccurate descriptions or omissions in the proceedings in any case where no person is injuriously effected. It was pointed out that the section does not distinguish between defects of substance and defects of form and may be invoked in any case where the proceedings are defective however the defect may be characterised. However, the Court emphasised that there must be proceedings before the Court before rectification can be directed. Consequently, if the document is so defective that it is a nullity there is nothing before the Court capable of rectification. In interpreting s 11, the Court of Appeal in page 494, line 30 stated:
That provision may be invoked in any case where the proceedings are defective and however the defect may be characterised. It will always be a question of degree whether or not it can be said that, not withstanding failure to comply with an apparently mandatory requirement of the Act or of the rules, there is before the Court what can fairly be described as proceedings under the Act; and that question should not be approached in a mechanical or technical way.
[26] In the present case the form of bankruptcy notice was issued by the Court following a request received by the Court on 4 March 2008. Although not in the prescribed form, the bankruptcy notice does set forth the requirements listed under s 29(1)(b)(c)(d). The time for complying with the bankruptcy notice although stated in the incorrect manner does not adversely affect the defendant.
[27] I am satisfied that the form of bankruptcy notice used by the plaintiffs and served on the defendant cannot be described as a nullity. Consequently, the Court can use its discretion under s 418 to correct any defect by amending the time for complying to ten working days after the date of service excluding the day of service and these proceedings under the Insolvency Act 2006 shall continue as if a bankruptcy notice in form 90 High Court rules had been served on the defendant. In these circumstances, I am satisfied that as there has been no prejudice to the defendant, the form of bankruptcy notice should not be set aside.
[28] There will therefore be orders:
a) Under s 418 amending the bankruptcy notice by amending the time specified for compliance from fourteen days to ten working days from the date of service.
b)Directing the proceedings to continue as if a bankruptcy notice in the correct form had been served on the defendant.
[29] As a consequence, the bankruptcy notice is not set aside. As the plaintiffs have been successful in opposing this application, the plaintiffs are entitled to costs on a 2B basis with disbursements as fixed by the registrar.
Associate Judge Robinson
0
0
0