Johnston v Official Assignee

[2025] NZHC 118

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2012-409-2386

[2025] NZHC 118

UNDER

section 294 of the Insolvency Act 2006

IN THE MATTER

of the bankruptcy of Nicola Jane Johnston

BETWEEN

NICOLA JANE JOHNSTON

Applicant

AND

OFFICIAL ASSIGNEE

Respondent

Hearing:

On the papers

Appearances:

C D Pinkney for Applicant

A McAvoy for Commissioner of Inland Revenue

Judgment:

11 February 2025

JUDGMENT OF ASSOCIATE JUDGE PAULSEN

This judgment was delivered by me on 11 February 2025 at 2.45 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date:

JOHNSTON v OFFICIAL ASSIGNEE [2025] NZHC 118 [11 February 2025]

[1]                 The applicant, Nicola Johnston (Ms Johnston), applies for an order under s 294 of the Insolvency Act 2006 for a discharge from bankruptcy.

[2]                 The Official Assignee has no objection to Ms Johnston’s application and will abide the decision of the Court.

[3]                 The Commissioner  of  the  Inland  Revenue,  being  the  only  creditor  in  Ms Johnston’s bankruptcy, similarly does not oppose the application.

[4]                 The circumstances that led to Ms Johnston’s bankruptcy are set out in an affidavit she has filed in support of the application.

[5]                 Ms Johnston says that in 1996 her husband went into business and incorporated a company for that purpose. Ms Johnston was made a director of the company for tax purposes on the advice of an accountant. It appears as a result of her involvement in that company Ms Johnston incurred tax liabilities which ultimately resulted in an order for her adjudication in bankruptcy on 12 March 2013. An order adjudicating her husband bankrupt was made on the same day.

[6]                 In April 2013 Mr Johnston provided a statement of affairs to the Official Assignee and he was subsequently discharged from bankruptcy on 4 April 2016.   Ms Johnston says she did not understand that the statement of affairs related just to her husband and understood that one statement of affairs was sufficient for both her and her husband.

[7]                 Ms Johnston was not discharged from bankruptcy on the same date as her husband due to the operation of s 290(1) of the Insolvency Act which provides that bankrupts are generally discharged three years after they file a statement of affairs, not from the date they are adjudicated bankrupt.

[8]                 Ultimately Ms Johnston did file a statement of affairs with the Official Assignee on 22 March 2024. That means that in the ordinary course she will be

eligible for automatic discharge on 22 March 2027, almost 14 years following her adjudication.

[9]                 The Official Assignee has filed a report under s 294 of the Act in relation to Ms Johnston’s bankruptcy. In summary, the Official Assignee advises:

(a)The only creditor in the bankruptcy was the Commissioner of Inland Revenue, who filed claims totalling $104,336.47.

(b)There are no other known potential creditors.

(c)The Official Assignee has investigated Ms Johnston’s affairs and has no interest in any assets that have remained with Ms Johnston.

(d)Apart from the failure to file a statement of affairs, Ms Johnston has cooperated with the Official Assignee and there was “nothing untoward to report with regard to her conduct”.

(e)The Official Assignee has no objection to her discharge.

[10]              The Commissioner of Inland Revenue was served with the application and confirms it has written off Ms Johnston’s tax liability and, as noted above, does not oppose the application.

The statutory provisions

[11]Section 294 of the Insolvency Act provides:

294     Bankrupt may apply for discharge

(1)The bankrupt may at any time apply to the court for an order of discharge from bankruptcy.

(2)However, if the court has previously refused an application by the bankrupt for a discharge, and has specified the earliest date when the bankrupt may again apply, the bankrupt must not apply before that date.

(3)The hearing of the application must be in accordance with section 177.

[12]Section 298(1) sets out the Court’s powers on such an application as:

298     Court may grant or refuse discharge

(1)When the court hears an application under section 294 for discharge, or conducts the examination of the bankrupt under section 295, the court may, having regard to all the circumstances of the case,

(a)immediately discharge the bankrupt; or

(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.

(2)If the court discharges the bankrupt on the condition that the bankrupt consents to any judgment, and the bankrupt does consent, the court may vary the judgment as it thinks appropriate.

[13]              The approach to be taken to a case such as this is as set out in ASB Bank Ltd v Hogg.1 While that decision concerned what was s 108 of the Insolvency Act 1967 it has been applied to applications under s 294 of the Insolvency Act 2006.2 In assessing applications, the Court takes an “interest-based” approach, having regard to the interests of the bankrupt, creditors, the public and commercial morality.3 The Court of Appeal said:4

In conferring a discretion expressed in the broadest terms, the legislation recognises that each case will be different, that the relevant factors may vary from case to case and that the exercise of the discretion must be governed by the circumstances of the particular case having

1      ASB Bank Ltd v Hogg [1993] 3 NZLR 156 (CA).

2      See for instance Scott v Bank of New Zealand [2023] NZHC 1058, (2023) 16 TCLR 614.

3      Huang v Qeynos New Zealand Ltd [2022] NZHC 1426 at [21], citing Havenleigh Global Services Ltd v Henderson [2016] NZHC 2969 at [10] and Re Whitelaw HC Hamilton CIV-2004-419-1647, 10 September 2010 at [20].

4      ASB Bank Ltd v Hogg, above n 1, at 157–158.

regard to the guidance provided by a consideration of the scheme and purpose of the legislation. In providing for automatic discharge after three years, the legislation recognises that it is not in the public interest that the bankruptcy should endure indefinitely. In providing for earlier discharge, s 108 recognises that continuing the bankruptcy to the end of the three years may not be in the public interest. Whether or not it is will be a matter for decision on the particular facts. In that regard, guidance is provided by s 109(2) which lists matters on which the assignee is to report to the High Court in such a case. 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 him or her under the Act and his or her conduct both before and after the bankruptcy, and also as to any other fact, matter or circumstance that would assist the Court in making its decision. Clearly the Court apprised of the matter will consider the legitimate interests of the bankrupt, the creditors and wider public concerns, but it is neither required nor entitled to impose threshold requirements in the exercise of the discretion so as to derogate from the breadth of the powers conferred under s 110. The applicant has the onus, in the sense of adducing evidence, to show good cause for ordering an early discharge, but his obligation goes no further than that.

[14]              Ms Johnston has satisfied me that it is appropriate to make the order sought. My reasons can be stated shortly. The uncontradicted evidence is that Ms Johnston did not provide a statement of affairs earlier due to a misunderstanding as to the requirement to provide it. Had she done so at the same time as her husband she would have been discharged from bankruptcy several years ago. There is no suggestion that the only creditor in her bankruptcy has been prejudiced by the failure to provide the statement of affairs and it is not opposed to an order for her discharge being made. The Official Assignee has effectively ceased to administer Ms Johnston’s bankrupt estate and has no interest in any of the assets she has retained. Ms Johnston does not pose a commercial risk to the community, yet she is subject to significant disabilities while she remains in a bankrupt. There is no suggestion that the public interest is served by allowing this state of affairs to continue. The public interest is better served by granting the order sought.

Result

[15]              Ms Johnston’s application is granted. Under s 294 of the Insolvency Act 2006 she is discharged from bankruptcy from the date of this judgment.

[16]              The Official Assignee shall retain any amounts held in Ms Johnston’s bankrupt estate up to an amount of $3,353.15 on account of its fees and disbursements.

O G Paulsen Associate Judge

Solicitors:

Corcoran French, Christchurch

Inland Revenue Legal Services, Christchurch Official Assignee, Christchurch