Kawakawa Finance Limited v Sheffield
[2019] NZHC 778
•10 April 2019
IN THE HIGH COURT OF NEW ZEALAND NEW PLYMOUTH REGISTRY
I TE KŌTI MATUA O AOTEAROA NGĀMOTU ROHE
CIV-2017-443-52
[2019] NZHC 778
BETWEEN KAWAKAWA FINANCE LIMITED
Judgment creditor
AND
MICHAEL JASON SHEFFIELD
Judgment debtor
Hearing: 10 April 2019 Appearances:
D Bennington for judgment creditor T Wano for judgment debtor
Judgment:
10 April 2019
JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
[1] The judgment creditor, Kawakawa Finance Ltd, applies for an order confirming an order bankrupting the judgment debtor, Michael Sheffield, made by Associate Judge Osborne (as he was) on 13 December 2017, or alternatively recalling the order, correcting a defect, and making a new order.
[2] The judgment debtor opposes any such order and seeks the annulment of his bankruptcy.
[3] A brief outline of the background will serve to explain the need for Kawakawa’s application.
[4] As at late 2013, Kawakawa was a secured creditor of Mr Sheffield. Kawakawa had agreed to lend funds to enable Mr Sheffield to purchase a property in Hawera. The loan was made on the basis that Kawakawa would take security over the property
KAWAKAWA FINANCE LIMITED v SHEFFIELD [2019] NZHC 778 [10 April 2019]
once acquired. To protect its position pending the execution of the formal security documentation, Kawakawa registered a caveat over the title. The documentation was never executed. Mr Sheffield defaulted on the loan. Kawakawa applied for summary judgment. On 7 July 2017 Associate Judge Smith entered summary judgment in Kawakawa’s favour against Mr Sheffield. On 28 August 2017 Kawakawa commenced bankruptcy proceedings to enforce its judgment debt. Those proceedings did not identify that Kawakawa was a secured creditor, as it certainly was. The proceeding was heard on 13 December 2017. Both parties were present or represented. Associate Judge Osborne made an order adjudicating Mr Sheffield bankrupt. The bankruptcy proceeded in the usual way until March 2018 when the Official Assignee’s Office identified that Kawakawa had been a secured creditor at the time that the order was made. It has placed the administration of his bankrupt estate on hold.
[5]This application is Kawakawa’s attempt to regularise the position.
[6] For Kawakawa, Ms Bennington submits that, although in terms of s 61 of the Insolvency Act 2006 an adjudication is final and binding in the absence of a successful appeal, where the Court has made a bankruptcy order on an incorrect premise, the Court has jurisdiction to review the order to avoid putting the parties to the time, trouble and expense of an appeal. In relation to this she relies on ss 414(1) and 418 of the Act.
[7] Ms Bennington accepts that in terms of s 14 of the Act the Court is not entitled to make an order for adjudication in bankruptcy on the application of a secured creditor unless that creditor has established that the debt exceeds the value of the security by at least $1,000. It follows that the order in this case was defective in the sense that no such proof was before the Court.
[8] However, she submits that ss 414(1) and 418 enable the Court to correct defects in proceedings and in this regard referred me to the Court of Appeal’s judgment in Best v Watson1 where that Court confirmed that defects may be corrected provided they are not so fundamental as to render the proceeding a nullity.
1 Best v Watson [1979] 2 NZLR 492 (CA).
[9] She went on to refer me to subsequent decisions of this Court as examples of the Court correcting defects including Bridgecorp Ltd (in rec and liq) v Neilson2 in which Heath J accepted that a failure on the part of a plaintiff to identify its status as a secured creditor did not make the proceeding a nullity.
[10] I am satisfied that Kawakawa’s error and the defect in this proceeding are capable of being rectified. In any event, Mr Wano did not contend otherwise.
[11] The real question it seems to me is whether there is before the Court evidence to justify rectifying the defect in this proceeding and entitle Kawakawa to the order it seeks.
[12] As the Court emphasised in Bridgecorp, a defect may only be rectified if the rectification is necessary to avoid prejudice to any person. I do not think that this is an issue here, as an unlawful order bankrupting a person is undoubtedly prejudicial.
[13] The issue is whether, if this proceeding had not suffered from the defect in the first place, an order could have been made adjudicating Mr Sheffield bankrupt.
[14] Logically, that involves asking whether, as at the time of the original adjudication in bankruptcy, Kawakawa could have established that the value of its security over the property was exceeded by the amount of its claim by at least $1,000.
[15] That brings me to the evidence before the Court as to the value of Kawakawa’s security.
[16] I am not satisfied that I can conclude that, as at 13 December 2017, the amount of the debt exceeded the value of the security by $1,000.
[17]The evidence comes down to this:
(a)the property last sold — presumably to Mr Sheffield — in October 2013 for $190,000;
2 Bridgecorp Ltd (in rec and liq) v Neilson [2010] 1 NZLR 820 (HC).
(b)the rateable value of the property in September 2015 — two years before the order in question was made — was $215,000;
(c)the property was listed for sale — again, presumably by Mr Sheffield
— in September 2016 with an asking price of $215,000, but did not sell;
(d)a Principal Insolvency Officer at the Official Assignee’s Office, Ms Nicole MacKenzie, the official who identified the defect in the proceeding in the first place, has made an affidavit. One of the things she says is that she obtained two kerb-side appraisals of the value of the property from local real estate agents. Such appraisals are apparently done without the benefit of going inside. That is one difficulty with them. The other is that they appear to be appraisals of value as at April 2018 when they were carried out. In any event, the appraisals range from $120,000 – $225,000;
(e)in October 2018, at Kawakawa’s instigation, two other local real estate agents carried out further kerb-side appraisals. This time their appraisals ranged from $110,000 – $120,000. Again these appraisals seem to be as at the date they were carried out. Furthermore, the agents appear to have made adverse assumptions about the condition of the interior of the property based on the fact that members of a local gang had been living there.
[18] As at the date on which Mr Sheffield was adjudicated bankrupt, his indebtedness to Kawakawa was $190,454.60.
[19] In my judgement, the evidence does not provide a sufficient basis for the Court safely to reach any view about the value of the property as at 13 December 2017.
[20] That leads me to the conclusion that Kawakawa’s application must fail because the Court cannot conclude that the defect in the proceeding was one capable of being rectified.
[21] Accordingly, as Mr Wano submits, Mr Sheffield is entitled to an order annulling the bankruptcy pursuant to s 309(1)(a) of the Act on the basis that he should not have been adjudicated bankrupt in the first place.
[22] Having regard to the conclusions I have reached on Kawakawa’s application, it seems to me that that contention is unanswerable.
[23] There was a serious defect in the process (inadvertent though it no doubt was). On the evidence, the Court is unable to conclude that that defect was rectifiable. It must follow that the order made by Associate Judge Osborne on 13 December 2017 should not have been made, or at least the Court cannot conclude on the evidence that it could have been made. It follows that Mr Sheffield is entitled, as Mr Wano submits, to an order annulling his bankruptcy.
[24] On those bases, I make an order pursuant to s 309(1)(a) annulling the bankruptcy.
[25] Having heard Ms Bennington and Mr Wano on costs, I order that Mr Sheffield is entitled to his costs on a 2B basis together with disbursements which may be fixed by the Registrar.
Associate Judge Johnston
Solicitors:
Duncan Cotterill, Auckland for judgment creditor Govett Quilliam, New Plymouth for judgment debtor
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