Kiwibank Limited v Ha

[2012] NZHC 2220

IN BANKRUPTCY

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-1082 [2012] NZHC 2220

IN THE MATTER OF     the Insolvency Act 2006

AND

IN THE MATTER OF the bankruptcy of DH Ha

BETWEEN  KIWIBANK LIMITED Judgment Creditor

ANDDUONG HAI HA Judgment Debtor

Hearing:         30 August 2012

Counsel:         SA Baker for judgment creditor, and Bank of New Zealand and Public

Trust, creditors in support
P Moodley for judgment debtor
MA Powell for Westpac New Zealand Limited, creditor in support
NFD Moffatt for ANZ National Bank Limited, creditor in support

Judgment:      30 August 2012

(ORAL) JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application for adjudication]

Solicitors:           Buddle Findlay, PO Box 2694, Wellington 6140

Brookfields, PO Box 204, Auckland 1140

Simpson Grierson, Private Bag, 92 518, Auckland

Bell Gully, PO Box 4199, Auckland 1140

KIWIBANK LIMITED V HA HC AK CIV-2012-404-1082 [30 August 2012]

[1]      On 21 June 2012 I adjourned this application to 10am on 13 September 2012. The reason for the adjournment was recorded in the minute I issued, namely that this application is to await the outcome of an application filed by the judgment debtor to set aside the judgment on which the act of bankruptcy was based.

[2]      The application to set aside judgment had been given a special fixture for

30 August 2012, that is, for today.

[3]      Counsel for the judgment debtor filed a memorandum dated 20 August 2012 advising that the judgment debtor withdraws the application to set aside judgment. On 27 August 2012  I issued a minute in which  I ordered the strike out of the application to set aside summary judgment.   I further directed that the file would remain  listed  on  30 August  2012  at  which  time  applications  could  be  made  in relation to costs and in relation to the insolvency proceedings.

[4]      All parties who appeared at the insolvency proceeding hearing on 21 June

2012 appear by counsel to day.

[5]      Counsel for the judgment debtor seeks an adjournment of the insolvency proceedings for a period of 30 days to allow the debtor to make a new proposal to creditors under Part 5, Subpart 2 of the Insolvency Act 2006.  The application for an adjournment is opposed by creditors who appear.   They draw attention to the fact that the debtor made a proposal to creditors in March or April 2012, which was withdrawn because it lacked support.

[6]      Counsel for the debtor summarises the background and the reason for the new proposal, which is the justification for inviting the Court to adjourn this proceeding for a further 30 days.  That is contained in the memorandum which he filed with the Court on 29 August 2012.   The reasons which are recorded in that memorandum are the position that he confirmed to me today.   I set out in this judgment the operative parts of his memorandum as follows:

2.The judgment debtor seeks an adjournment of the proceedings for a period of 30 days to allow the judgment debtor to make a new

proposal to creditors.   The debtor is in the process of negotiating with third parties, including family members, to raise funds which would enable the debtor to make a proposal to creditors which would involve an immediate, lump sum payment by the judgment debtor.

3.The   previous   proposal   involved   the   debtor   making   periodic payments to creditors, which was not accepted by creditors.   The judgment debtor is of the view that a proposal involving a lump sum payment may be received more positively by creditors.

4.In  addition,  the  judgment  debtor  notes  that  there  has  been  a significant reduction in the judgment debtor’s indebtedness since the previous proposal was advanced.   In particular, the Bank of New Zealand has received payments of more than $5,000,000 following the realisation of security held by the Bank.  The Public Trust also owns security which is yet to be realised by the creditor.

5.Therefore, the judgment debtor requests an adjournment of 30 days to enable the judgment debtor to complete negotiations to raise the funds and to advance the proposal to creditors.

[7]      I  have  considered  this  matter  carefully  and  have  decided  that  it  is  not appropriate to adjourn the application for the reasons given.  The reasons will occur partly as I analyse the application for an adjudication order.

[8]     The jurisdictional requirements which must be met before an order of adjudication is made are contained in ss 13 and 36 of the Insolvency Act 2006. Section 13 provides:

13       When creditor may apply for debtor's adjudication

A creditor may apply for a debtor to be adjudicated bankrupt if—

(a)       the  debtor  owes  the  creditor  $1,000  or  more  or,  if  2  or  more creditors join in the application, the debtor owes a total of $1,000 or more to those creditors between them; and

(b)       the debtor has committed an act of bankruptcy within the period of 3 months before the filing of the application; and

(c)       the debt is a certain amount; and

(d)       the debt is payable either immediately or at a date in the future that is certain

Section 36 provides:

36.      Court may adjudicate debtor bankrupt

The  Court  may,  at  its  discretion,  adjudicate  the  debtor  bankrupt  if  the creditor has established the requirements set out in section 13.

[9]      The jurisdictional requirements are met in this case.

[10]     I must now consider s 37 of the Insolvency Act 2006.   Section 37 provides:

37.      Court may refuse adjudication

The Court may, at its discretion, refuse to adjudicate the debtor bankrupt if—

(a)       the applicant creditor has not established the requirements set out in section 13; or

(b)       the debtor is able to pay his or her debts; or

(c)       it is just and equitable that the Court does not make an order of adjudication; or

(d)       for any other reason an order of adjudication should not be made.

[11]     In Eide v Colonial Mutual Life Assurance Society Ltd I summarised the I summarised the general principles involved in the exercise of the discretion under s 26 of the Insolvency Act 1967 (which is now s 37 of the Insolvency Act 2006) and noted that the important matters were the following:[1]

[1] Eide v Colonial Mutual Life Assurance Society Ltd [1998] 3 NZLR 632 (HC) at 635.

1)“A creditor who establishes the jurisdictional facts set out in s 23 is not automatically entitled to an order. On the other hand, it is for an opposing debtor to show why an order should not be made.” McHardy v Wilkins & Davies Marinas Ltd (Court of Appeal, Wellington, CA 54/93, 7 April 1993) at p 3.

2)“. . . in the exercise of the discretion under s 26 it is proper for the Court to consider not only the interests of those directly concerned – the petitioner, other creditors, the debtor – but also the wider public interest.” McHardy v Wilkins & Davies Marinas Ltd (supra) at p 3.

3)In determining whether an order should be made, the wider public interest   must   be   taken   into   account   to   determine   whether adjudication is “conducive or detrimental to commercial morality and the interests of the general public.” Re Nisbett, ex parte Vala [1934] GLR 553 at p 556.

4)        “. . . on a bankruptcy petition the Court must have regard to public

interest in a way which transcends the interest of the immediate

parties to the proceeding. . . . The public interest in exposing and controlling an insolvent debtor is one which exists quite independently of  the  separate  question  of  debt  collection  by  his immediate creditors.” Re Fidow [1989] 2 NZLR 431 at p 444.

5)        Absence of assets is a factor but:

“.  .  .  even  the  undoubted  absence  of  assets  will  not necessarily preclude an order, for the circumstances may be such that the debtor ought in the public interest to be visited with   the   disqualifications   that   go   with   bankruptcy.” McHardy v Wilkins & Davies Marinas Ltd (supra) at p 3.

6)        Another matter:

“. . . is the potential for further investigation. A bankruptcy makes available to creditors an array of procedures for investigating  the  financial  circumstances  of  the  debtor. Those procedures are likely to prove more effective than an investigation conducted by other means.” Re Fidow (supra) at p 444.

7)        There is a need:

“. . . for the Court to balance the various  considerations relevant to the case, and to determine whether in the end the debtor has succeeded in showing that an order ought not to be made”. McHardy v Wilkins & Davies Marinas Ltd (supra) at p 4.

[12]     The only ground that might justify the exercise of discretion under s 37 is the debtor’s desire to put a proposal under Part 5, Subpart 2 to the creditors.   The creditors have had the benefit of the memorandum from counsel for the debtor, to which I have referred in this judgment.  The creditors are substantial.  The creditors in support exceed $5,500,000.  They oppose an adjournment and support an order of adjudication being made.

[13]     When I consider the propositions which I summarised in Eide and the need to protect  the  assets  of  an  insolvent,  it  is  clear  to  me  that  this  case  requires determination now and that it is appropriate that an order of adjudication be made.

[14]     Accordingly, I order that Duong Hai Ha be adjudicated bankrupt. [15]          This order is timed at 10:26.

Costs

[16]     Costs are awarded to the judgment creditor and the supporting creditors, based on Category 2 Band B together with disbursements as fixed by the Registrar.

JA Faire

Associate Judge