Kiwibank Ltd v Hutchin
[2015] NZHC 1518
•2 July 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-000081
CIV-2015-404-000067 [2015] NZHC 1518
BETWEEN KIWIBANK LIMITED
Creditor
AND
ELIZABETH SISIFA HUTCHIN First Judgment Debtor
MARTIN NOEL HUTCHIN Second Judgment Debtor
Hearing: 9 June 2015 Appearances:
Bruce Pamatatau for the Creditor
Alexander Shinkarenko for the First Judgment Debtor
John Cox for the Second Judgment DebtorJudgment:
2 July 2015
RESERVED JUDGMENT OF MOORE J
This judgment was delivered by me on 2 July 2015 at 3:00pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Date:
KIWIBANK LIMITED v HUTCHIN & ANOR [2015] NZHC 1518 [2 July 2015]
Introduction
[1] Kiwibank Limited (“the Bank”) obtained summary judgment against both debtors (Mr and Mrs Hutchin) in the High Court following an opposed summary judgment application heard before Andrews J. Mr and Mrs Hutchin were represented by counsel, Mr Cox, who appears for Mr Hutchin in the present proceedings. Mr Cox has been involved throughout the proceedings and before. On
8 December 2014 judgment was given in favour of the Bank in the sum of
$241,978.69 together with interest and costs.
[2] Mr and Mrs Hutchin have taken no steps to appeal or apply to set aside this judgment. Bankruptcy notices were served through counsel on 30 January 2015. No steps were taken by Mr or Mrs Hutchin. Acts of bankruptcy were thus committed. The Bank then filed and served applications for adjudication.
[3] Neither Mr nor Mrs Hutchin took any formal steps in opposing the Bank’s applications until the day before the first call of this matter on 18 March 2015 when Mrs Hutchin, who by then was separately represented, served a notice of intention to oppose and filed a brief, pro-forma affidavit in support. She later filed a more fulsome second affidavit.
[4] Mr Hutchin has since filed and served a notice of intention to oppose and a very abbreviated affidavit in support. Mr Hutchin’s affidavit is silent on any explanation of his position.
[5] The debt remains unpaid.1
Background
[6] The background is fully set out in the judgment of Andrews J.2
[7] In 2000 Mr and Mrs Hutchin borrowed $544,000 from AMP Bank Limited
(“AMP”) for a term of 25 years. The lending was secured by a registered first
1 Solicitors’ certificates confirm that as at 9:00am on 9 June 2015 the debt remains outstanding
and no payment has been received in reduction of the outstanding amount.
2 Kiwibank Ltd v Hutchin [2014] NZHC 3122.
mortgage over their properties at Seaview Road, Glenfield; Emily Place, Auckland; and 125A Birkdale Road, Birkdale. The Seaview Road property was sold in November 2002. The proceeds of sale were applied to reduce AMP’s lending to
$246,000. The mortgage over the Seaview Road property was discharged.
[8] In 2004, the Hong Kong and Shanghai Banking Corporation (“HSBC”) acquired AMP’s Home Loan Portfolio which included Mr and Mrs Hutchin’s borrowings.
[9] On 8 June 2004 the first mortgages over the properties at Emily Place and Birkdale Road were discharged and those properties transferred to Silverdale Trustees Limited (“Silverdale”). HSBC’s consent to the transaction was conditional on the KJAM Trust (a trust associated with Mr and Mrs Hutchin) providing a guarantee of the amount still owing on Mr and Mrs Hutchin’s loan, to be secured by way of an existing registered first mortgage over their property at Windmill Drive, Silverdale. The property secured separate lending that AMP, and subsequently HSBC, provided to the KJAM Trust. The priority sum in respect of the mortgage over Windmill Drive was increased to $1.30 million.
[10] The Windmill Drive property was sold in December 2005. HSBC advised Mr and Mrs Hutchin’s solicitor, Mr Cox, that it required a partial repayment in the sum of $403,645.19. HSBC’s notification to Mr Cox referred to facilities under two account references (the separate lending to the KJAM Trust and the lending to Mr and Mrs Hutchin which had been transferred in 2014). The notification further recorded that the partial repayment would be applied to the loan to KJAM Trust only. No repayment of the loan to Mr and Mrs Hutchin was recorded. The mortgage over Windmill Drive was discharged. Mr and Mrs Hutchin continued to make payments on their lending.
[11] On 7 April 2007 the Bank purchased the AMP Bank Loan Portfolio from
HSBC. At that time, the balance of the loan to Mr and Mrs Hutchin was
$228,401.30. Mr and Mrs Hutchin continued to make payments on the loan but defaulted in 2013.
[12] When the Bank followed up on the default, Mr and Mrs Hutchin claimed the loans had been repaid.
Judgment of Andrews J
[13] Before Andrews J Mr and Mrs Hutchin claimed that summary judgment should not be given because:
(a) there was a reasonable doubt as to whether there was an outstanding
loan owed by them and the Bank’s evidence did not satisfy that onus;
(b) the Bank lacked standing to recover the loan;
(c) the loan became unsecured in 2004. Repayments should have been required either then, or in 2005 when the security over Windmill Drive was discharged. The Bank’s demand in 2014 was therefore outside the limitation period;
(d) the Bank was estopped from claiming repayment of the loan;
(e) in the event that Andrews J found Mr and Mrs Hutchin’s defences not arguable the Court should exercise its residual discretion to decline to give summary judgment.
[14] Her Honour rejected Mr and Mrs Hutchin’s defences. She found there was no evidence that Mr and Mrs Hutchin’s loan had been repaid. When the mortgages over Emily Place and Birkdale Road were discharged letters from HSBC to Mr and Mrs Hutchin’s solicitors recorded the discharge and the increase in the priority sum in respect of the KJAM Trust mortgage over Windmill Drive. Nowhere was it recorded that Mr and Mrs Hutchin’s loan was to be, or was, repaid.
[15] Furthermore, when the Windmill Road mortgage was discharged HSBC’s notification to Mr and Mrs Hutchin’s solicitors referred to the partial repayment amount required to be paid. The partial repayment was expressed to be in respect of
only one loan account. Mr and Mrs Hutchin’s loan account was not referred to as
being repaid.
[16] Her Honour also rejected Mr and Mrs Hutchin’s claim that there was a “fundamental gap” in the Bank’s records of Mr and Mrs Hutchin’s loan. Her Honour noted that the Bank’s records disclosed there was a considerable amount of personal interaction between Mr and Mrs Hutchin and the Bank concerning the loan after
2007.
[17] Her Honour was thus satisfied that the Bank had satisfied its onus of establishing that Mr and Mrs Hutchin had no reasonably arguable defence to the Bank’s claim that there was no outstanding loan and, more particularly, the Bank had established Mr and Mrs Hutchin’s loan had not been repaid.
[18] Her Honour also rejected Mr and Mrs Hutchin’s submission the Bank did not have standing to bring the proceedings and the assertion the proceedings had been brought out of time.
[19] On the question of estoppel, her Honour summarised Mr and Mrs Hutchin’s case. The essence of the estoppel argument was that Mr and Mrs Hutchin claimed they reasonably believed their loan had been repaid either in 2004 (when the securities over Emily Place and Birkdale Road were discharged) or in 2005 (when the security over Windmill Drive was discharged). It was claimed that from that time Mr and Mrs Hutchin were not aware of any outstanding loan facility.
[20] It was also asserted that Mr and Mrs Hutchin had changed their position in reliance on the Bank’s implied representation that the loan had been repaid and that it would be unjust and unconscionable for the Bank to be allowed to enforce the payment of the loan 10 years later.
[21] Her Honour concluded that there was no representation of any kind on the part of the Bank that the loan had been repaid. There was a partial repayment only in
2004 and an adjustment to the security in 2005. Any belief or expectation on the part of Mr and Mrs Hutchin was not reasonable. The fact that the loan was not fully
repaid was clear on the face of the notification to the solicitors at the time of each discharge.
[22] Andrews J found there was no evidence that Mr and Mrs Hutchin had reasonably relied on any representation that the loan had been repaid. To the contrary, she pointed out that the couple had continued to make payments and the Bank’s diary notes recorded considerable contact between Mr and Mrs Hutchin and the Bank’s staff in relation to the loan.
[23] Furthermore, her Honour concluded that there was no evidence of any particular detriment. The Judge recorded Mr Cox’s submission that had it not been for the “implied representation as to full repayment” Mr and Mrs Hutchin would have repaid the loan when the securities were discharged. However, as her Honour pointed out, the corollary of Mr Cox’s submission was that Mr and Mrs Hutchin did not repay the loan at that time and thus had the use of the funds which would otherwise have been applied to repay the loan. In those circumstances they could not claim detriment and it followed her Honour concluded Mr and Mrs Hutchin did not have a reasonably arguable defence based on estoppel.
[24] On the question of whether summary judgment should be entered her Honour concluded that none of the defences raised by Mr and Mrs Hutchin was reasonably arguable. However, her Honour was invited to exercise the Court’s discretion not to give summary judgment. As her Honour noted, to a large extent, Mr Cox’s submissions reflected those which he had earlier raised and which her Honour had rejected. She was satisfied there was no proper basis on which she should not exercise her discretion to give summary judgment and while recognising that the discretion existed to avoid oppression or injustice to a defendant she was satisfied that the Bank was not using the summary judgment procedure as an instrument of oppression. She concluded that the Bank had established that Mr and Mrs Hutchin had no arguable defence and the Bank was entitled to judgment.
Relevant principles
General
[25] It is well established that the Court has a discretion not to make an order of adjudication even if all the technical requirements for the making of an order have been met. In particular, it may refuse to make an order when it is just and equitable for that to be done. Section 37 of the Insolvency Act 2006 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.
[26] Whilst the petitioning creditor does not have an automatic right to obtain an order of adjudication, nevertheless the onus in those circumstances is on the debtor to persuade the Court that an order should not be made.3 It is neither desirable nor necessary to define with precision the circumstances in which the Court will exercise its discretion not to make an order of adjudication. Every case is different and each must be determined on its own set of facts. Nevertheless, a review of the authorities in this area reveals that in considering how it should exercise its discretion the Court will generally have regard to a number of well settled principles. These assist in
determining whether an order for adjudication is of utility or whether it will be a barren exercise, in the sense it would not serve any practical purpose and would not
assist in the promotion of commercial morality.
3 See Re Epirosa, ex-Parte Diner’s Club (NZ) Limited HC Wellington B498/91, 6 March 1992.
How the debt was incurred
[27] An important factor for the Court to consider is the manner in which the debt was incurred.4 The debt may have arisen through circumstances completely beyond the control of the debtor,5 or in circumstances which could be viewed as domestic rather than commercial in nature.6 Alternatively, the debt may be commercial in nature. The first two situations may lend the weight to a submission that
adjudication should not follow; the last is unlikely to.
Availability or absence of assets
[28] The availability or absence of assets is another factor to be considered. A complete absence of assets may mean that adjudication will serve no practical purpose, although this factor is by no means decisive. A claim that a debtor has no realisable assets may, in any event, require further investigation.7 Such an assertion may conveniently ignore the fact that assets have been transferred to a family trust, or that assets exist albeit not in the name of the debtor. There are countless
conceivable mechanisms by which a debtor can hide or obscure assets. A debtor’s assets may only be recoverable through the use of the coercive and investigatory powers of the Official Assignee under the Insolvency Act 2006.8
[29] The Official Assignee’s powers may also be relevant for other reasons. The Court may consider the potential for the debtor to be prosecuted for the breaches of the Insolvency Act 2006. Alternatively, the debtor may have access to identified sources of income which the creditors can only access if an order of adjudication is
made.9
Ability of debtor to repay
[30] The ability (or inability) of the debtor to pay the debt will be relevant, as will
the debtor’s age and personal circumstances. Sometimes these factors may persuade
4 Fidow [1989] 2 NZLR 431 (HC) at 441.
5 As in re Taylor (1992) 4 NZBLC 102, 875, per Thomas J.
6 See eg re Gibson, ex-Parte Gardiner HC Auckland B882/02, 3 April 2003.
7 Fidow above n 4 at [444].
8 See eg Re Kennedy HC Auckland, B1378/92, 12 November 1992.
9 Re Maara [2004] 21 NZTC 18, 494.
the Court that the debtor has the means to pay the debt given time, or that the debtor poses no real threat to the commercial community in the future.10
Actions and wishes of the creditor
[31] The actions and wishes of the creditor will also be relevant.11 If, however, the Court finds that the bankruptcy proceedings have been brought for an oppressive, improper or collateral purpose, it may decline to make the order sought.12
Public interest and commercial morality
[32] Finally, issues of public interest, and in particular the promotion of commercial morality, will always be a relevant factor. In many cases consideration of the factors referred to above will determine whether an order of adjudication should to be made. However, one of the hallmarks of commercial morality is the expectation that a person who assumes the obligation of a debtor will be willing and able to meet those obligations. A debtor who fails to do so is always at risk of adjudication. An order of adjudication meets the immediate practical purpose of removing the debtor from the commercial community for three years. It also serves the wider public interest of ensuring that all persons who assume financial obligations do so in the knowledge that they may be declared bankrupt if they fail to repay their debt.
The defendants’ submissions
[33] Mr and Mrs Hutchin both accept the general principles set out above. However, they submit that in applying these principles there are a number of reasons why it would be just and equitable for the Court not to make the order sought.
[34] No doubt in recognition of their different interests and positions on this application, Mr and Mrs Hutchin are now separately represented. However, there is
a considerable degree of overlap in their respective cases.
10 Re Sella HC Auckland B1621/93, 16 March 1994.
11 Baker v Westpac Banking Corporation CA212/92, 13 July 1993.
12 See Gitmans v Alexander HC Auckland B105/03, 10 September 2003.
Mr Hutchin
[35] Mr Cox, for Mr Hutchin, lists various grounds in opposition.
(a) First, he submits it is not just and equitable to make an order of adjudication. He relies upon the judgment in Windsor v Cotterell13 where the Court declined to adjudicate on the just and equitable ground where there were a number of questions relating to the debtor’s financial affairs which lacked clarity and caused concern. Mr Cox submits there were no such factors in this case.
(b)Secondly, he submits that Mr Hutchin should not be adjudicated because it is possible that the Bank will be able to be paid in full. Mr Cox submits that adjudicating him bankrupt would be pointless because it would ensure there will be no recovery to the Bank.
(c) Thirdly, he submits there is no detrimental impact in relation to commercial morality in the making of an order in circumstances where Mr Hutchin has not undertaken any commercial activity independent from his wife which requires investigation and has made every effort to assist his wife in meeting her obligations.
(d)Fourthly, Mr Cox submits there is no public interest in Mr Hutchin being declared bankrupt. The wider public interest must be taken into account in determining whether adjudication is “conducive or detrimental to the commercial morality and interests of the general public.”14 Indeed, Mr Cox submits adjudication would be detrimental to commercial morality and the interests of the general public because the circumstances which led to the summary judgment arose from errors and omissions by the three banks and not through any conduct
or actions attributable to Mr and Mrs Hutchin. He thus submits it would not be in the public interest for a person to be adjudicated when
the causes are the errors and omissions lie at the door of the Bank.
13 Windsor v Cotterell HC Auckland CIV-2006-404-4382, 28 March 2007.
14 Re Nisbett, ex-Parte Vala [1934] GLR553 at 556.
(e) Fifthly, Mr Hutchin’s adjudication would carry the unfair and unnecessary stigma associated with bankruptcy and would prevent Mr Hutchin from deriving an income. This, Mr Cox submits, is not in the interests of other parties, particularly his children.
(f) Sixthly, Mr Cox submits that the applicant is a bank and, for all practical purposes, its assets are unlimited and the effect of non- payment of the judgment debt on its business is negligible. In contrast, Mr Hutchin’s limited translates to a disproportionate effect on him.
(g)Seventhly, Mr Cox submits that there are no matters requiring investigation by the Official Assignee. The debtor has not behaved in a manner requiring either exposure or control in terms of the Fidow principles.
(h)Finally, Mr Cox submits that the economic climate and the harsh economic conditions which presently prevail are such that bankruptcy should not follow as a matter of course.
[36] In the alternative, Mr Cox submits that if this Court determines that an order for adjudication should be made, the order should be stayed for a period of six months. The purpose of this proposal is to enable the financial position of the debtor, his family and his creditors to be properly examined for the purposes of the parties reaching a settlement. Mr Cox advised that the Bank has initiated settlement discussions and he believes they may be fruitful.
Mrs Hutchin
[37] Mr Shinkarenko, for Mrs Hutchin, accepts the applicable legal principles as discussed above.
[38] However, he makes the following submissions in opposition to the Bank’s
application:
(a) First, he points to the fact the debt is some 15 years old.
(b)Secondly, Mr Shinkarenko observes that Mrs Hutchin took no independent or formal steps in the summary judgment proceedings and did not receive independent legal advice.
(c) Thirdly, he submits that to adjudicate Mrs Hutchin is an exercise in futility. She has very limited assets and there will be no financial benefit to the Bank in her being adjudicated bankrupt because she has nothing to offer financially.
(d)Fourthly, relying on re Epirosa, Mr Shinkarenko submits that in Mrs Hutchin’s case there has been no fiscal irresponsibility from which it might be said the financial community deserves protection. He submits that to adjudicate Mrs Hutchin at this time is not conducive to commercial morality nor is it in the interests of the
general public.15 He submits that Mrs Hutchin has not acted
unreasonably or in a fiscally irresponsible manner.
(e) Fifthly, Mr Shinkarenko submits Mrs Hutchin allowed her husband to manage their financial affairs. She is currently looking after the household and her children, the youngest of whom is aged 6.
(f) Sixthly, he submits that in the harsher economic climate of today a person such as Mrs Hutchin may find themselves insolvent through no fault of their own and bankruptcy should not follow as a matter of
course.16
15 See Re Nisbett above at n 14; Re Burford, ex-Parte Simpson HC Tauranga B7/95, 24 October
1995.
16 See re Taylor above at n 5.
(g)Finally, he submits there are no matters which require investigation by the Official Assignee. This is not a circumstance where it is necessary for an investigation to be undertaken particularly where the debtor has fully disclosed her financial position.
Decision
[39] I now turn to apply the relevant legal principles to the facts relevant to both debtors. While the discussion of the principles which follows affects both Mr and Mrs Hutchin their cases have differences which require separate discussion. Where this is the case I shall identify it.
How was the debt incurred?
[40] I am not satisfied that the debt giving rise to the petition arose either through circumstances completely beyond the control of Mr or Mrs Hutchin or through circumstances that could be viewed as domestic rather than commercial in nature.
[41] This was a commercial loan secured by registered first mortgages over the three properties. Although Mr and Mrs Hutchin continue to assert that the circumstances which led to the summary judgment arose from serial errors and omissions by the three banks, this was not how Andrews J viewed the evidence. Letters from the HSBC to Mr and Mrs Hutchin’s solicitors recorded the discharge of the mortgage and the increase of the priority sum in respect of the KJAM Trust mortgage over Windmill Drive. Nowhere was it recorded that Mr and Mrs Hutchin’s loan was to be, or was, repaid. When the mortgage over Windmill Drive was discharged HSBC’s notification to Mr and Mrs Hutchin’s solicitors clearly referred to partial repayment and Mr and Mrs Hutchin’s loan account was not referred to as being repaid.
[42] Furthermore, her Honour was satisfied there was no representation made by the Bank, by any means, that the loan had been repaid. The notifications made to the solicitors were quite clear as to what occurred, according to her Honour. She concluded that any “belief or expectation” by Mr and Mrs Hutchin was unreasonable and there was no evidence that they reasonably relied on any representation that the
loan had been repaid. Indeed the evidence suggested the contrary because they continued to make payments.
[43] I am satisfied this was a commercial transaction and I am not convinced the debt arose through circumstances beyond the control of Mr and Mrs Hutchin.
Availability or absence of assets
[44] A complete absence of assets may mean that adjudication will serve no practical purpose. This factor is, however, by no means decisive and the submission a debtor has no assets may, in any event, require further investigation.
[45] Both Mr and Mrs Hutchin assert they have limited assets or means to repay the debt although Mr Hutchin appears to claim he can repay the debt or enter into a settlement agreement with the Bank.
[46] The difficulty for Mr and Mrs Hutchin is the absence of any evidential foundation to support their claim beyond a bald unqualified assertion. Mr Hutchin’s affidavit in opposition is economical in the extreme. It simply confirms he is the judgment debtor and it confirms the contents of his notice of opposition which sets out the grounds. There is nothing in his affidavit which provides evidential support for the grounds claimed. For example, Mr Hutchin’s notice of opposition states that he should not be adjudicated bankrupt because it is possible the Bank could be paid in full. But there is a complete vacuum of information or evidence to support that assertion. He also states that adjudicating him bankrupt would be pointless because it would ensure there will be no recovery to the judgment creditor. Again, that statement is not referenced to or supported by any independent or cogent evidence.
[47] Furthermore I am satisfied that there are matters which would warrant the investigation of the Official Assignee. One such area of examination is the involvement of Silverdale. This is a company which has its registered office at the solicitors for Mr Hutchin. Mr Cox, counsel for Mr Hutchin, is one of its directors.
[48] As discussed earlier, the Emily Place and Birkdale Road properties were transferred to Silverdale following the discharge of the first mortgages in 2004.
HSBC’s consent to the transaction was conditional on the KJAM Trust providing a guarantee of the amount still owing on Mr and Mrs Hutchin’s loan, to be secured by way of an existing registered first mortgage over their property at Windmill Drive. Silverdale is the corporate trustee of KJAM Trust. That trust had an involvement with Mr and Mrs Hutchin. When the Windmill Drive property was sold by Silverdale on behalf of KJAM Trust the balance funds totalling nearly $355,000 were made to a National Bank account held by Mr and Mrs Hutchin.
[49] When Mr Hutchin filed his notice of opposition he recorded his address as
2215B Cove Road, Mangawhai. It is noteworthy that that property was transferred to Silverdale on 23 April 2015, the same day as the first calling of these bankruptcy proceedings.
[50] For that reason the Bank claims that it is a fair assumption that Mr and Mrs Hutchin are likely to have some interest, beneficial or otherwise, in the assets of Silverdale and, if so, a further investigation by the Official Assignee is warranted given the powers available under the Insolvency Act 2006.
[51] I agree for the same reasons.
Ability to pay the debt
[52] Mr Hutchin has provided no evidence to assist in any assessment of his ability or inability to pay the debt. As noted earlier, he makes the claim, without any evidence to support it, that he can repay the debt or, at least, enter into a settlement in full and final settlement of the claim.
[53] Mrs Hutchin’s position under this heading is different. She says that she is limited in her ability to state exactly what her assets and liabilities are. She says this is because her husband has always managed the couple’s financial affairs.
[54] She claims that her assets are limited to a half share in the household furniture, a half share in the capital of Dizzy Lizzy’s Limited (discussed more fully below) and a Toyota car which is used in the company’s business and valued at approximately $20,000. Her liabilities include the judgment debt, hire purchase
commitments over the Toyota and a contingent liability for the Dizzy Lizzy shop rental. She says that she has nothing to offer to the Bank in settlement of the debt and can see no reason why the Bank should want to bankrupt her because it would serve no useful purpose. She says she is presently employed 12 hours a day in the business and also looks after the household and the children. She says that if she is adjudicated bankrupt she will be unable to carry on with the business and will lose income and will also have difficulties finding employment.
[55] These issues relate both to the availability of assets and also the ability of the debtor to pay. Neither is determinative in applications of this sort. In this case these principles are subservient to the question of whether the coercive and investigatory powers of the Official Assignee should be engaged and considerations as to whether the debtor poses a threat to the commercial community.
[56] For reasons developed later in this judgment I am of the view that there are issues which properly call for the involvement of the Official Assignee even if, on its face, there appears to be little prospect of Mrs Hutchin having the means to repay or reduce the debt.
Actions and wishes of the creditor
[57] The Bank has been steadfast and consistent in its intention and its conduct to obtain judgment.
[58] At the beginning of the hearing before me, Mr Cox sought an adjournment on the grounds that settlement discussions were proceeding and the Bank had sought further information from Mr and Mrs Hutchin for the purposes of advancing these discussions. However, Mr Pamatatau opposed that application and insisted that the Bank wished to proceed. In the circumstances, the conduct of the Bank has been consistent. There is no evidence before me, nor has it been claimed by Mr and Mrs Hutchin, that these proceedings had been brought for an oppressive, improper or collateral purpose.
Public interest and the promotion of commercial morality
[59] The Bank has exhibited a search of the New Zealand Companies Office register which shows that Mr Hutchin is or has been a director or shareholder of nine companies of which six have been struck off. One of the companies, Wealth Buy Property Limited (“WBPL”) was placed into liquidation in 2013 owing almost
$2 million. Also produced by the Bank was a copy of a New Zealand Herald article dated 9 September 2013 which described the collapse of WBPL. This article records that the owner and director of WBPL was Mr Hutchin. The article states that the company built new homes in subdivisions in Invercargill, Huntly and other locations. The homes were sold as investment properties which were rented through a related company under a 10 year rental guarantee. Mr Hutchin is quoted as saying the global downturn and the collapse of the investment company Blue Chip were among the reasons for liquidation. He was also quoted as saying that no prospective home buyers would lose money because all homes for which deposits had been paid had already been built or the deposits refunded.
[60] The article went onto say that the company had received complaints from investors in the past with some saying homes built in a subdivision in Huntly were substandard and not providing the rental returns as promised. Another prospective buyer was reported as having gone to Court to have a deposit returned after building consents were not approved. An investor from Whangarei was reported to have had his deposit refunded after going to the Disputes Tribunal and publicly airing his concerns with the company on a property investor website. The article concluded with a statement that Mr Hutchin remained a director or shareholder of seven companies including Wealth Buy Property Investments Limited, Wealth Buy Property Franchising Limited, and Dizzy Lizzy’s Ice Cream Parlour in Silverdale.
[61] The liquidators’ first report dated 24 July 2013 states the WBPL had experienced cash flow difficulties for some months which were compounded by poor financial management and a general economic downturn. This had prevented the company from meeting its debts as they fell due. The total liabilities were nearly $2 million of which most was owed to unsecured creditors.
[62] There is no evidence from Mr or Mrs Hutchin, in contradiction. Whatever the reasons or justification for the demise of WBPL, the fact remains that Mr Hutchin was a shareholder and director in a company which failed and which owed money to its investors. The liquidators’ report that poor financial management contributed to WBPL’s failure is obviously highly relevant to the issue of public protection and commercial morality although I accept these conclusions relate more to Mr Hutchin than Mrs Hutchin.
Mrs Hutchin
[63] Mrs Hutchin claims that her knowledge of the business dealings involving the couple is limited. This is because her husband managed all of the couple’s financial affairs. She says that she does not have a sophisticated knowledge of commercial matters and simply does not and did not understand the various transactions which led to the summary judgment proceedings.
[64] Her primary asset is her interest in Dizzy Lizzy’s Ltd, which is a retail food business at Mangawhai Heads. She owns a half share in the business with her husband. She is one of the two directors. Her husband is the other.
[65] The Bank produced a copy of an article which appeared in a local publication in which Mrs Hutchin is recorded as saying she previously owned a second hand clothing store and when she left the industry five years later she owned five stores. The same article notes that the current business in Mangawhai Heads is the second such business the couple have owned having sold the Silverdale business two and a half years before. It is also apparent that Mrs Hutchin has held directorships and been a shareholder in other entities.
[66] Given these factors I do not accept Mrs Hutchin is as commercially naïve as she claims.
[67] Furthermore, her claim that she lacked independent legal advice on the summary judgment proceedings has come late. No steps have been taken by Mrs Hutchin to set aside the summary judgment. In fact, other than stating she has been advised there are arguments as to why judgment should not have been entered
against her, her affidavit is silent on why she has taken no steps to appeal or to set aside the judgment.
Conclusion
[68] In relation to Mr Hutchin I am easily satisfied that he has failed to persuade me that an order of adjudication should not be made.
[69] While his ability to repay is questionable, his commercial history is such that he presents a risk to the community and his adjudication will promote the interests of commercial morality.
[70] Furthermore, I am satisfied on the evidence that the commercial activities and assets of Silverdale require investigation by the Official Assignee. Given the evidence that both Mr and Mrs Hutchin were involved in that enterprise I am not persuaded that it would be just and equitable not to make an order of adjudication in relation to them both.
[71] In doing so I do not ignore the stigma which is attached to bankruptcy nor the difficulties which Mrs Hutchin, in particular, will face in relation to her business and the effect which the orders will have on the children of the couple.
[72] However, I am not persuaded there are proper grounds not to make the orders sought.
Costs
[73] The Bank seeks indemnity costs on the grounds that the debtors, particularly Mr Hutchin, have acted improperly or unnecessarily in continuing or defending the proceeding.
[74] While there is some merit in that proposition the issue of indemnity costs in bankruptcy applications is specifically dealt with by s 274(1)(b) of the Insolvency Act 2006. That provision deals with the priority of the payments to preferential creditors and provides as follows:
274 Priority of payments to preferential creditors
(1) The Assignee must first pay, in the order of priority in which they are listed,—
…
(b) the reasonable costs of a creditor in procuring the order of adjudication, including the reasonable costs incurred between lawyer and client in procuring the order, inclusive of and subsequent to the preparation and filing of the creditor’s application for adjudication; and
…
[75] Accordingly, it is proper that I award the actual and reasonable costs of the Bank. Counsel for the Bank is to file and serve a costs memorandum within 14 days of the date of this judgment and the debtors are given leave to file a response seven days after that.
Result
[76] The following orders are made:
(a) adjudicating Martin Noel Hutchin and Elizabeth Sisifa Hutchin bankrupt;
(b)awarding interest on the judgment debt at the rate of five per cent per annum being $1,088.71 per month from 9 January 2015 to the date of judgment;
(c) indemnity costs to be fixed.
Moore J
Solicitors:
Mr Pamatatau, Auckland Mr Shinkarenko, Auckland Mr Cox, Auckland
11