Liddle v Bank of New Zealand HC Auckland CIV 2010-404-1988

[2010] NZHC 1533

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2010-404-001988

IN THE MATTER OF     the Insolvency Act 2006

AND

IN THE MATTER OF     Bankruptcy of WESLEY JOHN LIDDLE BETWEEN  WESLEY JOHN LIDDLE

Debtor

AND  BANK OF NEW ZEALAND Creditor

Hearing:         16 August 2010 and 19 August 2010

Appearances: R J Gordon for the Creditor

W J Liddle, in person the debtor

Judgment:      19 August 2010

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

This judgment was delivered by me on

19.08.10 at 4:30pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors/Debtor:

R    Gordon,     Buddle    Findlay,     Wellington     –     Rich[email protected]      /

scott[email protected]

copy to: W J Liddle, Auckland – [email protected] / [email protected]

WESLEY JOHN LIDDLE V BANK OF NEW ZEALAND HC AK CIV 2010-404-001988  19 August 2010

[1]      The Bank of New Zealand’s (BNZ) application for an adjudication order relies upon s 22 of the Insolvency Act 2006 (the Act), which provides:

Notice of Suspension of Debts

A debtor commits an act of bankruptcy if the debtor notifies any of the debtor’s  creditors  that  the  debt  has  suspended,  or  is  about  to  suspend, payment of the debtor’s debts.

[2]      BNZ says Mr Liddle is indebted to it for $919,358.04 (plus interest and costs) being the balance of unpaid loans owed by several of his entities, and which he personally guaranteed.   Also there are two outstanding costs judgments totalling

$22,730.66 in favour of BNZ that he has not paid.

[3]      On 12 February 2010 Mr Liddle sent to his creditor’s a circular indicating he wished to make a proposal to compromise and settle all of the debts he owed BNZ. At that time he suspended payment of his debts.  BNZ claims he has committed an act of bankruptcy pursuant to s 22.

Background

[4]      Mr Liddle and his wife were guarantors of borrowings from BNZ by Harvest Times  Limited  (Struck  off),  Corinthian  Homes  Limited  and  as  trustees  of  the Property Trust.

[5]      As  at  mid-2009  the  borrowings  of  entities  totalled  more  than  $3.1M. Repayments on those were in default.   In April 2009 Mr Liddle wrote to BNZ seeking a further advance of $150,000 to assist with the recapitalisation of one of his trading entities.  At that time he stated that if BNZ’s response was unfavourable he would  have  no  option  but  to  appoint  a  provisional  trustee  to  assist  in  the restructuring of the group.

[6]      BNZ says this was the first of a series of consistent notices by Mr Liddle that he had suspended or was about to suspend payment of his debts.

[7]      BNZ declined to advance the further $150,000 sought.  On 18 June 2009 it served Property Law Act notices warning that action might be taken on the mortgage securities.  The notices were not complied with and BNZ proceeded to market the mortgagee properties for sale by real estate agents.   On 29 August Mr Liddle submitted a creditor’s proposal.  It is clear he thought that would restrain BNZ from proceeding with mortgagee sales.  Indeed it was clear from the papers filed in this Court that he expected title to the five secured properties to vest with the proposal trustee free from BNZ’s mortgage.  BNZ says Mr Liddle also actively interfered with BNZ’s mortgagee sales including by refusing to allow BNZ’s agents access for the purpose of marketing properties for sale, and physically intimidating potential purchasers attending curb side viewings arranged by the agents.

[8]      On 23 September 2009 Mr Liddle applied to the High Court for an interim injunction to restrain BNZ from carrying out its mortgagee sales.  The application was rejected by Potter J on 2 October 2009.   In her judgment the Learned Judge noted that except for Mr Liddle’s opinion that property sale prices were too low no evidence was given challenging the right of the bank to pursue its sale processes.

[9]      Mr Liddle then continued with his creditor’s proposal.   On 14 December

2009 it came before me when I informed Mr Liddle that his proposal could not vest title of the secured properties in the provisional trustee.

[10]     BNZ has now sold the secured properties.  It says it is due the shortfall owing and no longer has any security for its debt.

[11]     On 12 February 2010 Mr Liddle filed an amended creditor’s proposal and circulated it to all creditors.  It offered a quarter of a cent per dollar owed over five years.  In that proposal Mr Liddle attested that the shortfall debt he owed to BNZ was “$700,000 (estimated)”.   Whether it be that sum or as BNZ contends, over

$900,000, BNZ’s debt exceeded 25 per cent of the total debts owed by Mr Liddle. BNZ refused to agree with the proposal.

[12]     Although BNZ refused to accept the proposal Mr Liddle, with the assistance of  an  organisation  called Morgan  Freeman  Penn  pursued  the  proposal  to  Court

having purported to reject BNZ’s proof of debt.  I dealt with the proposal application on 22 April 2010.  I rejected the application and dismissed the amended proposal.  I also  granted  indemnity  costs  of  $12,238  against  Mr  Liddle  and  the  provisional trustee a Mr Paalvast from Morgan Freeman Penn.

[13]     BNZ’s bankruptcy application is based on Mr Liddle’s 12 February 2010 circular  to  creditors  in  support  of  his  amended  creditor’s  proposal.    Mr  Liddle opposes the application.

Mr Liddle’s opposition to adjudication application

[14]     He claims:

a)     He was never a mortgagor of BNZ.

b)BNZ “has not undertaken proper or due process or Court proceedings” against him, the mortgagors or his entities to recover any alleged shortfall.

c)     BNZ has not proved any shortfall exists.

d)Contrary to the provisions of s 176 of the Property Law Act 2007 BNZ has not properly discharged its duties in connection with the mortgagee sale processes undertaken.   Complaints about sale of mortgaged properties at under value are not supported by any evidence at all.

e)BNZ has “grossly under sold the properties and failed to undertake proper marketing for sale”.

f)BNZ failed to issue and serve the requisite notices required pursuant to ss 119, 121 and 122 of the Property Law Act.

g)     BNZ has not served any demand for repayment of the alleged shortfall arising from the mortgagee sales.

h)He has not been served appropriately with a summons, an adjudication application or affidavit in support and the attempt to serve those documents in the confines of Courtroom 3 of this Court on 22 April

2010 amounts to defective service.

i)Pursuant to s 13 a creditor may apply for an adjudication where the debt is a certain amount.  He says there is no proof of the amount BNZ claims is due.

j)He refers to s 41 and says it provides that if a debtor has transferred his property to a trustee or made a proposal to creditors such actions do not amount to an act of bankruptcy.

[15]     By his affidavit in support of his opposition Mr Liddle deposes:

a)      He signed a limited deed of guarantee in relation to certain loans to his entities.

b)Although the security properties were sold by mortgagee sale he never received any “verifiable particulars as to how, when or what for, the properties were sold or the process that was used”.

c)He believes a mortgagee has a fiduciary duty of care to obtain the best possible price and considers BNZ has been negligent in this regard because:

(i)     Sales were undertaken with “extraordinary haste”.

(ii)     Sales were conducted by tender and not public auction and for that reason warrants further investigation.

(iii)   There is no evidence of sales marketing having been done.

d)The properties were worth $4M when mortgaged to a total value of around $3.1M.  If as BNZ claims the shortfall is about $920,000 plus

interest and costs then the security properties would have realised about

$2.2M i.e. nearly 50 per cent less than their value.

e)He has not received any of the notices required under the Property Law Act that the properties had been sold for less than full mortgage value nor  has  he  ever  been  provided  with  any  reasonable  opportunity to remedy the deficit.

f)He believes service of bankruptcy documents upon him as improper because it occurred in the Courtroom I was then presiding over when, as Mr Liddle claims, I prevented him from serving documents upon BNZ.

Considerations

[16]     For primary consideration for me at this time are the documents filed at the time of Mr Liddle’s amended proposal on 12 February 2010.  At that time he filed an affidavit acknowledging a debt to BNZ of an estimated $700,000.   Earlier on 2

October  2009  Potter  J  had  rejected  arguments  raised  upon  the  mortgagee  sale process.  On 14 December 2009 I had rejected a claim that the proposal then before the Court could vest title to secured properties in the provisional trustee.

[17]     The amended proposal provided on 12 February 2010 offered little more than nothing.

[18]     It is against this background that Mr Liddle’s intent and the affect of his amended proposal and the affidavit provided in support of it on 12 February 2010 needs to be considered.   Case authority urges an objective consideration of the debtor’s intent and the affect of any notice given in that regard to the debtor’s creditors.   Such notice needs to be assessed in the circumstances in which it was given.  If by words used a debtor gives his creditors a clear impression that, if his compromise offer is not accepted, no return at all is likely, then almost certainly a Court will take a view that the debtor was likely to suspend payment of debts

because they could not be paid.  As such it would constitute notice for the purposes of s 22.

[19]     In this case Mr Liddle has by his proposal indicated a near nil capacity to satisfy creditor’s debts.   His proposal was rejected by BNZ, and dismissed by the Court.  Unquestionably the documents informed creditors that Mr Liddle is unable to meet his obligations to them.  It follows, that in the absence of approval given to his proposal, he will not be able to meet his obligations to creditors in the future.  In this case,  in  writing  by  the  creditor’s  compromise  documents  and  by  Mr  Liddle’s affidavit in support there is a formal and clear indication that he intended dealing with his creditors collectively and in the meantime he had actually suspended payments of his debts to those creditors.

[20]     Although a debtor may admit insolvency it does not follow that he is thereby giving notice of his intention to suspend debts.  But if the admission of insolvency is accompanied by statements made at a meeting of creditors from which it can be inferred he no longer has the ability to service debts in the knowledge that more than

25 per cent in value of creditors may not support his proposal then it can be taken that the debtor agrees to and has no cause to oppose his adjudication.

[21]     The clear evidence in this case is that beyond an admission of insolvency Mr Liddle gave the clearest possible indication he intended dealing with his creditor’s collectively and was suspending payment of his debt obligations in the meantime.

[22]     In his 12 February 2010 circular Mr Liddle described himself as “insolvent”. In his affidavit he showed debts totalling more than $1.2M as against assets of only

$3,000.  He proposed a  compromise involving a payment by him of $22,500 over five years – less commission and expenses to be deducted first and paid to Morgan Freeman Penn.

[23]     Mr Liddle stated that he was to receive $4,500 per year from his company Harvest Times Limited but did not disclose that that company was struck off the register on 25 August 2009.

[24]     Further, in his urgings to creditors to accept the proposal he made it clear that the alternative option was bankruptcy – that creditors would thereby receive nothing.

[25]     From about the time of Mr Liddle’s initial creditor’s proposal he did in fact suspend the payment of his debts.

[26]     I accept that an act of bankruptcy under s 22 of the Act was committed on 12

February 2010, entitling BNZ to file the application for adjudication order that it has. [27]  Addressing Mr Liddle’s grounds of opposition:

a)His obligations to BNZ  arose due to his personal guarantee of the mortgagor’s debts.  He has not disputed his guarantor obligations.

b)An application for bankruptcy under s 22 of the Act obviates the need to file a proceeding seeking judgment for a debt.

c)Mr Liddle complains his debt to BNZ has not been proved but he has admitted on oath that he owes an estimated $700,000 to BNZ.  That is a sufficient sum certain for the Courts purposes.   He did not deny any debt  to  BNZ  until  he  purported  to  reject  BNZ’s  vote  against  his proposal.

d)Mr Liddle’s complaints about mortgagee sale processes including with reference to service of relevant documents were firmly dismissed by Potter J on the injunction application.

e)Mr Liddle’s complaints about method of sale and sale of properties at undervalue are not supported by evidence only supposition.

f)BNZ’s demands for repayment of the mortgage debt shortfall were provided in response to Mr Liddle’s proposal proceeding.

g)    Mr Liddle complains about improper service of BNZ’s bankruptcy proceedings.  The evidence is clear that personal service was affected upon him on 22 April 2010.

h)Section 41 does not exclude the transfer of property to a trustee or the making of a proposal, from consideration as acts of bankruptcy.  Rather the words of s 41 make it clear that unless the debtor applies for an order that such actions not be an act of bankruptcy then they are liable to be assumed to be such.

Summary

[28]     This case is about BNZ’s claims that by his words and his actions Mr Liddle committed an act of bankruptcy by his notifying his creditor’s on 12 February 2010 that he has suspended or is about to suspend payment of his debts.

[29]     This is what is required by s 22.   It is not to be confused with s 23 which refers to an admission of insolvency to a meeting of creditors at which a majority of creditors present request an application for adjudication be filed or the debtor agrees to file such adjudication but does not do so within two working days after the meeting.

[30]    As earlier noted an objective assessment of the words used is required. Reference to context is also available by reference to a debtor’s earlier actions.  In this case those earlier actions include documents provided with his original proposal application in August 2009.

[31]     What is clear by the documents provided on 12 February 2010, and by Mr Liddle’s affidavit in support of creditor’s proposal contained therein, is that he was saying that he was offering a composition but if that was not accepted then recourse to bankruptcy was inevitable.

[32]     He did not say that he was offering a composition but that he could continue to trade regardless.  His challenge to liability at all has arisen only recently because

before  then  all  correspondence  and  his  actions  subsequently  arise  from  his undisputed position of liability on those guarantees.

[33]     Belatedly  Mr  Liddle  has  adopted  the  position  that  he  did  not  by  his composition documents say that he was not going to pay his creditors.  But he does not say they could expect any payment other than his proposal would provide i.e. that he would be dealing with their indebtedness as a group – a situation quite different from providing them with an assurance that even if his compromise was refused payment would in the ordinary course be resumed.

Result

[34]     The facts establish that on 12 February 2010 Mr Liddle committed an act of bankruptcy under s 22 of the Act.  All other requirements upon BNZ’s application have been satisfied.  Accordingly there will be an order adjudicating Mr Liddle as a bankrupt.  The time of that order is 11:14am.

[35]     Costs are payable to BNZ on a 2B basis together with disbursements as fixed by the Registrar.

Associate Judge Christiansen