Loan Investment Trustees Limited v Ding
[2024] NZHC 1328
•24 May 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-000462
[2024] NZHC 1328
UNDER the Insolvency Act 2006 BETWEEN
LOAN INVESTMENT TRUSTEES LIMITED
Judgment Creditor
AND
ZHAOHAI DING
Judgment Debtor
CIV-2023-404-002371 BETWEEN
WENJUN (RENEE) JI
Plaintiff
AND
ZHAOHAI DING
Defendant
Hearing: 23 May 2024 Appearances:
J Spring / S Wong for Loan Investment Trustees Limited G Kohler KC / Y Mortimer-Wang for Wenjun Ji Zhaohai Ding in Person
Judgment:
24 May 2024
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 24 May 2024 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
LOAN INVESTMENT TRUSTEES LTD v DING [2024] NZHC 1328 [24 May 2024]
Introduction
[1] The judgment creditor, Loan Investment Trustees Limited (LITL), applies for an order adjudicating the judgment debtor, Zhaohai Ding, bankrupt.
[2] The judgment creditor, Wenjun (Renee) Ji, applies for an order adjudicating Mr Ding bankrupt.
[3] As Mr Ding defends the applications on substantially the same grounds, the two applications were heard together.
[4] This judgment determines whether the Court should, in its discretion, adjudicate Mr Ding bankrupt under s 36 of the Insolvency Act 2006 (the Act).
Background
LITL’s application
[5] On 14 March 2023, this Court entered summary judgment for LITL against Mr Ding in the amount of $3,277,383.97 (LITL judgment).1 The judgment sum represents a debt owed by Mr Ding to LITL as guarantor of funds advanced by LITL to Annecy Holding Limited (in liquidation) (Annecy) and secured by a mortgage granted by that entity over a property at 389 Dominion Road, Mt Eden, Auckland.
[6] Mr Ding was served with a bankruptcy notice for the judgment debt on 26 April 2023.
[7] LITL as mortgagee, and in the exercise of its power of sale as mortgagee, accepted an unconditional offer to purchase the Mt Eden property for $3,050,000, which settled on 27 June 2023.
[8] Completion of the sale left a shortfall for which Mr Ding remains liable under the LITL judgment. The amount of the judgment sum which remains owing is
1 Loan Investment Trustees Ltd v Ding HC Auckland CIV-2022-404-2303, 14 March 2023 (Minute).
$391,730.11, including costs and interest under the Interest on Money Claims Act 2016.
[9]Execution of the LITL judgment has not been halted by the Court.
[10] Mr Ding filed an application to set aside the bankruptcy notice, which the Court dismissed in an oral judgment dated 20 November 2023.2
[11] LITL applied for adjudication order and served Mr Ding with the necessary documents on 23 December 2023.
[12] On 31 January 2024, Mr Ding filed an opposition to the application, together with a supporting affidavit.
Ms Ji’ s application
[13] On 29 September 2023, this Court entered summary judgment for Ms Ji against Mr Ding for the sum of $2.3 million plus interest pursuant to the Interest on Money Claims Act 2016, and costs of $10,994 and disbursements of $1,560 (Ji judgment).3
[14] That judgment also related to the Mt Eden property. Annecy as vendor and Ms Ji as purchaser entered into an agreement for sale and purchase of the property on 30 April 2022. Ms Ji paid a deposit of $1.3 million, and later an instalment of the purchase price of $1 million. Annecy could not settle the contract because it was unable to discharge the mortgage registered over the property in favour of LITL. Consequently, Annecy defaulted in performance of its obligations under the contract and Ms Ji cancelled the contract.
[15] Annecy did not repay Ms Ji her deposit or instalment of price. Annecy was subsequently put into liquidation on 21 April 2023. Ms Ji filed a creditor claim. The liquidator reported that Ms Ji would not receive any distribution as a creditor of Annecy.
2 Loan Investment Trustees Ltd v Ding [2023] NZHC 3288.
3 Ji v Ding [2023] NZHC 2730.
[16] Ms Ji sought an order from this Court under s 301 of the Companies Act 1993 requiring Mr Ding, the sole director of Annecy, to pay $2.3 million plus interest to her in her capacity as a creditor of Annecy, on the grounds that Mr Ding had breached his duties under ss 135 (reckless trading) and 136 (duty in relation to obligations) of the Companies Act 1993.
[17] Mr Ding did not file any documents in opposition to the application for summary judgment or a statement of defence to Ms Ji’s statement of claim. The application was heard with no appearance by or on behalf of Mr Ding.
[18] Associate Judge Brittain found that Mr Ding had breached ss 135 and 136 of the Companies Act 1993 and entered judgment for Ms Ji under s 301 of that Act.
[19] On 12 October 2023, Ms Ji issued a bankruptcy notice for the judgment debt against Mr Ding. On 20 November 2023, Ms Ji effected substituted service of the bankruptcy notice on Mr Ding pursuant to an order of this Court.
[20] Mr Ding failed to comply with the bankruptcy notice within 10 working days from the date of service of the notice, being 4 December 2023.
[21] On 6 December 2023, Ms Ji applied for an order adjudicating Mr Ding bankrupt. On 19 December 2023, Ms Ji effected substituted service of the creditor’s application documents on Mr Ding pursuant to orders of this Court.
[22] On 14 February 2024, Mr Ding filed a notice of opposition and affidavit in support of his opposition.
Legal principles
Insolvency Act 2006
[23] The criteria for when a creditor may apply for the debtors’ adjudication are set out in s 13 of the Act:
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.
[24] Under s 17, a debtor commits an act of bankruptcy (as required under s 13(b)) if a creditor has obtained a final judgment or final order against the debtor for any amount, the execution of which has not been halted by a court, and the debtor, having been served with a bankruptcy notice, has not complied with the requirements of the notice or otherwise satisfied the Court that he or she has a cross-claim against the creditor within the required timeframe.
[25] Section 36 provides that the Court may, at its discretion, adjudicate the debtor bankrupt if the creditor has established the requirements set out in s 13. Once the formal requirements for adjudication (set out in s 13) are met, the judgment creditor is prima facie entitled to an adjudication order.4 This Court has said:5
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.
[26] The Court may, in its discretion, refuse adjudication for the reasons set out in s 37 of the Act. Section 37 provides:
(a)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
4 See Baker v Westpac Banking Corp CA212/92, 13 July 1993 at 3, 4 and 5–6; and Re Epirosa HC Wellington B498/91, 6 March 1992 at 5 and 8.
5 Kiwibank Ltd v Hutchin [2015] NZHC 1518 at [26].
(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.
[27] The Court of Appeal has observed that s 37 confers a “wide discretion” informed by various factors.6
[28]Relevant factors include:7
(a)the interests of those directly concerned including the petitioner, other creditors and the debtor;
(b)the wider public interest, including the public interest in exposing and controlling the insolvent debtor;
(c)whether adjudication is conducive or detrimental to commercial morality;
(d)the potential for further investigation procedures to be made available to creditors by the bankruptcy.
[29] The Court must balance the various considerations and determine whether in the end the debtor has succeeded in showing that an order ought not to be made.8
Does the Court have jurisdiction to adjudicate Mr Ding bankrupt?
[30] Mr Ding does not dispute that the formal criteria for adjudication set out in s 13 are met. That is, he does not dispute that he has committed acts of bankruptcy, or that the Ji judgment debt and $391,730.11 of the LITL judgment debt are still owing. Rather, he asks the Court to exercise its discretion to refuse to make an order under s 37 of the Act.
6 Body Corporate 68792 v Memelink [2018] NZCA 509, [2019] NZAR 127 at [15].
7 Re Fontein, ex parte Bank of New Zealand HC Auckland CIV-2009-404-7769, 22 November 2010 at [8], citing Eide v Colonial Mutual Life Assurance Society Ltd [1998] 3 NZLR 632 (HC) at 635.
8 Re Fontein, ex parte Bank of New Zealand, above n 7, at [8], citing Eide v Colonial Mutual Life Assurance Society Ltd, above n7, and McHardy v Wilkins & Davies Marinas Ltd (in rec) CA54/93, 7 April 1993) at 4.
Should the Court refuse to make an adjudication order?
[31] Mr Ding asks the Court to refrain from adjudicating him bankrupt for several reasons. The overarching theme is that he or associated companies can pay the judgment debts over the next three years through various transactions and/or possible litigation outcomes. Further, Mr Ding contends that it is unreasonable of the judgment creditors to reject his repayment proposals and to invoke the bankruptcy procedure.
[32] Mr Ding sets out the facts supporting this defence in five affidavits filed in the LITL proceeding, and one affidavit filed in the Ji proceeding.
Can pay the judgment debts over time
[33] First, Mr Ding relies on potential deposit refunds and/or potential sale proceeds of properties in a new development in Henderson. I understand from Mr Ding that two companies of which he is a director – Etretat Holding Ltd and Cornerstone Corporation 99 Ltd – entered into agreements to purchase several new land sections off the plans from a developer, which they would then sell. Mr Ding elaborated through oral submissions that the companies have cancelled some of the purchase contracts and are owed around $350,000 of deposits. However, the developer is presently unwilling or unable to return the deposits. Etretat Holding Ltd and Cornerstone Corporation 99 Ltd were placed into liquidation on 12 April 2024. Mr Ding says that he has asked the Official Assignee to terminate the liquidations.
[34] Second, Mr Ding says that his family trust is negotiating with the previous owners of a Parnell property to return deposits to the trust of around $5 million. He states that the family trust will initiate legal proceedings when Mr Ding engages a solicitor.9
[35] Third, Mr Ding states that one or more associated companies have the right to claim losses of more than $400,000 related to another property transaction. The
9 Fourth affidavit of Zhaohai Ding in Support of Application to Set Aside Bankruptcy Notice, dated 16 November 2023 at [8].
specifics of the transaction and the losses are unclear. Mr Ding’s evidence is that legal proceedings will be necessary to recover these losses.10
[36] Fourth, Mr Ding claims that one of the holding companies in his group of companies, Grandstone Asset Holding Ltd, has generated tax losses of between
$10 million and $15 million, which can be offset against the group’s profit. He states that these tax losses are an asset.
[37] Fifth, Mr Ding says that he is talking with potential investors overseas to obtain funds to support his ongoing business operations.
[38] Sixth, Mr Ding proposed that he (by which I presume he means his associated companies) could issue shares to the judgment creditors in lieu of paying the judgment debts.
[39] I am not persuaded to refuse to adjudicate Mr Ding because of these proposed means of generating money to pay the judgment debts.
[40] For one, Mr Ding is personally liable for the judgment debts, whereas he is not directly the party who stands to benefit from these proposed steps. Rather, it is his family trust or companies with which he is associated, some of which are in liquidation, who will potentially recover the funds. The Court has only the sketchiest information about the companies in question and Mr Ding’s relationship to them. There is no guarantee that any recovery by these companies or his family trust will be advanced to Mr Ding to meet his personal debts.
[41] Furthermore, the Court cannot be confident that any of the sources of funds described will eventuate. The Court does not have any information to give it confidence that the Henderson purchaser deposits will be repaid to the purchaser companies who are now in liquidation. In any event, any recoveries the liquidators of those companies make will first be paid to creditors who have filed claims in the liquidations. So too the proceeds of the sale of any assets owned by those companies.
10 Fifth affidavit of Zhaohai Ding Supporting Opposing Creditor’s Application for Adjudication Order, dated 31 January 2024, at [8].
The other potential sources of funds described by Mr Ding are even more vague and uncertain.
[42] Additionally, Mr Ding does not seem to have made any tangible progress towards recovering the funds he describes since he swore his affidavits in the LITL proceeding between May and November 2023. For ease, I set out the description of his evidence in the judgment on his application to set aside the bankruptcy notice:
[14] Mr Ding filed his application to set aside the bankruptcy notice before the Property was sold by LITL on 27 June 2023. His grounds for setting aside the bankruptcy notice were that by the date of the hearing of an application for his adjudication he would be able to pay any shortfall owing under the Judgment; and therefore, it would be just and equitable for the bankruptcy notice to be set aside. In his affidavit in support sworn on 10 May 2023, he describes a development he is involved with in Henderson and his ability to cancel agreements and obtain a refund of deposits he has paid if insufficient progress is made towards titles being issued.
[15] In his second affidavit sworn on 14 June 2023, Mr Ding deposes that he has commenced selling four properties at Henderson and anticipates being able to pay the shortfall on settlement of those sales two to three months later when code compliance certificates issue. Alternatively, by cancelling some of the agreements and obtaining a refund of the deposits he has paid.
[16] In his third affidavit sworn on 16 August 2023, Mr Ding deposes that he expects to complete development of five of the Henderson properties by the end of the year, that the total profit from the Henderson properties will be over $1 million, and that he has received an unconditional offer for one property.
[17] In his fourth affidavit sworn on 16 November 2023, Mr Ding asks the Court to adjourn the application for two months to give him time to sell the Henderson properties or obtain a refund of deposits for that development, or for his family trust to obtain a refund of part of a deposit it paid for a property in Parnell.
[18] In submissions, Mr Ding confirmed that he asks for the bankruptcy notice to be set aside to give him time to sell the Henderson properties and/or to obtain a refund of deposits he has paid for those properties and/or to claim a refund of the deposit his family trust has paid for the Parnell property.
[43] In his fifth affidavit, sworn on 31 January 2024, Mr Ding restated that he was “committed to repaying the judgment debt through the sale of company assets, fundraising efforts, and reclaiming deposits, as explicitly stated in the second, third, and fourth affidavits”. He stated that he merely required additional time for repayment and requested a two-month extension. That two-month period has expired, and no payment has been made.
[44] In summary, the plans Mr Ding describes are vague and uncertain and do not provide any assurance that he will be able to pay the judgment debts within a reasonable time. His evidence only confirms that he is presently unable to pay his debts as they fall due, and he has no certain way of remedying that position in the short term.
Repayment plans
[45] Mr Ding claims that LITL has failed to act reasonably and negotiate with him. He refers in his June 2023 affidavit to open settlement proposals he made to LITL which would see him make an initial payment of $70,000 funded by his wife’s family and staggered repayments over time. He also mentions the same settlement proposals in his fourth and fifth affidavits.
[46] At the hearing, Mr Ding provided the Court with copies of written settlement proposals he had put to Ms Ji and LITL on 10 and 14 May 2024 respectively. He proposed to pay $30,000 to $50,000 up front to LITL or Ms Ji (or shared between them) and to pay half of the debt owed to LITL in three annual instalments over three financial years (15 per cent by the end of financial year 2025, 30 per cent by the end of financial year 2026 and 55 per cent by the end of financial year 2027). He proposed to pay Ms Ji’s full judgment debt over three financial years in the same proportions.
[47] LITL rejected the proposal including because the sum proposed was insufficient and the proposal was not supported by a sworn affidavit of Mr Ding’s assets and liabilities as previously requested. Ms Ji also rejected the proposal.
[48] I do not accept that it is unreasonable of the judgment creditors to reject Mr Ding’s repayment plans; or that their rejection of his plans is a reason for the Court to refuse to adjudicate Mr Ding bankrupt.
[49] Again, Mr Ding’s repayment proposals, involving repayment over years, confirm that he is presently unable to pay his debts as they fall due.
[50] It is not unreasonable of LITL or Ms Ji to take steps to recover the sums owed to them by Mr Ding through the bankruptcy process. The LITL judgment dates to
14 March 2023. LITL has been without the funds it is entitled to pursuant to the judgment for over a year. Nor is it unreasonable of LITL to reject a payment plan that involves it being paid only half of the debt over a three-year period.
[51] LITL served the bankruptcy notice on Mr Ding on 26 April 2023. His application to set aside the bankruptcy notice was dismissed on 20 November 2023. By that stage the Mt Eden property had been sold and the debt reduced to $391,730.11. Mr Ding has had a reasonable opportunity to pay the debt and avoid bankruptcy.
[52] It is around seven months since the Ji judgment was delivered on 29 September 2023. Ms Ji served a bankruptcy notice on Mr Ding on 20 November 2023. Mr Ding has not made any payments of any part of the judgment debt owed to Ms Ji.
[53] Again, Ms Ji is entitled to the fruits of the Court award, and it is not wrong of her to take steps to recover it. Nor is it unreasonable of her to reject a payment plan that extends over three financial years.
Issues with judgments
[54] Finally, Mr Ding alluded to issues he had with the judgments entered against him underpinning the bankruptcy applications. He suggested that it was wrong of LITL to pursue him under his guarantee of Annecy’s borrowings, rather than Annecy itself. He also suggested that LITL sold the Mt Eden property when the market was low and paid too much commission.
[55] These points should have been raised by Mr Ding in opposition to LITL’s application for summary judgment. That judgment has not been appealed, and the time for an appeal has expired. The Court cannot revisit the basis for this judgment in this bankruptcy proceeding.
[56] Similarly, Mr Ding sought to cast doubt on the finding that he had breached his director’s duties in the summary judgment entered against him in favour of Ms Ji. Again, Mr Ding should have engaged with Ms Ji’s claim and raised these points in opposition at that time. Judgment has been entered against him on Ms Ji’s claim. That
judgment has not been appealed, and the time for an appeal has expired. I am unable to revisit the findings of this judgment in the application before me.
[57] Overall, I am not persuaded by any of the matters raised by Mr Ding that I should exercise my jurisdiction to refuse an adjudication order.
Other considerations
[58] Before making the following points, I note that Mr Ding impressed me as someone who appeared to genuinely want to pay the judgment debts. He was also frank about why he could not do so at present, due to the difficult financial position he and his associated companies are in.
[59] Having said that, this is not a situation where the judgment debtor is commercially blameless. In both cases, Mr Ding allowed companies in his control to enter into arrangements that they were unable to perform. This raises questions about Mr Ding’s conduct as a company director. These concerns are heightened by Mr Ding’s evidence that he is currently involved in defending eight different company liquidation proceedings involving approximately $10 million of debt in this Court. There is a public interest, in my view, in the Court taking steps to protect the commercial community from companies run by Mr Ding, seemingly without due regard for the interests of creditors.
[60] Moreover, I am satisfied that this is a situation where the Official Assignee ought to investigate the judgment debtor’s situation further. Mr Ding says that he has no personal assets, but he has provided scant evidence about his personal position. He seems to have a family trust, and to be involved in various companies. Adjudication will allow the Official Assignee to appropriately investigate his asset position and potentially recover funds for the judgment creditors.
[61] Finally, I acknowledge that Mr Ding has mentioned that he supports two children. Mr Ding has not given evidence as to his current means of deriving an income (other than that he runs a business), or his household budget. Adjudication will prevent Mr Ding from running a business but will not prevent him from obtaining employment to provide for himself and his children.
Result
[62]I order:
(a)Zhaohai Ding is adjudicated bankrupt.
(b)Wenjun Ji is awarded costs on a 2B basis and reasonable disbursements.
[63]The above orders are timed at 3.00 pm.
[64] Loan Investment Trustees Ltd seeks indemnity costs under the terms of the guarantee. They are directed to file a memorandum setting out the basis for this claim and verifying their solicitor-client costs within five working days.
Associate Judge Gardiner
Solicitors:
Connell & Connell Lawyers, Auckland G Kohler KC, Auckland
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