Marlow

[2012] NZHC 1486

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

CIV-2012-441-376 [2012] NZHC 1486

UNDER  the Insolvency Act 2006

IN THE MATTER OF     the bankruptcy of STEVEN ALBERT MARLOW

AND

IN THE MATTER OF     an application for a vesting order pursuant to s 119

BETWEEN  STEVEN ALBERT MARLOW AND SHANNON NICOL MARLOW Applicants

Judgment:      29 June 2012

RE-ISSUED JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

This judgment of Associate Judge Gendall was delivered by the Registrar on 29 June

2012 at 11.00 am under r 11.5 of the High Court Rules.

Solicitors:           Willis Toomey Robinson, Lawyers, Private Bag 6018, Napier

SA MARLOW AND SN MARLOW HC NAP CIV-2012-441-376 [29 June 2012]

[1]      Before the Court is a Without Notice Application by the applicants Steven

Albert Marlow (Mr Marlow) and Shannon Nicol Marlow (Mrs Marlow) for:

(a)      Leave   to   commence   this   proceeding   by   way   of   originating application.

(b)      An order dispensing with service of the application.

(c)      An order vesting the interest of Mr Marlow who is now bankrupt in the property at 21 Watts Street, Waipawa more particularly described in  Identifier  HBH2/1462  in  Mrs  Marlow  (to  the  intent  that  Mrs Marlow be the sole registered proprietor).

[2]      Mr Marlow was adjudicated bankrupt on 3 May 2011.  Mr Marlow and his wife Mrs Marlow (the applicants) are the registered proprietors of the property at 21

Watts Street, Waipawa (the property).  Evidence has been provided to the Court to indicate that they have a negative equity in the property as at present the amount secured  under  their  TSB  Bank  Limited  first  mortgage  over  the  property  is

$239,784.00 and its value (reflected by a signed agreement to sell the property) is only $210,000.00.

[3]      In this regard, TSB Bank Limited, the first mortgagee has consented to this recent sale of the property for $210,000.00 and has agreed to facilitate the sale by providing a release of its mortgage, notwithstanding that there will be a considerable shortfall given the amount secured by the mortgage as noted above.

[4]      As I have noted above, Mr Marlow was adjudicated bankrupt on 3 May 2011. On 12 May 2011 the Official Assignee issued a disclaimer under s 117 Insolvency Act 2006 disclaiming the interest of Mr Marlow in the property.  The effect of the disclaimer was that the rights, interests and liabilities of the Official Assignee and Mr Marlow the bankrupt in relation to the property came to an end from that date – s 118

Insolvency Act 2006.  Thus, it followed that the Official Assignee would not take

steps to realise Mr Marlow’s share in the property.

[5]      Once a bankrupt’s interest and that of the Official Assignee in a property is terminated by disclaimer, as has occurred here, the property reverts to the Crown as the owner of any land to which no subject can show title.  However, the Court retains the power to  make a vesting order with  respect  to  land reverted  to  the Crown pursuant to a disclaimer – Re:   Van Enckevort (in bankruptcy) (1990) (NZ Conv. C.190.59.

[6]      As to this, s 119 Insolvency Act 2006 goes on to provide:

119       Position of person who suffers loss as result of disclaimer

(1)        A person suffering loss or damage as a result of disclaimer by the Assignee may –

(a)        claim as a creditor in the bankruptcy for the amount of the loss or damage, taking account of the effect of an order made by the Court under paragraph (b);

(b)       apply to the Court for an order that the disclaimed property be delivered to, or vested in, that person.

(2)       The bankrupt may also apply for an order that the disclaimed property be delivered to, or vested in, the bankrupt.

(3)       The Court may make an order under subsection (1)(b) or (2) if it is satisfied that it is fair that the property should be delivered to, or vested in, the applicant.

[7]      Under the present circumstances, the applicants here seek an order that the property be vested in Mrs Marlow.  They note that she is personally liable under the TSB Bank  Limited  mortgage and  wishes  to  quit the property by sale  with  her husband Mr Marlow’s consent.  Both Mr Marlow and Mrs Marlow, as I understand it, are presently resident in Australia.   The position of the TSB Bank Limited as mortgagee is unaffected by this application and is of course protected under its registered first mortgage over the property.

[8]      Attached to the material placed before the Court is a signed Agreement for Sale and Purchase of the property from Mrs Marlow and Mr Marlow to independent third party purchasers at a price of $210,000.00.  I am told that settlement of the sale

under this Agreement for Sale and Purchase is scheduled for 12 July 2012, thus some urgency is required with the present application.

[9]     The position here appears to be somewhat complicated however as, notwithstanding  that  the  Official  Assignee  has  disclaimed  any  interest  in  the property,  for property registration purposes  LINZ has taken what the applicants describe as a restrictive approach which appears to preclude resolution of this matter on a practical conveyancing basis.   LINZ in their “Land Wrap Article dated September 2007” a copy of which is before the Court has stated:

Bankrupt Client

A bankrupt’s property vests in the Official Assignee (OA) at the point of adjudication.  That vesting for land is effected by registration of a Transmission to the OA.

A transfer cannot be made from the bankrupt directly to a third party purchaser, even if that transfer purports to be from the bankrupt but signed by the OA.  There must be a Transmission to the OA first.

Once title is in the name of the OA then an Authority and Instruction (A&I) may be used by the OA to effect a transfer to a third party.  The Public Corporate A&I form should be used by the OA as the OA is acting as part of a government department.

[10]     Counsel for the applicant in a Memorandum filed in this Court dated 27 June

2012 has identified what he considers to be a doctrinal problem in this whole matter. This is as follows:

The doctrinal problem is that:

(a)       The adjudication operates to sever the joint tenancy and vest a half share in the OA.

(b)       The Disclaimer (by virtue of s 118) then operates to terminate the interest of both the bankrupt and the OA in the property, rendering the [valueless] half share bona vacantia.

(c)       The bankrupt (as far as LINZ is concerned), having no interest, cannot deal with the property even though he is shown as registered proprietor.  LINZ has refused to accept that a Transmission is possible to the co-owner or that the bankrupt could execute a transfer as bare trustee.

(d)       The operation of a joint tenancy in land appears to be regulated by s 61

Land Transfer Act 1952 which deals only with devolution by survivorship.

[11]     As a result, counsel suggests that there is no practical conveyancing solution available here (some two weeks before settlement date for the property sale is due) to satisfy the requirements of LINZ, and hence the need for the current application.

[12]     In this application as I have noted, both the bankrupt Mr Marlow and Mrs Marlow seek an order vesting Mr Marlow’s interest in the property in Mrs Marlow. This is simply to allow the existing sale, which has been agreed to by all parties, to proceed.

[13]     In the present case, in terms of s 119 Insolvency Act 2006 I am satisfied that under the circumstances here Mrs Marlow is a person who could suffer damage through the disclaimer of the property by the Official Assignee.  This is on the basis that it might in some way upset the previously negotiated and agreed sale of the property to the third party.

[14]     It is noted too that the test under s 119(3) Insolvency Act 2006 is whether the Court is satisfied that it is fair that the disclaimed property should be vested in the applicant.

[15]     In my view, it is clear in this case that a vesting order would be fair.   It is significant as I see it that all parties including the Crown and the mortgagee have consented to both the vesting and the sale of the property to the third parties.  The application is to succeed and orders are to follow.

Orders

[16]     I now order:

(a)       That  this  proceeding  can  be  commenced  by  way  of  originating application.

(b)       That service of this proceeding on any other party is dispensed with.

(c)       That the interest of Steven Albert Marlow in the property at 21 Watts

Street, Waipawa more particularly described in Identifier HBH2/1462

be vested in Shannon Nicol Marlow (to the intent that Shannon Nicol

Marlow be the sole registered proprietor of the property).

[17]     Leave  is  reserved  to  counsel  to  apply  for  any  necessary  consequential directions.

‘Associate Judge D.I. Gendall’