Mawhinney v Official Assignee
[2016] NZHC 2487
•18 October 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2016-404-848 [2016] NZHC 2487
BETWEEN PETER WILLIAM MAWHINNEY
Plaintiff
AND
OFFICIAL ASSIGNEE Defendant
Hearing: 19 July 2016 Appearances:
Plaintiff in person
G A D Neil & E Meade for DefendantJudgment:
18 October 2016
JUDGMENT OF PAUL DAVISON J
This judgment was delivered by me on 18 October 2016 at 4pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Meredith Connell, Auckland
MAWHINNEY v OFFICIAL ASSIGNEE [2016] NZHC 2487 [18 October 2016]
Introduction
[1] The plaintiff has filed proceedings in which he challenges and seeks judicial review of the defendant’s exercise of jurisdiction under the Insolvency Act 2006 and the Companies Act 1993. Pending determination of those proceedings, he applies for an order for interim relief preventing the defendant, the Official Assignee (the Assignee), from taking any further action until the issues in the statement of claim and his application for legal aid have been determined.
Background
[2] The plaintiff is a bankrupt.1 He was the sole director and a shareholder of Forest Trustee Ltd (in liquidation) (FTL),2 and a trustee of the Waikato Forest Land Trust (WFLT) and other trusts.
[3] The Assignee is responsible for both the liquidation of FTL and the administration of the plaintiff’s bankrupt estate. Despite a number of formal notices issued and sent by the Assignee to the plaintiff, the plaintiff has failed to complete and provide a statement of affairs in relation to his bankruptcy and in relation to FTL. The Assignee wrote to the plaintiff multiple times, requesting that these statements be completed. The plaintiff failed to do so.
[4] The Assignee received three creditors’ claims in the bankrupt estate and five creditors’ claims in the liquidation, all arising from a forestry block at the northern end of Waitakere. The creditors include the Auckland Council and Nags Head Horse Hotel Ltd. The debt owed by FTL to the Auckland Council relates to unpaid rates and penalties in excess of $100,000 and the debt owed by the plaintiff to the Auckland Council relates to a costs award in excess of $500,000 made by the Environment Court on 14 June 2010. The debt owed by the plaintiff to Nags Head relates to four costs awards made in various legal proceedings. Other creditors’ claims arise from allegations of improper dealings by the plaintiff when acting for
the WFLT in the sale of land.
1 The plaintiff was adjudicated bankrupt on 24 February 2015 on the petition of the Auckland
Council.
2 FTL was placed into liquidation on 13 March 2015, and the Assignee was appointed liquidator.
[5] The information that has been gathered by the Assignee was obtained in the course of the administration of the plaintiff’s first bankruptcy and as a result of the Assignee’s own informal enquiries.
[6] The Assignee is concerned that there is property that may be realised for the benefit of creditors. The Assignee also has concerns that the plaintiff is engaging in business without the consent of the Assignee, under the guise of acting in the role of a trustee, in contravention of s 149 of the Insolvency Act.
[7] On 5 April 2016, the Deputy Assignee wrote to the plaintiff requesting that he attend a creditors’ meeting on 28 April 2016 so that he could be “questioned on oath in regards to [his] property, conduct or dealings”.3 The Deputy Assignee also specified the class of documents that the plaintiff was required to make available (including deeds of trust of which he was a settlor, trustee or discretionary beneficiary; and deeds of appointment and/or removal of trustees and/or
beneficiaries, or other deeds varying the trust or any trust of which he was a settlor, trustee or discretionary beneficiary).
[8] In a separate letter, also dated 5 April 2016, the Deputy Assignee wrote to the plaintiff requesting that he appear before the Assignee on 28 April 2016 to be “examined on oath or affirmation on matters relating to [FTL]”.4 He was also requested to deliver to the examination “all books, records or documents of [FTL]”, including but not limited to documentation regarding FTL’s trusteeship of WFLT and the transfer of title of the property from FTL to the plaintiff and WFLT.
[9] In both letters, the plaintiff was advised of his right to consult and instruct a lawyer, and to have a lawyer present at the liquidator’s examination and the creditors’ meeting.
[10] Then, as the Principal Insolvency Officer details in her affidavit of 16 June
2016:
3 Insolvency Act 2006, s 87.
4 Companies Act 1993, s 51.
52 On 22 April 2016, the Assignee received a request from the Bankrupt by facsimile dated 21 April 2016 for the creditors’ meeting and examination to be rescheduled in light of his application for legal aid…
53 The next working day, on 26 April 2016 at 12.44 pm the Assignee sent a letter to the Bankrupt via email advising:
(a) His request had been granted and the creditors’ meeting and
examination was rescheduled to 9 May 2016.
(b) If more time was required for the legal aid application to be processed, the Assignee was open to further rescheduling the meeting and examination if documents relating to the legal aid application was provided.
54 On 26 April 2016 at 2.28 pm, the present proceeding was served on the
Assignee via facsimile.
55 To date, the Assignee has not been provided with any documents by the
Bankrupt regarding any application for legal aid.
[11] On 26 April 2016, the plaintiff filed an application for review of the
Assignee’s requests saying:5
The defendant does not have the jurisdiction to question or examine the plaintiff in respect of property held in trust, either prior to or during bankruptcy. Such property does not vest in the Official Assignee by the operation of s 104 Insolvency Act 2006…
The provision of such materials by the plaintiff would be contrary to [his]
fiduciary duty.
The defendant does not have the jurisdiction to examine the plaintiff as an former shareholder or director in respect of property held in trust by Forest Trustee Limited... Property held in trust does not comprise the assets of the company. Any examination of the plaintiff relating to assets held in trust by Forest Trustee Limited is ultra vires the defendant’s functions, duties and powers.
[12] The plaintiff also seeks an order prohibiting the Assignee from taking any further action until the plaintiff’s application for legal aid has been determined, because:
The defendant admits in both of its notices to the effect that the plaintiff has a right to instruct a lawyer for both the creditors meeting and the examination. Under s265 of the Companies Act 1993, the plaintiff is entitled to be represented by a barrister or solicitor during any examination under s261. Because the plaintiff is bankrupt, it has no money to pay the barrister
5 The plaintiff filed an amended interlocutory application before me at the hearing on 18 July
2016.
or solicitor, and is reliant upon legal aid. It is in the interests of justice that the plaintiff is able to instruct a barrister or solicitor on the issues.
[13] On 18 July 2016, the plaintiff applied for an interlocutory application for interim orders that:
(a) the defendant ought not to take any further action that is or would be consequential on the exercise of the statutory power:
(b) the defendant ought not to institute or continue with any proceedings, civil or criminal, in connection with any matter to which the application for review relates.
[14] I now deal with the plaintiff’s interlocutory application.
Approach to making interim orders
[15] Section 8 of the Judicature Amendment Act 1972 provides that the Court may make interim orders “if in its opinion it is necessary to do so for the purpose of preserving the position of the plaintiff.”
[16] The Court of Appeal in Carlton and United Breweries Ltd v Minister of
Customs, set out the approach to s 8:6
In general the Court must be satisfied that the order sought is necessary to preserve the position of the plaintiff for interim relief – which must mean reasonably necessary. If that condition is satisfied, as the Chief Justice was entitled to find that it was here, the court has a wide discretion to consider all the circumstances of the case, including the apparent strength or weakness of the claim of the plaintiff for review, and all the repercussions, public or private, of granting interim relief.
[17] In ENZA Ltd v Apple and Pear Export Permits Committee, this Court added:7
Amongst the circumstances of a case that the Court often considers in respect of s 8 are the strengths and weaknesses of the plaintiff’s case, the competing advantages and detriments to the parties, the status quo, the balance of convenience, public repercussions as well as private, and the overall justice position.
6 Carlton and United Breweries Ltd v Minister of Customs [1986] 1 NZLR 423 (HC) at 432.
7 ENZA Ltd v Apple and Pear Export Permits Committee HC Wellington CP266/00, 18 December
2000 at [17].
Are the orders sought by the plaintiff necessary to preserve his position?
[18] The plaintiff is seeking interim orders to protect himself from having to disclose and deliver certain information to the Assignee which he believes to be confidential and irrelevant to the administration of his bankrupt estate and FTL’s insolvency.
[19] He fears that if he fails to produce the requested documents and/or attend the liquidator’s examination and creditors’ meeting to answer questions, because of his duty to maintain confidentiality, he risks committing offences under s 433(1)(a) of the Insolvency Act and s 261(6A) of the Companies Act, and may be liable to a fine or imprisonment.
[20] However, in my view, the interim orders being sought by the plaintiff go much further than is necessary to protect any legitimate and justifiable obligation to protect and maintain confidentiality. The best outcome the plaintiff could achieve in his substantive claim is a finding that some (but not all) of the information sought from him by the Assignee is protected by confidentiality. Yet the outcome which he is seeking here, would enable him to decline to participate and engage in the Assignee’s information gathering process altogether, and not provide any documents or attend the creditors’ meeting or the liquidator’s examination, or answer any questions. The purpose of s 8 is to preserve the position of the plaintiff, not improve it.
[21] If the plaintiff is correct and he has the right and obligation to remain silent in order to protect the confidentiality of certain information, this obligation can be met by the plaintiff attending the creditors’ meeting and the liquidator’s examination and declining to give information which he believes to be confidential. It will then be up to the Assignee to take steps as to enforcement, though it is unlikely that any steps will be taken if there is a genuine and justifiable basis for objection. As regards his bankruptcy, the Assignee may summon the plaintiff to appear before the Assignee, or a District Court Judge to be examined on oath in relation to his “property, conduct, or dealings”, and produce and surrender to the Assignee or District Court Judge before whom he appears any document in his “possession or control that relates to
the bankrupt’s property, conduct, or dealings”.8 A similar position arises in relation to the liquidator’s examination, whereby, if the plaintiff refuses to engage in the information gathering process, the Assignee can seek an order under s 266(1) of the Companies Act requiring him to comply with a requirement of the liquidator or make an application to the High Court for an examination under oath pursuant to s 266(2). In either case, the Assignee will generally be permitted to examine the plaintiff if the information sought is “a genuine investigate step” to enable the Assignee to reach an
informed decision on what to do.9
[22] Provided the plaintiff fully complies with the requirements of the Insolvency Act and Companies Act, and responds fully and honestly to any questions properly put to him and produces the documents requested, and does not knowingly and deliberately otherwise fail to comply without good and proper reason, he will not be liable for committing any offences under those Acts.
[23] The plaintiff also says he has made an application for legal aid which is yet to be determined. He says that as the notices requiring his attendance at the creditors’ meeting and liquidator’s examination, both advise him of his right to instruct a lawyer and have a lawyer present, he ought not to be obliged to attend any meeting at which he is required to answer any questions before his legal aid application is determined. As regards the plaintiff’s submission on legal aid, I note that he has not provided any evidence of having applied for legal aid. In any event, I accept Mr Neil’s submission that the plaintiff is unlikely to qualify for legal aid because the
liquidator’s examination and the creditors’ meeting are not a civil “proceeding”.10
[24] For the reasons set out above, I am satisfied the position the plaintiff is seeking to protect by way of interim orders does not legitimately exist, either in
relation to his obligation to produce documents and answer questions relating to his
8 Insolvency Act, s 165.
9 In the case of a liquidator, see ANZ National Bank Ltd v Sheahan [2012] NZHC 3037, [2013] 1
NZLR 674 at [55].
10 Legal Services Act 2011, s 10. See Gray v Legal Services Board (1998) 11 PRNZ 687 (HC) at
694 where it was held that the public examination of a bankrupt is not a “proceeding” and therefore not within the definition of “civil proceedings” because it is an inquisitorial process, an inquiry, an information gathering procedure, which provides to the Official Assignee, and importantly the Court, information concerning the affairs of the bankrupt”. See also Official Assignee v Scott HC Hamilton CIV-2011-470-842, 3 November 2011.
bankruptcy and the liquidation of FTL, or as regards his wish to await determination of his application for legal aid before he attends the meeting and/or examination.
[25] Accordingly, I have decided that the orders sought are not necessary to
protect the plaintiff’s position in this case.
Should the Court make the interim orders?
[26] However, for completeness, I turn to explain why the Court would not in any event grant the interim orders sought.
Strength of case
[27] As pleaded, the grounds for review are:
(a) the Assignee has no jurisdiction to question the plaintiff in respect of the property he held on trust;
(b) the Assignee is not entitled to require the production of trust
documents at the creditors’ meeting;
(c) the Assignee has no jurisdiction to examine the plaintiff as a former shareholder or director of FTL in respect of property held in trust by FTL.
[28] I consider each of these grounds in turn.
[29] Dealing with the first ground, s 87(2) of the Insolvency Act provides:
(2) The Assignee, the chairperson of a creditors’ meeting, a creditor, or a representative of a creditor may question the bankrupt as to his or her property, conduct, or dealings. The chairperson of the meeting must allow only questions that relate to the bankrupt’s property, conduct, or dealings. [emphasis added]
[30] Bearing in mind the terms “conduct” and “dealing” are broadly construed,11 in my view, the Assignee is plainly entitled to gather information about the property held by the plaintiff in trust. The purpose of the Assignee’s “searching inquisition” is not to affect the property held in trust12 but to ensure that the Assignee is as fully informed as possible about the plaintiff’s property, conduct and dealings so as to enable the Assignee to carry out any of the functions which arise under the Act. This point has been succinctly and appropriately put by Judge Abbott in the District Court:13
It must also be remembered that the function of the Official Assignee in administering a bankrupt’s estate is an important function. It is the duty of the Official Assignee to ensure that all the bankrupt’s property is brought under his control for the general benefit of the bankrupt’s creditors… It follows that the Official Assignee must be at liberty to investigate with appropriate diligence and thoroughness the affairs of the bankrupt and in my view that would extend to transactions between the bankrupt and family trusts which are significantly under his control.
[31] The same point is made in respect of the third ground of review. Here, the plaintiff says that the Assignee has no jurisdiction to require him, as a director or former director and shareholder of FTL, to be examined on oath in respect of property held by FTL in trust. However, s 261(2) of the Companies Act provides that a liquidator may require a director or former director or a shareholder of the company to do any of the things specified in subs (3), including being examined on oath or affirmation “on any matter relating to the business, accounts, or affairs of the company”. The term “affairs” is not defined in the Act but, again, it has been seen as requiring a broad interpretation so as to enable the liquidator, who is a stranger to the affairs of the company, to obtain the information necessary for the proper conduct of
the winding up.14 I also have regard to the decision of Irvine v Australian Share
Trading Underwriting Ltd (in liq), wherein the Victorian Supreme Court stated that:15
11 See for example, Re Havenleigh Global Services Ltd, ex parte Henderson [2014] NZHC 499.
12 Noting s 104 of the Insolvency Act, which provides that “property held by a bankrupt in trust for another person does not vest in the Assignee”.
13 Re Baird DC New Plymouth MA102/93, 28 May 1993 at 12.
14 See Re Rolls Razor Ltd (No 2) [1970] Ch 576 cited in Paul Heath and Michael Whale (eds)
Heath and Whale on Insolvency (online looseleaf ed, LexisNexis) at [22.14].
15 Irvine v Australian Share Trading Underwriting Ltd (in liq) (1996) 22 ACSR 765 (VSC) at 783 cited in Paul Heath and Michael Whale (eds) Heath and Whale on Insolvency (online looseleaf ed, LexisNexis) at [46.8].
… in a case where a company has acted as trustee, the liquidator’s duty will include in an appropriate case, such matters as the identification of the trust’s constituent document, the ascertainment of the nature and value of the trust assets and trust liabilities, the investigation of the financial relationship between the trustee and the trust, the identification of the trust’s creditors and beneficiaries and any matters necessary to determine appropriate action to be taken in relation to the trust on behalf of the trustee including action to preserve and protect assets or to wind up the trust where appropriate and there is express power to do so.
[32] The plaintiff complains that the production of documents relating to all trusts of which he is personally a “settlor, trustee or discretionary beneficiary” would be in breach of his fiduciary obligations. This argument is the second ground of review. I agree that confidentiality issues may very well arise in circumstances where the Assignee seeks information from the plaintiff about a trust of which he is a trustee. A trustee in bankruptcy remains trustee of the trust until new trustees are appointed under s 51 of the Trustee Act 1956. In other words, the Assignee does not step into the shoes of a bankrupt trustee so the rights and obligations of the bankrupt trustee
(including access to confidential information) do not extend to the Assignee.16
[33] However, it will be up to the bankrupt to establish to the satisfaction of the Assignee that he or she legitimately holds a position as trustee. The Assignee will either be satisfied as to the authenticity of any such claim or may take steps pursuant to s 165 of the Insolvency Act to instigate the process of requiring the bankrupt to appear before a District Court Judge to be examined on oath in relation to the bankrupt’s role. The Judge will then determine the validity of any objections raised by the bankrupt as to the provision of information or the production of documents.
[34] The plaintiff says he is a bankrupt trustee (and not a discretionary beneficiary) of WFLT, so his fiduciary obligations prevent him from disclosing confidential information to the Assignee. At face value, this submission appears to be correct. However, the Assignee contends that amongst the plaintiff’s debt, there is
a debt incurred as a trustee of WFLT, and the Assignee will seek to assume and
16 Compare the case of a corporate trustee in a liquidation. See Paul Heath and Michael Whale (eds) Heath and Whale on Insolvency (online looseleaf ed, LexisNexis) at [46.8] (footnote omitted): “no legal title in the business or assets will vest in the liquidator, but the corporate liquidator assumes control of the company for the purposes of distribution. The liquidator also has the power and duty, at least until a new trustee is appointed, to take control and administer the trust assets. The liquidator, acting on behalf of the company as trustee, is entitled to retain trust assets to meet liability properly incurred by the company as trustee.”
enforce the plaintiff ’s right to be indemnified from WFLT’s trust property. So even though WFLT’s property itself does not vest in the Assignee, the right to recover against the trust property for the amount of that debt does vest. In that context, the Assignee’s request and entitlement to information about WFLT is not prevented by the plaintiff’s obligations of confidence because the Assignee will assume the position of the plaintiff.
[35] There is no issue with confidentiality insofar as the Assignee seeks access to trust documents from the plaintiff in his capacity as a discretionary beneficiary. That is because, as Courtney J held in Erceg v Erceg, a discretionary beneficiary’s right to seek disclosure vests in the Assignee upon bankruptcy.17
Consequences of granting the orders sought
[36] I accept Mr Neil’s submission that the granting of the interim orders sought would serve to effectively approve and condone the plaintiff’s non-compliance and lack of cooperation, and this would be inconsistent with his duties set out in subpart
2 of part 3 of the Insolvency Act.
[37] The plaintiff himself is of course the person with the most complete knowledge of his own personal affairs, and of FTL’s affairs, and the Assignee should be entitled to require him to assist in the investigative process.
[38] The plaintiff appears to have initially ignored the Assignee’s notices and requests, and then frustrated the Assignee’s efforts to reschedule a workable date for the creditors’ meeting and liquidator’s examination by filing review proceedings, which has the appearance of being a delaying tactic.
Overall justice
[39] In my view, the considerations of overall justice weigh clearly in favour of the Assignee and against the making of the interim orders sought.
17 Erceg v Erceg [2015] NZHC 594.
[40] There is a public interest in the efficient and expeditious administration of the plaintiff’s bankrupt estate, and the liquidation of FTL. There are interests of creditors that need to be considered, and there is also the concern of the Assignee that despite being a bankrupt, the plaintiff may be engaging in business without the consent of the Assignee. The Assignee requires the requisite information in order to investigate and verify these allegations.
[41] The Assignee has a statutory duty and obligation to administer the plaintiff’s bankrupt estate and to complete the liquidation of FTL. The Assignee’s ability to progress this matter has been and is being delayed and frustrated by the plaintiff’s actions. If, in response to the notice requiring the production of records, or in the course of an examination of the plaintiff, any issue of confidentiality arises, the basis for the claim of confidentiality can then be explained and explored without the information itself necessarily being disclosed, and the Assignee can then make an informed assessment as to the cogency of the claimed basis of confidentiality. Whether or not the plaintiff’s claimed basis of confidentiality is accepted or challenged by the Assignee, will necessarily need to be considered if and when that situation arises. If there is a dispute as to whether or not those grounds are a valid and effective response, the matter can be determined by a District Court Judge or the High Court in accordance with the provisions of the Insolvency Act 2006 and Companies Act 1993.
[42] The existence of some categories of information that are or may be confidential, is not a reason for the plaintiff ’s non-compliance with the statutory provisions of the Insolvency Act and the Companies Act, pursuant to which he is required to produce documents and attend to answer questions regarding his property and conduct or be examined in connection with the business of FTL.
Conclusion
[43] I conclude that even if the plaintiff’s case was of greater strength and cogency than I have determined it to be, I would not make the interim orders sought, having regard to all the circumstances of the case and the repercussions, both private and public, of granting interim relief.
[44] In my view, the overall justice and balance of convenience, clearly lead me to
the conclusion that the application for interim orders should be declined, and I do so.
Paul Davison J
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