McKay v Smith

[2017] NZHC 292

IN THE HIGH COURT OF NEW ZEALAND

HAMILTON REGISTRY

CIV-2016-419-280

[2017] NZHC 292

IN THE MATTER

of the Insolvency Act 2006

AND IN THE MATTER

of the bankruptcy of GEOFFREY MARTIN SMITH

BETWEEN

A J MCKAY

Judgment Creditor

AND

G M SMITH

Judgment Debtor

Hearing:	23 February 2017
Appearances:	Mr J C Caird for Judgment Creditor Judgement Debtor/ Party appearing in person
Judgment:	28 February 2017

JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE

This judgment was delivered by me on

28.02.17 at 3.30 p.m., pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

A J MCKAY v G M SMITH [2017] NZHC 292 [28 February 2017]

[1]                 The judgment creditor applies for the adjudication and bankruptcy of the judgment debtor on the ground that the debtor owes the creditor the sum of

$595,775.60 and that the judgment debtor committed an act of bankruptcy and that he failed to comply with the requirements of a bankruptcy notice served on him by the date for same, 5 September 2016.

[2]                 The judgment creditor has brought these proceedings as the receiver of H.B Garments Limited (in liquidation & in receivership) and HAD Garments Limited (in liquidation & in receivership).

[3]                 There was in evidence a certificate of judgment from the High Court at Auckland recording that judgment had been entered against the judgment debtor in favour of the judgment creditor in the sum of $540,402.82 together with interest. It was also proved that the bankruptcy notice referred to above had been served on the judgment debtor as the judgment debtor claimed in his creditor’s application for adjudication order.

[4]                 The judgment related to funds removed from the two companies by the judgment debtor following his appointment as liquidator of those two companies.

Judgment obtained by fraud?

[5]                 It is not necessary to go into the details of the allegations that the judgment debtor makes concerning this matter. It is sufficient for me to note that the general rule is that once a Court having jurisdiction to hear and determine a proceeding has entered its final judgment, that judgment is binding on the parties unless it is set aside on appeal. There are exceptions and a final judgment may be challenged in separate proceedings which claim that the judgment was procured by fraud: Commissioner of Inland Revenue v Redcliffe Forestry Venture Limited.1 In this case the judgment of the High Court has not been impeached by way of a separate proceeding brought based on fraud. As at the present time the judgment stands and judgment creditor is entitled to enforce it.

1 Commissioner of Inland Revenue v Redcliffe Forestry Venture Limited [2012] NZSC 94 at [1].

Judgment creditor entitled to bankruptcy order?

[6]                Because the judgment is in full force and effect, and has been since it was issued, it follows that the judgment creditor was able to serve a valid bankruptcy notice on the judgment debtor which he did. On the expiry of that notice the judgment creditor was entitled to apply for the adjudication of the judgment debtor in bankruptcy, as he did. The matter then becomes one of discretion for the Court to decide whether in fact such an order ought to be made. I accept that the principles applicable to the Court’s discretion were those summarised by Richardson J in Baker v Westpac Banking Corporation:2

The principles governing the exercise of the discretion under 2 26 [of the Insolvency Act 1967] to grant or refuse an order of adjudication are well settled and have been discussed by this court in recent years in Ellis v NZI Finance Limited (CA253/89 judgment 24 July 1989) and McHardy v Wilkins & Davies Marinas Limited (in receivership) (CA 54/93 judgment 7 April 1993). It is proper for the court to consider not only the interests of those directly concerned – the petitioner, other creditors, the debtor – but also the wider public interest. A creditor who establishes the jurisdictional facts set out in s23 is not automatically entitled to an order. On the other hand, it is for an opposing debtor to show why an order should not be made. The court will give proper weight to the commercial judgment of the petitioner but the oppressive use of the bankruptcy process may be a ground for refusing an order. Another ground may be the undoubted absence of assets but that will not necessarily preclude an order given the range of interests involved including the public interest in the continuing oversight of a bankrupt’s affairs and the disqualifications that go with bankruptcy. In the end the court must balance the various considerations relevant to the case and determine whether the debtor has succeeded in showing that an order ought not to be made.

[7]                 One of the elements that the Court must take into account when deciding whether to exercise the discretion is the public interest. Mr Caird for the judgment creditor referred me to the statement of Fisher J in Re Fidow, that:3

The next matter to be borne in mind here is that on a bankruptcy petition the Court must have regard to public interest in a way which transcends the interest of the immediate parties to the proceedings … The public interest in exposing and controlling an insolvent debtor is one which exists quite independently of the separate question of debt collection by his immediate creditors.

2 Baker v Westpac Banking Corporation, CA212/92, 13 July 1993 at p4.

3 Re Fidow [1989] 2 NZLR 431 at 44.

[8]                 I further agree with the submission by the judgment creditor to the following effect:

15.The Court is especially reluctant to exercise the discretion [in favour of the judgment debtor] where the debtor handles or manages third parties’ money. In Brown v Bridgecorp Ltd (in rec and liq),⁴ Fogarty J noted that counsel in that case had been unable to find any cases where the Court had refused to adjudicate a debtor bankrupt where the debtor was a practising solicitor or accountant, both of whom operate trust accounts. Accordingly, as the debtor was a real estate agent and operated trust accounts, Fogarty J declined to exercise the Court’s discretion and adjudicated the debtor bankrupt.

Grounds for opposition

[9]                 The judgment debtor claimed that he had paid the judgment debt by providing a cheque in the account of H.B. Garments Limited (in liquidation & in receivership) which was made out to Mr McKay and Mr Caird. The dollar amount in the cheque was in figures $595,775.60 however there was written on to the document that it was for “one sum certain New Zealand dollar only” and a $1 New Zealand stamp was affixed to the cheque. On the back of the cheque it stated it was paid under protest for “the sum certain of one New Zealand dollar exactly”.

[10]              In my view this was a clumsy attempt to try to bring about a situation where the judgment creditor would be blocked from claiming that he was a creditor. I do not accept that the provision of the cheque was of any affect. I agree with the submissions of counsel for the judgment creditor that s 9(2) of the Bills of Exchange Act 1908 means that where there is a conflict between the words and the figures on a cheque the words will prevail. So that if the cheque was good for anything it was good for $1.

[11]Furthermore, there is simply no reason to believe that any payment of

$595,775.60 was in fact tendered by the judgment debtor or that a cheque for that amount would have been honoured. There was no payment.

[12]              The judgment debtor also claims that the judgment creditor is indebted to him for a sum up to $65,000,000. This aspect of the matter can be dealt with quickly.

4      Brown v Bridgecorp Ltd (in rec and liq) HC Christchurch CIV-2009-409-927, 9 November 2009 at [31] and [34].

There is no evidence whatsoever that the judgment creditor is indebted to the judgment debtor as the latter claims.

[13]              The judgment debtor also says he cannot be adjudicated because he lacks “capacity”.   This part of the defence is difficult to  understand but it may be that   Mr Smith was claiming to be in his “infancy”. That is self-evidently wrong.

[14]              A further ground for defence is that by virtue of the provisions of s 6 of the Insolvency Act 2006 it is provided that the corporation, association or company must not be adjudicated bankrupt. It was the contention of the judgment debtor that the liquidator of the two companies was, or ought to have been, a corporation and that therefore adjudication and bankruptcy of the liquidator was legally not possible. But as Mr Caird for the judgment creditor pointed out, the situation is exactly the reverse of this. And the contrary is the position at law in that only an individual may be appointed as a liquidator or receiver: Section 280(2) of the Company Act 1993.

[15]              A further submission was made that the judgment creditor and Simpson Grierson, solicitors5 were “still in their infancy”. That is plainly incorrect.

[16]              Mr Smith claims that the High Court does not have jurisdiction to adjudicate him bankrupt but that is contrary to s 36 of the Insolvency Act which expressly confers power on the Court to make such orders.

[17]              A further argument was put forward that the judgment debtor was resident in the United Kingdom and that New Zealand was for a non-conveniens. There is no evidence that this is factually correct.

[18]              The judgment debtor further claimed that the application should not succeed because the judgment creditor, Mr McKay, was not present at the hearing of this matter. I understand that Mr McKay was in fact present at the beginning of the hearing but thereafter left the Court. In any case it does not matter that he did not stay for the entire hearing because he was represented by counsel.

5      The firm to which Mr Caird belongs.

[19]              The judgment debtor also claimed that there had been orders adjudicating both Mr Caird and the judgment creditor bankrupt. On closer examination it turned out that the judgment debtor was relying upon certain orders of an organisation known as “In Te Kooti Rangatira Ateha”.

[20]              The High Court is not required to recognise an alleged judgment or order of this organisation, it not being a Court of New Zealand. Any purported determination in bankruptcy of the two individuals I have just mentioned is therefore without basis.

[21]              There were other grounds of opposition which the judgment debtor pleaded which I was not able to understand. So far as the nationality of the judgment debtor was concerned he said that he alleged in his notice of opposition that “Geoffrey Martin Smith (person) is now domiciled at the probate Court of London”. This is an inherently unbelievable proposition and there is no evidence to support it.

[22]              For all of these reasons I consider that the judgment debtor has no defence to the application for adjudication.

[23]              I am in no doubt that the discretion to adjudicate the judgment debtor ought to be exercised. Quite apart from anything else there is a public interest in placing the judgment debtor in bankruptcy so that he is not able to again extract money from the company improperly while acting as a liquidator of such a company.

[24]              The application is granted. The judgment debtor is adjudicated with effect from the date and time when this judgment is released by the Registrar of the High Court. The judgment debtor is to pay costs to the judgment creditor on a 2B basis together with disbursements as fixed by the Registrar.

J.P. Doogue

Associate Judge