Mills v Wang
[2024] NZHC 2528
•6 September 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-2386
[2024] NZHC 2528
UNDER the Insolvency Act 2006 IN THE MATTER OF
the bankruptcy of KAI WANG (also known as TONY WANG)
BETWEEN
DAVID LAWRENCE MILLS and FIONNA EILEEN MILLS
as trustees of the MILLS FAMILY TRUST Judgment Creditors
AND
KAI WANG (also known as TONY WANG) Judgment Debtor
Hearing: 28 August 2024 Appearances:
Katerina Wendt for the Judgment Creditors M H D Chau for the Judgment Debtor
Judgment:
6 September 2024
JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR
[Application for an adjudication order]
This judgment was delivered by me on 6 September 2024 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules
…………………………. Registrar/Deputy Registrar
Solicitors:
Powle & Hodson, Newmarket, Auckland, for the Judgment Creditors
Righteous Law Limited (Anita Lin/M H C Chau) for the Judgment Debtor
Copy for:
Katerina Wendt, Richmond Chambers, Auckland, for the Judgment Creditors
MILLS v WANG [2024] NZHC 2528 [6 September 2024]
TABLE OF CONTENTS
Paragraph
Introduction [1]
Background [2]
The Mills Trust’s application for adjudication [10]
Mr Wang’s opposition [12]
Legal principles [13]
Analysis [20]
Mills Trust submissions [21]
(a)What are the wishes of all affected parties, including the
applying creditor, and other creditors and the debtor? [22]
(b)Does the debtor have the ability to meet his or her debts over time and if so, does that meet the requirements of
achieving finality within a reasonable period? [23]
(c)What were the circumstances in which the debt was incurred and do those circumstances suggest that the creditors
are acting unreasonably in pursuing adjudication? [24]
(d)An order for adjudication would be pointless [25]
(e)Will the debtor (if adjudicated) be rendered unable to
support himself or herself? [26]
(f)Does the debtor have such a standing in the community that significant issues of stigma or embarrassment will result? [27]
(g)The wider public interest, including the public interest in exposing and controlling an insolvent debtor? [28]
(h)Whether the adjudication is conductive or detrimental to
commercial reality? [30]
(i)The potential for further investigative procedures to be made available to creditors by the bankruptcy [31]
Mr Wang’s further ground of opposition [33]
Mr Wang’s submissions [34]
Result [40]
Orders [41]
Introduction
[1] David Lawrence Mills and Fionna Eileen Mills (the Mills), as trustees of the Mills Family Trust (the Mills Trust), seek an order that Kai Wang (Mr Wang) be adjudicated bankrupt.
Background
[2] The Mills entered into an agreement to sell their property at 22 Manapau Street, Meadowbank, Auckland (the property) to Mr Weiqiang (Brian) Feng (Mr Feng). Mr Feng nominated Mr Wang as purchaser. Both Mr Feng and Mr Wang failed to settle the purchase.
[3] The Mills Trust cancelled the agreement and re-sold their property as a result of which they suffered losses and damages totalling $756.597.31.
[4] The Mills Trust applied for summary judgment against both Mr Feng and Mr Wang claiming damages for the losses suffered from their failure to settle the purchase. On 7 December 2022, Lang J granted the Mills Trust’s application and, judgment of $756,597.31 was entered against Mr Feng and Mr Wang jointly and severally.1
[5] Mr Wang subsequently applied to set aside the judgment entered against him on the ground that he was not served with the proceeding. His application was granted on 17 July 2023.2
[6] On 21 September 2023, summary judgment was re-entered against Mr Wang following a hearing before Campbell J3 (the Judgment).
1 Oral Judgment of Lang J dated 7 December 2022. (Mills v Feng and Wang [2022] NZHC 3278).
2 Minute of Johnstone J dated 17 July 2023 in proceeding CIV-2022-404-1909.
3 Mills v Feng [2023] NZHC 2641.
[7] On 16 October 2023, the Mills sought leave to serve a bankruptcy notice on Mr Wang overseas and for substituted service orders which was granted by Associate Judge Gardiner on 20 October 2023.
[8] The Mills Trust has taken enforcement steps against both Mr Feng and Mr Wang. Mr Feng unsuccessfully sought to stay enforcement of the judgment debt,4 and unsuccessfully applied to set aside a bankruptcy notice.5 Mr Feng also unsuccessfully applied for a stay of the Court’s decision of 26 September 2023.6
[9] On 17 November 2023, the Mills Trust made the present adjudication application.
The Mills Trust’s application for adjudication
[10]The Mills Trust seeks an order adjudicating Mr Wang bankrupt:7
[11]The grounds on which the orders are sought are, in summary:8
(a) Mr Wang owes the Mills Trust $786,953.10, being a judgment debt sealed and dated 21 September 2023, plus costs on the request for bankruptcy notice of $678.00.
(b) Leave was granted to serve a bankruptcy notice on Mr Wang by Associate Judge Gardiner on 20 October 2023, which was served on Mr Wang on 26 October 2023 pursuant to substituted service orders made by Associate Judge Gardiner also on 20 October 2023.
(c) Mr Wang has committed an available act of bankruptcy by failing to comply with the bankruptcy notice.
4 Mills v Feng [2023] NZHC 1199, per Campbell J.
5 Mills v Feng [2023] NZHC 2674 per Associate Judge Taylor. On 12 August 2024 Mr Feng filed an interlocutory application with the Court of Appeal for leave to appeal Associate Judge Taylor’s decision out of time.
6 Mills v Feng [2024] NZHC 2354 [22 August 2024].
7 Creditors’ application for adjudication order dated 17 November 2023 at [1].
8 At [2].
(d) The Mills Trust has a charging order over a property owned by Mr Wang at 20 Riddell Road, Glendowie, Auckland and over certain shares in registered companies as set out in the charging order dated 17 April 2023, but otherwise have no security for the debt.
Mr Wang’s opposition
[12]Mr Wang opposes the application on, in summary, the following grounds:9
(a) The judgment against Mr Wang makes him jointly and severally liable with Mr Feng against whom Mr Wang has filed his counterclaim (under CIV-2022-404-2342) and the outcome of such counterclaim affects Mr Wang’s liability under the Judgment;
(b) the counterclaim against Mr Feng is for the same amount as the Judgment of the Mills Trust;
(c) the Mills Trust has other adequate remedies available to them (they have a charging order registered over a property of the Mr Wang);
(d) it would be just and equitable that the Court does not make an order for adjudication (s 37(c) of the Act); and
(e) for any other reason an order of adjudication should not be made (s 37(d) of the Act);
(f) the broader purposes of bankruptcy do not apply for example:
(i)holding the debtor accountable for his debts;
(ii)punishing or stigmatising the debtor for misconduct.
9 Notice by applicant of intention to oppose adjudication applicated dated 10 January 2024 at [2].
Legal principles
[13] The principal requirements for court adjudication on a creditor’s application are in s 13 of the Insolvency Act 2006 (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 filing 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.
[14] Briefly stated, a creditor may bring a bankruptcy proceeding against a debtor who owes that creditor at least $1,000 and who has committed an act of bankruptcy within three months before the filing of the application. The sum must be a “certain amount” and payable immediately or at a future date that is certain.
[15] There are further relevant provisions in Part 2 of the Act. Section 17 provides that a debtor commits an act of bankruptcy if:
(a) a creditor has obtained a final judgment or a final order against the debtor for any amount;
(b) execution of the judgment or order has not been halted by a court;
(c) the debtor has been served with a bankruptcy notice; and
(d) the debtor has not, within the relevant time limit, complied with the requirements of the notice or satisfied the court that he or she has a cross- claim against the creditor.
[16] When hearing a creditor’s application, a court may, among other things, adjudicate the debtor bankrupt if the creditor has established the s 13 requirements;10 refuse to adjudicate the debtor bankrupt if those requirements are not established, or if the debtor is able to pay his or her debts, or if it is just and equitable that the court does not make an order of adjudication, or for any other reason an order for adjudication should not be made;11 or halt the application for adjudication.12
[17] The Court may also halt or refuse the creditor’s application for adjudication if the debtor has appealed against the judgment or order underlying the bankruptcy notice and that appeal is still to be decided.13
[18] Section 37 of the Act confers a discretion on the Court to decline to make an order for adjudication:
37 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
(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.
[19] The following general principles, extracted from the caselaw, are relevant to the Court’s discretion to refuse adjudication:
(a) The onus is on the debtor to show why an adjudication order should not be made.14
(b) in exercising its discretion, the Court may consider, inter alia, the following factors:
10 Insolvency Act 2006, s 36.
11 Section 37.
12 Section 38.
13 Section 42.
14 McHardy v Wilkins & Davies Marinas Ltd (in rec) CA 54/93, 7 April 1993 at 3.
(i)the views of all affected parties, including the petitioner, other creditors and the debtor;15
(ii)does the debtor have the ability to meet his or her debts over time and, if so, does that meet the requirements of achieving finality within a reasonable period?16
(iii)the wider public interest, including whether adjudication is “conducive or detrimental to commercial morality and the interests of the general public”;17
(iv)the circumstances in which the debt was incurred and whether those circumstances suggest that the creditor is acting unreasonably in pursing adjudication;18
(v)whether adjudication would be pointless in the sense that the creditors are unlikely to receive payment;19
(vi)whether adjudication would render the debtor unable to support him or herself;20
(vii)does the debtor have such a standing in the community that significant issues of stigma or embarrassment will result?21
(viii)the potential for further investigation procedures to be made available to creditors by the bankruptcy?22
(c)in exercising its discretion, the Court should also remain cognisant of the broader purposes of bankruptcy which include:
15 Re Sturdee [1985] 2 NZLR 627 (HC) at 635.
16 Rabobank Australia Ltd v Tootell [2013] NZHC 2975 at [8].
17 Re Nisbett, ex parte Vala [1934] GLR 553 (SC) at 556.
18 Re Epirosa, ex parte Diners Club (NZ) Ltd HC Wellington B498/91, 6 March 1992 at 6.
19 Re Fidow [1989] 2 NZLR 431 (HC) at 444.
20 Re Epirosa, above n 18, at 7.
21 Above, n 16 at [8].
22 Loan Investment Trustees Ltd v Ding [2024] NZHC 1328 at [28].
(i)allowing for administration of the debtor’s estate in the interests of creditors;
(ii)holding the debtor accountable for his or her debts;
(iii)punishing or stigmatising the debtor for misconduct;
(iv)protecting the community from a debtor who runs up credit without being able to honour it; and
(v)allowing the debtor to eventually take up commercial activity once freed from his or her liabilities after the discharge of their bankruptcy;23
(d)ultimately, the Court must balance the various considerations relevant to an application when concluding whether the debtor has succeeded in showing that the order sought should not be made.24
Analysis
[20] The issue to be determined in this judgment is whether the Court should exercise its discretion pursuant to s 37 of the Act to refuse the adjudication order sought by the Mills Trust.
Mills Trust submissions
[21] Ms Wendt, for the Mills Trust, considers each of the factors relevant to the exercise of the Court’s discretion under s 37 of the Act.
(a)What are the wishes of all affected parties, including the applying creditor, and other creditors and the debtor?
[22] Ms Wendt submits that the Mills Trust wish to proceed with Mr Wang’s adjudication and it has been 18 months since the initial judgment against Mr Feng and
23 Sheppard v Blanchett [2012] NZHC 789, (2012) 3 NZTR 22-014 at [35]–[43].
24 McHardy v Wilkins & Davies Marinas Ltd (in rec), above 14, at 4.
Mr Wang, and 12 months since judgment was re-entered against Mr Wang. She submits:
(i)Mr Wang has increased the costs of enforcement steps by ignoring correspondence that requested he accept service and resulted in the Mills Trust needing to apply for substituted service orders;
(ii)the sale default has caused Mr and Mrs Mills considerable stress and difficulties, and they have had to change their personal plans following the re-sale of the property at a significantly lower price than Mr Feng and Mr Wang had agreed to pay;
(iii)it is not known if Mr Wang has other creditors and what their views are, but a caveat registered against the property he owns, in addition to a mortgage, suggests there is at least one other creditor.
(b)Does the debtor have the ability to meet his or her debts over time and, if so, does that meet the requirements of achieving finality within a reasonable period?
[23]Ms Wendt submits as follows:
(i)Mr Wang has not made any payment towards the judgment debt, nor offered to make any payment over time, and his true financial position is unknown. He has not complied with the Mills Trust’s requirement that he complete a statement as to his financial position;
(ii)Mr Wang is the owner of the property at Riddell Road, Auckland, over which the Mills Trust have a charging order. However, it appears there is little equity available and Mr Wang acknowledges this.25 Campbell J summarised his understanding
25 Wang affidavit (undated and unsworn), paragraphs [20]-[21].
of Mr Wang’s property ownership position as follows (which is still applicable):26
[19]… The evidence suggests Mr Wang does not have assets sufficient to satisfy the judgment. When he failed to settle the purchase from the plaintiffs, he said that he did not have the funds to settle without selling a property that he owned in Riddell Road, Auckland. Evidently Mr Wang was unable to sell that property, as he remains the registered owner. The property is subject to two registered mortgages in favour of trading banks. There is no evidence of the equity, if any, that Mr Wang may have in the property. Further, a caveat has been lodged against the property claiming a 72.72 per cent interest in the property under a bare trust.
[20]It appears Mr Wang is now living in China. He may have assets there, though there was no evidence of this. If he does have assets there, it will be costly and time- consuming to enforce the judgment in China.
(c)What were the circumstances in which the debt was incurred and do those circumstances suggest that the creditors are acting unreasonably in pursuing adjudication?
[24] Ms Wendt submits that the Mills Trust were not unreasonable in pursuing adjudication as Mr Wang’s (and Mr Feng’s) highly risked and failed property transaction is conduct that should be chastised.
(d)An order of adjudication would be pointless
[25] Ms Wendt acknowledges that Mr Wang asserts that adjudication would be pointless, as the judgment creditors are unlikely to receive payment.27 She submits, however, that with no statement of financial position from Mr Wang, his position cannot be confirmed.
26 Mills v Feng [2023] NZHC 1199 at [19]-[20].
27 Notice of Opposition at [2](h).
(e)Will the debtor (if adjudicated) be rendered unable to support himself or herself?
[26] Ms Wendt acknowledges that Mr Wang says that bankruptcy will render him unable to support himself28 but he has provided no evidence as to his financial position.
(f)Does the debtor have such a standing in the community that significant issues of stigma or embarrassment will result?
[27]Ms Wendt submits this factor is not applicable.
(g)The wider public interest, including the public interest in exposing and controlling an insolvent debtor?
[28] Ms Wendt submits that Mr Wang was nominated as purchaser under an unconditional agreement to purchase the Mills Trust property just days before the transaction was due to settle despite not having, and knowing he did not have, the funds to complete the settlement, Mr Wang asserting at the time that he was unable to sell his Riddell Road property to enable settlement of the purchase.
[29] Ms Wendt submits that, analogous to the Ding case,29 it is in the public interest to protect commercial communities from recklessness as exhibited by Mr Wang in accepting nomination under the sale and purchase agreement without the funds to complete the settlement.
(h)Whether adjudication is conducive or detrimental to commercial reality?
[30] Ms Wendt submits this factor militates in favour of adjudication of Mr Wang, for the same reasons as set out at [27](g).
(i)The potential for further investigative procedures to be made available to creditors by the bankruptcy
[31] Ms Wendt submits that Mr Wang’s financial affairs require investigation by the Official Assignee:
28 Notice of Opposition at [2](h).
29 Above, n 22.
(a)Mr Wang acknowledges he is a director of Xview Construction Limited and the company has an employee. Presumably this company trades and Mr Wang receives an income from it and has provided no further information regarding his interests or income from this company;
(b)Mr Wang is a director or shareholder of other companies, and again he has provided no further information regarding his interests in these companies;30
(c)a representative of Mr Feng advises that Mr Wang owns a property in China;31
(d)Mr Wang has transferred the following assets since the Judgment, suggesting the risk of dissipation of assets with the intent to avoid creditors:
(i)his registered shareholding in L & W Property Limited; and
(ii)ownership of 16 Geordie Street on 20 December 2023 by KW Holdings Limited, of which Mr Wang is sole director and shareholder.
[32] Ms Wendt refers to Westpac New Zealand Ltd v Chen,32 and Loan Investment Trustees v Ding33 to support the view that where the judgment debtor has failed to provide financial information, the Court is unable to be certain as to the judgment debtor’s financial position, and accordingly whether or not the adjudication would be pointless, this weighs in favour of making the adjudication order.
30 Refer company extracts, Mills Trust affidavit dated 5 August 2024, Exhibits I to L.
31 Above, n 30, Exhibit M.
32 Westpac New Zealand Ltd v Chen [2023] NZHC 998.
33 Above, n 22, at [33]-[34].
Mr Wang’s further ground of opposition
[33] Ms Wendt refers to Mr Wang’s further ground of opposition, namely he has a claim against Mr Feng. In relation to the claim as a basis for opposition to the application for adjudication, Ms Wendt submits:
(a)Putting to one side the merits of either Mr Feng’s or Mr Wang’s claims against one another, they are both jointly and severally liable to the Mills Trust. She submits joint and several liability entitles the interested parties to recover full compensation from any of the persons who have caused harm (although they cannot of course recover more than the full amount awarded by the Court), and accordingly is not a barrier to obtaining the full amount from Mr Wang;
(b)Mr Wang was legally represented at the time he signed the deed of nomination to purchase the Mills Trust’s property and appears to be in the business of property investment or management and therefore should be familiar with the consequences of entering into a sale and purchase agreement;
(c)Mr Wang’s account of events is inconsistent with the real estate agent’s understanding that Mr Wang was always the intended purchaser of the property in accordance with Mr Wang’s communications with the agents;
(d)a concern the Mills Trust has of litigation between Mr Feng and Mr Wang will continue indefinitely;
(e)if Mr Wang’s claim against Mr Feng is ultimately successful there is no evidence that Mr Feng has assets or funds available from which to satisfy the judgment debt, in which event Mr Wang would remain liable to the Mills Trust for the judgment debt by virtue of his joint and several liability.
Mr Wang’s submissions
[34] Mr Chau, for Mr Wang, submits that there is potential for Mr Wang to be in a position to be able to pay the judgment debt, and therefore it is just and equitable the Court does not make an order for adjudication at this time. He submits that Mr Wang should be given the opportunity to pay the judgment debt over time, and that Mr Wang has assets that have the potential to be used to pay the Mills Trust and there are ongoing proceedings against Mr Feng.
[35] Mr Chau submits that Mr Feng was unsuccessful seeking summary judgment from Mr Wang due to there being serious issues to be tried on the evidence before the Court, and Mr Wang has a strong case against Mr Feng which, if successful, would mean that Mr Wang would be in a position to pay the judgment debt. He submits, therefore, it is premature to adjudicate Mr Wang bankrupt as the ongoing proceedings against Mr Feng affects Mr Wang’s liability.
[36] Mr Chau submits that the circumstances in which the judgment debt was incurred are also relevant in that Mr Feng induced Mr Wang to sign the deed of nomination by making numerous representations, including that Mr Feng was financially capable of contributing sufficient funds towards the purchase of the property. He submits the circumstances as to how the judgment debt was incurred due to the actions of Mr Feng is relevant and affects Mr Wang’s liability.
[37] Mr Chau submits that Mr Wang has been pro-active in actively trying to engage with the Mills Trust to resolve payment of the debt, and the active discussions in trying to negotiate payment demonstrates Mr Wang’s willingness to take the necessary steps to pay the Mills Trust, and although a payment plan or other alternative methods need to be agreed, it is appropriate that Mr Wang be given time, to take the steps necessary to pay the debt. In addition, Mr Wang should be given the ability to pay the debt over time, due to the current assets he has available and the ongoing proceedings against Mr Feng.
[38] Mr Chau submits that if Mr Wang was to be adjudicated bankrupt then it is likely that the Mills Trust would not receive any funds due to the mortgage over his
house to ANZ and the caveat by Guilan Zhao, and therefore adjudicating Mr Wang bankrupt would be pointless. He submits that if Mr Wang is given time, then it is more likely that the Mills Trust would receive some form of payment compared to receiving no payment if Mr Wang is adjudicated bankrupt.
[39] In summary, Mr Chau submits that Mr Wang has met the various factors observed by the Court in Tailored Building Solutions Ltd v Evans34 regarding the exercise of the discretion not to make an adjudication order under s 37 of the Act as Mr Wang:
(a)has assets and ongoing proceedings where he could be able to pay his debts;
(b)Mr Feng’s conduct and how the judgment debt was incurred is a reason for the Court to use its discretion not to make the adjudication order;
(c)it is just and equitable that the Court does not make an order for adjudication at the present time.
Result
[40] In my view, the adjudication order sought by the Mills Trust against Mr Wang should be granted. The reasons for this are as follows:
(a)It has been a period of 18 months since the initial judgment against Mr Feng and Mr Wang and 12 months since the judgment was re- entered against Mr Wang; no payments have been made towards the debt and no proposal has been made to pay the debt within a reasonable time. The sale default has caused Mr and Mrs Mills considerable stress and difficulties, and they have had to change their personal plans following re-sale of the property at a significantly lower price than Mr Feng and Mr Wang agreed to pay;
34 Tailored Building Solutions Ltd v Evans [2020] NZHC 2208.
(b)there is no evidence that Mr Wang would be able to make the payment of the judgment debt within a reasonable time. No evidence has been provided of Mr Wang’s financial situation and accordingly the Court cannot be satisfied that he would be able to make an arrangement to pay the debt within a reasonable time;
(c)having regard to the circumstances in which the debt was incurred, the Mills Trust has not been acting unreasonably in pursuing adjudication. Mr Wang accepted nomination as purchaser under the sale and purchase agreement without having the funds available to settle the purchase which clearly involved an element of risk. This behaviour should be discouraged in the interests of protecting the public;
(d)while Mr Wang asserts the adjudication would be pointless and the Mills Trust is unlikely to receive any payment, without having a statement of financial position from Mr Wang the Court cannot be satisfied that this is the case;
(e)it is unclear whether if Mr Wang is adjudicated bankrupt he will be able to support himself. There is no information before the Court as to his financial position or income, and accordingly the Court cannot make a judgment on this issue;
(f)while Mr Wang asserts that the Mills Trust is secured by a charging order over property he owns at Riddell Road, Auckland, it is unclear as to what level of equity Mr Wang may have in this property, if any, given there are mortgages secured over it and a caveat registered against the property under which the claimant claims a 72.72 per cent interest in the property under a bare trust. The Court cannot therefore be satisfied that the Mills Trust will have security for a debt of approximately
$756,000;
(g)it is appropriate that the Official Assignee investigate Mr Wang’s financial affairs as he has not provided in the statement of financial
position and there is no certainty as to what assets he owns, the level of his interests in other companies he is involved with and the value that may be associated with those interests, and whether he in fact owns any assets in China which could be used to satisfy the debt;
(h)while his claim against Mr Feng remains extant, there is uncertainty as to how long this may take to resolve and as to the outcome, and even if Mr Wang is successful in his claim, there is no evidence that Mr Feng will have assets available to satisfy the judgment.
Orders
[41]I make the following orders:
(a)the judgment debtor, Mr Kai Wang, is adjudicated bankrupt. The order will take effect from 3:00pm on the date this judgment is delivered;
(b)the Mills Trust, as the successful party, is entitled to costs, and accordingly the judgment debtor, Mr Wang, is to pay the Mills Trust costs on a 2B basis together with disbursements.
…………………………….. Associate Judge Taylor
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