Norris Ward McKinnon v Skelton
[2023] NZHC 2016
•31 July 2023
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
I TE KŌTI MATUA O AOTEAROA WHANGĀREI-TERENGA-PARĀOA ROHE
CIV-2022-488-82
[2023] NZHC 2016
UNDER the Insolvency Act 2006 IN THE MATTER OF
the bankruptcy (or proposal) of DONALD ALFRED SKELTON
BETWEEN
NORRIS WARD McKINNON
of Hamilton, a partnership trading as a law firm
Judgment Creditor/ApplicantAND
DONALD ALFRED SKELTON of Waimate
North, Kaikohe
Judgment Debtor/Respondent
Hearing: 10 July 2023 Appearances:
J D Savage for the Judgment Creditor(by AVL) Judgment Debtor is self-represented
Judgment:
31 July 2023
JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR
[Application for an adjudication in bankruptcy]
This judgment was delivered by me on 31 July 2023 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules
…………………………. Registrar/Deputy Registrar
Solicitors:
Norris Ward McKinnon (Jesse Savage/Nathan Scrivener), Hamilton, for the Judgment Creditor
NORRIS WARD McKINNON v SKELTON of Waimate North, Kaikohe [2023] NZHC 2016 [31 July 2023]
Table of Contents
Paragraph
Introduction [1]
Background [2]
Norris Ward McKinnon’s application for order for adjudication [8]
Mr Skelton’s opposition [12]
Affidavit of Donald Alfred Skelton, dated 1 June 2023 [13] Response affidavit of Soroya Elizabeth McGall, dated 26 June 2023 [17] Reply affidavit of Donald Alfred Skelton, dated 27 June 2023 [18] Legal principles [23]
Analysis [30]
Transfer of assets to defeat creditors [31]
Sale of the kiwifruit cultivars [33]
Land sales [35]
Preferential payment to other creditors [37]
Mr Skelton’s submissions [38]
Mr Skelton’s health [39]
Result [40]
Orders [43]
Introduction
[1] Norris Ward McKinnon seeks that Mr Donald Skelton (Mr Skelton) be adjudicated bankrupt.
Background
[2] This application arises for a debt derived from a 24 June 2020 judgment of the High Court at Hamilton,1 and related 14 August 2020 cost orders.2 The debt owed is said to be $203,484.16, comprising the orders made by the High Court, costs, disbursements and interest.
[3] Norris Ward McKinnon served a bankruptcy notice dated 4 November 2022 and the certificate of judgment on Mr Skelton on 17 November 2022. The last day for compliance with the bankruptcy notice was 1 December 2022. Mr Skelton did not comply with the bankruptcy notice or apply to set it aside.
[4] Norris Ward McKinnon made the present adjudication application on 12 December 2022, Mr Skelton’s act of bankruptcy, the noncompliance with the bankruptcy notice, being within three months of that date.
[5] On 24 April 2023, the application was first called before Associate Judge Gardiner where Mr Skeleton, despite having no legal representation and having not filed a statement of claim, did not want the court to make the adjudication as he claimed to have no assets. Associate Judge Gardiner, noting the Court’s discretion to refuse adjudication based on a lack of assets and the age and health of the debtor, sought the matter be relisted for 6 June 2023 by which point Mr Skelton should have sworn an affidavit as to his assets and should bring a support person.3
1 Norris Ward McKinnon v Skelton [2020] NZHC 1445.
2 Norris Ward McKinnon v Skelton [2020] NZHC 2066.
3 Norris Ward McKinnon v Skelton HC Whangarei CIV-2022-488-82, 23 May 2023 (Minute of Associate Judge Gardiner).
[6] On 6 June, Mr Skelton reappeared with his son-in-law in support and having filed an affidavit, which unfortunately had not made it to the Court file. Associate Judge Gardiner further adjourned the hearing to 10 July 2023, before me, by which time Norris Ward McKinnon was to file any affidavits in reply, to which Mr Skelton was then to reply.4 Her honour indicated that the key issue at this hearing was to be whether there is evidence to suggest Mr Skelton transferred his assets so as to defeat his creditor, in which case there would be proper grounds for bankruptcy to allow for investigation by the Official Assignee.5 As was made clear, the onus is on Mr Skelton to show why an order should not be made, as Norris Ward McKinnon is prima facie entitled to the adjudication order.6
[7] This judgment determines the adjudication application as heard before me on 10 July 2023.
Norris Ward McKinnon’s application for order for adjudication
[8] Norris Ward McKinnon seeks orders adjudicating Mr Skelton bankrupt and as to costs.7
[9]The grounds on which the orders are sought are:8
(a) the debtor has, for the greater part of the past 6 months, resided at 8 Courthouse Lane, Kaikohe; and
(b) the debtor owes the creditor:
(i) $203,484.16 for judgment costs under the Interlocutory Order of the High Court dated 24 August 2020 with CIV 2015-419-429, payable immediately; and
(ii)costs of $350 for filing and serving the bankruptcy notice, also payable immediately.
(c) the debtor has committed an available act of bankruptcy, as follows:
4 Norris Ward McKinnon v Skelton HC Whangarei CIV-2022-488-82, 6 June 2023 (Minute of Associate Judge Gardiner).
5 At [4].
6 At [5].
7 Creditor’s application for adjudication order dated 12 December 2022 at [1].
8 At [2].
(i) Failure to comply with the bankruptcy notice served on him by the creditor within 10 working days after the date of service, with the date of service being 17 November 2022.
[10] As at 21 April 2023, Norris Ward McKinnon has updated the Court that the costs and disbursements sought for this application amount to $4,682.90.9
[11] Mr Samuel Hood, Managing Partner at Norris Ward McKinnon, has made an affidavit in support of Norris Ward McKinnon’s application in which he deposes that the contents of the application are true.10 Mr Tony MacKereth has made an affidavit affirming service of the bankruptcy notice and a certified copy of the 24 August 2022 judgment on Mr Skelton on 17 November 2022.11 Mr William Dawson has made an affidavit affirming service of the creditor’s application for adjudication order and summons to debtor on 23 March 2023 and further service of Messrs MacKereth and Hood’s affidavits on 28 March 2023.12 Mr Jesse Savage, a partner at Norris Ward McKinnon, has further certified that as at 21 April 2023, all debts remain unpaid.13
Mr Skelton’s opposition
[12] Mr Skelton has not officially filed a notice of opposition. However, as noted above he seeks the Court exercise its discretion to not adjudicate him bankrupt under s 37 of the Insolvency Act 2006. He has filed two affidavits in support, the first of which Ms Soraya McGall, a personal assistant at Norris Ward McKinnon, has filed evidence in response to.
Affidavit of Donald Alfred Skelton dated 1 June 2023
[13] Mr Skelton has made an affidavit in support of his opposition to adjudication and in particular addressing a letter sent to him by Norris Ward McKinnon requesting information dated 31 August 2022.14
9 Memorandum of costs dated 21 April 2023.
10 Affidavit of Samuel Wallace Hood supporting creditor's application for adjudication dated 8 December 2022.
11 Affidavit of Tony Lindsay MacKereth confirming service dated 25 November 2022.
12 Affidavit of William John Dawson confirming service dated 28 March 2023.
13 Solicitor’s certificate as to unpaid debt dated 21 April 2023.
14 Affidavit of Donald Alfred Skelton dated 1 June 2023.
[14] Regarding Norris Ward McKinnon’s claims over Mr Skelton’s assets, he deposes the following:
(a)First, Mr Skelton says his finance calculations reflect that he is $2 in credit not $814 in deficit, given his pension payments are recorded fortnightly and expenditure monthly.
(b)Second, Mr Skelton says he did not sell his cultivar rights on around 30 November 2017 as the buyers funding partner withdrew. He says he sold First Gold about 16 years ago for $129,000, he gave away Kiwikiss, he has never heard of Tropokiwi and Enza Gold was taken over by Turner and Growers who took over rights given to Fipia in the 1980s.
(c)Third, he says that Mr Hood lied when he said Mr Skelton had told him the cultivar rights were worth $50 or even $30 million. Norris Ward McKinnon acted for a sale and purchase of the business, farm and dwelling valued at $4 million, although that did not proceed as the main partner died.
(d)Fourth, he says he does not personally own or has disposed of other significant cultivar assets to defeat Norris Ward McKinnon’s interests. He says 99.9% of his business was wiped out by PSA and disease and he only had one minor organic growing in California returning $5,000 annually. He sold the remains of his business for $20,000 to pay legal fees and has cancelled all plant variety rights which his business had to pay for with the demise of his business. The United States rights, Plant Patents, cannot be cancelled but there are no annual fees.
[15]Redacted.
[16] Regarding his assets, Mr Skelton deposes he has no assets except a bank account containing $6,229.15. He says when he first engaged Norris Ward McKinnon, they estimated legal fees of between $30,000 and $50,000, and he owned a freehold
farm and savings of $70,000. By the time they attempted to settle a professional negligence claim, Norris Ward McKinnon told their insurers legal fees for Mr Skelton were $970,000 and he was deeply indebted. He says the sale of the farm enabled him to clear all debts except that to Norris Ward McKinnon. Mr Skelton says he now lives with his daughter and son-in-law and pays a proportion of household outgoings.
Response affidavit of Soroya Elizabeth McGall dated 26 June 2023
[17] Ms McGall, a personal assistant at Norris Ward McKinnon, has made an affidavit to adduce additional documents in response to Mr Skelton’s evidence.15 She adduces the letter dated 31 August 2022 to which Mr Skelton responds, various printouts from Sino-NZ Innovation Limited’s (Sino-NZ) website referring to their purchase of Mr Skelton’s cultivars, and historic land ownership records of Mr Skelton.
Reply affidavit of Donald Alfred Skelton dated 27 June 2023
[18] Mr Skelton has made a further affidavit in response to Ms McGall’s and Norris Ward McKinnon’s submissions.16
[19] Regarding the cultivar sale to Sino-NZ, he deposes the proposed sale never eventuated.
[20] Regarding his historic landholdings, he deposes the majority of these predated Norris Ward McKinnon and there were few in which he had a financial interest.
[21] Regarding preferentially paying other creditors instead of Norris Ward McKinnon, he deposes there was nothing preferential as there was a mass of bills for lawyers, video links, cloud storage, translation, independent legal advice and court costs. He said all these costs managed to be paid but they used up all his assets and his ability to borrow.
[22] Finally, Mr Skelton reasserts his ill health, appending a cardiologist report, and that he has no assets beyond a small bank account.
15 Affidavit of Soroya Elizabeth McGall dated 26 June 2023.
16 Affidavit of Donald Alfred Skelton dated 27 June 2023.
Legal principles
[23] 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.
[24] 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.
[25] There are further relevant provisions in pt 2. 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.
[26] 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;17 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;18 or halt the application for adjudication.19
[27] 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.20
[28] 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.
[29] 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.21
(b)In exercising its discretion, the Court may consider, inter alia, the following factors:
17 Insolvency Act 2006, s 36.
18 Section 37.
19 Section 38.
20 Section 42.
21 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;22
(ii)the wider public interest, including whether adjudication is “conducive or detrimental to commercial morality and the interests of the general public”;23
(iii)the circumstances in which the debt was incurred and whether those circumstances suggest that the creditor is acting unreasonably in pursing adjudication;24
(iv)whether adjudication would be pointless in the sense that the creditors are unlikely to receive payment;25 and
(v)whether adjudication would render the debtor unable to support him or herself.26
(c)In exercising its discretion, the Court should also remain cognisant of the broader purposes of bankruptcy which include:
(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
22 Re Sturdee [1985] 2 NZLR 627 (HC) at 635.
23 Re Nisbett, ex parte Vala [1934] GLR 553 (SC) at 556.
24 Re Epirosa, ex parte Diners Club (NZ) Ltd HC Wellington B498/91, 6 March 1992 at 6.
25 Re Fidow [1989] 2 NZLR 431 (HC) at 444.
26 Re Epirosa, above n 24, at 7.
(v)allowing the debtor to eventually take up commercial activity once freed from his or her liabilities after the discharge of their bankruptcy.27
(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.28
Analysis
[30] The primary issue to be determined in this judgment is whether Mr Singh has established grounds under s 37 of the Act which justify this Court exercising its discretion to decline to adjudicate him bankrupt.
Transfer of assets to defeat creditors
[31] Mr Savage, for Norris Ward McKinnon, submits that there is evidence to suggest that Mr Skelton has transferred his assets to related entities or to individuals to defeat his creditors, and a bankruptcy order would allow proper investigation into Mr Skelton’s affairs by the Official Assignee. He reiterates the principle that Norris Ward McKinnon is prima facie entitled to an adjudication order and the onus is on Mr Skelton to show why an order should not be made.
[32] Mr Savage submits that there are three aspects to the issue that Mr Skelton has disposed of assets to defeat his creditors and he is attempting to mislead the Court to avoid an order for adjudication. These are:
(a)Mr Sketon’s sale of his kiwifruit assets to Sino-NZ;
(b)historic search records show that Mr Skelton has previously owned significant land holdings, some without a mortgage, the proceeds of which remain unexplained;
27 Sheppard v Blanchett [2012] NZHC 789, (2012) 3 NZTR 22-014 at [35]–[43].
28 McHardy v Wilkins & Davies Marinas Ltd (in rec), above 21, at 4.
(c)Mr Skelton’s own affidavit evidence suggests that he preferentially paid other creditors while declining to pay Norris Ward McKinnon.
Sale of the kiwifruit cultivars
[33] Mr Savage refers to a letter dated 31 August 2022 in which Norris Ward McKinnon asserted Mr Skelton and Kiwifruit New Zealand Ltd obtained cash proceeds of at least $2 million as a result a sale of cultivar rights on 30 November 2017. Mr Savage submits that while Mr Skelton deposed that the sale did not proceed after the funding partner withdrew, publicly available information suggests that this is not correct and Sino-NZ’s website contains multiple references to the sale being concluded. Mr Savage points to the posted items set out at [5](a) to (c) of his submissions as evidence that the sale of the kiwifruit cultivars appears to have occurred.
[34] Mr Savage submits that the evidence as set out at [5](a) to (c) of his submissions has remained on Sino-NZ‘s website since 2018 and has never been challenged, disputed or removed. He submits that there should be an investigation by the Official Assignee, and there are several parties that the Official Assignee may be able to obtain information from using powers of compulsion if necessary, which include:
(a)Sino-NZ and its director, Allen Rutledge;
(b)Bayleys Auckland, who were understood to have acted as business brokers for the sale, including the agent acting on the sale, Mr Mark Morphy;
(c)the solicitor understood to have acted on the sale Geoffrey Hanlon of Hanlon Commercial Law.
Land sales
[35] Mr Savage submits there are several land titles previously owned by Mr Skelton and which were free of any mortgage security. He submits that Mr Skelton
has not provided any explanation as to what happened to the proceeds from the disposition of those titles which are listed at [8](a) to (d) of his submissions.
[36] Mr Savage submits that Mr Skelton owned an interest in further titles which, although they had mortgage securities registered against them, on the assumption that typically the lenders would only lend a portion of the land value, meant that surplus funds were available after repayment of the mortgage security. He submits Mr Skelton has not accounted for the proceeds from these dispositions which he lists at [9](a) and
(b) of his submissions.
Preferential payment to other creditors
[37] Mr Savage submits that on Mr Skelton’s own evidence he sold a freehold farm and used the proceeds from that to clear all debts other than the amount owed to Norris Ward McKinnon. Mr Savage submits that while it is not clear when the farm sale took place, who the farm was sold to, or what amount Mr Skelton received and cleared from the sale, by his own admission Mr Skelton has preferentially paid other creditors to the detriment of Norris Ward McKinnon. He submits this matter also should be investigated by the Official Assignee to determine whether any funds can be clawed back into his estate in bankruptcy.
Mr Skelton’s submissions
[38] Mr Skelton, in response to Mr Savage’s submissions, makes the following submissions in reply:
(a)As to the sale of the kiwifruit cultivars, Mr Skelton says that the sale did not occur. He says that the posts on the website were put up by the buyer, the sale was never completed, and after being delayed for several months, did not occur. He then says that the PSA wiped out his kiwifruit business leaving him with one minor grower in California returning around $5000 yearly. He deposes that he later sold the remnants for $20,000 and gave away any further rights and cancelled the plant variety registrations due to their ongoing cost.
(b)In relation to the various property sales, Mr Skelton submits that the majority of these were very historical and he did not have any financial interest in most of the properties, being on the title as a trustee or on behalf of someone else.
(c)In relation to the allegations that he paid other creditors in preference to Norris Ward McKinnon, he submits that at the end of the legal action defending the proceedings brought by Z487 Limited, there was a large number of invoices and the proceeds from the sale of the farm were sufficient to clear all the invoices except Norris Ward McKinnon’s. Accordingly, he denies any preferential payment being made.
Mr Skelton’s health
[39]Redacted.
Result
[40] I am of the view that Mr Skelton has not discharged the onus of satisfying the Court that it should exercise its discretion under s 37 of the Act to refuse the adjudication order sought by Norris Ward McKinnon. The reasons for this are as follows:
(a)In relation to the sale of the kiwifruit cultivars, in my view Mr Skelton has not produced satisfactory evidence to demonstrate that this sale did not occur and he did not receive any proceeds from the sale. He merely asserts that the sale did not occur and in my view has not adequately explained why the various posts on the websites produced in Mr Savage’s submissions have been made without objection, dispute or removal of those posts. Accordingly, I think it is appropriate that the Official Assignee should be able to investigate what has occurred and whether any funds are in fact available in Mr Skelton’s estate.
(b)As to the land sales, many of these occurred many years ago and Mr Skelton has submitted that in many of these properties he had no financial interest, appearing only as a trustee or in some other capacity. While it is unclear whether any of these proceeds of sale would still be available in Mr Skelton’s bankrupt estate given the age of the transactions, some of these properties appear to have been sold for considerable amounts (for example, the property listed at [9](b) of Mr Savage’s submissions was sold for $700,000 as acknowledged by Mr Skelton at the hearing). Again, an investigation into these transactions should be undertaken by the Official Assignee.
(c)I accept Mr Savage’s submission that while Mr Skelton had a significant number of creditors at the end of his litigation proceeding, it requires investigation as to how these creditors were paid - if they were in fact preferential payments to creditors other than Norris Ward McKinnon.
[41] The last factor to consider is Mr Skelton’s health and personal circumstances. It is clear that the personal circumstances are a factor relevant to the assessment of whether it would be just and equitable for the Court to exercise its discretion to refuse to make an adjudication order: for example, in the decision of West v West,29 where the age of the individual debtor and issues around family were considered as factors weighing against making an adjudication order.
[42] My view on this is that while these are factors which do weigh in favour of the Court exercising its discretion not to make the adjudication order, on balance they are outweighed by the requirement that there be an investigation into Mr Skelton’s finances having regard to the evidence put forward by Norris Ward McKinnon and Mr Skelton’s unsatisfactory explanations on these matters.
Orders
[43]I make the following orders:
29 West v West [2020] NZHC 261 at [15].
(a)That Mr Skelton’s application for the Court to exercise its discretion pursuant to s 37 of the Insolvency Act 2006 to refuse an adjudication order is dismissed.
(b)The proceeding is to be listed in the next available bankruptcy list in the Whangarei High Court.
(c)Costs are reserved.
…………………………….. Associate Judge Taylor
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