North Shore Laser and Skin Centre Limited v Menzies

[2019] NZHC 315

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-1363

[2019] NZHC 315

UNDER

the Insolvency Act 2006

IN THE MATTER OF

the bankruptcy of ANITA MENZIES

BETWEEN

NORTH SHORE LASER AND SKIN CENTRE LIMITED

Plaintiff

AND

ANITA MENZIES

Defendant

Hearing:	28 February 2019
Appearances:	Kate Lee for the Judgment Creditor Paul Murray for the Judgment Debtor
Judgment:	28 February 2019

ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL

Solicitors:

Skinners Law (Kate Lee/James Skinner), Auckland, for the Judgment Creditor Neilsons Lawyers (Edwin Telle), Onehunga, Auckland, for the Judgment Debtor Counsel:

Paul Murray, Barrister, Auckland, for the Judgment Debtor

NORTH SHORE LASER AND SKIN CENTRE LIMITED v MENZIES [2019] NZHC 315 [28 February 2019]

[1]    This case concerns the effect of a summary instalment order under Part 5 subpart 3 of the Insolvency Act 2006 on a pending bankruptcy application.

[2]    The creditor, North Shore Laser and Skin Care Centre, served a bankruptcy notice on the debtor, Anita Menzies, in July 2018. That notice was based on an order for costs made by this court, dismissing an appeal by the debtor against a decision of the District Court.1 The District Court had in turn dismissed an appeal by the debtor from a decision of the Disputes Tribunal.

[3]    The matter has an extensive history. The creditor obtained an order in the Disputes Tribunal in December 2015 that the debtor pay it $8,900.00. There was a protracted process where the debtor applied for several rehearings but did not attend. Unsurprisingly, the Disputes Tribunal did not allow the applications for rehearings. She had not attended the hearing where the Disputes Tribunal ordered her to pay the

$8,900.00. Her appeal against the decisions of the Disputes Tribunal to the District Court was unsuccessful, as was her appeal to this court. The costs she was ordered to pay in this court were $17,281.00. The debtor did not comply with the bankruptcy notice and the creditor began the bankruptcy application in August 2018, relying on both the High Court order for costs and the Disputes Tribunal order. The act of bankruptcy alleged is non-compliance with the bankruptcy notice. In October, the debtor applied for a summary instalment order.

[4]    Under the Insolvency Act 2006, an application for an instalment order is made to the Official Assignee. That contrasts with summary instalment orders under the Insolvency Act 1967 which went to the District Court. The Official Assignee made a summary instalment order on 20 February 2019. Specifically, the debtor was ordered to pay instalments of $1,204.02 per month for approximately three years, to enable creditors to receive 100 cents in the dollar, in satisfaction of all debts proved to the supervisor. The first payment is to be made no later than 29 March 2019. Instalments are to be deducted from the debtor’s wages, benefits and bank accounts, and paid to the Official Assignee’s Summary Instalment Order Trust Account. Payments are to

1      Menzies v North Shore Laser and Skin Care Centre Ltd [2018] NZHC 1035.

be made to creditors every six months. The order also appoints a supervisor. There are five creditors under the summary instalment order, including the creditor in this case, North Shore Laser and Skin Care Centre Ltd.

[5]    The creditor made representations to the Official Assignee against the summary instalment order. In short, the creditor does not trust the debtor. It is not confident that she will pay the instalments as ordered. It believes that she has a bad record of not paying her debts. Notwithstanding those representations, the Official Assignee appears to have been satisfied that a summary instalment order should be made.

[6]    Mr Murray, Ms Menzies’ counsel, advises that he made enquiries of the Official Assignee and has been told that the claims accepted by the supervisor to date come to $38,677.91 and that other claims are under consideration as well. It is not clear whether the total amount of the claims will exceed $47,000.00, the limit for any summary instalment order. Mr Murray helpfully referred to s 343(3) of the Insolvency Act which shows that that position can be addressed by the Official Assignee. The summary instalment order is not invalid on that account, but the supervisor may refer the matter to the Official Assignee who may cancel the order, if appropriate.

[7]    The creditor’s position is that notwithstanding the summary instalment order I should make an order adjudicating the debtor bankrupt or, if I do not make an order for adjudication, I should at least adjourn the matter to allow the creditor to make further representations to the Official Assignee.

[8]The debtor refers to s 352 of the Insolvency Act:

352    Proceedings against debtor

(1)        In this section, proceeding means any proceeding against the person or property of the debtor in respect of a debt that has been—

(a)shown in the debtor's application for the summary instalment order; or

(b)included in the summary instalment order; or

(c)notified to the supervisor.

(2)        After the summary instalment order has been made, a person must not begin or continue a proceeding unless—

(a)the Assignee gives permission for a creditor to begin or continue the proceeding (in which case the Assignee may impose any conditions that the Assignee thinks appropriate); or

(b)the debtor is in default under the order or the order has been cancelled

(3)        In the case of a proceeding in the District Court, unless subsection (2) applies, the court—

(a)must halt the proceeding on receiving notice of the order; and

(b)may award all or part of the creditor's costs incurred up to the time of the court's notification, and may certify accordingly for the purpose of the creditor proving the debt under this subpart.

[9]    The creditor, on the other hand, says that there is an earlier decision under the Insolvency Act 1967 which is authority that this court retains a discretion to deal with a bankruptcy application notwithstanding a summary instalment order:  Re Sturdee  (a debtor).2

[10]   Bankruptcy is a means for the collective enforcement of creditors’ rights against a debtor. The collective enforcement is carried out by the appointment of an Official Assignee in whom the assets of the debtor are vested, with a view to those assets being realised and the proceeds distributed to creditors whose claims have been accepted by the Official Assignee. There are associated restrictions on the debtor against travel overseas without the consent of the Official Assignee, carrying on business without the consent of the Official Assignee, and against running up credit. A bankrupt is released on discharge which usually takes place three years after the debtor has given the Official Assignee a signed statement of affairs.

[11]   Section 8 of the Insolvency Act recognises that there are alternatives to bankruptcy. The alternatives stated are a proposal to creditors under Part 5 subpart 2 of the Insolvency Act, a summary instalment order under Part 5 subpart 3 of the Act, and the no asset procedure under Part 5 subpart 4. Those are also means for collective

2      Re Sturdee (a debtor) [1985] 2 NZLR 627.

enforcement of creditors’ rights against a debtor, although in the case of the no asset procedure there is in effect no enforcement at all, given that the debtor has no assets with which to pay his or her creditors. As is common with such collective enforcement, to work properly there needs to be a restraint on creditors acting unilaterally to enforce their rights against the debtor. It is therefore standard to find in legislation providing for the collective enforcement of creditors’ rights that there is a restraint on creditors taking unilateral action. In the case of bankruptcy, that is found in s 76 of the Insolvency Act which bars proceedings after adjudication without the consent of the court. In the case of liquidations, s 248(1)(c) of the Companies Act provides that proceedings need the consent of the liquidator or an order of the court. When a company is in voluntary administration under Part 15A of the Companies Act, there is a similar restraint under s 239ABE. It is therefore not surprising to find that there is a restraint on creditors taking enforcement action against a debtor after a summary instalment order is made. That is clearly the purpose of s 352.

[12]   It is also important to recognise that a summary instalment order and bankruptcy are alternatives. Section 8 says so. One is not additional to the other. In specifying that they are alternatives, Parliament clearly considered that there could not be a summary instalment order and a bankruptcy for the same debtor and the same liabilities. Accordingly, on those principles, it would seem odd for a bankruptcy adjudication to be made on an application by a creditor who has claimed under the summary instalment order and whose debt has been recognised for that order.

[13]   The creditor, however, refers to  Re Sturdee.  That decision was made under  s 148 of the Insolvency Act 1967:

148     Effect of summary instalment order

(1)        Subject to the provisions of section 150 of this Act, after the making of a summary instalment order, no person shall bring or continue any proceedings against the person or property of the debtor in respect of any debt which has been shown in the application by the debtor or included in the order or notified to the supervisor, except with the leave of the District Court which made the order and upon such conditions as that Court thinks just.

(2)        Any proceedings against the debtor in any District Court in respect of any debt which has been shown in the application by the debtor or included in the order or notified to the supervisor shall be stayed upon that Court receiving notice of the order, and that Court may allow the whole or any part of the costs

of the creditor incurred up to the time of notification and, for the purpose of proving the debt under this Part, certify accordingly.

[14]   Eichelbaum J held that subsection (2) was purely procedural and applied only in the District Court. He held that subsection (1) could not bind the High Court. He was concerned that if s 148 were held to apply to proceedings in the High Court, that would mean that a District Court judge could control whether a proceeding could be run in the High Court, and he saw that as antithetical to the hierarchy of courts. It is appropriate to note, however, that he went on to consider the summary instalment order in that case. He held that it was an appropriate way of addressing the debtor’s insolvency and he made an order staying the proceeding. In short, the effect of his decision is that when this court dealt with a bankruptcy petition and a summary instalment order had been made, the court may in its discretion decide that a summary instalment order was an appropriate way of addressing an insolvency and could therefore decline to make an adjudication.

[15]   The question here is whether the bar on proceedings under s 352(2) operates automatically on a summary instalment order being made (save for the Official Assignee giving permission to run a proceeding) or whether this court retains a residual discretion to allow the bankruptcy proceeding to run notwithstanding the summary instalment order.

[16]   I accept the submission for the debtor that the reasoning underlying Eichelbaum J’s decision in Re Sturdee no longer applies under the Insolvency Act 2006. Under the 2006 Act, the Official Assignee takes greater responsibilities than was the case under the 1967 Act. Summary instalment orders have been removed from the District Court and the matter is run entirely under the overall oversight and control of the Official Assignee. The Official Assignee decides whether there should be a summary instalment order and, after hearing representations, sets its terms and appoints a supervisor. The running of the summary instalment order is subject to the overall supervision of the Official Assignee who can cancel or vary it if the debtor does not perform.

[17]   The Insolvency Act 2006 does not expressly provide that the court can set aside or vary decisions of the Official Assignee - except, of course, if there were an

application for judicial review. Given the greater role that the Official Assignee has taken under the Insolvency Act 2006, I do not regard it as an affront to this court that proceedings to enforce a debt by a creditor should be ended by the Official Assignee making a summary instalment order. After all, restraints may arise in proceedings in this court, for example, by a company going into voluntary administration, which has a similar restraint on creditors taking unilateral proceedings.

[18]   In short, in my view, under s 352(2) of the Insolvency Act, once a summary instalment order has been made, a creditor can no longer continue a proceeding against the debtor for a debt subject to the summary instalment order without the permission of the Official Assignee. Subsection (3) deals specifically with how a halt must be carried out in the District Court. But it is necessary to bear in mind that there may be debt enforcement proceedings in other courts or tribunals. For example, there may be proceedings in the Disputes Tribunal, the Tenancy Tribunal (for rent or body corporate levies), or the Employment Relations Authority (for wages), as well as in this court. Subsection (2) applies generally to proceedings in any court or tribunal in which debts may be enforced. I see no reason for distinguishing the High Court from any of the other courts or tribunals in which there may be enforcement proceedings. Accordingly, in my view, the bar on the creditor continuing its application has operated under s 352(2) and it is no longer possible for the creditor to proceed on the bankruptcy application.

[19]   I note that the creditor is dissatisfied with this outcome. Ms Lee advises that the creditor did make representations to the Official Assignee against a summary instalment order being made. Obviously the Official Assignee has taken those matters into account in deciding whether to make a summary instalment order or not. It is not for me to query the decision of the Official Assignee to make a summary instalment order.

[20]   I am satisfied, therefore, that it would not be appropriate to make an order of adjudication in bankruptcy and I accordingly dismiss the application.

[21]   Ms Lee seeks costs. She refers to s 352(3) which deals with how the District Court should deal with costs when a proceeding is halted after notice of a summary

instalment order has been given. It allows the District Court to award a creditor all or part of their costs up until the time of the court’s notification, and to certify for the creditor to prove the debt under the summary instalment order. That offers helpful guidance on how this court should deal with costs. It recognises that a creditor may be vindicated, having taken proceedings up until the time of the summary instalment order and may be entitled to costs for their steps in the proceeding. It also recognises that the award of any costs is discretionary.

[22]   In this case, the creditor took standard steps in good time after having obtained the costs order in the High Court appeal. That included service of the bankruptcy notice  and  the  issue  of  the  bankruptcy  application.  The  debtor  was  served  on 4 September, but did not apply for a summary instalment order until 4 October. The creditor unsuccessfully opposed the application for a summary instalment order. In my view, 4 October 2018 sets an appropriate cut-off date for the creditor to obtain costs. That is, the creditor has costs for the bankruptcy notice and the issue and service of the bankruptcy application but will not have costs for any steps taken in this proceeding after 4 October 2018. That is to recognise that the creditor was unsuccessful in opposing the application for the summary instalment order. The costs will be calculated on a category 2 basis. If there is any dispute, the matter will be referred to me. The creditor may add those costs to its claim under the summary instalment order.

……………………………….

Associate Judge R M Bell