Ocean Energy Innovation Limited (in liquidation) v Murray

[2022] NZHC 1916

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2021-419-000303

[2022] NZHC 1916

UNDER

Insolvency Act 2006

IN THE MATTER OF

The bankruptcy of JOHN ROBERT MURRAY

BETWEEN

OCEAN ENERGY INNOVATION LIMITED (IN LIQUIDATION)

First Judgment Creditor

E H KEENE and J M SPROSEN as

liquidators of OCEAN ENERGY INNOVATION LIMITED (IN

LIQUIDATION)
Second Judgment Creditors

AND

JOHN ROBERT MURRAY

Judgment Debtor

Hearing:

5 July 2022

Further affidavit: 20 July 2022, from Mr Murray Further memorandum: 21 July 2022, from Mr Murray

Appearances:

J A McMillan and A S Nair for Judgment Creditors Judgment Debtor in Person

Judgment:

5 August 2022

JUDGMENT OF ASSOCIATE JUDGE P J ANDREW

This judgment was delivered by Associate Judge Andrew on 5 August 2022 at 3.00 pm

pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar

Date ……………………….

OCEAN ENERGY INNOVATION LTD (IN LIQ) v MURRAY [2022] NZHC 1916 [5 August 2022]

Introduction

[1]                  The judgment creditors seek orders adjudicating Mr John Murray bankrupt and for costs. It is said he has committed an act of bankruptcy, namely that he has failed to comply with a Bankruptcy Notice based on a judgment entered against him in the District Court. The total sum of the judgment debt, none of which has been paid, is

$345,125.33.

[2]                  Mr Murray was the sole director and shareholder of the first judgment creditor, Ocean Energy  Innovation  Ltd.1  It  was  placed  into  liquidation  in  April  2017.  Mr Murray was responsible for the financial management of the company. The liquidators of Ocean Energy undertook proceedings against Mr Murray in the District Court in relation to him overdrawing the shareholder current account. Mr Murray was unsuccessful in defending those proceedings, which resulted in the judgment debt.

[3]                  There is no real dispute that the elements of s 13 of the Insolvency Act 2006 have been satisfied and that the judgment creditors therefore have a prima facie case for adjudication. Mr Murray owes a debt well in excess of $1,000, he has committed an act of bankruptcy, the debt is a certain amount and is immediately payable.

[4]                  The critical issue I must determine is whether, as a matter of discretion, an order for adjudication should be made. Mr Murray contends that he intends to challenge (out of time) the underlying District Court judgment debt and that he is an impecunious superannuitant with no assets, therefore it would be pointless to make any adjudication order. He also claims that the judgment creditors have acted unreasonably in pursuing the adjudication and that his reputation in the community will be significantly damaged if he is made bankrupt.

Factual background

[5]                  Mr Murray is an engineer by occupation. He has an interest in the power of ocean wave energy as it interacts with structures and harnessing that energy to generate electric power.

1      Ocean Energy.

[6]                  Ocean Energy was incorporated in September 2003 as a vehicle for Mr Murray to investigate the feasibility of generating electric power from ocean wave energy.2

[7]                  On 1 March 2021, his Honour Judge S R Clark entered judgment in favour of the judgment creditors against Mr Murray for $285,835.94 plus interest and costs. Judge Clark concluded as follows:3

Wages

[40]      Mr Murray claims that he is entitled to shareholder/employee wages of $65,800. In support of that argument he points to invoices sent to third parties by Ocean Energy. The invoices are for engineering consultation work. On many of them there is a specific reference to Mr Murray as the engineer who carried out the work, the number of hours involved and his charge-out rate, usually $80 or $120 per hour.

[41]      There is no argument from the liquidators that Ocean Energy carried out consultation work during the period 2010 to 2017. They also take no issue with the fact that it was Mr Murray who undertook that work on behalf of the company.

[42]The difficulty for Mr Murray is that:

(a)he did not provide a written employment contract between himself and Ocean Energy;

(b)he did not provide any resolution/s whereby Ocean Energy authorised payment of any remuneration to him for services as a director or in any other capacity;

(c)Ocean Energy was not registered with the IRD as an employer for PAYE deductions;

(d)Ocean Energy never filed any PAYE returns; and

(e)PAYE was never deducted from monies advanced to Mr Murray.

[43]No financial statements were ever prepared for Ocean Energy or income tax returns filed; thus, there was no record of any shareholder salary or wages being allocated to Mr Murray.

[44]Mr Murray takes a simplistic view that as it was he who carried out the engineering consultation work on behalf of Ocean Energy that he was entitled to withdraw money from the company bank account as his “wages” or “salary”. The problem for him is that he cannot point to any of the necessary legal, tax and financial arrangements being put in place to support his position.

2      Ocean Energy Innovation Ltd (in liq) v Murray [2021] NZDC 3142 at [5].

3      Ocean Energy Innovation Ltd (in liq) v Murray, above n 2, at [40].

[8]On 31 March 2021, his Honour Judge Clark awarded the judgment creditors:

(a)Interest of $16,358.77;

(b)Costs of $36,649.50; and

(c)Disbursements of $6,081.12.

[9]                  On 31 March 2021, the judgment creditors sealed judgment against Mr Murray for a total sum of $345,125.33. Mr Murray has taken no steps to satisfy the judgment debt.

[10]              On 19 January 2022, Mr Murray was served with a Bankruptcy Notice seeking payment of the judgment debt. He took no steps to satisfy the Bankruptcy Notice within the statutory 10-working day period.4

[11]              On 11 February 2022, Mr Murray filed documents disputing the Bankruptcy Notice.

[12]The application for adjudication was filed on 13 April 2022.

Relevant legal principles

[13]Section 13 of the Insolvency Act 2006 reads:

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 the filing of 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.

4      Insolvency Act 2006, s 17(4).

[14]              If the requirements in s 13 are made out, the court has the discretion whether to adjudicate the debtor bankrupt. Section 36 of the Act reads:

Court may adjudicate debtor bankrupt

The court may, at its discretion, adjudicate the debtor bankrupt if the creditor has established the requirements set out in section 13.

[15]              Where orders for adjudication are opposed, a court under s 37 may refuse adjudication. Section 37 reads:

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.

[16]Under s 38, a court may halt an adjudication application.

[17]              If the elements of s 13 are satisfied, the judgment creditors have a prima facie case for adjudication.5 The onus then shifts to the judgment debtor to satisfy the Court that adjudication should be refused on the basis of any of the criteria set out in s 37 or that the application should be halted pursuant to s 38.6

Analysis and decision

[18]              As noted, the critical issue here is whether, as a matter of discretion, I should refuse an order for adjudication. There is no real dispute that the requirements of s 13 have been made out and that the judgment creditors are prima facie entitled to the order sought.

5      Re Smith, ex parte Prain [2021] NZHC 1949 at [28].

6      Re Tootell, ex parte Rabobank Australia Ltd [2013] NZHC 2975 at [6].

[19]              In Re Tootell, ex parte Rabobank Australia Ltd, the Court identified the following factors as relevant to the exercise of discretion not to adjudicate a debtor bankrupt:7

(a)What are the wishes of all affected parties, including the applying creditor, other creditors and the debtor?

(b)Does the debtor have the ability to meet his or her debts over time and, if so, does it meet the requirements of achieving finality within a reasonable period?

(c)What were the circumstances in which the debt were incurred and do those circumstances suggest that the creditor is acting unreasonably in pursuing adjudication?

(d)Will adjudication be pointless?

(e)Will the debtor, if adjudicated, be rendered unable to support himself or herself?

(f)Does the debtor have such a standing in the community that significant issues of stigma or embarrassment will result?

[20]              I address in turn each of the factors Mr Murray advances to oppose the adjudication. The onus is of course on Mr Murray to satisfy me that adjudication should be refused. I do, however, acknowledge that he is self-represented.

Challenge to the underlying judgment debt

[21]              Mr Murray contends that the judgment of Judge Clark in incorrect and that he intends to appeal it. Mr Murray says he has not done so thus far because he did not believe that any enforcement action would be taken against him, as it would be pointless because of his impecuniosity.

[22]Mr Murray says that he does not owe the judgment debt because:

(a)He is owed money by Ocean Energy for services rendered; and

(b)There was an unwritten employment contract between him and Ocean Energy that formed the basis for him to be remunerated.

[23]              In Re James, ex parte Nightingale, Associate Judge Matthews held that it is not the common practice of this Court in the exercise of its bankruptcy jurisdiction to

7      Re Tootell, ex parte Rabobank Australia Ltd, above n 6, at [8].

engage in an analysis of the correctness or otherwise of the underlying judgment.8 However, the New Zealand legislative framework enables the Court to consider issues raised in relation to an underlying judgment and, if those issues are found to be of sufficient concern, to exercise the discretion accordingly under either ss 36 and 37.9 His Honour noted that if a Court is not satisfied that it can form a firm view, it can afford time to a judgment debtor to take up the matter by way of an application for rehearing or appeal, as the case may be.10

[24]              Both of the arguments that Mr Murray now advances to challenge the underlying judgment debt were considered and dismissed by the District Court. Judge Clark held that Mr Murray did not:

(a)Properly understand the legal relationship between him and Ocean Energy and that he had treated the company’s assets as his own and never took the required steps to remunerate himself;11 and

(b)Appreciate the need for an employment contract between himself and Ocean Energy if he was to be paid wages.12

[25]              Furthermore, Mr Murray has now had over 12 months to appeal the District Court decision. He has not done so. He needs leave to appeal out of time. That will be very difficult having regard to the Court of Appeal decision in My Noodle Ltd v Queenstown-Lakes District Council.13 In that case, the Court of Appeal held that a number of factors are relevant to a decision as to whether time to appeal should be extended. They include the reason for the delay, the length of delay, the conduct of the parties and the extent of any prejudice caused by the delay. The overall test is whether the extension would “meet the overall interests of justice”.14 I doubt in this case whether Mr Murray would be able to satisfy the “overall interests of justice” test. Mr Murray had a full opportunity before the District Court to argue his case and the matters he now raises are not new but, rather, arguments rejected by the District Court.

8      Re James, ex parte Nightingale [2018] NZHC 965 at [20].

9      Re James, ex parte Nightingale, above n 8, at [22].

10     Re James, ex parte Nightingale, above n 8, at [22].

11     Ocean Energy Innovation Ltd (in liq) v Murray, above n 2, at [66]–[67].

12     Ocean Energy Innovation Ltd (in liq) v Murray, above n 2, at [42]–[44] and [67].

13     My Noodle Ltd v Queenstown-Lakes District Council [2009] NZCA 224, (2009) 19 PRNZ 518.

14     My Noodle Ltd v Queenstown-Lakes District Council, above n 13, at [19].

[26]              Mr Murray has failed to satisfy me that there is a sound reason to believe that there is a flaw in the underlying judgment.15 This is not a case where I should afford time to Mr Murray to take steps to bring any appeal out of time.

Would adjudication be pointless?

[27]              Mr Murray claims that he is impecunious. He says he has minimal equity in the property in which he resides; it is a leaky home.

[28]              It may be that Mr Murray has minimal assets, although in my view that is a matter which the Official Assignee should investigate.

[29]              The judgment debt arose as a consequence of the liquidation of Ocean Energy, a company of which Mr Murray was the sole shareholder and director. Mr Murray failed to ensure that the company kept accounts and met its tax obligations. I find that there is a public interest in ensuring that Mr Murray is held accountable. That is not a pointless exercise. I note also that Mr Murray was the director and shareholder of three other companies.

[30]              I note that Mr Murray has never provided a fulsome and complete account of his net asset and financial position. The liquidators wrote to him on 5 February 2021, asking that he verify his financial position in order to assess the prospects of settlement. Mr Murray did not respond.

[31]              As Associate Judge Osborne held in Re Tootell, ex parte Rabobank Australia Ltd,16 issues of recovery, unless non-recovery is clear-cut, are appropriately for investigation not by this Court on an adjudication application, but by the Assignee with their powers of investigation and examination in the administration of a bankrupt’s estate. That public interest factor clearly applies in this case.

[32]              I acknowledge that Mr Murray is a superannuitant. However, any bankruptcy will not deprive him of his superannuation entitlement, and this fact is not sufficient to justify refusing an order for adjudication in these circumstances.17

15     Re James, ex parte Nightingale, above n 8, at [21].

16     Re Tootell, ex parte Rabobank Australia Ltd, above n 6, at [50].

17     Elvy v Commissioner of Inland Revenue HC Wellington B137/97, 12 March 1993 at 4.

Reputation

[33]              Mr Murray is naturally concerned about the impact of any bankruptcy on his reputation. I understand that concern. However, that is not a sufficient reason in this case to refuse an order for adjudication.

[34]              I note that Mr Murray is an engineer with a long career and interest in the power of ocean wave energy. He is now of retirement age. I do not see how a bankruptcy could seriously impact on his ability to pursue those interests and to continue to make a contribution.

Conclusion

[35]              I find that Mr Murray has failed to persuade me that there is a proper basis to refuse an order for adjudication. On the contrary, there is a clear public interest in making the orders sought. Adjudication is the clear wish of the judgment creditors and there is no basis for concluding that the judgment creditors are acting unreasonably in pursuing adjudication.  There is a legitimate basis for doing so.  I also note that  Mr Murray has only ever mentioned an appeal subsequent to his receipt of the Bankruptcy Notice.

[36]              For all these reasons, I find, as a matter of discretion, that an order of adjudication should be made.

Result

[37]              I adjudicate Mr Murray bankrupt. My orders are timed at 3.00 pm, 5 August 2022.

[38]              Mr Murray is to pay costs to the judgment creditors on a 2B basis, plus disbursements as fixed by the Registrar.

Associate Judge P J Andrew