Official Assignee v ASB Bank Limited
[2019] NZHC 1736
•23 July 2019
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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-000274
[2019] NZHC 1736
UNDER Part 19 of the High Court Rules and s 225 of Insolvency Act 2006 IN THE MATTER OF
an application for directions
BETWEEN
THE OFFICIAL ASSIGNEE
Applicant
AND
ASB BANK LIMITED
Respondent
Hearing: 31 May 2019
Further submissions by applicant on 21 June 2019 Further submissions by respondent on 5 July 2019
Appearances:
S Symon and N Porter for Applicant C Vinnell for Respondent
Judgment:
23 July 2019
JUDGMENT OF WYLIE J
This judgment was delivered by Justice Wylie On 23 July 2019 at 11.00 am
Pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar
Date:…………………………
Solicitors/counsel:
Crown Solicitor at Auckland Anthony Harper, Auckland
THE OFFICIAL ASSIGNEE v ASB BANK LTD [2019] NZHC 1736 [23 July 2019]
Introduction
[1] The applicant – The Official Assignee (the Assignee) – applies to the Court for directions, pursuant to s 225 of the Insolvency Act 2006 (the Act), as follows:
(a)where a bankrupt has deposited money, or directed that money be deposited, into a bank account in the name of a third party and where the bankrupt does not have signing authority on the account, do the transactions relate to the “bankrupt’s property, conduct or dealings” for the purposes of issuing a notice pursuant to s 171 of the Act; and
(b)if so, are:
(i)documents establishing the identity and providing personal details of the bank account holder;
(ii)the bank account statements; and
(iii)notes or other documents relating to the account
in the possession or under the control of a bank, documents “relating to the bankrupt’s property, conduct or dealings” which must be delivered to the Assignee.
[2] The application is made against ASB Bank Limited (the ASB) because the Assignee is investigating the affairs of two persons, a Mr Bayne and a Mr Bailey, both of whom, whilst bankrupt, are alleged to have directed persons with whom they had done business, to pay monies into accounts held by the ASB. The respective accounts were not in the names of Mr Bayne and Mr Bailey, and they did not have signing authority on them. Rather, the accounts were in the names of third parties. The Assignee gave notice to the ASB under s 171 of the Act requiring it to deliver up documentation in relation to the accounts said to have been nominated by the bankrupts. The ASB refused to deliver the documentation to the Assignee because it did not consider that the documents sought related to either bankrupt’s “property, conduct or dealings”, and because complying with the Assignee’s notices would
impinge the rights of third party customers and cut across duties of confidentiality it owes to those third parties as its customers.
[3] Mr Vinnell, appearing for the ASB, emphasised that the bank recognises and routinely complies with notices issued by the Assignee pursuant to s 171 of the Act. Nevertheless, it queried whether the powers available under the section can be invoked in the circumstances that have arisen and it questioned the limits on the Assignee’s powers available under the section.
[4] I raised with counsel whether or not other parties/banks should have been served and/or had an interest in the application. Mr Symon, for the Assignee, did not consider that service on other parties was required. Mr Vinnell assured me that other banks are aware of the application, and that they are content for the ASB to respond to it.
Factual background
General
[5] The Assignee’s office has an Integrity Enforcement Team (IET), responsible for investigating, detecting and preventing offending against the Act. Amongst other things, the IET is concerned to ensure that bankrupts are not managing businesses while bankrupt, or concealing assets from the Assignee, in breach of the various prohibitions placed on bankrupts during their bankruptcies.
[6] On occasion, the IET receives complaints from members of the public, who have had dealings with bankrupts. A complainant may provide the insolvency officer, or the IET, with bank account details which have been made available by the bankrupt in connection with the provision of goods or services by the bankrupt. If this happens, the IET routinely sends out a notice pursuant to s 171 of the Act to the relevant bank, requiring documentation relating to the bank account. The notice explains that the Assignee is investigating an allegation of offending against the Act, gives the bankrupt’s details and the relevant authority relied on in making the request and details the documentation sought. In the ordinary course, the bank responds, either advising that it does not hold any bank accounts for the bankrupt, or alternatively, providing copies of relevant bank account statements and any notes relating to the account.
[7] Occasionally, bankrupts set up or operate bank accounts in the names of companies or trusts. This usually does not pose a problem as the bankrupts have control over the relevant bank accounts and the banks are aware of this.
[8] The IET can however face difficulties where bankrupts use bank accounts in the names of third parties and where the bankrupts are neither account holders nor account signatories. This is apparently not uncommon for those bankrupts who have had multiple bankruptcies and/or who are aware that the Assignee will attempt to locate assets in their names. Such persons apparently often take steps to try and conceal their business dealings and assets from the Assignee.
[9] When a complainant has given the Assignee a bank account number apparently used by the bankrupt in the course of operating a business, and into which the complainant has been asked to pay money, the Assignee usually does not know whether the bank account is in the bankrupt’s name. Generally, the Assignee knows only that the bankrupt has told his or her alleged customer to deposit money into the account, or that the bankrupt has allegedly issued an invoice asking for money to be deposited into the account. When the account is in the name of a third party, and the bankrupt is not an authorised signatory on the account, on occasion, banks have refused to comply with notices issued by the Official Assignee under s 171, asserting that the bank account in question does not concern the bankrupt’s property, conduct or dealings.
[10] Two particular situations have led to the present application. The first situation is referred to in an affidavit from the manager of the IET, Peter Seufatu. It concerns a Mr Gordon Bayne. The second is referred to in an affidavit sworn by the head of the ASB’s payments and currency services department, Briar Couprie. It concerns a Mr Paul Bailey.
Mr Bayne
[11] Mr Bayne was adjudicated bankrupt by this Court on 4 February 2016. It is suspected that he operated a concrete laying business whilst bankrupt. The Assignee received a complaint from one of his alleged suppliers who in turn had received a complaint from an alleged customer. There were also complaints from other alleged
customers. Mr Bayne is said to have provided an ASB bank account number to one of the alleged customers. The Assignee issued a notice under s 171 of the Act to the ASB. ASB declined to comply with the request, on the basis that the documentation sought did not relate to Mr Bayne’s property, conduct or dealings. There were subsequent complaints regarding Mr Bayne, and again, a complainant was given an ASB bank account number. It was the same account number that Mr Bayne had previously provided to one of the earlier complainants. The Assignee issued a second notice under s 171 of the Act, and again, the ASB declined to comply with the notice. The Assignee then contacted Mr Bayne in an attempt to get him to comply with what were considered to be his obligations as a bankrupt. Mr Bayne responded that he was to begin work as an employee. The IET considers that Mr Bayne was operating a business using a number of aliases and directing payments into bank accounts which were not his own, and on which he did not have signing authority.
[12] Ms Couprie, in her affidavit, stated that, on 15 November 2018, the Assignee advised that Mr Bayne had confirmed at interview that he had directed customers of his concrete laying business to make payment for his services into the account, and also that the account was in the name of a friend. It also seems that additional evidence was provided suggesting that Mr Bayne had access to a bank card attached to the account, and that he therefore had control over the account. Ms Couprie confirmed that there was a cashflow card issued on the account at all relevant times, and also a Visa debit card, which permitted access to the account as well. The ASB was unable to ascertain whether Mr Bayne had used either card. Ms Couprie acknowledged that it is possible that one of the cards was held by Mr Bayne, and that two people may have been accessing the account. Ms Couprie also advised that there had been a deposit of $7,000 into the account in March 2017, that there were other deposits which referred to “concrete” or “driveways”, but that there were also a large number of seemingly ordinary and personal transactions – for example, payments to take-away shops, supermarkets and the like. Ms Couprie deposed that the ASB has no way of discerning between transactions that may have involved Mr Bayne, and those that involved the account holder, and that it would be a time consuming and costly process for bank staff to try and trace transactions, determine relevance and redact irrelevant information.
Mr Bailey
[13] Mr Bailey was adjudicated bankrupt in September 2015. On 11 October 2016, a senior investigator with the Assignee’s compliance unit emailed eight banks and financial institutions, asking them to check their records to see if a then bankrupt, Mr Bailey, had banked with them, and if so, asking for bank statements and banking records. The ASB responded that it had no records for Mr Bailey. On 18 October 2016, the Assignee advised the ASB that a complainant, said to have been dealing with Mr Bailey, had been instructed to make payments into a specified ASB bank account. The ASB checked and advised that the account was not in Mr Bailey’s name. The Assignee then emailed the ASB, asking it to provide the name of the account holder and the bank statements from the date of Mr Bailey’s adjudication as a bankrupt. The letter asserted that Mr Bailey was self-employed and that he was using the bank account to deposit his funds into. The request was made under s171 of the Act. The ASB responded that, as Mr Bailey was not linked to the account, it would not action the Assignee’s request. The Assignee then provided the ASB with what it considered was confirmation that monies payable to Mr Bailey were paid into the account, and again sought the name of the account holder and statements from the date of Mr Bailey’s adjudication. The ASB responded that it was not required to provide the information, because Mr Bailey was not named on the account. The bank did not consider that it had been provided with enough evidence to establish that the account related to Mr Bailey’s conduct and dealings. It asserted that the account was a personal account and not a company account, and that the ramifications for the privacy of the account holder were far reaching.
Submissions
[14] Mr Symon, for the Assignee, submitted that s 171 is clear in its terms and that it provides the Assignee with the power to require, by notice in writing, any person to deliver to the Assignee any document relating to the bankrupt’s property, conduct or dealing in that person’s possession or under that person’s control. He put it to me that it is sufficient that the Assignee considers that the third party bank account relates to the bankrupt’s property, conduct or dealings, and that there is no obligation a bank receiving notice to satisfy itself that the account relates to the bankrupt’s property, conduct or dealings. He argued that the Assignee’s investigatory powers are crucial
in facilitating any investigation into a bankrupt’s conduct and the potential recovery of assets for the benefit of creditors. He argued that a third party bank account relates to a bankrupt’s property, because the bankrupt has paid, or asked the third party account holder to receive into the account, money which the bankrupt beneficially owns. Further he argued that the bank account relates to the bankrupt’s conduct or dealings, because the bankrupt has directed the money be deposited into the account, as part of carrying on his or her business. He argued that all information relating to the account, including the identity of the account holder, relates to the bankrupt’s property, conduct or dealings, and that all that is required before a notice is issued under s 171, is that the Assignee be satisfied that the documents sought may lead to the discovery of information which concerns the bankrupt’s property, conduct or dealings.
[15] Mr Vinnell, for the bank, argued that where the account is in the name of a third party, the bankrupt is not an account signatory and the bankrupt has no mandate to operate the account or to receive information concerning the account, documents concerning the account do not relate to the bankrupt’s property, conduct or dealings. He argued that banks have contractual, common law and statutory obligations of privacy and confidence with their customers, and that if the documents sought by the Assignee are required to be delivered up on a s 171 notice, banks would be required to disclose third party account holders’ identities, contact details, financial positions, payments and receipts and personal information. He acknowledged that statutory compulsion is one of the recognised exceptions to a bank’s duties of confidentiality and privacy, but expressed concern that if a request made by the Assignee is ultra vires, a bank complying with such request may be in breach of its obligations to its customers. He argued that there has to be a clear and objective evidential threshold before a bank can be required to comply with a s 171 notice, and that the Act does not contemplate that the Assignee’s subjective belief is sufficient to require a bank to disclose documents in its possession.
Analysis
(a)The ASB’s obligations
[16] Any bank will necessarily have contractual obligations with its customers. Ms Couprie has annexed to her affidavit the personal banking terms and conditions which the ASB has with its personal banking customers. Inter alia, the ASB agrees that it will do all it reasonably can to prevent unauthorised access to the account holder’s accounts, and to make sure that they are secure. The terms and conditions record that the ASB will collect, hold, use and, in certain circumstances, disclose customers’ personal information. Personal information is defined as information that can be used to identify the customer. The terms and conditions record that by using the ASB’s products and services, the customer permits the bank to collect, hold, use and disclose such personal information. They go on to record that the ASB can disclose personal information to third parties where disclosure is permitted by law, or for any other purpose mentioned in condition 33.1. Condition 33.1 provides, inter alia, that the ASB can disclose information to comply with its legal obligations. Clause
34.4 provides that the ASB can disclose a customer’s personal information to regulators and government agencies in New Zealand or overseas in order to comply with any New Zealand or overseas laws, rules or requirements.
[17] The bank also owes common law duties of confidentiality. This is an implied term of the banker customer contract.1 The duty is however qualified – not absolute. Information can be disclosed where the bank is compelled to do so by law.2 It has been held that in such circumstances, there is no duty to inform the customer that an order has been made compelling disclosure to the authorities; similarly, there is no duty on the bank to resist the making of such an order.3 I can see no reason why the law should be different where the bank has been served with a notice rather than an order.
1 Alan Tyree and others – Tyree’s Banking Law in New Zealand (3rd ed, LexisNexis, Wellington, 2014) at 127.
2 Tournier v National Provincial and Union Bank of England [1924] 1 KB 461 at 471-473; And see in New Zealand R v Harris [2000] 2 NZLR 524 (CA) at [10].
3 Barclays Bank plc v Taylor [1989] 3 All ER 563.
[18] Banks are also subject to the provisions of the Privacy Act 1993. Relevantly, the Act applies to personal information about an identifiable individual.4 Personal information extends to information such as bank statements, transactions, balances and internal notes about customers and their credit risk assessments.5 Principle 11 provides that an agency that holds personal information should not disclose the information to a person or body or other agency except in certain defined situations. Personal information can be disclosed if the agency believes on reasonable grounds that non-compliance is necessary to avoid prejudice to the maintenance of the law by any public sector agency, including the prevention, detection, investigation, prosecution and punishment of offences, or for the enforcement of the law imposing a pecuniary penalty, or for the protection of the public revenue, or for the conduct of proceedings before any court or tribunal, being proceedings that have been commenced, or are reasonably in contemplation. Section 7(1) provides that nothing in principle 11 derogates from any provision in any enactment that authorises or requires personal information to be made available.
(b)The Insolvency Act – ss 165 and 171
[19] The Assignee is appointed under the Act, and the Assignee and Deputy Assignees are officers of the Court.6 The Assignee’s powers, duties and functions are derived from the Act and can be exercised only in pursuance and in compliance with the provisions of the Act.7
[20] Upon adjudication, and prior to discharge, the property of a bankrupt vests in the Assignee,8 and the bankrupt is subject to various prohibitions and obligations. Inter alia, the bankrupt is required to file a statement of affairs with the Assignee within 10 working days of his or her adjudication.9 The bankrupt must assist in the realisation of his or her property and in the distribution of the proceeds amongst his or her creditors. Relevantly, it is an offence for a bankrupt to conceal property from the Assignee,10 and an undischarged bankrupt is prohibited from entering into, carrying
4 Privacy Act 1993, s 2.
5 Tyree’s Banking Law in New Zealand, above n 1, at 131.
6 Insolvency Act 2006, s 399.
7 Hamilton v Bank of New Zealand (1904) 24 NZLR 109 (CA).
8 Insolvency Act 2006, s 101.
9 Section 69.
10 Section 420.
on, or taking part in the management or control of any business without the permission of the Assignee.11 It is an offence for a bankrupt to fail to comply with this provision without reasonable excuse,12 and such offending is punishable by a maximum sentence of two years’ imprisonment.13
[21] The Assignee is given various powers to summon and examine bankrupts and others and the Assignee can require persons summoned to produce and surrender documents in that person’s possession or control relating to the bankrupt’s property, conduct or dealings.
[22]Relevantly, s 165 of the Act provides as follows:
165 Assignee may summon bankrupt and others to be examined
(1)The Assignee may at any time, before or after a bankrupt’s discharge,—
(a)summon any of the persons listed in subsection (2) to appear before the Assignee, another Assignee, or a District Court Judge to be examined on oath in relation to the bankrupt’s property, conduct, or dealings; and
(b)require that person to produce and surrender to the Assignee or District Court Judge before whom that person appears any document in that person’s possession or control that relates to the bankrupt’s property, conduct, or dealings.
…
(2)The persons referred to in subsection (1) are—
(a)the bankrupt:
…
(c)a person known or suspected to possess any of the bankrupt’s property or any document relating to the bankrupt’s property, conduct, or dealings:
(d)a person believed to owe the bankrupt money:
11 Section 149.
12 Section 436(1)(b).
13 Section 437.
(e)a person believed by the Assignee to be able to give information regarding—
(i)the bankrupt; or
(ii)the bankrupt’s property, conduct, or dealings:
…
[23] This section, together with the following sections through to s 186, meets the Assignee’s need to be:14
… as fully informed as possible in matters relating to the bankrupt’s affairs so as to enable the Assignee to carry out any one or more of the functions which arise under the Act.
Exercise of the power to examine permits the Assignee to obtain information regarding a bankrupt’s affairs in circumstances where that information cannot be obtained absent compulsion.15
[24]Section 171 is in issue in this case. It provides as follows:
171 Assignee may obtain documents
In addition to the power contained in section 165(1)(b), the Assignee may, by notice in writing, require the bankrupt, the bankrupt’s spouse, or any other person to deliver to the Assignee any document relating to the bankrupt’s property, conduct, or dealings in that person’s possession or under that person’s control.
[25] As can be seen the power conferred by s 171 is expressed to be in addition to the power conferred by s 165(1)(b). There is no distinction between the documents a person may be required to deliver pursuant to a s 171 notice and the documents a person may be summoned to produce under s 165. The word “document” is defined in s 3 of the Act as follows:
(a)any writing on any material; and
(b)information recorded or stored by means of a tape recorder, computer, or other device; and material subsequently derived from information so recorded or stored; and
14 Re Havenleigh Global Services Ltd, ex parte Henderson [2014] NZHC 499 at [45].
15 Re Baird DC New Plymouth MA102/93, 28 May 1993 at [9].
(c)a book, graph, or drawing; and
(d)a photograph, film, negative, tape, or other device in which 1 or more visual images are embodied so as to be capable (with or without the aid of equipment) of being reproduced.
The scope of s 171 is however wider than the scope of s 165(1)(b), because s 171 refers to “any other person”, whereas s 165(1)(b) is confined to those persons listed in s 165(2).16 The apparent intention of Parliament was to include “a liberal catch-all, encompassing any person holding [relevant] documents”.17
[26] The conjoint expression “property, conduct or dealings” used in s 165(1)(a) and (b), in s 171, and elsewhere in the Act, is not defined. Nor are the words “conduct” and “dealings” separately defined. The word “property” is separately defined, as follows:
property means property of every kind, whether tangible or intangible, real or personal, corporeal or incorporeal, and includes rights, interests, and claims of every kind in relation to property however they arise.
[27] It has been noted that the statutory formulation “is a formulation of antiquity, going back in identical terms to the English legislation of the 19th century”.18 In this country it has been held that the conduct of a bankrupt extends to all conduct, whether personal, business related or a mixture of the two, and includes conduct in relation to any property, irrespective of who it might belong to.19 It has been said that a broad construction of the term is required in light of the purpose of the Act, and in the particular the provisions dealing with the provision of information and documents.20 The Court has observed that the various powers conferred on the Assignee to examine and discover are conceived in the most comprehensive terms and that they entitle the Assignee to make “the most searching inquisition”.21
[28] Commentators have observed that the powers of examination and discovery are central to the Assignee’s role as an officer of the Court. It has been suggested that
16 And see Lynne Taylor and Grant Slevin – The Law of Insolvency in New Zealand (Thompson Reuters, Wellington, 2016) at 237.
17 Havenleigh Global Services Ltd v Henderson [2015] NZHC 1761 at [63].
18 Re Havenleigh Global Services Ltd, ex parte Henderson, above n 14, at [20].
19 At [48].
20 At [43]-44].
21 In Re Hardy (a bankrupt), ex parte the Official Assignee [1922] NZLR 108 (SC) at 118-119.
they are extraordinary powers, because they are inquisitorial in nature, although statutorily created.22 The extent of the powers and their potential for misuse has been commented on by the Courts. For example, in Re Wright, ex parte Willey, Jessell M R said, of the equivalent powers to those in s 165 which were bestowed on the Official Assignee in the United Kingdom by the Bankruptcy Act 1869, as follows:23
Now that is a very grave power to entrust to any Court or any man, viz., power to summon any other man whom you suspect (for mere suspicion will do) to be capable of giving information, and to get any information from him, although the information may be extremely hostile to the interests of the man himself. It is a power which, so far as I know, is found nowhere except in bankruptcy and the winding-up of companies (which is a kind of bankruptcy); it is a very extraordinary power indeed, and it ought to be very carefully exercised.
[29] There are other powers in the Act potentially relevant to the obligations of banks. First, a bank must notify the Assignee if it ascertains or has reason to believe that a customer of the bank is an undischarged bankrupt. The bank must notify the Assignee of any account that the customer holds, and must not pay any money out of the account, except as provided by the statute.24 Secondly, the Assignee by written notice can require a bank to search its accounts and records by comparing the names of its customers with the names, including any aliases, of undischarged bankrupts.25 Thirdly, this Court can issue a search warrant to the Assignee or any other person if there is cause to believe that any relevant property is concealed in a locality.26 The words “relevant property” and “locality” are widely defined.27
[30] It is also relevant that a person (including the bankrupt or a creditor), whose interests, monetary or otherwise, are detrimentally affected by an act or decision of the Assignee may, within 15 working days of the act or decision, or within such additional time as the Court may allow, apply to this Court to reverse or modify the act or
22 The Law of Insolvency in New Zealand, above n 17, at 231.
23 Re Wright, ex parte Willey (1883) 23 Ch D 118 (CA) at 128; and see Re Rolls Razor Ltd (No 2)
[1969] 3 All ER 1386 at 1397.
24 Insolvency Act 2006, s 156.
25 Section 157.
26 Section 150.
27 Where the Assignee is seeking documents from a bank which is believed to hold them, the power to obtain a warrant will not generally assist because there will be no cause to believe that there is any concealment. See Havenleigh Global Services Ltd v Henderson, above n 17 at [15]. It may however assist if the Assignee is seeking the documents direct from the third party account holder or the bankrupt.
decision.28 Standing to appeal has generally been liberally accorded; a prospective appellant will be allowed to appeal as long as his or her rights, whether substantive or procedural, are adversely affected.29 While the issue was not argued before me, prima facie it would seem that the right of appeal is open to the bank as the party from which delivery is sought,30 and to the third party account holder whose interests are potentially affected.31 In the United Kingdom, the Courts have been prepared to consider whether the production of documents imposes an unnecessary and unreasonable burden on the person required to produce them in light of the Assignee’s requirements.32 Although the provisions the Court was there dealing with were different to those that apply to a bankrupt’s estate in New Zealand, it has been suggested that there is no reason to think that this approach would not be followed in this country.33
[31] It is also open to an affected person to seek judicial review of the Assignee’s decisions and actions.34
[32] The Assignee’s powers to examine and require the production of documents have been considered or touched upon in a number of cases in this country.
(a)In Re Smith,35 the Court of Appeal was considering s 68 of the Insolvency Act 1967 – which was the predecessor to s 165, although in different terms. A summons had been issued to the bankrupt’s wife requiring her to attend for examination. She was seeking to set aside the summons. The Court of Appeal considered relevant High Court and English authority, noting that care must be taken in considering English decisions because of legislative differences. The Court commented that s 68 enabled the Assignee to obtain information to be as fully informed
28 Insolvency Act 2006, s 226.
29 Gay v Bruns CA 193/98, 17 June 1999 at [5]; but see Edmonds Judd v Hobbs [2000] 2 NZLR 135 (CA); see however Glynbrook 2001 Ltd v Official Assignee [2012] NZCA 289 (following Gay v Bruns). And see The Law of Insolvency, above n 17 at 260-263.
30 P Heath and M Whale – Insolvency Law in New Zealand (3rd ed, LexisNexis, Wellington, 2018) at 143.
31 At 174.
32 British and Commonwealth Holdings plc v Spicer & Oppenheim [1992] 4 All ER 876 (HL).
33 Insolvency Law in New Zealand, above n 30 at 143.
34 Siemer v Official Assignee [2013] NZHC 513.
35 Re Smith (a bankrupt) [1992] NZFLR 241 (CA).
as possible relating to the property and transactions of the bankrupt. It was noted that the section is in part a recognition that in many cases information as to the bankrupt’s affairs and dealings will be incomplete.36
(b)In Re Baird,37 the Assignee sought to examine the bankrupt’s former accountant in relation to trusts associated with the bankrupt. The accountant was reluctant to answer a number of questions put to him by counsel for the Assignee, and to produce minute books and other documents relating to the trusts. The District Court ordered the accountant to do so. It noted that the bankrupt was a discretionary beneficiary of the relevant trusts, and that he therefore had a contingent interest in the trust property and the right to inspect trust documents. It was also noted that in respect of one trust, the bankrupt was the settlor, that he has been consulted on matters relating to the trust and was owed money by it. The Court formed the clear impression that the bankrupt was running all three trusts as a convenient way of managing his own financial affairs.
(c)In R v Russell,38 the Court of Appeal was considering an appeal against both conviction and sentence by an appellant for, inter alia, breaching the Insolvency Act by taking part in the management of the company whilst bankrupt. One of the grounds for challenging the conviction was that the Judge had erroneously admitted into evidence documents obtained from various banks which had been obtained pursuant to summons issued by the Assignee under s 68 of the then applicable statute. The appeal against conviction was dismissed. The Court noted that s 68(1)(c) (the predecessor to s 165(1)(c)), was “extraordinarily wide in its ambit” and the activities of the company were undoubtedly “capable of giving [the Assignee] information respecting the
36 At 8-9.
37 Above n 15.
38 R v Russell CA 449/96, 26 June 1997.
bankrupt”.39 It declined to accept arguments that there was ambiguity as to the meaning to be given to the section.
(d)In Official Assignee at Hamilton v Scott,40 the bankrupt was arguing that documents relating to his family trust had been improperly obtained, and that the Assignee had no right to access them. The Assignee had sought to exercise the power under s 171 to obtain copies of the bank accounts in the name of the trust from the bank. The bank
– coincidentally the ASB – had advised the Assignee that the bankrupt was maintaining the accounts in his own name and in the name of the trust. It was held by Lang J that the explanation given by the Official Assignee for seeking the documents was sufficient to justify the exercise of the s 171 power, and that the exercise of that power was necessary to ascertain whether or not the bankrupt had been diverting his personal income into the trust’s bank account.
[33] These various decisions illustrate that the Courts have been prepared to interpret ss 165 and 171 (and their predecessors) widely, to permit the Assignee to make enquiries into the property, conduct and dealings of bankrupts, by seeking information from third parties where that information is likely to assist the Assignee in carrying out his statutory functions.
[34] Counsel addressed detailed submissions to three particular and recent decisions, all of which have dealt with s 171.
[35] The first was the decision of Osborne AJ (as he then was) in Re Havenleigh Global Services Ltd v Henderson.41 In that case, the Assignee applied for directions in relation to the bankruptcy of Mr Henderson. The Assignee was seeking documents in the possession of the liquidator of one of Mr Henderson’s companies, Property Ventures Ltd, and emails in Mr Henderson’s possession which had been sent by him to, or received by him from, named addressees and correspondents during his bankruptcy. The Associate Judge:
39 At 4.
40 Official Assignee at Hamilton v Scott [2013] NZHC 2904.
41 Re Havenleigh Global Services Ltd, ex parte Henderson, above n 14.
(a)declined to adopt a restrictive interpretation of the word “conduct” used in s 171. He considered that the need for a broad interpretation was reinforced by the purposes of the Act, and in particular the provisions dealing with information and documents. He noted that those provisions are concerned with the need of the Assignee to be as fully informed as possible in matters relating to the bankrupt’s affairs so that the Assignee can carry out any one or more of the functions which arise under the Act;
(b)noted that a narrow interpretation of the word “conduct” which would put personal communications between the debtor and others beyond the reach of the Assignee, would cut across the legislative purpose of enabling the Assignee to make a fully informed decision on the matters which Parliament has entrusted to the Assignee;
(c)referred to the Assignee’s entitlement to make a “searching inquisition”;
(d)considered that the Court of Appeal’s observations in Re Smith must now be read, as a result of changes in the legislation, as relating not only to as relating the property and transactions of the bankrupt, but, as specified in s 165, to the bankrupt’s property, conduct and dealings. Information which the Assignee obtains should be that which fully informs the Assignee as to the prescribed matters;
(e)noted that it was common ground that in exercising the powers under the Act, the Assignee is obliged to act fairly and without oppression, and that where the Assignee has failed to do so, the Court can control the exercise of the relevant powers. The Associate Judge considered a decision of the Court of Appeal in the United Kingdom – Re a Debtor (No. 12) of 1958, where Stamp J discussed the approach to be taken in considering whether there ought to be an examination as follows:42
42 Re a Debtor (No. 12) of 1958, ex parte The Trustee of the property v Clegg [1968] 2 All ER 425 (Ch) at 434-435.
… there is no strong evidence of fraud and, of course, counsel for the executors is right when he said that on the facts at present known it would be oppressive for the trustee to claim the whole of the bankrupt’s estate. If one accepts the submission, however, that there is solid ground for thinking that the information sought may lead to discovery of assets which ought to have been disclosed, and if the information does in the event disclose such assets, that will be the moment to decide whether the non- disclosure was fraudulent or not, or whether, in the circumstances, some further order ought to be made. It is, moreover in my judgment, wrong to pre-judge that question. It is only at the point of time when the information has been ascertained that the question arises whether it would or would not be oppressive or unjust to proceed further in the matter. Again it is, in my judgment, quite impossible to say in advance whether that will or will not be so. With all respect to counsel’s argument, it is putting the cart before the horse to say that an order under s
25 should not be made unless the trustee in bankruptcy is prepared to swear that he verily believes the bankrupt in this case to have fraudulently concealed assets.
The Associate Judge considered that this approach is equally applicable to the situation where the Assignee is considering whether the bankrupt may have committed other breaches of the Insolvency Act, such as in relation to the management of businesses;43
(f)went on to apply this test, and was satisfied that in the circumstances of the case before him, the test was met, because of the way the bankrupt participated in the business affairs of the company; and
(g)concluded that the term “conduct” used in ss 165 and 171 of the Act includes conduct in relation to compliance with the duties and restrictions imposed on bankrupts by the Act.44
[36] This same approach was applied again by Associate Judge Osborne in another Henderson case.45 In this second case, Mr Henderson was seeking to strike out evidence obtained by the Assignee through s 171 notices. It was argued that the notices had been issued unlawfully to the relevant entities – Xero and CERA. The Associate Judge held that Mr Henderson could not establish a lack of good faith on the part of the Assignee in issuing the notices, and that the Assignee was justified in
43 At [59].
44 At [143(d)].
45 Re Havenleigh Global Services Ltd v Henderson, above n 17.
viewing the recipients of the notices as being able to deliver documents relating to Mr Henderson’s property, conduct or dealings. He declined to strike out evidence obtained from the issuance of the notices.
[37] The second case discussed by counsel was the decision of Hinton J in Henderson v Attorney-General.46 Mr Henderson was there alleging that a requirement by the Assignee under s 171 for the production of documents breached his rights under s 21 of the New Zealand Bill of Rights Act 1990. Hinton J doubted whether the exercise of the requisition power contained in s 171 would always constitute a search and seizure for the purposes of s 21. On the facts before her, she held that where the Assignee had requested data on a laptop computer, and where the scope of the data was unknown and there must have been a reasonable expectation of privacy in at least some of the stored data, the exercise of the s 171 power did constitute a search and seizure. The Judge further found that where documents of a personal nature had been disclosed that were irrelevant to the bankruptcy, the s 171 request was unlawful. She further held that the breach of s 21 was not technical or minor, and that the search was therefore unreasonable in terms of s 21. She observed that even if the original search and seizure had been lawful, the Assignee’s continued retention of the documents was unreasonable for the purposes of s 21. She considered that as a matter of general principle, the State should not be holding onto documents that are personal or clearly irrelevant to the regulator’s purpose. In the course of her judgment, Hinton J observed that s 171 covers all documents, whether of a bankrupt or others, which are or could be relevant to the administration of a bankruptcy, but that the section does not extend to personal documents that are clearly irrelevant to the bankruptcy. The Judge commented as follows:
[66] I should add that had the request been within the scope of s 171 and lawful, and documents had been provided that were personal and irrelevant, I would not consider that made the seizure of the documents unlawful. An ability to inspect documents to determine their relevance is a necessary aspect of a requisition power. The Official Assignee should not be responsible for the receipt and initial inspection of documents that are, as a result of inspection, found to be outside the scope of s 171. That is necessary to ensure the Official Assignee's power under s 171 is not unjustifiably curtailed.
46 Henderson v Attorney-General [2017] NZHC 606.
[38] The third case discussed by counsel was a decision of Paul Davison J in Mawhinney v Official Assignee.47 In this case, Mr Mawhinney had filed proceedings challenging the Assignee’s exercise of various powers under the Insolvency Act 2006 and the Companies Act 1993. He was seeking interim relief preventing the Assignee from taking any further action until his proceedings had been further actioned. Inter alia, Mr Mawhinney was seeking interim orders to avoid having to disclose and deliver documentation to the Assignee which he believed was confidential and irrelevant to the administration of his bankrupt estate. Davison J observed that the terms “conduct” and “dealing” are broadly construed. He considered that the Assignee was entitled to gather information about the property held by Mr Mawhinney in trust, and that the purpose of the Assignee’s “searching inquisition” was not to affect the property held in trust, but to ensure that the Assignee was as fully informed as possible about Mr Mawhinney’s property, conduct and dealings so as to enable the Assignee to carry out of the functions which arise under the Act. The Judge however entertained the possibility that confidentiality issues could arise where the Assignee seeks information from a bankrupt about a trust of which he is a trustee. The Judge observed that a trustee in bankruptcy remains a trustee of the trust until new trustees are appointed, and that the Assignee does not step into the shoes of a bankrupt trustee. He recorded Mr Mawhinney’s submission that his fiduciary obligations prevented him from disclosing confidential information to the Assignee, and he commented that, at face value, that submission appeared to be correct.48
[39] Finally, in this regard, I note that a number of other officials are given similar powers to requisition documents.49 The s 171 power is in many respects similar to the power conferred on liquidators by s 261 in the Companies Act 1993.50 A liquidator may, under s 261(1), require a director or shareholder of a company, or any other person, to deliver to the liquidator such books, records or documents of the company in that person’s possession or under that person’s control as the liquidator requires. The Court of Appeal has held that a liquidator under the section can take possession
47 Mawhinney v Official Assignee [2016] NZHC 2487.
48 At [32] and [34].
49 See for example, Serious Fraud Office Act 1990, s 9; Tax Administration Act 1994, s 17B.50 The similarity was noted in the Explanatory Note to the Insolvency Amendment Bill 2001, which introduced s 68A (now s 171) into the Insolvency Act 1967; And see Brooker’s Insolvency Law and Practice (online ed, Thompson/Brookers) at [IN171.01].
of all documents held by the company, not merely documents owned by the company.51 On the other hand, it has also been held that a liquidator has no authority under s 261 to require the disclosure of documents internal to a third party, even though they relate to the affairs of the company, as these are not “documents of the company”.52 There is also the recent decision of the Court of Appeal in Finnigan v Ellis,53 dealing with ss 261(1) (and also s 266). The issue before the Court was whether or not the High Court had jurisdiction to order a former director to disclose private and personal financial information about his means. The Court held that information about a former director’s financial position cannot be said to relate to the company’s business, accounts or affairs, and that the liquidator’s powers are limited to information about the company’s management, accounts and handling of its business affairs. It noted contrary authority in Australia. It held that whatever argument might be made for consistency with Australia was displaced by countervailing privacy concerns in this country, referring to the Privacy Act and the New Zealand Bill of Rights Act, including the right to protection from unreasonable search and seizure under s 21.
The application for directions
[40] Against this background, I turn to consider the Assignee’s application for directions. I have set out above at [1] the directions which are sought in this case.
[41] In my judgment, where a bankrupt has deposited money or directed that money be deposited into a bank account in the name of a third party and where the bankrupt does not have signing authority on the account, the resulting transaction relates to the bankrupt’s “property, conduct or dealings”.
(a)I agree with the submission made by Mr Symon that, in such situations, the bankrupt is dealing with his or her property. The bankrupt has directed a person who owes him or her money, to pay that money into the third party account holder’s account, and the third party account holder has done nothing entitling him or her to the payment. It is the
51 Buddle Findlay v Isaac (1996) 7 NZCLC 261,132.
52 ANZ National Bank Ltd v Sheahan [2012] NZHC 3037, [2013] 1 NZLR 674.
53 Finnigan v Ellis [2017] NZCA 488, [2018] 2 NZLR 123.
bankrupt who has provided the goods or services in respect of which the payment is sought, and the money owing is property to which the bankrupt is beneficially entitled.
(b)Further, the bankrupt’s actions in seeking to direct the debtor to pay the money into the third party account holder’s account, are conduct or dealings by the bankrupt, because the bankrupt is giving the direction and requiring that the money be deposited into the third party’s account holder’s account. The direction given is in the course of the business that the bankrupt is carrying on.
[42] There can be no doubt about Mr Bayne’s situation. As noted above at [12], he has accepted that he directed that monies owed to him be paid into a third party account holder’s account. It also seems that he had access to the account. In my view, the transactions resulting from Mr Bayne’s actions in directing that money owed to him be paid into the third party account holder’s account, are transactions relating to Mr Bayne’s property, conduct or dealings. Mr Bailey’s situation is not so obvious, but it does appear that from the limited materials available that he also directed his alleged “customers” to make payment into a nominated account. Again, in my judgment, the transactions resulting from Mr Bailey’s actions in directing that the payments be made into the nominated account are transactions relating to Mr Bailey’s property, conduct or dealings. Documents recording the transaction fall within the reach of s 171.
[43] The Assignee cannot exercise his power to require the production of documents under s 171 arbitrarily and without good cause. The exercise of the power must be for the purposes of the Insolvency Act – see above at [19]. To use the wording in the case law, there must be “solid grounds”, for the exercise of the power – see above at [35]. The Assignee is seeking to require the bank as recipient of the notice to disclose personal information it holds about its third party account holder. Under principle 11
– set out in s 6 of the Privacy Act – see above at [18] – the recipient bank cannot do so unless it believes on reasonable grounds that non-compliance with principle 11 is necessary for one of the specified purposes. This implies that the Assignee, as the requesting agent, must provide the recipient bank as the holding agency, with
sufficient information to enable the recipient bank to reach a reasonably based view about whether or not the information is required for an authorised purpose. It would not be sufficient for the Assignee simply to request information without giving any indication of why it is sought.54 In my judgment, a notice given under s 171 should set out, albeit succinctly, the grounds on which the notice is given. It could include the name of the person making the payment into the nominated third party account, the amount of the payment made and the date of the payment. It should also detail any offence believed to have been committed.
[44] As noted, it is the receiving bank holding the personal information that has to believe on reasonable grounds that non-compliance with the principle of confidentiality is required on maintenance of the law grounds. If, despite the detail given in the notice, the receiving bank does not accept that the Assignee has solid ground for making the request, it can appeal the issuance of the notice under s 226 of the Act, or seek judicial review of the Assignee’s actions in issuing the notice – see above at [30]-[31].
[45] Further, I can see no reason why the bank should not inform the third party account holder of the notice, so that the third party account holder can challenge the Assignee’s notice if he or she wishes to do so. This should operate as a check against mistakes, for example, the Assignee inadvertently giving the wrong account number in a notice, and against the improper or malicious exercise of the s 171 power by a person within the Assignee’s office. The Assignee protested that giving notice to the third party account holder may serve to alert the bankrupt and the third party account holder (who may also be committing an offence) to try and take action to cover up what has occurred or to put in place an alternative arrangement. There is always a risk of that, and the bank’s records of the earlier transactions cannot be altered by the bankrupt or the third party account holder. I discount this concern.
[46]I now turn to the second issue raised – namely, whether or not documents:
(a)identifying and providing personal details of the bank account holder;
54 R v Alsford [2017] NZSC 32, [2017] 1 NZLR 710 at [33], [42]-[44].
(b)the bank account statements; and
(c) notes or other documents relating to that account; must be disclosed by the bank receiving the s 171 notice.
[47] I cannot see that the bank’s duties of confidentiality owed to its customers either in contract, at common law or under the Privacy Act, assist in answering this question. Each of those obligations yields to what might be broadly described as a maintenance of the law exception – see above at [16] to [18].
[48] Rather, in my judgment, the issue falls to be determined primarily by the wording of the section. In this regard, s 171 has three requirements:
(a)notice may be given to the bankrupt, to the bankrupt’s spouse or to any other person. A bank clearly falls within the words “any other person” notwithstanding that it is a corporate entity;55
(b)the notice must seek a document in the recipient’s possession or under the person’s control. Again, there is no difficulty in this regard. Personal information identifying the account holder, the relevant bank account statements and any notes kept by the bank in relation to the account will all be in documentary form and in the bank’s possession or under its control; and
(c)the documents must relate to the bankrupt’s property, conduct or dealings. The key question is whether each of the types of documents set out in para [46] come within this description.
[49] Documents establishing the identity and providing personal details of the third party account holder do not relate to the bankrupt’s property, conduct or dealings. Such material is irrelevant to the bankruptcy. It is not the bankrupt’s property and it has nothing to do with the bankrupt’s conduct or dealings.
55 Interpretation Act 1999, s 29.
[50] Bank account statements disclosing the payment(s) that the bankrupt has directed be made into the third party account holder’s account relate to the bankrupt’s property, conduct or dealings, because the bankrupt’s property – the money – is coming into the account. So do subsequent statements for periods post the payment(s) in, until the payment(s) has been disbursed either to the bankrupt or to other persons. However, statements which relate to other periods, when no payment(s) into the account has been made at the bankrupt’s direction, and/or after any payment(s) made at the bankrupt’s direction has been disbursed, cannot be said to relate to the bankrupt’s property, conduct or dealings. The bankrupt’s property – the money – has gone out of the account. I acknowledge that there may be practical difficulties in some cases in ascertaining when the bankrupt’s money has gone out of the account. Those problems may be able to be resolved if the bank approaches the third party account holder. In any event, I do not consider that any practical difficulties overcome the restriction inherent in the wording of s 171.
[51] Notes or other documents relating to the third party account may or may not relate to the bankrupt’s property, conduct or dealings. They may so relate, for example, if the account holder has directed the bank to allow the bankrupt to have access to the account, and the bank has noted this. However, other notes relating only to the bank’s dealings with the third party account holder do not, in my judgment, relate to the bankrupt’s property, conduct and dealings. They are personal to the third party account holder, and the bank is under no obligation to disclose the same.
[52] I acknowledge that a number of the authorities which I have noted above emphasise that a broad interpretation should be given to the s 171 power to requisition documents. While I agree with that view, in the situation of payments into third party accounts, at the bankrupt’s direction, there are competing interests. The third party account holder has rights to privacy, protected in part by the Privacy Act. The third party account holder has a right to be secure against unreasonable search or seizure, whether of the person, property, correspondence or otherwise. That right is afforded by s 21 of the New Zealand Bill of Rights Act. I agree with Hinton J in Henderson v Official Assignee – see above at [37] – that the power to requisition documents can invoke the s 21 rights. Here, the Assignee is asserting an entitlement to third party personal information pursuant to a notice given under s 171. I do not consider that the
search and seizure of third party personal information is implicit from the statutory language. It has been observed that, in our constitutional model, police powers of search and seizure are conferred expressly and specifically.56 The same must apply to powers of search and seizure conferred on officials. Encroachment on rights requires clear legislative authority.57 In my judgment, there is no such clear authority in s 171, and where the rights of third party account holders are in issue, the section should be interpreted strictly and in accordance with its terms. The Assignee’s power to seek the delivery of documents by notice under s 171 is limited to documents that relate to the bankrupt’s property, conduct or dealings. It does not extend to the property, conduct or dealings of third parties.
Result
[53]For these various reasons, I direct as follows:
(a)Where a bankrupt has deposited money or directed that money be deposited into a bank account in the name of a third party and where the bankrupt does not have signing authority on the account, the resulting transaction(s) does relate to the bankrupt’s property, conduct or dealings, for the purposes of issuing a notice pursuant to s 171 of the Act.
(b)Documents establishing the identity, and providing personal details, of the third party account holder, and notes or other documents relating to the account unrelated to the bankrupt, and relating rather to the third party account holder, are not documents relating to the bankrupt’s property, conduct or dealings, and they are not required to be delivered to the Assignee pursuant to a notice given under s 171 of the Act.
(c)A bank account statement(s) recording a payment(s) made into a third party account at the bankrupt’s direction, is a document relating to the bankrupt’s property, conduct or dealings, and it must be delivered to
56 Hamed v R [2011] NZSC 101 at [20], [2012] 2 NZLR 305.
57 New Health New Zealand Inc v South Taranaki District Council [2018] NZSC 59, [2018] 1 NZLR 948 at [292]; Cropp v Judicial Committee [2008] NZSC 46, [2008] 3 NZLR 774 at [26]-[27].
the Assignee pursuant to a notice given under s 171 of the Act. So must a bank account statement(s) for periods post the payment(s) in, until the payment(s) in has been disbursed out of the account.
(d)Other statements relating to the bank account which do not record a payment(s) made into a third party’s account at the bankrupt’s direction, and/or are for periods post disbursement of any payment(s) in, do not relate to the bankrupt’s property, conduct or dealings, and they are not required to be delivered to the Assignee pursuant to a notice given under s 171 of the Act.
Costs
[54] The parties agreed that costs were to lie where they fall. Accordingly, there is no order as to costs.
Wylie J
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