Official Assignee v Parsons

[2017] NZHC 326

IN THE HIGH COURT OF NEW ZEALAND

HAMILTON REGISTRY

CIV-2016-419-00345

[2017] NZHC 326

BETWEEN

OFFICIAL ASSIGNEE

Plaintiff

AND

TIMOTHY DOUGLAS PARSONS

Defendant

Hearing:	24 February 2017
Appearances:	M L Dillon for Official Assignee S P Middlemiss for Defendant
Judgment:	3 March 2017

JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE

This judgment was delivered by me on

03.03.17 at 10 a.m., pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

OFFICIAL ASSIGNEE v PARSONS [2016] NZHC 326 [3 March 2017]

[1]    Mr Parsons was adjudicated bankrupt for the fifth time in 2012. He became due for his discharge in 2015. The Official Assignee filed an objection to the discharge but did not do so until 2016. At the date when the matter came before the court, Mr Parsons had been bankrupt for approximately 4 ½ years. This contrasts with the statutory period of three years minimum provided for in the Insolvency Act 2006 (“IA”).

[2]    As a result of the Official Assignee lodging an objection to Mr Parsons discharge, it was necessary for Mr Parsons to be examined before the court.

[3]Section 298 sets out the options of the Court following a public examination:

298     Court may grant or refuse discharge

(1)When the Court hears an application under section 294 for discharge, or conducts the examination of the bankrupt under section 295, the Court may, having regard to all the circumstances of the case,—

(a)immediately discharge the bankrupt; or

(b)discharge the bankrupt on conditions (which may include a condition that the bankrupt consents to any judgment or order for the payment of any sum of money); or

(c)discharge the bankrupt but suspend the order for a period; or

(d)discharge the bankrupt, with or without conditions, at a specified future date; or

(e)refuse an order of discharge, in which case the Court may specify the earliest date when the bankrupt may apply again for discharge.

(2)If the Court discharges the bankrupt on the condition that the bankrupt consents to any judgment, and the bankrupt does consent, the Court may vary the judgment as it thinks appropriate.”

[4]    The Official Assignee has sought either refusal of discharge from bankruptcy or discharge with conditions imposed pursuant to s 299 of the Insolvency Act 2006:

299Court may restrict bankrupt from engaging in business after discharge

(1)           The Court, when it makes an order of discharge or at any earlier time, may prohibit the bankrupt after discharge from doing any or all of the following things without the Court's permission:

(a)entering into, carrying on, or taking part in the management or control of any business or class of business:

(b)being a director of any company:

(c)directly or indirectly being concerned, or taking part, in the management of any company:

(d)being employed by a relative of the bankrupt:

(e)being employed by a company, trust, trustee, or incorporated society that is managed or controlled by a relative of the bankrupt.

(2)           The Court may—

(a)prohibit the bankrupt for a specified period, or without a time limit:

(b)at any time vary or cancel the prohibition.

[5]    Mr Dillon for the Official Assignee referred me to the case of ASB Bank v Hogg1 which contains statements of principle generally of relevance to cases where the Official Assignee opposes the discharge of a bankrupt. ASB Bank v Hogg was decided under different governing legislation as Mr Dillon pointed out, but he also submitted that the general statements of principle contained therein remain relevant:2

In conferring a discretion expressed in the broadest terms the legislation recognises that each case will be different, that the relevant factors may vary from case to case and that the exercise of the discretion must be governed by the circumstances of the particular case having regard to the guidance provided by a consideration of the scheme and purpose of the legislation. In providing for automatic discharge after 3 years the legislation recognises that it is not in the public interest that the bankruptcy should endure indefinitely. In providing for earlier discharge, s 108 recognises that continuing the bankruptcy to the end of the 3 years may not be in the public interest. Whether or not it is will be a matter for decision on the particular facts. In that regard guidance is provided by s 109(2) which lists matters on which the Assignee is to report to the High Court in such a case. The Court is to consider the Assignee’s report as to the affairs of the bankrupt, the causes of the bankruptcy, the manner in which the bankrupt has performed the duties

1 ASB Bank v Hogg [1993] 3 NZLR 156 (CA).

2 ASB Bank v Hogg at 157 to 158.

imposed on him or her under the Act and his or her conduct both before and after the bankruptcy, and also as to any other fact, matter or circumstance that would assist the Court in making its decision. Clearly the Court are prized of the matter will consider the legitimate interests of the bankrupt, the creditors and wider public concerns, but it is neither required nor entitled to impose threshold requirements in the exercise of the discretion so as to derogate from the breadth of the powers confirmed under s 110. The applicant has the onus in the sense of adducing evidence to show good cause for ordering an early discharge, but his obligation goes no further than that.

[6]    While the case of ASB v Hogg was concerned with an application for discharge before the three-year period at which a bankruptcy normally terminates, authorities decided since have applied the observations of the Court of Appeal in other cases where an objection has been lodged to a statutory discharge that the bankrupt would otherwise receive. I therefore intend to apply the Hogg principles when considering the present case.

Relevant aspects of present case

[7]    In his report the Official Assignee stated that Mr Parsons had carried on nine businesses personally as a sole trader during the period since his first bankruptcy and that he had advertised building services to members of the public during his current bankruptcy without the consent of the Official Assignee. The Official Assignee also noted that in relation to his 2005 bankruptcy Mr Parsons advised he lost $280,000 by gambling over the eight years prior to 2005. He further admitted that he had lost approximately $100,000 by gambling in the 12 month period leading up to his current bankruptcy.

[8]When he gave evidence, Mr Parsons did not deny any of the above assertions.

[9]    Mr Parsons was examined and, amongst other contentions that he put forward in the course of that examination, was that while in the past he was a risk to the public because of the change of circumstances which had occurred in his life and which I will make further reference to in this judgment, that was no longer the case.

[10]   He said that while he does not require to be released from bankruptcy in order to carry on a business, he nonetheless wishes to take back control of his affairs from the Official Assignee.

[11]   In his report, the Official Assignee makes plain his view that the causes of the latest bankruptcy, as with the earlier success of bankruptcies, was the lack of commercial honesty on the part of the bankrupt in his dealings with money that was entrusted to him by way of prepayment of amounts payable under contracts that he had entered into with customers of those businesses. In a disturbing number of cases, the bankrupt retained the money but did not perform the contract.

[12]   The Official Assignee referred to the fact that Mr Parsons admits he was a compulsive gambler and that is the reason why money that was entrusted to him was lost and was not applied to its proper purposes.

[13]   Mr Dillon questioned Mr Parsons on this aspect of the case during the course of a careful examination covering not just the fifth and current bankruptcy but the previous four as well.

[14]   A substantial part of the time was spent questioning Mr Parsons about his gambling addiction which is obviously a major contributor to losses to the creditors which have resulted in the past. In regard to that subject, Mr Parsons said that he had made attempts in the past to break free of his addiction but that when he came under pressure, for example because he was having trouble paying accounts from suppliers with whom he was in a business relationship, he would seek to escape from stressful situations by resuming gambling.

[15]   Mr Parsons said that he had taken steps to get assistance from agencies that work in the area of gambling addiction but said that he had not obtained a great deal of assistance from them. It was his view that the counselling he had received which involved much discussion about early influences on him such as his family background and related matters which he regarded as being essentially irrelevant.

[16]   He told me that he had managed to overcome his addiction as a result of his own efforts. He also said that he had not gambled for approximately 18 months – apparently the longest time for many years. He said he had been able to do this largely because he had established a relationship with another person who had an addiction, although not a gambling addiction. Between them they gave support to each other in their respective struggles with addiction. The person in question is a woman who owns the business which currently employs Mr Parsons. Mr Parsons told me that in addition to the employment relationship they also have a personal relationship. He said that he and this person had developed their own stratagems for dealing with their addictions. She is an alcoholic, he said. He said they had developed a pattern of going to licensed premises where there were gambling machines. By resisting the temptation that both were exposed to in such places (both have the availability of alcohol and gambling machines), Mr Parsons believed that they had both strengthened their respective ability to resist their addictions.

[17]   Another type of self-help strategy that Mr Parsons has adopted is ensuring that he does not have spare available money to spend on gambling.

[18]   Mr Parsons said that he had also received support from family and friends which had either not been available or he had not sought in the early stages of his addiction. These contacts had strengthened him in his resolve not to gamble again. That said, he acknowledged that people in his position can relapse even after an interval of 10 years.

[19]   Mr Parsons told me that he had no intention of becoming self-employed again. He said that the attraction of being self-employed in the past had been that because he is a “work addict” he needed to be able to be free to work at times when he felt the need for it such as weekends and late at night. He had not previously had an employee who made this possible. It was important to them that he be able to work like this, he said, because work was therapy for him.

[20]   Mr Parsons admitted that he had in the past caused loss to creditors. He agreed that he had taken deposits from persons to carry out carpentry and building type work including installing new doors and windows and houses. He further agreed that those

deposits had been lost when he had diverted the deposits to pay other creditors who were pressing him for payment. He accepted that it was wrong. He denied that he had directly used money paid to him by way of such deposits for gambling. I think what he was saying was that he accepted that at least indirectly the gambling was the cause of the losses to his clients. He accepted that he had not made any attempt to repay the losses that some of his clients had suffered. He was adamant that clients in this category were in the minority and that he had many other clients who were satisfied with the service he had given them and there had been no financial irregularity in relation to those other clients.

[21]   Mr Parsons said that he is working part-time at present in a field of work which he said he was skilled that, namely the removal of asbestos from buildings. He said this was a licensed industry and that his partner who owns the business is suitably licensed and that he, Mr Parsons, holds an individual operator’s licence to engage in this type of work.

[22]   Mr Parsons expressed willingness to make payments towards the losses which he had caused to people who had done business with him.

Discussion

[23]   Mr Parsons conduct has caused real harm. A representative example of the type of loss is provided by a claim from a Mrs Webb who resides at Papatoetoe and who, with her husband, paid a deposit of $4000 against the quoted price of $8265 for windows and French door to be supplied and installed. This money was lost. Doubtless that was an amount of money that the Webb’s could not afford to lose.

[24]   It is true that the losses in the cases which the Official Assignee was able to uncover did not involve very large amounts and in that respect the case can be distinguished from other cases such as Bryers where losses were measured in millions of dollars. But they still caused hardship as an individual level to the persons who lost their money.

[25]   The central factor upon which the present application turns is the risk that   Mr Parsons may in the future relapse and begin gambling again.

[26]   Commonsense suggests that where a person has shown an embedded predisposition to behave in a harmful way in the past, then in the absence of some factor that might bring about change, it is likely that the same patterns will be repeated in the future. Mr Dillon submitted that the best guide to how a person will behave in the future is how they have conducted themselves in the past.

[27]   Counsel was sceptical about Mr Parsons’ claims that he had turned over a new leaf. Mr Parsons had not completed a counselling or therapy course offered by a recognised professional agency.

[28]   On that view of matters, there is good cause for concern that if Mr Parsons were discharged from bankruptcy there would be a repetition of the patterns established in previous bankruptcies and there would be further losses caused to members of the public.

[29]   Dealing with this first aspect of the matter, the court is required to make an effort to assess the degree of risk that Mr Parsons will relapse into his former habit of gambling.

[30]   I have concerns that Mr Parsons is being over optimistic about the progress that he has made toward overcoming his gambling addiction which is no doubt at the heart of the financial irregularities which have led to all of his five bankruptcies. I consider that he has misjudged the necessity for professional help for persons in his position if they are to overcome their addiction. While no expert evidence was led on the point, it would seem that a tactic of leaving himself short of cash so that there was no money to spend on gambling, does not get to the root of the problem.

[31]   My assessment of this matter is that I have no doubt that Mr Parsons has obtained some insight into the harm that his conduct has caused. While I would like to be able to agree with Mr Parsons that he has taken effective steps to overcome his gambling addiction, I am not convinced that he is going about it in the right way. The problem is a pernicious one and even Mr Parsons accepts that the addiction is tenacious and difficult to overcome. I would have thought that in those circumstances

it made good sense that someone in the position of Mr Parsons would avail himself of all the help that he can get, even if he might be sceptical about the value of some assistance that is available from mainstream therapeutic agencies.

[32]   For those reasons, unfortunately, I assess that there is a medium risk that    Mr Parsons will relapse. If that were to happen, not even the imposition of conditions on discharge would provide adequate protection to the public. In the past, Mr Parsons has shown himself willing to carry on business without the consent of the Official Assignee thus placing himself in a position where he was able to solicit deposits from the public for home carpentry jobs which never got done. It would appear that so great was the need for cash to carry on gambling, that Mr Parsons did this even though he knew it was against the law and wrong. The risk is that he will repeat this pattern if he relapses.

[33]   While Mr Parsons has been willing in the past to engage in conduct which caused loss to the public, even though he was then under the supervision and control of the Official Assignee, that is not to say that continuing the period of his bankruptcy would not offer any level of protection to the public. I would expect that in the light of the complaints that have been made about Mr Parsons, he would be subject to closer supervision for the remainder of his term.

[34]   My conclusion is that having regard to the risk that Mr Parsons represents there is a need for continuing oversight from the Official Assignee. At the same time, it would be unfair to not give Mr Parsons some credit for the steps that he has taken to deal with his personal problems which are closely linked to the financial loss he has caused to others and the breach of his bankruptcy conditions.

[35]   While Mr Parsons agreed that he had not made any payments by way of compensation for the losses he had caused, he expressed himself as being willing to do that in future. However he did not put forward any firm proposals as to how he might do this or offer any comment on why the suggested contributions were only now being offered for the first time.

[36]   Mr Parsons did not put forward any claim to the effect that he needed to be discharged from bankruptcy in order to earn his livelihood by removing asbestos from buildings.

[37]   In my  judgment,  some  extension  of  the  present  bankruptcy  term  that  Mr Parsons has been subject to is justified. At the same time, any extension needs to be a comparatively modest one. I acknowledge that Mr Parsons has made progress and that it is not in the public interest that he be discouraged from taking further steps to deal with his gambling addiction.

[38]   In October of this year, Mr Parsons would have been bankrupt for five years. I consider that is a sufficient term of bankruptcy and that he ought to be discharged from bankruptcy as at 26 October 2017.

[39]   However given the fact that Mr Parsons caused losses through carrying on business in his own right during the period when he was bankrupt, I consider that it is appropriate that following his discharge he ought to be subject to a condition for a further period of two years which prevents him from any of the activities specified in s 299(1) IA. This will go some way to reducing the risk that he will cause financial loss to members of the public in the future.

[40]There will be orders accordingly.

J.P. Doogue

Associate Judge