Official Assignee v Pisarek

[2012] NZHC 1495

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2012-485-435 [2012] NZHC 1495

IN THE MATTER OF     The Insolvency Act 2006

AND

IN THE MATTER OF     the bankrupt estates of Gail Louise Norkett and Trevor Robert Norkett

BETWEEN  THE OFFICIAL ASSIGNEE Applicant

ANDTADZIO PISAREK Respondent

Hearing:         27 June 2012

Counsel:         D M Kerr for Applicant

GWD Manktelow for Respondent

Judgment:      28 June 2012

In accordance with r 11.5 I direct that the delivery time of this judgment is 4pm on the 28th day of June 2012.

RESERVED JUDGMENT OF MACKENZIE J

The application

[1]      This is an application by the Official Assignee, the assignee in bankruptcy of the estate of Mr and Mrs Norkett, to cancel an irregular transaction under s 206 of

the Insolvency Act 2006 (the Act). The transaction challenged is:

THE OFFICIAL ASSIGNEE V PISAREK HC WN CIV-2012-485-435 [28 June 2012]

(a)      The granting of the Bankrupts in favour of Tadzio Pisarek (by way of a  General  Security  Agreement  dated  11 August 2010)  a  security interest in respect of both their interest as licensees of Site 19 of Riversdale Beach Holiday Park (pursuant to a Licence to Occupy agreement  with  Riversdale  Beach  Holiday  Park  Limited  dated

27 September 2007), and their interest in the bach dwelling situated on Site 19 at Riversdale Beach Holiday Park.

[2]      The Official Assignee alleges that that constitutes an insolvent charge under s 198 of the Act, on the basis that it was given within two years immediately before their adjudications and that Mr and Mrs Norkett were respectively unable to pay their due debts immediately before the charge was given.

Background

[3]      Mr and Mrs Norkett were previously the sole shareholders in Life Safety Services (2001) Ltd (the company), which operated a fire protection business.  The company was placed in voluntary liquidation on 28 June 2010.  Before the company ceased trading, it had been in severe financial difficulty.  Mr Pisarek, an employee of the company and a personal friend of Mr and Mrs Norkett, advanced $90,000 to Mr and Mrs Norkett on 22 December 2009.  They in turn paid the funds to the company, reducing their current account debts, so as to provide funding for the company.  On

11 August 2010, Mr and Mrs Norkett entered into the general security agreement which is challenged, to provide security for Mr Pisarek’s loan.  Mr and Mrs Norkett had given personal guarantees of the company’s indebtedness to some creditors. They were subsequently adjudged bankrupt, Mrs Norkett on 30 November 2010 and Mr Norkett on 9 May 2011.

[4]      The property at Riversdale was purchased by Mr and Mrs Norkett in 2006. At the time of the purchase, the interest consisted of a lease from the proprietors of the Riversdale Beach Holiday Park on terms intended to enable them to permanently occupy the site. At the same time, they purchased the bach, a removable building on the site.

[5]      In 2007, the ownership structure for the bach was changed.   A company, Riversdale Beach Holiday Park Ltd (RBHPL) was formed.  The holiday park was divided into 80 lots.  RBHPL managed the holiday park.  It held the land as a bare trustee for the lot holders.   It granted licences to occupy over the individual lots. Mr and Mrs Norkett, as the owners of one of the baches, were granted an undivided

1/80th beneficial interest in the land, and a licence to occupy the site.

[6]      In February 2010 Mr and Mrs Norkett approached their solicitors, Gibson Sheat,  to  formalise  the  loan  arrangements  between  themselves  and  Mr Pisarek. Mr Williams of Gibson Sheat recorded in a file note dated 19 February 2010 the terms of his telephone discussion with Mrs Norkett on that date.  He confirmed the discussion in an e-mail to Mrs Norkett, in which he said:

I understand the background as follows:

(1)      Ted Pisarek, an employee of yours, has lent you and Trevor the sum of $90,000.00.

(2)      You wish to provide security for the loan from Ted.

(3)      The security is some form of charge/mortgage over your interest in a bach situated at Riversdale Holiday Park.

[7]      Mr Williams,  when  he  investigated  the  position  following  his  e-mail  of

19 February 2010, concluded that the transaction was not straight forward.  He was unsure  whether  Mr and  Mrs Norkett  could  grant  a  charge  over  the  occupation licence.  He suggested the possibility of a personal property security interest over the bach, but expressed doubts as to whether the bach was still a chattel or whether it had become a fixture.

[8]      Mr Pisarek instructed solicitors.   Mr Gillespie of Gillespie Young Watson wrote to Mr Williams of Gibson Sheat on 21 April 2010 in which he said:

Tadzio Pisarek has instructed us in relation to an advance he made to your clients T R and G L Norkett of $90,000.00 late last year.

He has left with us a draft deed of acknowledgement of debt prepared in your office.

Mr Pisarek advised that he handed a cheque to your clients but that it was made out to their company Life Safety Services (2001) Limited.

Our client believes however that the advance has been acknowledged personally by the Norketts and the Deed of Acknowledgement of Debt is to be signed by them and they are to provide a security over a licence they have to occupy a camp site at the Riversdale Beach Holiday Park.

We are instructed to redraft the Deed of Acknowledgement of Debt and forward it to you for comment.

[9]      Following  correspondence  between  the  solicitors,  a  loan  agreement  was signed  dated  2 July 2010,  and  a  general  security  agreement,  on  the  standard Auckland  Law  Society  form,  was  signed  dated  11 August 2010.    That  granted security over  the bach  (described  as  “consumer goods”)  and  the interest  in  the licence to occupy (described as “intangibles”).

[10]     Mr and Mrs Norkett fell into arrears in payment of levies and outgoings under  the  licence  to  occupy,  and  the  licence  was  subsequently  terminated  by RBHPL.  Under its terms, RBHPL had the right to sell Mr and Mrs Norkett’s interest in the scheme, together with the bach, and to account to the Official Assignee, as the Assignee of their estates, for the net sale proceeds.

Who owned the bach?

[11]     The first issue which I address is whether the interest in the Riversdale bach was the property of Mr and Mrs Norkett personally, or of their family trust.

[12]     The  Norkett  Family  Trust  (the  Trust)  was  created  by  a  deed  dated

22 March 1996.  It is a discretionary trust in favour of Mr and Mrs Norkett and their children and other descendants and relatives. At all relevant dates, the trustees of the Trust were Mr and Mrs Norkett and Gibson Sheat Trustees Ltd.

[13]     The evidence establishes that some of the funds for the purchase of the bach came from the Trust’s bank account.  The purchase price for the removable building was $85,000.  (It is not clear from the evidence what if any sum was payable for the granting of the lease. The rent was $1,800 per annum.)  $65,000 came from the bank account of the Trust.  In May 2006 the Trust had sold a property in Upper Hutt and the sum of $65,000 had been placed on short term deposit on 30 May 2006.   The

term deposit was withdrawn on 17 August 2006, and the funds used in part payment of the purchase price. There is no evidence how the balance was funded.

[14]     Mr Manktelow submits that the onus is on the Official Assignee to show that there has been a resolution by the trustees of the Trust to distribute what was clearly trust money to Mr and Mrs Norkett in their personal capacity.  He submits that there is no such resolution and that s 104 of the Insolvency Act prevails.

[15]     I consider that the ownership of the property must be determined in the light of all of the evidence, including the evidence as to the source of funds.   I do not consider that the absence of a resolution by the trustees to distribute $65,000 to Mr and Mrs Norkett necessarily indicates that the $65,000 retained its status as Trust money.  There are other ways in which the trust may have provided funds to Mr and Mrs Norkett to enable them to purchase the bach personally.  There may have been money owed to them by the trust, as I later discuss.  Also, not all of the funds were provided by the Trust.  I accept the evidence that $65,000 of the purchase price came from the Trust.  I do not find in that evidence strong support for the proposition that the bach was owned by the Trust.

[16]     The other evidence of the purchase of the bach and the restructuring of that interest does not support ownership by the Trust.  In all the documents relating to the purchase of the bach, and the subsequent restructuring of the ownership, Mr and Mrs Norkett are named as parties.   There is no reference to the Trust.   The third trustee, Gibson Sheat Trust Services Ltd, was not a party.  Gibson Sheat acted for Mr and  Mrs Norkett  when  they  initially  purchased  the  bach  in  2006,  and  on  the restructuring in 2007.   Had they understood that it was intended that the bach be purchased by the Trust, they would necessarily have taken proper steps to achieve that outcome.  The correspondence from Gibson Sheat which is in evidence about these transactions is not consistent with the proposition that the purchaser was the Trust.   There is no evidence that  Gibson Sheat Trustees  Ltd participated in, or concurred in, the purchase of the bach.

[17]     It is also clear from Mr Williams’ file notes and correspondence about the security that he understood the bach to be owned by Mr and Mrs Norkett personally.

Mr Pisarek’s loan had been made to them personally.  If security for repayment was to have been given over an asset of the Trust, that would have raised issues which Mr Williams would necessarily have to consider, and to raise with the third trustee. He did not do so.

[18]     The  Official  Assignee  has  adduced,  in  a  reply  affidavit,  a  letter  dated

8 September 2011 from Mr and Mrs Norkett’s accountant in which he says that the bach was financed by Mr and Mrs Norkett and the Trust, and later returned by the Trust to them so they could use it as security for the loan from Mr Pisarek, and to reduce the amount owed to them by the Trust.

[19]     Mrs Norkett has sworn a subsequent affidavit to say that the accountant is wrong in saying that the Trust transferred the property to her and her husband.   I granted leave to adduce that affidavit.   I do not, in reaching my conclusion on ownership, place any reliance upon the accountant’s statement that the property was partly  owned  by  the  Trust  but  later  transferred  to  Mr  and  Mrs Norkett.    My conclusion is that the whole property was at all times owned by Mr and Mrs Norkett personally.  I do note that the letter does refer to a debt owed by the Trust to Mr and Mrs Norkett.  I have earlier referred to that possibility, in dealing with the status of the $65,000 funding from the Trust.

[20]     Mr Manktelow submits that Mrs Norkett has consistently maintained that the bach was owned by the Trust.   Her first affidavit records that she informed the Official Assignee of that upon her being adjudicated bankrupt.  There is no evidence of any earlier statement by her to that effect.

[21]     I find, in the light of the evidence, that the interest in the Riversdale Beach Holiday Park property is the property of Mr and Mrs Norkett personally, not the Trust.

[22]     The contention that that property was owned by the Trust constituted the third ground of opposition relied upon.  That was the principal focus of Mr Manktelow’s submissions. That ground of opposition must accordingly fail.

Was the charge given when the advance was made?

[23]     The respondent also relies upon s 199(1) of the Insolvency Act 2006.  That provides:

A charge may not be cancelled under section  198 if the charge secures money actually advanced or paid, or the actual price or value of property sold or supplied, or any other valuable consideration given in good faith, by the secured creditor to the bankrupt at the time when, or at any time after, the bankrupt gave the charge.

[24]     The   evidence   clearly   establishes   that   the   funds   were   advanced   on

22 December 2009, while the general security agreement was not executed until

11 August 2010.  The question is whether, in those circumstances, the advance can be said to have been made “at the time when” the Norketts gave Mr Pisarek the charge.  As Mr Kerr acknowledges, a generous interpretation has been given to the expression “at the time when”, and that term is not necessarily to be given a literal meaning.   He refers to the decision of this Court in Re C & D Webster Ltd (In

Liquidation),[1]  and to the decision of the Court of Appeal in Parsons v Norris.[2]    He

submits that in order for it to be held that Mr Pisarek’s advance was made at the time the Norketts provided him with security, it is necessary for there to be continuity between the two events.  That is to say, they were part of one continuous transaction and there was no break in the chain.

[1] Re C & D Webster Ltd (In Liquidation) [1995] 3 NZLR 590 (HC).

[2] Parsons v Norris [2002] 2 NZLR 497 (CA).

[25]     If s 199 is to be successfully relied upon by the respondent, that claim must have begun with an agreement between Mr and Mrs Norkett and Mr Pisarek, at the time when the advance was made, that security would be given.   If that was established, some delay in implementing that agreement might not be fatal to the invocation of s 199.  If, on the other hand, there was no agreement when the advance was made, a later agreement would not suffice.

[26]     Both Mr Pisarek and Mrs Norkett have sworn affidavits.  Mr Pisarek says:

I advanced the sum of $90,000.00 to Mr and Mrs Norkett on the 22nd  of December 2009.    This  advance  was  pursuant  to  an  agreement  between myself on the one hand and Mr and Mrs Norkett as trustees of the Norkett

Family Trust  on  the  other  that  the  Norkett  Family Trust  would  provide security against the licence to occupy site 19 at Riversdale Holiday Park and the bach situated on site 19.

…

The reason for the advance was to ensure that Mr and Mrs Norkett were able to pay their debts and to enable the company to continue to trade.  It was also important for me that the company continue to be in a position to provide employment to it’s other employees.   There was also a major contract in place with Fletcher Construction which it was important to carry out.

[27]     Mrs Norkett says:

When Tadzio Pisarek agreed to advance the sum of $90,000.00 it was also agreed by the Trust that he would take security over the Riversdale property as it was the only property that the bank had no security over.

[28]     I do not consider that their evidence goes so far as to establish a concluded oral agreement on 22 December 2009, in the light of the significant documentary evidence which is inconsistent with the proposition that a concluded agreement was reached.

[29]     There was a delay between the advance and granting of security of nearly eight  months.    Solicitors  were not  instructed until  almost two  months after the advance.   The terms of the security to be taken were not agreed.   Mr Pisarek’s statement that he would never have made this advance if the agreement between himself and Mr and Mrs Norkett in respect of the provision of security was not in place is directly contradicted by the sequence of events.   There had been no agreement as to the security to be provided at the time he made the advance.  Indeed, the question of whether security was possible had not been resolved.

[30]     It is simply not possible to treat the charge as having been given at the time the advance was made.

Were the Norketts solvent?

[31]     The circumstances in which a charge may be cancelled are set out in s 198 of the Act. That provides:

A  charge  over  any  property  of  a  bankrupt  may  be  cancelled  on  the

Assignee's initiative if—

(a)       the  charge  was  given  within  2  years  immediately  before  the bankrupt's adjudication; and

(b)      immediately after the charge was given, the bankrupt was unable to pay his or her due debts.

[32]     Those conditions are clearly satisfied here.  The charge was given less than six  months  before  Mrs Norkett’s  adjudication  and  more  than  six  months  before Mr Norkett’s adjudication.  The statutory presumption in s 200 of the Act applies to Mrs Norkett, but not to Mr Norkett.  Even without that presumption, I find that the evidence establishes clearly that each of them was  unable to pay their debts in August 2010 when the charge was given.  The company had gone into liquidation and  they had  become personally liable for debts  of the company totalling over

$600,000, being debts to Crane Distribution New Zealand Ltd, Steel and Tube Holdings Ltd, and Greenstone Energy Ltd totalling $326,166.15, and to ANZ Bank of approximately $300,000.

Result

[33]     The statutory criteria for the setting aside of the charge have been made out. There will be an order cancelling the granting of the security interest under the general security agreement dated 11 August 2010 between Mr and Mrs Norkett and Mr Pisarek.

[34]     Costs are reserved. Counsel may submit memoranda.

“A D MacKenzie J”

Solicitors:         Lunn & Associates, Barristers and Solicitors, Napier, for Applicant

(Counsel: Daniel Kerr, Barrister, Napier, for Applicant)

Guy & Toby Manktelow, Barristers and Solicitors, Lower Hutt, for Respondent