Official Assignee v Singh

[2020] NZHC 180

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-000980

[2020] NZHC 180

BETWEEN

THE OFFICIAL ASSIGNEE

Applicant

AND

JASWEEN DEEPAK SINGH

Respondent

Hearing:

20 September 2019

Appearances:

K Morrison for the Plaintiff

J Niemand and E N Speakman for the Defendant

Judgment:

13 March 2020

JUDGMENT OF ASSOCIATE JUDGE SARGISSON

This judgment was delivered by me on 13 March 2020 at 4.00 p.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date.......................................

Solicitors:

Meredith Connell, Auckland Niemand Peebles Hoult, Auckland

OFFICIAL ASSIGNEE v SINGH [2020] NZHC 180 [13 March 2020]

Introduction

[1]        Ashwin Ashneel Narayan was adjudicated bankrupt on 28 June 2018 on the application of the Commissioner of Inland Revenue.

[2]        On 22 September 2016, just shy of two years before Mr Narayan’s adjudication, he entered into an agreement for the sale of property registered in his name to the respondent, Jasween Singh.  Under the sale and purchase agreement,   Mr Singh was to pay a deposit of $118,000 “by way of gift”. Under cl 2 of the agreement, the deposit became payable upon the execution of the agreement. The amount paid at settlement was the amount of the purchase price minus $118,000. On the day of settlement, 29 September 2016, the parties recorded the basis for the gifted deposit in a deed of gift.

[3]        The Official Assignee seeks an order under s 206(6) of the Insolvency Act 2006 to cancel the waiver of the $118,000 as an insolvent gift. If the application is granted, the Official Assignee intends to bring a further proceeding to recover the $118,000 as a debt due from Mr Singh to Mr Narayan’s bankrupt estate.

[4]        Mr Singh opposes the application for an order to cancel the alleged gift on two grounds. The first is that the “gift of the deposit” was — contrary to the agreement for sale and purchase and the deed of gift — not a gift at all, but partial repayment of loans he had made in fact to Mr Narayan. He says that, on that basis alone, the application for cancellation of an insolvent gift must fail. The second is in the nature of a defence under s 208, namely, that he gave value for the property and had no reason to believe Mr Narayan would be bankrupted.

[5]In broad terms, the issues I must determine are as follows:

(a)Whether Mr Narayan, the bankrupt, made an insolvent gift by waiving the deposit payable of $118,000; and

(b)Whether Mr Singh has put up an available defence to an order for cancellation, in particular, by way of s 208.

Factual background

[6]        By agreement for the sale and purchase dated 23 October 2015, Mr Narayan purchased a property — two adjoining residential units at Pollen Crescent in Hamilton

— for $595,000. On 9 November 2015, Mr Narayan settled the purchase and became the registered proprietor. He completed the purchase using $476,000 borrowed from the ANZ Bank. A mortgage in favour of ANZ was registered against the property on the same day as settlement. The balance was paid in cash, which was provided by a work associate of Mr Narayan, a Ramni Kumar. Ms Kumar was a bankrupt.

[7]        Eleven months later, Mr Narayan was in some difficulty fulfilling his tax obligations, and, by agreement for sale and purchase dated 22 September 2016, entered into an agreement to sell the entire property to Mr Singh, another of his work associates. The agreement contained the usual standard terms, along with some unusual provisions. It provided that:

(a)The purchase price was $590,000, but the deposit of $118,000 was payable “by way of gift”.

(b)The sale was by private treaty. The settlement date was 23 September 2016, one day after the date of the agreement.

[8]        On 29 September 2016,  pursuant to these arrangements, Mr Narayan and   Mr Singh entered into a deed of gift prepared  by  Mr  Narayan’s  solicitors, Avondale Law. The deed recorded that:

(a)Mr Narayan and Mr Singh are cousins;1

(b)Mr Narayan “is the sole owner of … $118,000 by way of equity on the property”;

1      In evidence, however, both Mr Narayan and Mr Singh say that they are not in fact related, and that they are work associates.

(c)Mr Narayan transfers his equity of $118,000 in the property to Mr Singh as a gift “in consideration of their natural love and affection” which he bears to Mr Singh as donee; and

(d)Mr Singh accepts the gift by executing the deed.

Affidavits and conflicting accounts

[9]        The Official Assignee’s application was supported by a brief affidavit sworn by the Deputy Assignee, Anthony Pullan. In his affidavit, Mr Pullan confirms the date of Mr Narayan’s adjudication and lays out the claims that have been  received in    Mr Narayan’s bankrupt estate as follows:

(a)The IRD has submitted two claims totalling $115,469.69;

(b)The ASB Bank has submitted a claim for $5,722.43; and

(c)The ANZ Bank has submitted a claim for $11,208.19.

[10]      Mr Pullan deposes that, to date, no recoveries have been made in the bankrupt estate.

[11]      He also lays out, in brief terms, the facts relating to Mr Narayan’s acquisition of the property, the sale of the property to Mr Singh, the fact that the parties entered into a deed of gift, and the fact that, upon settlement, Mr Singh, as purchaser, paid

$474,061.99 to the solicitors acting for Mr Narayan, the bankrupt, as vendor. He also produces copies of the agreement for sale and purchase and the deed of gift.

[12]      He confirms that the required procedural steps were taken to cancel the gift under s 206 of the Insolvency Act and that Mr Singh exercised his statutory right of objection.

[13]      The application for cancellation is therefore initially presented as a straightforward application to cancel an insolvent gift.

[14]      The situation is in fact  more complicated.  In  his affidavit in  opposition,   Mr Singh lays out his claim that he made a series of loans to Mr Narayan over several years, amounting to approximately $176,000. He says the so-called gift was in fact a contribution by way of part-payment of the total amount of the loans owed to him. In evidence in reply on behalf of the Official Assignee, Mr Narayan refutes Mr Singh’s account, denying the existence of such loans. He says that he acted, in respect of both his own purchase of the property and the sale of the property to Mr Singh, at the direction of Ms Kumar. Both Mr Singh and Mr Narayan were cross-examined at the hearing. Neither budged significantly from his account. However, Mr Narayan, in response to a question from myself, said the deposit of $119,000 for his own purchase was provided “through Ms Kumar”. By way of elaboration he added, “She said it’s been transferred through her trust account”.

[15]      A late affidavit was filed on Mr Singh’s behalf by the solicitor who acted for him on his purchase of the property, Mr Whitworth. Counsel for the Official Assignee opposed the late filing of the affidavit, but acknowledged that there would be no prejudice to the Official Assignee if it were allowed. I allowed it on that basis.

[16]      Under cross-examination, Mr Whitworth stated that he had no personal knowledge of the loans relied upon by Mr Singh, but that he was told by Mr Singh that he had made loans to Mr Narayan. When asked whether it would have been easy enough to record the arrangement relating to the deposit as a partial loan repayment instead of a gift, he responded that he had recorded the arrangement as a gift, as instructed. He said:

Well it had to be documented, that’s why following this — concurrent with this statement we had a Deed of Gift to record this, so it was a gift.

Legal framework

[17]      Section 206 prescribes the procedure to be used when the Official Assignee seeks to cancel an irregular transaction, including an insolvent gift.2 The Official Assignee must first file a notice with the Court in the prescribed form.3 She must then

2      Insolvency Act 2006, s 206(1)(a)–(c).

3      Section 206(2)(a).

serve the notice on the other party to the transaction as well as any other party from whom she intends to recover property that is the subject of the impugned transaction.4 The irregular transaction will automatically be cancelled if the recipient(s) of the notice do not provide the Official Assignee with written notice of objection within  20 working days after service of the notice.5 Any transaction that is not cancelled may still be cancelled by the Court on application by the Official Assignee.6

[18]      Where a transaction is cancelled, s 207 permits the Court to make an order for the retransfer of the property in question to the Official Assignee.7 Alternatively, the Court may direct any person to pay the Official Assignee such sum as the Court thinks appropriate.8 The Court may also make any other order for the purpose of giving effect to an order for retransfer or payment.9

[19]      In the present case, the Official Assignee filed and served the notice to cancel the insolvent gift as required under the Act. Mr Singh, the respondent, objected to the notice within the required timeframe. Consequently, the Official Assignee filed the present proceedings. That application asks the Court to order cancellation as follows:

The property or value that the Assignee wants to recover is:

The sum of $118,000, being a portion of the purchase price payable by … Mr Singh to the Bankrupt under a Sale and Purchase Agreement dated 22 September 2016 for the properties at Units A and B, 5 Pollen Crescent, Melville, Hamilton.

…

The transaction is claimed to be irregular because it was an insolvent gift.

[20]      The Official Assignee has the onus of proving, on the balance of probabilities, that the transaction sought to be cancelled was an insolvent gift.

[21]There is no definition of “insolvent gift” in the Act.

4      Section 206(2)(b).

5      Section 206(4).

6      Section 206(6).

7      Section 207(1)(a).

8      Section 207(1)(b).

9      Section 207(2).

Discussion

Insolvent gift or repayment of a loan?

[22]The conflicting accounts of Mr Singh and Mr Narayan have been set out at

[14] above. Mr Singh says the transfer was in repayment of a loan. I am satisfied, however, that the arrangement relating to the deposit of $118,000 — effectively to waive it — was an insolvent gift.

[23]              First, s 204 of the Act provides that a gift by a bankrupt to another person may be cancelled on the Official Assignee’s initiative if the bankrupt made the gift two years immediately before his or her adjudication. Mr Narayan was adjudicated bankrupt on 28 June 2018. He waived the deposit of $118,000 payable by Mr Singh on 22 September 2016, within two years of his adjudication.10

[24]              Secondly, though the Insolvency Act 2006 does not define what a “gift” is, the term was defined in s 54(6) of the Insolvency Act 1967 as “any disposition made otherwise than in good faith and for valuable consideration”. Commentators have suggested,11 and the Court has previously accepted,12 that all that the current Act requires for a transaction to be a gift is that it must have the effect of “bringing about the diminution in the value of the donor’s assets or otherwise reducing the value of the assets which would have been available to the Assignee [and/or creditors]”.13

[25]              In the present case, Mr Narayan was the registered proprietor and vendor of the property — indeed, even the deed of gift stated that Mr Narayan was “the person who is entitled to the full amount of funds”. Under the terms of the agreement for sale and purchase, Mr Singh had no obligation to make a monetary payment for the agreed amount of the deposit of $118,000 and Mr Narayan was not entitled to receive such a payment. Instead, at the point the parties entered into the agreement, the agreement

10 The deed of gift is dated 29 September 2016. However, under cl 2 of the agreement for sale and purchase, the deposit was payable upon execution of the agreement (22 September 2016).

11 Heath & Whale on Insolvency (online looseleaf ed, LexisNexis) at [24.92]; and Lynne Taylor and Grant Slevin The Law of Insolvency in New Zealand (Thomson Reuters, Wellington, 2016) at [11.4].

12 Official Assignee v Mayers [2012] NZHC 34 at [12]–[13]; Official Assignee v Russell Bay Lodge Ltd [2013] NZHC 1940 at [33]; and Official Assignee v Scott [2013] NZHC 2904 at [60]–[61].

13 See Official Assignee v Carrim [2017] NZHC 367 at [38]; and Official Assignee v Scott [2013] NZHC 2904 at [61].

operated to automatically “gift’ the deposit to Mr Singh. In the deed of gift, which followed later, this transfer is described as a gift of Mr Narayan’s equity in the property, valued at $118,000.

[26]I consider that the transaction was a gift for the following reasons:

(a)The described gift has the appearance of being part of an overall transaction by which Mr Narayan expressly transferred, for free, the owner’s equity in the property; and put $118,000 that would otherwise have been paid to him, out of the reach of Inland Revenue and other creditors that could properly expect to be paid or to claim in his bankruptcy.

(b)The gift directly “extinguished” an asset of $118,000 and reduced the amount that would otherwise have been received by Mr Narayan for the purchase price upon transfer of the property to Mr Singh. It thereby reduced the amount available to pay Mr Narayan’s creditors by the same amount. This is further evident from the fact that while there are a number of claims against Mr Narayan’s bankrupt estate, as outlined at [9] above, there have been no recoveries to date.

[27]              Thirdly, I am satisfied, on the balance of probabilities, that Mr Singh’s claim, that the waiver of the $118,000 was in partial repayment of a loan he made to       Mr Narayan, is devoid of substance. Mr Singh has failed to provide any contemporaneous and credible evidence to support his account or any loan:

(a)Mr Singh says he  transferred  money  to  the  bank  account  of  an  “A A Krishna”, which he says is Ashwin Ashneel Krishna, the name he says he knew Mr Narayan by at the time of the loans. Mr Narayan denies that he ever borrowed money from Mr Singh or that he had ever gone  by  the  name  Ashwin  Ashneel  Krishna.  He  suspects  that  “A A Krishna” may be Ms Kumar’s daughter, Artika Krishna — that, however, is merely speculation and beside the point. In any event,

when viewed against the totality of the evidence, Mr Singh’s claim is implausible.

(b)Mr Singh claims that since the end of 2016 he has not been able to locate or contact Mr Narayan to obtain repayment of the loan still owed by Mr Narayan. However, Mr Narayan’s evidence shows that since that time he has not changed his mobile phone number, has helped Mr Singh move houses, and had even sent text messages to and called Mr Singh as recently as 5 July 2019, the day on which Mr Narayan swore his affidavit.

(c)Mr Whitworth deposes that he had no direct knowledge of any such loan, and that the arrangement relating to the deposit was deliberately described as a gift, and “so it was a gift”.

(d)Carla Freda, an Insolvency Officer, made efforts to identify the bank accounts in Mr Narayan’s name at the relevant times. The bank statements of those accounts do  not  record  any  transactions  that  Mr Singh claims were advanced to Mr Narayan.

(e)Tellingly,  despite  claims  that  there  is  still  an  outstanding  loan (of $60,000), Mr Singh has made no claim against Mr Narayan’s bankrupt estate.

[28]              In any event, the contemporaneous documents executed by both Mr Narayan and Mr Singh record, as a matter of unambiguous fact, that the deposit was to be by way of a gift. This is clear from the agreement for sale and purchase which records that the deposit of $118,000 was by way of a gift. It is further supported by the deed of gift itself, also executed by both parties. Notably, the agreement for sale and purchase and deed of gift were prepared by a firm of solicitors, and Mr Narayan and Mr Singh were each represented by independent solicitors to complete the transfer of the properties. In these circumstances, I can only conclude that the parties freely chose to lay out in the documents exactly what they intended.

[29]              Finally, I consider the issue of who the $118,000 belongs to. It is fundamental to the concept of an insolvent gift that there be a diminution and that the recovery of gifted assets should be part of the bankrupt’s pool of assets available to creditors in the bankruptcy. The curious factual context relating to Ms Kumar’s relationship with Mr Narayan and Mr Singh — and her involvement in, and apparent control of,      Mr Narayan’s purchase of the two units and his subsequent sale of them — inevitably raises questions about whether he was in fact the true owner of the properties (and therefore the equity in them).

[30]              Mr Narayan, in his affidavit and in answering a question I put to him, stated that Ms Kumar, through a trust, had provided the original deposit for his purchase of the two units (amounting to around $119,000). As Ms Kumar was bankrupt at the time, all her assets vested in the Official Assignee. Conceivably, her assets may have included the $119,000. However, the Official Assignee makes no claim derived from Ms Kumar’s bankrupt estate to trace the $119,000 deposit. And no trust associated with  Ms  Kumar  has  made  any  claim  in  Mr  Narayan’s  bankruptcy.  The Official Assignee also submits that the $118,000 (held as equity in the property) was an insolvent gift and belongs to Mr Narayan’s estate. In the circumstances, I accept as valid the disposition of the $119,000 as against both the Official Assignee in the bankruptcy of Ms Kumar and any trust. It follows that the $118,000 currently claimed belongs to the estate of Mr Narayan.

Sections 207 and 208 of the Insolvency Act 2006

[31]              Alternative to his submission that the transaction was repayment of a loan and not an insolvent gift, Mr Singh relies on s 208, which places limits on recovery:

The court must not make an order under section 207 against a person (A) if A proves that when A received the property or interest in the property—

(a)A acted in good faith; and

(b)a reasonable person in A’s position would not have suspected, and A did not have reasonable grounds for suspecting, that,—

(i)in the case of an insolvent gift, the bankrupt was, or would become, unable to pay his or her debts without the aid of the property that the gift is composed of;

…

(c)A gave value for the property or interest in the property or altered A’s position in the reasonably held belief that the transfer of the property or interest in the property to A was valid and would not be cancelled.

[32]              Section 207 provides that, on “cancellation of an irregular transaction under which property of the bankrupt, or an interest in property of the bankrupt, was transferred”, the Court can make an order for retransfer of the property to  the Official Assignee or payment of a sum of money that the Court thinks appropriate, but not greater than the value of the property, to the Official Assignee.

[33]              Notably, the defence in s 208 only becomes available in relation to relief ordered under s 207. And the Court may order relief under s 207 only where there has been a “transfer”  of  the  bankrupt’s  property  or  interest  in  property.  The  Official Assignee says that there is no scope for the Court to make an order for relief under s 207 in the present case. Instead, the Assignee says steps will need to be taken to recover the debt of $118,000 in the usual manner.

[34]              The Official Assignee reasons that the waiver of the deposit is forgiveness of a debt. And, relying on Official Assignee v Mayers, the Official Assignee says that forgiveness of a debt does not amount to a “transfer” of property or any interest in property.14 That case involved three irregular transactions by way of forgiveness of debts as gifts. The Court held that forgiveness of debt is not transfer from the creditor to the debtor of any property right, and accordingly the Court cannot make an order for relief under s 207.15 It reasoned that a debt is a legal chose in action; the creditor is the owner of the chose in action (a right to enforce payment of the debt) against the debtor; a forgiveness of debt is an enforceable promise not to exercise the right to claim repayment of the debt; that is, the right is relinquished, not transferred.16

[35]              In the present case, Mr Narayan, as the vendor, is the creditor and Mr Singh, as the purchaser, is the debtor. Mr Singh must ordinarily pay the deposit of $118,000 to Mr Narayan. However, Mr Narayan waived the deposit via the deed of gift, effectively relinquishing his right/entitlement to seek payment of the deposit of

14     Official Assignee v Mayers, above n 12.

15 At [18].

16     At [14]–[17].

$118,000.   This is not a case where Mr Narayan transferred property (money) to   Mr Singh. The waiver of the deposit is not a “transfer” of property.

[36]              Having held that the Court cannot make an order of relief under s 207 of the Act, naturally, the issue of s 208 also falls away.

Result

[37]I make the following orders:

(a)The irregular transaction in question, namely the waiving of the deposit of $118,000 payable by Mr Singh to Mr Narayan, is cancelled; and

(b)As the Court cannot make an order for relief under s 207 of the Insolvency Act 2006, the Official Assignee will need to take steps to recover this debt of $118,000 in the usual manner.

Costs

[38]              As costs follow the event under the statutory costs regime, I make an order for costs against Mr Singh on a 2B basis, with disbursements as fixed by the Registrar.

Associate Judge Sargisson