Official Assignee v Williamson
[2013] NZHC 2579
•3 October 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2013-404-002713 [2013] NZHC 2579
IN THE MATTER OF the Insolvency Act 2006 IN THE MATTER OF
The Bankruptcy of ANGELA JEAN MACDOUGALL
BETWEEN
THE OFFICIAL ASSIGNEE Applicant
AND
RONALD JOHN WILLIAMSON Respondent
Hearing: 2 October 2013 Appearances:
C R Vinnell/C Baldock for the Applicant
R V Sami for the RespondentJudgment:
3 October 2013
JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN
This judgment was delivered by me on
03.10.13 at 4:30pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
THE OFFICIAL ASSIGNEE v R J WILLIAMSON [2013] NZHC 2579 [3 October 2013]
Background
[1] Mrs MacDougall was adjudicated bankrupt on 5 June 2012. On 12 March
2012 Mrs MacDougall authorised a payment of $253,131.76 from her solicitors to
another solicitor’s trust account.
[2] The expressed purpose of the payment was to enable Mr Williamson to complete the purchase of two sections in Kerikeri, he having been nominated as purchaser of those in place of Mrs MacDougall.
[3] The payment was purportedly made in satisfaction of a debt due to Mr
Williamson.
[4] The Official Assignee has issued a notice to set aside the payment as an insolvent gift under s 206(2) of the Insolvency Act 2006. Notice of that purpose was formally served on Mr Williamson. It advised that the payment was considered to be an insolvent gift.
[5] The Official Assignee’s application to this Court to set aside the payment asserts:
(a) Mrs MacDougall was not personally liable for any debt due to Mr
Williamson.
(b) In any event the debt was likely to be statute barred.
[6] Accordingly it was claimed the payment was a gift and having been made within two years of Mrs MacDougall’s adjudication, was repayable by Mr Williamson.
[7] Mrs MacDougall and her husband Gary were shareholders and directors of Pauanui Lake Resort Limited (Pauanui). In 1998 Mr Williamson paid $200,000 to an earthworks contractor (Downers) to assist the finish of work on a golf course being developed by Pauanui.
[8] Mr Williamson has filed an objection to the application to set aside the payment to him. He says that when he lent the money the MacDougalls executed an acknowledgement of debt that was guaranteed by the MacDougalls personally. He said the debt was required to be repaid on demand.
[9] Mr Williamson paid the money directly to the works contractor because at that time the final resource consent had not been given for the development project which meant Pauanui was unable to uplift any of its funding. By the time funding came through in the following year Mr Williamson had expressed a desire to have sections in stage 3 of the Pauanui development. He said the parties agreed that two sections in Pauanui would be security for the loan. Agreements for the sale and purchase of those were partially completed but not finalised. Nor was any security registered in his favour at that time.
[10] The development failed and Pauanui was put into receivership in 2002.
[11] Mr Williamson says that ultimately Mr MacDougall was able to reinvest in the project with the assistance of other investors. However and despite promises from fellow shareholders, arrangements to sign an agreement in favour of Mr Williamson to purchase the sections failed.
[12] Mr MacDougall was adjudicated bankrupt in May 2010.
[13] Mr Williamson says the Pauanui sections were lost to creditors and because all remaining sections were heavily mortgaged he was unable to purchase the sections as planned.
[14] The Official Assignee says that under an agreement dated 11 April 2011, Court proceedings relating to the manager’s house on the Pauanui development golf course were settled. Under that settlement Mrs MacDougall obtained the land on which the manager’s house stood. By that settlement Mrs MacDougall paid sums totalling $1,062,861 to various parties. When in March 2012 she sold the manager’s house, funds totalling $638,164.27 were available to her. Most of these were used to
pay creditors. As earlier noted of these a payment was made on 12 March 2012 to
Mr Williamson’s solicitor’s trust account.
[15] At some time, and in circumstances unknown, Mrs MacDougall completed agreements to purchase two sections in Kerikeri. Then Mrs MacDougall nominated Mr Williamson as the purchaser in her place. The payment to the vendor’s solicitor’s trust account enabled Mr Williamson to complete the purchase of those two sections. The payment was purportedly made in satisfaction of the debt due to Mr Williamson.
The evidence
[16] Mr Williamson says that when Mrs MacDougall was in the process of finalising the purchase of the two Kerikeri sections he made demand on her for repayment of the debt due to him together with interest that was agreed to be owing; and that she agreed to transfer those two sections to him in full and final settlement of the debt plus interest.
[17] Mr Williamson says he had no reason to suspect Mrs MacDougall was unable to pay her debts at the time. He says he received real and substantial benefits from making the loan when he did because:
(a) The MacDougalls provided consideration by their guarantee and the offer of sections in the Pauanui development as security.
(b)The MacDougalls promised to pay interest at commercial rates until he demanded repayment.
[18] Mr Williamson said that if the Court considers the payment to him was a gift, then he acted in good faith and that valuable consideration was given for the debt at the time.
[19] Mr and Mrs MacDougall have sworn a brief affidavit deposing that they confirm each particular contained by the notice and in the affidavit of Mr Williamson in support of his opposition to the Official Assignee’s application.
was a gift because Mrs MacDougall was not personally liable for the debt. Also, that the debt in any event was statute barred. However, in the alternative and in the event it is found the debt was enforceable against Mrs MacDougall, the Official Assignee claims the payment was an insolvent transaction and should be cancelled on that basis.
[21] On 13 September 2012 Mr McDonald questioned Mrs MacDougall about her payment for the purchase of two sections on behalf of Mr Williamson. He noted her response:
This was money that an old friend had lent them many years ago. She is not aware of any documentation with it. As far as she knows it was owned by her and Gary jointly and was repaid out of the sale. It is possible something like and original $200,000 that has an interest element.
[22] When on 13 November 2012 Mr McDonald spoke to Mr MacDougall regarding the payment to Mr Williamson, Mr MacDougall told him:
That when he was doing the resort, he had been borrowing from the company called NZ Commercial Mortgaging Limited. They stopped funding and eventually went into statutory management. At the time he had stage one sold and was just awaiting title. He was in the middle of completing the subdivision and [Ron] stepped in and paid a lot of contractors. Ron is a very old friend from many years ago. The deal was that Ron was to buy two sections in stage three at $100,000 each. Stage three wasn’t going to happen for some time and Ron was prepared to wait. There is no documentation that he knows of relating to what occurred. It was all verbal as Ron was a trusted old friend. When everything fell apart he (technically Angela) promised him the $200,000 back out of the sale of the manager’s residence.
[23] When Mr McDonald spoke to Mr Williamson on 22 November 2012 he records Mr Williamson advising him:
That he paid for some contractors eight or nine years ago and was promised two sections by Gary MacDougall at Pauanui. He had previously lent money to Gary and was paid back, so did this again. He, like MacDougall, has no real idea about how much he is actually owed. His name was put on two of these sections in the company books, but when it all went under, that didn’t mean anything. At the time there were no titles or anything. Gary always said that he would see him right. He has no documentation about it all. The only thing that might be of that nature was his name on the sections in the company books. It seems he became aware of the intention of them
buying the two sections in Kerikeri out of the proceeds of the settlement for the house at Pauanui. He intimated that Gary was going to build some houses on them in the hope that they could make a profit and repay him eventually. He had been waiting for some time for his money, the whole thing had caused a bit of consternation in his marriage, so he said he wanted the sections, although he really didn’t want two sections in Kerikeri. The plan was that Gary would build some houses on them and he could make a bit of money on them. He says that he is still owed some money from Gary.
[24] Apparently the MacDougalls considered that the Pauanui development works contractor (Downers) had written off the debt due to them. However in respect of Mrs MacDougall’s bankruptcy Downers has filed proofs of debt in the sum of
$1.5M. Mr McDonald believes that shortly before the settlement relating to the Pauanui manager’s house, the claim of Downers resurfaced and pressure was put on Mrs MacDougall to pay the $1.5M she had agreed to pay by 2008. Mr McDonald says Mrs MacDougall first became aware of this when her solicitor phoned her on the morning of the settlement for the purchase of the Kerikeri sections; that this would explain why the settlement funds due for payment to her solicitor was rerouted through to the solicitors acting for the vendors of the Kerikeri sections, and not through Mrs MacDougall’s own solicitors.
[25] From Mr McDonald’s enquiries Mr MacDougall did not advise the Official Assignee that Mr Williamson was a creditor in his bankruptcy, nor did Mr Williamson file a proof of debt in Mrs MacDougall’s bankruptcy.
[26] Since, requests have been made by the Official Assignee’s solicitors seeking production of the acknowledgement of debt and guarantee that Mr Williamson claims were agreed to. A response from Mr Williamson’s solicitors indicated that such documentation would be provided. Eventually it was confirmed that the documentation could not be located. None since has been provided.
The case for Mr Williamson
[27] It is that Mr and Mrs MacDougall personally guaranteed repayment of Mr Williamson’s debt on behalf of Pauanui Lake Resort Limited. Further that payment should not be set aside because:
bankrupt.
(b)Mr Williamson was unaware of any statutory time limits on his ability to enforce the guarantee and although a written guarantee was executed at the time Mrs MacDougall has been unable to locate and produce that document.
(c) In the absence of any guarantee in writing Mr Williamson will rely upon the doctrine of estoppel to make the guarantee enforceable.
(d)Mrs MacDougall had at all times acknowledged the debt would be repaid on demand.
(e) Mr Williamson at all times relied upon the assumption that the debt would be repaid on demand.
(f) Mr Williamson does not contend that Mrs MacDougall was liable for the debt as a principal debtor.
(g)The debt was owed by Pauanui until it went into liquidation from which time Mrs MacDougall became liable under her guarantee.
(h)That if the debt is found to be an insolvent gift under s 204 of the Insolvency Act 2006 then Mr Williamson contends that the payment to him was made in good faith and for valuable consideration at that time.
(i)If the payment of the debt is found to be an insolvent transaction under s 194 of the Act then Mr Williamson contends that he had no reason to suspect or at any time had knowledge that Mrs MacDougall was unable to pay her debts when due.
was paying off creditors but was solvent at the time of repayment.
(k)An essential term of the loan was that Mr Williamson would receive interest of approximately $50,000 plus the debt.
(l)Mr Williamson learned that the bankrupt had acquired funds after settling matters with the creditors.
(m)He then made demand (verbally) on Mrs MacDougall to make payment of the debt plus the interest that was due and owing.
(n)Mrs MacDougall then offered the two Kerikeri sections to him as repayment of the debt and interest.
(o) Mr Williamson always acted in good faith and had no intention to
prefer himself to the bankrupt’s other creditors.
[28] In her affidavit supporting Mr Williamson’s position, Mrs MacDougall says at the time of the agreement to settle the sale of the manager’s house she had only one other debt and that was to Mr Williamson dating back to 1998.
[29] Mrs MacDougall recalls Mr Williamson contacting her when he learned about the transfer of the manager’s house to her. He made demand for repayment of his debt at that time. She honestly believed that the Downers’ debt had been forgiven. She said nothing about the terms of the settlement being hidden from her creditors at any time. She stated that Downers was aware of the settlement and “had the opportunity to join the settlement agreement”. Regarding the payment to Mr Williamson she said:
The agreement and guarantee given at the time was that the Debt would be repaid when the opportunity arose.
[30] Counsel for Mr Williamson submits that a guarantee is enforceable even if the Court should consider that it is supported by an unsigned guarantee provided it was based on something more than simply a promise to pay.
Engineering INGL En Sp A 1 in support of the proposition that a guarantee could be held to be liable notwithstanding it was not in writing.
[32] Mr Williamson’s position is that Mrs MacDougall did execute a written guarantee at the time but that the document in question has been lost and cannot be produced. Therefore it is claimed an arguable case for estoppel arises because:
(a) The existence of the debt is not in dispute.
(b) Mrs MacDougall’s claim of a personal guarantee is confirmed by her.
(c)
(d)
Mrs MacDougall confirms the debt would be repaid.
Reliance was put by Mr Williamson on the guarantee and promised to
be repaid. (e)
Mr Williamson forbore to take steps to enforce the debt at the time
due to the guarantee. (f)
It would be unconscionable in the circumstances for Mr Williamson to
return the payment considering that the existence of the debt is not in question. [33]
On
Mr Williamson’s behalf it is claimed that because he and Mrs
MacDougall confirm the existence of a guarantee the Court should disregard claims that no such document existed. Further that the evidence supports Mrs MacDougall’s claim that she believed the debt was owed and that she was fulfilling her obligations under the guarantee that she gave to Mr Williamson.
[34] Mrs MacDougall said she always intended to repay the debt when the opportunity arose. She said it was an express term of the guarantee that payment would be made on demand when she had sufficient funds to pay the debt.
[35] Regarding the assignee’s submission that in the alternative that the payment to Mr Williamson was an insolvent transaction under s 195 of the Act counsel submits that there is not sufficient proof at the time of the transfer of the funds to Mr Williamson that Mrs MacDougall was unable to pay her due debts; that the payment of the sum of $253,131.76 to the vendor’s solicitors is the only amount that is in question. Before then Mrs MacDougall said she had successfully settled all of her debts to creditors after months of negotiations but that Downers deliberately chose to declare their debt of $1.5M on the eve of settlement. It is claimed that Mr McDonald of the Assignee’s office had written to Downers but had received no response and no proof of debt had been filed by Downers at the time; that in the absence of the Downer’s debt being lodged Mrs MacDougall was able to achieve settlement and to still have a surplus of $253,131.76 at her disposal is, she says, evidence of her solvency at that time. Mrs MacDougall further submits that she had additional funds of approximately $24,602.02.
[36] It is argued that because Downers’ debt was not lodged with the Assignee until after settlement of the purchase of the Kerikeri sections that the debt should not be claimed as relevant when assessing Mrs MacDougall’s solvency at the time. In that respect reliance is placed upon the judgment of Heath J in Taylor v Official Assignee 2 wherein the Learned Judge considered the test for “an ability to pay debts” and said of the important point to be considered:
... if it is established that an unsecured creditor is not making demand for its debt and does not intend to demand repayment in the immediate future, the debt to that creditor should not be regarded as due and payable.
[37] It is submitted for Mr Williamson that if the Downers’ debt was not taken into account at that time that Mrs MacDougall was able to pay her debts and therefore did not prefer Mr Williamson over other creditors.
[38] Alternatively, if it is found that the debt was a gift, which Mr Williamson denies, then he relies on s 208 of the Insolvency Act 2006 for relief against orders in favour of the Official Assignee pursuant to s 207 of the Act.
[39] Mr Williamson’s position is that even if it is shown that Mrs MacDougall’s payment to him was made at a time when she was unable to pay her debts, he cannot pursuant to s 207 of the Insolvency Act be required to retransfer that property to the Official Assignee because of the provisions of s 208 of the Insolvency Act and because he acted in good faith and in the reasonable belief on reasonable grounds that it was not an insolvent gift or an insolvent transaction because he believed Mrs MacDougall could pay her debts; and because he gave value or altered his position in the belief he was entitled to receive the funds.
[40] For Mr Williamson it is submitted that he acted in good faith; that he was told of and relied upon Mrs MacDougall’s belief that all of her debts were settled and that her settlement of those was open and transparent. Also all creditors of Mrs MacDougall agreed to the final terms of settlement and this led Mr Williamson to believe that he was not being preferred to other creditors. Moreover he says the Official Assignee’s investigation report establishes that Mrs MacDougall’s actions on settlement were done in good faith. Mr Williamson said that he was unaware of last minute correspondence between lawyers for Mrs MacDougall and Downers.
[41] It is suggested on behalf of Mr Williamson that pursuant to s 208(2) no reasonable person in his situation would have suspected that Mrs MacDougall was or would have become unable to pay her debts, and that he did not have reasonable grounds for suspecting same.
[42] In this case and for Mr Williamson it is argued that he relied upon Mrs MacDougall’s advice regarding her settlement with her creditors and that the payment made to him was made only after all other creditors had been paid; that Downers had not lodged its proof of debt and was not a listed creditor until the terms of settlement had been finalised.
[43] It is Mr Williamson’s position that he can show there was no reason in him for suspicion that Mrs MacDougall was insolvent at the time he transferred the funds for the purpose of paying for the Kerikeri sections for which he had nominated Mr Williamson as purchaser. Mr Williamson says that the fact that Mrs MacDougall was unable to pay for the Kerikeri sections and also to pay him was not relevant; that
the proposed purchase of those sections by Mrs MacDougall had been finalised before he made demand upon her for payment and that it was after his demand that Mrs MacDougall decided to fulfil her obligation to repay the debt due to him.
[44] Mr Williamson submits he had no reason to believe that Mrs MacDougall could not fulfil her obligations to other known creditors. He says he had an honest belief that Mrs MacDougall had settled with her creditors, in part because the Council and the Crown had contributed to the settlement agreement achieved in the outcome of issues arising from encroachment issues. Mr Williamson says that any reasonable person in his position would have accepted in those circumstances repayment without suspicion and would not have had reasonable grounds to suspect insolvency or a preference to being paid.
[45] In consideration of s 208(3) it is argued for Mr Williamson that he received real and substantial benefits from advancing the funds he did on behalf of Mrs MacDougall in 1998. It is claimed that her personal guarantee, and the offer of sections at the Pauanui development as security for payment, was real and substantial value given to Mr Williamson.
[46] Mr Williamson’s position is that his advance to Mr and Mrs MacDougall’s company at a time when it was in financial trouble was actual and reasonable substantial value in the outcome of which their company, Pauanui, was able to progress the development project further; that although the development project was eventually lost to creditors Mr Williamson’s advance allowed the company’s creditors to benefit more from the eventual liquidation that it would have prior to the advance. Also he says consideration was given at the time he was repaid because he did not insist on the payment of interest at that time.
[47] It is submitted that Mr Williamson’s advance allowed Mrs MacDougall to meet her obligations as guarantor and that therefore she received a benefit from the advance at that time. As much is, he says, confirmed by the preparation of sale and purchase agreements for the transfer of sections to him.
[48] In conclusion and for Mr Williamson it is submitted that Mrs MacDougall personally guaranteed the debt and that when her company went into liquidation and the development project was lost, there went with it the security that was guaranteed to Mr Williamson. Although there was no written evidence of the guarantee and security offered the existence of the debt has been established and therefore the payment by Mrs MacDougall to Mr Williamson was done in good faith and he had no reason to suspect that she was insolvent or that he was being preferred over another creditor.
[49] It is submitted that Mrs MacDougall settled with all her known creditors openly and that settlement was achieved by the creditor’s active participation and consent at the time. Therefore it is submitted the payment was not a gift, but repayment of a debt and if the Court finds that the payment was a gift then Mr Williamson and Mrs MacDougall acted in good faith and no suspension of her insolvency. Therefore a substantial and real benefit was received by Mr Williamson at the time.
Considerations
[50] It is the case for Mr Williamson that Mr and Mrs MacDougall guaranteed the payment made by him on behalf of Pauanui. Counsel submits Mrs MacDougall became personally liable for repayment of that sum (the debt) after Pauanui went into liquidation and Mr MacDougall was adjudicated bankrupt.
[51] Mr Williamson says a written guarantee was executed at the time of his payment to Pauanui but he is unable to locate that document. He also says he was unaware of statutory time limits on his ability to enforce the guarantee. However in the absence of the guarantee in writing Mr Williamson relies on the doctrine of estopple to claim the guarantee is enforceable. He says Mrs MacDougall at all material times acknowledged the debt would be repaid to him and at all material times he relied on the assumption the debt would be repaid on demand.
[52] Mr Williamson does not claim Mrs MacDougall is liable for the debt as principal debtor. He said Mrs MacDougall became liable for the debt under her personal guarantee from the time Pauanui went into liquidation.
[53] If the Court is to consider that the payment was an insolvent transaction under s 194 of the Act (i.e. within two years of bankruptcy) then Mr Williamson contends he had no reason to suspect nor had any knowledge that Mrs MacDougall was unable to pay her debts at that time. As far as he was aware she was paying off creditors but was solvent at the time of repayment.
[54] Mr Williamson says an essential term of the loan was that he would receive interest of approximately $50,000 plus repayment of the $200,000 he loaned.
[55] Mr Williamson learned that Mrs MacDougall had acquired funds after settling matters with her creditors. He then made a verbal demand for payment of what was due to him. He agreed to accept the two Kerikeri sections offered as repayment. He says he always acted in good faith and had no intention to prefer himself to other creditors of Mrs MacDougall.
Guarantee enforceable - estoppel
[56] For Mr Williamson the claim of estoppel relies upon more than simply a guarantor’s promise to pay. It is submitted for Mr Williamson that he regarded the promise as enforceable and was encouraged by Mrs MacDougall to believe that, and he always relied upon the fact that he believed the guarantee was enforceable.
[57] Counsel refers to the judgment of French J in Taite Jamieson v Cardrona Ski Resort Limited 3. In that case a written guarantee had been executed at the time. In this case counsel submits there is no dispute that the funds were paid. Mrs MacDougall has confirmed by affidavit that she guaranteed payment. Mr Williamson says he was assured the debt would be repaid at some point and he relied on the guarantee and the promise to repay when Mrs MacDougall could afford to do
so. Because of this he took no steps to enforce the debt against Pauanui because of
3 [2012] 1 NZLR 105.
the guarantee he had. Counsel submits it would be unconscionable for Mr Williamson to have to return what he has now received considering the existence of the debt is not in question.
[58] Mr Williamson has given evidence that:
To the best of my knowledge we executed a written document that was drawn up on the spot. I am unable to locate the written acknowledgement of debt that was signed by the bankrupt as well.
[59] He relies also upon what Mrs MacDougall deposed in her affidavit:
[16] My husband and I personally guaranteed the debt at the time.
...
[18] At no time since the debt was incurred did my husband or I refuse to pay the debt. The agreement and guarantee given at the time was that the debt would be repaid when the opportunity arose.
Limitation
[60] Although Pauanui owed the debt it went into receivership on 1 August 2002. It was struck off the register on 20 July 2012. Counsel adopts the submission whilst accepting that time for repayment started running from the date of the advance unless there was an express or implied agreement that demand was required, counsel for Mr Williamson submits that an essential term of the guarantee was repayment of demand when Mrs MacDougall had the funds to pay.
Insolvent transaction
[61] If the Court finds that the debt was an enforceable obligation against Mrs MacDougall (and not an insolvent gift of funds that were not obliged to be repaid) then the payment was an insolvent transaction under s 195 of the Act because the payment was made at a time when Mrs MacDougall was unable to pay her due debts, and it enabled Mr Williamson to receive more towards satisfaction of the debt then he would have received or have been likely to receive in Mrs MacDougall’s bankruptcy.
[62] Section 196 of the Act holds that a transaction made within six months immediately before a bankrupt’s adjudication is, unless the contrary is proved, made at a time when the bankrupt is unable to pay his or her debts.
[63] Therefore the payment to Mr Williamson within six months of Mrs MacDougall’s bankruptcy is presumed to have been made when she was unable to pay her debts. Therefore Mr Williamson must prove Mrs MacDougall was also able to pay her due debts.
[64] Counsel for Mr Williamson asserts that Mrs MacDougall had successfully settled all of her debts to creditors after months of negotiations to achieve that settlement; that Downers deliberately chose to declare their debt of $1.5M on the eve of settlement. Counsel for Mr Williamson points to the fact that the Assignee had written earlier to Downers but had received no response and no proof of debt “was filed by Downers at the time”. Therefore counsel says that in the absence of Downers’ debt being lodged with the Official Assignee prior to settlement the fact that Mrs MacDougall was able to achieve settlement and still have a surplus in the amount she authorised as payment for the purchase of the two Kerikeri sections, is evidence of her solvency at the time of that payment.
[65] Counsel submits that because Downers did not file a proof of debt until after this it should not be taken into account when assessing Mrs MacDougall’s solvency at the time when payment was made. Counsel relies upon the judgment of Heath J in Taylor v Official Assignee 4 where the Learned Judge said that if it is established that an unsecured creditor is not making demand for its debt and does not intend to demand repayment in the immediate future, the debt to that creditor should not be regarded as due and payable.
[66] Therefore counsel submits that if the Downers’ debt was not taken into
consideration at the time Mrs MacDougall was able to pay her debts that she did not prefer the payment to Mr Williamson over other creditors.
4 [2011] NZCA 630 at para 62.
Limits on the Assignee’s ability to recover payments
[67] Section 208 provides that the Court must not make an order retransferring property (or interest therein) if the person opposing the Assignee’s application affirmatively proves [that when payment was received he/she]...
(a) acted in good faith; and
(b)a reasonable person... would not have suspected and... did not have reasonable grounds for suspecting, that the bankrupt was, or would become, unable to pay his or her due debts; and
(c) [the payee] gave value for the property or altered [his/her] position in the reasonable belief that the transfer of the property to [him/her] was valid and would not be set aside.
[68] Counsel submits Mr Williamson acted in good faith. Mr Williamson deposes that there was no question that the payment to him was made secretly because the settlement that favoured Mrs MacDougall was open and transparent; and the fact that Mrs MacDougall’s creditors all agreed to the final terms of settlement led him to believe he was not being preferred to other creditors.
[69] Mr Williamson deposes that he was unaware of correspondence between solicitors for Downers and for Mrs MacDougall at the time payment was made for the purchase of the two Kerikeri sections.
[70] As regards Mr Williamson’s honest belief he says that the payment to him was made after all creditors were paid and because as Mrs MacDougall says Downers had not lodged proof of debt and was not a listed creditor until the terms of settlement had been finalised. He said Mrs MacDougall had contracted to purchase the Kerikeri sections before he made his demand on her for payment and it was after that demand that Mrs MacDougall decided to fulfil her final obligation by assigning to him the two sections she had already paid for. Mr Williamson also relies on the
fact that Mrs MacDougall had funds of about $24,000 remaining in her bank account after payment for the two sections.
[71] Mr Williamson says his honest belief was that Mrs MacDougall had successfully settled with her creditors including with those entities she negotiated with for the payment she received.
[72] As for the giving of value for the payment made on his behalf Mr Williamson claims the offer of payment to him by the provision of the sections that had been purchased was real and substantial value at the time; that Mr Williamson had advanced funds to Mrs MacDougall’s company when it was in financial trouble which enabled Pauanui to progress the development project and that although the development project failed Mr Williamson’s advance had allowed Pauanui’s creditors to benefit more in the eventual liquidation than it would have but for the advance. In that way also his advance allowed Mrs MacDougall to meet her obligations as a guarantor to the creditors of Pauanui.
Discussion
[73] Mr Williamson’s loan was made in 1998. What Mr and Mrs MacDougall have deposed to needs to be contrasted with what they disclosed to Mr McDonald initially in the course of an official enquiry. In the Court’s clear view the best evidence is that the loan to Pauanui was undocumented. Mrs MacDougall said they were not aware of any documentation. Mr Williamson said there was no documentation that he knew of about it.
[74] It appears the MacDougalls were under the impression that the debt owing to Downers had been written off and would not be pursued. Following Mr MacDougalls’ bankruptcy the Official Assignee wrote to Downers requesting details of a Personal Property Securities Register in favour of Downers against Mr MacDougall. There was no response nor was any proof of debt filed.
[75] It seems in the outcome of Mrs MacDougall’s settlement in the fallout of the development failure she obtained ownership of the manager’s house. Shortly before
that settlement was effected Downers resurfaced and put pressure on Mrs
MacDougall to pay the $1.5M she had agreed to pay by 2008.
[76] Mr McDonald says Mrs MacDougall first became aware of Downers’ claim when her solicitor Mr Lucas telephoned her on the morning that she was to receive the settlement funds. He believes this explains why the payment of the settlement funds was organised through the trust account of the solicitors acting for the vendors of the two Kerikeri sections.
[77] Mr McDonald confirms that Mr MacDougall did not advise the Official Assignee that Mr Williamson was a creditor in his bankruptcy. Nor did Mr Williamson file proof of debt in that bankruptcy.
[78] Mr Williamson assumes that because he did not receive the two Pauanui sections as promised Mr and Mrs MacDougall assumed personal responsibility for the debt. But, it is not the case that the debt became theirs rather that they could be held accountable for it.
[79] References to a guarantee document are vague. Counsel for Mr Williamson said it was something that was put together by the parties. But there are no details as to the form it took, what terms it contained, who wrote it or how.
[80] In response to submissions that Mr Williamson is well out of time to seek recovery, submissions were advanced that it was an express or implied term of the “guarantee” that it would be repayable on demand and because demand was not made until about the time the settlement funds were received in 2011, Mr Williamson was not out of time to seek recovery.
[81] However such an argument assumes that there is sufficient proof of the execution of a written guarantee and that it contains an assurance that the debt will be repaid at some time by Mrs MacDougall; that reliance was put on that guarantee and the promise to repay when Mrs MacDougall could afford to do so; that Mr Williamson would take steps to enforce the debt; and in the overall circumstances it would unconscionable to require Mr Williamson to repay what he has received.
[82] The acceptable evidence is that the guarantee was never put in writing and that the MacDougalls’ obligations comprised nothing more than a promise to pay. In those circumstances the Court cannot accept the existence of an implied term the payment would not be due until demanded. The fact is that 14 years has passed since Mr Williamson loaned the funds for payment of Pauanui’s debts. He did not file a proof of debt in Mr MacDougall’s bankruptcy. Just two weeks ago he filed a proof of debt in the bankruptcy of Mrs MacDougall. If it is Mr Williamson’s contention that he has received what was agreed to be paid to him then one must ask why he should at all now file a proof of debt.
[83] In that outcome it is the Court’s view that the payment which Mrs MacDougall made to purchase the two Kerikeri sections, in which she had nominated Mr Williamson as purchaser, was a voidable gift because that payment was made within two years of Mrs MacDougall’s bankruptcy. Then and pursuant to s 204 of the Insolvency Act 2006 it is able to be cancelled by the Official Assignee in circumstances where considerations of insolvency are irrelevant. In this case the payment was made within three months. The presumption of insolvency applies.
[84] Even if the Court was to accept that Mrs MacDougall had provided a guarantee then there are concerns surrounding the events about the way in which the debt was repaid.
[85] After Mr MacDougall’s solicitors were put on notice regarding Downers’ claims, the settlement funds that they were to receive were diverted for payment of the solicitors acting on the sale of the Kerikeri sections. That does not suggest that Mr Williamson was aware of those circumstances but what was clear to Mr Williamson in the process is that he was aware that Mrs MacDougall was unable to pay for the sections she had intended to buy, and at the same time to pay the debt he said was owed to him. The inevitable conclusion is that Mr Williamson knew that Mrs MacDougall could not afford to pay and therefore he must have suspected she was unable to pay her debts. He cannot therefore claim pursuant to s 208 of the Insolvency Act that he would not have suspected she was unable to pay her debts. Nor could he claim to have given value in receiving the payment in satisfaction of the antecedent debt.
[86] In submissions to the Court counsel argued that valuable consideration was given by Mr Williamson’s forbearance at the time to insist on payment of the interest that was also owing and which has not been paid. It cannot be the case that value was given because the creditor agrees to accept part of the total debt which has long since been owing. Forbearance to sue could constitute value but Mr Williamson would have to show that the forbearance to sue was actually worth something equivalent to the value of the debt and this would generally entail the debtor being in a good financial position where recovery would be likely in normal circumstances. Forbearance to sue when a debtor is worth nothing does not constitute value.
[87] Also, and as Mr Vinnell submits, there is no evidence of Mr Williamson altering his position at the time of receiving the payment. He says he has put his Kerikeri development on hold pending the Official Assignee’s investigations. There is no evidence he took irrevocable steps in reliance on a payment not being set aside.
Conclusion
[88] The evidence supports the view that the bankruptcy payment to Mr Williamson was a voidable gift which occurred within two years of bankruptcy. But, if instead it was an insolvent transaction it occurred within three months of bankruptcy and therefore Ms MacDougall’s insolvency at the time of payment, is presumed.
[89] Whilst Mr Williamson may not have been aware of manoeuvrings to ensure the Kerikeri sections were paid for and when he was nominated as purchaser of same, the clear evidence indicates Mr Williamson must have been aware Mrs MacDougall was unable to pay her debts as they fell due. She had told him that she could not pay him and at the same time settle the purchase which she was obliged to complete.
Judgment
[90] There are orders:
(a) Cancelling as an irregular transaction the funds paid out by Southern Legal, lawyers, on 12 March 2012 on behalf of the bankrupt to Just Law Trust Account for Mr Williamson in the amount of $253,131.76.
(b) Requiring:
(i) That the sum of $253,131.76 shall be paid to the Official
Assignee by Mr Williamson.
(ii) The costs upon the application are fixed on a category 2B
basis, and together with disbursements these are to be paid by
Mr Williamson.
Associate Judge Christiansen
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