Parker
[2016] NZHC 3124
•19 December 2016
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2016-485-000815 [2016] NZHC 3124
UNDER section 119 of the Insolvency Act 2006 IN THE MATTER OF
the bankruptcy of Stacey Maree Foskett
BETWEEN
BEN JAMES PARKER Applicant
Judgment:
(On the papers)
19 December 2016
JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] The applicant, Mr Parker (formerly known as Ben James Mashiter) applies for an order under s 119(1)(b) of the Insolvency Act 2006 (the Act) vesting in him the interest of his former partner, Stacey Maree Foskett, in the property at
31 Weraroa Road, Waverley, South Taranaki District, being a fee simple estate, legal description Lot 2-3, Deposited Plan 2195, being the land contained in Certificate of Title WN188/243 (the Waverley property), to the intent that Mr Parker will become the sole registered proprietor of the property.
[2] Mr Parker says that he started his relationship with Ms Foskett in 2008. They purchased the Waverley property for $160,000 in August 2008, in their joint names. Thereafter they lived on the Waverley property during their relationship.
[3] The parties also purchased a property in Matipo Street, Whanganui (the Matipo property), as a rental investment. They used a company, SRB Properties Ltd (SRB), as the vehicle for this investment. SRB acquired the Matipo property for
$124,000, but Mr Parker says that the capital value of the Matipo Property is now
only $73,000.
PARKER [2016] NZHC 3124 [19 December 2016]
[4] Ms Foskett and Mr Parker obtained finance for these purchases from Sovereign Financial Services Ltd, through that company’s lending arm, Mortgage Holding Trust Company Ltd. For convenience, I will refer to the lender in this judgment as “Sovereign”.
[5] Ms Foskett and Mr Parker separated on or about 31 August 2011. After they separated, the Waverley property and the Matipo property were rented to third parties. Ms Foskett and Mr Parker eventually negotiated a relationship property agreement, which was signed in December 2013. From the separation until the agreement was finalised Mr Parker managed the tenancies for both properties and met any shortfall between the rental income and the mortgage, rates, and insurance payments. He says that he also spent approximately $20,000 renovating the properties.
[6] As part of the relationship property agreement, Mr Parker agreed that Ms Foskett could move back into the Waverley property for a period of time, after which both properties would be sold. Unfortunately, Ms Foskett ran into financial difficulties, and she became bankrupt on 22 January 2015.
[7] At the time of Ms Foskett’s bankruptcy there was no equity in either property, and no value in Ms Foskett’s shares in SRB. The loan from Sovereign, secured over both properties, now totals approximately $230,000, against a combined capital value of the properties of only approximately $207,000.
[8] The Official Assignee disclaimed her interest in the Waverley property, and in
Ms Foskett’s shareholding in SRB, on 31 March 2015.
[9] Mr Parker now wants to protect his position as best he can by having the Waverley property transferred into his name as sole proprietor. He has produced a letter from Sovereign dated 6 April 2016 advising that it is agreeable to the transfer of the Waverley property to Mr Parker solely, and to the release Ms Foskett from her liability as borrower and guarantor, effective from the registration of the transfer of the Waverley property to Mr Parker.
[10] The consequence of the transfer of the Sovereign mortgage to Mr Parker’s sole name, and the release of Ms Foskett, will be to formalise the reality that Mr Parker is the sole person responsible for the mortgage and the outgoings.
[11] The Matipo property is rented out at $125 per week, and the Waverley property is rented out at $235 per week. Mr Parker works as an advisor in the Youth Department at the Ministry of Social Development. He says that, over both properties, he is covering a shortfall of at least $50 per week between rental income and mortgage payments and outgoings. He has no savings or significant assets which would be available to cover the outgoings if that shortfall were to increase.
[12] Mr Parker has been investigating options for selling one or both of the properties. Given the low value of the Matipo property, he considers that his best option would be sell the Waverley property first. He cannot immediately do that, as Ms Foskett’s interest in the Waverley property vested in the Official Assignee when she became bankrupt, and the Official Assignee has since disclaimed that interest.
[13] Mr Parker considers that he will suffer significant loss if his application to have the Waverley property vested in him as sole owner is not granted. He has put a substantial amount of money into the Waverley property, and if one of the tenants were to leave, and he were to default on one or more payments under the Sovereign mortgage, he would be out of options; mortagee sales could follow, with a real risk of substantial financial loss.
[14] The effect of the Official Assignee’s disclaimer was that Ms Foskett’s interest in the property passed to the Crown.1 The Crown, through the Secretary to the Treasury, has provided a letter advising that the Crown does not object to the Court making the vesting order which Mr Parker seeks, and that it does not wish to be heard on his application.
[15] On 21 October 2016 I granted leave to Mr Parker to commence his application by way of originating application, and I directed that the application be
served on Ms Foskett. I directed that if Ms Foskett wished to oppose Mr Parker’s
1 See for example, Re Marlow [2012] NZHC 1486, [5].
application, she was to file a notice of opposition and supporting affidavits in the High Court at Wellington, within fourteen days of the date of service of the application on her.
[16] The application was served on Ms Foskett on 5 November 2016. She has not filed a notice of opposition, or any other document opposing Mr Parker’s application.
Discussion and conclusions on the application
[17] Sections 118 and 119 of the Act provide:
118 Effect of disclaimer
A disclaimer by the Assignee—
(a) brings to an end, on and from the date of the disclaimer, the rights, interests, and liabilities of the Assignee and the bankrupt in relation to the property disclaimed:
(b) does not affect the rights, interests, or liabilities of any other person, except in so far as is necessary to release the Assignee or the bankrupt from a liability.
119 Position of person who suffers loss as result of disclaimer
(1) A person suffering loss or damage as a result of disclaimer by the
Assignee may—
(a) claim as a creditor in the bankruptcy for the amount of the loss or damage, taking account of the effect of an order made by the Court under paragraph (b):
(b) apply to the Court for an order that the disclaimed property be delivered to, or vested in, that person.
(2) The bankrupt may also apply for an order that the disclaimed property be delivered to, or vested in, the bankrupt.
(3) The Court may make an order under subsection (1)(b) or (2) if it is satisfied that it is fair that the property should be delivered to, or vested in, the applicant.
[18] Under s 118(a), the effect of the disclaimer was not only to bring to an end Ms Foskett’s rights in relation to the Waverley property – it also brought to an end her liabilities in relation to the Waverley property. By contrast, Mr Parker’s liabilities in relation to the Waverley property have continued. He is now solely
liable for the outgoings, including the payments to Sovereign under the mortgage, and if he is unable to maintain the mortgage payments and outgoings he faces the prospect of substantial loss if a mortgagee sale by Sovereign leaves a shortfall owing to it.
[19] As Associate Judge Osborne noted in Re Shallish, the effect of the disclaimer has been to relieve the bankrupt’s estate of the equal obligation the bankrupt should have been bearing under the mortgage, leaving the bankrupt’s co-owner (in this case Mr Parker) with the entire obligation.2
[20] I am satisfied that, as in the Shallish case, the removal of Ms Foskett’s obligations as a result of the disclaimer constitutes sufficient loss or damage to Mr Parker to give him standing to apply for a vesting order under s 119(1)(b) of the Act.
[21] The next question I am required to consider, under s 119(3) of the Act, is whether it would be fair to make an order vesting the Waverley property in Mr Parker. I am satisfied that it would. I start with the damage caused to Mr Parker by the disclaimer. As in the Shallish case, if the Official Assignee had elected to take the benefit of Ms Foskett’s interest in the property, that interest would have carried with it the equal responsibility for the financial outgoings. The effect of the disclaimer has therefore been to leave Mr Parker with the entire obligation for those
outgoings.3 And as Associate Judge Osborne noted in the very similar fact situation
in Shallish, there is a clear implication in the act of disclaimer itself that Ms Foskett’s equity in the two properties was outweighed by the obligations that went with the properties.
[22] In addition to those considerations, it is clear that Mr Parker does not have a lot to come and go on. He does not have any significant savings or other assets, and appears to be at considerable risk under the Sovereign mortgage if for any reason there are difficulties recovering rent from the properties. Sovereign has indicated
that it consents to the transfer to Mr Parker subject to its mortgage, and there is no
2 Re Shallish HC Invercargill CIV-2010-425-439, 16 September 2010 at [13] and [14].
3 Re Shallish, above n 1, at [14].
other party with any apparent interest in the Waverley property. Particularly in view of his ongoing commitment to service the debt secured on the Waverley property, fairness requires that the Waverley property be vested in Mr Parker.
[23] Accordingly, I order under s 119(3) of the Act that the interest of Stacey Maree Foskett in the Waverley property (being the land at 31 Weraroa Road, Waverley, South Taranaki District described as Lot 2-3 Deposited Plan 2195, title identifier WN188/243, Wellington Land Registration District), is vested in Ben James Parker (formerly known as Ben James Mashiter).
Associate Judge Smith
Solicitor:
Chris Ritchie Law, Wellington for Applicant