Public Trust v O'Connor

[2016] NZHC 1175

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

CIV-2014-441-029 [2016] NZHC 1175

UNDER	the Insolvency Act 2006
IN THE MATTER OF	the bankruptcy of John Michael O'Connor
BETWEEN	PUBLIC TRUST Judgment Creditor
AND	JOHN MICHAEL O'CONNOR Judgment Debtor

CIV-2014-441-028

UNDER  the Insolvency Act 2006

IN THE MATTER OF       the bankruptcy of Rosemary Margaret

O'Connor

BETWEEN  PUBLIC TRUST Judgment Creditor

ANDROSEMARY MARGARET O'CONNOR Judgment Debtor

On the Papers

Counsel:

J V Ormsby and S D Campbell for the Judgment Creditor in both proceedings

M Heard and D Bullock for Mr J O'Connor

D Chan for Mrs R O'Connor

Judgment:

2 June 2016

JUDGMENT OF ASSOCIATE JUDGE SMITH

[1]      The judgment creditor (the Public Trust) obtained a judgment against Mr and

Mrs O’Connor in this Court at Napier on 3 May 2013.  The judgment was entered on

the Public Trust’s application for summary judgment, which was not opposed.  The

PUBLIC TRUST v JOHN MICHAEL O'CONNOR [2016] NZHC 1175 [2 June 2016]

amount   of   the   judgment   was   $991,773.96,   including   interest   calculated   to

3 May 2013.

[2]      The Public Trust issued bankruptcy notices against Mr and Mrs O’Connor on

7 March 2014.  Each bankruptcy notice claimed the sum of $991,773.96, together with  further  interest  (calculated  to  3  March  2014)  in  the  sum  of  $97,825.    In addition, each notice demanded payment of $748 for costs and disbursements.

[3]      Mr and Mrs O’Connor both filed applications to set aside the bankruptcy

notices served on them (the setting aside applications).

[4]      The setting aside applications each pleaded the following grounds:

(a)       The execution of the judgment of this Court dated 3 May 2013 has, in all the circumstances, been stayed:

(i)        The judgment was for liability under a personal guarantee by the   judgment debtor   for   the   liabilities   of   Silverfern Vineyards Limited;

(ii)       On  18  March  2014  the  creditors  of  Silverfern Vineyards Limited adopted a binding compromise agreement which released   the   judgment debtor   unconditionally   from   all present and future obligations owed [by him or her] jointly or severally under all personal guarantees or indemnities given in favour of the judgment creditor, or arising out of or in connection with such guarantees, which was the basis for the judgment.

(b)	It is an abuse for the judgment creditor to rely on the bankruptcy notice in the face of the adoption of the binding compromise being entered into by the creditors of Silverfern Vineyards Limited.
(c)	The compromise was adopted prior to the service of the bankruptcy notice on the judgment debtor…
[5]	The	“compromise   agreement”   made   with   the   creditors   of   Silverfern

Vineyards Ltd (Silverfern) was made under p 14 of the Companies Act 1993 (the Act).  It was the subject of challenges made in this Court by the Public Trust and one other substantial creditor (the challenge proceedings).   The challenge proceedings attacked the validity of the pt 14 compromise on which Mr and Mrs O’Connor relied in support of the setting aside applications.

[6]      By joint memoranda of counsel dated 12 May 2014, the parties agreed that the setting aside applications should be stayed pending a determination of the challenge proceedings.   I made an order staying the setting aside applications on

12 May 2014.

[7]      On  8  December  2015  Justice  Muir  gave  a  judgment  in  the  challenge proceedings upholding the Public Trust’s contention that Silverfern’s creditors’ compromise was invalid.1     His Honour declared the compromise void, and specifically declared that Mr and Mrs O’Connor remained liable to Public Trust pursuant to the judgment dated 3 May 2013, notwithstanding the purported compromise.2

[8]      Silverfern appealed against certain aspects of the judgment of Muir J.  The Public Trust was content to allow the stay order which had been made in the setting aside applications to remain in place, pending determination of Silverfern’s appeal to the Court of Appeal.

[9]      On 5 May 2016 the parties received notice from the Court of Appeal advising

that Silverfern’s appeal was deemed to be abandoned.

[10]     The Public Trust now applies to lift the stay orders made on the setting aside applications.  It says that there are no longer any grounds on which the stay orders should be maintained.

[11]     In addition to the application to lift the stay orders, the Public Trust asks for orders refusing the setting aside applications and confirming that Mr O’Connor and Mrs O’Connor have (respectively) five working days and three working days from the date on which the setting aside applications are refused, to comply with the bankruptcy notices.  Counsel for the Public Trust notes that the filing of the setting aside applications had the effect of stopping time running for compliance with the

notices.3

1      Public Trust v Silverfern Vineyards Ltd [2015] NZHC 3078.

2 At [96].

3      High Court Rules, r 24.10.

[12]     By Minute dated 13  May 2016  I directed that  any memorandum  Mr  or Mrs O’Connor might wish to file opposing the making of the orders sought by the Public Trust, was to be filed and served by 19 May 2016.   For Mrs O’Connor, Mr Chan has filed a short memorandum advising that Mrs O’Connor does not wish to  make  submissions  in  opposition  to  the  orders  which  are  sought.     For Mr O’Connor, Mr Heard and Mr Bullock have filed a short memorandum advising that Mr O’Connor does not oppose the orders.

[13]     With one minor timing qualification, it seems to me that the orders sought by the Public Trust are appropriate and should be made.   The abandonment  of the appeal to the Court of Appeal against the decision of Muir J in which Silverfern’s pt

14 compromise was found to be invalid removes any possible basis for further challenge to the bankruptcy notices.  Accordingly, I make orders in each of these proceedings lifting the stay orders made on 12 May 2014, and refusing the applications by Mr and Mrs O’Connor to set aside the bankruptcy notices served on them.

[14]     The  bankruptcy notice  directed  to  Mrs  O’Connor  was  served  on  her  on Saturday, 22 March 2014.   The bankruptcy notice directed to Mr O’Connor was served on him on 25 March 2014.  Although they are dated 2 April 2014, the setting aside applications do not appear to have been filed until 3 April 2014.  Accordingly, Mr O’Connor has four working days remaining to satisfy the bankruptcy notice issued against him, and Mrs O’Connor has two working days remaining to satisfy the bankruptcy notice issued against her.

[15]     I have not heard from counsel on the question of costs.  In the ordinary way, costs on an unsuccessful application to set aside a bankruptcy notice would be ordered in favour of the creditor on a 2B basis, with disbursements to be fixed by the registrar.  Counsel for Public Trust is invited to file a memorandum setting out any claim for costs, within 15 working days of the date of this judgment.  Mr and Mrs O’Connor may file memoranda in reply on the subject of costs, within 15 working days after they have been served with copies of the Public Trust’s memorandum.

Solicitors:

Wynn Williams, Christchurch for the judgment creditor

Lee Salmon Long, Auckland for the judgment debtors

Associate Judge Smith