Reynolds v Official Assignee

[2018] NZHC 3210

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2010-404-5977

[2018] NZHC 3210

UNDER

the Insolvency Act 2006

IN THE MATTER

of an application under s 294 of the Insolvency Act 2006 for discharge from bankruptcy

BETWEEN

MICHAEL GREGORY REYNOLDS

Judgment Debtor/Applicant

AND

OFFICIAL ASSIGNEE

Respondent

Hearing:

6 December 2018

Appearances:

Mr Singh for the Judgment Debtor/Applicant Mr Sena for the Official Assignee

No appearance for the Judgment Creditor

Judgment:

6 December 2018

ORAL JUDGMENT OF ASSOCIATE JUDGE SMITH

This oral judgment was delivered by me on 6 December 2018, pursuant to r 11.3 of the High Court Rules

Registrar/Deputy Registrar

Solicitors / Counsel: Glaister Ennor, Auckland Official Assignee, Auckland

REYNOLDS v OFFICIAL ASSIGNEE [2018] NZHC 3210 [6 December 2018]

[1]    The judgment debtor (Mr Reynolds) was adjudicated bankrupt as long ago as 3 February 2011. He has remained bankrupt ever since, because he did not file the required statement of affairs with the Official Assignee's office until 28 June 2018. Under s 290(1) of the Insolvency Act 2006 (the Act), the three year period before a debtor receives an automatic discharge from bankruptcy runs from the date on which the debtor submits the statement of affairs.

[2]    Mr Reynolds says that his original understanding when he was adjudicated bankrupt, gleaned from a chartered accountant who was then advising him, was that he just had to "sit tight" for three years following his adjudication, before he would be automatically discharged. It was not for some years after his adjudication, indeed not until 2018, that Mr Reynolds learned that the three year period before he could be discharged ran from the date he submitted his statement of affairs.

[3]    Mr Reynolds now applies for a discharge from bankruptcy, under s 294 of the Act. That section provides:

294     Bankrupt may apply for discharge

(1)The bankrupt may at any time apply to the court for an order of discharge from bankruptcy.

(2)However, if the court has previously refused an application by the bankrupt for a discharge, and has specified the earliest date when the bankrupt may again apply, the bankrupt must not apply before that date.

(3)The hearing of the application must be in accordance with section 177.

[4]    Mr Reynolds has provided a detailed affidavit in support of his application, setting out the circumstances in which he was adjudicated bankrupt, and what he has been doing during the period since the date of his adjudication.

[5]    The application for discharge has been properly served in accordance with     r 24.37 of the High Court Rules, although the service on one of the four creditors, the Commissioner of Inland Revenue, was one day late. In the circumstances of this case, I am prepared to abridge the time for service on the Commissioner, and I am satisfied that service has been sufficiently attended to. The application for discharge has also been advertised in accordance with the requirements of r 4.37.

[6]    No creditor has filed notice objecting to the discharge from bankruptcy, and the Official Assignee has advised in his report dated 20 November 2018 that the discharge application is not opposed. Mr Reynolds has made himself available today for examination, but Mr Sena did not wish to examine him and the Court does not consider it necessary to do so either. None of the creditors having given notice in opposition, Mr Reynolds was not required to be formally examined at today's hearing.

[7]    The Act requires the Assignee's report to address the matters set out at s 296(2) of the Act. Those matters are:

(a)the bankrupt’s affairs; and

(b)the causes of the bankruptcy; and

(c)the bankrupt’s performance of his or her duties under this Act; and

(d)the manner in which the bankrupt has obeyed orders of the court; and

(e)the bankrupt’s conduct before and after adjudication; and

(f)any other matter that would assist the court in making a decision as to the bankrupt’s discharge.

[8]    In this case the Assignee has reported that no significant assets were recovered. There was a Mitsubishi motor vehicle, but the Assignee considered that, given its age, it had minimal resale value and that it would not be economical for the Assignee to pursue a sale for the benefit of creditors.

[9]    Creditors totalled $203,362.47. The largest of the creditors (by far) is the Inland Revenue Department. The Commissioner holds a preferential debt of

$32,377.43, and unsecured debt of approximately $161,0000. Two other creditors hold debts of $9,625 and $311.09 respectively.

[10]The Official Assignee reported that fees and disbursements to date come to

$9,014.85.

[11]   The Assignee reported that Mr Reynolds advised that his bankruptcy was attributable to a failure to keep proper books of account and costing records. In his affidavit, Mr Reynolds gave particulars of his background in the period leading up to

his adjudication. He was involved in flooring installation work, initially in partnership with a former school friend who was already engaged in that industry. Mr Reynolds frankly acknowledged that he lacked the business skills and experience to properly run a business himself, and when he parted company with the former school friend it appears that he was simply not equipped to deal with the wider business requirements, including attending to the filing of income tax returns and the payment of tax. It appears that he did take some accounting advice in those early stages, but was not able to cope, and was eventually bankrupted in 2011.

[12]   Returning to the Assignee's report, the Assignee does note that he was initially hampered by Mr Reynolds failure to provide a statement of affairs, but it appears that that is the only matter in the bankruptcy with which the Assignee found cause to be critical. The Assignee said that, at least once the statement of affairs was provided, "the applicant has cooperated with the Assignee and there is nothing untoward to report with regard to his current conduct".

[13]   It appears that, for the few years following his adjudication, Mr Reynolds helped run the household, while his partner brought in the income. Later, he did labouring work, and in early May 2018 his partner and he took specific advice from Khov Jones Consulting Ltd over the tax position of Mr Reynolds and his partner. It was only after Khov Jones were involved that Mr Reynolds appreciated the issue over the time when the three year bankruptcy period commences. He also says that it was not until then that he appreciated that the Official Assignee's office and the Inland Revenue Department were separate entities. Mr Reynolds immediately got his statement of affairs completed, and had a meeting with a case officer from the Assignee's office. He applied for and obtained formal permission from the Official Assignee to work as a floor installer, and he is now employed as such by his wife's company.

[14]   Turning to other considerations, there is no suggestion of Mr Reynolds failing to comply with Court orders, and nothing in his conduct either before or after adjudication which would give the Court cause for pause (with the possible exception of the failure to submit the statement of affairs).

[15]   The broad approach of the Court to applications for discharge from bankruptcy was summarised by the Court of Appeal in ASB Bank v Hogg as follows:1

In conferring a discretion expressed in the broadest terms, the legislation recognises that each case will be different, that the relevant factors may vary from case to case and that the exercise of the discretion must be governed by the circumstances of the particular case having regard to the guidance provided by a consideration of the scheme and purpose of the legislation. In providing for automatic discharge after three years, the legislation recognises that it is not in the public interest that the bankruptcy should endure indefinitely. In providing for earlier discharge, s 108 [see now 294 of the Insolvency Act 2006] recognises that continuing the bankruptcy to the end of the three years may not be in the public interest. Whether or not it is will be  a matter for decision on the particular facts. In that regard, guidance is provided by s 109(2) [see now s 296 of the Insolvency Act 2006] which lists matters on which the assignee is to report to the High Court in such a case. The Court is to consider the assignee's report as to the affairs of the bankrupt, the causes of the bankruptcy, the manner in which the bankrupt has performed the duties imposed on him or her under the Act and his or her conduct both before and after the bankruptcy, and also any other fact, matter or circumstance that would assist the Court in making its decision. Clearly the Court apprised of the matter will consider the legitimate interests of the bankrupt, the creditors, and wider public concerns, but it is neither required nor entitled to impose threshold requirements in the exercise of the discretion so as to derogate from the breadth of the powers conferred under s 110 [see now s 298 of the Insolvency Act 2006]. The applicant has the onus, in the sense of adducing evidence, to show good cause for ordering an early discharge, but his obligation goes no further than that.

[16]   It is clear that the Court has a very broad discretion to do justice in the circumstances of each particular case. The stand-out feature of this case, is obviously the fact that Mr Reynolds has now been an undischarged bankrupt for over seven years, far longer than is normally the case. Accordingly, this is not one of those situations where a bankrupt is asking the Court to shorten the time of a normal bankruptcy.

[17]   It is very obviously in Mr Reynolds' best interests to have the discharge application granted. I see little that would be served by requiring him to serve out the bankruptcy period to June of 2021, and an order for discharge made now will enable him to get on with the business in which he has acquired some skill and experience over the years, and put him in a better position to help support his family.

1      ASB Bank v Hogg [1993] 3 NZLR 156 (CA), at 157-158.

[18]   I see nothing in the circumstances put before the Court that would suggest any contrary conclusion. Accordingly, I make an order discharging Mr Reynolds from bankruptcy immediately, under s 298(1)(a) of the Act.

Associate Judge Smith