Robinson v ASB Bank Limited
[2014] NZHC 608
•28 March 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-419-081 and CIV-2013-419-082 [2014] NZHC 608
IN THE MATTER of the Insolvency Act 2006 AND
of the bankruptcy of CHRISTOPHER JOHN ROBINSON and ALISON CHRISTINA ROBINSON
BETWEEN
ASB BANK LIMITED Judgment Creditor
AND
CHRISTOPHER JOHN ROBINSON Judgment Debtor
ALISON CHRISTINA ROBINSON Judgment Debtor
Hearing: 20 March 2014 Appearances:
Mr P Shackleton for judgment creditor
Mr C Robinson in personDate:
28 March 2014
JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE
This judgment was delivered by me on
28.03.14 at 5 pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
ASB BANK LIMITED v ROBINSON & ANOR [2014] NZHC 608 [28 March 2014]
Background
[1] On 19 July 2005 Mr and Mrs Robinson, the judgment debtors, gave a guarantee in respect of a company in which they were the shareholders and of which Mr Robinson was the sole director, Propdoc Limited (Propdoc). The guarantee was in wide terms with the key provisions in the guarantee, clauses one to three reading as follows:
Guarantee Obligations: You unconditionally guarantee to us payment by the Customer of all moneys which may now or in the future be owing or remain unpaid by the customer to us (the “Guaranteed Debt”). If, for any reason, the Customer does not pay any Guaranteed Debt when due or demanded by us, you undertake that you will immediately upon demand pay the relevant amount to us.
Indemnity obligations: If, for any reason whatsoever, any Guaranteed Debt is not recoverable from you on the basis of this Guarantee (including, by reason of the Customer being without capacity to enter into and perform obligations in relation to the Guaranteed Debt) you will pay to us on demand the amount which would otherwise have been recoverable by us (on a full indemnity basis) and you will indemnify us against all losses, costs and expenses incurred by us.
Your Liability as Sole Principal Debtor: As between you and us (but with no effect on the obligations of the Customer) you are liable under this Guarantee as a sole and principal debtor not as a surety.
[2] The Robinsons used Propdoc as the vehicle to purchase a property near Kerikeri. ASB approved a loan of $1,500,000 for the purchase which was secured by a first registered mortgage and by collateral security. In November 2006 an increase was sought by $300,000 and this was granted. In June 2007 the Robinsons sought consent to a proposed transfer of ownership of the secured property from Propdoc to Propdoc and Killara jointly, Killara being a further company which the Robinsons had incorporated. The intention was to transfer a portion of the secured property to Killara but subject to the current mortgage to ASB. ASB consented to this proposal subject to conditions. These included that Killara was to provide a guarantee and that there be a fresh mortgage granted over the property by Propdoc and Killara giving security over the entire property. On 27 July 2007 Mr Robinson signed authority for the registration of a second mortgage over the title of the secured property.
[3] On 7 August 2007 the Robinson’s solicitors, Fortune Manning, wrote to ASB, sending them the necessary documents to confirm that the transfer of title had taken place, the new mortgage had been properly registered over the title to the secured property and the guarantee had been provided by Killara (amongst other things). The mortgage was registered over the secured property on 10 August 2007.
[4] Subsequently the lending arrangements which were secured by the mortgage went into default and on 25 July 2011 the plaintiff served a written demand on Propdoc as the borrower, and on the Robinsons and Killara as guarantors for payment of the sum of $8,540.18 which was the amount outstanding. This demand was not complied with and the plaintiff thereafter issued notices under the Property Law Act 2007 which were served on the mortgagors and guarantors. Again the defaults were unremedied. After the expiry of the PLA notices, ASB marketed the property for sale by tender. Tenders closed 18 May 2012 and agreement was reached with one of the tenderers 23 May 2012. Settlement took place 22 June 2012. The net proceeds of the sale were $322,484.32 and were applied to Propdoc’s indebtedness under the loans in part payment of them.
[5] The plaintiff having exercised its rights under a mortgage secured then sought to recover the deficiency resulting from the mortgagee sale. To that end, the Bank initiated summary judgment proceedings and on 22 August 2012 Mr Robinson as a director of Propdoc consented to judgment being entered against Propdoc for the amount of $450,000. On 26 November 2012, the Robinsons consented to judgment being entered against them for the sum of $467,207.30.
[6] There having been no satisfaction provided under the judgments the Bank has now served the Robinsons with applications for orders adjudicating them bankrupt on the grounds, amongst others, that the Robinsons failed to comply with bankruptcy notices served on them. The Robinsons unsuccessfully applied to set aside the bankruptcy notices with judgment in this Court dismissing their application being
entered 10 September 2013.1
1 ASB Bank Ltd v Robinson [2013] NZHC 2353.
[7] The defendants have filed a notice of opposition which in summary is to the following effect (accurately summarised by the plaintiff):
(a) the failure by the Robinsons to obtain legal aid has meant they have been unable to challenge:
(i) the validity of ASB's replacement mortgage and the documents used to register that mortgage;
(ii) the validity of the Robinsons' personal guarantee following registration of ASB's replacement mortgage;
(iii) ASB's power of sale;
(iv) ASB's rights to allocate the sale proceeds to Propdoc
Limited's (Propdoc) indebtedness to ASB;
(v) the sale price obtained by ASB; and
(vi) issues with ASB's settlement statement;
(b) the Robinsons only consented to judgment on the basis that Mr Robinson understood that ASB would not bring bankruptcy proceedings; and
(c) that orders for adjudication will render nugatory the Robinsons' claim against IAG.
[8] I shall come to deal with those grounds of opposition in due course.
[9] A further background factor which needs to be noted because it relates to one of the grounds of opposition is that on 9 September 2011 the house situated on the property over which Propdoc had given security was destroyed by fire in a suspected arson attack. Mr Robinson has been charged with arson and at present there is no date set for his trial. The Robinsons have, as well, brought civil proceedings based upon alleged wrong declinature of the claim that the Robinsons submitted under the insurance policy. Those proceedings are presently stayed.
[10] No attempt was made to appeal or otherwise set aside the judgment that was entered against the defendants. The judgment in its entirety remains unsatisfied.
Conclusiveness of judgment
[11] In my view it is not open to the defendants to now question, as they appear to do in their notice of opposition, the judgment that was entered against them. To do so would be to offend against the finality of the judgment that was entered against them. The following observations by Somers J in New Zealand Social Credit Political League Inc v O’Brien are pertinent to the approach Mr Robinson has
adopted: 2
Estoppel per rem judicatam, issue estoppel, and abuse of process in at least one of its manifestations, maybe seen as exemplifying similar concepts – that a matter once determined may not be again litigated, that a matter which could and should have been raised subsequently, and that a collateral attack upon the final decision in other proceedings will not be permitted. The dual objects are finality of litigation and fair use of curial procedures.
[12] As I attempted to explain to Mr Robinson at the hearing before me on 20
March 2014 it was not open to the Bankruptcy Court to go behind the judgment that was entered in favour of the Bank. That comment was made in response to Mr Robinson wishing to analyse various problems, as he saw them, with the documentation which the Bank relied upon as the basis for establishing liability of the Robinsons. In this Court, the only issue is whether there was a judgment, whether a bankruptcy notice was served on the Robinsons which was based upon that judgment and whether the bankruptcy notice went unsatisfied. Attempting to show that there was no basis for the liability which has been adjudged against them is not permissible in the context of bankruptcy proceedings.
[13] Apart from the fact that it is impermissible to attempt to go behind the judgment in proceedings of this kind, I do not, in any case, accept that difficulties in the lending documents which Mr Robinson said were apparent can assist the Robinsons. There is no doubt that money which is now sought to be recovered largely comprises principal which the Bank actually paid over to the company. It cannot be suggested that the ASB relinquished any proprietary right to the fund when it handed it over and that, therefore, it was always the case that by one means or another the Bank would be able to claim back the funds in due course. The fact
that the company has not re-paid the money exposes the Robinsons to liability under
2 New Zealand Social Credit Political League Inc v O’Brien [1984] 1 NZLR 84 (CA) at 95.
their guarantee and indemnity obligations. I should add that there is no argument that the funds have not been repaid and nor is there any argument that the funds would not be of sufficient amount to support a bankruptcy application.
Validity of the further mortgage that Robinsons gave to the Judgment Creditor
[14] I have considerable reservations about the necessity for an examination of Mr Robinson’s contentions about the invalidity of the mortgage for reasons that I have already set out earlier in the judgment. However, given that he has raised them in his affidavit, I will provide a brief response to them.
[15] Mr Robinson placed great emphasis on the fact that the Bank, in his contention, made many mistakes. He said, for example, that the director’s certificate dated 13 December 2006 had not been witnessed. The answer is that there is no requirement that it be witnessed and in any case documents that the company gave in the transaction are covered by s 18 of the Companies Act 1993. Further, on settlement, the solicitors who were acting for the Robinsons certified on 3 August
2007 that the mortgagor was authorised to enter into the transaction. As a result the Bank granted the additional mortgage accommodation. The company is not now in a position where it can deny that the solicitors were not authorised to give such an assurance to the Bank and they are bound by the assurances that the solicitors as their agent gave on their behalf.
Relevance of failure to obtain legal aid (Ground 3a)-3d)
[16] Mr Robinson emphasised the fact that it had not been possible for the judgment debtors to obtain legal aid for the purposes of the summary judgment proceedings. It was his position that an order of adjudication ought not to be made because of those difficulties. I accept that it is factually correct that the Robinsons did attempt to obtain legal assistance via the Legal Services Act but were unsuccessful in so doing.
[17] No supporting argument was developed demonstrating why it followed that an order in adjudication ought not to be made.
[18] The only way in which the defendants would be able to satisfy the Court that the non-ability to obtain legal aid was relevant would be if there was some statutory objective that would require such an outcome. However, none was suggested. As a matter of logic, it seems difficult to suppose that it would be an implicit policy underlying the Legal Services Act that a failure to grant legal aid would have any impact upon the substantive rights of the parties or would affect the processes of the Court so as to exempt such a party from being the object of an order that would otherwise have been made, but for the lack of legal aid.
[19] Nor in the context of the Insolvency Act is there any reason to suppose that the outcome of the consideration of the case would be influenced by a factor such as the failure on the part of a judgment debtor to obtain legal aid.
[20] There is no authority of which I am aware that has determined that non— provision of legal aid places the unsuccessful applicant in a different position so far as the processes of the Court are concerned or in relation to the substantive law.
Other points concerning validity of the guarantee
[21] I understand that Mr Robinson argues that the guarantee that he and his wife gave for the liabilities of Propdoc in 2005 did not relate to the 2007 transaction.
[22] The key point is that the guarantee and indemnity related to present and future indebtedness of Propdoc to the Bank. The fact that the Bank had, in Mr Shackletons terms, “adjusted its securities” from time to time does not make any difference to the responsibility under the guarantee and indemnity. In other words the guarantee and indemnity was not limited to repaying advances only in circumstances where the securities were identical to those that existed in 2005 when the Robinsons originally gave their guarantee and indemnity. The provisions of the guarantee/indemnity were specific provisions of clause 5 of the Deed of Guarantee and apart from anything else cover this eventuality.
Notice of Opposition Ground “I”, “III”
[23] In my view the grounds (i) – (iii) of the notice of opposition cannot defeat the entitlement of the plaintiff. The account that Mr Robinson gives appears to be that the replacement mortgage arrangements which followed upon the transfer of the property to Killara as well as Propdoc is, essentially, that he and his wife did not know anything about this happening.
[24] This explanation is simply implausible. Mr Robinson himself signed the authority and instruction for electronic transaction form 27 July 2007 which authorised the registration of a replacement mortgage which is the one pursuant to which the funds were advanced to Propdoc. His signature was witnessed by his solicitor, Mr Mark.
[25] It is also necessary to mention another feature of the background. The 2007 borrowing transaction would have as one of its results the transfer of the property from Propdoc as the sole proprietor to Propdoc and another company of the Robinsons, Killara. As a result of the rearrangements Killara would end up owning the greater part of the property. It is disingenuous for Mr Robinson in these circumstances to suggest that it was never intended that Killara would be required to mortgage its part of the property. Mr Murphy, a manager employed by ASB says that this last view was incorrect
[26] He then goes on to say:
ASB’s consent was on the basis that it retained a mortgage over the entirety of the property. If a significant reduction in security was sought, I would have been required to get approval for the restructure. In my view, it is unlikely that this credit approval would have been granted, given that 57.5% of the property was being transferred to Killara.
[27] The view that Mr Robinson expresses is not inherently credible. It is not explained why the Bank would agree to such a significant dilution of the security that it held for the loans.
[28] Finally, I note that during the course of his submissions to me Mr Robinson stressed the fact that on one or more occasions during the original process of the
company granting a mortgage to the Bank in 2005 or during 2007 the Bank in documenting the transaction referred to the property being situated at “124A Ness Road, Keri Keri”. The correct address is 125A Ness Road. In my view this is not a matter of significance. It might have been if the company owned more than one property in Ness Road but there is no evidence that any harm was caused by it or that the mortgage was registered on the wrong title or registered when it ought not to have been.
[29] In the end, the judgment debtors are not able to explain away the fact that for all the alleged defects in the bank’s actions in obtaining the mortgage, the Certificate of Title clearly shows that ASB has a valid first registered mortgage over the property.
Other points concerning validity of the guarantee
[30] It was implicit in the submissions that Mr Robinson made that the guarantee that he and his wife gave for the liabilities of Propdoc in 2005 did not relate to the
2007 transaction.
[31] The key point is that the guarantee in indemnity related to present and future indebtedness of Propdoc to the bank. The fact that the bank had, in Mr Shackleton’s terms, “adjusted its securities” from time to time does not make any difference to the responsibility under the guarantee and indemnity. In other words, the guarantee and indemnity were not limited to repaying advances only in circumstances where the securities were identical to those that existed in 2005 when the Robinsons originally gave their guarantee and indemnity. The provisions of the guarantee/indemnity were specific provisions of clause 5 of the Deed of Guarantee and apart from anything else cover this eventuality.
[32] The Certificate of Title clearly shows that ASB has a valid first registered mortgage over the property.
Necessity for a judgment before mortgagee sale? (Ground iv)
[33] I understand that the judgment debtors’ question the authority of ASB to exercise a power of sale before they have obtained a judgment against the judgment debtors. There is no requirement at law for a judgment to be first obtained.
The alleged breach of s 176 of the Property Law Act (Ground v)
[34] The duty of a mortgagee selling a property pursuant to the mortgagee’s power of sale is to take reasonable care to obtain the best price reasonably obtainable.
[35] The evidence is that the Bank obtained guidance from a registered valuer and from a real estate agent with relevant experience working in the locale about the likely price that would be forthcoming on a mortgagee sale. The real estate agent estimated that the appropriate figure would be $325,000 to $335,000. No allowance was made for GST in this figure. Mr McBain, the valuer, estimated that the property would realise $390,000 including GST if any. In the event the price obtained was
$408,000 including GST. Mr Robinson considers that was an inadequate price and he said that the “assets of the property”, at a point which he does not specify, were valued at $2,500,000. He made reference to the fact that there were “interested parties” who wanted to buy sections on the property. This was in reference to the fact that an application had been made to the territorial authority for consent to a subdivision of the property into residential sections. Whilst it is true that agreements for sale and purchase had been entered into, none of them became unconditional or settled. Further, the agreements relate to an earlier period of time than when the mortgagee sale took place which was May 2012. In the meantime, a substantial change of circumstances had taken place with the advent of the global financial crisis.
[36] The marketing of the property took place over a period of four to five weeks and there was extensive advertising of the property. The property was advertised in the New Zealand Herald on four occasions between April 2012 and May 2012. The advertisements featured reasonably prominent pictures of the property. Five tenders were received and the bank negotiated with the two highest tenderers in order to
arrive at the price actually offered. I understand that Mr Robinson is critical of the price particularly in regard to the fact that he had previously successfully applied for resource consent for the company to sub-divide the properties. At least one of the advertisements referred to the property having “possible sub-dividable potential”. As well Mr Shackleton pointed out that the resource consents of the first stage of the sub-division had been obtained in September 2006 and had expired as a result of Sections ss 125 and 223-224 of the Resource Management Act 1991.
[37] I was referred to the decision of Asher J in Public Trust v Ottow3 in which the Judge summarised the factors indicating that a mortgagee has made reasonable efforts to obtain the best obtainable price.4
[38] The factors that seemed relevant to the Judge were these: 5
(a) The appointment of a reputable real estate agent to market the property.
(b) Obtaining a valuation report from an experienced valuer as a guide to what could reasonably be expected for the property.
(c) Marketing over a reasonably long period of time.
(d) An extensive advertising and promotional campaign. (e) A properly conducted auction.
(f) A sale price that, given all the circumstances, can be reconciled with expert opinion as to value.
[39] I respectfully agree with that summary. I also agree with the following submission which Mr Shackleton made:
(c) the duty imposed by s176 is a duty to take reasonable care, but it does not necessarily follow that the best price reasonably obtainable will in fact be achieved: Wallace v Bank of New Zealand HC
Auckland CIV-2009-404-3534, 1 July 20096
at paragraph [54],
citing Agio Trustees Company Ltd & Anor Ltd v Harts Contributory
Mortgages Nominee Company Ltd (2001) 4 NZ ConvC 193,480;
3 Public Trust v Ottow (2010) NZCPR 879 (HC).
4 At [31].
5 At [31].
6 BOA, Tab 18.
[40] While the Bank has provided substantial evidence which suggests there has been no breach of the obligation under s 176 Property Law Act, the evidence has not been contradicted by evidence given for the judgment debtors. There is no basis for concluding that there has been a breach of s 176 in this case which would give rise to a claim for compensation on the part of the defendants and Propdoc. There is therefore no reason to suppose that if the judgment debtors brought such proceedings, that it would result in a judgment which would offset the debt claimed by the plaintiff to the extent that there would no longer be a debt based upon which the judgment creditor is able to assert that it is a creditor of the judgment debtors.
Alleged errors in settlement statement (Ground vi)
[41] It was further asserted for the Robinsons that there were mistakes made in the settlement statement that was issued following the mortgagee sale. This is of no relevance to the question of whether the Bank is entitled to proceed against the judgment debtors in bankruptcy. It has not been suggested that if correct calculations had been carried out the result would be a nil debt owing by the judgment debtors to the Bank.
Consent to summary judgment (incorrectly identified as Ground “i” but in fact
Ground vii)
[42] The next matter concerns the circumstances in which the Robinsons consented to the entry of summary judgment against them in the High Court. The notice of opposition states:
(i) ... the agreement was due to Mr Robinson understanding that the
ASB lawyer stated that bankruptcy proceedings would not follow.
[43] In his evidence, Mr Robinson says that at the Court on the day when judgment was entered:
49.Richard Barnsdale and I discussed the offer from ASB’s lawyer. A large reduction in the amount claimed due to the errors made in the settlement account in return for a judgment and reduced interest rates on that sum. The key factor was the statement that ASB would not proceed to bankruptcy against us since it was pointless in the circumstances. Without this assurance I would not have agreed to the judgments since there were many issues outstanding that needed clarification.
[44] Then in paragraph 50:
... I understood that I had been assured that bankruptcy proceedings would not take place to persuade me to agree to the judgment and ASB had not honoured that undertaking.
[45] Mr Robinson’s evidence is equivocal as to whether someone actually said that ASB would not take bankruptcy proceedings against him and his wife. Further he does not identify who made any such statement. The lawyer who represented ASB at the hearing, Ms Gellert, has given evidence. She says that the hearing was
some time ago,7 and that she could not remember everything that she said.
However, I am confident that I did not agree, or represent that ASB would not bring bankruptcy proceedings if the Robinsons consented to judgment. That would have been inconsistent with our instructions.
[46] That then is the evidence concerning the circumstances in which the Robinson’s provided the consent to judgment. The question then is whether the evidence passes the threshold point which would then necessitate the Court considering whether it should lead to some remedy or relief being granted to the judgment debtors and, if so, what that should be.
[47] I do not however accept that this evidence is inherently credible. First, there is the issue of the lack of particulars. One would have supposed that the assurances about the bankruptcy were crucial to Mr Robinson and that he would remember who it was that gave them to him. Secondly, while Ms Gellert did not specifically negative the giving of such an assurance, she says that it is because she cannot remember but that she is “‘confident” that she did not give such an assurance. Finally, there is the point that Mr Shackleton validly made that if the Bank had given such an assurance, then one of its methods of execution, bankruptcy, which is perhaps the most usual one at that, would no longer be available to it. In the absence of any information to the effect that there were other avenues of execution, for example against other property which the judgment debtor’s owned, it is difficult to see why the Bank would go to the trouble of getting judgment only to given an assurance that it did not intend to pursue the judgment debtors in bankruptcy if they
did not pay.
7 The hearing took place 26 November 2012.
[48] Further, the point now relied upon was not raised in evidence at the time when the judgment debtors unsuccessfully applied for an order setting aside the statutory demand based upon the judgment.
[49] I do not therefore accept that the assurance that Mr Robinson claims was given was in fact forthcoming from the ASB. There is therefore no need to consider what consequences would have flowed from the giving of such an assurance.
Application of the funds received from the mortgagee sale (Ground raised in submissions)
[50] It is then said for the Robinsons that the application of the funds received to Propdoc’s indebtedness only is not permissible. There is nothing in this point. Propdoc was a joint mortgagor along with the other mortgagor, Killara. They were both jointly liable on the covenants in the mortgage and, in any event as Mr Shackleton pointed out, Killara has guaranteed the obligations of Propdoc.
The claim against AIG (Ground raised in submissions)
[51] Mr Robinson submitted to me that a further reason why the Court ought not to make an adjudication order was that if that were to occur it would make it difficult for the judgment debtors to pursue their claim against AIG.
[52] In some circumstances the existence of a claim against the third party has been recognised as a reason why the Court should not adjudicate a judgment debtor bankrupt. However, there are two reasons why I do not consider that the AIG claim represents an adequate ground for withholding adjudication in this case.
[53] First, it would appear that it is going to be a long time before those proceedings are brought to a conclusion. They are presently stayed while the criminal proceedings against Mr Robinson take their course. I was told that no trial date for the criminal case has yet been set. There has been an appeal against a pre- trial ruling which has to be dealt with before a trial date can be considered, apparently.
[54] Whilst Mr Robinson of course takes a favourable view of his prospects in the civil litigation, it cannot be ignored that others apparently take a different view of his alleged involvement in the arson of the property. Whilst it is only a factor of limited weight a, presumably, considered decision to prosecute him has been taken. That reflects the confidence on the part of the prosecution that they will be able to establish beyond reasonable doubt that he was implicated in the arson. At the very least, that will indicate that there is reason for caution about the prospects of success in the AIG litigation.
[55] The overall picture is one of uncertainty. I do not consider that the AIG litigation is material to the question of whether or not an adjudication order ought now to be made.
Discretion to adjudicate
[56] I was referred to s 17 of the Insolvency Act 2006 which states that once the statutory prerequisites are satisfied the Court has an unfettered discretion to adjudicate the debtor bankrupt. It is necessary for the Court to consider the discretion given to it under s 37 to refuse adjudication in the following circumstances:
37 Court may refuse adjudication
The Court may, at its discretion, refuse to adjudicate the debtor bankrupt if—
(a) the applicant creditor has not established the requirements set out in section 13; or
(b) the debtor is able to pay his or her debts; or
(c) it is just and equitable that the Court does not make an order of adjudication; or
(d) for any other reason an order of adjudication should not be made
[57] The first two limbs of s 37 can be excluded immediately as there is no question that the judgment creditor has not complied with the statutory requirements or that the debtors are able to pay their debts. That leaves the just and equitable ground and any other reason why an order should not be made.
[58] The general principles that the Court applies when considering an exercise of its discretion to adjudicate are well established. They were stated by Faire AJ (as he then was) in Fontein v Bank of New Zealand and are to the following effect: 8
1)A creditor who establishes the jurisdictional pre-requisites is not automatically entitled to an order. Conversely, it is for an opposing debtor to show why an order should not be made;
2)… it is proper for the Court to consider not only the interests of those directly concerned — the petitioner, other creditors, and the debtor — but also the wider public interest;
3)…the wider public interest must be taken into account to determine whether adjudication is “conducive or detrimental to commercial morality and the interests of the general public”;
4)…the Court must have regard to public interest in a way which transcends the interest of the immediate parties to the proceeding … The public interest in exposing and controlling an insolvent debtor exists independently of the interest of the debtor's immediate creditors in collection of their debts;
5) Absence of assets is a factor [in the exercise of the discretion], but
… “undoubted absence of assets will not necessarily preclude an order, for the circumstances may be such that the debtor ought, in the public interest, to be visited with the disqualifications that go with bankruptcy”;
6) … the potential for further investigation [is another consideration].
… the procedures available in bankruptcy for investigating the financial circumstances of the debtor may be more effective than investigation by other means;
7)There is a need “for the Court to balance to the various considerations relevant to the case to determine whether the debtor has succeeded in showing an order ought not to be made.
[59] To those factors Faire AJ added that the oppressive use of the bankruptcy procedure may be a ground for refusing an order.9
[60] While I accept that a creditor who establishes the jurisdictional facts as set out in s 13 is not automatically entitled to an order, I also consider that it is for an
opposing debtor to show why an order should not be made.10
8 Fontein v Bank of New Zealand HC Auckland CIV-2009-404-7769, 22 November 2010 at [8] (footnotes omitted).
9 At [9].
10 Baker v Westpac Banking Corporation CA212/92, 13 July 1993.
[61] I accept that in this case there is no evidence that of any likelihood that the making of an order of adjudication is going to lead to the payment of the debt. That is to say, there is no evidence of other assets that the Official Assignee would be able to take control of and liquidate for that purpose.
[62] The judgment creditors in this case embarked upon a property development venture. That is an inherently hazardous occupation. The case is not one where the judgment debtor became insolvent because of unforeseeable circumstances and notwithstanding prudent risk management on his part. Mr Robinson has pointed to the fact that the global financial crisis which took hold in about 2009 had a damaging effect on the venture that his family companies were involved in. That really amounts to an assertion that the judgment debtor was reliant upon property prices going up or at least not decreasing to avoid a default. No one can arrange his or her affairs to entirely avoid the impact of recessions but they are not uncommon. Any party who overextends him/herself to an imprudent extent runs the risk that he will be overtaken by any downturn other than a very mild one that the economic cycle produces.
[63] There is no doubt that risk-taking is an accepted feature of economic life. That is not to say though that unjustifiably high levels of risk which cause unnecessary harm to third parties is to be condoned. The fact is that some individuals ought not to involve themselves in some types of economic activity. That might be because of a lack of aptitude, skills and ability or it might be because they do not have the requisite financial resources to fall back on.
[64] No evidence was put before me of what other resources the judgment debtors could have recourse to an order to continue servicing their loans in the event that their development plans stalled. I can only conclude that there are none. In these circumstances, I consider that the judgment debtors are not blameless victims of an economic downturn.
[65] I am unable to discern any reasonable basis upon which the Court should be persuaded that an adjudication order is not called for in this case. I consider that having regard to considerations of commercial morality in the interests of the general
public, orders of adjudication are called for and I therefore conclude that the Court in its discretion ought to make orders adjudicating the judgment debtors bankrupt. There will be orders accordingly. The orders are made at the date and time of the delivery of this judgment.
[66] On balance I do not consider that the judgment debtors have succeeded in showing that an order ought not to be made.
Conclusion
[67] There will be orders adjudicating both judgment debtors bankrupt.
[68] I intend and order that the adjudications orders are to take effect on the date and at the time nominated by the Registrar in terms of Rule 11.14 HCR.
J.P. Doogue
Associate Judge