Robinson v Pigou
[2016] NZHC 2381
•3 October 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2016-404-896 [2016] NZHC 2381
UNDER the Insolvency Act 2006 IN THE MATTER OF
the bankruptcy of EVAN GORDON ROBINSON
BETWEEN
EVAN GORDON ROBINSON Judgment Creditor
AND
BABYLOU JOSE PIGOU Judgment Debtor
Hearing: 3 October 2016 Appearances:
S H Barter for the Creditor
N King for the DebtorJudgment:
3 October 2016
ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL
Solicitors:
Sinisa Law, Otahuhu, Auckland, for Judgment Debtor, in support
Barter Law (S Barter/L M Herbke), Albany, Auckland, for Judgment Creditor, to oppose
Counsel:
Noel King, Barrister, Auckland
ROBINSON v PIGOU [2016] NZHC 2381 [3 October 2016]
[1] Ms Pigou applies to set aside a bankruptcy notice. Applications to set aside bankruptcy notices may be heard in chambers or in court. Counsel agreed that this application should be heard in chambers and I have heard it accordingly. The effect of that is that any challenge to this decision will be by way of review to a Justice of this court, rather than appeal to the Court of Appeal.1
[2] The bankruptcy notice is dated 3 May 2016. It is based on a final judgment of the District Court at Dargaville of 18 March 2008 for $42,171.25. The bankruptcy notice says that the amount outstanding under the judgment is $20,964.72. There is a schedule to the notice showing a calculation to derive that figure. Ms Pigou has made payments totalling $31,000 in reduction of the principal amount of the judgment. The schedule also shows a calculation of interest running from 18 March
2008 taking into account the reductions in principal. The interest figure claimed is
$9,823.47 as at 25 June 2013. That is the date of the last payment by Ms Pigou. The principal outstanding at 25 June 2013 was $11,141.25. The principal and the interest
sum together come to $20,964.72.
[3] Paragraph 3 of the bankruptcy notice says:
The judgment creditor also claims interest on the sum of $11,141.25 being
the outstanding principal on the original judgment sum of $42,171.24 as per
attached Schedule of Payments and Interest at the rate of five per cent per annum being $46.42 per month from the 25th June 2013 until the date of
payment.
[4]
There are some irregularities in that part of the bankruptcy notice.
A
bankruptcy notice is required to state the amount of the judgment that is due at the date of the notice. Paragraph 3 states a formula, rather than an amount. It also claims payments that are to fall due under the judgment, rather than sums that are already due. That is because it seeks interest until the date of payment, which may be after the notice. A better course for a creditor is to calculate interest on the
judgment up until the date of the request to issue the bankruptcy notice, and to
1 Balzat v Zhang HC Auckland CIV-2008-404-6062, 22 September 2009, and Sharma v Wati
[2012] NZCA 195, (2012) 21 PRNZ 161.
include the result of that calculation in the amount claimed under the judgment. It can be helpful, as the creditor did here, to provide a schedule showing the calculation. The creditor is in fact seeking an amount greater than $20,964.72. For other reasons, the bankruptcy notice will need to be amended.
[5] Ms Pigou’s application to set aside the bankruptcy notice relied on two grounds. An amended application abandoned one of those grounds and raised a new ground. The abandoned matter is a claim that Mr Robinson had not taken into account a payment of $5,000. Mr Robinson’s evidence shows that that was properly taken into account before judgment was entered. The grounds in her amended application are:
(a) Mr Robinson received a payment of $15,000 from a claim made against the liquidator of Dermacare Ltd (in liquidation) and Mr Robinson should bring that into account in his claim against her; and
(b) part of the debt is statute-barred.
Background
[6] The background to this matter goes back to 2004. Mr Robinson is a farmer at Ruawai. He has a company, Rongo Pai Farms Ltd. At the outset his farm was mortgaged to the National Bank. In 2004 Ms Pigou established a company, Dermacare Marketing Ltd. On incorporation, Ms Pigou was the sole shareholder and director. Soon afterwards, Mr Robinson also became a director and an equal shareholder. In June and July 2004 Mr Robinson and Ms Pigou became equal shareholders and directors of a company, Dermacare Ltd. That company had been incorporated in 2000. Dermacare Marketing Ltd was re-named Formula Products
2004 Ltd.
[7] In 2004 Dermacare Ltd and Rongo Pai Farms Ltd each took loans out from the Westpac bank. Rongo Pai Farms Ltd borrowed $453,000. Dermacare Ltd borrowed $443,000. The same firm of solicitors acted for both companies on the
loans. The funds raised were used to repay the National Bank debt owed by Rongo Pai Farms Ltd. That amount was some $530,000. That meant that some of the funds borrowed by Dermacare Ltd were used to repay the National Bank debt owed by Rongo Pai Farms Ltd. Ms Pigou says that some $77,000 was used. She believes (and has stated on a number of occasions since) that there should be a credit for
$38,500 in respect of the payment by Dermacare Ltd to Rongo Pai Farms Ltd for meeting its liability to the National Bank.
[8] Formula Products 2004 Ltd failed and went into receivership in November
2004. Dermacare Ltd went into shareholders’ liquidation in December 2004. Westpac called up the loans: the amount owing was $305,675.64. Ms Pigou paid
$114,161.73. Mr Robinson paid the balance. The amount that Ms Pigou paid was short of an equal half-share of the debt - short by some $38,515.36. This is the amount which Ms Pigou contends should be taken into account by reason of Dermacare Ltd having paid towards the indebtedness of Rongo Pai Farms Ltd in meeting its National Bank mortgage debt.
[9] Mr Robinson sued Ms Pigou in the Dargaville District Court in CIV-2005-
011-100 for the $38,515.36, being the shortfall in her contribution to paying off the Westpac debt. That proceeding was settled. On 15 May 2007 Mr Robinson and Ms Pigou entered into a deed of settlement. Ms Pigou admitted liability for $45,000 and signed a confession of claim. She undertook to pay $5,000 within seven days. There were terms for payment of the balance over time. If she failed to pay in accordance with those arrangements, Mr Robinson would be able to use an admission of judgment she had signed. There were ancillary provisions under which Ms Pigou resigned as director of Formula Products 2004 Ltd, and she authorised Mr Robinson to vote on her behalf on any matters to do with the company.
[10] Mr Robinson relied on the admission of claim to enter judgment on 18 March
2008. That judgment is final. Execution has not been stayed. The settlement and the admission of claim mean that it is no longer open to Ms Pigou to dispute her liability for the amount claimed by Mr Robinson. In particular, that means that she cannot any longer run any argument as to Dermacare Ltd’s funds being used to repay the National Bank liability of Rongo Pai Farms Ltd.
[11] There has been one earlier application to set aside a bankruptcy notice. Associate Judge Sargisson dismissed that application in October 2009. Ms Pigou maintained that she had a cross claim against Mr Robinson for over $38,515.36. Associate Judge Sargisson was satisfied that Ms Pigou did not have any such triable cross claim under s 17(7) of the Insolvency Act.2 She considered that if Ms Pigou had any claim, it was only against Rongo Pai Farms Ltd rather than Mr Robinson. Ms Pigou also tried suing Rongo Pai Farms Ltd in the Papakura District Court, but that claim was struck out.3
Ms Pigou’s first ground - the $15,000 received by Mr Robinson
[12] Ms Pigou says that Mr Robinson has received a payment of $15,000 from the liquidator of Dermacare Ltd. She says that that amounts to a distribution from the company which would otherwise have gone to Westpac, the secured creditor. As Mr Robinson has received that payment, it ought to be brought into account in reduction of her indebtedness.
[13] Mr Robinson acknowledges receiving $15,000 from the liquidator. He says that in 2012 he was approached by a Mr Chris Sanson about a potential claim against the liquidator of Dermacare Ltd. By way of background, the liquidator has shown in his final report on completion of the liquidation that total realisations came to
$99,648.00 but that was entirely used up in administration and general expenses, liquidation and legal fees, wages, PAYE and GST. There were no distributions to creditors. Ms Pigou and Mr Robinson were not only shareholders of the company: they were also creditors for funds advanced and, in Ms Pigou’s case, for her work for the company. Mr Robinson and Mr Sanson agreed to join forces.
[14] That resulted in a deed of settlement dated 21 August 2013. The parties to the deed of settlement were Mr Robinson and Mr Sanson on the one hand and the liquidator on the other. Mr Sanson was able to join in making a claim against the liquidator because he had taken an assignment from “the Pigou interests”. The Pigou
interests were Ms Pigou, a company under her control called RTD Trading Ltd, and a
2 Robinson v Pigou HC Auckland CIV-2008-404-8140, 2 October 2009.
3 Pigou v Rongo Pai Farms Ltd DC Papakura CIV-2009-055-76, 17 October 2009.
family trust called the CTM Family Trust. These Pigou interests were creditors of the company for $119,076.68. Ms Pigou assigned those debts to Mr Sanson. The assignment specifically included the right to take legal action against the liquidator. The terms of the assignment were that Mr Robinson would share with Ms Pigou
50 per cent of the net amount collected for each debt. The deed of assignment between the liquidator and Ms Sanson and Mr Robinson shows that the liquidator paid a total of $30,000 - $15,000 to Mr Robinson and $15,000 to Mr Sanson.
[15] Ms Pigou’s complaint is that in receiving the $15,000 from the liquidator, Mr Robinson has received an amount from a principal debtor which goes towards relieving the burden he had to pay in meeting the debt to the Westpac bank as guarantor of Dermacare Ltd. That argument ignores the fact that Ms Pigou’s interests received a like payment.
[16] There might be some point in the argument if Mr Robinson had received a payment from Dermacare Ltd as principal debtor and Ms Pigou had not received any payment. That resulting inequality might go in reduction of her indebtedness, but a comparable payment was made in respect of her interests as well. Mr Robinson has not benefited at her expense. Instead, Ms Pigou had assigned her interest in any claim against the liquidator to Mr Sanson and Mr Sanson has received that benefit in respect of her interests. Part of the arrangement between Mr Sanson and Ms Pigou is that he will account to her for half the net benefits on that claim. But that is a matter between her and Mr Sanson and does not concern Mr Robinson.
[17] I am satisfied that there is nothing in the payment of $15,000 received by Mr Robinson that requires any adjustment to the bankruptcy notice. That ground fails.
The second ground – part of the interest claimed is statute-barred
[18] Here we are concerned with interest on a judgment given in March 2008. Mr Robinson has claimed interest from the date of judgment. The period since then straddles the repeal of Limitation Act 1950 and the Limitation Act 2010 coming into
force on 1 January 2011. For any action or cause of action based on an act or omission before 1 January 2011, the Limitation Act 1950 continues to apply.4
[19] Under s 4(4) of the Limitation Act 1950, no arrears of interest in respect of any judgment debt shall be recovered after the expiration of six years from the date on which the interest became due. Similarly, s 51 of the Limitation Act 2010 says:
No arrears of interest in respect of a judgment debt may be recovered after
6 years from the date on which the interest became due.
Mr Robinson could accordingly claim interest only for six years before he requested the bankruptcy notice to issue. As the bankruptcy notice is dated 3 May 2016, he could claim interest only from 4 May 2010. Any interest falling due before 4 May
2010 is statute-barred. Because the bankruptcy notice has claimed interest which fell due before 4 May 2010, the amount claimed in the bankruptcy notice is overstated.
[20] An overstatement of the amount owing on a bankruptcy notice does not invalidate the bankruptcy notice unless certain conditions are satisfied. Section
30(1) of the Insolvency Act 2006 says:
Overstatement in a bankruptcy notice of the amount owing by the debtor does not invalidate the notice, unless–
(a) the debtor notifies the creditor that the debtor disputes the validity of the notice because it overstates the amount owing; and
(b) the debtor makes that notification within the time specified in the notice for the debtor to comply with the notice.
[21] When a debtor applies to set aside a bankruptcy notice, the time for complying with the notice is extended.5 Ms Pigou did not notify the overstatement in her initial setting-aside application, but she did include it in her amended application. I regard her notification as within time under s 30(1)(b). Her plea of limitation was an effective way of disputing the validity of the notice on the ground of overstatement. She has satisfied the conditions under s 30(1). That means that
the bankruptcy notice is prima facie invalid.
4 See the Limitation Act 2010, s 59 and the Limitation Act 1950, s 2A.
5 High Court Rules, r 24.9.
[22] The court has, however, a discretion to redress any defects by reason of overstatement. That is to allow the bankruptcy notice to be amended. There is authority for amending a bankruptcy notice when the debt is overstated - see Re Ebbett.6 Section 418 of the Insolvency Act allows the court to cure defects in a bankruptcy notice but only so long as any prejudice to the debtor is avoided.
[23] In discussion with counsel, I indicated that the amount in the bankruptcy notice should be amended, and that further time should be allowed for Ms Pigou to comply with the notice as amended.
Outcome
[24] Counsel have conferred and agreed that the amount stated in the bankruptcy notice is to be amended to $16,380.29. That figure comprises the principal sum of
$11,141.25 plus interest from six years before the request for the issue of the bankruptcy notice, but does not take into account costs on the bankruptcy notice which are separately payable. Those costs are $796.00.
[25] I adjourn the application to Friday 14 October 2016 at 10:00am. The purpose of the adjournment is to give Ms Pigou the opportunity to comply with the bankruptcy notice as amended. If she complies with the bankruptcy notice, she will not commit an act of bankruptcy and the application will be disposed of accordingly.
[26] If she does not comply with the notice, as amended, by Thursday 13 October 2016 at 5:00pm she will have committed an act of bankruptcy and I will dismiss the application at the hearing on 14 October. I will also deal with costs at the hearing on 14 October.
………………………............
Associate Judge R M Bell
6 Re Ebbett HC Tauranga B109/92, 9 October 1992, per Fisher J.
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