Sanson v Ling

[2019] NZHC 1352

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-000812

[2019] NZHC 1352

UNDER

the Insolvency Act 2006

IN THE MATTER OF

the bankruptcy of Shan Ling

BETWEEN

CRAIG SANSON and DAVID BRIDGMAN

Judgment Creditors

AND

SHAN LING

Judgment Debtor

Hearing:

13 June 2019

Appearances:

J E M Lethbridge for Judgment Creditor T P Kelly for Judgment Debtor

K Puddle for Creditors in Support (Zhong Li and Ji Quing Li and New Zealand New Oak Property Ltd)

Judgment:

14 June 2019

JUDGMENT OF ASSOCIATE JUDGE P J ANDREW

This judgment was delivered by Associate Judge Andrew on 14 June 2019 at 2.30 pm

pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar Date……………………….

Solicitors:

Martelli McKegg, Auckland

Grove Darlow & Partners, Auckland K3 Legal Ltd, Auckland

SANSON & OR v SHAN LING [2019] NZHC 1352 [14 June 2019]

Introduction

[1]    The judgment creditors, Mr Craig Sanson and Mr David Bridgman, as liquidators of Apollo Bathroom and Kitchen Ltd, seek an order adjudicating the judgment debtor, Ms Shan Ling, bankrupt, pursuant to s 26 of the Insolvency Act 2006. That section provides:

Return that sufficient goods not found under execution process

A debtor commits an act of bankruptcy if, under an execution process issued against the debtor or the debtor’s property, a return is made that sufficient goods and chattels of the debtor could not be found on which to levy the debt.

[2]    The affidavit evidence establishes that Ms Ling had a writ of sale executed on her assets and was interviewed by the Sheriff. She made a nil return on 21 March 2019.

[3]    At the first call of the adjudication proceedings on 13 June 2019, Mr Kelly, on Ms Ling’s behalf, sought a one month adjournment to enable Ms Ling’s solicitors, Grove Darlow, to provide advice to her on a possible proposal and/or the merits of a counterclaim brought by Ms Ling in proceedings in this Court brought by the creditors in support (CIV-2016-404-1661).

[4]    The application for adjournment is opposed by the judgment creditors and the creditors in support. They contend that Ms Ling is essentially “gaming” the system, has had ample opportunity to obtain the legal advice she now claims to seek, and, in all the circumstances, there is a compelling public interest that she be adjudicated bankrupt. It is said that it is contrary to bankruptcy law to grant successive opportunities to insolvent debtors to regulate their affairs and delay the consequences of their actions while the creditors are out of money.1

[5]    For the reasons that follow, I refuse the application for an adjournment. I make an order for adjudication on the terms set out below.

1      Paul Heath and Mike Whale Heath and Whale Insolvency Law in New Zealand (3rd ed, LexisNexis, Wellington, 2018) at [2.2].

Background

[6]    The background to these bankruptcy proceedings is set out in a recent judgment of Jagose J in Apollo Bathroom and Kitchen Ltd (in liq) v Ling.2 That judgment records that the Commissioner of Inland Revenue brought proceedings to adjudicate Ms Ling bankrupt in 2016 and 2017. Those bankruptcy proceedings were withdrawn by the Commissioner by acceptance of the sum of $400,000 in settlement. On 2 April 2017, Apollo Bathroom and Kitchen Ltd drew against its own account to obtain an ASB bank cheque for $400,000 which was provided to the Commissioner, in satisfaction of Ms Ling’s outstanding tax obligation.

[7]    In the proceedings before Jagose J, the plaintiffs (including its liquidators and the judgment creditors in this case) sought to recover the sum of $400,000 plus interest from Ms Ling. This is the same sum that was paid by Apollo Bathroom and Kitchen Ltd to the Commissioner in satisfaction of Ms Ling’s tax debt. The plaintiffs in that liquidation sought to recover the sum as money had and received. In the alternative, the plaintiff liquidators sought to recover the sum as an under-value transaction, a prejudicial disposition of property or a voidable transaction.

[8]    In his judgment of 22 February 2019, Jagose J gave judgment to the liquidators against Ms Ling in the sum of $400,000 plus interest from 2 April 2017 at rates calculated in accordance with the Interest on Money Claims Act 2016.

[9]Jagose J concluded that Ms Ling had not acted in good faith:3

She did not act in good faith. She had no basis to assume the company’s liability to her equalled or exceeded her tax debt. Her opportunistic calculation to that end was with the benefit of hindsight. She knew she was being treated preferentially to other creditors, such as the company’s landlord, whose entitlement to be paid she strongly disputed.

[10]   In the subsequent judgment on costs, Jagose J ordered Ms Ling to pay the plaintiff liquidators’ increased costs in the amount of $64,670.4 In that costs judgment, Jagose J referred to Ms Ling’s failure to accept a settlement offer from the liquidators

2      Apollo Bathroom and Kitchen Ltd (in liq) v Ling [2019] NZHC 237.

3      At [37](a).

4      Apollo Bathroom and Kitchen Ltd (in liq) v Ling [2019] NZHC 656.

and noted that she had counter-offered on the following terms: Ms Ling would accept the offer “provided payment of that sum also operates to discharge her liability for tax on the sum originally paid by the company on her behalf to the IRD”.5

[11]   In concluding that increased costs should be awarded, and with reference to   r 14.6(3)(b) of the High Court Rules 2016 which provides that increased costs may be ordered where there is a failure by the paying party to act reasonably, Jagose J held:6

[13] From that perspective, faced with a substantive liability of over twice the offered amount, Ms Ling’s counteroffer for her personal tax benefit is strikingly unreasonable, in unprincipled manipulation of potential money flow. She was saying the liquidators effectively should fund her tax liability. Notably, that is a tax position very belatedly adopted for consistency with her defence. Her response to the liquidators’ offer also is consistent with the last- gasp opportunism illustrated in that defence. It was not reasonably justified even at the time it was made. By failing to accept the offer, without reasonable justification, Ms Ling contributed unnecessarily to the liquidators’ time and expense subsequently incurred in successfully prosecuting their claim. The liquidators are entitled to increased costs under subpara (v).

[12]Ms Ling was served with these bankruptcy proceedings on 8 May 2019.

Analysis

[13]   I acknowledge that this is a first call of these bankruptcy proceedings. However, in circumstances where Ms Ling has had sufficient opportunity to obtain legal advice and to formulate a realistic proposal to be put to the judgment creditors

— and against the background outlined above, where, as noted, Ms Ling has previously faced bankruptcy proceedings – I decline the application for an adjournment.

[14]   The documentation provided by  the  judgment  creditors  establishes  that  Ms Ling approached Grove Darlow solicitors in March 2019. She has had over three months to obtain advice about any possible proposal and/or the merits of her counterclaim in proceedings CIV-2016-404-1661.

5 At [11].

6      At [13] (citations omitted).

[15]   Timing is often a relevant consideration in determining whether a very late (eleventh hour) proposal can properly be accepted as valid ground for an adjournment. In Re Bank of New Zealand, ex parte McCall, Associate Judge Abbott held:7

Timing is often a relevant consideration, as it can reflect on the credibility of the proposal, and can be a factor to weigh when balancing the various interests of the creditor, the debtor, other creditors, and the public as a whole. The potential merit of a proposal must also be a relevant factor. Creditors should not have to incur the cost and delay of challenging a meritless proposal.

[16]   His Honour further held that there is prejudice to a creditor in requiring it to be put to the time and expense associated with challenging what is plainly an unmeritorious proposal:8

I also take into account the prejudice suffered by BNZ if it has to continue its challenge to a proposal that is lacking in substance and is unlikely to receive court approval …

[17]   In relation to the counterclaim in proceedings CIV-2016-404-1661, Mr Puddle, counsel for the creditors in support and the plaintiffs in that proceeding, advises that the total sum claimed from Ms Ling in those proceedings exceeds $6,000,000. Her counterclaim is unquantified. Mr Wilson, barrister, is representing Ms Ling in those proceedings and is presumably in a position to give Ms Ling advice as to the merits of her counterclaim. No explanation has been given to me as to why there is a need for Grove Darlow to incur further cost and time in providing such an assessment.

[18]   I acknowledge that the trial of the proceedings in CIV-2016-404-1661 have been set down for trial in August 2019. However, that simply reinforces my view that Ms Ling has had a full opportunity to be advised on the merits of her counterclaim. Despite having had that opportunity, no evidence has been put before me to support any finding that there is substantive merit to the counterclaim and, if it were to succeed, what its quantum and net effect might be. I also note that Ms Ling’s counterclaim exists in a case where she admits being liable for unpaid loans of $1,770,000 and interest at one per cent per month for nine years.

7      Re Bank of New Zealand, ex parte McCall HC Auckland CIV-2010-404-6255, 12 May 2011 at [11].

8 At [17].

[19]   I also accept the compelling submission of Ms Lethbridge, for the judgment creditors, that there is a significant public interest in a prompt determination of this adjudication application. The grounds for an order for an adjudication pursuant to s 26 of the Insolvency Act 2006 have clearly been made out and, in the circumstances of this case, there is a clear element of public interest in the affairs of Ms Ling being scrutinised for having incurred substantial debts which she cannot pay. In accordance with her own sworn statement, she is in no position to make any realistic proposal to the judgment creditor.

[20]   In support of these findings, I refer to the following passage from Heath and Whale Insolvency Law in New Zealand:9

It has therefore been held that it is not in accordance with bankruptcy law to grant successive opportunities to insolvent debtors to regulate their affairs and delay the consequences of their actions while the creditors are out of their money. Statement of such principal can be found in Re Guest, ex part BNZ Finance Ltd,¹⁰ with a discussion citing that case along with others to be found in Perriam (a debtor) v Commonwealth Bank of Australia.¹¹ In Re Guest the Court refused an application for an adjournment to enable the debtors to put forward a fresh settlement proposal after an earlier proposal failed. Factors upon which the Court relied were the lengthy delay while the new proposal was considered and the probability that the debtors’ position would deteriorate further in the interim. In the latter case, the Court had to balance the interests of insolvents, the creditors and the public in an application for approval of proposals to creditors. The Court noted that the public interest was to be approached from the perspective of protecting the public from the activities of the debtor rather than punishing the debtor for wrong-doing.

Result

[21]   The application by Ms Ling, the judgment debtor, for an adjournment is refused.

[22]   I am satisfied that grounds have been made out pursuant to s 26 of the Insolvency Act 2006 for an order for adjudication.

9      Paul Heath and Mike Whale Heath and Whale Insolvency Law in New Zealand (3rd ed, LexisNexis, Wellington, 2018) at [2.2].

10     Re Guest, ex parte BNZ Finance Ltd [1991] 2 NZLR 477 at [480].

11     Perriam (a debtor) v Commonwealth Bank of Australia HC Auckland CIV-2009-404-3336, 16 March 2010.

[23]   I accordingly order that Ms Ling, the judgment debtor, is adjudicated bankrupt. My orders are timed at 2.30 pm on Friday, 14 June 2019.

[24]   I award costs to the judgment creditor on a 2B basis in the sum of $4,014 together with disbursements as sought of $299.

Associate Judge P J Andrew