Seong v Official Assignee HC Auckland CIV-2007-404-002297

[2011] NZHC 151

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2007-404-002297

IN THE MATTER OF     THE INSOLVENCY ACT 1967

AND IN THE MATTER OF THE BANKRUPTCY OF CHEAN FOOK SEONG

BETWEEN  CHEON FOOK SEONG Applicant

ANDOFFICIAL ASSIGNEE Respondent

Hearing:         17 February 2011

Appearances: C Jones for Official Assignee

Chean Fook Seong, Applicant in person

Judgment:      22 February 2011 at 4:30 PM

JUDGMENT OF ASSOCIATE JUDGE BELL

This judgment was delivered by me on 22 February 2011 at 4:30 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date: ………………….

Solicitors:

Official Assignee, Private Bag 92513, Wellesley Street, Auckland 1010 – Email [email protected]

Copy to:

Chean Fook Seong, 20 Seresin Crescent, Flatbush, Manukau 2016

CHEON FOOK SEONG V OFFICIAL ASSIGNEE HC AK CIV-2007-404-002297 22 February 2011

[1]      Mr Chean applies for the annulment of his bankruptcy.  He was adjudicated bankrupt on 27 April 2007 on his own petition.   Because he became a bankrupt before the Insolvency Act 2006 came into force, his bankruptcy is governed by the Insolvency Act 1967 – s 444(2) of the Insolvency Act 2006.  He was automatically discharged on 27 April 2010.  He applied for his annulment on 27 January 2011.

[2]      He has made his application under s 309(1)(a) of the Insolvency Act 2006. That  allows  the  Court  to  annul  an  adjudication  if  the  Court  considers  that  the bankrupt should not have been adjudicated bankrupt.  Because the Insolvency Act

1967 applies, the comparable provision under that Act is s 119(1)(a). His application is to be decided under that section.  It says:

119      When Court may annul adjudication

(1)       In any of the following cases the Court may by order, on the application of the Assignee or any person interested, annul the adjudication—

(a)       Where the Court is of the opinion that the order of adjudication should not have been made:

(b)       Where the Court is satisfied that the debts of the bankrupt have been fully paid or satisfied:

(c)       Where the Court is of the opinion that the liability of the bankrupt to pay his or her debts should be revived because since the date of adjudication there has been a substantial change in the financial circumstances of the bankrupt:

(d)       Where the Court has approved a composition under Part 12 of this

Act.

(2)       If an application is made on any ground specified in paragraphs (a) to (c) of subsection (1) of this section by any person other than the Assignee, a copy of the application shall be served on the Assignee in such manner and within such time as the Court may direct.

(3)       The Assignee may appear on the hearing of any application made on any ground specified in paragraphs (a) to (c) of subsection (1) of this section as if the Assignee were a party to the proceeding.

(4)       If  the  order  of  annulment  is  made  on  the  ground  specified  in paragraph (a) of subsection (1) of this section, the adjudication shall be annulled from and after the date of the adjudication.

(5)       If the order of annulment is made on any ground specified in paragraphs (b) to (d) of subsection (1) of this section, the adjudication shall be annulled as from and after the date of the order..

(6)       Where application is made to the Court to annul any order of adjudication on the ground that the order ought not to have been made by

reason of a defect in form or procedure, subject to section 11 of this Act, the Court may, in addition to annulling the order, exercise its powers to correct the defect and order that the petition be reheard as if no order of adjudication had been made.

[3]      It is important to note the different effects of annulment under s 119(1)(a), on the one hand, and s 119(1)(b), (c) and (d), on the other. Under subsection (4), if the Court is satisfied that the order of adjudication should not have been made, the adjudication is annulled from and after the date of the adjudication.   On the other grounds, the order of annulment is purely prospective.  It operates only from the date of the order of annulment – s 119(5).

[4]      The  Official  Assignee  accepts  that  there  may  be  an  annulment  under s 119 (1)(b), but says that Mr Chean has not made out any grounds for annulment under s 119(1)(a).

[5]      In his affidavit in support of his application, Mr Chean says that he applied for bankruptcy on the advice of his lawyer and against his own better judgment.  He annexes a copy of a deed of settlement between himself, his wife, the Official Assignee and various creditors.   He says that he wants the original bankruptcy annulled in order to regain some of the rights and entitlements he was deprived of as a consequence of the bankruptcy.  He says it is also important for his own peace of mind.

[6]      It is very clear from what Mr Chean told me that he has felt the stigma of his bankruptcy very deeply.  He blames a lawyer who formerly acted for him for giving bad advice that he should file his debtor’s petition.  Clearly, there has been extensive litigation involving Mr Chean.  At this stage, there is no evidence about it and I am unable to make any findings about it.  I can make my decision only on the limited information contained in Mr Chean’s affidavit and in the Official Assignee’s report.

[7]      Initially, I wondered whether an order of annulment could serve any useful purpose, given that Mr Chean had already been discharged from his bankruptcy. However, Mr Jones helpfully submitted that an annulment after a discharge can have sensible legal  effect.   A discharge from bankruptcy does not bring the Official Assignee’s administration of the bankruptcy to an end – Palmer and Menzies v Official Assignee CIV-2005-404-3288, 22 November 2010, Woodhouse J.   Assets which passed to the Official Assignee under s 42 of the Insolvency Act remain vested in the Official Assignee, even after the bankrupt’s discharge.   An order of

annulment re-vests the bankrupt’s property in the bankrupt (except to the extent that assets have been realised and distributed by the Official Assignee in the administration of the bankruptcy).

[8]      In August 2010, Mr Chean entered into a deed of settlement with the Official Assignee, his wife and his creditors.  Under the deed, funds held in a law firm’s trust account were distributed among Mrs Chean, the Official Assignee and the creditors who were parties to the deed.  The deed constituted full and final settlement of all liabilities arising between the creditors, the Official Assignee and Mr Chean and Mrs Chean.  All parties agreed not to enforce any orders of judgment which any party might have against the other.  Clause 4.1 said:

Notwithstanding clause 2.1, the parties acknowledge Mr Chean shall remain at liberty to make application to the High Court for an order annulling his adjudication pursuant to s 119(1)(b) of the Insolvency Act 1967 (Application), so as to enable any claims, actions or other such choses in action Mr Chean vested in the OA under the bankruptcy, not sold or disposed of under contract of sale or disposition entered into by the OA while it was so vested to re-vest in Mr Chean.

[9]      Under clause 4.2, the other parties undertook not to oppose the application. [10]     Mr  Jones  explained  this  deed  resolved  all  outstanding  matters  between

Mr Chean and his creditors.  Effectively that deed of settlement brought the Official

Assignee’s administration of Mr Chean’s bankruptcy to an end.

[11]     The  settlement  explains  the  Official  Assignee’s  position  that  annulment under s 119(1)(b) could be ordered, so as to allow any other assets to re-vest in Mr Chean.  The Official Assignee does not have any reason to claim any interest in any other assets of Mr Chean.  On that basis, I am satisfied that an annulment under s 119(1)(b) is in order.

[12]     However, Mr Chean wanted me to go further and to make an order under s 119(1)(a) so as to expunge the bankruptcy entirely, as if it had never happened.

[13]     During the hearing, I indicated to Mr Chean that, while it was open to me to make an order of annulment under s 119(1)(b), and I would make such an order, it was not clear to me that I could make an order of annulment under s 119(1)(a), but I would give him the opportunity to continue with his application, if he could show a proper basis for an annulment on that ground.

[14]     The first difficulty facing Mr Chean is that he was adjudicated bankrupt on his own petition.  Section 119(1)(a) is directed at cases where something has gone badly  wrong  with  the  process  by  which  a  person  was  adjudicated  bankrupt. Brookers Insolvency Law and Practice says of the corresponding provision under the Insolvency Act 2006:

Despite the discretion it gives to the Court, subsection (1)(a) should be interpreted narrowly.   Generally, it will not provide grounds for interfering with a discretion exercised on a properly brought adjudication  petition  unless  there  was  some  defect  in  procedure, abuse of process, or where some material fact was not brought before the court making the adjudication order:  Re Hunter ex p CIR (2000)

19 NZTC 15, 722.

[15]     When a person has signed their own petition in bankruptcy, it will usually be hard for them to complain of some defect in procedure, abuse of process and the like.

[16]     Mr Jones suggested that conceivably there could be cases where a debtor might have grounds under s 119(1)(a), even though the debtor filed his own petition. The cases Mr Jones suggested were fraud and duress.  Forgery also comes to mind. Provisionally, I do not see that a complaint of bad advice provides adequate grounds for an annulment under s 119(1)(a).   I would need to hear full argument to be persuaded that it is a ground for annulment.

[17]     There  may  be  a  further  difficulty  for  Mr  Chean.    He  has  allowed  his bankruptcy to continue, has entered into a deed of settlement with his creditors and has been discharged.  These actions may be considered as affirming or acquiescing at his bankruptcy.  Given the significant time that has passed since his adjudication, it may be difficult to hold that the bankruptcy should be annulled retrospectively, even if poor advice were to give a ground for annulment.  There may be real difficulties in the Court being able to annul his bankruptcy with effect from the date of his initial adjudication.

[18]     These are simply provisional views which Mr Chean may wish to consider.  I give him the opportunity to come back to the Court to develop further any case for annulment under s 119(1)(a), but in doing that I do not want to encourage him that he can be assured of success.

[19]     I make these orders:

[20]     Mr  Chean’s  bankruptcy  is  annulled  under  s  119(1)(b)  of  the

Insolvency Act 1967 with effect from the date and time of this order;

[21]     Notwithstanding the annulment under s 119(1)(b), Mr Chean is at liberty to continue his application under s 119(1)(a) and to that end leave is reserved to him to file further affidavits and submissions, and to apply for a fresh hearing before me; and

[22]     There is no order as to costs.

R M Bell

Associate Judge