South Canterbury Finance Limited (in rec) v Serepisos HC Wellington Civ-2011-485-279
[2011] NZHC 1153
•26 September 2011
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2011-485-279
IN THE MATTER OF the Insolvency Act 2006
AND IN THE MATTER OF the bankruptcy of ELEFTARIOUS (TERRY) SEREPISOS
BETWEEN FM CUSTODIANS LIMITED Judgment Creditor
ANDSOUTH CANTERBURY FINANCE LIMITED (IN RECEIVERSHIP) Substitute Judgment Creditor
Hearing: 26 September 2011 (Heard at Wellington)
Counsel: G. Dewar - Counsel for Substitute Judgment Creditor
J. Billington QC - Counsel for Judgment Debtor
B. Scott - Counsel for Creditor in Support, Equitable Mortgages
Limited
Mr Stewart - Dominion Post Newspaper
Judgment: 26 September 2011
ORAL JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL
Solicitors: Thomas Dewar Sziranyi Letts, Solicitors, PO Box 31-240, Lower Hutt
Chapman Tripp, Solicitors, PO Box 2206, Auckland
Kensington Swan, Solicitors, Private Bag 92101, Auckland
SOUTH CANTERBURY FINANCE LIMITED (IN RECEIVERSHIP) V E SEREPISOS HC WN CIV-2011-
485-279 26 September 2011
[1] Before the Court is an application by South Canterbury Finance Limited (in receivership) as substituted judgment creditor (the creditor) for an order adjudicating Eleftarious Serepisos the judgment debtor (the debtor) bankrupt.
[2] The creditor has indicated that as at 18 July 2011 its debt due from the debtor totalled $22,461,165.76. The creditor was substituted as judgment creditor in this proceeding pursuant to s 44 of the Insolvency Act 2006.
[3] Before me today there was an appearance by Mr Scott for Equitable Mortgages Limited, a creditor in support of the present application. Mr Billington QC appeared as counsel for the debtor. Mr Stewart appeared as counsel for the Dominion Post. This was with respect to an application he had filed to obtain access to Court documents in this proceeding.
[4] The $22.4 million (approx) debt owing to the creditor as I understand it represents a balance outstanding together with interest under guaranteed loans made by the judgment creditor to several companies owned and controlled by the debtor, this debt being guaranteed by the debtor.
[5] There is uncontradicted evidence before the Court from the creditor that, although it holds securities from third parties for some of the debt in question (those third parties being company entities controlled by the debtor), these are not in the words of Mr McGillivray in his 25 August 2011 affidavit on behalf of the creditor “likely to yield any significant dividend to the substitute creditor”.
[6] Pursuant to s 14 of the Insolvency Act 2006 the creditor, although originally secured at least in part from these third party companies, clearly has an unsecured debt due from the debtor which exceeds the value of the charge/s by at least
$1,000.00 in terms of the requirements of the Insolvency Act 2006.
[7] In my view there can be no argument here that the creditor has established the requirements for an order for adjudication to be made set out in s 13 of the Insolvency Act 2006. The unsecured debt owing by the debtor exceeds $1,000.00 and the debtor has clearly committed an act of bankruptcy on the following basis:
(a) The original creditor in this proceeding, FM Custodians Limited, issued two Bankruptcy Notices against the debtor dated 16 February
2011 and 22 February 2011.
(b)Subsequently, this Court dismissed an application made by the debtor to set-aside those Bankruptcy Notices. This occurred on 23 May
2011 when, despite bringing those applications himself, the debtor effectively offered no argument in support at the time of hearing the application.
(c) The debtor then did not comply with those Bankruptcy Notices within the 10 working days specified and an act of bankruptcy occurred at that time.
[8] As I have noted, the creditor here was properly substituted as substitute creditor in this proceeding and its unsecured debt exceeds the $1,000.00 threshold limit.
[9] In addition, it needs to be noted that in an affidavit filed in this Court by the debtor on 26 August 2011 he deposes at para 2 that he is “unable to pay his debts as they fall due”.
[10] Finally, there can be no doubt that the debt in question owing by the debtor to the creditor in this case is a certain amount and is payable immediately.
[11] Notwithstanding these matters, under s 37 Insolvency Act 2006 this Court may at its discretion refuse to adjudicate a debtor bankrupt if:
(a) The applicant creditor has not established the requirements set out in s 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.
[12] In the present case, as I have noted above, there can be no question that the creditor has established the requirements of s 13 and, in addition, given particularly
that the debtor in his own 26 August 2011 affidavit has deposed that he is unable to pay his debts as they fall due, the provisions of s 37(b) are clearly established.
[13] The debtor therefore effectively opposes the present application, as I understand it, requesting the Court to exercise its discretion not to adjudicate him bankrupt on just and equitable or other grounds pursuant to s 37(c) and (d) of the Insolvency Act 2006.
[14] At this stage I interpolate one further matter. When the present application was last called before this Court on 29 August 2011, an adjournment to today 26
September 2011 was granted at the debtor’s request. This was to allow him time to serve a Part 5 Creditors’ Proposal he had placed before the Court on that date before his secured and unsecured creditors, to hold the requisite Creditors’ Meeting and then to refer the proposal back to this Court today, 26 September 2011. On 29
August 2011 counsel for the debtor indicated that the Creditors’ Proposal would be served on all creditors by 2 September 2011, and the Creditors’ Meeting would take place “on or before 23 September 2011”.
[15] It has been confirmed before me today that the Creditors’ Meeting did not take place on 23 September 2011 nor does it seem that the Part 5 Proposal was circulated to his creditors by the debtor.
[16] Instead, Mr Billington QC for the debtor has indicated today that circumstances changed after 29 August 2011 and instead of proceeding with his Creditors’ Proposal, the debtor continued his endeavours to source refinancing finance overseas. I will address this issue shortly.
[17] At this point I simply note that this Court was persuaded to grant the adjournment on 29 August 2011, sought by the debtor for the purpose of enabling the Part 5 Creditors’ Proposal to go forward. In my judgment issued on 29 August 2011
I noted that, in granting this adjournment:
The Court must ensure as far as possible that any adjournment granted will not prejudice the general body of creditors of a judgment debtor and, in particular, if a debtor’s situation appears hopeless and any proposal is unlikely to be approved by
major creditors, then any Part 5 application which is simply to buy time must not be countenanced.
[18] That said there is a possible argument available here that in changing tack and deciding simply to abandon the Part 5 Creditors’ Proposal which had been put together in some detail and submitted to this Court as a ground for adjournment, it might be said that the Court was mislead on 29 August 2011. Mr Billington QC would no doubt submit that this was not the case, that events subsequent to 29
August 2011 had simply changed, and that the debtor in his endeavours to refinance the substantial debts owing to all his creditors was seeking loans elsewhere.
[19] Today, 26 September 2011, Mr Billington QC for the debtor has made a formal application for adjournment of this matter until Friday of this week. He has described this application as one for a final adjournment. The reason for this adjournment as I understand it is that, according to Mr Billington QC, loan documentation has been completed by one of the debtor’s companies, Century City Trust Limited, for a loan facility which has been approved from international lending sources (I am told from Hong Kong) to provide funds I presume on a progressive basis for refinancing of the debts of the debtor and his various companies.
[20] Mr Billington QC referred me to an affidavit which was sworn and filed only today, 26 September 2011 by Daniel Mark Hughes (Mr Hughes) an Auckland solicitor acting for the debtor. In this affidavit, Mr Hughes confirms at para 11:
I have seen documentation which confirms a credit facility is in place for Century City Trust Limited and that it may be drawn down when the funds are received in New Zealand, the estimated time frame is mid this week.
[21] On this basis, Mr Billington QC requested an adjournment of this matter as I have noted until Friday of this week. As noted above, he stated that this adjournment would be a final adjournment and that one of two things would occur. Either these international refinancing arrangements would be in place by then, or alternatively, if monies were not available in the New Zealand banking system by Friday, in his words “there is no prospect for the debtor and these proceedings will necessarily come to an end by an order being made”.
[22] The issue before me therefore is whether or not yet another adjournment of this matter for some 4 days should be granted at what is this eleventh hour.
[23] Rather unsatisfactorily in my view, this last minute 26 September 2011 affidavit by Mr Hughes at this point appears to be supported by only one other piece of unsworn and unverified documentation. This is a letter from a Hong Kong source dated 23 September 2011 handed up to the Court this morning by Mr Billington QC for the debtor, which purports to confirm the crediting of the loan account of “Century City Trust Limited” with initial payments requested for “restructuring of your property portfolio with your existing creditors’ compromise”.
[24] Understandably, Mr Billington QC has requested some degree of confidentiality with regard to this particular communication. Notwithstanding that, however, I am quite unable from the letter which has been provided to the Court to determine the veracity of this arrangement and whether indeed loan monies will arrive in the New Zealand banking system as promised. I make those comments mindful, however, of the matters deposed to by Mr Hughes in his 26 September 2011 affidavit. I repeat that he confirms that a credit facility is in place for Century City Trust Limited and that “it may be drawn down when the funds are received in New Zealand, the estimated time frame is mid this week”.
[25] Turning to this last minute application by Mr Billington QC for another adjournment of this matter, it goes without saying that, given the history of this entire proceeding, this is rather unsatisfactory.
[26] In the past, the Courts have often expressed the view that it is not appropriate for lengthy adjournments of insolvency and liquidation proceedings to occur because of the prejudicial effect this would have on all creditors. Any unnecessary delay in the disposal of an application for adjudication in bankruptcy may well have potential prejudice to the ability of the Official Assignee to make recovery in appropriate cases.
[27] In the present case, a number of adjournments have been granted in the past. These were initially to enable arrangements to be put in place to clear the debt of the original judgment creditor, FM Custodians Limited, which ultimately did occur.
[28] The last adjournment, as noted above, was agreed at the time for the purpose of allowing the debtor time to put the Part 5 Creditor’s Proposal to all creditors and to conduct the necessary meeting. As I have noted neither of these things occurred.
[29] The present adjournment application is opposed by South Canterbury Finance Limited, the substituted creditor, and also by Equitable Mortgages Limited, the supporting creditor, they both seeking an order for adjudication today. Counsel for those parties stated generally that various promises which have been made by the debtor in the past have not eventuated and they have little confidence in the present proposal “bearing fruit”.
[30] Notwithstanding this, Mr Billington QC today noted that although, as I have outlined above, the debtor has acknowledged he is unable to pay his debts as they fall due, on the face of the other material he has put before the Court, his global assets slightly exceed the value of his stated debts. Whilst there must be some doubt as to the unsubstantiated value of the debtor’s assets outlined by him in his earlier affidavit (given that they are in the main real estate assets) on its face the debtor claims that, given time, he can realise some equity from these assets.
[31] Leaving aside these assets for a moment, there also appears to me to be some doubt regarding his level of indebtedness and liabilities identified by the debtor in his earlier affidavit. Certainly the debt which has been outlined by South Canterbury Finance Limited would seem to exceed, and by a reasonably significant amount, the figure certified by the debtor as being owed to that company. I say nothing more regarding those aspects at this point however.
[32] Turning now to Mr Hughes’ comment in his affidavit that “a credit facility is in place for Century City Trust Limited” and that it can be drawn down this week, the only other material of any kind before this Court today is the letter passed up by Mr Billington QC at the commencement of this hearing. That letter as I have noted
talks of a “first advance of funds” and later in the body of the letter refers to a first
remittance of US$5 million and a second remittance of US$15 million.
[33] Even on his own acknowledgement, the debtor’s total indebtedness personally and through his group of companies exceeds $200,000,000.00. Nowhere in the documentation before the Court is there any indication of any kind that the offshore loan which it is said has been approved will, in fact, refinance that debt entirely. This is entirely unsatisfactory, and is especially so given the eleventh-hour provision of this information.
[34] It also must raise a question as to the decision taken presumably to terminate the Part 5 Creditors’ Proposal which one month ago was to be placed before all creditors.
[35] The position of many of those creditors is unknown at this point. Those creditors who have appeared before me, being South Canterbury Finance Limited and Equitable Mortgages Limited, both seek an order for adjudication today and resist any further adjournment.
[36] As I have noted above, in the present case, there were no disputes regarding the debt owing to the creditor or indeed the other major debts outstanding by the debtor.
[37] The sole reason advanced to justify the adjournment sought is simply to allow time for the funds which Mr Billington QC says are “within the banking system” but will take several days to reach this country and be made available to the debtor through his company, Century City Trust Limited.
[38] One aspect in all of this it seems to me might well have been overlooked here. The loan advance, which it is said is coming from overseas sources, is stated to be for the credit of Century City Trust Limited. I am told that all documentation for this loan is now in place. Presumably an unconditional contract for the provision of this loan finance which is said to be “on its way to this country” is in place.
[39] It is important, in my view to note here that this advance is one to be made to Century City Trust Limited. This is a separate company and legal entity from the debtor. As I understand it, he is the sole director of that company and also its sole shareholder. Any change in his status, if an order for adjudication is to be made today, however, as I see it would not affect that company in any particular way. His shareholding would remain and be controlled by the Official Assignee on behalf of his creditors and ultimately the debtor.
[40] It follows therefore that, if this funding from overseas which is said to have been put in place and is to be advanced to the separate company, Century City Trust Limited, does arrive and is available to clear all the debtor’s undisputed debts (as the debtor suggests), that even if an order is made today adjudicating the debtor bankrupt, it is possible for him to make a subsequent application to annul that bankruptcy under s 309(1)(b) Insolvency Act 2006 at an early date. Indeed with the co-operation of both the debtor and the Official Assignee with regard to his particular company shareholdings and his other assets, if that line was to be pursued, there seems to me to be no reason why matters could not be dealt with expeditiously.
[41] As I have noted above, there is no doubt that the debtor has committed an act of bankruptcy. In addition I am satisfied here that there is nothing which has been placed before the Court to show that it is just and equitable that the Court should not make an order for adjudication or that, for some other reason, adjudication should be refused. The present proceeding has been longstanding, the debts in question are substantial and it is in the interests of the wider commercial community as I see it that this matter is drawn to a close and the Official Assignee is able to investigate the full situation.
[42] I reject therefore the application made on behalf of the debtor for a further adjournment of this matter.
[43] That said, and for the reasons outlined above, I find that the interests of all parties here are best served by my making orders adjudicating the debtor bankrupt.
[44] The following orders are now made therefore:
(a) An order is made adjudicating the judgment debtor, Eleftarious
Serepisos, bankrupt.
(b)Costs are awarded to the substituted creditor, South Canterbury Finance Limited and the creditor in support, Equitable Mortgages Limited on a 2B basis together with disbursements as fixed by the Registrar.
(c) These orders are timed at 10.58 am.
[45] I now deal with an application by Mr Stewart for The Dominion Post which as I understand it is for access to the documentation on the Court file.
[46] Given the order I have now made, it is important as I see it that an orderly resolution of the debtor’s financial position is undertaken in particular by the Official Assignee. As I see it therefore, the Official Assignee will clearly have some interest in making submissions to the Court regarding Mr Stewart’s application.
[47] That application is accordingly adjourned for the shortest possible period in order that the position of the Official Assignee can be known.
[48] The application is now to be called at 9.45 am on Friday next, 30
September 2011. In the meantime the Official Assignee is to have until 1.00 pm on
29 September 2011 to file and serve any memorandum he may wish regarding that application. Any reply from Mr Stewart for the Dominion Post is to be filed and served by 9.00 am on Friday, 30 September 2011. I record at this stage that it is important that all these matters, which are very much in the public domain, are made available for proper inspection by appropriate media authorities. It is with respect to matters of strict commercial confidentiality and the like that I seek the response memorandum here from the Official Assignee.
‘Associate Judge D.I. Gendall’
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