St Laurence Lending Limited v De Vries HC Wellington CIV-2010-485-2516
[2011] NZHC 626
•23 March 2011
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2010-485-2516
IN THE MATTER OF THE INSOLVENCY ACT 2006
AND IN THE MATTER OF THE BANKRUPTCY OF FRANCIS ANTHONY DE VRIES
BETWEEN ST LAURENCE LENDING LIMITED (IN RECEIVERSHIP)
Judgment Debtor
Hearing: 22 March 2011
(Heard at Wellington)
Counsel: E. Ritchie - Counsel for Judgment Creditor
D.A. Bleier - Counsel for Judgment Debtor
Judgment: 23 March 2011 at 4:15 PM
JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL
This judgment is delivered by Associate Judge Gendall on 23 March 2011 at 4.15 pm under r 11.5 of the High Court Rules.
Solicitors: Buddle Findlay, Solicitors, PO Box 2694, Wellington
DLA Phillips Fox, Solicitors, PO Box 2791, Wellington
Introduction
ST LAURENCE LENDING LIMITED (IN RECEIVERSHIP) v FA DE VRIES HC WN CIV-2010-485-2516 23
March 2011
[1] Before the Court is an application by the judgment creditor seeking an order adjudicating the judgment debtor bankrupt. The application relates to an unpaid debt outstanding at present amounting to $5,597,821.31 (plus interest and costs) claimed by the judgment creditor.
[2] Summary judgment for an original amount of $5,485,402.34 was entered in this Court in favour of the judgment creditor against the judgment debtor on 2
November 2010. No appeal was lodged against that summary judgment order.
[3] Then, on 21 December 2010 the judgment creditor served a Bankruptcy Notice on the judgment debtor for the summary judgment amount plus accumulating interest totalling at that point $5,532,434.77. The judgment debtor did not respond to this Bankruptcy Notice nor bring any application to set it aside.
[4] Subsequently, on 18 February 2011 the present bankruptcy proceedings were filed and these were served upon the judgment debtor on 24 February 2011.
[5] When the present application was first called before this Court on 21 March
2011, although no formal Notice of Opposition had been filed, Mr Bleier appeared for the judgment debtor and indicated that the application was to be opposed. He stated that he had only just received instructions from the judgment debtor late last week and he sought an adjournment to file a formal Notice of Opposition and affidavit in support. In doing so, Mr Bleier informed the Court that the judgment debtor had managed only on Thursday last, 17 March 2011 to have a meeting with Shephard Dunphy, Insolvency Consultants to discuss the restructuring of his overall financial affairs.
[6] At the time, and over the opposition of counsel for the judgment creditor on
21 March 2011 I granted the judgment creditor an adjournment of this proceeding but only until 22 March 2011, particularly given the substantial ongoing debt which was outstanding from the judgment debtor and the absence of any real indications as to his financial position and as to how he intended to meet that debt. In addition, I made certain directions requiring the judgment debtor to file and serve any formal
opposition to the present application together with a detailed affidavit in support and an affidavit of his financial position.
[7] On 21 March 2011 the judgment debtor did file a Notice of his intention to oppose the present application together with one affidavit in support. From the Notice of Opposition it is clear the judgment debtor does not dispute the debt outstanding. He raises as a sole ground of opposition, however, the contention that it is not just and equitable that he be adjudicated bankrupt and adds that he should be given some time to restructure the financial affairs of the substantial group of companies which he controls and which he suggests might clear the debt.
[8] As to this request for further delay, before me Mr Bleier sought an adjournment of the present application for three weeks in his words to enable advice on this restructuring from Shephard Dunphy to be obtained.
[9] In response to the 21 March 2011 affidavit from the judgment debtor, the judgment creditor has filed an affidavit of Mr Bhranavan Gnanalingam dated 22
March 2011.
[10] In addition, Ms Ritchie counsel for the judgment creditor indicated before me that the judgment creditor opposes any further adjournment of this matter and seeks the adjudication order today.
Counsel’s Arguments and My Decision
[11] In the present case it is clear that the judgment debtor has committed an act of bankruptcy in terms of s 13 Insolvency Act 2006 in the sense that he has failed to comply with the requirements of the Bankruptcy Notice served upon him in accordance with s 17 Insolvency Act 2006.
[12] Given that these formal requirements for adjudication have been satisfied, the judgment creditor is prima facie entitled to an order of adjudication – see Brookers Insolvency Law & Practice para IN37.04.
[13] Section 37 Insolvency Act 2006, however, allows the Court a discretion to refuse an order for adjudication in the following circumstances:
(a) If the judgment creditor has not established the s 13 requirements. (b) If the judgment debtor is able to pay his or her debts.
(c) If it is just and equitable that the Court refuses an order for adjudication.
(d) If for any other reason an order of adjudication should not be made.
[14] In the present case, as I have noted, there is no doubt that the requirements of s 13 have been established and it also seems clear that the judgment debtor is unable to pay his debts. The sole effective ground advanced by the judgment debtor in support of his contention that an order for adjudication should be refused is that in this case it is just and equitable to do so. On this, the onus of satisfying the Court that it is just and equitable to refuse an order lies on the judgment debtor, McHardy v Wilkins & Davies Marinas Limited (In Receivership) 7 April 1993, CA54/93 (CA).
[15] Turning first to consider the judgment debtor’s financial position, despite my direction of 21 March 2011 that he was to file and serve an affidavit of his financial position, the only information provided by the judgment debtor in the affidavit he has filed effectively avoids providing any such personal financial information. In this affidavit the judgment debtor does not depose personally to his financial situation. The only personal financial information which is provided to the Court appears to be contained in a letter dated 21 March 2011 and addressed “To whom it may concern” from the judgment debtor’s accountant, Mr Blair Smith of WHK, Lower Hutt, exhibited as “FAV2” which states:
To the best of our knowledge Frank (the judgment debtor) does not own anything own (sic) assets of significant value. The property in (sic) he lives in and the car he drives are both owned by a Family Trust. None of the Family Trusts have any debt due to Frank.
[16] Instead, from the judgment debtor’s 21 March 2011 affidavit it appears that he and his wife are trustees of a number of family trusts which hold shares in a range of some 26 family companies. He deposes that he is the director of these companies and their main purpose is “to hold and manage commercial properties”.
[17] A schedule of the various companies’ property holdings is attached to his affidavit. He deposes that “the companies that I control” own 20 properties which he maintains have a combined value of $104,750,000.00, and he goes on to state that “the current debt position registered against each of the properties in question is approximately $84,945,065.00.” He concludes therefore that the equity held by these various companies in those properties is “approximately $19,000,000.00”.
[18] “Valuations” for the various properties listed in the schedule are annexed to his affidavit. Those “valuations” include a number of rating valuations for various properties as at 1 August or 1 September 2010 and valuation reports for other properties from Colliers International, DTZ New Zealand Limited and CB Richard Ellis, one dating back as far as April 2006 with others carried out in December 2008.
[19] On this valuation, debt and equity aspect, Ms Ritchie for the judgment creditor submitted that the judgment creditor has no confidence whatever in the information provided by the judgment debtor. She reaches this conclusion given first, the out-of-date nature of the valuation material provided, and secondly, and more particularly, major errors which she states are contained in the information provided to the Court. On this second aspect, Ms Ritchie referred to the reply affidavit of Mr Gnanalingam dated 22 March 2011. This mentioned specifically a property at 525 Gt South Road, Penrose, Auckland over which the judgment creditor held a second mortgage. In his affidavit, Mr Gnanalingam exhibits a valuation of Jones Lang LaSalle Limited completed in April 2010 showing a valuation for the entire site of $17.8 million (plus GST if any). This contrasts, as I understand it, with earlier valuation reports provided by the judgment debtor in his 21 March 2011 affidavit, showing a valuation for this site at $27.0 million.
[20] In any event, as Mr Gnanalingam in his affidavit notes, two of the three units at this Gt South Road, Penrose site sold for approximately $8.8 million in February
2011. This leaves a valuation at April 2010 for the last remaining unit of approximately $8,000,000.00 on which South Canterbury Finance have a first mortgage of an amount exceeding $8,000,000.00. The value of the security for the judgment creditor’s second mortgage over this property is therefore nil and the
$6,000,000.00 equity claimed by the judgment debtor I am told is, in fact, a
$6,000,000.00 shortfall.
[21] This aspect must be of concern given the paucity of any real or up-to-date financial information provided for the judgment debtor’s companies or Family Trusts.
[22] All of these matters of course leave on one side an important issue. This is the question as to whether, in any event, the judgment debtor, whose accountant acknowledges that he has no assets of any substance, might be able to access perhaps through various companies as a beneficiary in the shareholder Family Trusts, some of the companies’ suggested equity. On the minimal information which has been provided to the Court, grave questions must arise as to whether there is indeed any equity in the various properties in question and whether this can be properly accessed by the judgment debtor other than by loan advances to bolster his personal financial situation.
[23] What is clear at present is that the judgment debtor has a debt exceeding $5.5 million outstanding to the judgment creditor. In addition, there is no argument that he has neglected to provide any verified information as to his personal financial position other than the statement from his accountant on 21 March 2011 that he “does not own any assets of significant value” and “the property he lives in and the car he drives are both owned by a Family Trust”.
[24] Finally, in his 21 March 2011 affidavit the judgment debtor deposes:
15. My financial affairs are complicated and I have engaged the firm of Shephard Dunphy to assist me in restructuring my affairs to allow for a settlement proposal to be prepared ....
And
16. Given the equity position of the properties that I control, through the various companies, I am confident that a reasonable proposal can be submitted to the judgment debtor for their consideration
And
14. It is my intention to submit a compromise to the judgment creditor to allow for this matter to be settled finally.
[25] On this basis the judgment creditor, as I have noted seeks an adjournment of three weeks today.
[26] What the judgment debtor omitted to say, however, was that in February 2011 he made a $20,000.00 offer in full and final settlement to the judgment creditor. This was confirmed in an exhibit attached to the 22 March 2011 affidavit of Mr Gnanalingam. This offer was rejected, although it does seem that if an offer in the vicinity of $200,000.00 had been made then this might have been favourably considered by the judgment creditor. No such higher offer was forthcoming however.
[27] Further, as I have noted, it was not until Thursday of last week, 17 March
2011 that the judgment debtor met with Shephard Dunphy he says for assistance in restructuring his affairs. This was notwithstanding the fact that the summary judgment order for nearly $5.5 million made against him on 2 November 2010 and the Bankruptcy Notice was served on him on 21 December 2010. No explanation has been provided by the judgment debtor for this delay in endeavouring to take any steps to resolve this matter.
[28] Under all these circumstances, it is clear to me that the judgment debtor has been unable to satisfy the onus upon him of establishing that it is just and equitable that the order for adjudication sought today should be refused. Despite the claim in his affidavit that the 26 companies which he “controls” have an equity of some $19 million, he has provided no information as to his own financial position. All that the Court has in front of it is a bland statement from his accountant that the judgment debtor does not have any assets of significant value and his home and car are owned by a Family Trust. This is not a dissimilar situation to that which arose in Re Marra Ex Parte Commissioner of Inland Revenue, High Court Auckland, 13 February 2004, Master Lang, CIV-2003-404-2931. There the debtor’s family home and car were owned by a Family Trust and the Master in that case believed that the Official Assignee might wish to investigate whether any of the assets owned by the Trust
outstanding.
[29] As I have noted, before me Ms Ritchie made it clear that the judgment creditor opposed any further adjournment in this matter and sought an immediate order for adjudication. She stated that the judgment creditor had absolutely no confidence that the judgment debtor given time would be able to make any offer to clear even a reasonable portion of the large outstanding debt owing by him. Further the misleading and unreliable information provided to the Court regarding valuations of the various company properties and indebtedness generally were seen as matters of concern.
[30] Weighing up all these aspects, I come to the clear view that the judgment debtor here has been unable to satisfy the onus upon him to show that it is just and equitable that an order for his adjudication should be refused or that otherwise the Court should exercise its discretion to do so.
[31] In my view the judgment debtor has had ample opportunity to enter into arrangements with the judgment creditor regarding its substantial debt, particularly given his claim that the companies he controls have substantial equity to more than cover this debt. The eleventh hour attempt to engage Shephard Dunphy does not assist the situation here.
[32] For all these reasons the application before me succeeds.
Orders
[33] An order is now made adjudicating the judgment debtor, Francis Anthony De
Vries bankrupt.
[34] Costs are awarded to the judgment creditor on a 2B basis together with disbursements as fixed by the Registrar.
‘Associate Judge D.I. Gendall’
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