Strang

[2023] NZHC 369

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2016-485-430

[2023] NZHC 369

UNDER	the Insolvency Act 2006
IN THE MATTER	of the bankruptcy of GRAHAM JOHN STRANG and an application by the Official Assignee for orders pursuant to ss 106 and/or 147 of the Insolvency Act 2006

Hearing:	16 February 2023
Appearances:	D Kerr for the Official Assignee No appearance by or for bankrupt
Judgment:	2 March 2023

JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

[1]                  Graham John Strang was adjudicated bankrupt on 7 February 2017. The three-year bankruptcy period provided for in s 290 of the Insolvency Act 2006 (the Act) expired on 22 October 2022. The surprisingly lengthy duration of his bankruptcy reflects the fact that Mr Strang did not comply with s 290(1) of the Act and provide the Official Assignee with a statement of affairs for nearly three years.

[2]                  On 11 October 2022 the Official Assignee  filed  a  notice  of  objection  to Mr Strang’s discharge.

[3]That triggered the need for a public examination pursuant to s 295.

RE STRANG [2023] NZHC 369 [2 March 2023]

[4]                  The Official Assignee filed a report relating to Mr Strang’s affairs pursuant to ss 176 and 296 which is before the Court, and served Mr Strang with a summons and a copy of the report.

[5]The examination was set down for 10.00 am on 16 February 2023.

[6]Mr Strang did not answer the summons and present himself for examination.

[7]                  Mr Kerr for the Official Assignee acknowledged that the Court had jurisdiction to issue a warrant for Mr Strang’s arrest. This is provided for in s 180 of the Act. However, the Official Assignee did not ask the Court to issue a warrant. Mr Kerr said that the Official Assignee’s case that Mr Strang should not be discharged could be advanced in his absence.

[8]                  The Official Assignee’s argument is not complex. Mr Kerr began by reminding the Court that Mr Strang had been bankrupted on two previous occasions and that during the second of those bankruptcies he fraudulently incurred credit in his mother-in-law’s name without her knowledge, and that this had resulted in his mother-in-law’s bankruptcy. Mr Kerr also referred me to the evidence to the effect that during the same bankruptcy Mr Strang had worked as a self-employed electrician without approval. Mr Strang has a conviction for obtaining credit whilst still an undischarged bankrupt.

[9]                  The Official Assignee’s report disclosed that Mr Strang was required to make contributions to his debts during the course of his current bankruptcy. He failed to comply with the Official Assignee’s demand. That resulted in a court order requiring him to make contributions and for a time his then employer deducted the necessary amount from his wages and made payments. However, as a result of the Covid pandemic, Mr Strang was released from his obligations to make those payments. He then changed employers. He did not inform the Official Assignee of this change, and, as a result, the payments did not resume. The Official Assignee’s attempts to require Mr Strang to recommence his contributions came to nothing. Court orders were obtained for the payment of arrears, ongoing contributions and costs, but at that stage

Mr Strang claimed to be an independent contractor and simply failed to recommence making contributions.

[10]              Arising from this, the Official Assignee apparently reminded Mr Strang that he required permission to become self-employed, which he had not obtained, and he seems entirely to have ignored that.

[11]              Mr Strang’s sole creditor is the Commissioner of Inland Revenue. His tax obligations are in the order of $118,000. To date approximately $20,000 has been recovered. However, the administration costs of the bankruptcy are double that amount.

[12]              Mr Kerr reminded me that s 179 of the Insolvency Act provides that a public examination only ends when the Court makes an order to that effect, and that the Court must not make such an order unless and until it is satisfied that the bankrupt’s conduct, dealings and property have been sufficiently investigated and that the investigation is finished.

[13]              Despite the fact that Mr Strang did not answer his summons and was not examined, I am satisfied from the comprehensive nature of the Official Assignee’s report that the bankrupt’s conduct, dealings and property have been sufficiently investigated and that no useful purpose would be served by prolonging the investigation.

[14]That leaves for determination the appropriate orders.

[15]              As Mr Kerr submitted, s 298 of the Act provides that where an examination is conducted by the Court the Court must determine whether to:

(a)discharge the bankrupt immediately;

(b)discharge the bankrupt on conditions;

(c)discharge the bankrupt but suspend the order for a period;

(d)discharge the bankrupt at a specified future date; or

(e)refuse an order of discharge, in which case the Court may specify the earliest date that the bankrupt may apply for a discharge.

[16]              Section s 299 confers additional powers on the Court enabling it to make prohibition orders to which I will return in due course. Such orders may be limited in time or without a time limit.

[17]Mr Kerr took me through the relevant authorities.

[18]              For present purposes, especially having regard to the fact that Mr Strang did not answer his summons, it is sufficient to quote from the Court of Appeal’s judgment in ASB Bank v Hogg describing the process involved:1

In conferring a discretion in the broadest terms, the legislation recognises that each case will be different, that the relevant factors may vary from case to case and that the exercise of the discretion must be governed by the circumstances of the particular case having regard to the guidance provided by a consideration of the scheme and purpose of the legislation. In providing for automatic discharge after three years, the legislation recognises that it is not in the public interest that the bankruptcy should endure indefinitely. In providing for earlier discharge, s 108 [now 294 of the Insolvency Act 2006] recognises that continuing the bankruptcy to the end of the three years may not be in the public interest. Whether or not it is will be a matter for decision on the particular facts. In that regard, guidance is provided by s 109(2) [now s 296 of the Insolvency Act 2006] which lists matters on which the assignee is to report to the High Court in such a case. The Court is to consider the assignee's report as to the affairs of the bankrupt, the causes of the bankruptcy, the manner in which the bankrupt has performed the duties imposed on him or her under the Act and his or her conduct both before and after the bankruptcy, and also as to any other fact, matter or circumstance that would assist the Court in making its decision. Clearly the Court apprised of the matter will consider the legitimate interests of the bankrupt, the creditors, and wider public concerns, but it is neither required nor entitled to impose threshold requirements in the exercise of the discretion so as to derogate from the breadth of the powers conferred under s 110 [now s 298 of the Insolvency Act 2006].”

[19]              I remind myself that the authorities require me to have regard to the interests of the creditors involved, the bankrupt, the bankrupt’s conduct and commercial

1      ASB Bank v Hogg [1993] 3 NZLR 156 (CA) at 157-158 (emphasis added).

morality and the public interest.2 Finally, I observe that there is no scope for treating this process as one of a punitive nature.3

[20]              The  Official  Assignee  invited  the  Court  to  make  an  order  extending  Mr Strang’s bankruptcy. In doing so, Mr  Kerr  focussed  the  interests  of  the  Inland Revenue Department as the only creditor and that Mr Strang is continuing to avoid making any contributions to the costs of his bankruptcy. He also emphasised the public interest, submitting that Mr Strang continues to impose a significant risk to the public. As Mr Kerr submitted, Mr Strang “has flouted the norms of business morality over a protracted period, causing financial loss to others, including most recently the Commissioner of Inland Revenue and the Official Assignee”.

[21]              He acknowledged that Mr Strang’s personal interests warranted consideration but submitted that a continuation of his bankruptcy would not interrupt his capacity to earn a living. I would add that Mr Strang himself has shown a complete disregard for his personal interests by not appearing and advancing any argument in opposition to the Official Assignee’s objection to his discharge.

[22]Mr Kerr summarised his submission in these terms:

Mr Strang has obtained all the benefits of bankruptcy but incurred few if any of the obligations. In particular, he has retained — and continues to retain — the benefits of service income which could and should have been applied for the benefit of his creditor and towards the payment of costs in the administration of his bankruptcy. In that regard a continuation of Mr Strang’s bankruptcy will extend the period during which he can be required to pay contributions.

[23]I agree.

[24]              Finally Mr Kerr invited the Court to consider whether the additional powers which the Court has in terms of s 299 should be exercised by the imposition of conditions on Mr Strang.

2      See, for example, Havenleigh Global Services Ltd v Henderson [2016] NZHC 2969.

3      See Paul Heath and Mike Whale Heath and Whale: Insolvency Law in New Zealand (2nd ed, LexisNexis, Wellington, 2014) at [2.2]; and Kelly v Structured Finance Ltd [2009] 2 NZLR 785 (HC) at [63]

[25]              I have of course reviewed the Official Assignee’s report. In doing so I have had regard to the various interests to which it is necessary to consider under s 298 of the Act, bearing in mind that this is in effect an unopposed application and that by failing to respond to his summons Mr Strang has indicated that he is uninterested in the Official Assignee’s application.

[26]              On balance, the view  I  have  reached  is  that  in  the  interests  of  the  Inland Revenue Department as the only creditor, and in the public interest, the proper course is to continue Mr Strang’s bankruptcy.

[27]              The considerations which have weighed most heavily with me in reaching that conclusion are Mr Strang’s failure to comply with his obligations as a bankrupt, his apparent lack of interest in securing a discharge; the risk that he poses to the public and the obligation that the Court has to reinforce the importance of business morality.

[28]              I have concluded that Mr Strang’s bankruptcy should continue for a further three years from 23 October 2022. I have considered whether it is appropriate to continue the bankruptcy indefinitely, leaving Mr Strang with the ability to apply for a discharge after a period of time. That, however, is not a satisfactory outcome as it would impose obligations and costs on the Official Assignee indefinitely. A further three years will enable the Official Assignee to attempt to ensure that Mr Strang complies with his obligations, and may enable further cost recovery.

[29]              Bearing in mind the concerns I have as to Mr Strang’s behaviour, it is also appropriate to impose conditions on him for that three-year period. Referring to s 299, it seems to me that it would be appropriate in Mr Strang’s case to impose all five of the conditions referred to there so as to minimise the risk to the public, at least for that three-year period.

[30]Accordingly, the orders the Court makes are as follows:

(a)pursuant to s 179 I order that Mr Strang’s examination is ended;

(b)I make an order continuing Mr Strang’s bankruptcy for a further three-year period from 23 October 2022 to 22 October 2025;

(c)I make orders that during that period of time Mr Strang is not to:

(i)enter into, carry on or take part in the management or control of any business or class of business;

(ii)be a director of any company;

(iii)directly or indirectly be concerned, or take part, in the management of any company;

(iv)be employed by a relative of the bankrupt;

(v)be employed by a company, trust, trustee, or incorporated society that is managed or controlled by a relative of the bankrupt.

Associate Judge Johnston