Synnott v Wood
[2015] NZHC 217
•19 February 2015
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2014-409-000200 [2015] NZHC 217
IN THE MATTER OF the Insolvency Act 2006 AND
IN THE MATTER OF
the bankruptcy of LEON DEREK WOOD
BETWEEN
RICHARD JEFFREY SYNNOTT and TONY WILLIAM WHITE (as trustees of the R J Synnott No 2 Family Trust) Judgment Creditors
AND
LEON DEREK WOOD Judgment Debtor
Hearing: 19 February 2015 Appearances:
G M Downing for Judgment Creditors
P N Allan for Judgment DebtorR P Lemm for Commissioner of Inland Revenue (as creditor in support)
Judgment:
19 February 2015
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
on application for adjudication in bankruptcy
Introduction
[1] The judgment creditors obtained a judgment for $22,837.84 against the judgment debtor (Mr Wood) on 3 April 2014.
SYNNOTT v WOOD [2015] NZHC 217 [19 February 2015]
[2] Mr Wood committed an available act of bankruptcy on 4 August 2014 when he failed to comply with the requirements of a bankruptcy notice served on him on
26 April 2014.1
Application for an adjudication order
[3] The creditors now apply for an order adjudicating Mr Wood bankrupt.
[4] Mr Wood filed opposition to the application asserting two grounds of opposition, namely that:
(a) he is able to pay his debts; and
(b)it is just and equitable that the Court does not make an order for adjudication.
[5] Alternatively (but without formal application) he seeks an order halting the proceeding.
Adjudication in bankruptcy – the statutory regime
[6] Section 36 Insolvency Act 2006 provides that the Court may, at its discretion, adjudicate the debtor bankrupt if the creditor has established the requirements set out in s 13 of the Act.
[7] All the requirements of s 13 of the Act were established in this case in that: (a) Mr Wood owes the creditors more than $1,000;
(b)Mr Wood committed an act of bankruptcy within three months before the filing of the application;
(c) The creditors’ debt is a certain amount; and
1 Mr Wood’s application to set aside the bankruptcy notice was dismissed and the time for
payment extended to 1 August 2014 – see Synnott & White v Wood [2014] NZHC 1705.
(d) The debt is immediately payable.
[8] Relevantly, s 37 of the Act provides:
37 Court may refuse adjudication
The Court may, at its discretion, refuse to adjudicate the debtor bankrupt if—
(a) the applicant creditor has not established the requirements set out in section 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.
[9] The Court of Appeal has recognised that the “ability to pay debts” referred to
in the legislation:2
… means that the debtor must be able to pay his or her debts as they are incurred, either immediately or within a reasonable time.
Mr Wood’s ability to pay his debts
[10] As evidence of his ability to pay his debts, Mr Wood relied upon an entitlement he has in relationship property. In particular, he deposed:
Matrimonial Property:
During the time that these proceedings have been on foot I have been hampered by the relationship breakup and resultant proceedings with my ex- wife Priscilla Wood.
Priscilla obtained a freezing order on all assets and bank accounts in the Family Court against me. Her solicitor was the same solicitor currently acting for the trust.
The proceedings have now been resolved to the point where I am able to
access monies with Priscilla’s approval.
My share of the relationship property when released will exceed the sum that
I owe to the Trust.
Once the relationship property issues are resolved I will be able to pay or give security for the money that I owe the Trust.
2 Holdgate v Blocassa Ltd [2007] NZCA 132 at [19].
[11] While Mr Wood refers to being able to access money with his ex-wife’s approval, he does not indicate whether such approval has been sought and will be forthcoming and, if so, when money will be received. Secondly, it appears from the concluding paragraph which I have quoted that the release of monies which Mr Wood anticipates is still in some way dependent on the resolution of relationship property issues.
[12] Mr Wood also deposes that he has a current income of $500 per week from LWT Nelson Limited for work in respect of winding the company up. He does not indicate whether he has out of that sum any surplus income from which to satisfy the judgment debt. A reasonable inference, given that he had made no payment in reduction of the debt, is that his income is fully committed elsewhere.
[13] The alternative explanation that he has simply chosen not to pay the debt despite having funds is equally unsatisfactory.
[14] Mr Wood’s affidavit was sworn on 10 December 2014. He has not provided supplementary evidence as to progress of relationship property resolution in the supervening two months. There is no basis in his evidence upon which the Court could conclude that payment of the judgment debt from that source will be made within a reasonable time.
[15] Mr Wood’s opposition to adjudication on the basis of ability to pay debts is not justified.
Is it just and equitable that the Court not make an order of adjudication?
[16] In his evidence in opposition, Mr Wood raises two matters, apparently in support of the proposition that adjudication in bankruptcy would be unjust or inequitable.
Cross-claim
[17] Mr Wood refers to cross-claims which he is pursuing against the judgment creditors and another entity. Mr Wood had raised cross-claims in support of an
application to set aside the bankruptcy notice upon which this application is based. The application to set aside the bankruptcy notice on that ground was dismissed.3 I found that Mr Wood’s cross-claim did not meet the requirements of s 17 Insolvency Act because Mr Wood could have used the cross-claim in the proceeding in which the judgment creditors obtained their judgment.4
[18] There is a rationale to the effective requirement upon a debtor under s 17 of the Act to assert a cross-claim at the point a creditor pursues its claim. Justice and equity require a debtor not to sit back so as to later hold up a judgment creditor from enforcing rights in the bankruptcy court on the basis of a cross-claim yet to be proved. Instead the debtor is expected to prove the cross-claim or defence when it becomes relevant through the creditor’s pursuit of its claim.
[19] Mr Allan referred me to the decision of Nicholson J in Jamieson v Taradale Management Ltd as authority for the proposition that a ruling not to set aside a bankruptcy notice under the old s 19(1)(d) did not act as an issue estoppel on whether to adjourn or halt a subsequent application for adjudication.5 That is well established but it does not cut across the duty of a Court on adjudication in exercising the discretion to consider the justice of holding a creditor back while allowing a debtor yet further time to pursue the claims.
[20] Mr Wood now deposes that he has issued a proceeding against the trustees in the District Court. Mr Allan confirmed from the Bar that the proceeding has been served and defence filed.
[21] Mr Wood says in his affidavit that if he is adjudicated bankrupt he will not be able to pursue the claims which have been filed in the District Court. That may well be the case, but if Mr Wood is able to satisfy the Official Assignee that the claims are tenable, then subject to putting the Assignee in sufficient funds to pursue the litigation, the claims will be able to be pursued to the benefit of Mr Wood’s estate. If there is a sufficient recovery to discharge all creditors’ debts, Mr Wood may then be
able to obtain an annulment of his bankruptcy.
3 Synnott & White v Wood, above n 1,
4 At [36] – [39].
5 Jamieson v Taradale Management Ltd HC Auckland, B 942-IM99, 1 November 1999.
[22] In the meantime, I do not find it unjust that Mr Wood be required to meet a judgment debt which the creditors on formal proof obtained 10 months ago.
Conflict of interest
[23] Mr Wood complains that the firm of McFadden McMeeken Phillips (which represents the creditors in the proceeding) is acting in a conflict of interest situation. He deposes:
I have already noted that the solicitor acting for the trust is also acting for my wife against me.
Further, he used to be my solicitor prior to all of these matters. I have complained to the New Zealand Law Society alleging conflict of interest on his part.
The solicitor for the trust has also unsuccessfully sued me in the past. Recently, he has written to my counsel telling me that he is going to
complain to the Police that I made threats directed towards him to an
employee of his firm. I absolutely deny doing so and believe that this demonstrates his animosity towards me.
I believe that his unwillingness to negotiate with respect to this matter is a direct result of his feelings towards me personally.
[24] Mr Allan noted that the solicitor against whom the conflict complaint has been made is not Mr Downing himself but rather a partner. Mr Allan nonetheless observes correctly that a partner’s conflict will generally be treated in the same way as the conflict of the solicitor himself or herself.
[25] Mr Wood has not however made an application to the Court for an order
disqualifying the creditors’ solicitors from continuing to act.
[26] Mr Downing, for the judgment creditors, recognises that Mr Wood has made the complaint with the New Zealand Law Society alleging the conflict of interest on the firm’s part. Mr Downing notes that the complaint is being defended by his firm and there is yet to be a decision. Mr Downing characterises Mr Wood’s complaint as “tactical”.
[27] I do not view the issues of conflict (on the part of the creditors’ solicitors) raised by Mr Wood as even arguably giving rise to a situation to make Mr Wood’s adjudication unjust or inequitable. The judgment debt owed by Mr Wood to his creditors is unaffected by the identity of the solicitors representing those creditors. The creditors’ entitlement to payment is a matter of law. The creditors’ solicitors simply represent the creditors in seeking for them an order that Mr Wood be adjudicated bankrupt by reason of his inability to pay his debts (which I find to be clearly established) and by his committing an act of bankruptcy (a matter of record). Nothing in the solicitors’ role affects the justice or equity of the case as between the creditors and debtor. Nothing in these observations cuts across the duty upon the New Zealand Law Society to nonetheless investigate the complaint on its merits.
Other debt
[28] The Commissioner of Inland Revenue has appeared as a creditor in support (claiming a sum of $48,541.68). The Commissioner’s interest in Mr Wood’s estate (in addition to the applicant creditors) indicates that there is a more general public good in Mr Wood’s adjudication than if this were a case of a stand-alone single creditor.
Outcome
[29] There is nothing in the grounds of opposition raised by Mr Wood which should lead to a refusal by the Court in its discretion to adjudicate Mr Wood bankrupt. He has failed to pay the judgment debt for a significant time. It is appropriate that there be an adjudication. The Assignee has the ability to investigate Mr Wood’s asset position for the benefit of his creditors.
Halting the application
[30] Under s 38(1) of the Act, the Court may at any time halt a creditor’s application for adjudication. (Sections 42 and 43 permit the Court to halt applications in specific situations such as where the subject judgment is under appeal. Those situations do not apply and Mr Wood relies on the general terms of s 38). Mr Wood has not advanced in support of a stay or halt any reasons other than
those put forward against the making of an adjudication order. Just as I have found adjudication to be appropriate, it would be inappropriate to halt proceedings so as to stave off adjudication and the commencement of the Assignee’s administration of Mr Wood’s estate for the benefit of his creditors.
Order
[31] I order –
(a) The application for an order halting the proceeding is dismissed; (b) Leon Derek Wood is adjudicated bankrupt;
(c) The debtor is to pay the creditors’ costs in this proceeding on a 2B basis together with disbursements as fixed by the Registrar with a certificate for the reasonable travel and accommodation costs of counsel;
(d)The debtor is to pay the costs of the Commissioner of Inland Revenue as creditor in support on a 2B basis together with disbursements as fixed by the Registrar;
(e) This order is timed at 11.09 am.
Associate Judge Osborne
Solicitors:
McFadden McMeeken Phillips, Christchurch
G C Knight, Christchurch
Counsel: P N Allan, Christchurch
Commissioner of Inland Revenue, Christchurch
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