Tawa Trade Finance Limited v Chen
[2024] NZHC 1746
•27 June 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-001796
[2024] NZHC 1746
UNDER the Insolvency Act 2006 BETWEEN
TAWA TRADE FINANCE LIMITED
Judgment Creditor
AND
LIYUN CHEN
Judgment Debtor
Hearing: 12 June 2024 Appearances:
No appearance for the Judgment Creditor M Tingey for the Judgment Debtor
S W M Piggin for David Wilson and Raymond Walker and Li Wang, creditors in support
E R Mcleod for General Finance Limited, creditor in support
M Robertson for Loo & Koo and Bibiana Lee, creditors in support H H Jacques for Goodmore Investments (New Zealand)
Limited, creditor in support
Judgment:
27 June 2024
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 27 June 2024 at 4.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date.......................................
Solicitors:
Essence Law Ltd, Auckland Martelli McKegg, Auckland Robertsons, Auckland Turner Hopkins, Auckland
S W M Piggin, Auckland M Tingey, Auckland
D Chisholm KC, Auckland
TAWA TRADE FINANCE LTD v CHEN [2024] NZHC 1746 [27 June 2024]
Introduction
[1] This is a bankruptcy proceeding against Liyun Chen (Ms Chen). Two creditors of Ms Chen have applied to be substituted as plaintiffs after the original plaintiff (Tawa Trade Finance Ltd) withdrew after being paid.
[2] Since the last call, the creditors represented by Mr Piggin had been paid. They sought and were granted leave to withdraw their appearance in support.
[3] Further creditors — Loo & Koo and Bibiana Lee — had filed notices of appearance in support. However, they had also since been paid, and sought and were granted leave to withdraw.
[4] Goodmore Investments (New Zealand) Ltd (Goodmore) filed a notice of appearance in support on 15 May 2024. Goodmore sought to be substituted for the plaintiff.
[5] General Finance Ltd (General Finance) filed a notice of appearance in support on 6 May 2024. General Finance also sought to be substituted for the plaintiff.
[6] Ms Chen opposes orders for substitution. As directed by Associate Judge Brittain on 30 May 2024, she has filed and served a memorandum setting out her grounds of opposition.
Legal principles
[7] The substitution of a creditor for the plaintiff in an application for adjudication is governed by s 44 of the Insolvency Act 2006 (the Act), which provides:
44 Substitution of creditor
(1)The court may substitute another creditor (Creditor 2) for the creditor making the application for adjudication (Creditor 1), if—
(a) Creditor 1 has not proceeded with due diligence or at the hearing of the application offers no evidence; and
(b) the debtor owes Creditor 2 $1,000 or more.
(2)In that case, Creditor 2 must file another application for adjudication, but can rely on the act of bankruptcy to which Creditor 1’s application related.
Substitution of Goodmore
[8] Goodmore is a judgment creditor of Ms Chen for the sum of $792,394.21 and interest pursuant to summary judgment orders granted by this Court on 20 February 2024 (reissued on 22 February 2024).1
[9] Ms Chen opposes Goodmore being substituted because the judgment is under appeal, and she has filed an application for a stay of enforcement of that judgment. A fixture has been allocated for 9 September 2024. Mr Tingey submits that no steps should be taken by Goodmore to enforce the judgment, including by way of substitution, until the application for a stay is resolved.
[10] An appeal of a judgment does not operate as a stay of enforcement of that judgment. Unless and until Ms Chen obtains a stay of enforcement, there is nothing to prevent Goodmore from utilising the bankruptcy procedure to seek to recover the judgment debt.
[11] The only criteria that need be met for the Court to order substitution of a creditor are that the creditor is owed $1,000 or more by the debtor, and the original creditor has not proceeded with due diligence or has not offered any evidence at the hearing. This includes the situation, as here, where the original creditor does not want to proceed on the day of the hearing because the debtor has paid the debt.
[12] Those criteria are met in this case. I see no reason why Goodmore should not be substituted as creditor in the bankruptcy application.
[13] Once Goodmore has filed its application for adjudication, Ms Chen has the option of applying for a halt under s 38 or s 42 of the Act until her appeal is determined.
1 Chen v Goodmore Investments (New Zealand) Ltd [2024] NZHC 139.
Substitution of General Finance
[14] General Finance claims to be a creditor of Ms Chen for $375,400.52, comprising:
(a)a sealed order of costs awarded by Becroft J against Ms Chen on 10 August 2023 in the proceeding CIV-2023-404-548, in the sum of
$4,780, which remains unsatisfied;
(b)a sealed order of costs awarded by Gordon J against Ms Chen on 17 November 2023 in the proceeding CIV-2023-404-548, in the sum of
$16,471.75, which remains unsatisfied;
(c)a sealed order of costs awarded by Associate Judge Brittain against Ms Chen on 9 November 2023 in the proceeding CIV-2023-404-581, in the sum of $17,420.87, which remains unsatisfied; and
(d)the shortfall on the mortgagee sale with the debt guaranteed by Ms Chen (less the costs orders amounts above) in the sum of
$336,727.90.
[15] General Finance has security over all the personal assets and other real property of Ms Chen. General Finance says that it is not aware of any personal assets to which the security might attach, other than 2 million shares Ms Chen holds in General Capital Ltd. General Finance says that as at 6 March 2024 the shares had an estimated value of $156,000.
[16] Additionally, General Finance has two charging orders over the shares for the amounts awarded in the costs orders. Consequently, General Finance says that it is an unsecured creditor of Ms Chen for the minimum estimated sum of $180,727.90 ($336,727.90 less $156,000 being the estimated value of the shares).
[17] Mr Tingey maintains that General Finance should not be substituted for the following reasons. First, because General Finance is barred by s 31 of the Act from making an application for adjudication because it is pursuing execution by way of
charging orders. Mr Tingey submits that a judgment creditor must make an election between an execution process and bankruptcy proceedings.
[18] Second, because General Finance’s charging orders over the shares exceed the value of the costs awards they secure. Mr Tingey submits that under s 14 of the Act, the Court must not make an order for adjudication on the application of a secured creditor unless the creditor has established that the amount of the debt exceeds the value of the charge by at least $1,000.
[19] Third, Ms Chen disputes the balance of the debt claimed by General Finance, being the shortfall on a mortgagee sale, calculated by General Finance to be
$336,727.90. Ms Chen disputes the legal fees and security costs included in this debt, and the default interest calculation.
[20] Fourth, Mr Tingey submits that to the extent there is any debt, it is covered by the general security General Finance holds over all the personal assets and properties of Ms Chen.
[21]In my assessment these arguments are not sustainable, or are premature.
[22]In relation to Mr Tingey’s first submission, s 31 of the Act provides:
31 Creditor’s execution process must not be issued or continued
(1) A creditor who applies for a debtor to be adjudicated bankrupt must not issue an execution process against the debtor in respect of the debtor’s property or person to recover a debt on which the application is based.
(2) If the creditor has already issued the execution process, the creditor must not continue it.
(3) However, the creditor may apply to the court for permission to issue or continue the execution process, as the case may be.
[23] Applied to this case, if General Finance is substituted as plaintiff and files an application to have Ms Chen adjudicated bankrupt, it will not be able to continue any execution process without the Court’s permission. But General Finance is not prevented from applying for Ms Chen’s adjudication by this section. Further, s 35
defines “execution process” for the purposes of ss 31–34. The obtaining of a charging order is not an execution process.
[24] In relation to Mr Tingey’s second and fourth submissions, it is premature for the Court to consider the value of any security held by General Finance as against the debt. This assessment occurs at the adjudication stage. That is apparent from s 14 of the Act, which states:
14 Application by secured creditor
The court must not make an order of adjudication on the application of a secured creditor unless the creditor has established that the amount of the debt exceeds the value of the charge by at least $1,000.
[25] Furthermore, “charge” is defined in s 3 to exclude a charge under a charging order issued by the Court. Therefore, the charging orders are excluded from this assessment.
[26] In relation to the dispute raised over the quantum of the mortgagee sale shortfall, this dispute must also be addressed at the adjudication stage.
[27] This dispute does not prevent General Finance from having standing to be substituted under s 44 on the basis of the indisputable costs orders totalling
$38,672.62.
Result
[28] I order that General Finance Ltd and Goodmore Investments (New Zealand) Ltd are substituted as plaintiffs in the application for adjudication.
[29] This order is conditional on those creditors filing applications for adjudication under s 44(2) of the Act.
Associate Judge Gardiner
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