Walker v Forbes

[2013] NZHC 828

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV2012-409-002486 [2013] NZHC 828

BETWEEN  ROBERT BRUCE WALKER First Plaintiff

ANDPROPERTY VENTURES LIMITED (IN RECEIVERSHIP AND LIQUIDATION) Second Plaintiff

ANDFIVE MILE  HOLDINGS LIMITED (IN RECEIVERSHIP AND LIQUIDATION) Third Plaintiff

ANDAUSTIN JOHN FORBES First Defendant

ANDALISTER SPEDDING JOHNSTON Second Defendant

ANDGORDON LEWIS HANSEN Third Defendant

ANDDAVID IAN HENDERSON Fourth Defendant

ANDADOLF DE ROOS Fifth Defendant

ANDDANIEL JAMES GODDEN Sixth Defendant

ANDPWC (SUED AS A FIRM) Seventh Defendant

ANDFRIGHT AUBREY LIMITED (IN LIQUIDATION)

Eighth Defendant

ANDRICHARD WILLIAM GIBBONS Ninth Defendant

Hearing:         (On the papers) Judgment:       19 April 2013

WALKER V FORBES HC CHCH CIV 2012-409-002486 [19 April 2013]

JUDGMENT OF WHATA J

[1]      In my judgment dated 6 March 2013 I observed that I was disinclined to grant leave to continue proceedings against Mr Henderson (a bankrupt) for compensation.[1]   I also observed that leave is not required to commence proceedings against Mr Henderson for declarations as to breaches of his statutory duty and/or other relief including prohibition against him acting as a director in the future.

[1] Walker v Forbes [2013] NZHC 412.

[2]      I nevertheless afforded an opportunity to the plaintiffs, Mr Henderson, and the Official Assignee to file memoranda dealing with the availability of the process contemplated by s 237 of the Insolvency Act 2006.   That process envisages the lodgement  of  a  notice  of  claim  with  the  Official Assignee  and  if  the  Official Assignee does not respond within ten working days then the applicant can bring the matter to the High Court for determination.

[3]      The Official Assignee has helpfully provided detailed submissions to assist me in the resolution of the key issue, namely whether or not s 237 provides an appropriate process for dealing with the claims now made by the plaintiffs.   The Official Assignee makes the fundamental point that it is unlikely to respond to any s 237 notice in circumstances where there is no fund to be apportioned between creditors.   It is submitted that it would not be an appropriate use of resources for the Official Assignee to embark on these processes where doing so will not advance any of the purposes of bankruptcy.  Subpart 9 of Part 3 of the Insolvency Act is said to presuppose the availability of assets for distribution under subpart 10.   The administrative processes around proofs of debts are only ever carried out where there is a fund to be distributed and no such fund exists or is thought likely to arise in this case.

[4]      It is noted that the plaintiffs’ claim is complex.   In fact for the  Official

Assignee   to   assess   those   claims   would   involve   a   substantial   exercise   in circumstances  where  there  is  no  obvious  resource  available  to  undertake  that

exercise.  Participation in an appeal exercise would therefore be additionally difficult with no obvious benefit to creditors.

[5]      The point is then made:

As there is no fund to be distributed, the only purpose that could be served by admitting or rejecting the plaintiffs’ claim would be to crystallise (or not) the plaintiffs’ right to sue the fourth defendant as if the Insolvency Act had not been passed: s 4 Insolvency Act 2006.   While that might assist the plaintiffs it would not assist either the administration of the bankrupt estate or the unsecured creditors.

[6]      The  Official  Assignee  acknowledges  that  s  237  expressly  contemplates inaction by the Official Assignee and provides a remedy by allowing the bankrupt or the creditor to apply to the Court to admit or reject the claim.   But it is further submitted that the Court in its bankruptcy jurisdiction may be reluctant to determine the plaintiffs’ claims, particularly where the only purpose to be achieved is one that is external to the administration of the bankruptcy.   There would also be a risk of contradictory findings  over  the  same  issues  in  different  Courts,  as  between  the District Court and the High Court.  The Official Assignee also observed that there would be no prejudice to the creditors if leave is granted to the plaintiffs to proceed.

[7]      There are further submissions dealing with interpretation of the Insolvency Act and in particular s 76(1).  The short point is that, on a literal interpretation, s 76 only bars proceedings commenced prior to adjudication.  But the Official Assignee also   highlights   potential   difficulties   with   this   approach,   namely   that   fresh proceedings could be issued by creditors seeking to harass a bankrupt by litigation. Ultimately therefore the Official Assignee maintains, in accordance with Mr Smith’s primary submissions, that there must be an implied premise that s 76(2) applies also to enable proceedings commenced after adjudication to be commenced or continued.

[8]      The  plaintiffs    accept  that  the  least  controversial  path  appears  to  be  as follows:

(a)       The plaintiffs should give the Official Assignee notice to admit or reject the claim against Mr Henderson;

(b)The Official Assignee will then have ten working days to either admit or reject that claim, before the plaintiffs can make an application to the Court;

(c)      Assuming,  in  light  of  the  Official  Assignee’s  apparent  current position, that she will neither admit nor reject the claim, the plaintiffs can then revert to the Court to admit or reject the claim or make such other order as it thinks appropriate.

[9]      The plaintiffs therefore seek directions:

(a)      Mr Henderson is confirmed as a party to these proceedings to the extent that the relief sought by the plaintiffs includes:

(i)declarations that the PVL directors have breached their duties under ss 131, 135, 136 and 137 of the Companies Act 1993; and

(ii)orders banning the PVL directors from acting as directors of companies under s 383 of the Companies Act 1993;

(b)the plaintiffs, if so minded, make applications to the OA pursuant to s 237 of the Act within ten working days.

[10]     The plaintiffs also submit that there is no reason why the plaintiffs’ s 237(2) application ought not to be heard at the same time as the substantive trial in this proceeding  (given  Mr  Henderson,  for  the  purposes  of  declaration  and  banning orders, will be present as a defendant anyway).

[11]     Mr Henderson responds that s 237 provides the appropriate process subject however to the requirement of the plaintiffs to comply with the obligations set out at s 233.

[12]     I place some significance on that last rider, because s 233 provides that a creditor must make a claim within a specified time and the specified time is the time for submitting the claim form that is specified by the assignee.

Assessment

[13]     As I said in my earlier judgment, Parliament should not be taken to prohibit legitimate claims for breaches of director’s duties and relevant compensation where the insolvency scheme does not provide a practical remedy.[2]   The Official Assignee has highlighted the practical difficulties associated with a claim of the complexity now made by the plaintiffs and in a context where there is literally no fund to be apportioned  between  creditors.    Mr  Henderson’s  reference  to  s  233  has  also

highlighted to me that the scope of claim under the Insolvency Act 2006 is circumscribed by an assignee in terms of the specified time available within which to make a claim.   If the plaintiffs are out of time, they could find themselves in the absurd   situation   whereby   they   could   obtain   a   declaration   from   me   as   to Mr Henderson’s breach, but not establish liability for those breaches.  The absurdity of that outcome is exacerbated by the fact of the complexity of the proceedings now before the Court.   It could not have been Parliament’s intention to preclude such claims by virtue of their perfunctory claim process set out at s 233.

[2] At [32].

[14]     On that basis, I do not propose to make a final ruling on the scope of s 76. Rather, I propose, as requested by the plaintiffs to adjourn final consideration to be granted so as to provide an opportunity for the plaintiffs to trigger the ss 233 and 237 process (foreshadowed as being applicable by the Official Assignee).   If it appears that this process cannot be triggered or cannot be triggered practicably, then I grant leave to the plaintiffs to seek reconsideration by me in light of the circumstances then applicable.

[15]     I further adopt the suggestions of the plaintiffs and I make the following directions:

(a)       Mr Henderson is confirmed as a party to these proceedings to the

extent that the relief sought by the plaintiffs includes:

(i)Declarations that the PVL directors have breached their duties under ss 131, 135, 136 and 137 of the Companies Act 1993; and

(ii)Orders banning the PVL directors from acting as directors of companies under s 383 of the Companies Act 1993.

(b)      The  plaintiffs,  if  so  minded,  make  applications  to  the  Official

Assignee pursuant to s 237 of the Act within ten working days;

(c)      In the event that an application under s 237(2) is made, I direct that that application be heard together with the substantive trial in these proceedings.

[16]     I  wish  to  further  record  my  gratitude  to  the  Official  Assignee  for  the submissions lodged.  This is a case where both the independence and the experience of the Official Assignee have proven to be valuable.

Solicitors

Luke Cunningham & Clere, Wellington

Insolvency & Trustee Service, Christchurch