Walker v Official Assignee
[2014] NZHC 975
•12 May 2014
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2013-409-001056 [2014] NZHC 975
BETWEEN ROBERT BRUCE WALKER
First Applicant
AND
PROPERTY VENTURES LIMITED Second Applicant
AND
FIVE MILE HOLDINGS LIMITED Third Applicant
AND
THE OFFICIAL ASSIGNEE in bankruptcy of the property of DAVID IAN HENDERSON
Respondent
Hearing: 7 May 2014 Appearances:
T G H Smith for Applicants
G Slevin for Respondent
D I Henderson appearing in PersonJudgment:
12 May 2014
JUDGMENT OF WHATA J
[1] The applicants have filed an originating application for admission of proof of debts in respect of Mr Henderson’s estate. Mr Henderson was formerly a director of a company, PVL, now in liquidation. He is said to be liable to that company for a significant sum of money for, among other things, breach of his duties as a director.
[2] The application for admission of proof of debt under s 237 accords with the process identified in a judgment of this Court of 19 April 20131 and an earlier
judgment of 6 March 2013.2
1 Walker & Ors v Forbes & Ors [2013] NZHC 828
2 Walker & Ors v Forbes & Ors [2013] NZHC 412.
WALKER & ORS v OFFICIAL ASSIGNEE [2014] NZHC 975 [12 May 2014]
[3] But Mr Henderson opposes the application on the basis that no creditor’s
claim form, as defined under the Insolvency Act 2006 has been filed.
[4] The essential issue is whether or not the proof of debt claim sent to the Official Assignee attaching a cover letter and a copy of the statement of claim filed in proceedings -2486 was “evidence” for the purposes of s 233 of the Act and regulation 12(1)(c) of the Insolvency (Personal Insolvency) Regulations 2007. If not, I must then decide whether a valid claim was filed at all.
The wider context
[5] The wider context to this application is recorded at [4] – [9] of my March
2013 judgment dealing with related proceedings, which I repeat here for ease of reference:
[4] The first plaintiff, Mr Walker, is the liquidator of Property Ventures Limited (PVL) and many of its subsidiaries. These companies were placed into liquidation with estimated losses of at least $150 million. Mr Henderson was a managing director of PVL, (though he says not at all material times). He was adjudged bankrupt on 29 November 2010. The claim against Mr Henderson was commenced on 12 November 2012 and comprises seven causes of action against the directors of PVL for allegedly serious breaches of their duties.
[5] The relief sought by the plaintiffs includes the following:
(a) Declarations that the PVL directors have breached their duties under ss 131, 135, 136, 137 of the Companies Act
1993;
(b) Orders pursuant to s 130(1) of the Companies Act 1993 that the PVL directors pay to the first plaintiffs the sum of $100 million by way of compensation or such other sum as the Court thinks fit;
(c) An order banning the PVL directors from acting as directors of companies under s 383 of the Companies Act.
[6] There are also related claims, including against PricewaterhouseCoopers for breach of an alleged duty of care to PVL and to the PVL Group. I am also advised that one of the directors will seek to join Vero Insurance Limited.
[7] Mr Walker says that the PVL directors, including Mr Henderson, held liability insurance with Vero. This is not accepted by Mr Henderson in his notice of opposition. However, disclosure by Vero unveiled a document which purports on its face to be a “Directors
and Officers Liability and Company Reimbursement Insurance Policy”. There is also correspondence from the then chairman of PVL putting their brokers on notice of potential claims in respect of the PVL companies. That correspondence and related correspondence assumes the existence of Vero liability insurance.
[8] Mr Walker also avers that:
12. In ... order to obtain access to the proceeds of Mr Henderson’s insurance cover it is necessary that these proceedings continue and that a judgment be obtained against him and on the plaintiffs’ behalf I ask that the Court allow this proceeding against him to continue in terms of section 76 of the Insolvency Act 2006.
[9] Mr Walker also produces a letter from Grant Slevin, Senior Investigating Solicitor, Insolvency & Trustee Service, Ministry of Economic Development. That letter records the acceptance of the Official Assignee that the companies for which Mr Walker is a liquidator are secured creditors in respect of any liability Mr Henderson may have to them for breach of director’s duties to the extent they hold a statutory charge over the proceeds of any insurance policies that might respond to such breaches. The letter states:
Accordingly the Official Assignee accepts that your client’s rights of recovery, including his right to establish in court that Mr Henderson is liable to Property Ventures Limited and its subsidiaries for any breaches of duty, are not affected by Mr Henderson’s bankruptcy. The Official Assignee’s consent to the issue of proceedings against him is accordingly not required.
The letter also records that a determination by the Court would be instructive in the event that the Official Assignee was required to either admit and quantify, or reject, any proof of debt Mr Walker might elect to lodge in Mr Henderson’s bankruptcy.
[6] In that judgment and the sister judgment of April 2013 I also indicated that I was disinclined to grant leave to continue proceedings against Mr Henderson for compensation, but rather granted leave to the applicant to make applications to the Official Assignee pursuant to s 237 within 10 working days.
[7] For completeness, I also confirmed however that Mr Henderson could continue as a party to the substantive proceedings to the extent that the relief sought by the plaintiffs includes:
(a) declarations that the PVL directors have breached their duties under ss
131, 135, 136 and 137 of the Companies Act 1993; and
(b)orders banning the PVL directors from acting as directors of companies under s 383 of the Companies Act 1993.
Submissions
The position of the applicants
[8] The applicants say that it is not clear what Mr Henderson suggests should have been done. They say that the claim involves complex insolvency and trading loss. They say that the process of compiling the requisite evidence is well under way but there is much more to do. There are then, however, references to documents attached to the affidavit of Denise Helen File, all adding weight, they say, to the evidence of debt. The applicants are also engaged in a discovery process following judgments ordering provision of documents despite opposition from Mr Henderson.
[9] The applicants also submit that s 233(6) of the Act makes Mr Henderson’s
position moot. That section states:
The creditor may amend or withdraw the claim form, but an amended claim form must comply with the formalities prescribed for the original claim form.
[10] The applicant submits that even if the Court were to hold that the applicants had not sufficiently complied with the provisions to which Mr Henderson refers, there is nothing stopping them from amending or filing a new claim form.
Mr Henderson’s opposition
[11] Mr Henderson responds that the terms of s 233 must be strictly complied with. This accords with the underlying purpose of the insolvency forms, namely to bring efficiency to the insolvency process.
[12] He says that s 233 is the process by which a creditor in a bankrupt’s estate moves to have their debt proven. It is predicated on clear evidence that a debt existed between the creditor and the bankrupt at the time of adjudication. He specifically refers to s 233(3) which states:
The claim form must comply with the prescribed formalities.
and s 233(4):
A creditor must submit the claim form in accordance with the prescribed procedures.
[13] He then refers to the prescribed formalities as set out in reg 12 of the
Insolvency (Personal Insolvency) Regulations 2007.
[14] Mr Henderson submits that pursuant to reg 12, the claim form must have attached to it evidence of the debt and any other evidence supporting the claim, and a description of how the debt was incurred. He submits that these obligations anticipate conclusiveness and certainty. I think he also submits that there can be no certainty given the complexity of the claim and associated proceedings in the order of $150m against multiple defendants, including Mr Henderson. He notes that the applicants appear to concede that there is much more to do in terms of preparing evidence and this in effect acknowledges that the claim form does not meet the obligations mandated by the Regulations. He further submits that the claim and the claim form are both frivolous and cynical – that is serving no useful purpose. There are then some references to the conduct of Mr Walker which I will not dwell upon because they have little bearing on the statutory interpretation exercise and the requirement to assess whether a claim has been properly lodged in terms of the Regulations and the Act. Mr Henderson also submits that s 251 provides the appropriate approach, namely to convince the Assignee as to the debt.
[15] He submits that the proper process to follow is to wait until all the information is available that enables a properly compliant s 233 form to be lodged or await the conclusion of the anticipated litigation and submit that judgment to the Assignee to a properly completed claim form.
The applicants’ reply
[16] The applicants reply that s 233 in itself contemplates liability for unliquidated damages and refers to related ss 231 and 251 which also specifically contemplate liability based on damages.
[17] The applicant also submits that Mr Henderson’s suggested approach is unworkable given the nature of the claim against Mr Henderson and the other defendants. It could never provide evidence that contains no uncertainty, as suggested by Mr Henderson.
The Official Assignee’s position
[18] The Official Assignee has also provided a memorandum to the Court noting that it routinely receives claims forms that do not attach evidence, and creditors that do not do so are advised of the need to do so and given the opportunity to do so. It is said that the Assignee is not obliged to quantify the debt, and if it does not do so, the matter may be appealed to the Court for a decision under s 252.
The issues
[19] I must decide what is meant by the term “evidence” in regulation 12(1)
which states:
12 Creditor's claim form
(1) A creditor's claim form under section 233 or 247 must— (a) be signed by the person completing the form; and (b) be dated; and
(c) have attached to it evidence of the debt and any other evidence supporting the claim.
(2) A creditor's claim form under section 233 or 247 must contain the following information:
(a) the creditor's full name:
(b) the creditor's current address, telephone number, and any other contact detail (such as a mobile telephone number or an email address):
(c) the creditor's goods and services tax registration number
(GST number), if any:
(d) if the form is completed on behalf of the creditor, the full name of the person completing the form:
(e) the full name of the bankrupt or debtor:
(f) the amount of the debt claimed:
(g) a description of how and when the debt was incurred: (h) whether the debt is secured:
(i) if the debt is secured, a description of the security and the estimated value of the security.
[20] I must then decide whether the information supplied with the application was evidence, and if not, whether the claim must be rejected as contrary to the requirements of reg 12 and s 233.
[21] I now turn to the statutory scheme.
The statutory scheme
[22] Subpart 9 of the Insolvency Act deals with creditors’ claims and provable
debts. In this regard, s 231 defines a provable debt as follows:
231 Meaning of provable debt
(1) A provable debt is a debt or liability that a creditor of the bankrupt may prove in the bankruptcy.
(2) A creditor's claim form is the document that a creditor submits to the Assignee for the purpose of proving the debt.
(3) A debt is proved when it is admitted by the Assignee.
[23] Section 232(1) then identifies what debts are provable, namely:
232 What debts are provable debts
(1) A provable debt is a debt or liability that the bankrupt owes—
(a) at the time of adjudication; or
(b) after adjudication but before discharge, by reason of an obligation incurred by the bankrupt before adjudication.
[24] A claim is triggered by the lodgement of a claims form in accordance with s
233. Given its significance to this case, I repeat s 233 in full:
233 Creditor must submit creditor's claim form
(1) A creditor, including a creditor who has a preferential claim, who wishes to claim in the bankruptcy must submit a creditor's claim form to the Assignee within the specified time.
(2) In subsection (1), specified time means the time for submitting the claim form that is specified by the Assignee by notice to the creditor or that is specified by the Assignee by advertisement in the prescribed manner.
(3) The claim form must comply with the prescribed formalities.
(4) A creditor must submit the claim form in accordance with the prescribed procedure.
(5) The creditor must bear the costs of proving the debt, unless the Court makes an order as to the creditor's costs under section 242.
(6) The creditor may amend or withdraw the claim form, but an amended form must comply with the formalities prescribed for the original claim form.
[25] As noted regulation 12 requires that “evidence” must be attached to the
claim.
[26] Section 234 stipulates that the Official Assignee must “examine” the creditors
claim form. Subsection (2) then states:
234 Assignee must examine creditor's claim form
(1) The Assignee must examine each creditor's claim form and the grounds of the debt, unless the Assignee considers it likely that no dividend will be paid to creditors.
(2) After examining the claim form, the Assignee must, as soon as practicable, do 1 or more of the following:
(a) admit the claim, in whole or in part: (b) reject the claim, in whole or in part:
(c) require further evidence in support of the claim.
[27] Relevant to this case, s 237 provides that notice to an Assignee may be given by a bankrupt or a creditor to admit or reject a creditor’s claim. If a claim is not accepted or rejected within 10 working days of such notice, an application may be made to this Court to admit or reject the claim or to make any other order thought appropriate.
[28] Section 238 then provides that the Court may cancel a creditor’s claim in the
following terms:
(1) The court may make an order cancelling an admitted creditor's claim or reducing the amount claimed, if it considers that the claim was improperly admitted.
[29] Similarly, the Court may refuse or modify an Assignee’s decision rejecting the creditor’s claim under s 239.
[30] Relevantly, an Assignee has the power to obtain evidence of a debt. More specifically s 236(1) of the Insolvency Act 2006 provides:
236 Assignee's power to obtain evidence of debt
(1) The Assignee may summon for examination, and examine (on oath or otherwise), any of the following persons:
(a) a person who has submitted a creditor's claim:
(b) a person who has made a declaration or statement as part of a creditor's claim:
(c) a person who is capable of giving evidence concerning a creditor's claim or the debt to which the claim relates.
[31] Section 240 affords party status to the Official Assignee, the bankrupt and any creditor on applications to court in relation to a creditors claim.
[32] Sections 241 and 242 of the Act then outline the jurisdiction to hear an application in relation to a creditor’s claim. The jurisdiction of the District Court relating to such claims is limited to $200,000. Any claim over $200,000 is referable to the High Court. There is a right of appeal to the Court of Appeal.
[33] The Act also contemplates a procedure for claims subject to uncertainty. Section 251 states:
251 Assignee may estimate amount of uncertain creditor's claim
If a creditor's claim is subject to a contingency or is for damages, or if, for some other reason, the amount of the claim is uncertain, the Assignee may estimate the amount of the claim.
[34] Under s 252, the Court must determine the amount of an uncertain creditor’s claim on the application if the Official Assignee chooses not to estimate the amount, or if the Assignee has estimated the amount and the creditor is aggrieved by the estimate.
[35] Taken together, this scheme contemplates a relatively streamlined claims process before the Official Assignee and then the Court. A claim commences with a prescribed form and the requirement to attach evidence in support of the claim. The claim must be examined by the Official Assignee unless it is unlikely a dividend will be paid. A decision may be made to admit or reject the claim in whole or in part, or, significantly in this context, to require further evidence. No hearing is expressly contemplated, but the Official Assignee also has the specific power to obtain evidence by way of summons of a creditor claimant (among others). Any decision must be made “as soon as practicable”.
[36] The notice procedures at s 237, and the application procedure to the court at
238, escalate the claim to the District or High Court on the application of the creditor claimant, the bankrupt or the Official Assignee. Both procedures refer to fixed timeframes. A hearing is contemplated, but this is an automatic corollary of commencing a judicial process and relatively simple procedures are also contemplated for this. For example, in terms of the High Court, actions under the Insolvency Act 2006 must be commenced under Part 18, or with leave of the Court under Part 19, with evidence generally given by way of affidavit (though evidence may be given orally with leave).
Assessment
What is “evidence”?
[37] Given the very straightforward scheme of subpart 9, and the bankruptcy context generally, I consider that the reference to “evidence” simply contemplates that the creditor will provide cogent information, or proof, to enable the Official Assignee to examine the claim for the purpose of commencing the claims process. Any higher threshold would in my view, create an unnecessary administrative
burden, both on the creditor and the Official Assignee, in circumstances where costs must be kept to a minimum. Indeed, an unduly complex administrative process involving rejections of claims for lodgement purposes until sufficient “evidence” is provided is discordant with the underlying premise of the Insolvency Act 2006 and Subpart 9 scheme to achieve efficient assessment of claims within defined timeframes.
[38] I am fortified in my view by the fact that the express duty of the Official Assignee to examine claims is tied to the power to require further evidence. This contemplates that the evaluative process includes the capacity to correct evidential inadequacies. Furthermore there is no express intermediate power to reject the claim in advance of examining it, either for the purposes of s 234 or the notice procedure contemplated by s 237. And in relation to the latter, the 10 day notice period could be undermined by the exercise of any intermediate power to return an incomplete claim.
[39] I also reject the suggestion that subpart 9 contemplates that the claim lodged must be certain. The reverse is literally contemplated by the broad definition of proof of debt, the powers to require further evidence, the referral to the adversarial processes of the District or High Court and the express reference to “uncertain creditors’ claims”.
Was the statement of claim evidence?
[40] In the present case, the applicants have submitted what might be called a pro- forma application, attaching a statement of claim, in anticipation of a hearing as to the merits of the claim. Ordinarily bare allegations of debt would not qualify as evidence. But this is no ordinary claim, as all parties agree. The information in the statement of claim cogently presents the basis for the claim and the presentation of detailed evidence is, fairly, to be anticipated in light of my previous judgments. For present purposes, I consider that this therefore qualified as sufficient evidence to trigger an assessment process under the Act.
[41] In any event, even if I am wrong about that, the statutory remedy for a deficient claim is provided by s 234. It could be expected that the Official Assignee
would require further evidence in a context of claims based on assertion. If that information is not supplied then the Official Assignee may reject the claim. There is no need, therefore, to treat the claim as presumptively invalid or to develop an intermediate power to reject a claim on its face (though the Official Assignee can expressly do so for that reason if necessary under s 234, but only following an examination of the claim).
[42] Returning to the present facts, it is important to recall that the process adopted by the applicant arose as a consequence of Mr Henderson’s objection to being joined to the substantive proceedings against the companies of which Mr Henderson was a former director in respect of a very significant claim or claims giving rise to damages in excess of $100m. It was considered that the lodging of a formal proof of debt with the Official Assignee pursuant to s 233 of the Act together with notice under 237 would provide a sufficient mechanism enabling Mr Henderson to be properly joined to the proceedings concerning the abovementioned companies. As anticipated, the Official Assignee took no steps and therefore the applicants now seek to have the issue of proof of debt determined by this Court, as s 237 and s 240 expressly contemplate. Notably, s 237 confers the power on the Court to make any order it thinks appropriate. That must include the corrective power to seek further evidence.
[43] I acknowledge Mr Henderson’s underlying concern that the proceedings are vexatious, frivolous and serve no useful purpose. I also accept that the procedure envisaged by subpart 9 is not well equipped to deal with complex liability claims. But the former is not capable of resolution at this stage and the latter issue was addressed in my April 2013 judgment at [13]. Parliament could not have contemplated that claims against bankrupts would presumptively wither for lack of available procedure.
Outcome
[44] Mr Henderson has raised a legitimate issue in relation to the validity of the claim and the apparent lack of evidence. The Act requires that cogent information upon which to examine a claim must be attached. But, as is so often said, context is
everything. Administrative complexity is to be avoided where possible in the insolvency context. The Act confers the power to reject a claim for lack of evidence, and a corrective power to allow creditors to provide evidence in support of otherwise deficient claims. There is no need to presumptively reject claims based on a lack of evidence.
[45] I also consider that in the circumstances of this case, sufficient information was supplied to satisfy the basic requirements set out in regulation 12 for the purpose of the lodgement of the claim. This, of course, says nothing about the merits of it.
Costs
[46] Unless there is any objection, I propose that costs be reserved.
Solicitors:
Ministry of Business, Innovation & Employment - Economic Development
Luke Cunningham Clere
D I Henderson appearing in Person
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