Wang v Westpac New Zealand Limited (1763882) HC Auckland CIV 2009-404-7750

[2010] NZHC 2206

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2009-404-7750

UNDER  the Insolvency Act 2006

IN THE MATTER OF     the bankruptcy of

BETWEEN  MAY YAN WANG Judgment Debtor

ANDWESTPAC NEW ZEALAND LIMITED (1763882)

Judgment Creditor

ANDCOMMISSIONER OF INLAND REVENUE; LATITUDE ASIA LIMITED Creditors In Support

Hearing:         8 December 2010

Counsel:         P Sills for Judgment Debtor

P Shackleton for Judgment Creditor

R Brennan for Applicant in CIV-2010-404-3177 by leave

N Malarao for Commissioner of Inland Revenue

R Hucker for Latitude Asia Ltd Judgment:     8 December 2010 at 6.21 pm Reasons:    10 December 2010

REASONS FOR JUDGMENT OF ASSOCIATE JUDGE SARGISSON (on applications by creditor for order adjudicating debtor bankrupt and by debtor for order staying proceeding)

This judgment was delivered by me on 10 December 2010 at 4.30 pm pursuant to

Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date .......................... Solicitors:

Blackwells, PO Box 9325, Newmarket, Auckland

Meredith Connell, PO Box 2213, Auckland Hucker & Associates, PO Box 3843, Auckland Sargent Law, PO Box 1482, Auckland

Simpson Grierson, Private Bag 92518, Auckland

WANG V WESTPAC NEW ZEALAND LIMITED (1763882) AND ANOR HC AK CIV-2009-404-7750  8

December 2010

Introduction and background

[1]      On 20 October 2009 the judgment creditor, Westpac New Zealand Limited, obtained summary judgment against the judgment debtor, Ms May Yan Wang, in the sum of $620,342.66: Westpac New Zealand Ltd v Wang HC Auckland CIV-2009-

404-3988, 20 October 2009.  That judgment is not subject to challenge.

[2]      On 26 November 2009, at Westpac’s request, the Court issued a bankruptcy notice.   It was served on Ms Wang on 30 November 2009.   Ms Wang failed to comply with the terms of the notice and thereby committed an act of bankruptcy.

[3]      On 16 March 2010 Westpac applied for an order adjudicating Ms Wang bankrupt (the adjudication application).   The bankruptcy proceeding has been successively adjourned, most recently to 8 December 2010.

[4]      On 12 May 2010 Ms Wang filed a proposal for the satisfaction of her debts under subpart 2 of Part 5 of the Insolvency Act 2006.  The proposal was accepted by the requisite majority of creditors.  On 1 July 2010 the trustee named in the proposal, Mr Jeffrey Meltzer of Meltzer Mason Heath, applied to the Court for its approval. The Commissioner of Inland Revenue and Latitude Asia Limited opposed the application.  They now appear in support of Westpac’s adjudication application.

[5]      In a reserved judgment delivered on 6 December 2010 I refused to approve

Ms Wang’s proposal: Re Wang HC Auckland CIV-2010-404-3177, 6 December

2010.  Ms Wang and Mr Meltzer immediately filed a notice of appeal.  They also applied   for   an   order   that   the   adjudication   proceeding   be   stayed   pending determination of that appeal (the stay application).  No affidavits were filed at the same time as the application, as required by r 7.20 of the High Court Rules.

[6]      On 8 December 2010 I heard argument on an oral application made on behalf of Ms Wang to adjourn the stay application.   I also heard argument on the stay application itself.  I declined an adjournment and dismissed the stay application.  As a consequence I granted the adjudication application and ordered that Ms Wang be

adjudicated bankrupt.  I indicated my reasons would follow.  I now give my reasons for these decisions.

[7]      I deal first with the stay and adjournment applications, both of which were firmly opposed.   Counsel for each of the judgment creditor and the creditors in support submit, and I accept, that this is not a case where additional time should be given for affidavits to be filed.

The stay and adjournment applications

[8]      Ms Wang applies that the bankruptcy proceeding be stayed on four grounds:

a)        That her appeal will be rendered nugatory if the stay is not granted;

b)That    an    order    for   adjudication    would   have    serious    adverse implications for her;

c)        That the appeal is bona fide and will be pursued expeditiously; and

d)That the judgment creditor would suffer no appreciable prejudice if the proceeding was stayed.

[9]      I consider these grounds in due course.  First I briefly address the principles applying to the discretion I am invited to exercise.

[10]     The application is made in reliance on the Court’s inherent jurisdiction.  The position bears helpful analogy to the discretion of the Court to halt an application for adjudication reliant on failure to comply with a bankruptcy notice if the debtor has appealed  against  the  judgment  or  order  underlying  that  notice.    The  relevant provision is s 42 of the Insolvency Act.  Section 42 provides:

42       Halt or refusal of application when judgment under appeal

(1)      This  section  applies  if  the  creditor's  application  for  adjudication relies on 1 of the following acts of bankruptcy:

(a)the debtor failed to comply with a bankruptcy notice (see section 17):

(b)a  judgment  against  the  debtor  for  non-payment  of  trust money is not satisfied within 5 working days after the date of the judgment (see section 28).

(2)If the debtor has appealed against the judgment or order underlying the  bankruptcy  notice  or  the  judgment  for  nonpayment  of  trust money, as the case may be, and the appeal is still to be decided, then the Court may—

(a)       halt the creditor's application for adjudication; or

(b)       refuse the application.

[11]     Lang  J  considered  the  nature  of  this  discretion  in  Wright  v  Health

Distributors Ltd HC Hamilton CIV-2010-419-121, 5 November 2010.  He stated:

[10]      … I take the discretion as being one that the Court should exercise in a manner that is just and equitable having regard to all relevant factors. These will include the interests of all affected parties. In this context, however,  the  interests  of  the  litigants  are  relevant  but  not  necessarily decisive. In many cases the public interest and the interests of other creditors may need to be taken into account.

[12]     I consider the above equally applicable to the discretion I am invited to exercise in the present case.  Lang J continued to consider various factors the courts have considered in the exercise of the discretion:

[11]      These observations are broadly consistent with an observation made by Associate Judge Doogue in Yeoh v Al Saffaf HC Auckland CIV-2006-

404-1164, 21 June 2006 (at [36]), to the effect that all of the circumstances,

and not just the interests of the debtor, need to be considered. Associate Judge  Doogue  also  noted  at  [12]  that  the  courts  have  considered  the following factors to be relevant when asked to exercise their discretion in this context:

a) The bona fides of the judgment debtor in prosecuting the pending appeal;

b) What stage the appeal has reached and whether there has been delay in prosecuting the appeal;

c) Whether an order halting the application for an adjudication order would unfairly prejudice the judgment creditor; and

d) Whether the bankruptcy proceeding might render the appeal nugatory as the judgment debtor would be unable to prosecute the appeal.

[12]      In Pillay v ANZ National Bank Limited HC Auckland CIV 2009-

404-4175, 3 December 2009, Associate Judge Faire drew an analogy (at

[11]) with the principles that the Court applies when considering an application for stay where an appeal is pending. The authority often cited in this context is Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999) 13 PRNZ 48 at 50 (HC). In that case the Court pointed to additional relevant factors, including the effect that the stay might have on third parties, the novelty and importance of the question involved in the appeal, the public interest in the proceeding under appeal and the overall balance of convenience.

[13]      As in any situation involving the exercise of an apparently unfettered discretion, it is neither possible nor desirable to attempt to prescribe rigid criteria. As always, context is everything. In some cases the factors referred to above will assume real importance. In others they may be secondary to other more important factors raised by the case under consideration.

[13]     I consider that these also are relevant.  They are broadly consistent with the grounds on which the stay application is sought.  In the exercise of my discretion I consider the following factors to be primary:

a)       The prejudice to Ms Wang if this application is dismissed;

b)       The likelihood that her appeal will succeed; and

c)        The prejudice to Ms Wang’s creditors if this application is granted. [14]       I turn presently to deal with each of these factors.  Before doing so I make

brief comment as to certain of the other factors mentioned above.  The bona fides of the appeal have not been put in issue.  There has been no delay in its prosecution and counsel for Ms Wang has indicated his willingness to pursue it expeditiously.  I have no  doubt  in  his  ability  to  do  so  and  I  note  that  he  has  moved  swiftly  in  his preparation of the present application.  A degree of delay is, however, inevitable.

The prejudice to Ms Wang if this application is dismissed

[15]     If this application is dismissed the consequences for Ms Wang are twofold:

a)        She will be denied the opportunity to file evidence in support of the application; and

b)        She will be adjudicated bankrupt.

[16]     Counsel for Ms Wang signalled the evidence in support of the application would consist of four affidavits – two from creditors (Dominion Finance Limited and Dynasty Group Limited) and two from overseas (one from a representative of Natural Dairy (NZ) Holdings Limited and one from Ms Wang).

[17]     I accept there have been obvious difficulties in filing affidavits with the stay application and that the failure to comply with r 7.20 of the High Court Rules is understandable.  Counsel for Ms Wang explains he and others have been working at some pace to file the affidavits in advance of the hearing.   This proved, it seems, impossible.  He was unable to advise in other than general terms as to the matters to be raised by the various deponents.   In the absence of the affidavits I can only consider the extent to which the various deponents’ evidence might conceivably go to the grounds on which the application is sought, aided by such indications as to its content as counsel was able to provide.

[18]     Dominion Finance and Dynasty Group, it was indicated, are to reiterate their wish to avail themselves of the return under the proposal.  That evidence would not advance matters.  Any return under the proposal would not become available, in any event, unless and until the appeal was successful.

[19]     In respect of Natural Dairy, counsel for Ms Wang indicated it wishes to put its position before the Court.  He was unable to advise as to what its position is.  I note that the implications for Natural Dairy are not advanced as a ground on which the order is sought and it is difficult, accordingly, to see how such evidence could have a great bearing.   I accepted in my earlier decision that an adjudication order could impact significantly on the Natural Dairy transaction but I considered it implausible it was entirely contingent on the same.  No issue has been taken with that point on appeal.

[20]    Ms Wang, it was indicated, is to give evidence of the “serious adverse implications” for her should she be adjudicated bankrupt.  To a certain extent this is a given, a point I will return to.  To the extent that there are relevant implications

beyond those obviously attending on bankruptcy, they were well traversed in my earlier decision.

[21]     I find, in short, little prejudice arising out of dismissal of the stay application in respect of Ms Wang being denied the opportunity to file evidence in support.  The import of any such evidence could only be limited for the reasons above.

[22]     The second consequence of the stay application being dismissed is that Ms Wang will be adjudicated bankrupt on Westpac’s application.  Counsel accept such is the inevitable result of the refusal to approve her proposal.  The proposal was the only ground on which Ms Wang opposed the adjudication application.   This adjudication would come before she was afforded an opportunity to  pursue her appeal against my decision to refuse to approve her proposal.  Counsel for Ms Wang submits, in this vein, that if the stay application is dismissed the appeal would be rendered nugatory.

[23]     If the application is dismissed Ms Wang will suffer the stigma of bankruptcy and its attendant disqualifications.  This cannot, however, be a ground for stay unless something beyond the ordinary is revealed in the circumstances.  This was a point made by Ronald Young J in Kroon v Westpac Banking Corporation HC Auckland CIV-2006-404-4720 CIV-2006-404-1970, 15 May 2007 at [9] in the context of an application under s 42 of the Act.  It is equally applicable in the present context.

[24]     If Ms Wang is adjudicated bankrupt she will not be prevented from pursuing her appeal.  Section 414(2) of the Act provides that an aggrieved person may appeal to the Court of Appeal from a decision of the Court or a Judge under that Act.  I am of the present view that that right would continue to vest in Ms Wang personally notwithstanding an order for adjudication.

[25]     Was I wrong in this she may still appeal against the order of adjudication. That right, it is clear, survives adjudication and the vesting of an insolvent’s property in the Official Assignee: Lindsay v Vaucluse Holdings Ltd CA272/99, 13 December

1999 at [4]. The exercise of that right would necessarily involve examination of the grounds on which Ms Wang relies in her appeal against the decision to refuse

approval of the proposal.   She might also apply for an order suspending the adjudication until the appeal is decided under s 416 of the Act.

[26]     In short, any conceivable prejudice to Ms Wang falls well short of her appeal being rendered nugatory.

The likelihood that the appeal will succeed

[27]     In Wright, Lang J considered the extent to which the merits of a proposed appeal went to the exercise of the Court’s discretion:

[19]     In Pillay Associate Judge Faire noted at [17] that the merits of the proposed appeal are not generally an appropriate matter for the Court to contemplate when considering an application under s 42 unless it considers the appeal has absolutely no prospect of success.

[20]     I accept that the Court must exercise caution when considering the merits of an appeal.  It does not have the benefit of proper argument on the points that are to be taken on appeal.  It should also refrain from trespassing into areas that are properly the domain of the appellate court.   I agree, however,  that in  cases  where the  Court can  confidently predict that the appeal has absolutely no prospect of success, that factor can and should be taken into account.  The same can be said when the Court can confidently say   that   the   proposed   appeal   has   a   very   high   chance   of   success. Unfortunately, however, most cases fall somewhere in the middle.

[21]     That fact has not stopped the Court of Appeal from taking into account the merits of a proposed appeal in the context of applications for stay where bankruptcy or liquidation proceedings are pending and the debtor wishes to appeal against the judgment upon which those proceedings are based:   See Petrecivic v Bridgecorp Management Services Limited (In receivership) [2008] NZCA 286 at [24] to [27]; Property Ventures Investments Limited v Commissioner of Inland Revenue [2010] NZCA 217 at [11] to [15].

[28]     Ms Wang appeals on eight grounds, each alleging erroneous findings.  These include that I overstated the extent to which the UBNZ Trust stands to benefit from the Natural Dairy transaction and that I erred in finding she had inadequately disclosed her interest in that trust to her creditors.  Counsel for Ms Wang referred only in passing to the strength of these grounds.

[29]     Counsel for  Latitude Asia submits the decision to refuse to  approve  Ms Wang’s proposal is a discretionary one and so the grounds of appeal are relatively narrow.  He submits, further, the decision was made after evidence given orally over

some days.  Counsel for the Commissioner and for Westpac made submissions to a similar effect.

[30]     In the event I find it neither necessary nor, given my own judgment is in issue, desirable, to consider the merits of the proposed appeal.  I am satisfied it does not have a “very high chance of success”.  I would not wish to speculate on whether it has absolutely no prospect of success.   I am content to regard it as falling somewhere in the middle and afford it no further weight.

Prejudice to Ms Wang’s creditors if this application is granted

[31]     The prejudice to Ms Wang’s creditors should the application be granted is, in my view, the most significant of the factors considered in the present case.

[32]     Counsel for Ms Wang submits Westpac and the other creditors will not be prejudiced if the adjudication proceeding is stayed pending the determination of the appeal.  He submits:

a)       Ms Wang’s interest, such as it is, in the UBNZ Group and the BVI companies has little or no worth at this stage.  Any significant value depends on future contingencies.

b)It may be reasonably expected that Ms Wang would be willing to undertake not to dispose of any shares or interests she holds in the meantime.

[33]     I accept, as I did in my earlier decision, that Ms Wang’s interest in the Natural Dairy transaction is contingent, though I note that this does not mean it is valueless.   I note, too, that no issue is taken on appeal with the finding that the property of the UBNZ Trust extends beyond its interest in the Natural Dairy transaction to the dairy processing business and shares in publicly listed Natural Dairy.   Nor was issue taken with the findings concerning Ms Wang’s position in relation to the UBNZ Trust.  The value of these latter interests is not contingent.  A

prudent approach would dictate that the sooner the Official Assignee exercises any powers he may assume in relation to them the better.

[34]     As to any undertaking Ms Wang might provide, given my earlier findings I do not see how I could afford any such undertaking much weight.   I found her disclosure of assets to be entirely inadequate.  I found there to be considerable worth in an investigation of her financial affairs by the Official Assignee.  If there is not effective and immediate control exercised by the Official Assignee I am of the view that her creditors will be put at risk.

[35]     I  conclude,  therefore,  that  Ms  Wang’s  creditors  will  be  significantly prejudiced should the stay application be granted.

The exercise of the Court’s discretion

[36]     I turn to whether the interests of justice require the stay application to be dismissed.  As I made clear at the hearing, the decision is not an easy one to make.  It involves a delicate balancing of interests.

[37]     I am satisfied that the interests of justice require the stay application to be dismissed and not further adjourned or stayed.  I do not overlook that the bona fides of the appeal have not been put in issue, nor that counsel for Ms Wang is willing to pursue it expeditiously, nor that adjudication will impact significantly on Ms Wang and, possibly, the Natural Dairy transaction.   But these factors are, in my view, clearly outweighed by the prejudice to her creditors should the adjudication proceeding be stayed and the Official Assignee not exercise effective and immediate control over Ms Wang’s financial affairs.   I am satisfied there cannot have been anything in any evidence that might have otherwise been filed in support of the application that might have upset this balance.

[38]     This does not prevent Ms Wang from pursuing her appeal nor, of course, appealing against the order of adjudication that will follow.

The adjudication application

[39]      As counsel accepted, the inevitable consequence of the stay application being dismissed is, in the present case, that Ms Wang be adjudicated bankrupt.

Result

[40]     The application for an order staying the application for adjudication was dismissed.

[41]     I made an order adjudicating Ms Wang bankrupt.  That order was timed at

6.21 pm on 8 November 2010.

Costs

[42]     The judgment creditor and creditors in support are entitled to costs on a category 2B basis together with disbursements as fixed by the Registrar.  I made an order accordingly.