Young v Official Assignee
[2022] NZHC 1676
•14 July 2022
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2022-419-000025
[2022] NZHC 1676
UNDER Insolvency Act 2006, s 309 BETWEEN
PHILIP ROGER YOUNG and VIVIEN JANE YOUNG
Applicants
AND
OFFICIAL ASSIGNEE
Respondent
Hearing: 6 July 2022 Appearances:
Applicant in Person (Mr Young)
No appearance by Applicant (Mrs Young) C T Jones for Respondent
Judgment:
14 July 2022
JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
This judgment was delivered by Associate Judge Andrew on 14 July 2022 at 3.00 pm
pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar
Date ……………………………….
YOUNG v OFFICIAL ASSIGNEE [2022] NZHC 1676 [14 July 2022]
Introduction
[1] Mr and Mrs Young were adjudicated bankrupt in October 2003, on the application of Mr Dennis Parsons as receiver of Baywater Finance Ltd1 (in receivership).2 Mrs Young was discharged from her bankruptcy in October 2006 and Mr Young in March 2007. They now apply, nearly 19 years later, for their adjudications to be annulled.
[2] The bankruptcies arose from a failure by the Youngs to make payment for summary judgment entered against them in this Court in the sum of $350,000, plus costs and disbursements of $6,750. Mr Parsons brought those proceedings as receiver based on a call on unpaid share capital in Baywater in the sum of $350,000.
[3] The Youngs say that they should never have been adjudicated bankrupt and that all their debts in the bankruptcy have been fully paid and satisfied.
[4]The critical issues I must determine are as follows:
(a)Should the Youngs have been adjudicated bankrupt?
(b)Can I be satisfied that the Youngs’ debts have been fully paid or satisfied?
(c)Should I decline to grant the applications on the grounds of delay?
Factual background
[5] Baywater was incorporated in November 2001 as Bay Finance Ltd.3 In 2001, it purchased the principal value of loans held by Omega Finance Ltd. Omega Finance Ltd was a finance company owned and operated by Mr Young. That company had primarily been lending to persons who were purchasing time-share holidays at various resorts located in New South Wales and Queensland.4
1 Baywater.
2 Young v Parsons HC Hamilton CIV-2003-419-594, 14 October 2003.
3 Name change from Bay Finance Ltd to Baywater Finance Ltd occurred on 2 September 2002.
4 See receiver’s first report dated 24 January 2003 at [1].
[6] Mr Young was the director of Baywater and he and Mrs Young held 350,000 shares in that company.
[7] On 17 December 2002, Mr Parsons was appointed the receiver of Baywater pursuant to a security trust deed dated 7 March 2002 between Baywater and Covenant Trustee Company Limited. Mr Parsons’ duties included the recovery of all known assets of the company, including unpaid capital.
[8]In his receiver’s first report of 24 January 2003, Mr Parsons noted:
23.As stated I believe that some risk does exist to the principal amounts due to stockholders. As a preliminary step I have called upon the
$350,000 in uncalled capital held by the shareholders to be paid to the company. Counsel for Mr and Mrs Young and the PR Young Family Trust have denied any liability. This recovery action is to continue.
[9] In February 2003, after Mr and Mrs Young failed to satisfy an earlier demand, the receiver filed a statement of claim against them in this Court for unpaid share capital in the sum of $350,000.
[10] On 7 April 2003, this Court entered summary judgment against both Mr and Mrs Young for $350,000 plus costs and disbursements of $6,570. An application for the summary judgment to be set aside was dismissed on 22 August 2003.5
[11] The Youngs failed to satisfy Bankruptcy Notices that had been served on 19 June 2003 and they were adjudicated bankrupt on 14 October 2003.
[12] On 23 February 2004, the Official Assignee lodged a caveat on the property at 100 Crosby Road, Hamilton. The basis for the caveat was that Mr and Mrs Young were entitled to be indemnified from the assets of the PR Young Trust for debts incurred by them in their capacity as trustees, and their right to indemnity and an equitable lien had passed to the Official Assignee under s 42 of the Insolvency Act 1967 Act on adjudication.
5 Parsons v Young HC Hamilton CIV-2003-419-271, 22 August 2003.
[13] The Assignee ultimately determined that there was insufficient equity in the property to warrant further action and the caveat was withdrawn on 13 July 2006.
[14] During his bankruptcy, Mr Young was charged with five counts of offending under the Securities Act 1978. He was convicted on these counts in the District Court at Hamilton on 13 April 2006.6 Judge P R Connell sentenced him to pay fines of $750 on each count and reparation of $30,000.
[15] Mr Young faced three further charges in the District Court at Hamilton for breaches of the Securities Act 1978. In December 2006, Judge Spear remanded the matter for sentencing after ordering that Mr Young “seek independent legal advice about using equity in his family home to pay the debt in three years’ time”. Mr Young was subsequently sentenced to 300 hours community work and to pay a reparation of
$93,142.11.
[16] On 4 January 2007, a mortgage was registered against the property at 100 Crosby Road in favour of the Registrar of the District Court.
[17]In a letter to the Assignee dated 21 December 2006, Mr Young advised that:
Any equity that may have existed at 100 Crosby Road in the PR & VJ Young Family Trust has now been eaten up by the guarantee we provided the Court with this property.
[18] On 7 March 2008, Mr Parsons gave notice of ceasing to act as receiver and manager of Baywater.
[19] The mortgage to the Registrar of the District Court was discharged on 22 April 2010.
[20] Baywater changed its name to Macpherson Finance Ltd in May 2013 and was removed from the Register in September 2013. Mr Young was the director of the company and he and Mrs Young held 350,000 shares (50 per cent).
[21]The following creditors filed claims in Mr and Mrs Young’s bankruptcies:
6 Ministry of Economic Development v Young DC Hamilton CRN-5019500486-490, 13 April 2006.
Joint debts
(a)Mr Parsons as receiver of Baywater – PR Young Trust liability – unsecured claim of $364,955.80;
(b)Commissioner of Inland Revenue – PR and VJ Young Trust liability – preferential claim $500;
(c)ASB Bank Ltd – joint credit card – unsecured claim $3,267.52.
Mr Young
(d)Commissioner of Inland Revenue – unsecured claim of $11,949.09;
Mrs Young
(e)Farmers Finance – Farmers card – unsecured claim of $1,378.78.
Relevant legal principles
[22] The Youngs were adjudicated bankrupt under the Insolvency Act 19677 and their estates were administered under that Act.
[23] Pursuant to s 444(2) of the Insolvency Act 2006, which came into force on 3 December 2007, the 1967 Act continues to apply to any step or proceeding relating to Mr and Mrs Young’s bankruptcies and to the exclusion of the 2006 Act.
[24]Section 444 of the 2006 Act reads:
Transitional provisions
(1)In this section, –
1967 Act means the Insolvency Act 1967 as if it had not been repealed by this Act, and any rules or regulations made under that Act
commencement means the commencement of Parts 1 to 7 of this Act
past event means any of the following that has occurred before commencement
7 The 1967 Act.
(a)issuing a bankruptcy notice:
(b)filing a petition for adjudication:
(c)filing an application for a summary instalment order:
(d)the making of a proposal:
(e)the making of a compromise:
(f)filing an application for an order for the administration of an insolvent deceased estate.
(2)The 1967 Act continues to apply, to the exclusion of this Act, to any past event and to any step or proceeding preceding, following, or relating to that past event, even if it is a step or proceeding that is taken after commencement.
[25] The applications for annulment therefore fall to be considered under s 119 of the 1967 Act. However, nothing turns on that; the grounds are essentially the same under the equivalent section of the Insolvency Act 2006, namely s 309.8
[26] I reject Mr Young’s submission that the 1967 Act applies only to the statutory parties known as the Official Assignee and receiver “who no longer have any standing”. The Official Assignee clearly has standing under the 1967 Act to oppose the annulment applications and the only role played by the receiver in these proceedings is the provision of an affidavit, commissioned by the Official Assignee, in order to provide assistance to the Court.
[27]Section 119 of the 1967 Act reads:
When Court may annul adjudication
(1)In any of the following cases the Court may by order, on the application of the Assignee or any person interested, annul the adjudication –
(a)Where the Court is of the opinion that the order of adjudication should not have been made:
(b)Where the Court is satisfied that the debts of the bankrupt have been fully paid or satisfied:
(c)Where the Court is of the opinion that the liability of the bankrupt to pay his or her debts should be revived because since the date of adjudication there has been a substantial change in the financial circumstances of the bankrupt:
(d)Where the Court has approved a composition under Part 12 of this Act.
8 Section 309(1)(b) of the 2006 Act does make reference to the Official Assignee’s fees and costs incurred in the bankruptcy.
Analysis and decision
[28] In their originating application dated 13 January 2022, the Youngs applied for the annulment of their bankruptcies on the basis that their debts “were satisfied”. They seek vindication; they say all funds owing to stockholders/investors of Baywater have been repaid and that full reparation has been made in accordance with the sentence of the District Court.
[29] It is clear, however, that the Youngs rely on the three grounds in s 119(1) of the 1967 Act, namely (a), (b) and (c). I address each in turn.
Issue (a) – Should the order of adjudication have been made (s 119(1)(a))?
[30] The Youngs challenge the appointment of a receiver to Baywater. They also challenge the entry of the summary judgment against them in April 2003.
[31] The Youngs rely principally on a statement of financial position for Baywater issued by the receiver in December 2002. That statement records total liabilities for Baywater of $1,371,438 and total assets of $1,907,188. This is said to demonstrate a surplus of $535,750. The Youngs contend that on the basis of this document there was no need for a receivership and no need for an additional call on capital of $350,000 (being the cause of the bankruptcy). Even without the call that led to the bankruptcy, it is claimed that there was a surplus of $185,750 in Baywater at the beginning of the receivership. The Youngs submit that all the receiver had to do was to manage the assets of the company to pay the stockholders in full.
[32] The Official Assignee has filed and served an affidavit of Mr Parsons, the receiver, sworn 11 May 2022. He annexes to his affidavit copies of the 11 reports that he filed as a receiver.9 The first report, dated 24 January 2003, notes that in December 2002 the Registrar of Companies issued Baywater with a notice pursuant to s 30 of the Corporations (Investigation and Management) Act 1989.10 The notice stated the grounds for its issue as being:
9 Pursuant to the Receiverships Act 1993, s 23.
10 Receiver’s first report dated 24 January 2003, at [11].
(a)That Baywater is, or may be, operating fraudulently or recklessly;
(b)It is desirable that the Corporations (Investigation and Management) Act 1989 should apply to the company for the purpose of protecting the interests of the corporation’s members of creditors.
[33] That report further notes11 that the financial accounts of Baywater revealed in a statement of financial performance (for the period 1 April 2002 to 30 November 2002) a net deficit of $107,182. That was after a provision for bad debts had been made of $83,714. The auditors, so Mr Parsons noted, had recommended such a provision.
[34] On the evidence before me, the criticisms the Youngs make of the receiver and his decision to make a call on the share capital are misguided. Equally, there is no sufficient evidential basis for me to conclude that Baywater should never have been placed in receivership. Mr Parsons made a decision to call upon the $350,000 in uncalled capital, with obvious knowledge of the financial position of the company and the particular statement of financial position that the Youngs rely upon. He may have acted cautiously. However, there is no basis for me now to conclude that the summary judgment proceedings should never have been brought because Mr Parsons did not have a proper basis for his decision to make a call upon the unpaid share capital.
[35] I further note that the Youngs sought, in 2003, to have the summary judgment set aside. However, they were unsuccessful. In those proceedings, Mr Young filed an affidavit contending that the receiver had no grounds for making a call on shares in Baywater held by the Youngs.12 Mr Young was legally represented in those proceedings. Master Faire concluded that he was not satisfied that the Youngs had a substantial ground of defence. He held:13
The receiver’s case is straightforward. The receiver examined the position of the company and, after taking advice, issued a demand to the defendants [the Youngs] in respect of the unpaid shares.
11 At [12].
12 Parsons v Young, above n Error! Bookmark not defined., at [11].
13 Parsons v Young, above n 5, [17].
[36]Master Faire also held:14
For his part, Mr Young, having been served with the application for summary judgment, took advice which he now claims was wrong and allowed judgment to be entered against both he and his wife. He has not set out with the sort of precision that I would have expected from the person who after all had direct control of the various steps that were taken, precisely what agreement was alleged to have been made and, in particular, how, in the whole scheme of things, that agreement placed a restriction on the right of the directors, and later the receiver, to demand payment in respect of unpaid capital. The foundation for the alleged defence is unsatisfactory.
[37] I find that there is no basis for concluding that the orders for adjudication should not have been made. There is no adequate evidential or other basis for concluding that the underlying judgment debts were unjustified or that the Youngs otherwise did not commit any act of bankruptcy.
[38] In any event, the judgment debts at issue were entered against the Youngs nearly 19 years ago. Even if further evidence was available that casted doubt on the actions of Mr Parsons, it is difficult to see how a court could fairly resolve the issue of whether his actions were justified given the significant passage of time since the disputed action was taken. In this regard, I note that the Official Assignee’s report of 7 June 2022 makes clear that there are real difficulties in reconstructing the events of an historic nature.
[39]I further address the issue of delay below.
Issue (b) – Have the debts of the bankrupts been fully paid or satisfied (s 119(1)(b))?
[40] Mr Young says that the stockholders/investors in Baywater were paid out in full in early 2010. He says that he took over as the sole director of Baywater in April 2008 following the termination of the receivership. He contends that following his re- appointment as director, and the guarantee provided through the mortgage security over the Crosby Road property, he became the ultimate judgment creditor. Mr Young further says that he has paid approximately $135,000 by way of reparation, which is in fact an overpayment by at least $40,000.15
14 Parsons v Young, above n 5, at [18].
15 See memorandum dated 3 June 2022.
[41] There is insufficient evidence before me to reach any firm conclusion on whether Mr Young’s claims about full payment of reparations and repayment to stockholders/investors are correct. However, for present purposes, I am prepared to accept those claims. I note that the mortgage to the Registrar of the District Court was discharged; it had been granted as a security for the payment of the reparations.
[42] Having said that (and assuming that the claim about full payment of reparations and repayment to stockholders is correct), the fundamental problem for the Youngs is that the statutory criteria they rely on, namely s 119(b) of the 1967 Act, is concerned with their personal debts in their bankruptcies. The question of whether Baywater has repaid stockholders/investors is not relevant to any assessment of whether the Youngs’ debts have been fully paid or satisfied. Likewise, any reparations made by Mr Young as part of the criminal sentencing process are quite separate from the judgment debt entered against him in the summary judgment proceedings in 2003. That judgment debt has never been paid and the judgment has never been recalled. As the Official Assignee’s report of 25 May 2022 makes clear, no funds whatsoever were realised in the administration of the two bankrupts’ estates, and all of their bankruptcy debts remain unpaid. That includes, in the case of Mr Young, an unsecured claim of the Commissioner of Inland Revenue in the sum of $11,949.09, and in the case of both Mr and Mrs Young, a joint debt to the ASB Bank Ltd (a joint credit card) that totals
$3,267.52.
[43]Mr Young contends that his overpayment of reparation, namely by some
$40,000, is sufficient to cover any bankruptcy debts he and his wife have (beyond the judgment debt claim of $364,955.80). However, that again ignores the important distinction between the criminal law reparation process and the administration of the bankruptcies by the Official Assignee. In any event, I do not have sufficient evidence to conclude that there has been an overpayment of the reparation.
[44] I find that the Youngs have not established that their debts have been fully paid or satisfied. On the contrary, all of the bankruptcy debts remain unpaid.
Issue (c) – Should the liability of the bankrupts to pay their debts be revived (s 119(1)(c))?
[45] Mr Young did not place any emphasis on this ground of the application. It was not expressly referred to in the originating application but raised in submissions and documents filed subsequently. However, nothing turns on that.
[46] There is insufficient evidence before the Court for me to find that this ground has been made out. There may have been some change in the financial circumstances of Mr and Mrs Young since 2006 and 2007, but there is very little direct evidence before the Court on that critical issue. The threshold of “substantial change” has clearly not been met. The Official Assignee withdrew the caveat in 2006 on the basis that there was insufficient equity in the property to warrant further action. No up-to- date information as to the equity in the Crosby Road property has been provided.
[47] Mr Young advises that he practices as an accountant (not a chartered accountant) at Progressive Accountants in Hamilton. However, no evidence has been provided as to Mr Young’s income or that of Mrs Young.
[48] I further note that the Official Assignee initially objected to Mr Young’s discharge from bankruptcy on 11 October 2006. However, the Assignee subsequently decided not to proceed with Mr Young’s public examination and the objection was withdrawn in March 2007.
Issue (d) – Delay
[49] Even if the Court were to find that the orders of adjudication should not have been made, or if I was satisfied that the bankruptcy debts have been fully paid or satisfied, that does not necessarily mean that there should be an order of annulment.
The Court has a residual discretion whether to do so.16
[50] As the Court of Appeal noted in Keung v Official Assignee, the principle of finality is accorded significant weight in the insolvency context, due to the need to
16 Keung v Official Assignee [2021] NZCA 92; see also Robinson v ASB Bank Ltd [2022] NZHC 627 at [122].
promote commercial certainty.17 In that case, the Court of Appeal upheld the decision of Bell AJ at first instance that Mr Keung’s delay of eight years in filing the annulment application weighed strongly against granting it. Bell AJ had concluded that:18
After such a long time the value of finality should not be disturbed.
[51] In this case, the delay is even more significant. As noted, Mr and Mrs Young were adjudicated bankrupt nearly 19 years ago. Even if grounds for annulment had been made out under s 119 of the 1967 Act, I would likely have exercised my discretion to refuse relief.
[52] Any exercise of discretion would of course fall to be determined in the context where both Mr and Mrs Young were discharged from their bankruptcies 15 years ago.
Conclusion and result
[53] I find that neither Mr nor Mrs Young have made out any grounds for an order for annulment under s 119 of the 1967 Act. Accordingly, their applications for annulment are dismissed.
[54] As to costs, having succeeded in opposing the applications, I am of the preliminary view that the Official Assignee should be awarded costs on a 2B basis, plus disbursements. If agreement cannot be reached on the question of costs, then the parties are to file submissions (no more than three pages) within 14 days.
Associate Judge P J Andrew
17 Keung v Official Assignee, above n Error! Bookmark not defined.6, at [37].
18 Keung v Official Assignee [2020] NZHC 32 at [76].
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