Zanz Limited Partnership v Dua
[2019] NZHC 280
•27 February 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-1554
[2019] NZHC 280
UNDER the Insolvency Act 2006 IN THE MATTER
of the bankruptcy of VIKRANT DUA
BETWEEN
ZANZ LIMITED PARTNERSHIP
Judgment Creditor
AND
VIKRANT DUA
Judgment Debtor
Hearing: 27 February 2019 Appearances:
Mr Hakaria for the Judgment Creditor Mr Dua in person
Judgment:
27 February 2019
ORAL JUDGMENT OF ASSOCIATE JUDGE SMITH
This judgment was delivered by me on 27 February 2019, pursuant to r 11.3 of the High Court Rules
Registrar/Deputy Registrar
Solicitors / Counsel:
Sharp Tudhope, Tauranga
Copy to:
V Dua
ZANZ LIMITED PARTNERSHIP v DUA [2019] NZHC 280 [27 February 2019]
[1] The judgment creditor (Zanz) applies for an order adjudicating the judgment debtor (Mr Dua) bankrupt.
[2] Zanz obtained a summary judgment against Mr Dua and others in the Palmerston North District Court on 18 July 2018 for the sum of $65,620.46, including costs and disbursements. Summary judgment was entered for the same sum against one of three other defendants in the proceeding, Workforce NZ Ltd (Workforce). Mr Hakaria has told me this morning that Workforce is now in liquidation.
[3] Mr Dua did not pay the judgment debt, and a bankruptcy notice was issued by Zanz on 8 August 2018. The bankruptcy notice was properly served on Mr Dua on 4 September 2018.
[4] Mr Dua did not comply with the requirements of the bankruptcy notice, and on 27 September 2018 Zanz filed an application in this Court to have him adjudicated bankrupt. The bankruptcy proceeding was served on 16 October 2018.
[5] Mr Dua filed a notice of opposition and affidavit in opposition, on 14 November 2018.
[6] The case was called before Associate Judge Andrew on 27 November 2018. His Honour allocated a half day fixture for today to hear the application on a defended basis, and gave directions for the filing of further affidavits and written submissions.
Relevant provisions of the Insolvency Act 2006 (the Act)
[7]Sections 13, 17, and 37 of the Act materially provide:
13 When creditor may apply for debtor’s adjudication
A creditor may apply for a debtor to be adjudicated bankrupt if—
(a)the debtor owes the creditor $1,000 or more …; and
(b)the debtor has committed an act of bankruptcy within the period of 3 months before the filing of the application; and
(c)the debt is a certain amount; and
(d)the debt is payable either immediately or at a date in the future that is certain.
17 Failure to comply with bankruptcy notice
(1)A debtor commits an act of bankruptcy if—
(a)a creditor has obtained a final judgment or a final order against the debtor for any amount; and
(b)execution of the judgment or order has not been halted by a court; and
(c)the debtor has been served with a bankruptcy notice; and
(d)the debtor has not, within the time limit specified in subsection (4),—
(i)complied with the requirements of the notice; or
(ii)satisfied the court that he or she has a cross claim against the creditor.
…
(7)In subsection (1)(d)(ii), cross claim means a counterclaim, set-off, or cross demand that—
(a)is equal to, or greater than, the judgment debt or the amount that the debtor has been ordered to pay; and
(b)the debtor could not use as a defence in the action or proceedings in which the judgment or the order, as the case may be, was obtained.
37 Court may refuse adjudication
The court may, at its discretion, refuse to adjudicate the debtor bankrupt if—
(a)the applicant creditor has not established the requirements set out in section 13; or
(b)the debtor is able to pay his or her debts; or
(c)it is just and equitable that the court does not make an order of adjudication; or
(d)for any other reason an order of adjudication should not be made.
[8] Once the formal requirements for adjudication have been satisfied, the position is that an applicant creditor is prima facie entitled to an order of adjudication. The
order may not be refused on the grounds of expedience or convenience.1 Each case must be considered on its own terms.2
[9] In Baker v Westpac Banking Corporation, the Court of Appeal discussed the principles applicable to the Court's exercise of its discretion to make an adjudication order. In delivering the judgment of the Court, Richardson J said:3
A creditor who establishes the jurisdictional facts … is not automatically entitled to an order. On the other hand, it is for an opposing debtor to show why an order should not be made. The Court will give proper weight to the commercial judgment of the petitioner but the oppressive use of the bankruptcy process may be a ground for refusing an order. Another ground may be the undoubted absence of assets but that will not necessarily preclude an order giving the range of interests involved including the public interest in the continuing oversight of a bankrupt's affairs and the disqualifications that go with the bankruptcy. In the end the Court must balance the various considerations relevant to the case and determine whether the debtor has succeeded in showing that an order ought not to be made.
[10] In Re Rabobank Australia ex parte Tootell,4 Associate Judge Osborne referred to Re Epirosa,5 and the list of factors adopted by Master Williams QC as relevant to the exercise of the Court's discretion:6
(a)What are the wishes of all affected parties, including the applying creditor, other creditors, and the debtors?
(b)Does the debtor have the ability to meet his or her debts over time and, if so, does that meet the requirements of achieving finality within a reasonable period?
(c)What were the circumstances in which the debt was incurred, and do those circumstances suggest that the creditor is acting unreasonably in pursuing adjudication?
1 Re Epirosa, ex parte Diners Club NZ Ltd, (HC) Wellington, B498/91, 6 March 1992; B532/91;
In re Twidle [1916] NZLR 748 at 749; and Re Fidow [1989] 2 NZLR 431 at 439.
2 Cribb v Evia Rural Finance Ltd [2014] NZCA 543 at [32].
3 Baker v Westpac Banking Corporation CA 212/92, 13 July 1993 at 4.
4 Re Rabobank Australia Ltd, ex parte Tootell [2013] NZHC 2975.
5 Re Epirosa, ex parte Diners Club NZ Ltd, above n 1.
6 Re Rabobank Australia Ltd, ex parte Tootell, above n 4, at [8].
(d)Will adjudication be pointless?
(e)Will the debtor, if adjudicated, be rendered unable to support himself or herself?
(f)Does the debtor have such a standing in the community that significant issues of stigma or embarrassment will result?
[11] The Associate Judge noted that those are factors which frequently arise, but the Court's task is to consider all of the facts of the case before it, and balance the relevant factors in deciding whether it is just and equitable to decline to make an order, or whether there is other sufficient reason to follow that course.
[12] I note too that the Courts have placed some weight on the public importance of those who provide commercial guarantees being held to account on their guarantees: see for example Re Coll ex parte Consumer Finance Ltd,7 and Re D'Esposito ex parte Westpac Banking Corporation.8
The Evidence for Zanz
[13] In addition to the usual affidavit verifying the statement of claim, Zanz provided an affidavit from its director, Mr Sarel Venter.
[14] It is evident from Mr Venter's affidavit that the judgment obtained by Zanz in the District Court was based on a guarantee, relating to the rent payable on certain premises, from which Mr Dua had not been released. Zanz was the lessor under the relevant lease, and the District Court proceeding was to recover unpaid rent.
Mr Dua's opposition
[15] Mr Dua does not deny that he signed the guarantee. He acknowledges that he was involved with two others, Gurpreet Singh and Meha Singh,9 with a view to buying
7 Re Coll ex parte Consumer Finance Ltd, (HC) Rotorua B69/97, 18 September 1997.
8 Re D'Esposito ex parte Westpac Banking Corporation, (HC) Napier B16/98, 30 June 1998; B60/98.
9 Respectively named as second and fourth defendants in the District Court proceeding in which judgment was obtained against Mr Dua.
the business operated at the premises, but he says he pulled out of this venture after three meetings. He says he pulled out before the "final dealing of purchase", but he did not ask Zanz "to change/withdraw the details of lease". Mr Dua frankly acknowledged that he had been negligent in failing to communicate with Zanz, saying he assumed that Zanz would know of the changes. Mr Dua said Workforce, which appears to have been the entity used to take the lease of the premises, was transferred to Meha Singh just before Mr Dua backed out of the transaction. Mr Dua said that he did not sell Workforce to Meha Singh, but transferred it to Meha Singh as a gesture of goodwill.
[16] Mr Dua said that as he had taken a step back from the business and the premises before it was leased, his involvement was zero. He had no intention to continue as guarantor of the deed of lease, and he had no involvement with the business or the premises after the changes.
[17] Mr Dua said he decided to end his professional relationship with Zanz about 10 days after the lease was signed, as he considered the business venture unaffordable. Meha Singh and Gurpreet Singh decided to purchase the business on their own.
[18] Mr Dua essentially blames Gurpreet Singh and Meha Singh for not informing Zanz of his departure, and also for failing to inform it that he had no interest in the business. He says that he only signed as a guarantor in order to be involved in the business which was already running and established on the premises. As he put it, "I had no reason to be involved as guarantor if I was not involved in running the business and not taking any profit from it."
[19] Mr Dua said that he is an immigration adviser by profession. He is licensed to act as such by the Immigration Licensing Authority. Mr Dua said that he was very busy, and that was the reason for his omission to inform Zanz about the fact that he would no longer be involved in the business operated at the premises.
[20] Mr Dua provided an affidavit in support, in which he challenged the amount claimed by Zanz. However, no information was put forward to support that challenge.
[21] Mr Dua provided a further affidavit, affirmed on 25 February 2019, in which he asked for an agreement to pay part of the debt. He provided certain documents in support, including documents showing that he has been paying off a debt to a church at the rate of $20.00 per week since July 2018, and that he owes another debt of around
$2,000 to Baycorp. He also provided a letter dated 2 July 2018 from a collection company, showing that his wife then owed approximately $22,000 to the ANZ Bank.
[22] In his written submissions, Mr Dua repeated the view that, as he has not been involved with the business and has not taken any profits from it, he should not be bound by his guarantee.
[23]Mr Dua also set out a proposal to settle the claim by Zanz. He proposed to pay
$10,000 in two instalments, one (of $5,000) within the next 10 days and the other within the next 30 days. In addition, he proposed to pay a further $3,000 at the rate of
$100.00 per week, starting immediately.
[24] Mr Dua described his personal circumstances. He has an interest in some land, and that interest might have a value of approximately $5,000. He is supporting his family, including his wife who has medical difficulties which prevent her from working, and a dependent daughter. Mr Dua said that he is currently on a Government benefit, but he did not provide a reason for going onto a benefit. Broadly, Mr Dua described his personal circumstances in terms which make it clear that there has been something of a struggle. He said that he and his wife currently have "huge debts", and work in the immigration sector in which he runs a business has been declining in recent times. He said that if he is bankrupted, he will not be able to renew his licence as an immigration adviser. He submitted that, if that occurred, it would result in hardship for him and his family.
Discussion and conclusions
[25] I record first that Mr Dua's proposal for settlement in the total sum of $13,000 has not been accepted by Zanz. Mr Hakaria noted that the $13,000 would represent only approximately 20 per cent of the total debt, and Zanz prefers to proceed with its bankruptcy application (notwithstanding a submission from Mr Dua that acceptance of his proposal would result in a better financial outcome for Zanz than a bankruptcy).
[26] Turning to the adjudication application itself, I accept that all of the elements of s 13 of the Act have been established. Mr Dua owes Zanz a debt in a certain amount which exceeds $1,000, and the debt is immediately payable. Mr Dua committed an act of bankruptcy when he failed to comply with the bankruptcy notice, and this application was filed within three months of that act of bankruptcy.
[27] It is clear that Mr Dua is presently unable to pay the debt, and that he has no assets that might be realised which would enable him to pay within a reasonable period. The elements of s 37(a) and (b) of the Act are accordingly satisfied.
[28] The only remaining issue is whether the Court should exercise its discretion under s 37(c) or (d) of the Act to refuse to make an adjudication order. The starting point is that Zanz is prima facie entitled to the adjudication order it seeks.
[29] Considering the so-called Epirosa factors, I note first that the wishes of the parties effectively cancel each other out. Zanz seeks an adjudication order; Mr Dua opposes it.
[30] The second factor relates to Mr Dua's ability to pay the debt off over time. Clearly he cannot, and this factor strongly supports Zanz.
[31] The next two factors are the circumstances in which the debt was incurred, and the question of whether any adjudication order would be pointless. As for the circumstances in which the debt was occurred, cases such as Re Coll make it clear that there is a strong public interest in holding to account, including by the making of bankruptcy adjudication orders, those who provide commercial guarantees, including guarantees of commercial leases. It is clear in this case, and Mr Dua responsibly accepts, that he signed the guarantee and then changed his mind about his involvement. That was because, on reconsideration, he considered that the proposed venture would not be affordable for him and his family. Unfortunately, the change of heart does not affect the validity of the guarantee, nor provide a basis for the Court to exercise its discretion against making an adjudication order in this case. One of the difficulties in taking that approach might be that numerous other guarantors, having changed their minds about the particular transactions they have guaranteed, could seek to advance
similar arguments in opposition to bankruptcy proceedings. That clearly could not have been what the law intended. I accordingly reject the argument that Mr Dua's decision to change his mind about the guarantee that he signed, should weigh in his favour in the exercise of my discretion under s 37(c) or (d) of the Act.
[32] There is nothing in this case to suggest that Zanz has been acting unreasonably in pursuing adjudication, and I do not consider it can be said that adjudication would clearly be pointless in this case. First, Mr Dua has not provided sworn evidence relating to his interest in the land in question, and I think that is a matter which can properly be looked into by the Official Assignee. More important, however, is the public interest factor in upholding the personal guarantee which Mr Dua provided.
[33] The next of the Epirosa factors relates to the ability of Mr Dua and his family to support themselves if an adjudication order is made. I do not have sufficient details of the wider family circumstances to make a full assessment of this, but my impression is that the family circumstances are already difficult, and it is hard to see that a bankruptcy adjudication order is likely to make them any worse. Mr Dua has described a situation where the family is facing huge debts, and he says that the immigration work from which he has made his livelihood has been on the decline in recent times. In my view, the situation is likely to be no worse for him if he is bankrupted, and it may be a lot better for him and his family, in taking away what must have been worrying pressure with the indebtedness, if he is able to rule a line under that indebtedness and start again. A bankruptcy order will permit him to do that.
[34] I have not overlooked Mr Dua's submission that he will be unable to renew his licence as an immigration adviser, but I have no sworn evidence of that, nor as to his ability to obtain employment in the immigration sector, or in some other field. The only thing that can be said with a degree of confidence, is that Mr Dua's income from his immigration work has apparently not been sufficient to cover the existing family indebtedness (including the three debts to which I have referred, in addition to the debt owed to Zanz).
[35] I am accordingly not satisfied that Zanz's prima facie entitlement to an adjudication order has been displaced, and I find no grounds to refuse the adjudication order under either s 37(c) or s 37(d).
[36] I therefore make an order adjudicating Mr Dua bankrupt, with costs on a 2B basis to Zanz and disbursements as fixed by the Registrar.
[37]The foregoing orders are timed at 11.03am.
Associate Judge Smith
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