Zhang v Official Assignee
[2022] NZHC 3052
•22 November 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-001367
[2022] NZHC 3052
BETWEEN YINGQIU ZHANG
Applicant
AND
OFFICIAL ASSIGNEE
First Respondent
WESTPAC NEW ZEALAND LIMITED
Second Respondent
Hearing: 11 November 2022 Appearances:
Applicant in Person
C T Jones for the Official Assignee
L Harrison for the Second RespondentJudgment:
22 November 2022
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 22 November 2022 at 3.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors:
Simpson Grierson, Auckland
Insolvency & Trustee Service, Auckland
ZHANG v OFFICIAL ASSIGNEE & Anor [2022] NZHC 3052 [22 November 2022]
Introduction
[1] The applicant, Yingqiu Zhang, applies for early discharge from bankruptcy under s 294 of the Insolvency Act 2006 (the Act).
[2] Under the Act, a bankrupt is entitled to automatic discharge from bankruptcy three years after they file their statement of affairs.1 Ms Zhang has been bankrupt for three years and six weeks, but because she only filed her statement of affairs on 4 August 2022, she is not entitled to an automatic discharge until 4 August 2025.
[3] The second respondent, Westpac New Zealand Limited (Westpac), opposes Ms Zhang’s application for early discharge.
[4] The Official Assignee has filed a report pursuant to s 296 of the Act, indicating that it considers it appropriate that the Court declines to exercise its discretion to discharge Ms Zhang.
[5] The essential question for this Court is whether Ms Zhang has established a good reason for her early discharge from bankruptcy.
Legal principles
[6] Under the Insolvency Act 1967, bankrupts were discharged from bankruptcy "upon the expiration of 3 years from the date of adjudication" unless the Court ordered that they be discharged sooner, or an objection to discharge was filed.2
[7] Discharge did not, therefore, depend on the filing of a statement of affairs and, if a bankrupt failed to do so, the Official Assignee's remedy was to object to discharge. This necessitated summoning the bankrupt for public examination on expiry of the three-year period.3
1 Insolvency Act 2006, ss 67 and 290.
2 Insolvency Act 1967, s 107(1) and (3).
3 Insolvency Act 1967, s 109(1).
[8] The provision in the 2006 Act stating that the three-year period for automatic discharge only starts running once a statement of affairs is filed was introduced to incentivise bankrupts to file a statement of affairs promptly.4
[9]The obligation to file a statement of affairs is found in s 67 of the Act:
67 Bankrupt must file statement of affairs with Assignee
(1) After adjudication, the bankrupt must file with the Assignee a statement of the bankrupt’s affairs in the prescribed form, unless the bankrupt has already filed a statement under section 46.
(2) The Assignee may reject a statement of affairs that in the Assignee’s opinion is incorrect or incomplete.
[10]Section 290 provides for automatic discharge after three years:
290 Automatic discharge 3 years after bankrupt files statement of affairs
(1) A bankrupt is automatically discharged from bankruptcy 3 years after the bankrupt files a statement of affairs under section 46 or section 67, but may apply to be discharged earlier.
(2) However, a bankrupt is not automatically discharged if—
(a) the Assignee or a creditor has objected under section 292 and the objection has not been withdrawn by the end of the 3-year period referred to in subsection (1); or
(b) the bankrupt has to be publicly examined under section 173 and has not completed that examination; or
(c) the bankrupt is undischarged from an earlier bankruptcy.
[11] Under s 294, a bankrupt may at any time apply for an order for discharge from bankruptcy. Section 298(1) sets out the Court's powers and discretion on such an application. It relevantly provides that, having regard to all the circumstances of the case, a Court may:
(a)immediately discharge the bankrupt; or
4 Burchell v Commissioner of Inland Revenue [2021] NZHC 1136 at [40].
(b)discharge the bankrupt on conditions (which may include a condition that the bankrupt consents to any judgment or order for the payment of any sum of money); or
(c)discharge the bankrupt but suspend the order for a period; or
(d)discharge the bankrupt, with or without conditions, at a specified future date; or
(e)refuse an order of discharge, in which case the Court may specify the earliest date when the bankrupt may apply again for discharge.
[12] In the leading case on the Court's discretion under s 298, ASB Bank v Hogg, the Court of Appeal noted:5
In conferring a discretion expressed in the broadest terms, the legislation recognises that each case will be different, that the relevant factors may vary from case to case and that the exercise of the discretion must be governed by the circumstances of the particular case having regard to the guidance provided by a consideration of the scheme and purpose of the legislation.
...
The Court is to consider the assignee's report as to the affairs of the bankrupt, the causes of the bankruptcy, the manner in which the bankrupt has performed the duties imposed on him or her under the Act and his or her conduct both before and after the bankruptcy, and also any other fact, matter or circumstance that would assist the Court in making its decision. Clearly the Court apprised of the matter will consider the legitimate interests of the bankrupt, the creditors, and wider public concerns… The applicant has the onus, in the sense of adducing evidence, to show good cause for ordering an early discharge, but his obligation goes no further than that.
(emphasis added)
Has Ms Zhang shown a good cause for early discharge?
Ms Zhang’s reasons
[13] Ms Zhang advances three main reasons why she should be given an early discharge from bankruptcy.6 First, she has been living the lifestyle of a bankrupt for
5 ASB Bank v Hogg [1993] 3 NZLR 156 (CA) at 6.
6 Originating application dated 17 July 2022.
three years. Second, she has been monitored by the Official Assignee for three years, and “replied back to almost all the questions that the Official Assignee has required” of her. Third, she informed the Official Assignee of her intention to apply for early discharge and they did not object.
[14] Ms Zhang has sworn an affidavit in support of her application which essentially repeats these points and attaches correspondence between her and the Insolvency Officer responsible for her case. In an email chain between 3 October and 5 November 2019, Ms Zhang refers to steps she is taking to challenge the original bankruptcy order and asks about enforcing a New Zealand judgment in China. In reply, the Officer explains the effect of her bankruptcy, including that she could not continue to advance legal proceedings against Westpac, a Mr Wu or Auckland Council (as the rights of action had vested in the Official Assignee). He recommended that she take legal advice.
[15] In a second email chain between 12 and 18 July 2022, Ms Zhang informs the Officer that she intends to apply for early discharge so she can get a job. The Officer responds, advising Ms Zhang that once she files her application, the Official Assignee will provide a report to the Court covering matters such as the assets identified, the creditor claims filed, and her conduct during the bankruptcy. The Officer states that the Court would decide whether to grant her an early discharge and the Official Assignee will abide the Court’s decision. The Officer also clarifies that Ms Zhang is able to work and earn an income while bankrupt, with certain restrictions.
[16]I now turn to the matters raised by Westpac and the Official Assignee.
Ongoing litigation and post-bankruptcy debts
[17] Ms Zhang was adjudicated bankrupt on 25 September 2019 on the application of Westpac.7 The bankruptcy application followed the mortgagee sale of two properties owned by Ms Zhang, which resulted in a significant shortfall owing to Westpac. Westpac had obtained summary judgment in respect of that shortfall.
7 Zhang v Westpac New Zealand Ltd [2019] NZHC 2422.
[18] Westpac submits that Ms Zhang has not accepted responsibility for the circumstances leading to her bankruptcy, has appealed every decision against her even when the appeals clearly had no merit, and has incurred significant additional debts to Westpac through costs awards, which remain unpaid.
[19] The facts are that after being adjudicated bankrupt, Ms Zhang filed an appeal against the decision, as well as several interlocutory applications in both the High Court and the Court of Appeal.8 In each instance, the appeal/application was dismissed. Ms Zhang then sought leave to appeal to the Supreme Court.9 Ms Zhang’s appeals were exhausted on 31 March 2022 when the Supreme Court dismissed her application for leave to appeal the substantive bankruptcy decision.
[20] Throughout this litigation, Ms Zhang was ordered to pay a further $25,176.50 in respect of costs awarded to Westpac. Of this, $18,099.59 remains outstanding. The remaining $7,076.51 was paid via a release of security for costs that had been paid into Court.
Delay in filing statement of affairs
[21] Counsel for the Official Assignee, Mr Jones, emphasises the role the statement of affairs filed by the bankrupt plays in facilitating the efficient and effective administration of their estate. In McKee v Official Assignee, Associate Judge Bell said:10
The statement of affairs by the bankrupt is a key document in the administration of the bankruptcy. It provides the Official Assignee with important information for the administration of the bankruptcy. Of course it need not be the only information on which the Official Assignee may rely. Creditors may also supply the Official Assignee with other information, but the statement of affairs is still the starting point for the Official Assignee. It can provide the basis for the Official Assignee to make other enquiries, to start proceedings to get assets in for creditors, and to begin examinations of the bankrupt or of other persons under Part 3 of the Insolvency Act.
8 See Zhang v Westpac New Zealand Ltd [2019] NZCA 682; Zhang v Westpac New Zealand Ltd [2020] NZCA 138; Zhang v Westpac New Zealand [2021] NZCA 8; Zhang v Westpac New Zealand Ltd [2021] NZCA 672; Zhang v Westpac New Zealand Ltd [2022] NZCA 134 and Zhang v Westpac New Zealand Ltd [2019] NZHC 2797.
9 See Zhang v Westpac New Zealand Ltd [2020] NZSC 26 (31 March 2020); Zhang v Westpac New Zealand Ltd [2020] NZSC 72 (27 July 2020); Zhang v Westpac New Zealand Ltd [2021] NZSC 45 (21 May 2021) and Zhang v Westpac New Zealand Ltd [2022] NZSC 34 (31 March 2022).
10 McKee v Official Assignee [2013] NZHC 340 at [8].
[22] The Official Assignee’s report highlights the Insolvency Officer’s efforts to persuade Ms Zhang to file her statement of affairs and to advise her of the consequences of any delay in doing so:
[13] The Official Assignee was hampered in the administration of the bankrupt's estate due to Ms Zhang's failure to comply with section 69 of the Act, to file a statement of affairs within 10 working days after receiving the Assignee’s notice under section 68(1) of the Act that the statement must be filed. A considerable amount of time and effort was expended in trying to get her to comply with this statutory requirement.
[14] On 27 September 2019, the Assignee sent an "Initial Notice to Bankrupt" to Ms Zhang at [her residential address in Mount Roskill, Auckland]. This notice was to confirm that she had been adjudicated bankrupt and that she was required to complete a statement of affairs within 10 working days of receiving the notice.
[15] On 1 October 2019, an estate officer attempted to call Ms Zhang on her mobile phone but there was no answer. The officer left a message asking her to call back. On the same day, a letter was sent to [Ms Zhang's email address] requesting that she complete a statement of affairs.
[16] On 2 October 2019, the officer attempted to call her mobile phone again but there was no reply and another voicemail message was left requesting a return call. A further attempt was made to call her on 11 October 2019.
[17] On 30 October 2019, the Lead Insolvency Officer who had been appointed to administer the estate, Tony Lowe, sent Ms Zhang an email attaching a copy of the “Initial Notice to Bankrupt” and statement of affairs form for completion. She replied to him, attaching a copy of a memorandum that she had filed the same day to advise the High Court that she had filed an appeal against Associate Judge Paulsen's judgment. She also copied Mr Lowe into an email to the Registrar filing a "supplementary memorandum" later that day. She did not address the matter of completing her statement of affairs.
[18] On 27 November 2019, a further email was sent to Ms Zhang concerning completion of her statement of affairs. She was advised that she would not be discharged from bankruptcy and the restrictions of bankruptcy would continue to apply if she did not complete and return her statement of affairs form. The email also included several queries regarding assets and transactions that the Assignee was investigating.
[19] On the same day she replied to ask whether, as she was appealing the Court's decision, she needed to answer the queries. Mr Lowe replied that completing a statement of affairs did not of itself prevent her from filing an appeal. He urged her to complete the statement of affairs so that at least, if the appeal failed, the 3-year period for discharge would have started running. Ms Zhang replied that she would be surrendering her rights if she filled in the form and that it would not help her case against Westpac.
[20] At 8:54 pm on 28 November 2019 Ms Zhang sent an email advising that she had filed an application to stay the adjudication and, as Westpac had failed to file a memorandum by 5.00 pm as requested by the Registrar, the
bankruptcy had been automatically stayed and the Assignee should cease administration. Mr Lowe replied the next day that, unless provided with a court order staying the adjudication, the Assignee would continue to administer her estate.
[21] On 14 January 2020, Mr Lowe emailed Ms Zhang to arrange a meeting to obtain her statement of affairs, answer any queries she may have regarding her bankruptcy and to obtain information about certain assets and transactions. The meeting was arranged for 11 February 2020 and she confirmed that the date was suitable.
[22] On 7 February 2020 Ms Zhang requested that the meeting be rescheduled to March for medical reasons. Mr Lowe agreed to it being rescheduled but requested that she complete her statement of affairs in the interim. She was once again advised that she would only be discharged from bankruptcy 3 years from the time that her completed statement of affairs form was received by the Official Assignee.
[23] Between 12 February and 5 March 2020, Ms Zhang sent several emails concerning her efforts to apply for legal aid and copied Mr Lowe into correspondence when filing documents with the Registrar of the Court of Appeal. However, she still failed to file her statement of affairs, and I therefore decided to issue a summons for service on her at [her residential address in Mount Roskill, Auckland] calling on her to appear before the Assignee at 2 pm on 26 March 2020.
[24] On 11 and 12 March a process server attempted to serve the summons and spoke to a man at the above address. However, he was uncooperative and the summons could not be served.
[25] On 11 March Ms Zhang requested copies of her bank statements for the period during which the Assignee had queried various transactions. These were sent to her the same day.
[26] In further emails dated 12 March 2020, Ms Zhang said that she had been informed by her flatmate that someone had been to her home on behalf of the Assignee, but she was "in care of a doctor and not home". She said that she needed to look through the bank statements and would reply by 10 April, by which time a legal aid lawyer should have been appointed and, depending on her health, she should be able to meet with the Assignee by the end of April.
[27] Mr Lowe once again urged her to complete her statement of affairs, explaining that the delay was only serving to lengthen her bankruptcy. She reiterated that she would reply by 10 April via a legal aid lawyer. She asked not to be pressured as she was "really sick".
[28] New Zealand then went into a level 4 lockdown due to COVID-19. On 9 April 2020 Ms Zhang sent an email advising that she would prepare the required information 20 working days after the lockdown ends.
[29] During April I made a referral to MBIE's Integrity and Enforcement Team (IET) to investigate Ms Zhang for a contravention of s 433(1)(a) of the Act by failing to file a statement of affairs. IET sent her a warning letter on 13 May, advising her of her obligation to file the document and urging her to comply.
[30] On the same day, Ms Zhang sent Mr Lowe an email stating "Level 2 tomorrow and will provide answers in 10 working days". She also said that her legal adviser in China wanted to know if the Official Assignee was able to lodge a claim on her behalf against Mr Wu in China. Mr Lowe replied that the Assignee had previously determined that the claim had no merit and had disclaimed it.
[31] On 2 July 2020, Mr Lowe sent a further letter to remind Ms Zhang that she was yet to file a statement of affairs and would remain an undischarged bankrupt until 3 years after she did so.
…
[23]The Official Assignee concludes:
[34] A decision was then taken to cease active administration of Ms Zhang's estate. A standard letter, which advises bankrupts who have not filed their statement of affairs that they will remain bankrupt until 3 years after they do so, urges them to file same urgently, and reminds them of the restrictions and effects of bankruptcy that will continue until they are discharged, was sent to her on 28 October 2021.
[24] Mr Jones observes that Ms Zhang’s only explanation for failing to file her statement of affairs until almost three years after her adjudication appears to be that doing so would have prejudiced her prospects of successfully suing a Mr Wu in China.11 However, he submits that she has not explained why this would have been the case and, in any event, she had no standing to commence such a proceeding as the Official Assignee had disclaimed the litigation right, thereby bringing to an end both her and the Official Assignee’s rights and interests in respect thereof.12 The Official Assignee’s report confirms that the Insolvency Officer informed Ms Zhang of this fact on 13 May 2020.
[25] Mr Jones explains that where a bankrupt applies for early discharge after at least three years of bankruptcy and there is a reasonable explanation for why a statement of affairs was not promptly filed (such as a failure in communication between the Official Assignee and the bankrupt), and there is no further purpose to bankruptcy in terms of potential asset recovery, the Official Assignee will not usually oppose an early discharge.
11 Ms Zhang’s memorandum/submissions dated 3 November 2022 at 6-7.
12 Insolvency Act 2006, ss 117 and 118; Report of the Official Assignee dated 14 October 2022 at [6](a).
[26] However, here the circumstances are quite different. Ms Zhang was in regular contact with the Insolvency Officer and was aware of her obligation to file a statement of affairs and the statutory consequences of not doing so. The Official Assignee considers that she deliberately refrained from complying until she wanted to apply for an early discharge. The Official Assignee’s position is set out in the report:
[43] A bankrupt has a clear statutory duty to file a statement of affairs in a timely manner and it is an offence not to do so. The Official Assignee made extensive efforts to encourage Ms Zhang to comply and explained the consequences of her not doing so. She was clearly aware of the requirement but chose to ignore the issue and, instead, to correspond with the Assignee regarding matters which suited her agenda.
[44] Ms Zhang was perfectly capable of preparing and filing court documents in respect of her ongoing proceedings against Westpac, whilst ignoring the requirement to file her statement of affairs. She waited until less than 8 weeks before the 3-year anniversary of her adjudication before doing so.
[45] In my respectful view, the fact that Ms Zhang chose to simultaneously file this application, thereby seeking to anticipate the 3-year anniversary of her adjudication and be discharged from her bankruptcy on that date, demonstrates a cynical disregard for her legal obligations.
[46] Under the Insolvency Act 1967 a bankrupt was automatically discharged 3 years after adjudication. The provision for the 3-year period ins 290 of the 2006 Act to only start running once a statement of affairs is filed was introduced to incentivise bankrupts to file their statements of affairs promptly.
[47] It is not uncommon for bankrupts who have been slow in filing their statements of affairs to apply to be discharged less than 3 years after doing so, but this is usually more than years after their date of adjudication. Provided the administration of their estate is complete, the Official Assignee is unlikely to stand in their way.
[48] However, it is not appropriate that a bankrupt, who has deliberately waited until the eleventh hour before filing her statement of affairs, should be placed in the same position as a cooperative bankrupt who filed their statement of affairs promptly after adjudication.
Conclusion
[49] There is no point in prolonging Ms Zhang's bankruptcy indefinitely. However, she has failed to advance any reasons as to why she was unable to file her statement of affairs in a timely manner and I therefore believe it would be appropriate for the Court to mark its disapproval of her conduct by declining to discharge her immediately and, rather, to order that she be discharged at a specified future date pursuant to s 298(1)(d) of the Act.
[27] In oral submissions, Mr Jones clarified that the reason for suggesting a postponed discharge rather than simply dismissal of the application under s 298(1)(e)
is to avoid further cost to the Official Assignee and Westpac (from responding to a further application by Ms Zhang).
Deficiency in the bankruptcy
[28]The Official Assignee reports that:
[8] The only creditor to have filed a claim is the applicant creditor, Westpac. The bank has claimed a total of $445,374.96, consisting of applicant creditors costs of $9,212.81 and an unsecured claim of $436,162.15.
[9] Auckland Council is recorded as a potential creditor as it was awarded costs as a supporting creditor in the bankruptcy proceedings. However, despite writing to the Council during November 2019 and June 2020 to file its claim, it has not yet done so. It would appear from documents that Ms Zhang filed in the Court of Appeal that the Council may be owed $60,000.
[29] The Official Assignee’s investigations did not result in any assets being recovered for distribution to Westpac.
[30] The Official Assignee identified a 2014 BMW X6 Ms Zhang said she sold in 2016/2017 as a potential asset. It outlined its doubts about whether Ms Zhang did actually sell the BMW (given no payments relating to the sale of the vehicle were found in Ms Zhang’s bank statements and the fact that the vehicle was transferred in 2019 to someone with the same surname and address as Ms Zhang). It decided not to take further action however due to the difficulties around recovering transferred vehicles.13
[31] The Official Assignee’s fees and disbursements to date are $20,061.55. These have not been paid.
Application not advertised
[32] Ms Zhang has not advertised her application for discharge at least 20 working days before this hearing as required by r 24.37 of the High Court Rules 2016.
13 Report of the Official Assignee dated 14 October 2022 at [6](d).
[33] At the hearing Ms Zhang said that she had not advertised the application because she only has two creditors, Westpac and Auckland Council.
Discussion
[34] Ms Zhang has not established a good cause for her early discharge from bankruptcy. It is clear from the Official Assignee’s report that Ms Zhang was aware of her obligation to file a statement of affairs and of the statutory consequences of not doing so, and that she deliberately refrained from filing a statement of affairs because it suited her own purposes. Failing to file a statement of affairs is a statutory offence under s 433(1)(a) of the Act. Ms Zhang was informed of this fact on at least one occasion.14
[35] Ms Zhang’s failure to file a statement of affairs impeded the Official Assignee’s administration of her estate, as the investigation had to proceed without this key information. Furthermore, as the Official Assignee records, a considerable amount of time and effort was expended in trying to get Ms Zhang to comply with this statutory requirement. It was not until Ms Zhang was informed that the Official Assignee would be likely to object to an application for early discharge because she had not filed a statement of affairs that Ms Zhang filed the document.
[36] In these circumstances, I agree with the Official Assignee’s conclusion that Ms Zhang has demonstrated a cynical disregard for her legal obligations.
[37] I note that the Official Assignee was unable to recover any assets in the administration to distribute to Westpac. The size of the deficiency in the estate is substantial. The Official Assignee’s costs remain unpaid. I note also the Official Assignee’s suspicion that Ms Zhang has not been truthful in her responses concerning the one asset of any value that was identified, being the 2014 BMW X6.
[38] Through her appeal of the original bankruptcy decision, and various related interlocutory applications, she has incurred significant additional debts to Westpac. These remain unpaid. I note Westpac’s submission that in the course of her appeal
14 Report of the Official Assignee dated 14 October 2022 at [29].
Ms Zhang paid more than $7,000 in security for costs to the Court of Appeal, and that the Official Assignee should investigate the source of those funds.
[39] There is a public interest in Ms Zhang’s application being dismissed as a message to other bankrupts that they may not deliberately delay filing their statement of affairs and then apply for early discharge with impunity. I concur with the Official Assignee’s position that it is not appropriate that a bankrupt in Ms Zhang’s position be put in the same position as a cooperative and diligent bankrupt who files a statement of affairs promptly after adjudication.
[40] I am mindful that the Official Assignee has concluded that there are no assets in Ms Zhang’s estate and they have therefore ceased actively administering her estate. Mr Jones confirmed that the recently filed statement of affairs does not change that position. However, the public interest considerations described outweigh the lack of any practical purpose to the bankruptcy in terms of potential asset recovery.
[41] It is also significant that Ms Zhang has not advertised the application. The purpose of the requirement to advertise is to give the bankrupt’s creditors the opportunity to be heard on the bankrupt’s application for early discharge. Ms Zhang appears to have been aware of this requirement but considered it unnecessary. Yet Auckland Council, and potentially other creditors, may have an interest in her early discharge and should have been given the opportunity to be heard.
[42] For these reasons, it is appropriate that Ms Zhang’s application for early discharge is refused and that she is prevented from applying again for discharge until one year has expired.
[43] Because of her deliberate disregard for her legal obligations, and the fact that the application has not been advertised, I do not consider an order for her discharge at a future date to be appropriate.
Result
[44] Ms Zhang’s application for early discharge from bankruptcy is dismissed. Ms Zhang may not apply again for discharge until 23 November 2023.
[45] Ms Zhang is to pay Westpac’s costs on a 2B basis, and reasonable disbursements as fixed by the Registrar.
Associate Judge Gardiner
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