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High Court of New Zealand Decisions |
Last Updated: 28 February 2012
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
CIV 2011-419-84 [2012] NZHC 266
IN THE MATTER OF the Insolvency Act 2006
AND IN THE MATTER OF the bankruptcy of JP Gollan
BETWEEN COMMISSIONER OF INLAND REVENUE
Judgment Creditor
AND JAMES PATRICK GOLLAN AS TRUSTEE IN THE GOLLAN FAMILY TRUST
Judgment Debtor
Hearing: 22 and 23 February 2012
Counsel: CD Walmsley for judgment creditor
DM O'Neill for creditor in support who is judgment creditor in CIV
2011-419-1002
JP Gollan, judgment debtor in person
Judgment: 23 February 2012 at 1:40 PM
(ORAL) JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application for adjudication order]
Solicitors: Inland Revenue Department, PO Box 432, Hamilton 3240
Osborne Attewell Clews, PO Box 641, Whakatane 3120
And To: JP Gollan, 30 Brookfield Street, Hamilton
COMMISSIONER OF INLAND REVENUE V JP GOLLAN AS TRUSTEE IN THE GOLLAN FAMILY TRUST HC HAM CIV 2011-419-84 23 February 2012
[1] The judgment creditor applies for an order adjudicating James Patrick Gollan a bankrupt.
[2] The judgment creditor obtained judgment against Mr Gollan at the District Court at Hamilton on 20 April 2010 for $122,541.73 inclusive of costs and disbursements.
[3] The judgment creditor requested a bankruptcy notice be issued. A bankruptcy notice was issued and was served pursuant to an order for substituted service. Mr Gollan did not comply with the bankruptcy notice. That resulted in an act of bankruptcy occurring.
[4] The judgment creditor filed this application for an adjudication order. The application and summons was served pursuant to an order for substituted service. It required an appearance on 7 November 2011.
[5] On 4 November 2011, Mr Gollan filed a notice of opposition and an affidavit. In his notice of opposition he advised an intention to dispute the creditor’s act of bankruptcy on the grounds that he was no longer a trustee in the Gollan Family Trust. His affidavit in support advised that he resigned as a trustee on
26 September 2011.
[6] Mr Gollan appeared at the first call of the adjudication application on
7 November 2011. My minute recorded the position as follows:
Adjourned to 10am on 5 December to allow the debtor to consider his position as he had only recently been served. If time is available the court will hear argument on the merits at the end of the list on 5 December 2011.
[7] At the hearing on 5 December 2011 I heard submissions and recorded the position on the file as follows:
Mr Gollan is in discussion with the trustees about payment of the debt. He is also making arrangements from his own resources to pay the debt. Because of this indication from him I adjourn this proceeding to 10am on 20 February
2012. If payment to the CIR is not made by that date it is likely that an order of adjudication will be made.
[8] Mr Gollan filed further documents with the court on 20 February 2012. They are, in summary, the following:
b) Notice of opposition to creditor’s application for adjudication;
[9] The judgment creditor has presented, through counsel, a certificate confirming that the debt that was the subject of the original judgment and is the basis for the bankruptcy notice and the application for adjudication order, has not been paid. Mr Gollan does not dispute the liability.
[10] I will refer later in this judgment to the affidavit in support of the application for relief under s 73 of the Trustee Act 1956.
[11] In the document entitled Notice of application for relief pursuant to s 73 of the Trustee Act 1956 Mr Gollan notifies his intention
to dispute the applicant creditors the act of bankruptcy – by seeking relief from the obligation imposed on the person for the GST debt incurred by the Gollan Family Trust.
[12] In the document entitled Notice of opposition to creditor’s application for adjudication Mr Gollan records that he
intend to make an application to the High Court for the court to apply its discretion to relieve me of the personal obligation in respect of the tax obligations incurred by the Gollan Family Trust.
[13] The jurisdictional requirements which must be met before an order of adjudication is made are contained in the Insolvency Act 2006, ss 13 and 36. Section 13 provides:
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 or, if 2 or more creditors join in the application, the debtor owes a total of $1,000 or more to those creditors between them; 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.
Section 36 provides:
36. Court may adjudicate debtor bankrupt
The Court may, at its discretion, adjudicate the debtor bankrupt if the creditor has established the requirements set out in section 13.
[14] As matters currently stand, the jurisdictional requirements are met in this case. I must, however, consider the Insolvency Act 2006, s 37 which provides:
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.
[15] The documents filed by Mr Gollan, I take to be an invitation to the court to refuse to adjudicate him based on the grounds set out in s 37(c) and/or (d) of the Insolvency Act 2006.
[16] In Eide v Colonial Mutual Life Assurance Society Ltd[1] the general principles involved in the exercise of the discretion under the then Insolvency Act 1967, s 26
(now the Insolvency Act 2006, s 37) were analysed. The important matters were as follows:
1) ―A creditor who establishes the jurisdictional facts set out in s 23 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.‖ McHardy v Wilkins & Davies Marinas Ltd (Court of Appeal, Wellington, CA 54/93, 7 April 1993) at p 3.
2) ―. . . in the exercise of the discretion under s 26 it is proper for the Court to consider not only the interests of those directly concerned – the petitioner, other creditors, the debtor – but also the wider public interest.‖ McHardy v Wilkins & Davies Marinas Ltd (supra) at p 3.
3) In determining whether an order should be made, the wider public interest must be taken into account to determine whether adjudication is ―conducive or detrimental to commercial morality and the interests of the general public.‖ Re Nisbett, ex parte Vala [1934] GLR 553 at p 556.
4) ―. . . on a bankruptcy petition the Court must have regard to public interest in a way which transcends the interest of the immediate parties to the proceeding. . . . The public interest in exposing and controlling an insolvent debtor is one which exists quite independently of the separate question of debt collection by his immediate creditors.‖ Re Fidow [1989] 2 NZLR 431 at p 444.
5) Absence of assets is a factor but:
―. . . even the undoubted absence of assets will not necessarily preclude an order, for the circumstances may be such that the debtor ought in the public interest to be visited with the disqualifications that go with bankruptcy.‖ McHardy v Wilkins & Davies Marinas Ltd (supra) at p 3.
6) Another matter:
―. . . is the potential for further investigation. A bankruptcy makes available to creditors an array of procedures for investigating the financial circumstances of the debtor. Those procedures are likely to prove more effective than an investigation conducted by other means.‖ Re Fidow (supra) at p 444.
7) There is a need:
―. . . for the Court to balance the various considerations relevant to the case, and to determine whether in the end the debtor has succeeded in showing that an order ought not to be made‖. McHardy v Wilkins & Davies Marinas Ltd (supra) at p 4.
[17] To the above summary I add that the oppressive use of the bankruptcy process may be a ground for refusing an order: Baker v Westpac Banking Corporation.[2]
[18] In his affidavit, Mr Gollan describes the chain of events which led to the GST tax liability, which is the reason for the judgment and the bankruptcy notice, being incurred. He expanded on the position orally to me. The full picture requires much greater analysis than has been provided. However, I am satisfied that what has been provided is sufficient to determine whether there is a proper foundation for the exercise of the discretion under s 37 of the Insolvency Act 2006.
[19] Mr Gollan advises me that he is once again a trustee of the Gollan Family Trust. It is important that I record this position because the affidavit material placed before me proceeds on the basis that he resigned his trusteeship on 26 September
2011.
[20] I now set out the background facts which led to the transaction on which the GST liability arose. In 2006 Mr Gollan and his family interests decided to purchase a large dry-stock farm in northern Wairarapa. The purchase price was $2,750,000. The intention was that the purchase would be made in the name of the Gollan Family Trust. Mr Gollan, with members of his family, had inherited a farm in Ötorohanga. Mr Gollan proceeded on the basis that his share of the farm was worth approximately $450,000. That is described in the papers as his inheritance. It has not yet been realised. The farm is apparently on the market for sale. The source of funds from the sale, however, was one of the sources of funds that was relied upon as security for a bridging loan which was required for the balance of the purchase of the Wairarapa farm. Another source of funds was hoped to be the proceeds of sale of a property at Brookfield Street, Hamilton. That property, however, is not registered in the name of Mr Gollan or any member of his family. Nevertheless, he claims that he is entitled ultimately to a beneficial interest in the property and it is, for that reason that he claims he was entitled to rely on sale proceeds from that
property to assist in the purchase of the Wairarapa farm.
[21] At the same time as the purchase of the Wairarapa farm was under consideration, Mr Gollan became aware of a property at 75 Martyn Street, Waiuku. His initial investigations indicated that the property was suitable for subdivision and that there was the possibility of considerable profit being made from that exercise. Accordingly, he or his trust, purchased the property. Unfortunately, the subdivision could not proceed. The full reasons for this are not set out in the papers. The result was that the property was sold to the financier who had advanced funds to him. That sale generated the GST liability which is the subject of the judgment upon which these bankruptcy proceedings are based.
[22] It is important that I record that Mr Gollan acknowledges that there can be no dispute about the GST liability as such. Mr Gollan, however, submitted that his actions could not be classified as reckless or negligent because what he had anticipated was that he could proceed with the purchase of the Wairarapa property and thus obtain a GST input credit which would more than offset the liability in respect of the sale of the Martyn Street property. Unfortunately, because of the problems related to financing the purchase of the Wairarapa farm, it could not settle. Precisely what the end result of the failure of that transaction is, again, is not set out in detail in the affidavit.
[23] On an examination of the material that has been put before me, it is apparent that there is little or no prospect of the court successfully making orders in terms of s 73 of the Trustee Act 1956. Indeed, Mr Gollan recognised that the true inquiry that the court has to make in this case is whether the facts justify the exercise of the discretion under s 37 of the Insolvency Act 2006.
[24] In regard to this aspect of this case he belatedly invited me to take into consideration the possibility of his receiving funds via a contract which he says he has entered into with Star Bay Ltd to supply logs to New Zealand Forest Enterprises Ltd and Southpac Forestry for export logs to China.
[25] Mr Gollan presented me with a letter signed by the director of Star Bay Ltd. The letter records that the contract provides for an initial advance payment of not less than $320,000 and a further advance payment of $480,000 exclusive of GST.
Mr Gollan invited me to stand the matter down until 23 February 2012 to see if, in fact, evidence of the likely receipt of the funding by his solicitors was available. Because of the short time involved, I stood the matter down. The money was not available. Contract documents were produced. I have some doubts as to the validity of the documents but have decided, at least in the short term, that that need not be decisive of the matter.
[26] But for one matter, I am satisfied that this is an appropriate case not to exercise my discretion to decline to make an order of adjudication. My reasons are as follows:
a) The judgment which is the basis for the bankruptcy notice, the act of bankruptcy and the adjudication application has not been directly challenged. In fact, Mr Gollan does not seek to challenge it. On the material placed before me, I cannot see that there is any basis for challenging it. Understandably, there is no application to set aside the judgment on which these proceedings is based;
b) Mr Gollan is now, again, the trustee of the trust which is liable for the GST. He has at all times been directly involved in the transactions that created the GST liability. The fact that matters have not turned out the way he intended them to turn out cannot, in the circumstances of this case, found a proper basis for exercising the discretion against adjudication;
c) As trustee, Mr Gollan is entitled to be indemnified by the trust.[3] I have not been provided with any particular reasons as to why the trust has not sought the funds to meet its obligations for GST. I suspect that the current trust assets are such that it would take some time to realise those assets if, in fact, an attempt to satisfy the GST liability
was made;
d) Mr Gollan quite properly faced up to the position when he advised me on 5 December 2011 that he was trying to raise funds to pay the debt. At this hearing he confirmed again that he acknowledged a liability to see the debt paid and was anxious to see it happen;
e) In this case there has been an incomplete disclosure of all the background facts. What is apparent, however, is that there is much trading of assets that makes this case an appropriate one for supervision by the Official Assignee. In short, Mr Gollan’s situation does require the Official Assignee to utilise the procedures for investigating this debtor’s financial circumstances so that, if possible, some, or complete, recovery of his indebtedness can be obtained;
f) There have already been prior adjournments of this proceeding.
Mr Gollan’s position as trustee has, of his own admission to me, changed in that period. He indicated to me that there were proceedings on foot. All of these matters suggest to me that supervision of his estate is clearly required;
g) If I were to make an order of adjudication today, I do not overlook the fact that, if Mr Gollan is successful in locating funds to pay his creditors, it is always open to him to make an application for an annulment of an adjudication in bankruptcy pursuant to s 309(1)(b) of the Insolvency Act 2006.
[27] I mentioned that but for one matter they were the reasons why I considered the case was appropriate for adjudication. Mr Gollan today gives the court an oral undertaking to pay from the $320,000 which he says is due to be paid to him on Friday, or as he receives it, the sum of $164,475.15 to the Commissioner of Inland Revenue and the sum of $16,542.82 to Mr O’Neill’s instructing solicitor in respect of CIV 2011-419-1002.
[28] No specific prejudice by one further adjournment is identified by either counsel for the Commissioner of Inland Revenue or Mr O’Neill who is counsel in
the related matter. Both Mr Walmsley and Mr O’Neill are, quite properly, concerned about additional costs. Mr Gollan has undertaken orally to the court his liability in respect of those additional costs and that they will be paid from the
$320,000 that I have mentioned.
Conclusion
[29] For the reasons set out I conclude this oral judgment by advising that I adjourn this proceeding to the bankruptcy list at 10am on 19 March 2012 so that Mr Gollan can make the payments that he has undertaken to make. If those payments are not made then, for the reasons set out in this judgment, an order of adjudication, in all probability, will be made on 19 March 2012.
Costs
[30] Costs in relation to this hearing are reserved and will be considered on
19 March 2012.
JA Faire
Associate Judge
[1] Eide v Colonial Mutual Life Assurance Society Ltd [1998] 3 NZLR 632 (HC) at 635.
[2] Baker v Westpac Banking Corporation CA212/92, 13 July 1993 at 4-5.
[3] Hardoon v Belilios [1901] AC 118 (PC) at 123.
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