Tyler v Official Assignee [2012] NZHC 3230 (4 December 2012)

Last Updated: 10 January 2013

IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY

CIV-2012-454-515 [2012] NZHC 3230

UNDER the Insolvency Act 2006

IN THE MATTER OF an application for order of discharge from bankruptcy

BETWEEN WAYNE FRANCIS TYLER Applicant

AND THE OFFICIAL ASSIGNEE Respondent

Hearing: 30 November 2012

(Heard at Palmerston North)

Counsel: P. Drummond - Counsel for Applicant/Bankrupt

D. Flinn - Counsel for Official Assignee

Judgment: 4 December 2012

_{JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL}

Under r 11.5 of the High Court Rules I direct the Registrar to deliver this judgment at 11.30 am on 4 December 2012.

Solicitors: Brittens, Solicitors, PO Box 548, Palmerston North

Ben Vanderkolk & Associates, Lawyers, PO Box 31, Palmerston North

WF TYLER V THE OFFICIAL ASSIGNEE HC PMN CIV-2012-454-515 [4 December 2012]

Introduction

[1] On 12 October 2010 Wayne Francis Tyler (“the bankrupt”) was declared bankrupt.

[2] The amount of indebtedness at the time was said to be something in excess of

$81,000.00. The outstanding creditors of the bankrupt appeared to be South Canterbury Finance Limited (in liquidation) to whom approximately $81,060.00 was owed, and probably also the Commissioner of Inland Revenue who was owed something less than $500.00. As I understand it the bankrupt had little if any assets.

[3] On 23 July 2012 the bankrupt filed an application for early discharge from bankruptcy. This application was brought in reliance on s 294 Insolvency Act 2006 and the decision in ASB Bank v Hodge [1993] 3 NZLR 156.

[4] A report of the Official Assignee pursuant to s 296 Insolvency Act 2006 was filed in this Court on 31 August 2012.

[5] And, the Official Assignee filed a Notice of Opposition to the application on

15 October 2012.

[6] According to Mr Drummond counsel for the bankrupt, notice of the present application has been served upon the bankrupt’s creditors but no creditor has taken any steps with respect to the application. Certainly there has been no objection by any creditors to the bankrupt’s application for early discharge here. Nor has there been any appearance before me on behalf of any creditors.

The Legal Position

[7] As noted, the present application is made pursuant to section 294(1) of the

Insolvency Act 2006 which provides:

(1) The bankrupt may at any time apply to the Court for an order of discharge from bankruptcy.

[8] Section 296 of the Insolvency Act 2006 goes on to provide:

296 Assignee’s Report

(1) The Assignee must prepare a report and file it in the court when- (a) the bankrupt has applied under s 294 for a discharge; or (b) the Assignee has summoned the bankrupt to be examined

under s 295.

(2) The Assignee must report as to –

(a) the bankrupt’s affairs; and

(b) the causes of the bankruptcy; and

(c) the bankrupt’s performance of his or her duties under this

Act; and

(d) the manner in which the bankrupt has obeyed orders of the court; and

(e) the bankrupt’s conduct before and after adjudication; and

(f) any other matter that would assist the court in making a

decision as to the bankrupt’s discharge.

[9] And, s 298 Insolvency Act 2006 deals with remedies open to the Court including granting or refusing a discharge from bankruptcy. It provides:

298 Court may grant or refuse discharge

(1) When the Court hears an application under section 294 for discharge, or conducts the examination of the bankrupt under section 295, the Court may, having regard to all the circumstances of the case,—

(a) immediately discharge the bankrupt; or

(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.

(2) If the Court discharges the bankrupt on the condition that the bankrupt consents to any judgment, and the bankrupt does consent, the Court may vary the judgment as it thinks appropriate.

[10] The exercise of the discretion conferred upon this Court has been considered by the Court of Appeal in the decision of ASB Bank v Hogg[1].

[11] In that case the Court considered the earlier divergence of approaches to the exercise of the discretion in the High Court. The relevant part of that Court of Appeal judgment is set out at 157-158:

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. In providing for automatic discharge after three years, the legislation recognises that it is not in the public interest that the bankruptcy should endure indefinitely. In providing for earlier discharge, s 108 recognises that continuing the bankruptcy to the end of the three years may not be in the public interest. Whether or not it is will be a matter for decision on the particular facts. In that regard, guidance is provided by s 109(2) which lists matters on which the assignee is to report to the High Court in such a case. 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 as to 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, but it is neither required nor entitled to impose threshold requirements in the exercise of the discretion so as to derogate from the breadth of the powers conferred under s 110. 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.

[12] The decision of ASB Bank v Hogg was applied by this Court in Robb v The

Official Assignee, High Court, Palmerston North, 31/3/2008, CIV-2005-454-402.

[13] The grounds advanced by the Official Assignee in opposition to the present application were stated in their Notice of Opposition filed 15 October 2012 as follows:

(a) There is no unusual or compelling circumstance warranting an early discharge;

(b) The applicant is able to apply under s 149 of the Insolvency Act 2006 for consent of the Official Assignee to be self-employed; and

_{(c) An early discharge would be adverse to the public interest.}

[14] Notwithstanding those stated grounds of opposition, before me Mr Flinn counsel for the Official Assignee accepted that the established criteria to be applied here are as set out in the Court of Appeal decision in ASB Bank v Hogg. Whereas previous authorities referred to the need for there to be unusual or compelling circumstances to warrant an early discharge from bankruptcy, that position has been modified by the Court of Appeal in ASB Bank v Hogg.

[15] The present position accepted by the Official Assignee is that although the onus here is upon the applicant bankrupt, the test required is simply to show good cause for ordering an early discharge.

[16] With this in mind I turn to consider the application before me.

The Present Application

[17] The Official Assignee’s 28 August 2012 report to this Court confirms that the bankrupt has only one major creditor, South Canterbury Finance Limited (in liquidation) which is owed $81,060.00 and a second possible minor creditor being The Commissioner of Inland Revenue who is owed an amount of something less than $500.00. The only assets of the bankrupt appear to be his interest in a joint bank account with a credit of $80.00 and certain shares in Central Auto Court (2000) Limited (in liquidation) a company with no value.

[18] The Official Assignee’s report also refers to an investigation into a contracting out agreement the bankrupt and his wife entered into on 28 March 2007. Pursuant to this agreement, the bankrupt’s interest in the former family home was transferred to his wife with that home being regarded as her separate property. In consideration of this, the bankrupt’s wife agreed to forego her interest in Central Auto Court (2000) Limited the company which operated the bankrupt’s then motor vehicle importing and dealer business. The shares in that company were to be regarded as the bankrupt’s separate property.

[19] The Official Assignee states in her report that she expended substantial time and effort investigating whether this contracting out agreement might be set-aside on

the basis that it involved an unequal exchange in values or that it was otherwise an insolvent disposition. In doing so, the Official Assignee concluded on balance that it did not involve an unequal exchange in values and that there was no evidence that it was an insolvent disposition. Further, the Official Assignee’s investigations did not reveal any assets other than those noted at [17] above and accordingly no assets have been realised in the bankruptcy. The Official Assignee’s report also states that no creditors have filed proofs of debt in the bankruptcy.

[20] And significantly, the Official Assignee’s report confirms that the bankrupt has been co-operative throughout.

[21] The reason for the present application for an early discharge is that the bankrupt has indicated he has a business opportunity which he is unable to pursue while being an undischarged bankrupt. This business opportunity it seems is for the bankrupt and a friend of his, a Mr Graham Wilson, to commence a new business together effectively in partnership. This business would primarily involve motor vehicle detailing – the valeting, cleaning and presentation for sale of various vehicles for outside sellers. On this aspect, the Official Assignee states in her report that it would be open to the bankrupt to apply under s 149 Insolvency Act 2006 for the consent of the Official Assignee to be self-employed to undertake the business opportunity which he envisages, and thus there is no need for the present application.

[22] On this, Mr Drummond for the bankrupt suggested that s 149 does not provide an adequate remedy here. He noted that clearly any parties wishing to deal with the bankrupt such as potential landlords, bankers or customers, or those who might provide finance or credit for the new business would be deterred if he remained an undischarged bankrupt.

[23] In my view there is something in this contention advanced by Mr Drummond. Although the new business opportunity envisaged by the bankrupt differs from his previous business of vehicle importation and sales, I am satisfied that the new vehicle detailing business would necessarily involve Mr Wilson as a partner and other members of the business community and the public, all of whom may

understandably be reluctant to deal with, or enter into contracts with the bankrupt if he remains undischarged.

[24] As to the causes of the bankrupt’s bankruptcy here, as I have noted above, he was at the time in the business of importing used motor vehicles from Japan and retailing the same here in New Zealand. His only creditor at the time of his bankruptcy was South Canterbury Finance Limited (in liquidation) the floor plan financier for the business. That creditor sought recovery of the approximately

$80,000.00 debt from the bankrupt as guarantor of the floor plan finance shortfall after sale of the secured vehicles. In one sense it is to the credit of the bankrupt that this was his only outstanding creditor of any significance at the time. Also, there is no suggestion that the bankrupt has behaved in an improper manner prior to or subsequent to his bankruptcy.

[25] The bankrupt here has served over two years of his bankruptcy. During this time the Official Assignee confirms there is nothing unfavourable to report. Certainly, as noted above, the Official Assignee confirms he has been co-operative throughout.

[26] Notwithstanding this, a major plank of opposition to the present application advanced by the Official Assignee relates to what she says might be the precedent effect if an early discharge is granted. The Official Assignee throughout has been keen to point out that such early discharges must not be granted lightly. There can be no argument as to this requirement. Also, the Official Assignee contends here that indeed the bankrupt’s reason for seeking an early discharge (being to pursue a business opportunity) will be a very common reason which could well be advanced by all bankrupts in similar situations.

[27] The Official Assignee also points to the magnitude of the deficiency here with no contribution having been made by the bankrupt towards his creditors since bankruptcy. As such, the Official Assignee suggests that it might be said in this case that the bankrupt is indifferent to the losses caused by his bankruptcy and this should be taken into account when the risks involved in his re-entering into similar or related businesses are considered.

[28] A further possibility exists, according to the Official Assignee, that if bankruptcy continues here after acquired property might arise of a value that might reduce the debts of creditors and that this should be taken into account here.

[29] And, the Official Assignee suggests that the public interest would not be served here in a general sense if the bankrupt’s request for early discharge from bankruptcy was to be granted.

[30] Finally, the Official Assignee notes that it has incurred costs and disbursements of $8,392.87 in administering the bankrupt’s estate since the date of bankruptcy and this amount remains outstanding. If an order for an early discharge from bankruptcy is to be made, the Official Assignee contends that its costs and disbursements which were properly incurred should be first met.

[31] As to this last aspect, Mr Drumond for the bankrupt argued that these costs and disbursements can only be seen as exorbitant under all the circumstances here and they should not have been incurred at that level. He contended that in this case there were only five documents the Official Assignee needed to consider, namely the contracting out agreement, the valuation obtained for the bankrupt’s previous dwelling, the quotable value valuation for the dwelling at the time, the company share valuation undertaken by an accountant and the company accounts filed with the Inland Revenue Department for the financial year in which the valuation was obtained. Mr Drummond suggested that all the Official Assignee was required to do was to consider these documents and ascertain whether the valuation of the house equity and the share valuation for the business were undertaken properly and were more or less of equal value. He maintained this was a simple exercise and should not have resulted in anywhere near the level of costs and disbursements which the Official Assignee now claims.

[32] In my view, however, this takes a rather simplistic approach to the present matter.

[33] What is clear to me is that the bankrupt chose to enter into a reasonably detailed contracting out agreement with his wife some two and a half years before

being adjudicated bankrupt and it was important for this to be properly investigated by the Official Assignee. Further, and generally, a detailed consideration of the assets and liabilities said by the bankrupt to exist at the date of his bankruptcy and his earning potential since needed to be undertaken by the Official Assignee in properly completing her duties here.

[34] I see nothing in all the material before the Court in this case to suggest that the Official Assignee’s costs and disbursements specified at $8,392.87 are in any way unreasonable.

[35] Turning now to the application which is before me, weighing up all matters which are before the Court but only by a reasonably fine margin, I find that this application should succeed. Although the bankrupt has only some 10 months to wait until in the normal course of events he would be discharged from bankruptcy on the expiry of the usual three year period, here an earlier business opportunity has arisen. This is in the nature of a partnership with a friend which understandably would be unlikely to be available if he remains an undischarged bankrupt. And I am of the view that the provisions of s 149 Insolvency Act 2006 would not meet the particular circumstances of this case.

[36] To have the bankrupt (who I understand is generally seen as having a “clean” and co-operative record) once again engaged in a business, albeit different from his previously unsuccessful car sales venture but generally related to his skills in the vehicle industry, could not be seen as undesirable for a range of reasons including the possible provision of employment, revenue gathering through taxation imposition on profits, and the like.

[37] Having said this, I am mindful that this decision should not in any way create a precedent for other undischarged bankrupts who simply seek early discharge for reasons specified as the availability of “business opportunities”. This decision is given purely in the specific circumstances of the case before me.

[38] In making the order which is to follow to allow the bankrupt an early discharge from bankruptcy, however, I see no reason why (as occurred in Robb v The

Official Assignee) this should not be conditional upon payment of the Official Assignee’s costs and disbursements in administering the bankrupt’s estate noted above. The Official Assignee has statutory and other requirements and obligations to meet once the bankrupt’s affairs are placed into her hands and I am satisfied there is nothing before the Court in this case to suggest that the costs and disbursements sought were in any way improperly incurred.

[39] The order which is to follow is to lie in Court until such time as the costs and disbursements are either paid or some payment arrangement is entered into with the Official Assignee whereby a consent is provided to the release of the order.

[40] I acknowledge that this may create some difficulty for the bankrupt given that he presumably has no assets available at present to meet these costs and disbursements. Some assistance from his spouse/partner (if any), his family or business associates might well assist in this regard however.

[41] Finally, I have considered whether the interests of the bankrupt’s creditors and/or the general public should be protected in this case by providing, as a condition for the order I am about to make, for payment to be made to the Official Assignee of any surplus derived by the bankrupt from his intended business during the 10 month balance of his 3 year bankruptcy term– as I understood happened in ASB Bank v Hogg. In the circumstances of this case however I have decided against the imposition of such an additional condition. The business opportunity in question will take some time to develop in the normal course of things and the likely surplus (if any) from this business as I see it would be at best small and might well in any event require substantial administration involvement on the part of the Official Assignee.

Conclusion

[42] For all the reasons outlined above, but only by a reasonably slim margin as I

have noted, I find that the application before me is to succeed.

[43] An order is now made therefore discharging the applicant bankrupt, Wayne

Francis Tyler, from bankruptcy.

[44] This order however is to lie in Court until the bankrupt either pays in full the Official Assignee’s costs and disbursements totalling $8,392.87 or reaches some other arrangement to the satisfaction of the Official Assignee, in which event the Official Assignee is to provide to this Court a written consent to the sealing and release of this order.

[45] As to costs on the present early discharge application, in my view, these should lie where they fall. There is to be no order as to costs made on this application.

[46] In so far as it may be relevant, this judgment is released today, 4 December

2012 at 11.30 am, although the order noted at [43] above is to lie in Court until the conditions specified in [44] above are met.

‘Associate Judge D.I. Gendall’

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[1] ASB Bank v Hogg [1993] 3NZLR 156.