Official Assignee at Hamilton v Scott [2013] NZHC 2904 (5 November 2013)

Last Updated: 10 December 2013

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

CIV-2012-470-815
CIV-2012-470-816 [2013] NZHC 2904

BETWEEN THE OFFICIAL ASSIGNEE AT HAMILTON

Applicant

AND LEWTYN MICHAEL SCOTT First Respondent

WOOD WALTON TRUSTEES (2010) LIMITED

Second Respondent

ALH TRUSTEE CO LIMITED Third Respondent

WOOD WALTON TRUSTEES (2011) LIMITED

Fourth Respondent

ASB BANK LIMITED Fifth Respondent

Hearing: 29 October and 4 November 2013

Appearances: S N Cameron for Applicant

Mr Scott in person

No appearance for second, third, fourth and fifth respondents

Judgment: 5 November 2013

JUDGMENT OF LANG J

[on originating applications for orders under

_{ss 206 and 207 of the Insolvency Act 2007]}

This judgment was delivered by me on 5 November 2013 at 4.30 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

_{Date...............}

THE OFFICIAL ASSIGNEE AT HAMILTON v LEWTYN MICHAEL SCOTT [2013] NZHC 2904 [5

November 2013]

[1] Mr Lewtyn Scott was adjudicated bankrupt on 22 July 2011.¹ In these proceedings the Official Assignee seeks orders under ss 206 and 207 of the Insolvency Act 2006 (“the Insolvency Act”) cancelling several transactions that he alleges prejudiced Mr Scott’s creditors. The Official Assignee seeks ancillary orders retransferring the property that is the subject of those transactions into his name.

[2] The property in question is as follows:²

(i) A residential property situated at 5A Pillans Road, Tauranga (“the

Pillans road property”);

(ii) An undivided one-eighth share in a section of bare land situated on

Ohakana Island (“the Ohakana property”);

(iii) A boat and trailer, the trailer having a registration number 47LCK; (iv) A Massey Ferguson tractor 174-4;

(v) A gift in the sum of $27,000 made by Mr Scott to the Scott Family

Trust on 27 July 2010.

[3] The Official Assignee contends that the transactions described in [2](i) to (iv)

are dispositions of property to which Subpart 6 of Part 6 of the Property Law Act

2007 (“the Property Law Act”) applies. That subpart permits the Court to set aside a disposition of property made by a person who is insolvent in circumstances where that person intends the disposition to prejudice his or her creditors.

[4] The Official Assignee contends that the gift described in [2](v) was an insolvent gift in terms of s 204 of the Insolvency Act.

¹ _{Simpson v Scott HC Tauranga CIV-2010-470-0690, 22 July 2013.}

² The Official Assignee originally also sought orders in respect of a Nissan Navara motor vehicle that Mr Scott had in his possession at the time of his adjudication. The Official Assignee abandoned this aspect of his applications during the hearing because he accepted that Mr Scott sold this vehicle to a third party in September 2012.

The hearing

[5] The hearing of the substantive applications was originally scheduled to take place on 29 October 2013. On that date, however, Mr Scott raised several preliminary issues. I determined these issues in a written ruling that I delivered on

30 October 2013.³ I then adjourned the hearing of the substantive applications until

4 November 2013.

[6] When the hearing resumed on 4 November 2013, Mr Scott raised further preliminary issues. I indicated that, to the extent that I had not dealt with these issues in my earlier ruling, I would deal with them in this judgment. I directed, however, that the hearing of the substantive applications was to proceed.

[7] At that point, Mr Scott sought a further adjournment so that he could instruct counsel to appear on his behalf. He said that the proceedings raise complex issues, and that he required the assistance of counsel. I did not accept that submission. The issues that the proceedings raise are relatively straightforward. There can be no dispute that the transactions in question occurred. The only issues that the Court is required to determine relate to Mr Scott’s solvency and intention when he entered into them.

[8] Mr Scott has represented himself in numerous hearings in this Court. He has done so in these and other proceedings. As my preliminary ruling in this case and judgments given in other related cases demonstrate, Mr Scott has a detailed knowledge of Court procedure.⁴ He is able to understand complex legal concepts, and has no difficulty in presenting forthright argument on factual and legal issues. Mr Scott is also completely familiar with the factual background to the present proceedings. I therefore considered that he was well qualified to cross-examine the

Official Assignee’s witnesses, and to present submissions in opposition to the

Official Assignee’s applications.

[9] I also took the view that Mr Scott has already had ample opportunity to instruct counsel. A previous fixture scheduled for 17 July 2013 was vacated in order

³ _{Official Assignee v Scott [2013] NZHC 2903.}

⁴ See eg Official Assignee v Scott HC Hamilton CIV 2011 470 842 3 November 2011.

to enable Mr Scott to obtain legal aid and instruct counsel. Despite that fact he is still not represented.

[10] In addition, the Pillans Road property is due to be the subject of a mortgagee sale on 14 November 2013. It is important that this proceeding be resolved before that date.

[11] For these reasons I considered it was in the interests of justice for the hearing to proceed notwithstanding the fact that Mr Scott was unrepresented. I was not prepared to delay matters further in order to give Mr Scott another opportunity to obtain the services of counsel.

[12] After I indicated that I proposed to proceed with the hearing, Mr Scott advised me that he would not be participating further. He then withdrew. As a result, the hearing proceeded on a formal proof basis. The Official Assignee’s witnesses confirmed the contents of their affidavits, and answered further questions from me.

[13] Before dealing with the matters in issue, it is appropriate to record my conclusions regarding the preliminary points raised by Mr Scott at the beginning of the hearing.

Preliminary matters

The application for review relating to Mr Gowing

[14] In my ruling dated 30 October 2013, I dismissed Mr Scott’s application for review of Associate Judge Doogue’s decision granting Mr Gowing leave to withdraw as counsel for Mr Scott. When the present hearing commenced, Mr Scott made further submissions in relation to this issue. These were directed to the issue of whether the Associate Judge ought to have granted Mr Gowing leave to withdraw as his solicitor rather than as his counsel.

[15] Mr Scott pointed out that r 5.41 of the High Court Rules requires any such application to be accompanied by an affidavit. He also pointed out that Mr Gowing

had not filed an application to withdraw as his solicitor, or an affidavit in support. For those reasons, he submitted that the Associate Judge was wrong to grant Mr Gowing leave to withdraw as his solicitor.

[16] I accept that the High Court Rules contemplate that a solicitor who wishes to cease acting as solicitor on the record will normally file an application to that effect accompanied by a supporting affidavit. Rule 5.41 is cast in permissive and not mandatory terms, however, because it provides that the solicitor “may” file an application. It does not say that the solicitor “shall” or “must” take that step.

[17] For the reasons set out in my earlier ruling, I do not consider it would be appropriate to set the Associate Judge’s decision aside. Mr Gowing clearly believed his relationship with Mr Scott had broken down irretrievably. In those circumstances the Associate Judge was entitled to conclude that Mr Gowing should be granted leave to withdraw as both counsel and solicitor on the record. Mr Scott has provided his address for service on documents he has filed during the last four months. There would therefore be no utility in requiring Mr Gowing to remain as solicitor on the record. For these reasons and those given in my earlier ruling, I now dismiss the application for review to the extent that it relates to Mr Gowing’s status as Mr Scott’s solicitor.

Use of affidavits filed in the freezing order proceeding

[18] As I recorded in my pre-trial ruling,⁵ the originating applications in the present proceedings rely upon affidavits that the Official Assignee filed in an earlier proceeding in which the Official Assignee successfully sought freezing orders in respect of the assets that are now the subject of these proceedings (“the freezing order proceeding”).⁶ Mr Scott argued that the Official Assignee was not entitled to rely upon these affidavits because he had never filed them in the present proceedings.

[19] It is arguable that the Official Assignee did not need to file the affidavits in the present proceedings. The fact that he relied upon them in the originating

⁵ _{Scott v Official Assignee, above n 3 at [8].}

⁶ Official Assignee v Scott HC Tauranga [2012] NZHC 2579.

applications would have permitted the Court to direct that they form part of the evidence in the present proceeding. It is not necessary to decide that issue, however, because the Court file discloses that counsel for the Official Assignee sent copies of the affidavits to the Court and requested that they be filed in these proceedings. Due to an administrative oversight, however, Registry staff filed the affidavits in the freezing order proceeding.

[20] No prejudice to Mr Scott could possibly arise as a result of this error. He was aware from the originating applications that the Official Assignee proposed to rely upon the affidavits filed in the freezing order proceeding. He was also served with copies of the affidavits on 10 October 2012 when he was served with the originating applications. There is therefore nothing in this point.

Use of improperly obtained documents

[21] Mr Scott submitted that the Official Assignee’s affidavits were littered with references to documents that had been improperly obtained. He pointed out that the Official Assignee had clearly obtained documents relating to the Scott Family Trust well before he initiated the freezing order proceeding. Mr Scott submitted that the Official Assignee had no right to gain access to these documents, and that the affidavits should be struck out and the present proceedings dismissed as a consequence.

[22] When she gave evidence, however, Mrs Marie King of the Official Assignee’s office said that after Mr Scott’s adjudication the Official Assignee had sent out a standard letter to all banks asking whether they held banking records in the name of, or on behalf of, Mr Scott. The response from ASB Bank Ltd alerted the Official Assignee to the fact that Mr Scott maintained bank accounts in both his own name and that of the Scott Family Trust. The Official Assignee also learned that Mr Scott’s salary ceased to be paid into his own account as from June 2011. Thereafter, his salary was paid into the bank account operated in the name of the Scott Family Trust. For that reason the Official Assignee considered it was likely that Mr Scott was using the Trust’s bank account as a conduit for his personal income and

expenditure. This prompted the Official Assignee to obtain copies of the bank accounts in the name of both Mr Scott personally and that of the Scott Family Trust.

[23] I consider that the explanation given by the Official Assignee is sufficient to justify the exercise of the Official Assignee’s powers under s 171 of the Insolvency Act to obtain bank records relating to both Mr Scott personally and the Scott Family Trust. That step was necessary in order to ascertain whether Mr Scott was diverting income that might ordinarily fall into his estate to the Family Trust.

[24] It is not necessary in any event to have regard to bank records in the name of the Scott Family Trust in order to determine the present applications. They can be determined on the other evidence the Official Assignee has adduced.

Factual background to present proceedings

[25] Mr Scott purchased the Pillans Road property in his own name in March

2010. He purchased the property with the assistance of a loan from ASB Bank. The loan was secured by way of first mortgage over the property.

[26] On 21 July 2010, Mr Scott entered into an agreement for the sale of the property for the sum of $665,000. The purchasers were himself and the second respondent as trustees of the Scott Family Trust (“the trustees”). The purchase of the property was conditional on the trustees entering into a deed of acknowledgement of debt with Mr Scott by which they acknowledged that they were indebted to him in the sum of $133,000. The agreement was further conditional upon the trustees arranging for mortgage finance from the ASB Bank in the sum of $532,000. Both contractual conditions were satisfied quickly, because the property was transferred into the name of the trustees on 22 July 2010.

[27] On 21 July 2010, Mr Scott also entered into a deed of acknowledgement of debt with the trustees under which they acknowledged they were indebted to him in the sum of $133,000. Six days later, on 27 July 2010, Mr Scott entered into a deed of forgiveness of debt under which he agreed to forgive the sum of $27,000 of the amount owing by the trustees following their purchase of the property. This reduced the debt owing by the trustees to the sum of $106,000.

[28] Mr Scott and his sister Lee McNeilly acquired an undivided interest as to a one half share in the Ohakana property from the estate of their late father in 1996. On 28 February 2006, Mr Scott and his sister transferred their share in the property to Mr Scott, Ms McNeilly, Ms Alison Scott and Ms Cara Ann Scott. Each of those persons acquired a one-eighth share in the property.

[29] On 22 July 2010, Mr Scott transferred his interest in the Ohakana property to himself and the second respondent as trustees of the Scott Family Trust. On the previous day, 21 July 2010, the trustees had entered into a deed of acknowledgement of debt with Mr Scott. In that document the trustees acknowledged that they were indebted to Mr Scott in the sum of $77,500, being the amount required to enable the trustees to complete the purchase of Mr Scott’s interest in the Ohakana section.

[30] As noted above, Mr Scott was adjudicated bankrupt on 22 July 2011. Approximately three weeks later, on 10 August 2011, Mr Scott created a new trust called the Ohakana Trust. The third and fourth respondents are the trustees of this trust.

[31] On 10 August 2011, the trustees of the Scott Family Trust executed a Deed of Resettlement under which they resettled some of the assets of the Scott Family Trust on the Ohakana Trust. These included the interest held by the Scott Family Trust in the Ohakana property.

[32] By this stage, the Scott Family Trust was also the owner of a boat and trailer and Massey Ferguson tractor that had previously been owned by Mr Scott. This is evidenced by the fact that those assets appear in the deed of resettlement of trust as forming part of the assets that were resettled on the Ohakana Trust.

The statutory regime

[33] Section 206 of the Insolvency Act prescribes the procedure to be used when the Official Assignee seeks to cancel an insolvent or irregular transaction, or an

_{insolvent gift.}⁷ _{It also prescribes the procedure to be used when the Official}

⁷ Insolvency Act 2006, s 206(1)(a) to (c).

Assignee seeks to cancel a disposition of property to which Subpart 6 of Part 6 of the

Property Law Act applies.⁸

[34] In each case the Official Assignee must first file a notice with the Court in the prescribed form.⁹ He must then serve that notice on the other party to the transaction, as well as any other party from whom the Official Assignee intends to recover property that is the subject of the impugned transaction.¹⁰ That transaction will automatically be cancelled if the recipient or recipients of the notice do not provide the Official Assignee with written notice of objection within 20 working days after service of the Official Assignee’s notice.¹¹ Any transaction that is not automatically cancelled may still be cancelled by the Court on application by the Official Assignee.¹²

[35] Where such a transaction is cancelled, s 207 of the Insolvency Act permits the Court to make an order for the retransfer to the Official Assignee of the property in question.¹³ Alternatively, the Court may direct any person to pay the Official

Assignee such sum as the Court thinks appropriate.¹⁴ The Court may also make any

other order for the purpose of giving effect to an order for retransfer or payment.¹⁵

[36] In the present case, the Official Assignee gave notice to Mr Scott on 28 May

2012 of his intention to cancel the transactions relating to the transfer of the assets to the Scott Family Trust and the Ohakana Trust. Mr Scott objected in writing to that notice on 18 June 2012. As a consequence, the Official Assignee filed the present proceedings.

A The transfer of assets to the Scott Family Trust

[37] As noted above, the Official Assignee contends that the gift of $27,000 was an insolvent gift in terms of s 204 of the Insolvency Act. He contends that each of

⁸ _{Ibid, s 206(1)(d).}

⁹ _{Ibid, s 206(2)(a).}

¹⁰ _{Ibid, s 206(2)(b).}

¹¹ _{Ibid, s 206(4).}

¹² _{Ibid, s 206(6).}

¹³ _{Ibid, s 207(1)(a).}

¹⁴ _{Ibid, s 207(1)(b).}

¹⁵ Ibid, s 207(2).

the other transactions was a disposition of property to which Subpart 6 of Part 6 of the Property Law Act applies. Section 344 of the Property Law Act describes the purpose of Sub-Part 6 as follows:

344 Purpose of this subpart

The purpose of this subpart is to enable a court to order that property acquired or received under or through certain prejudicial dispositions made by a debtor (or its value) be restored for the benefit of creditors (but without the order having effect so as to increase the value of securities held by creditors over the debtor's property).

[38] Section 345(1) of the Property Law then relevantly applies:

345 Interpretation

(1) For the purposes of this subpart,—

(a) a disposition of property prejudices a creditor if it hinders, delays, or defeats the creditor in the exercise of any right of recourse of the creditor in respect of the property; and

...

(d) a debtor must be treated as insolvent if the debtor is unable to pay all his, her, or its debts, as they fall due, from assets other than the property disposed of.

[39] Section 345(2) of the Property Law Act provides a very wide definition for the term “disposition” as that term is used in s 345(1)(a). It includes any conveyance, transfer or other alienation of property, whether at law or in equity.¹⁶

[40] Section 346 of the Property Law Act defines the scope of transactions to which the subpart applies as follows:

346 Dispositions to which this subpart applies

(1) This subpart applies only to dispositions of property made after 31

December 2007—

(a) by a debtor to whom subsection (2) applies; and

(b) with intent to prejudice a creditor, or by way of gift, or without receiving reasonably equivalent value in exchange.

_{(2) This subsection applies only to a debtor who—}

¹⁶ Property Law Act 2007, s 345(2)(a).

(a) was insolvent at the time, or became insolvent as a result, of making the disposition; or

(b) was engaged, or was about to engage, in a business or transaction for which the remaining assets of the debtor were, given the nature of the business or transaction, unreasonably small; or

(c) intended to incur, or believed, or reasonably should have believed, that the debtor would incur, debts beyond the debtor's ability to pay.

[41] There can be no dispute that each transfer of assets by Mr Scott to the Scott Family Trust amounted to a disposition of property for the purposes of s 345(1)(a) of the Property Law Act. As a result, the following issues need to be determined.

(a) Was Mr Scott insolvent at the time he made the dispositions?

(b) In making the dispositions, did Mr Scott intend to prejudice his creditors?

(c) Should recovery be limited?

Was Mr Scott insolvent when he transferred the assets to the Scott Family Trust?

[42] The Official Assignee has determined that Mr Scott owed the following assets and liabilities as at 21 July 2010:

Assets

_{Pillans Road property $665,000.00}¹⁷

One-eighth share in Ohakana property $ 77,500.00¹⁸

Nissan Navara motor vehicle $ 39,500.00

Funds on deposit with ANZ Bank $ 399.00

_{Value of tractor $ 4,850.00}

Liabilities

_{Amount owed to ASB Bank Ltd $465,615.00}

$787,249.00

¹⁷ Using the value ascribed to it by Mr Scott when he transferred the property to the Scott Family

_Trust.

¹⁸ Using the value ascribed to the section when Mr Scott sold it to the Scott Family Trust.

Amount owed to D M Simpson $ 43,582.00

Amount owing by way of Court costs

awarded in favour of the Scott Family $258,363.00

Amount owed to Norris Ward McKinnon $ 8,583.00

Amount owing to Sharp Tudhope $ 9,046.00

Amount owing to Holland Beckett $ 27,877.00

Amount owing to ASB Bank Ltd $ 2,728.00

_$822,166.00

NET DEFICIT $ 34,917.00

[43] Mr Scott’s indebtedness comprised debts owing to solicitors who had acted for him in respect of litigation relating to his late father’s estate, together with the balance of a large award of costs that this Court made against Mr Scott in that litigation. The Court ordered Mr Scott to pay costs to his family of more than

$400,000 in that proceeding.¹⁹

[44] Mr Scott had incurred all of the debts to his solicitors during 2008 and 2009. The judgment requiring Mr Scott to pay costs to his family was delivered on 25

March 2010, and those costs were payable immediately. All of Mr Scott’s debts had

therefore fallen due for payment well before July 2010,

[45] Mr Scott was also clearly unable as at 21 July 2010 to pay his debts as they fell due from assets other than those that he transferred to the Scott Family Trust. He had no other assets that he could use to satisfy his debts. For that reason he must be treated as insolvent as at that date for the purposes of s 346(2)(a) and s 345(1)(a) of the Property Law Act.

Did Mr Scott make the dispositions with intent to prejudice his creditors?

[46] The leading authority in this context is the judgment of the Supreme Court in Regal Castings Ltd v Lightbody.²⁰ That case concerned the predecessor to s 346(1), s 60(1) of the Property Law Act 1952. Section 60(1) permitted a transaction to be set aside if a debtor entered into it with intent to defraud his or her creditors. In this

_{context, Blanchard and Wilson JJ said:}

¹⁹ _{Scott v Scott HC Tauranga CIV-2004-470-094 and CIV-2004-470-957 25 March 2010.}

²⁰ Regal Castings Ltd v Lightbody [2008] NZSC 87; [2009] 2 NZLR 433.

[52] The expression “intent to defraud” in s 60(1) of the Property Law Act was not happily chosen. But it has been regarded as shorthand for intent to hinder, delay or defeat a creditor in the exercise of any right of recourse of the creditor in respect of property of the debtor. That is how the concept is now expressed in s 345(1)(a) of the Property Law Act 2007. The existence of any such dishonest intent on the part of the debtor is a question of fact and the onus of proving it is upon the party attacking the transaction.

...

[54] Whenever the circumstances are such that the debtor must have known that in alienating property, and thereby hindering, delaying or defeating creditors’ recourse to that property, he or she was exposing them to a significantly enhanced risk of not recovering the amounts owing to them, then the debtor must be taken to have intended this consequence, even if it was not actually the debtor’s wish to cause them loss. We respectfully agree with the opinion of Gaudron J in Cannane v J Cannane Pty Ltd (In Liq) that an intent to defraud:

involves the notion of detrimentally affecting or risking the property of others, their rights or interests in property, or an opportunity or advantage which the law accords them with respect to property.

[55] The most simple case is one in which an insolvent debtor has gifted a substantial asset to a relative or friend or to trustees of a family trust, thereby subtracting from an already insufficient quantum of assets. There may be room for argument over whether in that circumstance there is or is not a presumption, perhaps irrebuttable, of an intent to defraud. It would be a rare case in which a difference of view on that question would affect the outcome. The consequence for the creditors is so obvious that it is really beyond argument that the debtor must be taken to have intended it. Someone who claims that he or she gave no thought to the position of creditors when making a gift in circumstances of insolvency is unlikely to be believed. There has always been found to be the requisite dishonest intent where the debtor was insolvent and gifted away his or her property.

[47] In the present case, several factors are relevant. First, Mr Scott knew when he entered into the transactions that he owed more than $350,000 to his creditors. The most significant of these debts was the debt of approximately $258,000 that he owed to his family as a result of costs awarded against him in the litigation relating to his father’s estate.

[48] Secondly, the transactions enabled Mr Scott to dispose of his only substantial assets. He had no means of paying his debts other than by selling or resorting in some other way to those assets.

[49] Thirdly, no cash changed hands in any of the transactions. Instead, Mr Scott received only the benefit of the acknowledgements of debt from the trustees in

relation to the Pillans Road and Ohakana properties. He then immediately reduced this asset by gifting the trustees the sum of $27,000. He received nothing as a result of transferring the remaining assets to the Scott Family Trust.

[50] Fourthly, Mr Scott has continued to use the Pillans Road property as his residence since the date upon which he transferred it to the Scott Family Trust. He has therefore retained the direct benefit of the most significant asset that he formerly owned. He is also a discretionary beneficiary of both the Scott Family Trust and the Ohakana Trust.

[51] Fifthly, the transactions occurred in circumstances where Mr Scott knew that the Court could require his assets to be applied in satisfaction of his debts. Shortly before the Pillans Road and Ohakana properties were transferred to the Scott Family trust on 22 July 2010, Mr Scott was due to receive the sum of $170,000 from his father’s estate. This Court directed, however, that this sum was to be applied in reduction of the costs awarded in favour of his family in March 2010. It can reasonably be presumed that Mr Scott decided to transfer his remaining assets to the Scott Family Trust in order to ensure that they did not suffer a similar fate.

[52] Sixthly, although Mr Scott has filed two affidavits in opposition to the Official Assignee’s applications, he has not provided any explanation as to why he decided to transfer the assets to the Scott Family Trust. His silence on this point is telling.

[53] When all of these factors are taken into account, I am satisfied that Mr Scott transferred his assets to the Scott Family Trust in order to place them beyond the reach of his creditors. He therefore intended to prejudice his creditors in terms of s

346(1)(b) of the Property Law Act.

Should recovery be limited?

[54] Section 208 of the Insolvency Act limits the extent to which the Official Assignee may recover assets using the procedure prescribed by the Act. It provides as follows:

208 Limits on recovery

The Court must not make an order under section 207 against a person (A) if

A proves that when A received the property or interest in the property—

(a) A acted in good faith; and

(b) a reasonable person in A's position would not have suspected, and A

did not have reasonable grounds for suspecting, that,—

(i) in the case of an insolvent gift, the bankrupt was, or would become, unable to pay his or her debts without the aid of the property that the gift is composed of; or

(ii) in the case of any other irregular transaction referred to in section 206(1), the bankrupt was, or would become, unable to pay his or her due debts; and

(c) A gave value for the property or interest in the property or altered A's position in the reasonably held belief that the transfer of the property or interest in the property to A was valid and would not be cancelled.

[55] In the present case the trustees of the Scott Family Trust have not provided any evidence that they acted in good faith when they acquired the assets formerly owned by Mr Scott, and they have not sought to address any of the other matters referred to in s 208. For that reason they cannot satisfy the onus placed upon them by s 208.

[56] It follows that the Official Assignee is entitled to an order cancelling the transfers of all of the assets to the Scott Family Trust.

B The transfer of assets to the Ohakana Trust

[57] The resettlement of assets on the Ohakana Trust occurred on or about 10

August 2011. By that stage Mr Scott had been bankrupt for more than a month. He was present when the order of adjudication was made, so he was clearly aware that he was bankrupt.

[58] Neither Mr Scott nor the Scott Family Trust received any benefit from the transaction. The only available inference is that Mr Scott intended to place his assets even further beyond the reach of his creditors. It follows that Mr Scott intended this transaction to prejudice his creditors. As a result, the Official Assignee is also

entitled to an order that this transaction be cancelled, and the assets retransferred to the Official Assignee.

C The gift of $27,000

[59] Section 204 of the Insolvency Act provides that a gift by a bankrupt to another person may be cancelled on the Official Assignee’s initiative if the bankrupt made the gift within two years immediately before his or her adjudication. Given that Mr Scott made the gift of $27,000 to the Scott Family Trust on 27 July 2010, it occurred approximately 12 months prior to the date of his adjudication.

[60] The Insolvency Act does not contain a definition of the term “insolvent gift”.

In Official Assignee v Russell Bay Lodge, however, this Court held:²¹

[33] The Act does not contain a definition of gift for this purpose. “Gift” was defined under s 54(6) of the Insolvency Act 1967 as any disposition made otherwise than in good faith and for valuable consideration. The learned authors of Heath and Whale on Insolvency have commented on that omission, and have expressed the view that all that the Act requires is that the transaction has the effect to bring about a diminution in the value of the donor’s assets, or to otherwise reduce the value of the assets that would be available to the Assignee. They add that it would then be for the done[e] to raise any available defence under s 208 of the Act. The views of the learned authors have been accepted in this Court.

[61] The gift in the present case formed an integral part of the scheme by which Mr Scott intended to transfer his assets to the Scott Family Trust and thereby put them out of reach of his creditors. It directly reduced the amount owing to his creditors by the sum of $27,000, because it reduced the debt that the Scott Family Trust owed to Mr Scott after the transfer of the two properties on 22 July 2010. That debt remains an asset that is available to Mr Scott’s creditors, so the gift reduced the value of assets available to his creditors. I therefore consider that it amounted to a voidable gift in terms of s 204 of the Insolvency Act.

[62] The Official Assignee is therefore entitled to an order that the gift be cancelled.

²¹ Official Assignee v Russell Bay Lodge [2013] NZHC 1940.

Conclusion

[63] All of the transactions are cancelled, and I make orders that the assets are to be retransferred to the Official Assignee. I invite counsel for the Official Assignee to

_{file a draft order for sealing as soon as possible.}

Lang J

Solicitors:

Almao Douch, Hamilton

Copy to:

LM Scott