Westpac New Zealand Limited v Toilolo [2014] NZHC 1623 (7 July 2014)

Last Updated: 29 July 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-0381 [2014] NZHC 1623

IN THE MATTER	of the Insolvency Act 2006
IN THE MATTER	of the bankruptcy of Timothy Toilolo
BETWEEN	WESTPAC NEW ZEALAND LIMITED Judgment Creditor
AND	TIMOTHY TOILOLO Judgment Debtor

Hearing:	7 July 2014
Appearances:	Mr M Pascariu for Judgment Creditor Mr t Toilolo in person
Judgment:	7 July 2014

_{ORAL JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE}

WESTPAC NEW ZEALAND LIMITED v TOILOLO [2014] NZHC 1623 [7 July 2014]

[1] The judgment creditor seeks an order adjudicating Mr Toilolo a bankrupt. The application is based upon a bankruptcy notice dated 24 February 2014 which in turn was based upon a judgment of the High Court dated 14 February 2013 in which the Court entered judgment against Mr Toilolo in the sum of $186,000 approximately. The bankruptcy notice was served on Mr Toilolo but was not complied with and that led to the issue of the creditor’s application dated 4 April

2014 which recited the act of bankruptcy arising from the non-compliance with the bankruptcy notice.

[1] Mr Toilolo has filed a notice of intention to oppose adjudication together with an affidavit in support thereof. There are two main grounds upon which he opposes the making of an order which are stated in the following way in the notice of intention to oppose:

1. I intend to dispute the applicant/creditor’s debt on the following grounds:

2. It is not in the interests of creditors.

3. I would suffer undue disadvantage.

[2] The notice then sets out particulars (as they are described) of the principal grounds of opposition and I shall be making reference to these subsequently in the judgment.

[3] The position which Westpac takes is that the debts now owed by Mr Toilolo to Westpac and other creditors disclosed in the affidavit that Mr Toilolo has filed, is a total of $420,624.84. This appears to be arithmetically correct given the extent of the other creditors deposed to by Mr Toilolo in his affidavit.

[4] The adjudication application is the latest chapter in a lengthy history of dealings between Westpac and Mr Toilolo. Those transactions were summarised in a judgment of the High Court on 21 June 2013 which was given by Lang J.

[5] The subject matter of the proceedings before the Judge on that occasion was an application by Mr Toilolo for the issue of an injunction restraining Westpac from

exercising the power of sale under the mortgage granted over a residential property owned by Mr Toilolo.

[6] In the course of his judgment the Judge made reference to the fact that Mr Toilolo, who was a chartered accountant who operated a business over which he had given security to Westpac. He recorded that Westpac had called up the company’s overdraft after a period of trading of some years. He referred to the fact that Mr Toilolo advanced as a ground for seeking an injunction the possible re- opening of the transactions between himself and the bank with Mr Toilolo alleging that the bank had behaved oppressively towards him. Against that background the Judge considered the history of dealings between the two sides in some detail noting that Mr Toilolo had been a customer of Westpac since 2003. He stated that between

that year and 2013 there had been numerous loan arrangements and that: ¹

...as Mr Toilolo clearly acknowledges, that since 2009 he has not been a

model customer.

[7] The Judge noted that since 2009 the bank had issued three separate Property Law Act 2007 (“PLA”) notices because Mr Toilolo and/or his company had fell into arrears with payments. Also noted was the fact that the original company through which Mr Toilolo carried on his accountancy business had been placed in liquidation.

[8] The Judge said that perusal of the correspondence showed that Westpac had spent “an inordinate amount of time and effort” in dealing with Mr Toilolo’s accounts and that it was not surprising that the bank now sought to bring matters to a conclusion.² The Judge also made reference to a loan to another financier, Avanti Finance Limited (“Avanti”), which Mr Toilolo had taken out which was secured by a second mortgage over the property which Westpac had its mortgage security. Mr Toilolo apparently told Avanti according to the judgment that he owed Westpac approximately $209,000 as at 12 April 2011 when at that time he in fact owed

_$400,000.

¹ _{Toilolo v Wespac New Zealand Ltd [2013] NZHC 1517 at [28].}

² At [29].

[9] As part of the history of dealings between the parties the Judge noted that Westpac had given Mr Toilolo the opportunity to sell his property himself but he had not done so and also that in August 2012, the bank’s solicitors had advised Mr Toilolo’s solicitor that the bank would withdraw the then current PLA notice and desist from a mortgagee sale provided that the customer paid the outstanding arrears. The Judge noted that Mr Toilolo failed to take up this opportunity as well.

[10] Prior to the mortgagee sale which the injunction proceedings were concerned with, Mr Toilolo made offers to settle. He essentially took the view that his financial position was going to improve. He considered that his accountancy practice was worth $110,000, that the practice was profitable and that he expected to receive money from the settlement of a defamation claim. Notwithstanding these optimistic assumptions, Lang J found that at the date of judgment Mr Toilolo’s position had not improved to any great extent and that Mr Toilolo still owed the bank the sum of

$415,000 which Westpac was attempting to recover in whole or part by selling the property. The Judge said of the bank: ³

It cannot be criticised, in my view, for attempting to minimise the extent of his loss.

[11] In the end the Judge concluded that Mr Toilolo was not able to establish to an arguable standard that there was a serious issue to be tried in relation to his claim of oppression.

[12] The mortgagee sale went ahead and notwithstanding completion of that step, the amount which the bank claimed to recover in the bankruptcy notice was still outstanding and owing to the bank.

[13] The judgment debtor does not dispute the entitlement of the bank to apply for an order for adjudication in the sense that there is no argument that an act of bankruptcy had occurred.

[14] Mr Pescariu reviewed the legal principles that are to be observed when considering an opposed application for adjudication. He noted that once the formal

³ At [36].

requirements for adjudication have been satisfied, as is the case here, the petitioning creditor is prima facie entitled to an order for adjudication.⁴ It has to be noted, though, that a creditor who has established the jurisdictional facts is not entitled automatically to an order but it is a requirement that the opposing debtor show why an order should not be made.⁵

[15] Section 37 of the Insolvency Act 2006 provides as follows:

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.

[16] The basis upon which the discretion whether or not to adjudicate has been considered in a number of cases that have come before the Courts and I respectfully refer to and intend to be guided by Eide v Colonial Mutual Life Assurance Society Ltd which stated the position as follows: ⁶

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 & Ors (CA 54/93, p 3, 7 April 1993, Hardie Boys J).

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 & Ors (supra) p 3.}

⁴ Kroon v Westpac Banking Corporation HC Auckland CIV-2006-404-4720, 24 April 2007 at

_[73].

⁵ Re Fontein, ex parte Bank of New Zealand HC Auckland CIV-2009-404-7769, 22 November

_{2010 at [8].}

⁶ Eide v Colonial Mutual Life Assurance Society Ltd [1998] 3 NZLR 632 at 635 per Master Faire.

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, 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 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 disqualification's that go with bankruptcy” McHardy v Wilkins & Davies Marinas Ltd & Ors (supra), 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) 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 & Ors (supra) page 4.”

[17] These comments were made in relation to the now repealed s 26 of the

Insolvency Act 1967 but the principles are still applicable to the 2006 Act.

[18] The grounds which Mr Toilolo sets out in his opposition and in the affidavit in support are essentially the basis upon which he contests the propriety of making an order for adjudication and I will turn to them shortly. Before I do, however, it is necessary to mention, the ground stated at s 37(b) of the Insolvency Act for declining an adjudication order, namely, that:

(b) The debtor is able to pay his or her debts.

[19] It is quite clear that the judgment debtor in this case is in no position to pay his debts. This is evidenced by a document which was submitted as an exhibit without opposition from counsel for the bank which was a proposal that was made on Mr Toilolo’s behalf by his lawyer on 3 July 2014. The key part of the written proposal is to be found in the following paragraphs:

Tim instructs he dearly wants to pay off every cent he owes and once he finishes his legal training in September he believes his new found qualifications will rapidly increase his income allowing the increase in repayments.

In the circumstances my client offers your client a payment of $800 per month for first six months, with the first payment forthwith, and then $1,200 per month for next 12 months and $1,500 per month for the next 10 years in full settlement of the debt.

[20] That proposal makes it clear that there is no ability to repay the debts within a reasonable time⁷ and therefore it is plain that s 37(b) does not provide any ground upon which the Court may refuse adjudication.

[21] It will be noted that the letter refers to the fact that Mr Toilolo is undertaking legal training and it is to that matter I turn next.

[22] Mr Toilolo advised me that he completed the requirements for his law degree from the University of Auckland in February of 2014. He appears to have undertaken those studies at the same time as he has been carrying on his accountancy business. He says that he is currently engaged in a 19 week course which he hopes will result in him being able to obtain the necessary professional qualifications to

_{entitle him to be admitted to the bar.}

⁷ Holdgate v Blocassa Ltd [2007] NZCA 132 at [19].

[23] Mr Toilolo states in the particulars in his notice of intention to oppose adjudication:

Disadvantage that I will not be able to obtain a lawyer practicing certificate, currently undertaking professional training to fulfil the professional requirements in order for debtor to be admitted to the bar at High Court.

Disadvantage to creditors and taxpayers in that with the completion of my law degree my employment prospects and attaining potential clients will improve considerably and a flow on effect would provide good opportunity to pay back all my creditors for a short period of time including the applicant. It would be more beneficial for everyone concerned (i.e creditors including my debt to student loan) if the application by the applicant to set aside.

Disadvantage that I will not be able to borrow a student loan to complete my legal training and will not be able to obtain a student allowance for this purpose.

[24] This reference to Mr Toilolo completing his studies and obtaining qualification as a lawyer is relevant to two arguments that he makes.

[25] The first is that the Court in exercising its undoubted jurisdiction to decline to make an order for adjudication ought to have regard to the harm which will be done to Mr Toilolo if he is adjudicated bankrupt because that would mean that he would be hindered in his prospects of obtaining admission as a barrister and solicitor. I shall deal with this issue next.

[26] Mr Pescariu referred me to the Lawyers and Conveyancers Act 2006 which sets out the requirements for admission to the bar. He specifically drew my attention to s 55(1) of that Act which points out that in determining whether or not a person is a fit and proper person to be admitted as a barrister and solicitor of the High Court, the High Court or the New Zealand Law Society “may take into account any matters its considers relevant” and in particular may take account of the following:

(a) Whether the person is of good character;

(b) Whether the person has, at any time, been declared bankrupt or been a director of a company that has been put into receivership or liquidation;

[27] Mr Pescariu also referred me to the second part of s 55(1)(b) which contains the reference to the person having been a director of a company that has been put

into liquidation. He drew my attention to the evidence which shows that the company which was the vehicle through which Mr Toilolo carried on business as an accountant had in fact been placed into liquidation. Mr Pescariu referred me to the decision of Faire J, then Master Faire under the earlier Law Practitioners Act 1982 to the effect that an order for adjudication does not necessarily bar the issue of a practicing certificate. In that case his Honour was therefore not satisfied that the issue was decisive in favour of the exercise of the discretion not to make an order for

adjudication.⁸ The point that Mr Pescariu made was that adjudication in bankruptcy

does not automatically terminate the prospects of a candidate for admission. It is a matter of discretion. He did accept however that an order of adjudication could potentially defeat the judgment debtor’s application to be admitted to the bar. I accept that the Court can properly take into account the fact that the making of an adjudication order would potentially defeat Mr Toilolo’s application to be admitted to the bar.

[28] The second aspect of the legal qualification argument relates to Mr Toilolo’s further submission based upon the disadvantageous consequences that would follow the creditors and taxpayers if he was not permitted to obtain admission to the bar. It is implicit in this argument that Mr Toilolo considers that that disadvantage would arise from the fact that if he were not to be admitted to the bar, he would not earn the increased income which would otherwise be available to pay off his creditors. Mr Toilolo considered that this was a further ground why the Court should decline pursuant to s 37 of the Insolvency Act to make an order of adjudication.

[29] In my view that argument is entitled to little or no weight when it comes to exercising the discretion that is vested in the Court. Any advantages that might flow from Mr Toilolo being admitted to the bar are intangible, are matters that are uncertain in their effect and unlikely to take effect for a good many years. The fact that Mr Toilolo might be admitted to the bar does not mean that the door thereby opens to a remunerative career which would enable him to fund his living costs but

_{also to pay down his debts within a reasonable time.}

⁸ Re Crowe, ex parte Westpac Banking Corporation HC Hamilton B127/00, 9 November 2000.

I consider that it is of considerably greater weight when considering the exercise of the discretion in this case to have regard to the picture that is painted by the evidence of Mr Toilolo’s overall reliability and dependability in financial matters. Where there is evidence of large scale financial mismanagement by the debtor, as here, it is relevant as stated in Eide to have regard to the public interest in exposing and

controlling an insolvent debtor.⁹ In the context of this case Mr Toilolo argues that it

would be preferable for him to be allowed to continue without adjudication earning income because by that method he would be able to repay his creditors. Conversely he claims the balance of disadvantage is against adjudicating him because all that would be achieved by adjudicating him would be to rule out repayment from future income.

[30] I consider that in this case having regard to Mr Toilolo’s financial history of dealings with the bank but also with Avanti, there is a need for his financial affairs to be brought under control and for the public to be made aware that he represents a financial risk to the community.

[31] So far as the question of Mr Toilolo’s reliability is concerned, Mr Pescariu also referred me to the fact that there had been further evidence of less than satisfactory performance by Mr Toilolo in regards to the purchase by him of the business formally carried on by his original company which is now in liquidation, a business which he sought to purchase from the liquidators. The liquidators in their fourth six monthly report made reference to the fact that Mr Toilolo had defaulted on the payment arrangements he entered into with the liquidators for the purchase of the business.

[32] This is a further ground upon which, unfortunately, I am driven to the conclusion that Mr Toilolo cannot be relied upon in financial matters. While he expresses a wish to pay off his creditors, in the end I consider that based upon his performance, little faith can be placed in those assurances. The overall factual background points to the need to exercise the discretion to adjudicate him bankrupt

_{to bring to an end the risk that he poses to the commercial and wider community.}

⁹ Eide, above n 6, at 635.

[33] I next deal with a further ground that Mr Toilolo had included in his notice of intention to oppose which he stated in his notice of defence as follows:

Disadvantage to reputation – the debtor holds the family High Chief title name of my family and extended family in Samoa and would have a negative cultural impact due to status within the Samoan and Pacific Island community, both in New Zealand, Samoa and around the world.

[34] Mr Pescariu submitted that this ground was unsupportable on the basis that there was no evidence of the factual matters that underlay the ground of defence.

[35] I am prepared to accept Mr Toilolo’s word about his status in the Samoan community. I also accept that making of an order for adjudication would negatively impact his standing or mana. I further regard it as being self-evident that his adjudication in bankruptcy would be viewed as a major fall from grace which does not reflect well on the family. On the other hand, it could be said that those who occupy positions of prominence in the community must accept that their conduct will potentially be subject to close scrutiny. It is difficult to see that there is any benefit to the communities they represent to have concealed from them the prolonged and significant financial shortcomings of someone such as the judgment debtor who occupies a position of social prominence.

[36] Standing back and taking a wider view of matters I can now set out my conclusions. I have no doubt that Mr Toilolo is a hardworking man. He has taken commendable steps to better himself. But I consider that there is a persuasive case to be made for adjudicating him bankrupt for the protection of the commercial and wider community. I consider that while an order of adjudication could potentially derail his application for admission to the bar, if that point is reached, it is not necessarily a fatal objection to being admitted. I would have thought that the Law Society and the Court would be more concerned with any evidence of a change of underlying attitude and an honest admission of failure on the part of the debtor together with an acknowledgement that his conduct has not been good enough. Such matters are likely, I would have thought, to weigh heavily in any assessment that ultimately has to be made of whether Mr Toilolo is a suitable character for admission as a barrister and solicitor.

[37] In short, I am not convinced that any difficulties that might be caused to Mr Toilolo under the Lawyers and Conveyancers Act arising from the making of an order for adjudication are sufficient to outweigh the clear public interest in his being adjudicated bankrupt and I accordingly make an order adjudicating him bankrupt with that order timed at 12.40 pm on 7 July 2014.

[38] The parties are to make submissions on the question of costs within 10 working days of the date of this judgment.

J.P. Doogue

Associate Judge