Ross v Ross [2014] NZHC 2582 (21 October 2014)

	Home \| Databases \| WorldLII \| Search \| Feedback High Court of New Zealand Decisions

IN THE MATTER OF:	The Insolvency Act 2006
IN THE MATTER OF:	The bankruptcy of Bryan Keith Ross
BETWEEN	TEDDI ALISON ROSS Judgment Creditor
AND	BRYAN KEITH ROSS Judgment Debtor

Hearing:	16 October 2014 (by telephone conference)
Counsel: Reasons for Judgment:	J L Foster for Judgment Creditor G E Slevin for Official Assignee 21 October 2014
_Judgment:	_{20 October 2014}

[1] Bryan Keith Ross was adjudicated bankrupt on 29 September 2011. The due date for his automatic discharge from bankruptcy is 21 October 2014.

[2] On 1 October 2014, the judgment creditor (Ms Ross) made a without notice application under s 292 of the Insolvency Act 2006 (the Act) for permission to object to the automatic discharge.

(1) The Assignee or, with the permission of the court, a creditor may object to the bankrupt's automatic discharge.

[4] On 13 October 2014 I directed that the application be served on the Official

16 October 2014, and Ms Foster for Ms Ross made oral submissions in support of the application at that conference. Mr Slevin made submissions on behalf of the Official Assignee.

[5] Mr Slevin advised that the Official Assignee has no objection to Mr Ross’ automatic discharge. The Official Assignee has found Mr Ross to be cooperative and compliant throughout the term of his bankruptcy, and she has no questions to ask of him at the public examination which would be required if leave were granted to Ms Ross to object to the discharge. The Official Assignee does not regard Mr Ross as posing any particular risk to the commercial community, and she has no concerns about his conduct before or during his bankruptcy.

[6] At the date of Mr Ross’ adjudication he held very few assets. However he is a skilled IT professional, and the Official Assignee consented to his employment in that capacity by a family-owned company, TRC Partners Ltd (TRC). Mr Ross had been a director of TRC, and was employed by TRC at a salary of approximately

$120,000 per annum shortly before his adjudication. With the consent of the Official Assignee, he has continued to work for TRC during his bankruptcy, and has been making contributions towards his debts.

[7] Initially the Official Assignee assessed his contributions at $1,083.33 per month. On 29 February 2012 Mr Ross’ contributions were increased to $1,841.67 per month. He has been making contributions at that level since that date.

[8] As at 14 October 2014, the total held by the Official Assignee in her trust account in respect of Mr Ross’ debts was $65,791.58. Allowing for the Official Assignee’s costs ($25,518.50 to date, plus estimated additional costs of $2,000), the Official Assignee estimates that total available funds at the end of the bankruptcy will be $38,273.08. Of that sum, Ms Ross as the original applicant for adjudication will be entitled to costs of $3,373.82, leaving a total of $34,899.26 available for distribution to unsecured creditors.

[9] Ms Ross’ debt presently stands at $185,997.14, including costs. The debt goes back to an order for maintenance made against Mr Ross in the Supreme Court of New York on 16 December 2003. Ms Ross subsequently obtained summary judgment for the amount of the New York judgment in this country. Ms Ross says that Mr Ross did not defend the claim in the New York court, although he had been served with the claim in September of 2003. However he opposed Ms Ross’ claim for summary judgment in New Zealand, and mounted an unsuccessful appeal to the Court of Appeal against the judgment. He then opposed her application to have him adjudicated bankrupt, and put forward a proposal to his creditors. In a judgment given on 29 September 2011, Associate Judge Gendall declined to approve the proposal and adjudicated Mr Ross bankrupt.

[10] In her application for permission to object to the discharge, Ms Ross says that she “considers that Bryan Ross has made inadequate contribution towards his debts as income derived from his work has been diverted to two family trusts which has in turn paid much of his living expenses”. In those circumstances, she says that the interests of justice require that she be given leave to object to his discharge from bankruptcy, so that the Court can determine whether or not Mr Ross should be discharged and if so on what (if any) conditions. In her application, she expressly accepts that Mr Ross and the Official Assignee agreed to the amount to be contributed by Mr Ross. Her contention is that the Official Assignee was wrong to accept the level of contributions that she did.

[11] The gravamen of Ms Ross’ complaint appears to be that Mr Ross has been enjoying substantially the same lifestyle during his bankruptcy as he did before. She alleges (without any detail) that TRC has held valuable contracts for the provision of IT services with one or more government departments during the term of Mr Ross’ bankruptcy, and that the sums paid by the government department or departments for these services (the amounts are unknown by her) have been deliberately diverted by Mr Ross, through TRC, to two family trusts established by Mr Ross and his present wife. Ms Ross says that Mr Ross is a beneficiary of both trusts.

[12] Ms Ross says that the shares in TRC are substantially held by the two family trusts. The trusts have also been the registered proprietors of the two separate family

homes which Mr Ross and his present wife have occupied during the term of his bankruptcy. Ms Ross says that income derived by TRC has been paid by way of dividend payments to the two family trusts, and the trustees have used the dividends to pay the mortgage on the family home, plus certain other family expenses (including private school fees for Mr Ross’ children). Ms Ross says that it is unfair that she and other creditors have gone unpaid while Mr Ross has (apparently) continued to enjoy substantially the same lifestyle during his bankruptcy as he did before.

[13] The principal difficulty with Ms Ross’ position is that she has been aware throughout of the contributions which the Official Assignee agreed with Mr Ross, but has failed to take steps which were available to her under the Act to challenge the Official Assignee’s decisions. As a creditor, she was entitled under s 226 of the Act to apply to the Court to reverse or modify the Official Assignee’s decisions. Any such application should have been made within 15 working days of the decision, but there is provision in the section for the Court to allow further time. Alternatively, Ms Ross could have applied to the Court under s 147 of the Act to vary Mr Ross’

[14] No application under ss 226 or 147 has been made. Instead, Ms Ross has waited until the eleventh hour, three weeks before the due date for Mr Ross’ automatic discharge, to file the present application.

Ms Ross’ counsel and the Official Assignee, from as early as November 2011. On

$1,083.33 per month in contributions. The Official Assignee drew s 147 of the Act

to Ms Ross’ attention in an email to her counsel dated as early as 18 January 2012.

[16] By email to the Official Assignee dated 16 January 2012, Ms Ross’ counsel stated: “...Mr Ross’ right to continue to work for [TRC] is dependent on the Official Assignee’s consent. Unless Mr Ross is prepared to contribute more towards

_{payment of his creditors than the $1,083.33 he is currently contributing
this consent}

should be withdrawn. This should not require a Court application but could be a matter of simple negotiation with Mr Ross. If he is not prepared to make a substantial contribution to his creditors the Official Assignee should not consent to his (sic) continue to work for [TRC] and benefit from not only the salary paid to him (sic) by the dividends paid to the Family Trusts.”

[17] On 27 February 2012, the Official Assignee advised Ms Ross that she had reviewed and moderated Mr Ross’ budget, and that he had been assessed to make contributions at the higher level of $1,841.67, commencing on 29 February 2012. The Official Assignee noted that a moderated budget had been used to find a realistic amount which would cover the maintenance of Mr Ross and his family. Mr Ross was said to be “not happy” with the assessment, although in the event he continued to pay the amount assessed. In the Official Assignee’s email of 27 February 2012, Ms Ross was expressly advised of her right of appeal under s 226 of the Act.

[18] Ms Ross appears to have accepted the position at that time. The next correspondence which was produced was in late February 2013, when Ms Ross’ counsel asked for an update on the bankruptcy. By email dated 27 February 2013, the Official Assignee advised that she had considered all options available to her in looking at Mr Ross’ employment circumstances, and decided that creditors would benefit the most if she consented to Mr Ross’ employment by the family controlled company (TRC). She referred to the possibility that if she had denied consent for Mr Ross to work for TRC and he had been made unemployed, he might not have been able to make contributions to his creditors at all.

[19] On 7 March 2013, Ms Ross’ counsel sought certain information from the Official Assignee about TRC, including the level of income generated by TRC from the contracts it had. The Official Assignee replied promptly on 12 March 2013, advising that she was unable to release the information in respect of TRC, as TRC was not in liquidation, and information relating to it was not official information in terms of the Official Information Act 1982. She said that she was not aware of any significant change in Mr Ross’ personal circumstances, and on that basis had no plan to review his contributions.

[20] However it is clear from a further letter written by the Official Assignee on

27 March 2013 that she had investigated both company and trust matters. She confirmed that the trusts, as shareholders of TRC, did receive a dividend from TRC if TRC made a profit, and that the dividends were used to pay the mortgage and outgoings on the property owned by the trusts and occupied by Mr Ross and his family. But the fact that he was living rent-free in a property owned by the trusts was reflected by the absence of any accommodation costs allowance in the budget which had been used to assess Mr Ross’ contributions.

[21] In the same letter, the Official Assignee confirmed that the contract or contracts for the IT services work Mr Ross had been undertaking were held in TRC’s name. She commented that most IT project work is undertaken on a contract basis, and it is not unusual for contractors to form companies to carry out such work, whether for taxation or personal liability purposes. She noted that such work is often undertaken on a project-by-project basis, and for a fixed period only.

[22] Referring specifically to the position of Mr Ross, the Official Assignee noted that the structure of TRC and the trusts had been established on the advice of Mr Ross’ professional advisors, and was “nothing out of the ordinary”. She also confirmed that the salary received by Mr Ross from TRC was commensurate with salaries offered to permanent employees in IT consultancy work.

[24] In the foregoing circumstances, I do not think this is a case where it would be right to give permission for Ms Ross to object to the discharge. Ms Ross’ real complaint, as stated expressly in her application, appears to be that the Official Assignee got it wrong in assessing the contributions Mr Ross was required to make. There are specific remedies in the Act for creditors who are aggrieved by such decisions, and Ms Ross should have exercised her rights to seek one or other of those remedies long ago. The contributions were agreed between the Official Assignee and Mr Ross as long ago as February 2012, and in circumstances where there was no challenge to those contributions I do not think it would now be

fair to Mr Ross to allow them to be challenged by the “backdoor route” of Ms Ross asking the Court to direct him to make further payments as a condition of obtaining a discharge from his bankruptcy (following his public examination). I accept Mr Slevin’s submission that the provision in s 292 under which a creditor may seek the Court’s permission to object to an automatic discharge cannot have been intended to provide a forum to address complaints about the Official Assignee’s conduct of the administration of the bankrupt estate: there are other provisions in the Act which are specifically directed to that purpose.

[25] So I do not regard Ms Ross’ apparent wish for the Court to conduct a review of a decision made by the Official Assignee over two and a half years ago as a sufficient reason to permit her to file an objection to the discharge.

[26] A further consideration is that I note that the Official Assignee advised Ms Ross’ counsel on 27 March 2013 that there was then “little or no equity in the trust property (i.e. the home then occupied by Mr Ross and his present wife). And having investigated the position with the trusts and TRC, the Official Assignee has apparently concluded that any attempt or further attempt at recoveries from TRC or the trusts would not be fruitful. In those circumstances, the court has no basis for believing that any public examination of Mr Ross would or might reveal the existence of further assets. Nor is there any evidence of improper conduct on the part of Mr Ross which might form a basis for refusing a discharge, or requiring him to make a further payment or payments as a condition of discharge. The trusts themselves were established, with professional advice, as long ago as 2003, and the transfer of assets (the family home and the shares in TRC) into the trusts has not been the subject of any challenge, whether by the Official Assignee or by Ms Ross herself.

[27] In the end, it seems to me that there is a considerable risk that further money would be spent on the public examination which would necessarily follow the filing of any objection by Ms Ross, without any corresponding financial gain for creditors. If that occurred, the result would be a reduction in the dividends available not only to Ms Ross but to other creditors (who have not objected to Mr Ross’ discharge).

[28] More generally, trust property does not form part of a bankrupt’s estate, and Ms Foster did not refer me to an authority supporting the proposition that a bankrupt who happens to be a discretionary beneficiary of a family trust should be required to make greater contributions to his creditors on that account. Adopting any such principle would appear to be tantamount to requiring the trust to contribute (or further contribute) to the bankrupt’s estate, something which does not appear to me to be justified by any provision of the Act. And of course the bankrupt might never receive a distribution from the trust.

[29] In summary, Mr Ross accepted the obligation to make contributions early in his bankruptcy, and for over two and a half years he has complied with those obligations. The quantum of the obligations was not challenged by Ms Ross, although she had the ability to do so. Mr Ross appears to have done everything the Official Assignee has asked of him during the term of his bankruptcy, and Ms Ross has been unable to point to any circumstance which might turn up on a public examination which would justify the additional costs of an Official Assignee’s report and the examination itself, in what is only a relatively modest bankrupt estate. In those circumstances, I am not persuaded that it would be right to allow an eleventh hour objection to Mr Ross’ discharge to effectively result in an extension of his bankruptcy until some time in 2015 – the time which would be necessary to give the

Official Assignee reasonable time to complete her report²and summon Mr Ross for

public examination, and for the Court to allocate hearing time for the public examination.

[30] There is no suggestion that Mr Ross might be a commercial hazard in the future if he is discharged from bankruptcy. And it is not sufficient in my view for Ms Foster to submit, as she did, that it will not be a hardship for Mr Ross to remain in bankruptcy at least until the public examination is conducted.

[31] For all of the foregoing reasons, the application for permission to object to

High Court of New Zealand Decisions

Ross v Ross [2014] NZHC 2582 (21 October 2014)