McCready [2014] NZHC 902 (5 May 2014)

Last Updated: 7 May 2014

ORDER PROHIBITING PUBLICATION OF NAMES OF JUDGMENT CREDITORS.

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2013-485-1370 [2014] NZHC 902

UNDER	the Insolvency Act 2006
IN THE MATTER OF	the bankruptcy of GRAHAM EDWARD McCREADY
IN THE MATTER OF	an application by the bankrupt for an early discharge

Hearing:	29 April 2014
Appearances:	G E McCready in person S C Carter for the Official Assignee G Pearson for the Judgment Creditors
Judgment:	29 April 2014
Reasons:	5 May 2014

_{REASONS FOR JUDGMENT OF ASSOCIATE JUDGE SMITH}

[1] Mr McCready was adjudicated bankrupt on 2 October 2013. On 13 February

2014, he applied for an early discharge under s 294(1) of the Insolvency Act 2006. The application was listed for first call in the bankruptcy list on 17 March 2014.

[2] In a report dated 7 March 2014 the Official Assignee opposed the application for early discharge on a number of grounds:

(a) Mr McCready has previously been adjudicated bankrupt: he was discharged from his first bankruptcy in 2006.

In re McCready [2014] NZHC 902 [29 April 2014]

(b) Mr McCready is currently disqualified from managing companies under s 382(1) of the Companies Act 1993. That disqualification applies until 8 March 2018. According to Mr McCready, the disqualification followed from a conviction for blackmail.

(c) Mr McCready is not in a position to pay any of his creditors.

(d) Mr McCready has served only five months of the three year period of bankruptcy.

(e) For the protection of the commercial community, it is not in the public interest to allow Mr McCready to be granted an early discharge.

[3] The application for early discharge was also opposed by the judgment creditors.

[4] The application was allocated a fixture for 29 April 2014. Shortly before the fixture, Mr McCready filed two memoranda seeking an adjournment. In the first application, he sought an adjournment until 2 October 2014, being the date one year after the date of his adjudication in bankruptcy. In the second memorandum, filed only on the morning of the hearing, Mr McCready asked the Court to prohibit counsel for the judgment creditors from appearing in the case, and requested an adjournment for the judgment creditors to obtain other counsel.

[5] For the reasons set out in separate minutes issued in the course of the hearing on 29 April, both applications for adjournment were refused.

[6] Following the refusal of his applications for adjournment, Mr McCready advised the Court that he did not wish to pursue the application for early discharge. The application was dismissed accordingly. I indicated that I would provide written reasons for that decision as soon as time permitted me to do so. I now provide those reasons.

[7] Quite apart from the fact that Mr McCready did not wish to pursue the application, I am satisfied that there was no proper basis in the evidence for an early discharge.

[8] In ASB v Hogg,¹ the Court of Appeal noted that the applicant for an early discharge has the onus, in the sense of adducing evidence, to show good cause for ordering an early discharge. The Court will then consider the legitimate interests of the bankrupt, the creditors and the wider public concerns. The Court will be guided by the matters on which the Official Assignee is required to report under s 296 of the Act, but the discretion under s 298 is a broad one.

[9] Section 296 of the Act provides as follows:

Assignee's report

(1) The Assignee must prepare a report and file it in the court when—

(a) the bankrupt has applied under section 294 for a discharge; or

(b) the Assignee has summoned the bankrupt to be examined under section 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.

[10] In this case, the principal bases relied upon by Mr McCready in support of his application for an early discharge were:

¹ [1993] 3NZLR156 (CA), 157 – 158.

(a) His wish to enrol in a Criminal Law paper at Waikato University. He would require a student loan to do so, and student loans are not normally available to undischarged bankrupts.

(b) His wish to visit family in Canada, including adult children he has not seen for many years. Travel by a bankrupt out of New Zealand requires the consent of the Official Assignee, and Mr McCready apprehended that no consent would be forthcoming.

[11] In the event, both of those concerns were resolved before the hearing on 29

April: Mr McCready was able to find the money to pay the enrolment fee for the Waikato University paper, and on 25 March 2014 the Official Assignee gave consent, subject to conditions, for Mr McCready to travel outside New Zealand for a period between November 2014 and 20 January 2015. In those circumstances, I am satisfied that Mr McCready has not discharged the limited onus on him of adducing evidence showing good cause for ordering an early discharge.

[12] Addressing the s 296 factors, I note that the principal cause of the bankruptcy in this case appears to have been Mr McCready incurring court costs which he could not afford to pay, when he initiated an unsuccessful liquidation claim against one of the judgment creditors. The Official Assignee’s report makes it clear that Mr McCready has no present prospect of paying off his creditors.

[13] No issue is raised over Mr McCready’s performance of his duties under the Act since the adjudication on 2 October 2013: the Official Assignee reports that he has been cooperative. Nor has any specific instance been raised where Mr McCready has failed to obey orders of the Court.

[14] Mr McCready’s conduct before and after adjudication is another matter. This is the second occasion on which he has been adjudicated bankrupt. He has since been convicted of blackmail. In his conduct of the present proceeding, Mr McCready pointlessly opposed an application made by the judgment creditors on

17 March 2014 for a suppression order, and when it became apparent to him that his application for an early discharge could not succeed, caused additional cost and

delay by not promptly acknowledging that fact and formally consenting to an order dismissing the application. It was only when his applications for adjournment were refused that he acknowledged that the application should not proceed further.

[15] Another important factor is that, when Mr McCready filed the application, less than five months had elapsed from the date of adjudication. That was far too early, particularly having regard for the fact that Mr McCready had previously been adjudicated bankrupt and has a criminal conviction.

[16] For all of the foregoing reasons, the application for an early discharge was refused.

[17] Counsel for the judgment creditors submitted that an order should be made under s 298(1)(e) of the Act, specifying the earliest date when Mr McCready may apply again for discharge. Mr Pearson submitted that the period should be the normal three year span of a bankruptcy. Alternatively, he submitted that any early discharge should not take effect until one day after Mr McCready has paid the judgment debtor’s costs and disbursements on the current application.

[18] One of Mr McCready’s concerns is that he wishes to enrol in further law papers at Waikato University in 2015, at least if he secures a sufficient pass grade in the Criminal Law paper he is taking this year. He says that a student loan will again be required for 2015 and he will not secure one while he remains an undischarged bankrupt.

[19] Mr Pearson submitted that no weight should be given to that factor. At Mr McCready’s age (69), and with acknowledged bad health, it must be highly improbable that he will ever practise law. And enrolling in some law papers at Waikato University will not enhance his earning capacity (and thus his ability to pay off his debts). Mr McCready submitted in reply that the law degree is important to him in his employment by a company which specialises in undertaking private prosecutions. He referred to the need for him to have a basic appreciation of criminal law concepts, when filing informations alleging criminal offences.

[20] I agree with Mr Pearson that, in the circumstances of this case, no significant weight should be placed on Mr McCready’s desire to pursue law studies in 2015, particularly if doing so will require further borrowing by him. The position might have been different if it were clear that a period of further study would enhance Mr McCready’s earning capacity, or even assist him with rehabilitation in the commercial community. But there is insufficient evidence that either of those things is likely to occur.

[21] I think this is a case where a date should be specified under s 298(1)(e). I bear in mind that this is the second occasion on which Mr McCready has been bankrupted, and in my view the public interest, weighed against Mr McCready’s personal interests, requires that any further application for an early discharge should not be considered before a reasonably lengthy period has elapsed. I do not think that period need be as long as the three years proposed by the judgment creditors: this is not a case where Mr McCready has been perpetrating large scale commercial fraud or anything of the kind; indeed, the sums in issue are relatively small.

[22] Weighing the considerations, the appropriate period to fix under s 298(1)(e) is a period of eighteen months from the date of Mr McCready’s adjudication. On that basis, he may not make any further application for discharge from bankruptcy before

2 April 2015.

[23] The fixing of that date does not mean that any new application Mr McCready might file on or after 2 April 2015 will necessarily be successful. Any such application will be dealt with on its merits, when it is heard.

[24] The judgment creditors asked that, if there is to be a date fixed under s 298(1)(e) , a condition should be added requiring that no discharge take effect until Mr McCready has paid the judgment creditors’ costs on the present application. It is not clear to me that any such condition can be imposed when the decision of the Court is to refuse the application for discharge, and accordingly I am not prepared to impose any such condition. However, Mr McCready should note that if he does elect to make any further application for an early discharge after 2 April 2015, one of

the matters the court will need to consider will be “the manner in which the bankrupt has obeyed orders of the Court”².

Summary of Orders

(a) The application for early discharge is refused.

(b) Costs are awarded to the judgment creditors on a scale 2B basis, plus disbursements as fixed by the registrar.

(c) The earliest date when Mr McCready may apply again for discharge from bankruptcy, is 2 April 2015.

Associate Judge Smith

Solicitors:

Duncan Cotterill, Wellington for Respondents

_{Copy to: G McCready}

² S 296(2)(d) of the Act.