Fawcett [2014] NZHC 924 (7 May 2014)

Last Updated: 14 May 2014

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV-2010-419-587 [2014] NZHC 924

IN THE MATTER	of the Insolvency Act 2006
AND IN THE MATTER	of the bankruptcy of CHRISTOPHER LOUIS FAWCETT

Hearing:	11 December 2013
Appearances:	P V Cornege for Official Assignee C L Fawcett in person
Judgment:	7 May 2014

_{JUDGMENT OF PETERS J}

This judgment was delivered by Justice Peters on 7 May 2014 at 2 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date: ...................................

Counsel: P V Cornege, Hamilton

_{Copy to: C L Fawcett, Hamilton}

RE FAWCETT [2014] NZHC 924 [7 May 2014]

Introduction

[1] Mr Fawcett seeks an order that he be discharged from bankruptcy.¹ The Official Assignee (“OA”) submits that no such order should be made, given the manner in which Mr Fawcett has conducted himself since adjudication. That conduct is presently the subject of two criminal charges that the Ministry of Business, Innovation and Employment has brought against Mr Fawcett (“criminal charges”). Mr Fawcett denies the charges. An associate to whom I refer below, Mr Steven Spackman, has been charged as a party to the alleged offences.

[2] For the reasons given below, I dismiss Mr Fawcett’s application for discharge. He may make another application for discharge in accordance with [34] below.

Background

[3] Mr Fawcett was adjudicated bankrupt on 15 September 2010 on the application of Southland Building Society (“SBS”). SBS obtained judgment against Mr Fawcett on a guarantee to SBS in respect of repayment of an advance to the C L Fawcett Family Trust.

[4] By s 290(1) Insolvency Act 2006 (“Act”), Mr Fawcett would have been discharged from bankruptcy on 4 October 2013, that being three years after Mr Fawcett filed a statement of affairs.²

[5] On 4 September 2013 however, the Official Assignee (“OA”) notified Mr Fawcett that it would oppose his discharge.³ The effect of this notice was to preclude the otherwise automatic discharge.

[6] On 23 September 2013 Mr Fawcett applied for an order for discharge. The effect of his doing so was to require his public examination prior to the hearing of

_{the application.}⁴

¹ _{Insolvency Act 2006, s 294.}

² _{s 290.}

³ _{s 292.}

⁴ s 295.

[7] On 28 November 2013 the OA filed a report (“report”) as to Mr Fawcett’s

affairs and other matters as required by s 296 of the Act.

[8] Mr Fawcett seeks an immediate and unconditional discharge. He submits that he has complied with all the obligations imposed upon him and that he is entitled to be discharged accordingly.

[9] As I have said, the OA opposes a discharge on the basis that Mr Fawcett’s conduct during the bankruptcy has been such that he should not be discharged, at least pending determination of the criminal charges. Alternatively, if an order for discharge is to be made, the OA seeks an order prohibiting Mr Fawcett from entering

into business for a period following discharge.⁵ Given the view I take of this matter,

it is unnecessary for me to consider that alternative position.

[10] The essence of Mr Fawcett’s response to the OA’s opposition to his discharge is that the OA is on a “witch hunt” and that there is no good reason to decline the discharge sought.

Approach

[11] Section 298 of the Act confers discretion on the Court as to the orders to be made on an application for discharge. Such discretion is to be exercised having regard to all the circumstances of the case. Section 298 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}

⁵ s 299.

(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, ...

[12] ASB Bank v Hogg is the leading authority on the manner in which the discretion conferred to s 298 of the Act is to be exercised. In that case, the Court said:⁶

... 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.

[13] The circumstances of the case include the matters on which the OA is required to report in accordance with s 296(2) of the Act, namely:

296 Assignee’s report

...

(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.

[14] As I have said, in this case the OA’s principal concern relates to Mr Fawcett’s

_{conduct after adjudication.}

⁶ ASB Bank v Hogg [1993] 3 NZLR 156 (CA), at 157. See also Armitage v Established Investments

Ltd (in liq) [2012] NZCA 439.

[15] In addition to the matters referred to above, the Court should also consider the legitimate interests of the bankrupt, his creditors and wider public concerns.⁷

_{There is no dispute that:}⁸

(a) the onus is on the applicant, in this case the OA, to satisfy the Court that it is in the public interest that the bankruptcy should continue; and

(b) in the absence of good reason, the bankrupt should usually obtain a discharge three years after filing his statement of affairs.

Examination

[16] The OA submitted that Mr Fawcett’s examination should be adjourned pending determination of the criminal charges, as this would assist in the determination of the application for discharge. In addition, if the examination were deferred, there would be no prospect of Mr Fawcett making statements that might be prejudicial to him, and admissible, on the hearing of the criminal charges. It would also avoid the possibility of Mr Fawcett disclosing his case on the criminal charges in advance of the hearing of those charges.

[17] Mr Fawcett was adamant, however, that he wished his application for discharge to be determined. He advised that he would submit to examination if that were a prerequisite, even though in responding to questions he might disclose his case to the OA in advance of the trial of the criminal charges.

[18] Mr Fawcett did, however, seek an order suppressing the publication of any evidence given in the course of the examination and, orally, sought a ruling that any statements he made would be inadmissible on the hearing of the criminal charges, in accordance with s 185(1) of the Act.

[19] Counsel for the OA submitted that s 185 might not apply in a case where the examination was conducted by the Court. I express no view on that submission.

_{There is no such limitation on the face of the provision. Regardless, however,}

⁷ _{ASB Bank v Hogg, above n 6, at 158.}

⁸ Bridgecorp Ltd (in rec and in liq) v Nielsen [2013] NZHC 1848, at [7].

matters of admissibility of evidence will be a matter for the trial Judge. As to suppression, Mr Fawcett knew at the time of the examination that it would be conducted in public. There is no basis at present for an order for suppression.

Discussion

[20] Given that the OA’s principal objection to discharge is based on Mr Fawcett’s conduct during bankruptcy,⁹ I proceed on the basis that, absent that matter, there would be no reason to decline to discharge Mr Fawcett.

[21] The OA submits that Mr Fawcett has been closely involved in the management of two companies, JEC No 3 Limited (“JEC”) and Kingsland Station Limited (“Kingsland”). It is Mr Fawcett’s actions in this respect that form the basis of the charges brought against him, pursuant to s 149 of the Act. The summary of facts in respect of the alleged offending is annexed to the report and some of the factual matters to which I refer below are taken from that summary

[22] Section 149 provides:

149 Prohibition of bankrupt entering business

(1) An undischarged bankrupt must not, without the consent of the

Assignee or the Court, either directly or indirectly,—

(a) enter into, carry on, or take part in the management or control of any business:

(b) be employed by a relative of the bankrupt:

(c) be employed by a company, trust, trustee, or incorporated society that is owned, managed, or controlled by a relative of the bankrupt.

(2) Nothing in this section restricts section 151 of the Companies Act

1993.

[23] A bankrupt commits an offence if, inter alia, he or she fails without reasonable excuse to comply with s 149. A person who commits such an offence is

_{liable, on conviction, to imprisonment for a term not exceeding two years.}¹⁰

⁹ Submissions of Counsel for the Official Assignee in Opposition to Discharge from Bankruptcy dated

_{2 December 2013, at [16].}

¹⁰ ss 436(1)(b) and 437.

[24] In Tregurtha v Police, Fisher J said that in determining whether a person has taken part in the management of a business:¹¹

... A broad value judgment was required. It is not so much a matter of taking individual transactions and pointing to the positive and responsible role which may have been taken by Mr Vandenberg or other incidents in which the appellant may not have participated. Rather it is a case of starting from the positive end and asking what evidence there was of participation by the appellant to a relatively responsible level within this business.

JEC

[25] JEC is the trustee of a trust settled principally for the benefit of Mr Fawcett’s

children. The OA submits that, following adjudication, Mr Fawcett:

(a) was a property manager for JEC and that he dealt directly with third parties in that capacity;

(b) made decisions in respect of JEC’s property; and

(c) removed JEC’s director, Mr McHardy, and substituted Mr Spackman when Mr McHardy refused to continue taking instructions from Mr Fawcett, for instance to provide to Mr Fawcett signed blank cheques drawn on JEC’s current account.

Kingsland

[26] Kingsland was incorporated on 7 May 2012, with JEC owning 75 per cent of its shares and a third party, Mr Colin Spence, owning the remaining 25 per cent. Mr Spence had entered into an agreement to purchase a property in Kingsland, Auckland (“Kingsland property”). Mr Spackman was appointed as a director of Kingsland. The summary of facts states that Kingsland is in receivership and that it has incurred losses of some $600,000.

[27] The OA submits that Mr Fawcett was involved in Kingsland’s management

and that, amongst other things, he participated in discussions with Mr Spence regarding the establishment of the joint venture, in the provision of finance, in the

¹¹ Tregurtha v Police HC Auckland AP123/93, 15 October 1993, at 4.

day to day management of the Kingsland property and in the resolution of disputes between JEC and Mr Spence.

[28] In the course of the examination, counsel for the OA put various emails and witness statements to Mr Fawcett which the OA relied upon as supporting its submissions.

[29] The emails, sent from Mr Fawcett’s email address, concerned JEC’s affairs, its substantial interest in Kingsland, communications with Mr Spence, and communications with tenants of the Kingsland property.¹²

[30] The witness statements to which I was referred included statements of:

(a) Mr McHardy referring to Mr Fawcett’s extensive involvement in the management of JEC;¹³

(b) Sera Claire Mitchinson, a tenant of the Kingsland property, as to nature and content of dealings with Mr Fawcett regarding increases to her rent;¹⁴

(c) Brett Michael Gordon of Goodwin Realty Limited, being the manager of the Kingsland property. Mr Gordon’s statement refers to numerous instructions he received from Mr Fawcett regarding the Kingsland property; advice from Mr Fawcett that Mr Spence had been “dumped” from Kingsland; instructions to change Kingsland’s bank account; and the view that Mr Gordon formed that Mr Fawcett made all material

_{decisions in respect of the Kingsland property;}¹⁵

¹² Email C L Fawcett to R Shores dated 16 July 2012, at 1329; Email C L Fawcett to B Gordon dated

25 July 2012, at 1447; Email C L Fawcett to C Spence dated 12 August 2012, at 1600; Email C L Fawcett to C Spence dated 31 August 2012, at 1613; Email C L Fawcett to R Shores dated

3 September 2012, at 1339; Email C L Fawcett to Urban Flowers dated 6 September 2012, at 1355; Email C L Fawcett to R Thornley dated 10 September 2012, at 1607; and Email C L Fawcett to S Spackman dated 19 September 2012, at 1606.

¹³ _{Formal Written Statement of R McHardy dated 23 April 2013, at 1141.}

¹⁴ _{Formal Written Statement of S C Mitchinson dated 1 June 2013, at 1367.}

¹⁵ Formal Written Statement of B M Gordon dated 22 May 2013, at 1421.

(d) Toni Margaret Hill, a licensed cadastral surveyor. In her statement Ms Hill refers to discussions and communications she had with Mr Fawcett as to the possibility of undertaking a unit title subdivision of the Kingsland property, and regarding many other matters such as unit plans, valuation, and building “warrant of fitness” matters. Ms Hill also states that Mr Fawcett was recorded as Kingsland’s

contact person in the contract between her employer and Kingsland.¹⁶

[31] Under examination, Mr Fawcett maintained that Mr Spackman had sent or dictated many of the emails put to him by counsel for the OA. Mr Fawcett acknowledged that he had given some assistance in the management of the companies but stated that he had done so only when asked by Ms Roberts or Mr Spackman.

Decision

[32] Mr Fawcett submitted that the emails and statements put to him did not provide a sufficient basis on which to refuse a discharge. I do not accept that submission. In my view they raise serious issues as to the manner in which Mr Fawcett has conducted himself since adjudication and whether he has complied with the obligation imposed by s 149. I accept the submission for the OA that the documents are evidence that Mr Fawcett was closely involved in the management of the affairs of both JEC and Kingsland, and particularly the latter.

[33] Of course, whether Mr Fawcett has committed offences under the Act is a different matter raising different issues. Nothing in this judgment should be taken as expressing any view on the merit of the charges. The issue that I am required to determine is whether Mr Fawcett should have an immediate discharge. I am

_{satisfied that he should not, at least pending determination of the charges.}

¹⁶ Formal Written Statement of T M Hill dated 21 November 2013, at 1476.

[34] I dismiss the application for discharge accordingly.¹⁷ Mr Fawcett may make a fresh application for discharge on the earlier of the determination of the criminal charges or at any time after 1 December 2014.

..................................................................

_{M Peters J}

¹⁷ s 298(1)(e).