Official Assignee v Van Heerden [2016] NZHC 360 (4 March 2016)

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IN THE MATTER	of the Insolvency Act 2006
AND
IN THE MATTER	of the Bankruptcy of Rudy van Heerden
BETWEEN	THE OFFICIAL ASSIGNEE Applicant
AND	RUDY VAN HEERDEN (BANKRUPT) First Respondent COFFEY PROJECTS (NEW ZEALAND) LIMITED and COFFEY INTERNATIONAL NZ LIMITED _{Second Respondent}

Hearing:	26 February 2016
Appearances:	G E Slevin for the Official Assignee G J Ryan for First Respondent
_Judgment:	_{4 March 2016}

[1] Mr van Heerden was adjudicated bankrupt by this court on 5 December 2013. Some time in 2015 he changed his surname to van Gelder. In this judgment I will refer to him by his new name.

[2] Mr van Gelder is, and has been for some time, a project manager in the construction industry. In 2011 he formed a company called Vanson Limited which designed and manufactured building components, principally steel framing for use in construction. It operated from the middle of 2010 to early 2013 when it went into

_{liquidation. Mr van Gelder says the cause of the failure of the
business was a}

significant drop in work immediately after the earthquakes in Christchurch early in

[3] After that Mr van Gelder took a position as a construction project manager with the second respondent.

[4] At the time of these events Mr van Gelder, his then wife, Jennifer, and their two children lived at Loburn, near Rangiora. The property on which they lived was owned by a family trust and mortgaged to the BNZ. Mr van Gelder and Mrs van Heerden lived in the house on the property and kept horses in the paddocks. Mrs van Heerden’s mother lived in an adjacent but separate flat on the property. Mrs van Heerden had employment with the Christchurch City Council.

[5] The Official Assignee, in the bankruptcy of Mr van Gelder, now applies for orders in the following terms:

(a) The bankrupt must, until discharged from bankruptcy, pay $3,770 monthly (or such lesser amount as may be required by the Assignee from time to time) (“the payments”) as a contribution towards his debts; and

(b) The bankrupt must pay an amount equal to the sum of the payments which should have been made from 18 October 2014 (but were not) at the rate of $870/week until the date of the first payment ordered by the Court (“the arrears”); and

(c) The second respondent must pay $3,770 monthly to the Assignee on behalf of the bankrupt as a first charge on any monies that are or may become payable by it to the bankrupt until such time as ... the bankrupt has been discharged from bankruptcy.

(1) If required by the Assignee, the bankrupt must pay an amount or periodic amounts during the bankruptcy as a contribution towards payment of the bankrupt’s debts.

(3) Before the Assignee may require the bankrupt to make the payment or payments, the Assignee must –

(a) have regard to all the circumstances of the bankruptcy and the bankrupt’s conduct, earning power, responsibilities, and prospects; and

(b) make reasonable allowance for the maintenance of the bankrupt and his or her relatives and dependants.

(4) The Court may, on the application of the Assignee, order the bankrupt to pay the amount or amounts required by the Assignee.

(5) The Court may, on the application of the Assignee, the bankrupt, or any creditor, -

(b) vary, suspend, or discharge any order made under subsection 4: (c) remit any arrears owing by the bankrupt.

[7] The fundamental consideration for the Court is whether Mr van Gelder is or will be able to meet payments ordered under this section.¹The bankrupt is not to be emotionally and financially crippled by the orders the Court makes.²The Court must find a reasonable balance between the public interest in enabling a person after surrendering all his required assets to start again with a clean slate and the private

interests of the creditors in his bankruptcy in receiving some payment when a bankrupt is capable of achieving high earnings.³

There are perceivable advantages to creditors during the term of bankruptcy and to society generally that a bankrupt should be encouraged to pursue and gain financial rehabilitation. Human nature being what it is a bankrupt is unlikely to strive for high financial reward during bankruptcy, whilst living in penury.

[9] Because some of the evidence and submissions for the Official Assignee have criticised aspects of Mr van Gelder’s conduct during the course of the bankruptcy to

_{date, it is important to record the extent to which this may be
relevant. After noting}

²_{Official Assignee v Gilgen HC Hamilton B178/97, 12
July 2001 per Hammond J.}

that the fundamental consideration of the Court is whether a bankrupt is or will be able to meet payments ordered under the section, the Court in Re Dransfield went on to state:⁵

... certain legislative criteria are established by s 45(1) [now s 147] to assist in determining such actual or prospective ability. Once it is realised that the stipulated criteria are directed to that end, it may be readily understood that the circumstances of the bankruptcy and the bankrupt’s conduct are relevant only in so far as they bear on that ability.

[10] Since this application was filed in July 2015 there have been two material changes of circumstance. The first is the shift by Mrs van Heerden, together with the children and her mother, to Auckland and the second is the subsequent (and recent) move to Auckland, also, by Mr van Gelder.

[11] To properly assess the application for ongoing payments, the circumstances as they now are must be considered. The application in relation to payment of arrears of contributions must be considered in light of the circumstances during the period for which arrears are sought. I will consider the application first in relation to ongoing contributions, and secondly, in relation to arrears.

[12] In October 2014, the Official Assignee’s office sent to Mr van Gelder an assessment of a sum which the Official Assignee considered he could afford to pay, by way of a contribution to the debts in his bankruptcy, based on his income and the Official Assignee’s knowledge, at that time, of his financial commitments. The initial assessment required contributions of $1,100 per week. Mr van Gelder responded, and the Official Assignee’s office reassessed the position, reaching a conclusion that Mr van Gelder should pay a contribution of $1,112.20 per week. Mr van Gelder was notified of this assessment in February 2015. Shortly after that one of two properties owned by Mr van Gelder’s family trust was sold and indebtedness secured on that property, which Mr van Gelder had been servicing from his income, was repaid. After this repayment, the commitment that Mr van Gelder and Mrs van Heerden had to the bank, and their further commitment to pay rates on

⁵At 4, approved in relation to s 147 in Official Assignee v Jamieson [2013] NZHC 911.

[13] After correspondence from Mr van Gelder’s solicitor providing further information and indicating that Mr van Gelder should not be required to make any payments, the Official Assignee reassessed the position and sent a letter to Mr van Gelder requiring payment towards his debts of $870 per week.

[14] No payments were received from Mr van Gelder in response to any of these notices, nor have any payments been made to date.

[15] Mr Ryan, for Mr van Gelder, makes two principal submissions. First, he says that s 147(3) imposes on the Official Assignee a mandatory duty to take certain steps before requiring a bankrupt to make a payment towards his creditors, and the Official Assignee has not taken the required steps. Secondly, the living expenses of Mr van Gelder, including his commitments to his family, are such that there is no spare cash available to make a contribution towards his debts, or if there is any excess of income over liabilities at all, an order that Mr van Gelder contribute to his debts would be unduly harsh in terms of the principles to which I have referred.

(a) Has the Official Assignee complied with the requirements of s 147(3)? (b) Should the Court order Mr van Gelder to pay to the Official Assignee

[17] Section 147(3) is phrased in mandatory terms. I accept, therefore, that it must be shown that the Official Assignee has had regard to the circumstances of the bankruptcy, Mr van Gelder’s conduct, and his earning power, responsibilities and

prospects, and that it must be shown that the Official Assignee made reasonable allowance for the maintenance of Mr van Gelder and his family.

[18] The Official Assignee makes assessments under s 147 in the course of a substantial number of bankruptcies and has developed a method for assessing, in terms of s 147(3)(b), the sum which might amount to a reasonable allowance for the maintenance of a bankrupt, and his or her relatives and dependants. Mr R D Fildes, who is the Official Assignee for the Southern Region, notes that the section requires the Official Assignee to make a reasonable allowance, and this does not necessarily equate to actual expenses being incurred by a bankrupt. Until recently this assessment has been undertaken by a line-by-line budget analysis, by comparing the information provided by a bankrupt to figures established by reference to published statistics and research about household living expenses in New Zealand. Indeed, this was the method employed in his office by Mr Hattaway, an insolvency officer who was administering Mr van Gelder’s affairs.

[19] More recently, however, the Official Assignee has developed a system to achieve an overall assessment of reasonable living costs by reference to average expenditure figures published by Statistics New Zealand, and the Working for Families thresholds used by the Inland Revenue Department to calculate tax credits, both of which take into account the numbers of dependants in the family. This methodology is used with the intention of establishing a consistent and objective formula by which a bankrupt’s reasonable living costs and ability to make contributions can be initially assessed.

[20] There is then a second step, by which the figure derived from the first analysis is considered in relation to the bankrupt’s actual circumstances. These circumstances may disclose costs that are unavoidably higher than usual or may be lower than usual, an example of which may be a bankrupt who does not have any rent or mortgage costs which need to be paid. This leads to a figure that represents income that is not committed to reasonable needs. A case officer is required to ensure, as well, that the contribution requirement will not cause hardship to the bankrupt or his family and that there is some discretionary income left in the bankrupt’s hands. This involves a third step, application of a graduated scale of

percentages to the figure arrived at. It was the application of this methodology which led to the reduction in the Official Assignee’s assessment from $1,100 per week to $870 per week. The Official Assignee was aware of the net incomes of Mr van Gelder and Mrs van Heerden, both of which were being received into their household and, by the above method, assessed that reasonable living costs for a family of four amounted to $59,203.37. This left a surplus of $1,783.07 per week. This sum was then divided between Mr van Gelder and Mrs van Heerden in proportion to their net incomes, leaving a net weekly surplus to Mr van Gelder of

$1,148.04. The assessment that he should pay $870 per week left him with a surplus of $279 per week. Mrs van Heerden was left with a surplus of $635 per week which, of course, could not be and was not assessed to be the subject of any requirement for payment towards Mr van Gelder’s creditors.

[21] The Official Assignee accepts that these surpluses are notional, but argues that this is acceptable given the statutory requirement that reasonable allowance be made for the maintenance of the bankrupt and his or her relatives and dependants, which may be different from the actual expenses incurred by the bankrupt.

[22] I am satisfied that the three-step approach employed by the Official Assignee in making the assessment required by s 147(3) is appropriate. It starts with data employed by government agencies, established by those agencies statistically. If that were the end of the matter, that would not be an acceptable method of assessment for the purposes of s 147(3) because the section requires the Official Assignee to have regard to all the circumstances of the bankruptcy as well as the bankrupt’s conduct, earning power, responsibilities and prospects. It is, however, an acceptable starting- point from which a final figure can be assessed after due consideration of the subjective factors referred to in the section. Similarly, merely considering the income and claimed expenditure of a bankrupt without reference to any yardstick against which the reasonableness of claimed expenditure might be considered would also result in the Official Assignee failing to comply with the mandatory provisions of s 147(3). The process employed by the Official Assignee’s office overcomes these difficulties.

[23] I therefore reject Mr Ryan’s first argument and find that the Official Assignee has followed an appropriate procedure in terms of s 147(3).

[24] Since the Official Assignee’s assessments between October 2014 and February 2015 were carried out, the circumstances of Mr van Gelder and his family have changed materially. Applying the methodology which I have discussed, it seems that the starting-point for assessment of a reasonable allowance for the maintenance of Mr van Gelder, Mrs van Heerden and their children (all of whom now live apart from him) remains at $59,203.37. Mr Slevin, for the Official Assignee, seeks an order in the sum of $870 per week, which has not changed from the sum sought in February 2015 despite the changes in circumstance which have taken place since that date. Whilst it is clear that it has been difficult for the Official Assignee to manage the affairs of Mr van Gelder and arrive at a reasonable assessment, given the paucity of information that has been supplied to the Official Assignee by Mr van Gelder at various times, an analysis by Mr van Gelder’s insolvency officer, based on updated actual expenditure, would have assisted the Court in making its own assessment. The changes in circumstances in Mr van Gelder’s life since February 2015 are such that an assessment made without taking them into account is of scant assistance, if any, in assessing whether a sum should now be paid by Mr van Gelder towards his debts and, if so, how much.

[25] At least the following circumstances now differ from those taken into account in February 2015:

● Mr van Gelder lives on his own in rented accommodation north of Auckland and has different transport costs from home to his place of employment which is now in Auckland.

● Mr van Gelder now pays family support to his former wife for their children assessed in accordance with the calculations laid down by the Inland Revenue Department.

● Mr van Gelder now has no responsibilities to his mother-in-law who used to live with him and his family, but now lives with his former wife.

● Although the property on which the family all lived in Loburn has not been sold, Mr van Gelder has stopped paying sums on the mortgage, or any other outgoings on the property.

[26] After carefully considering all the information put before the Court, I am satisfied that the Court can safely make an assessment as required by s 147. Mr van Gelder produced a detailed budget of what he says is his actual expenditure now that he is in Auckland. The Official Assignee did not present any evidence to challenge the figures in this budget by showing that they were unreasonable, though Mr Slevin did submit that some of the expenditure claimed by Mr van Gelder appears to be excessive, and in some cases I agree with his submissions. Indeed, Mr Ryan responsibly accepted that some of the figures should be adjusted.

[27] Mr van Gelder has a net income after tax of $102,236 per annum. This is a considerable income, reflecting a responsible, professional position. Although he casts an element of doubt over whether he will retain his present position in the medium to long term, I am satisfied that the Court should make an assessment now on the basis of the facts as they stand. Should Mr van Gelder’s employment situation change, the position can be reviewed. I note that the Official Assignee accepts that if an order is made for a contribution, it may be made on the basis that the Official Assignee can require actual payment of such lesser sum as is considered reasonable, should there be a change of circumstance. As well, the Court may vary, suspend or cancel an obligation imposed under s 147. I therefore proceed on the basis that Mr van Gelder’s income will continue.

[28] Although I have considered the circumstances leading to Mr van Gelder being declared bankrupt, I find nothing of significance to the assessment which must be made under s 147. So far as Mr van Gelder’s conduct is concerned, I find that he has been less than forthcoming with, and cooperative with, the Official Assignee at various times. Although being declared bankrupt is an event in a person’s life which

requires, in many cases, emotional adjustment as well as practical adjustment, these adjustments must be made and the Insolvency Act casts certain duties on bankrupts which are directed to assisting the Official Assignee in going about her duties. Those who are declared bankrupt, or who file in bankruptcy themselves, must within a reasonable period assess their situations and adjust to the circumstances which have come about.

[29] In Mr van Gelder’s and Mrs van Heerden’s case I have no doubt that this required them to promptly market the property owned by their trust in order to reduce Mr van Gelder’s monthly expenditure on the mortgage, rates and upkeep of the property as soon as reasonably practicable. Whilst, on his evidence, he ceased paying monies for upkeep, he continued to pay very substantial sums on the mortgage and the rates until quite late in 2015.

[30] I also accept, however, Mr Ryan’s argument that had Mr van Gelder and Mrs van Heerden not remained on the property after their separation there would have been two sets of family expenditure, not one, and that Mr van Gelder’s obligation to pay child support would have commenced when two households were set up. I will return to these points when considering the Official Assignee’s request for a back payment. My conclusion, however, in making an assessment of relevant facts for the purposes of deciding whether to make an order for future contributions, is that there is nothing material in Mr van Gelder’s conduct which I should take into account as bearing on the assessment before the Court.

[31] I therefore turn to consider an assessment in terms of s 147(3)(b). The starting-point is Mr van Gelder’s income. Although the written budget produced in evidence by Mr van Gelder shows a net annual income of $97,816.44, Mr Slevin pointed out that this does not accord with the information shown on Mr van Gelder’s bank statements and Mr Ryan accepted that his net income should be taken as

[32] The evidence for the Official Assignee is that the reasonable living expenditure for a single person without children is $29,855 per annum. Mr Slevin says that this sum should be deducted, first, from Mr van Gelder’s net income

leaving a nominal surplus per annum of $72,381, or $1,391.94 per week. When Mr van Gelder’s child support commitment of $550 per week is deducted from this, there is a surplus of $841.94.

[33] The Official Assignee has a table for calculating a reasonable sum of money to be left in the hands of a bankrupt after all committed expenditure, consistent with the principle that a bankrupt should not be deprived of any ability to apply income on a discretionary basis (the third step in the assessment process). I need not set out the details of the table, but it applies various percentages to net income on a graduated basis. In the present case, if these calculations are applied to the nominal surplus of $841.94, a final surplus of $561 per week is derived, with $280 per week left in Mr van Gelder’s hands for discretionary spending. Mr Slevin said an order should be made that he contribute this final surplus towards his creditors, from December 2015 when his family left the Loburn property.

[34] Mr Slevin says a similar result is reached by a line-by-line analysis of Mr van Gelder’s budget, but that does not appear to be correct. He reduces the payments figures for groceries, power, vehicle expenses and sums payable towards children’s expenses which are properly covered by the child support commitment. These adjustments, together with use of the correct income figure, change a shortfall of

$240.16 on Mr van Gelder’s budget to a surplus. The adjustments identified by Mr Slevin amount to $507 and when the claimed shortfall of $240 is deducted, the surplus appears to be $267 without any contribution to creditors.

[35] This figure is close to the surplus of $297 which Mr van Gelder would have for discretionary spending, after contributing $548 to his creditors, if the first method of calculation were employed. On the latter method, however, there is no sum to contribute to creditors. The difference, therefore, lies in the application of the statistical expenses, on one hand, and actual claimed expenses on the other. The case for the Official Assignee is that s 147 refers to reasonable, not actual, expenses.

[36] One of the obvious problems with applying statistical expenses is that they are derived from data gathered throughout the country. Whilst certain costs incurred by households may be the same or similar throughout the country, it is a matter of

common knowledge that other expenses, for example rent, vary widely from region to region. And when assessed correctly, actual expenses may be found to be reasonable.

[37] Mr Ryan responsibly accepted that in addition to adjusting Mr van Gelder’s income figure from his budgeted figure to actual, reductions could also be made in respect of groceries, power and certain family costs. He says that no criticism can be levelled at other expenditure in Mr van Gelder’s budget, notably the claim for rent at

$465 per week, and then travel to and from work, and parking fees which come to a figure around $230. Mr van Gelder’s evidence is that he could have paid higher rent closer to the city and saved travel costs, but that in the end his expenditure in this area would have been roughly the same.

[38] At present, Mr van Gelder’s weekly income after tax is $1,962. On his evidence, uncontested, he has to pay child support of $550 leaving him $1,412. His rent is $465, and his costs for travelling to work (including ferry fares, parking and part of his expenditure on fuel) come to about $230. This leaves him around $717 per week. The Official Assignee accepts that he should have an allowance to pay for education costs for a course to better his career prospects, part of which is paid by his employer. This leaves him $602 per week to pay for food, power, gas, phone, insurance, clothes and medical expenses. Taking into account the figures provided by Mr van Gelder, and counsel’s comments on them, I do not think it unreasonable to allow a sum of $250 per week all up for these expenses. In round figures that leaves Mr van Gelder uncommitted income of $350 per week.

[39] It follows from this analysis that although the starting-point is a comparatively high income when compared with New Zealand averages, and the expenditure actually incurred by Mr van Gelder is considerably more than the statistical averages considered as a starting-point by the Official Assignee, there is comparatively little room at present to order Mr van Gelder to make a contribution to repayment of his creditors. The principal elements of his expenditure, namely rent coupled with the costs of getting to work, and child support, together with the modest cost of his further education, are the principal reasons. In my view, however, a modest contribution to debts can be required without derogating from the principle

that an order should not be made which will result in a bankrupt living in penury. I

[40] During the hearing I questioned whether Mr van Gelder’s assessment of an obligation to pay $550 per week to his wife for child support was realistic given her evidence that when she shifted to Auckland she would be earning $70,000 per annum. If, on further inquiry by the Official Assignee, which had not been undertaken prior to the hearing, it transpires that Mr van Gelder’s assessment of his obligation is excessive there would in my opinion be room for a greater contribution towards his debtors on an ongoing basis, representing the difference between the sum he now claims as payable (and which his bank statements show he is actually paying) and any lower assessed figure. To put the matter beyond doubt Mr van Gelder should approach the Inland Revenue Department for a formal assessment, rather than undertaking a desktop analysis from the IRD website himself, and then have the contribution deducted direct from his salary. Given the indication I have recorded there is scope for an agreement on a higher contribution to debts between Mr van Gelder and the Official Assignee, though the Official Assignee can always apply to the Court again, should it be necessary. The same observation applies if Mr van Gelder’s salary increases, or if he moves closer to Auckland with the result that the aggregate of his rent and travelling expenses drops.

[41] The principal thrust of the Official Assignee’s criticism of the way in which Mr van Gelder responded, financially, to his adjudication, is directed at his continuing to fund his family trust’s mortgage commitment to its bank instead of realising that the property had to be sold and taking steps to that end shortly after his bankruptcy began. As I have said, the mortgage and rates were costing over $6,000 per month. Evidence from the Official Assignee is that a house of sufficient size to house the family could have been rented nearby in Rangiora for around $450 to $500 per week which is a little over $2,000 per month. I have no difficulty accepting the Official Assignee’s assessment in this regard. The trust did not have any equity in the trust property and the payments made to the bank were simply sustaining an

illusory perception of ownership which should have been brought to an end promptly upon Mr van Gelder’s bankruptcy, if not, indeed, before.

[42] However, that is not the end of the analysis that is required in order to determine whether a sum by way of a contribution to creditors should be assessed for the period prior to the family leaving for Auckland. Although there would have been ample scope for a contribution had the family sold the property and moved to Rangiora as a family unit, the position is significantly complicated by the fact, learned by the Official Assignee well in retrospect, that Mr van Gelder and Mrs van Heerden separated in July 2014. The Loburn property provided accommodation which was flexible enough to allow them to remain at the property, so in fact the mortgage payments being made to the bank, together with the rates, actually provided accommodation for the two household units of Mr van Gelder on the one hand, and Mrs van Heerden and her mother and the children, on the other hand. It seems logical that if two households had been established elsewhere, Mr van Gelder would have had to pay $550 per week towards the latter household, and incurred his own household expenditure as well as his own rent, as in Auckland now.

[43] Mr van Gelder produced a budget for his expenditure in Christchurch, based on renting a flat apart from his family at $397 per week (and paying child support of

$550 per week). When similar adjustments are made to that budget as I have made to the Auckland budget, a modest surplus of income over expenditure is shown. As with the Auckland budget, the income is understated by $85 per week. There is a surplus shown in the budget of $193 per week so without adjusting expenditure, there is actually a surplus of around $280 per week. A reduction in the budget for groceries from $220 per week to $150 leads to a surplus of $350 per week. Removal of an allowance for vehicle maintenance, on the basis that this can be the subject of an application to the Official Assignee if needed, leads to a surplus of around $400 per week. Removal of some of the expenses shown for the children over and above the child support, amounting to $50 per week, leads to a surplus of around $450 per week.

Mr Slevin applies for arrears, October 2014 to December 2015, Mr van Gelder has enjoyed an additional surplus of $200 per week.

$12,133 for a period of 14 months. This is the sum which Mr van Gelder is to pay by way of arrears of contributions towards his creditors.

(a) Mr van Gelder will pay towards the debts in his bankruptcy a weekly contribution from 1 January 2016 of $100 per week.

(c) The weekly payment of $100 will be a charge on the salary paid by the second respondent and paid by the second respondent to the Official Assignee.

[46] Counsel ask that costs be reserved. Memoranda not exceeding three pages in length are to be filed and served within five working days.

Insolvency and Trustee Service, Christchurch (Counsel: G E Slevin). White Fox & Jones, Christchurch.

High Court of New Zealand Decisions

Official Assignee v Van Heerden [2016] NZHC 360 (4 March 2016)