Hanara; ex parte the Official Assignee [2017] NZHC 902 (5 May 2017)

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

UNDER	the Insolvency Act 2006
IN THE MATTER	of the bankruptcies of Jessica Mary Hanara and Dimitrious Rangi Hanara
AND	in the matter of applications by THE OFFICIAL ASSIGNEE for vesting orders under s 119 of the Insolvency Act ₂₀₀₆

Hearing:	27 April 2017
Appearances:	G E Slevin for the Official Assignee No appearance for Mrs Jessica Hanara or Mr Dimitrious Hanara No appearance for the Crown, ANZ Bank NZ Limited, or Avanti Finance Limited (parties served with the application)
_Judgment:	_{5 May 2017}

[1] This is an application by the Official Assignee (the Assignee) for an order under s 119 of the Insolvency Act 2006 (the Act) vesting in her the one half interest formerly owned by Mrs Jessica Hanara in a residential property in Hastings. The application is unusual, because in January 2014 the Assignee, acting in her capacity as Assignee of the bankrupt estate of Mrs Hanara, disclaimed the same interest in respect of which she now seeks a vesting order.

(1) The owner of the other half share in the land, Mr Dimitrious Hanara, was himself adjudicated bankrupt in June 2016. The Assignee says

that it will be difficult if not impossible for her to realise Mr Hanara’s interest, for the benefit of his creditors, if she is not also the proprietor of the half share formerly owned by Mrs Hanara; and

[3] In December 2013 Mrs Jessica Hanara and Mr Dimitrious Hanara were the registered proprietors of a property in Avenue Road West, Hastings (being the land comprised and described in Identifier HBC2/159 Hawkes Bay Land Registration District – “the property”). There was a first mortgage registered on the title to ANZ National Bank Ltd (the Bank), and a caveat registered by Avanti Finance Ltd (Avanti) in respect of advances it had made to the Hanaras.

[4] On 10 December 2013 Mrs Hanara was adjudicated bankrupt on the application of the Commissioner of Inland Revenue. She submitted the required statement of affairs¹on 21 January 2014.

[5] The Assignee in Mrs Hanara’s bankruptcy considered that the valuation of the property was then somewhere between $340,000 and $354,000. However the amounts then secured over the property (including the advances protected by the caveat) totalled $345,471.64. The Assignee reckoned that Mr and Mrs Hanara had an equity of $8,528.36 in the property, of which one half ($4,264.18) would be available to Mrs Hanara’s creditors, subject to costs. She concluded that, allowing for costs and commission on sale, there would be no equity available to Mrs Hanara’s creditors.

[6] The Assignee accordingly issued a formal disclaimer of Mrs Hanara’s interest in the property, by notice dated 22 January 2014. The effect of the disclaimer was to bring to an end, on and from the date of disclaimer, the rights, interests and liabilities

_{of the Assignee and Mrs Hanara in relation to Mrs Hanara’s
interest in the property.}²

[7] Mr and Mrs Hanara remained living in the property, although it appears that they were unable to keep up with payments owing to the Bank. On 27 June 2016 the Bank sent letters of demand to Mr and Mrs Hanara, requiring them to remedy the defaults. However by then Mr Hanara had also been adjudicated bankrupt: he was adjudicated bankrupt on 23 June 2016.

[8] The Bank then issued a notice under the Property Law Act 2007 notifying Mr and Mrs Hanara that their defaults (ie the bankruptcies) were not capable of being remedied. However the Bank has not so far elected to sell the property under the power of sale contained in its mortgage.

[9] On 16 September 2016 the Bank advised the Assignee that it was monitoring the payments Mr and Mrs Hanara were making. The Bank advised that if Mr and Mrs Hanara made six months of payments on time and in full, the Bank would look to consolidate the arrears onto their existing payment obligations. The Bank noted that Mr and Mrs Hanara had made six weeks of payments, so that if the payments continued the Bank would consolidate the arrears around February 2017.³

[11] Late in 2016, the Assignee decided to look again at the valuation of the property. A registered valuer’s report was obtained on 16 December 2016, assessing the market value of the property at $400,000.

[12] The Assignee, now acting in respect of the bankrupt estates of both Mr and Mrs Hanara, looked again at the likely equity that might be obtained from the property if it were sold. Having earlier disclaimed Mrs Hanara’s interest in the

_{property, the Assignee was primarily concerned with Mr Hanara’s
interest in the}

³It appears that the payments may not have been kept up-to-date over the period since

16 September 2016. I was informed at the hearing that the latest advice from the Bank is that it is prepared to wait for a short time to see if the Official Assignee can obtain the vesting order she now seeks. However if no vesting order is obtained by Friday 5 May 2017 the Bank is likely to proceed with a mortgagee sale.

property, which had not been disclaimed. Taking account of the balances owing to the Bank and Avanti, and the agent’s commission and costs on a sale, the Assignee reckoned that the equity available for Mr Hanara’s creditors, being one half of the net proceeds of sale after agent’s commission and costs, would be $36,209.40.

[13] On its own, the Assignee considers that Mr Hanara’s one half share in the

[14] On 21 January 2017, on the expiry of the period of three years running from the date she filed her statement of affairs with the Assignee, Mrs Hanara was discharged from her bankruptcy.

[15] In an effort to have at least some funds made available for the creditors of Mr and/or Mrs Hanara, the Assignee decided to apply under s 119 of the Act for the following orders:

(d) Vesting the disclaimed interest of [Mrs Hanara] in [the property] in the Assignee of the property of [Mrs Hanara] or, in the alternative;

(e) Vesting the disclaimed interest of [Mrs Hanara] in [the property] in the Assignee of the property of [Mr Hanara].

[16] Notice of the application was given to the Bank, Avanti, and the Treasury Department (representing the Crown’s interest as owner of the (disclaimed) interest of Mrs Hanara in the property). Avanti advised that it consented to the Assignee’s application, and the Bank advised that it would not oppose. Similarily, the Crown did not object to the court making of the orders sought.

[17] In accordance with directions made on 31 January 2017, the Assignee’s application has been served on both Mr and Mrs Hanara. Neither has taken any step in the proceeding, and neither appeared when the case was called in the list on

9 March 2017. On that day I directed that a formal affidavit of service on Mr Hanara should be provided, and adjourned the application to 27 April 2017 at 10.00am. Again, neither Mr Hanara nor Mrs Hanara appeared on that date. An affidavit proving service on Mr Hanara has now been filed.

[18] At the hearing on 9 March 2017 I issued a minute identifying a number of issues on which I wished to hear further from counsel for the Assignee. Counsel has helpfully filed a detailed memorandum addressing those issues.

[19] In an affidavit filed in support of the application, Ms Joanne Basher, the Assignee at Napier, says that the application is made by the Assignee in a representative capacity for the creditors of both estates. Ms Basher considers that the creditors are suffering a loss as a result of her earlier decision to disclaim Mrs Hanara’s interest in the property. Had she retained that interest instead of disclaiming it, the creditors of both estates would now have been able to receive a dividend.

[20] Ms Basher says that if Mrs Hanara’s interest cannot be vested in the bankrupt estate of Mrs Hanara or Mr Hanara, Mr Hanara’s one half share in the property (now vested in the Assignee as assignee of his estate) would not be readily saleable; it would also likely have to be disclaimed as onerous property. If that occurred, the result would be that the whole of the property would be vested in the Crown.⁴

(1) Assuming some loss or damage has resulted from the disclaimer, does the Assignee have standing to apply for a vesting order under s 119 —

(2) If the answer to issue (1) (a) or (b) is “yes”, has the Assignee suffered

(3) If the answers to issues (1) ((a) or (b)) and (2) are both “yes”, would it be fair to make an order vesting Mrs Hanara’s interest in the property in —

Issue (1) Assuming some loss or damage has resulted from the disclaimer, does the Assignee have standing to apply for a vesting order under s 119 —

(i) as Assignee of Mrs Hanara’s estate; (ii) as Assignee of Mr Hanara’s estate?

(i) brings to an end, on and from the date of the disclaimer, the rights, interests, and liabilities of the Assignee and the bankrupt in relation to the property disclaimed:

(ii) does not affect the rights, interests, or liabilities of any other person, except in so far as is necessary to release the Assignee or the bankrupt from a liability.

(a) claim as a creditor in the bankruptcy for the amount of the loss or damage, taking account of the effect of an order made by the court under paragraph (b):

(b) apply to the court for an order that the disclaimed property be delivered to, or vested in, that person.

(2) The bankrupt may also apply for an order that the disclaimed property be delivered to, or vested in, the bankrupt.

(3) The court may make an order under subsection (1)(b) or (2) if it is satisfied that it is fair that the property should be delivered to, or vested in, the applicant.

[24] Mr Slevin has found no case holding that the Assignee is precluded from applying for a vesting order under s 119 in respect of property earlier disclaimed by her. But nor was he able to refer me to any decision where such an order has been made. Mr Slevin submits that there is nothing in s 119 or in any other section of the Act, which expressly or impliedly precludes the application.

[25] Mr Slevin acknowledges that the Assignee herself is an administrative officer of the court, and as such is not personally susceptible to suffering a loss or making a gain in the course of discharging her statutory functions. However the relevant loss for the purposes of s 119(1) should be regarded in a case such as this as the loss being suffered by the people the Assignee represents. The “person” in whom the disclaimed interest may be vested under s 119(1)(b), is the legal personality in whose name the Assignee may sue and be sued as a representative of the interests of creditors. It is in that capacity that the present application is made.

[26] In answer to a question from the court as to the effect of s 118(a) of the Act, providing that a disclaimer has the effect of bringing to an end, on and from the date of the disclaimer, the rights of the Assignee in relation to the property disclaimed. Mr Slevin submitted that s 118(a) is concerned only with rights in the disclaimed property itself, and not with procedural rights conferred on certain parties under provisions of the Act such as s 119.

[28] First, I do not think s 118(a) precludes the claim. On my reading, s 118(a) is concerned with rights in the disclaimed property which are in existence as at the date of the disclaimer. The right to access the s 119 jurisdiction is not a right of that kind.

[29] The meaning of the expression “a person suffering loss or damage as a result of a disclaimer by the Official Assignee” in s 119(1) is to be determined in accordance with the meaning of the Act, as ascertained from its text, and in light of its purpose.⁵In this case, s 119 confers on the court a broad discretion to make a vesting order if it is satisfied that it is fair that the disclaimed property should be vesting in the applicant. It seems to me that the intention of the section is for the

court to make vesting orders where loss has been suffered and the justice of the case requires that a vesting order be made in order to put the matter right. In my view that “broad fairness” jurisdiction points to a liberal interpretation of the expression “a person suffering loss or damage as a result of disclaimer”, which is sufficient to give standing to the Assignee to apply under the section.

[30] The relevant “loss or damage” suffered by the “person” referred to in s 119(1) can in my view be loss or damage suffered by others who that person represents: a creditor who happened to be the trustee of a trust might not suffer any personal loss or damage, but I do not think anyone would suggest that the trustee would not be entitled to come to court under s 119(1) to seek a vesting order on behalf of the beneficiaries of the trust that he or she represents, if that was an appropriate course to take on the facts of the case.

[31] Insofar as the application is made by the Assignee of Mr Hanara’s estate, I think it is clear that that must be the position. The Assignee is required to get in and realise Mr Hanara’s assets for the benefit of his creditors, and if in the course of carrying out that function the Assignee considers that the disclaimer of Mrs Hanara’s interest in the property is causing loss or damage to Mr Hanara’s creditors, the Assignee must sensibly be able to access the s 119 jurisdiction on behalf of Mr Hanara’s creditors. It could not have been Parliament’s intention to leave that task to some individual creditor of Mr Hanara, who would have no statutory obligation to act in the interests of all creditors.

[32] The position might not be so clear in respect of the application insofar as it is

made by the Assignee in her capacity as Assignee of Mrs Hanara’s estate, but I

_{accept Mr Slevin’s submission that there is nothing in the Act
which expressly}

precludes the application, and he has been unable to identify any provision which impliedly has that effect. It might perhaps be argued that the intention of the disclaimer regime in the Act was to produce finality — everyone with an interest in the property would know once and for all that the Assignee had no further interest in the disclaimed property and could order their affairs accordingly.

[33] But it is not difficult to imagine circumstances where a disclaimer notice issued by the Assignee might cause immediate and significant loss to the bankrupt’s creditors, which ought to be corrected. For example, if some significant error has been made in taking the decision to disclaim it is difficult to see why the Official Assignee should not be entitled to apply for a s 119 vesting order to correct the mistake. Any problem arising out of acts or omissions of others in reliance on the “finality” of the disclaimer could be addressed by the Court in deciding whether qualifying loss or damage had been suffered, and if so whether it would be fair to vest the disclaimed property back in the Assignee.

[34] I accept that the Assignee applying in a representative capacity could not reasonably come within s 119(1)(a) of the Act, which allows the person applying to claim in the bankruptcy for the amount of the loss or damage. But I do not see that as a disqualifying factor on the standing issue: the fact that one of the two remedies available under s 119(1) might not be available in respect of a particular “person”, or in respect of a particular kind of “loss or damage”, does not in my view affect the standing issue. If a person can show that he or she (or those he or she represents) has suffered some kind of loss or damage as a result of the disclaimer, that is all that is required.

[35] I conclude that the Assignee had standing to apply under s 119, in her capacity as Assignee of both estates.

Issue (2) If the answer to issue (1) (a) or (b) is “yes”, has the Assignee suffered

[36] Mr Slevin first refers to ss 122 and 123 of the Act. Those sections provide:

(a) register, under the Land Transfer Act 1952, the transmission of the interest in the land to the Assignee; or

(b) give notice to the mortgagee or other person entitled under the charge that the Assignee cannot, or does not intend to, register transmission of the interest in the land.

(3) Notice under subsection (2)(b) is notice that the interest has vested in the Assignee, and the mortgagee or person entitled under the charge is, in the event of entering into possession or selling, liable to account to the Assignee as if the Assignee were the registered proprietor of the interest.

123 Assignee cannot claim interest in land if bankrupt remains in possession until discharge

(1) The Assignee cannot, after the bankrupt’s discharge, claim an interest in land to which section 122(1) applies and for which the Assignee has not registered a transmission if the bankrupt—

(2) Subsection (1) applies whether or not the Assignee gave a notice under section 122(2)(b).

(3) However, the Assignee may apply to the court for an order that the Assignee is entitled, after discharge, to claim the bankrupt’s interest in the land, and the court must have regard to—

[37] Mr Slevin notes that s 123 creates an exception to the ordinary bankruptcy regime by effectively revesting an interest in land in a bankrupt who has remained in possession of the land throughout the bankruptcy,⁶but only if the Assignee has

neither disclaimed the land⁷nor taken transmission of title.⁸Even then the former

bankrupt may be subject to an application by the Assignee to the court for an order

that the Assignee is entitled to claim the bankrupt’s interest in the land.⁹

[38] In this case, no notice was served on the Bank by the Assignee of Mrs Hanara’s estate under s 122(2)(b) of the Act, because the Assignee elected instead to disclaim Mrs Hanara’s interest in the property. For the same reason the Assignee could not register any transmission of Mrs Hanara’s interest in the property to the Assignee.

[39] Mr Slevin submits that, had Mrs Hanara’s interest in the property not been disclaimed, the Assignee would have taken a transmission of title to that interest under s 122(2)(a), for the benefit of Mrs Hanara’s creditors. He submits that the Assignee’s inability to do so is causing her loss in the sense that it is causing Mrs Hanara’s creditors to suffer a loss.

[40] On the alternative application, made on behalf of Mr Hanara’s estate, Mr Slevin submits that loss or damage has arisen as a result of the disclaimer because Mr Hanara’s half share in the property is effectively unsaleable. If there is a mortgagee sale Mr Hanara’s creditors are likely to lose the dividends they would

[41] In my view the Assignee cannot now say that Mrs Hanara’s estate has suffered loss or damage as a result of the disclaimer. At the time the disclaimer was issued the evidence shows that there was no equity in the property which might have been released for the benefit of Mrs Hanara’s creditors, and all that has happened since then is that three years have passed and the equity in the property has increased. In the meantime, the effect of the disclaimer was to release Mrs Hanara from her liabilities in relation to the property. And the increase in the equity in the property since the disclaimer appears to be attributable, at least in part, to Mr Hanara making payments to the Bank to prevent (or at least delay) a mortgagee sale.

[42] As far as Mrs Hanara’s estate is concerned, the position is really no different from someone taking a decision to give away a property which is of marginal value and comes with some onerous obligations attached. If that property later increases in value, in no sense could it be said that the person giving it away has suffered “loss or damage”.

[43] That view is not affected by ss 122 and/or 123 of the Act. Those sections might have been relevant if the issue had been whether it would be fair to Mrs Hanara to vest her interest in the property in the Assignee, but that is not the issue I am presently considering. There must be loss or damage resulting from the disclaimer before the question of fairness under s 119(3) arises.

[44] More generally, I do not think it could have been Parliament’s intention that the Assignee would be entitled to a “second bite at the cherry”, in the form of an entitlement to apply for a re-vesting order under s 119, in every situation where disclaimed property increases in value after the disclaimer. In my view there must be more than a post-disclaimer increase in value before there can be loss or damage for the purposes of s 119. Nor do I consider that the later bankruptcy of Mr Hanara could have the effect of converting something which was not a loss, into a loss.

[45] For those reasons, I conclude that the Assignee of Mrs Hanara’s bankruptcy has not suffered (and is not suffering) loss or damage as a result of the disclaimer. The application on behalf of Mrs Hanara’s estate will be dismissed accordingly.

[46] The position is different with the alternative application made by the Assignee on behalf of Mr Hanara’s creditors. I accept that Mr Hanara’s one half share in the property will not be readily saleable, and if an order in favour of his creditors is not made the property will almost certainly be sold by the Bank at a mortgagee sale. In that event, there must be a considerable risk that no dividend would be available for Mr Hanara’s creditors. The reason the Assignee is unable to realise Mr Hanara’s interest in the property flows directly from the disclaimer of Mrs Hanara’s one half interest — an item of property which (but for the disclaimer) could have been sold by Mrs Hanara or her Assignee acting in conjunction with Mr Hanara’s Assignee, to maximise the benefits for the creditors of both estates,

cannot now be sold.¹⁰The immediate losers will be the creditors in Mr Hanara’s

estate, who will probably not receive dividends they would have received had it not been for the disclaimer. For those reasons, I am satisfied that the Assignee, representing the creditors of Mr Hanara, is a person suffering loss or damage as a result of the disclaimer.

[47] I have not overlooked the concern mentioned by Mr Slevin that if a vesting order is made in favour of the Assignee of Mr Hanara’s estate that will, to some extent, result in a windfall benefit to Mr Hanara’s creditors (their dividends will be based on the net proceeds of sale of the property as a whole, including the half share formerly held by Mrs Hanara). That is a matter which I will address under issue 3, dealing with the fairness of the proposed order in favour of the Assignee as representative of Mr Hanara’s bankrupt estate.

Issue (3) If the answers to issues (1) ((a) or (b)) and (2) are both “yes”, would it be fair to make an order vesting Mrs Hanara’s interest in the property in —

¹⁰In a supplementary memorandum dated 2 May 2017, Mr Slevin advised that the Crown (the owner of Mrs Hanara’s half share in the property following the disclaimer), for reasons set out in the memorandum to which I need not refer, will not act jointly with the Assignee in a sale of the property.

[49] The position is different with Mr Hanara’s creditors. In my view it would be unfair to them not to allow the Assignee to obtain the best sale price which is reasonably obtainable for the property. (First, I accept that there is a reasonable prospect that the Assignee, selling on an open market without the appearance of any need for an immediate sale such as might be the case with a mortgagee sale, will achieve a better sale price than the Bank would be likely to achieve at a mortgagee sale. Secondly, the Assignee will not realistically be able to sell the property unless a vesting order is made.)

[50] I do not see any potential unfairness to Mr Hanara or Mrs Hanara if a vesting order is made. Mr Hanara has not applied for an order vesting Mrs Hanara’s interest in the property in him, and he has not opposed the application made by the Assignee on behalf of his creditors. The effect of the disclaimer was to relieve Mrs Hanara of her liabilities in relation to the property, and I accept Mr Slevin’s submission that Mrs Hanara could not have had any reasonable expectation of sharing in the proceeds of an eventual sale of the property: if it had not been for the disclaimer, the Assignee would have registered a transmission of Mrs Hanara’s interest under s 122 of the Act.

[51] The only real issue under s 119(3) is whether there would be any unfairness to Mrs Hanara’s creditors if an order were made vesting Mrs Hanara’s former interest in the property in the Assignee for the sole benefit of Mr Hanara’s creditors. The issue is an unusual one, and Mr Slevin was unable to refer me to any case in which it has arisen previously. Nor does there appear to be any jurisdiction in s 119 for the court to make a conditional order (for example, vesting Mrs Hanara’s interest in the property in the Assignee of Mr Hanara’s estate, subject to an obligation to hold one half of the net proceeds of sale for Mrs Hanara’s creditors).

[52] I do not think there would be any unfairness to Mrs Hanara’s creditors if a vesting order is made on the alternative application. Their only reasonable expectation was that the Assignee would get in and realise the bankrupt’s property, and make any distributions to creditors, within a reasonable time. At the time of the disclaimer Mrs Hanara’s interest in the property was probably worth nothing — realistically, the only buyer would have been Mr Hanara, and (given the evidence of

the property value at the time and the amounts owing to the Bank and Avanti) there is nothing to suggest he would have been prepared to pay anything more than a nominal sum for Mrs Hanara’s interest. I do not see why Mrs Hanara’s creditors should be put in a better position now than they would have been in if the Assignee had sold Mrs Hanara’s interest in the property to Mr Hanara for some nominal amount shortly after her bankruptcy commenced.

[53] I accept that there would be a modest “windfall benefit” for Mr Hanara’s creditors if a vesting order were made in their favour. It would be equivalent to one half of that part of the increase in the equity in the property between the date of the disclaimer and the date of sale, which is attributable to inflation. But I do not think any part of the increase in the equity in the property since the disclaimer which is attributable to improvements made to the property, or to reductions in secured debt, would confer any “windfall benefit” on them.

[54] There is nothing to suggest that Mr or Mrs Hanara made any improvements to the property after January 2014 which improved its value. But it appears that roughly half of the increase in equity has arisen from debt repayments made since the disclaimer. The total of the Bank debt and the Avanti debt as at 20 January 2014 was approximately $345,500, while the corresponding figure as at 20 December

2016 was only approximately $309,100. It seems unlikely that Mrs Hanara would have been making any substantial payments to the Bank or Avanti while she was an undischarged bankrupt, and to the extent that it was Mr Hanara who reduced the debts I do not think any question of a windfall benefit to his creditors arises.

[55] In the end, I think any contest on the “unfairness” issue is between Mr Hanara’s creditors on the one hand, and the Crown on the other. In circumstances where the amount in issue is relatively small, some loss is likely to be suffered by Mr Hanara’s creditors if a vesting order is not made, and the Crown does not wish to take any steps to realise or otherwise deal with its interest in the property, I consider it fair to vest Mrs Hanara’s one half interest in the property in the Assignee, in her capacity as Assignee of the bankrupt estate of Mr Hanara. I make an order accordingly.

High Court of New Zealand Decisions

Hanara; ex parte the Official Assignee [2017] NZHC 902 (5 May 2017)