MOULD & ORS v MITCHELL [2015] NZHC 1495

MOULD & ORS v MITCHELL [2015] NZHC 1495 [30 June 2015]IN THE HIGH COURT OF NEW ZEALANDHAMILTON REGISTRYCIV-2014-419-237[2015] NZHC 1495IN THE MATTER of the Insolvency Act 2006BETWEEN JEREMY ALICK MOULD, CARLYJEAN MOULD AND OLIVIA JEANMOULDJudgment CreditorsAND RAEWYN NATALEE MITCHELLJudgment DebtorHearing: 16 June 2015Appearances: Mr Scotter and Mr Burtenshaw for judgment creditorsMs Mitchell in personJudgment: 30 June 2015JUDGMENT OF ASSOCIATE JUDGE J P DOOGUEThis judgment was delivered by me on30.06.15 at 4 p.m., pursuant toRule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDateIntroduction[1] This case deals with an application by the judgment creditors for an adjudication order against the judgment debtor.Background[2] The judgment creditors served Ms Mitchell ("the debtor") with abankruptcy notice on 23 June 2014. That notice expired without the debtor taking the action required in it and she is therefore deemed to have committed an act of bankruptcy. She does not dispute that she committed an act of bankruptcy.[3] The debt was based upon an order for costs which was made in the High Court in Hamilton on 9 December 2013, together with disbursements and interests thereon.[4] The costs order followed the making of an order of the High Court removing the debtor and a Mr P R Harvey as trustees in the estate of the late K A Mould. The application was based on allegations made against the trustees that they were proposing to spend funds from the estate to make improvements to a house property, in circumstances where such application of funds would be a breach of thetrustees' obligations to the estate and the beneficiaries thereof. The trustees consented to an order being made removing them from Office. It was because the concession came late in the piece that the costs had reached quite a high level which will be apparent from the size of the amount claimed in the bankruptcy notice.[5] Following the expiry of the bankruptcy notice, the creditors made an application for an adjudication order against the debtor. The notice of opposition, which the debtor filed in person, asserted two grounds of opposition to the making of the order. The first was that she was unable to remedy the debt owed to the judgment creditors because of her terminal illness. From the evidence generally which the debtor relied upon, it is plain that she is terminally ill with cancer and, regrettably, does not have a great life expectancy ahead of her. Secondly, she saidshe was unable to satisfy the debt because of the circumstances of her financial situation. She said that she was a state beneficiary and had been for some 10 years, that she has no employment, and is limited to carrying out voluntary work for the Raglan Coastguard. She also deposed that she was living in a leasehold house at Raglan and that she did not own any item of significant property.[6] The creditors were initially sceptical about both of these principal assertions but, after receiving corroborating evidence from medical specialists, Mr Scotter advised me at the beginning of the hearing that the creditors now accept the health situation of the debtor is as I have set out above.[7] The creditors, however, retain their suspicions about the alleged financial circumstances of the debtor. Consequent upon an order that Sargisson AJ made, the debtor provided some corroborating information about her financial circumstances in the form of bank statements and credit card statements. I will comment on this information further on in this judgment.Law[8] Section 13 of the Insolvency Act 2006 (the Act) provides:13 When creditor may apply for debtor's adjudicationA creditor may apply for a debtor to be adjudicated bankrupt if—(a) the debtor owes the creditor $1,000 or more or, if 2 or more creditors join in the application, the debtor owes a total of $1,000 or more to those creditors between them; and(b) the debtor has committed an act of bankruptcy within the period of 3 months before the filing of the application; and(c) the debt is a certain amount; and(d) the debt is payable either immediately or at a date in the future that is certain.[9] Section 36 of the Act permits the Court, in its discretion, to adjudge the debtor bankrupt if the creditor has established those requirements. The important general principles involved in the exercise of that discretion can be summarised as follows:(a) A creditor who establishes the jurisdictional facts set out in s 23 is not automatically entitled to an order. On the other hand, it is for an opposing debtor to show why an order should not be made.1 Fisher J in Re Fidow illustrated the required approach in similar terms.2(b) In determining whether an order should be made, the wider public interest must be taken into account3 to determine whether adjudicationis "conducive or detrimental to commercial morality and the interests of the general public."4(c) Absence of assets is a factor but is not factor that weighs against the making of an order:5[E]ven the undoubted absence of assets will not necessarily preclude an order, for the circumstances may be such that the debtor ought inthe public interest to be visited with the disqualification's that gowith bankruptcy.(d) Where the affairs of the bankrupt require further investigation, that will be a factor pointing toward the necessity for an order of adjudication. As Fisher J stated in Fidow, it is relevant because:6A bankruptcy makes available to creditors an array of procedures for investigating the financial circumstances of the debtor. Those procedures are likely to prove more effective than an investigation conducted by other means.(e) Where an act of bankruptcy has been established, the decision whether or not to make an order of adjudication requires a balancing exercise, "to determine whether in the end the debtor has succeeded in showing that an order ought not to be made".71 McHardy v Wilkins & Davies Marinas Ltd (in receivership) CA54/92, 7 April 1993 at 3.2 Re Fidow [1989] 2 NZLR 431 (HC) at 439.3 See Re Fidow, above n 2, at 444; and McHardy, above n 1, at 3.4 Re Nisbett, ex parte Vala (1934) GLR 553 (NZSC) at 556.5 McHardy, above n 1, at 3.6 Above n 5, at 444.7 McHardy, above n 1, at 4.[10] The propositions relevant to the exercise of the Court's discretion referredto above will now be considered in light of the specific matters advanced by the debtor in opposition to the making of an order of adjudicationAnalysisEvidence about the state of the debtor's finances[11] Because the debtor had asserted that her financial position was such that she would not be able to make any payment towards her debt, she was directed to provide evidence of just what the financial position was. She responded by providing a reasonably comprehensive set of financial records, taking the form of credit card and bank statements. In addition, Mr Scotter cross-examined her on her financial position and the financial records that she had disclosed. I also had the benefit of an analysis which junior counsel for the creditors, Mr Burtenshaw, had prepared. It appears from all this evidence that there are some unusual features to the way in which the debtor manages her finances. There was evidence that there had been substantial withdrawals from her bank account over the period March 2014 to March 2015. In that period, a total of $16,710.10 had been withdrawn. Some of these withdrawals included money paid to GE Money with the narration being"Pepper Grey 4-625". This, the debtor said, was money that she had paid toGE Money on behalf of a trust that two of her sons were involved in which owned anapartment in Hamilton. This was referred to in the debtor's bank statements as the "Pepper-Grey" payments. The debtor said that the money going out of her accountwas money deposited to pay for a mortgage over the property. She said her son had put the money into her account to pay a mortgage.[12] The statements showed that she had also paid $5,000 out of her bankaccount in October 2014 for the "L D Trust". The debtor said that this money hadbeen repaid, which apparently is the case. She said that she did not have any ideawho "L D Trust" was but that her daughter-in-law had "organised it".[13] Another surprising feature of the financial records that were put before the Court was that the debtor had permitted a number of people to use her bank accountsand credit cards in various ways. In some cases, this involved those people having access to her pin number. An example was a friend of hers who resides in the Chatham Islands, called Megan or Margaret, whom she permitted to use her credit card, having access to the pin numbers for that purpose.[14] It also became apparent that the debtor had permitted her bank account to be used as a repository of money which was owing from third parties to her former caregiver. That came about in circumstances, she said, where the former caregiver had sold a dog which she had bred, apparently on Trade Me, and needed the bank account for money to go into.[15] The debtor told me that she was unable to explain the circumstances of the $2,000 cheque withdrawal made from her bank account on 12 March 2015. The account was also used apparently to receive rent paid on a trust property owned by her two sons in Hamilton. She said that most of her family used her account. It appeared that the debtor received this rent because she was a property manager collecting the rent from the property. This she said she did on behalf of her sons.[16] She was questioned about credits received from Ms J Pontarero, totalling $2,139.00. Ms Pontarero, the debtor said, is her granddaughter. The debtor paid $4,000 in 2014, she thought, to pay for her granddaughter to travel to France. Even though the payments into the account were only $2,139.00, the debtor said that hergranddaughter's parents had paid back the full $4,000. She said that her daughter owed her in excess of $10,000 and that she received payments from her from time- to-time. She had also made purchases for a person called Addis, who was apparently indigent and that person owed her $600 at the present time. On another occasion,her caregiver's daughter was "stuck in Melbourne with her baby" leading to thedebtor purchasing an air ticket on her credit card to bring the daughter home and the money for that, some $700.00, has still to be repaid.[17] I shall attempt to put this information into context when discussing its relevance to the proceeding which is now before the Court.Significance of the debtor's financial status[18] The debtor comes to the Court seeking the exercise of its discretion in her favour by declining to order her adjudication. I have earlier referred to the principles which have been established by the leading cases in this area. The fact is that in the normal course of events, a person who has not complied with a bankruptcy notice and committed an act of bankruptcy will be adjudicated bankrupt.8 In exercising the discretion, the Court is not confined to considering the wishes of the debtor and any creditor.[19] Dealing with her financial circumstances, as a discrete subject in its own right, I consider the following matters to be significant. The financial information which the debtor disclosed in evidence before me is not very clear. While the bank account and credit card records have been provided, these accounts are operated in such an unorthodox way that it is difficult to disentangle what funds in those accounts are properly viewed as belonging to the debtor, and which belong to other persons to whom she says she makes her accounts available. As well, the debtor was uncertain in answering questions about her finances and seemed to be unclear as to what some of the items in her account were concerned with. The picture in totality isthat I do not have a satisfactory or clear understanding of the debtor's financialposition.[20] I accept that if it were clear that the debtor had no assets, that would be a matter to be put in balance and which would weigh against the making of an order of adjudication.9 However, because of the uncertainties aboutthe debtor's financial position, an investigation by the Official Assignee may be salutary. Further, there is a public interest in controlling an insolvent debtor and this weighs with the Court because, in the present circumstances, the manner in which the debtor conducts her personal finances is not only unorthodox but raises real questions of whether some creditors will eventually suffer loss at her hands.8 Re Fidow, above n 2, at 439.9 Re Fidow, above n 2, at 444.[21] Against all of that, there has been no evidence put forward to refute thedebtor's evidence that she does not own any substantial asset. However the intermingling of rent from a residential property with other funds held by the debtor does raise questions about whether she may not have an interest in such a property. She, herself, dismisses the significance of rental payments into her bank account as being explained by the fact that she was acting in the capacity of a property manager.[22] If it were clear to me that the debtor indeed had no significant assets, then that factor, coupled with her very difficult health circumstances, would have persuaded me that it was not in her interest or the public interest for there to be an order of adjudication in this case. However, because of the very real hesitations I have about the overall accuracy of the financial evidence, I cannot come to such a view.Bankruptcy in the context of the debtor's illness[23] There was no significant evidence put before me about how a bankruptcy adjudication would impact the difficult health situation that the debtor finds herself in. She told me that she is currently receiving two separate treatments, which cost respectively $7,000 and $8,000 a month. She had recently been discontinued as a recipient of the $8,000 treatment. She said she was fearful that she will also lose the $7,000 per month treatment. She told me that, to this point, those treatments have been provided gratis by the drug company which produces the medicines in question. The drug company apparently made the drugs available at no charge on compassionate grounds.[24] Clearly, there is no possibility on the face of the evidence which the debtor has put before the Court that she could continue receiving those medications on a paid basis. That situation is unaffected by the question of whether or not she is adjudicated bankrupt. There is no evidence before me that other medical treatments which she requires to palliate her condition involve payments out of her own pocket. That said, it is no doubt likely that she is required to pay something for visits to her general practitioner. However, I have little doubt that if she wereadjudicated bankrupt, the Official Assignee would not allow a situation to result where she could not go to her doctor because she is unable to pay for the fees.Conclusions[25] The debt which Ms Mitchell owes to the creditors is approximately $35,000. She agrees that she has not taken any steps to pay off any of this amount. She has been served with a bankruptcy notice and has committed an act of bankruptcy in that the notice expired without being complied with. She resists the making of an order adjudicating her bankrupt. The first ground is that she is terminally ill. The second is that her financial position is such that there would be no point in making an order for her bankruptcy.[26] The judgment creditors accept that the debtor is terminally ill and say that, while the judgment creditors are not unsympathetic to her state of health, it is not a reason on its own why she should not meet the obligation that she has to the judgment creditors.[27] It is necessary to resolve the relevance of this issue to the present application. There is no doubt that the making of an order in adjudication is in itself inherently detrimental to a debtor. It affects the reputation of the debtor. He or she loses financial autonomy to control their affairs as they wish. The bankrupt is also prohibited from entering into business. Given that the debtor has been a state beneficiary for some 10 years, it is unlikely that this last consideration would have any effect on her life.[28] I have commented already on the fact that being adjudicated bankruptwould not appear to alter the debtor's ability to manage her very difficult healthcondition.[29] One matter that has not been mentioned so far is the fact that the debtor has given evidence that she does not own any real estate and that she lives in a leasehold property. Her overall financial circumstances were the foundation for her view that there would be nothing to be gained from adjudicating her bankrupt. It is that issuethat I address next. It is plainly a matter which the Court must consider in the light of the authorities set out the beginning of this judgment.[30] The link between her bank account and the Copperwoods property whichher sons' family trust owns in Hamilton is one matter that does raise question marks.[31] It is difficult to understand why mortgage payments for that property havepassed through the debtor's bank account and that rent has been received into it. Itwould seem surprising that the trust which, the debtor said, owns the building does not have its own bank account, having regard to the fact that it has apparently been in business of renting the property out. It is possible that the trustees have decided on the grounds of expense of maintaining their own bank account, that it ispreferable to use the debtor's bank account as the repository for income received andoutgoings to be paid on the property. Against that, though, is the consideration thatthe mortgage payments that went out of the debtor's bank account only span a period of some five months. It is possible that the mortgage was repaid or refinanced but, in the absence of an explanation of that kind, the question that suggests itself is whether the payments were made out of another bank account(s) before and after the five month period to which I have just made reference.[32] The explanation that the debtor gave, that she was functioning as a"property manager", raises some questions as well. One can understand why a parent would be prepared to assist his or her children by assisting in this way but it is difficult to see quite what she would have to offer in this capacity, given her age and her very poor state of health, apart from making her bank account available for the rent.[33] At the end of the day, the overall quality of the evidence that has been presented about the financial situation of the debtor (and not just the points I have been discussing in the immediately preceding paragraphs) leave one in a state ofuncertainty about the exact state of the debtor's finances. In such a circumstance, it would not be reasonable to accept the face value assertions that the Court ought not to make a bankruptcy order because, the debtor owning nothing, no practical benefit will accrue from the making of such an order.[34] My conclusion is that, on balance, this is a case where an investigation ofthe debtor's affairs would be helpful.[35] The unenviable circumstances which the debtor faces as a result of the state of her health and her finances mean that the Court must be sensitive to any hardship that might potentially be caused to her resulting from the making of an adjudication order.[36] In this regard, though, some reassurance is available from the fact that it is open to a bankrupt to make an application for discharge at any time and no doubt if the debtor were bankrupted and made such an application, then after considering matters including the extent of her cooperation with the Official Assignee, it would be open to the Court to make an order in her favour.[37] As well, I am confident that the Official Assignee would show sensitivity towards the difficulties under which the debtor is currently labouring. I would not expect that the debtor will encounter any problems in having available to her sufficient funds (to the extent that they are available from her bankrupt estate and from her income) in order to meet her medical needs.Results[38] For all of these reasons, I consider that an order of adjudication ought to be made in this case. The order will take effect at the time when this judgment is delivered.[39] There will be an order for costs in favour of the judgment creditors on a 2B basis together with disbursements approved by the Registrar._____________J.P. DoogueAssociate Judge