COMMISSIONER OF INLAND REVENUE v MEREDITH [2015] NZHC 3030

COMMISSIONER OF INLAND REVENUE v MEREDITH [2015] NZHC 3030 [2 December 2015]IN THE HIGH COURT OF NEW ZEALANDWHANGAREI REGISTRYCIV-2015-488-100[2015] NZHC 3030UNDER the Insolvency Act 2006IN THE MATTER OF the bankruptcy of TIMOTHY VIVIANMEREDITHBETWEEN COMMISSIONER OF INLANDREVENUEApplicantAND TIMOTHY VIVIAN MEREDITHRespondentHearing: 2 December 2015Appearances: P J Smith for ApplicantRespondent in personJudgment: 2 December 2015ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELLSolicitors:Crown Solicitor, Whangarei, for Judgment Creditor[1] The Commissioner applies for Mr Meredith to be adjudicated bankrupt. She obtained judgment against Mr Meredith in the District Court at Kaikohe on 7 May 2015 for $1,039,407.60. Mr Meredith did not defend the claim.[2] The Commissioner arranged for a bankruptcy notice based on the District Court judgment to be served on Mr Meredith. He was served on 27 July 2015. Mr Meredith had 10 working days in which to comply with the notice. He did not comply. The Commissioner relies on that non-compliance with the notice as the act of bankruptcy in her application.[3] The application has attached to it a schedule which sets out the amounts Mr Meredith owes the Commissioner in taxes as at 11 August 2015. The total debt under that schedule, taking into account ongoing interest and penalties, comes to $1,175,877.20. For the hearing today, however, Mr Smith has provided a certificate showing the amount due under the judgment. He has not relied on interest and penalties that have accrued since judgment. The schedule shows that Mr Meredith has not paid goods and services tax from May 2008 through to 30 November 2014, and he has not paid income tax assessed for the years from 31 March 2009 to 31 March 2013. The core unpaid goods and services tax is $147,086.47; the core unpaid income tax is $409,229.95. Clearly the debt has been increased by interest and penalties. The schedule does not show any payments by Mr Meredith. TheCommissioner's case is that the amounts owing under the judgment remainunsatisfied as at today. On what I have set out so far, the Commissioner has satisfied the requirements of s 13 of the Insolvency Act 2006.[4] The case was first called on 30 November 2015. Ahead of that call, Mr Meredith filed a notice indicating that he would not be able to attend court that day, a notice of his intention to oppose the application and an affidavit. I adjourned the matter until today and gave directions for Mr Meredith to be informed of the hearing today. Mr Meredith has appeared and addressed me in opposition to the application.[5] The Commissioner relies on the documents served on Mr Meredith and has not adduced any further evidence apart from handing up the normal certificate as to non-payment of the debt and providing a schedule as to costs sought.Mr Meredith's current bankruptcy[6] As part of the usual enquiries made on bankruptcy applications, the registrar made enquiries with the Insolvency and Trustee Service as to the cases to be heard on 30 November 2015. The Service advised that Mr Meredith had already been adjudicated bankrupt in the Auckland High Court on 8 April 2008 and that he had not yet been discharged. In response to a minute I issued, the Official Assignee confirmed the adjudication and that Mr Meredith had not been discharged. The Official Assignee explained that Mr Meredith had not filed a statement of affairs under s 67 of the Insolvency Act and accordingly the time had not started running under s 290(1) of the Insolvency Act for the three years for an automatic discharge.[7] The Official Assignee's memorandum helpfully referred to s 232(1) of theInsolvency Act 2006:What debts are provable debts(1) A provable debt is a debt or liability that the bankrupt owes—(a) at the time of adjudication; or(b) after adjudication but before discharge, by reason of an obligation incurred by the bankrupt before adjudication.Clearly, if a debt is provable in Mr Meredith's current bankruptcy, it cannot be the subject of an application for a further adjudication. I am satisfied that all the debts that the Commissioner is relying on were incurred after adjudication and are for obligations that fell due after adjudication. That is because the taxes were assessed no earlier than May 2008 and that was after Mr Meredith had been made bankrupt.It is accordingly open to the Commissioner to apply for Mr Meredith's adjudicationnotwithstanding his current bankruptcy. I note also that it is apparent from ss 134 and 135 of the Insolvency Act that there may be a second bankruptcy even though a debtor may not have been discharged from his or her first bankruptcy.Mr Meredith's defence[8] Mr Meredith explained that the documents he relied on had been prepared for him with assistance from Nga Tikanga Maori Law Society Inc o Aotearoa. That is not a body of recognised lawyers. In my view the documents have not given Mr Meredith any real assistance in opposing the Commissioner's application.[9] Mr Meredith has attached as exhibits to his affidavit a series of documents. He contends that these are bills of exchange, that the Commissioner accepted them and, by reason of that, his liability under the judgment has been discharged.[10] I deal with just one document. My findings on that document apply to the others. It is dated 10 July 2015. It is a one page document. The top half of the document says this:Please find attached below a bill of exchange, for One Million Thirty Nine Thousand Four Hundred and Seven Dollars and Sixty Three Cents. Re CIV- 2014-027-000232 Payment tendered for Timothy Vivian Meredith.[11] The bottom half of the page has a heading "Tax Invoice – Bill of Exchange".User AccountDraw on IRD; 99-467-770 10 July 2015.For this Bill of Exchange Pay; Inland Revenue $NZ1,039,407.63Mr Meredith has signed that document. Attached to it is a further document from CourierPost showing that the document was delivered to the offices of the Inland Revenue Department in Wellington on 16 July 2015.[12] In the body of his affidavit, Mr Meredith has referred to certain legal writings. He has cited, amongst other things, this dictum of Lord Denning MR inFielding & Platt Ltd v Najjar:1We have repeatedly said in this court that a bill of exchange or a promissory note is to be treated as cash. It is to be honoured unless there is some good reason to the contrary.1 Fielding & Platt Ltd v Najjar [1969] 1 WLR 357 (CA) at 361.[13] Mr Meredith's case is that the document is a bill of exchange and the effect of it was to discharge his liability to the Commissioner.[14] A "bill of exchange" is defined under s 3(1) of the Bill of Exchange Act 1908:A bill of exchange is an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand, or at a fixed or determinable future time, a sum certain in money to or to the order of a specified person, or to bearer.Section 5(2) provides:Where in a bill drawer and drawee are the same person, or where the drawee is a fictitious person or a person not having capacity to contract, the holder may treat the instrument, at his or her option, either as a bill of exchange or as a promissory note.Under s 6(1):The drawee must be named or otherwise indicated in a bill with reasonable certainty.[15] Mr Smith advised that the IRD number 99-467-770 appears to be Mr Meredith's own tax number. I take it then that the drawee under this purported bill of exchange is Mr Meredith himself. As I see it, the effect of Mr Meredith preparing the document and signing it as drawer and making the drawee himself, is to make a promissory note. I take it that the payee under the document is the Commissioner.[16] In answer to my questions, Mr Meredith advised that he did not have any funds out of which he could pay the sum stated in this purported bill of exchange, and indeed he did not have any assets out of which he could realise $1m. That simply confirms the Commissioner's case that Mr Meredith is truly insolventbecause he cannot meet his lawful liabilities. It also shows that as a promissory note the document is worthless. Any proceeding against Mr Meredith on the promissory note will not produce any funds for the Commissioner. This document, delivered to the Commissioner before the bankruptcy notice was issued, was worthless as a way of actually paying the debt and clearing Mr Meredith's liability to the Commissioner.The point remains that Mr Smith's certificate is correct and Mr Meredith has not cleared his debt under the judgment.Exercise of discretion[17] Even though a creditor may make out the grounds under s 13 of the Insolvency Act, the court has a discretion whether to make an order of adjudication. When the court is asked to exercise that discretion the onus is on the debtor to show reasons why the debtor should not be adjudicated bankrupt. In Baker v Westpac Banking Corporation Richardson J said:2The principles governing the exercise of the discretion under s 26 to grant or refuse an order of adjudication in bankruptcy are well settled and have been discussed by this Court in recent years in Ellis v NZI Finance and McHardy v Wilkins & Davies Marinas Ltd (in receivership). It is proper for the court to consider not only the interest of those directly concerned - the petitioner, other creditors, the debtor - but also the wider public interest. 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. The court will give proper weight to the commercial judgment of the petitioner but the oppressive use of the bankruptcy process may be a ground for refusing an order. Another ground may be the undoubted absence of assets but that will not necessarily preclude an order given the range of interests involved including the public interest in the continuing oversight of a bankrupt's affairs and thedisqualifications that go with bankruptcy. In the end the court must balance the various considerations relevant to the case and determine whether the debtor has succeeded in showing that an order ought not to be made.[18] Mr Meredith did not address any particular reasons why the court in its discretion should not make an order adjudicating him bankrupt. While he has been bankrupt, Mr Meredith has incurred further liabilities. The nature of the taxes, income tax and goods and services tax, would suggest that he has been carrying on some form of business activity. Goods and services tax is chargeable on taxable activities which are invariably in the nature of a business. It is of concern that Mr Meredith has incurred very significant liabilities to the Commissioner of Inland Revenue while an undischarged bankrupt. That is a strong reason to bring his affairs under independent control. That can be achieved by making a fresh order of2 Baker v Westpac Banking Corporation CA202/93, 13 July 1993 at 4 (citations omitted). The case was decided under the Insolvency Act 1967 but has been applied under the current Insolvency Act.adjudication so that the Official Assignee can take charge of his affairs and carry out proper investigations.[19] It may also be useful if the Official Assignee could check on Mr Meredith'sactivities to ensure that he does not engage in any fresh business activities while he is bankrupt. Mr Meredith needs to bear in mind that under bankruptcy there are restrictions on carrying on any business activity and on incurring credit.[20] In the absence of any factors favouring the exercise of the discretion in his favour, and given strong public reasons for protecting the community from any further business activity from Mr Meredith, it is clear that an order for adjudication ought to be made. I accordingly make an order adjudicating Mr Meredith bankrupt. The time of the order is 11:58am.[21] I make an order for costs in favour of the Commissioner of $3,122.00 plus disbursements of $1,699.90, a total of $4,821.90.[22] I also encourage Mr Meredith to co-operate with the Official Assignee. Every bankrupt is required to provide a statement of affairs to the Official Assignee. The trouble with lack of co-operation on that is that time will not start running for the bankrupt to be discharged under s 290. The sooner Mr Meredith can provide the Official Assignee with the information required for a statement of affairs, and he signs that document, the sooner time will start to run to obtain a discharge...Associate Judge R M Bell