OFFICIAL ASSIGNEE V SPENCER HC AK CIV-2007-404-848

OFFICIAL ASSIGNEE V SPENCER HC AK CIV-2007-404-848 22 September 2011IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2007-404-848BETWEEN OFFICIAL ASSIGNEE INBANKRUPTCY OF THE PROPERTY OFKIM HILTON SPENCERApplicantAND KIM HILTON SPENCER (ABANKRUPT)RespondentHearing: 7 June 2011Appearances: N H Malarao and K H Kuang for the ApplicantRespondent in personJudgment: 22 September 2011 at 3:00 PMJUDGMENT OF PETERS JThis judgment was delivered by me on 22 September 2011 at 3:00 pmpursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate: ........................................Solicitors: Meredith Connell, Auckland (email: nick.malarao@meredithconnell.co.nz;kathleen.kuang@meredithconnell.co.nz)Copy to: Mr K H Spencer, 109 Vipond Road, RD5, Wellsford[1] Mr Spencer was adjudicated bankrupt on 1 August 2007. In the usual course of events, he would have been discharged from bankruptcy three years from the date of adjudication, that is on 1 August 2010.1 The Official Assignee ("Assignee") has, however, objected to Mr Spencer's discharge. The issue I have to decide is whether to order the discharge of Mr Spencer from bankruptcy and, if so, whether the discharge should be subject to any condition or qualification.Background and statutory scheme[2] Matters concerning Mr Spencer's bankruptcy are governed by the Insolvency Act 1967 ("the Act").[3] Mr Spencer was adjudicated bankrupt for the first time on 10 September 1997. He was discharged by operation of the Act on 10 September 2000.[4] The Court adjudicated Mr Spencer bankrupt for a second time on 1 August 2007, pursuant to a petition presented by a bank ("judgment creditor").The judgment creditor obtained judgment against Mr Spencer in December 2006 for the sum of $2,068,727.36. The judgment arose from a guarantee which Mr Spencer had granted to the judgment creditor. Mr Spencer was also indebted to another financial institution, again pursuant to a guarantee, in the sum of $2,428,034.29. The claims which creditors have lodged in Mr Spencer's estate total approximately $4,800,000.00.[5] Before the expiration of three years from the date of adjudication, the Assignee entered an objection to Mr Spencer's discharge.2 The Assignee called on Mr Spencer to appear before the Court for public examination pursuant to s 109(1) of the Act. The Assignee also filed a report dated 27 May 2011 ("report") inaccordance with s 109(2) of the Act.1 Insolvency Act 1967, s 107(1).2 Ibid, s 107(3).[6] Sections 109(1) and (2) of the Act read as follows:109 Examination of bankrupt concerning his discharge(1) If any objection has been entered in accordance with subsection (3) of section 107 of this Act and not withdrawn, or in any case to which subsection (6) of that section applies, the Assignee shall, as soon as practicable after the expiration of 3 years from the date of adjudication or the date of the commencement of this Act, whichever later occurs, call on the bankrupt to appear before the Court to be publicly examined concerning his discharge, and the Court shall conduct the examination.(2) Where the Assignee has so called on the bankrupt to appear before the Court to be examined concerning his discharge, or where the bankrupt has made an application for his discharge under section 108 of this Act, the Assignee shall prepare and file in the Court a report as to the affairs of the bankrupt, the causes of his bankruptcy, and the manner in which the bankrupt has performed the duties imposed on him under this Act or obeyed the orders of the Court and as to his conduct both before and after the bankruptcy, and as to any other fact, matter, or circumstance that would assist the Court in making its decision....[7] At an examination conducted pursuant to s 109(1), the Court has the powers conferred by s 110(1) of the Act, which reads as follows:110 Court may grant or refuse discharge(1) At the hearing of any application for an order of discharge under section 108 of this Act, or at any examination under section 109 of this Act, the Court, having regard to all the circumstances of the case, may:(a) Grant an immediate order of discharge:(b) Grant an order of discharge subject to such conditions (including consenting to any judgment or order for the payment of any sum of money) as it thinks fit, or suspend an order for discharge for such time as it thinks fit:(c) Grant an order of discharge with or without such conditions as it thinks fit to take effect at a specified future date:(d) Refuse an order of discharge, in which case the Court may specify the earliest date on which the bankrupt may apply again to the Court for an order of discharge....[8] The examination referred to in [5] above took place before me on 7 June 2011. Mr Spencer was not represented at the examination. At the conclusion of the examination, Mr Spencer told me that he did not wish to remain at Court for the remainder of the hearing, and he left. Counsel for the Assignee then made submissions in support of the Assignee's objection to an order discharging Mr Spencer from bankruptcy. At the conclusion of the hearing I gave leave to the Assignee to file an affidavit to update the position as to steps the Assignee had taken in the bankruptcy and as to actions the Assignee proposed to take if I declined an order of discharge. The Assignee subsequently filed an affidavit regarding these matters.[9] In submission, counsel said that the Assignee sought an order extending the term of Mr Spencer's bankruptcy for three years, and that Mr Spencer be discharged thereafter on terms prohibiting him from the acts listed in s 111(1) of the Act, which reads as follows:111 Court may order bankrupt not to engage in business after discharge(1) Without restricting the provisions of section 110 of this Act, the Court, when granting the order of discharge or at any earlier time, may make an order prohibiting the bankrupt after his discharge from doing all or any of the following things without the leave of the Court:(a) Entering into or carrying on any business or class of business either alone or in partnership with any person:(b) Being engaged in the management or control of any business carried on by or on behalf of, or being in the employ of, any of the following persons, namely, the bankrupt's wife or husband, a lineal ancestor or descendant of the bankrupt, the wife or husband of such an ancestor or descendant, a brother of the bankrupt, the wife of such a brother, a sister of the bankrupt, and the husband of such a sister:(c) Acting as a director or taking part directly or indirectly in the management of any company or class of company.[10] Alternatively, if the Court proposed to make an order for Mr Spencer'simmediate discharge, the Assignee submitted that the Court should make the order subject to the prohibitions referred to in s 111(1) for a period of five years.Report[11] It is not necessary to address the contents of the report in detail. The principal issue which appears from the report is the Assignee's concern as to the manner in which Mr Spencer has conducted himself in his bankruptcy and his failure to perform the duties imposed on him by the Act.Exercise of the Court's discretion[12] The approach to be adopted in a case where there is an objection to discharge was described as follows in ASB Bank v Hogg:3In conferring a discretion expressed in the broadest terms, the legislation recognises that each case will be different, that the relevant factors may vary from case to case and that 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. In providing for automatic discharge after three years, the legislation recognises that it is not in the public interest that the bankruptcy should endure indefinitely. In providing for earlier discharge, s 108 recognises that continuing the bankruptcy to the end of the three years may not be in the public interest. Whether or not it is will be a matter for decision on the particular facts. In that regard, guidance is provided by s 109(2) which lists matters on which the Assignee is to report to the High Court in such a case. The Court is to consider the Assignee's report as to the affairs of the bankrupt, the causes of the bankruptcy, the manner in which the bankrupt has performed the duties imposed on him or her under the Act and his or her conduct both before and after the bankruptcy, and also as to any other fact, matter or circumstance that would assist the Court in making its decision. Clearly the Court apprised of the matter will consider the legitimate interests of the bankrupt, the creditors and wider public concerns, but it is neither required nor entitled to impose threshold requirements in the exercise of the discretion so as to derogate from the breadth of the powers conferred under s 110.[13] In considering whether to order a discharge, the Court is required to weigh all relevant matters and these generally will include:(a) the interests of the bankrupt;(b) the interests of creditors;3 ASB Bank v Hogg [1993] 3 NZLR 156 (CA) at 157.(c) the public interest;(d) commercial morality; and(e) the conduct of the bankrupt.4[14] In opposing Mr Spencer's discharge, the Assignee has the onus of satisfying me that I should refuse an order of discharge or that I should impose any condition or qualification on a discharge, if ordered.5[15] I turn now to consider the matters identified above, which I am satisfied are sufficient to address the circumstances of this case which are relevant.Interests of the bankrupt[16] As a general rule, the interests of a bankrupt will lie in obtaining an unconditional discharge as soon as possible. Mr Spencer is no exception to that general rule. In addition, as the passage of Hogg to which I have referred makes clear, the fact that the Act provides for a discharge after a three year period indicates that the wider interests of the community are best served by a finite period of adjudication. Accordingly, this is a factor which weighs in Mr Spencer's favour.Interests of creditors[17] None of Mr Spencer's creditors appeared in support of the Assignee'sobjection to Mr Spencer's discharge.[18] To date, Mr Spencer's creditors have not received any dividend from his estate. Nor has Mr Spencer made any contributions for the benefit of his creditors. It is possible there will be a small dividend to creditors as a result of some success which the Assignee has achieved recently. In addition, it appears from the affidavit4 Re Whitelaw HC Hamilton CIV-2004-419-167, 10 September 2010 at [20].5 Re Anderson HC Hamilton B213/89, 14 April 1992 at 19.referred to above that the Assignee considers further recoveries may be achieved and this is more likely to occur if Mr Spencer's discharge is delayed.[19] I accept this submission. It is impossible to predict what, if any, further recoveries may be made. I accept, however, the prospect of recoveries are enhanced if Mr Spencer remains subject to the strictures of bankruptcy for a further period.Public interest/commercial morality[20] Counsel for the Assignee submitted that these factors counted in favour of refusing to grant an order of discharge.[21] First, this is Mr Spencer's second bankruptcy.[22] Secondly, Companies Office records show that Mr Spencer has been a director of some 32 companies. Receivers and/or liquidators have been appointed to at least six of these and others have been struck off. There is no evidence before me as to how those receivers or liquidators came to be appointed and I decline to draw any inference from the fact of their appointment. In any event, given the view I take of the manner in which Mr Spencer has conducted himself, I do not consider much turns on the outcome of these other ventures in this case.[23] Thirdly, most of the money owed to creditors in Mr Spencer's bankruptcyarises from judgments obtained on personal guarantees he gave to financial institutions. Counsel was critical of Mr Spencer for giving personal guarantees which he could not honour. Again, I do not consider much turns on this point in the present case. There is no evidence that Mr Spencer misled the lenders. A lender of the types of sum involved in this case makes its own assessment of whether to lend and if so on what security.[24] Fourthly, there is evidence that Mr Spencer and his partner, Ms Todd, engaged a tradesman to do work on the property they are occupying and then did not pay the bill. The bill was subsequently paid by the owner of the property, but only after the tradesman had been kept waiting for payment for many months and hadresorted to making a complaint to the Assignee. Again, I do not set great store by this incident but it is consistent with the view pressed by the Assignee, namely that Mr Spencer shows a disregard for the financial interests of others.Conduct of the bankrupt[25] Counsel for the Assignee submitted that Mr Spencer has not complied with his obligations under the Act throughout his period of adjudication. I accept this submission. The following matters appear from the report, the examination of Mr Spencer before me, the documents produced for the examination and the affidavit.[26] First, the Assignee examined Mr Spencer on 28 August 2007 and 19 September 2007. Mr Spencer's accountant, Mr M Richardson of WHK Gosling Chapman, was present on both occasions. I have reviewed the transcripts of both examinations. On the whole, Mr Spencer's responses to questions were vague or evasive. He professed a lack of knowledge of the detail of his business affairs which I do not consider credible.[27] Secondly, Mr Spencer completed a statement of affairs dated 6 September 2007 and declared that its contents were true and correct. Mr Spencer did not provide much of the information sought. For instance, Mr Spencer was required to say whether he was a beneficiary of any trust. Mr Spencer was, at the time, a beneficiary of at least four trusts but he did not disclose this information. Mr Spencer also failed to disclose a debt of $450,000.00 and interest that his wife, Susan Hamilton, owed to him and a debt of $99,000.00 and interest that Pah Farm Maritime Lodge Limited owed to him.[28] In his examination before me, Mr Spencer sought to explain these omissions on the basis that he understood that he lost all his rights and property on adjudication. He also said that the handwriting on the statement was not his and that Mr Richardson must have completed the form. I do not consider either of these explanations credible but it would not make much difference in this case if they werecredible. The fact is that, intentionally or not, Mr Spencer failed to disclose information that he was required to disclose and that has delayed the Assignee.[29] Thirdly, during the second examination to which I have referred, the Assignee's representatives said they would require the production of business records. On about 6 March 2008 the Assignee summonsed Mr Spencer and Mr Richardson to a further examination on 17 March 2008, this time before a District Court Judge, and required them to bring to court particular documents in their power or custody. Mr Spencer objected to his accountant providing the documents to the Assignee, although it was clear they had to be disclosed. Mr Spencer subsequently withdrew his objection on 28 May 2008. The documents, comprising nine boxes, were then provided. Again, the consequence was delay and increased cost.[30] Fourthly, in his examination before me, Mr Spencer also said that he did not recall many matters or that he was ignorant of numerous aspects of his business affairs. He often answered by saying that his accountant and lawyer made the decisions. Again, I do not consider this response credible.[31] There are other matters which are relevant. In the course of acting in Mr Spencer's estate, the Assignee issued proceedings to recover the debt from Ms Hamilton to which I have referred above. Mr Spencer had already sought to forgive this debt, to complicate matters even further for his creditors and the Assignee. Mr Spencer then misled the process server as to when Ms Hamilton might be available to accept service, nominating a date by which he knew she would have relocated to Australia.[32] Mr Spencer travelled to Australia in May 2008 without seeking the consent of the Assignee. Mr Spencer sought to travel again at a later time but was prevented from leaving the country. In breach of his obligations, Mr Spencer also failed to keep the Assignee informed in writing of changes of address. Mr Spencer was charged with offences in respect of these three matters. He pleaded guilty and was sentenced. In referring to these matters now, I do not seek to punish Mr Spencertwice. I refer to them simply because they illustrate his failure to comply with his obligations.[33] The consequence of Mr Spencer's failure to comply with his obligations has been to delay the Assignee and to put the Assignee to greater expense than otherwise would have been necessary. I consider it is for Mr Spencer to bear those consequences.[34] At the hearing I discussed with counsel my concern that the Assignee appeared to have taken few steps to pursue recoveries from creditors after receiving the boxes of documents referred to above. I was concerned that I was being asked to delay Mr Spencer's discharge even though recoveries had not been pursued as quickly as they should have been. However, the affidavit states that some recoveries have in fact been achieved and that there is a prospect of further recoveries.Result[35] Taking into account all of the above matters, and particularly the fact that thisis Mr Spencer's second bankruptcy, the substantial sum which is owed, Mr Spencer's conduct, and the possibility of further recoveries, I decline an order of discharge.[36] In accordance with s 110(1) of the Act I specify that the earliest date on which Mr Spencer may apply again to the court for an order of discharge is 1 July 2013...................................................................PETERS J