OFFICIAL ASSIGNEE v PARSONS [2016] NZHC 326

OFFICIAL ASSIGNEE v PARSONS [2016] NZHC 326 [3 March 2017]IN THE HIGH COURT OF NEW ZEALANDHAMILTON REGISTRYCIV-2016-419-00345[2017] NZHC 326BETWEEN OFFICIAL ASSIGNEEPlaintiffAND TIMOTHY DOUGLAS PARSONSDefendantHearing: 24 February 2017Appearances: M L Dillon for Official AssigneeS P Middlemiss for DefendantJudgment: 3 March 2017JUDGMENT OF ASSOCIATE JUDGE J P DOOGUEThis judgment was delivered by me on03.03.17 at 10 a.m., pursuant toRule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate[1] Mr Parsons was adjudicated bankrupt for the fifth time in 2012. He becamedue for his discharge in 2015. The Official Assignee filed an objection to the dischargebut did not do so until 2016. At the date when the matter came before the court, MrParsons had been bankrupt for approximately 4 ½ years. This contrasts with thestatutory period of three years minimum provided for in the Insolvency Act 2006("IA").[2] As a result of the Official Assignee lodging an objection to Mr Parsonsdischarge, it was necessary for Mr Parsons to be examined before the court.[3] Section 298 sets out the options of the Court following a public examination:298 Court may grant or refuse discharge(1) When the Court hears an application under section 294 fordischarge, or conducts the examination of the bankrupt undersection 295, the Court may, having regard to all thecircumstances of the case,—(a) immediately discharge the bankrupt; or(b) discharge the bankrupt on conditions (which mayinclude a condition that the bankrupt consents to anyjudgment or order for the payment of any sum ofmoney); or(c) discharge the bankrupt but suspend the order for aperiod; or(d) discharge the bankrupt, with or without conditions, ata specified future date; or(e) refuse an order of discharge, in which case the Courtmay specify the earliest date when the bankrupt mayapply again for discharge.(2) If the Court discharges the bankrupt on the condition that thebankrupt consents to any judgment, and the bankrupt doesconsent, the Court may vary the judgment as it thinksappropriate."[4] The Official Assignee has sought either refusal of discharge from bankruptcyor discharge with conditions imposed pursuant to s 299 of the Insolvency Act 2006:299 Court may restrict bankrupt from engaging in business afterdischarge(1) The Court, when it makes an order of discharge orat any earlier time, may prohibit the bankrupt afterdischarge from doing any or all of the followingthings without the Court's permission:(a) entering into, carrying on, or taking part inthe management or control of any businessor class of business:(b) being a director of any company:(c) directly or indirectly being concerned, ortaking part, in the management of anycompany:(d) being employed by a relative of thebankrupt:(e) being employed by a company, trust, trustee,or incorporated society that is managed orcontrolled by a relative of the bankrupt.(2) The Court may—(a) prohibit the bankrupt for a specified period,or without a time limit:(b) at any time vary or cancel the prohibition.[5] Mr Dillon for the Official Assignee referred me to the case of ASB Bank vHogg1 which contains statements of principle generally of relevance to cases wherethe Official Assignee opposes the discharge of a bankrupt. ASB Bank v Hogg wasdecided under different governing legislation as Mr Dillon pointed out, but he alsosubmitted that the general statements of principle contained therein remain relevant:2In conferring a discretion expressed in the broadest terms thelegislation recognises that each case will be different, that therelevant factors may vary from case to case and that theexercise of the discretion must be governed by thecircumstances of the particular case having regard to theguidance provided by a consideration of the scheme andpurpose of the legislation. In providing for automaticdischarge after 3 years the legislation recognises that it is notin the public interest that the bankruptcy should endureindefinitely. In providing for earlier discharge, s 108recognises that continuing the bankruptcy to the end of the 3years may not be in the public interest. Whether or not it iswill be a matter for decision on the particular facts. In thatregard guidance is provided by s 109(2) which lists matters onwhich the Assignee is to report to the High Court in such acase. The Court is to consider the Assignee's report as to theaffairs of the bankrupt, the causes of the bankruptcy, themanner in which the bankrupt has performed the duties1 ASB Bank v Hogg [1993] 3 NZLR 156 (CA).2 ASB Bank v Hogg at 157 to 158.imposed on him or her under the Act and his or her conductboth before and after the bankruptcy, and also as to any otherfact, matter or circumstance that would assist the Court inmaking its decision. Clearly the Court are prized of the matterwill consider the legitimate interests of the bankrupt, thecreditors and wider public concerns, but it is neither requirednor entitled to impose threshold requirements in the exerciseof the discretion so as to derogate from the breadth of thepowers confirmed under s 110. The applicant has the onus inthe sense of adducing evidence to show good cause forordering an early discharge, but his obligation goes no furtherthan that.[6] While the case of ASB v Hogg was concerned with an application for dischargebefore the three-year period at which a bankruptcy normally terminates, authoritiesdecided since have applied the observations of the Court of Appeal in other caseswhere an objection has been lodged to a statutory discharge that the bankrupt wouldotherwise receive. I therefore intend to apply the Hogg principles when consideringthe present case.Relevant aspects of present case[7] In his report the Official Assignee stated that Mr Parsons had carried on ninebusinesses personally as a sole trader during the period since his first bankruptcy andthat he had advertised building services to members of the public during his currentbankruptcy without the consent of the Official Assignee. The Official Assignee alsonoted that in relation to his 2005 bankruptcy Mr Parsons advised he lost $280,000 bygambling over the eight years prior to 2005. He further admitted that he had lostapproximately $100,000 by gambling in the 12 month period leading up to his currentbankruptcy.[8] When he gave evidence, Mr Parsons did not deny any of the above assertions.[9] Mr Parsons was examined and, amongst other contentions that he put forwardin the course of that examination, was that while in the past he was a risk to the publicbecause of the change of circumstances which had occurred in his life and which I willmake further reference to in this judgment, that was no longer the case.[10] He said that while he does not require to be released from bankruptcy in orderto carry on a business, he nonetheless wishes to take back control of his affairs fromthe Official Assignee.[11] In his report, the Official Assignee makes plain his view that the causes of thelatest bankruptcy, as with the earlier success of bankruptcies, was the lack ofcommercial honesty on the part of the bankrupt in his dealings with money that wasentrusted to him by way of prepayment of amounts payable under contracts that hehad entered into with customers of those businesses. In a disturbing number of cases,the bankrupt retained the money but did not perform the contract.[12] The Official Assignee referred to the fact that Mr Parsons admits he was acompulsive gambler and that is the reason why money that was entrusted to him waslost and was not applied to its proper purposes.[13] Mr Dillon questioned Mr Parsons on this aspect of the case during the courseof a careful examination covering not just the fifth and current bankruptcy but theprevious four as well.[14] A substantial part of the time was spent questioning Mr Parsons about hisgambling addiction which is obviously a major contributor to losses to the creditorswhich have resulted in the past. In regard to that subject, Mr Parsons said that he hadmade attempts in the past to break free of his addiction but that when he came underpressure, for example because he was having trouble paying accounts from supplierswith whom he was in a business relationship, he would seek to escape from stressfulsituations by resuming gambling.[15] Mr Parsons said that he had taken steps to get assistance from agencies thatwork in the area of gambling addiction but said that he had not obtained a great dealof assistance from them. It was his view that the counselling he had received whichinvolved much discussion about early influences on him such as his familybackground and related matters which he regarded as being essentially irrelevant.[16] He told me that he had managed to overcome his addiction as a result of hisown efforts. He also said that he had not gambled for approximately 18 months –apparently the longest time for many years. He said he had been able to do this largelybecause he had established a relationship with another person who had an addiction,although not a gambling addiction. Between them they gave support to each other intheir respective struggles with addiction. The person in question is a woman whoowns the business which currently employs Mr Parsons. Mr Parsons told me that inaddition to the employment relationship they also have a personal relationship. Hesaid that he and this person had developed their own stratagems for dealing with theiraddictions. She is an alcoholic, he said. He said they had developed a pattern of goingto licensed premises where there were gambling machines. By resisting the temptationthat both were exposed to in such places (both have the availability of alcohol andgambling machines), Mr Parsons believed that they had both strengthened theirrespective ability to resist their addictions.[17] Another type of self-help strategy that Mr Parsons has adopted is ensuring thathe does not have spare available money to spend on gambling.[18] Mr Parsons said that he had also received support from family and friendswhich had either not been available or he had not sought in the early stages of hisaddiction. These contacts had strengthened him in his resolve not to gamble again.That said, he acknowledged that people in his position can relapse even after aninterval of 10 years.[19] Mr Parsons told me that he had no intention of becoming self-employed again.He said that the attraction of being self-employed in the past had been that because heis a "work addict" he needed to be able to be free to work at times when he felt theneed for it such as weekends and late at night. He had not previously had an employeewho made this possible. It was important to them that he be able to work like this, hesaid, because work was therapy for him.[20] Mr Parsons admitted that he had in the past caused loss to creditors. He agreedthat he had taken deposits from persons to carry out carpentry and building type workincluding installing new doors and windows and houses. He further agreed that thosedeposits had been lost when he had diverted the deposits to pay other creditors whowere pressing him for payment. He accepted that it was wrong. He denied that he haddirectly used money paid to him by way of such deposits for gambling. I think whathe was saying was that he accepted that at least indirectly the gambling was the causeof the losses to his clients. He accepted that he had not made any attempt to repay thelosses that some of his clients had suffered. He was adamant that clients in thiscategory were in the minority and that he had many other clients who were satisfiedwith the service he had given them and there had been no financial irregularity inrelation to those other clients.[21] Mr Parsons said that he is working part-time at present in a field of work whichhe said he was skilled that, namely the removal of asbestos from buildings. He saidthis was a licensed industry and that his partner who owns the business is suitablylicensed and that he, Mr Parsons, holds an individual operator's licence to engage inthis type of work.[22] Mr Parsons expressed willingness to make payments towards the losseswhich he had caused to people who had done business with him.Discussion[23] Mr Parsons conduct has caused real harm. A representative example of thetype of loss is provided by a claim from a Mrs Webb who resides at Papatoetoe andwho, with her husband, paid a deposit of $4000 against the quoted price of $8265 forwindows and French door to be supplied and installed. This money was lost.Doubtless that was an amount of money that the Webb's could not afford to lose.[24] It is true that the losses in the cases which the Official Assignee was able touncover did not involve very large amounts and in that respect the case can bedistinguished from other cases such as Bryers where losses were measured in millionsof dollars. But they still caused hardship as an individual level to the persons wholost their money.[25] The central factor upon which the present application turns is the risk thatMr Parsons may in the future relapse and begin gambling again.[26] Commonsense suggests that where a person has shown an embeddedpredisposition to behave in a harmful way in the past, then in the absence of somefactor that might bring about change, it is likely that the same patterns will be repeatedin the future. Mr Dillon submitted that the best guide to how a person will behave inthe future is how they have conducted themselves in the past.[27] Counsel was sceptical about Mr Parsons' claims that he had turned over a newleaf. Mr Parsons had not completed a counselling or therapy course offered by arecognised professional agency.[28] On that view of matters, there is good cause for concern that if Mr Parsonswere discharged from bankruptcy there would be a repetition of the patternsestablished in previous bankruptcies and there would be further losses caused tomembers of the public.[29] Dealing with this first aspect of the matter, the court is required to make aneffort to assess the degree of risk that Mr Parsons will relapse into his former habit ofgambling.[30] I have concerns that Mr Parsons is being over optimistic about the progressthat he has made toward overcoming his gambling addiction which is no doubt at theheart of the financial irregularities which have led to all of his five bankruptcies. Iconsider that he has misjudged the necessity for professional help for persons in hisposition if they are to overcome their addiction. While no expert evidence was led onthe point, it would seem that a tactic of leaving himself short of cash so that there wasno money to spend on gambling, does not get to the root of the problem.[31] My assessment of this matter is that I have no doubt that Mr Parsons hasobtained some insight into the harm that his conduct has caused. While I would liketo be able to agree with Mr Parsons that he has taken effective steps to overcome hisgambling addiction, I am not convinced that he is going about it in the right way. Theproblem is a pernicious one and even Mr Parsons accepts that the addiction istenacious and difficult to overcome. I would have thought that in those circumstancesit made good sense that someone in the position of Mr Parsons would avail himself ofall the help that he can get, even if he might be sceptical about the value of someassistance that is available from mainstream therapeutic agencies.[32] For those reasons, unfortunately, I assess that there is a medium risk thatMr Parsons will relapse. If that were to happen, not even the imposition of conditionson discharge would provide adequate protection to the public. In the past, Mr Parsonshas shown himself willing to carry on business without the consent of the OfficialAssignee thus placing himself in a position where he was able to solicit deposits fromthe public for home carpentry jobs which never got done. It would appear that sogreat was the need for cash to carry on gambling, that Mr Parsons did this even thoughhe knew it was against the law and wrong. The risk is that he will repeat this patternif he relapses.[33] While Mr Parsons has been willing in the past to engage in conduct whichcaused loss to the public, even though he was then under the supervision and controlof the Official Assignee, that is not to say that continuing the period of his bankruptcywould not offer any level of protection to the public. I would expect that in the lightof the complaints that have been made about Mr Parsons, he would be subject to closersupervision for the remainder of his term.[34] My conclusion is that having regard to the risk that Mr Parsons represents thereis a need for continuing oversight from the Official Assignee. At the same time, itwould be unfair to not give Mr Parsons some credit for the steps that he has taken todeal with his personal problems which are closely linked to the financial loss he hascaused to others and the breach of his bankruptcy conditions.[35] While Mr Parsons agreed that he had not made any payments by way ofcompensation for the losses he had caused, he expressed himself as being willing todo that in future. However he did not put forward any firm proposals as to how hemight do this or offer any comment on why the suggested contributions were only nowbeing offered for the first time.[36] Mr Parsons did not put forward any claim to the effect that he needed to bedischarged from bankruptcy in order to earn his livelihood by removing asbestos frombuildings.[37] In my judgment, some extension of the present bankruptcy term thatMr Parsons has been subject to is justified. At the same time, any extension needs tobe a comparatively modest one. I acknowledge that Mr Parsons has made progressand that it is not in the public interest that he be discouraged from taking further stepsto deal with his gambling addiction.[38] In October of this year, Mr Parsons would have been bankrupt for five years.I consider that is a sufficient term of bankruptcy and that he ought to be dischargedfrom bankruptcy as at 26 October 2017.[39] However given the fact that Mr Parsons caused losses through carrying onbusiness in his own right during the period when he was bankrupt, I consider that it isappropriate that following his discharge he ought to be subject to a condition for afurther period of two years which prevents him from any of the activities specified ins 299(1) IA. This will go some way to reducing the risk that he will cause financialloss to members of the public in the future.[40] There will be orders accordingly._____________J.P. DoogueAssociate Judge