GIFKINS HC AK CIV 2009-404-281

GIFKINS HC AK CIV 2009-404-281 25 May 2009IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2009-404-281IN THE MATTER OF an appeal under the Insolvency Act 2006 AND IN THE MATTER OF TRACY LEE GIFKINS of Auckland Hearing: 20 May 2009 Appearances: Appellant in person G Caro for Official Assignee Judgment: 25 May 2009JUDGMENT OF ALLAN JIn accordance with r 11.5 I direct that the Registrar endorse this judgment with the delivery time of 4.00 pm on Monday 25 May 2009Solicitors/Parties Tracy Gifkins, 153 Garnet Rd, Westmere G Caro, Ministry of Economic Development, guy.caro@med.govt.nz[1] Ms Gifkins appeals against a decision of the Assignee made under s 373 of the Insolvency Act 2006 (the Act), terminating her participation in the no-asset procedure prescribed by Part 2 subpart 4 of the Act. The appeal is brought pursuant to s 226. [2] Although the Assignee is not strictly a party to the appeal, Mr Caro appeared as counsel as is permitted by r 20.17 and advanced submissions in opposition to the appeal. It was entirely proper that the Assignee be represented by counsel. The Court will invariably be assisted if the Official Assignee is represented at the hearing of such appeals. [3] Mr Caro advises the Court that this is the first appeal of its type since the Act came into effect. It is therefore convenient to commence with a brief summary of the relevant legislation.The no-asset procedure[4] Subpart 4 sets out a procedure for dealing with a debtor who has no realisable assets: s 361. Criteria for entry are set out in s 363(1) which provides:Criteria for entry to no asset procedure(1) The Assignee may admit a debtor to the no asset procedure if the Assignee is satisfied on reasonable grounds that— (a) the debtor has no realisable assets; and (b) the debtor has not previously been admitted to the no asset procedure; and (c) the debtor has not previously been adjudicated bankrupt; and (d) the debtor has total debts (excluding any student loan balance) that are not less than $1,000 and not more than $40,000; and (e) under a prescribed means test, the debtor does not have the means of repaying any amount towards those debts.[5] Where a debtor meets the s 363(1) criteria, he or she may apply to the Assignee for entry to the procedure by completing and filing with the Assignee an application in prescribed form, and a statement in prescribed form of the debtor's affairs. [6] Section 364 sets out certain grounds which will disqualify a debtor from participation in the no asset procedure. That section has no application here. A debtor is admitted to the no asset procedure when the Assignee sends the debtor a written notice in the prescribed form: s 367(1). Thereafter, creditors (with stipulated exceptions) are precluded from taking any step to recover or enforce a debt owed by the debtor: s 369. [7] Creditors are entitled to double notification. First, where a debtor has applied to the Assignee for entry to the no asset procedure, the Assignee must as soon as practicable send a summary of the debtor's assets and liabilities to each known creditor: s 365. Second, as soon as practicable after a debtor has been admitted to the no asset procedure, the Assignee must notify creditors and advertise in the prescribed manner: s 367(2). [8] Section 372 provides for termination of the procedure:372 TerminationA debtor's participation in the no asset procedure terminates when— (a) the Assignee terminates the debtor's participation under section 373; or (b) the debtor is discharged under section 377; or (c) the debtor applies for his or her own adjudication; or (d) a creditor who is entitled to do so (for example, because the creditor's debt is enforceable as a debt specified in section 369(2)) applies for the debtor's adjudication and the debtor is adjudicated bankrupt.[9] Termination by the Assignee under s 372(a) is governed by the provisions of s 373:373 When Assignee may terminate(1) The Assignee may terminate a debtor's participation in the no asset procedure if— (a) the debtor was wrongly admitted to the no asset procedure, for example, because the debtor concealed assets or misled the Assignee; or (b) the Assignee is satisfied that the debtor's financial circumstances have changed, enabling the debtor to repay an amount towards his or her debts. (2) The Assignee terminates a debtor's participation in the no asset procedure by sending the debtor a written notice in the prescribed form to the debtor's last known address, and the termination is effective when the notice is sent, whether or not the debtor receives it. (3) The Assignee must as soon as practicable send a written notice of the termination to each creditor of the debtor known to the Assignee.[10] Notice of Termination was given in the present case by the Assignee in reliance on s 373(1)(a). I will return to that subsection shortly. [11] Where the debtor's participation is terminated by the Assignee, those debts that become unenforceable on the debtor's entry to the no asset procedure become again enforceable: s 375. [12] The procedure is self-evidently concerned with debtors who have no significant assets, and with relatively modest debts. As Mr Caro submits, Subpart 4 is aimed at consumer debt, for which the summary procedure prescribed by Subpart 4 is suitable. The legislative scheme is not suitable for cases of any complexity, or where there are areas of dispute. The ordinary insolvency procedures of the Act are available to cope with all but the simpler cases.Factual background[13] Ms Gifkins applied for entry into the no asset procedure on 3 December 2008, by duly supplying an application and a statement of affairs as required by s 362(2). She calculated her debts at $39,358.22. Some of the amounts were approximations only. Eligibility for entry into the no asset procedure is confined to debtors whose debts are between $1000-$40,000 (excluding any student loanbalance). Because the appellant's debts were so close to the upper limit of that range, the Assignee sought confirmation of the precise amounts of certain debts. [14] The appellant responded to the effect that the amounts listed in her statement of affairs were arithmetically correct. On that basis she was admitted into the no asset procedure on 16 December 2008. [15] On 7 January 2009 the Commissioner of Inland Revenue advised the Assignee that the appellant had a current tax debt of $45,764.08. The appellant had made no reference to a tax liability in her statement of affairs. Later that same day, the Assignee terminated the appellant's participation in the no asset procedure in reliance on s 373(1)(a) of the Act, by giving notice to the appellant to that effect. [16] The appellant filed a notice of appeal in this Court on 21 January 2009. The Assignee has filed two affidavits in opposition to the appeal. The first is by Miss Catriona McKay, a manager in the Ministry of Social Development. Her evidence is that as at 3 December 2008 the appellant was indebted to the Ministry in the sum of $8,746.69, in respect of overpayments of a domestic purposes benefit and a special needs grant. [17] The second affidavit is dated 16 April 2009 and is sworn by the appellant's former husband. He annexes to his affidavit two sealed costs orders in family proceedings between him and the appellant. One order was made in the District Court on 17 November 2000 and required the appellant to pay to her former husband the sum of $10,000 for costs. The other order was made in this Court on 7 December 2000 and directs the appellant to pay the sum of $2000.Approach on appeal[18] The appeal is brought pursuant to s 226 which provides:226 Appeal from Assignee's decision(1) A person (including the bankrupt or a creditor) whose interests, monetary or otherwise, are detrimentally affected by an act or decision to which this section applies may apply to the Court to reverse or modify the act or decision.(2) This section applies to— (a) an act or decision of the Assignee; or (b) a decision of a District Court Judge in carrying out an examination under section 165. (3) The application must be made— (a) within 15 working days of the act or decision; or (b) within the additional time that the Court allows. (4) The Court may confirm, reverse, or modify the act or decision. (5) A creditor who is aggrieved by a decision of the Assignee rejecting the creditor's claim may make an application under section 239.[19] On appeal from decisions of the Assignee, the Court is required to consider the issues de novo. Although there is something of a divergence of views in cases involving appeals under the Insolvency Act 1967, the better view in my opinion is that the Court must make its own assessment, but is entitled to pay due regard to the decision of the Assignee and to take into account the Assignee's functions and the overall scheme of the legislation: Rao v Official Assignee HC WN CIV 2006-485- 004 17 October 2007 at [24] and Knight v Official Assignee HC AK CIV 2000-404- 434 25 February 2009 at [9]. [20] The Court is to proceed on the basis of the evidence adduced before it, which may be more extensive than the information available to the Assignee when the decision was made: Rao at [24].The appellant's argument[21] Ms Gifkin's argument was entirely oral. In her notice of appeal she specified the following grounds: i) The decision is based on incorrect facts; ii) The decision is against due process and the application of principles of natural justice.[22] A case management conference was convened before Venning J on 24 February 2009. Ms Gifkins did not attend, but Mr Caro did. She says that she was unable to do so by virtue of a pressing personal engagement. Nevertheless she accepts that she became aware of the conference Minute of Venning J shortly after the conference. The Judge directed that the appellant file and serve any affidavits in support of her appeal by 31 March 2009, that the Assignee was to file and serve any affidavits in response by 17 April 2009, and that the appellant file and serve any affidavits in reply by 30 April 2009. Ms Gifkins was directed to file and serve her submissions by 7 May 2009 and the Assignee was directed to file and serve his submissions by 15 May 2009. [23] The appellant complied with none of these timetable requirements. Her explanation is that she did not receive a copy of the common bundle prepared by the Assignee at the direction of Venning J. That bundle was to be filed and served by 10 March 2009. Mr Caro says that it was so filed and served. Regrettably it could not be found in the Court Registry and a further copy had to be prepared at very short notice just prior to the hearing of the appeal. Neither, she says, did she receive other documents filed by the Assignee. [24] It is difficult to know what to make of Ms Gifkins' complaints of non-receipt of Court documents. Mr Caro produced a very recent decision of the Employment Relations Authority involving the appellant. There, a similar complaint by her that she had not received important documents was summarily dismissed by the Authority. [25] In the present case there seem to be two addresses on the Court file, and it is possible that one or more documents was mistakenly sent to an address for the appellant that is not current, and is not her address for service. Nevertheless, she accepts that she received a copy of the Minute of Venning J very shortly after it was sent on 24 February 2009, and she was therefore aware both of her obligations prior to the appeal, and the dates by which certain steps ought to have been taken.[26] In the absence of points on appeal or a written synopsis, it was necessary to ascertain the appellant's grounds of appeal during the course of oral argument. The appellant took two principal points: a) She was under no liability to the Inland Revenue Department for tax because she was entitled to set-off against any initial liability larger credits to which the Department had agreed; b) The orders for costs made in the Family Court were conditional upon the finalisation of relationship property matters involving her former husband. The relationship property dispute has never been brought to a formal close. The order for costs in this Court was erroneous. She succeeded in her appeal and does not understand how costs could have been awarded against her. [27] Ms Gifkins did not address the debt owing to the Ministry of Social Development.Discussion[28] The appeal can be determined, in my opinion, solely in the context of the appellant's tax position. On 7 January 2009 an officer of the Inland Revenue Department sent an e-mail to the Assignee with respect to the appellant's affairs. The e-mail read:She has debt with IR totalling $45,764.08. This is all made up of Income Tax for the year 2004, $32,941.73 2005 $12,684.37, 2006 $50.00 and 2007 $87.98 she also has an outstanding Income Tax return for 2008 which is most likely to end up being an amount to pay.[29] On that same day – 7 January 2009 – the Assignee wrote to the appellant advising that information had been received to the effect that she was indebted to the Inland Revenue Department in the sum of $45,764.08, and that she therefore exceeded the $40,000 limit for entry to the no asset procedure. The letter notified the appellant that her participation in the procedure had therefore been terminated with effect from that date.[30] The appellant plainly received that letter. There was a file note on the Assignee's file dated 21 January 2009, which records notification from the appellant of her intention to appeal. [31] It is of interest that the Assignee's letter of 7 January 2007 was addressed to 4/53 Karaka Street, Takapuna, Auckland, being the address provided by the appellant in her application for participation in the no asset procedure. It is relevant to note in passing that the appellant's recent use of that mail address is somewhat at odds with her advice to me during the hearing to the effect that the Takapuna address was no longer extant. But nothing turns on that. The important point is that prior to the filing of her appeal, the appellant was aware that the Inland Revenue Department claimed to be owed a sum in excess of $40,000. It must have been obvious to her that if she was to succeed on the appeal she would need to place before the Court documents that demonstrated that the information provided by the Inland Revenue Department to the Assignee was incorrect. [32] Although she was in possession of a sheaf of documents at the hearing, only two of them were proffered to the Court. They were letters from the Inland Revenue Department that tended to suggest that there might in the future be a set off against the appellant's personal liability for tax, but that a number of conditions would need to be satisfied first. In particular, a number of outstanding tax returns would need to be filed and assessed by the department. [33] When pressed by me for further information, the appellant conceded that the credit had not been finalised because, although some returns had been filed, others remained outstanding. So she remains liable to the Department for tax in excess of $45,000. [34] In my opinion the fact that the appellant might ultimately succeed in resolving her tax affairs to her advantage is irrelevant for present purposes. As at the date of her application for admission to the no asset procedure she owed a very substantial sum to the Inland Revenue Department, but she failed to include the debt in her application or in her statement of affairs. Had she done so, that statement would have disclosed debts in excess of $80,000, and she would have beendisqualified from admission to the no asset procedure by virtue of the provisions of s 363(1)(d). Her debts were simply too high. That being so, she was wrongly admitted to the no asset procedure, and the Assignee was perfectly entitled, and indeed bound, to terminate her participation by virtue of s 373(1)(a). [35] Although the opening words of s 373(1) are permissive in character – "The Assignee may " - the Assignee is plainly under a duty to terminate where a debtor is wrongly admitted because debts were understated. The scheme of the Act would be subverted if the Assignee exercised his discretion in favour of the debtor in such circumstances. [36] I am therefore satisfied that the appeal must be dismissed. That outcome cannot be considered unjust to the appellant. The no asset procedure was designed to deal with simple cases of insolvency where the debtor has limited debts and an uncomplicated financial and business background. The appellant's affairs are not simple. Ms Gifkins is the sole director of Grey Lynn Veterinary Clinic Ltd, which offers veterinary services, although the appellant indicates that the company no longer trades. [37] She advised the Court that the tax liability had arisen because the Inland Revenue Department declined to accept certain expenses claimed by the company as relating to the company's business, and treated the amounts concerned as the appellant's personal income. On the appellant's account, there seems to be some prospect that the Department might reverse its stance, at least in part, with the result that some or all of the appellant's debt to the Department for tax might be written off or reversed. [38] But on any view, the appellant's tax affairs are not simple. No doubt they are complicated further by the existence of a trading trust of which the appellant spoke at the hearing, although there is no evidence about it. The no asset procedure is not designed for persons whose business and tax affairs are complex. [39] Although I am satisfied that the Assignee was right to terminate the appellant's participation in the no asset procedure on the ground of the appellant'stax position alone, there are additional unsatisfactory features which militate against allowing the appeal. The first is the debt owed to the Ministry of Social Development, which the appellant did not address at the hearing. The second is the existence of apparently unsatisfied orders for costs against the appellant in various family proceedings. The third relates to the appellant's advice to the Court to the effect that relationship property issues between her and her former husband have never been finally resolved. If that is so, then there ought to have been disclosure to the Assignee of that circumstance, because it suggests that there may have been further relevant assets and liabilities.Result[40] I am satisfied that the appellant has not made out either of the grounds specified in her notice of appeal and that the Assignee's decision was not only correct but inevitable. [41] The appeal is accordingly dismissed. Costs are reserved.C J Allan J