ZHANG v OFFICIAL ASSIGNEE & Anor [2022] NZHC 3052

ZHANG v OFFICIAL ASSIGNEE & Anor [2022] NZHC 3052 [22 November 2022]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2022-404-001367[2022] NZHC 3052BETWEEN YINGQIU ZHANGApplicantAND OFFICIAL ASSIGNEEFirst RespondentWESTPAC NEW ZEALAND LIMITEDSecond RespondentHearing: 11 November 2022Appearances: Applicant in PersonC T Jones for the Official AssigneeL Harrison for the Second RespondentJudgment: 22 November 2022JUDGMENT OF ASSOCIATE JUDGE GARDINERThis judgment was delivered by me on 22 November 2022 at 3.00 p.m.pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate.......................................Solicitors:Simpson Grierson, AucklandInsolvency & Trustee Service, AucklandIntroduction[1] The applicant, Yingqiu Zhang, applies for early discharge from bankruptcyunder s 294 of the Insolvency Act 2006 (the Act).[2] Under the Act, a bankrupt is entitled to automatic discharge from bankruptcythree years after they file their statement of affairs.1 Ms Zhang has been bankrupt forthree years and six weeks, but because she only filed her statement of affairs on4 August 2022, she is not entitled to an automatic discharge until 4 August 2025.[3] The second respondent, Westpac New Zealand Limited (Westpac), opposesMs Zhang's application for early discharge.[4] The Official Assignee has filed a report pursuant to s 296 of the Act, indicatingthat it considers it appropriate that the Court declines to exercise its discretion todischarge Ms Zhang.[5] The essential question for this Court is whether Ms Zhang has established agood reason for her early discharge from bankruptcy.Legal principles[6] Under the Insolvency Act 1967, bankrupts were discharged from bankruptcy"upon the expiration of 3 years from the date of adjudication" unless the Court orderedthat they be discharged sooner, or an objection to discharge was filed.2[7] Discharge did not, therefore, depend on the filing of a statement of affairs and,if a bankrupt failed to do so, the Official Assignee's remedy was to object to discharge.This necessitated summoning the bankrupt for public examination on expiry of thethree-year period.31 Insolvency Act 2006, ss 67 and 290.2 Insolvency Act 1967, s 107(1) and (3).3 Insolvency Act 1967, s 109(1).[8] The provision in the 2006 Act stating that the three-year period for automaticdischarge only starts running once a statement of affairs is filed was introduced toincentivise bankrupts to file a statement of affairs promptly.4[9] The obligation to file a statement of affairs is found in s 67 of the Act:67 Bankrupt must file statement of affairs with Assignee(1) After adjudication, the bankrupt must file with the Assignee a statement ofthe bankrupt's affairs in the prescribed form, unless the bankrupt has alreadyfiled a statement under section 46.(2) The Assignee may reject a statement of affairs that in the Assignee'sopinion is incorrect or incomplete.[10] Section 290 provides for automatic discharge after three years:290 Automatic discharge 3 years after bankrupt files statement of affairs(1) A bankrupt is automatically discharged from bankruptcy 3 years after thebankrupt files a statement of affairs under section 46 or section 67, but mayapply to be discharged earlier.(2) However, a bankrupt is not automatically discharged if—(a) the Assignee or a creditor has objected under section 292 and theobjection has not been withdrawn by the end of the 3-year periodreferred to in subsection (1); or(b) the bankrupt has to be publicly examined under section 173 andhas not completed that examination; or(c) the bankrupt is undischarged from an earlier bankruptcy.[11] Under s 294, a bankrupt may at any time apply for an order for discharge frombankruptcy. Section 298(1) sets out the Court's powers and discretion on such anapplication. It relevantly provides that, having regard to all the circumstances of thecase, a Court may:(a) immediately discharge the bankrupt; or4 Burchell v Commissioner of Inland Revenue [2021] NZHC 1136 at [40].(b) discharge the bankrupt on conditions (which may include a conditionthat the bankrupt consents to any judgment or order for the payment ofany sum of money); or(c) discharge the bankrupt but suspend the order for a period; or(d) discharge the bankrupt, with or without conditions, at a specified futuredate; or(e) refuse an order of discharge, in which case the Court may specify theearliest date when the bankrupt may apply again for discharge.[12] In the leading case on the Court's discretion under s 298, ASB Bank v Hogg,the Court of Appeal noted:5In conferring a discretion expressed in the broadest terms, the legislationrecognises that each case will be different, that the relevant factors may varyfrom case to case and that the exercise of the discretion must be governed bythe circumstances of the particular case having regard to the guidanceprovided by a consideration of the scheme and purpose of the legislation....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 performedthe duties imposed on him or her under the Act and his or her conduct bothbefore and after the bankruptcy, and also any other fact, matter orcircumstance that would assist the Court in making its decision. Clearly theCourt apprised of the matter will consider the legitimate interests of thebankrupt, the creditors, and wider public concerns The applicant has theonus, in the sense of adducing evidence, to show good cause for orderingan early discharge, but his obligation goes no further than that.(emphasis added)Has Ms Zhang shown a good cause for early discharge?Ms Zhang's reasons[13] Ms Zhang advances three main reasons why she should be given an earlydischarge from bankruptcy.6 First, she has been living the lifestyle of a bankrupt for5 ASB Bank v Hogg [1993] 3 NZLR 156 (CA) at 6.6 Originating application dated 17 July 2022.three years. Second, she has been monitored by the Official Assignee for three years,and "replied back to almost all the questions that the Official Assignee has required"of her. Third, she informed the Official Assignee of her intention to apply for earlydischarge and they did not object.[14] Ms Zhang has sworn an affidavit in support of her application which essentiallyrepeats these points and attaches correspondence between her and the InsolvencyOfficer responsible for her case. In an email chain between 3 October and 5 November2019, Ms Zhang refers to steps she is taking to challenge the original bankruptcy orderand asks about enforcing a New Zealand judgment in China. In reply, the Officerexplains the effect of her bankruptcy, including that she could not continue to advancelegal proceedings against Westpac, a Mr Wu or Auckland Council (as the rights ofaction had vested in the Official Assignee). He recommended that she take legaladvice.[15] In a second email chain between 12 and 18 July 2022, Ms Zhang informs theOfficer that she intends to apply for early discharge so she can get a job. The Officerresponds, advising Ms Zhang that once she files her application, the Official Assigneewill provide a report to the Court covering matters such as the assets identified, thecreditor claims filed, and her conduct during the bankruptcy. The Officer states thatthe Court would decide whether to grant her an early discharge and the OfficialAssignee will abide the Court's decision. The Officer also clarifies that Ms Zhang isable to work and earn an income while bankrupt, with certain restrictions.[16] I now turn to the matters raised by Westpac and the Official Assignee.Ongoing litigation and post-bankruptcy debts[17] Ms Zhang was adjudicated bankrupt on 25 September 2019 on the applicationof Westpac.7 The bankruptcy application followed the mortgagee sale of twoproperties owned by Ms Zhang, which resulted in a significant shortfall owing toWestpac. Westpac had obtained summary judgment in respect of that shortfall.7 Zhang v Westpac New Zealand Ltd [2019] NZHC 2422.[18] Westpac submits that Ms Zhang has not accepted responsibility for thecircumstances leading to her bankruptcy, has appealed every decision against her evenwhen the appeals clearly had no merit, and has incurred significant additional debts toWestpac through costs awards, which remain unpaid.[19] The facts are that after being adjudicated bankrupt, Ms Zhang filed an appealagainst the decision, as well as several interlocutory applications in both the HighCourt and the Court of Appeal.8 In each instance, the appeal/application wasdismissed. Ms Zhang then sought leave to appeal to the Supreme Court.9 Ms Zhang'sappeals were exhausted on 31 March 2022 when the Supreme Court dismissed herapplication for leave to appeal the substantive bankruptcy decision.[20] Throughout this litigation, Ms Zhang was ordered to pay a further $25,176.50in respect of costs awarded to Westpac. Of this, $18,099.59 remains outstanding. Theremaining $7,076.51 was paid via a release of security for costs that had been paidinto Court.Delay in filing statement of affairs[21] Counsel for the Official Assignee, Mr Jones, emphasises the role the statementof affairs filed by the bankrupt plays in facilitating the efficient and effectiveadministration of their estate. In McKee v Official Assignee, Associate Judge Bell said:10The statement of affairs by the bankrupt is a key document in theadministration of the bankruptcy. It provides the Official Assignee withimportant information for the administration of the bankruptcy. Of course itneed not be the only information on which the Official Assignee may rely.Creditors may also supply the Official Assignee with other information, butthe statement of affairs is still the starting point for the Official Assignee. Itcan provide the basis for the Official Assignee to make other enquiries, to startproceedings to get assets in for creditors, and to begin examinations of thebankrupt or of other persons under Part 3 of the Insolvency Act.8 See Zhang v Westpac New Zealand Ltd [2019] NZCA 682; Zhang v Westpac New Zealand Ltd[2020] NZCA 138; Zhang v Westpac New Zealand [2021] NZCA 8; Zhang v Westpac New ZealandLtd [2021] NZCA 672; Zhang v Westpac New Zealand Ltd [2022] NZCA 134 and Zhang v WestpacNew Zealand Ltd [2019] NZHC 2797.9 See Zhang v Westpac New Zealand Ltd [2020] NZSC 26 (31 March 2020); Zhang v Westpac NewZealand Ltd [2020] NZSC 72 (27 July 2020); Zhang v Westpac New Zealand Ltd [2021] NZSC45 (21 May 2021) and Zhang v Westpac New Zealand Ltd [2022] NZSC 34 (31 March 2022).10 McKee v Official Assignee [2013] NZHC 340 at [8].[22] The Official Assignee's report highlights the Insolvency Officer's efforts topersuade Ms Zhang to file her statement of affairs and to advise her of theconsequences of any delay in doing so:[13] The Official Assignee was hampered in the administration of thebankrupt's estate due to Ms Zhang's failure to comply with section 69 of theAct, to file a statement of affairs within 10 working days after receiving theAssignee's notice under section 68(1) of the Act that the statement must befiled. A considerable amount of time and effort was expended in trying to gether to comply with this statutory requirement.[14] On 27 September 2019, the Assignee sent an "Initial Notice to Bankrupt"to Ms Zhang at [her residential address in Mount Roskill, Auckland]. Thisnotice was to confirm that she had been adjudicated bankrupt and that she wasrequired to complete a statement of affairs within 10 working days ofreceiving the notice.[15] On 1 October 2019, an estate officer attempted to call Ms Zhang on hermobile phone but there was no answer. The officer left a message asking herto call back. On the same day, a letter was sent to [Ms Zhang's email address]requesting that she complete a statement of affairs.[16] On 2 October 2019, the officer attempted to call her mobile phone againbut there was no reply and another voicemail message was left requesting areturn call. A further attempt was made to call her on 11 October 2019.[17] On 30 October 2019, the Lead Insolvency Officer who had beenappointed to administer the estate, Tony Lowe, sent Ms Zhang an emailattaching a copy of the "Initial Notice to Bankrupt" and statement of affairsform for completion. She replied to him, attaching a copy of a memorandumthat she had filed the same day to advise the High Court that she had filed anappeal against Associate Judge Paulsen's judgment. She also copied Mr Loweinto an email to the Registrar filing a "supplementary memorandum" later thatday. She did not address the matter of completing her statement of affairs.[18] On 27 November 2019, a further email was sent to Ms Zhang concerningcompletion of her statement of affairs. She was advised that she would not bedischarged from bankruptcy and the restrictions of bankruptcy would continueto apply if she did not complete and return her statement of affairs form. Theemail also included several queries regarding assets and transactions that theAssignee was investigating.[19] On the same day she replied to ask whether, as she was appealing theCourt's decision, she needed to answer the queries. Mr Lowe replied thatcompleting a statement of affairs did not of itself prevent her from filing anappeal. He urged her to complete the statement of affairs so that at least, if theappeal failed, the 3-year period for discharge would have started running. MsZhang replied that she would be surrendering her rights if she filled in theform and that it would not help her case against Westpac.[20] At 8:54 pm on 28 November 2019 Ms Zhang sent an email advising thatshe had filed an application to stay the adjudication and, as Westpac had failedto file a memorandum by 5.00 pm as requested by the Registrar, thebankruptcy had been automatically stayed and the Assignee should ceaseadministration. Mr Lowe replied the next day that, unless provided with acourt order staying the adjudication, the Assignee would continue toadminister her estate.[21] On 14 January 2020, Mr Lowe emailed Ms Zhang to arrange a meetingto obtain her statement of affairs, answer any queries she may have regardingher bankruptcy and to obtain information about certain assets and transactions.The meeting was arranged for 11 February 2020 and she confirmed that thedate was suitable.[22] On 7 February 2020 Ms Zhang requested that the meeting be rescheduledto March for medical reasons. Mr Lowe agreed to it being rescheduled butrequested that she complete her statement of affairs in the interim. She wasonce again advised that she would only be discharged from bankruptcy 3 yearsfrom the time that her completed statement of affairs form was received bythe Official Assignee.[23] Between 12 February and 5 March 2020, Ms Zhang sent several emailsconcerning her efforts to apply for legal aid and copied Mr Lowe intocorrespondence when filing documents with the Registrar of the Court ofAppeal. However, she still failed to file her statement of affairs, and I thereforedecided to issue a summons for service on her at [her residential address inMount Roskill, Auckland] calling on her to appear before the Assignee at 2pm on 26 March 2020.[24] On 11 and 12 March a process server attempted to serve the summonsand spoke to a man at the above address. However, he was uncooperative andthe summons could not be served.[25] On 11 March Ms Zhang requested copies of her bank statements for theperiod during which the Assignee had queried various transactions. Thesewere sent to her the same day.[26] In further emails dated 12 March 2020, Ms Zhang said that she had beeninformed by her flatmate that someone had been to her home on behalf of theAssignee, but she was "in care of a doctor and not home". She said that sheneeded to look through the bank statements and would reply by 10 April, bywhich time a legal aid lawyer should have been appointed and, depending onher health, she should be able to meet with the Assignee by the end of April.[27] Mr Lowe once again urged her to complete her statement of affairs,explaining that the delay was only serving to lengthen her bankruptcy. Shereiterated that she would reply by 10 April via a legal aid lawyer. She askednot to be pressured as she was "really sick".[28] New Zealand then went into a level 4 lockdown due to COVID-19. On9 April 2020 Ms Zhang sent an email advising that she would prepare therequired information 20 working days after the lockdown ends.[29] During April I made a referral to MBIE's Integrity and EnforcementTeam (IET) to investigate Ms Zhang for a contravention of s 433(1)(a) of theAct by failing to file a statement of affairs. IET sent her a warning letter on 13May, advising her of her obligation to file the document and urging her tocomply.[30] On the same day, Ms Zhang sent Mr Lowe an email stating "Level 2tomorrow and will provide answers in 10 working days". She also said thather legal adviser in China wanted to know if the Official Assignee was able tolodge a claim on her behalf against Mr Wu in China. Mr Lowe replied thatthe Assignee had previously determined that the claim had no merit and haddisclaimed it.[31] On 2 July 2020, Mr Lowe sent a further letter to remind Ms Zhang thatshe was yet to file a statement of affairs and would remain an undischargedbankrupt until 3 years after she did so.[23] The Official Assignee concludes:[34] A decision was then taken to cease active administration of Ms Zhang'sestate. A standard letter, which advises bankrupts who have not filed theirstatement of affairs that they will remain bankrupt until 3 years after they doso, urges them to file same urgently, and reminds them of the restrictions andeffects of bankruptcy that will continue until they are discharged, was sent toher on 28 October 2021.[24] Mr Jones observes that Ms Zhang's only explanation for failing to file herstatement of affairs until almost three years after her adjudication appears to be thatdoing so would have prejudiced her prospects of successfully suing a Mr Wu inChina.11 However, he submits that she has not explained why this would have beenthe case and, in any event, she had no standing to commence such a proceeding as theOfficial Assignee had disclaimed the litigation right, thereby bringing to an end bothher and the Official Assignee's rights and interests in respect thereof.12 The OfficialAssignee's report confirms that the Insolvency Officer informed Ms Zhang of this facton 13 May 2020.[25] Mr Jones explains that where a bankrupt applies for early discharge after atleast three years of bankruptcy and there is a reasonable explanation for why astatement of affairs was not promptly filed (such as a failure in communicationbetween the Official Assignee and the bankrupt), and there is no further purpose tobankruptcy in terms of potential asset recovery, the Official Assignee will not usuallyoppose an early discharge.11 Ms Zhang's memorandum/submissions dated 3 November 2022 at 6-7.12 Insolvency Act 2006, ss 117 and 118; Report of the Official Assignee dated 14 October 2022 at[6](a).[26] However, here the circumstances are quite different. Ms Zhang was in regularcontact with the Insolvency Officer and was aware of her obligation to file a statementof affairs and the statutory consequences of not doing so. The Official Assigneeconsiders that she deliberately refrained from complying until she wanted to apply foran early discharge. The Official Assignee's position is set out in the report:[43] A bankrupt has a clear statutory duty to file a statement of affairs in atimely manner and it is an offence not to do so. The Official Assignee madeextensive efforts to encourage Ms Zhang to comply and explained theconsequences of her not doing so. She was clearly aware of the requirementbut chose to ignore the issue and, instead, to correspond with the Assigneeregarding matters which suited her agenda.[44] Ms Zhang was perfectly capable of preparing and filing court documentsin respect of her ongoing proceedings against Westpac, whilst ignoring therequirement to file her statement of affairs. She waited until less than 8 weeksbefore the 3-year anniversary of her adjudication before doing so.[45] In my respectful view, the fact that Ms Zhang chose to simultaneouslyfile this application, thereby seeking to anticipate the 3-year anniversary ofher adjudication and be discharged from her bankruptcy on that date,demonstrates a cynical disregard for her legal obligations.[46] Under the Insolvency Act 1967 a bankrupt was automatically discharged3 years after adjudication. The provision for the 3-year period ins 290 of the2006 Act to only start running once a statement of affairs is filed wasintroduced to incentivise bankrupts to file their statements of affairs promptly.[47] It is not uncommon for bankrupts who have been slow in filing theirstatements of affairs to apply to be discharged less than 3 years after doing so,but this is usually more than years after their date of adjudication. Providedthe administration of their estate is complete, the Official Assignee is unlikelyto stand in their way.[48] However, it is not appropriate that a bankrupt, who has deliberatelywaited until the eleventh hour before filing her statement of affairs, should beplaced in the same position as a cooperative bankrupt who filed their statementof affairs promptly after adjudication.Conclusion[49] There is no point in prolonging Ms Zhang's bankruptcy indefinitely.However, she has failed to advance any reasons as to why she was unable tofile her statement of affairs in a timely manner and I therefore believe it wouldbe appropriate for the Court to mark its disapproval of her conduct bydeclining to discharge her immediately and, rather, to order that she bedischarged at a specified future date pursuant to s 298(1)(d) of the Act.[27] In oral submissions, Mr Jones clarified that the reason for suggesting apostponed discharge rather than simply dismissal of the application under s 298(1)(e)is to avoid further cost to the Official Assignee and Westpac (from responding to afurther application by Ms Zhang).Deficiency in the bankruptcy[28] The Official Assignee reports that:[8] The only creditor to have filed a claim is the applicant creditor, Westpac.The bank has claimed a total of $445,374.96, consisting of applicant creditorscosts of $9,212.81 and an unsecured claim of $436,162.15.[9] Auckland Council is recorded as a potential creditor as it was awardedcosts as a supporting creditor in the bankruptcy proceedings. However, despitewriting to the Council during November 2019 and June 2020 to file its claim,it has not yet done so. It would appear from documents that Ms Zhang filed inthe Court of Appeal that the Council may be owed $60,000.[29] The Official Assignee's investigations did not result in any assets beingrecovered for distribution to Westpac.[30] The Official Assignee identified a 2014 BMW X6 Ms Zhang said she sold in2016/2017 as a potential asset. It outlined its doubts about whether Ms Zhang didactually sell the BMW (given no payments relating to the sale of the vehicle werefound in Ms Zhang's bank statements and the fact that the vehicle was transferred in2019 to someone with the same surname and address as Ms Zhang). It decided not totake further action however due to the difficulties around recovering transferredvehicles.13[31] The Official Assignee's fees and disbursements to date are $20,061.55. Thesehave not been paid.Application not advertised[32] Ms Zhang has not advertised her application for discharge at least 20 workingdays before this hearing as required by r 24.37 of the High Court Rules 2016.13 Report of the Official Assignee dated 14 October 2022 at [6](d).[33] At the hearing Ms Zhang said that she had not advertised the applicationbecause she only has two creditors, Westpac and Auckland Council.Discussion[34] Ms Zhang has not established a good cause for her early discharge frombankruptcy. It is clear from the Official Assignee's report that Ms Zhang was awareof her obligation to file a statement of affairs and of the statutory consequences of notdoing so, and that she deliberately refrained from filing a statement of affairs becauseit suited her own purposes. Failing to file a statement of affairs is a statutory offenceunder s 433(1)(a) of the Act. Ms Zhang was informed of this fact on at least oneoccasion.14[35] Ms Zhang's failure to file a statement of affairs impeded the Official Assignee'sadministration of her estate, as the investigation had to proceed without this keyinformation. Furthermore, as the Official Assignee records, a considerable amount oftime and effort was expended in trying to get Ms Zhang to comply with this statutoryrequirement. It was not until Ms Zhang was informed that the Official Assignee wouldbe likely to object to an application for early discharge because she had not filed astatement of affairs that Ms Zhang filed the document.[36] In these circumstances, I agree with the Official Assignee's conclusion that MsZhang has demonstrated a cynical disregard for her legal obligations.[37] I note that the Official Assignee was unable to recover any assets in theadministration to distribute to Westpac. The size of the deficiency in the estate issubstantial. The Official Assignee's costs remain unpaid. I note also the OfficialAssignee's suspicion that Ms Zhang has not been truthful in her responses concerningthe one asset of any value that was identified, being the 2014 BMW X6.[38] Through her appeal of the original bankruptcy decision, and various relatedinterlocutory applications, she has incurred significant additional debts to Westpac.These remain unpaid. I note Westpac's submission that in the course of her appeal14 Report of the Official Assignee dated 14 October 2022 at [29].Ms Zhang paid more than $7,000 in security for costs to the Court of Appeal, and thatthe Official Assignee should investigate the source of those funds.[39] There is a public interest in Ms Zhang's application being dismissed as amessage to other bankrupts that they may not deliberately delay filing their statementof affairs and then apply for early discharge with impunity. I concur with the OfficialAssignee's position that it is not appropriate that a bankrupt in Ms Zhang's position beput in the same position as a cooperative and diligent bankrupt who files a statementof affairs promptly after adjudication.[40] I am mindful that the Official Assignee has concluded that there are no assetsin Ms Zhang's estate and they have therefore ceased actively administering her estate.Mr Jones confirmed that the recently filed statement of affairs does not change thatposition. However, the public interest considerations described outweigh the lack ofany practical purpose to the bankruptcy in terms of potential asset recovery.[41] It is also significant that Ms Zhang has not advertised the application. Thepurpose of the requirement to advertise is to give the bankrupt's creditors theopportunity to be heard on the bankrupt's application for early discharge. Ms Zhangappears to have been aware of this requirement but considered it unnecessary. YetAuckland Council, and potentially other creditors, may have an interest in her earlydischarge and should have been given the opportunity to be heard.[42] For these reasons, it is appropriate that Ms Zhang's application for earlydischarge is refused and that she is prevented from applying again for discharge untilone year has expired.[43] Because of her deliberate disregard for her legal obligations, and the fact thatthe application has not been advertised, I do not consider an order for her discharge ata future date to be appropriate.Result[44] Ms Zhang's application for early discharge from bankruptcy is dismissed.Ms Zhang may not apply again for discharge until 23 November 2023.[45] Ms Zhang is to pay Westpac's costs on a 2B basis, and reasonabledisbursements as fixed by the Registrar._____________________Associate Judge Gardiner