New Zealand Credit Law Bulletin - Vol 8, No 5, September 2008
A free, plain English review of recent law and items of interest for creditors, produced by Hattaway & Associates Ltd, Credit Consultants. To subscribe, visit the New Zealand bulletin index and enter your details on the right
Plain language disclaimer:
This bulletin is not legal advice. Do not make decisions on legal matters based on a brief commentary. Instead, get professional legal advice.
In this issue:
- On the importance of taking good notes when talking to debtors
Debt collector’s notes ensure that debtor company’s newly-raised dispute is dismissed. - Loan interest appals minister
A finance company in the news, and a link to a cartoon - Debtor’s car seized so tries to overturn judgment 4 years later
A case which shows the court’s approach to belated attempts to set aside judgment - Swear to god you don’t owe the money!
Chinese debtor struck by lightning - On the importance of phoning debtors
Failure to call may cost you your job as this Australian case shows - How to object to a No Asset Procedure
If you think your debtor is abusing the procedure, here’s what to do
1. On the importance of taking good notes when talking to debtors
In April 2005, Risk Management Holdings leased a photocopier from Fuji Xerox Finance Limited. Monthly lease payments were $1,618.50. Risk Management’s payments were dishonoured. Fuji Xerox says that it terminated the agreement in January 2007. The photocopier (for reasons that are not explained in the case) remained in the possession of Risk Management.
On 31 October 2007 Fuji Xerox served a statutory demand pursuant to s 289 of the Companies Act 1993 on the registered office of Risk Management. The demand required Risk Management to pay a total sum of $103,441.11. If the company ignored the demand, it could be wound up.
Risk Management therefore filed in the High Court an application to set aside the demand. When the case was heard, the judge accepted that on Denis John Fetherston of Risk Management, also served the document on Fuji Xerox, as required, despite opposition from Fuji Xerox who said that the alleged document had never been found. Risk Management claimed that there was a real and substantial dispute regarding the existence of the debt, and said that it had an arguable counterclaim exceeding the amount claimed in the statutory demand. It said that from an early stage the photocopier had failed to perform properly and that, despite many phone calls Fuji Xerox failed to maintain the machine as required under the contract. “The machine became a heap of useless parts and not useable.”
Fuji Xerox, however, points out that it does not have any record of Fetherston complaining about the state of the machine. The records maintained by Fuji Xerox show that it received only one complaint in respect of the machine. This was received in May 2005, shortly after the machine had been installed. The problem was fixed and nothing further was heard about it.
Fetherston relies on an invoice that he obtained from another company that he called to fix the machine. He says that this invoice shows that the maintenance company was unable to fix the machine and that it thereafter became unusable. The judge “[found] it difficult to accept Mr Fetherston's evidence on this point.” Among other things, “it is clear from evidence that has been produced that Risk Management did in fact use the machine on a reasonably regular basis until at least December 2006.” Fuji Xerox has issued an invoice to Risk Management in respect of the photocopying charges that relate to the machine. These are apparently charged on a "per page" basis.
The records show that the machine was in regular use between April 2005 and December 2006. "The most compelling evidence on this point, however," said the judge, "is the log maintained by Fuji Xerox of communications that it had with Mr Fetherston and with the debt collection agency… The contacts between Fuji Xerox and Mr Fetherston make it clear that Mr Fetherston repeatedly apologised for the fact that his payments had been dishonoured. He also made repeated promises that the account would be brought up to date within a short time. These assurances continued right up until 7 March 2007, some two months after Fuji Xerox had terminated the lease. The log records the following discussion between Fuji Xerox and Mr Fetherston on 7 March 2007: Dennis Fetherston… has called to try and sort out all of the owed debt. It has been logged with baynet he has got a loan approved but he needs to get this cleared first also refinancing personal property to raise $400,000.00. He is hoping to be able to deal to the arrears. He advised that business became difficult as the phone was disconnected. He is going to put a proposal thru to me in order to try and move the situation forward I advised that I would be needing to discuss with my manager …”
The evidence showed that Fetherston had no complaints about the machine at that point.. The application to set aside the statutory demand was dismissed.
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2. Loan interest appals minister
http://www.stuff.co.nz/dominionpost/4679974a6479.html
The Dominion Post (04 September 2008) says that “the Commerce Commission revealed it had had two complaints alleging [Wellington lender] Super Loans' signs were misleading under the Fair Trading Act…” The brightly coloured advertising signs apparently say "Interest only 8%", then in much smaller type they say "PW".
Appalled Consumer Affairs Minister Judith Tizard says that the solution is – no surprise here – yet more legislation for the finance industry. "We are looking at the current law and identifying areas where we might make legislative change," she told the Dominion Post.
The view of cartoonist, Moreu, on the matter, made us laugh. http://www.stuff.co.nz/thepress/729751a21498.html
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3. Debtor’s car seized so tries to overturn judgment 4 years later
GOPAL V SIMPSON HC NWP CIV 2008-443-16 [2008] NZHC 477 (10 April 2008)
Mr and Mrs Simpson supplied eggs to Mr Gopal. They issued an ordinary proceeding in the District Court, through a debt collector, for money they were owed. Gopal filed a Statement of Defence, saying that the Simpsons hadn’t accounted for money paid by him, and that the debt had in fact been cleared. The Simpsons offered to reduce their claim (the original value of which is not mentioned in the case report) to below $12,000 so that any issues between them could be resolved in the Disputes Tribunal. Creditors can take matters below $7500 to the Tribunal as of right, but matters between $7500 and $12,000 require agreement from the other party. However, Gopal (as was his right) would not agree, and the Simpsons would not reduce the debt to $7500, so the matter remained in the District Court.
The Simpsons saw a solicitor, who advised them that the summary judgment procedure was available. This is a quicker, simpler process for dealing with relatively straightforward defended civil matters. The Statement of Claim was amended and an affidavit sworn in support of an application seeking summary judgment for the alleged debt. Gopal did not take any formal steps to oppose the application for summary judgment. He asked for the matter to be adjourned in November 2003. However, in December 2003 it was heard. He was present in court but was not represented by a lawyer. Judgment was entered for $20,698.82 plus interest and costs.
On 15 November 2007, Gopal’s car was seized by a bailiff in Wellington. That seizure led to the application in the District Court to set aside judgment. On the evidence before him, the Judge was not satisfied that a defence existed to the Simpson's claims. He was also concerned about the delay in bringing the application to set aside judgment.
He concluded that he should exercise his discretion against Mr Gopal and dismiss the application, with costs.
Gopal appealed to the High Court. The main issue was: should the judgment be set aside on discretionary grounds? The Court of Appeal has previously looked at this issue in a situation where a defendant failed to appear. In such a case it takes into account 3 questions.
a) Was the defendant's failure to appear excusable?
b) Did the defendant have a substantial ground of defense?
c) Would the plaintiff suffer irreparable injury if judgment were set aside?
In Gopal’s case, the first question did not apply – Gopal was in court when judgment was awarded. However, the High Court judge considered the other two questions. He decided that there had been no adequate explanation of the delay in bringing the application to set aside judgment. The issues raised fell well short of establishing a miscarriage of justice. While the Simpsons' would not suffer "irreparable injury" if judgment were set aside, they would be returned to the position in which they were in late 2003. That, in itself, was unacceptable in the absence of a substantial defence and an adequate explanation of the reasons for the delay. The appeal was dismissed.
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4. Swear to god you don’t owe the money!
Media around the world have had fun recently with a story from the Chinese Southeast Express of a Chinese man who swore to God, in front of a crowd of neighbours, that he did not owe money to another neighbour. Apparently he was holding a metal bar above his head at the time. He swore the oath and was immediately struck by lightning. If all else fails, creditors might consider using this approach at Disputes Tribunal hearings.
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5. On the importance of phoning debtors
SHARMAN and PUBLICATIONS AND EXHIBITIONS PTY LTD [2008] WASAT 142 (25 June 2008)
This case appeared in our Australian bulletin in August. We thought it made an important point and was worth sharing with New Zealand creditors.
Ms Zena Sharman was employed by Publications and Exhibitions Pty Ltd as "Administration Manager" on 11 May 2006. Her duties included invoicing, debtors control, answering telephones, and general secretarial and administrative duties. (Note: typically, more than half the attendees at Hattaways seminars have roles which include matters other than credit management, so this is not unusual.)
Ms Sharman became pregnant. Neil Boulos, a director of the company, became aware of her pregnancy around the last week in February 2007. From that point, she alleged that she noticed a dramatic change in his behaviour towards her. Sharman claimed that she was unlawfully discriminated against in her employment because of her pregnancy, and took her case to the WA State Administrative Tribunal.
She alleged that Boulos created an environment at work designed to make her sufficiently unhappy and frustrated so as to resign from her employment. In summary, her complaint was that he began to supervise her very closely and that, when she took sick leave as a result of her pregnancy, he called her repeatedly to try to find out when she would be back.
Boulos maintained that the problem was with Sharman because she was avoiding an important part of her work, that of debt collection. He said that he had expanded the business, and as a consequence, his outgoings had increased. This made efficient debt collection critical to the viability of the company, and Sharman was not completing that task to the required standard.
Sharman accepted that prior to her notifying Boulos of her pregnancy, Boulos had told her a number of times that the debt recovery function was not being carried out to the required standard.
Sharman said that she did not avoid the debt collection task as asserted by Boulos. She said that Boulos had asked her to complete two assignments at the same time and she was told they were of equal importance. When she was undertaking the two assignments, she would sit with the new employee in the morning to ensure that person had work to do, and then later, she would send out notices of outstanding payments to debtors.
"... All I didn't do towards that collection was make phone calls, but I was constantly sending people reminders to pay their bills," she said.
Sharman accepted that she was directed by Boulos to spend two to three hours a day chasing outstanding invoices until the debtors were brought under control. "Well, I did debt collection in a different way, I sent out invoices, I rang people I could, because they were also in the eastern states. A few WA calls were made in the afternoon. I did the debt collection in a different form, I sent out reminders, I wrote them letters."
The WA State Administrative Tribunal accepted that Sharman felt genuinely aggrieved by her situation in that she was coping with her pregnancy at a time of increased work pressure. However, in all respects, Boulos impressed the Tribunal as a reasonable employer. The Tribunal preferred the evidence of Boulos to that of Sharman.
The Tribunal found that Sharman disliked the task of debt collection and that she favoured sending reminder notices to debtors rather than making phone calls. She did not follow the direction of Boulos to spend more time on debt collection.
Her debt collection process was not efficient enough to collect sufficient funds for the company at a time when Boulos had expanded the business and consequently increased his cash outgoings. The Tribunal accepted that this was a critical time for Boulos' business (the period from at least April 2007). The behaviour of Boulos which Sharman complained of (the close monitoring of her work on the debt collection/the insistence on results), was something that occurs in the ordinary course of a small business that is under pressure to expand and to maintain its viability.
The circumstances in which Sharman found herself were not the product of discriminatory conduct by Boulos. Sharman's claim was therefore dismissed.
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6. How to object to a No Asset Procedure
http://www.insolvency.govt.nz/cms/creditors/i-want-to-object-to-a-no-asset-procedure
The Insolvency & Trustee Service have put information on their website for creditors who want to object to a debtor’s admission to the No Asset Procedure. The feedback we’ve had is that many creditors are aggrieved over this process, and believe it is being abused by debtors. If so, here’s what you should do.
Once the Official Assignee has accepted an application for a NAP, the creditors identified by the debtor will be notified in writing in the form of a creditor’s report sent five working days after acceptance. In the creditor’s report, creditors are informed of their right to object to the debtor’s entry to a NAP.
If you are a creditor and want to object, you should lodge your objection in writing with the Official Assignee on the appropriate form clearly setting out the reasons for your objection.
Download the objection form from: http://www.insolvency.govt.nz/cms/creditors/resolveUid/6ba5a8ea3c1b122e43d8ac071fee25d4
The grounds will be either that:
* the debtor did not meet the criteria for entry to the No Asset Procedure (Section 376 (2) (a)) – i.e. in general, that the debtor does have realisable assets, or has total debts (excluding any student loan balance) that are more than $40,000, or does have the means of repaying an amount towards those debts; OR
* there are reasonable grounds for the Assignee to conclude that the debtor was disqualified under section 364 Insolvency Act 2006 (Section 376 (2) (b)) – i.e. in general, that the debtor has concealed assets with the intention of defrauding his or her creditors, for example, by transferring property to a trust, or engaged in conduct that would, if the bankrupt were adjudicated bankrupt, constitute an offence under this Act, or incurred a debt or debts knowing that the debtor does not have the means to repay them.
What this means is that if the debtor ran up debts just before going into the NAP, or lied on his/her credit application form, or bought goods from you which they should still have and which should be worth a reasonable amount of money, you may be able to terminate the NAP.
Creditors can lodge their objection to the acceptance of a debtor into a NAP at anytime prior to discharge of the debtor which is 12 months from the date of acceptance.
The Official Assignee will review the objection and respond to the objecting creditor within ten working days. If the objection is upheld, the NAP will be terminated.
The effect of termination of a NAP is that debts that had become unenforceable on entry to the NAP become enforceable again. The debtor is returned to the position they were in immediately prior to entry to the NAP.
Objections should be lodged with the Official Assignee either by post to:
Official Assignee
Private Bag 4714
Christchurch
8140
or by email to:
info@insolvency.govt.nz
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