New Zealand Credit Law Bulletin - Vol 10, No 1, January 2010
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:
- First appeal by a debtor against termination of her “No Asset Procedure” insolvency
Debts too big and too complex, and unresolved relationship property issues all mean not suitable for NAP - Prison instead of reparation to fraud victims
Can the judge impose an extra penalty for “non-compliance and obstruction”? - Can a guarantor sue a co-guarantor on the grounds that they didn’t pay their fair share?
Also an interesting example of an admission of claim working well for the creditor
1. First appeal by a debtor against termination of her “No Asset Procedure” insolvency
GIFKINS HC AK CIV 2009-404-281 [2009] NZHC 613 (25 May 2009)
Tracy Lee Gifkins applied for entry into the no asset procedure on 3 December 2008. In her statement of affairs she calculated her debts at $39,358.22. She didn’t mention any tax liabilities. Eligibility for entry into the no asset procedure is confined to debtors whose debts are between $1000-$40,000 excluding any student loan.
On 7 January 2009 the Commissioner of Inland Revenue advised the Official Assignee that Gifkin had a current tax debt of $45,764.08. The Assignee terminated her participation in the no asset procedure.
Gifkin appealed to the High Court. She is the sole director of Grey Lynn Veterinary Clinic Ltd, a company which no longer trades. She said the tax liability had arisen because the Inland Revenue Department turned down certain expenses claimed by the company as relating to the company's business, and treated it as her personal income. She claimed that the IRD had agreed she was entitled to set off her tax debt against larger credits to which the Department had agreed.
Two other new creditors emerged. Gifkin’s former husband said that she had not yet paid $12,000 of costs ordered to be paid to him in 2000 following family court proceedings. Gifkin claimed that the costs order was wrong. The orders were conditional upon finalisation of the relationship property matters and these had never been finalised. In any case, she succeeded in her appeal and did not understand how costs could have been awarded against her.
The Ministry of Social Development said she owed $8,746.69 for overpayments of a domestic purposes benefit and a special needs grant. Gifkins did not address this debt when she appeared in court.
Gifkin admitted to the judge that she hadn’t yet filed all the necessary tax returns which would be required to get the tax set off which might be available. The judge said that the fact that Gifkin might ultimately succeed in resolving her tax affairs to her advantage was irrelevant for present purposes. At the date of her application for admission to the no asset procedure she owed the money but failed to include the debt in her statement of affairs. Had she done so, the application would have been rejected. Her debts were simply too high. The Assignee is plainly under a duty to terminate where a debtor is wrongly admitted because debts were understated.
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. Gifkin’s affairs were not simple. The judge said that, “The no asset procedure is not designed for persons whose business and tax affairs are complex.”
There were three other elements which encouraged the judge to reject the appeal. The first was the debt owed to the Ministry of Social Development. The second was the existence of apparently unsatisfied orders for costs against Gifkin in various family proceedings. The third was the fact that she told the Court that relationship property issues between her and her former husband have never been finally resolved. This suggests that there may have been further relevant assets and liabilities, none of which were disclosed to the Assignee.
Gifkin’s appeal was rejected.
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2. Prison instead of reparation to fraud victims
Paul Hadfield is an expert in the area of maize and silage. In 1988 he incorporated a company which operated as a silage broker. It acquired silage from growers and on-sold to end users, such as dairy farmers.
Silage samples were sent to Lincoln University which tested it and supplied a “dry matter percentage” certificate to Hadfield. Payment was based on the weight of the silage after application of the dry matter percentage. Apparently, there were concerns about the accuracy of the process. Instead of openly addressing this issue, Hadfield altered the percentage figures. This was fraud, and he was convicted on multiple counts of fraudulently using a document to obtain a pecuniary advantage. Judge Crosbie heard the matter without a jury and found that Hadfield had obtained a pecuniary advantage of $335,794.75, exclusive of GST. He sentenced him to a total of three years imprisonment.
The starting point for sentencing was four and a half years. The judge reduced the sentence by nine months because of mitigating features such as the fact that Hadfield had no previous convictions. A further reduction of nine months was made "to reflect the order for reparation." In other words, his promise to pay reduced his sentence by nine months. He was ordered to pay inn full within twelve months.
Hadfield served nine months in prison. He was then released to serve a further three months on home detention.
No reparation was paid so on 1 May 2008 Hadfield was sentenced by Judge Crosbie to a further twelve months imprisonment. This was the maximum for non-payment of a fine, (or in this case, in fact, non-payment of reparation.)
Hadfield appealed to the High Court. In the course of his sentencing remarks Judge Crosbie referred to "a theme of non-compliance and obstruction" … both at the time of the original sentencing and subsequently. It was essentially this which led to the twelve-month term of imprisonment, even though Hadfield had only been credited with a nine month reduction for the anticipated reparation. He was being punished with an extra three months for not paying.
A defendant can be imprisoned for non-payment of a fine under the Summary Proceedings Act only if the Judge is satisfied that the defendant has the means to pay the fine. The imprisonment “shall be such period as in the opinion of the Court or District Court Judge fixing the period will satisfy the justice of the case…” up to twelve months. Upon payment of the reparation the warrant of commitment is suspended.
Hadfield’s lawyer argued that Judge erred in finding that Hadfield was defiant and obstructive, and that a lesser sentence of imprisonment, or home detention, was the appropriate penalty. The High Court judge said, "I am in no doubt that both a refusal to pay and obstructiveness are relevant in fixing the term of imprisonment imposed for non-payment of reparation."
Judge Crosbie obtained a reparation report from the accountant who had provided the reparation report for the original sentencing. The report contains an assessment of Hadfield’s assets - land, a horse breeding partnership, a farming partnership and his interest in his silage company. It concluded that his "estimated net assets" were $386,205 as at 20 February 2008.
Judge Crosbie said, “What it indicates is that nothing has changed really from the time of sentencing until today." He concluded that Hadfield had assets which could have been sold to pay back victims.
The High Court judge agreed. “In my view … Judge [Crosbie] had little option but to impose a term of nine months imprisonment, given the reduction made in anticipation of payment of reparation. In addition, he was faced with defiance of a court order. It was necessary to bring this factor to account and the Judge did so by fixing the term of committal at 12 months.”
The appeal was dismissed.
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3. Can a guarantor sue a co-guarantor on the grounds that they didn’t pay their fair share?
ROBINSON V PIGOU HC AK CIV-2008-404-8140 [2009] NZHC 1370 (2 October 2009)
Ms Pigou and Mr Robinson were the shareholders in Dermacare Marketing Limited. On 22 July 2004 Westpac Bank made a loan advance of $443,000.00 to Dermacare. Pigou and Robinson signed joint and several guarantees in favour of Westpac as security for the advance. “Joint and several” meant that Westpac could sue either or both of them if the debt wasn’t paid.
According to Pigou, Rice Craig solicitors acted for both her and Robinson. Robinson was also the director and shareholder of a company called Rongo Pai Farms Limited. She claims that when Rice Craig received the loan advance on behalf of Dermacare Marketing it used part, $77,030.72, to repay a mortgage Rongo Pai Farms had with the National Bank.
In late 2004 Dermacare (by then called Formula Products Limited) was placed into receivership. Westpac made demand for repayment of $305,675.64, the balance owing at that time under the loan advance to Dermacare.
Pigou was not willing to pay all of her half of the debt. She said that that Ronga Pai Farms or its director, Robinson should repay the $77,030.72 advance. She therefore short-paid the Westpac debt by half of this amount - $38,515.36. Robinson did not accept Ms Pigou's approach. He paid the balance of the debt to Westpac, without prejudice to his ability to sue Ms Pigou. (In other words, the payment didn’t show that he admitted that she was right.)
Robinson sued Pigou for $38,515.36. On 15 May 2007, Pigou signed a settlement agreement in which she acknowledged that she owed Mr Robinson $45,000 ($38,515.36 plus interest and costs). The agreement entitled Robinson to register the agreement as an “admission of claim” if payment was not made within the agreed time.
Pigou did not make any payment under the settlement agreement, and Robinson registered the admission of claim and obtained judgment Pigou.
Pigou applied to set aside the bankruptcy on the grounds that she had a cross claim against Robinson. She claimed that “her lawyers withdrew at the court door and her new lawyers failed to advise her on the admission.”
The judge in the High Court said that Dermacare might have a claim against Rongo Pai, but Pigou had no claim against Robinson. It did not matter that Robinson benefited as sole director and shareholder of Rongo Pai.
Ms Pigou's application to set aside the bankruptcy notice was declined.
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