Managing residential tenancies can be complex, doubly so when the properties are held in limbo under Insolvency Service management, restrained under proceeds of crime legislation as property ‘tainted’ by alleged criminal activity.
Wellington-based Robert William and Helen Eng are both charged with participating in an organised criminal group plus further offences relating to receipt of stolen property. At the time charges arose two years ago, they controlled an $18 million dollar property portfolio.
Police allege their applications for covid-19 wage subsidies and Social Development accommodation supplements were fraudulent. The level of fraud is alleged to be $2.5 million.
In October 2022, police raids recovered almost three thousand items of allegedly stolen property having an estimated upper value of some two million dollars.
Both deny all charges.
In December 2022, the High Court imposed a Criminal Proceeds (Recovery) Act restraining order over fifteen separate properties, pending potential forfeiture dependant on the outcome of their criminal trials. Insolvency Service now has day-to-day management of these properties.
With property prices falling, the High Court gave approval for immediate sale of twelve properties with net proceeds frozen. Only four properties have sold, each at a loss; two of these being mortgagee sales.
William and Eng allege the commercial value of their remaining properties is being eroded by Insolvency Services’ poor management.
They asked two properties be released from the restraint order: one on the Terrace in central Wellington; the second in Tawa. Neither of these properties benefitted from any alleged fraud, they claim.
Property is ‘tainted’ if proceeds of criminal activity are used to purchase property or to pay any mortgage secured over property.
Refusing to release the properties, Justice Grau ruled funds allegedly arising from fraud washed through sundry bank accounts controlled by William and Eng such that it was arguable that criminal proceeds were used to pay down debts secured over the two properties.
As regards complaints of poor management by Insolvency Service, Justice Grau said there were inevitable complications with Insolvency Service attempting to prepare properties for sale when at the same time there were tenants on fixed term tenancies having a right of continued occupation.
Separately, Justice Grau disallowed priority payment of liquidation costs arising after the restraining orders were imposed.
More than half the restrained properties are owned by a company called Synergy Investments Ltd, a company controlled by Ms Eng.
Synergy was put into liquidation in June 2023. Companies Act rules give priority to payment of liquidators’ fees and expenses, including their legal expenses. Proceeds of crime legislation was enacted with no thought as to how it might dovetail with Companies Act rules.
While expenses incurred by a liquidator prior to restraining orders being made can be recovered on sale of the company’s restrained property, Criminal Proceeds (Recovery) Act provisions specifically prohibit any priority for expenses incurred after property is tagged as ‘tainted.’
Synergy was put into liquidation after the restraining orders were imposed.
Where they do not have priority, liquidators will have to negotiate with police in a case-by-case basis as to what contribution for expenses can be recovered from asset sales, Justice Grau said.
Commissioner of Police v. William & Eng – High Court (9.05.24)
24.117