Bankruptcy: re Henderson

Property developer and serial bankrupt David Ian Henderson was discharged from his second bankruptcy leaving unpaid personal debts exceeding one hundred million dollars.  He is prohibited from managing any business until December 2022. 

Common themes running through Mr Henderson’s business behaviour justified restrictions on his business actvities, Associate-judge Osborne ruled.  This included: giving personal guarantees not backed by any assets; avoiding tax; diverting GST and PAYE deductions; failing to keep proper records; failing to meet financial reporting requirements and stonewalling in the face of demands from receivers and liquidators for documents and information.

His second bankruptcy started in 2010.  Automatic discharge three years later was blocked following objections by the Insolvency Service.

Under questioning from Insolvency Service, Mr Henderson painted himself as a go-getter entrepreneur more interested in getting things done than dealing with trifling administrative matters.  Agreement could not be reached on the full extent of Mr Henderson’s indebtedness.  He disputed Insolvency Service calculations and criticised its handling of creditors’ claims.  Judge Osborne said the total of Mr Henderson’s debts fell somewhere between $100 million and $150 million.

The High Court was told of Mr Henderson presenting inflated statements of personal net worth when signing multiple guarantees to support his property developments then later denying liability when demand was made.  He expressed the view guarantees were not so much binding obligations as unenforceable letters of comfort.  For tax years 2001-2007, he filed tax returns declaring no taxable income.  Inland Revenue reassessed his tax liability for this period at $2.2 million being income tax of $813,800 plus penalties and use of money interest.  Inland Revenue said interest free loans paid to him from one of his companies were in fact income.  Treating the income as loans amounted to tax avoidance, it said.  Inland Revenue also claimed Mr Henderson was personally liable to make good diverted GST and PAYE deductions totalling $1.86 million after adding in associated penalties.

Mr Henderson blamed his bankruptcy on the 2008 banking crisis and subsequent collapse of second-tier lenders funding his property developments.  The Insolvency Service said Mr Henderson displays a high level of confidence in his own business abilities, taking little or no responsibility for his insolvency with no insight into the impact of his conduct.

Mr Henderson will be 67 when his business prohibition expires in 2022.

Re Henderson – High Court (9.12.16)

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Intellectual Property: General Electric v. Siemens

Siemens alleges General Electric is trying to steal its intellectual property with plans to buy on the sly a decommissioned gas turbine from Contact Energy.

The Court of Appeal upheld an interim injunction blocking the sale pending a full trial on Siemens’ claims it could veto any sale to a competitor.  Siemens provided gas turbines for Contact’s Otahuhu B combined cycle power station.  Contact has closed the plant.

The Court of Appeal was told Siemens provided Contact with a letter of support to assist in the gas turbines onward sale, expecting the units to be offered to other power generators.  There was evidence of Contact keeping General Electric’s interest hidden, describing GE personnel on scoping visits as “mystery shoppers”.

Siemens claims intellectual property rights in its gas turbines, particularly in the metallurgy and fit of burners, blades and heat-resistant coatings.  General Electric admits it plans to disassemble Siemens’ turbine on order to get information useful for its plans to compete in the market for maintenance contracts.  Siemens’ alleges this will allow General Electric to reverse-engineer the turbine and acquire trade secrets. 

General Electric v. Siemens – Court of Appeal (9.12.16)

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Corruption: R. v. Borlase & Noone

Showering excessive gifts and benefits on any public official amounts to bribery and corruption Justice Fitzgerald ruled when convicting contractor Stephen James Borlase and Auckland City roading manager Murray John Noone over corrupt payments exceeding $1.2 million.  There is no need to prove those receiving corrupt payments in fact acted dishonestly in return or that there was an intent to influence decisions made, Her Honour said.

Borlase was one of two directors of contractor Projenz (2005) Ltd.  He was convicted of corruptly providing payments and benefits to staff at Rodney District Council and Auckland Transport.  Noone as director of transport at Rodney Council and later as road corridor manager for Auckland Transport was convicted of corruptly receiving some $1.1 million under a sham consultancy agreement along with travel and hotel accommodation worth about $84,000.  The High Court was told Noone invoiced Projenz between $8000 and $10,000 monthly for consultancy advice over a seven year period.  There was no evidence of any consultancy services in fact being provided.  In addition, Projenz paid Noone $200,000 in June 2010 for what the prosecution described as a one-off payment to dissuade Noone from taking a private sector job and instead take up a role within the restructured Auckland super-city ensuring Projenz had “its man” within newly created Auckland Transport.   A one-off $40,000 payment was made two years later in what the prosecution said was reward for contracts awarded a few days previously to Projenz.

Justice Fitzgerald said it is not against the law to make and receive gifts of token value as part of the “usual courtesies of life.”  This is assessed against the value of the benefit and the context in which it is provided.  The travel and hotel benefits provided to Noone, which included 53 nights hotel accommodation in the Auckland CBD, went beyond the normal incidences of marketing and relationship building.

Another Auckland transport manager, Barrie Kenneth James George, pleaded guilty before trial to corruption in receiving travel and accommodation benefits from Projenz totalling about $125,300.  He was sentenced to ten months home detention.  Projenz funded travel for George to make multiple trips to Japan visiting his son in jail and travel for a family holiday in Fiji.

R. v. Borlase & Noone – High Court (9.12.16)

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Insurance: Young v. Tower Insurance

Insurers have an obligation of good faith during the claims process to make full disclosure of all relevant information ruled the High Court when awarding nominal damages of $5000 against Tower Insurance for its failure to disclose a contractor’s report recommending rebuilding a Christchurch earthquake-damaged house.

The McAra Young Trust owns a four level home on a step section in Craigieburn Lane, Mt Pleasant insured with Tower for full replacement value.  Occupied by the Young family, it was designed by their architect father Greg Young.  The High Court was told of heated and protracted negotiations between Mr Young and Tower following extensive damage after the massive February 2011 earthquake.  Mr Young said a rebuild was required; Tower would settle for repair only.  Justice Gendall ordered a rebuild costed at an upper price limit of $1.62 million.

Structural damage included foundations settling in one corner with parts of the house pivoting up to 20mm out of true as the structure twisted away from part of the foundation built into rock.  Floors were out of level by up to 75mm with internal walls out of plumb and cracking in structural bracing walls.  Tower proposed attaching cables to bedrock near the house and winching the building back into position while replacing damaged foundations to re-level the structure.  Mr Young was horrified, taking the view this was an untried repair method likely to cause even more damage.

Justice Gendall ruled the proposed repair did not comply with terms of Mr Young’s Tower insurance contract.  In any repair, Tower is obliged to use “construction methods commonly used at the time of loss or damage”.  This clause saves insurers from having to risk attempts at novel or revolutionary methods when making good accidental damage.  In this case, the repair clause operated against Tower.  Winching a damaged house back into position on a steeply-sloping section was a novel and untried method of repair.  Since the proposed method of repair does not comply with the policy, the only proper conclusion is that the damage is not repairable and the house must be rebuilt, Justice Gendall said.

An initial assessment given to Tower’s project manager in mid-2011 stated the house should be rebuilt.  Mr Young alleged this report was deliberately withheld from him, being disclosed accidentally by Tower’s project manager three years later during a period of acrimonious exchanges between Mr Young and Tower over the manner of any repair and the need for a rebuild.  Tower said it also was unaware of the initial report; it had not been provided with a copy by its project manager.

Tower’s project manager was an independent contractor but was acting as agent for Tower and accordingly Tower is responsible for its agent’s failure to properly disclose the report, His Honour said. 

Young v. Tower Insurance – High Court (7.12.16)

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Commerce Act: Commerce Commission v. PGG Wrightson

Four senior managers at PGG Wrightson and one from Elders have been fined for their involvement in price-fixing when setting fees for implementation of a national animal tagging system.  While they had no intention of price fixing said Justice Heath, colluding on standard prices across the industry had this effect in breach of the Commerce Act.

Wrightson general manager livestock Nigel Thorpe was fined $25,000 together with fellow Wrightson employees Donald Baines (fined $20,000), Douglas Cartridge ($20,000) and Andrew Clark ($15,00).  Elders managing director Stuart Chapman was fined $25,000.  In addition, each agreed to pay $5000 towards Commerce Commission costs.  The maximum fine for an individual breaching the Act is $500,000.

Commerce Act breaches arose from informal discussions at a high level within the stock and station industry over cost-recovery following legislation requiring all cattle and deer passing through saleyards be tagged with radio frequency identification devices.

Justice Heath said Mr Thorpe and Mr Chapman both held senior positions in their respective companies and were in a position to give directions to other staff about pricing for tagging system implementation.  Messrs Baines, Cartridge and Clark were at a lower level within Wrightsons but each played a significant role in determining industry-wide standard pricing.

Last year, PGG Wrightson as a corporate admitted liability for price fixing.  It was fined $2.7 million.  While Elders managing director Stuart Chapman admitted personal responsibility, Elders Rural as a corporate denies it was a party to any price fixing.  Legal action is still pending against Elders Rural.   

Commerce Commission v. PGG Wrightson – High Court (5.12.16)

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