Bankruptcy: Henderson v. Official Assignee

The Official Assignee’s refusal to allow bankrupt property developer David Henderson to leave the country has been upheld by the High Court.  Bankrupt on debts exceeding $100 million with no dividend paid out to creditors and described by the Official Assignee as being unco-operative, Henderson is looking to depart New Zealand permanently to pursue offshore business opportunities in the biogas industry.

Mr Henderson was bankrupted in 2010.  It is his second bankruptcy.  He remains bankrupt after the Insolvency Service blocked his automatic discharge from bankruptcy after three years.  It alleges Mr Henderson has failed to respond to requests for financial information relevant to his bankruptcy.  He complains the Insolvency Service is being vindictive and punitive.

In June 2014, he emailed the Insolvency Service requesting approval to leave New Zealand.  The following month a border alert was lodged to block any unauthorised departure. In the 2013 calendar year, over 1300 bankrupts were given approval to travel outside New Zealand. 

The High Court was told Mr Henderson plans to visit unspecified sites in North America, South America and Hong Kong to finalise licensing of a biogas engine.  Installation in Christchurch is envisaged.  Mr Henderson indicated there are employment possibilities arising from the proposed project.  He stated an intention to leave New Zealand permanently.

The Official Assignee asked for some corroborative evidence of the employment possibilities and how these might benefit Mr Henderson’s New Zealand creditors.   No evidence was provided to the Official Assignee’s satisfaction.  Approval to travel was refused.  The Official Assignee also expressed concern that Mr Henderson’s plans appeared to envisage carrying on a business while overseas.  There are tight constraints on any person managing a business while bankrupt.

Associate Judge Osborne ruled the Official Assignee was justified in refusing permission to travel.  Mr Henderson may still make a second application for consent to travel, said Judge Osborne, but he would have to meet the Official Assignee’s request for further information.

Henderson v. Official Assignee – High Court (12.06.15)

15.067

Power of Attorney: Johnston v Schurr

Control of a person’s assets under the Protection of Personal and Property Rights Act creates personal liability if acting without reasonable care but this liability does not extend to aspects of the person’s life not covered by the appointment.  A Taranaki chartered accountant was not liable for losses a client suffered because of delays in finalising a relationship property claim.

The Supreme Court was told that in 1999 the Family Court appointed accountant Christopher Schurr manager of a farming client’s assets.  The client, Mr Neil Johnston, had suffered severe brain damage in a motorcycle crash.  This appointment under the Protection of Personal and Property Rights Act required Mr Schurr to act generally in the best interests of Mr Johnston.  Prior to the accident, Mr Johnston was in the process of finalising a relationship property settlement with his wife.  Their relationship had ended three years earlier.  There had been tentative agreement for Mrs Johnston to receive some $398,000 as her share of the relationship property, but nothing was finalised before the accident.

The court was told Mr Johnston had recovered sufficiently from his brain injuries by 2003 that the Family Court discharged Mr Schurr from his role as manager and Mr Johnston resumed full control of his assets.  By this time, the value of the family farm had risen from a then government valuation of $1.1 million to $2.35 million and the relationship property claim had not been finalised.  Mr Johnston sued Mr Schurr for damages, being the increased amount now due his wife.

The Supreme Court emphasised that the Act does not give managers control over all a person’s assets; in this case only those assets and powers the Family Court decided.  When Mr Schurr was appointed manager in 1999 the court order specifically excluded authority to conclude any relationship property settlement on behalf of Mr Johnston.  The Family Court was told the Johnstons’ negotiations over relationship property had not been completed and it was now considered the family farm should be kept to assist in Mr Johnston’s long term rehabilitation.

The Supreme Court ruled Mr Schurr could not be held liable for a failure to do something he was not permitted to do. 

Johnston v. Schurr – Supreme Court (12.06.15)

15.068

Guarantee: Renner v. Renner

While a co-guarantor cannot unfairly structure a property buyout so as to profit from fellow guarantors, the High Court ruled a Bay of Plenty businessman acted within the law by fixing a buyout price to maximise his recovery from other guarantors.

Mr Ian Renner, together with his then wife and another investor Mr Dustin were co-guarantors of a property development at Lochhead Road, Te Puna near Tauranga.   The development was not a success with financier FM Custodians Ltd chasing all three for guaranteed borrowings of $3.04 million.

The court was told that Mrs Renner paid $380,000 to FM Custodians in full and final settlement of its claim.  Mr Dustin paid nothing. Mr Renner, as the remaining guarantor, came to a side arrangement with FM Custodians in which he paid a total of $2.92 million in full satisfaction.  The negotiated arrangement saw Mr Renner buy the Te Puna land from the financier at a price of $1.6 million with the balance of $1.32 million described as payment discharging the guarantee. 

At equity, guarantors who have paid more than their share of any amount guaranteed can recover payment directly from the remaining co-guarantors.  Mr Renner sued both Mrs Renner and Mr Dustin for contributions he paid on their behalf.  They complained Mr Renner had deliberately arranged the deal with FM Custodians to reduce the sum paid for the Te Puna land below market value so as to inflate the amount paid under the guarantee.  They pointed to Mr Renner’s actions over subsequent months in which he acted on existing resource consents to subdivide the land into three lots eventually selling for $3.125 million; a net profit of some $215,000 after taking into account the $2.92 million settlement with FM Custodians. 

Justice Brewer ruled that Mr Jenner did not inflate the guarantee component of his payment to FM Custodians by depressing the value of the land purchased.  The $1.6 million price for the land was supported by a valuer’s report using comparable sales information.  At the time of the valuation, a local real estate agent was trying to broker a deal between Mr Jenner and a prospective buyer but nothing came of these soundings for some months later.  Evidence was given that when a deal was done Mr Jenner could only get part payment in cash.  He was obliged to take the balance in kind; property from the purchaser’s own subdivision.  Mr Jenner was having trouble selling these sections, the court was told.

Mr Dustin was ordered to pay $566,666 (his one third share of the total payments on the guarantee).  Mrs Renner was ordered to pay $186,666 (her one third share less the $380,000 already paid).  Justice Brewer said if either Mrs Renner or Mr Dustin cannot pay their full contributions, then Mr Renner can recover from them unevenly, but proportionately.  Evidence was given that Mr Dustin had been adjudicated bankrupt, but the bankruptcy was annulled six months later. Should Mr Dustin be unable to pay any contribution, Mrs Renner would be then liable for $470,000 (with both Mr and Mrs Renner having to share the shortfall caused by any failure by Mr Dustin to contribute).

Renner v. Renner – High Court (11.06.15)

15.066

Relationship Property: Greig v. Hutchison

With her 47 year marriage at an end, Mrs Hutchison alleged the relationship property claim by her husband’s long-term lover was a ploy by the two of them to cut her out and preserve her husband’s business empire.  Mrs Hutchinson claimed the value of relationship property to be split totalled $22 million; he said it was only $16 million.

The High Court in Christchurch was told Mrs Hutchison filed her Family Court claim in 2008 for a split of relationship property.  She married at age 16.  During nearly fifty years marriage her husband built up a very successful business.  The name and nature of the business were supressed by the court.  Evidence was given that Mr Hutchison had a long-term clandestine affair with one of his employees: a Ms Greig.  The affair started before she was employed by his company and continued beyond Mr Hutchison’s marital separation some 27 years later.  It was not his only extra-marital affair.  The court was told Mrs Hutchison was unaware of these relationships at the time they occurred and Mr Hutchison denied their existence when challenged.

Four years after Mrs Hutchison filed her relationship property claim, Ms Greig also claimed in the Family Court for a share of the Hutchison relationship property, claiming entitlement as a de facto spouse.

The Property (Relationships) Act allows for more then one to claim for a share in the same relationship property.  Two contemporaneous relationships can exist. Mrs Hutchison alleged Ms Greig’s claim was a litigation tactic to force her hand and to scare her into a quick settlement of her claim.  She went to court arguing Ms Greig was never in a de facto relationship with her husband.

Justice Gendall ruled Ms Greig was not a de facto partner and was not entitled to share in the Hutchisons’ relationship property.  He laid bare details of the relationship between Ms Greig and her boss.  The two did not present themselves as a couple to the world. Mr Hutchison went to substantial and continuous efforts to keep the relationship hidden from his family and family friends.  This involved some elaborate subterfuges.  To hide the fact he and Ms Greig were going on holiday to Perth he went to the lengths of buying wet-weather gear and announcing he was participating in the Sydney-Hobart yacht race.  His early departures from family holidays were explained as the need to get back to work.  He moved the family to a home purchased next door to Ms Greig.  When the two were seen together in public, it would be viewed as part of their business relationship.  There was no financial dependence or interdependence between the two.  They operated independent bank accounts and did not acquire any assets jointly.  There was no intermingling of their financial affairs.  They did not share expenses when travelling overseas on what were ostensibly business trips.

The total amount awarded Mrs Hutchison as her share of the relationship property was not disclosed.     

Greig v. Hutchison – High Court (10.06.15)

15.065

Capital+Merchant: Commissioner of Police v. Nicholls

Convicted for his part in a $19.7 million commercial fraud, Capital + Merchant director Neal Medhurst Nicholls has agreed to hand over $1.8 million as the proceeds of crime.

When convicted in 2012 and sentenced to seven and a half years jail, Nicholls told the High Court he was unable to pay reparations.  His family home was owned by a family trust established by his father-in-law.  He was part-owner of an investment property, but there was no equity in the property as it was heavily mortgaged.  Investigations by the Police Asset Recovery Unit identified Nicholls had a contingent interest in a number of properties.  Discretionary beneficiaries in a trust have a contingent interest in trust assets; they have no absolute right to a benefit, any benefit is contingent on trustees making a decision in their favour.

Convicted criminals can negotiate with the Asset Recovery Unit, but the Criminal Proceeds (Recovery) Act requires High Court approval to any agreed settlement.  Nicholls offered to pay $1.8 million.  This is to be funded by the sale of Auckland property which Nicholls does not own but in which he has a contingent interest.

The Asset Recovery Unit told the High Court it had a strong case to pursue Nicholls’ entitlement to trust assets.  But this would take considerable time and money.  There was some risk to a successful outcome given Nicholls is bankrupt and there are other beneficiaries entitled to the same assets.  Justice Whata approved the $1.8 million settlement, saying it was a common sense compromise that serves the purposes of the Criminal Proceeds (Recovery) Act and the overall interests of justice.

Commissioner of Police v. Nicholls – High Court (9.06.15)

15.063