IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV 2009-419-001468

IN THE MATTER OF	the Insolvency Act 2006

AND

IN THE MATTER OF	the bankruptcy of V Kruger

BETWEEN	VERNON KRUGER Judgment Debtor

AND	ANZ NATIONAL BANK LIMITED Judgment Creditor

Hearing:	19 July 2010

Counsel:	KE Cornege for judgment creditor

Judgment:	19 July 2010 at 10:52am

(ORAL) JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application for adjudication order]

Solicitors:	MinterEllisonRuddWatts, PO Box 2793, Wellington for judgment creditor

And To:	V Kruger, 115 Maungakawa Rd, Cambridge, judgment debtor

VKRUGER V ANZ NATIONAL BANK LTD HC HAM CIV 2009-419-001468  19 July 2010

[1]       The judgment creditor applies for an order adjudicating Vernon Kruger a bankrupt.

[2]       This proceeding has been subject to five previous calls before the court.

[3]       The  creditor  obtained  judgment  against  Mr Kruger  in  the  High  Court  at

Hamilton for $385,583.84, plus interest, on 21 September 2009.

[4]       The creditor requested a bankruptcy notice be issued.  A bankruptcy notice was issued and was served on Mr Kruger.  He did not comply with the bankruptcy notice.  That resulted in an act of bankruptcy occurring.

[5]       The   creditor   filed   an   application   for   an   adjudication   order.      Three adjournments were granted in respect of that application to see if the judgment creditor could raise finance.

[6]       Subsequent  adjournments  were  granted  to  see  if  a  proposal  under  the Insolvency Act 2006, Part 5(2) could be approved by the court.   The adjournments, particularly in relation to the last two, anticipated the possible application of the Insolvency Act 2006, ss 334 and 335 if court approval of the proposal was given. However, no application has been made for approval of a proposal.

[7]       I was presented, today, with minutes prepared by Mr Paalvast, who I gave permission to speak on Mr Kruger’s, and Mrs Kruger’s, behalf.  In my view, they do not further assist the matter and certainly do not give me any clear satisfaction that further adjournments of this case will assist its ultimate resolution.

[8]       I raised with Mr Paalvast and Mr Kruger, whether they saw any particular reason, if an adjudication order was made, why he and his wife could not pursue some  resolution  with  their  creditors  by  way  of  a  composition  under  Part  5. Mr Paalvast acknowledged to me, particularly because of his inexperience in that area, that had not been the subject of any particular consideration.

[9]     The jurisdictional requirements which must be met before an order of adjudication  is  made  are  contained  in  the  Insolvency  Act  2006,  ss 13  and  36. Section 13 provides:

13	When creditor may apply for debtor's adjudication

A creditor may apply for a debtor to be adjudicated bankrupt if—

(a)        the  debtor  owes  the  creditor  $1,000  or  more  or,  if  2  or  more creditors join in the application, the debtor owes a total of $1,000 or more to those creditors between them; and

(b)        the debtor has committed an act of bankruptcy within the period of 3 months before the filing of the application; and

(c)	the debt is a certain amount; and

(d)        the debt is payable either immediately or at a date in the future that is certain

Section 36 provides:

36.	Court may adjudicate debtor bankrupt

The  Court  may,  at  its  discretion,  adjudicate  the  debtor  bankrupt  if  the creditor has established the requirements set out in section 13.

[10]     The jurisdictional requirements are met in this case.

[11]     I must now consider the Insolvency Act 2006, s 37.   Section 37 provides:

37.	Court may refuse adjudication

The Court may, at its discretion, refuse to adjudicate the debtor bankrupt if—

(a)        the applicant creditor has not established the requirements set out in section 13; or

(b)	the debtor is able to pay his or her debts; or

(c)        it is just and equitable that the Court does not make an order of adjudication; or

(d)	for any other reason an order of adjudication should not be made.

[12]     No formal notice of opposition has been filed and served in this case.

[13]     In Eide v Colonial Mutual Life Assurance Society  the general principles involved in the exercise of the discretion under the Insolvency Act 1967, s 26 (which is now the Insolvency Act 2006, s 37) were summarised.   The important matters were the following:

1)         “A creditor who establishes the jurisdictional facts set out in s 23 is not automatically entitled to an order. On the other hand, it is for an opposing  debtor  to  show  why  an  order  should  not  be  made.” McHardy v Wilkins & Davies Marinas Ltd (Court of Appeal, Wellington, CA 54/93, 7 April 1993) at p 3.

2)         “. . . in the exercise of the discretion under s 26 it is proper for the Court to consider not only the interests of those directly concerned – the petitioner, other creditors, the debtor – but also the wider public interest.” McHardy v Wilkins & Davies Marinas Ltd (supra) at p 3.

3)         In determining whether an order should be made, the wider public interest   must   be   taken   into   account   to   determine   whether adjudication is “conducive or detrimental to commercial morality and the interests of the general public.” Re Nisbett, ex parte Vala [1934] GLR 553 at p 556.

4)         “. . . on a bankruptcy petition the Court must have regard to public interest in a way which transcends the interest of the immediate parties to the proceeding. . . . The public interest in exposing and controlling an insolvent debtor is one which exists quite independently of  the  separate  question  of  debt  collection  by  his immediate creditors.” Re Fidow [1989] 2 NZLR 431 at p 444.

5)	Absence of assets is a factor but:

“.  .  .  even  the  undoubted  absence  of  assets  will  not necessarily preclude an order, for the circumstances may be such that the debtor ought in the public interest to be visited with   the   disqualifications   that   go   with   bankruptcy.” McHardy v Wilkins & Davies Marinas Ltd (supra) at p 3.

6)	Another matter:

“. . . is the potential for further investigation. A bankruptcy makes available to creditors an array of procedures for investigating  the  financial  circumstances  of  the  debtor. Those procedures are likely to prove more effective than an investigation conducted by other means.” Re Fidow (supra) at p 444.

7)	There is a need:

“. . . for the Court to balance the various considerations relevant to the case, and to determine whether in the end the debtor has succeeded in showing that an order ought not to

be made”. McHardy v Wilkins & Davies Marinas Ltd (supra)
at p 4.

[14]     In this case substantial opportunity has been given to the debtor to attempt to raise funds to pay this debt in the first place and, in the second place, to obtain approval from the court of a proposal under the Insolvency Act 2006, Part 5(2).

[15]     The minutes that were presented on the debtor’s behalf show very large indebtedness.   I am concerned that a number of creditors were not at the meeting. However, I am not ruling on the proposal or, for that matter, whether a composition with creditors might be appropriate under the Insolvency Act 2006, Part 5(1).  What I  am  considering,  at  this  stage,  is  whether  the  residual  discretion  under  the Insolvency Act 2006, s 37, having regard to the principles which are summarised in
Eide v Colonial Mutual Life Assurance Society Limited  should be applied in this

case.

[16]     Mr Paalvast has referred to the insolvent’s desire not to be tarnished with bankruptcy.   Unfortunately, his current financial position is in dire straits.   The indebtedness is large.  I do not have the benefit of any detailed notice of opposition. I am driven, unfortunately, to the conclusion for the debtor that there is no reason to not exercise the discretion to order adjudication in this case.   He may, as I have indicated earlier in this judgment, nevertheless, wish to pursue the possibility of a composition with his creditors and that may well be able to be considered at a later date.  Suffice to say, I am satisfied that an order of adjudication should now be made.

[17]     Accordingly, I order that Vernon Kruger be adjudicated a bankrupt.

Costs

[18]     The creditor is entitled to costs which I order be paid based on Category 2

Band B together with disbursements as fixed by the Registrar.

[19]	This order has been made at 10:52am.

JA Faire
Associate Judge