IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE	
CIV-2017-404-1087
[2020] NZHC 1744	

UNDER	the Insolvency Act 2006	
IN THE MATTER OF	the bankruptcy of JOHN ANDREW REGINALD COX	
BETWEEN	COMMISSIONER OF INLAND REVENUE
Judgment Creditor	
AND	JOHN ANDREW REGINALD COX
Judgment Debtor	

Hearing:	16 July 2020 at 11:45am	
Appearances:	Rachel Lilly for the Judgment Creditor Gareth Neil for the Official Assignee
Bruce M. Stainton and Ms Towse for the Executor of the estate of the late John Andrew Reginald COX	
Judgment:	16 July 2020	

ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL

Solicitors:
Inland Revenue Department (Rachel Lilly), Manukau, for the Judgment Creditor Meredith Connell (Gareth Neil), Auckland, for the Official Assignee
Stainton Chellew (Bruce Stainton), Auckland, for the Judgment Debtor’s Estate

COMMISSIONER OF INLAND REVENUE v COX [2020] NZHC 1744 [16 July 2020]

[1]	Mr Cox was adjudicated bankrupt on 23 November 2017. The Official Assignee has almost completed administration of the bankruptcy. All known creditors who have claimed in the liquidation have been paid, barring one storage cost. There is a significant surplus available. Ordinarily, when there is a surplus in a bankruptcy, after paying all claims under ss 274-280 of the Insolvency Act 2006, the surplus is paid to the bankrupt.

[2]	This bankruptcy is not so straightforward. Mr John Cox died shortly after his adjudication.  The executor of his  estate is Mr Noel Cox.  Until his adjudication,   Mr John Cox had a legal practice, Blomkamp Cox. As required by the Lawyers and Conveyancers Act 2006, he had an attorney for his practice, Mr Donald Webster.

[3]	This case shows that administering the insolvent bankrupt estate of a deceased solicitor in sole practice can be complicated. The Official Assignee’s administration costs are significant. He has also incurred very significant expenses in obtaining assistance from third party professionals.

[4]	The Official Assignee admitted claims totalling $1,258,876.02. These have all been paid plus post-adjudication interest. The Official Assignee’s recoveries came to
$2,582,341.87. The Official Assignee accordingly holds a considerable surplus. The Official Assignee’s recoveries do not involve a total realisation of every asset owned by Mr Cox. I was informed that some items have been held in specie. At his death, Mr Cox was still in practice. The Official Assignee took over client files and has all the records relating to the legal practice. There are apparently some accounts of the practice that may be collected.

[5]	The Official Assignee has applied for these orders:

(a)	approving his remuneration;

(b)	affirming that he may be reimbursed from the bankrupt estate for fees and expenses paid to third party providers;

(c)	annulling the adjudication;

(d)	allowing the Official Assignee to retain funds to meet any further outstanding expenses and remuneration payable by the Official Assignee;

(e)	directing the Official Assignee to transfer client files to the attorney, Mr Donald Webster;

(f)	directing the return of the practice records to Mr Cox’s executor; and

(g)	releasing the Official Assignee from the administration of the estate.

[6]	On 4 June 2020, Associate Judge Andrew made orders that the client files for Mr Cox’s practice be released to Mr Donald Webster, and that other practice records and assets be released to the executor of Mr Cox’s estate.

[7]	Today, counsel have tendered a draft order which they ask the court to make by consent. I have suggested one minor “tweak”. I am grateful to counsel and the parties for having co-operated in agreeing to the orders.

[8]	The first order is to fix the Official Assignee’s remuneration at $88,811.05. The Official Assignee has given evidence in support of his remuneration claim. He has claimed at the rates allowed under the regulations.1 The Official Assignee’s evidence is along the same lines as that given by liquidators seeking approval of their remuneration at the end of a liquidation. The only person who could benefit from any adjustment to the remuneration claimed by the Official Assignee is the executor of Mr Cox’s estate. As the executor consents, there is no reason not to approve the remuneration claimed. There will be further work for the Official Assignee. I give approval for that work to be completed at the rates he has claimed. I also approve the administrative disbursements of $29.12.

1	Insolvency (Personal Insolvency) Regulations 2007, reg 18.

[9]	The Official Assignee seeks approval to reimburse his expenses from the estate for these matters:

(a)	PricewaterhouseCoopers	$17,426.04	

(b)	Meredith Connell fees up to 13 July 2020	
$263,855.23	

(c)	T Wilmhurst Legal Support Services	
$92.00	

(d)	Armstrong Locksmiths	
$276.00	

[10]	Meredith Connell’s fees are substantial. The Official Assignee’s evidence describes the work carried out by Meredith Connell. The average hourly charge-out rate of approximately $276.00 is comparable to amounts I see charged by liquidators. Again, the executor consents to these payments, and that relieves me from having to enquire into the necessity of these fees. The expenses are accordingly approved and may be paid from the estate.

[11]	The Official Assignee also wishes to pay Mr Donald Webster for his  work.   I understand that Mr Webster’s fees are for further work carried out up to and after 16 July 2020. Approval is given to make that payment.

[12]	Mr Cox stored practice records with a company providing storage facilities, Crown Storage. The Official Assignee has allowed those records to continue to be stored. Approval is given to pay those charges, plus the costs of destroying files which do not need to be retained.

[13]	That will require the Official Assignee to carry out further work after the orders I make today. Approval is given to the Official Assignee to do that and to retain the sum of $43,100 to cover those anticipated expenses.

[14]	Now for the annulment application. The application is under s 309(1)(b) of the Insolvency Act 2006, which allows an annulment where the bankrupt’s debts have been fully paid or satisfied and the Official Assignee’s fees and costs in the bankruptcy have also been paid. Under s 309(1), the Official Assignee has standing to apply.

Annulments under s 309(1)(b) are prospective only. They operate only from the date the court makes the order of annulment. That is unlike annulments under s 309(1)(a) which are retrospective. Once the order is made, all the property of the bankrupt vested in the Official Assignee not sold or disposed of by him re-vests in the bankrupt without the need for any conveyance, transfer or assignment. While there is an automatic re-vesting, the court can usefully give directions of the kind sought by the Official Assignee to ensure that the annulment is carried out effectively.

[15]	Mr Neil submitted that there is no clear New Zealand authority that the court may annul an adjudication if the bankrupt has died. Under s 78 of the Insolvency Act 2006, if the bankrupt dies after adjudication the bankruptcy continues in all respects as if the bankrupt were alive. That suggests that all the normal incidents of bankruptcy, including the right to have the bankruptcy annulled, will apply if the bankrupt dies. There is one qualification. In Hunt v Official Assignee,2 Dobson J held that the equivalent provision under the Insolvency Act 1967, s 137, did not allow the court to make an order for the discharge of a bankrupt who had died after adjudication. I note that discharges from bankruptcy are distinct from annulments. This ruling that a discharge is not available does not directly apply to an annulment. Mr Neil has referred to an Australian decision, Re Wilkinson,3 which held that under the Australian bankruptcy legislation a sequestration order may be annulled after the death of a bankrupt.

[16]	It seems to me important that the court have the power to annul a bankruptcy, even if the bankrupt has died. That may be required especially in cases which fall within s 309(1)(a), where the adjudication ought not to have been made. On that point, Mr Neil cited Master Gambrill’s decision in Re Oldfield.4 In addition, in the circumstances of this case, an annulment can serve a useful purpose.

[17]	To turn to the present situation, what would happen if the Official Assignee had not applied for an annulment? As Mr Neil submitted, the Official Assignee would then be required remorselessly to carry on with the administration of the estate of the

2	Hunt v Official Assignee HC Wellington, CIV-2003-485-2585, 2 July 2008.
3	Re Wilkinson (1970) 16 FLR 414 (NSWSC).
4	Re Oldfield (a bankrupt) [1995] 3 NZLR 100 (HC).

deceased which would include getting in all the assets of the deceased, realising them, and then paying any surplus over to the executor. They are items that have not been realised by the Official Assignee, but there is no objection to the Official Assignee not having realised them, given that the assets that have been realised have been sufficient to pay all known creditors. In short then, annulment offers him an efficient way of bringing matters to a conclusion even though there are other assets that could be utilised but have not been. Given the practical advantage, and the fact that I see nothing that suggests that annulment ought not to be available if the bankrupt has died, I am satisfied that there is jurisdiction to order an annulment and that this is an appropriate case to order an annulment.

[18]	I therefore make an order annulling the bankruptcy under s 309(1)(b) of the Insolvency Act 2006. The other orders I am making today are intended to give directions to the Official Assignee as to how the annulment is to be carried out. The Official Assignee is still required to complete matters and the annulment order is not intended to stop him doing that.

[19]	I note that while the Official Assignee has paid all the known creditors, nothing I order today can prevent someone else making a claim against the estate of the late Mr John Cox. Given Dobson J’s decision in Hunt v Official Assignee, no discharge is available. One of the consequences of a discharge is that the bankrupt is released from most debts incurred before adjudication. My order annulling the bankruptcy does not involve any release of debts or claims which the late Mr Cox may have incurred while alive.

[20]	I enquired whether there was any reason to believe that the late Mr Cox may have incurred any professional liability to clients. I was advised that he had insurance cover, and that the executor had no reason to believe that there were any potential claimants. Mr Stainton pointed out that Mr Webster, as the attorney, is likely to know if there were any potential claims but Mr Webster has not advised that there are any. Nevertheless, although the prospects are unlikely, I record that the executor is aware of the risk that now that the administration of the bankruptcy has come to an end, claims could be made against the assets that have passed to the executor.

[21]	The Official Assignee has asked for an order under s 408 of the Insolvency Act 2006. That section says that the Official Assignee may apply for an order releasing him from the administration of the estate. The Official Assignee is required to advertise his intention to apply. No objections have been received. That order ought to be made once the Official Assignee has completed the wash-up, that is, he has transferred the assets to the executor, has paid Crown Storage, and has been paid for any other fees and expenses he has incurred and there is nothing left to do. At that stage, the Official Assignee should file a report advising the completion. When that report is referred to me I will make the order under s 408. I expect that to be done by 31 August 2020.

[22]	The draft order also provides for the Official Assignee to transfer all remaining property of the late Mr Cox to his executor. I suggest that be amended to include not only “property” but also “funds”. That is to ensure that there is no misunderstanding that all the assets of the late Mr Cox should be paid over after the Official Assignee has paid the fees and expenses authorised in this decision.

……………………………...
Associate Judge R M Bell