Lr v Jr (A Bankrupt)

JurisdictionNew Zealand
CourtFamily Court
JudgeD A BURNS,D A Burns
Judgment Date13 Dec 2010
Docket NumberFAM-2008-004-000715

IN THE FAMILY COURT AT AUCKLAND

judges

D A Burns

FAM-2008-004-000715

FAM-2008-004-001059

BETWEEN

UNDER “Property (Relationships) Act 1976”

LR
Applicant
and
JR (A BANKRUPT)
Respondent
Appearances:

R Knight and A Morrison for the Applicant

A Fisher for the Respondent

G Neil and K Kuang for Official Assignee

Application by Official Assignee to strike out proceedings — parties were together for 12 years and had four children — wife applied for spousal maintenance orders asserting husband had assets of $28M with an income of $1M per annum — interim order freezing disposition of certain assets — husband had been adjudicated bankrupt with net liabilities of $181M — proceedings under Property (Relationships) Act 1976 (“PRA”) were filed well before husband's bankruptcy — whether application to strike out proceedings under the PRA should be granted or not.

NOTE: PURSUANT TO S 35A OF THE PROPERTY (RELATIONSHIPS) ACT 1976, ANY REPORT OF THIS PROCEEDING MUST COMPLY WITH SS 11B TO 11D OF THE FAMILY COURTS ACT 1980. FOR FURTHER INFORMATION PLEASE SEE

WWW2.JUSTICE.GOVT.NZ/FAMILY/LEGISLATION/RESTRICTIONS.

Held: The application to strike out was premature. W's claim against property personally claimed by H concerned contested evidence. The OA was not in a position to provide a final report to the Court or W and neither the Court nor W were in a position to assess whether the liabilities of H exceeded the assets (though it seemed likely). W was entitled to make a fully informed decision whether or not to continue proceedings. Section 228 IA (OA's final statement of receipts and payments) provided for the OA to give a final statement of receipts and payments and there was a requirement to report to creditors so that creditors could understand whether anything would be recoverable from the assets of the bankrupt. It was however accepted that: on adjudication any property held as joint tenants would be severed resulting in tenants in common; and that as a result of the operation of s20A PRA (rights of creditors preserved) all property owned by H would pass to the OA (Johnson v Felton).

The OA had no right to take action under the PRA for the purpose of obtaining the type of remedy W would have in relationship property because though separation occurred considerably prior to the adjudication, no ruling as to the division or vesting of property was made prior to adjudication (OA v Hooker). Bankruptcy did not end the PRA proceedings — Johnson v Felton. Section 19 PRA (effect of PRA while property is undivided) dealt with the effect of the PRA while property was still undivided and s20A PRA preserved the rights of creditors — creditors of a spouse had the same rights against that spouse and against the property owned by the spouse as if the PRA had not been passed. This was subject to protected interest in s20B PRA (protected interest in family home). There were a number of exceptions to the principle in s101 IA (status of bankrupt's property on adjudication). Even if W was able to show that there was property owned by H or both of them jointly the application of s20A PRA clearly meant that all property would pass to the OA. This meant that any proceedings under the PRA would result in a pyrrhic victory even if successful, apart from the protected interest in s20B PRA. The application under the PRA would therefore have been struck out if it were not premature to do so.

There was a possibility of a claim under s44 PRA (dispositions may be set aside) if assets had been transferred to a trust, which had the effect of defeating the bona fide claim of W (Sutherland v Sutherland). There was not sufficient evidence to make a determination as to whether s44C and s44F PRA (compensation for property disposed of to trust/qualifying company) were applicable. Section 52 District Courts Act 1947 (bankruptcy of plaintiff) and s76 IA (effect of adjudication on court proceedings) did not apply. There was doubt as to whether the Family Court under the PRA had jurisdiction to deal with property claimed under the s104 IA (property held in trust by bankrupt) exception to s101 IA. This would seem to fall under the Trustee Act 1956 and be the sole province of the High Court.

To obtain a remedy, the basis of a finding there was a bundle of rights had to fall within the definition of property in s2 PRA (interpretation) and be relationship property pursuant to s8 PRA (relationship property defined). The Bundle of Rights did not convert trust property into relationship property (Z v Z) and was therefore outside the trust. It was arguable that a bundle of rights argument would succeed but again any success would mean such property would be defined as personal property owned by H or property owned by both of them and therefore relationship property that would have passed to the OA at the date of adjudication.

The proceedings were sufficiently complex to warrant transfer of proceedings to the HC (S v S).

Application to strike out premature and therefore adjourned. Proceedings transferred to the High Court.

RESERVED JUDGMENT OF JUDGE D A BURNS
[IN RELATION TO APPLICATION TO STRIKE OUT PROCEEDINGS FILED UNDER THE PROPERTY (RELATIONSHIPS) ACT 1976 AND THE INTER-RELATIONSHIP BETWEEN THE PROPERTY (RELATIONSHIPS) ACT AND INSOLVENCY ACT 2006]

INDEX

Paragraph Nos.

Background

[1]

Procedural history

[3]

Issues for determination

[24]

Application to strike out

[26]

Submissions

[34]

Submissions in reply

[38]

What does Mr Knight submit in reply?

[38]

Nature of the wife's claim

[39]

Application to strike out

[40]

Claim by applicant against property personally owned by the wife

[42]

Claim against trusts:

Section 44 PRA

[53]

Section 44C

[55]

Section 44F

[56]

Possible constructive trust claim against one or more of the trusts

[57]

Bundle of Rights

[58]

What is the basis of a Bundle of Rights? — What is it actually

[59]

Section 104 exception to the general principle in s 101 Insolvency Act 2006

[61]

Summary

[63]

Application for discovery

[65]

Application to transfer

[66]

Does the bankruptcy end the Property (Relationships) Act proceedings?

[69]

Section 52 District Courts Act 1947

[74]

Whether s 76 Insolvency Act 2006 (formerly s 32 of the Insolvency Act 1967) applies and whether the applicant wife requires the consen of the High Court to bring her present applications

[76]

Has the Official Assignee abandoned any interest he might have in assets owned by any third parties (trust and companies) and has the Official Assignee concluded that there are no funds or assets of any value?

[81]

Orders/directions

[83]

Background
1

The applicant (“wife”) and respondent (“husband”) met in late 1994. They were married on 19 May 1995. They are the parents of four children, namely:

  • (a) S born in 1996 (15);

  • (b) M born in 1998 (13);

  • (c) R born in 1998 (12); and

  • (d) A born in 2007 (4).

2

The husband and wife separated in January 2007 shortly before their youngest daughter was born. They have remained apart since that time.

Procedural history
3

In March 2008 the wife applied for interim and final spousal maintenance orders. She said in her affidavit in support of her application in summary as follows:

"That she had been living in the former family home of the parties since separation in St Mary' Bay.

"That she had received notices under s 119 of the Property Law Act 2007 giving her notice of an intended mortgagee sale of the property.

"That maintenance payments that had been previously made had been unilaterally reduced.

"That at the time of their marriage the husband had a half share in a house in Devonport.

"That they had built up a portfolio of properties following their marriage and that the enterprise had grown very quickly.

"That a very complex property portfolio had been built up by the husband which involved in excess of 135 companies and a large number of trusts.

"She attached to her affidavit a document which was headed “Personal Portfolio”. She said that the document had been created by the husband personally in November 2006 for the purposes of obtaining bank finance. It asserted that the husband had assets of approximately $28M with income of $1M per annum. She set out further details of the complex interrelationship between various companies and trusts and the husband in a diagrammatic form — Exhibit E runs to 33 pages (the husband has not challenged the information in this affidavit. The wife says that it is accurate because it is based on information provided by the husband. The information has not been tested as yet).

4

An affidavit of financial means and their sources was filed in support of the application for maintenance on 28 March.

5

On 2 April 2008 an application was filed in support of an application that notices of claim not lapse.

6

The husband filed a narrative affidavit on 1 April 2008 in response to both applications.

7

Urgency was given to the applications.

8

The applications were set down for hearing. The parties resolved their issues by agreement and a joint memorandum was filed dated 16 April 2008. Agreement was reached with respect to the notices of claim lapsing, the sale of the former family home, payment of an amount for maintenance, purchase of a home in substitution and payment for resolution of issues relating to the Property Law Act notices. Consent orders were duly sealed by the Court.

9

On 1 October 2009 the wife applied for an interim injunction on a without notice basis. The application was considered by the Court in Chambers and an interim injunction was issued on 2 October 2009. Leave was given to the husband to apply to set aside the injunction on 3 days' notice. The freezing injunction restrained disposition from a number of bank accounts, disposition of shares in 11 companies and the husband in his capacity as trustee in dealing...

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