Seng Bou (Paul) Keung v Official Assignee

• Jurisdiction: New Zealand
• Judge: R M Bell
• Judgment Date: 29 January 2020
• Neutral Citation: [2020] NZHC 32
• Court: High Court
• Docket Number: CIV-2010-409-835
• Date: 29 January 2020

Between

Seng Bou (Paul) Keung

Applicant

and

Official Assignee

First Respondent

Westpac New Zealand Limited

Second Respondent

[2020] NZHC 32

R M Bell

CIV-2010-409-835

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA

TĀMAKI MAKAURAU ROHE

Insolvency — annulment of bankruptcy order — whether a discharged bankrupt was barred from seeking an annulment — delay in application — Insolvency Act 2006

Appearances:

M J Tingey for the Applicant

G Caro for the First Respondent

M D Pascariu and H O Meikle-Downing for the Second Respondent

Murray J Tingey, Auckland, for the Applicant

JUDGMENT OF ASSOCIATE JUDGE R M Bell

This judgment was delivered by me on 29 January 2020 at 11:00am pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Introduction

1 Mr Keung applies under s 309(1)(a) of the Insolvency Act 2006 to have his bankruptcy annulled claiming he should not have been adjudicated bankrupt. Such an annulment is retrospective — it operates from the date of adjudication. 1 He is not interested in annulment on any other ground, as they operate only from the date of the order of annulment. He was made bankrupt in the Christchurch High Court on 20 September 2010. He filed his statement of affairs with the Official Assignee on 9 November 2010 and was automatically discharged on 9 November 2013. He seeks the annulment to remove the stain of bankruptcy from his record.

2 If the court annuls the bankruptcy, the Official Assignee seeks a remuneration order for $30,000. 2 That aside, an annulment will not have any practical effect. Mr Keung has resolved matters with most of his creditors, except for Westpac New Zealand Ltd. The Official Assignee opposes the application.

3 The bankruptcy application on which Mr Keung was adjudicated relied on non-compliance with a bankruptcy notice, based on an order for costs of $66,155 made on 21 April 2010. Mr Keung says that the order was made in breach of natural justice. There are three main questions:

• (a) Was the costs order made in breach of natural justice?

• (b) Should Mr Keung have been adjudged bankrupt?

• (c) Should Mr Keung's adjudication be annulled now?

4 I find that the order for costs was made in breach of natural justice. It was made without notice to him and without giving him the opportunity to adduce evidence in opposition. Because of the breach of natural justice, the court in its bankruptcy jurisdiction should not have accepted that Mr Keung was in debt for the costs order and therefore should not have adjudicated him bankrupt. That does not however mean that his adjudication should be annulled now. Once he was adjudicated bankrupt, he

lost standing to challenge the costs order. There are also discretionary factors that count against annulment: his insolvency when he was adjudicated, his delay and his earlier bankruptcy

5 There is also a side issue involving Westpac New Zealand Ltd. In his application Mr Keung said that he had settled with all his creditors. Westpac objected, saying that it had never settled with Mr Keung. More time was spent in the hearing dealing with this side issue than the main questions. The issue does not affect resolution of the main questions. I find that Mr Keung and Westpac did not make any binding agreement to settle Westpac's claim as an unsecured creditor. Because the adjudication stands, so does the discharge under s 304 of the Insolvency Act 2006. If there were an annulment, Westpac is not interested in pursuing Mr Keung on his debt to it.

Facts

The Goose Bay litigation

6 Goose Bay is near Kaikoura. In 2007 Goose Bay Ranch Holdings Ltd bought a 314 hectare farm there from a company associated with Mr Keung. He had plans to develop the property into a farming and eco-tourism business and a sustainable hunting game park. Mr Keung was the sole director of Goose Bay Ranch Holdings Ltd. The shareholders were: 3

• (a) GBR Trustees Ltd, a trustee company associated with the Keung family — 84.6%,

• (b) GBR Investment Ltd, associated with the Koulanov family — 12.2%,

• (c) Three minor shareholders, one holding 1.5% and the other two .75% each, all of them relatives or associates of Mr Keung.

7 The Koulanov family through GBR Investment Ltd invested more than $2.9 million in the venture. They became disillusioned with Mr Keung's management. Differences grew between them and Mr Keung. That led to GBR Investment Ltd applying for Goose Bay Ranch Holdings Ltd to be put into liquidation on the just and equitable ground. Associate Judge Gendall ordered the company into liquidation. 4 He found that there was a complete breakdown of trust and confidence between the Koulanovs and Mr Keung that justified a liquidation order. While liquidation is a remedy of last resort, he considered alternative remedies, but did not find them viable.

8 Some aspects of the proceeding can be noted. There were other defendants: Moana Investment Property Ltd, Makura Settlement Ltd and PK Construction Ltd. They were subsidiaries of Goose Bay Ranch Holdings Ltd. As GBR Investment Ltd was not a shareholder or creditor of these companies, it did not have standing to apply for their liquidation. PK Construction Ltd had been put into liquidation on a creditor's application before GBR Investment Ltd's application was heard. Associate Judge Gendall dismissed the applications against the other two defendants.

9 In March 2009, at the start of the proceeding, interim liquidators were appointed for all the defendants. They were appointed liquidators of Goose Bay Ranch Holdings Ltd and later made resolutions for the other two defendants to be put into liquidation.

10 The other shareholders of Goose Bay Ranch Holdings Ltd were not however made defendants. In applications on the just and equitable ground it is common to join the opposing shareholders as defendants. 5 Sometimes there is deadlock at board level, which prevents the company itself taking an active part in the proceeding. But even if there is no deadlock, opposing shareholders may oppose the proceeding in their own right. One advantage is that as parties they will have rights of appeal, if a liquidation order is made. Otherwise, on liquidation, liquidators take control of the company, including the right to take proceedings in its name, but they do not tend to

appeal against orders appointing them. 6 Directors can no longer take proceedings in the name of the company

11 Mr Keung was not a defendant but gave evidence as director of Goose Bay Ranch Holdings Ltd.

12 As noted above, GBR Trustees Ltd, the majority shareholder, was a corporate trustee. Mr Keung became its director on 13 July 2009. The GBR Trust was established under a deed of 15 August 2007. The settlor was Pui Mou Keung, Mr Keung's father. Mr Keung had the power to appoint and remove trustees. He was a discretionary beneficiary. While the liquidation application was pending, on 31 July 2009 GBR Trustees Ltd was removed as trustee and GB Management Ltd was appointed in its place. Mr Keung was director of that company. On 31 March 2010, after the liquidation order, GB Management Ltd was removed and Mr Keung was appointed trustee. The liquidators did not however recognise the change in ownership of the shares. 7 GBR Trustees Ltd and GB Management Ltd were ordered into liquidation on 20 September 2010, with the same liquidators as for Goose Bay Ranch Holdings Ltd.

13 GBR Investment Ltd, the successful plaintiff, sought costs against GBR Trustees Ltd, GB Management Ltd and Mr Keung, although none of them were parties to the proceeding. It sought costs against Goose Bay Ranch Holdings Ltd only as a second-best option. It did not make a formal application supported by affidavit evidence but submitted a written memorandum. It did serve the lawyer for Goose Bay Ranch Holdings Ltd, but it did not serve GBR Trustees Ltd, GB Management Ltd and Mr Keung. As they were not parties, they did not have an address for service. The lawyer for the defendants (but not P K Construction Ltd) filed a submission in response on behalf of the defendants, but the non-parties did not.

14 Associate Judge Gendall ordered costs against the non-parties: $59,013 and disbursements of $7,142, a total of $66,155. 8 He ordered GBR Trustees Ltd and GB

Management Ltd to pay costs as “the parties who are primarily responsible for the plaintiff's costs here,” 9 without addressing that they were not parties. He referred to Re North End Motels (Huntly) Ltd 10 and Jenkins v Supscaf Ltd 11 as authorities for ordering costs against opposing shareholders in applications under the just and equitable ground, but in those cases the opposing shareholders were parties to the proceeding. He did not order costs to be paid out of the assets of Goose Bay Ranch Holdings Ltd

15 While recognising that costs orders against non-parties are exceptional and rare, he held against Mr Keung: 12

In the present case I am satisfied that Mr Keung, although a non-party, through his interests is likely to have funded the defence to the present application and it is clear he also clearly controlled and directed this defence and must have believed that he and his interests stood to benefit from the litigation if the liquidation application had failed. Under all the circumstances, I take the view that it is entirely fair and proper for the costs order which is to follow in favour of the plaintiff to be made also against Mr Keung as a non-party jointly and severally with GBR Trustees Limited and GB Management Limited as shareholders.

16 Mr Keung does not accept those findings and says that if he had been given the chance he would have given evidence as to the source of funds for the defence. More about this later when I deal with the breach of natural justice question.

The appeals and stay applications

17 The lawyers who had acted for Goose Bay Ranch Holdings Ltd filed an appeal against...