Walker v Forbes and Others

• Jurisdiction: New Zealand
• Judge: Whata J
• Judgment Date: 06 March 2013
• Neutral Citation: [2013] NZHC 412
• Docket Number: CIV 2012-409-002486
• Court: High Court
• Date: 06 March 2013

BETWEEN

Robert Bruce Walker

First Plaintiff

and

Property Ventures Limited (In Receivership and Liquidation)

Second Plaintiff

and

Five Mile Holdings Limited (In Receivership)

Third Plaintiff

and

Austin John Forbes

First Defendant

and

Alister Spedding Johnston

Second Defendant

and

Gordon Lewis Hansen

Third Defendant

and

David Ian Henderson

Fourth Defendant

and

Adolf De Roos

Fifth Defendant

and

Daniel James Godden

Sixth Defendant

and

PWC (Sued as A Firm)

Seventh Defendant

and

Fright Aubrey Limited

Eighth Defendant

and

Richard Williams Gibbons

Ninth Defendant

[2013] NZHC 412

CIV 2012-409-002486

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

Application for leave to proceed against the fourth defendant (a bankrupt) who was the director of the second plaintiff company (in liquidation) — plaintiffs alleged it was necessary to join the fourth defendant for the purposes of establishing his liability for breach of director's duties and because plaintiffs wanted access to his directors and officers liability insurance — fourth defendant denied he was covered by the insurance policy — disclosure from insurance company disputed fourth defendant's allegation — whether policy could be excluded on grounds of hearsay — whether s76 Insolvency Act 2006 (“IA”) (effect of adjudication on court proceedings) permitted commencement of proceedings against an undischarged bankrupt after adjudication — if not, whether leave could be given under s237(1) IA (notice to Assignee to admit or reject creditor's claim).

Counsel:

TGH Smith and JBM Smith for Plaintiffs

D I Henderson (In Person) — Fourth Defendant

JUDGMENT OF Whata J

1 The plaintiffs seek leave to proceed against the fourth defendant, Mr Henderson, a bankrupt. He was a director of the now failed Property Ventures Limited companies.

2 The essential reasons specified to join Mr Henderson are as follows:

• (a) The plaintiffs want access to Mr Henderson's Directors and Officers Liability insurance;

• (b) It is proper and necessary to join Mr Henderson for the purposes of establishing his liability for breach of director's duties;

• (c) The Official Assignee has no objection to the proceedings; and

• (d) Any judgment would be instructive if the Official Assignee were asked to admit a claim by other plaintiffs in Mr Henderson's bankruptcy.

3 Mr Henderson opposes. He contends:

• 3.1 The fourth defendant does not have the benefit of a Directors and Officers insurance policy with Vero Insurance Limited;

• 3.2 Alternatively, if the fourth defendant does have the benefit of such a policy it only covers the actions and decisions of the fourth defendant taken in conjunction with the other directors named as defendants and therefore no purpose would be served by proceeding against the fourth defendant;

• 3.3 Section 76 of the Insolvency Act 2006 does not apply as it only gives the Court jurisdiction to allow a proceeding to continue against a bankrupt if the proceeding was commenced prior to the date of adjudication.

• 3.4 The fourth defendant would wish to defend this proceeding but has no capacity to meet the legal costs of doing so;

• 3.5 The plaintiffs are bringing this claim for improper purposes.

Background

4 The first plaintiff, Mr Walker, is the liquidator of Property Ventures Limited (PVL) and many of its subsidiaries. These companies were placed into liquidation with estimated losses of at least $150 million. Mr Henderson was a managing director of PVL, (though he says not at all material times). He was adjudged bankrupt on 29 November 2010. The claim against Mr Henderson was commenced on 12 November 2012 and comprises seven causes of action against the directors of PVL for allegedly serious breaches of their duties.

5 The relief sought by the plaintiffs includes the following:

• (a) Declarations that the PVL directors have breached their duties under ss 131, 135, 136, 137 of the Companies Act 1993;

• (b) Orders pursuant to s 130(1) of the Companies Act 1993 that the PVL directors pay to the first plaintiffs the sum of $100 million by way of compensation or such other sum as the Court thinks fit;

• (c) An order banning the PVL directors from acting as directors of companies under s 383 of the Companies Act.

6 There are also related claims, including against PricewaterhouseCoopers for breach of an alleged duty of care to PVL and to the PVL Group. I am also advised that one of the directors will seek to join Vero Insurance Limited.

7 Mr Walker says that the PVL directors, including Mr Henderson, held liability insurance with Vero. This is not accepted by Mr Henderson in his notice of opposition. However, disclosure by Vero unveiled a document which purports on its face to be a “Directors and Officers Liability and Company Reimbursement Insurance Policy”. There is also correspondence from the then chairman of PVL putting their brokers on notice of potential claims in respect of the PVL companies. That correspondence and related correspondence assumes the existence of Vero liability insurance.

8 Mr Walker also avers that:

12. In … order to obtain access to the proceeds of Mr Henderson's insurance cover it is necessary that these proceedings continue and that a judgment be obtained against him and on the plaintiffs' behalf I ask that the Court allow this proceeding against him to continue in terms of section 76 of the Insolvency Act 2006.

9 Mr Walker also produces a letter from Grant Slevin, Senior Investigating Solicitor, Insolvency & Trustee Service, Ministry of Economic Development. That letter records the acceptance of the Official Assignee that the companies for which Mr Walker is a liquidator are secured creditors in respect of any liability Mr Henderson may have to them for breach of director's duties to the extent they hold a statutory charge over the proceeds of any insurance policies that might respond to such breaches. The letter states:

Accordingly the Official Assignee accepts that your client's rights of recovery, including his right to establish in court that Mr Henderson is liable to Property Ventures Limited and its subsidiaries for any breaches of duty, are not affected by Mr Henderson's bankruptcy. The Official Assignee's consent to the issue of proceedings against him is accordingly not required.

The letter also records that a determination by the Court would be instructive in the event that the Official Assignee was required to either admit and quantify, or reject, any proof of debt Mr Walker might elect to lodge in Mr Henderson's bankruptcy.

Preliminary matters

10 Mr Henderson objects to the reference to the document purporting to be an insurance policy and related documents because they are hearsay. I am satisfied that there are proper grounds for their admissibility given:

• (a) The policy is a business document;

• (b) It is unreasonable to require the document to be produced formally by a Vero representative;

• (c) Similarly, it is unreasonable, at this stage, to call the former PVL chairperson to produce related correspondence;

• (d) I am satisfied as to the reliability of the documentation; and

• (e) When questioned about the insurance policy, Mr Henderson did not deny that he was insured, only that he might not be covered by it.

Issues

11 With the benefit of argument, the key issues for resolution are:

• (a) Whether s 76 of the Insolvency Act 2006 permits commencement of proceedings against an undischarged bankrupt after adjudication; and

• (b) If so, whether leave should be granted to commence proceedings.

Jurisdiction

12 Section 76 of the Insolvency Act 2006 states:

76 Effect of adjudication on Court proceedings

• (1) On adjudication, all proceedings to recover any debt provable in the bankruptcy are halted.

• (2) However, on the application by any creditor or other person interested in the bankruptcy, the Court may allow proceedings that had already begun before the date of adjudication to continue on the terms and conditions that the Court thinks appropriate.

13 This section on its face confers a power of the Court to “allow proceedings that had already begun before the date of adjudication to continue”. It does not expressly contemplate allowance for fresh proceedings after bankruptcy. But there is authority for the proposition that earlier enactments, 1 of the same proviso, allowed for fresh proceedings.

14 Assuming there is jurisdiction to enable commencement of proceedings against Mr Henderson, the applicable principles were set out in Saimei v McKay & Ors 2 (and adopted by various authorities since), including FE Investments Limited v Klisser as follows: 3

• (a) The Court has a discretion to do what is right and fair according to the circumstances of the case;

• (b) When a person is adjudicated bankrupt, his assets are to be administered in an orderly fashion for the benefit of all his creditors and a particular creditor should not be able to obtain an advantage by bringing proceedings against him. There should thus be no prejudice to other creditors or to the ordinary administration of the bankruptcy if the action were to proceed;

• (c) The claim should not be clearly unsustainable but the Court will not investigate the merits of the claim;

• (d) The claim should normally be of a type which is more suitably determined by action rather than by lodging a proof of debt in the bankruptcy. If the claim could just as easily be dealt with in the bankruptcy, leave is not likely to be granted;

• (e) Leave is more likely to be granted where there is an insurance company standing behind the defendant to pay any judgment debts the plaintiff might obtain, because if it is successful, such an action is unlikely to prejudice the creditors of the defendant;

• (f) It may be desirable to impose a condition that the plaintiff will not enforce any judgment against the defendant without the leave of the Court to ensure that the Official Assignee retains...