IN THE HIGH COURT OF NEW ZEALAND
HAMILTON REGISTRY
CIV 2010-419-1174
UNDER
the Insolvency (Cross-border) Act 2006
BETWEEN
STEVEN JOHN WILLIAMS
Applicant
AND
ALAN GERAINT SIMPSON
Debtor
Hearing:
1 October 2010
Counsel:
K J Crossland and P J Morris for Applicant
P F Gorringe for Debtor
D M O'Neill for Mr Clough (personal capacity)
C Bryant for Trustees of B V Adams No 2 Trust
M Strang for Commissioner of Inland Revenue
Judgment:
12 October 2010
JUDGMENT (NO. 5) OF HEATH J
This judgment was delivered by me on 12 October 2010 at 4.30pm pursuant to Rule 11.5 of the High
Court Rules
Registrar/Deputy Registrar
Solicitors:
Stace Hammond P O Box 19-101 Hamilton 3244
Tompkins Wake, PO Box 258, Hamilton
Kerry Burroughs, PO Box 19307, Hamilton
Anderson Lloyd, PO Box 201, Queenstown
Inland Revenue Department, PO Box 761, Waikato Mail Centre, Hamilton
Counsel:
P Gorringe, PO Box 7098, Hamilton
D M O’Neill, PO Box 815, Hamilton
P J Morgan QC, PO Box 19021, Hamilton
WILLIAMS V SIMPSON HC HAM CIV 2010-419-1174 [12 October 2010]
Contents
Introduction
The legislation
The history of the proceeding
Recognition
Is Mr Williams a “foreign representative?
Jurisdictional issues under Schedule 1
Recognition as a “main proceeding
(a) Centre of main interests
(b) Submissions
(c) Analysis
Recognition as a non-main proceeding
Request for aid: Section 8 of the Act
Result
[1]
[5]
[8]
[17]
[21]
[25]
[30]
[35]
[41]
[50]
[67]
[88]
Introduction
[1]
Mr Simpson lives at 35 Ann Street, in Hamilton. On 9 September 2009,
notwithstanding his place of residence, he was adjudged bankrupt by the High Court
of Justice in London (the English Court), on the petition of the Society of Lloyd’s
(Lloyd’s). At the time the petition was presented, Lloyd’s asserted that it was owed
£242,920.29, based on a judgment obtained on 11 March 1998 in the sum of
£163,078.92, plus accrued interest and costs. Mr Williams, an English insolvency
practitioner, was appointed as trustee of Mr Simpson’s bankrupt estate.
[2]
Mr Williams soon discovered there were no assets in the United Kingdom
that he could realise for the benefit of Mr Simpson’s creditors.
However, he
received reliable information from which he formed the view that Mr Simpson had
assets in New Zealand.
[3]
On 10 September 2010, although Mr Simpson had been automatically
discharged from the English bankruptcy the previous day,1 Mr Williams applied to
this Court for an order recognising the English bankruptcy proceeding as a ―foreign
main proceeding‖, under Schedule 1 of the Insolvency (Cross-border) Act 2006 (the
Act). Later, that application was amended, so that recognition was sought on one of
1
Uncontested evidence from an English solicitor establishes that this does not affect trustee in
bankruptcy’s rights to assets that vested in him prior to discharge.
three alternative bases: as a ―foreign main proceeding‖, 2 a ―foreign non-main
proceeding‖3 or under s 8 of the Act. The form of recognition or assistance afforded
will determine the relief that this Court has jurisdiction to provide.
[4]
The application was not opposed by Mr Simpson, nor by any other parties
whom I ordered to be served.4 Nevertheless, at the conclusion of the hearing of the
recognition application I reserved my judgment to determine whether the English
bankruptcy should be recognised under the Act or assistance given under s 8. Like
Judges in other common law jurisdictions, I take the view that the Court needs to
scrutinise the application to determine whether (and if so, on what basis) recognition
ought to be ordered, given that different consequences will flow from the type of
recognition provided. Also, this is the first occasion on which it has been necessary
for this Court to consider the approach to be taken to an application of this type.
The legislation
[5]
The Act creates procedural, rather than substantive, rights. It provides the
basis for a modern legal framework designed to facilitate efficient disposition of
cases in which an insolvent debtor is subject to a collective insolvency regime in
more than one country or has assets or debts in more than one country.5 The term
―collective‖ distinguishes a formal insolvency regime (under which the debtors
assets are realised for the benefit of all creditors) from private proceedings against a
debtor, in which a single creditor seeks judgment for its own benefit.6
[6]
Schedule 1 of the Act is based on the Model Law on Cross-border Insolvency
(the Model Law),7 developed by a working group of the United Nations Commission
2
3
4
5
6
7
Insolvency (Cross-border) Act 2006, art 2(b) definition of ―foreign main proceeding‖.
Ibid, art 2(c), definition of ―foreign non-main proceeding‖.
See Williams v Simpson HC Hamilton CIV 2010-419-1174, 17 September 2010 at para [56](d).
Insolvency (Cross-border) Act 2006, s 3(b).
See also Cambridge Gas Transport Corporation v Official Committee of Unsecured Creditors of
Navigator Holdings Plc [2006] 3 All ER 829 (PC) at paras [14] and [15].
Adopted by the United Nations Commission on International Trade Law (UNCITRAL) on 30
May 1997 and approved by the General Assembly of the United Nations on 15 December 1997.
The background to enactment of the Insolvency (Cross-border) Act 2006 can be found in the
Law Commission’s Report, Cross-Border Insolvency: Should New Zealand Adopt the
UNCITRAL Model Law on Cross-border Insolvency? (NZLC R 52, February 1999). To date,
the Model Law, either in its original or some adapted form, has been enacted in 18 countries:
on International Trade Law (UNCITRAL). Because of its international origins, New
Zealand Courts are entitled to have regard to the Model Law and to any document
relating to its creation that originates from UNCITRAL or its working group,8 in
interpreting the Act.
[7]
Parliament foresaw the possibility that the Model Law may not be wide
enough to cover all circumstances in which a representative of a collective regime in
another country might wish to seek assistance from New Zealand Courts. For that
reason, s 8 of the Act re-enacts a provision that enables this Court to act on any
request for aid made by a Court of another country;9 thereby providing a general
discretion to the Court to assist in cases where Schedule 1 is not engaged.10
The history of the proceeding
[8]
Although this proceeding was only filed on 10 September 2010, there has
been much activity.
[9]
Immediately upon filing, Mr Crossland, for Mr Williams, sought a without
notice order under art 19 of Schedule 1 for the issue of a search warrant of the
dwelling and outbuildings at 35 Ann Street, Hamilton, where Mr Simpson resides.
That property is owned by the trustees of the B V Adams No 2 Trust, Mr Clough and
Ms Mann.
[10]
Article 19 allows provisional relief to be granted, pending disposition of the
recognition application, if urgently required to protect assets of the debtor or the
interests of creditors.
The application was made because Mr Williams had
information to suggest that Mr Simpson may be concealing bullion in those
8
9
10
Australia, British Virgin Islands, Canada, Columbia, Eritrea, Japan, Mauritius, Mexico,
Montenegro, New Zealand, Poland, Republic of Korea, Romania, Serbia, Slovenia, South
Africa, United Kingdom of Great Britain and Northern Ireland and the United States of America.
Insolvency (Cross-border) Act 2006, s 5(1) and Schedule 1, art 8.
A Request for Aid has also been made by the High Court of Justice of England and Wales.
Ibid, s 8(2) and (3). Section 8 is in similar terms to s 135 of the Insolvency Act 1967, under
which the High Court of New Zealand was entitled to assist foreign courts before the Insolvency
(Cross-border) Act 2006 was enacted.
premises. Initially, I did not grant that application, but did so on 17 September 2010
after more reliable evidence was put before me.11
[11]
I issued a search warrant,12 to be executed by the Court’s agent, Mr Currie,
the Official Assignee at Hamilton (the Official Assignee).13
I also suspended
Mr Simpson’s right to transfer, encumber or otherwise dispose of any of his assets in
New Zealand and authorised the Official Assignee to summon Mr Simpson for
examination before an Associate Judge of this Court at 10am on 21 September
2010.14 That relief was granted under art 19 on the basis that there was reason to
believe Mr Simpson was concealing property at the Ann Street address and interim
relief, pending determination of the recognition application, was required urgently to
protect the assets or the interests of Mr Simpson’s creditors.15
[12]
I extended the scope of the search warrant during the course of its execution,
on 20 September 2010, to encompass documents and computer data relevant to the
subject matter of the warrant and foreign currency. 16 Bullion, foreign currency and
relevant documents were found and seized. They have been put into safe storage,
pending the outcome of the recognition application.
[13]
On 21 September 2010, Mr Simpson was examined on oath before Associate
Judge Faire.17 The next day, based on Mr Simpson’s evidence at the examination,
Mr Williams sought further relief, in the form of an examination order of trustees of
B V Adams No 2 Trust and two bullion dealers in Auckland. I declined to make that
order because the application went to questions of ownership, rather than protection
of assets or the interests of creditors, for the purposes of art 19. I formed the view
11
12
13
14
15
16
17
Williams v Simpson HC Hamilton CIV 2010-419-1174, 17 September 2010. The way in which
the without notice application developed and was addressed is set out at paras [22]-[29] of that
judgment.
Ibid, at paras [33]-[56].
Ibid, at paras [55] and [56](a).
Ibid, at para [56](b) and (c).
Ibid, at paras [44]-[53]. As to the power to issue a search warrant see s 150 of the Insolvency
Act 2006.
Williams v Simpson (No 2) HC Hamilton, CIV 2010-419-1174, 20 September 2010.
The examination was conducted under s 166 of the Insolvency Act 2006. Notes of evidence
taken have been signed by Mr Simpson. See also Williams v Simpson HC Hamilton CIV 2010419-1174, 21 September 2010 (Associate Judge Faire).
that ownership issues should be dealt with after any recognition order had been
made.18
[14]
The following week (on 29 September 2010) further interim relief was
sought. A second (without notice) application was made to search the Ann Street
property.
More information had been gathered by the Official Assignee.
An
affidavit from a builder, Mr Holloway, gave strong grounds to believe that, in
December 2009, Mr Simpson had arranged for two compartments to be constructed
under the floor of the dwelling. The Official Assignee believed that additional
bullion, foreign currency or associated documents may have been squirreled away in
those compartments and not found during the 20 September 2010 search.
[15]
I was not prepared to make that order on a without notice basis. I directed
that the trustees of the B V Adams No 2 Trust (as registered proprietors of the
property) be served. I did so on the basis that they and their solicitors were subjected
to an order that the existence of the application not be communicated to Mr Simpson,
pending its determination. A hearing took place at 4.00pm on 29 September 2010,
following which I made orders in similar terms to those sought by the Official
Assignee; but limiting the search to the two compartments and to safes that had
already been searched (in case items had been moved back into them once Mr
Simpson believed the first search had been completed) and their surrounds.19
[16]
The second search took place that night. Additional bullion, foreign currency
and documents were seized from the compartments and the safes that had already
been searched. These items are also held in safe storage, pending further order of the
Court. I have been told by counsel that the approximate value of bullion and foreign
currency seized to date is something in the vicinity of $NZ2,000,000 to
$NZ3,000,000.
18
19
Williams v Simpson (No 3) HC Hamilton CIV 2010-419-1174, 22 September 2010.
Williams v Simpson (No 4) HC Hamilton CIV 2010-419-1174, 29 September 2010 at para [27].
The recognition application
[17]
The recognition application was heard on 1 October 2010. Counsel appeared
for Mr Williams, the trustees of the B V Adams No 2 Trust, Mr Clough (in his
personal capacity) and the Commissioner of Inland Revenue.
I had previously
ordered that the trustees and the Commissioner be served with the recognition
application.20
[18]
Mr Simpson had disclosed the Commissioner as a possible creditor in his
statement of assets and liabilities in the English bankruptcy.
Because of the
possibility of a debt to the New Zealand Revenue, I requested expert evidence on
English law as to whether a tax debt arising in New Zealand would be recognised as
a provable debt in the English bankruptcy. Evidence from an experienced English
solicitor indicates not.21
[19]
Counsel for the Commissioner advised me that a default assessment had been
issued against Mr Simpson on 30 September 2010. I was not told and did not ask the
amount that had been levied. I considered that was a discrete issue to be addressed
later, if recognition of some sort were granted.
[20]
I was also advised by Mr O’Neill, on behalf of Mr Clough in his personal
capacity, that despite the question of ownership having been raised by the solicitors
for the trustees of the B V Adams No 2 Trust and Mr Simpson (in his evidence
before the Associate Judge), Mr Clough wished to make it clear that he did not
regard the trustees as the owners of the bullion or foreign currency. Mr Clough’s
position, as advised to me by his counsel, is that the trustees hold only the Ann Street
property on trust. Mr Clough’s position will, no doubt, be verified by affidavit in
due course.
20
21
Williams v Simpson HC Hamilton CIV 2010,419-1174, 17 September 2010 at para [56](d).
Based on Government of India v Taylor [1955] AC 491 (HL).
Is Mr Williams a “foreign representative?
[21]
Applications for recognition have been rare, in New Zealand. To date, it has
been unnecessary for this Court to consider the way in which such applications
should be analysed.
Logically, the first question is whether Mr Williams is a
―foreign representative‖22 entitled to apply to this Court for recognition of the
English bankruptcy.23 However, in order to determine whether Mr Williams is a
―foreign representative‖ the Court must consider whether the English bankruptcy is a
―foreign proceeding‖24 as defined.
[22]
The inter-related definitions of ―foreign proceeding‖ and ―foreign
representative‖ are:
Article 2.
Definitions
For the purposes of this Schedule:
(a) foreign proceeding means a collective judicial or administrative
proceeding in a foreign State, including an interim proceeding, pursuant to a
law relating to insolvency in which proceeding the assets and affairs of the
debtor are subject to control or supervision by a foreign court, for the
purpose of reorganisation or liquidation;
...
(d) foreign representative means a person or body, including one appointed
on an interim basis, authorised in a foreign proceeding to administer the
reorganisation or the liquidation of the debtor's assets or affairs or to act as a
representative of the foreign proceeding;
....
[23]
On that approach, the right to apply has the following elements:
a)
The ―foreign proceeding‖ in respect of which recognition is sought
must be a judicial or administrative proceeding in a foreign State;
b)
22
23
24
The proceeding must be ―collective‖ in nature;
Insolvency (Cross-border) Act 2006, Schedule 1, art 2(d).
Ibid, Schedule 1, art 9.
Ibid, Schedule 1, art 2(a).
c)
The judicial or administrative proceeding must have arisen out of a
law relating to insolvency, in which the debtor’s assets and affairs are
subject to control or supervision by a foreign court, for the purpose of
reorganisation or liquidation;
d)
The control or supervision must be effected by a ―foreign court‖;
namely ―a judicial or other authority competent to control or supervise
a foreign proceeding‖;25
e)
The applicant must be authorised, in the foreign proceeding, ―to
administer the reorganisation or the liquidation of the debtor’s assets
or affairs or to act as a representative of the foreign proceeding‖.
[24]
The uncontested expert evidence on English law filed by Mr Williams
satisfies me that the English bankruptcy is a judicial proceeding in which the
debtor’s assets and affairs are subject to the control or supervision of the English
Court for the purposes of liquidation. The proceeding is collective in nature, being
for the benefit of all of the debtor’s creditors entitled to prove for their debt in the
bankruptcy and to receive a dividend on a pro rata basis, subject to statutory
priorities. I am also satisfied that Mr Williams is authorised, under English law, to
administer Mr Simpson’s bankruptcy.
Those findings mean that each of the
elements set out in para [23](a)-(e) above have been established.
Jurisdictional issues under Schedule 1
[25]
Article 17 deals with the circumstances in which a ―foreign proceeding‖ shall
be recognised. Article 17(2) provides:
Article 17.
Decision to recognise a foreign proceeding
...
(2) The foreign proceeding shall be recognised:
25
Ibid, Schedule 1, art 2(e).
(a) as a foreign main proceeding if it is taking place in the State
where the debtor has the centre of its main interests; or
(b)
as a foreign non-main proceeding if the debtor has an
establishment within the meaning of subparagraph (f) of article 2 in
the foreign State. (my emphasis)
[26]
This is not a discretionary regime.
The Act requires that a ―foreign
proceeding‖ be recognised either as a ―main‖ or ―non-main‖ proceeding. If the
―foreign proceeding‖ does not fall within the definitions of those terms, there is no
jurisdiction to grant recognition under art 17.
[27]
―Foreign main proceeding‖ and ―foreign non-main proceeding‖ are defined in
art 2(b) and (c) of Schedule 1:
Article 2.
Definitions
For the purposes of this Schedule:
...
(b) foreign main proceeding means a foreign proceeding taking place in the
State where the debtor has the centre of its main interests;
(c) foreign non-main proceeding means a foreign proceeding, other than a
foreign main proceeding, taking place in a State where the debtor has an
establishment within the meaning of subparagraph (f) of this article;26
....
Recognition as a ―foreign main proceeding‖ is dependent upon it taking place ―in the
State where the debtor has the centre of its main interests‖, whereas recognition as a
―foreign non-main proceeding‖ may be granted only if ―the debtor has an
―establishment‖ in the foreign State‖.
[28]
The term ―centre of ... main interests‖ is not defined in the Act. Nor is it
defined in the Model Law. In contrast, the term ―establishment‖ is defined:27
establishment means any place of operations where the debtor carries out a
non-transitory economic activity with human means and goods or services;
26
27
The definition of ―establishment‖ is set out at para [28] below.
Insolvency (Cross-border) Act 2006, Schedule 1, art 2(f).
[29]
The Act applies both to incorporated bodies and individuals.28 The question
is whether the English bankruptcy can be characterised as either a ―main‖ or ―nonmain‖ foreign proceeding. It is possible that a ―foreign proceeding‖, as defined, may
fall into neither of those categories. By way of example, in Re Bear Stearns HighGrade Structured Credit Strategies Master Fund Ltd (in provisional liquidation)29
both the Bankruptcy Court and the District Court (on appeal) found that a
provisional liquidation commenced in the Cayman Islands was neither a ―main‖ nor
―non-main‖ foreign proceeding, for the purposes of Chapter 15 of the US
Bankruptcy Code.30
Recognition as a “main” proceeding
(a) Centre of main interests
[30]
Recognition as a ―foreign main proceeding‖ depends on whether England or
New Zealand is the ―centre of [Mr Simpson’s] main interests‖. As the term is
undefined, it is necessary to consider the intentions of those who developed the
Model Law and to have regard to decisions in other jurisdictions that have adopted
the Model Law. In that way, regard is had to the international origin of the Model
Law and the need to promote uniformity in its application.31
[31]
A deliberate decision was taken by UNCITRAL’s working group not to
define the term ―centre of ... main interests‖. The notion was taken from the
Convention on Insolvency Proceedings of the European Union (the European
Convention).32 The European Convention was then in the stage of being ratified.
28
29
30
31
32
Ibid, Schedule 1, art 2(i) (definition of ―New Zealand insolvency proceeding‖) and art 16(3)
(evidential presumption about a human debtor’s centre of main interests).
Re Bear Stearns High-Grade Structured Credit Strategies Master Fund Ltd (in provisional
liquidation) 374 BR 122 (Bkrtcy SDNY 2007) and Re Bear Stearns High-Grade Structured
Credit Strategies Master Fund Ltd (in provisional liquidation) 389 BR 325 (SDNY 2008)
(District Court).
The Model Law, in an adapted form, was enacted as part of the Federal law of the United States
of America through the addition of Chapter 15 to the US Bankruptcy Code.
Insolvency (Cross-border) Act 2006, s 5 and Schedule 1, art 8.
See the UNCITRAL Guide to Enactment of the Model Law on Cross-border Insolvency, para 31
and art 3 of the proposed European Convention. The Guide is one of the UNCITRAL
publications on which reliance may be placed for interpretation purposes: s 5(1)(b) of the
However, ratification was never achieved.33 Subsequently, European Council (EC)
Regulation No 1346/2000 on Insolvency Proceedings (the EC Regulation) was
promulgated to deal with cross-border insolvency issues within the European Union,
save for Denmark. The concept of ―centre of ... main interests‖ was carried forward
into the text of the EC Regulation.34
[32]
In considering the authorities, it is necessary to bear in mind that the Model
Law and the EC Regulation use the term ―centre of main ... interests‖ for different
purposes. The EC Regulation uses the term to provide jurisdiction for the opening of
a main insolvency proceeding in a Member State. Such proceedings have universal
scope and encompass all the debtor’s assets within the European Union.35 On the
other hand, the expression is used in the Model Law purely for recognition purposes.
[33]
The Act contains an evidential presumption in relation to the centre of a
debtor’s main interests. Article 16(3) of Schedule 1 provides:
Article 16
Presumptions concerning recognition
...
(3) In the absence of proof to the contrary, the debtor's registered office, or
habitual residence in the case of an individual, is presumed to be the centre
of the debtor's main interests.
[34]
The first major decision that discussed the concept of the centre of a debtor’s
main interests was Re Eurofood IFSC Ltd.36 In that case, the European Court of
Justice held that the presumption that the centre of main interests was in the State in
which the corporation had its ―registered office‖ could only be rebutted ―if factors
which are both objective and ascertainable by third parties enable it to be established
33
34
35
36
Insolvency (Cross-border) Act 2006. The Guide is set out in full in the Law Commission’s
report on possible adoption of the Model Law (see fn 7 above) at pp 99-140.
For the relevant history, see the opinions of Advocates-General in Re Staubitz-Schreiber [2006]
ECR I-701 and Re Eurofood IFSC Ltd [2006] Ch 508 (ECJ) at para 2. A more extensive
discussion appears in Moss, Fletcher and Isaacs, The EC Regulation on Insolvency Proceedings:
A Commentary and Annotated Guide (2nd ed 2009 Oxford University Press) at paras 1.01-1.25.
EC Regulation, Recitals (12) and (13).
Ibid, Recital (12).
Re Eurofood IFSC Ltd [2006] Ch 508 (ECJ).
that an actual situation exists which is different from that which locating it at that
registered office is deemed to reflect‖.37
(b) Submissions
[35]
Mr Crossland submitted that Mr Simpson’s ―centre of main interests‖ was
England. In making that submission, Mr Crossland relied on the following facts:
a)
Mr Simpson is a retired psychiatrist who previously practised in
Harley Street, in London, and became a member of Lloyd’s in 1984.
b)
When he agreed to become a Name, Mr Simpson executed a General
Undertaking, which constitutes an irrevocable submission to the
exclusive jurisdiction of the English Courts. Mr Simpson traded as an
underwriter, until December 1993. He became involved in a dispute
with Lloyd’s in 1993.
He was actively involved in taking
proceedings, in England, against Lloyd’s for alleged misfeasance in
public office.38
c)
All of Mr Simpson’s creditors (with the possible exception of the
Commissioner of Inland Revenue in New Zealand) are in England.
Even in respect of the Commissioner, a default assessment has only
just been issued after the results of the execution of search warrants
was known.
A few days earlier (on 24 September 2010) the
Commissioner had advised Mr Williams that no outstanding tax
existed.
d)
Although, in the questionnaire submitted to the Official Receiver in
England, Mr Simpson listed his home address in New Zealand, he
also referred to having bank accounts and credit cards in the United
Kingdom.
37
38
Ibid, at para 34. Because this presumption is contained in Schedule 1, art 16(3), the European
Court’s observations are relevant in New Zealand.
Generally see Society of Lloyd’s v Henderson and Ors [2005] EWHC 850 (Comm) and
Stockwell v Society of Lloyd’s [2007] EWCA Civ 930.
[36]
Mr Crossland submitted that, under English bankruptcy law, when a debtor
has ceased actively trading but has not paid all his or her debts, the debtor is
regarded as ―carrying on business‖ for the purposes of the Insolvency Act 1986
(UK).39 On that basis, Lloyd’s always bring bankruptcy proceedings against Names
in England, wherever they might reside.
The English Court made an order
adjudicating Mr Simpson bankrupt, on that basis.
[37]
Based on Shierson v Vlieland Boddy,40 Mr Crossland contended that
historical facts could be taken into account in determining a debtor’s centre of main
interests. Mr Crossland submitted that the Court should take a robust approach in
determining where the centre of main interests of a debtor lies, particularly when
there is evidence that the debtor is trying to conceal assets from creditors.
[38]
Mr Crossland referred to the attempts that Mr Williams made to obtain
information from Mr Simpson and the lack of co-operation in relation to execution
of a worldwide authority enabling Mr Williams to approach third parties to obtain
information about Mr Simpson’s property affairs and dealings.41 Mr Crossland
submitted that:
... where the Court has evidence that the debtor is actively trying to thwart
his creditors in one country by failing to provide information to the
bankruptcy trustee in that country he should not be able to rely on acts
designed to defeat those creditors to displace a finding of a centre of main
interest in that jurisdiction. In this particular case the debtor has had
millions of dollars bullion and currency concealed within his home in New
Zealand. He had not disclosed this in his bankruptcy questionnaire supplied
to the Official Receiver in October 2009 – though he had disclosed a
Commodore worth $2,500 owned by an alleged trust.
[39]
Mr Crossland placed reliance on evidence from Mr Williams of an alias
under which Mr Simpson is alleged to go: James Walter Smith. At his examination
before Judge Faire, Mr Simpson said that Mr Smith was a manager of the Hilton
Hotel in Hong Kong. However, during the course of the first search of the Ann
Street property, a photograph was taken of a cheque book in the name of
―J W Smith‖, for an account with the Nationwide Building Society in England. As
39
40
41
Re a debtor (No 784 of 1991), ex parte the debtor v Inland Revenue Commissioners and another
[1992] 3 All ER 376.
Shierson v Vlieland-Boddy [2005] EWCA Civ 974.
Williams v Simpson HC Auckland CIV 2010-404-1174, 17 September 2010 at paras [8]-[18].
Mr Crossland submitted: ―Mr Simpson has not offered any explanation why the
cheque book of a man from Hong Kong is sitting in a safe [in Mr Simpson’s] home
in New Zealand for [a] bank account with a UK building society – not to mention the
fact that Mr Simpson’s handwriting appears on a cheque stub‖.
[40]
Mr Crossland also relies on the legal presumption ―omnia praesumunter
contra spoliatorem‖. Under that principle, one who destroys or conceals a document
has the strongest possible presumption drawn against him or her.42
(c) Analysis
[41]
While there are helpful criteria in judgments on this topic, the inquiry into
Mr Simpson’s ―centre of main interests‖ is fact-specific. It is necessary to begin by
reference to the presumption in art 16(3) of Schedule 1.43 In the absence of proof to
the contrary, it is presumed that a person’s place of ―habitual residence‖ will be his
or her ―centre of main interests‖.
[42]
The term ―habitual residence‖ is well known in international law.44 For
example, in New Zealand, it is used in the Care of Children Act 2004, in those parts
of the statute which enacts the Hague Convention on the Civil Aspects of Child
Abduction.45 In Basingstoke v Groot46 our Court of Appeal said that the inquiry into
―habitual residence‖ was a ―broad factual one, taking into account such factors as
settled purpose, the actual and intended length of stay in a State, the purpose of the
stay, the strength of ties to the State and to any other State (both in the past and
currently), the degree of assimilation into the State (including living and schooling
arrangements), and cultural, social and economic integration‖.47 I see no reason why
42
43
44
45
46
47
Burns v National Bank of New Zealand Limited [2004] 3 NZLR 289, 318 at para [75], applying
The Ophelia [1916] 2 AC 206 (PC) at 229-230.
Set out at para [33] above.
In Punter v Secretary for Justice [2007] 1 NZLR 40 (CA) at [20]-[25], a number of Conventions
using the term are listed; including the Convention on the Recognition and Enforcement of
Foreign Judgments in Civil and Commercial Matters (1971) and the Convention on Civil
Procedure (1954).
The term used in s 105(1)(d) of that Act is ―habitually resident‖.
Basingstoke v Groot [2007] NZFLR 363 (CA).
Ibid, at para [28]. See also R v Barnet LBC, ex parte Shah [1983] 2 AC 309 (HL) at 344.
―habitual residence‖, for the purposes of the Act, should be approached any
differently.
[43]
Where is Mr Simpson’s ―habitual residence‖? It is clear that Mr Simpson has
lived in New Zealand for many years. In the bankruptcy petition presented in
England, Lloyd’s disclosed that he was residing in New Zealand. The petition was
not presented on the basis that Mr Simpson was amenable to the jurisdiction of the
English Courts by reason of residence, but because he ―carried on ... business‖ ―as a
member of the Society of Lloyd’s‖ and had done for the greater part of six months
before the petition.48
[44]
Importantly, Lloyd’s bankruptcy petition did not assert that Mr Simpson’s
centre of main interests was in England. In para 1 of its petition, Lloyd’s said:
1.
[Mr Simpson’s] centre of main interests is not within a Member
State and therefore the EC Regulation on Insolvency Proceedings does not
apply.
[45]
If Lloyd’s had believed that Mr Simpson had his centre of main interests in
England, it would have been necessary to aver that fact to ensure the English Court
had jurisdiction to open main proceedings in that country.49 Lloyd’s own stance on
this point tells against a finding that Mr Simpson has his centre of main interests in
England.
[46]
It is true, as Mr Crossland submitted, that Mr Simpson spends part of each
year in New Zealand and the balance in England. However, by far the greater time is
spent in New Zealand. He has a daughter of school age in this country. While he
holds passports issued in both the United Kingdom and New Zealand, it is clear from
the evidence that he regards New Zealand as his home.
That being so, the
presumption applies and, unless otherwise rebutted, Mr Simpson’s centre of main
interests will be regarded as New Zealand.
48
49
In para 2 of the petition, Lloyds asserted that Mr Simpson had lived in New Zealand for the
greater part of six months immediately preceding the presentation of the petition.
See para [32] above.
[47]
The factors on which Mr Crossland relied to support his contention tend to be
more relevant to a place of business; something more apt to consider in the context
of determining whether Mr Simpson had an ―establishment‖ in England, for the
purposes of recognition as a ―non-main‖ proceeding.
[48]
In referring to Re Loy,50 Mr Crossland submitted that the location of the
majority of a debtor’s creditors and the jurisdiction whose laws would apply to most
disputes could be used to determine an individual’s centre of main interests when,
otherwise, a serious dispute may arise.
[49]
I am not persuaded that those factors are enough to rebut the presumption
based on ―habitual residence‖. Mr Simpson has lived in New Zealand for many
years; he goes to England each summer to enjoy the cricket and to see family; he has
a school aged daughter in New Zealand and regards this country as his home. Mr
Simpson’s centre of main interests is in New Zealand. On that basis, it is not
permissible for this Court to recognise the English bankruptcy as a ―foreign main
proceeding‖.
Recognition as a “non-main” proceeding
[50]
A foreign proceeding may be recognised as a non-main proceeding if, at a
relevant time, the debtor had an ―establishment‖51 in the country of origin of that
insolvency proceeding.
To bring Mr Simpson within the definition of
―establishment‖ Mr Williams must demonstrate that:
50
51
a)
Mr Simpson has a ―place of operations‖ in England
b)
where he carries out a non-transitory economic activity
c)
with human means or goods or services.
Re Loy [2008] BPIR 111 (Bankr ED Va) at 117.
Insolvency (Cross-border) Act 2006, Schedule 1, art 2(f); the definition is set out at para [28]
above.
[51]
In Shierson v Vlieland-Boddy52 the English Court of Appeal considered
whether the debtor had his centre of main interests or an establishment in the United
Kingdom.53
[52]
The EC Regulation defines the term ―establishment‖ in the same terms as it is
defined in New Zealand.54 The EC Regulation is interpreted in light of a report
prepared for the purpose of the earlier European Convention, known as the VirgosSchmit Report.55 This report was available to those who prepared the Model Law
and is a document that I consider I am entitled to take into account in determining
the meaning of the term ―establishment‖, for the purposes of the Act.
[53]
The Virgos-Schmit report describes a ―place of operations‖ as one from
which ―economic activities are exercised on the market (ie externally), whether the
said activities are commercial, industrial or professional‖. The authors added that
the emphasis on economic activity using human resources demonstrated a need ―for
a minimum level of organization‖. A ―certain stability‖ is required.56
[54]
In Shierson v Vlieland-Boddy, Chadwick LJ was prepared to uphold the first
instance Judge’s conclusion that the letting and managing of a single unit in England
as ―a multi-let business premises‖ was sufficient to bring Mr Vlieland-Boddy within
the definition of ―establishment‖.57
Longmore LJ agreed with Chadwick LJ’s
conclusion, as did Sir Martin Nourse. All three Judges took the view that while the
premises appeared to be in the name of another entity, they were satisfied, on the
evidence, it was possible to infer that other entity was acting as ―a front or nominee‖
for the debtor.58
52
53
54
55
56
57
58
Shierson v Vlieland-Boddy [2005] EWCA Civ 974.
For present purposes, art 3.2 of the EC Regulation a Court has jurisdiction to open an insolvency
proceeding against a debtor if he or she possesses ―an establishment‖ within the territory of that
Member State; though, in contrast to those opened in the Member State of which the centre of
the debtor’s main interests is situated, the effect of the proceedings are restricted to the assets of
the debtor situated in the ―establishment‖ State. For present purposes, I focus on that part of the
judgment that deals with the question of ―establishment‖.
EC Regulation, art 2(h) and Insolvency (Cross-border) Act 2006, Schedule 1, art 2(f).
Virgos-Schmit Report on the Convention on Insolvency Proceedings. The report is set out in
full in Moss, Fletcher and Isaacs, The EC Regulation on Insolvency Proceedings: A Commentary
and Annotated Guide (2nd ed 2009 Oxford University Press) at pages 385-450.
Ibid, para 71.
Shierson v Vlieland-Boddy [2005] EWCA Civ 974 at paras 67 and 68.
Ibid, at paras 68 (Chadwick LJ), 73 (Longmore LJ) and 80 (Sir Martin Nourse).
In Re Ran,59 the question was whether an Israeli bankruptcy should be
[55]
recognised as either the main or non-main proceeding, under Chapter 15 of the US
Bankruptcy Code.
In doing so, the Fifth Circuit of the US Court of Appeals
considered whether Mr Ran had an ―establishment‖ in the United States under the
equivalent definition of that term in Chapter 15 of the US Bankruptcy Code.60
In considering the meaning of the term ―establishment‖ the Fifth Circuit
[56]
said:
61
[12] ... Our conclusion is . . . supported by a plain language reading of
Chapter 15, which notes that a foreign nonmain proceeding can exist where a
debtor “has an establishment‖. 11 U.S.C s 1502(2) (emphasis added).
Likewise, Section 1502(2) refers to an establishment as ―any place of
operations where the debtor carries out a nontransitory activity‖. Id.
s 1502(2) (emphasis added). The use of the present tense implies that the
court’s establishment analysis should focus on whether the debtor has an
establishment in the foreign country where the bankruptcy is pending at the
time the foreign representative files the petition for recognition under
Chapter 15. See Mark Lightner, Determining the Center of Main Interest
Under Chapter 15, 17 J. Bankr L & Prac 5, art 2 (2209).
So in order for Ran to have an establishment in Israel, Ran must have (1) had
a place of operations in Israel and (2) been carrying on nontransitory
economic activity in Israel at the time that [the Israeli bankruptcy receiver]
brought the petition for recognition in the United States. Neither Chapter 15
nor its legislative history explain what it means for a debtor to have ―any
place of operations‖ or to have ―been carrying on nontransitory economic
activity‖ in a location. See H R Rep No 109-31(I), at 107, reprinted in 2005
USCCAN at 170 (mentioning only that the definition was taken from Model
Law for Cross-Border Insolvency Article 2). However, the Model Law for
Cross-Border Insolvency and the sources from which it emanates provide
guidance concerning what it means for a debtor to have an establishment in a
location.
[57]
In Ran, the possibility of some lesser test being required in respect of a
human debtor, as opposed to a corporate one was considered. After referring to the
UNCITRAL Guide to Enactment of the Model Law (the Guide) and the thrust of the
Virgos-Schmit Report, the Court said:62
59
60
61
62
In Re Ran 607 F.3d 1017 (5th Cir. 2010).
US Bankruptcy Code s 1502(2). However, the term ―establishment‖ under US law, does not
expressly require the non-transitory activity to be carried on with ―human means or goods and
services‖. Compare Insolvency (Cross-border) Act 2006, Schedule 1, art 2(f).
In Re Ran 607 F.3d 1017 (5th Cir. 2010) at 1027.
Ibid.
[12] ...The mere presence of assets in a given location does not, by itself,
constitute a place of operation. ... In the context of corporate debtors, there
must be a place of business for there to be an establishment. In re Bear
Stearns, 374 BR at 131; see also Daniel M Glosband, SPhinX Chapter 15
Opinion Misses the Mark, 25 Am, Bankr Inst J 44, 45 (Dec/Jan 2007).
Equating a corporation’s principal place of business to an individual debtor’s
primary or habitual residence, a place of business could conceivably align
with the debtor having a secondary residence or possibly a place of
employment in the country where the receiver claims that he has an
establishment. See 11 USC s 1516(c) (equating a corporate debtor’s
registered office with the habitual residence in the case of an individual). At
the time [the Israeli bankruptcy receiver] filed his petition for recognition,
Ran possessed neither a secondary residence nor place of employment in
Israel.
The provision of the US Bankruptcy Code that equates a corporate debtor’s
registered office with the habitual residence of a human debtor is replicated in
art 16(3) of the New Zealand legislation.
[58]
In this context, two decisions in the Bear Stearns litigation are instructive. At
first instance, Judge Lifland, in the Bankruptcy Court of the Southern District of
New York, declined to recognise a provisional liquidation in the Cayman Islands as
either a main or non-main proceeding.
In discussing the meaning of the term
―establishment‖, the Judge equated it with ―a local place of business‖,63 holding that
the purely administrative functions of the hedge fund that took place in the Cayman
Islands were insufficient to constitute ―an establishment‖ in that jurisdiction.64
Interestingly, despite making it clear that ―the discretionary and flexibility attributes
of case law under [the now repealed] section 304 of the Bankruptcy Code65 [was]
misplaced‖, the Judge held that the provisional liquidators were not without remedy
because there was an ability to seek some relief from US Courts. Judge Lifland
referred specifically to the ability to commence an ―involuntary case‖ under either
Chapter 7 or Chapter 11 of the US Bankruptcy Code. 66
The Judge referred to
s 303(b)(4) of the Bankruptcy Code, in saying that the foreign representative was
―not left remediless upon nonrecognition‖.
63
64
65
66
Re Bear Stearns High-Grade Structured Credit Strategies Master Fund Ltd (in provisional
liquidation) 374 BR 122 (Bkrtcy SDNY 2007) at 131. See also, Re British American Insurance
Company Ltd 425 BR 884 (Bkrtcy SD Florida 2010) at 914-916.
Ibid.
A near equivalent of s 8, prior to enactment of Chapter 15 of the US Bankruptcy Code.
Ibid, at 132.
Judge Lifland’s views were upheld on appeal by the District Court,67 in
[59]
which Judge Sweet found that [auditing] activities and preparation of incorporation
papers performed by a third party did not, in plain language terms, constitute
―operations‖ or ―economic activity‖ by‖ those responsible for managing the Funds.68
To similar effect, the District Court relied on the fact that the hedge funds ―had no
assets in the Cayman Islands at the time of filing‖, to support the conclusion that
non-main recognition was inappropriate.69
[60]
In referring to those authorities, I make it clear that neither they nor I are
attempting to define the scope of possible activities that would suffice to demonstrate
the existence of an individual debtor’s establishment in a particular location. For
example, in Ran, the Court of Appeals made it clear, in its conclusion, that it was not
attempting to define the scope of possible activities that would suffice to demonstrate
either the existence of an individual debtor’s centre of main interests or an
establishment in a particular location.70
The difficulties inherent in identifying an ―establishment‖ for an individual
[61]
debtor were recognised in the Guide. That publication suggested that enacting States
might wish to exclude from the scope of application of the Model Law insolvencies
that related to natural persons residing in an enacting State, whose debts had been
incurred predominantly for personal or household purposes (as opposed to
commercial or business purposes) or those that related to non-traders.71
Those
observations reflect the fact that UNCITRAL is primarily concerned with trade and
the need, for economic reasons, to provide workable mechanisms to resolve crossborder insolvencies involving trading entities with assets or liabilities in different
States.
[62]
Responsibly, Mr Crossland accepted that the definition of ―establishment‖
was difficult to apply in the context of a retired professional who stated he had been
unemployed for 12 or 13 years and was drawing a private pension in the United
67
68
69
70
71
Re Bear Stearns High-Grade Structured Credit Strategies Master Fund Ltd (in provisional
liquidation) 389 BR 325 (SDNY 2008).
Ibid, at 338-339.
Ibid, at 339.
In Re Ran 607 F.3d 1017 (5th Cir. 2010) at 1028.
UNCITRAL’s Guide to Enactment of the Model Law on Cross-border Insolvency, at para 66.
Kingdom, as well as New Zealand Superannuation. Nevertheless, he submitted that
Mr Simpson did have an ―establishment‖ in England.
[63]
Mr Crossland pinned his submission to the obligations that Mr Simpson
assumed when he became a Lloyd’s Name. Mr Crossland submitted:
5.35 Up until his bankruptcy Mr Simpson’s activity in England in an
economic sense was solely connected to resisting a claim by the Society of
Lloyds that he meet obligations as a name of that society. The consequence
of that litigation was that Mr Simpson might be found not to owe a liability,
in which case it is reasonable to assume a substantial order of costs would
have been made in his favour. Conversely, as proved to occur, Lloyds
succeeded against Mr Simpson and other names resulting in a substantial
liability. In that respect the activity through which Mr Simpson was engaged
was economic. It certainly could not be seriously contended that that sphere
of human activity was anything other than economic. One might
analogously refer to holdings within the New Zealand jurisdiction where the
words ―in trade‖ under the Fair Trading Act 1986 have been interpreted to
include litigation.72
5.36 Mr Simpson engaged the legal services of professionals in England
and also the Isle of Man to conduct the Lloyds litigation on his behalf (ie
they were his agents). Mr Simpson’s English solicitors had their places of
operation in England. Mr Simpson used these services to contest a liability
arising from his business as an underwriter, and that business was conducted
in London.
[64]
Like s 1502(2) of the US Bankruptcy Code, art 16(3) of Schedule 1 uses the
present tense. Both provisions have their origin in art 2(f) of the Model Law. In
New Zealand, having also adopted the latter part of the Model Law’s definition of
―establishment‖ (with ―human means and goods or services‖), there is a more
compelling case for taking the same approach to the interpretation of
―establishment‖.
[65]
It is true that English law permits a creditor to present a petition against a
debtor based on that person having ―carried on business in England and Wales‖.73
However, the use of the present tense in art 16(3) militates against a conclusion,
based on a ground on which a bankruptcy petition might be presented in England,
that is expressed in the past tense.
72
In other words, while under English law
Pharmaceutical Management Agency Ltd v Researched Medicines Industry Association New
Zealand Inc [1996] 1 NZLR 472
Mr Simpson is subject to the bankruptcy laws of that country, on the basis that he is
still in the process of winding up his business activities, that is not a reason for
holding that he, in fact, has a place of operations in England or Wales from which he
(presently) ―carries out a non-transitory economic activity with human means and
goods or services‖. On the facts, such a conclusion would be a mere fiction.
[66]
It follows that the Court is not entitled to recognise the English bankruptcy as
a foreign non-main proceeding.
Request for aid: Section 8 of the Act
[67]
On 16 September 2010, the English Court issued a Letter of Request to this
Court, seeking assistance. The Request states:
...
3.
4.
[68]
On the 10th day of September 2010 the Trustee applied to this Court
for this Letter of Request to be issued for the purpose of enabling
him to seek:a.
Recognition in New Zealand of his appointment as Trustee
in Bankruptcy of the Bankrupt.
b.
An Order to search the Bankrupt’s residential property in
New Zealand being 35 Anne Street, Hamilton and to seize
any assets of the Bankrupt contained at that property.
c.
Such further Order as the Trustee may apply to the Court in
New Zealand for in Order to assist him in the administration
of the Bankruptcy Estate.
Having heard the Trustee’s application and reviewed the evidence
tendered in support thereof the Court grant the Orders in terms and
requests that the High Court of New Zealand provides the Trustee
with such assistance as is described in this letter and such further or
other assistance as the High Court in New Zealand sees fit. I
confirm that this Court is authorised by Section 426 of the
Insolvency Act 1986 to extend similar assistance to the High Court
of New Zealand.
The Request for Aid falls to be considered in terms of s 8 of the Act.
Section 8 is a provision which can be applied in the rare circumstances in which
73
Insolvency Act 1986 (UK), s 265(1)(c)(ii); see also Theophile v Solicitor General [1950] AC 186
(HL) and Re a debtor (No 784/1991, ex parte the debtor v Inland Revenue Commissioners
Schedule 1 is not engaged. Parliament made a deliberate decision to retain an old
remedy in order to ensure that co-operation did not wither through a lacuna in
Schedule 1. Section 8 is in similar terms to s 135 of the Insolvency Act 1967. When
the Law Commission reported to Parliament, it recommended repeal of s 135 ―so
that the only procedure which will be available for cross-border insolvency
applications in cases of personal bankruptcy will be ―via‖ the Insolvency (Crossborder) Act.74
[69]
Section 8 of the Act provides:
8. High Court to act in aid of overseas courts
(1) This section applies to a person referred to in article 1(1) of Schedule 1.
(2) If a court of a country other than New Zealand has jurisdiction in an
insolvency proceeding and makes an order requesting the aid of the High
Court in relation to the insolvency proceeding of a person to whom this
section applies, the High Court may, if it thinks fit, act in aid of and be
auxiliary to that court in relation to that insolvency proceeding.
(3) In acting in aid of and being auxiliary to a court in accordance with
subsection (2), the High Court may exercise the powers that it could exercise
in respect of the matter if it had arisen within its own jurisdiction.
[70]
Article 1(1) of Schedule 1, to which s 8(1) of the Act refers, provides:
Article 1.
1. Scope of application
(1) Except as provided in paragraph (2) of this article, this Schedule applies
where:
(a) assistance is sought in New Zealand by a foreign court or a
foreign representative in connection with a foreign proceeding; or
(b) assistance is sought in a foreign State in connection with a New
Zealand insolvency proceeding; or
(c) a foreign proceeding and a New Zealand insolvency proceeding
in respect of the same debtor are taking place concurrently; or
74
[1992] 3 All ER 376 (Ch D).
Cross-border Insolvency: Should New Zealand Adopt the UNCITRAL Model Law on Crossborder Insolvency? (NZLC R 52 1999) at pp 74 and 75. As one of the authors of the Law
Commission Report, I acknowledge the wise choice made by Parliament in rejecting that
recommendation.
(d) creditors or other interested persons in a foreign State have an
interest in requesting the commencement of, or participation in, a
New Zealand insolvency proceeding.
The exception set out in art 1(2) (a registered bank subject to statutory management
under the Reserve Bank of New Zealand Act 1989) has no application, in this case.
[71]
Section 8 reflects what used to be called the ―Order in Aid‖ procedure. So
far as Commonwealth countries are concerned, its origins lie in s 74 of the
Bankruptcy Act 1869 (UK) which was held by the Privy Council to apply to all of
Her Majesty’s Dominions.75 A successor provision, s 122 of the Bankruptcy Act
1914 (UK), was held to be applicable in New Zealand, in Re Peebles.76
[72]
The need to rely on an Imperial statute was removed by s 135 of the
Insolvency Act 1967. Under s 135(1) the Court was directed to act in aid of and to
be auxiliary to any Court of any ―Commonwealth country‖ with jurisdiction in
bankruptcy; a discretion was conferred in respect of aid sought at the request of a
Court of any country which was not within the Commonwealth.77 Section 8 creates
a wider jurisdiction than s 135: it is not limited to personal bankruptcy – it extends to
corporate collective insolvency regimes.
[73]
There are no criteria by which the Court exercises its s 8 discretion.
However, the purposes set out in s 3(b) of the Act are just as applicable to s 8 as to
Schedule 1. Section 3(b) provides:
3. Purpose
The purpose of this Act is to—
...
(b) provide a framework for facilitating insolvency proceedings when—
(i)
a person is subject to insolvency administration (whether
personal or corporate) in 1 country, but has assets or debts in another
country; or
75
76
77
Callender Sykes & Co v Colonial Secretary of Lagos [1891] AC 460 (PC) at 467.
Re Peebles SC Auckland B 52/73, 8 May 1973. At the time Peebles was decided, the
Insolvency Act 1967 had been passed but not brought into effect. There was no Order in Aid
provision in the Bankruptcy Act 1908, then in force in New Zealand.
Insolvency Act 1967, s 135(2).
(ii) more than 1 insolvency administration has commenced in more
than 1 country in relation to a person.
[74]
Comity is one basis on which relief may be fashioned.78 At least in countries
with similar provisions to s 8, the Court will generally exercise its discretion in
favour of giving assistance, unless there is some compelling reason not to do so.79
[75]
In the context of a collective insolvency regime, the term ―comity‖ was
considered in Curnard Steamship Co Ltd v Salen Reefer Services AB,80 in which the
Second Circuit of the US Court of Appeals held:81
The granting of comity to a foreign bankruptcy proceeding enables the assets
of a debtor to be dispersed in an equitable, orderly, and systematic manner,
rather than in a haphazard, erratic or piecemeal fashion. Consequently,
American courts have consistently recognized the interest of foreign courts
in liquidating or winding up the affairs of their own domestic business
entities. . . . It has long been established that foreign trustees in bankruptcy
were granted standing as a matter of comity to assert the rights of the
bankrupt in American courts. . . . Although the early cases upheld the
priority of local creditors’ attachments . . . the modern trend has been toward
a more flexible approach which allows the assets to be distributed equitably
in the foreign proceeding.
[76]
As the Law Commission pointed out,82 the justification for granting comity to
foreign insolvency proceedings is the need to ensure that a debtor’s property is
realised as quickly as possible for the benefit of all creditors entitled to participate in
the distribution of assets. It is also consistent with economies of scale, in having a
single insolvency administrator act on behalf of all creditors, with a view, subject to
priorities accorded by national legislation, to ensuring maximum returns to creditors
on a pari passu basis.
[77]
The desirability of a ―universalist‖ approach to international insolvency law
was asserted by the Privy Council, in Cambridge Gas Transport Corporation v
78
79
80
81
82
See para [75] below.
For example, see s 426 of the Insolvency Act 1986 (UK) and Re Dallhold Estates (UK) Pty Ltd
[1992] BCC 394 (Ch D), Re Bank of Credit and Commerce International SA [1993] BCC 787
(Ch D) and Hughes v Hannover Ruckversicherungs-Aktiengesellschaft [1997] 1 BCLC 497
(CA). See also Smart, English Courts and International Insolvency (1998) 114 LQR 47-52.
Curnard Steamship Co Ltd v Salen Reefer Services AB 773 F 2d 452 (1985).
Ibid, at 458. See also Turners & Growers Exporters Ltd v The Ship “Cornelis Verolme” [1997]
2 NZLR 110 (HC) and Fournier v The Ship “Margaret Z” [1997] 1 NZLR 629 (HC).
Cross-border Insolvency: Should New Zealand Adopt the UNCITRAL Model Law on Crossborder Insolvency? (NZLC R 52 1999) at para 24.
Official Committee of Unsecured Creditors of Navigator Holdings Plc.83 In a case
decided before the Model Law was adopted in the United Kingdom and its
territories, a Bankruptcy Court in the United States sent a Letter of Request to the
High Court of Justice of the Isle of Man asking for assistance in giving effect to a
plan and confirmation order made under Chapter 11 of the US Bankruptcy Code. At
first instance, the request was refused. The Manx Court of Appeal reversed that
decision. An appeal to the Privy Council was dismissed.
[78]
In delivering the advice of the Privy Council, Lord Hoffmann said:84
[14] The purpose of bankruptcy proceedings, ..., is not to determine or
establish the existence of rights, but to provide a mechanism of collective
execution against the property of the debtor by creditors whose rights are
admitted or established. That mechanism may vary in its details. For
example, in personal bankruptcy in England, the assets of the bankrupt are
vested in a trustee for realisation and distribution to creditors. So the
mechanism operates by divesting the bankrupt of his property. In corporate
insolvency, on the other hand, the insolvent company continues to be owner
of its property but holds it in trust for the creditors in accordance with the
provisions of the Insolvency Act 1986: see Ayerst (Inspector of Taxes) v C &
K (Construction) Ltd [1975] 2 All ER 537, [1976] AC 167. In the case of
personal bankruptcy, the bankrupt may afterwards be discharged from
liability for his pre-bankruptcy debts. In the case of corporate insolvency,
there is no provision for discharge. The company remains liable but when all
its assets have been distributed, there is nothing more against which the
liability can be enforced: see Wight v Eckhardt Marine GmbH [2003] UKPC
37, [2003] 5 LRC 408 at 415–416, [2004] 1 AC 147 at 155–156. At that
point, the company is usually dissolved.
[15] But these are matters of detail. The important point is that bankruptcy,
whether personal or corporate, is a collective proceeding to enforce rights
and not to establish them. Of course, as Brightman LJ pointed out in Re
Lines Bros Ltd [1982] 2 All ER 183 at 194–195, [1983] Ch 1 at 20, it may
incidentally be necessary in the course of bankruptcy proceedings to
establish rights which are challenged: proofs of debt may be rejected or there
may be a dispute over whether or not a particular item of property belonged
to the debtor and is available for distribution. There are procedures by which
these questions may be tried summarily within the bankruptcy proceedings
or directed to be determined by ordinary action. But these again are
incidental procedural matters and not central to the purpose of the
proceedings.
[16] The English common law has traditionally taken the view that fairness
between creditors requires that, ideally, bankruptcy proceedings should
have universal application. There should be a single bankruptcy in which all
83
84
Cambridge Gas Transport Corporation v Official Committee of Unsecured Creditors of
Navigator Holdings Plc [2006] 3 All ER 829 (PC).
Ibid, at 834-835.
creditors are entitled and required to prove. No one should have an
advantage because he happens to live in a jurisdiction where more of the
assets or fewer of the creditors are situated. For example, in Solomons v
Ross (1764) 1 Hy Bl 131n a firm in Amsterdam was declared bankrupt and
assignees were appointed. An English creditor brought garnishee
proceedings in London to attach £1,200 owing to the Dutch firm but
Bathurst J, sitting for the Lord Chancellor, decreed that the bankruptcy had
vested all the firm's moveable assets, including debts owed by English
debtors, in the Dutch assignees. The English creditor had to surrender the
fruits of the garnishee proceedings and prove in the Dutch bankruptcy.
[17] This doctrine may owe something to the fact that eighteenth and
nineteenth centuries Britain was an imperial power, trading and financing
development all over the world. It was often the case that the principal
creditors were in Britain but many of the debtor's assets were in foreign
jurisdictions. Universality of bankruptcy protected the position of British
creditors. Not all countries took the same view. Countries less engaged in
international commerce and finance did not always see it as being in their
interest to allow foreign creditors to share equally with domestic creditors.
But universality of bankruptcy has long been an aspiration, if not always
fully achieved, of United Kingdom law. And with increasing world trade and
globalisation, many other countries have come round to the same view. (my
emphasis)
[79]
Because the Isle of Man had no ―Order in Aid‖ procedure, Cambridge Gas
was decided on common law principles. Such principles are akin to those considered
when questions of comity arise. So, when taken together with Parliament’s intention
to encourage efficient facilitation of cross-border insolvency proceedings, a basis for
the exercise of s 8 relief emerges. I consider that those are the considerations that
should be taken into account when determining whether to grant s 8 relief.
[80]
While in Re HIH Casualty and General Insurance Ltd,85 the principles set out
in Cambridge Gas were applied by only two of Their Lordships in the context of
s 426 of the Insolvency Act 1986 (UK), the overall approach to the relief sought
under s 426 of the Insolvency Act 1986 (UK) does not detract from the approach that
I favour.
[81]
In HIH, the Cambridge Gas principles were applied by Lord Hoffmann86 and
Lord Walker of Gestingthorpe.87 Two other Law Lords (Lord Scott of Foscote and
85
86
87
Re HIH Casualty and General Insurance Ltd [2008] 3 All ER 869 (HL).
Ibid, at paras [30] and [36].
Ibid, at para [63].
Lord Neuberger of Abbotsbury)88 thought the issue should be determined by
reference solely to s 426(4) of the Insolvency Act 1986 (UK) because there was no
reason not to give effect to the statutory requirement to assist liquidators in a
designated country, Australia.
Lord Phillips of Worth Matravers took a more
pragmatic view, holding that, on the specific facts of the case, it was appropriate to
grant relief.89 Irrespective of the conceptual foundation for the decision, all five Law
Lords agreed that the relief requested should be provided.
[82]
In my view, the views expressed by Lord Hoffmann in Cambridge Gas are
those which should apply in New Zealand, as principles informing the exercise of the
s 8 discretion. While it may be necessary, in cases involving the inability of a New
Zealand based creditor to prove in an English bankruptcy, to tailor relief under s 8 to
ensure New Zealand creditors are not disadvantaged, I express no final view on that
issue as it is one that may well arise in this case, given the Commissioner of Inland
Revenue’s recent issue of default assessments.90 Full argument will be required on
an issue of that significance.
[83]
There must, in my view, be some compelling reason why a universalist
approach should not be applied,91 on a s 8 request. It is clear that this Court is given
a general discretion to assist the requesting Court.92 In doing so ―the High Court
may exercise the powers that it could exercise in respect of the matter if it had arisen
within its own jurisdiction‖.93
88
89
90
91
92
93
Ibid, at paras [59] and [62] (Lord Scott of Foscote) and paras [76]-[77] (Lord Neuberger of
Abbotsbury).
Ibid, at paras [37]-[44]. Lord Philips took into account that the companies were Australian
insurance companies, Australian law makes specific provision for the distribution of assets in the
case of the insolvency of such companies, the Australian priority rules did not conflict with any
provisions of English law in force at material times to protect holders of policies written in
England and the policy underlying Australian priority rules accorded (by the time of the decision
in the House of Lords) with changes made to the law in England.
In that context, see Ayres v Evans (1981) 39 ALR 129 (FCA), in the context of a New Zealand
tax debt for which assets from Australia were sought to meet payment before an amendment to
s 6(1)(e) of the Reciprocal Enforcement of Judgments Act 1934, which made it clear that a
judgment of an Australian Court under which Australian tax was payable would not be contrary
to public policy in New Zealand.
This accords with the views of Lord Scott and Lord Neuberger in Re HIH Casualty and General
Insurance Ltd [2008] 3 All ER 869 (HL).
Insolvency (Cross-border) Act 2006, s 8(2).
Ibid, s 8(3).
[84]
Mr Williams seeks relief that would otherwise be mandatory under art 20(1)
of Schedule 1 of the Act. He also requests continued protection of assets seized to
date.
[85]
Because Schedule 1 does not apply, the Court must exercise its discretion
having regard to the circumstances before it. I consider that art 22(1) of Schedule 1
should inform the exercise of the s 8 discretion, in that this Court ―must be satisfied
that the interests of the creditors and other interested persons, including the debtor,
are adequately protected‖ before making any orders.
That approach is also
consistent with the application of comity and the common law principles expressed
in Cambridge Gas.
[86]
In this particular case, in the absence of evidence to the contrary,
Mr Williams has a strong case for asserting that the bullion and foreign currency
found in Mr Simpson’s home is his property and has been concealed from seizure for
the benefit of creditors in the English bankruptcy. I take into account, in making that
finding, the information provided to me by Mr O’Neill, for Mr Clough, at the
recognition hearing, which suggests that the two trustees of the B V Adams No 2
Trust have different views about whether the assets seized are held on trust by them.
As I said at the hearing, those circumstances disclose the need for the trustees to
consider carefully their position and whether it is preferable for an independent
trustee to be appointed to deal with the ownership issues that have arisen.
[87]
I am satisfied that relief should be granted, so that the Official Assignee (as
this Court’s agent) is authorised to take possession of the items seized and to
undertake forensic analysis of the computer data and other documents presently in
safe custody. There will also need to be provision for any disputes about ownership
of the bullion and foreign currency to be resolved and for any issues concerning any
legitimate tax debt owed by Mr Simpson in New Zealand to be determined. Those
questions fall to be determined later, logically after ownership of the bullion and
foreign currency has been ascertained. Orders that give effect to those requirements
will preserve the interests of all parties while ownership issues are resolved.
Result
[88]
For those reasons, I dismiss the application for recognition under art 17 of
Schedule 1. However, I exercise my discretion under s 8(2) of the Act to assist the
English Court by enabling the trustee of the English bankruptcy to get in assets
owned by the bankrupt in New Zealand, subject to any further directions that may be
required in relation to the distribution of any proceeds of sale.
[89]
I make the following orders:
a)
The interim relief orders made under art 19 of Schedule 1 are
terminated.
b)
All Court proceedings are halted, in terms of s 76 of the Insolvency
Act 2006.
c)
All execution processes are stayed, in accordance with s 77 of the
Insolvency Act 2006.
d)
The Official Assignee is entrusted with the administration or
realisation of all of Mr Simpson’s assets that are located in
New Zealand. The Official Assignee shall forthwith take possession
of the items seized and conduct a forensic analysis of all computer
data and other documents in his possession, with a view to
determining ownership of the items seized. He shall also obtain a
valuation of all bullion and other assets seized on 20 and 29
September 2010. In addition, inquiries may be made to ascertain
whether there are any other assets that would have vested in the
trustee of the English bankruptcy.
e)
The Official Assignee is authorised to exercise the powers conferred
by s 165, 166, 167 and 171 of the Insolvency Act 2006, subject to
ss 167, 168, 169 and 172.
For the avoidance of doubt, those
examination powers may be used for any of the purposes set out in
s 165(1)(a) and may be directed to the persons listed in s 165(2). The
powers extend to the ability to require a person to produce and
surrender any document in his or her possession or control relating to
Mr Simpson’s property, conduct or dealings, in accordance with
s 165(1)(b).
f)
The Official Assignee shall advertise (in The New Zealand Herald,
Waikato Times and The Dominion Post newspapers) that an order has
been made to assist the trustee of the English bankruptcy and shall
call for any creditor of Mr Simpson in New Zealand to lodge a proof
of claim (in accordance with s 233 of the Insolvency Act 2006) with
the Official Assignee, on or before 29 October 2010.
g)
The Official Assignee shall file and serve a report on or before 2
November 2010 containing:
i)
The results of his inquiries into ownership of assets seized
during the course of the searches conducted on 20 and 29
September 2010.
ii)
The value of the assets seized under the searches carried out on
20 and 29 September 2010.
iii)
A list of any other assets that Mr Simpson may own that are
situated in New Zealand, together with (if practicable) their
values.
iv)
The names, number and value of New Zealand based creditors
who have lodged claims on or before 29 October 2010.
h)
Any person claiming ownership of assets seized during the course of
the searches undertaken on 20 and 29 September 2010 shall file and
serve a notice of claim with particulars setting out the basis on which
such claim is made (including annexing any documents evidencing
payment for particular assets) on or before 29 October 2010.
i)
Leave to apply for further orders, on 24 hours’ notices, is reserved. If
any such application were made, I would endeavour to arrange a
prompt hearing, either through video or telephone conference.
[90]
The proceeding is adjourned for a case management conference, in open
Court, at 11.45am on 5 November 2010 in Hamilton. By 5pm on 3 November 2010,
each counsel wishing to be heard shall file and serve a memorandum indicating what
orders, if any, are sought; whether by procedural direction or otherwise.
[91]
If ownership of assets were in dispute, I shall make directions for the prompt
resolution of any such questions. If ownership were accepted as being that of Mr
Simpson, I will make procedural directions in relation to any issues concerning
realisation of those assets and distribution of any proceeds.
[92]
The Official Assignee shall make available to any person who requests one, a
copy of this judgment. The Registrar shall also make a copy of this judgment
available to those media organisations that have previously requested copies.
[93]
The Official Assignee is now acting solely as the Court’s agent. It is not
inconceivable that, as a result of any future Court directions, there may be conflicts
between Mr Williams and the Official Assignee, in relation to the ownership or
distribution of property. For those reasons, it may be preferable for the Official
Assignee to be represented independently from Mr Williams for the balance of this
proceeding.
[94]
I thank Mr Crossland for the quality of the submissions that he made at the
recognition hearing. They have assisted me in the preparation of a full judgment
dealing with novel issues arising in this case.
_______________________
P R Heath J
Delivered at 4.30pm on 12 October 2010