Havenleigh Global Services Ltd v Henderson

[See the courts website for The full judgment and rulings.]

High Court of New Zealand

19 December 2016

MEDIA RELEASE – FOR IMMEDIATE PUBLICATION

Havenleigh Global Services Ltd v Henderson

[2016] NZHC 2969

MEDIA RELEASE

This summary is provided to assist in the understanding of the Court’s judgment. It does not comprise part of the reasons for that judgment. The full judgment with reasons is the only authoritative document. The full text of the judgment and reasons can be found at www.courtsofnz.govt.nz.

Outcome:

The High Court has ordered that Christchurch bankrupt, David Ian Henderson, be discharged from bankruptcy on 27 January 2017. Mr Henderson will however be subject to statutory business restrictions for an additional six years.

Under these restrictions Mr Henderson is prohibited from entering into any contract by which he personally guarantees the debt or other obligation of another person or entity. Nor may he be involved in the management or control of any business, or himself be employed by any relatives.

The judgment states Mr Henderson will be free to use and develop his “significant entrepreneurial skills” as an employee of non-related organisations. [Havenleigh Global Services Ltd ors v Henderson at [374] ]

Background and law:

Under the Insolvency Act 2006, a bankrupt is usually discharged automatically from bankruptcy after three years. Mr Henderson was coming to the end of his three years when the Official Assignee and some creditors objected to his discharge.

This was Mr Henderson’s second bankruptcy. It followed the collapse of the Property Ventures Group of which Mr Henderson’s family interests were a major shareholder and Mr Henderson was Managing Director. Property Ventures was the developer of the ultimately failed Five Mile project at Queenstown.

The extent of Mr Henderson’s bankruptcy was very large. The Official Assignee initially received creditors’ claims of $229,782,340. After taking account of amendments and evidence of some recoveries, the Court estimated the total indebtedness of Mr Henderson’s bankrupt estate to fall somewhere in the range of $100 million to $150 million. 2

Because the Assignee opposed automatic discharge for Mr Henderson, the law required the Court to conduct what is known as a public examination [Sections 295 – 299 of the Insolvency Act 2006] of the bankrupt before a decision as to the bankrupt’s discharge is made.

The public examination itself took place in 2015 and submissions were heard in 2016, leading to today’s judgment. Mr Henderson has now been bankrupt for approximately six years.

Over the course of the process the Court had to make distinct Rulings on 12 issues which arose. Several of these dealt with issues of significance in relation to the public examination process.

An index of the 12 Rulings highlighting the key issues dealt with in each is appended to this Press Summary.

The purpose and process of public examination [For a detailed discussion of the purpose and powers associated with a public examination of a bankrupt see PRE-EXAMINATION RULING (NO. 2) OF ASSOCIATE JUDGE OSBORNE as to cross-examination and discovery 25 July 2015]

Unlike other civil and criminal proceedings, a public examination of a bankrupt is a judge-led inquisitorial and investigative process. It is not considered complete until the Court is satisfied that the bankrupt’s conduct, dealings, and property have been sufficiently investigated to allow a determination to be reached.

The onus is on the party opposing discharge – in this case the Assignee - to convince the Court that discharge should not take place or that conditions or restrictions should be imposed on the discharged bankrupt.

In making its determination the court is required to undertake a weighing up exercise, based on its assessment of the interest of the bankrupt and their creditors; the interests of the public, commercial morality and the conduct of the bankrupt.

Conclusions

In the course of its examination the Court reviewed 14 sets of judgments and rulings of Courts or Tribunals which had separately considered the conduct of Mr Henderson or his related entities. The Court also had evidence of the conduct of Mr Henderson and related entities in the period before his bankruptcy.

Significant features were found to be –

• A direct cause of Mr Henderson’s bankruptcy was his provision of personal guarantees for very large sums to company creditors, upon the basis of statements of position showing significant equity, when Mr Henderson had no assets.

• A further direct cause on Mr Henderson’s insolvency was his entering into tax arrangements which resulted in substantial personal tax liabilities when he had no ability to meet such liabilities.

• Indirect causes of Mr Henderson’s bankruptcy lay in the failure, following the Global Financial Crisis, of corporate ventures associated with him (with their borrowing guaranteed by him). The Court reviewed evidence and previous Court decisions which established significant inadequacies in Mr Henderson’s management approach.

• Mr Henderson himself recognised that companies he controlled had become inappropriately reliant on second-tier finance which was no longer available after the onset of the GFC.

• As financial problems deepened, Mr Henderson prioritised maintaining insolvent corporate ventures at the neglect of other obligations, including accounting for tax and financial reporting.

• When financial failures ultimately occurred, Mr Henderson failed to co-operate with receivers and liquidators at that important early stage of administration.

• The Court found that Mr Henderson has a level of insight into his failings but the Court was not satisfied that he has achieved a clear understanding of what he would do differently in the future if in control of a commercial enterprise.

Decision

Weighing Mr Henderson’s interests with other interests, including the community interest, the Court found that it was appropriate to discharge Mr Henderson from bankruptcy in early 2017 subject to one condition and subject also to a comprehensive business restriction under s 299 of the Insolvency Act 2006.

The condition of discharge is that Mr Henderson shall not enter into any contract by which he personally guarantees the debt or other obligation of another person or entity. The business restriction prohibits Mr Henderson generally from being involved in the management or control of businesses and from being employed by relatives.

The Court recognised that Mr Henderson has significant entrepreneurial skills. The judgment means that he is free to use and develop those skills as an employee of non-related organisations (not those of his relatives).

Appendix:

In the course of the public examination, the Court had to make distinct Rulings on 12 issues which arose. Two of those Rulings have previously been released.

Of the remaining Rulings which are now released, several dealt with issues of significance in relation to the public examination process.

Ruling No 2 – the Court identified the inquisitorial and investigative purpose of the public examination of a bankrupt, the evidential value of the Official Assignee’s report and the role of natural justice principles in a public examination.

Ruling No 3 – the Court dismissed an application of the Official Assignee for adjournment of Mr Henderson’s public examination. In doing so, the Court recognised the established practice of not requiring a bankrupt to face public examination until after the trial of any related criminal charges which the bankrupt is facing, but gave greater weight to Mr Henderson’s preference (notwithstanding the pending criminal charges) to have his public examination proceed.

Ruling No 4 – the Court ruled that Mr Henderson might produce as part of his evidence unsworn evidence of other persons but with such documents to be accepted as exhibits and to be taken into account by the Court upon the basis that they are the untested statements of their makers.

Ruling No 5 – the Court ruled that in relation to evidence which the bankrupt proposed to call relating to his dealings with an Insolvency Service officer, he must confine himself to the matters in issue as identified in the Assignee’s report.

Ruling No 6 – in relation to evidence which the bankrupt was giving in the course of the public examination, the Court directed the bankrupt to clearly identify when giving his evidence of the information obtained from others, the source and timing of the information he received to enable the Court to appropriately rule on its admissibility and weight.

Ruling No 7 – the Court directed that the bankrupt, if intending to adduce further evidence in the course of his public examination, was to provide a written brief of such evidence.

Ruling No 8 – the Court made rulings in relation to the correction of the record of the public examination. Mr Henderson wished to correct typographical and grammatical errors and errors of fact. The Court ruled that only typographical errors were to be corrected.

Ruling No 9 – the Court rejected the bankrupt’s objection to the production of correspondence between himself and his solicitor during his bankruptcy. Although the communication attracted privilege under s 54 Evidence Act 2006, the privilege had vested in the Assignee under s 101 Insolvency Act 2006. The Assignee was therefore entitled to use the document as she had.

Ruling No 10 – the Court made orders for the production in the public examination of the records of examinations which the Assignee had conducted of individuals under ss 165 and 171 Insolvency Act 2006.

Ruling No 12 – the Court granted unopposed permission to the bankrupt to adduce further documentary evidence in his public examination. The Court refused to make orders in relation to the discovery of further documents sought by Mr Henderson.

Of the two Rulings earlier released:

Ruling No 1 – the Court refused Mr Henderson’s application for an order striking out material contained in the Assignee’s report. The material had come from examinations and documents obtained through ss 165 and 182 Insolvency Act. The Court rejected arguments that the Assignee’s process had been unlawful.

Ruling No 11 – the Court revoked its initial prohibition on publication of the reasons in Ruling No 1 – Mr Henderson’s interests would not be adversely affected by publication.

ends

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