IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY CIV-2010-409-000559 [2016] NZHC 2969 IN THE MATTER of the Insolvency Act 2006 AND IN THE MATTER of the bankruptcy of DAVID IAN HENDERSON BETWEEN HAVENLEIGH GLOBAL SERVICES LIMITED AND FM CUSTODIANS LIMITED Judgment Creditors (Substituted Creditors) AND DAVID IAN HENDERSON Judgment Debtor Public Examination: 3-7, 11-14, 19-20 August, 27 October 2015 Submissions: 10-12 October 2016 Appearances: J N Foster and C R Vinnell for Official Assignee D I Henderson (bankrupt) in person T Cooley (counsel assisting the Court) (attending for submissions) Livingspace Properties Ltd (in liq) and FM Custodians Ltd (objecting creditors) (excused from attendance) Judgment: 9 December 2016 JUDGMENT OF ASSOCIATE JUDGE OSBORNE under ss 298 – 299 Insolvency Act 2006 HAVENLEIGH GLOBAL SERVICES LIMITED v HENDERSON [2016] NZHC 2969 [9 December 2016] The public examination of a bankrupt ............................................................... [1] The statutory regime ............................................................................................ [4] Sections 298 – 299 Insolvency Act [4] The Court’s discretion under s 298 of the Act [7] The Court’s discretion under s 299 of the Act [12] What is the subject-matter of a public examination? [15] What is not the subject-matter of the public examination? [16] The circumstances of Mr Henderson’s adjudication in bankruptcy ............. [19] The immediate cause of bankruptcy [19] The broader background to Mr Henderson’s bankruptcy [22] Extent of indebtedness at adjudication [28] (a) Form of claims submitted by creditors [40] (b) Calculation of interest [41] (c) “Overstated claim” – Allied Farmers Investments Ltd (Allied Farmers) [42] (d) “Overstated claim” – Bank of New Zealand (BNZ) [44] (e) “Overstated claim” – SCF (now CAM) [45] (f) “Overstated claim” – Dominion Finance Group Ltd (Dominion) [47] (g) “Overstated claim” – Equitable [48] (h) “Overstated claim” – FM Custodians Ltd (FM Custodians) [49] (i) “Overstated claim” – Inland Revenue Department (IRD) [50] (j) “Overstated claim” – Strategic Finance Limited (Strategic) [51] (k) Unlisted creditors’ claim – Mr Henderson’s sister and brother-in-law [52] (m) Cross-claim – Allied Farmers [53] (n) Cross-claim – SCF [54] Summary of the extent of Mr Henderson’s indebtedness [55] Objections to discharge...................................................................................... [59] Mr Henderson’s pre-adjudication conduct ...................................................... [61] First bankruptcy – 1996 to 1999 [61] The direct causes of Mr Henderson’s present bankruptcy ............................ [72] Personal guarantees of the debts of companies and an associate [74] Personal taxation liability – the RFD advances [94] Mr Henderson’s business approach as explained to the Ministry of Economic Development [116] Corporate structure established between 1999 and 2010 [121] Standard of corporate management [124] Corporate management approach [129] Administration [133] Rulings and judgments of matters previously litigated ................................ [152] Behaviours identified in judgments and rulings [152] Early taxation offences [153] Mr Henderson’s agent-liability for GST on the Christchurch City Council sale – August 2008 [154] (a) Issue [154] (b) The Taxation Review Authority decision [157] (c) Related litigation – PVIL v Commissioner of Inland Revenue [167] (d) Further related litigation – Commissioner of Inland Revenue v Forbes [170] (e) Mr Henderson’s evidence at public examination [172] Financial Reporting Act offences – September 2008 [175] (a) Issue [175] (b) The District Court and appeal judgments [179] Personal guarantee to Strategic – December 2008 [181] (a) Issue [181] (b) The Strategic judgment and appeal [184] (c) Mr Henderson’s evidence in the public examination [188] Tax liabilities of Atlas and other companies – mid-2009 [194] (a) Issue [194] (b) The High Court judgment [198] Mr Tubbs’ recovery of documents and information – July 2009 [202] (a) Issue [202] (b) Court orders of August 2009 [207] (c) Mr Henderson’s examination [208] Non-payment of rent to Tuam Ventures and lease cancellations – September 2009 [209] (a) Issue [209] (b) The judgment [211] Mr Oorschot’s recovery of documents and information – September 2009 [219] (a) Issue [219] (b) The Court orders of September 2009 [226] (c) Mr Henderson’s submissions [227] Diversion of PAYE deductions made by Dweller – April to October 2010 [228] (a) Issue [228] (b) The judgments [231] (c) Mr Henderson’s submissions [242] Mr Henderson’s income of $144,337.59 – 1 April 2010 – 31 March 2012 [244] (a) Issue [244] (b) The final decision of December 2014 [247] (c) Evidence at the public examination [252] Spinach’s and Gibbston’s non-payment of PVL’s statutory demand – July 2012 [260] (a) Issue [260] (b) The High Court, Court of Appeal and Supreme Court judgments [263] RFD’s non-payment of Sol’s statutory demand – August 2013 [273] (a) Issue [273] (b) The judgments in the High Court and the Court of Appeal [279] (c) Mr Henderson’s evidence and submissions at public examination [282] Assignee’s need for production of Mr Henderson’s documents: March 2014 – April 2015 [285] (a) Issue [285] (b) The outcome of the ordered production [289] Travel appeal – May 2015 [290] (a) Issue [290] (b) The appeal judgment [291] Matters not previously litigated ...................................................................... [296] Unmet assessments of the IRD [297] Non-filing of tax returns [304] Failure to maintain adequate books and records [310] Insolvent trading and breaches of financial reporting requirements [315] Evaluation of Mr Henderson’s pre-adjudication conduct ............................ [321] Discussion [334] Conclusion [336] Mr Henderson’s insight into the commercial failure and his bankruptcy .. [339] The Assignee’s submissions [340] Mr Henderson’s submissions [342] Discussion [345] (a) Guarantee liabilities as a cause of insolvency [349] (b) Taxation liabilities [356] (c) Administrative abilities [365] (d) Financing of future ventures [368] Credit where credit is due................................................................................ [374] Success in business [374] The design and integrity of buildings [376] Post-earthquake dealings in relation to insurance and CERA designations [379] Information for receivers and liquidators [384] Mr Henderson’s entrepreneurial skills [388] An interest-based approach to discharge ....................................................... [390] Public and community interest [393] Mr Henderson’s interests [399] Interests of creditors ........................................................................................ [402] Commercial morality and the conduct of the bankrupt [404] Balancing of the interests [408] Conclusion – drawing the threads of the various interests together ........... [416] Restrictions under s 299(1) Insolvency Act [416] Conditions under s 298(1) Insolvency Act [424] The date at which discharge becomes effective [429] Mr Henderson’s conduct during bankruptcy ................................................ [433] The issue as raised by the Assignee [433] Mr Henderson’s response [434] The Court’s approach to post-bankruptcy conduct in this case [435] An unusual event reported – November 2016 [440] Orders................................................................................................................ [446] The public examination of a bankrupt [1] David Ian Henderson (Mr Henderson) was adjudicated bankrupt on 29 November 2010. He was to have been automatically discharged from bankruptcy on 12 January 2014.1 The Official Assignee objected.2 [2] The Court was therefore required by s 295 Insolvency Act 2006 (the Act) to conduct a public examination of Mr Henderson. There was a delay in the commencement of the public examination. [3] The Assignee filed her Report (under s 296 of the Act) on 19 June 2015, followed by a Supplementary Report on 31 July 2015. The public examination of Mr Henderson took place (insofar as Mr Henderson was examined) from August 2015. There was then further delay before submissions were presented in October 2016. The statutory regime Sections 298 – 299 Insolvency Act [4] By s 298 of the Act, the Court may grant or refuse the discharge of a bankrupt, conditionally or unconditionally. By s 299 of the Act, the Court may restrict the bankrupt from engaging in business after discharge. [5] For the Assignee, Ms Foster submits that the Court should: (a) refuse an order of discharge; or (b) (if the Court discharges Mr Henderson) restrict Mr Henderson from engaging in business after discharge. [6] Mr Henderson submits that he should be immediately discharged without condition or restriction. 1 2 Insolvency Act 2006, s 290(1) applying. Pursuant to Insolvency Act 2006, s 292(1), Notice of Objection filed on 28 November 2013. The Court’s discretion under s 298 of the Act [7] The judgment of the Court of Appeal in ASB Bank v Hogg contains the authoritative statement as to the breadth of the Court’s discretion in relation to discharge under s 110 of the Insolvency Act 1967 (now s 298 of the Act):3 In conferring a discretion expressed in the broadest terms, the legislation recognises that each case will be different, that the relevant factors may vary from case to case and that the exercise of the discretion must be governed by the circumstances of the particular case having regard to the guidance provided by a consideration of the scheme and purpose of the legislation. In providing for automatic discharge after three years, the legislation recognises that it is not in the public interest that the bankruptcy should endure indefinitely. In providing for earlier discharge, s 108 recognises that continuing the bankruptcy to the end of the three years may not be in the public interest. Whether or not it is will be a matter for decision on the particular facts. In that regard, guidance is provided by s 109(2) which lists matters on which the Assignee is to report to the High Court in such a case. The Court is to consider the Assignee’s report as to the affairs of the bankrupt, the causes of the bankruptcy, the manner in which the bankrupt has performed the duties imposed on him or her under the Act and his or her conduct both before and after the bankruptcy, and also as to any other fact, matter or circumstance that would assist the Court in making its decision. Clearly the Court apprised of the matter will consider the legitimate interests of the bankrupt, the creditors and wider public concerns, but it is neither required nor entitled to impose threshold requirements in the exercise of the discretion so as to derogate from the breadth of the powers conferred under s 110. The applicant has the onus, in the sense of adducing evidence, to show good cause for ordering an early discharge, but his obligation goes no further than that. [8] In Re Whitelaw, White J reviewed and summarised the approach which the Court adopts in relation to what is now s 298 of the Act:4 3 4 a) The onus is on the Official Assignee to satisfy the Court that it is in the public interest that the bankruptcy which would otherwise automatically be discharged after three years should continue for a further period. b) The Court has a broad discretion to exercise having regard to all the circumstances of the particular case. c) In the absence of good reasons, a bankrupt should normally obtain a discharge. ASB Bank v Hogg [1993] 3 NZLR 156 (CA) at 157–158. Re Whitelaw HC Hamilton CIV-2004-419-1647, 10 September 2010 at [20] citing ASB Bank v Hogg, above n 3; Re Anderson HC Hamilton B213/89, 14 April 1992; and Re Edwards HC Auckland CIV 65/98, 13 May 2003 (upheld on appeal: Edwards v Official Assignee CA 236/03, 1 April 2004). [9] d) Public interest factors may, however, mean that an order of discharge should be refused. e) As indicated by the matters on which the Official Assignee is required to report under [s 296(2) of the Act], the Court should consider the manner in which the bankrupt has performed the duties imposed on him under the Act and his conduct both before and after the bankruptcy and any other matters that may assist the Court in making its decision. f) The relevant matters therefore include: the interests of the bankrupt; the interests of the creditors; the public interest; commercial morality and the conduct of the bankrupt. Ultimately, as recognised by the Court of Appeal at the commencement of the passage in Hogg, it is the circumstances of the particular case, having regard to the guidance provided by a consideration of the scheme and purpose of the Act, which govern the exercise of the discretion in relation to discharge.5 [10] The authorities, as reviewed and summarised in Re Whitelaw involve what may be described as an “interest-based” approach.6 I regard that approach, as identified in the Court of Appeal’s judgment in Hogg, as binding upon me. As Mr Cooley (as counsel assisting the Court) submitted, the interest-based approach also recognises the breadth of discretion available to the Court and the fact that the exercise of the discretion is very much fact-dependent.7 [11] The discretion extends, in terms of s 298, to the imposing of conditions on a discharge. The Court’s discretion under s 299 of the Act [12] The Court, if ordering discharge, may in its discretion under s 299 of the Act prohibit a bankrupt from engaging in business after discharge. The list of interests and other factors identified in Re Whitelaw are relevant also in relation to a business prohibition order. 5 6 7 ASB Bank v Hogg, above n 3. Re Whitelaw, above n 4. An alternative approach, focussing on the purposes of bankruptcy, appears to have been favoured by Associate Judge Bell in a number of cases including Darby v Official Assignee [2013] NZHC 22 at [13] – [26]. The judgment of the Court of Appeal in ASB Bank v Hogg, above n 3 brings the “scheme and purpose of the legislation” into account in its interest-based approach. [13] I also recognise as a more comprehensive list of potentially relevant matters those identified by Sinclair J in Ramsay v Sumich, when considering an application for leave to be involved in the management of the company under s 188(a)(i) Companies Act 1993:8 [14] (1) The protection of the interests of the public from injury; (2) The interests of creditors; (3) The interests of shareholders; (4) The interests of company employees; (5) The interests of investors; (6) The interests of other persons who have dealings with the company; (7) The nature of the disqualifying offence; (8) The nature of the applicant’s involvement; (9) The general character of the defendant; (10) The conduct of the defendant during the intervening period since disqualification; (11) The nature of the business that the defendant desires to or has become involved with; (12) The structure of the company; (13) The risk of or actual injury to the public; (14) Whether or not leave was sought to become involved in the management of the company and whether as a director or otherwise. Sinclair J provided his list in the context of prohibitions under the Companies Act. While some of the matters identified have a focus on an application for leave to be involved in a specified company, they are for the most part considerations which may be taken into account whenever the Court has before it the possibility of a business prohibition. 8 Ramsay v Sumich [1989] 3 NZLR 628 (HC) at 633. What is the subject-matter of a public examination? [15] The appropriate subject-matter of the public examination is indirectly identified in s 296(2) of the Act which identifies the matters which the Assignee must cover in her report. It is there provided: (2) The Assignee must report as to— (a) the bankrupt’s affairs; and (b) the causes of the bankruptcy; and (c) the bankrupt’s performance of his or her duties under this Act; and (d) the manner in which the bankrupt has obeyed orders of the court; and (e) the bankrupt’s conduct before and after adjudication; and (f) any other matter that would assist the court in making a decision as to the bankrupt’s discharge. What is not the subject-matter of the public examination? [16] The public examination, with its focus on the bankrupt’s insolvency, conduct and dealings, is not a forum for the investigation of complaints which the bankrupt may have as to the conduct of the Assignee or her officers. Bankrupts from time to time have such complaints. They have avenues by which they may pursue them. Mr Henderson has issued proceedings alleging misconduct on the part of the Assignee’s officers in relation to the administration of Mr Henderson’s bankrupt estate. The existence of those complaints and the proceedings may properly be viewed as a background matter in this proceeding but the appropriate proceeding in which the validity or otherwise of Mr Henderson’s complaints is to be determined is that other proceeding.9 [17] Examples of allegations made by Mr Henderson which cannot properly form part of this public examination include allegations that officers of the Assignee set out to embarrass Mr Henderson and that an officer has misled the Court and others in relation to the handling of computer software containing Mr Henderson’s personal 9 Henderson v Attorney-General (as representative of the Ministry of Economic Development) CIV-2014-409-445. documents. Mr Henderson chose in his submissions to focus significantly on these allegations. He frequently returned to them despite the Court’s repeated reminder as to the proper subject-matter of the public examination. On the other hand, some of the interaction between the Assignee’s staff and Mr Henderson had potential relevance. An example of such interaction is documentary evidence filed by both Mr Henderson and the Assignee and oral evidence of Mr Henderson as to his dealings with two officers of the Assignee, Terry Marshall and Grant Slevin, in relation to work Mr Henderson might undertake. Such discussions would inform any question of the bankrupt’s misconduct in relation to his responsibilities under s 149 of the Act. As it happens, the need to consider issues of misconduct as a bankrupt fell away as I reached the conclusions set out in this judgment. [18] A further, repeated aspect of Mr Henderson’s submissions was the proposition that the Assignee had failed in her duty as an officer of the Court to present an impartial and fair s 296 report. Mr Henderson described the Assignee’s reports as having “infected” the public examination. He called upon the Court to consider referring the Assignee to a disciplinary body for sanction. The focus of the process which gives rise to this judgment had to remain upon the bankrupt, in the light of the evidence. It is not the function of this judgment to pursue a parallel investigation into the quality or bona fides of the Assignee’s report. Any demonstrated inadequacies in the report, procedural or more fundamental, might lead the Court to take some steps in appropriate circumstances, but that would be as a step distinct from the process of giving judgment on the subject-matter of the public examination. The circumstances of Mr Henderson’s adjudication in bankruptcy The immediate cause of bankruptcy [19] Mr Henderson’s adjudication in bankruptcy (through this proceeding) flowed from an unsatisfied judgment debt. In February 2010, Gold Band Finance Ltd (Gold Band) obtained summary judgment against Mr Henderson for $811,994.05. Mr Henderson’s debt arose from his guarantee of a loan which Anthem Holdings Ltd had obtained from Gold Band. Mr Henderson committed an act of bankruptcy in April 2010 when he failed to comply with Gold Band’s bankruptcy notice. Gold Band applied for an order of adjudication. [20] Matters were subsequently resolved between Gold Band and Mr Henderson. Havenleigh Global Services Ltd (Havenleigh) (which had in October 2009 obtained judgment for $70,318.91 against Mr Henderson) was substituted as creditor in the proceeding. Before the adjudication hearing, Mr Henderson, on an informal basis, put an “Outline of Creditor’s (sic) proposal under Insolvency Act 2006” to his creditors. Mr Henderson was unable to obtain the necessary majority support for his proposal. He was then adjudicated bankrupt.10 [21] At the date of his bankruptcy, the most up-to-date information in relation to Mr Henderson’s debts was contained in a schedule attached to Mr Henderson’s proposal. Mr Henderson stated that he did not consider he would have any assets available for creditors if adjudicated bankrupt. In his schedule of creditors he estimated his (undisputed) debts as amounting to $164,753,625.89 (with an estimated value of security for those debts totalling $77,960,000). Mr Henderson identified “disputed debts” of $3,070,126.95. The broader background to Mr Henderson’s bankruptcy [22] Mr Henderson was previously adjudicated bankrupt in August 1996. He was automatically discharged from that bankruptcy in August 1999. Mr Henderson subsequently established further commercial interests. The Assignee’s research of companies associated with Mr Henderson indicates that Mr Henderson has been a director of 120 companies (most of those after 1999). [23] In the decade before his second (the present) bankruptcy, Mr Henderson’s associated companies became involved in property development, accommodation and hospitality. Upon discharge from his first bankruptcy, Mr Henderson became increasingly involved with a company known as Property Ventures Ltd (PVL). He became a director of PVL in 2002, later becoming Managing Director. He also became, through his related interests, PVL’s majority shareholder. He was later to 10 Havenleigh Global Services Ltd v Henderson CIV-2010-409-559, 29 November 2010. describe the Board of Directors of PVL as having “a mandate to pursue some very entrepreneurial property development opportunities”. The development opportunities pursued by PVL fell into three categories: (a) At Queenstown, in a property development project which came to be known as “Five Mile”; (b) In Christchurch, in an area of development that came to be known as SOL Square (“SOL” standing for “South of Lichfield”); (c) Student-focused accommodation facilities at Christchurch, Dunedin and Invercargill (called Livingspace). [24] While PVL’s interests were being pursued, Mr Henderson developed other business interests through companies outside the PVL group. He entered into numerous personal guarantees of company debts, including those of the PVL group. [25] Difficulties began to be experienced with funders in the second half of 2007. The financial position of the PVL Group and other entities associated with Mr Henderson declined as the Global Financial Crisis (the GFC) developed in 2008 and worsened. Ultimately, of the companies under Mr Henderson’s control, 17 were placed in receivership, 52 went into liquidation and a further 36 were struck off without being put into liquidation or receivership. [26] In a period between October 2009 and February 2010, Havenleigh and Gold Band obtained judgments against Mr Henderson as referred to at [19] – [20] above. On 5 March 2010, PVL was placed in receivership. Other judgments against Mr Henderson personally followed. The High Court made an order putting PVL into liquidation on 27 July 2010. In the meantime, the creditor’s application had been filed which led to Mr Henderson’s adjudication on 29 November 2010. [27] The Assignee has researched the available information as to the reported losses to creditors of companies of which Mr Henderson has been director. She reported that the losses to creditors of companies placed in receivership totalled $198,251,790 and losses to creditors of companies that went into liquidation totalled $219,160,093. There is a significant overlap between the two figures because some companies went into both receivership and liquidation. The final realisation of some residual securities may have yet to occur and the figures may reduce. On any assessment, however, the losses within the various groups have been very substantial. The fact that the PVL liquidators are pursuing claims against former directors for a sum in excess of $100 million suggests (whether or not responsibility for losses can ultimately be sheeted home to any of the directors) that the losses of PVL alone, even after recoveries, remain substantial. Extent of indebtedness at adjudication [28] The most detailed research into Mr Henderson’s personal indebtedness at the time of his adjudication was that conducted by Mr Henderson himself for the purposes of the informal proposal to his creditors shortly before adjudication. Mr Henderson’s contributions, as identified at [21] above, were: [29] (a) Total creditors (both disputed and undisputed) – $164,753,625.89; (b) Creditors (undisputed) – $161,683,498.94. Mr Henderson claimed no personal assets from which he could have made any immediate payment. He and his wife, Kristina Buxton, have at least one family trust, namely the FTG No. 2 Trust. Mr Henderson is a discretionary beneficiary.11 [30] At the time of Mr Henderson’s adjudication it was already apparent that it was unlikely that any dividend would be paid to creditors unless Mr Henderson was to arrange a payment from outside his personal assets. 11 The Act in such The evidence adduced includes a deed dated 20 August 2003 establishing the “FTG Trust” and a Deed of Variation of Trust dated 30 January 2007 by which the name of that trust was changed to “FTG No. 2 Trust”. The trustee was FTG Trustee Services Limited of which Mr Henderson was (until his bankruptcy) the sole director and shareholder. During his examination Mr Henderson appeared to suggest that there may have been an earlier “FTG Trust”, settled in 1999. He has produced neither deed nor other documents relating to any separate trust. The only reliable evidence indicates that the FTG No. 2 Trust is the single, relevant trust in relation to the dealings of Mr Henderson which are the subject of his examination. circumstances did not require the Assignee to examine creditors’ claim forms and the grounds of their claims.12 [31] In the course of the administration of Mr Henderson’s estate, the Assignee had prepared her own list of known creditors with known details. The Assignee’s summary as at 12 June 2015 was: [32] (a) Claims submitted by creditors – $229,782,340; (b) Amounts still claimed by creditors at 12 June 2015 – $213,084,599. Following evidence given by Mr Henderson in the public examination, the Assignee rechecked the status of creditors’ claims. The Assignee’s recalculations reduce the 12 June 2015 total by $44,736,055. [33] Notes to the Assignee’s calculations recognised that the balances for two major creditors – Crown Asset Management Ltd (CAM) (previously South Canterbury Finance Limited (in rec)) (SCF) and Equitable Property Holdings Limited (Equitable) – do not allow for the sale of loans and securities. Recoveries in that regard would reduce pro tanto the liabilities in Mr Henderson’s estate. [34] On the other hand, Mr Henderson is a defendant in the claim brought by the liquidators of PVL against former directors for approximately $100 million. The potential exposure of Mr Henderson’s estate on that claim has been deliberately omitted from the Assignee’s debt calculations. [35] Notwithstanding the Assignee’s decision, by reason of lack of funds in the estate, to not work through the formal admission of claims, the Assignee from 3 December 2012 embarked on a lengthy period of correspondence with Mr Henderson concerning the accuracy of particular claims. The Assignee produced her 12 June 2015 table following that correspondence. 12 Insolvency Act 2006, s 234(1). [36] Mr Henderson took issue with the Assignee’s total calculation of confirmed debts. He did so before the commencement of the public examination, signalling disputes over the Assignee’s calculations to the extent of $177,729,123 (which would have still left undisputed debt in the region of $35,355,476). This led to the Assignee undertake further enquiries of claimants and to file immediately before the commencement of the examination her Supplementary Report with updated figures. [37] Mr Henderson continued through his public examination to dispute both the components of and the total indebtedness. In the course of the examination, Mr Henderson gave evidence that some of the Assignee’s figures were too high. In other cases, Mr Henderson stated that he had made arrangements to pay the creditors or reduce the indebtedness. He stated that the present level of his estate’s indebtedness would now be down to $30 million or $40 million (apart from the PVL claim). Mr Henderson stated that he intended to complete his own table of figures which would be presented with columns showing realisations and other adjustments. He proposed to adopt his own schedules from the original creditors’ proposal and to annotate those. Mr Henderson indicated that he would present such a schedule as part of his evidence and answer any questions and issues around it. [38] No such schedule was ever produced. In the absence of such an exercise undertaken by Mr Henderson, it is appropriate that the Court has substantial regard to the detailed exercise Mr Henderson undertook in presenting his creditors’ proposal around the time of his adjudication and to the Assignee’s investigation. [39] I take account of the following matters raised by Mr Henderson which, in his submission, impact on the reliability of the Assignee’s figures: (a) [40] Form of claims submitted by creditors In correspondence with the Assignee, Mr Henderson took issue with the form of claims (particularly claims filed electronically) made by some creditors. In the context of debts which generally have a commercial origin and documentation, I do not view any matters of form as likely to have substantially altered the overall financial picture. (b) [41] Calculation of interest Mr Henderson expressed a concern to the Assignee that her calculations may have included interest on creditors’ claims for the post-adjudication period. In her review, the Assignee did not find any post-adjudication interest claims. She recognises that the imprecise nature of some claims might have entailed some inclusion of such interest but she identified on the other side of the ledger also a measure of under-claimed (pre-adjudication) interest. Having regard to the extent of recognised indebtedness at the time of Mr Henderson’s adjudication, the level of any post-adjudication interest claims is immaterial in the present context. (c) [42] “Overstated claim” – Allied Farmers Investments Ltd (Allied Farmers) First, Mr Henderson questions the Assignee’s inclusion of a figure of $5,112,211 which Mr Henderson had included in his creditors’ proposal. He explained in evidence that he has not seen the settlement statement in relation to the realisation of security which was held for that debt. The Court has not been provided with the documentary evidence which would clarify that matter. [43] Secondly, the Assignee included in the June 2015 table as a contingent claim an Allied Farmers claim of $83 million relating to the guarantee liabilities over PVL’s Five Mile project. Mr Henderson gave evidence that the Five Mile loan fell into arrears in early-2008 and was at the time $53 million (including pre-paid interest). Penalty interest then ran at 27 per cent per annum. Mr Henderson stated that the $59 million was recovered from sales in 2008 – 2009 (implicitly by the receivers). Mr Henderson could not state precisely what amount was owing at the date of his bankruptcy, other than it was less than $83 million. Again, this is not a context in which the Court can reach a reliable conclusion as to the precise balance owing. (d) [44] “Overstated claim” – Bank of New Zealand (BNZ) Mr Henderson included the BNZ as a creditor for $8 million in his creditors proposal. The June 2015 table, after allowing for a $6,500,000 recovery by the receivers, has the debt at $1,565,914. Mr Henderson says that there is still an insurance claim to be settled and a property to be sold, which “will mean that that will be eliminated”. Again, the Court does not have the evidence to assess the probability of full recovery. (e) [45] “Overstated claim” – SCF (now CAM) The June 2015 table has the SCF debt at $14,107,894. Mr Henderson stated that there would have been sales in the meantime but that the more relevant matter is that the debts owed to SCF have since been acquired by the FTG No 2 Trust. [46] In his written submissions, Mr Henderson stated that he was aware that the SCF debt was acquired for $100,000 on the basis of the settlement of a number of claims. The details of settlement were a subject neither of his evidence nor any exhibit produced. (f) [47] “Overstated claim” – Dominion Finance Group Ltd (Dominion) The June 2015 table has the Dominion debt at $58,622,158. Mr Henderson gave evidence that he believes that Dominion has effected a substantial settlement of claims against the valuers who valued relevant company assets. He says that he has been unable to obtain details of the settlement. (g) [48] “Overstated claim” – Equitable The June 2015 table has the debt to Equitable at $31,420,258, taking into account recoveries of slightly over $8 million from the realisation of securities and insurance claim proceeds. Mr Henderson states that there is a fourth secured property yet to be sold and insurance proceeds still to be received. In this instance, again, he says that an entity associated with the FTG No 2 Trust has purchased the debt. His evidence is that “at the end of the day, there will be no balance owing”. He said that he intended to provide (at his examination) documentation relating to these matters. He did not do so. (h) [49] “Overstated claim” – FM Custodians Ltd (FM Custodians) The June 2015 table has FM Custodians at $11,669,567, with a note that an additional $5 million may be received from an insurer. Mr Henderson’s evidence is that there is indeed an insurance claim to be finalised but also a building sale yet to occur. He says that he believes there will be a “complete” recovery. (i) [50] “Overstated claim” – Inland Revenue Department (IRD) The June 2015 table had the IRD as a preferential unsecured creditor for $1,762,669 and as an unsecured creditor for $2,271,320. Mr Henderson chose not to give evidence as to the status of those assessments, saying that he would make submissions in relation to them. His written submissions on the extent of his indebtedness did not, in fact, refer to the IRD debts. (j) [51] “Overstated claim” – Strategic Finance Limited (Strategic) The June 2015 table has Strategic at $2,187,122 (which apparently takes into account recoveries). Mr Henderson’s debt to Strategic became the subject of summary judgment on 16 August 2010.13 Mr Henderson observed in relation to the debt to Strategic that it had been the subject of an appeal which he filed but which was subsequently not pursued following his bankruptcy. It falls to be fully allowed as a judgment debt. (k) [52] Unlisted creditors’ claim – Mr Henderson’s sister and brother-in-law Mr Henderson’s evidence establishes that in August 2008, when his associated companies were financially struggling, Mr Henderson borrowed $1,500,000 from his sister and brother-in-law to assist those entities. The debt was not identified by Mr Henderson in his list of creditors at adjudication. Consequently, it was not identified by the Assignee in her tables. The various calculations of Mr Henderson’s indebtedness through to his examination were therefore understated to that extent. 13 Strategic Finance Ltd v Henderson HC Christchurch CIV-2009-409-1731, 16 August 2010, summary judgment for $2,370,126.97 (with costs reserved). (m) [53] Cross-claim – Allied Farmers In his evidence, Mr Henderson stated that he has a cross-claim which could be set up against Allied Farmers by reason of a failure of Hanover to honour mortgage obligations owed to PVL in relation to the Five Mile project. Mr Henderson stated that the mortgagee was “to provide further funding once we had met key performance indicators, which were met”. Any contractual entitlement of PVL in relation to such further funding cannot be measured by this Court on the evidence adduced. (n) [54] Cross-claim – SCF Mr Henderson stated that SCF had obligations to provide further funding on a Tuam Street property and in relation to a Christchurch hotel property known as “Hotel So”, which were spelt out in a contractual document. Mr Henderson observed in his evidence, however, “We’re less concerned about those, it was more the others”. He went on to refer to claims relating to the way in which SCF had dealt with him and others before SCF’s receivership. Mr Henderson referred to these as “very real issues” which must be taken into account. Again, the Court does not have in evidence the documents on which Mr Henderson premises such cross-claims. The Court cannot measure whether there would be a tenable cross-claim. In his submissions, Mr Henderson stated (without support through evidence) that the SCF debt had been “acquired for $100,000 on the basis of settlement of a number of claims”. Summary of the extent of Mr Henderson’s indebtedness [55] The fact that there were no realisable assets within Mr Henderson’s bankrupt estate has meant that the scrutiny to which the Assignee must often submit creditors’ claims has not occurred in this case. Some exploration of Mr Henderson’s concerns as to the creditors’ claims was suggested in the examination when Mr Henderson indicated he would go on to produce his own table and calculations. Such a step would have been helpful, particularly as it is Mr Henderson’s evidence that he has been active in assisting and exploring realisations with creditors. Mr Henderson did not take that step. [56] In the context of the examination the Court is therefore unable to adopt, as to the probable extent of the indebtedness of Mr Henderson’s bankrupt estate, a particular figure. The appropriate course is to recognise that the indebtedness is likely to fall within a range. The bottom figure of the range will be well in excess of Mr Henderson’s $40-$50 million estimate as Mr Henderson was substantially influenced in arriving at that estimate by a view that the figure at which the corporate debts he had guaranteed were compromised and sold reflects the indebtedness which ought to be taken into account. It does not. The Court has regard to the debt for which liability existed – not the figure at which someone may later have purchased the impaired debt and/or remaining assets. [57] At the other end of the spectrum is the figure representing the maximum level of indebtedness. It appears, at least in a few cases, that creditors with security over corporate assets have yet to finalise realisations. That said, the substantial majority of realisations has already occurred. There may be other adjustments to make, including in relation to items such as post-adjudication interest, and those cumulatively may amount to some millions of dollars. [58] I consider it appropriate to regard the total indebtedness of Mr Henderson’s bankrupt estate as falling somewhere in the range of $100 million to $150 million. Objections to discharge [59] On 26 November 2013, the Assignee (pursuant to s 292 of the Act) gave notice of objection to Mr Henderson’s discharge from bankruptcy. On 6 December 2013, three creditors gave notice of their intention to object, subject to the Court’s leave if required under s 292(1) of the Act. The objecting creditors were Dweller Ltd (in liq) (Dweller), Livingspace Properties Ltd (in liq) (Livingspace), and FM Custodians (as custodial trustee of the Canterbury Mortgage Trust Group Investment Fund). [60] The Assignee had not until then had occasion to examine the proofs of debt of the objecting creditors. The Assignee in early 2014 examined the proofs of Livingspace and FM Custodians and admitted them. They therefore fall to be treated as “creditors” within the meaning applying under s 295 (and related provisions of the Act). Mr Henderson’s pre-adjudication conduct First bankruptcy – 1996 to 1999 [61] Mr Henderson was first adjudicated bankrupt on 29 August 1996. The Assignee’s summary of that bankruptcy indicates: (a) Mr Henderson’s indebtedness arose substantially from personal guarantees which he had given in the course of operating a number of entities; (b) his debts as admitted were $440,354.59 by the Assignee; (c) the only property recovered by the Assignee during the bankruptcy was a preferential payment of $6,938.38 recovered from the Inland Revenue Department (IRD); (d) a very small dividend (arising from that recovery) was paid to creditors; (e) Mr Henderson was automatically discharged from bankruptcy in August 1999. [62] Mr Henderson was examined as to how he organised his affairs before his present bankruptcy. Ms Foster for the Assignee questioned Mr Henderson upon the basis that, both before his first bankruptcy and subsequently, he has effectively protected family assets from the consequences of personal guarantees by company structures or trusts. Mr Henderson did not accept that such was the purpose of his structuring but he accepted that it may have been the effect. [63] Mr Henderson stated that he disputed the (first bankruptcy) indebtedness figure of $440,354.59. He did not accept that the only payment made to creditors was a dividend from the $6,938.38 recovery. Mr Henderson has not produced any calculations of his own or documentary evidence. [64] Mr Henderson, in his examination, continued that it was not his intention to walk away from his 1996 debts. He stated that, both during and after his first bankruptcy, he worked extensively with the Assignee’s office to deal with creditors and to reduce the debt to creditors. He described himself as “an enormously cooperative bankrupt”, with a focus on returning funds for the creditors. He did not provide a specific instance of a repayment for either the general benefit of creditors or any named creditor. He repeatedly referred to the excellent relationship which he had enjoyed during his first bankruptcy with Robin MacDuff of the Insolvency Service. He suggested that Mr MacDuff might have been called to speak of such cooperation, but the extent of any resources effected through Mr Henderson’s efforts outside his bankrupt estate would not be reflected in any records or information kept or held by the Assignee or Mr MacDuff. [65] Mr Henderson’s evidence in relation to work undertaken to repay creditors was very generalised. It may be contrasted with the records of the Assignee which indicate the making of a very modest distribution as a result of the recovery of a single ($6,938.38) asset. [66] Mr Henderson’s general assertions as to satisfaction of debt may be best explained by evidence he gave as to the first bankruptcy which, in this regard, has a close parallel to the present. Mr Henderson stated, “during the course of the bankruptcy, debts were acquired from entities associated with me, in post-bankruptcy I continued to deal with these creditors to satisfy them”. I asked Mr Henderson to clarify what he meant by the reference to other entities, to which Mr Henderson answered, “[a]h, I believe, Sir, that there was an entity that was run by a colleague that acquired some of these debts, Sir.” When questioned on the identity of the purchaser of the debts, Mr Henderson responded, “Sir, I can’t recall exactly who that was. It would have been a friend or colleague of mine, Sir, but I can’t recall I’m, sorry.” And shortly afterwards Mr Henderson stated that the creditors who had been paid out by his colleague had received “full repayment of their debts”. He has provided no documentary or particularised evidence of a single instance of full repayment of a debt. [67] Mr Henderson’s evidence in relation to the present bankruptcy is that the debts of a number of creditors have been purchased at a discount by other entities (including at least one – the FTG No 2 Trust – associated with Mr Henderson). The recorded reference to “debts [being] acquired from entities associated with me” suggests that an approach may have been adopted in the first bankruptcy similar to that adopted in some cases in the present bankruptcy. Associated entities may have acquired impaired debts at a discount. Given Mr Henderson’s commercial nous, it is improbable that such debts would have been acquired at face value. [68] Had Mr Henderson’s debts been fully satisfied or even compromised to the approval of all creditors, he would have been eligible for annulment under s 309(1)(b) Insolvency Act. Mr Henderson confirmed that he made no attempt to have his bankruptcy annulled. [69] I conclude that in relation to Mr Henderson’s first bankruptcy there was no significant recovery for creditors. That circumstance arose from the fact that the personal guarantee liabilities which substantially made up Mr Henderson’s indebtedness were not backed by any assets owned by Mr Henderson personally. [70] A final feature of Mr Henderson’s first bankruptcy is that it occurred at a time when a related company, Tannadyce Investments Ltd (Tannadyce), was in dispute with the IRD. The issues had begun over a Tannadyce GST claim. Mr Henderson says that the IRD’s actions (including search and seizure and the issuing by the IRD of notices against banks and other parties) completely diminished his ability to do business. That situation was followed by the IRD assessing Tannadyce for tax of just under $1 million. Mr Henderson says that this is the context in which he was adjudicated bankrupt in late-1996. Mr Henderson says that the IRD put improper pressure on him through his bankruptcy and that, subsequently, through an investigation by an independent party, the situation was resolved by IRD withdrawing its Tannadyce tax assessment and refunding $65,000 to Tannadyce. [71] I recognise that the pressures which Mr Henderson would have been experiencing by reason of the Tannadyce/IRD issues would have had an impact on his ability to focus on his personal financial issues. But there is no compelling explanation as to why the financial situation confronting Tannadyce as a limited liability company would have created Mr Henderson’s inability in 1996 to meet personal indebtedness of $440,354.59. The reality was that Mr Henderson himself had arranged his personal affairs in such a manner as to leave him with no assets to meet his liabilities. He was insolvent because of that arrangement. The direct causes of Mr Henderson’s present bankruptcy [72] The direct causes of Mr Henderson’s bankruptcy – those which involved his personal liability – are in three categories: (a) insolvency through his inability to honour his personal guarantee of company indebtedness; (b) insolvency caused by his inability to honour his guarantee of an associate’s indebtedness; and (c) [73] insolvency arising from his inability to meet his taxation liabilities. The major indirect causes of Mr Henderson’s present bankruptcy lie in the way in which the companies associated with Mr Henderson managed their affairs, as affected by the GFC. Personal guarantees of the debts of companies and an associate [74] Mr Henderson on his own evidence had no personal assets at the time of his second adjudication (as had been the case on his first adjudication). In the period before the present adjudication, as in the last, Mr Henderson provided a number of personal guarantees in relation to company debt. [75] From at least 2005, the Taurus Group (Taurus) provided accounting and financial services to Mr Henderson and his associated entities. Taurus was responsible for drafting for Mr Henderson statements of his financial position from time to time. Mr Henderson signed each statement. The Assignee has obtained three such documents prepared by Taurus. The documents (after setting out particularised shareholdings and assets) provide the following totals in relation to Mr Henderson: (a) Statement of position at January 2006 (b) $51,321,799.00 Liabilities $19,926,250.00 Approximate net worth $31,395,549.00 Statement of position at March 2007 (c) [76] Assets Assets $53,998,143.00 Liabilities $12,660,715.00 Approximate net worth $41,337,428.00 Statement of position at July 2007 Assets $55,028,143.00 Liabilities $23,109,985.00 Approximate net worth $31,918,158.00 A fourth statement of position came into the examination in unusual circumstances on the first morning of the hearing of closing submissions. The statement of position is on a standard form bearing Marac’s name, completed in handwriting and signed by Mr Henderson, with attached a schedule of “Dave Henderson Companies” also signed by Mr Henderson. It is undated but was sourced from a Canterbury Legal Services file opened in July 2007 (for a Marac loan drawn down that month). The statement of position (after setting out particularised shareholdings and assets) provides the following totals: [77] Assets $55,410,143.00 Liabilities $25,155,891.00 Estimated surplus $30,254,252.00 The Marac statement of position was handed up in Court by Mr Henderson as an exhibit to a (copy) affidavit of Grant Smith (of Canterbury Legal Services) dated 6 October 2016. Mr Smith deposed that the statement of position and schedule had clearly been prepared and provided together. The provision had impliedly been to Marac (which in turn granted the loan). I took the copy affidavit in but asked Mr Henderson to have the Canterbury Legal Services file produced so the Court could view the surrounding correspondence or other documents. Towards the end of his submissions, Mr Henderson advised me that he no longer wished to adduce the affidavit evidence. Given the relevance of the Marac statement of position, I made the decision to admit the copy affidavit in any event as a document in the examination. Mr Henderson has not made available the file on which Mr Smith says he located the exhibited documents. [78] The evidence establishes that Taurus provided to financiers copies of the statements of position it had prepared in support of applications for finance for which Mr Henderson was to provide a personal guarantee:  Dominion received the January 2006 statement of position and subsequently advanced some $25 million to companies associated with Mr Henderson. (Dominion later became a creditor in Mr Henderson’s bankruptcy claiming $58,622,158).  Strategic received the March 2007 statement of position and advanced $2,035,000 to a company nominated by Mr Henderson. (Strategic later became a creditor in Mr Henderson’s bankruptcy for $2,370,126.95 having obtained its opposed summary judgment on 16 August 2010.14  Marac must have received the Marac statement of position in July 2007 – it advanced that month a sum which, in the absence of Mr Smith’s file, the Court cannot identify. [79] Mr Henderson accepts that he personally had none of the assets as represented when his 2006 – 2007 statements of position were completed. In January 2007, he had gone so far as to execute declarations of bare trust of shares referred to in his statements of position. Properties listed in the statements of position had never been owned beneficially by Mr Henderson. 14 Strategic Finance Ltd v Henderson, above n 13. On his own statements, Mr Henderson’s declared income position over the period was no better than his asset position. In the period 2001 to 2007, Mr Henderson filed tax returns declaring that he had received no income in any year. [80] Mr Henderson has had a number of opportunities to explain the use of the incorrect statements of position and his willingness to provide personal guarantees. At a meeting on 12 January 2011 with the Insolvency Service (shortly after his adjudication), Mr Henderson confirmed that he had no assets. He stated that his personal guarantees were always that he would use his best endeavours to return money to lenders and that the lenders would all have known that there was no actual money backing his guarantees. However, he adduced no evidence to support his contention. [81] In his written closing following the public examination, Mr Henderson had this to say: In the end my bankruptcy was driven by parties who held Personal Guarantees. I accept that they were fully entitled to call on their Guarantee and to press on with adjudication in the face of my inability to meet it. [82] This statement, made in the course of submissions, must be contrasted with the opposition Mr Henderson presented, before his bankruptcy, when lenders sought to enforce the guarantees he had given. [83] I have referred to the summary judgment obtained by Strategic in August 2010 pursuant to Mr Henderson’s guarantee.15 Strategic commenced that proceeding a full year before Mr Henderson was adjudicated bankrupt. Mr Henderson’s 2010 attempts to resist enforcement of that Strategic guarantee cannot be reconciled with the submission he now makes, namely that he accepts the full entitlement of the lenders to call on their guarantees. Mr Henderson initially (in October 2009) was prepared to and did sign an acknowledgment of debt recognising that he had no defence to the guarantee claim and undertaking not to enter a defence. He therefore effectively bought time in which to negotiate a payment arrangement. I accept Ms Foster’s submission that Mr Henderson’s interim arrangements concerning, and later 15 Strategic Finance Ltd v Henderson, above n 13. defence of, the Strategic litigation were steps intended to delay the obtaining of judgment. When the negotiations came to nothing, Mr Henderson (notwithstanding his admission of the debt) raised a number of defences, asserting: (a) it had been agreed between Strategic and himself that he would have no personal liability on his guarantee; (b) when he signed the loan documents, including the separate deed of guarantee, he did not read them; and (c) when he signed the deed of acknowledgement of debt in 2009, it was agreed (with Strategic) that Strategic would withdraw its summary judgment application. [84] French J found that Mr Henderson’s claims to have never read the loan documentation were negated by an express written acknowledgement when he received the documents that he would “be “looking at them” in a few minutes”.16 (During his public examination, Mr Henderson explained his statement as to “looking at [the loan documents] in a few minutes” in these terms, “Well, Sir, in my view there would be a considerable difference between looking at them and reading them Sir”). Finally, French J found that Mr Henderson’s contention that Strategic was to withdraw its summary judgment application upon his execution of the 2009 deed of acknowledgement was contrary to the unambiguous wording of the acknowledgement itself, was “nonsensical” and was contrary to the conduct of both parties.17 [85] This resulted in the entry of summary judgment in favour of Strategic some 10 months after Mr Henderson had first signed his acknowledgement of debt in the course of the proceeding and 20 months after his debt liability had crystallised. Mr Henderson’s response to the judgment entered on the Strategic guarantee was to file an appeal (subsequently, following his bankruptcy, abandoned). 16 17 At [43]. At [45]. [86] There was initially in the public examination a very close parallel in what Mr Henderson said about his personal guarantees to that which he had asserted (unsuccessfully) in his defence of the Strategic summary judgment claim. Mr Henderson began by explaining to me the purpose of the various guarantees which he gave. He said that the purpose was for the financiers to have someone who was willing to stand up and take responsibility for the situation and work with the creditor to resolve any later problems. When Ms Foster suggested to him that the personal guarantee documents which he signed committed him to a liability to repay the amounts being advanced if the principal debtor could not, he agreed. But he then suggested there was an understanding between him and the financiers which was not reflected in the documents. His position was explained in this exchange with Ms Foster: [87] Q. Why would you be prepared to sign documents that didn’t reflect the understanding between you and the lender? A. Because the understanding between the lender and I in terms of the personal guarantee was not that I would be able to meet that obligation, but the obligation was structured such that if there was a problem I would have good reason to be there working hard, taking responsibility to resolve the situation. This answer is similar to an explanation in his 2011 response to a report by the Ministry of Economic Development’s National Enforcement Unit (NEU) in which Mr Henderson asserted that the extent of his personal guarantees was that he would use best endeavours to return money. When I put his “best endeavours” statement to Mr Henderson, he explained it by reference to “the context”: The context in which I have put that … is that there was never an intention by any party in taking my guarantee that absent a realisation of the asset that the debt related to, that they would call on that guarantee and expect a payment from me. But elsewhere in his examination, Mr Henderson acknowledged that he had understood the guarantees to be contracts which he had entered into and which were enforceable in their terms. That had not stopped him defending Strategic’s claim on its guarantee, even after he had expressly acknowledged the debt. [88] I am satisfied on the evidence relating to Mr Henderson’s personal guarantees that: (a) as in the case of the Strategic guarantee, liability existed in the express terms of each guarantee and that Mr Henderson had an immediate personal liability upon default in relation to each loan; (b) false statements of Mr Henderson’s asset position were with Mr Henderson’s knowledge put to financiers in support of the borrowing which Mr Henderson was to guarantee; and (c) Mr Henderson (but not his financiers) knew at all material times that he had no assets or recorded income to which the financers might have resort in the event of default. [89] For these reasons, I accept the submission of Ms Foster that Mr Henderson’s conduct in relation to the loans arranged with the support of his personal guarantee amounted at least to gross recklessness. [90] This circumstance is exacerbated by a further matter. The Board minute of PVL for November 2006 records that PVL had agreed to pay Mr Henderson a guarantee fee on guarantees he provided. The fee is recorded as $300,000 or 1.75 per cent of the loan, whichever is the lower. The loans to which these guarantees related were very large – in his examination, Mr Henderson was able to concede from memory that by 2007 he had guaranteed PVL loans from BNZ, SCF, Hanover, Equitable, Dominion, Property Finance Funding Nominees Ltd, Canterbury Mortgage Trust (CMT) and Otago Mortgage Trust (OMT). That the fees were the subject of a contractual commitment by PVL is reflected in a memorandum of Mr Forbes written to directors in December 2007 in which he refers to “unpaid loan guarantee fees” as one aspect of PVL’s exposure to “Dave”. Mr Henderson in his examination stated that he had never received any fees for these numerous guarantees. The fact remains that the Board of PVL clearly understood Mr Henderson’s guarantees to be viable, valuable guarantees and that he should accordingly be compensated for assuming such liabilities. [91] Mr Henderson’s entry into guarantee liabilities which he was incapable of meeting has been a feature of both his bankruptcies. In relation to personal guarantees, Mr Henderson appears not to have learnt any lesson from the circumstances of his first bankruptcy. To the contrary, between his bankruptcies he appears to have embarked on the use of personal guarantees which, in the event of default by the principal, would leave him insolvent. The pledging of his personal credit in such circumstances and in the light of his false statements of position displayed reckless disregard for the interests of the creditors involved. [92] Ms Foster questioned Mr Henderson as to what he would do differently in the future. She referred him to a statement he had previously made that he would not in future give personal guarantees. In further questioning he explained: You know, I’m mindful that I gave those [guarantees] rather freely and as I’ve said the prime reason I gave those was because I do believe in standing behind deals and I so I gave those so they could have comfort. If there was a problem I would be there working away trying to fix that. [93] Mr Henderson’s answers were an odd mix. On the one hand he appeared to be at a point of recognising some lack of caution (“I gave those rather freely”) which leads him to accept he should not in future provide guarantees. On the other hand he appeared to still maintain (despite a High Court judgment to the contrary) that the financiers involved in accepting the guarantees understood that they were not truly guarantees but were rather something akin to a letter of comfort, assuring only Mr Henderson’s commitment to seeing things through. Personal taxation liability – the RFD advances [94] I here focus on Mr Henderson’s personal tax obligations. In December 2010 the IRD provided to Mr Henderson’s tax agent (Graeme Stewart) and copied to the Assignee a statement of account in relation to Mr Henderson’s income tax liabilities. The account related to the financial years ending 31 March 2001 to 31 March 2007. The IRD claimed a total of $2,271,319.74 comprising income tax of $813,861.01 together with penalties and use of money interest.18 For those years Mr Henderson had filed income tax returns which recorded nil income and nil expenses. 18 At the time Mr Henderson was adjudicated bankrupt, the IRD’s adjudication process in relation [95] The Service Delivery Group (SDG) of IRD investigated money which had been paid to Mr Henderson or to his credit in the 2001 – 2007 period from RFD Investments Limited (RFD). Mr Henderson had been the sole director of RFD. Sums he received from RFD were recorded as loans within RFD’s financial statements (without interest). RFD throughout the 2001 – 2007 period returned losses. It did not pay income tax at any point after its incorporation. It was put into receivership on 18 June 2010. [96] The SDG issued a Notice of Proposed Adjustment in September 2009. It proposed to assess as Mr Henderson’s income the loans from RFD (and also amounts referred to in the statements of another entity, Elgin Investments Limited). Mr Henderson issued a Notice of Response in November 2009, followed by the SDG’s Statement of Position in June 2010 and Mr Henderson’s Statement of Position in August 2010. Mr Stewart, as a taxation consultant, represented Mr Henderson in the dispute. [97] The dispute was referred to the Adjudication Unit of the IRD in October 2010. The Determination of the Adjudication Unit was published in December. The loans from RFD were assessed as a tax avoidance arrangement with the consequence that the SDG’s proposed adjustments were accepted as correct. The IRD statement of account of December 2010 ($2,271,319.74) was based directly on the adjudication. [98] The effect of the IRD Adjudication was to recognise that in the years between his bankruptcies Mr Henderson had, by tax avoidance arrangements and nonpayment of any income tax, incurred increasingly substantial debt to the IRD. On Mr Henderson’s own evidence, the “debt” to RFD was unmatched by any assets. On 30 July 2006 Mr Henderson had provided a statement of his personal assets and liability position to the IRD. The statement showed as at 2004 a net liability position of $705,550. to the 2001 – 2007 years was almost at the point of completion. The IRD did not assess Mr Henderson’s personal taxation obligations beyond 31 March 2007 because of Mr Henderson’s supervening bankruptcy. [99] The Assignee, in her report on this public examination, cites as the causes of Mr Henderson’s insolvency both the personal guarantee liabilities I have referred to and Mr Henderson’s taxation liabilities. The Assignee posited that the taxation liabilities alone would have rendered Mr Henderson insolvent even without his personal guarantee liabilities. [100] On the evidence adduced, the Assignee’s position is correct. At the time he was adjudicated bankrupt, Mr Henderson’s taxation liabilities (at that point about to be the subject of the Adjudication Report) on their own rendered him insolvent. In the public examination, it then is relevant to consider Mr Henderson’s sense of responsibility in relation to that aspect of his insolvency. [101] The IRD investigation into payments received by Mr Henderson from RFD and the resulting Adjudication established that Mr Henderson was liable for income tax in the amount ($2,271,319.74) identified in the December 2010 statement of account. [102] The way in which that liability had arisen is summarised in the Adjudication Report: 3.97 From the RFD general ledger provided to the Adjudication Unit, it is clear that the Taxpayer used his current account with RFD on an almost daily basis, to pay for his living expenses, including credit card bills, utility bills, groceries, accommodation and dry-cleaning expenses. 3.98 In the tax years ended 31 March 2001 to 31 March 2007, the Taxpayer received funds from RFD to pay for his personal living expenses. For each of those years, the Taxpayer returned nil income, from RFD or any other source. The funds were loans, but the only repayment appears to have been of $750, with approximately $1.5 million outstanding. The Taxpayer has provided no evidence that there is any real prospect of the loans being repaid, or of demand having been made by RFD. RFD borrowed money at commercial rates over that period, while lending money to the Taxpayer with no repayment or payment of interest. Other than post dated records, the Taxpayer has not provided any real evidence that RFD believed itself indebted to the Taxpayer, and has in fact confirmed in a statement of assets and liabilities that he considered himself indebted to RFD. 3.99 The loans were made in circumstances where the Taxpayer has no other declared income and seems to have little prospect of repaying the loans. Over that seven year period, the Taxpayer received no income from RFD as one of its directors and the shareholder. The arrangement has the effect of the Taxpayer gaining the benefit of the money, without paying tax on that money. [103] On this basis the Adjudication Unit concluded that Mr Henderson’s “loans” from RFD were a tax avoidance arrangement. The issue taken by Mr Henderson was not whether payments had been made but whether there was a commercial rationale for them. In reaching its determination the Adjudication Unit recorded (and rejected) the argument advanced on behalf of Mr Henderson, that the operation of an advance account (of the nature used in RFD) was “common commercial practice in New Zealand”. [104] In her Report for this examination, the Assignee identified the tax liability as one of the causes of Mr Henderson’s bankruptcy. Mr Henderson’s response through the public examination has been confusing. He stated to me that he did not believe he had ever had information relating to the 2001 – 2007 assessments. He stated that the IRD December 2010 statement of account had been sent (directly) to the Assignee. (In fact the statement of account was sent to Mr Henderson’s tax agent, Mr Stewart, and was copied to the Assignee). [105] Mr Henderson also stated to me that he did not recall receiving from the IRD an assessment (as against determination). There was this exchange between the Bench and Mr Henderson : Q. Did you have income in those 10 years? A. I had income, Sir, but I understand was all tax paid income, Sir. Q. As an employee? A. Ah, as, partly as an employee but through dividends or distributions of trusts and so forth, Sir. [106] Mr Henderson continued that, whatever his personal tax obligations (in relation to 2001 – 2007) were, “that was resolved”. He explained further – …I assume whoever was responsible for handling [my tax] had determined what it was and had either filed the necessary returns or not filed them as depending on what their obligations were. [107] Given that the Determination of December 2010 identified that the payments from RFD’s general ledger for 2001 – 2007 had been incurred on behalf of Mr Henderson for a range of personal expenses (such as school fees, doctors’ bills, health club fees and groceries), I questioned Mr Henderson as to how payments made for him were treated within RFD’s accounts. Mr Henderson responded that they were made to him as a discretionary beneficiary of the FTG No. 2 Trust or the FTG Trust. Mr Henderson stated that he would give directions that payments should be treated not as income distributed to him but as trust distributions. He stated, however, he did not know how the payments were recorded. He “imagined” that if distributions were occurring from companies they would be paid as “tax paid dividend”. [108] Mr Henderson’s evidence before me in relation to his personal taxation liability was confusing precisely because he sought to characterise the payments he had received as trust distributions rather than loans advanced by RFD. Mr Henderson was realistic enough later in an answer to Ms Foster to accept that the Adjudication Report “seems to suggest” that he had represented to the IRD that the income he was receiving from RFD was as a loan rather than income. [109] I find that the way in which Mr Henderson took money out of RFD on uncommercial terms and exposed himself to personal taxation liability exceeding $2 million was a significant cause of his insolvency. I find that the Adjudication Unit approached the RFD payments specifically as loans because that is the way Mr Henderson (through his tax agent in the year before his bankruptcy) accounted for them and argued in relation to them. [110] Mr Henderson’s suggestion made at public examination that the payments were in fact trust distributions was a suggestion made possible these further years on because of the failure of Mr Henderson and others associated with him to document at the time the precise character of particular payments or transactions. Such absence of proper recording of transactions lends itself to later re-explanation of the transactions. But the suggestion that the RFD payments were trust distributions cannot stand against Mr Henderson’s (or his tax agent’s) specific identification in 2010 of loans, not trust distributions. Even if one were to ignore the provisions of the Tax Administration Act 1994 as to the non-disputable nature of a ruling, there is no basis in substance for Mr Henderson’s implication that the RFD payments to him were truly distributions from a trust and therefore not taxable. [111] A further, unsatisfactory peculiarity of Mr Henderson’s evidence in relation to the Adjudication Report was the suggestion that the IRD’s assessment of a tax liability for the 2001 – 2007 years arose only “post-bankruptcy”. At this point of his public examination Mr Henderson became critical of both the IRD and the Assignee. Having asserted that his 2001 – 2007 taxation liabilities had been assessed “postbankruptcy” he stated in relation to the IRD that the Department, “wanted to assert a debt in my bankrupt estate where I might be struggling to defend such an assessment or rebut it.” And he stated in relation to the Assignee “I have repeatedly asked the Official Assignee when I have seen an entry on her asserted debts in my estate for detail around this and I’ve never had it.” [112] In other words, Mr Henderson was imputing to the IRD some manipulative conduct in the way and timing of its pursuit of the tax debts and was at the same time criticising the Assignee for a failure to properly scrutinise the IRD claim. Subsequently, in further questioning by Ms Foster, Mr Henderson (confronted with the Determination) accepted that he had known of the IRD assessments when he entered into the dispute process (before his bankruptcy). In the light of that concession and the contemporary record from 2010, Mr Henderson’s attempt in the public examination to criticise the IRD for pursuing its tax claim when “Mr Henderson might struggle to defend it” was without justification. As Ms Foster submits, it was disingenuous. Mr Henderson and his tax agent had been actively involved in the dispute process with IRD for a year before Mr Henderson’s bankruptcy. Mr Henderson had taken the full opportunity to pursue his arguments against the assessment (albeit unsuccessfully). [113] Similarly, Mr Henderson’s criticism of the Assignee for not providing him with detail as to the taxation liability is misconceived. The Determination of December 2010 was addressed to Mr Henderson’s tax agent at the conclusion of a lengthy period during which that agent had acted for Mr Henderson. The Assignee could add nothing to the detailed understanding which Mr Henderson and his tax agent would have of the process and outcome. Once the process was concluded, the Assignee’s responsibility in relation to admissibility of the debt was governed by the provisions of the Tax Administration Act and the Insolvency Act. [114] Much about Mr Henderson’s approach to this taxation liability and other responsibilities was reflected in the final passage in his evidence relating to the tax assessment. I had put to Mr Henderson the Court’s concern that he had earlier in his evidence, on oath, stated that he did not recall seeing the assessment but had now had to accept that he had seen it. In response, Mr Henderson stated: I accept I recall now that there – I would have thrown this at accountants, an assessment at accountants. Indeed, it may have even come in to the accountants, Sir. There would have been discussion about it. It may not have actively involved me, Sir. I’m happy to go back and dig out the files from the accountants around this time. But it wasn’t something – I’m fighting fires at this time, Sir, fighting serious fires and trying to resolve issues and this wasn’t something that was foremost or critical for me, Sir. I would have – I don’t doubt, and I’ll see what correspondence exists for it, there would have been advice from Mr Stewart to say, “No, they’re wrong. I can fix this,” and it might have been as simple as that, Sir. [115] Summarised, Mr Henderson was saying that he personally would not have attended to a matter such as his personal taxation liability. He was therefore speculating as to what others may have done. The lack of personal responsibility involved is significant, especially when the amount of unpaid tax is so substantial. Mr Henderson’s business approach as explained to the Ministry of Economic Development [116] In early 2009 the (then) Ministry of Economic Development (MED) received a complaint from the Companies Office as to the non-filing of PVL’s 2008 financial statements. The MED’s National Enforcement Unit (NEU) wrote to Mr Henderson (as PVL’s Managing Director) identifying PVL’s and Mr Henderson’s obligations under the Financial Reporting Act. The NEU noted the possibility of imposition of fines. [117] Mr Henderson took umbrage. He telephoned the NEU’s senior investigator who made a note of Mr Henderson’s call as including the following observations from Mr Henderson:  PVL had downsized and Mr Henderson was working long hours, struggling with many demands made by the IRD;  he did not like being given such a letter;  he asked the investigator whether he had ever been to Christchurch – he stated that the investigator should come to his (Christchurch) office and see all the work there currently was to do;  he was an entrepreneur creating jobs and that the investigator needed him to “keep the country going”;  given the investigator worked for an organisation that promoted economic development, the investigator should be supporting Mr Henderson rather than imposing fines. [118] In her Report for the public examination, the Assignee identified the corporate structures which Mr Henderson had either created or had been associated with following his discharge from his previous bankruptcy in late-1999. She identified Mr Henderson’s directorship of many companies. She exhibited a report of the NEU issued on 10 November 2009. The report was to the Registrar of Companies (the Registrar). It examined whether Mr Henderson should be made the subject of a notice under s 385 Companies Act. Such a notice might have prohibited him from being a director or promoting a company or being involved in the management of a company for five years. [119] Mr Henderson provided a draft (written) response of March 2011 (the 2011 response to NEU). Mr Henderson’s response contained an overview of his career to date and specific statements about his recent business interests. Subsequently (in July 2011) the Registrar notified Mr Henderson that he would no longer be considered for prohibition having regard both to the restrictions he was already under by reason of his bankruptcy and the impact which the Canterbury Earthquake Sequence may have had in relation to the availability of documents and his ability to respond to allegations. [120] Through the NEU process, however, we have in the form of the 2011 response to NEU a contemporary insight into Mr Henderson’s commercial activities and position leading up to his bankruptcy. In it, Mr Henderson explained his background and approach to business. His observations included: (a) he is an entrepreneur, and has been as long as he can remember; (b) he is passionate about free markets and personal responsibility; (c) he is involved at the outset in the creation and organisation of enterprises; (d) his professional life is then in proceeding with such undertakings; (e) his philosophy is that entrepreneurs take risks, not casually, but because they rely on perceptions as to where markets are heading or could head and do not rely on existing, proven, established strategies; (f) he has thus created hundreds of businesses; (g) he has thus developed in excess of 100 properties; (h) he has had difficulties as he has encountered “the more entrenched and often inane elements of our Bureaucratic State structures”; (i) he views it as essential for entrepreneurs to develop an attitude and mindset of resisting the particularly mindless aspects of “red-tape”; (j) he lists 12 examples of businesses he has created in the last 35 years (from the early-1980’s); (k) he lists 10 examples of property developments over the 35 years from the early-1980’s; (l) he has had dealings with the IRD which caused him “the loss of millions of dollars of real and potential income”. He identifies the IRD as the cause of his first bankruptcy; (m) he considered it of prime importance to pay back the creditors he let down at the point of his first bankruptcy; (n) in response to the Registrar, he deals specifically with companies identified in the Registrar’s report, with the following summarised explanations for company failures: (i) The PVL group failed because of the Global Financial Crisis and the difficulties PVL’s funder (Hanover) suffered through the GFC. (ii) Yellow Cross Brewing Company Ltd (Yellow Cross), Edward J Schwartz Inc Ltd (Schwartz) and the Fish’n’Chip Shop Ltd (Fish’n’Chip) were let down bitterly by their funder, DB Breweries. (iii) Tuam Ventures was conservatively geared through BNZ funding in 2007 but could not refinance in 2009 following the GFC, the BNZ’s actions being “unjustified and misguided”. (iv) Montecristo Construction Company Ltd (Montecristo), Te Anau Ventures Ltd (Te Anau) and Tomanovich Holdings Ltd (Tomanovich) were liquidated on the applications of March Construction when they had “legitimate defences (counterclaims)”. March Construction subsequently “settled the disputes” and Tomanovich came out of liquidation. (v) Anthem Holdings – receivers were appointed pursuant to a security agreement over the company’s personal property, with the receivership thereafter being “quite bizarre”. (vi) Atlas Securities and Warwick Mews – no comments recorded. (vii) Elgin Investments – was conservatively geared through AXA Funding but could not refinance when a part-funder was placed in administration in late-2008. (o) in response to the Registrar’s conclusion that the various companies did not maintain full and accurate records, Mr Henderson responded that systems and structures were in place which were commercially satisfactory for the nature and scale of the businesses involved, with no inadequacy of records. Where timelines were missed, they did not contribute to company failures. Corporate structure established between 1999 and 2010 [121] The Assignee exhibited to her report a table headed “Henderson Associated Group” identifying 118 companies under Mr Henderson’s control and still on the Register of Companies at 9 March 2010. Mr Henderson has not taken issue with the detail of that table. I take it to be correct. [122] The Assignee reported that the number of companies involved created a “somewhat complex corporate structure”. That is clearly so. I refrain from attaching the Assignee’s table as an illustration of the complexity of the corporate structure solely because the volume of entries does not lend itself to clear reproduction as part of a judgment. [123] The complexity of the corporate structure is further reflected in the Assignee’s Report. She identifies the 120 companies of which Mr Henderson has been a director (predominantly in the period from 1999 until the retirement occasioned by his bankruptcy). Standard of corporate management [124] In her submissions for the Assignee, Ms Foster refers to “corporate mismanagement”. In the Assignee’s report there is a table showing the fate, as at 19 June 2015, of companies which had been under Mr Henderson’s control. 17 had been placed into receivership, 52 into liquidation and a further 36 struck off without being placed in either liquidation or receivership. [125] For her Report, the Assignee drew on figures provided by receivers and liquidators. She referred to losses to creditors of companies placed into receivership or liquidation as $198,251,790 and $219,160,093 respectively. The Assignee noted the significant financial overlap which exists between receiverships and liquidations given the number of companies which went into both liquidation and receivership. [126] For the Assignee, Ms Foster introduced her submissions on “corporate mismanagement” by stating: The wholesale failure of companies under Mr Henderson’s control and the extent of losses suffered by the business community and ultimately investors as the result of those failures inevitably gives rise to questions as to the management of those entities by Mr Henderson. [127] There is a range of possible explanations for the fate of the failed companies. That most favourable to Mr Henderson would be that the failure was caused by the GFC, commencing in 2008 and peaking in early 2010, and (in his words) “causing a wholesale collapse of New Zealand’s second-tier financing market”. The least favourable view would be that Mr Henderson had managed and supervised groups of companies including substantially speculative companies which had become undercapitalised, over-committed and overly-reliant upon second-tier lenders (with the single exception of the BNZ). The Assignee’s submission is that Mr Henderson’s day-to-day performance of directorial and management responsibilities exacerbated the structural weaknesses of the companies. The Assignee’s submission recognises that the causes of failure may have been cumulative rather than individual. [128] In now turning to the evidence, I observe that under s 296(2)(e) of the Act the matter I am at this point of the judgment examining is Mr Henderson’s conduct. That is a consideration in its own right, distinct from the causes of his bankruptcy (the subject matter of s 296(2)(b)) or, indeed, the causes of corporate failures associated with him. Corporate management approach [129] It is beyond the scope of this public examination that the Court endeavour to definitively analyse the extent to which Mr Henderson’s conduct may have contributed to the failure of specific companies or groups of companies. In relation to some of the entities involved, such analysis would require stand-alone, substantial litigation. Such has been the case in relation to the major entity, PVL. [130] PVL was placed into receivership on 5 March 2010 and put into liquidation on 27 July 2010. Since that time, the liquidator of PVL (and associated companies) and PVL itself have issued proceedings against Mr Henderson and other persons who were directors of PVL from time to time. The plaintiffs allege numerous breaches of directors’ duties and (in their current form) pursue damages of $100 million and interest. Against Mr Henderson in particular, the plaintiffs seek a declaration that he breached duties or provisions under ss 131, 135, 136, 137 and 194 Companies Act 1993 and fiduciary duties to the companies. They seek an order banning Mr Henderson from acting as a director of companies under s 383 Companies Act. Mr Henderson has been confirmed as a party to the litigation to the extent that the plaintiffs seek declarations and banning orders (but not as to damages). [131] That litigation has now run for close to four years with a 12 week trial scheduled to commence on 12 February 2018. In itself, that serves to indicate the complexity of factual analysis which may be required to determine the reasons for the failure of PVL and associated companies. [132] I accordingly eschew any attempt to definitively analyse the cause of PVL’s failure by reference to Mr Henderson’s conduct. Instead I will focus (without specific attention on causative effect) on instances of Mr Henderson’s conduct which were raised as subject matter of the public examination. Administration [133] Mr Henderson held the office of managing director of the PVL group from 6 November 2002. Ms Foster questioned Mr Henderson in relation to what she described as “the wholesale collapse” of the entities associated with him prior to his bankruptcy. She asked Mr Henderson what different approaches he would take to any future commercial venture. [134] Mr Henderson’s responses included the following: …my approach to any venture from this point will be radically different in a number of respects to how it’s been in the past. … … I’m a lousy administrator and so one of the key focuses for me going forward, if I was ever to be involved with business again at any level, would be to ensure that I had appropriate people around me to deal with administrative tasks that I’m no good at…So we could say it would be, it would be strong support in terms of the administrative/bureaucratic end of it. [135] Mr Henderson’s self-assessment is closely reflected in the assessment of him by Garry Moore, a former Mayor of Christchurch. Mr Henderson provided a twopage reference completed by Mr Moore which speaks eloquently of Mr Henderson’s strengths. Mr Moore observes, in relation to Mr Henderson’s attempt to face up to his responsibilities, “These are the actions of somebody who has admitted that his management may have been shambolic with poor recording of his actions.” [136] In other matters of detail in the reference, the source of Mr Moore’s conclusions is not clear. For instance, Mr Moore states, “I am aware that Dave has paid the IRD back, most if not all, the back taxes owing by him.” This may be a reference to what Mr Moore understands about a later tax issue, for which I do not have the evidence of payment. One inference, however, is that Mr Henderson may have informed Mr Moore of Mr Henderson’s $2,271,319.74 tax-debt (which was not in fact paid). [137] Although Mr Henderson gave the answers at [134] above in the context of what he would do differently in the future, he had in fact in the course of his evidence made no concession as to an inadequacy in the corporate structure. To the contrary, he had for instance stated that one of his key focuses was to have strong support around him in terms of administration and accounting, saying, “That was critical for me.” [138] If the Court were to treat at face value Mr Henderson’s evidence as to the critical nature for him of having strong administrative support around him, there would in fact have been no need for him to address that differently in the future. I conclude, having heard Mr Henderson through lengthy examination and having considered the extent of administrative indiscipline during his governance, that Mr Henderson’s concept of having “strong support around him” was at best aspirational. It did not result in a fully functioning support structure. [139] The Court is not in a position to make definitive assessments about the calibre of the support people but must on the evidence conclude that the structure Mr Henderson had in place did not result in efficient administration and record-keeping within the various companies and groups. A strong inference from the history is that deficiencies flowed directly from Mr Henderson’s style of personally involving himself in decision-making, his assessment of priorities, an abundance of oral decision-making and the giving of oral instructions. There is also a strong inference that, as financial problems deepened, it suited Mr Henderson when money was moved around between the various companies in the groups to not have the nature of transactions recorded. [140] These matters stated, there was little detail adduced in the course of the public examination as to Mr Henderson’s managerial performance of the PVL Group before 2007. The focus of this part of the judgment is therefore upon the period from 2007. Once that period is reached it has to be recognised that the context in which Mr Henderson’s conduct is examined is one in which the financial climate facing PVL and Mr Henderson’s other related entities was substantially deteriorating. [141] In relation to that period the Court, has the benefit of a judgment of the District Court at Christchurch in Ministry of Economic Development v Henderson (MED v Henderson) dated 15 June 2010 and a judgment (on appeal) of this Court dated 6 October 2010.19 Mr Henderson had been charged with three offences under the Financial Reporting Act 1993 for his failure as a director of PVL to file financial 19 Ministry of Economic Development v Henderson DC Christchurch CRI-2009-009-9596, 15 June 2010; Henderson v Ministry of Economic Development HC Christchurch CRI-2010-409-144, 6 October 2010. statements and auditor reports for the company by 30 September 2008. 20 Following a defended hearing, Judge Saunders found the charges proved and convicted Mr Henderson. In finding that Mr Henderson had not taken all reasonable and proper steps to comply with the Financial Reporting Act, Judge Saunders concluded: [9] There was an absence of any particular steps taken in relation to the discussions with valuers, auditors, and a complete absence of any documentation as to when the accounts were in fact completed. The requirement for valuations of properties as a basis for the filing of the auditor’s report was always known to the defendant. The inability to pay for this obviously raised the question of whether or not the company was technically insolvent, in that it was unable through its resources to meet the actual costs of compliance with specific and important provisions of the Act. [10] The liquidity problems were not temporary and certainly never explained to the companies office during 2008 as the reason relating to the non filing of the documents. From the comments made in the course of the interview earlier this year, coupled with the way in which Mr Henderson gave evidence before me, I have reached the view that his priority at all times was to keep the company staff working towards furthering the many and varied property ventures which were in the course of development. Creditors and demands for payment of wages, taxes and associated costs of development, including funding then took a higher priority than the compliance issues associated with the filing of the financial statements. [11] I have not been taken to the point, having considered his evidence, where I can say that he has satisfied me on the balance of probabilities that he had taken all reasonable and proper steps to ensure compliance with the provisions of the Act. The statutory defence provided by the provisions for s 40(a) of the Financial Reporting Act must be established by the defendant and I find that that can only be met if what is can be termed the objective test is met. The test is not met if a director simply says “I thought I had done enough to meet the obligations I have as a director.” In other words, a subjective test is not an appropriate way of deciding whether all reasonable and proper steps were taken. [142] In sentencing Mr Henderson, Judge Saunders noted Mr Henderson’s failure to engage in meaningful discussions with the MED.21 [143] The year in which Mr Henderson committed the Financial Reporting Act offences – 2008 – was also a year in which there had been heightening concern within the Board of PVL as to Mr Henderson’s management style. As early as 2006, in Board papers it had been recognised that PVL’s borrowing capacity on its cornerstone Five Mile project was now fully geared. A year on, in September 2007, the 20 21 Being offences identified in ss 10, 15 and 18 Financial Reporting Act 1993. Ministry of Economic Development v Henderson DC Christchurch CRI-2009-009-9596, 15 June 2010 (Sentencing Notes). Finance Manager of Hanover (holding the first mortgage on the Five Mile property) was warning Mr Henderson in writing that (from Hanover’s perspective) there were serious concerns that PVL might have wider liquidity stresses across its subsidiaries. [144] This followed what was described as “an aggressive borrowing programme for an ever-growing number of projects”. It was commented that PVL’s progress appeared only to have been achievable by a “wall of capitalising interest”. In December 2007, independent directors of PVL received calls of concerns from a number of parties including PVL’s auditors and the Securities Commission. Hanover suspended further funding for the Five Mile project that month. In a memorandum prepared for independent directors by the Chairman, Austin Forbes QC, on 17 December 2007, these matters and others were recorded. The recorded concerns included:  the level of debt exposure of PVL to “Mr Henderson’s companies” with no interest being paid;  somewhat unconventional recent transactions relating to Dominion Finance;  non-payment of interest to the overseas note holders;  concern whether the PVL accountant, Colin Cadigan, could properly sign solvency certificates for PVL;  the amount of time being spent by Mr Henderson on his own projects;  non-payment of rent by Minx Restaurant;  rumours in the market that PVL was in difficulty;  the primary concern of Mr Henderson and his team “with wealth creation by exciting and innovative projects”; and  receipt of a report from Covenant Trustee Co Ltd that response times for information from PVL were not good and the telephone system was poor. [145] Mr Henderson on 6 February 2008 signed a certificate in support of a new loan application to AllFinance Funding Pty Ltd (AllFinance). He attached PVL’s financial statements for 2005, 2006 and 2007 and gave a declaration that, “no significant events have occurred since the completion of the reports that would have a significant upon their financial performance or position.” [146] On 2 April 2008, Mr Forbes emailed PVL’s directors (including Mr Henderson) as a result of “discussions and information from a number of sources over the past 24 hours as to real concerns about PVL’s financial position”. Mr Forbes recorded at the outset: I do not consider the board (ie independent directors) have been kept properly informed as to PVL’s true financial position, including its cash flow situation and its default in meeting debt and other creditor liability. Nor has the board been kept properly informed as to statutory demands and notices issued or threatened against PVL companies. [147] Mr Forbes observed that, “[t]he company is, at the very least, in a “‘red-alert” situation”. He called a board meeting for the following day, stating that the board needed to be fully informed as to PVL’s financial position, cash flow and solvency. [148] The Court was provided with Mr Henderson’s copy of Mr Forbes’ email. Somewhat jarringly, Mr Henderson had sent the email on to PVL’s General Manager, Mr Godden, with the bare message, “For your fascination”. One of the independent directors, Gordon Hansen, resigned that month (April 2008). [149] The Assignee has produced internal PVL schedules prepared from May to June 2008 which detailed and updated statutory demands, Property Law Act notices and civil proceedings received from time to time by the companies in the PVL Group. The schedules showed that PVL and its subsidiaries had fallen behind in many payments to both financiers and suppliers. [150] On 2 July 2008, Mr Forbes recorded in writing that he did not consider that the directors could sign a solvency certificate for PVL (this being a reference to the solvency test under s 4(1) Companies Act).22 [151] After his June 2010 District Court conviction in MED v Henderson, Mr Henderson’s appeal was determined in October 2010.23 Chisholm J allowed an appeal in relation to the conviction on the third charge (which was set aside for 22 23 Mr Henderson subsequently in the 2011 response to NEU took issue with the Companies Act solvency test. The NEU report had quoted the s 4(1) test, under a heading “Insolvency Trading”. The report then identified nine companies which it asserted had traded while insolvent. Henderson v Ministry of Economic Development, above n 19. technical reasons and replaced with a finding that the charge was proved).24 Mr Henderson’s substantive ground of appeal in relation to all charges, that he had objectively taken all reasonable and proper steps, failed for the reasons identified in the District Court judgment. Chisholm J concluded: [15] In this case the judge decided that Mr Henderson’s priorities were wrong. In other words, instead of concentrating on complying with the statutory requirements Mr Henderson had concentrated on keeping the companies running. Given the statements made by Mr Henderson to the investigator and Mr Henderson’s evidence in court it was clearly open to the judge to reach the conclusion that Mr Henderson’s priorities were wrong. Rulings and judgments of matters previously litigated Behaviours identified in judgments and rulings [152] In this part of my judgment, I focus on a number of judgments and other rulings which have been made in relation to Mr Henderson or entities he controlled. The judgments and rulings show patterns of behaviour on the part of Mr Henderson such as:  providing personal guarantees which were not backed by assets;  arranging his and his companies’ affairs so as to avoid paying tax and thereby building up tax debts which he and his associated companies could not satisfy;  diverting GST and PAYE collected by one company to another so that the IRD did not receive it;  vigorously defending (both at first instance and through appeal) attempts to establish his tax and guarantee liabilities;  refusing to recognise the authority or reasoning of rulings which established liabilities; 24 At [9], the third charge involving an infringement offence for which the penalty of $7,500 should have been described as a “penalty” rather than a “fine”.  keeping inadequate records of company transactions;  failing to meet financial reporting requirements;  deflecting to others his own responsibility for inappropriate transactions and inadequate management;  stonewalling in the face of liquidators’ and receivers’ demands for documents and information. Early taxation offences [153] Mr Henderson had in earlier years committed offences under taxation legislation being:  25 convictions for PAYE offences entered on four earlier occasions;  12 convictions for other taxation offences on seven other occasions. Mr Henderson’s agent-liability for GST on the Christchurch City Council sale – August 2008 (a) Issue [154] PVL was the GST Group representative member under s 55 Goods and Services Tax Act 1985 (the GST Act). The Group companies included FM 1 Ltd (FM 1), FM 3 Ltd (FM 3) and Property Ventures Investments Ltd (PVIL). Mr Henderson was the managing director of all four companies. [155] FM 1, FM 3 and PVIL each owned properties which the Christchurch City Council (the CCC) was interested in purchasing. On 1 August 2008 the three companies sold the properties to the CCC for a total of $17 million, which included GST of $1.7 million. On the same day, Mr Henderson arranged for a new company, ILR Holdings Ltd (ILR), to be incorporated. He became its sole director. Debts owed by the three vendors to PVL were assigned to ILR for an initial consideration of $1, subsequently amended to $1.7 million. The three vendors then paid away all the sale proceeds leaving themselves no funds to pay to the Commissioner their GST liabilities due on 28 September 2008. The companies were subsequently put into liquidation in June 2010. They had accounted to the Commissioner for none of the GST. [156] The Commissioner viewed the companies’ transactions as steps in an arrangement, the effect, and one of the purposes, of which was that the companies could not pay their GST liability on the supply of the three properties. The Commissioner issued assessments against Mr Henderson under s 61 of the GST Act on the basis that he had entered into such arrangement as agent for the three vendors. (b) The Taxation Review Authority decision [157] Mr Henderson commenced a challenge proceeding in the Taxation Review Authority (TRA) disputing the correctness of the GST assessments made against him personally. [158] Judge Sinclair, sitting as the TRA, conducted a hearing which stretched from October 2012 to August 2015. Her Honour gave a written decision on 27 November 2015.25 [159] The TRA found: (a) Mr Henderson did not have standing to bring the challenge proceeding, that right having vested in the Assignee upon Mr Henderson’s adjudication in bankruptcy; and (b) In any event, even if such standing had existed, the requirements for establishing agent-liability under s 61 of the GST Act had been met – the GST assessment made by the Commissioner (of $1.7 million) against Mr Henderson was therefore correct. 25 Henderson v Commissioner of Inland Revenue, [2015] 27 NZTC 3-019. [160] Judge Sinclair’s decision records that Mr Henderson’s original notice of appeal outlined 10 grounds but that Mr Henderson addressed only the two broad issues on which her Honour’s decision was ultimately given.26 [161] Judge Sinclair found that the transactions fell within the statutory definition of “arrangement”, observing: [74] In the present case the disputant is director and consequently the controlling mind of all the relevant companies involved in the various transactions making up the Arrangement. In my view the transactions were closely connected; they all occurred over a relatively short period and formed part of an overall plan. The disputant played an active role in the implementation of the various transactions. In these circumstances I am satisfied for the purposes of s 61 that an arrangement was entered into involving each of the Companies and consisting of the transactions collectively referred to as the Arrangement. Her Honour concluded that the effect of the sale (by stripping the net sale proceeds from the companies) was to leave the companies unable to satisfy their GST liabilities.27 [162] Her Honour then turned to the purpose of the arrangement. Mr Henderson had explained the purpose of the arrangement by reference to PVL’s financing arrangements. Hanover held the first ranking general security agreement over PVL and its largest subsidiary, Five Mile Holdings Ltd (FMHL). Hanover had placed FMHL in receivership on 9 July 2008. Mr Henderson explained the GST transactions to the Commissioner and the TRA by reference to a concern that Hanover, if it had become aware of the sale of the properties to the CCC, would have taken action to ensure that it received the net sale proceeds by appointing receivers to all PVL’s assets. Hanover could then have controlled repayment of inter-company advances owed to PVL and used them to reduce the debt to Hanover. Hence Mr Henderson’s decision instead to incorporate ILR (which he controlled) and have the proceeds (including the GST) paid to ILR. [163] Judge Sinclair concluded that, viewed objectively, it was reasonable to conclude that a purpose of the arrangement was to have the effect that each company 26 27 At [17]. At [79]. could not meet its respective GST liability.28 Her Honour therefore concluded that the Commissioner had been correct in treating Mr Henderson as agent of the companies and assessing him as jointly and severally liable for the companies’ respective GST liabilities totalling $1.7 million (plus use of interest money and penalties).29 [164] Mr Henderson appealed the TRA decision. He set out 10 grounds of appeal (although at the appeal hearing, he addressed only two broad issues). In delivering the appeal judgment of the High Court, Gendall J upheld the TRA (alternative) reasoning in relation to each of the ingredients, namely that an arrangement had been entered into; that it had the effect that each company could not meet a tax liability; and that it was reasonable to conclude that a purpose of the arrangement was that each company could not meet its tax liability.30 [165] Gendall J observed: [69] Plainly the end in view was something that defeated the intention and application of the GST Act. In my judgment it simply cannot be said, as the appellant has tried to suggest, that looked at objectively, the only purpose of each arrangement was to keep the proceeds out of the hands of the receivers of PVL. Paying the GST liability to the respondent, before paying away the amounts to ILR and PVL, would have achieved that same result. [166] Mr Henderson’s appeal was accordingly dismissed in August 2016. (c) Related litigation – PVIL v Commissioner of Inland Revenue [167] I have set out matters of litigation concerning FM 1, FM 3 and PVIL which involved Mr Henderson in his personal capacity. There was further consideration of Mr Henderson’s involvement in Property Ventures Investments Ltd v Commissioner of Inland Revenue, which dealt with the consequence of the inability of PVIL, FM 1 and FM 3 to make payment of the GST from the CCC sale.31 The Commissioner had issued statutory demands and then filed liquidation proceedings against each 28 29 30 31 At [85]. At [88]. Henderson v Commissioner of Inland Revenue [2016] NZHC 1987, (2016) 27 NZTC 22-068 at [17]. Property Ventures Investments Ltd v Commissioner of Inland Revenue (2010) 24 NZTC 24-046 (HC). company. The companies opposed liquidation on the basis that they were putting a compromise proposal to creditors under pt 14 of the Companies Act 1993. The judgment explains the withdrawal of that compromise proposal and the substituted application of the companies for approval of the compromise under pt 15 of the Act. The proposal was to pay $1 million over a five-year period representing only a modest portion of the core debts of the 42 companies.32 [168] For the Commissioner, Karen Clark QC submitted that the events of August 2008 indicated a cynical disbursement of GST amounts which should have been earmarked to meet the applicants’ GST liabilities when they fell due. She submitted that the tax compliance record of companies subject to Mr Henderson’s control (as sole director) was such as to occasion concern over his pivotal role in relation to the compromises.33 Panckhurst J found that several of the arguments advanced by Mrs Clark were “unanswerable”.34 Those included the fact that the affairs of the applicant companies warranted investigation which was best achieved by making liquidation orders. The rationale advanced on behalf of the companies for the compromises was “unpersuasive”.35 His Honour adjourned the liquidation proceedings for hearing. The liquidation proceedings were to come on for hearing in March 2010. [169] The companies each applied for a stay of Panckhurst J’s judgment on the basis that they intended to appeal. Panckhurst J refused the stay application for reasons “which mirror the concerns expressed in the [earlier] judgment”.36 Panckhurst J granted the companies an interim stay upon indication by Mr Forbes that the companies would prosecute a further stay application in the Court of Appeal. Such appeals were not prosecuted. The three companies were subsequently each put into liquidation in June 2010. 32 33 34 35 36 At [27](d). At [27]. At [34]. At [35]. Property Ventures Investments Ltd v Commissioner of Inland Revenue HC Christchurch CIV2009-409-1854, 22 March 2010 at [17]. (d) Further related litigation – Commissioner of Inland Revenue v Forbes [170] In the course of his examination, Mr Henderson observed that the Commissioner had pursued not only Mr Henderson, but also Mr Forbes for agent liability in relation to the GST liabilities. Ultimately, the Commissioner withdrew the claim against Mr Forbes, after the presentation of evidence on Mr Forbes’ behalf. Mr Henderson produced, as exhibits from that period, draft affidavits of Grant Smith (who deposed that he had acted for the PVL Group and other companies associated with Mr Henderson) and Clive Cousins of the same law firm. [171] Mr Cousins’ draft affidavit explained the July/August 2008 arrangements as driven by “a perceived risk that Hanover might endeavour to take control of the PVL Group’s subsidiary companies which had agreed to sell a number of properties to the CCC”. Mr Smith’s draft affidavit stated that he had read the respective notices of proposed adjustment of both Mr Forbes and Mr Henderson. Mr Smith confirmed that the advice given to Mr Henderson related to a concern that Hanover might “attempt to take control of the proceeds of the sales to the CCC if it became aware of them before they were settled”. Mr Smith then drew a distinction between the decision-making roles of Mr Forbes and Mr Henderson respectively, recording: 10. I also confirm that Mr Forbes was not involved with any matter relating to the PVL Group GST deregistration and nor was he involved in any decisions as to the dispersal of the sales or as to the priority of payment of debts owed by PVL or the vendor companies to creditors or the nonpayment of the GST to the CIR. As a non-executive director I would not have expected him to be involved in any of these decisions. They were all made by Mr Henderson. (e) Mr Henderson’s evidence at public examination [172] At the time this public examination commenced Mr Henderson had been assessed with agent-liability for the GST of the three companies but his dispute was still before the TRA. In response to questions as to the “arrangement” involved, Mr Henderson correctly noted that the assessment was the subject of an unresolved dispute before the TRA. When Ms Foster filed the Assignee’s closing submissions (November 2015), the TRA decision was still yet to be published. (The decision was published later in the month). [173] Mr Henderson’s closing submissions were filed after the TRA decision was released to him (confirming his personal liability). His brief written submission was contained in two paragraphs: 109. The GST liabilities of Property Ventures Investments Ltd, FM1 and FM2 have been considered considerably in my examination. I have provided evidence … in respect of the advice that was received by the directors of those companies in terms of protecting the settlement funds from the sale of a number of properties to the Christchurch City Council from secured creditors. The IRD was the major beneficiary of those steps.37 110. It is correct that the IRD has made an assessment and claimed that I am personally liable for this amount. This assessment by the Inland Revenue Department is currently the subject of review in the Christchurch High Court. [174] Mr Henderson, in his closing submissions presented orally in October 2016, acknowledged that the TRA decision had now also been upheld by the High Court. Mr Henderson nevertheless submitted that the arrangements which he entered into were “not a device to defeat the IRD” but were rather “to ensure that Hanover did not grab the proceeds”. Financial Reporting Act offences – September 2008 (a) Issue [175] As I have recorded at [141] above, Mr Henderson in MED v Henderson was charged in the District Court under the Financial Reporting Act for his failures as a director of PVL within the statutory periods to complete and have financial statements and auditor reports delivered to the Registrar for registration.38 The offences related to PVL’s balance date of 31 March 2008, with the relevant documents required to have been filed by 30 September 2008. [176] The required documents were not finalised because of the need for properties listed in PVL’s balance sheet to be valued before the finalisation of an audit. Mr Henderson identified the cost of the valuation fee (approximately $80,000) as being the operative cause of the failures of financial reporting. 37 38 Mr Henderson did not provide an explanation for his assertion that the IRD was “the major beneficiary”. Mr Henderson produced no evidence (documentary or otherwise) to support the assertion. Being offences identified in ss 10, 15 and 18 Financial Reporting Act 1993. [177] Mr Henderson defended the charges upon the basis that he had taken all reasonable steps to comply with his duties (an issue on which as defendant he carried the onus of proof on the balance of probabilities). [178] Mr Henderson gave evidence. He referred to a number of steps he had taken to try to obtain the required valuations. He stated that he did not have the available cash flow or funding to meet the valuation fees. He concluded that he did not see that there were any other steps available to him that he could reasonably or properly have taken to ensure compliance with financial reporting duties. (b) The District Court and appeal judgments [179] Judge Saunders heard the charges in June 2010 and found the charges proved. I have set out at [141] above key passages of the judgment, in which his Honour found that Mr Henderson had given a higher priority to keeping staff working on property ventures than to meeting financial compliance obligations. 39 His Honour entered convictions on the three charges. [180] I have identified above at [151] Mr Henderson’s unsuccessful appeal to the High Court, Chisholm J upholding the conclusion that Mr Henderson’s priorities had been wrong.40 Personal guarantee to Strategic – December 2008 (a) Issue [181] In December 2007, an entity specifically formed for this purpose by Mr Henderson, Cleaver Factors Ltd (Cleaver), entered into a one year loan agreement with Strategic for $2,035,000 plus capitalised interest and fees. The property had been owned by a friend of Mr Henderson, Alan Duff, but had become the subject of a mortgagee sale through Mr Duff’s financial difficulties. Mr Henderson’s Statement of Position of March 2007 (above at [75]) was provided to Strategic, to obtain funds for Cleaver’s purchase of the property. Strategic advanced the funds. 39 40 Ministry of Economic Development v Henderson, above n 19. Henderson v Ministry of Economic Development, above n 19. Cleaver purchased the property and provided the property to Strategic as security. Mr Henderson provided a personal guarantee for the full debt. [182] The debt to Strategic was not repaid on due date. The sale of the secured property realised only $920,000. Strategic then sued Mr Henderson on his guarantee. [183] I have referred above at [84] to the fact that Mr Henderson faced with a summary judgment application, initially provided an acknowledgment of debt, only to later resile and to defend the proceeding. (b) The Strategic judgment and appeal [184] French J heard and granted Strategic’s summary judgment application in August 2010.41 The Court’s findings that Mr Henderson’s arguments were contrary to common sense and “nonsensical” are notable. [185] On 16 August 2010 Strategic obtained a judgment for $2,370,126.95 (together with costs and disbursements), in relation to a debt which had crystallised in June 2009. [186] Mr Forbes QC and Mr Clay had appeared for Mr Henderson in the High Court. Within the appeal period, Mr Forbes emailed Mr Henderson stating “I am afraid that I do not consider there would be any prospect of a successful appeal. Kevin [Clay] is of the same view”. Within the appeal period, Mr Henderson nevertheless filed a notice of appeal relying on the same grounds taken in the High Court and on additional grounds. In the course of his public examination Mr Henderson apparently spoke to Mr Forbes. He obtained from Mr Forbes and produced as an exhibit an email sent to him by Mr Forbes on the sixth day of examination. Mr Forbes’ email refers to a discussion about possible appeal points with Mr Henderson’s solicitor in September 2010 and observes that “it is evident that … the view was taken that there were in fact at least arguable grounds for an appeal”. Mr Henderson indicated that he would be calling evidence from Mr Forbes. 41 Strategic Finance Ltd v Henderson, above n 13. I specifically asked Mr Henderson to produce any contemporary file notes or similar documents of his lawyers relating to the Strategic appeal. In the event, Mr Henderson did not call evidence from Mr Forbes. Nor were there produced any further contemporaneous documents relating to the Strategic appeal. [187] Mr Henderson was adjudicated bankrupt two months after he filed the Strategic appeal. The Assignee thereafter withdrew the appeal. (c) Mr Henderson’s evidence in the public examination [188] The public examination took place some five years after the High Court Strategic judgment. Mr Henderson maintained his earlier position thus: I was not aware that there was a personal guarantee involved. I would never have consented wittingly or knowingly to a personal guarantee being involved but in the end a personal guarantee document was executed. [189] In his examination, Ms Foster referred Mr Henderson to an email sent to Strategic by Mr Henderson’s finance broker (Mr Angus of Taurus) on 4 December 2007. Mr Angus attached Mr Henderson’s signed March 2007 statement of position (summarised above at [75(b)]). Mr Angus stated that Mr Henderson would be personal guarantor (of a twelve-month) loan. When Ms Foster suggested to Mr Henderson that this email might jog his memory in terms of the arrangements he was going to personally guarantee, Mr Henderson responded, “Not at all. It doesn’t jog my memory and nor does it necessarily mean that I sanctioned such a proposal or initiated it”. [190] Following this questioning, Ms Foster took Mr Henderson to his March 2007 statement of position. She suggested, in sustained questioning, that when Mr Henderson provided Strategic with his personal guarantee he misrepresented his personal net worth. Mr Henderson did not accept that Mr Angus had been acting as his agent in dealings with Strategic. His ultimate explanation was: … I relied on third parties to perform a number of functions. I didn’t drill into the specificity of any of these deals and the Strategic deal, as I explained, was done to help out two parties. [191] When Ms Foster then suggested to Mr Henderson that it was at the very least reckless of him to have signed the March 2007 statement of position, Mr Henderson’s explanation included: … I don’t know the circumstances or context, as I explained, when – I don’t even know the date when this document was signed, I don’t know the circumstances in which it was signed, I don’t know for what purpose it was signed, I don’t know who prepared it. I can tell you one thing, I never prepared it. I can also tell you, Ms Foster, that I would signing literally hundreds of documents a week. Hundreds of them, hundreds of pages of documents a week, and I never drilled in or read in detail or considered in detail those documents. I had a number of very, what I saw as capable professionals around me who understood what we doing, whose job it was to consider those and read those. [192] When Mr Henderson maintained in subsequent questioning that it was not the intention of his discussions with Strategic that his personal guarantee would be called upon, I suggested to him that it was important from a commercial perspective that lenders be able to rely on the face of documents entered into from time to time as regimes change and the assets of lenders are sold. Mr Henderson answered: Sir, I’m a big boy, I’m happy to stand accountable for any document I executed but also what must be taken into account is the spirit of the arrangement, Sir, and, in terms of guarantees, I knew exactly what the spirit of those arrangements were. [193] Ms Foster then questioned Mr Henderson on his signing of the acknowledgment of ($2,034,237.30) debt in October 2009, and his subsequent opposition to the summary judgment application. When Mr Henderson’s answers appeared to indicate that he had no recollection of signing the acknowledgement of debt, I asked him to confirm that. He responded: Sir, I would suggest, Sir, that the issue with Strategic was a minor matter, tiny matter, relatively speaking, compared with the more significant matters I was dealing with at that time. I’ve got no doubt that I would have sought legal advice, Sir, as I would have sought legal advice when the summary judgment application was hitting Court. I would have been relying extensively on that legal advice as to what, if anything, I should be doing. Tax liabilities of Atlas and other companies – mid-2009 (a) Issue [194] Yellow Cross and Char Char Ltd (Char Char) were wholly-owned subsidiaries of Atlas Food and Beverage Ltd (Atlas). Atlas also held 90 per cent of the shares in Schwartz. I will refer to these companies collectively as “the Atlas Group” (although there were at the time two other companies in the same grouping). [195] The relevant background in relation to the Atlas Group’s taxation liabilities is found in a February 2010 judgment of Panckhurst J, Commissioner of Inland Revenue v Atlas Food and Beverage Ltd.42 The companies had by mid-2009 incurred taxation liabilities to the IRD exceeding $290,000. The core debt of Atlas was a GST liability. The debt of the other three companies was mainly GST-related but included components of PAYE and other employee deductions.43 [196] In mid-2009, the Commissioner applied for liquidation orders against companies in the Atlas Group. As in relation to PVIL, FM 1 and FM 3, the companies filed defences acknowledging inability to pay their debts but seeking time to pursue compromise proposals. [197] A joint meeting of all creditors was held in early-October 2009 which approved for Atlas and Schwartz a Companies Act pt 14 compromise proposal. (b) The High Court judgment [198] In November 2009, the High Court heard the Commissioner’s challenge to the outcome of those two proposals. The Court also heard an application by all four companies for approval of compromises under pt 15 of the Companies Act (which allows Court approval when a compromise is not approved by the creditors). [199] The Commissioner asserted that there had been material irregularities in the way in which the classes of secured and unsecured creditors of Atlas and Schwartz 42 43 Commissioner of Inland Revenue v Atlas Food and Beverage Ltd HC Christchurch CIV-2009409-1342, 24 February 2010. At [7]. had been treated. Panckhurst J accepted that submission. The Commissioner was therefore not being bound by the two compromises. [200] The Commissioner’s second submission was that each compromise was unfairly prejudicial to the Commissioner. Upon a review of the affidavit evidence, Panckhurst J was “by no means satisfied that the approval of the compromise proposals is appropriate in relation to any of the four companies”.44 One of his Honour’s reasons for this conclusion lay in the “pivotal position of Mr Henderson in relation to oversight of the proposals and the absence of any coherent rationale for the scheme of proposal as a whole”.45 His Honour stated: [91] The second concern related to Mr Henderson’s integral position and role in relation to implementation of the compromise proposals. He is the director of most, if not all, of the relevant companies. He was in a similar role when the debts were incurred and the companies became insolvent. Yet, the s236 applications do not envisage the presence of an independent person (or perhaps a committee) charged with responsibility to oversee implementation of the proposals. [92] The Commissioner sought to amplify this concern by reference to the compliance record of companies under Mr Henderson’s control. Some 64 companies are presently registered with Inland Revenue which are under the direct control of Mr Henderson. This group of companies as a whole is delinquent in relation to compliance with general tax obligations. An affidavit sworn by Mr Hawkins on 16 November showed that 90% of income tax returns from the 64 companies were outstanding. Where returns had been filed, tax of $2.4m was outstanding. In relation to GST returns 27% were outstanding, as was $3.8m of GST. Similarly, 14% of PAYE returns were outstanding, representing an overdue payment of $268,000. In response to the defaults the Commissioner had issued 28 statutory demands and filed 13 liquidation proceedings. He had also filed 44 District Court applications seeking orders requiring various companies to file overdue returns. [93] In light of this compliance history the Commissioner contended that the Court should be slow to conclude that the absence of an independent person or committee charged with responsibility to oversee implementation of the proposals was a concern of no or little moment. To the contrary, particularly in light of the poor compliance record of companies under Mr Henderson’s control, his role in relation to the compromise proposals was advanced as a matter of significant concern. [201] With the Commissioner’s liquidation applications to come on for hearing in March 2010, the Atlas Group companies applied for a stay in relation to Panckhurst J’s judgment upon the basis that they intended to appeal to the Court of Appeal. 44 45 At [96]. At [96]. Panckhurst J granted stays in favour of the Atlas Group companies on the basis that their appeal rights would otherwise be rendered nugatory.46 The four companies were ultimately put into liquidation some months later (in October 2010) after the appeals had been abandoned.47 Mr Tubbs’ recovery of documents and information – July 2009 (a) Issue [202] Tuam Ventures, of which Mr Henderson had been sole director, was placed in receivership in July 2009. It owned a valuable commercial property (its principal if not sole asset) at 179 Tuam Street, Christchurch (the area known as SOL Square, which had become a popular hospitality area containing a number of bars, restaurants and shops). The estimated value of the property was between $13 million and $15 million. [203] Stephen Tubbs and Colin Gower, both of BDO Spicers and experienced receivers, were the receivers appointed on 27 July 2009. The receivers established that there were a number of lessees in occupation including the parent PVL, Atlas, PV No 4 Ltd (another related entity) and PVL’s solicitors (Canterbury Legal Services). [204] The receivers needed to obtain all the books, documents and information related to the property, including occupation agreements. They were unable to obtain Mr Henderson’s cooperation in the period immediately following receivership. [205] On 7 August 2009, the receivers made a without notice application for orders relating to the supply of documents and information by Mr Henderson. In a supporting affidavit, Mr Tubbs deposed that: 46 47 Atlas Food and Beverage Ltd v Commissioner of Inland Revenue HC Christchurch CIV-2009409-1342, 22 March 2010 at [22] – [24]. Commissioner of Inland Revenue v Atlas Food and Beverage Ltd (2011) 25 NZTC 25,005 (HC). (a) On 27 July 2009, he had provided a letter to Mr Henderson requesting that he provide comprehensive records and information by 3 August 2009; (b) On 5 August 2009, Mr Henderson advised Mr Tubbs that some or all of the records were in the possession of Tuam Ventures’ solicitor who might seek to exercise a solicitor’s lien over the documents; (c) On 5 August 2009, the receivers’ solicitors wrote to Tuam Ventures’ solicitors (Cousins & Associates) requesting confirmation of access to documents, failing which a Court order would be sought; (d) On 6 August 2009, Grant Smith of Cousins & Associates replied, asserting a solicitor’s lien in respect of Tuam Ventures’ books and documents; (e) On 5 August 2009, Mr Henderson also responded to what he called, Mr Tubbs “quite silly” allegations that he was refusing to cooperate. Mr Henderson referred to the needs of his much-reduced staff to work through a “hierarchy of practical and statutory tasks” and the issue of the solicitor’s lien to be “compromised”. Mr Henderson stated that Tuam Ventures’ sole asset was the Tuam Street (SOL Square) property. (f) The receivers’ solicitors responded to Mr Henderson on 6 August 2009. They observed that Mr Henderson’s reference to a “sole asset” was unlikely to be correct given that the company was likely to have rent due and inter-group debts. The letter expressed concern that Mr Henderson was not making Tuam Ventures’ information available because of the related party nature of the company’s leases and group dealings. A repeated demand for immediate access to the company’s records was made. (g) On 6 August 2009, Mr Henderson emailed a response to what he described as an “alarmingly threatening and almost vexatious” letter. He took issue with matters raised and stated that the only outstanding item was a schedule of company liabilities on which he was working. (h) In exchanges later that day, Mr Henderson took issue with “Mr Tubbs quite irrational, arbitrary demands”. The receivers’ solicitors finally informed Mr Henderson that they would attend PVL’s office (where Mr Henderson worked) to access Tuam Ventures’ records at 9.00 am, 7 August 2009. (i) On 7 August 2009, when the receivers went to PVL’s office, Mr Henderson was not present. Mr Tubbs made contact with him by telephone and requested immediate access to Tuam Ventures’ books and records. Mr Henderson confirmed that they were on PVL’s premises but he would not provide access because he was not present and Mr Tubbs had made “silly, mindless threats”. When Mr Tubbs repeated his request for access to the company documents, Mr Henderson stated that Mr Tubbs was trespassing. [206] The receivers applied to this Court for orders that Mr Henderson provide the requested documents and information. (b) Court orders of August 2009 [207] French J heard the receivers’ without notice application on a Pickwick basis on 13 August 2009. Her Honour made orders that day that Mr Henderson provide by the next day all the information identified in the receivers’ 27 July 2009 letter (save that “details of all liabilities of the Company” was replaced with a requirement for a draft statement of such details).48 The Court’s order encompassed six categories of specified documentation. Further documents (the company’s books relating to the Tuam Street property) were ordered to be provided within 10 days. 48 Tubbs v Henderson HC Christchurch CIV-2009-409-001774, 13 August 2009 [Minute]. (c) Mr Henderson’s examination [208] Mr Henderson gave evidence in the public examination that, following the Court order, he provided the identified information and documents. In the course of his examination, Mr Henderson identified two particular points in relation to his dealings with Mr Tubbs: (a) Mr Henderson and PVL were under organisational pressure at the time of the Tuam Ventures’ receivership, particularly through a drastic reduction in staff numbers; (b) Mr Henderson had subsequently co-operated with Mr Tubbs both on the Tuam Ventures’ receivership and on six other receiverships handled by Mr Tubbs. Non-payment of rent to Tuam Ventures and lease cancellations – September 2009 (a) Issue [209] The documents obtained by Tuam Ventures’ receivers from Mr Henderson included leases which identified four tenants. The receivers established that the four lessees had not been paying rental in terms of their lease documents. The receivers, after unsuccessfully pursuing payment of the rents stated in the four leases, issued notices cancelling the leases. By September 2009, the unpaid rental totalled more than $450,000. [210] The four lessees applied to this Court for relief against the cancellation of their leases. They claimed rights of set-off against the rental liabilities. The receivers counterclaimed for orders for possession. (b) The judgment [211] Harrison J, in October 2009, found that all four lessees had failed to establish rights of set-off against their rental liabilities.49 49 Canterbury Legal Services Ltd v Tuam Ventures Ltd (in rec) HC Christchurch CIV-2009-4092041, 29 October 2009. [212] Mr Henderson provided the affidavit evidence for the Atlas Group and the PVL Group companies. He deposed that: [The] [a]greements to lease are in place essentially for valuation purposes and in the event that any property or business is sold. However, it is the overall net group situation which, at all times, is important. He continued: … it has never been intended that rent would be paid by lessee companies and this has not occurred. It has always been intended that the rent would be set-off against the current account owed by the lessor company or accumulated by the lessee company as a current account debt owed to the lessor company. He went on to say, “I consider that these arrangements are effectively a variation of the agreements to lease”. In the public examination, Mr Henderson confirmed that none of the parties had recorded agreement in writing to vary any of the leases. [213] In relation to the decision-making involved in the alleged variations, Mr Henderson deposed that, “The decision in this regard have (sic) been made by myself, as a director and the chief executive of all the companies involved.” [214] The claims of set-off as between the PVL and Atlas Group companies failed on parallel reasoning. Harrison J began with an analysis of the PVL set-off claim concluding: [43] …It is not enough for Mr Henderson to assert that, in view of these arrangements, he did not consider that one company in the group could have ever demanded payment from another of a current account balance or of outstanding rental. Apart from being in the nature of a legal submission his assertion does not advance PVL’s position. … [46] In this case there is no connection whatsoever between PVL’s liability to pay rent to Tuam and its alleged but unspecified liability to PVL on current account. [215] Harrison J recorded that Mr Henderson had not provided details of services which PVL claimed to have performed for Tuam Ventures, noting, “All he provided was a copy of extracts from a general ledger for the period between April and August 2009. It is singularly uninformative.” [216] Harrison J also found that the Canterbury Legal Services set-off claim failed for a number of reasons including a lack of mutuality.50 [217] The lack of informative records identified by Harrison J in his judgment was also identified in the NEU 2009 report. The NEU there stated: There is a significant lack of records describing the services provided by Property Ventures or situation to account for these balances and no real supporting information has been provided to the Receivers. The financial statements for Property Ventures dated 31 March 2007 do not split the “Advances to Subsidiaries” which totals approximately $67 million. As Property Ventures does not have 2008 and 2009 financial accounts the balances for these years cannot be compared. … There is no documentation to suggest the age of any of the inter-company debt. [218] In the 2011 response to NEU, Mr Henderson did not take issue with these observations. Mr Oorschot’s recovery of documents and information – September 2009 (a) Issue [219] On 7 September 2009, the Court appointed Andrew Oorschot, an experienced insolvency practitioner, to be liquidator of Montecristo, Te Anau and Tomanovich. Mr Henderson was the sole director of each company. [220] On 9 September 2009, Mr Oorschot forwarded to Mr Henderson in relation to each company a copy of the Court order appointing him liquidator. He requested by 16 September 2009 specified information and documents. [221] On 14 September 2009, Mr Henderson requested by email a “chat about all of this”. By reply, Mr Oorschot indicated he could have a meeting the next day but asked for clarification of its purpose as he would not expect the nature of the information requested to require a meeting. Mr Henderson replied that it was really a meeting “to go over the general position” of each company. Mr Oorschot responded that it would be more productive if Mr Henderson would first comply 50 At [33]. with the information request (due by the next day). In response, Mr Henderson referred to the “big job” involved in providing the information and added, “Can you [tell] me what my statutory obligations are?”. Mr Oorschot replied that his request was made under s 261(3)(b) Companies Act of which he attached a copy. [222] When Mr Henderson did not provide the requested information and documents, Mr Oorschot had his solicitors write to Mr Henderson. Mr Henderson was informed that, if the requested information was not provided by 21 September 2009, enforcement action would be commenced. [223] On 22 September 2009, Mr Henderson advised Mr Oorschot by telephone that the requested information would be provided over the three-day period from 22 to 24 September 2009. On 24 September 2009, a PVL employee emailed apologies for delay to Mr Oorschot and stated he would forward as much information as possible the following day. None was forwarded. [224] On 29 September 2009, Mr Henderson faxed a letter to Mr Oorschot under the head-note of Montecristo. The letter included some information and attachments. Mr Henderson stated that (having only “skeleton staff”) he would be invoicing preparation and transportation costs to the liquidator, with his own time invoiced at $350 per hour and an accountant invoiced at $250 per hour. The letter referred to additional files and a computer server containing the company’s accounting system. In the letter, Mr Henderson required that Mr Oorschot was to advise Mr Henderson by 12 pm the following day whether he wished Mr Henderson to obtain a packing and delivery quote for documents held at other locations. Otherwise Mr Henderson would “assume these files are not required by yourself and will be destroyed”. [225] The information received by Mr Oorschot on 29 September 2009 was much less than he required from Montecristo. There was no information provided for Te Anau or Tomanovich. (b) The Court orders of September 2009 [226] On 30 September 2009, Mr Oorschot made a without notice application for orders under s 266 Companies Act 1993. The Court made orders that day requiring Mr Henderson to provide to Mr Oorschot all the information and documents identified in his 9 September 2009 letters.51 (c) Mr Henderson’s submissions [227] In the course of his closing submissions, Mr Henderson stated that he accepted that he could have handled his dealings with Mr Oorschot in a better way. He emphasised that the conduct had occurred in 2009, some seven years ago. Diversion of PAYE deductions made by Dweller – April to October 2010 (a) Issue [228] Dweller Ltd was originally known as Five Mile Developments Ltd. Mr Henderson was its sole director. Mr Godden was the General Manager and Chief Executive Officer in 2010. Mr Godden had previously had a similar role with PVL before Dweller took over PVL’s functions, including the employment of staff, after PVL went into receivership in March 2010. [229] Dweller was subsequently put into liquidation on 13 December 2010. In the period before its liquidation, Dweller had deducted PAYE on its employees’ wages (for the seven months April to October 2010). Dweller filed PAYE returns for each of the months but the PAYE remained unpaid in a total exceeding $162,000 (or $23,000 per month). [230] Following Dweller’s liquidation, the Crown charged Mr Henderson with seven offences under s 143A(1)(d) Tax Administration Act. The Crown alleged that Mr Henderson had aided and abetted Dweller to knowingly apply or permit to be applied tax deductions made for a purpose other than a payment to the Commissioner. 51 Oorschot v Henderson HC Christchurch CIV-2009-409-2290, 30 September 2009 [Minute]. (b) The judgments [231] District Court Judge G S MacAskill heard the charges in a prolonged hearing which had three phases between November 2014 and September 2015. Along the way, Mr Henderson took technical challenges to the Crown’s case which were unsuccessful. [232] On 24 September 2015, Judge MacAskill delivered his judgment as to verdicts. 52 His Honour found Mr Henderson guilty on each of the seven charges. [233] Judge MacAskill found Dweller to have deducted PAYE in each of the seven months and had failed to pay the PAYE deductions to the Commissioner. His Honour then turned to the element of knowing failure to make payment to the Commissioner. The Crown’s case was that the proof of the knowledge required appeared from the evidence of two Dweller employees, Mr Godden and the payroll officer, Rajkumar Patel, and from Mr Henderson’s communications with the IRD.53 Mr Henderson was throughout the sole managing director of Dweller. Mr Godden gave evidence that Mr Henderson made the decisions as to which creditors were to be paid and that Mr Henderson approved the payments of PAYE for Dweller. It was Mr Patel who filed the monthly PAYE returns with IRD. Mr Patel reported those to Mr Godden and Mr Henderson. He prepared regular spreadsheets (initially daily) to detail what was owed to creditors including the IRD and emailed the spreadsheets to Mr Henderson. From the end of April 2010, Mr Henderson was the only person responsible for authorising payments. [234] The IRD wrote to Mr Henderson in June 2010 identifying the non-payment of PAYE for April, May and June 2010. Mr Henderson responded with an offer of weekly payments of $2,000 (which may be contrasted with the approximately $23,000 which Dweller was deducting each month). The IRD sought further information as to the proposal which Mr Henderson did not provide. The IRD rejected the proposal. 52 53 R v Henderson [2015] NZDC 19054. At [51]. [235] In August 2010, the IRD served on Dweller a notice of statutory demand for the outstanding PAYE and a week later served a deduction notice on Dweller’s bank requiring the bank to deduct any amounts held in Dweller’s bank account and to pay it to the IRD. Following IRD’s actions, steps were taken to have Dweller’s employees paid out of funds derived directly from the bank account of a related entity (Sol Management Ltd) with the consequence that the IRD’s notice was rendered ineffective. [236] Judge MacAskill concluded: [63] The defendant was the sole and managing director of Dweller. He was the sole shareholder of a trustee company that was the sole shareholder in Dweller. He was an officer of Dweller of requisite standing and authority. These facts and the evidence of Mr Patel and Mr Godden establish beyond question that, as to the payment of PAYE, the defendant was the “heart and mind” of Dweller. He remained informed about the payment of salaries and wages and PAYE and was the ultimate decision maker. He knew of the problems that Dweller had in paying the salaries and wages. He arranged for funds to be obtained from other companies in the group. He authorised what payments were to be made to which creditors. He knew that the PAYE deductions were not being paid to Inland Revenue. The evidence satisfies me that the defendant was fully engaged in the issue of payment of salaries and wages and the PAYE and that it was his decision on each occasion that the PAYE would not be paid. The omissions to pay were the outcome of decisions taken by the defendant. [237] His Honour found that the Crown had proved that Dweller knowingly failed to pay the PAYE deductions to the Commissioner.54 [238] In turning to the next issue – did Mr Henderson aid and abet Dweller? – his Honour referred to the critical role played by Mr Henderson which resulted in Dweller’s criminal liability. He found that Mr Henderson made all the relevant decisions.55 Judge MacAskill expressly rejected Mr Henderson’s contention that there were others (Mr Godden and Mr Cadillac) who also were responsible for the decision-making for Dweller. He concluded that Mr Henderson had intentionally aided and abetted Dweller when it knowingly failed to pay the PAYE deductions to the IRD. 54 55 At [65]. At [66] – [82]. [239] Mr Henderson appealed against these convictions. In October 2016, the Court of Appeal dismissed the appeal.56 The Court rejected the single ground of appeal whereby Mr Henderson argued that the District Court Judge had made observations during the course of the trial which indicated apparent bias.57 [240] The legal and factual basis of the District Court judgment (leaving aside the issue of apparent bias) was not challenged by Mr Henderson. [241] The Court of Appeal observed in relation to the District Court trial:58 It is clear to us that Mr Henderson became focussed [in the District Court] on technical arguments in his defence and did not really engage with the substance of the prosecution case. (c) Mr Henderson’s submissions [242] In his written closing submissions in this examination, Mr Henderson (in response to the issues as to Dweller’s PAYE deductions) observed that the outcome was at that time the subject of an appeal on a number of points. He added that he had been sentenced and punished in the District Court and that it was not appropriate that he be punished again through the public examination process. [243] In his oral submissions, presented after the Court of Appeal judgment had been delivered, Mr Henderson rested his submissions on the proposition that his “rehabilitation” could be properly addressed through the District Court’s criminal process. Mr Henderson did not give evidence on the steps he had taken, pursuant to his sentencing, to effect such “rehabilitation”. I have no evidential basis to conclude that the “rehabilitation” referred to by Mr Henderson has occurred. 56 57 58 Henderson v R [2016] NZCA 431, (2016) 27 NZTC 22-073. Appearing for Mr Henderson, Mr J R Rapley had abandoned what the Court of Appeal described at [13] as a “series of unmeritorious appeal points”. At [12]. Mr Henderson’s income of $144,337.59 – 1 April 2010 – 31 March 2012 (a) Issue [244] AFB Treasury Limited (AFB), Spinach Design Limited (Spinach) and Mulgrave Investments Limited (Mulgrave) have Ms Buxton in common as their sole director. The evidence at the public examination clearly established that AFB and Spinach played a role of clearing banks (through the use of their bank accounts) for payments coming out of other entities associated with Ms Buxton and Mr Henderson. There is minimal evidence in relation to the role of Mulgrave (which was involved in a single payment) other than in the matters dealt with in these paragraphs. [245] Mr Henderson did not file income tax returns for the years ending 31 March 2011 and 31 March 2012. His position is that he was not employed during those years. The IRD identified for the two years a number of amounts paid to or on behalf of Mr Henderson. In 2011 $38,422.46 was paid (largely by AFB and Spinach) and in 2012 $105,915.13 was paid (entirely by AFB). The payments were all in relation to Mr Henderson’s personal credit and debit cards or personal expenses. In September 2012 the IRD issued Mr Henderson with default assessments in respect of those amounts. The IRD asserted that they were both dividends and income under ordinary concepts respectively under sub-pts CD and CA Income Tax Act 2007. [246] Mr Henderson issued notices of proposed adjustment proposing that his income be reduced to zero. Mr Henderson raised two principal matters: (a) the receipts did not have the character of income; and (b) the amounts involved, if income, would belong to the Official Assignee rather than Mr Henderson. (b) The final decision of December 2014 [247] The IRD’s Dispute Review Unit (the Unit) heard the disputes and published its Adjudication Report on 8 December 2014. It found that the sums were dividends and were also income under ordinary concepts. [248] Mr Henderson had argued that the amounts were gifts and therefore not taxable income. As the Unit recorded: The Taxpayer says these amounts were gifts. The Taxpayer says these amounts cannot be income because he was not employed by these entities, provided no services or produce to these companies in the period in dispute, and was bankrupt and as such was statutorily barred from carrying on any business activity in the nature of trade. [249] The Adjudication Report records that Mr Henderson said he had evidence to support his position that the payments were gifts, but that Mr Henderson did not provide such evidence to the Unit. [250] Mr Henderson had further argued that, by reason of the combined effect of ss 101 and 102 Insolvency Act and his bankruptcy, any income he had received vested in the Assignee. The Unit rejected Mr Henderson’s argument upon the basis that the concept of “property” in the sense used in the Insolvency Act does not extend to amounts attributed to a taxpayer as his income due to the specific provisions of the income tax legislation. [251] The Unit confirmed that the adjustments proposed by Mr Henderson would not be made. The assessments of September 2012 accordingly stood. (c) Evidence at the public examination [252] The role of Spinach and AFB was further explained in documentary evidence (particularly bank account records) produced by the Assignee for the public examination. The records were in relation to credit or debit cards in the name of Mr Henderson. During the periods covered, deposits into the accounts totalled $274,849.60 and payments out totalled $268,809.46. There is clearly an overlap between the figures extracted from the bank records from November 2010 to March 2015 and the figures used in the IRD tax assessments (which cover the earlier part of that period). [253] Ms Foster took Mr Henderson to the bank and credit card records. In relation to his American Express card, Ms Foster asked Mr Henderson whether payments made to the credit of that card to cover personal expenses were “by way of advances from the trust”. Mr Henderson replied, “I say it was by way of loans from the trust”. In answer to Ms Foster’s question as to how that was recorded, Mr Henderson replied, “It would be recorded in the trust accounts”. When Ms Foster pressed where the records would be, Mr Henderson responded, “Well, I’m sure it exists somewhere Ms Foster”. [254] Later, in response to a question from the Court, Mr Henderson continued: It was explained to me that it was no longer appropriate for the trust to be making distributions to me and the trust needed to change its approach in that regard and the best way of dealing with that was for the trust to make loans to me during the course of my bankruptcy. [255] Mr Henderson, however, then explained that accounts for the FTG Trust No 2 had not been completed for the last three years. At which point, the following exchange occurred: Q. So we’ve got your word for the fact that these are loans? A. That’s right Sir. [256] At that point Ms Foster took Mr Henderson to the Unit’s Adjudication Report of December 2014. She referred to Mr Henderson’s objection to the IRD assessments and continued: Q. And the explanation given by you …“The taxpayer has argued generally that the amounts received by him or on his behalf were gifts not taxable income.” A. I remember in 2013 being asked to attend a mediation, arbitration in respect of this, which I did, and I’m satisfied that I made it abundantly clear that above expenses anything I had was a loan. Beyond that I have had a tax barrister assisting me on a pro bono basis who has dealt with this, and I would need to check my files to see what representations he’s made on my behalf. But I would be very surprised if it was anything other than they being loans given that he was involved along with Grant Smith in giving me advice at the commencement of my bankruptcy. [257] When Ms Foster asked Mr Henderson whether the Unit had wrongly recorded his argument as to the payments being gifts, Mr Henderson replied, “Yes, they certainly have that completely wrong and because I would argue that a good number of those amounts were on account of actual expenses”. [258] Near the conclusion of his public examination, I asked Mr Henderson to confirm his position on the nature of the payments received by him or for his benefit out of AFB and Spinach (or the FTG Trust No 2). Mr Henderson again stated that they were loans. I then referred Mr Henderson back to his 2014 statement to the Unit that he had evidence to support his position that the payments received were gifts. I asked him to bring those documents back to Court when he came to give his response evidence. Mr Henderson did not produce the further documents requested when the Court reconvened on 27 October 2015 to hear his further evidence. [259] The position in relation to the final decision to Mr Henderson’s 2011/2012 income may be thus summarised: the Unit confirmed the September 2012 assessment; in doing so, it recorded Mr Henderson’s argument that the payments had been gifts and rejected it but Mr Henderson now disputes that he had asserted the payments were gifts. He asserts instead that they were loans (albeit not recorded as such). Spinach’s and Gibbston’s non-payment of PVL’s statutory demand – July 2012 (a) Issue [260] Following the liquidation of PVL, the liquidator was eventually able to obtain relevant records including the general ledgers and some bank statements. He identified advances made to Spinach of $12,206.25 and to Gibbston Downs Wines Ltd (Gibbston) of $1,520,123.03. Spinach had been incorporated for Ms Buxton’s interior design work in 2006. She was both director and shareholder. In May 2009, PVL made the payment of $12,206.25 to Spinach. On identifying the payment, the liquidator in 2012 requested from Ms Buxton information relevant to the payment under s 261 Companies Act. Ms Buxton did not respond. The liquidator in July 2012 served Spinach with a statutory demand. [261] In relation to Gibbston, the liquidator identified in PVL’s financial statements as at 31 March 2008 the record of advances to Gibbston stated to be repayable upon demand. Allowing for additional payments and credits after 31 March 2008, the advances totalled $1,520,123.03. By the time the liquidator was taking steps, the directorship of Gibbston had passed in December 2010 from Mr Henderson (upon his adjudication) to Mr Hyndman. The liquidator in 2012 requested from Mr Hyndman information in relation to the advances. Mr Hyndman responded to the liquidator recording that, having taken legal advice, he did not want any further correspondence. The liquidator in July 2012 issued a statutory demand. [262] Spinach and Gibbston made parallel applications to set aside the demands. Both asserted that the liquidator of PVL had no authority to issue the two demands. Both also asserted that they had substantial defences. (b) The High Court, Court of Appeal and Supreme Court judgments [263] I heard the two applications at a single hearing and delivered two judgments in December 2012.59 I found that the liquidator had authority to issue the demands. [264] For Spinach, evidence was given by Ms Buxton and Mr Godden. For his part, the liquidator produced an email exchange from 5 May 2009 which had occurred between Mr Godden and others when Mr Godden was trying to source funds from within the Group to make payments such as GST. During the exchange, Mr Godden emailed Mr Henderson, concluding, “It’s kind of impossible to work with. Spinach was my last sanctuary for hiding money”, to which Mr Henderson replied, “No one told me. I will fix.” [265] I found on the basis of the evidence that:60 59 60 Spinach Design Ltd v Property Ventures Ltd (in rec and liq) [2012] NZHC 3594; Gibbston Downs Wines Ltd v Property Ventures Ltd (in rec and liq) [2012] NZHC 3592. At [33]. ... the unavoidable inference is that a purpose of the payment to Spinach being discussed was to place Property Ventures’ money with Spinach Design. And: [41] It appears clear from the content of the email exchanges on 5 May 2009 that Ms Buxton, as the sole director of Spinach Design, had permitted a situation to develop whereby others were controlling the bank account of Spinach Design. Furthermore, they were using it for the purposes of Property Ventures. [266] I found that Spinach had failed to establish a genuine, substantial dispute as to the existence of the debt. I dismissed Spinach’s application. [267] In relation to Gibbston’s application, Mr Henderson gave the main evidence. He had been director of both Gibbston and PVL between November 2002 and November 2010. He explained that, by reason of a share purchase agreement, the debt claimed to be owed to PVL was in fact now owed to Anthem Limited, a company owned and controlled by Ms Buxton (and not in liquidation). [268] In determining whether Gibbston had established a substantial dispute, I recorded:61 [59] ... In examining this question I remind myself that, on the evidence provided, the balance of power in relation to understanding exactly how any transaction between companies related to Mr Henderson was consummated lies with Mr Henderson and those who were close to him and prepared to give evidence for him. By this I mean not only in relation to knowledge of the transaction but also particularly in relation to retrieving relevant records including the correspondence, emails, notes and formal documentation in which they would have participated. [60] Mr Henderson, who was centrally involved in all these transactions, would have to accept that the parties involved in what was a major transaction perpetrated in 2009 an egregious failure of recording. Without cross-examination of those involved, it is not possible to reach a finding that those involved deliberately set out to fail to record the transaction between Gibbston and Mr Henderson’s company, Anthem Limited, in 2009. But there is a difficulty in accepting that people involved in business of the nature and extent in this case accidentally failed to document the transaction. There are consequently very serious questions as to the reliability of what is now asserted for Gibbston. 61 Gibbston Downs Wines Ltd v Property Ventures Ltd (in rec and liq), above n 59. [61] That reliability is able to be tested, even with the records that do exist, through Mr Walker’s analysis of the general ledgers. On the basis of the documents referred to and analysed by Mr Walker, the assertion by Mr Henderson (unsupported by financial statements or the like) that Gibbston’s “$1.5m” debt to Property Ventures was effectively cancelled out (with no cash needing to change hands) by Anthem’s $1.8 million debt to Gibbston is not satisfactorily supported by any evidence short of proof. To the contrary, Mr Walker’s evidence and analysis indicates that the assertion of such a cancelling out is not a substantial argument on the evidence adduced. [269] I dismissed Gibbston’s application. [270] Both Gibbston and Spinach appealed my finding that the liquidator had power to issue the statutory demands. Spinach also appealed my finding that there was no genuine or substantial dispute as to the debt. In November 2013 the Court of Appeal dismissed the appeals.62 [271] The Court of Appeal upheld (albeit on different grounds) my finding that the liquidator had power to issue the statutory demands.63 In relation to Spinach, the Court of Appeal referred to the analysis by which I had found that Spinach’s accounts had been used for PVL’s purposes and that the money in question was PVL’s. The Court of Appeal adopted that analysis and dismissed that aspect of the appeal.64 [272] Both companies sought leave to appeal to the Supreme Court. The proposed appeal was in relation only to the issue of the liquidator’s authority. The Court refused leave.65 The Court noted that a liquidation application in respect of Gibbston had been set down for hearing on 19 March 2014 and that the question as to whether leave should be granted fell to be determined in a very particular context in which there was no longer any challenge to the debts. It was clear that Gibbston was insolvent. The secured creditor supported Gibbston’s liquidation. The Court concluded that the proposed appeals did not involve matters of general or public importance or commercial significance. 62 63 64 65 Gibbston Downs Wines Ltd v Property Ventures Ltd (in rec and liq) [2013] NZCA 546. At [25]. At [34]-[35], [37]. Gibbston Downs Wines Ltd v Property Ventures Ltd (in rec and liq) [2014] NZSC 21. RFD’s non-payment of Sol’s statutory demand – August 2013 (a) Issue [273] RFD is a member of what is referred to as the FTG Group of companies associated with Mr and Mrs Henderson (generally owned directly or indirectly by the trustees of the FTG No. 2 Trust). Sol Management Ltd (Sol) was a member of the PVL Group. Mr Henderson was the single director of both Sol and RFD. He had effective control of both groups of companies. [274] In September 2010, Sol had paid $80,000 to RFD. After Sol was liquidated (in February 2012) the liquidators sought to recover the $80,000 from RFD. The Court of Appeal subsequently summarised the relevant transaction accordingly:66 [5] In mid-September 2010, one of Mr Henderson’s companies, Tomanovich Holdings Ltd (THL), completed an agreement with the Queenstown Lakes District Council (QLDC) pursuant to which THL became entitled to a payment of $150,000 plus GST. Instead of THL receiving that amount, Mr Henderson directed that $135,216.05 was to be paid to Sol’s account with Westpac Bank. The credit to Sol’s account occurred on 17 September 2010. The sum of $26,453.10 was applied to pay off Sol’s overdraft. On the same day, Sol transferred $80,000 to the trust account of Cousins & Associates, the Christchurch solicitors who acted for Mr Henderson’s companies, for the credit of RFD. [6] Within the same banking day, acting on instructions from Mr Henderson, his solicitors effected a transfer within their trust account from RFD to another Henderson company, GP96 Ltd (GP96). They then made a further transfer from GP96 to Livingspace Properties Ltd (Livingspace) in consideration for the purchase by GP96 of a business that had been operated by Livingspace. [7] RFD as lender, and GP96 as borrower, completed a loan agreement for the advance of $80,000. GP96’s obligations were guaranteed by Livingspace. The loan was recorded to be for a term of five years, with interest charged at 20 per cent per annum. [8] The narration in Cousins & Associates’ trust account ledger recorded the receipt of the $80,000 for RFD from Sol as “credit of account”, and the transfer of the same amount from RFD to GP96 as “loan”. In the ledger maintained for GP96, the credit into that account from RFD was also recorded as “loan”, and the transfer out to Livingspace was simply noted as a transfer to that other entity. [9] There was no record of the terms on which THL had diverted to Sol the amount that THL was entitled to from QLDC. Also there was no record 66 Sol Management Ltd (in liq) v RFD Finance Ltd [2015] NZCA 254. beyond the trust account narration of the nature of the transaction between Sol and RFD. [275] Robert Walker, as liquidator of a number of companies in the PVL Group including Sol, identified the transaction summarised in the Court of Appeal’s judgment. In Sol’s name, he issued a statutory demand on RFD for $80,000, representing “monies advanced to you by Sol”. [276] RFD applied to this Court for an order setting aside the demand. In addition to a technical issue relating to Mr Walker’s authority, RFD asserted that there was a substantial dispute as to whether or not the $80,000 was owing or due by RFD to Sol. [277] Mr Smith of Canterbury Legal Services filed an affidavit in support of the setting aside application. He deposed that there were no instructions as to the legal nature of the transaction. Mr Walker himself found no other record kept by Sol which would establish the nature of the transaction around the time it was entered into. [278] RFD provided affidavits from four deponents of fact, including Mr Henderson and Mr Patel. Mr Henderson deposed that the transactions were: … simply [Tomanovich] providing some of the proceeds of its settlement with QLDC to [RFD] which in turn lent that money to GP96 Limited to complete the purchase of the [Livingspace] business … (b) The judgments in the High Court and the Court of Appeal [279] I heard and granted RFD’s application, setting aside Sol’s statutory demand.67 As the Court of Appeal subsequently summarised:68 [11] The Associate Judge considered that the documentation of the payments by THL to Sol and by Sol to its solicitors was completely inadequate. He cited the expectation that the records of a company speak for themselves, and referred to the Board’s responsibility to ensure that proper accounting records are kept under s 194 of the Companies Act 1993 (the Act).69 67 68 69 RFD Finance Ltd v Sol Management Ltd (in liq) [2014] NZHC 801. Sol Management Ltd (in liq) v RFD Finance Ltd, above n 66. Citing Maloc Construction Ltd (in liq) v Chadwick (1986) 3 NZCLC 99,794 (HC) at 99,802 on the equivalent provision in the Companies Act 1955. See also Grant v Lotus Gardens Ltd [2014] [12] To support his statutory demand, the liquidator in this case has relied on the inadequacy of Sol’s accounting records. Mr Henderson wished to characterise the transactions differently from the inference that the liquidator took from the records that were available. In response, the liquidator argued that the absence of other documents that ought to have supported such a characterisation were Mr Henderson’s responsibility, and their absence should be held against him. Arguably, he should not be able to benefit from his own failings. [280] In determining that RFD had established a substantial dispute, I had referred to the lack of records:70 [30] In reaching this conclusion, I recognise a sense of frustration that the liquidator of a company such as Sol will experience when the banking records of the company show the company parting with money without apparent consideration and the company’s accounting records do not contain information which would explain the transaction as anything other than an advance. But the recipient company (RFD in this case) is entitled in this jurisdiction to point to a genuine and substantial dispute as to whether it is indebted to Sol. [281] In upholding my decision, the Court of Appeal returned in its comments to the inadequacy of the financial records. The Court also noted the failure of Mr Henderson and Ms Buxton to cooperate in attempts to clarify matters relating to the transaction. The Court observed:71 [44] We endorse the Associate Judge’s sympathy for the liquidator regarding the apparent grounds for finding Mr Henderson in default of his director’s obligation to maintain adequate financial records. Similarly we agree it was relevant that Mr Henderson and Ms Buxton were not cooperating in attempts to clarify factual matters that may be material to resolving the liquidator’s claim against RFD. However, we also agree with the Associate Judge that the state of the evidence was not sufficient to make a finding adverse to Mr Henderson about the existence of a bank account for THL that it could have used in September 2010. (c) Mr Henderson’s evidence and submissions at public examination [282] At the public examination, Ms Foster took Mr Henderson to the High Court and Court of Appeal judgments concerning the Sol/RFD transaction. I directly asked Mr Henderson whether he accepted that there was an apparent inadequacy of recordkeeping between Sol and RFD. Mr Henderson answered: 70 71 NZCA 127, [2014] 2 NZLR 726 at [54] and [56]. RFD Finance Ltd v Sol Management Ltd (in liq), above n 67. Sol Management Ltd (in liq) v RFD Finance Ltd, above n 66. It was a unique situation, Sir, where Sol Management by this stage there was significant issues around entities associated with me. Bank accounts had been closed and there was, quite frankly, the inability for each entity to have its own bank account at that time. Again, I wasn’t directly responsible for the day-to-day financial control or management of those entities. There were other parties there doing that, accountants, and I understood that there was a clear delineation and recording of those transactions, Sir. Mr Henderson continued: Look I have very clear views of what went wrong but at this time those views don’t include inadequate record keeping Sir, for the simple reason is that I don’t think I can see, given all the circumstances, given the context, given the situation, given the other parties resolved in their respected talents, what I could have done … to improve the situation. And a little later: I believe there was contemporaneous accounting Sir and in fact I’m saying here, aren’t I, that there was no inadequacy of the records. [Ms Foster] has relied on third party suggestion from some receivers and liquidators who have themselves acted improperly and have their own agenda. Sir, I believe there was accurate contemporaneous accounting and again I had a chief executive who was an accountant. [283] In his written submissions, Mr Henderson took issue with Ms Foster’s characterisation of the various companies’ record keeping as “woeful”. Mr Henderson responded with some detail but not by reference to the findings contained in the High Court and Court of Appeal judgments. Rather he referred to the report filed by receivers appointed to three other companies (Yellow Cross, Fish’n’Chip and Schwartz). The receivers of those companies had reported that they had not been provided with any financial books or statutory records and that no individual financial statements had been provided for the companies or for Atlas Food which managed the companies. From July 2009, all income for the companies within the Atlas Group had been deposited into the single Atlas bank account, resulting in the mingling of all income in one fund. [284] Mr Henderson’s position, in his evidence, was that the till system used by each of the entities should have been sufficient for the receivers to reconstruct each companies’ financial position. Mr Henderson submitted, in relation to companies for which it was suggested that woeful records existed, that there existed a complete record of every single transaction the companies had undertaken. He stated that such record was contained in the record of the till transactions of those businesses. Assignee’s need for production of Mr Henderson’s documents: March 2014 – April 2015 (a) Issue [285] For the purposes of preparing her report for Mr Henderson’s public examination, the Assignee sought documents in Mr Henderson’s possession and also wished to access documents held by the liquidator of PVL. The Assignee applied to the Court for directions. Mr Henderson opposed the application in relation to the liquidator’s documents. He did not file opposition to the application in relation to his own documents. [286] In a judgment in March 2014, I made orders in relation to production of both the liquidator’s and Mr Henderson’s documents, including as to the quarantining of documents which might reasonably be considered by Mr Henderson to be of a purely personal nature.72 Mr Henderson filed a notice of appeal in relation to the orders affecting both the liquidator’s and Mr Henderson’s own documents. Mr Henderson refused to provide his own documents pending the outcome of his appeal. [287] At that point, Dunningham J determined that it was impracticable to proceed with the public examination because the appeal and non-provision of documents had thwarted the effect of my judgment. The purpose of the orders had been to ensure that all information was before the Official Assignee in order to prepare her report for the public examination. [288] There were consequently adjournments of the public examination process pending the outcome of Mr Henderson’s appeal. The Court of Appeal at one point (July 2014) treated the appeal as abandoned (for timetable breach) but subsequently reinstated it. Ultimately, Mr Henderson withdrew the appeal and documents were 72 Havenleigh Global Services Ltd v Henderson [2014] NZHC 499. provided. I made directions for the filing of the Assignee’s report and I set the public examination down to commence on 3 August 2015.73 (b) The outcome of the ordered production [289] It was Mr Henderson’s entitlement to pursue an appeal from the March 2014 production orders. That said, he had a responsibility to then pursue the required steps in the appeal in a timely way which he did not do. That led to the deemed abandonment of his appeal and the further delay which that caused to the process of the public examination. Travel appeal – May 2015 (a) Issue [290] While Mr Henderson remained bankrupt, he applied to the Assignee in June 2014 for permission to leave New Zealand. Ultimately, in January 2015, Lesley Currie (as the Assignee supervising Mr Henderson’s bankrupt estate) declined Mr Henderson’s request. Mr Henderson appealed.74 (b) The appeal judgment [291] Having heard the appeal with cross-examination of witnesses, I gave judgment in June 2015 dismissing Mr Henderson’s application.75 The application was dismissed notwithstanding what I found to have been a number of deficiencies in the Assignee’s response to Mr Henderson’s request for travel permission. The deficiencies included an initial element of pre-determination and the Assignee’s misunderstanding of the legislative policy in relation to travel outside New Zealand. [292] My judgment took into account the following matters: 73 74 75 Subsequently Mr Henderson has made repeated assertions that he was forced to abandon his appeal in order to have the public examination commence. In fact, Mr Henderson could have had his appeal brought on for hearing well before the time he abandoned it. The public examination process was for the time being thwarted by the existence of the appeal, as noted by Dunningham J in her Minute. The term “appeal” appears in the heading to s 226 Insolvency Act 2006, although the body of the section refers to an “application”. Henderson v Official Assignee [2015] NZHC 1341.  Mr Henderson had concluded that Mr Currie’s sole purpose in his dealings with Mr Henderson was to punish Mr Henderson, an allegation which I did not find supported by the evidence.76  Mr Henderson criticised Mr Currie for not having oral discussions, a criticism which I did not find to be justified. In particular, Mr Currie’s preference for written communication which avoided the uncertainties and potential hostility of oral communication was sensible.77  In mid-2014 correspondence, Mr Henderson was describing Mr Currie as a “bully”.  Mr Henderson’s written communications included the statement (to Mr Currie’s superior), “I will not work with Mr Currie … I am left to infer his improper actions are therefore part of his agenda”, and (to Mr Currie himself), “It is nasty, childish stuff and a continuation of a maladministration of my estate that your colleague started”.  Mr Currie was justified in his having (in mid-2014) reservations as to Mr Henderson’s travel request given at least three outstanding matters in relation to administration (a request for a statement of income and expenditure which Mr Henderson had not fulfilled; the High Court order for production of documents for the public examination had not been satisfied; and Mr Henderson had yet to be publicly examined).78  Mr Currie’s first of two reasons for ultimately refusing travel approval (a lack of written corroboration of the purpose of meetings in the United States) was justified as involving a reasonable way for the Assignee to determine the genuineness of the proposed trip and the subject-matter of discussion.79 76 77 78 79 At [84] – [85]. At [86] – [88]. At [76](d). At [111] – [113].  Mr Currie’s second reason for ultimately declining approval (it appearing to him that Mr Henderson wished to engage in the business of the biogas project while overseas) was also justified. [293] The project which Mr Henderson and others would have been pursuing in the United States is generally referred to by those involved as the “biogas project”, a project being undertaken by Grace Motorworks Ltd (Grace). I concluded in relation to that project: [123] Mr Henderson’s various communications indicated that the biogas project was brought together by Cantabrians. They were the people apparently travelling together with Mr Henderson to the United States for the purpose of having American entities fully understand the “proposition” and determining how they would establish an American entity to operate a biogas electricity organisation. Mr Henderson has referred to the “licensing” of such organisations. [124] In an email to Mr Currie on 22 February 2015, in which he asked Mr Currie to review his travel refusal, Mr Henderson stated: I am attending the meetings. There will be others from the motor company in attendance. I am the person who developed the commercial model for the application of the technology. It is in the role of fully explaining and setting out that model that I would be attending. I understand it best. I can best deal with the inevitable questions. And it is me seeking to be actively and directly involved in the application of that model going forward in some employment capacity. [125] While Mr Henderson in this passage comes back to his aim of being an employee of an American entity, a fundamental purpose of the travel is to advance the interests of the New Zealand operation by promoting it to American interests and having those entities enter into some licensing or similar arrangement. Mr Henderson on his own statement places himself at the centre of such intended negotiations. [126] Mr Currie was entitled, if not compelled, to conclude that Mr Henderson would not be merely carrying out directions as an employee but that he would be actively participating in decision-making processes and indeed in the promotion of the biogas project. [294] Because of the Assignee’s concerns as to Mr Henderson’s involvement, Mr Henderson was advised to consider making an application under s 149 Insolvency Act for consent either directly or indirectly to take part in the management or control of a business. Mr Henderson did not make an application for such consent. In those circumstances, it would have been inappropriate for the Assignee to have approved overseas travel. I accordingly dismissed Mr Henderson’s application. [295] Mr Henderson did not appeal my judgment. Matters not previously litigated [296] I have referred to the fact that of the companies associated with Mr Henderson prior to his bankruptcy, some 17 went into receivership and 52 went into liquidation (with an overlap between those figures), and a further 36 were struck off. Those events combined with Mr Henderson’s own bankruptcy meant that there was little, if any, point in the relevant authorities taking available Court action. To the extent action was taken, it was successful.80 Unmet assessments of the IRD [297] The IRD made the following, unmet assessments: Schwartz 2008/2009/2010 $52,735.73 GST/PAYE/Other Yellow Cross 2009 $108,187.44 GST/PAYE/Other Warwick Mews 2009 $989,795.17 GST/Income Tax Atlas Securities81 2006, 2008, 2009 Te Anau 2009/2010 $2,083,932.54 $201,656.20 Income Tax/PAYE GST/Income Tax [298] Mr Henderson in his submissions described the factual information presented by the Assignee in relation to IRD assessments as “misleading and mischievous”. Mr Henderson referred to the “inevitability” that a company going into receivership or liquidation will have a significant number of taxation liabilities at that point. But what marks out these companies’ taxation liabilities are the age and amounts. Mr Henderson also submitted that through the receiverships of the five companies, the 80 81 See Ministry of Economic Development v Henderson, above n 19; Henderson v Ministry of Economic Development, above n 19; Henderson v Commissioner of Inland Revenue, above n 25; Henderson v Commissioner of Inland Revenue, above n 30; R v Henderson, above n 52; Henderson v R, above n 56. Mr Henderson observed that, as with Warwick Mews, he had ceased to be a director of Atlas Securities before its liquidation. The directorship had been transferred on 30 August 2008. None of the tax liability (apart from penalties and use of money interest) related to the period after August 2008. IRD have received payment of the preferential element of debt (representing the major part of the debt). Mr Henderson did not provide evidence that each receivership had been successful to that extent. But assuming the preferential element to have been paid, the Assignee’s central concern is unaffected. All five companies had been failing to account to the IRD in relation to significant sums for significant periods before receivership. The nature of much of the amount not paid – PAYE and GST – is of particular concern. [299] Warwick Mews acquired a nearly-complete development of 30 residential units. Its business then lay in completing and progressively selling the units. The consequential GST liability arose during Mr Henderson’s period as sole director. The liquidators of Warwick Mews reported that the funds obtained from property sales appear to have been used to make repayment of mortgages with any surplus then being used to make advances to other Henderson entities. The GST was not accounted for to the IRD. [300] Mr Henderson’s submission in relation to Warwick Mews’ transactions was that he was “not intimately familiar” with the details as he had resigned. He submitted, incorrectly, that his resignation had been “some time before those liabilities arose”.82 [301] The liquidators’ enquiries into Atlas Securities identified that the company had generated a profit of some $9.4 million from the purchase and sale of Queenstown properties and that the profit had immediately been used to acquire shares in PVL. Leaving aside the non-payment of the resulting income tax, the component of PAYE deductions was thereby lost to the IRD. [302] Other companies were also the subject of significant outstanding tax liabilities at the time of their liquidation: 82 Mr Henderson had been replaced as director on 24 September 2008. More than 50 per cent of Warwick Mews’ GST liability related to September 2008 or earlier. FM 1 $864,534.21 GST FM 3 $775,443.30 GST PVIL $643,351.54 GST Atlas Food & Beverage $110,799.62 GST Char Char $25,532.29 GST/PAYE/Other [303] When the outstanding taxation liabilities of the ten companies identified in [297] – [302] are totalled, they exceed $5.85 million, including $2.44 million unpaid GST and $94,000 unpaid PAYE deductions. Non-filing of tax returns [304] The non-filing of tax returns by companies under the direct control of Mr Henderson was the subject of evidence in late-2009 in Commissioner of Inland Revenue v Atlas Food and Beverage Ltd as identified in Panckhurst J’s judgment.83 In his judgment, Panckhurst J noted:84  64 companies then registered with IRD were under the direct control of Mr Henderson;  90 per cent of the income tax returns from the 64 companies were outstanding; 83 84  where returns had been filed, income tax of $2.4 million was outstanding;  27 per cent of GST returns were outstanding;  where GST returns had been filed, $3.8 million of GST was outstanding;  14 per cent (representing $268,000) of PAYE returns were outstanding; Commissioner of Inland Revenue v Atlas Food and Beverage Ltd, above n 42. At [92].  the IRD had issued 28 statutory demands against Henderson-controlled companies followed by 13 liquidation proceedings;  the Commissioner had filed 44 District Court applications seeking orders for the filing of overdue returns. [305] In September 2009 and December 2009, the District Court made orders against 42 Henderson-controlled companies requiring those companies to file overdue tax returns. [306] The information as to the various companies’ failures to file tax returns was gathered together in 10 paragraphs of Ms Foster’s written submissions. Mr Henderson chose to reply to those in a single paragraph which reads: … the Assignee makes again a number wide sweeping (sic) claims that I have not properly accounted to the IRD in respect of the tax obligations of companies associated with me. Again, the Inland Revenue Department, is a significant Government entity with a significant Prosecution section and track record, who, if it were appropriate has had all the opportunity available to them to properly bring charges in these respects – if indeed the allegations made by the Assignee are correct. Further, I provided evidence that the Inland Revenue Department did take a number of steps in respect of me personally and in respect of entities associated with me – all of which have come to naught. [307] In fact, the IRD has been successful in a number of proceedings relating to Mr Henderson’s corporate and personal tax affairs. In any event, the relevant point, in the context of the public examination, is not whether the IRD has gone on to successfully prosecute Mr Henderson for offences. Rather, the concern lies in the extent of delinquency identified in the unchallenged evidence such as in relation to late-2009, the period reviewed by Panckhurst J in Commissioner of Inland Revenue v Atlas Food and Beverage Ltd. [308] Mr Henderson’s submissions to me in the public examination unsurprisingly bore a resemblance to the 2011 response to the NEU report. He there stated : I am very aware of my obligations and duties as a company director to tax matters and to the IRD. The circumstances I faced in 2008 and subsequently was endemic. I believe that almost universally the responses of business people and company directors through this country were the same. I have limited access to information within the IRD. It is an enormously large, powerful and mysterious organisation. It is almost impossible to accurate, if not, honest explanations as to the reasons or justification of any course of action that they take. I am satisfied that my relationships with the Inland Revenue Department identifies me for unique treatment. [309] In relation to the failure of the Henderson-controlled companies to complete financial statements, file tax returns and account to the Revenue for tax including PAYE and GST, (all clearly established on the evidence), Mr Henderson’s imputation of sinister motives to the IRD is misconceived and involves the continuation of an egregious failing of personal responsibility. The statutory responsibility of the Commissioner, faced with delinquency, was to deal with it. Failure to maintain adequate books and records [310] By reason of the number of companies which were placed in either receivership or liquidation (or both), there have been numerous reports of receivers and liquidators filed with the Registrar of Companies. The Assignee has produced a number of those. Ms Foster addresses the inadequacy of company records by reference to both the collective consistency of the reports and the particular inadequacy of reporting identified in the judgment of Harrison J in Canterbury Legal Services Ltd v Tuam Ventures Ltd (in rec).85 In that case, Mr Henderson’s argument that PVL and associated entities were entitled to a set-off failed through an inability to establish a valid basis of set-off by reference to any detailed records. [311] For the Assignee, Ms Foster accepted that it is difficult to establish on the face of the evidence whether the failure to provide records to receivers and liquidators reflects a complete absence of records or simply an unwillingness to assist receivers and liquidators, particularly at the outset of their appointment. Ms Foster submitted that it was likely it was a combination of both. [312] The Court was taken to 14 different instances of receivers or liquidators reporting on the fact that they had not been provided with relevant records:  85 PVL – Grant Thornton – 13 May 2010: Canterbury Legal Services Ltd v Tuam Ventures Ltd (in rec), above n 49. “…hindered by lack of cooperation from the director and the provision of limited information regarding the financial affairs of the company and its numerous subsidiaries.”  Yellow Cross/Schwartz/Fish’n’Chip – PwC – 30 September 2009: “…unable to obtain the information from the Companies required to complete this report.”  Yellow Cross/Schwartz/Fish’n’Chip – PwC – 27 October 2009: “We have not been provided with any financial records or books. The only financial records are those that the receivers had completed… we have never sighted any annual financial statements.”  Tuam Ventures – BDO – 6 October 2009 – Mr Tubbs’ unmet requests and subsequent Court application:86 “director has been uncooperative in making information available.”  Tuam Ventures – BDO – 20 November 2009: “We have not been provided with access to all the records and files of the company.”  Elgin – Korda Mentha – June 2009: “Endeavoured to contact company’s sole director but had no response.”  Anthem – Gerry Rea Partners – 22 September 2009: “Mr Henderson has not provided us with copies of the books of account of the company.”  Montecristo/Te Anau/Tomanovich – Ashton Wheelans & Hegan – Mr Oorschot’s unmet requests and subsequent Court application.87  Atlas Securities/Warwick Mews – HFK – 16 December 2009 “Atlas Securities’ financial statements up to March 2007; Warwick Mews – “We have not received any financial records for this company and financial statements do not appear to have been prepared.”  86 87 Warwick Mews – 29 November 2010: Above at [225] – [229]. Above at [242] – [253]. “Difficulty locating and collecting the company records, difficulties locating and corresponding with director.”  St Asaph Ventures – HFK – 7 December 2012: “Unable to contact the recorded Company Director and have not received any Company records.”  Lichfield Ventures – HFK – 7 December 2012: “Do not hold any pre-liquidation records for the Company.”  9 Lichfield – HFK – 7 December 2012: “Do not hold any Company records or documentation for this entity.”  Castle Street Ventures – HFK – 7 December 2012: “Do not hold any Company records or documentation for this entity.” [313] The documentary record establishes, as Ms Foster submitted, that the inability of receivers and liquidators to obtain from Mr Henderson relevant company records arose from a combination of Mr Henderson’s lack of cooperation and the fact that appropriate records had not been kept. [314] In his submissions, Mr Henderson rejected both the allegation of a lack of cooperation and the allegation of (as he put it) “a complete absence of records”. In his oral submissions, Mr Henderson accepted that in at least two situations (his dealings with Mr Oorschot and Mr Tubbs respectively) he initially failed to cooperate. He suggested that such lack of cooperation stemmed from his being “swamped”. While reduced staffing issues and the demands upon his time would explain some delay, they do not defeat the irresistible inference to be drawn from the pattern confronted by receivers and liquidators of persistent difficulty in obtaining core records from Mr Henderson which points to both a lack of cooperation (where records existed) and a lack of records (where they had not been properly kept). Insolvent trading and breaches of financial reporting requirements [315] Both in previous litigation and in the public examination, there has been an examination of Mr Henderson as to a failure to meet important statutory requirements of financial reporting and to avoid trading while insolvent. The context is one in which the companies which Mr Henderson controlled incurred significant debts, including to the IRD, while Mr Henderson was making day-to-day decisions as to the payment of particular creditors and the continued employment of staff. [316] Issues in this area reached the Courts as early as 2009 through Mr Henderson’s prosecution as a director of PVL for failing to file financial statements and auditor reports. As I have previously identified, the MED established through its successful prosecution of Mr Henderson that he had given a higher priority to keeping staff working on property ventures than to meeting financial compliance obligations at a time when PVL’s liquidity problems were no longer temporary. [317] When Ms Foster examined Mr Henderson as to the relevant passages from Judge Saunders’ judgment and from Chisholm J’s appeal judgment, Mr Henderson did not appear to understand that both Courts had found that Mr Henderson had had his priorities wrong during 2008. Mr Henderson rejected Ms Foster’s suggestion, in relation to the financial reporting breaches, that his focus had been on his entrepreneurial “things” rather than on good governance. [318] In following questions, I observed that Mr Clay (Mr Henderson’s barrister) had advanced during the MED prosecution the proposition that PVL was without funds to meet the requirements for regulatory reporting. I asked Mr Henderson in that context what he would do differently to which he replied: I would probably, Sir, in the first instance consider one of the statutory opportunities or statutory procedures that are available in terms of some form of administration. The following exchange then occurred. Q. So hand on heart, you’re saying you would hand over your organisation to an arm’s length administrator who’d get on and do what he or she thought right for the company – A. Yes, I s – Q. – which may involve winding it up, selling down? A. I’d, I would think that would be the prudent way to go now, Sir. [319] Running contemporaneously with Mr Henderson’s approach to discharging his reporting duties to the MED was Mr Henderson’s approach to dealing with his fellow board members (including independent directors) on the PVL Board. I have referred (from [143] above) to the internal Board correspondence from 2006. A significant degree of financial difficulty was already evident by late-2007. When PVL’s Chairman, Mr Forbes, raised his “red-alert” concerns in April 2008, it attracted Mr Henderson’s “for your fascination” observation.88 [320] Mr Henderson’s dismissive, even deprecating, attitude apparently stood in the way of confronting the insolvency situation directly (in a way which Mr Henderson in his answers in the public examination at least impliedly asserts that he would now attend to if confronted with a future corporate insolvency). At the time, what happened instead was that it was other directors who refused to sign insolvency certificates. Yet PVL proceeded to trade on the basis it continued to be solvent with Mr Henderson going so far as to certify in relation to further borrowing that there had been no material change of circumstance. Evaluation of Mr Henderson’s pre-adjudication conduct [321] The main and direct cause of Mr Henderson’s (second) bankruptcy was his giving of personal guarantees which were unbacked by any assets. At the same time he had rendered himself insolvent through his tax arrangements and his inability to meet his resulting liabilities. What crystallised Mr Henderson’s exposure to bankruptcy was the financial failure of entities associated with him and to a large extent controlled by him. It is in relation to the financial collapse that Mr Henderson and Ms Foster invite dramatically different, indeed irreconcilable, interpretations as to Mr Henderson’s personal responsibility. 88 Above at [152] – [153]. [322] Mr Henderson would place the GFC at front and centre in the failure of his associated entities. To reinforce that view, he provided me in the course of his submissions with a copy of a speech co-authored by Dr Allan Bollard entitled “Learnings from the Global Financial Crisis”.89 In his written closing submissions, Mr Henderson tackled this issue under a heading “Causes of bankruptcy” in which he developed the following stepped argument:  The prime cause of his bankruptcy was the GFC (starting in early 2008 and peaking in early 2010), an unprecedented situation.  The second-tier financing market, on which the PVL Group and related entities had largely depended, suffered a wholesale collapse (with firsttier funders also significantly collapsing).  Finance companies were therefore unable to meaningfully roll over loans.  In providing personal guarantees as a director, Mr Henderson had adopted common industry practice. As with residential loans, the financiers would have regarded the essential backing for the loan as being the borrowing entity’s core asset (rather than the personal undertakings).  The Henderson Companies had extensive commitments to staff, suppliers/contractors, financiers and shareholders/investors.  It would not have been practical or responsible for Mr Henderson to “shut up shop”.  From 2008, Mr Henderson put his efforts into selling off assets ($30 million in 2008 alone) and where possible, refinancing.  A conditional sale of Queenstown land (at $35 million) would have further assisted the Group but the collapse of Lehman Brothers in 89 Allan Bollard “Learnings from the Global Financial Crisis”, (2012) 75 Reserve Bank Bulletin 57. September 2008, accompanying a virtual collapse of the world’s financial system, led to the cancellation of the contract.  Mr Henderson’s adjudication in bankruptcy was ultimately driven by the financiers to whom he had given personal guarantees.  General assertions now made for the first time that there had been corporate mismanagement on his part were unfounded. [323] In summary, Mr Henderson views himself as having conducted his affairs before the GFC in a manner entirely consistent with common business practice. An event such as the GFC was on his account entirely unpredictable, as was the consequential inability of the companies to roll over loans. [324] The Assignee asks the Court to view Mr Henderson’s pre-adjudication conduct differently. Ms Foster’s analysis begins with the proposition that the Henderson companies were under-capitalised, over-committed and too reliant upon finance from second-tier financiers. [325] Ms Foster submits that an observation made by Heath J in relation to the defendant in Bridgecorp Ltd (in rec and in liq) v Nielsen resonates in relation to Mr Henderson’s situation:90 [61] Mr Nielsen operated a speculative business in good financial times and, I infer, did not make adequate provision to deal with any adverse financial conditions that might arise. Property developers cannot do business on the basis that the market will always be buoyant. Mr Nielsen must take responsibility for being (at best) imprudent or (at worst) commercially irresponsible. [326] Ms Foster submits that of similar relevance are the observations of Associate Judge Doogue in Bryers v Official Assignee.91 Mr Bryers had been bankrupted following the collapse of Blue Chip group. Mr Bryers had provided personal guarantees but had structured his affairs in such a way that he had no assets to meet a call made upon him. The Assignee opposed Mr Bryers’ automatic discharge from 90 91 Bridgecorp Ltd (in rec and in liq) v Nielsen [2010] 1 NZLR 820 (HC). Bryers v Official Assignee [2015] NZHC 384, [2015] NZCCLR 10. bankruptcy after three years. The Assignee had initially intended to invite the Court to consider the cause of losses of some $310 million to creditors of 71 Blue Chip companies in which Mr Bryers had been involved.92 [327] It came to be accepted in the course of the hearing that, with Mr Bryers being only one of a number of directors, it would have been impossible to conduct without expert evidence an enquiry designed to apportion blame to a particular person involved in the Blue Chip companies. Counsel for the Assignee accepted that there was not a sufficient nexus between the collapse of the Blue Chip group (even assuming Mr Bryers played a material role in it) and his bankruptcy. 93 The Court therefore left any assessment of responsibility in relation to the Blue Chip collapse to other remedies available to creditors and to regulatory bodies. The Court did not in Bryers set out to undertake that task.94 [328] Turning to Mr Bryers’ responsibility for his personal debts, Associate Judge Doogue recorded Mr Bryers’ two-fold contention, namely that the losses had stemmed at least indirectly from the poor governance of Blue Chip companies as a result of decisions by other directors and that the GFC was “an unexpected contributor to his downfall”.95 His Honour observed:96 There may be arguments about the extent of the care that he exercised and his prudence or lack of it, of course. However, as a generality, it can be said that those who become involved in large-scale transactions of the kind that Mr Bryers engaged in, by doing so, are setting in train events that have the potential to cause widespread financial loss. The greater the repercussions to the commercial community if the transactions were to go wrong, the greater restraint and care is called for. [329] His Honour then analysed the nature of the Blue Chip scheme and the way in which Blue Chip’s funding was arranged before concluding:97 … adopting a structure that was critically dependent upon the viability of Blue Chip, in all the circumstances, was risky. 92 93 94 95 96 97 See at [19]. At [21] – [22] At [23]. At [25]. At [25]. At [28] – [29]. … the picture that emerges is of a business person who is prepared to structure his arrangements in such a way that large-scale losses could not be avoided by creditors having assets to resort to. The fact that the guarantees were inherently risky meant that the overall position that Mr Bryers got himself into was hazardous. [330] Ms Foster presented her submissions in relation to the causes of Mr Henderson’s bankruptcy at two levels, namely the most immediate cause (guarantee liability unbacked by personal assets) and an indirect cause (corporate structuring and mismanagement). [331] Beginning with the personal guarantees, Ms Foster submitted that Mr Henderson had demonstrated a complete absence of care when entering into them from 2003 to 2008. Mr Henderson’s conduct in that regard was exacerbated by the role that the guarantee liabilities, without asset backing, had played in Mr Henderson’s first bankruptcy. A further exacerbating feature lay in his level of personal indebtedness to the IRD (exceeding $4 million). [332] Turning to the structuring and management of the array of Henderson companies, dominated by the property development enterprises of the PVL Group and the Five Mile development in particular, Ms Foster submitted that this is a case (unlike Bryers) where the bankrupt’s responsibility within the corporate structure was so clear as to establish a causative link between the corporate failure and the bankruptcy. [333] Bringing both direct and indirect causes together, the Assignee’s position may be summarised:  the Henderson companies as a group were allowed to become undercapitalised (in relation to existing ventures) and over-committed (in relation to future development);  the Henderson companies were too reliant on finance from second-tier lenders;  such structuring was irresponsible as it assumed a continuation of the buoyant market (with loans being rolled over if projects remained incomplete). Adequate provision was not made for adverse financial conditions which might arise;  when adverse conditions arose with the GFC, loans were predictably not rolled over, contractual penalty interest rates approaching 30 per cent were incurred, the companies could not obtain further funding to meet their basic staffing and reporting requirements, funds obtained for one purpose such as PAYE deductions were diverted to keep insolvent companies operating, defaults occurred, receiverships and liquidations followed;  at that point, Mr Henderson’s personal guarantees (by which he was also a principal obligant) were called upon and inevitably he was unable to meet them. Discussion [334] Although the Assignee has in this case invited the Court to reach a conclusion as to the components of her argument relating to under-capitalisation and overcommitment, I do not view it as appropriate or necessary to embark upon such analysis. In his examination, Mr Henderson fiercely defended the performance of the asset-holding companies upon the basis that they maintained up to the GFC lending to value ratios of 60 per cent. While Mr Henderson did not provide documentary evidence to support that oral evidence, it is equally the case that the Assignee did not herself adduce the documentary evidence or the expert evidence to reliably reach conclusions as to under-capitalisation. Furthermore, the claim which the liquidator of PVL at present pursues against the former directors of PVL is likely to involve, with full evidence, a detailed examination of such matters as company capital and financial resources. I view that as the more appropriate forum for consideration of capitalisation and commitment issues notwithstanding that such an approach will leave the Court on this public examination without an authoritative finding on such issues. [335] The same reticence does not apply to the fact that the Henderson companies had become heavily reliant upon finance from second-tier lenders. Such is fact – it does not require further evidence. The inappropriateness of such a heavy dependence was recognised by Mr Henderson when he stated during his examination that he would not in future be involved in borrowing from second-tier lenders. Conclusion [336] Mr Henderson carefully structured his personal affairs both before and in the decade following his first bankruptcy so as to have no assets. But he provided personal guarantees for huge sums. Consequently those creditors entitled to call on his guarantees would almost inevitably receive no payment on account of the guarantee if the company-borrower defaulted in adverse economic times. The distinct likelihood existed that a company-borrower would default in each of the many cases where the financier was a second-tier lender, usually lending for a short to medium term. The occurrence of an economic down-turn (as occurred with the GFC) was a predictable at least in terms of occurrence (if not in magnitude), and one for which a property development enterprise of substantial scale should have prepared. It was precisely in the event of a major economic downturn that secondtier lenders might not roll over loans; others might not step in to refinance the loans; the company borrowers would default; and Mr Henderson’s guarantees would be enforced. [337] The fact that the Henderson companies embarked upon a programme of sustaining payments to financiers and suppliers at the expense of meeting Revenue obligations such as PAYE and GST masked for a period the onset of corporate insolvencies. The evidence is that Mr Henderson, as managing or sole director of key companies, was centrally involved in such decision-making. Those decisions increased what would have already been Mr Henderson’s huge level of insolvency arising through his guarantees. [338] Furthermore, Mr Henderson was involved in company tax arrangements which led to personal tax liabilities. He received income for which he did not account to the IRD. The structuring of his personal affairs once again meant, that as those liabilities became confirmed through adjudication processes, he was insolvent on the basis of his tax liabilities alone. Mr Henderson’s insight into the commercial failure and his bankruptcy [339] The context in which the Court comes to assess the insight possessed by a bankrupt in relation to the causes of his or her bankruptcy is the statutory regime relating to bankruptcy and discharge from bankruptcy. I have set out above at [7] – [14] a statement of the principles guiding the Court’s discretion under ss 298 to 299 Insolvency Act. The Assignee’s submissions [340] Ms Foster submitted that Mr Henderson lacks insight into the cause of his bankruptcies. Ms Foster submits that, given such lack of insight and given Mr Henderson’s commitment to entrepreneurial activity, it is inevitable that he will in future, if he is free to do so, continue to involve himself in high-risk speculative commercial dealings. [341] Ms Foster submits that Mr Henderson:  continues to display a high level of confidence in his own business abilities;  takes little or no responsibility for the situation and displays no insight into the extent of the devastating impact on the commercial community caused by his conduct;  advances as examples of successful projects undertaken by him the Hotel So project and a Te Anau subdivision which, on analysis, failed with substantial debts to creditors, an outcome caused by under-capitalisation of the ventures and an over-dependence on finance. Mr Henderson’s submissions [342] Mr Henderson in his submissions referred to the various matters relied upon by Ms Foster as evidencing a lack of insight on his part. He took issue with each of them. Shortly I will refer to those matters. [343] In a conclusion to his written submissions, Mr Henderson suggested that he had effectively been bankrupt for some eight years beginning 2008 as he struggled to deal with the circumstances in which he found himself. Mr Henderson submitted that in what were very difficult years from 2008 to 2010 he engaged in much reflection and learnt many lessons. He said that as a consequence he has made a large number of personal policy changes and personal determinations. He stated that the Assignee has refused offers to discuss these changes. [344] The public examination was, of course, Mr Henderson’s most important and significant opportunity to clearly state what lessons he had learnt and what changes he would implement. Discussion [345] Mr Henderson, by the time of the public examination, clearly appreciated the relevance of any insight he had gained into the causes of his bankruptcy. The conclusion in his written submissions referring to “much reflection” and “understanding the causes, consequences and ramifications of my circumstances” reflects his knowledge that the Court would be considering his level of insight when determining what orders to make. Mr Henderson’s reference to offers he had made to the Assignee to discuss his “personal policy changes” somewhat misses the point. Now that the matter was at the point of public examination, the audience for Mr Henderson’s explanation of his insight and “personal determinations” was this Court. [346] Two particular matters stand out when one considers the entirety of Mr Henderson’s evidence and submissions. First, there is Mr Henderson’s repeated reference to the “circumstances in which he found himself” in late 2010 and before. Repeatedly, Mr Henderson’s reference is to the extraordinary circumstances associated with the GFC. Mr Henderson was throughout his examination most reluctant to accept any proposition which suggested that the central, direct cause of his 2010 bankruptcy (and his earlier bankruptcy) lay in his willingness, when his associated companies were raising substantial finance, to give huge personal guarantees unsupported by assets. [347] Secondly, it is notable that, whereas in his concluding submissions Mr Henderson stated that he had made “a large number of personal policy changes and personal determinations”, he did not take the opportunity in his submissions to list those in a straight-forward and unqualified way. A profession of insight or “personal policy changes” or “personal determinations”, without the precise identification of what the insights, changes or determinations are, is not something to which significant weight can be attached. To the contrary, it suggests a preparedness to dissimulate. [348] Against that background, I consider more particular matters which may inform Mr Henderson’s level of insight into the causes of his two bankruptcies. (a) Guarantee liabilities as a cause of insolvency [349] Mr Henderson’s inability to satisfy demands made on the personal guarantees he had given was the cause of both his first and present bankruptcies. The circumstances in which Mr Henderson gave his personal guarantees in each period (unbacked by any personal assets) means that the most favourable characterisation to Mr Henderson of his conduct is that it was grossly reckless. In the present context, the Court therefore looks for some recognition by Mr Henderson that his giving of personal guarantees was grossly reckless. [350] Mr Henderson’s lengthy evidence did not contain an unqualified recognition that he had been reckless in giving his personal guarantees. To the contrary, his repeated approach in earlier litigation and at this public examination was to state that his personal guarantees were always that he would use his best endeavours to return money to lenders and that the lenders would all have known that there was no actual money backing his guarantees. In the Strategic litigation, Mr Henderson went further, relying on another aspect of his evidence whereby he indicates that he relies on others to prepare documents which he then signs.98 This led Mr Henderson to deny knowledge of the Strategic guarantee at all. [351] French J rejected Mr Henderson’s defence of the plaintiff’s claim upon the basis it was not tenable – there was no commercial legal purpose for the guarantee other than to ensure that Mr Henderson had personal liability to Strategic. Mr Henderson’s evidence had been “nonsensical”. [352] There is no basis upon which this Court could reach a different conclusion in relation to his other guarantees from that of French J as to Mr Henderson’s liability (or recklessness) on the Strategic guarantee. The extended questioning on this topic of Mr Henderson by Ms Foster evinced from Mr Henderson statements as to his reliance on the “capable professionals” who prepared the “literally hundreds of documents a week” that he would be signing. [353] In response to my own questions as to the need for lenders to be able to rely on the face of guarantee contracts, Mr Henderson initially made the statement that “I am happy to stand accountable for any document I executed”, but then he undid the apparent sense of responsibility involved by adding, “but also what must be taken into account is the spirit of the arrangement, Sir, and, in terms of guarantees, I knew exactly what the spirit of those arrangements were.” This as implicitly an adoption of the arguments he had taken unsuccessfully in the Strategic litigation. [354] Thus, I find that even by the time he was publicly examined years later, Mr Henderson had acquired no significant insight into the recklessness of his giving of personal guarantees and the extent to which he was thereby the cause of his own bankruptcy. [355] Mr Henderson has stated, including in the course of his examination, that he will not in the future in relation to any commercial venture be giving personal guarantees. Given the extent to which guarantee liability makes up the losses in his bankrupt estate, that position shows at least an appreciation that this Court would be concerned, if upon discharge from bankruptcy, Mr Henderson were to consider 98 Strategic Finance Ltd v Henderson, above n 13. himself at liberty to embark once again on the giving of guarantees. But it does not demonstrate an insight on the part of Mr Henderson into his personal responsibility for his approach to guarantees in the past. He continued in that regard to assert positions which deflected his personal responsibility. (b) Taxation liabilities [356] The record of rulings and judgments establishes that Mr Henderson repeatedly failed to provide for the public purse in relation to the tax liabilities of companies he controlled and of himself personally. His approach when demands or proceedings were issued was to challenge the underlying assessments or determinations. At the point the IRD obtained final rulings, Mr Henderson was bankrupt and (with the exception of the Dweller litigation, in which there appears to have been some prospect of payment) the realistic prospect of any recovery by the IRD was gone. [357] The extent of Mr Henderson’s tax liabilities or exposure at the time of his bankruptcy was substantial. On its own, the income tax obligation arising from payments out of RFD for the years 2001 to 2007 was by December 2010 $2,271,319.74. Mr Henderson’s personal liability as agent for the GST on the August 2008 CCC transaction amounted to a further $1,700,000 (plus use of interest money and penalties).99 Mr Henderson’s personal liability flowing from the diversion of PAYE deductions made by Dweller in 2010 would have amounted to a further $162,000.100 There was a pattern of unlawful tax arrangements in relation to companies controlled by Mr Henderson. There was a repeated failure to meet personal income tax liabilities. [358] I have referred to the confused evidence given by Mr Henderson in the public examination in relation to the RFD transactions. I find as a probability that Mr Henderson’s answers in that regard reflect his approach to tax liabilities generally. There was a recognition that he had received income in the 2001 – 2010 period, but he professed a belief, unsupported by any documentation, that it was “all tax-paid income” (a position shown by subsequent rulings to be incorrect). Rather than 99 100 Above at [163]. Above at [229]. accept the adjudication outcome based on the documentary record, Mr Henderson then sought to impute to the IRD some manipulative conduct in the way and timing of its pursuit of debts.101 [359] Ultimately, Mr Henderson’s explanation was that he personally would not have attended to matters such as his personal taxation liability and would have been “throwing this at accountants”. As with his personal guarantees, his evidence involved a deflection of responsibility. The “throwing” of such matters at accountants, both in terms of the conduct involved and Mr Henderson’s language at the examination, displays a recklessness towards his tax responsibilities. In the way Mr Henderson operated his companies and personal affairs, often without a clear documentary trail, the consequence of simply handing over an issue to the accountant was doomed to failure – the accountant would not have had the documentary trail to produce meaningful statements or advice. [360] When Ms Foster questioned Mr Henderson as to things he would do differently in the future, there was the following exchange in relation to taxation: Q. What about taxation, Mr Henderson? A. Yes, ma’am. Q. Has your attitude towards ensuring that you and any entities associated with you comply with taxation obligations changed? A. Changed from what, ma’am? Q. From the situation that we see prior to your adjudication, Mr Henderson. A. Well, I intend to bring extensive evidence about that situation and about what those issues were that you’ve alleged underpin my attitude. At that point I intervened and indicated to Mr Henderson that I wished to hear anything he had to say in answer to Ms Foster’s question. Mr Henderson then continued: Um, ma’am, I understand the taxation obligations. I don’t enjoy this for one minute. I don’t actually enjoy my scraps with the IRD for one minute. I am 101 Above at [107]. what can only be described as a very high profile target of the Inland Revenue Department for reasons that I’m sure are not lost of everyone in this courtroom today, and I am a schmuck if I don’t – if I give them one opportunity to have a crack at me and I, I have no attitude of trying to avoid those obligations. It would just be – it would be a demonstration of my insanity, or degree of insanity, were I to. [361] Mr Henderson subsequently answered that the companies he was associated with met every one of their tax obligations and filed their returns exactly as required for close to 10 years. He identified late-2008 as the period in which “the problem here arose” (referring to the collapse of the property market and of the second-tier funding arrangements). When I referred Mr Henderson to the fact that from 2008 he and the companies had continued to incur tax liabilities, Mr Henderson answered: Okay, I’m sorry. Yes, and still incurring some tax liabilities. And it was interesting, Sir, I was driving yesterday and I was reflecting on this very point and, um, look, it’s just the worse situation you can imagine you are in and the clean, and certainly from a hindsight point of view, the clean, possibly proper approach is to simply go, put the company into liquidation at that - vote to put the company into liquidation at that point, shareholder resolution, appoint liquidators and assist them to the degree you can and move on but, Sir, I don’t have that in me, and this is an important point for this, is that, you know, the best way of describing this today I don’t doubt there are literally thousands of dairy farmers up and down this country trying to resolve what to do with their situation. You sit there and you believe and you talk to people and you get a sense that the market might come right. I had buyers in ’08 that I was negotiating with for a number of assets of Property Ventures and you’re trying to act in everyone’s interests. You’ve got staff. We just, we were laying off staff everywhere we could. You’ve got mortgagees who are personal friends and you’ve done a lot of work with and, you know, well, all mortgagees and you’re trying to think how do I deal with them? How’s the best way getting at that? You’ve got sundry creditors and you’ve got the tax department and you’re trying to think do I just collapse this and walk away and it’s the worst possible scenario or do I try and work it through some way so everyone can benefit and that was the position I faced and I can’t give an answer to this Court today, and it’s something that I wanted to address in my evidence to a question that could be reasonably posed to me is in hindsight what would I do differently to what I did in 2008, and I just really, really can’t. The only thing I can say is that I can’t see myself ever allowing me to get into that situation again. So maybe by virtue of that. It’s not a proposition that I really need to turn my mind to but I had to make decisions that were the hardest decisions I had made in my life around that time and it was positively horrible. [362] In Mr Henderson’s concluding observations in that last answer, he indicated that even with hindsight he could not say that (in relation to tax) he would do anything differently to what he did in 2008 (and by inference thereafter). The evidence indicates a lack of insight on Mr Henderson’s part as to his responsibility for the tax liabilities which represent a significant aspect of his insolvency. Through the use of funds that would otherwise have been paid to the IRD, Mr Henderson was able to pursue his approach of avoiding the liquidation of insolvent companies for the time being. As admirable as the motivation to try to trade out through difficult times and/or to minimise losses is, the fact that Mr Henderson was unable at the public examination to say that he would do anything differently in future reveals a troubling lack of insight. (c) Administrative abilities [363] I have above summarised evidence, including Mr Henderson’s own answers, in relation to Mr Henderson’s administrative abilities.102 Whether Mr Henderson’s administrative skills are described as “lousy” (his word) or “shambolic with poor recording of his actions” (Mr Moore’s description), the lack of efficient administration and record keeping within the various companies and groups masked for a lengthy period the various insolvencies and, when liquidation and bankruptcy occurred, precluded the prompt identification and recovery of debts which would have been facilitated had there been efficient administration. [364] The fact Mr Henderson took responsibility for such detailed decision-making as the payment of particular accounts and the flow of money between entities means that it is not open to him to ascribe blame to subordinates for failings of the structure which was in place. Mr Henderson’s personal style of management was to take control when he saw the need for it – as in relation to financial steps which might allow particular companies to trade on. [365] The evidence given by Mr Henderson establishes to my satisfaction that he has a level of insight into his lack of administrative ability and necessary attention to detail. He also appears to have some appreciation that (as managing director of the PVL group and controller of many of other entities) he failed to put in place such appropriate administrative structures as would ensure regulatory compliance and efficient business practices. 102 Above at [133] – [151]. [366] Beyond that, I am not satisfied that Mr Henderson has achieved a clear understanding of what he would do differently in future if in control of a commercial enterprise. His answer was that he would ensure that he had appropriate people around him to deal with the administrative tasks and provide what he described would be “strong support”. Mr Henderson did not explain how that “strong support” would be achieved. He did not explain how he would be able to maintain a distance from those charged with executive and day-to-day decision-making. [367] I am not satisfied from the evidence that Mr Henderson gave that he has any clear view as to how he would achieve such “strong support” when on his own evidence he apparently failed to achieve that in the decade before his present bankruptcy. (d) Financing of future ventures [368] In response to Ms Foster’s questioning as to what Mr Henderson would do differently in the future, Mr Henderson identified particular steps he would take in relation to future ventures: (a) In relation to property development, Mr Henderson stated that: (i) he would borrow only from first-tier lenders; (ii) he would make sure there was a prudent level of pre-selling and pre-leasing. (b) In relation to projects such as the biogas project, he would proceed only if there was an appropriate level of capital as identified by parties with more ability than Mr Henderson to assess appropriate levels of capital. [369] Given that Mr Henderson’s answers were in response to a question as to what he would do differently in the future, the implication of his answers was that his previous approach had proved unsatisfactory. [370] Mr Henderson’s evidence, taken as a whole, does not satisfy me that the degree of insight into past problems suggested by his answers in fact involves any recognition by him of a true problem in that regard. When Ms Foster submitted that there had been corporate mismanagement through undercapitalisation, overcommitment and reliance upon finance from second-tier lenders, Mr Henderson attacked the Assignee’s submissions on the basis that they were “sweeping statements” which had not been supported by expert evidence. The single concession Mr Henderson made in his submissions was that “on considerable reflection” he accepted that an error had been made by “the companies” in relying upon finance from second-tier lenders. But Mr Henderson then proceeded to identify the impact of the GFC as having been “so extraordinary and so unusual” that the general process of handling property investment and property development loans became “completely disrupted”. [371] In short, the apparent recognition which Mr Henderson gives in his evidence to the inappropriateness of second-tier borrowing is then the subject of the excuse that the circumstances were so extraordinary and unusual. [372] Mr Henderson’s evidence and submissions do not show the taking of responsibility which Heath J required of Mr Nielsen in Bridgecorp Ltd (in rec and in liq) v Nielsen.103 I am not left with the impression that Mr Henderson truly considers that the companies he controlled had failed to make adequate provision to deal with adverse financial conditions which might arise. Rather, the recurrent theme is that it was the GFC, at a level of utter unpredictability, that should bear the responsibility for the collapse of the Henderson companies. [373] The Court must anticipate the nature of business in which Mr Henderson (in the event he is discharged from bankruptcy without a business restriction) is likely to engage. Despite Mr Henderson’s preparedness to express some guarded reservations as to his past approach in relation to capitalisation and borrowing, the evidence as a whole satisfies me that Mr Henderson would continue to take the entrepreneurial risks which have been a central part of his business life. In doing so, he would rely 103 Bridgecorp Ltd (in rec and in liq) v Nielsen, above n 90. not on conventional wisdom but predominantly on his assessment of the opportunities and risks involved. Credit where credit is due Success in business [374] In his evidence and in his submissions, Mr Henderson took umbrage at any suggestion that he had been unsuccessful in business. In this, his position was entirely consistent with that developed in some detail in the 2011 response to NEU. In that response Mr Henderson had commenced with his central affirmation – “I am an entrepreneur”. He followed that with an explanation of his economic philosophies and set out a record of his business successes. He listed 12 examples of businesses he had created “in the previous 35 years”. He listed 10 examples of property development he had undertaken. He noted in particular three categories of property development: the Five Mile project at Queenstown; the Sol Square development in Christchurch; and the development of accommodation properties in Christchurch, Dunedin and Invercargill under the name “Livingspace”. [375] Notwithstanding the fate which befell many of Mr Henderson’s businesses and developments in one or other of his periods of business failure, and regardless of Mr Henderson’s administrative shortcomings in relation to the conduct of established businesses, it is clear that Mr Henderson has significant entrepreneurial skills. Two former Mayors of Christchurch (Sir Bob Parker and Garry Moore) spoke in their references of qualities such as Mr Henderson’s “unique intellectual and practical grasp of successful urban residential architecture and the social and hospitality elements that create a vibrant, liveable city” and a man who is “seriously innovative [with] ideas a constant threat to the status quo in our City”. The design and integrity of buildings [376] That Mr Henderson has skills in conceiving, developing and promoting business opportunities is clear. That said, such skills do not of themselves equate to long-term success in business. Mr Henderson’s commitment to the Five Mile project illustrates the difference between the two – the Five Mile concept may well have been stunning but the business of its development (through a PVL subsidiary) ultimately failed. [377] Mr Henderson gave oral evidence as to the quality of buildings developed or owned by associated entities. He contrasted the resilience of such buildings with others which had failed during the Canterbury Earthquake Sequence. He referred particularly to the Hotel So development which retained its integrity through the earthquakes and is today an operating hotel. [378] The Assignee has not suggested that the Henderson companies should be criticised for shortcomings in construction. The relevant criticism of Mr Henderson and his associated entities focused on matters of administration and governance primarily in relation to financial administration and record keeping. The Court does not have the evidence to draw informed conclusions as to the standard of construction of the building stock. This judgment therefore contains no observation (express or implied) critical of the quality of construction. Post-earthquake dealings in relation to insurance and CERA designations [379] The first two major events in the Canterbury Earthquake Sequence (4 September 2010 and 22 February 2011) by their timing straddled Mr Henderson’s adjudication in bankruptcy. [380] A number of Henderson companies which owned Christchurch property were damaged by the earthquakes. Insurance issues arose. Some properties were also affected by designations under the Canterbury Earthquake Recovery Act 2011. There was a need for both insurance and designation issues to be worked through with insurers and with CERA respectively. [381] Mr Henderson, with his intimate knowledge of the properties and their development potential, was an ideal person to assist the various companies (and their receivers and/or liquidators) in relation to insurance and designation issues. In doing so, he conferred with Mr Marshall of the Insolvency Service. For the Assignee, Mr Marshall took no issue in relation to assistance on the urgent earthquake issues provided the relevant director or receiver/liquidator was making the ultimate decisions for the property owner. Mr Henderson’s subsequent involvement led to issues being raised (for instance by insurer’s solicitors) as to that involvement. Those issues were worked through and resolved by the Insolvency Service confirming its position in relation to Mr Henderson’s involvement. [382] Mr Henderson’s evidence indicated that he became and remains aggrieved that the Assignee, rather than giving explicit credit for work in relation to insurance and designation matters, set out in her Report and subsequent submissions a range of criticisms of Mr Henderson’s conduct. [383] As with some other areas of Mr Henderson’s conduct, Mr Henderson’s earthquake-related assistance was not work which the Assignee suggested Mr Henderson had undertaken improperly. The Assignee’s criticisms were addressed to other matters. Mr Henderson was entitled to adduce evidence, as he did, to suggest that any misconduct was at least partly balanced out by his good works. I have no doubt that, if entities associated with Mr Henderson (whether under administration or otherwise) are in the future affected by adverse events, Mr Henderson would be prepared to assist in efforts to maximise recoveries just as he did following the earthquakes. In itself, however, that strength on Mr Henderson’s part does not mitigate the risks which arise from Mr Henderson’s conduct of business. Information for receivers and liquidators [384] A specific factor identified by the Assignee as a ground of objection to discharge was that Mr Henderson had failed to cooperate with liquidators or receivers of his associated companies. I have identified (at [202] – [208] and [219] – [227] above) two specific instances in which Mr Henderson’s lack of such cooperation led to the making of Court orders (in favour of Mr Tubbs and Mr Oorschot respectively). [385] Above, at [312] I have set out quotations from the reporting of liquidators and receivers of companies of which Mr Henderson was director. Those reports have a relevance both to Mr Henderson’s failure of contemporaneous record keeping and his subsequent failure (upon receivership or liquidation) to cooperate initially in the provision of records and information. [386] In his evidence and submissions, Mr Henderson (in addition to explaining initial failures of cooperation by having been “swamped”) stated that he had gone on to achieve a good working relationship with receivers and liquidators such as Mr Tubbs and Mr Oorschot. He submitted that the Assignee had failed to give him appropriate credit for later cooperation alongside her criticism of earlier failures. [387] It is correct that the Assignee reported and made submissions on Mr Henderson’s failings of cooperation. In doing so, she relied upon decisions of this Court and of the documentary record of receivers’ and liquidators’ reports up to December 2012. It was open to Mr Henderson, as he did to a limited extent, to give his own evidence as to later cooperation. As it happens, the later cooperation falls far short of balancing out the significance of initial failure of cooperation. Special importance must be attached to the prompt provision of all relevant information immediately after receivership or liquidation. Some, but less significant, credit attaches to the provision of information one or more years after receivership or liquidation. Mr Henderson’s entrepreneurial skills [388] Mr Henderson’s entrepreneurial skills will not have disappeared on the occasion of his second bankruptcy or subsequently. He must retain those skills. An independent expectation that he will, upon his discharge from bankruptcy, return to exercising those skills is exemplified in the references from Sir Bob Parker and Mr Moore. The former states a desire to have Mr Henderson involved in the rebuilding of Christchurch, reapplying his vision and understanding of urban redevelopment. The latter states that, if he were Mayor of Christchurch now, he would have Mr Henderson advising him constantly about what would work for the city and what innovative ideas Mr Henderson could add to the mix. The range of Mr Henderson’s imagination was captured by Mr Moore who described him as a man with “1,000 ideas flowing around in his head at any one time [who] took on too much”. There is clearly an expectation on the part of such observers that Mr Henderson will return to an active involvement, at least in urban development. [389] There is something of a tension between these clearly expressed views and some points of Mr Henderson’s evidence as to the prospects of his future engagement in property development. In his examination, Mr Henderson characterised his chances of being involved in property development in the future in any significant way as “very, very low”. The evidence does not persuade me that that is the case. The evidence suggests a level of support and enthusiasm for Mr Henderson’s re-engagement and exercise of his entrepreneurial skills. It is probable that either Mr Henderson or financial backers will find the means to develop projects (be they property development or other business opportunities, such as the biogas project which through Grace remains in the control of Mr Henderson’s related interests) which Mr Henderson considers and promotes as viable. An interest-based approach to discharge [390] In the Australian decision in Re Reilly, ex parte the Debtor, Lockhart J said:104 In considering whether a bankrupt should receive a discharge it has been laid down repeatedly that the Court must have regard not only to the interests of the bankrupt and his creditors but also to the interests of the public and the commercial morality. In the exercise of its discretion the Court must also consider the conduct of the bankrupt relevant to his bankruptcy. [391] As did Penlington J in Re Anderson, I find that an interests-based approach of assistance in considering both the issue of Mr Henderson’s discharge and (assuming there is to be a discharge) the imposition of any conditions under s 299 Insolvency Act.105 [392] I also adopt the three point analysis of Robertson J in Re Webb.106 The three matters his Honour identified were: (a) in the absence of misconduct, the bankrupt should normally receive his discharge (after three years); 104 105 106 Re Reilly, ex parte the Debtor (1979) 23 ALR 357 (FCA) at 365. Re Anderson HC Hamilton B213/89, 14 April 1992. Re Webb HC Gisborne B69/88, 4 August 1989. (b) where the object of bankruptcy has been achieved both in relation to the bankrupt and the community generally, the discharge should be granted; (c) it is not generally in the interests of the community to discharge a bankrupt by granting an order of discharge subject to conditions which impose such a burden upon him that he can have no hope of bettering his condition. Public and community interest [393] In considering the public interest, I respectfully adopt the observation of Asher J in re Kelly v Structured Finance Ltd, in which his Honour said:107 The public interest is best approached from the perspective of protecting the public from the insolvent debtor. The issue is not the punishment of the debtor, but avoiding the risk of further conduct to the detriment of the community, in particular in this case the commercial community. [394] In relation to the community interest, I must have regard to the business activities in which Mr Henderson is likely to engage upon discharge from bankruptcy. To what extent is the public interest likely to be affected by his unrestricted engagement in such activities? [395] I must also take into account the fact that this is not Mr Henderson’s first bankruptcy. Given past experience there is an obvious risk that a similar situation might again arise. A strong argument can be made that the public should be protected from not only the irrecoverability of debts but also the drain on government and judicial resources which has flowed from Mr Henderson’s insolvency. On the other hand, there is also Mr Henderson’s evident entrepreneurial skill, which carries with it a public interest in his being able to once again contribute to and apply those skills, particularly in Christchurch as it continues to rebuild. 107 Kelly v Structured Finance Ltd [2009] 2 NZLR 785 (HC) at [63]. The observation was made in the context of the consideration of a proposal under Part 5 Insolvency Act 2006. It was adopted by Associate Judge Doogue in Re Armitage ex parte Established Investment Ltd (in liq) HC Auckland CIV-2007-404-4280, 8 April 2011 at [16] in relation to discharge from bankruptcy. (Decision upheld by the Court of Appeal: see Armitage v Established Investment Ltd (in liq) [2012] NZCA 439). [396] Mr Henderson has a legitimate interest in not only obtaining the discharge from bankruptcy which would normally have been available after three years, but also in obtaining a discharge which is either unconditional or only has such restrictions attached as are necessary to legitimately protect other interests. [397] This philosophy was encapsulated as long ago as 1904 in relation to the United Kingdom Bankruptcy Act 1890. It was applicable then and applies equally in New Zealand today. In the judgment of the English Court of Appeal in Re Gaskell, Vaughan Williams LJ observed:108 … the overriding intention of the Legislature in all Bankruptcy Acts is that the debtor on giving up the whole of his property shall be a free man again, able to earn his livelihood, and having the ordinary inducements to industry. Sometimes it is not right that the bankrupt should be free immediately; he must pass through a period of probation; and theoretically there may be cases in which he ought not to be free at all, but prima facie he is to give up everything he has, and on doing that he has to be made a free man. [398] This passage has been frequently cited with approval by New Zealand courts, including by Robertson J in Re Webb (to which I have referred at [392]). The courts recognise that the legislative intention not only protects the interest of the bankrupt but also provides a public benefit through the integration of bankrupts back into the commercial life of the community.109 Mr Henderson’s interests [399] Mr Henderson’s likely areas of resumed business activities lie in the entrepreneurial areas on which he has focused since his first bankruptcy – namely property development, urban renewal through hospitality development, accommodation and ad hoc projects such as the biogas project. [400] Mr Henderson is now 61 years of age. Having been bankrupted, it is in his interest that he be permitted to recommence business activities from which (in the absence of the Assignee’s permission) he has been excluded while bankrupt. Inasmuch as he identifies as an entrepreneur, it is in Mr Henderson’s interest that he 108 109 Re Gaskell [1904] 2 KB 478 (CA) at 482. See South Pacific Timber (1990) Ltd v King [2015] NZHC 382 at [38]; Jamieson v Official Assignee, [2012] NZHC 949, [2012] NZCCLR 8 at [11] – [16]; Bridgecorp Ltd (in rec and in liq) v Nielsen [2013] NZHC 1848 at [60]; Re Anderson, above n 105 at 16. have a breadth of discretion in relation to responsible risk-taking that entrepreneurial activities may require. [401] On the other hand, the Court must also take into account the fact that aspects of Mr Henderson’s conduct which led to his bankruptcy (such as the giving of personal guarantees without asset backing and the conduct of business activities without proper regard to solvency issues and taxation liabilities) were allowed by Mr Henderson to persist alongside poor administration for a long period. The evidence establishes that, although Mr Henderson may express aspiration towards dealing with such shortcomings, he does not have the skills or discipline necessary to appropriately minimise the risk of personal insolvency and damage and loss to corporate or personal creditors (including the IRD). The Court (in a way which Mr Henderson himself will view as paternalistic) must consider business prohibition as appropriate in Mr Henderson’s own interests (beyond the community’s interest). Interests of creditors [402] I turn to briefly consider the interests of creditors. In this context, the creditors to whom I refer are the creditors of Mr Henderson’s bankrupt estate rather than those who may extend credit to Mr Henderson or his entities in the future. (The interests of the latter category are taken into account in my earlier discussion of the public and community interest.) [403] Any restriction the Court places on Mr Henderson’s business activities upon discharge from bankruptcy will not directly affect the interests of the creditors in his bankrupt estate, either for better or for worse. As Associate Judge Bell recognised in Darby v Official Assignee, the Assignee is able to exercise her powers in the administration of Mr Henderson’s estate even after his discharge.110 Commercial morality and the conduct of the bankrupt [404] A singular feature of Mr Henderson’s case is that he has been bankrupt for almost six years. In other words, his bankruptcy has lasted almost three years 110 Darby v Official Assignee, above n 7, at [18] applying Palmer v Official Assignee [2011] 1 NZLR 846 (HC) at [13] – [61], especially [45] – [47]. beyond the period at which a bankrupt may be automatically discharged under s 290(1) of the Act. [405] Mr Henderson referred me to the Minister’s speech on the third reading of the bills which led to the enactment of the Insolvency Act 2006. The Hon Lianne Dalziel stated:111 The bills are designed to promote innovation, responsible risk-taking and entrepreneurialism by not excessively penalising business failure… They are designed to enable individuals in bankruptcy to participate fully again in the economic life of the community. [406] The Minister’s speech reflects two underlying wisdoms, namely that: (a) the entrepreneurialism which must be allowed to flourish when bankruptcy legislation is implemented is that which is responsible in its risk-taking (and other aspects): and (b) bankruptcy (and company liquidation) will always involve a degree of penalty for the individual or organisation – penalty is an appropriate result of insolvency law but may become excessive if the period of insolvency is allowed to persist beyond the period required to protect the interests involved. [407] To the extent that one purpose of bankruptcy may yet lie in punishing the bankrupt for any misconduct, the six-year period shortly to expire will have in my judgment adequately given effect to such purpose. While there were several aspects of Mr Henderson’s conduct leading up to and contributing to his bankruptcy (and the liquidation of PVL and other companies) which were blameworthy there were, as Mr Henderson submits, sanctions imposed in some jurisdictions. The remaining relevance of Mr Henderson’s conduct (it matters not that it may correctly be characterised as misconduct) exists in relation to the Court’s consideration in the community’s interest of prohibitions under s 299 of the Act or conditions under s 298 of the Act. 111 (26 October 2016) 634 NZPD 6171. Balancing of the interests [408] On the basis of material produced by Mr Henderson, the particular skills for which his contribution has been valued lie in a visionary approach supported by significant entrepreneurial skills. At least one of the references and Mr Henderson’s own evidence recognises that the skills side of Mr Henderson’s ledger is somewhat offset by a significant deficit in administrative competence and regulatory compliance. [409] When I consider the probability of Mr Henderson’s re-engagement in the nature of business in which he has previously been engaged and the risk that Mr Henderson might not substantially alter his established business approaches, I am forced to conclude that the public and community interest would not be adequately protected by an unrestricted discharge of Mr Henderson from bankruptcy. [410] While there were parts of Mr Henderson’s evidence in which he expressed pessimism for the future of his gaining the financial and other support necessary for the resumption of the activities of the nature he was involved in between his first and second bankruptcies, the substantial likelihood is that he will so engage if the opportunity presents itself. Mr Henderson did not unequivocally commit himself to refraining from any particular aspect of previous activity. [411] Equally, Mr Henderson has not adduced evidence of any particular difficulty he would encounter in making himself available in an employed, consultancy role to provide vision to existing organisations or to assist in the development of the vision of new organisations. There is no evidence to suggest that the skills he has are not transportable into an employed situation or one in which he and his family interests have no direct financial involvement and control. In short, Mr Henderson has not adduced such evidence as might indicate that a prohibition under s 299 of the Act would stand in the way of a meaningful and rewarding contribution to the business life of the community. [412] In considering the community interest in relation to Mr Henderson’s discharge from bankruptcy, the Court must consider not only the business in which Mr Henderson might in the future be engaged but also Mr Henderson’s likely response should such business encounter financial difficulty. His two bankruptcies have been associated with or caused by the failure of many companies and businesses. Mr Henderson’s entrepreneurialism involves risk. One of the significant risks is the risk of failure, as has occurred in two periods well separated from one another. [413] As evidenced by the successful MED prosecutions which preceded both the liquidation of PVL and the adjudication of Mr Henderson in bankruptcy, Mr Henderson failed in relation to the PVL Group to respond properly to the liquidity problems which befell the group from 2007. [414] The specific focus of my questions to Mr Henderson in relation to the 2008 MED prosecution was as to what Mr Henderson would do differently in the future. Even to such a direct question, Mr Henderson did not identify an action he would take. Rather, his first answer was to indicate that he would “consider” one of the statutory opportunities (such as a form of administration). Secondly, in response to my question to answer “hand on heart” whether he would hand over his organisation to an arm’s length administrator to get on with actions which might involve winding up or selling down, Mr Henderson did not answer directly – rather he stated that he thinks that that would be the prudent way to go now. [415] I am not persuaded on the basis of that evidence or from his public examination as a whole that Mr Henderson would find himself able to initiate a process of liquidation or administration if he perceived an opportunity, by way of reallocating resources and arranging debt payments, to trade his way out of insolvency. I conclude on the evidence of this examination that he would back his judgement on the prospects of financial survival ahead of the judgement of others and against any urging to adopt a formal response to insolvency under either the Companies Act or the Insolvency Act. There is a probable, identifiable risk from the perspective of the public interest that Mr Henderson, in the event of future unrestricted trading, would respond to a situation of insolvency in a manner similar to that he adopted in the period leading up to his adjudication. Conclusion – drawing the threads of the various interests together Restrictions under s 299(1) Insolvency Act [416] I am satisfied that, in conjunction with an order of discharge, there should also be an order under s 299 of the Act prohibiting Mr Henderson, in the community’s interest, from a range of business activity and a further condition under s 298 of the Act. [417] Section 299(1) of the Act provides: 299 Court may restrict bankrupt from engaging in business after discharge (1) The court, when it makes an order of discharge or at any earlier time, may prohibit the bankrupt after discharge from doing any or all of the following things without the court’s permission: (a) entering into, carrying on, or taking part in the management or control of any business or class of business: (b) being a director of any company: (c) directly or indirectly being concerned, or taking part, in the management of any company: (d) being employed by a relative of the bankrupt: (e) being employed by a company, trust, trustee, or incorporated society that is managed or controlled by a relative of the bankrupt. [418] Parliament has in s 299 provided for the protection of the public interest by reference to activities which involve the overall control or governance of personal or corporate businesses. Section 299 does not contain a provision permitting the Court to restrict a discharged bankrupt from engaging in particular business practices. So, for instance, s 299 contains no power to prohibit Mr Henderson from being involved in a particular type of business such as that of a property development company or from arranging second-tier finance for a company with which he is involved or from providing a personal guarantee for the loans of a company. Rather, what the Court may do under s 299 is to restrict the former bankrupt’s involvement in the management or control of businesses or corporate entities. [419] I am satisfied, by reason of the manner in which Mr Henderson conducted his business affairs in the decade before the liquidation of PVL and associated entities, and his personal bankruptcy, that the public interest demands the imposition of a restriction under s 299 of the Act. I am satisfied, having regard to Mr Henderson’s various failings, that the restriction should be in relation to each of the classes of activity identified in s 299(1) of the Act. Mr Henderson’s failings had a significant impact on the businesses and companies in which investors other than Mr Henderson’s families had interests. To the extent that Mr Henderson’s family interests are involved (whether through the FTG No 2 Trust or otherwise), those entities also shared to some extent issues of solvency and were susceptible to the shortcomings of management and governance identical to those of entities which had a co-ownership model. [420] Nothing in the substantial evidence produced in the public examination points to an exercise of dominant control of the family’s trust interests by Ms Buxton. Until his adjudication, it is clear that for the most part control lay legally and in practice with Mr Henderson. There was evidence of continuing control by Mr Henderson in relation to such detailed matters as which personal bills of the family would be paid by the trust following Mr Henderson’s bankruptcy. Once Mr Henderson is discharged, it is probable that (unless restricted) he would resume control both of the policy and of the day-to-day decisions affecting the family trust and its assets and interests generally. [421] If the Court is satisfied (as I am) that a balancing of interests reasonably requires that (in the event of Mr Henderson’s discharge from bankruptcy) a restriction be placed upon him under s 299 of the Act, I must determine whether it is to be for a specified period or without a time limit (being the alternative under s 299(2)(a) of the Act). In addressing the duration of a restriction, I have been strongly drawn to the conclusion that it would not be appropriate to specify a time limit on the prohibition having regard to the fact that the behaviours which led to the prohibition are ingrained. Under s 299(2)(b) of the Act, the Court would be able at any time in the future (on Mr Henderson’s application supported by appropriate evidence) to vary or cancel the prohibition. [422] Counsel did not refer me to any decision in which an unlimited business prohibition was imposed. The apparent lack of such instances may reflect the philosophy contained in the judgment of Vaughan Williams LJ in Re Gaskell112 that bankrupts (upon discharge) should have the ordinary inducements to industry, even if the bankrupt needs first to “pass through a period of probation”. I discern such an approach in the judgment of Associate Judge Doogue in Bryers v Official Assignee.113 Mr Bryers shares with Mr Henderson the experience of having served close to double the usual statutory period of bankruptcy.114 Associate Judge Doogue, recognising that it is not the object of orders such as are available under s 299 of the Act to punish the bankrupt, limited the duration of a s 299 order to seven years. The consequence was that Mr Bryers, when his years in bankruptcy were included, would have been excluded from the management of businesses in New Zealand for approximately 12 years.115 [423] In the circumstances of this case, I have come to the conclusion by a fine margin that Mr Henderson’s business restriction should be for a specified period. The restriction imposed on Mr Bryers entailed a total of 12 years’ exclusion from business management and employment by relatives. I am satisfied that it is just that Mr Henderson’s total period for exclusion be no longer but, equally, that it be no shorter. Given that Mr Henderson has been bankrupt (on this occasion for six years), an appropriate duration of restriction under s 299 of the Act will be six years. Conditions under s 298(1) Insolvency Act [424] Section 298(1) of the Act provides: (1) 112 113 114 115 When the court hears an application under section 294 for discharge, or conducts the examination of the bankrupt under section 295, the court may, having regard to all the circumstances of the case,— (a) immediately discharge the bankrupt; or (b) discharge the bankrupt on conditions (which may include a condition that the bankrupt consents to any judgment or order for the payment of any sum of money); or Re Gaskell, above n 108. Bryers v Official Assignee, above n 91. At [67]. At [70] – [72]. (c) discharge the bankrupt but suspend the order for a period; or (d) discharge the bankrupt, with or without conditions, at a specified future date; or (e) refuse an order of discharge, in which case the court may specify the earliest date when the bankrupt may apply again for discharge. [425] Accordingly, the Court has power under s 298(1)(b) and s 298(1)(d) to impose conditions upon any discharge (in addition to the powers of restriction under s 299 of the Act). [426] The restrictions which the Court may under s 299 of the Act impose on a bankrupt’s discharge relate primarily to the capacity in which a discharged bankrupt may engage in business. They do not address particular aspects of conduct in which the discharged bankrupt might engage. In this case, both on Mr Henderson’s evidence and on the evidence as a whole, two particular aspects of Mr Henderson’s past conduct create (through the prospect of repetition) a risk to the community. [427] First is Mr Henderson’s conduct prior to his two bankruptcies of providing personal guarantees without asset-backing. I am satisfied that it is appropriate and just that a condition be imposed on Mr Henderson’s discharge to preclude such conduct in the future. In reaching that conclusion, I have taken into account the fact that whereas s 299(2)(b) expressly vests in the Court the power to later vary or cancel a s 299 prohibition, s 298 vests no such power of variation in the Court in relation to a condition imposed upon discharge. In relation to Mr Henderson’s conduct in relation to personal guarantees, I do not consider the permanence of the condition I will impose to be disproportionate to the problem which needs to be addressed. [428] Secondly, there is established on the evidence generally and on Mr Henderson’s own evidence in particular the unsatisfactory extent to which Henderson-controlled companies became dependent upon second-tier finance. I have considered whether there should be a second condition relating specifically to second-tier finance. Having regard to the imposition of business restrictions under s 299, I have concluded that it would be inappropriate to structure a condition limiting Mr Henderson’s involvement in any second-tier finance when (because of the s 299 restriction) all management, control and governance of businesses with which Mr Henderson may have become involved will reside with others. The date at which discharge becomes effective [429] Under s 298(1)(d) of the Act, the Court may discharge the bankrupt, with or without conditions, at a specified future date. [430] Mr Henderson’s desired outcome was that he be discharged unconditionally under s 298 and without restrictions under s 299 of the Act. [431] Exactly how Mr Henderson should approach his employment opportunities under the regime which will be in place, as a result of conditions under s 298 and a s 299 order, is not straightforward. The meaning and scope of the Court’s order is of fundamental importance to Mr Henderson’s ability to meet the Court’s requirements. Some concepts involved, including the “management or control of any business” under s 299 of the Act are concepts on which Mr Henderson has challenged the Assignee’s views through to the conclusion of the public examination. They are matters on which Mr Henderson has stated that he has taken legal advice. But it is unclear to the Court (Mr Henderson not having produced evidence of any written advice) that Mr Henderson has yet received informed and accurate legal advice as to the concepts involved. The responsibility to inform himself lies with Mr Henderson (and his legal advisers if he chooses to retain such). [432] To ensure that Mr Henderson does not enter the new regime without the opportunity to fully come to grips with the orders made and to fully inform himself (with the benefit of legal advice) as to permitted and forbidden activities, there needs to be a period which reasonably allows Mr Henderson to digest this judgment and to obtain appropriate advice as to the implementation of the orders contained in it. A reasonable period is to late-January 2017. Mr Henderson’s conduct during bankruptcy The issue as raised by the Assignee [433] In her objection to discharge, the Assignee asserted that there existed evidence that Mr Henderson had:  breached prohibitions and restrictions imposed upon him as a result of his bankruptcy;  received income and acquired assets during his bankruptcy which had not been disclosed to the Assignee; and  had failed to cooperate in the liquidations of his associated entities. Mr Henderson’s response [434] Mr Henderson denies that he engaged in the management of any business outside the terms of the Act or the parameters he had discussed with Mr Marshall of the Insolvency Service. He maintained, in relation to information as to his financial affairs, that the form provided by the Assignee for completion has no statutory basis and that he was therefore not required to complete it. The Court’s approach to post-bankruptcy conduct in this case [435] REDACTED. [436] REDACTED. [437] REDACTED. [438] As matters stand, a detailed analysis of the evidence given in relation to particular aspects of Mr Henderson’s post-bankruptcy conduct would extend the length of this judgment far beyond what it already is. Given the other conclusions I have reached, it would be an inappropriate use of judicial resource to embark on the detailed analysis of particular business transactions needed to reach conclusions as a matter of probability. I therefore make no such findings. [439] I am also satisfied that none of the particular aspects of post-bankruptcy conduct alleged against Mr Henderson would, if established, either individually or collectively justify the extending of his bankruptcy beyond six years. The conditions and restrictions which the Court may impose on discharge in Mr Henderson’s case should properly be informed not by any failures of Mr Henderson while bankrupt, but rather by the failings in his business practices which led to his adjudication in 2010. I accordingly refrain from reaching any conclusion that Mr Henderson while bankrupt was involved in management of a business in breach of the Act. An unusual event reported – November 2016 [440] An unusual event was reported in the Christchurch Press newspaper when this judgment was at the point of being finalised. It related to the Sol Square property owned by Tuam Ventures, which is in receivership and liquidation. It was reported that, “at a mortgagee auction on Wednesday [24 November 2016], Henderson himself placed the winning bid of about $3.6 million for the complex of Tuam Street buildings”. The article continued that “he cannot run his own company while still bankrupt, but is not prevented from working for one in a consultancy or management capacity”. [441] I issued a Minute dated 30 November 2016 by which I stated that the public examination (which I had not brought to an end) would be reconvened on 6 December 2016. The Minute attached the article from the Christchurch Press. I recorded that the subject-matter of the resumed examination was the event or events referred to in the article. I continued: I envisage my examination will last no longer than 30 minutes. Should Mr Henderson or the Assignee wish to then make submissions on the answers given by Mr Henderson, I will hear those submissions immediately following the examination. I do not envisage a total hearing of longer than one hour. [442] I recorded that I still anticipated delivering my judgment before the Christchurch vacation. Shortly afterwards, counsel for the Assignee filed a Memorandum attaching documents in relation to enquiries the Assignee had been making which touched upon matters relating to the sale and purchase of the Sol Square property. [443] Mr Henderson filed a truculent Memorandum in which he took issue with the Court’s decision to reconvene the examination. He stated that, “I currently have commitments” for the appointed time but that “I am available for a telephone conference”. He said that he wished to brief counsel for the reconvened examination and that it appeared to him that the reconvened examination would take “one or two days to properly deal with the matters now raised by his Honour and the Assignee”. Mr Henderson characterised the reconvening of the public examination as “fundamentally judicial bullying” in which “the Associate Judge in this matter … appears to have set up personally … to scan the media, internet, and possibly other equally unreliable sources”. He did not add any factual information as to whether he had placed the successful bid of approximately $3.6 million or whether he had stated that he was permitted to consult and manage. [444] The issues which arise if a bankrupt considers himself at liberty to manage businesses do not require further elaboration. What Mr Henderson’s substantive response to questions would have been I do not know. [445] As the preceding part of this judgment indicates, I had (before the Press article appeared) concluded that evidence adduced as to past instances of possible misconduct during bankruptcy (whether by being involved in management or otherwise) did not need to be further considered in this judgment. The Press article raised a fresh subject-matter for possible consideration. I have since concluded that the public examination should not be extended to consider any recent involvement of Mr Henderson in the purchase of the Sol Square property. I therefore vacated the reconvened hearing date. Orders [446] I order: (a) The public examination of David Ian Henderson (Mr Henderson) is at an end; (b) Mr Henderson will be discharged from bankruptcy at 10.00 am, 27 January 2017; (c) As a condition of his discharge, Mr Henderson shall not from the date of this judgment enter into any contract by which he personally guarantees the debt or other obligation of another person or entity; (d) Mr Henderson is prohibited until 9 December 2022 from doing any or all of the following things without the Court’s permission: (i) entering into, carrying on, or taking part in the management or control of any business or class of business; (ii) being a director of any company; (iii) directly or indirectly being concerned, or taking part, in the management of any company; (iv) being employed by a relative of Mr Henderson; (v) being employed by a company, trust, trustee, or incorporated society that is managed or controlled by a relative of Mr Henderson. (e) As the Court has now delivered this judgment, the restrictions on publication contained in earlier judgments and rulings in relation to the public examination are (to the extent still in place) now at an end. Associate Judge Osborne Solicitors: Almao Douch, Hamilton Anthony Harper, Christchurch Brookfields Lawyers, Auckland Copy to Mr D I Henderson, Christchurch