IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY CIV [2016] NZHC IN THE MATTER of the Insolvency Act 2006

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1 IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY CIV [2016] NZHC 2969 IN THE MATTER of the Insolvency Act 2006 AND IN THE MATTER BETWEEN AND of the bankruptcy of DAVID IAN HENDERSON HAVENLEIGH GLOBAL SERVICES LIMITED AND FM CUSTODIANS LIMITED Judgment Creditors (Substituted Creditors) DAVID IAN HENDERSON Judgment Debtor Public Examination: Submissions: Appearances: 3-7, 11-14, August, 27 October October 2016 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 Insolvency Act 2006 HAVENLEIGH GLOBAL SERVICES LIMITED v HENDERSON [2016] NZHC 2969 [9 December 2016]

2 The public examination of a bankrupt...[1] The statutory regime...[4] Sections 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]

3 (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, April 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]

4 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]

5 The public examination of a bankrupt [1] David Ian Henderson (Mr Henderson) was adjudicated bankrupt on 29 November He was to have been automatically discharged from bankruptcy on 12 January 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 The public examination of Mr Henderson took place (insofar as Mr Henderson was examined) from August There was then further delay before submissions were presented in October The statutory regime Sections 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.

6 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 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. 3 4 ASB Bank v Hogg [1993] 3 NZLR 156 (CA) at Re Whitelaw HC Hamilton CIV , 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).

7 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. [9] 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 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.

8 [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 (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. [14] 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.

9 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) (b) (c) (d) (e) (f) the bankrupt s affairs; and the causes of the bankruptcy; and the bankrupt s performance of his or her duties under this Act; and the manner in which the bankrupt has obeyed orders of the court; and the bankrupt s conduct before and after adjudication; and 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

10 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, 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

11 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, 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, (with an estimated value of security for those debts totalling $77,960,000). Mr Henderson identified disputed debts of $3,070, The broader background to Mr Henderson s bankruptcy [22] Mr Henderson was previously adjudicated bankrupt in August He was automatically discharged from that bankruptcy in August 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 , 29 November 2010.

12 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 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 In the meantime, the creditor s application had been filed which led to Mr Henderson s adjudication on 29 November [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

13 $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: (a) Total creditors (both disputed and undisputed) $164,753,625.89; (b) Creditors (undisputed) $161,683, [29] 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. The Act in such 11 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 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.

14 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: (a) Claims submitted by creditors $229,782,340; (b) Amounts still claimed by creditors at 12 June 2015 $213,084,599. [32] 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).

15 [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) Form of claims submitted by creditors [40] 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.

16 (b) Calculation of interest [41] 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) Overstated claim Allied Farmers Investments Ltd (Allied Farmers) [42] 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 (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) Overstated claim Bank of New Zealand (BNZ) [44] 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

17 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) Overstated claim SCF (now CAM) [45] 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) Overstated claim Dominion Finance Group Ltd (Dominion) [47] 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) Overstated claim Equitable [48] 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.

18 (h) Overstated claim FM Custodians Ltd (FM Custodians) [49] 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) Overstated claim Inland Revenue Department (IRD) [50] 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) Overstated claim Strategic Finance Limited (Strategic) [51] 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 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) Unlisted creditors claim Mr Henderson s sister and brother-in-law [52] 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 , 16 August 2010, summary judgment for $2,370, (with costs reserved).

19 (m) Cross-claim Allied Farmers [53] 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) Cross-claim SCF [54] 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.

20 [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

21 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 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, by the Assignee; (c) the only property recovered by the Assignee during the bankruptcy was a preferential payment of $6, 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 [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, He did not accept that the only payment made to creditors

22 was a dividend from the $6, 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

23 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 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.

24 [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, 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) insolvency arising from his inability to meet his taxation liabilities. [73] 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

25 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 Assets $51,321, Liabilities $19,926, Approximate net worth $31,395, (b) Statement of position at March 2007 Assets $53,998, Liabilities $12,660, Approximate net worth $41,337, (c) Statement of position at July 2007 Assets $55,028, Liabilities $23,109, Approximate net worth $31,918, [76] 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: Assets $55,410, Liabilities $25,155, Estimated surplus $30,254, [77] 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 Mr Smith deposed that the statement of position and schedule had

26 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, having obtained its opposed summary judgment on 16 August 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 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. On his own 14 Strategic Finance Ltd v Henderson, above n 13.