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Michael Murray’s on-going commentary on issues in corporate and personal insolvency law and related policy and law reform, in Australia and internationally. Given the scope of insolvency, this extends to business, consumer and professional conduct, and ethics, governance and regulation, criminal, tax, environmental and administrative law, and the courts and government.

 

Sharing contempt penalties with liquidators and trustees

New Zealand courts will divide up fines imposed on directors or bankrupts for contempt for failure to assist insolvency practitioners, half going to the government and half to the practitioner, in recognition of the need to compensate the estate for the time and cost occasioned by the conduct on which the finding of contempt is based.  

Obstructing a liquidator or trustee in the performance of their duties can be a contempt of court in itself, apart from statutory liabilities and penalties.  Refusing to comply with requests by a liquidator who has the extra benefit of court orders is more serious again.

When such cases arise, New Zealand judges have adopted what may be a novel approach to penalising such a contempt, in addressing the costs to the administration in relation to the time and expense the contempt has caused.

In Grant and Khov v Grewal [2016] NZHC 1564 a director was fined NZ$10,000.  The Court ordered that the fines be apportioned as to 50 per cent each between the Crown (government) and the liquidators. The penalty moneys would serve to reimburse the insolvency administration for the cost and time caused by the directors’ default.

As the New Zealand High Court said, the purpose of a Court’s jurisdiction to punish for contempt in civil proceedings is both to coerce compliance with Court orders for the benefit of a private party, and to serve the public interest by ensuring the administration of justice is maintained. Justice would be undermined if the order of any court of law could be disregarded with impunity.  Public confidence in the administration of law recognises that there is a strong expectation that those who ignore Court orders are quickly brought to account.  Deterrence is another consideration.

 

In a more recent decision, Grant v Bhana [2016] NZHC 2755 the High Court referred to the fact that a lack of co- operation from directors “usually means greatly increased costs and therefore less money to be returned to those who are entitled to it”.  The directors had consistently acted to frustrate the liquidators.  They

“deny any obstruction on their part, point to the actions of others and, not infrequently, fail to abide by directions of the Court. They have never taken responsibility for anything at all”.

A fine was appropriate, because there was

“not, in their behaviour, the sort of blatant defiance of Court orders which has in more recent times been met with a sentence of imprisonment. [They] have convinced themselves of the righteousness of their cause and justify in their own minds not responding to [the court] orders. They have obfuscated and delayed rather than blatantly defied. They are stubborn and dogged in the maintenance of their position”.  

The Judge would not

“give them credit for ignorance of their obligations because of their status as lay litigants. On more than one occasion … I have been deliberately blunt in my explanations of their obligations and the likely consequences of failing to meet them”.

As to the amount, the judge rejected the liquidators’ claim for fines up to $50,000, in terms of the NZ Companies Act 1993. Imposing a penalty for contempt of Court is about maintaining the authority of the Court; the Companies Act regime is for a different purpose.

The judge imposed fines on the directors of $8,000 and $5000 respectively.  The fines were again divided up 50/50, acknowledging their public interest role.  

Comment

The NZ cases refer to the difficulty in determining the amount of a fine for contempt. Fines in excess of NZ$5,000 were reserved for cases involving persistent intentional breaches of an order, or engaging in conduct that amounted to a “systematic campaign” to breach an order. 

Imprisonment is necessarily a last resort, reserved for matters such as breaching injunctions or where, because of bankruptcy, fines would serve no purpose.

 

 

 

 

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