Bankruptcy: Pleas to change Cruel laws
Extraordinary personal stories of bankruptcy are prompting calls for an overhaul of the Insolvency Act, and a plea for more compassion. Rob Stock reports.
DOUG Robson lost his Northland home in his bankruptcy, as well as his mana, and precious family taonga.
Robson was declared bankrupt in late 2017 over personal tax debts, but his company, which also owed money to the Inland Revenue, is being liquidated by KPMG to clear its tax debts.
But Robson is coming to believe the Northland home should not have been sold, and he’s angry the sale went through without his being told about it, resulting in the loss of family photo albums, and the family Bible containing his father’s World War II service record.
‘‘All my family’s memories were in there. Nobody contacted me,’’ Robson said.
‘‘Old photos of my mum and dad, and all my children. They have all gone, and I don’t know where. I asked Insolvency [the Insolvency & Trustee Service], and it’s written down, all they could do was apologise to me. I have nothing. It’s all gone.’’
The Official Assignee (OA) has begun trying to locate the items after calling an emergency meeting with Robson after he spoke with Sunday News.
But Robson, who was discharged from bankruptcy in March, only inherited the Northland house as the eldest son in his wha¯nau, which could mean he held it in a form of tikanga trust for the wider wha¯ nau, similar to how a bach would be owned in a family trust by a Pa¯ keha¯ family.
‘‘He literally held that property on behalf of a broader wha¯ nau,’’ said Natalie Coates from Kahui Legal, who will meet Robson to listen to his story, which may pose the latest challenge in whether tikanga Ma¯ori customary law has standing in the common law.
‘‘It may be recognised, if it was taken to court,’’ Coates said.
Robson has also now begun the process of taking a complaint against the OA, and has made an appointment to meet his local MP, Emily Henderson.
he met the OA on Tuesday, June 8, supported by debt advocate Christine Liggins.
At the meeting, Liggins said Robson was told by the solicitor attending for the OA that he should have raised the tikanga issue at the start of his bankruptcy.
It was a response that frustrated her, as Robson had no idea that might even have been a possible objection to the sale. He was also depressed at the time, and getting no legal advice.
But just as frustrating was the lack of recognition of Robson as a human being.
‘‘I asked, ‘why wasn’t he told that the house was sold?’ and the solicitor [for the OA] said: ‘It’s not his house. It’s our house’,’’ said Liggins, who had previously been employed by the government to review insolvency regulations.
Under the Insolvency Act, all of a person’s property ‘‘vests’’ in the OA when they become bankrupt, and the act did not put any duty of care on the OA to treat bankrupted people humanely, Liggins said.
‘‘There’s no care for anyone who has gone bankrupt. They are treated like a criminal,’’ she said.
Robson is scraping by on benefits, and living in rented accommodation. During the bankruptcy he was very ill, and the sole positive was meeting ‘‘the love of his life’’ Cherie Wells, who had breast cancer when he met her, but is now in remission after surgery.
Until this month, Robson believed there had initially been enough money claimed by the OA in 2018 from the mortgagee sale of his Auckland home to have paid off his debts without having to sell the Northland wha¯ nau home.
The true cost of the sale earlier this year, with the lost taonga, has been devastating for him.
‘‘The biggest thing is that I have been kind of disowned by my family because I lost the family home. I’ve got sisters and a brother who haven’t talked to me since they took the family home, and uncles and aunties who don’t talk to me,’’ he said.
‘‘They have cleaned me out of any mana. If I was to go home to Kaitaia now, I would have to hang my head in shame because they will just ignore me. I have brought disrepute on my tribe and my family,’’ he said.
‘‘Even some of my grandchildren are looking at me like, ‘You lost the family home, I’m not talking to you’.’’
When Liggins first met Robson, he did not realise he had been bankrupted.
‘‘I had to show him his name on the Insolvency Register to convince him,’’ she said.
There is a public register of bankrupts, which infuriates Liggins, as official statistics from the Insolvency Service show almost half of bankrupts are not the authors of their own financial disasters. Illness, job loss, and relationship break-ups play a major role in derailing people’s lives.
Not even criminals face the public shame of a searchable public register, Liggins said.
After the meeting this week
with the OA, Robson broke down in tears. He is calling for the OA system to be reviewed, and for it to develop a system to educate people who enter bankruptcy, and to treat bankrupted people more compassionately than he has been treated.
‘‘They have got to show compassion, but they don’t. It’s like a robot printing out a letter. It makes me depressed and angry,’’ he said.
Bankruptcy usually lasts for three years, during which the OA controls a bankrupted person’s finances and assets.
During this period, the OA’s job is to seek to repay the debts of the ‘‘bankrupt estate’’.
But Liggins has uncovered a cohort of hundreds of perpetual bankrupts, who have failed to fill in documents called ‘‘statements of affairs’’, which tells the OA about the assets and income of a bankrupt.
Until these are filled in, the three-year bankruptcy clock does not begin to run down.
Liggins said the OA took a passive approach to gathering statements of affairs, and did not chase bankrupted people to complete the forms.
‘‘I asked: ‘Why aren’t you
chasing them up?’, and they said, ‘It’s not our responsibility. It’s in the act that it is their responsibility’,’’ she said.
The charge sheet of one man prosecuted for operating a business while bankrupt, and for concealing assets, sets out the duty relationship between OA and bankrupts under the Insolvency Act.
‘‘The duty is on the bankrupt to disclose information, rather than on the Official Assignee to find information, because otherwise the obligations on the Official Assignee would be too onerous, and expensive,’’ it reads.
Liggins wants to see the act rewritten to put duties on the OA to take proactive steps to progress bankruptcies, and treat bankrupts humanely.
She believes it is time to establish a duty of care by the OA to bankrupts, to freeze interest charged on debts when people enter bankruptcy (like other insolvency processes and loan hardship rules), and to ensure that each bankruptcy is subject to a plan drawn up by the OA.
There should be regular meetings with bankrupts to ensure bankruptcies go smoothly, and do not extend beyond the three years, she says.
And, Liggins said: ‘‘I think this
law needs re-writing with Te Tiriti in mind.’’
She has written to Commerce Minister David Clark, but has not heard back.
In a statement to Sunday News, Clark said all he had to offer was sympathy.
‘‘Bankruptcy is a difficult situation for anyone to be in,’’ he said. ‘‘As Minister of Commerce and Consumer Affairs, it is important that I am at an arm’s length from these operational matters.’’
Russell Fildes, national manager for the Insolvency & Trustee Service, said the OA was ‘‘very willing to meet with all bankrupts to discuss their bankruptcy’’.
Fildes said people who did not understand what was happening could also seek information by email, or a freephone number. They could also request documents under the Privacy Act at no charge.
People bankrupted through the courts were assigned an insolvency officer who would attempt to contact the person, and discuss the process.
‘‘Some bankrupts, however, do avoid contact from the OA or are not responsive to the OA,’’ Fildes said.
People who declared themselves bankrupt might not be assigned an insolvency officer.
Fildes did not address a number of questions about whether the OA system needed to be more humane, whether it recognised Treaty principles, or whether it unfairly treated people who were already disadvantaged.
Shame is a central feature of many bankrupts’ experiences of bankruptcy. One man, who asked for his identity to remain confidential (we’ll call him John), lost a big chunk of a family inheritance thanks to his failure to fill in the statement of affairs.
Sunday News has verified his identity, and the details of his
bankruptcy.
John was bankrupted in April 2009 after his business failed, and he could not pay tax owed to Inland Revenue.
But it wasn’t until July last year that his bankruptcy was annulled.
He struggled to explain how he allowed this to happen to him, but depression played a part.
‘‘I lost the original [statement of affairs form], and ‘out of sight, out of mind’,’’ he said. ‘‘I didn’t want to think about it. Nobody harassed me.’’
After three years, John said, he assumed his bankruptcy was over, and got on with his life.
He has since recognised: ‘‘If you don’t fill in your paperwork, you are just left in limbo.’’
When his life was collapsing, John struggled to engage with his problems. He said he began having near-phobic responses to receiving mail, and buried his head in the sand over his bankruptcy.
His status re-emerged a decade later when his father died and bequeathed him a house. Because he was still bankrupted, the property was claimed by the OA to satisfy his debts.
At that point Liggins became involved, and negotiated a settlement with his creditors.
‘‘I stressed that if he had have completed the statement of affairs back in 2008 they would have received no money, and in fact after 10 years had likely written it off anyway,’’ Liggins said.
John acknowledged blame for his actions, but said he wished the OA had operated in a more accessible way.
The OA charges fees for its legal and accounting staff at $230 per hour, while its insolvency officers bill at $160 per hour.
These fees are added to the bankrupt estate’s debts, though they are written off if there’s not enough money to pay them.
The fees of company liquidators can go as high as $550 an hour, which Robson, who was personally liable for his failed company’s debts, experienced.
In a letter sent to Robson in April, the OA disclosed it had billed $29,585.70 in ‘‘OA’s costs and disbursements’’.
Fildes said the OA only recovered fees from the funds actually recovered in a bankruptcy, and no fee is charged directly to the bankrupt, noting that only in very few cases are there enough funds to pay creditors in full.
‘Old photos of my mum and dad, and all my children. They have all gone, and I don’t know where.’ DOUG ROBSON
One of the more extraordinary cases of a bankruptcy gone wrong is that of ‘‘William’’, who is serving a sentence of home detention in a small rental home in a North Island seaside town.
He was convicted in 2019 of operating a business while bankrupt from October 2015 to 2017, concealing a bank account from the OA, and misleading the OA.
He is allowed an hour a day out on the beach for exercise, and two hours to do his shopping in a nearby town with a supermarket.
Like John, he asked that his real name not be used to protect his privacy.
Had William’s bankruptcy, which began in February 2011, followed the usual three-year course, he would have been discharged in early 2014, and free to engage in business activities.
But again, the sticking point in his bankruptcy was the statement of affairs.
William maintains he posted a completed statement of affairs to the OA in 2011, but the OA denied receiving it, and the judge who presided at his 2019 trial believed the OA.
Subsequent investigation by Sunday News revealed William had an earlier conviction for making false customs invoices in the 1990s, raising questions about whether the OA should have flagged him as being at high risk of non-cooperation when he was first declared bankrupt.
Fildes said that during any bankruptcy process, the Insolvency and Trustee Service investigated the circumstances that gave rise to it and could refer possible offending to the OA’s Integrity & Enforcement Team to investigate.
William claimed he would have cooperated with the OA on the statement of affairs, but maintained he did not discover until 2014 that it had not been received.
As with John, verified William’s identity, and details of his bankruptcy.