High Court imposes tough bankruptcy conditions on 'grossly reckless' David Henderson

Monday 19th December 2016

The High Court in Christchurch has banned property developer David Henderson from running a company for six years on top of his six-year-long bankruptcy, which is set to be lifted next month.

Associate Judge Rob Osborne today ordered a number of restrictions on Henderson's dealings in a 134-page judgment, which will release the developer from his second bankruptcy on Jan. 27. Henderson was bankrupted in 2010 when his property empire failed in the collapse of the country's finance sector. While the amount owing was disputed, Judge Osborne estimated it fell between $100 million and $150 million.

The Official Assignee objected to Henderson's automatic discharge, which had been scheduled for 2014, seeking either that it be refused or that restrictions be placed on Henderson's business dealings. Henderson had previously been bankrupted in 1996 before being discharged in 1999.

Judge Osborne sided with the Official Assignee by "a fine margin", ruling that Henderson's dealings should be restricted for a specified period beyond bankruptcy, ordering that the 61 year-old not enter into any contract by providing a personal guarantee, banning him from acting as a director or manager of a company until Dec. 9, 2022, and prohibiting him from being employed by a relative or entity controlled by his family.

The judge said Henderson's personal guarantees that weren't backed by assets were the main and direct cause of his second bankruptcy. At the same time, Henderson 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."

The most favourable view of those guarantees was that they were "grossly reckless", yet the judge said 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."

The judge credited Henderson's business acumen, but said that doesn't "mitigate the risks which arise from Mr Henderson’s conduct of business." Similarly, there were strong arguments in favour of protecting the public from the irrecoverability of debts and drain on government and judicial resources, weighed up against Henderson's skill in contributing to the wider good as he did in the wake of the Canterbury earthquakes.

"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 judge said. "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)."

Judge Osborne said he wasn't persuaded that Henderson would be able to initiate a liquidation or administration if "he perceived an opportunity, by way of reallocating resources and arranging debt payments, to trade his way out of insolvency" and "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."

BusinessDesk.co.nz

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