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Hare v Hare (a bankrupt) [2019] NZHC 2801 (31 October 2019)

Last Updated: 22 November 2019


IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2018-485-330
[2019] NZHC 2801
BETWEEN
KELLY-ANN HARE
Applicant
AND
JONATHAN KEITH HARE (A DECLARED BANKRUPT)
Respondent
Hearing:
17 July 2019
Appearances:
G M Letts and R M Stoop for Applicant No appearance for Respondent
O J G Upperton for Commissioner of Inland Revenue (Interested Party)
P R W Chisnall for Official Assignee (Interested Party)
Judgment:
31 October 2019


JUDGMENT OF CLARK J




[1] This application by Ms Hare raises a novel question concerning (broadly speaking) the relative priorities of a charging order registered over a property by the Commissioner of Inland Revenue (the Commissioner) and a spouse’s relationship property interest in that property. The specific issue is whether a charging order issued under s 184 of the Child Support Act 1991, and registered against a family home prior to the commencement of a de facto relationship, should be taken into account when calculating the value of a spouse or partner’s protected interest in the family home under s 20B of the Property (Relationships) Act 1976 (the PRA).







HARE v HARE (A DECLARED BANKRUPT) [2019] NZHC 2801 [31 October 2019]

Background


[2] There is no particular contention about the relevant background facts, which can be briefly stated. Mr Hare owns a property at Olivia Crescent, Tawa, valued at approximately $320,000. On 2 May 2011, the Commissioner was granted a charging order under s 184 of the Child Support Act in respect of unpaid child support owed by Mr Hare. The charging order was registered against the title of the Olivia Crescent property on 16 May 2011. The Olivia Crescent property is also subject to a mortgage to ASB Bank, which, as at the date of the hearing, was approximately $86,030.

[3] In late 2012, Mr Hare commenced a relationship with Ms Hare. The couple began living together at the Olivia Crescent property in January 2013. They married in May 2017.

[4] On 15 March 2016, Mr Hare was adjudicated bankrupt on the application of the Commissioner. In the months following, the Official Assignee took steps to realise the property by way of sale and to have the Commissioner remove the charging order in anticipation of a sale. Before the property was listed for sale, Ms Hare lodged a notice of claim of interest under s 42 of the PRA. Such a notice has the effect of a caveat lodged pursuant to the Land Transfer Act 2017 to protect an interest claimed under the PRA.

[5] In March 2017, following correspondence between Mr Hare and the Official Assignee concerning the possibility of Ms Hare acquiring the Olivia Crescent property, Ms Hare filed in the Family Court an application for:

(a) an order determining the length of her de facto relationship with Mr Hare;

(b) a declaration that the Olivia Crescent property is a “family home” such that the provisions of ss 20B and 20C of the PRA apply and Ms Hare has a “protected interest” in the property; and
(c) an order vesting in Ms Hare either the Olivia Crescent property or a share of the sale proceeds.

[6] Judge Ellis found a de facto relationship had commenced from January 2013, continued through March 2016 when Mr Hare was adjudicated bankrupt and continued until their marriage in May 2017. The marriage continues to the present day.1

[7] The Judge was also satisfied that the Olivia Crescent property fell within the definition of “family home” in the PRA and had been their family home “during the entirety of their de facto and now married relationship”.2

[8] Judge Ellis did not determine the value of Ms Hare’s protected interest in the family home. Instead, the parties (that is, Ms Hare, Mr Hare, the Official Assignee and the Commissioner) agreed the proceeding should be transferred to the High Court because the discrete legal issue for consideration has been largely untested by appellate courts and the High Court was thought to be better placed to deal with matters involving the intersection of the PRA and insolvency. Further, the Commissioner regarded the novel issue as having potentially significant implications for other charging orders made under the Child Support Act and for the Commissioner’s ability to administer the Inland Revenue Acts.3

The competing positions in overview


[9] I address the legislative provisions shortly but for the moment, in order to understand the parties competing positions, it is sufficient to set out the statutory provision at the centre of their respective arguments. Section 20B of the PRA provides that each spouse or partner has a protected interest in the family home. Subsection 3(a) provides for the value of the protected interest:

(3) The value of the protected interest of a spouse or partner is as follows:

(a) where section 11 applies, the protected interest is to the extent of the lesser of

1 Hill v Hare [2017] NZFC 9589.

2 At [17].

3 See Tax Administration Act 1994, sch 1.

(i) the specified sum; or

(ii) one-half of the equity of the spouses or partners in the family home:

[10] Ms Hare’s position is that she is entitled to be paid the “specified sum” provided by subs 3(a)(i) ($103,000) on the basis that one-half of the equity in the family home is greater than the specified sum. Ms Hare’s calculation of the equity in the family home ($119,485) is the value of the Olivia Crescent property ($325,000) less the amount of the mortgage to ASB Bank ($86,030).

[11] The Commissioner’s position is that, given the value of one-half of the equity in the family home is less than the specified sum, Ms Hare is only entitled to that lesser value, which the Commissioner calculates at $78,534.81. The Commissioner’s calculation of the equity in the family home takes the value of the Olivia Crescent property ($325,000) less the amounts of both the mortgage ($86,030.46) and the charging order ($81,899.92).

[12] Thus, the parties’ differing positions stem from a dispute about the meaning of “equity” in s 20B(3)(a)(ii) of the PRA and whether the child support debt is to be included or excluded from the calculation of equity in the family home.

[13] Ms Hare’s position is that the calculation of equity under s 20B should not include the value of the child support debt owed to the Commissioner by Mr Hare because it is an unsecured personal debt in respect of which the protected interest “is not liable” under s 20B(2).

[14] The Commissioner, on the other hand, considers “equity” under s 20B must include the value of the child support debt: the Commissioner registered a charging order against the family home before the parties entered into a qualifying relationship under the PRA and the charging order means the child support debt has priority over the protected interest.

[15] The Official Assignee adopted a neutral position as to the correct method of calculating the value of the protected interest but will be assisted by the Court’s
guidance on the matter and offered some general observations about the relevant legal principles.

Jurisdiction and statutory framework


[16] It has been said of the PRA that it establishes a deferred relationship property regime that:4

... does not come into effect until the parties separate, or one of them dies, or one of the other circumstances in s 25(2) arises. Prior to one of those precipitating events, each spouse or partner can deal freely with his or her own assets and nothing in the [PRA] affects the title of a third party to those assets unless the [PRA] expressly provides otherwise ...


[17] An unusual feature of this case is that, although this is a proceeding under the PRA, the couple remain happily married and continue to reside together in the family home at Olivia Crescent. Although I was not addressed on the point, I was concerned to ensure, before delivering judgment, that the High Court had jurisdiction to determine the issues.

[18] By s 22 of the PRA, the Family Court must determine every application under the PRA. The Family Court may order, however, the transfer of proceedings to the High Court pursuant to s 38A.

[19] Those who may make applications under the PRA are specified in s 23. On an application under s 23, the Court may make any order it considers just determining the respective shares in relationship property or dividing relationship property.5 The Court may also make any other order it is empowered to make by any provision of the PRA.6

[20] The Court may not make an order under s 25(1) unless it is satisfied the parties are no longer in a relationship or that one of them is endangering relationship property or seriously diminishing its value.7 The other circumstance in which the Court may make an order under subs (1) is if either spouse or partner is an undischarged
  1. Nicola Peart (ed) Brookers Family Law – Family Property (online ed, Thompson Reuters) at [PRIntro.02(4)].
  2. Those who may apply for an order or a declaration under s 25 are spouses or partners and the Official Assignee in bankruptcy of the property of either spouse or partner.

6 Property (Relationships) Act 1976, s 25(1)(b).

7 Section 25(2)(a)–(c).

bankrupt.8 I am satisfied that in this case s 25(2)(d), which deals with the situation where either spouse or partner is an undischarged bankrupt, enables the High Court to entertain Ms Hare’s application for a declaration as to the value of her protected interest under the PRA.

[21] Section 4 provides that the PRA is a code to the extent the PRA applies to transactions between spouses and partners. The PRA applies rather than the rules and presumptions of the common law and of equity.

[22] Part 5 deals with relationship property and creditors and sets out how the PRA affects the secured and unsecured creditors of the spouses or partners. Where property is undivided, s 19 applies:

19 Effect of Act while property is undivided

Except as otherwise expressly provided in this Act, nothing in the Act shall—


(a) affect the title of any third person to any property, or affect the power of either spouse or partner to acquire, deal with, or dispose of any property or to enter into any contract or other legal transaction whatsoever as if this Act had not been passed; or

(b) limit or affect the operation of any mortgage, charge, or other security for the repayment of a debt given by either spouse or partner over property owned by him or her and every such instrument shall have the same effect as if this Act had not been passed.

[23] Section 20A provides that secured and unsecured creditors of a spouse or partner have the same rights against that spouse’s or partner’s property as if the PRA had not been enacted. Section 20A is subject to s 20B and applies except where otherwise expressly provided in the PRA.9 Bankruptcy is also conducted as if the PRA had not been passed.10 Section 20B provides the other spouse or partner with a protected interest in the family home:




8 Section 25(2)(d).

9 Section 20A(3).

10 Section 20A(2).

20B Protected interest in family home

(1) Each spouse or partner has a protected interest in the family home, which includes,—
(2) The protected interest of a spouse or partner is not liable for the unsecured debts of the other spouse or partner, other than an unsecured debt incurred—
(3) The value of the protected interest of a spouse or partner is as follows:
(c) where section 11B or section 12 applies, the protected interest is to the extent of the lesser of—
(4) In this section, specified sum means the amount for the time being prescribed under section 53A for the purposes of this section.

[24] Section 20C then provides for the payment of the protected interest upon bankruptcy:

20C Payment of protected interest on bankruptcy of other spouse or partner

(1) If, on the bankruptcy of a spouse or partner, the family home (including a homestead) or, if section 11A applies, the proceeds of the sale of the family home pass to the Official Assignee, the Official Assignee must pay to the other spouse or partner the lesser of—
(2) The debts referred to in subsection (1)(b) are as follows:
(3) If, on the bankruptcy of a spouse or partner, section 11B applies, the Official Assignee must pay to the other spouse or partner such amount in satisfaction of the protected interest of that spouse or partner as the court may direct, on application by the Official Assignee or by that spouse or partner.

[25] Where the drafting of the relevant provisions in the predecessor Matrimonial Property Act 1976 were considered “obtuse”,11 the wording of s 20B of the PRA has been described as “inept”.12 Despite the difficulties presented by the drafting, it is clear that the protected interest is anomalous in a statutory regime under which the Court may not make orders unless the relationship has come to an end or the value of the property is endangered by a spouse or partner. As I earlier observed, neither of these circumstances pertain in the present case but Mr Hare’s bankruptcy, of itself, raises the issue of the extent to which the statutory regime protects Ms Hare’s “protected interest”.

Submissions

Ms Hare


[26] Mr Letts, counsel for Ms Hare, highlighted s 4 and the fact that other enactments, including the Insolvency Act 2006 and Child Support Act, must be read subject to the PRA. He submitted that Part 5 specifically provides for situations where one spouse or partner is adjudicated bankrupt and argued that insofar as the PRA enacts

11 See Official Assignee v Prowse [1994] 1 NZLR 225 (HC) at 233.

12 W Atkin Fisher on Matrimonial and Relationship Property (NZ) (online ed, LexisNexis) at [9.2].

rules to address the priority of creditors’ claims against relationship property, the PRA supplants rules and presumptions of common law and equity. Mr Letts submitted the charging order is not a secured debt and, even if it were, it is a personal debt rather than a relationship debt so should not be taken into account when determining the equity in the family home.

[27] The argument is that the child support debt is a personal debt because it was incurred by Mr Hare prior to the commencement of his relationship with Ms Hare and it was not incurred for any of the purposes outlined in s 20(1). The debt therefore is precluded from the assessment of the equity in the family home because s 20B(2) expressly provides that the protected interest is not liable for the unsecured debts of the other spouse or partner unless those debts were incurred jointly or for the purpose of acquiring, improving or repairing the family home.

[28] Mr Letts drew support for his argument from the Law Commission’s recent issues paper reviewing the PRA and its observation that “the basic philosophy of the protected interest provision was that matrimonial property should not be seized to satisfy the purely personal creditors of the other spouse”.13

[29] Mr Letts further argued the child support debt was an unsecured debt because the charging order did not grant the Commissioner a secured interest in the Olivia Crescent property. Rather, the charging order acted as a ‘stop order’ preventing the property from being disposed of until the debt was satisfied. He also argued it would be contrary to Parliament’s purpose in providing for a protected interest in the family home if the value of the equity in that family home could be eroded by charging orders arising from personal debts of the owner.

[30] Ms Hare’s alternative position is advanced in reliance on s 20C(1)(b) pursuant to which the Official Assignee must pay to the non-bankrupt spouse or partner so much of the protected interest as remains after specified debts have been paid. Mr Letts submitted that the process under s 20C(1)(b) would be rendered redundant if secured debts were accounted for when calculating the equity in the family home.

13 Law Commission Dividing Relationship Property – Time for Change? Te mātatoha rawa tokorau

– Kua eke te wā? (NZLC IP41) at [31.12].

[31] Overall, Mr Letts advanced a definition of “equity” for the purposes of s 20B(3)(a)(ii) that excludes all personal debt of the owner (both secured and unsecured) and any unsecured relationship debt. In other words, the equity in the family home is to be calculated by reference to its market value less any secured relationship debt (such as a mortgage funding the purchase of the family home). In drawing this distinction, Mr Letts cited s 20D under which the value of relationship property that may be divided between the spouses or partners is calculated by deducting from the total value of the relationship property “any secured or unsecured relationship debts”. He argued that the non-bankrupt spouse or partner should be afforded a degree of protection and that the value of their protected interest should not be eroded by debts in respect of which they would not otherwise be liable.

Commissioner


[32] Mr Upperton, counsel for the Commissioner, submitted that a charging order under s 184 of the Child Support Act survives bankruptcy by virtue of s 182 of the Child Support Act. The consequence is that a charging order under s 184 is of greater effect than a charging order made in favour of a judgment creditor under the High Court Rules 2016 or District Court Rules 2014. Accordingly, the Commissioner falls within the definition of “secured creditor” in s 3 of the Insolvency Act.

[33] Mr Upperton submitted “equity” in s 20B(3)(a)(ii) of the PRA must be interpreted to mean the difference between the value of the family home and all encumbrances on it, including a secured child support debt. Mr Upperton cited Official Assignee v Prowse in which, in the context of the predecessor to s 20B, Blanchard J concluded equity meant the difference between the market value of the property and all claims secured against the property.14 Mr Upperton submitted there was no basis upon which to distinguish between the mortgage to ASB Bank, which Ms Hare accepts should be accounted for in the calculation of the equity, and any other secured interest (whether personal or otherwise).

[34] In response to the argument that the Commissioner’s interpretation renders s 20C(2)(a) redundant, Mr Upperton painted a scenario in which the family home is

14 Official Assignee v Prowse, above n 11.

sold for less than market value. He argued that the purpose of s 20C(2)(a) is to make clear that in such a scenario, where it would not be possible for the Official Assignee to pay both the secured debt and the protected interest, the secured debt takes priority. Because s 20B has implications for creditors generally, without bankruptcy, it is not appropriate to read ss 20B and 20C together in the way advocated by Mr Letts.

[35] Finally, Mr Upperton submitted Ms Hare’s interpretation of “equity” has the potential to create “absurd consequences and unfairness”. If the calculation of equity is to exclude certain encumbrances on the family home, the protected interest could exceed the net value of the property. The Commissioner accepts a purpose of the protected interest is to protect the person with the interest from the unsecured debts of the spouse or partner. To calculate the protected interest, however, without taking into account secured debts is potentially unfair to unsecured creditors whose potential share in the property of the bankrupt would be reduced as a result.

Official Assignee


[36] The Official Assignee welcomes the Court’s determination of the issue so that she may have guidance in realising the property in the bankruptcy of Mr Hare. Were this proceeding not before the Court Mr Chisnall, counsel for the Official Assignee, submitted directions may have been sought pursuant to s 225 of the Insolvency Act.

[37] The first point is that the Official Assignee has not agreed that Ms Hare will purchase the property by way of utilising her protected interest although “that option is on the table”.

[38] As to the s 184 charging order, Mr Chisnall submitted the first question is whether it is a security and what effect Mr Hare’s bankruptcy has on the charge. While observing that this was an issue for the Commissioner to advance, Mr Chisnall made some points in passing.

(a) It is trite that court issued charging orders in favour of judgment creditors do not survive bankruptcy nor have a priority. Execution has to have been completed prior to adjudication for the execution creditor
to retain the benefit of the execution.15

(b) Section 3 of the Insolvency Act defines “charge” and also defines “secured creditor” as “a person entitled to a charge on or over property owned by a debtor”.

(c) If the Commissioner’s charge is a valid security then the focus becomes the amount of Ms Hare’s protected interest under s 20B and then the amount she is to be paid under s 20C of the PRA.

[39] The remainder of Mr Chisnall’s written submissions were based upon the calculation of the protected interest depending on whether the Commissioner’s or Ms Hare’s view was accepted. Ultimately, the Official Assignee says s 20C must be read in the context of bankruptcy. The Official Assignee distributes assets in the bankruptcy pursuant to ss 273–282 of the Insolvency Act. While the protected interest does not vest in the Official Assignee, it is clear, Mr Chisnall submitted, that on bankruptcy the rights of the creditors with security over the family home and non- personal creditors should prevail over the rights of the spouse’s interest.16

Discussion


[40] Before turning to the substantive question of the meaning of “equity” for the purposes of s 20B(3)(a)(ii), and whether the charging order has the effect in this case of diminishing the equity, it is necessary to understand the legal effect of the charging order. In other words, is it a debt secured on the family home?

[41] It is clear from s 20B(2) that certain unsecured debts of one spouse or partner are not to have the effect of diminishing the “protected interest” of the other spouse or partner. The PRA defines neither “secured” nor “unsecured” debts or creditors. Importantly, however, s 20A provides that secured and unsecured creditors of a spouse or partner have the same rights against that spouse or partner, and that spouse’s or partner’s property, as if the PRA had not been passed.

15 Insolvency Act 2006, s 108.

16 Citing Official Assignee v Davidson [1987] NZHC 290; (1987) 4 NZFLR 513 (HC).

[42] In those circumstances, it is appropriate to have regard to the definition of “secured creditor” in s 3 the Insolvency Act:

secured creditor means a person entitled to a charge on or over property owned by a debtor


[43] The Insolvency Act provides the following definition of “charge”:17

charge includes a right or interest in relation to property owned by a debtor, by virtue of which a creditor of the debtor is entitled to claim payment in priority to other creditors; but does not include a charge under a charging order issued by a court in favour of a judgment creditor.


[44] Ms Hare’s case is that, as the charging order obtained by the Commissioner only has the effect of a “stop order”,18 the charging order does not come within the definition of “charge” in the Insolvency Act. If Ms Hare’s approach is correct the consequence is that a charging order made in the context of the Child Support Act offers less protection to the creditor than a “charge” coming within the definition of the Insolvency Act.

[45] For the following reasons I am satisfied a charging order made under the Child Support Act is a charge within the meaning of the Insolvency Act and, by virtue of which, the Commissioner is entitled to claim payment in priority to other creditors.

[46] Section 182 of the Child Support Act provides:

182 Bankruptcy


(1) Where a liable person who is required to make any payment under this Act is adjudicated a bankrupt, all money due and unpaid at the date of the adjudication shall constitute a debt provable in the bankruptcy.

(2) No such bankruptcy and no discharge from the bankruptcy shall—

...

(b) affect any security for the payment of any liability under this Act, or the liability of any property to be made available in satisfaction of any liability under this Act, other than property that is or becomes assets in the bankruptcy.



17 Insolvency Act 2006, s 3 definition of “charge”.

18 See [29] above.

[47] There can be no realistic doubt that the reference in s 182(2)(b) to “any security for the payment of any liability under this Act” is to a charging order made under s 184. The effect of s 182(2)(b), therefore, is that the Commissioner may claim against the Olivia Crescent property in priority to unsecured creditors in the bankruptcy. That is not the case with a stop order, which is the principal reason why such orders are not considered to be secured debts. As Associate Judge Bell explained in Far North District Council v Pollock:19

A charging order [under the District Court Rules] does not survive the bankruptcy of a debtor. That is a result of s 108 of the Insolvency Act. While a charging order acts as a stop order which holds the property in the interim and prevents it being disposed of so as to defeat any judgment obtained, it does not grant an interest over the property in favour of the creditor.


[48] What distinguishes a charging order under the Child Support Act from a stop order, is that the charging order survives bankruptcy. In this case, therefore, the charging order means the child support debt is secured against the family home.

[49] Turning now to the meaning of equity in s 20B(3), Ms Hare contends for a meaning that excludes personal debts, secured or unsecured, and unsecured relationship debts. I discern from the PRA no basis for departing from the following standard definition of equity defined in Black’s Law Dictionary as:20

... the amount by which the value of or an interest in property exceeds secured claims or liens; the difference between the value of the property and all encumbrances on it ...


[50] In Official Assignee v Prowse, Blanchard J said:21

In ordinary language the “equity” of an owner in a property is its market value, or realised sale price, less amounts secured over the property which have to be paid to secured creditors in order to clear the title. The equity is what you have left in your hands when you have paid the secured debts.


[51] That, too, was the meaning given to “equity” by the Court of Appeal in

Hebberd v Hebberd, which concerned the correct method of assessing the equity in a


19 Far North District Council v Pollock [2014] NZHC 2473 at [19]. See also Brdjanovic v Ellis Hardie Syminton Ltd [1974] 2 NZLR 542 at 543, citing Blaikie v Malcolmson (1886) 4 NZLR 408 at 409.

20 Black’s Law Dictionary (10th ed, Thomson Reuters, 2019) at 657.

21 Official Assignee v Prowse, above n 11, at 230.

homestead under what is now s 12 of the PRA.22 Section 12 provides that, where the family home is a homestead, each spouse or partner is entitled to share equally in a sum equal to the equity in the homestead. In the High Court, the equity in the homestead had been assessed without accounting for a mortgage on the property that had been used to purchase a boat for the husband. In relation to that point, the Court of Appeal said:23

The Judge in the present case appears to have been concerned at what he saw as unfairness in reducing the wife’s compensation for her interest in the homestead by a proportion of the mortgage debt used towards the acquisition of the boat which was the husband’s separate property. We understand the Judge’s concern, but we do not think it justifies departing from the clear words of the section. If what he perceived to be an injustice is to be corrected, the authority for doing so must be found elsewhere in the Act.


[52] Equally, in the context of the PRA, s 20B(3)(a) admits of no meaning of equity beyond its well-established meaning. The Court of Appeal in Hebberd v Hebberd regarded that well-established meaning as being accurately expressed in Black’s Law Dictionary.24

[53] Accordingly, the one-half share of the equity in the Olivia Crescent property will be a one-half share of the net value of the home, namely its market value or agreed value less the mortgage over the property and the child support debt secured by the charging order.

[54] Ms Hare’s position is that, as the child support debt is a personal debt, it should not be factored into the calculation of equity under s 20B(3). In argument, Mr Letts cited s 20B(2) as demonstrating the point. The argument is that, because the protected interest is not liable for the unsecured debts of the other spouse or partner (except where they were incurred jointly, or for the purposes of the family home), the equity should be calculated without reference to Mr Hare’s child support debt.

[55] I do not agree that s 20B(2) conveys the meaning for which Ms Hare contends. Section 20B(2) provides for the substantive entitlements as between the spouse or partner holding the protected interest, and the unsecured creditors of the other spouse

22 Hebberd v Hebberd [1992] 3 NZLR 517 (CA) at 524.

23 At 525.

24 At 524.

or partner. The subsection does not bear directly or indirectly on the meaning of equity or the value of the protected interest. In particular, s 20B(2) does not address the position of secured debts which include, as I have found, child support debts.

[56] Section 20B of the PRA does not distinguish between secured personal debts and secured relationship debts. When the title to property is encumbered by secured interests s 20B does not accord, expressly or impliedly, different status to the secured interests by reference to the underlying nature of the debt. Relying on the definitions of “personal debt” and “relationship debt” in s 20, Ms Hare sought to distinguish between secured personal debts and secured relationship debts. The definitions do not assist Ms Hare, however, as those terms are not used in s 20B. Rather, the definitions assist in understanding and applying ss 20D and 20E, which concern division of relationship property. In this case, the marriage continues and no issue of division arises. In a sense, s 20B contains its own definition of the kinds of debt for which the protected interest is not liable namely, unsecured debts of the kind specified in s 20B(2).

[57] In relation to Ms Hare’s argument concerning the redundancy of s 20C, Mr Upperton submitted it was likely that subs (2)(a) was enacted out of an abundance of caution. He may have a point. Setting aside for the sake of argument unsecured debts of the kind referred to in s 20C(2)(b), in most instances, it will be unnecessary to have recourse to s 20C(2)(a) because the amount of the protected interest will be less than (or equal to) the value of the family home less any secured debts. There may be occasions, however, where a sale by the Official Assignee achieves less than market value and where collectively the protected interest and secured debts exceed the funds available to the Official Assignee for payment under s 20C(1). In line with the priority accorded to secured creditors under s 273 of the Insolvency Act, it might have been thought necessary to specify that the secured debts must be paid first.25 As such, the Commissioner’s approach to calculating the value of the protected interest does not render s 20C redundant, as Mr Letts submitted.



  1. See also Property Relationships Act 1976, s 46, which recognises the priority of any secured creditor’s claim against property arising before the making of any relationship property order.
[58] Standing back, Mr Letts protests the injustice that results from giving equity its ordinary meaning. But as the PRA currently stands the non-bankrupt spouse or partner is entitled only to a share of the equity of the family home. If a secured personal debt erodes the equity of the property, that is not an outcome beyond the objects of the PRA. Ms Hare’s is not a situation where, as Mr Letts argued, the spouse or partner’s interest is being “eroded by debts in respect of which they would not otherwise be liable”. If the spouse or partner had legal title to the property, that share of the property would equally be liable to repayment of personal debts secured against the property.

[59] If equity were given the meaning advocated on behalf of Ms Hare, the non- bankrupt spouse or partner would receive a windfall at the expense of unsecured creditors because the protected interest might bear little resemblance to the actual net value of the family home. In all the circumstances, I am satisfied that “equity” in s 20B(3)(a)(ii) has its well-established meaning.26

Result


[60] The charging order is a secured debt and is to be taken into account when determining the equity in the Olivia Crescent property.

[61] The equity is to be calculated by ascertaining the market value or agreed value of the Olivia Crescent property and deducting the outstanding amounts of the mortgage debt and the child support debt.

[62] The value of Ms Hare’s protected interest is one-half of the equity in the Olivia Crescent property, assuming that amount remains less than the specified sum at the time of calculation.

[63] As to costs, my inclination is that they should lie where they fall. However, I withhold a final order as to costs as the Commissioner wished to be heard on costs if the issue was determined in “the Commissioner’s favour”. I note as a final point that


26 Discussed above at [49]–[53].

before the intervention of the interested parties Ms Hare had contemplated proceeding in the Family Court by way of formal proof.





Karen Clark J


Solicitors:

Thomas Dewar Sziranyi Letts, Lower Hutt for Applicant

Crown Law Office, Wellington for Commissioner of Inland Revenue (Interested Party) Official Assignee, Wellington (Interested Party)

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