New Zealand: Debtor delays – strategic considerations on debtor appeal

You have obtained judgment against your debtor in the District Court or the High Court and are looking towards your enforcement options, such as bankruptcy or liquidation proceedings. But what if the debtor decides to appeal the decision – can you still enforce the judgment?

Creditors are often surprised to find that, after a successful judgment, there are various mechanisms which the (supposedly impecunious) debtor will use to try and delay enforcement while pursuing an appeal. These include:

  • An application for a stay of enforcement of judgment pending appeal under rule 20.10(2)(b) of the High Court Rules and/or Rule 12(3)(a) of the Court of Appeal (Civil) Rules; and/or
  • A stay of liquidation proceedings under Rule 31.11(1)(b) of the High Court Rules; and/or
  • A halt of an application for adjudication of bankruptcy under s 42 of the Insolvency Act 2006.

First off, there is a general principle that an appeal does not prevent a judgment creditor from taking enforcement steps to recover the judgment debt. Despite this, stay applications can sometimes still result in frustrating (and costly) delays for judgment creditors.

The law

In considering whether to grant a stay, the court's overall aim is to balance the successful party's right to have "the fruits of a judgment" against the "need to preserve the position in case the appeal is successful": Keung v GBR Investment [2010] NZCA 396, i.e. the need to ensure that funds will be available to repay the appellant if the appeal turns out to be successful. In carrying out this assessment, the court will consider the following factors (Dymocks Franchise Systems v Bilgola Enterprises (1999) 13 PRNZ 48):

  • Whether the appeal right be rendered nugatory if a stay is not granted, i.e. whether enforcement of the judgment will be irreversible. This is unlikely to be the case in the context of enforcing a money judgment.
  • Whether the appellant is bona fide in bringing the stay application – i.e. whether the application is purely a delaying strategy.
  • Whether the stay will injuriously affect the judgment creditor and if there may be adverse effect on third parties, i.e. whether there is a risk that the appellant will dissipate the fruits of the judgment before the appeal can be determined.
  • Whether the questions involved are novel and/or important and whether there is public interest in the appeal.
  • The overall balance of convenience and the apparent strength of the appeal.

These principles have recently been summarised in Walker v Castlereagh Properties [2015] NZHC 907:

  • The first step is to assess whether the appeal is without merit or has no reasonable prospect of success – this is to prevent hopeless appeals from being used merely as a delaying tactic;
  • The power to grant a stay should only be exercised when it is necessary to preserve the subject matter of the litigation pending appeal, or where there are other special circumstances; and
  • The court will weigh the interests of the parties, the balance of convenience and any prejudice that may arise, but against the background that the judgment creditor should not be prevented from enforcing the judgment unless the interests of justice require it.

In summary, a stay is more likely to be granted when enforcement would require actions which would be irreversible after a successful appeal (for instance, the sale of a property to a third party).

However, in the case of money judgments, a stay is much less likely to be successful, because it is easy for money to be repaid if necessary.

Practical considerations

One question that often comes up is whether the prospect of bankruptcy (or, in the case of a company, liquidation) automatically renders an appeal nugatory. Appellants often argue that if they are made bankrupt they cannot continue the appeal. However, there are a couple of answers to this:

  • First, the courts have noted that the stay jurisdiction cannot be automatic otherwise it would not have been framed as a matter of discretion for a Judge under the Rules/Act: see Re Wright, ex parte Health Distributors HC Hamilton CIV-2010-419-121, 4 November 2010;
  • Second, the Official Assignee can continue to pursue an appeal if, on assessment, it considers that it has merit: see ASB v Lin [2014] NZHC 106; (2014) 21 PRNZ 698; and
  • Third, the prospect of imminent bankruptcy should be a useful motivation for appellants to pursue their appeal promptly.

On the other hand, the Judge in ASB v Lin also commented that a bankruptcy judge, considering an application for a halt of an adjudication (rather than a judge considering a stay of appeal), might reach a different conclusion. This raises the potentially frustrating prospect for a judgment creditor that it might successfully resist a stay of appeal application (and incur the associated costs to do this), but then the debtor might still resist bankruptcy pending the appeal. Is it still worth resisting the stay and issuing bankruptcy notices?

The answer is yes. Why?

  • Resisting a stay and commencing bankruptcy proceedings will involve some legal costs but it also sends a strong message to the debtor. As anyone who has been through this process will know, it is usually not until the prospect of bankruptcy is very imminent that payment will finally be forthcoming;
  • It encourages the appellant to pursue the appeal promptly because a bankruptcy judge will not look favourably on a debtor who has not taken steps to pursue the appeal; and
  • Where adjudication is imminent, the Court of Appeal will usually consider the appeal suitable for the fast track appeal process.

After filing an appeal, an appellant has three months to apply for a hearing date. However, there is nothing to stop the respondent from applying for the allocation of a hearing date immediately (or pressuring the appellant to do so by taking steps towards bankruptcy).

So, to sum up, if you have a money judgment and the judgment debtor appeals, in most cases you should continue to take enforcement steps, such as starting the liquidation process or issuing a bankruptcy notice. While this may involve further legal costs, which can be frustrating, this cost is relatively minimal and there are usually real strategic advantages.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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