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Acknowledgement of Debt

Gift it or lose it

In 2004 Mr Wheeler sold over $2.4m of assets owed by him to a trust he settled.  The trustees were Mr Wheeler and his accountant Mr Lindsay.  The purchase price for the assets sold to trust was left as a debt owing to Mr Wheeler.  Between 2004 and 2010 five gifts of $27,000 were made leaving a debt owing of $2.279m.

One of the trust’s assets was an investment of over $1.4m in Transbank Capital Corporation (Transcap), which it transpired was essentially a Ponzi scheme. However, Mr Wheeler was not aware of this and funds were borrowed from AMP to assist in property development through a separate trust and for further investment in Transcap. Mr Wheeler and the trust lost all the capital invested in Transcap.  He also fell into arrears with AMP and was ultimately bankrupted with debts owing of $775,843.

The Official Assignee (OA) discovered the existence of the trust and made demand for the debt owing.  The trustees failed to meet the demand following which summary judgment was sought.

The OA was successful in that judgment in the amount of $793,324 was ordered (the debt owing less the Transcap investment – this was deducted as the court held there might be a basis for a set-off argument because the trustee Mr Wheeler made representations in his personal capacity about the value of the Transcap investment, inducing himself and Mr Lindsay in their trustee capacities, to purchase the investment from Mr Wheeler).  Or as noted in the decision at [22] “The trustees … seek to argue that they have a claim against Mr Wheeler for negligent advice he gave himself and Mr Lindsay regarding the Transcap investment.”

So a small success.  The other success was the Court’s confirmation that the claim against the trustees was limited to the assets of the trust as recorded in the deed (the writer questions whether this should have been agreed by the court) and in the deed of sale and purchase and that Mr Lindsay’s personal assets were not at risk.

On the other side of the ledger is the fact that had the gifting program been continued, or better completed once gift duty was abolished then the trust might have served Mr Wheeler better.  The message might be – “gifting – just do it”.   While there are cases where gifting is not correct – the outcome in the case discussed here could have been markedly different.

References:

Official Assignee v Wheeler & Lindsay [2015] NZHC 1644

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