Brian Mackenzie had paid more than $100,000 on the debt when Heather Mackenzie sued him for the rest.
A court has intervened after a man “gifted” a $300,000 debt to his ex-wife just weeks before going bankrupt, so he could avoid the money going to his creditors.
Now the ex-wife must pay back $52,000 after a messy family dispute between herself and the man who owed the debt - her former husband’s cousin and accountant.
Associate Judge Grant Brittain found when Malcolm Mackenzie assigned his cousin Brian Mackenzie’s $300,000 debt to ex-wife Heather Mackenzie, the transfer counted as an “insolvent gift” which could be reversed by the court.
Despite helping to draft the agreement he would later go on to fight, Brian found himself on the sour end of the deal when he was left paying off a debt to Heather that would otherwise have been cancelled out by money owed to him by Malcolm’s bankrupt estate.
The convoluted case was laid out in Judge Brittain’s recently-released decision from the High Court at Tauranga.
The case can be traced back to 1982, when Heather and Malcolm transferred their matrimonial home to Malcolm’s father on the understanding he would eventually return the house to them. But in the early 90s, he sold the house and the couple received no proceeds from the sale.
In 1994, the couple’s marriage ended, and Malcolm promised Heather he would pay her for half of the house, the court decision said.
Then in 2014, Malcolm sued his father’s estate, alleging his father had promised him proceeds from the house but had not fulfilled the promise in his will.
Brian, a chartered accountant with decades of experience, helped Malcolm with the litigation, as well as another court case Malcolm took against a family trust.
The trust proceeding ended in 2016, with Malcolm receiving $935,000, paying $200,000 to Heather and loaning $300,000 to Brian in 2017.
Meanwhile, his case against his father’s estate did not go as well, with Malcolm conceding partway through the trial in July 2018 that his father had otherwise given him funds equivalent to what he hadn’t received for the property sale.
The unsuccessful court case left Malcolm on the hook for $230,000 of his father’s executors’ legal costs.
Knowing of the loss and subsequent costs, Brian helped him draft a document transferring the $300,000 debt Brian owed over to Heather at the end of September. Malcolm then voluntarily entered bankruptcy at the end of November.
Brian made six payments to Heather over the next two years, totalling $102,000, with the most recent being paid in late 2019. Of that money, $50,000 was forwarded to Malcolm’s lawyer, at Malcolm’s request.
Then in 2020, Heather sued Malcolm for the remaining amount of the debt, nearly $200,000.
In 2021, Brian lodged a creditor’s claim in Malcolm’s bankruptcy, claiming he was owed $316,353 for services rendered to Malcolm. The court confirmed Brian’s claim was valid, but adjusted it to $225,000 plus GST.
The Official Assignee, a government officer whose role includes managing bankrupt estates, recovering property and distributing funds, then served a notice on Heather seeking to cancel the payments Malcolm made to her in 2016 and a payment of $50,000 Brian made to her.
Her case seeking the remaining debt from Brian went to trial in 2024, with the judge ruling the assignment of the debt to Heather was binding.
Brian’s evidence in that case was that he and Malcolm were particularly close. The judge said Brian knew the assignment agreement was “false” when he drafted it.
“He knew very well what the agreement was intended to achieve.”
Despite the ruling in Heather’s favour, a couple of months later the Assignee served another notice on her seeking to cancel the assignment as it was an “insolvent gift”.
An insolvent gift is one that is given by a bankrupt person within two years before their bankruptcy or five years after, while they are unable to pay their debts.
The court has powers under the Insolvency Act 2006 to cancel such gifts so the money can instead go to creditors.
Heather objected to both notices and in turn served a bankruptcy notice on Brian, which has been set aside pending the outcome of the current case.
In making his finding, Judge Brittain noted Heather did not give any explanation for the assignment happening so soon after Malcolm’s failed court case and subsequent costs order, and did not identify any other event that might have triggered him to assign the debt to her when he did.
With a portion of Brian’s payments going to Malcolm’s lawyer, the judge said “Malcolm was continuing to treat the debt as owed to him, inconsistent with an absolute assignment of the debt to Heather to fulfil a promise made to her in 1994.”
The judge was satisfied Heather had reasonable grounds for suspecting the assignment was an insolvent gift and that Malcolm would be unable to pay his own debts without it.
He cancelled the transfer of the debt and ordered Heather to pay back $52,000 to the Official Assignee, as well as some of Brian’s legal costs. He did not order her to repay the money Malcolm gave to her as there was no evidence he was unable to pay his debts at the time of those payments.
Melissa Nightingale is a Wellington-based reporter who covers crime, justice and news in the capital. She joined the Herald in 2016 and has worked as a journalist for 12 years.