16.40The issue is whether legislative amendment is required to override the decision of the Court of Appeal in Wilson that the Official Assignee is unable to challenge a trust when the settlor is the bankrupt.
16.42The options are for legislative reform to override the Court’s decision in Wilson and provide that the Official Assignee does have standing; or to retain the status quo and have no reform in this area. If legislative reform is favoured, there is a further question as to what form this would take.
16.44The NZLS noted that the Court of Appeal in Wilson did not receive the benefit of proper argument on this issue, and the Court did not consider section 412 of the Insolvency Act 2006, which allows the court to look at the “real nature of the transaction”. It considered that the Official Assignee should not be constrained from doing something that a creditor could do, this being consistent with broader principles of insolvency law. The Official Assignee is likely to be the plaintiff in many cases where a trust structure is being used as a shield against the payment of debts. The NZLS considered that Wilson confuses the principle that the Official Assignee takes property subject to equities, with the notion that the Official Assignee generally stands in the shoes of the bankrupt. The MED agreed that the Official Assignee must have standing where the settlor is the bankrupt, and legislative recognition of that is required.
16.45Our preferred approach is to amend the position through legislation to provide that the Official Assignee has standing to challenge a trust regardless of whether the bankrupt could have done so prior to the bankruptcy. The provision could potentially involve a leave application for the Official Assignee to obtain standing. The provision could be effected as part of trusts legislation, or as a separate amendment to the Insolvency Act.
16.46Such a provision would clarify and provide more certainty about the position of the Official Assignee, in light of the criticism both in New Zealand and overseas about the decision in Wilson and the need for a legislative response. This issue is still somewhat uncertain given that there was only limited argument heard on this issue in the Court of Appeal, and the decision was not appealed to the Supreme Court.
16.47We agree wtih the NZLS that a clear benefit of altering the position through a legislative provision would be the protection of creditors, since the Official Assignee is their main representative in proceedings and is likely to be the plaintiff in many cases alleging a sham trust. It would also be consistent with principles of insolvency law that the Official Assignee not be constrained from doing something that a creditor could do.