Why laws need to be tougher on cowboy liquidators

The theft conviction of Nelson liquidator Pat Norris demonstrates why the laws regulating insolvency practitioners need reform, lawyers suggest.

Patrick Dean Norris, 55, is perhaps best remembered for the lurid headlines of two years ago when he made intimate recordings of his ex-wife and put Pink Batts in her underwear drawer.

Last week, the former Kawerau mayoral candidate was found guilty of theft by a person in a special relationship after a two-week, judge-alone trial at Nelson District Court.

Norris will be sentenced later this month.

The conviction relates to allegations he banked $80,900 from the liquidation of Auckland-based Astra Enterprises into the trading account of his company Norris Management Services and used the money for personal and business expenses.

The Crown said there was no evidence any creditors of Astra Enterprises had been paid.

Judge Michael Behrens QC found Norris “engaged in a blatantly dishonest course of action” – instructing his staff to create invoices for an amount to cover at least $80,000 after the Companies Office visited to inspect the Astra file.

Norris, who represented himself at the trial, has indicated he is likely to appeal the decision.

Tougher laws needed

Bell Gully, which acted for the petitioning creditor of Astra, say Norris’ conviction highlights the need to urgently insolvency practitioner regulation.

The Official Assignee tried, unsuccessfully, to get Norris banned as a liquidator two years ago.

After complaints about eight separate liquidations Norris had handled, the OA brought a claim against Norris under sections 284 and 286 of the Companies Act – the primary way in which liquidators can be held to account.

But the application for a review of Norris’ fees failed because Justice Jill Mallon ruled the OA was not on the list of specified people able to take action under the Companies Act over a liquidator’s fees.

The court held that the OA had failed to say whether it was claiming that Norris’ breaches of duty were persistent, or whether they were serious. As a result, it was considered that Norris was not properly informed of the claim against him.

Bell Gully partner Murray Tingey says the Norris’ case illustrates that sections 284 and 286 are highly technical and narrowly drafted. For example, they do not allow the court to prohibit a liquidator from acting if they are convicted of an offence involving dishonesty.

Section 286 only allows the court to ban a liquidator from acting if there has been a persistent or serious failure to comply with their duties.

New bill will be tougher on the industry cowboys

Norris’ criminal conviction means he cannot work as a liquidator for five years.

Since resigning from the companies on his books, Norris appointed “acquaintance” Jack Churchill as his replacement liquidator.

The Nelson Mail reported Mr Churchill is a former car salesman who runs a bus company, that he is not a qualified accountant and has never worked as a liquidator.

Further, Mr Churchill’s contact details are care of Norris Management Services.

Norris’ fraud conviction meant he was not authorised to appoint Mr Churchill.

The OA has since appointed Rhys Cain and Bruce Gemmell of Ernst & Young as liquidators.

Mr Tingey says it is Bell Gully’s view a person convicted of a dishonesty offence should not be permitted to act again as a liquidator of a company.

“This is particularly so where the dishonesty occurred in the course of a liquidation, such as here, where Norris stole funds from the company and its creditors,” Mr Tingey says.

The Insolvency Practitioners Bill, before Parliament, would redress this by disqualifying any person convicted of a crime involving dishonesty from being a registered insolvency practitioner, unless the court orders otherwise.

Yet there will still be deficiencies, Mr Tingey says.

“The bill only introduces a negative licensing regime, excluding people from acting as a liquidator if they are disqualified in some way. It does not introduce a positive licensing regime, requiring minimum qualifications for an individual to act as a liquidator.

“As a result, it would not appear to prohibit someone such as Mr Churchill from acting as a liquidator. Indeed, it would appear to allow Mr Churchill to register and hold himself out as a registered insolvency practitioner,” Mr Tingey says.

“The label ‘registered insolvency practitioner’ implies that the practitioner meets a minimum standard of proficiency, when he or she may not be qualified at all.”

The Norris case illustrates why the bill should contain a positive licensing regime, with minimum standards for individuals to be able to hold themselves out as registered insolvency practitioners, he says.

The Ministry of Economic Development is considering its response to the select committee report on the Insolvency Practitioners Bill.

Companies Office still pursing Norris

Ernst & Young insolvency specialist Rhys Cain said a search-and-seizure warrant was executed at Norris’ home and business premises on October 31.

Norris had complied with the search order.

Mr Cain’s team are now unravelling the books of four insolvent companies they have taken over from Norris Management Services.

The Companies Office is pursuing a separate case against Norris over eight separate liquidations. These proceedings were stayed pending the outcome of the theft case.

Mr Cain says the Companies Office’s statement of claim has helped his team know what to look out for as they retrace Norris’ steps.

“There are lots of allegations circulating. We’re doing our best to go into this with an open mind.

“I can’t recall a case where a liquidator has been replaced because of a conviction and, certainly, not one where the liquidation related to theft in relation to one of the liquidations it is administering.”

Mr Cain agrees Norris’ conviction confirms tougher rules are needed.

“Theft of $80,000 is a very serious matter. It doesn’t matter what industry you’re involved in. It brings the whole industry into disrepute.”

Previous convictions

Last week’s conviction was not Norris’ first. He has a 1999 conviction for using a document for pecuniary advantage.

In June 2010 he pleaded guilty to making and publishing an intimate visual recording of his ex-wife, via surveillance cameras in her home.

He later printed copies of pictures of her in bed with a married man and made threats to distribute them.

He also admitted putting insulation material in her underwear drawer as an act of revenge.

A company he previously owned in Hamilton collapsed, leaving creditors more than $150,000 out of pocket.

gbond@nbr.co.nz