CREDITORS' RIGHTS

New Zealand Herald, Volume LXXI, Issue 21716, 3 February 1934, Page 12

CREDITORS' RIGHTS

AUCKLAND COMPLAINT EFFECT OF RELIEF ACT EXPLANATION BY MINISTER PROTECTION FOR MORTGAGORS [BY TELEGRAPH —OWN CORRESPONDENT] WELLINGTON. Friday An interpretation of tho scopo of section 16 of the Mortgagors and Tenants' Relief Act passed last session, about which there has been some confusion, was given by the Minister of Justice, the Hon. J. G. Cobbe, to-day. This provision of the Act provides for the limitation of the rights of creditors while an application fdr relief is pending or an order for relief or a poolinj? scheme is in force. A message from Auckland to-day summarised a complaint made to tho Auckland Chamber of Commerce that section 16 was too far-reaching in its effect and should be modified. The Minister said the substance of the complaint was to this effect:— "If any merchant or retailer gives credit to any customer who is in tho happy position of being a mortgagor, such customer will only have to file an application for relief and give notico thereof to his creditor, and will thereupon prevent the latter from taking any steps to enforce payment of his debt without leave of the Court. It would seem, therefore, thai merchants and traders in the future, before giving credit, should inquire whether tho customer is in the unique position of not being a mortgagor." "Prejudice Not Likely"

"This statement," said Mr. Cobbe, "may be regarded as substantially correct. It should be pointed out, however, that there is no restriction upon a creditor suing a mortgagor debtor and getting judgment for the amount of his debt. Having got his judgment, however, he is debajrejl by the Act from enforcing it, except with the leave of the Court, in the following cases:—(a) If the juclgment is for an amount exceeding £2O; (b) if he has been served with notice of an application by the mortgagor debtor for relief under the Act, or With notice of an order granting such relief. Having regard to the limitation referred to in paragraph (a), it is not likely that the _ small tradesman will • be unduly prejudiced by the operation of the Act. The implication contained in the Quoted extract of the complaint was that the only restrictions in favour of a mortgagor that should with propriety be imposed by the Act, were* those that were imposed on a mortgagee in respect of the exercise of power conferred upon him by his mortgage. "Experience of the working of the original Act," said Mr. Ccbbe. "has proved conclusively, however, that the protection afforded to the mortgagor by that Act was inadequate, limited as it was to protection against the mortgagee in his capacity as such. Original Act's Shortcomings "For example, while one purpose of the original Act was to protect a mortgagor from bankruptcy, there was nothing in that Act to prevent any unsecured creditor, including a mortgagee in respect of an unsecured debt, from proceeding with a petition in bankruptcy against the mortgagor, so defeating the purpose of the Act. So. also, any such creditor, once more including the mortgagee, could obtain judgment against a mortgagor and enforce it by sale of any goods of the mortgagor that were not subject to mortgage." Where, with respect to farm properties, pooling arrangements were entered into between land mortgagees and stock mortgagees, provision was made as a matter of course for the reasonable living expenses of the mortgagor and his household. "It will be readily understood," added Mr. Cobbe, ,: tliat the success of any such pooling arrangement would be imperilled if any tradesman could enforce judgment for any debt incurred by the mortgagor in excess of the allowance so made for his living expenses, or could proceed to make the mortgagor bankrupt. The position is exactly the same in principle, though, perhaps, not of the same practical importance, with respect to other classes of mortgagors." Position Summarised The position might be summed ut> by saying experience had shown that, if the legislation was to be effective, there must be some protection for the mortgagor debtor from hi* unsecured creditors as well as from his secured creditors, but that an unsecured creditor was not at all likely to be unduly prejudiced, for it was to be assumed that in all proper cases the Court would give him leave to enforce any judgment he may obtain against his debtor. There was no restriction on the right of an unsecured creditor to sue for and obtain judgment for the amout of his debt: nor was there any restriction on his right to enforce judgment for an amount not exceeding £2(l. It was unlikely, however, that the Court would, in any case, allow an unsecured creditor to file a bankruptcy petition against a. mortgagor while protecting the mortgagor from a similar proceeding by a mortgagee.