Algie

[2012] NZHC 355

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

CIV2012-412-000089 [2012] NZHC 355

IN THE MATTER OF     Part 5, Subpart 2 of the Insolvency Act

2006

BETWEEN  KENNETH KEITH ALGIE Insolvent

Hearing:         6 March 2012 (Heard at Dunedin)

Appearances: D P Robinson for Applicant

No appearance for any other creditor

Judgment:      6 March 2012

(ORAL) JUDGMENT OF ASSOCIATE JUDGE OSBORNE

[1]      Mr Algie seeks approval of a proposal under Part 5 of the Insolvency Act

2006.

[2]      He lodged his proposal on 2 February 2012.   Through his trustee, Barry Vernon O’Donnell, he then followed the procedure for putting that proposal by notice to all his creditors, together with all the information required under the Insolvency Act.  A meeting of creditors was then held on 20 February 2012 when the required majorities of creditors (ie a majority in number and a three quarters majority in value) accepted the proposal.   The specific numbers, as disclosed by Mr O’Donnell’s affidavit, were that five creditors who attended the meeting voted in favour  of  the  proposal  and  two  voted  against.    In  dollar  terms,  a  figure  of

$1,238,308.30 represented the majority, and a figure of $76,660.80 represented the minority or those voting against.  The statement of affairs of Mr Algie’s financial position as at 2 February 2012 indicated that he had some $26,800.00 of assets

which were mainly personal property which were jointly owned such as furniture

RE ALGIE HC DUN CIV 2012-412-000089 [6 March 2012]

and other items as against, at that point, an estimated $1,570,058.41 of liabilities.  By the time proofs of debt had been filed and considered by the proposed trustee the debt figure had been identified as $1,720,620.45.

The proposal itself

[3]      The proposal is slightly complicated.  Mr Algie’s business background is in clothing distribution and it was the failure of his significant operation in that regard which has brought about his insolvency.  His three major financiers had been long term financiers and they have obviously been involved in the consideration of this proposal.  With the collapse of his previous business, Mr Algie is now employed by Federated Farmers and, all up in his remuneration and benefits, receives approximately $60,000 per annum from that source.   His proposal to creditors is based on the potential earnings of a new operation Trailmaker in which Mr Algie is to be involved, not in a management role but in an operational role, and is to receive income on an uncertain basis.  The basis, as Mr Robinson has explained to me in more detail in his submissions, is that there is an expectation that income accruing to Mr Algie for his work on Trailmaker may be in the order of $100,000 net over a two-year period.  That is realistically seen as a maximum return.  The intention of the proposal is that Mr Algie would make his Trailmaker income available for the two years to his trustee for distribution to his creditors.  The one exception to that situation is as his proposal sets out –

Should my employment with Federated Farmers cease and equivalent employment not be available or my commitments to the Trailmaker Limited business be such that additional work on my part is required, I would reserve the right to retain monies from Trailmaker Limited to the intent that my income from all sources be capped at $60,000 for the duration of this proposal.   The reference to the duration of the proposal is to a two-year period.

[4]      Mr Robinson and I calculate that, if the highest likely payment of $100,000 in a two year period is achieved, that would see paid to creditors a maximum of 5.8 cents in the dollar.  It is realistically understood that recovery may be less than that, indeed by a significant margin.  For the purposes of today’s hearing I assume that a recovery of 2 cents or 3 cents in the dollar may end up being the reality for creditors. I am satisfied from the way in which matters have been dealt with, and the fact that

the creditors who wished to attend have met at a meeting, that the creditors will understand the very limited possibilities that arise from this proposal.   The background was obviously understood by those creditors who chose to attend.  They have had the opportunity to explore that and I am satisfied that they have from a range of commercial backgrounds and commercial experience decided that this is a realistic and appropriate proposal.

My approach to the approval of the proposal

[5]      Section 327 of the Insolvency Act 2006 requires a proposal to satisfy the insolvent’s debts to be in the prescribed form and to be accompanied by a statement of affairs in the prescribed form.  I am satisfied that that was done.  Under s 330 of the Act the person appointed provisional trustee had to call the meeting of creditors as I have referred to, and I am satisfied that the provisions of ss 330 and 331 were both met.  These are:

330 Provisional trustee must call meeting of creditors

(1)The provisional trustee must, as soon as practicable after the proposal is filed, call a meeting of creditors by posting to every known creditor at the creditor's last known address—

(a)a notice of the date, time, and place of the meeting: (b)a summary of the insolvent's assets and liabilities:

(c)a copy of the proposal and particulars of any charge or guarantee: (d)a creditor's claim form:

(e)a postal vote in the prescribed form.

(2)A creditor who has proved a claim in the prescribed manner may vote on the proposal by sending a postal vote that reaches the provisional trustee before or at the meeting.

(3)If the provisional trustee receives a postal vote before or at the meeting, the postal vote has effect as if the creditor had been present and voted at the meeting.

331 Procedure at meeting of creditors

(1)The provisional trustee is the chairperson of the meeting of creditors, unless the creditors elect their own chairperson.

(2)The creditors may—

(a)examine the insolvent:

(b)accept the proposal with or without amendments or modification, by passing a resolution that sets out the proposal in its final form:

(c)confirm  the  provisional  trustee  as  trustee,  or  appoint  another person who is willing to act as trustee, in which case that person becomes the trustee.

(3)The resolution accepting the proposal must be decided by a majority in number and three-quarters in value of the creditors who—

(a)vote; and

(b)are personally present or  are represented  at the meeting by a person specified in section 332 or have voted by postal vote.

(4)If the insolvent consents, the creditors may include in the proposal teams for the supervision of the insolvent's affairs.

[6]      Following the acceptance of the proposal it was then the obligation of the trustee  to  apply  to  this  Court,  as  he  has  now  done  through  Mr  Robinson,  for approval.  Sections 333 (1) – (3) provide:

333 Court must approve proposal

(1)After the proposal has been accepted by the creditors, the trustee must, as soon as practicable,—

(a)apply to the Court for approval of the proposal; and

(b)send notice of the hearing of the application in the prescribed form to the insolvent and to each known creditor.

(2)The Court must, before approving a proposal, hear any objection that is made by or on behalf of a creditor.

(3)The Court may refuse to approve the proposal if it considers that—

(a)the provisions of this subpart have not been complied with; or

(b)the terms of the proposal are not reasonable or are not calculated to benefit the general body of creditors; or

(c)for any reason it is not expedient that the proposal be approved

[7]      The process is therefore in three stages.  The first stage was achieved through the filing of the proposal at the meeting of creditors; the second stage was that the acceptance of the required majorities had to be secured; and the third is the stage which has now reached me this morning.  I have to consider the reasonableness of the proposal, and I have to consider the expediency of the proposal.

[8]      It is well settled law that while I have some discretion to refuse an approval I should refuse approval only if one or more of the trigger paragraphs in s 333(3) apply.    The approach  normally taken  is  that  of Hardie  Boys  J.  in  Re Bennetts Proposal (HC Christchurch B138/81 and M306/81 1 February 1982) which was subsequently quoted with approval in Farmer v Rowley [1992] 2 NZLR 195 at 196:

I think the Court should accept the view of the creditors or the majority of them and grant approval unless it is apparent that one of the grounds for refusing approval exists

[9]      I note also, as has been pointed out by this Court previously, that the very heading to s 333 is that the ―Court must approve proposal‖,  which emphasises the limited nature of my discretion.

Have the provisions of the sub-parts of s 333 been complied with?

[10]     I find that each of those requirements has been complied with.

Are the terms of the proposal “not reasonable” or “not calculated to benefit the general body of creditors”?

[11]     I find that this a case where the proposal has up-side for the creditors, and no demonstrable downside.

Expediency of the proposal

[12]     Adopting  the  previously  used  judicial  approaches  such  as  ―practicable‖,

―suitable‖ or ―appropriate‖, I find the present proposal has all those qualities.

The exercise in my discretion

[13]     Ultimately, having been through those steps it is my responsibility to stand back and look at the proposal in its entirety and to determine whether there is anything that should adversely impact on the exercise of my discretion in this case. There is nothing of that nature.

Result

[14]     The application for approval of the proposal is granted.

[15]     I congratulate Mr Robinson for the way in which this matter has been so promptly brought to this Court and I thank Mr Algie for the way in which he has

dealt with his creditors.

Associate Judge Osborne

Solicitors

Gallaway Cook Allan, PO Box 143, Dunedin ([email protected])