Calypso no.1 Limited v Fistonich
[2023] NZHC 78
•8 February 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-1315
[2023] NZHC 78
UNDER the Insolvency Act 2006 IN THE MATTER OF
the bankruptcy of IAN GEORGE FISTONICH
BETWEEN
CALYPSO NO.1 LIMITED and PRAXIS LIMITED
Judgment Creditors
AND
IAN GEORGE FISTONICH
Judgment Debtor
CIV-2022-404-799 UNDER
the Insolvency Act 2006, Part 5 subpart 2
IN THE MATTER OF
AND
an application for approval of a Proposal
IAN GEORGE FISTONICH
Insolvent
Hearing: 18 October 2022 Appearances:
Nicholas Coyle/Tyrone Cooley for Mr Fistonich
Alana Kalinowski/Carolyn Ranson for Judgment Creditors Daniel Grove for Premier LP and Foy & Halse
Stephen Lukey for the Trustees
Judgment:
8 February 2023
JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR
[application for bankruptcy and acceptance of a proposal]
CALYPSO NO.1 LIMITED and v IAN GEORGE FISTONICH [2023] NZHC 78 [8 February 2023]
This judgment was delivered by me on 8 February 2023 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules
…………………………. Registrar/Deputy Registrar
Introduction
[1] Ian Fistonich is insolvent. Two of his creditors have applied for his bankruptcy. Mr Fistonich has, in turn, made a proposal to creditors for the payment or satisfaction of his debts. His trustees have filed that proposal in this Court for approval.
[2] This judgment determines whether the Court should approve Mr Fistonich’s proposal and, if not, whether Mr Fistonich should be adjudicated bankrupt.
Background
[3] Mr Fistonich was a property developer. He owned and directed several companies that operated under the “Accent on Construction” brand (Accent). He personally guaranteed debts that Accent owed to several trade creditors.
[4] The Accent companies were placed into liquidation and receivership in December 2018. Several of the companies’ trade creditors then pursued Mr Fistonich for recovery of the guaranteed debts.
[5] Mr Fistonich settled individually with several creditors. In late 2021, however, two of Mr Fistonich’s creditors, Calypso No 11 Ltd and Praxis Ltd, commenced bankruptcy proceedings against him. The debt underlying those proceedings arose out of a District Court judgment those creditors had obtained in respect of arrears owing under a lease entered into by Accent and guaranteed by Mr Fistonich.1
1 Calyspo No 11 Limited v Fistonich DC Waitakere CIV-2019-090-206, 6 December 2019.
[6] On 17 May 2022, Mr Fistonich filed a proposal with the Court, naming Daran Nair and Heiko Draht of Nair Draht Ltd as the provisional trustees.
[7] The trustees sent notices to Mr Fistonich’s creditors that a meeting would be held on 10 June 2022 at the offices of Nair Draht to consider the proposal. The notices included a statement of affairs, a copy of the proposal, a creditor’s claim form and a postal vote in the prescribed form.
[8] The meeting took place at the scheduled time. There, some slight amendments were proposed and accepted. The results of the meeting were:
(a)the trustees accepted seven votes in favour of the proposal, amounting to $844,545.23 in value;
(b)the trustees accepted three votes against the proposal, amounting to
$233,063.36 in value; and
(c)the trustees rejected two votes against the proposal, amounting to
$1,020,000 in value.
[9] One of the rejected claims was in the sum of $1,000,000. It was filed by Premier Legal Finance Limited Partnership (Premier LP), an entity associated with Graeme Halse of the firm Foy & Halse.
[10] As a consequence of the trustees’ rejection of Premier LP’s claim, it was not allowed to vote on the proposal. Had it been permitted to vote in opposition, the proposal would not have reached the majority approval threshold of 75 per cent required by the Insolvency Act 2006.
[11] A week after the meeting, the trustees filed a report with the Court. They then applied to the Court for approval of the proposal.
[12] On 8 July 2022, Premier LP and Foy & Halse filed an opposition to the trustees’ application for approval of the proposal.
[13] Further background to the present proceeding is that Mr Fistonich has issued proceedings against Mr Halse and related entities, including Premier LP, alleging breach of fiduciary duty; knowing receipt; breach of contract; and negligence (the Halse Litigation). The Halse Litigation relates to mortgages Mr Halse’s entities have over a property (the Property) owned by the Zlato Trust (a trust associated with Mr Fistonich).
[14] Key features of Mr Fistonich’s proposal to creditors include that Mr Fistonich will pay $250 per week for five years to the trustees, which will then be paid as a dividend to creditors; and that he will make available to his creditors any benefit of the Halse Litigation.
Application for approval and notice of opposition
[15] The trustees have applied for Court approval of Mr Fistonich’s proposal.2 Premier LP and Foy & Halse oppose the application on the following grounds:3
(a)The provisions of Part 5 of the Insolvency Act have not been complied with, and in particular, the trustees wrongfully rejected the claim filed by Premier Legal Finance Limited Partnership.
(b)Should Premier Legal Finance Limited Partnership’s claim be admitted the proposal would not have acquired the required votes.
(c)The terms of the proposal are not reasonable and are not calculated to benefit the general body of creditors.
(d)The effect of the proposal is solely to avoid Mr Fistonich’s bankruptcy and so that his family home is saved.
(e)The proposal provides no benefit to creditors in relation to the proceedings issued by the insolvent being CIV-2020-404-2187.
(f)No commercially experienced prudent creditor would support the proposal.
(g)The proposal is hopelessly vague.
(h)The proposal is highly speculative.
2 Notice to insolvent and creditors of hearing of trustees’ application to court for approval of proposal dated 22 June 2022.
3 Notice of opposition to trustees’ application to court for approval of proposal dated 8 July 2022 at [3].
(i)The prospect of a dividend to the creditors is optimistic and unrealistic.
(j)The proposal is dependent on legal proceedings being successfully concluded where those proceedings are weak in merit.
(k)The dividend to creditors is de minimus and offers little more than might be received in a bankruptcy.
(l)And upon the grounds set out in the affidavit of G W Halse sworn and filed herein.
Affidavit of Graeme Halse dated 8 July 2022
[16] Mr Halse has made an affidavit in support of the opposing creditors’ opposition to the approval of Mr Fistonich’s proposal. He deposes that the trustees refused to allow Premier LP to vote on the proposal. Had Premier LP been allowed to vote, the proposal would not have received the required votes. He says that he views Mr Fistonich’s claim in the Halse Litigation as being extremely weak and that an application has been made for summary judgment/to strike out the statement of claim.4
Opposing creditors’ submissions
[17] Daniel Grove, for Premier LP and Foy & Halse, submits that there can be only two outcomes to the present proceedings: the Court will approve the proposal or it will adjudicate Mr Fistonich bankrupt.5
[18] Mr Grove submits there has been an extremely prejudicial change in circumstances since the creditors voted on the proposal, being that an amended statement of claim was filed and served in the Halse Litigation more than a month after the creditors’ meeting. He says none of the creditors who voted on the proposal have had any opportunity to consider the amended statement of claim, and that it is apparent that no notice of the filing was specifically provided to creditors. Further, Mr Grove submits, the amended pleadings show that there will be no possible benefit for Mr Fistonich’s creditors in pursuit of the Halse Litigation. And, because of this latent amendment to the proposal, the Court cannot approve it.6
4 Affidavit of Graeme William Halse in support of opposition to application for approval of proposal dated 8 July 2022 at [7].
5 Submissions in opposition to approval of proposal dated 30 September 2022 at [1].
6 At [6]–[37].
[19] As to the trustees’ rejection of Premier LP’s claim, Mr Grove submits the claim should not have been rejected for voting purposes. He says there was no basis for denying that the claim was prima facie valid. A mere dispute over a debt does not mean the debt is not a provable debt — such a position would be absurd and unworkable.7
[20] Mr Grove points to what he says are further issues with the creditors’ meeting. He submits that only some creditors were represented at the hearing and that Premier LP’s claim was rejected. He says Mr Fistonich did not confirm or guarantee that the costs of the Halse Litigation would be paid and that he stated that payment for the trustees’ costs can be paid in priority out of the dividend suggested to be paid to creditors under the proposal. Mr Grove says Mr Fistonich was unable to articulate how success in the Halse Litigation would benefit his creditors.8
[21] The legal issues regarding the approval of the proposal, in Mr Groves’ submission, are that Premier LP’s vote was wrongly rejected for voting purposes and that there has been a substantial and unnotified alteration of the proposal following the vote being taken, meaning the provisions of the Insolvency Act have not been complied with; the proposal is not reasonable because it is hopelessly vague, highly speculative, overly optimistic, depends upon litigation being successfully concluded and promises only a small pay-out; and there is public interest in investigating the cause of the Accent companies’ failure.9
[22] Summarising, Mr Grove submits that the Court should not, and cannot, approve the proposal; the proposal is hopelessly vague and speculative; the proposal would have failed but for the trustees’ rejection of Premier LP’s claim; the dividend under the proposal is miniscule; and there is public interest in adjudicating Mr Fistonich bankrupt. Fundamentally, Mr Groves says, the proposal does not now represent what was put to the creditors and there is no commercial basis for approving it.10
7 At [38]–[55].
8 At [56]–[70].
9 At [71]–[76].
10 At [77]–[85].
Mr Fistonich’s submissions
[23] Nicholas Coyle, for Mr Fistonich, submits that the litigation aspect of the proposal is only one element of the proposal. He says the proposal, and its litigation aspect, will benefit creditors. He says further that the proposal is certain, it was accepted by a majority of creditors and that Premier LP has identified no public interest factors that make Mr Fistonich’s bankruptcy necessary.11
[24] Mr Coyle says if the Halse Litigation succeeds, Mr Fistonich expects the Zlato Trust will pass on the benefits of the litigation to him or the trustees. The benefits can then be paid to Mr Fistonich’s creditors through an assignment. That would be achieved through the sale of the Property — whether forced or voluntary. Mr Coyle submits further that the majority of creditors were willing to support the proposal on the basis that any benefits from the Halse Litigation would be assigned — that should be sufficient basis for the Court to approve the proposal. He says there is no reason the benefits of the Halse Litigation cannot be made available to Mr Fistonich to pay his creditors.12
[25] Mr Coyle says the substance of Mr Fistonich’s claim against Mr Halse and his related entities has not changed, even though an amended statement of claim has been filed in the Halse Litigation in the time since the vote was taken on Mr Fistonich’s proposal. Further, he submits it cannot reasonably be inferred that the creditors only approved the proposal on the basis that there would never be any amendment to the pleadings and that the claim might not develop over the course of the proceedings.13
[26] Mr Coyle says the proposal’s terms are certain — the trustees’ costs will be paid progressively from Mr Fistonich’s salary, Mr Fistonich’s father will provide security for costs in the Halse Litigation, and no legal costs will be payable until the litigation is concluded. If it is concluded successfully, there will be ample funds to pay legal costs and undisputed creditors in full. If it is unsuccessful, the issue as to uncertainty becomes irrelevant.14
11 Synopsis of submissions of counsel for insolvent in support of application by trustees for approval of proposal to creditors dated 12 October 2022 at [14].
12 At [36]–[40].
13 At [41]–[43].
14 At [44]–[46].
[27] Next, Mr Coyle submits that while it is up to the provisional trustee to make a decision about whether to accept a creditor’s claim, the trustee should not do so if the debt being claimed is genuinely disputed. He submits that, given the extensive litigation history, it is clear that the “debts” Premier LP claims are genuinely disputed. He says Premier LP has had several years to take steps to obtain judgment against Mr Fistonich, but it has chosen not to do so.15
[28] Mr Coyle says the correct procedures have been followed under the Insolvency Act. Creditors were notified and received the necessary material. They had the opportunity to prove their debts. A creditors’ meeting was held. The proposal received the requisite level of support. And the trustees were right to reject Premier LP’s claim on the ground that it related to a disputed debt.16
[29] Mr Coyle says it is clear that Mr Fistonich’s creditors will be better off by approval of the proposal than if he were declared bankrupt. Mr Fistonich’s creditors will receive a certain return in the form of a dividend, and there is a real chance that they will be paid in full if the Halse Litigation succeeds. He submits that the opposition from Premier LP and Foy & Halse is really rooted in their desire to avoid the Halse Litigation proceeding to a hearing, rather than in any genuine concern for the general body of Mr Fistonich’s creditors. Mr Fistonich’s proposal is, on balance, the best possible proposal available — if the opposition is upheld, creditors would be prejudiced as none would receive a dividend and no possible recoveries from the Halse Litigation would flow to them.17
[30] Finally, Mr Coyle submits, Mr Fistonich is employed and there is no evidence he is a commercial hazard. He submits there are no claims against him by liquidators, and no transactions needing to be investigated by the Official Assignee. Should he default on the proposal, the trustees or opposing creditors can report to the Court and seek his bankruptcy. For those reasons, Mr Coyle says, the Court must approve the proposal. None of the discretionary or mandatory grounds for refusing the proposal have been made out.18
15 At [47]–[67], citing Vegar v Aorangi Forests Ltd [2014] NZHC 1109.
16 At [84]–[85].
17 At [86]–[94].
18 At [95]–[101].
Trustees’ submissions
[31] The trustees, Mr Nair and Mr Draht, have filed submissions in this proceeding. They recount that they gave notice of Mr Fistonich’s proposal to all of his creditors, that a creditors’ meeting took place on 10 June 2022, and that the amendments made at that meeting were favourable, insignificant and had no negative impact on the creditors. They say 70 per cent of the creditors in number and 78 per cent of the creditors in value voted in favour of the proposal.19
[32] The trustees submit that the Court will need to consider whether the trustees must have allowed or disallowed Premier LP’s claim for voting purposes. They say that if the Court finds that the claim must have been allowed, then the required approval of 75 per cent in value would not have been reached. If, however, the Court agrees that the trustees were correct to disallow the claim, then the Court should consider whether the proposal should be approved and consider the possible change in circumstances.20
[33] The trustees say they rejected Premier LP’s claim because the debt was disputed. The trustees were aware of the Halse Litigation and that the fact the debt was disputed was not merely a spurious claim. The trustees submit, however, that they are not in a position to make a decision as to the merits of the disputed claim. They will abide the Court’s decision.21
Legal principles
[34]Section 333 of the Insolvency Act 2006 (the Act) provides:
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.
19 Trustees’ submissions dated 4 October 2022 at [1]–[4].
20 At [6]–[8].
21 At [9]–[12].
(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.
(4)The court must not approve a proposal if it does not provide for the payment, before any other debts are paid, of—
(a)those debts that would have priority under this Act if the insolvent was adjudicated bankrupt; and
(b)the trustee’s fees and expenses that are properly incurred by the trustee in respect of the proposal; and
(c)costs incurred by a person other than the insolvent in organising and conducting a meeting of creditors for the purpose of voting on a proposal.
(5)Subsection (4)(a) does not apply to the extent that a creditor waives the priority that the debt of that person would otherwise have had.
(6)When it approves the proposal, the court may correct any formal or accidental error or omission, but must not alter the substance of the proposal.
[35] The Court ordinarily will accept the view of the majority of the creditors and approve a proposal unless one of the subs (3) grounds for refusing approval exists.22
Analysis
[36] The approach normally taken by the Court to s 333 proposals is set out by Hardie Boys J in Re Bennetts’ Proposal:23
Rather than it being for the proponents of a scheme to show that it ought to be approved, 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. The Court is clearly required to exercise its independent judgment, for considerations of wider public
22 Re Bennetts’ Proposal HC Christchurch B138/81; M306/81, 1 February 1982 (alternative citation: Re Duncan Holdings Limited (in liquidation)) at 9 and cited with approval in Magsons v Hardware Ltd t/a Mitre 10 Mega v Bogiatto [2011] NZCA 378 at [23].
23 Above n 22.
interest are relevant, and therefore even unanimity amongst the creditors will not be predeterminative of approval. But unless it is clear that the creditors generally would fare better under a bankruptcy, approval ought normally to be given unless other special circumstances militate against it. Whilst a proposal ought not to be imposed upon dissentient creditors if that would be disadvantageous to them as members of the general body of creditors their dissent should not be upheld if to do so could be prejudicial to the general body of creditors.
[37] As will be apparent from the statement of Hardie Boys J, the general approach of the Court is that rather than the proponents of the proposal being obligated to show it should be approved, the Court should accept the view of creditors and grant approval unless it is apparent that one of the grounds for refusing approval exists. The Court has limited discretion to refuse approval of the proposal, as set out in s 333(3) of the Act, which provides that the Court may refuse to approve the proposal if it considers that:
(a)the provisions of subpart 2 of part 5 of the Act have not been complied with;
(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.
[38] Given the position set out [36] and [37], I propose in this judgment to adopt Hardie Boys J’s approach and accept the view of the majority of Mr Fistonich’s creditors who approved the proposal. I then consider each of the grounds of opposition put forward by Mr Grove in respect of the proposal to determine whether any of these grounds are a sufficient basis to refuse approval.
The Court cannot approve an “amended” proposal and the proposal has been substantially amended following the vote of creditors being taken, particularly by reference to the filing of an amended statement of claim in the Halse Litigation
[39] Mr Grove has submitted that under s 333(6) the Court’s power to allow changes to the proposal is limited as follows:
(6) When it approves the proposal, the court may correct any formal or accidental error or omission, but must not alter the substance of the proposal.
[40] Mr Grove submits that none of the creditors who voted on the proposal have had any opportunity to consider the amended statement of claim and apparently no notice of filing the amended the statement of claim was specifically provided to the creditors. He submits that it may be that the creditors who initially supported the proposal may not have supported the proposal had they been aware of the amended pleading. Mr Grove compares the causes of action and the relief sought under the original statement of claim with the causes of action and relief sought under the amended statement of claim. Mr Grove submits that the amended statement of claim is a substantial change to the proposal and accordingly the Court cannot approve it under s 333(6) of the Act.
[41] Mr Coyle, on the other hand, submits that the Halse Litigation is only one element of the proposal and in any event the proposal did not restrict the litigation to be continued in a way which makes the amendment of pleadings inadmissible. Mr Coyle further submits that Premier LP has not identified any actual changes in substance beyond the fact that the amended claim has been filed — he submits the causes of action, alleged breaches of duty and remedies sought all remain almost identical. Mr Coyle submits that it is clear the substance of the claim remains the same: that Mr Halse was conflicted while acting as a lawyer, a lender and trustee for Mr Fistonich and/or entities associated with him, that Mr Halse breached his duty by acting in an actual conflict in arranging mortgages from Premier LP secured over the assets of the Zlato Trust, and in those circumstances the Court should grant equitable remedies.
[42] Mr Coyle also submits that it cannot be reasonably inferred that the creditors only approved the proposal on the basis there would never be any amendment to the pleadings and that the claim might not develop over the course of the proceedings — particularly following completion of discovery or any other interlocutory steps.
[43] My conclusion on this point is that I accept that Mr Coyle’s submissions are essentially correct. While an amended statement of claim has been filed, the substance
of the claim against Mr Halse and the other defendants is substantially the same, and I also accept Mr Coyle’s submission that the creditors did not approve the proposal on the basis that there would be no amendment to the pleadings as required during the course of the litigation through the Court. Accordingly, I am of the view that there has not been a substantial amendment to the proposal and the Court is not prevented from approving the proposal by s 333(6) of the Act.
It is implicit in the proposal and the representations of creditors that should the Halse Litigation be successful it will be of benefit to creditors by way of dividend. This is simply false
[44] In response to this ground of opposition, Mr Coyle submits that although any relief granted will be for the benefit of the Zlato Trust, Mr Fistonich has made it clear that he intends to make those benefits available to creditors. He submits the majority of creditors were willing to support the proposal based on nothing more than Mr Fistonich’s assertion that he intended to make the benefit of the Halse Litigation available to them. Mr Coyle submits that this should be sufficient for the Court.
[45] Mr Coyle has submitted that if the Court considers something beyond what the creditors have already accepted is necessary to approve the proposal, then the Court could impose a condition that the proposal will only be completed when any net benefit of the Halse Litigation is made available to creditors. Alternatively, on the basis that the Court indicates it is otherwise willing to approve the proposal, it could adjourn the proceedings to allow for an assignment by the Zlato Trust to Mr Fistonich of the benefit of the Halse Litigation to be effected.
[46] My conclusion on this point is that, as ordered later in this judgment, a condition should be imposed as part of the proposal’s approval that the proposal is not complete until creditors receive any net benefit of the Halse Litigation.
The proposal is hopelessly vague, given there has been no firm commitment provided to the trustees as to how: (a) the trustees’ fees will be paid; (b) the security for costs in the Halse Litigation will be paid; (c) whether legal costs in pursuing the Halse Litigation will be payable and by whom
[47]Mr Coyle submits the proposal is certain:
(a)It states that the trustees’ costs will be paid separately from Mr Fistonich’s salary. He submits that at the creditors’ meeting it was confirmed that these costs would not be deducted from the weekly dividend to be paid to creditors. He further submits that costs will be minimal and the trustees advise they intend to charge approximately
$6,000 in total. He submits that there is no serious doubt that Mr Fistonich would be able to pay these in addition to the weekly payments for the benefit of his creditors;
(b)Security for costs are to be paid by Mr Fistonich’s father. If they are not paid then the proposal will have been breached and appropriate remedies can be pursued;
(c)Mr Fistonich has confirmed that no legal costs will be payable until the Halse Litigation is concluded. If it is concluded successfully there will be ample funds to pay the legal costs, and if it is not successful then the issue becomes irrelevant.
[48] My view on this issue is that the proposal is sufficiently certain on these points and the provisions of subpart 2 of part 5 of the Act have been complied with.
The proposal is based on highly speculative litigation, litigation that has already been described by the High Court as “weak”
[49] Mr Grove has submitted that Associate Judge Paulsen’s findings in the interlocutory application for security for costs made by Premier LP were that the claims were weak.24
[50] Mr Coyle submits that the comments of Associate Judge Paulsen must be considered in context, being that of an interlocutory application for security for costs where Mr Fistonich was not represented by counsel. Mr Coyle points out that since Judge Paulsen’s judgment was given, Mr Fistonich has retained counsel and an amended claim has been filed. He submits the fact that experienced counsel was
24 Fistonich v Halse [2021] NZHC 1421 at [39].
willing to act on the basis that no legal costs are payable until the litigation is concluded should provide some indication that the claim has merit. He also submits that a majority of creditors voted in favour of the proposal despite Premier LP’s attempts to convince them that the litigation lacked merit.
[51] My conclusion on this point is that the creditors have reached the view that there is potential advantage to them in approving the proposal and possible upside if the Halse Litigation is successful. In this instance it is not for the Court to override the views of the creditors in respect to the risk of whether or not the Halse Litigation will be successful, and therefore, this is not a sufficient ground for the Court to refuse approval of the proposal.
The Premium LP claim should have been accepted for voting purposes by the trustees and, if so, the proposal would not have obtained the required votes
[52] The right to vote at the creditors’ meeting arises under s 330(2) of the Act which provides:
330 Provisional trustee must call meeting of creditors …
…
(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.
[53] The admission of objection to the creditors’ claim is dealt with in reg 32 of the Insolvency (Personal Insolvency) Regulations 2007 (the Regulations) which provides:
32 Admission or rejection of claims for the purposes of voting
(1)The provisional trustee has the power to admit or reject a claim for the purposes of voting at a creditors’ meeting, but his or her decision is subject to appeal to the court.
(2)If the provisional trustee is uncertain whether a claim may be admitted or rejected, he or she must allow the creditor to vote subject to that vote being declared invalid in the event of a claim being rejected for the purposes of voting.
[54] Mr Grove submits that Premier LP’s claim in the proposal for $1,000,000 was supported by statements of outstanding sums and the mortgage agreements. Although Premier LP’s claim against Mr Fistonich is for a significantly higher sum, that is the amount which has been waived so far as the securities held. Mr Grove submits that had Premier LP’s claim been allowed for voting purposes, the required 75 per cent threshold for approval of the proposal would not have been obtained.
[55] Mr Grove submits there is no basis for denying that a prima facie claim was valid. It was pursuant to a guarantee signed by Mr Fistonich, and the quantum was not disputed. Mr Grove submits that the decision in Vegar v Aorangi Forest Limited is not authority for the proposition that any dispute over a debt means that it is not a “provable debt”.25 He submits this would lead to an absurd and unworkable result as a debtor offering a proposal would raise a simply spurious claim challenging the debt and thereby prevent that creditor from voting. Mr Grove submits that all the Vegar decision establishes is that “prospective” debts, that is, debts which are contested and uncertain but have a “real prospect” of being proved by the prospective creditor somewhere down the line, are not “provable debts” for the purposes of voting on a proposal.
[56] Mr Grove submits that the present case is distinguishable from the Vegar decision as Premier LP can point to an existing liability or a guarantee which has been called up in the contingent event, that is, default by the principal debtor, and accordingly, the guarantee is a provable debt under s 232(1)(b).
[57] Mr Coyle, on the other hand, submits that the Vegar decision provides clear authority that while it is ultimately up to the provisional trustee to make a decision about whether to accept a claim or not, a trustee should not do so if the debt which has been claimed is genuinely disputed. Mr Coyle points out that the Court noted in the Vegar decision that the creditor’s proposals regime would be significantly undermined if prospective creditors with disputed claims could assert the same rights at creditors’ meetings as those with provable debts. He also submits the Court noted that reg 32(2) of the Regulations, which allow a trustee to provisionally accept a vote subject to it
25 Vegar v Aorangi Forest Limited [2014] NZHC 1109.
later being declared invalid, was not designed to allow the trustee to make a judicial decision as to the merits of a “disputed claim”. It was merely an administrative provision and might be applicable, for example, to a claim for a provable debt which was submitted very late to the provisional trustees before the creditors’ meeting.
[58] Mr Coyle submits that given the extensive litigation history of the proceedings brought by Mr Fistonich, which dates back a number of years, it is patently obvious that the debts claimed by Premier LP are genuinely disputed. Mr Coyle points out that Premier LP has had several years to take steps to obtain a judgment against Mr Fistonich but, for whatever reason, has chosen not to do so. He submits that even if the trustees do have the power to accept a claim, notwithstanding any obvious attempts to manufacture a dispute at the last minute, this claim is not one for which they should have exercised such a power.
[59] My conclusion on this view is that the provisional trustees were correct in rejecting Premier LP’s claim for voting purposes. While there are guarantee and mortgage documents, the Halse Litigation is ultimately a dispute concerning the liability of Mr Fistonich under this guarantee. While the guarantee may have crystallised by being called up as a result of default by the principal debtors, and in that sense is no longer a contingent liability of Mr Fistonich, in my view Premier LP is only a prospective creditor until the Halse Litigation is resolved and liability of Mr Fistonich is established. Accordingly, it is not a provable debt for the purposes of voting on the proposal.
The dividend is miniscule and indeed does not come close to providing for the amount of funds that are available to the insolvent to contribute on a weekly basis
[60] Mr Grove submits that the proposed pay-out under the proposal is miniscule. The proposal provides for $250 per week for five years, which totals $65,000. He submits that including the Premier LP claim, the total creditors’ claims are
$2,077,608.59. Accordingly, the weekly payments amount to a dividend of 3.13 per cent.
[61] Mr Coyle, on the other hand, submits that relatively small payments under a proposal do not, on their own, justify the Court exercising its discretion against
approving the proposal that a requisite majority of creditors have determined to accept.26 Mr Coyle refers to Re Herbert ex parte Allied Nationwide Finance in which the amount of indebtedness to creditors was approximately $29,000,000 and the proposal the debtor proposed to pay was $10,000 (approximately 0.016 cents on the dollar).27 In that instance, Associate Judge Doogue rejected approving the proposal, but in Mr Coyle’s view this was a case of the amount payable being de minimis. By contrast, Mr Coyle refers to Re Trott & Joy as an example where a proposal was approved in which the debtor offered 6 cents on the dollar.28
[62] Mr Coyle submits that, if the Premier LP claim is excluded, Mr Fistonich’s proposal is approximately 6 cents on the dollar.
[63] My conclusion on this point is that given the majority of creditors have approved the proposal, and the amount is not de minimis, the quantum of the dividend payable by Mr Fistonich is not a reason to refuse approval of the proposal.
There is public interest in adjudicating the insolvent bankrupt
[64] Mr Grove submits that there is public interest in Mr Fistonich being adjudicated bankrupt. Mr Fistonich owned and directed several companies which operated under the “Accent on Construction” brand (Accent). In December 2018, the Accent companies were placed into liquidation and receivership. Mr Grove submits that no explanation has been given by Mr Fistonich as to the “multi-million hole in the finances” of the Accent group, discovered in June 2017. He submits that Mr Fistonich was a director of the Accent company and the “multi-million dollar hole” clearly led to the guarantees being called up and to Mr Fistonich’s insolvency. He submits therefore there are good grounds for concluding there is public interest in investigating what happened, whether any relief is available and to ensure it does not occur again.
[65] Mr Coyle, on the other hand, submits that Mr Fistonich is no longer working independently. Mr Coyle submits that Mr Fistonich is employed and there is no
26 See Re Williams HC Auckland B695-IM01, 16 October 2002.
27 Re Herbert, ex parte Allied Nationwide Finance HC Auckland, CIV-2010-404-8294, 26 September 2011.
28 Re Trott & Joy HC Auckland, B1471/88, 14 April 1989.
evidence he is a commercial hazard. He rejects Premier LP’s suggestion that there has been some form of misconduct on Mr Fistonich’s part. He submits there is no evidence of claims against him by the liquidators of the Accent group, and no suggestion he has not made full disclosure of his assets. Mr Coyle submits there are no particular transactions in question which Premier LP says must be investigated by the Official Assignee and evidence of any misconduct or transactions to be challenged is absent. He submits that despite Mr Halse being a long-time lawyer, trustee and financier for Mr Fistonich’s entities, Mr Halse has not raised any such misconduct.
[66] My conclusion on this point is that the public interest in having Mr Fistonich adjudicated bankrupt in these circumstances, if indeed there is any, is not a reason to refuse approving the proposal.
Result
[67] As a result of the conclusions I have reached at [43], [46], [48], [51], [59], [63] and [66], I am of the view the Court should approve the proposal subject to the conditions set out in the order for approval below.
Orders
[68]I make the following orders:
(a)The proposal is approved for the purposes of s 333(1)(a) of the Insolvency Act 2006 subject to the conditions set out at [68](b).
(b)The proposal shall not be regarded as complete until Mr Fistonich has made available to creditors any net benefit obtained from the Halse Litigation.
Costs
[69] Costs are reserved. Counsel are directed to endeavour to agree costs. If no agreement is reached within 20 working days of the date of this judgment, then counsel for Mr Fistonich shall submit a memorandum relating to cost (not exceeding
five pages), and counsel for the judgment creditors and counsel for the opposing creditors shall each submit memoranda as to costs in response to Mr Fistonich’s counsel’s memorandum (not to exceed five pages) within 5 days of receiving the memorandum as to costs from counsel for Mr Fistonich.
…………………………….. Associate Judge Taylor
Solicitors:
Smith & Partners (Alana Kalinowski/Carolyn Ranson), Auckland, for the Judgment Creditors Brookfields (Nicholas Coyle/Tyrone Cooley), Auckland, for the Debtor, Mr Fistonich
Vodanovich Law (Ivan Vodanovich), Kumeu, Auckland, for Premier Legal Finance Ltd Partnership
Copy for:
Daniel Grove, Barrister, Auckland, for Premier Legal Finance Ltd Partnership (opposing creditor) Stephen Lukey, Barrister, Christchurch, for the Trustees
Nair Draht Limited (Daran Nair/Heiko Draht), Insolvency Practitioners, Epsom, Auckland
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