Fenning v Lexus Trustees Limited - [2019] NZHC 3009

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-001960

[2019] NZHC 3009

BETWEEN
WARREN FENNING

Insolvent

AND

LEXUS TRUSTEES LIMITED and SALLY

ANNE JUDITH RIDGE as trustees of the 24 TRUST
First Creditor

HEARTLAND BANK LIMITED
Second Creditor

WESTPAC BANKING CORPORATION

Third Creditor

CIV-2019-404-001015

BETWEEN

LEXUS TRUSTEES LIMITED and

SALLY ANNE JUDITH RIDGE as trustees of the 24 TRUST

Judgment Creditors

AND

WARREN IAN FENNING

Judgment Debtor

Hearing: 14 November 2019

Appearances:

A Nicholls for Trustee

J D McBride for Judgment Creditors, Lexus Trustees Ltd and Ms S Ridge

Judgment:

19 November 2019

JUDGMENT OF ASSOCIATE JUDGE P J ANDREW

FENNING v LEXUS TRUSTEES LTD & OR [2019] NZHC 3009 [19 November 2019]

Introduction

[1] The trustee of the creditors for the insolvent (also the judgment debtor), Warren Fenning, seeks court approval of a proposal pursuant to s 333 of the Insolvency Act 2006.

[2] The judgment creditors in the bankruptcy proceedings, Lexus Trustees Ltd and Sally Ridge, oppose the approval on the grounds that Mr Fenning is “hopelessly insolvent”, cannot afford his proposed repayments and poses an ongoing risk to the community. It is contended that it would be neither reasonable nor expedient to approve the proposal.

Procedural background

[3] The judgment creditors filed a memorandum dated 9 October 2019 outlining their objections to the approval sought.

[4] In my minute of 10 October 2019, I directed that Mr Fenning was to file and serve an affidavit addressing concerns raised in the memorandum. Since then, the Court has received an affidavit from Mr Fenning sworn 31 October 2019, a memorandum of counsel for the trustees dated 12 November 2019 and a further memorandum from the judgment creditors dated 13 November 2019.

Relevant legal principles

[5]Section 333 of the Insolvency Act provides, in relevant part:

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.

(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…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2019] NZHC 3009
Decision Date: 19 November 2019

CaseChat Overview and Summary

The case of Fenning v Lexus Trustees Limited involves an application by the trustee of the creditors for the insolvent, Warren Fenning, to seek court approval of a proposal pursuant to s 333 of the Insolvency Act 2006. The judgment creditors, Lexus Trustees Ltd and Sally Ridge, oppose the approval on the grounds that Mr Fenning is "hopelessly insolvent," cannot afford his proposed repayments, and poses an ongoing risk to the community. The court must determine whether to approve the proposal based on its independent judgment and consideration of wider public interest.

The critical issue for the court to determine was whether, as a matter of independent judgment and having regard to considerations of wider public interest, it should decline to approve the proposal. The judgment creditors contended that the proposal was not reasonable because Mr Fenning’s budgeted future expenses and income were too optimistic and gave no assurance of repayment. They also contended that there was an established pattern of Mr Fenning assuming debts and repayment plans that he could not afford and borrowing money to support his lifestyle choices and level of indebtedness.

The court found that there was some merit in the opposition of the judgment creditors (public interest grounds) and that the objections raised must be taken seriously. However, it was clear that the creditors generally would be better off under the proposal than under a bankruptcy. The court found that the creditors who had demonstrated their willingness and wish to receive a partial payment without recourse to bankruptcy were sophisticated institutional creditors who could be relied upon to make a commercially prudent decision. The court also found that the proposal was expressed in clear and concrete terms and that the payments were to be made over the next three years, with the first payment due in October 2020 being a relatively modest amount. The court found that the payments had obviously been staggered in the expectation that over time Mr Fenning’s income would increase.

The court approved the trustee’s proposal but subject to the condition that Mr Fenning, the insolvent, make a payment within 7 days to the judgment creditors in the sum of $5,756.

Orders