Gericke v American Express International (NZ) Inc
[2024] NZHC 2453
•30 August 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-275
[2024] NZHC 2453
UNDER the Insolvency Act 2006 BETWEEN
GEORGE SEBASTIAAN GERICKE
Insolvent
AND
AMERICAN EXPRESS INTERNATIONAL (NZ) INC
Creditor
BAYCORP (NZ) LIMITED
CreditorCREDIT CORP NEW ZEALAND PTY LIMITED
Creditor(Creditors Continued)
Hearing: 1 August 2024 Counsel:
YSBV Yang for the Applicant Trustee
Judgment:
30 August 2024
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 30 August 2024 at 12 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Chapman Tripp, Auckland
GERICKE v AMERICAN EXPRESS INTERNATIONAL (NZ) INC [2024] NZHC 2453 [30 August 2024]
EC CREDIT CONTROL (NZ) LIMITED
Creditor
HARMONEY LIMITED
Creditor
SOUTHERN RECEIVABLES LIMITED
Creditor
Introduction
[1] The applicant trustee, Christine Liggins, seeks orders that the Court approve the proposal of George Sebastiaan Gericke dated 21 August 2023 made pursuant to pt 5, sub-pt 2 of the Insolvency Act 2006.
[2] The proposal is to continue to make contractually agreed payments to all secured creditors directly and to make monthly payments of $1,192 over the course of four years to cover all proven debts filed with Ms Liggins. Mr Gericke’s secured creditors totals $28,307.49 and his unsecured creditors total $101,386.20. Through the proposal, Mr Gericke will repay approximately 60 cents in the dollar to the unsecured creditors, less the trustee’s fees and expenses as set out in the proposal.
[3] Applying to the Court for approval is the final stage in the process allowing an insolvent to avoid bankruptcy by making a proposal to creditors for the payment or satisfaction of the insolvent’s debts.1
[4] The first stage is for a proposal to be filed satisfying the requirements of s 327 of the Insolvency Act. This includes nominating a trustee for collection and distribution of instalments paid who becomes the provisional trustee until the proposal is approved.
[5] The second stage is for the provisional trustee to call a meeting of the insolvent’s creditors pursuant to s 330 of the Insolvency Act and for the passing of a resolution accepting the proposal by a majority of the creditors in number and three quarters in value of the creditors who vote.
[6] The trustee must then apply to the Court for approval of the proposal and send notice of the hearing of the application in the prescribed form to the insolvent and every known creditor.
[7] When the matter was called, there was no appearance on behalf of any creditor or otherwise objecting to the proposal.
1 Insolvency Act 2006, s 326 and as contained in sub-pt 2 of pt 5 of the Act.
[8] Having heard from counsel for the Trustee, and considered the documents filed and the requirements of the Act, I approve the proposal for the reasons set out below.
Background
[9] The insolvent, Mr Gericke is a New Zealand national based in Australia. Counsel for the trustee submits that during 2022 Mr Gericke was subject to a series of personal issues which resulted in his inability to meet his financial commitments.
[10] The proposal is dated 21 August 2023 and was filed together with a statement of affairs and affidavit of Mr Gericke of the same date on 23 January 2024. The trustee filed a report with the Court dated 17 January 2024 recording that in his statement of affairs and affidavit, Mr Gericke recorded a debt in the name of Finance Now Ltd trading as Warehouse Money. The trustee records that this debt had been sent to Receivables Management (NZ) Ltd and the amount owing had already been included in the amount against Receivables Management (NZ) Ltd’s name, essentially double counting this debt.
[11] The trustee’s report therefore records that as at September 2023, Mr Gericke's debts totalled $129,693.69 comprised of:
(a)$101,386.20, owed to six unsecured creditors; and
(b)$28,307.49, owed to one secured creditor.
[12] Mr Gericke sought the assistance of Debtfix, a debt management entity, to resolve his debt situation and nominated Ms Liggins, the director of Debtfix and a licensed insolvency practitioner, to be his trustee.
[13]Under the proposal Mr Gericke will:
(a)continue to make contractually agreed payments to all secured creditors directly;
(b)make monthly payments of $1,192 for four years to the trustee to cover all proven debts filed with the trustee; and
(c)not enter into any further personal borrowing or seek an increase to existing borrowing during the term of the proposal.
[14] The proposal provides that the fees and the expenses of the trustee will be paid as follows:
(a)$1,000 in expenses;
(b)20 per cent of the first $3,000;
(c)10 per cent of the following $7,000; and
(d)five per cent in excess of $10,000.
[15] After the proposal was signed, several of the debts were assigned: from Kiwibank Ltd to EC Credit Control; Receivables Management (NZ) Ltd to Baycorp (NZ) Ltd; and from Receivables Management (NZ) Ltd to Southern Receivables Ltd. Changes have been made to the intituling in accordance with these assignments.
Approval of proposals – relevant legal provision
[16]Section 333 of 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.
(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.
[17] From the use of the words “may” and “must” in ss 333(3) and (4), the Court retains a discretion whether to refuse to approve a proposal in the circumstances set out in s 333(3) whereas the Court’s refusal is mandatory in the circumstances set out in s 333(4).
[18] In terms of the second of the discretionary circumstances in s 333(3)(b), whether the proposal is reasonable, this is to be assessed objectively from the perspective of the “commercially experienced prudent creditor”.2
[19] In Herbert v New Zealand Guardian Trust Co Ltd the Court of Appeal held that when considering reasonableness, the Court is required to exercise its independent judgment but that it must be influenced by the commercial judgment of creditors.3 The Court held that unless there are special public interest or other commercial considerations present, the assessment of the general body of creditors ought to be accepted.
2 Kelly v Structured Finance Ltd [2009] 2 NZLR 785 (HC) at [45] approved by the Court of Appeal in Magsons Hardware Ltd t/a Mitre 10 Mega v Bogiatto [2011] NZCA 378 at [29].
3 Herbert v New Zealand Guardian Trust Co Ltd [2012] NZCA 442.
[20] The third discretionary basis is whether there is any reason why it is not expedient that the proposal be approved.4 As Asher J explained in Kelly v Structured Finance Ltd:5
The word “expedient” is capable of a broad meaning. It can mean “practicable”, but also has the wider meaning of “suitable” or “appropriate”.
… I consider that s 333(3)(c) requires an open-ended approach, and that any attempt to focus it on a specific matter would be to impose a limitation that does not arise from the words of the subsection.
[21] Section 333(4) requires the Court to refuse the proposal if the proposal does not provide for the payment before other debts are paid of:
(a)debts that would be preferential in a bankruptcy;
(b)the trustee’s fees and expenses properly incurred by the trustee in respect of the proposal; and
(c)the costs of any other person other than the insolvent in relation to the meeting of creditors.
Have the requirements of sub-pt 2 been complied with?
[22] The trustee Ms Liggins confirms in her 17 January 2024 report that on 25 September 2023 she gave notice to all known creditors of Mr Gericke that a meeting of creditors would be held on 9 November 2023 to consider the proposal.
[23] As set out above, some of the unsecured debt had been assigned to other creditors after the proposal had been signed. Ms Liggins confirms in her report that all of the current creditors of Mr Gericke were identified and given notice of the meeting.
[24] The meeting of creditors was then held on 9 November 2023. No creditors attended in person but all six unsecured creditors voted by way of postal votes. The sole secured creditor did not vote and nor did it seek to have its debt admitted by the
4 Insolvency Act 2006, s 333(3)(c).
5 Kelly v Structured Finance Ltd, above n 2, at [53].
provisional trustee. Only creditors whose claims have been admitted are able to vote at creditor meetings.6
[25]All six voting creditors voted in favour of the proposal.
[26] Section 331(3) of the Act sets out the requirements for acceptance of a proposal at the creditors’ meeting, providing:
(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 s 332 or have voted by postal vote.
[27] These thresholds therefore only relate to those creditors voting. As those who voted, voted unanimously in favour, the proposal was therefore approved by the requisite majority in number and over three quarters in value.
[28] The proposal sets out the trustee’s fees and expenses as set out above as required by s 327 of the Act and Form B 9 of the High Court Rules 2016. These are in accordance with reg 40 of the Insolvency (Personal Insolvency) Regulations 2007.
[29] Affidavits have been filed confirming that the creditors were advised of the original and amended hearing dates for the application to the Court for approval and of the change in representation of the trustee.
[30] I am therefore satisfied that the procedural requirements under sub-pt 2 of pt 5 have been complied with.
Is the proposal reasonable under s 333(3)(b)?
[31] The trustee’s report to the Court dated 17 January 2024 advises that in her opinion Mr Gericke’s assets have a total value of approximately $5000. Although the insolvent has a secured debt of $28,307.49, the asset over which it was secured has
6 Insolvency (Personal Insolvency) Regulations 2007, reg 31.
been sold. His debts therefore far exceed the value of realisable assets in his possession.
[32] The total amount of the payments to be made by Mr Gericke under the proposal in respect of unsecured creditors is $94,250.
[33] After deduction of the trustee’s costs and expenses, there will be $52,555.20 available for distribution to the unsecured creditors, resulting in a distribution of approximately 52 per cent of the total unsecured debts.
[34] The trustee confirms in her report that the payments by Mr Gericke will be made from his salary.
[35] The voting creditors have voted unanimously in favour of the proposal and there are no apparent public interest or other commercial considerations that ought to prevent the assessment of the general body of creditors being accepted (as held in Herbert).7
[36] I am satisfied the proposal will result in an improved and more certain return for creditors than if Mr Gericke were to be adjudicated bankrupt. Ms Liggins also confirms in her report that in her view the proposal recovers more debt than could be achieved through any alternative method.
[37] I therefore consider the proposal is reasonable and calculated to benefit the general body of creditors.
Is there any reason that it is not expedient for the proposal to be approved?
[38] The trustee’s report sets out the current salary of the insolvent and confirms that at Debtfix they work with the client on a detailed budget with a net income and all outgoings of the insolvent to determine that there is enough of a surplus to afford a proposal.
7 Herbert v New Zealand Guardian Trust Co Ltd, above n 3.
[39] Ms Liggins has filed a further report to the Court dated 2 July 2024 confirming that Mr Gericke has made and continues to make timely payments to her in accordance with the proposal and that upon approval of the Court, Ms Liggins will release those funds to repay the creditors.
[40] I do not consider there is anything in the application to suggest that it would not be expedient for the proposal to be approved.
Section 333(4) matters
[41] In terms of s 333(4) matters, in this case there are no preferential debts, and the proposal provides that the trustee’s fees and expenses will be paid for. The trustee organised the meeting of creditors to approve the proposal and does not claim any separate costs. None of the matters for which the Act mandates refusal therefore prevent approval of this proposal.
Conclusion
[42]I am satisfied that:
(a)the provisions of sub-pt 2 of pt 5 of the Act have been complied with;
(b)the terms of the proposal are reasonable and calculated to benefit the general body of the creditors;
(c)it is expedient that the proposal be approved; and
(d)there are no grounds under s 333(4) of the Act which mandate against approval of the proposal.
Result
[43] For the reasons set out above, I approve the proposal of George Sebastiaan Gericke dated 21 August 2023 pursuant to s 333 of the Insolvency Act.
Associate Judge Sussock
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