Gibson HC Auckland CIV 2010-404-008054

[2011] NZHC 358

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2010-404-008054

IN THE MATTER OF     THE INSOLVENCY ACT 2006

AND IN THE MATTER OF A PROPOSAL BY BRENT WILLIAM GIBSON

Hearing:         15 February 2011

Counsel:         P R Cogswell for trustee

No other appearances

Judgment:      15 February 2011

ORAL JUDGMENT OF ASSOCIATE JUDGE ABBOTT

Solicitors:

Cogswell & Jaduram, PO Box 6343, Auckland 1141 for trustee

GIBSON HC AK CIV 2010-404-008054 15 February 2011

[1]      Peri Finnigan, chartered accountant and insolvency practitioner, has applied for approval of a proposal made by Brent William Gibson to his creditors.

[2]      Ms Finnigan was appointed trustee for the creditors at a meeting held on

20 December 2010.   The proposal was accepted at that meeting by the required majority of creditors.

[3]      Ms Finnigan now applies pursuant to s 333 of the Insolvency Act 2006 for approval of the proposal.   The application is supported by a report by the trustee dated 17 January 2011. That report provides evidence of the following:

(a)       The proposal was lodged in court on 9 December 2010;

(b)      Notice of the proposal, and of the creditors’ meeting to consider it

(supported by the requisite documents) was given on 10 December

2010 to every known creditor affected by it;

(c)      The proposal was accepted by resolution passed at the meeting by the requisite majority in number, and three-quarters in value, of creditors entitled to vote;

(d)Since the meeting a further creditor has indicated support for the proposal;

(e)       Notice of the outcome of the meeting was sent to all creditors on

21 December 2010.

[4]      The trustee has separately filed an affidavit testifying to the fact that a copy of her application for approval, and notice of today’s hearing, was sent to all known creditors on either 25 or 26 January 2011.   No creditors have appeared either to support or to oppose the application for approval.

[5]      The insolvent, Mr Gibson, declared himself as being indebted to creditors in the sum of $12,793,556 (after realisation of securities).  The trustee has identified that indebtedness as being $9,238,085 based on proofs of debt received.  This indebtedness  arises  out  of  guarantees  given  for loans  to  related  companies  that undertook substantial development projects, which have failed in the current economic climate.   Mr Gibson has no assets remaining but has recently obtained employment at a modest salary.  The essence of his proposal is that he will obtain a loan of $25,000 from a third party, which sum he will pay to the trustee, to be applied in payments to creditors in proportion to approved debts.

[6]      The trustee, in her report, expresses the opinion that the assets and liabilities of the insolvent (as recorded in and provided to creditors in his statement of affairs) are accurate, and that the proposal is advantageous to creditors in that it provides a better result than that which would be achieved under bankruptcy.

[7]      The  essential   test   for   determining  an   application   for  approval   of   a compromise is whether the terms of the proposal are reasonable and calculated to benefit the general body of creditors.[1]

[1] Insolvency Act 2006, s 333(3)(b).

[8]      The court has a discretion whether or not to approve a proposal.  Counsel for the trustee has provided a helpful memorandum in support of the application setting out authority on the predecessor section under the Insolvency Act 1967, including the decision of the Court of Appeal in Farmer v Rowley.[2]He has also referred to the comments of Associate Judge Sargisson in Re Marsh ex parte Commonwealth Bank of Australia:[3]

The Courts generally will approve a proposal unless, in the Court’s objective

assessment, it is clear that the creditors would fare better under bankruptcy.

[2] Farmer v Rowley [1992] NZLR 195.

[3] Re Marsh ex parte Commonwealth Bank of Australia HC Auckland CIV 2002-404-3336 16 March 2010 at 18.

[9]      Associate Judge Sargisson quoted with approval the following statements by the Court of Appeal in Farmer v Rowley:

a.      Richardson J at 200 to 201:

In  determining  whether  the  proposal  is  reasonable  the  Court  is required to exercise an independent judgment.   Nevertheless it must be influenced by the commercial judgment of creditors who in approving the proposal have demonstrated their willingness and wish to receive a partial payment without recourse to bankruptcy. ... Unless there are special public interest or other commercial considerations present the assessment of the substantial body of creditors ought to be accepted.

b.      Hardie Boys J at 202:

Further, the judgment about these matters must essentially be one for the creditors to make...   The creditors were in the best situation to weigh up the alternatives and the alternatives they chose to take the money    I do not think it is part of the Court’s duty to refuse approval in the mere hope that something better will be offered.   The statute does not contemplate a procedure akin to an auction.

[10]   The most significant factor weighing against approval of the present compromise is the comparatively small amount of the distribution to creditors (less than one cent in the dollar), and the very significant amount of the indebtedness. However, against that, I am able to take into account that it still a tangible benefit to creditors (a similar position was taken by Associate Judge Sargisson in Re Marsh).

[11]     Against that possible negative, I need to balance the fact that the requisite majority of creditors has supported the proposal, and none of the creditors who vote against it have been sufficiently motivated to oppose the application to the court for approval.  I find that that is a significant factor.

[12]     I can also take into account counsel’s submissions that the indebtedness has

arisen as a result of guarantees, and the trustee’s view as expressed in the report:

I believe that the favourable votes reflect the views of creditors genuinely interested in the outcome and in supporting Brent Gibson.  Many creditors recognise that the demise of Mr Gibson is the result of the credit crunch, global recession and the failure of Finance Companies leading to the withdrawal  of financial support.    The  creditors  who  have  supported the proposal accept that Mr Gibson is not a threat to the public.  These creditors also have taken into account Mr Gibsons ongoing assistance and support.

[13]     Weighing all of these matters I am satisfied that:

(a)      The statutory provisions in relation to proposals under sub part 2 of

Part 5 of the Insolvency Act 2006 have been complied with;

(b)The proposal has been accepted by the requisite number and value of creditors;

(c)      The terms of the proposal are reasonable, and are calculated to benefit the general body of creditors;

(d)      There is no reason to consider it inexpedient to approve the proposal;

(e)      The proposal has made proper provision for prior payment of the trustee’s fees and expenses, and the cost of the creditors’ meeting as required by s 333(4) of the Insolvency Act 2006.

[14]     In  the  above  circumstances  I  make  an  order  as  sought  in  the  trustee’s

application dated 18 January 2011.

Associate Judge Abbott