Havenleigh Global Services Limited v Henderson HC Christchurch CIV 2010-409-559

[2010] NZHC 2173

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2010-409-000559

IN THE MATTER OF     the Insolvency Act 2006

AND

IN THE MATTER OF     the bankruptcy of DAVID IAN HENDERSON

BETWEEN  HAVENLEIGH GLOBAL SERVICES LIMITED

FM CUSTODIANS LIMITED (IN RECEIVERSHIP)

Judgment Creditors (Subsituted)

ANDDAVID IAN HENDERSON Judgment Debtor

CIV-2010-409-001672

IN THE MATTER OF     DAVID IAN HENDERSON BETWEEN ALLIED FARMERS INVESTMENTS

LIMITED

Creditor

Hearing:         29 November 2010

Appearances: A J Forbes QC for Debtor

K Hill-Dunne for Havenleigh Global Services Limited (applicant on
559)

J V Ormsby, JWA Johnson for FM Custodians (applicant on 559) J P Forsey for Allied Farmers Investments Limited (applicant on

1672)

C R Vinnell for South Canterbury Finance (in receivership) - Creditor in Support

K M Paterson for BNZ - Creditor in Support
S Goodwin  for Equitable Property Finance Limited - Creditor in
Support
H Evans for DB Breweries Limited - Creditor in Support
K Welsford for Strategic Finance Ltd (in receivership) and Lombard

Finance Investments Ltd (in receivership) - Creditors in Support

HAVENLEIGH GLOBAL SERVICES LIMITED AND ANOR V HENDERSON HC CHCH CIV-2010-409-

000559  29 November 2010

Judgment:      29 November 2010

ORAL JUDGMENT OF ASSOCIATE JUDGE OSBORNE

as to Adjudication

Legal background

[1]      These are proceedings for orders of adjudication of David Ian Henderson.  In these proceedings, three creditors appear as plaintiffs: Havenleigh Global Services Limited, Allied Farmers Investments Limited and FM Custodians Limited (in receivership).

[2]      There is no issue taken by Mr Henderson as to the entitlement of Havenleigh and Allied Farmers to proceed.  He does not dispute the existence of a debt to FM Custodians, but he takes issue with its right of enforcement.  In the event, Mr Forbes accepted, as must be the case, that the issue is not of legal significance today in that the other two creditors are so entitled.

[3]      Each has presented, through counsel, a certificate of continuing indebtedness as at today’s date.  Each opposes adjournment.

[4]      Apart from those creditors I have mentioned, six other creditors appear today in support of the applying creditors.  Each opposes any further adjournment of the proceeding in support of the applying creditors position on that.

Factual background

[5]      Mr Henderson’s personal solvency has been before this Court in a number of proceedings in recent times.   The older of the two proceedings before the Court today was commenced on 7 July 2010 following an unsatisfied bankruptcy notice which had been served on 25 March 2010.  On 1 November 2010 Mr Henderson, who had not taken steps to defend the proceeding, appeared through Mr Forbes and accepted  that  he  was  insolvent  and  unable  to  pay  his  debts.    He  sought  an adjournment for the purpose of putting a proposal under Part 5 of the Insolvency Act

to his creditors.   Counsel appearing for all creditors who entered appearances uniformly opposed the adjournment on that occasion (as also today).

[6]      I granted a four-week adjournment from 1 November 2010 to 29 November

2010.

[7]      The detailed outline of a proposal I directed be put to creditors on or by 15

November 2010.  The purpose of that direction was to enable creditors to have a full opportunity to consider the information provided by Mr Henderson ahead of the 29

November hearing and to take a view for themselves as to whether or not they would support such a proposal.

[8]      An incident followed the adjournment: on the same day (1 November 2010) Mr Henderson took steps to transfer shareholdings and directorships of certain companies in which he says he holds only trustee interests.  I dealt with that incident as a matter of urgency at the request of counsel for the creditors on 10 November

2010.  I refer to my judgment of that date.  In the context of the decision I have to reach  today,  I  do  not  consider  anything  turns  on  the  approach  I  took  in  that judgment.  The approach I took was to find that the creditors were entitled to have had a degree of suspicion as to what had happened at or around the time of the adjournment application on 1 November 2010.  In the event, what the incident did was lead to a decision to bring forward the date of hearing to 15 November 2010.

[9]      On that date the Court, through Associate Judge Christiansen, dealt with these proceedings again.  The Court was presented with a document entitled ‘Outline of Creditors Proposal under the Insolvency Act 2006’.  The document contained a proposal that Mr Henderson’s creditors would participate in an arrangement whereby Mr Henderson would:

a)        pay to his trustee $50,000 on the proposal being approved by the

Court; and

b)pay an additional $10,000 per month, commencing one month after the proposal was approved by the Court, for the term of the proposal (the term of the proposal being 10 years); and

c)       pay 50 per cent of all his earnings over and above any annual salary, fees or any income to be paid to him up to $50,000, such payment to be made by the trustee when he or she considered it expedient.  That would include any realisable profit from certain projects which Mr Henderson identified later in the proposal.

[10]     When the matter was called the Court was advised that the creditors would again be opposing adjournment on the basis that all of those appearing were opposed to any proposal of the nature outlined by Mr Henderson.  The proceedings were then stood down to enable further detail to be provided as to potential support for the proposals.

[11]     Later that day, Associate Judge Christiansen adjourned the proceedings for a further two weeks.  The Judge recorded (at [11]) that it appeared to him that in the face of the opposition of the parties appearing that day, Mr Henderson could not obtain the 75 per cent in value required.  His Honour went on to note, however, Mr Forbes’ reliance on the timetable implemented on 1 November 2010.  There was an implication,   in   the   timeframe   originally   prescribed,   that   it   was   at   least mathematically possible that major secured creditors who were actively marketing the sale of secured properties might in the interim effect sale of those.  His Honour said that in the result,  the debts owed to those creditors might be significantly different at the time those creditors voted upon the proposal.   I will return to the timing of realisations.

[12]     In the event, Mr Henderson obtained an adjournment for a further two weeks to today.

Today’s hearing: a further adjournment?

[13]     Today,  Mr  Forbes  has  applied  for  a  further  adjournment  to  enable  Mr Henderson to now pursue a Part 5 proposal.   I have heard submissions from all counsel, but predominantly from Mr Forbes for Mr Henderson and from Messrs Ormsby and Forsey for creditors.  Other counsel spoke in support of submissions of Messrs Ormsby and Forsey.

[14]     Mr Forbes provided to the Court two documents which I will refer to as

Schedules A and B, and which form schedules to this judgment.

[15]     Schedule  A  is  a  document  which  lists  creditors  (including  contingent creditors),  and  their  responses.     It  lists  total  indebtedness,  both  secured  and unsecured, of $142,753,625.89.  By apportioning creditors’ response between those who rejected the proposal and other categories, Mr Forbes’ schedule A indicates an opposition by some $47,929,041.03 of creditors by value.   That figure Mr Forbes estimated would be around 32 per cent against.  My brief calculation indicates the schedule produces a figure of some 33.5 per cent against.  The remaining 66.5 per cent of creditors is a combination of those said to support the proposal and those who have not responded at all.

[16]     Mr Forbes then took me to a schedule B, which is a re-working of those against.   What Mr Forbes explained in relation to schedule B is that realisations likely from security were taken into account to reduce the total indebtedness to

$127,745,590.96.   By taking into account potential realisation of securities by creditors, those against were shown as comprising $32,921,006.10 by value.   Mr Forbes calculated that to equate to 25.77 per cent, with which I agree.

[17]     Given these figures provided by Mr Forbes, it may be that it is unnecessary to refer to alternative calculations as there is already the likelihood of more than 25 per cent  (by value)  disapproval.    It  is  appropriate  to  refer  briefly to  Mr  Ormsby’s alternative calculations, which I attach as schedule C.  They indicate a significantly higher percentage (by value) in the opposed camp, namely 41.56 per cent.  The main reason for difference between Mr Forbes’ schedules and Mr Ormsby’s lies in the logical treatment by Mr Ormsby of secured creditors for the proposal in the same

manner as those against.  On Mr Ormsby’s calculations, the proposal will fail by a more substantial margin.

[18]     I was not provided by Mr Forbes with an estimate as to how many cents in the dollar (over 10 years) each unsecured creditor might expect to receive (with or without allowance for realisation of securities).  Mr Evans calculated a recovery of

1.0 to 1.5 cents per dollar.  That figure does not account for any “excess earnings” which might eventuate under Mr Henderson’s proposal.  There is simply nothing to indicate the likelihood of such excess earnings.

Email communications

[19]   I was, in the course of submissions, taken to further matters of detail surrounding the way in which the Court might consider the response of creditors.  I was provided from the bar with emails of various creditors.  Some of these indicate that one or more creditors, having indicated opposition to the proposal, did further indicate when apparently emailed by Mr Henderson after rejection of the proposal that they might consider a further proposal if a further proposal were received.

[20]     I take that information into account, but give it very little importance in the decision I have to make today.  It is not in the form of evidence to which I can attach significant weight.   It is, as counsel for one of the creditors submitted to me, indication of an entirely predictable position on the part of creditors who would naturally respond to any inquiry by the debtor that they would consider other proposals if other proposals were made.  The reason for the indulgence I granted at the start of November was to enable creditors to see the best proposal Mr Henderson could  provide  in  the  framework  of  two  weeks  and  to  give their  views  on  that proposal.  It would be wrong, in my view, in the exercise of a discretion which I am asked to exercise, to give any significant weight to the possibility that creditors might agree to proposals yet to be received or seen.

Security

[21]     I  also  heard  some  submissions  around  the  distinction  between  secured creditors and unsecured creditors.  It is settled law that secured creditors are entitled to vote their debt 100 cents in the dollar at the meeting of creditors in relation to any Part 5 proposal.   The submissions were not addressed to that point.   Rather, in submitting to the Court that I should take some regard to the possibility of realisations, Mr Forbes emphasised that something could happen between now and the voting on any proposal to make the percentages change because of a reduction in secured creditors.  This, of course, had a parallel to submissions made to Associate Judge Christiansen as I read his judgment.

[22]     I  have  no  evidence  before  me  which  establishes  with  probability  that particular realisations from securities may occur in the course of the next, say, two months (I adopt two months for the reason that with prompt filing, a proposal could be taken to the meeting of creditors and if approved be the subject of a trustee’s application for approval in a period of that length).  Those are matters which it was open to Mr Henderson to identify with at least some degree of probability for the Court.    I  have  been  left  with  general  information,  generally  in  the  form  of information from the bar.   In relation to rights of creditors for the sums that are involved in this case I am not prepared to exercise a discretion which is strongly influenced by mere possibilities.  That at best is the level of the information I have been given.

Right of insolvent to make a proposal

[23]     Mr Forbes reminded me (as is the case) that a debtor has a right to make a proposal under s 326(1) Insolvency Act, although he accepted that in relation to adjudication proceedings before me I also have to form a judgment in relation to those applications.   The appropriate decision for today, he submits, is to adjourn those applications.

[24]     The making of an insolvency proposal is a right in terms of the Insolvency Act, but it is a right which runs parallel with creditors’ rights.  Historically in this jurisdiction creditors rights to adjudication have been treated as close to, though not

strictly, ex debito justitiae.   This debtor obtained an opportunity on 1 November

2010 which was in the nature of an indulgence.  I would not see it as appropriate in the Court’s exercise of a discretion to cut across these creditors rights by unnecessarily extending adjournment periods to enable a proposal to be formally put. I also note that bankrupts are not without rights to pursue their own proposals in the course of their bankruptcy, as provided through compositions (ss 312-324 of the Act).

Majority support by value lacking

[25]     As I have indicated, the purpose of the adjournment on 1 November and, as I view it, subsequently, was to enable Mr Henderson as an insolvent accepting his insolvency at the eleventh hour to demonstrate to the Court that he had a detailed outline proposal that was likely to obtain the majority support of his creditors.  By “majority support” I refer to 50 per cent by number and 75 per cent by value: see s

331(3) of the Act.

[26]     I am not satisfied that Mr Henderson’s proposal is in that category.  On the evidence before me I am instead satisfied that his proposal as it exists in outline at present is unlikely to succeed.

Adjudication – the residual discretion

[27]     Having reached that point, I turn to determine the application for adjudication in application of the Court’s discretion.  Apart from the intention of Mr Henderson to pursue support for a Part 5 proposal, I have not been referred to any other matters which touch upon my discretion in this proceeding.   There is no valid reason to refuse adjudication.

Halt under s 42 of the Act?

[28]     The application made by Mr Forbes for adjournment was followed by an application for a halt of the proceeding in terms of that infrequently used provision in the  Insolvency  Act  (s  42).    I  view  all  those  matters  as  similarly  going  to  the discretion: see Re Pillay HC Auckland CIV-2009-404-004175, 2 December 2009,

Associate Judge Faire, especially at [10]. Mr Forbes did not in his invoking of s 42 explain how s 42 might come into play when Havenleigh and Allied Farmers are each considered to be judgment creditors entitled to enforce their judgments. I am not persuaded, absent a viable Part 5 proposal, that there are any matters that should cut across my discretion in this case.

Suspension of adjudication under s 416 of the Act?

[29]     Mr Forbes submitted that, in the event I decided that I should refuse to adjourn the proceeding and that there should be an order of adjudication, I should nevertheless suspend such an order pending appeal under s 416 of the Act.   Mr Forbes informed me that his firm instructions are that there would be an appeal upon this judgment.

[30]     The usual ground for granting of a suspension would be that by refusing suspension I may render the usefulness of an appeal nugatory.   That, in the bankruptcy and  indeed  the company liquidation jurisdiction, has to be balanced against creditors’ interests and the public interest more generally.

[31]     Mr Forsey referred me to the judgment of the Court of Appeal delivered by Tipping J in Lindsay v Vaucluse Holdings Ltd CA272/99, 13 December 1999.  While that proceeding, dealing with an adjudicated bankrupt, was decided under the 1967 legislation, it dealt with the directly parallel provision (s 9(2)) to that in the current legislation (s 416).  Tipping J, for the Court, in declining to suspend the operation of an order of adjudication, said:

[4]       A  bankrupt  may  pursue  an  appeal  against  the  order  of  the adjudication without any necessity for it to be suspended in the meantime. The section is couched on the basis that a Court may suspend the operation of the order, not that it must do so. It is therefore clearly implicit that an appeal may proceed, notwithstanding there has been no suspension. Indeed it may often be quite contrary to the public interest and the interests of the creditors to have any suspension pending the hearing of the appeal. The present application is therefore based, at least in terms of its original presentation, on a false premise.

[5]       Mr  Dalkie  suggested  in  oral  submissions  that  it  was  more  the judgment which created the debt with which the application was concerned, in the sense that Mr Lindsay's ability to pursue an appeal against that judgment could not proceed without the suspension of the adjudication. That

approach is not sound either. There was obviously no stay of the judgment. If the appeal has merit, the Official Assignee may pursue it in the name of the bankrupt. If there is a dispute as to whether that should be done the assistance of the Court may be sought…

[6]       Leaving these two points aside, if this application for suspension is viewed on the wider and more conventional discretionary basis, Mr Lindsay has not demonstrated any good reason why there should be suspension in the meantime. Again there is no evidence suggesting any particular prejudice. We are satisfied that the adjudication order should take effect. If the appeal against it succeeds the position will be analogous to an annulment.

[32]     In applying this approach, I consider that against the background of:

i)        the  time  in  which  these  proceedings  have  been  before  the

Court and their commencement date of July 2010;

ii)       a bankruptcy notice issued on 18 March 2010;

iii)      a proposal which I find highly unlikely to succeed;

iv)a  guesstimated  1.0  to  1.5  cents  per  dollar  (over  10  years) recovery for unsecured creditors if Mr Henderson does not produce “excess earnings”;

it is not appropriate to  cut across the operation of adjudication in this case by ordering a suspension.   Equally, I am not satisfied that it would be appropriate to make an order halting these proceedings (even if the jurisdiction for a halt order existed).

Order

[33]     There will be an order adjudicating Mr Henderson.  The timing of the order is

4.44 p.m.  This order is made in respect of CIV-2009-409-000559 on the application of Havenleigh Global Services Limited.

[34]     As  a  matter  of  formality,  I  therefore  dismiss  the  application  of  FM Custodians Limited (in receivership) and Allied Farmers Investments Limited, the debtor having been adjudicated on Havenleigh’s application.

Costs

[35]     There will be the usual costs order which I would make in this jurisdiction, namely costs on a 2B basis together with disbursements to be fixed by the Registrar. That order is to take into account costs already ordered, meaning that counsel should exclude from the calculation any costs orders the Court has already made.  The order applies to applicant creditors and equally to creditors who appeared in support in relation to the specific steps they took and appearances they made in the litigation

but not otherwise.

Associate Judge Osborne

SCHEDULE A

SCHEDULE B

SCHEDULE C