Henderson, ex parte Commissioner of Inland Revenue HC Auckland CIV-2009-004351

[2011] NZHC 586

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2009-404-004351

IN THE MATTER OF     the Insolvency Act 2006

AND IN THE MATTER OF the bankruptcy of DAVID STEWART HENDERSON

BETWEEN  DAVID STEWART HENDERSON Judgment Debtor

ANDTHE COMMISSIONER OF INLAND REVENUE

Judgment Creditor

CIV-2010-404-1212

AND IN THE MATTER OF a proposal under Part 5(2) of the

Insolvency Act 2006

BETWEEN  DAVID STEWART HENDERSON Applicant

ANDWESTPAC BANKING CORPORATION LIMITED

First Respondent

ANDOTHERS Defendant

Hearing:         31 May 2011

Appearances: P Murray for Judgment Creditor/Respondent (Commissioner of Inland

Revenue)

D M Hughes and L M Van for Supporting Creditors/Respondents (Bank of Western Australia Ltd and Downer Construction (New Zealand) Ltd

D W Grove for Judgment Debtor/Applicants (David Stewart
Henderson for the trustee of the proposal)

Judgment:      9 June 2011 at 5:00 PM

DAVID STEWART HENDERSON V THE COMMISSIONER OF INLAND REVENUE HC AK CIV-2009-404-

004351 9 June 2011

JUDGMENT OF ASSOCIATE JUDGE ABBOTT

This judgment was delivered by me on 9 June 2011 at 5 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors: Meredith Connell, Auckland (for Commissioner of Inland Revenue)

Kensington Swan, Auckland (for Bank of Western Australia and Downer Construction)

Ellis Law, Auckland (for D S Henderson and the Trustee)

Introduction

[1]      There are two related proceedings before the Court awaiting a substantive determination.  The first is an application by the Commissioner of Inland Revenue for an order adjudicating David Stewart Henderson bankrupt.   The second is an application by the trustee (Mr D J Ross) of a proposal by Mr Henderson to his creditors, seeking court approval of that proposal.

[2]     This judgment concerns two interlocutory applications.   The first is an application by the trustee and Mr Henderson for adjournment of the Commissioner’s application to adjudicate Mr Henderson bankrupt.  That application is opposed by the Commissioner and by two other creditors, Bank of Western Australia Limited (Bank West)  and  Downer Construction  (New  Zealand)  Limited  (Downer).   The second is an application by the Commissioner, in the event that an adjournment is granted,   for   determination   of   a   separate   question   ahead   of   a   substantive determination of the trustee’s application for approval.  This application is supported by Bank West and Downer, but opposed by the trustee and Mr Henderson.

[3]      The trustee and Mr Henderson seek the adjournment to allow the trustee’s application for approval to be determined (the proposal having already been accepted at a meeting of creditors).  If it is approved, it will mean that the Commissioner will be unable to proceed on his application for adjudication.  Conversely, if the proposal is not approved, Mr Henderson will no longer have any basis for resisting adjudication.

[4]      The essence of the opposition to adjournment is that this is Mr Henderson’s second proposal, it is not in the public interest, and it is unfairly prejudicial to creditors to allow him further time, particularly as the proposal is unlikely to be approved for several reasons.

[5]      The Commissioner, Bank West and Downer also say that there are significant issues over the trustee’s  and Mr Henderson’s  claim that Mr Henderson has the requisite support for his proposal (in number and in value).  In the alternative, they

seek a determination of these issues as a preliminary question.  They say that if the Court, after determining the issues (as to the quantum of accepted claims and entitlement to vote), finds that there is not the requisite support, there will be no need for the Court to decide whether to exercise its discretion to approve the proposal. Conversely, if the Court concludes that Mr Henderson did obtain the requisite levels of support, the issues for the substantive hearing will have been narrowed.

[6]      The trustee and Mr Henderson say that there is no need for the preliminary question: the likely issues can be determined readily at the substantive hearing.

History of the Commissioner’s application

[7]      The Commissioner’s application arises out of a judgment obtained against Mr Henderson on 8 December 2008 for $3,686,559.53.  The judgment was obtained by consent.

[8]      The Commissioner issued a bankruptcy notice on 15 July 2009.   He had difficulties effecting service and it was eventually deemed to have been served on Mr Henderson, pursuant to orders for substituted service, on 30 September 2009.

[9]      Mr Henderson did not challenge or comply with the bankruptcy notice.  The

Commissioner  filed  his  application  to  adjudicate  Mr  Henderson  bankrupt  on  2

November 2009.  It was served, by arrangements with Mr Henderson’s counsel, on

10 December 2009.   Mr Henderson filed notice of intention to oppose the Commissioner’s application on 5 February 2010, on the grounds that he intended putting a proposal to his creditors.

[10]     The Commissioner sought to proceed on his application at its first hearing on

9 February 2010.   The Court granted an adjournment to allow Mr Henderson the opportunity to file his proposal.

[11]     On 23 February 2010 Mr Henderson filed a proposal to his creditors under Part 5 of the Act.   Mr Ross accepted appointment as a provisional trustee.   The essence of the proposal was:

(a)      A  sum  of  $1,500,000  was  to  be  made  available  to  creditors participating in the proposal (excluding some who had waived their right to share in the pool of funds), to be paid in three annual instalments starting on 30 June 2011 and finishing on 30 June 2013;

(b)The proposal was to be funded by a trading trust (Orewa East Trust) that had a development management agreement with the owners of Victoria Park Market (formerly one of Mr Henderson’s development projects, but apparently sold to unrelated parties).  The payments were to be made in consideration of Mr Henderson providing his services as a project manager for development of the Victoria Park Market;

(c)      Several major secured creditors had agreed to waive their entitlement to participate in the pool (it appears that they have an interest in seeing the Victoria Park Market project completed.

(d)Mr Henderson was to be paid a net salary of $75,000 per annum for his  services,  separate  from  the  agreement  to  fund  the  pool  for creditors.

[12]     A meeting of creditors was held on 26 April 2010.  A resolution was passed by which a majority in number and three-quarters in value of the creditors accepted the proposal.

[13]     The trustee applied on 30 April 2010 for approval of the proposal.   The application was part-heard in September 2010 (further time was required due to extensive cross-examination).  The hearing was completed in February 2011.  The application was dismissed on 9 March 2011 after the Court found that the proposal had not, in fact, been passed by the requisite majorities.

[14]     The  Commissioner’s  application  for  adjudication  had  been  adjourned  in tandem with the application for approval.   After delivery of the judgment on the application for approval, the application for adjudication was relisted for hearing on

31 March 2011.  Mr Henderson filed an amended proposal on 30 March 2011 (it is

essentially on the same terms as the first proposal but with a reduced time frame for payments).  When the Commissioner’s application was called the next day, it was again adjourned (notwithstanding the opposition of the Commissioner and other creditors) to allow time for a meeting of creditors to be held.  The application came back before the Court on 19 April 2011. At that time the Court was informed that the amended proposal had been approved by the requisite majorities of creditors at a meeting held the previous day, and Mr Henderson sought an adjournment to allow the trustee opportunity to file an application for approval of the amended proposal.

[15]     The Commissioner strenuously opposed any further adjournment, and in the alternative sought an order that there be a separate question determined as to whether the proposal  had  in  fact  been  passed  by the  requisite majorities  (there being  a number of issues over voting entitlements).   Directions were given for filing of formal applications in both respects (adjournment and separate question) and for allocation of the defended hearing for these matters.

The application for adjournment

[16]     The discretionary nature of the Court’s power on a bankruptcy application is clear from the governing sections of the Insolvency Act 2006 (the Act).1   The Court is given a similar discretion to halt an application for adjudication at any time,2 where a debtor has made a proposal under Part 5,3 or where the debtor has appealed against  a  judgment  the  non-payment  of  which  has  given  rise  to  the  act  of bankruptcy4  or claims that he or she does not owe a debt of $1,000 or more.5    The discretion under all of these sections is unfettered, as may be seen from the wide language used in s 38 in particular:

38       Court may halt application

(1)     The Court may at any time halt the creditor's application for adjudication.

1 Sections 36 and 37 of the Insolvency Act 2006.

2 Section 38.
3 Section 41 (1)(a) and (3)(b).
4 Section 42.

5 Section 43.

(2)     The Court may halt the application on the terms and conditions

(if any), and for the period, that the Court thinks appropriate.

[17]     The present application does note state the section of the Act under which it is brought.  It could be brought under s 38, but is more appropriately brought under s 41:

41     Order that disposition or proposal not act of bankruptcy

(1)     This section applies if the debtor—

(a)     has made a disposition of all, or substantially all, of the debtor's property to a trustee for the benefit of all or any of the debtor's creditors; or

(b)     has made a proposal under Part 5; or

(c)     has applied for a summary instalment order under Part 5. (2)     The debtor or the trustee or any creditor may apply for an order

under this section.

(3)     On the application, the Court may make any of the following orders:

(a)     order that the disposition or proposal is not an act  of bankruptcy:

(b)     halt or refuse the application for adjudication:

(c)     order that any other application for adjudication must not be filed:

(d)     make  any  order  as  to  costs  that  the  Court  thinks appropriate:

(e)     if it orders that costs must be paid to the creditor who has applied for adjudication, order that the costs must be paid out of the debtor's estate.

(4)     This  section  does  not  limit  the  powers  of  the  Court  under section 37.

[18]     This section applies where a debtor has made a proposal under Part 5 of the Act.  In that case either the debtor or the trustee may apply for an order under the section.  The permissible orders are set out in s 41(3).  They include the power to halt the application for adjudication.

[19]     Although  the  discretion  is  unfettered,  the  Court  must  exercise  it  in  a principled way.   In so doing it should have regard to the same interests that are considered on the substantive application for adjudication,6  namely the interests of those directly concerned (the petitioner, other creditors and the debtor) as well as the wider public interest.   Similarly, and without limiting the discretion or the considerations that may be relevant, it seems appropriate for the Court to take into account factors similar to those considered when deciding whether to halt or refuse an application for adjudication under s 42 pending determination of an appeal:7

Those factors, adapted for an application for approval, are:

(a)     The bona fides of the debtor in bringing the proposal and application for approval (but not considering the merits of the proposal/application for approval unless it appears that it has absolutely no prospect of success);

(b)The stage that the proposal or application has reached, and whether there has been any delay in advancing it;

(c)     Whether  an  order  halting  the  application  for  an  adjudication  order would unduly prejudice the judgment creditor; and

(d)The other interests that will be affected by the decision whether or not to halt the adjudication proceedings.

Discussion

(a)      Second application

[20]     Before addressing the various factors advanced for and against adjournment, some  introductory  remarks  about  the  fact  that  this  is  a  second  application  are

appropriate.

6 Baker v Westpac Banking Corporation CA212/92, 13 July 1993 at 4.

7 Re Pillay ex parte ANZ National Bank Ltd HC Auckland CIV 2009-404-004175, 2 December 2009 at [10]

[21]     As can be seen from the terms of s 41, the Act recognises that there will be circumstances in which it will be appropriate to adjourn an application to allow a proposal under Part 5 to be pursued.  Although the proposal is contentious in more than one respect, the significant element for present purposes is that  this is the second time that it has been advanced.8    The application now before the Court is brought in respect of a very similar proposal to that for which approval was declined on 9 March 2011.

[22]     The Act does not expressly preclude the bringing of a second application, but it is a factor that can count against approval, either in relation to delay or perhaps in relation to the bona fides of the proposal.

[23]     I will now address, in turn, the various factors advanced for and against adjournment.

(b)      Public Interest

[24]     Two   aspects   of   public   interest   were   advanced   in   opposition   to   an adjournment.   First, counsel for the Commissioner and for Bank West/Downer submitted that any further adjournment was contrary to the policy underlying the Act and to practice, being that a decision should be made on adjudication at the earliest

possible moment.9     The second aspect was that Mr Henderson would have been

adjudicated bankrupt already but for his failure to comply with requirements of Subpart 2 of Part 5 of the Act (as to notice to creditors), and he should not be able to take advantage of that non-compliance.

[25]     Counsel for Mr Henderson acknowledged the underlying policy and practice that applications for adjudication should be determined promptly, but submitted that it was still a matter for discretion.   He relied on the decision of this Court in Re Chambers,10 where the Court granted an adjournment to allow a second proposal to

be filed, notwithstanding that nearly a year had elapsed from the time the bankruptcy

8 The Commissioner refers to it as a second proposal, whereas the trustee and Mr Henderson refer to it as an amended proposal. For present purposes, the difference is semantic rather than significant.

9 Re Guest, ex parte BNZ Finance Ltd [1991] 2 NZLR 477 (Master Gambrill); Re Guest ex parte BNZ Finance Ltd [1991] 1 NZLR 250 (Hellyer J).

10 Re Chambers HC Auckland B1222/92, 30 May 1993.

petition had first been filed.   Counsel also argued that Mr Henderson had acted promptly at all times since the application was served, and could not be blamed for the delay in resolving the first application for approval.  As to the second aspect, he submitted that it could not be said that the first proposal would necessarily have been defeated (and Mr Henderson adjudicated bankrupt) as there was a substantial reduction in the debt due to the creditor primarily affected (Bank West) just after the creditors’ meeting, and the resultant debt would have been insufficient to change the outcome to the meeting.

[26]     I consider both of these public interest elements count against the application for adjournment for the reasons that follow.

[27]     Dealing first with policy and practice of the Act, I accept the submission of counsel for the Commissioner that there are two factors underlying the policy and the practice of short adjournments.  The first is that the longer the period between filing an application and any order for adjudication that follows, the greater is the likelihood of transactions being open to challenge.   I agree, with respect, with the view expressed by this Court in Re Bruns, Ex parte Trust Bank Central Ltd that this

cannot be in the public interest:11

I  should  say  that,  while  I  initially  shared  the  Judge’s  view  of  the interpretation of rule 58, ie that no adjournment could be made for more than a month at a time, I think on further consideration that that is not the correct interpretation of the section.  What is prohibited is any adjournment beyond one month from the first day of hearing without the Court being satisfied of the existence of the grounds stated in the section.   The reason for this is clear.  It is because of the provision of section 42(4)(a) of the Act that the bankruptcy relates back to and commences at the time of the act of bankruptcy on which the order is made adjudicating the debtor bankrupt.  In this case, ie 21 January 1992, already something over 7 months.  If Mr Bruns is adjudicated bankrupt now his property vests in the Official Assignee with effect from 21 January 1992.   Persons who have dealt with him in the interim may find their transactions are invalid.  The longer this goes on the more people are placed at risk.  This cannot be in the interests of the general public:  Re Nesbitt (supra).  A stay would, if it were subsequently dissolved and an order of adjudication made, have the effect of prolonging the period of potential invalidity of transactions even further.  It has been long enough already.

11 Re Bruns, Ex parte Trust Bank Central Ltd HC Auckland B2436/91, 4 September 1992.

[28]     In the present case the period within which transactions could be challenged runs from 11 December 2009 (the date when the application for adjudication was served).  The period is already in excess of 18 months.  That is a significant period by any terms, but particularly in relation to a person involved in commercial transactions.

[29]     Counsel for Mr Henderson argued that there was in fact no risk because Mr Henderson had been involved only in managing the development of Victoria Park Market for unrelated parties, and was not incurring further liabilities.   I am not persuaded that that is so.  Within this 18 month period Mr Henderson, by his own admission, has incurred a further liability (standing at $10,479,418.57 as at 10 May

2011) under a guarantee of an advance to the purchaser of Victoria Park Market.  It may be that Mr Henderson justifies that further guarantee on the ground that there had been a reduction in indebtedness of a similar amount by sale of the Victoria Park Market assets (so that there was no deterioration in his position overall), and the other parties were fully aware of the circumstances, but that does not detract from the fact that he is still engaging in new commercial activities which are potentially the subject of challenge.  On balance I consider that this aspect counts against Mr Henderson.

[30]     The second factor influencing the policy is that the prospects of recovery for creditors are inevitably hindered by the passage of time.  Counsel for Mr Henderson submitted that this was not a relevant factor in this case because Mr Henderson had made full and frank disclosure of all of his assets, and had included under that generic head any interests that he had in companies or in trusts (including trusts in which he was not a beneficiary).

[31]     Counsel for the Commissioner did not accept this as a complete answer to the point.   He referred to evidence given in opposition to the first application for approval, noting that it had not been necessary for the Court to determine those aspects of the application.    I do not consider it necessary or appropriate to try to resolve the opposing positions.  I consider that it is self evident that a prospect of recovery for creditors will be hindered by the passage of time, at least to some

extent.   This factor also weighs against Mr Henderson and in support of prompt determination of applications for adjudication.

[32]     The second general element of public interest concerned Mr Henderson’s non-compliance with the Act, leading to dismissal of his first proposal.  Counsel for Mr Henderson first sought to categorise the matter as merely a procedural error (with no substantive effect) but in the alternative argued that it was far from certain that Mr Henderson would have been adjudicated had Bank West received proper notice and voted.    He  based  the  alternative  submission  on  the  proposition  that  the  trustee (having knowledge of the imminent sale of the security property) would have adjourned the meeting to allow the sale to be completed, and the proceeds of sale would have reduced the debt (and voting power) by $13,000,000.

[33]     The first point (as to whether the error in giving notice had any substantive effect) is met by the terms of Associate Judge Doogue’s finding on the first application:12

My overall conclusion is that had Bank West been served with the Proposal as it was entitled to be, and hereafter attended the creditors’ meeting, it would have been able to defeat the Proposal.   The position is even more certain if one includes the Downer debt.  This is therefore a case where the non-notification of those two creditors deprived them of the ability to defeat the Proposal. They did not just lose an opportunity to influence how the vote turned out by contributing to discussions at the creditors’ meeting.

[34]     The second aspect is not quite as clear.  It appears that the proposal might still have achieved the required 75% acceptance mark even if Bank West’s claim was included, provided the proceeds of sale of approximately $11,000,000 were credited.13.  However, I do not accept that the trustee could have done so as at the date of the creditors’ meeting.  The value of the debt (and hence the voting power) must be taken at the time of the meeting.  The fact that a creditor has security does not reduce its voting power.14    Moreover, I do not consider that it would be within the power of the trustee to adjourn the meeting for that purpose, without the consent

of the creditors.  That would potentially lead to uncertainty and possible abuse.  This

12 Henderson v Westpac Banking Corporation Ltd & Others, HC Auckland, CIV-2010-404-1212, 9

March 2011.

13 There is a further issue over Downer’s position. It was not given notice of the meeting on 26 April

2010, but its debt is disputed.

14 Guest v Duffy [1991] 1 NZLR 183 (CA)

can be demonstrated by the point that the sale of Victoria Park Market appears to have been contemplated at the time of the meeting as it was subsequently completed on  23  July  2010,  resulting  in  a  reduction  of  Westpac’s  claim  of  $31,300,000 (accepted for voting at the meeting on 26 April 2010) to $168,762.58 by the time of the creditors’ meeting on 18 April 2011.

[35]     I see no reason to depart from the conclusion reached by Associate Judge Doogue that if Bank West had been served with the proposal (as it was entitled to be) it would have been able to defeat it.  This factor also weighs against the application for adjournment.

[36]     Before turning to address the interests of creditors, I will make one further comment about delay.  As can be seen from the above, delay contributes both to the risk to third parties and to potential difficulties of making recoveries in the bankruptcy.   However, although deliberate delay may be a factor in appropriate circumstances, it is neither necessary nor appropriate to attribute blame for delay in this case.  It is sufficient that there has been substantial delay.

(c)      Interests of creditors

[37]     Counsel for the trustee and Mr Henderson relied principally on the fact that the proposal had the support of the majority of Mr Henderson’s  creditors.   He submitted that in this respect the present case was even stronger than Re Chambers15 where the Court declined to approve a proposal because procedural errors (failure to include and to give notice to all creditors and to communicate changes to the proposal) invalidated the results of the creditors’ meeting.  Nevertheless, and despite significant delay up to that point, the Court allowed the debtor opportunity to put a second proposal to his creditors on the basis that the creditors ought to be able to determine the outcome, subject to the Court’s overall review:16

Nevertheless,  I have  come  to  the  conclusion that, as  there  may still  be advantage to creditors if a satisfactory proposal can be formulated, it is the views of the creditors which should now determine the matter, subject only to scrutiny of the procedures adopted in determining that view and to review

15 Re Chambers HC Auckland B1222/92, 30 May 1993.

16 At 15 per Blanchard J.

of the overall situation in terms of s.143(2)(b) and (c) if and when the matter again comes before the Court.

[38]     Counsel for Mr Henderson and the trustee submitted that the present case was stronger than Re Chambers in that the proposal had already been put to, and accepted by, a meeting of creditors, and there was an application for approval already before the Court.  In other words, ―a satisfactory proposal [had already been] formulated‖ for a $1.5 million pool to be distributed amongst the unsecured creditors.

[39]     I do not regard Re Chambers as determinative of the present application. Each case must be decided on its own merits.  There are several factors present in this case which could justify a different conclusion.    First, there is the express finding  on  the  first  application  that  the  proposal  would  not  have  crossed  the threshold for acceptance if proper notice had been given.   Secondly, although the proposal has again gone to a creditors’ meeting, there is still a hotly disputed issue as to whether the threshold of acceptances has been passed.  Thirdly, there seems little doubt, based on the history of this matter to date, that resolution of the disputed threshold  issue  (whether  as  a  preliminary  question  or  as  part  of  a  substantive hearing) is still going to require considerably more time.

[40]     Although the disputes over voting at the creditors’ meeting are more relevant to the application for the determination of a separate question, some further comment is warranted here.   It is not in dispute that the Court does not have jurisdiction to consider an application for approval until the threshold for acceptances (set out in s

331(3) of the Act), being a majority in number and three-quarters in value of the creditors, has been met.17    The trustee reported that the proposal was accepted by

75.68 per cent of the creditors who voted (thus exceeding the threshold by the barest of margins).  The Commissioner, Bank West and Downer have all strongly contested aspects of the voting leading to the reported acceptances of 75.68 per cent.  They say that some votes have been included, and some excluded, unfairly.   Resolution of these disputes is of particular significance given the narrow amount by which the

reported acceptances exceed the threshold.

17 Guest v Duffy [1991] 1 NZLR 183 (CA).

[41]     I will address various matters of dispute by way of illustration:

(a)      Counsel for the Commissioner referred to a substantial increase in the accepted debt for Number 120 Limited between the disclosures in the two proposals (in the order of $47 million at the time of the first proposal and $60 million on the second proposal).   Correspondence produced at the hearing showed that although some of the increase was    interest,    the    majority    of    the    increase    (approximately

$10,500.000.00) comprised the advance to the purchaser of Victoria Park Market, guaranteed by Mr Henderson.  The full amount of the additional contingent debt was accorded voting rights but the creditors were not given any explanation as to the increase until just before this hearing.   No explanation has been given of the statement in Mr Henderson’s affidavit in support of the amended proposal that the sum owed was $67,600,000.00.

(b)Counsel  also  referred  to  three  other  creditors  where  there  were substantial increases indebtedness between the two proposals (not explicable only on the basis of interest).

(c)      A vote was accepted from ASB Bank in the comparatively modest value of $720,000.00, notwithstanding that there was no evidence of ASB Bank lodging a claim (lodgement and acceptance of a claim being a prerequisite to voting).

(d)Downer submitted a claim for approximately $3.6 million (in respect of Mr Henderson’s guarantee of the obligations of One Hobson Street Limited (now in liquidation).  There has been a long-running dispute over this debt.   The trustee took the view that any claim was extinguished as a consequence of a compromise entered into in July

2010, but Downer’s claim was not finally rejected until the day of the creditors’  meeting.     Downer  contends  that  the  compromise  was limited to retentions and the trustee’s last minute exclusion of the debt suggests an improper motive (to achieve the majority in value).  I do

not accept that the rejection of the Downer debt was a last minute decision – the evidence shows that the trustee formed a view on it in August 2010 and continued to repeat that view.  The issue is whether the trustee was right to reject the whole of the claim or whether he should have allowed Downer to vote subject to rights of appeal in accordance with Regulation 32, Insolvency (Personal Insolvency) Regulations 2007.

(e)      Various other issues were raised, including a contention that some debts have been quantified (by inclusion of interest) after the date of the proposal, contrary to s 328(3) of the Act.

[42]   There was also a contention by counsel for Downer that there was an inconsistency in the treatment of Downer’s claim by comparison to the claim by Mr Henderson’s ex-wife.  This contention arises out of paragraph 10(b) of the trustee’s report of 21 April 2011 which states that Mr Henderson disputed both of these claims, but they were admitted for voting purposes.  The schedule of voting provided by the trustee shows Rochelle Henderson as voting for the proposal in the full amount of her claim.   Downer’s claim is not shown.  Although there is no direct evidence before the Court (I declined to accept hearsay evidence produced over the lunch adjournment), I accept that this issue may be resolved relatively quickly.  The trustee’s report is in identical terms in this respect to his report on the first proposal, whereas it is clear from other evidence that Rochelle Henderson’s claim was in fact accepted, whereas Downer’s claim was not.

[43]     The significance of these disputes is that the creditors’ acceptance of the

proposal by the requisite majorities cannot be taken to be certain.

[44]     I also take into account that acceptances (75.68 per cent) included a number of secured creditors who have waived their entitlement to participate in the pool. Although I accept that the proposal may have some other benefits for them, the nature of that benefit is not before the Court.  If one then considers the position of those who are sharing in the pool (who have debts totalling $59,934,656.75), the majority of them in value (with debts totalling $31,197,623.44, being 52 per cent) in

fact  oppose  the  proposal,  and  must  be  taken  to  prefer  the  option  of  a  full investigation   by   the   Official   Assignee   that   would   be   available   following adjudication.

[45]     I also  regard  it  as  significant  that  a  number  of companies  in  which  Mr Henderson had an interest voted in support of the first proposal, but have since been placed in liquidation.  It can be assumed that the liquidators of those companies (who have a responsibility to all creditors) see greater benefit to their creditors in an adjudication than in a pro rata share in the $1.5 million pool (even though the secured creditors would also be entitled to share in any recoveries).

[46]     In summary, although at face value there is a threshold level of support for the proposal, and a real prospect of a modest dividend of just over 2.5 cents for each dollar of debt for about half of the judgment creditors (after taking out the non- participating secured creditors), that apparent threshold may prove illusory.  Against that possible benefit, there is a substantial body of creditors (either seven or eight having aggregate debt of approximately $31 to $37.5 million, depending on the treatment of Downer’s claim) who are strongly opposed to the proposal, and who, no doubt in light of the modest dividend available under the proposal, prefer the option of an investigation into recoveries as part of an adjudication.   I note, on this last point, that although counsel for the Commissioner and for Bank West/Downer suggested that there were areas of potential recoveries in respect of voidable transactions (addressed in the evidence on the earlier proposal) there was little or no hard evidence put forward on this application to allow me to gauge the likelihood of any recoveries in respect of them, or more recent transactions with Rochelle Henderson  and  Number  120  Limited.    I  can  infer,  however,  that  the  opposing creditors would not reject a proposal of 2.5 cents for each dollar of some substantial debts if they did not have grounds to believe there was a reasonable prospect of comparable recover, at least, in bankruptcy.

[47]     However one looks at it, it is inevitable that the interests of some creditors will be overridden, whichever decision is made.  This is recognised by the provisions of Part 5 of the Act.  For the purposes of the present application, I consider that this

consideration of the interests of creditors does not determine the present application one way or the other.

(d)      The debtor’s interests

[48]     There  is  no  question  that  Mr  Henderson’s  interests  will  be  affected  by declining the application for adjournment on the basis of public interest considerations.  However, if so, he must carry the responsibility for that.  He had the opportunity to put his proposal properly to all creditors.  In respect of Bank West he elected neither to give notice as required under his contractual arrangements with Bank West or to follow a course that he said that he agreed separately (delivery to a local representative of Bank West).   I am unable to say on the material before the Court on this application whether this was deliberate (to avoid Bank West’s participation at the meeting on the first proposal) or oversight.  The point is that it was within his power to do it properly.

[49]     I take the view that this aspect weighs against an adjournment.

(e)      Prejudice

[50]     The last factor advanced by the Commissioner, Bank West and Downer was that  they  will  be  prejudiced  by  further  delay.    They  point  to  the  evidence  of substantial increase in debt since the first proposal: the total value of debt voted at the first meeting was $105,560,785.41, and this had risen to $128,266,262.93 voted at the second meeting.  A significant amount of the increase is likely to be interest, but interest will vary between the different debts (according to contractual arrangements).  I accept that delay will have an effect on the voting power of debts which do not carry interest or which carry a relatively low rate of interest.

[51]     Bank West also contends that it is prejudiced in that it has brought a petition for Mr Henderson’s bankruptcy in Australia, but that petition has been adjourned pending the outcome of the Commissioner’s application for adjudication.

[52]     All of these creditors also say they will be prejudiced by having to incur yet further costs in having to address a second application for approval (whether by way of a separate question or a hearing of all aspects of the application).

[53]     I  consider  that  there  is  an  aspect  of  prejudice,  counting  against  the adjournment, arising out of the fact that this is a second proposal.  The legislature can be taken to have anticipated the prospect of some prejudice by making provision for proposals in Part 5 of the Act.   However, Mr Henderson has already had the benefit of one application.   The creditors should not be penalised further for his failings on that application.  In my view this factor counts against adjournment.

Decision

[54]     The critical aspect of this case is the fact that Mr Henderson has already had one opportunity to seek approval of a compromise.   His first application was dismissed because he had not complied with statutory requirements that are a pre- requisite to the giving of approval.   There are yet further issues on the second application as to whether the statutory threshold for creditor acceptances has been met.  Those issues can be determined on the hearing of an application for approval, but at the cost of further delay.  If this was the first application, that would be the course I would follow.   However, Mr Henderson has already been given that opportunity by the Court, has failed to take advantage of it, and is now seeking yet further indulgence.  In that context, and in circumstances where there is doubt as to whether the statutory threshold for creditor acceptances has in fact been met (and even then by the barest of margins), public interest considerations must receive greater weight.  Delay, and the need to determine bankruptcy applications promptly to  avoid  risk  and  enhance prospects  of recovery, are compelling public interest factors in the present case.

[55]     Counsel for the trustee and Mr Henderson argued that there need not be significant delay in getting the application heard, and submitted that it could have been heard in place of this application for adjournment but for the Commissioner’s position that he could not prepare adequately in the time.  I am not persuaded, given the history of this matter, that the application for approval could have been heard by

now, or even that it can be heard in the near future. There is no reason to believe that either side will be willing to make concessions to achieve an early resolution – I note that Mr Henderson was unwilling to take up the Commissioner’s suggestion that there be an early hearing of the separate question as to whether the threshold of creditor acceptances had been reached.

[56]     However, the aspect of delay was only one of the public interest factors.  The Commissioner, Bank West and Downer were all opposed to any adjournment at all on the basis that Mr Henderson had only avoided bankruptcy to date by reason of his non-compliance with statutory requirements to give notice of his proposal to all of his creditors.

[57]     I have come to the view that no further adjournment should be granted for a combination of reasons:

(a)       The policy and practice against lengthy adjournments; (b)     The 18 month delay to date;

(c)      The likelihood that there will be further significant delay before the matter can be determined fairly for all parties;

(d)      The indulgence that Mr Henderson has already been given;

(e)      Mr Henderson’s failure to comply with statutory requirements for his first proposal, and the likelihood that he would already be adjudicated had he complied;

(f)      The slender margin by which the second proposal was accepted by creditors, the issues over the validity of some of the acceptances, and hence the uncertainty of outcome of the application for approval;

(g)The   extent   of   Mr   Henderson’s   indebtedness   ($128,266,262.93, excluding the Downer debt), the modest dividend to participating creditors under the proposal (2.5 cents in the dollar), and the wish of a

substantial body of creditors to have the Official Assignee investigate potentially voidable transactions and other means of recovery.

Application for separate question

[58]     As  I have  declined  the  application  for  adjournment,  there is  no  need  to determine the Commissioner’s application for a separate question.  I will comment, however, on one point raised by counsel for the trustee and Mr Henderson.   He argued that the trustee’s decision on admission or rejection of the claims and the value of debts was determinative, subject to rights of appeal18  (that have not been exercised in this case).  He submitted that the Court had no power to re-visit those decisions,  save  on  appeal.    I  do  not  accept  that  the  Court  is  precluded  from

determining,  in the course of an  application for approval, whether the requisite majority has been obtained.19   I do not see that it makes any difference for that issue to be the subject of a separate question, ahead of consideration of the other elements of s 333 of the Act on which the Court must be satisfied.  The view that I had formed of the application was that the threshold question could be heard as a discrete aspect of the application for approval and it had the potential to dispose of the application

sooner, and at a reduced cost, in the event of a finding that the requisite majority had not been obtained.

Orders

[59]     The  application  for  adjournment  of  the  Commissioner’s  application  for

adjudication is dismissed.

[60]     I am satisfied that the Commissioner has established the jurisdictional facts for an order for adjudication.  There is no question that Mr Henderson is insolvent. For the reasons already traversed, I find no reason to decline to exercise my jurisdiction  to  make  an  order.    I  make  an  order  accordingly,  adjudicating  Mr

Henderson bankrupt.

18 Insolvency (Personal Insolvency) Rules 2007, reg 32

19 Guest v Duffy [1991] 1 NZLR 183, (CA) at 186; Whiteman v UDC Finance Ltd [1992] 3 NZLR 684 (CA) at 691-692; see also Re Chambers HC Auckland B1222/92, 30 May 1993 at 8-9, 15.

[61]     The  Commissioner  and  supporting  creditors  Bank  West  and  Downer  are entitled to costs on both applications on a scale 2B basis together with disbursements as fixed by the Registrar, but with only one set of costs for preparation for and attendance at the hearing.

[62]     These orders are made at 5 pm on 9 June 2011.

Associate Judge Abbott