JACQUELINE MICHELLE METHVEN Insolvent AND AMERICAN EXPRESS INTERNATIONAL (NZ) INC Creditor BANK OF NEW ZEALAND Creditor BRANDED FINANCIAL SERVICES Creditor (Creditors Continued)

[2024] NZHC 2455

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2024-404-293

[2024] NZHC 2455

UNDER

AND

the Insolvency Act 2006

IN THE MATTER

of the proposal of JACQUELINE MICHELLE METHVEN

BETWEEN

JACQUELINE MICHELLE METHVEN

Insolvent

AND

AMERICAN EXPRESS INTERNATIONAL (NZ) INC

Creditor

BANK OF NEW ZEALAND
Creditor

BRANDED FINANCIAL SERVICES
Creditor

(Creditors Continued)

Hearing:	1 August 2024
Appearances:	YSBV Yang for Applicant Trustee
Judgment:	29 August 2024

JUDGMENT OF ASSOCIATE JUDGE SUSSOCK

This judgment was delivered by me on 29 August 2024 at 4 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

Chapman Tripp, Auckland

METHVEN v AMERICAN EXPRESS INTERNATIONAL (NZ) INC [2024] NZHC 2455 [29 August 2024]

HARMONEY LIMITED

Creditor

HUMM (NZ) LIMITED t/a FARMERS MASTERCARD

HUMM (NZ) LIMITED t/a Q Card KIWIBANK LIMITED

Creditor

LATITUDE FINANCIAL SERVICES LIMITED

Creditor

LENDING CROWD TRUSTEE LIMITED t/a THE LENDING CROWD

Creditor

SBS MONEY LIMITED t/a PURPLE VISA

Creditor

Introduction

[1]    The insolvent, Jacqueline Michelle Methven, filed a proposal to her creditors for the payment or satisfaction of her debts under sub-pt 2 of pt  5  of  the  Insolvency Act 2006 and has sought approval from the Court.

[2]    The proposal is to make fortnightly payments of $725 over the course of five years to the trustee to be distributed to her unsecured creditors by monthly pro-rata payments in respect of unsecured debts of approximately $127,985.29 and for Ms Methven to continue making the contractually agreed payments to secured creditors directly. Through the proposal, Ms Methven will repay approximately 75 cents in the dollar owed to 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, including nominating a trustee for collection and distribution of instalments paid.

[5]    The second stage is for the trustee to call a meeting of the insolvent’s creditors pursuant to s 330 of the 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 each known creditor.

[7]    When the matter was called on 1 August 2024 there was no appearance by 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 considered the proposal and documents filed, I issue this judgment approving the proposal for the reasons set out below.

Background

[9]    The insolvent, Ms Methven, is based in Auckland. Counsel for the trustee submits that as an unfortunate result of the level of Ms Methven’s income and inability to access benefits, Ms Methven has relied on lending to meet basic needs. Over several years the debt has built up and the insolvent has been unable to meet financial obligations.

[10]   As at January 2024, Ms Methven's debts totalled approximately $432,629.43. These debts are comprised of:

(a)$123,629.43 owed to nine unsecured creditors; and

(b)$309,000 owed to two secured creditors.

[11]   $290,000 of the secured debt is owed to Bank of New Zealand under a mortgage entered into with her father and sister over a property in Pukekohe. The remaining $19,000 is owed to Branded Financial Services and is secured over a motor vehicle.

[12]   Ms Methven sought the assistance of Debtfix, a debt management entity, to resolve her debt situation and nominated Christine Liggins, the director of Debtfix and a licenced insolvency practitioner, to assume the role of provisional trustee.

[13]   Ms Methven’s proposal includes that in full and final satisfaction of all existing debt Ms Methven will:

(a)continue to make contractually agreed payments to all secured creditors directly;

(b)make fortnightly payments of $725 over the course of five years to the trustee to be distributed to her unsecured creditors by monthly pro‑rata payments; 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 records that the fees and 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)5 per cent in excess of $10,000.

Approval of proposals — relevant legal provisions

[15]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.

[16]   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).

[17]   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

[18]   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.

[19]   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.

[20]   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?

[21]   The  trustee,  Ms  Liggins,  has  filed  three  reports  to  the  Court  dated     30 January 2024, and 2 and 3 July 2024 confirming that:

(a)On 13 September 2023, Ms Liggins gave notice to all known creditors of  Ms  Methven  that  a  meeting  of  creditors  would  be  held  on  26 October 2023.

(b)The creditors’ meeting was adjourned until 7 December 2023 to allow the creditors to review the proposal. Ms Liggins attaches copies of the notice of adjournment and revised meeting date to all creditors to her first amended report.

4      Insolvency Act 2006, s 333(3)(c).

5      Kelly v Structured Finance Ltd, above n 2, at [53].

(c)On 7 December 2023, the meeting of creditors was held. No creditors attended in person. All unsecured creditors submitted postal votes.

(d)The two secured creditors did not vote, nor did they seek to have their debts admitted by the provisional trustee.

[22]   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.

[23]These thresholds therefore only relate to those creditors voting.

[24]   Eight of the unsecured creditors who voted, voted in favour of the proposal and one against. The eight creditors who voted in favour are owed $95,296.66, whereas Harmoney Ltd, who voted against, is owed $32,688.63 whereas.  This  represented 88 per cent in favour by number but only 74.5 per cent in value - not the 75 per cent required by s 331(3).

[25]   The original trustee’s report incorrectly recorded that the required percentage in value was achieved because the percentage was calculated in round numbers.

[26]   Following the appointment of new counsel and having identified that the required percentage in value was not met, the trustee had discussions with  Harmoney Ltd which had rejected the proposal to see whether it would amend its vote. Harmoney Ltd agreed and a copy of its amended postal vote is annexed to a further affidavit of Ms Alisja Skelling from Debtfix affirmed on 25 July 2024.

[27]   I am satisfied that the proposal has now been accepted by all of the voting creditors and so meets the s 331(3) requirements of acceptance by a majority in number and 75 per cent in value of creditors voting.

[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 have been advised of the change in representation of the trustee and that they were advised of the amended hearing dates for the application to the Court to approve the proposal.

[30]   I am satisfied that although an issue has arisen with the voting leading to Harmoney Ltd amending its vote, this should not prevent the Court approving the proposal. I record that even if the requirements of sub-pt 2 of pt 5 are not complied with, the Court retains a discretion to approve the proposal. In addition, s 333(6) allows the Court to correct any formal or accidental error or omission that does not alter the substance of the proposal.

[31]   I am therefore satisfied that the requirements of sub-pt 2 of pt 5 of the Act have been sufficiently complied with.

Is the proposal reasonable under s 333(3)(b)?

[32]   The trustee’s report to the Court advises that in her opinion Ms Methven’s assets have a total value of approximately $744,000, including the property secured by a mortgage with her father and sister to Bank of New Zealand. Ms Liggins says that taking the mortgage into account, her debts outweigh her realisable assets.

[33]   The total amount of the payments to be made by Ms Methven under the proposal in respect of unsecured creditors is $94,250.

[34]   After deduction of the trustee’s costs and expenses, there will be $87,735.50 available for distribution to the unsecured creditors, resulting in a distribution of approximately 69 per cent of the total unsecured debts.

[35]   The trustee confirms in her report that the payments by Ms Methven will be made from her salary.

[36]   The voting creditors have now 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).6

[37]   I am satisfied the proposal will result in an improved and more certain return for creditors than if Ms Methven 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.

[38]   I therefore conclude the proposal is reasonable and calculated to benefit the general body of creditors.

Is there any reason that it is not expedient to approve the proposal?

[39]   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.

[40]   The trustee has confirmed by further report dated 2 July 2024 that Ms Methven has made and continues to make payments to the trustee in accordance with the proposal and that following approval by the Court Ms Liggins will release those funds to repay the creditors.

[41]   There is nothing in the application that suggests it would not be expedient for the proposal to be approved.

Section 333(4) matters

[42]   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

6      Herbert v New Zealand Guardian Trust Co Ltd, above n 3.

separate costs. None of the matters for which the Act mandates refusal therefore prevent approval of this proposal.

Conclusion

[43]I am satisfied that:

(a)the provisions of sub-pt 2 of pt 5 of the Act have been sufficently 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

[44]   For the reasons set out above, I approve the proposal by Jacqueline Michelle Methven dated 31 August 2023 pursuant to s 333 of the Insolvency Act.

Associate Judge Sussock