Lindsay, ex parte Commissioner of Inland Revenue
[2014] NZHC 2684
•30 October 2014
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2013-409-001750 [2014] NZHC 2684
IN THE MATTER OF Part 5, Subpart 2 of the Insolvency Act
2006
AND IN THE MATTER
of an application for approval of the proposal of SIMON AUGUSTINE LINDSAY an insolvent
Hearing: 21 August 2014
(Further submissions received 17 October 2014)
Appearances:
D M Lester for Insolvent
T Hendry for Commissioner of Inland Revenue (not seeking to be heard)
Judgment:
30 October 2014
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
[1] The insolvent seeks approval of a proposal under Part 5 of the Insolvency Act
2006.
[2] The insolvent lodged his proposal on 18 December 2013. Through his trustee, Wayne Deuchrass, he then followed the procedure for putting to all his creditors the proposal together with all the information required under the Insolvency Act. A meeting of creditors was subsequently convened on 27 January 2014 when the required majorities of creditors (ie a majority in number and a three quarters majority in value) accepted the proposal. The specific numbers, as disclosed by Mr Deuchrass’s affidavit, were that four creditors who attended the meeting voted in
favour of the proposal and one (the Commissioner of Inland Revenue) voted against.
Re Lindsay, ex p Commissioner of Inland Revenue [2014] NZHC 2684 [30 October 2014]
In dollar terms a figure of $7,760,015.81 represented the majority, and a figure of
$1,465,652.58 represented those voting against.
The proposal itself
[3] The proposal is that a dividend of 1.3007 cents in each dollar (from a total payment of $120,000.00) be paid on all debts proved by creditors. It was that proposal which was accepted by the majorities to which I have referred. The background which is obviously well understood by the creditors was explored by Mr Lindsay in a detailed additional affidavit which he filed in support of his proposal. The fee payable to the trustees for the administration of Mr Lindsay’s proposal has been met separately by Mr Lindsay from income and will not impact upon the sum proposed to be paid to creditors.
[4] Mr Lester, who at the request of the Court filed additional submissions in support of the application for approval of the proposal, appears to have accurately captured the position in the following passage in his submissions:
24.Mr Lindsay’s affairs are transparent. He is not the beneficiary of any Trusts, nor is he a trustee, accordingly there is not an involved Trust or corporate structure to investigate or unravel.
25.The circumstances of the Inland Revenue Department debt are explained in his affidavit. The circumstances of that debt do not reflect any commercial misconduct or commercially risky behaviour by the Insolvent. The tax does not relate to PAYE or GST.
26.The other major creditor is the guaranteed indebtedness to Mascot Finance, now under Crown Asset Management control. The lending that lead (sic) to Mr Lindsay’s guarantee exposure is described in his affidavit at paragraphs
3 and 4. The lending was supported by valuations and subject to the criteria set by Mascot Finance. The exposure arose under a guarantee given to
Commercial Deposits Limited, effectively the commercial equivalent of the
home bonds business that had been run successfully by Mr Lindsay and Mr Rudkin. With the collapse of the financial company sector and the global financial crisis, many of the projects for which deposits had been provided collapsed, thus exposing the deposit to forfeiture.
27.That GCA Trustees, who hold the second mortgage on Mr Lindsay’s matrimonial home, are prepared to release some of their mortgage for the benefit or creditors generally speaks volumes about their view of Mr Lindsay’s commercial integrity. Had the firm perceived that Mr Lindsay’s
insolvency had arisen through misconduct, one would not expect a secured creditor to surrender their secured position.
[5] The creditors referred to in those submissions are Mr Lindsay’s most substantial creditors. An additional significant creditor, Pepper Australia Pty Limited, has security but also proved its debt. As with Mr Lindsay’s debt to Mascot, his debt to Pepper arises from a personal guarantee given in relation to his business.
[6] Mr Lindsay has had to deal with the consequences of the collapse of his business interests.
[7] The funds for this proposal come from significant financial assistance which his former wife is prepared to volunteer (through the sale of a property), together with a half share in the increase in value which the property has experienced over the last six years (estimated to be approximately $50,000.00). Of Mr Lindsay’s proposed payment of $120,000.00, at least $70,000.00 will be paid more or less immediately and $50,000.00 within one year. Additionally, the trustee will be seeking with Mr Lindsay’s co-operation, the release of Kiwi Saver funds (approximately $15,278.00) for the proposal.
[8] Undoubtedly, the creditors will have taken these various matters into account when voting as they did.
My approach to the approval of the proposal
[9] Section 327 of the Insolvency Act 2006 requires a proposal to satisfy an insolvent’s debts to be in the prescribed form and to be accompanied by a statement of affairs in the prescribed form. I am satisfied that that was done. Under s 330 the person appointed provisional trustee had to call the meeting of creditors as I have referred to, and I am satisfied that the provisions of both s 330 and 331 were met. These are:
330 Provisional trustee must call meeting of creditors
(1) The provisional trustee must, as soon as practicable after the proposal is filed, call a meeting of creditors by posting to every known creditor at the creditor's last known address—
(a) a notice of the date, time, and place of the meeting: (b) a summary of the insolvent's assets and liabilities:
(c) a copy of the proposal and particulars of any charge or guarantee:
(d) a creditor's claim form:
(e) a postal vote in the prescribed form.
(2) A creditor who has proved a claim in the prescribed manner may vote on the proposal by sending a postal vote that reaches the provisional trustee before or at the meeting.
(3) If the provisional trustee receives a postal vote before or at the meeting, the postal vote has effect as if the creditor had been present and voted at the meeting.
331 Procedure at meeting of creditors
(1) The provisional trustee is the chairperson of the meeting of creditors, unless the creditors elect their own chairperson.
(2) The creditors may—
(a) examine the insolvent:
(b) accept the proposal with or without amendments or modification, by passing a resolution that sets out the proposal in its final form:
(c) confirm the provisional trustee as trustee, or appoint another person who is willing to act as trustee, in which case that person becomes the trustee.
(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 section 332 or have voted by postal vote.
(4) If the insolvent consents, the creditors may include in the proposal terms for the supervision of the insolvent's affairs.
[10] Following the acceptance of the proposal it was then the obligation of the trustee to apply to the Court, as he has now done through Mr Deuchrass, for approval. Sections 333 (1) – (3) provide:
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
[11] The process is therefore in three stages. The first stage was achieved through the filing of the proposal and the meeting of creditors; the second stage was that the acceptance of the required majorities had to be secured; and the third is the stage which has now reached me. I have to consider the reasonableness of the proposal, and I have to consider the expediency of the proposal.
[12] It is well settled law that while I have some discretion to refuse an approval I should refuse approval only if one or more of the trigger paragraphs in s 333(3) apply. The approach normally taken to proposals is that set out by Hardie Boys J in Re Bennetts Proposal1 which was subsequently quoted with approval in Farmer v
Rowley:2
1 Re Bennetts Proposal HC Christchurch B138/81 and M306/81, 1 February 1982 (alternative citation: Re Duncan Holdings Limited (in liquidation)).
2 Farmer v Rowley [1992] 2 NZLR 195 (CA) at 196.
I think the Court should accept the view of the creditors or the majority of them and grant approval unless it is apparent that one of the grounds for refusing approval exists
[13] I note also, as has been pointed out by this Court previously, that the very heading to s 333 is that the “Court must approve proposal”, which emphasises the limited nature of the discretion.
[14] At my request, Mr Lester provided additional submissions in relation to the modest proportion of Mr Lindsay’s debts which will be met by the proposal.
[15] Mr Lester referred me to a review of the law undertaken by Associate Judge Sargisson in Marsh v Commonwealth Bank of Australia.3 In Marsh, Her Honour referred to the decision of Master Lang in Re Williams4 in which a proposal for payment of less than one cent in the dollar had been approved. Associate Judge Sargisson said:
Master Lang held that relatively small payments do not, on their own, justify the Court exercising its discretion against the proposal that the requisite majority of creditors have determined to accept.5
She continued:6
…The weight of authority…sets a rather lower threshold for substance and tangibility than that in Nathan. On that authority I do not think that the proposed dividend can be properly said to be insubstantial or intangible. It comprises a benefit to creditors that they have chosen to accept and which they stand to lose if the proposal is rejected and bankruptcy ensues.
and continuing:7
Again, bearing in mind the nature of the reasonableness assessment, I am unable to here substitute my judgment for that of the creditors to the effect that on an objective assessment commercially experienced prudent creditors would not accept the proposals.
3. Marsh v Commonwealth Bank of Australia HC Auckland CIV-2009-404-336, 16 March 2010.
4 Re Williams HC Auckland, B695-IM09, 16 October 2002.
5 At [27].
6 At [29].
7 At [30].
[16] I respectfully adopt Associate Judge Sargisson’s analysis, particularly in
terms of the assessment of reasonableness.
Have the provisions of the sub-parts of s 333 been complied with?
[17] I find that each of the statutory requirements has been complied with.
Are the terms of the proposal “not reasonable” or “not calculated to benefit the general body of creditors”?
[18] I find, notwithstanding the modesty of a proposal involving a little over one cent in the dollar, that Mr Lindsay’s proposal is reasonable. The creditors have made their objective assessment based on their commercial experience. The Commissioner of Inland Revenue voted against the proposal at the meeting of creditors but has not opposed this application. As Associate Judge Sargisson found on the facts in Marsh, I find in this case that the creditors will fare better under the proposal than if the insolvent were adjudicated bankrupt. They will do so to a substantial or tangible degree. Respecting these views of the majority of the creditors, it is not for me to speculate whether through negotiation or otherwise the creditors might have done better.
Expediency of the proposal
[19] Adopting the previously used judicial approaches of such terminology as “practicable”, “suitable” or “appropriate”, I find the present proposal has all those qualities.
Exercise of the discretion
[20] Ultimately, having been through those steps I stand back and look at the proposal in its entirety and determine whether there is anything that should adversely impact on the exercise of my discretion in this case. I find that there is none.
Result
[21] The application for approval of the proposal is granted.
Acknowledgement
[22] I acknowledge the assistance which I gained from Mr Lester’s additional
submissions filed in support of the application.
Associate Judge Osborne
Solicitors:
Meares Williams, Christchurch
Counsel: D M Lester, Christchurch
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