Magsons Hardware Ltd v Bogiatto
[2011] NZCA 378
•8 August 2011
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA525/2010 [2011] NZCA 378 |
| BETWEEN MAGSONS HARDWARE LIMITED TRADING AS MITRE 10 MEGA |
| AND GEORGE BOGIATTO |
| Hearing: 27 July 2011 |
| Court: Ellen France, Randerson and Harrison JJ |
| Counsel: C Orton for Appellant |
| Judgment: 8 August 2011 at 3.30 pm |
JUDGMENT OF THE COURT
AThe appeal is dismissed.
BThe appellant must pay the respondent costs for a standard appeal on a band A basis and usual disbursements.
REASONS OF THE COURT
(Given by Harrison J)
Introduction
The appellant, Magsons Hardware Ltd, trading as Mitre 10 Mega, is an unsecured trade creditor of Flat Bush Construction Ltd (FBCL). FBCL constructed and developed a number of properties, each separately owned by other companies within the same corporate group. FBCL is now in liquidation. The company’s sole director, Robert Cummins, has personally guaranteed its debt to Magsons of $553,000 for building supplies. Mr Cummins is insolvent. He has creditors to the value of about $49 million and assets of $10,000.
A meeting of creditors accepted Mr Cummins’ proposal under Part 5 of the Insolvency Act 2006 (the Act[1]) for the payment or satisfaction of their debts. Magsons was the sole dissenter. George Bogiatto, the respondent, is willing to act as the creditors’ trustee under the proposal.[2] Mr Bogiatto applied successfully to the High Court for approval.[3] Associate Judge Christiansen dismissed Magsons’ objection.[4] Magsons appeals the decision on the grounds that either (a) the terms of Mr Cummins’ proposal are not reasonable or calculated to benefit the general body of creditors or (b) it is not expedient that the proposal be approved.[5]
Background
[1] All statutory references are to the Act unless otherwise indicated.
[2] As required by s 327(3)(b) of the Act.
[3] Section 333(1).
[4] Re Cummins HC Wellington CIV-2009-485-2192, 21 July 2010.
[5] Section 333(3)(b) and (c).
Mr Cummins, through companies in the Working Concepts Group largely owned and controlled by him, embarked on a residential property development project in Flatbush, Auckland. The group comprised a parent company, Working Concepts Ltd, wholly owned by Mr Cummins, and its wholly-owned subsidiaries, which were formed to take title to individual properties in the development. One subsidiary, Concepts 128 Ltd, took title to 128 Stancombe Rd, where a residential complex containing 44 apartments was planned. Mr Cummins is Concepts 128’s sole director. The project was initially financed by Marac Finance Ltd, which held a first mortgage over the property, and Sage Securities Ltd, which provided a secondary facility.
FBCL contracted with Concepts 128 to build the Stancombe Rd apartment complex for a fixed price of $6.243 million. Construction commenced in April 2007 with completion expected by March 2008. Concepts 128 proposed to complete the funding of construction through apartment sales or refinancing secured advances. FBCL engaged Java Structures Ltd to provide structural engineering services. However, construction was stopped in October 2007 when structural engineering problems were discovered and did not resume until February 2008. Completion was then projected for September, later deferred to November, of that year.
It is relevant to this appeal that Concept 128 later filed proceedings against Java and others in the High Court at Auckland, alleging negligent performance of professional services. Its claim was settled for $3.35 million on the eve of trial in early 2010. We shall return to this issue.
On Mr Cummins’ evidence, this delay in completing the Stancombe Rd project and its associated problems caused FBCL lost sales, difficulties in refinancing, and extra costs in remedying the structural design problems. Consequently cash flow reduced from around $2 million expected in May 2008 to an anticipated estimate of $500,000. But even that reduced estimate did not materialise as the circumstances were compounded by the global financial recession which began in late 2008.
FBCL’s financial position deteriorated from a profit of nearly $700,000 in the six months to September 2007 to a loss of over $437,000 in the succeeding six months to 31 March 2008. The company stopped trading in August 2008 and went into liquidation in November 2008.
In the meantime, in October 2007, FBCL had applied to Magsons for a credit account on its standard terms and conditions. Mr Cummins signed the application and agreed to personally guarantee FBCL’s indebtedness. He also accepted liability as a principal debtor.
Magsons supplied FBCL with building materials between May and October 2008. When liquidated in November 2008, FBCL owed Magsons $404,542.96 plus interest and recovery costs. The company obtained judgment against Mr Cummins for $553,376.13 plus accruing interest on 15 October 2009.
It is necessary to record also that in 1996 Mr Cummins was convicted on 29 charges of defrauding clients of a law firm while employed as a solicitor. He was struck off the High Court roll of barristers and solicitors as a consequence.
The proposal
Mr Cummins’ proposal under the Act was approved at a creditors’ meeting held on 25 November 2009. In summary, its relevant terms are that:
(a)Fully secured creditors will receive no payment but will be repaid in full from the proceeds of their securities.
(b)Mr Cummins is to make available $460,000 through a family trust. This sum is to be paid to unsecured and inadequately secured creditors who will receive 10 cents in the dollar in respect of their net debt to a maximum of $100,000.
(c)The payment to unsecured creditors is to be made within one month of the High Court’s approval of the proposal.
(d)The payment to inadequately secured creditors is to be made as to half within six months of the High Court’s approval and the balance within 12 months of approval.
(e)Fees and expenses relating to the proposal are to be paid as a first claim on the sum of $460,000 to be made available by Mr Cummins.
(f)On the stipulation of the secured creditors, Mr Cummins agreed to:
(i)co-operate fully with the secured creditors to realise their securities;
(ii)remain a director of Concepts 128 and ensure no further securities were granted over its assets;
(iii)within the extent of his powers and capacity to do so, ensure that no liquidator, receiver or manager would be appointed to Concepts 128.
(g)Mr Bogiatto is to be trustee and acceptance of the proposal will constitute a full and final satisfaction of all creditors’ claims.
There were 17 creditors entitled to vote: eight voted in support of the proposal, an additional creditor voted in conditional support and Magsons voted against. Magsons’ objection represented 2.24 per cent in value and 11.12 per cent in number of those creditors who attended the meeting and voted.
The voting creditors fell into these three categories:
(a)Three fully secured creditors which voted in favour of the proposal as follows:
Creditor Value of security MARAC Finance Ltd (Real Estate Credit Ltd) 13,500,000.00 North South Finance Ltd 560,000.00 Sage Securities Ltd 2,730,000.00 Total $16,790,000.00 (b)Four inadequately or partly secured creditors which also voted in favour of the proposal as follows:
Creditor Gross Debt Value of Security Net Debt Amount NZF Money Ltd 2,800,000.00 1,800,000.00 1,000,000.00 Matrix Custodian Ltd 2,241,860.00 1,200,000.00 1,041,860.00 ASAP Finance Ltd 1,080,000.00 540,000.00 540,000.00 New Zealand Finance Mortgages Ltd 935,992.00 Minimal 935,992.00 Totals $7,057,852.00 $3,540,000.00 $3,517,852.00
(c)Two unsecured creditors. One was Allwin Steel Industries which is indebted for $47,000 and supported the proposal. Magsons was the other creditor within this category. Its debt is 90 per cent of completely unsecured creditors. However, as Mr Langford points out for Mr Cummins, when the $3.517 million of net unsecured indebtedness of partially secured creditors is taken into account, Magsons’ share falls to about 17 per cent of total unsecured debt.
Mr Bogiatto provided a report accompanying Mr Cummins’ application for approval. In his opinion the proposal was preferable because bankruptcy as an alternative would produce minimal or no assets for distribution to creditors; the sum of $460,000 would otherwise be unavailable to satisfy inadequately and unsecured creditors’ debts; and if Mr Cummins were adjudicated bankrupt, he would be prevented from assisting in completing the developments.
Magsons opposed Mr Cummins’ application on the grounds that the proposal was neither reasonable nor calculated to benefit the general body of creditors. Alternatively, Magsons asserted that it was inexpedient to approve the proposal. That was because of Mr Cummins’ criminal record, the size of the debt, the complex and extensive nature of his business dealings and the creditors’ and the public interest in the Official Assignee investigating Mr Cummins’ affairs.
High Court
Under s 333 of the Act:
(3) The Court may refuse to approve a proposal if it considers that–
(a) the provisions of this subpart have not been complied with;
(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.
Magson does not raise an issue under s 333(3)(a). In considering the s 333(3)(b) ground of reasonableness, the Associate Judge accepted that “the majority of benefitting creditors [under the proposal] are creditors who have other remedies and who are in a position of dominance because of the size of their indebtedness”,[6] and that under the proposal the secured creditors were expected to make a full recovery and even partly secured creditors would make a “significant recovery”.[7] Notwithstanding that other creditors stood to benefit to a greater extent than Magsons, the Associate Judge was satisfied that “10 per cent is better than nothing and in any event that percentage return is itself better than has been approved by courts in the past”.[8] Further, partly secured creditors stood to lose considerably more than the unsecured creditors combined[9] – yet those who voted were in favour.
[6] At [53].
[7] At [54].
[8] At [56].
[9] At [60].
That feature was apparently decisive in the Associate Judge’s reasoning, considering as he did that the Court “may likely put to one side the vote of the secured creditors if their losses were covered in full by their securities”.[10] Therefore, he continued:
The Court should pay particular concern to the creditors whose losses will not be met, in this case the unsecured creditors’ losses form a modest portion only of the losses to be borne by the partly secured creditors.
[10] At [61].
In the Associate Judge’s view, Magsons’ objection was primarily on the alternative s 333(3)(c) ground of expedience.[11] The answer, in his judgment, lay in the causes of the insolvency. The Associate Judge identified a range of evidence as relevant to that assessment.[12] He concluded that Mr Cummins’ criminal history was irrelevant given that there was no factual linkage between that conduct and the causes of his group’s present failure.[13]
[11] See comments at [8], [31] and [62].
[12] At [59].
[13] At [57].
While Magsons relied on expert evidence to the effect that the group structure was deliberately designed to separate risk, the Associate Judge accepted that this was common commercial practice.[14] In his view there was “clear evidence” that FBCL’s demise was brought about by the structural engineering problems encountered at Stancombe Rd. Furthermore, Mr Cummins had been forthcoming with requests for information,[15] the litigation settlement was properly accounted for,[16] no funds had been removed from FBCL,[17] the liquidator was in the best position to recover any money owing to FBCL,[18] the secured creditors supported Mr Cummins’ continued involvement, and bankruptcy was of no apparent benefit and perhaps considerable detriment to creditors.[19] Finally, the evidence did not support a finding that Mr Cummins was a commercial hazard.[20]
Appeal
[14] At [63].
[15] At [64].
[16] At [65].
[17] At [66]
[18] At [67].
[19] At [69].
[20] At [70].
Mr Orton, who did not appear in the High Court, challenges the Associate Judge’s decision on both statutory grounds. His arguments largely repeat those advanced at first instance. Before addressing each, we shall briefly discuss the approaches to be adopted in deciding an application under s 333(3) of the Act and for determining an appeal.
We agree with Mr Orton’s identification of a two step process to be followed when considering an application. The first or threshold inquiry is whether either or both of the s 333(3)(b) or (c) tests have been met: if so, the second inquiry is whether the court should exercise its residual discretion to refuse approval. As Richardson J observed in Farmer v Rowley:[21]
The Court may refuse its approval if and only if it is of the opinion that one or more of the trigger paras (a), (b) and (c) [under the predecessor s 143(3) of the Insolvency Act 1967] applies. It follows that the exercise of the discretion reposed in the court under this section must be related to the particular paragraphs or paragraphs relied on.
[21] Farmer v Rowley [1992] 2 NZLR 195 (CA) at 199–200.
In the same case, McKay J cited with approval[22] this passage from the judgment of Hardie Boys J in Re Bennetts’ Proposal:[23]
Therefore I think it proper to deal with an application under s 143 a little differently from one under s 122. Rather than it being for the proponents of a scheme to show that it ought to be approved, 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. The Court is clearly required to exercise its independent judgment, for considerations of wider public interest are relevant, and therefore even unanimity amongst the creditors will not be predeterminative of approval. But unless it is clear that the creditors generally would fare better under a bankruptcy, approval ought normally to be given unless other special circumstances militate against it. Whilst a proposal ought not to be imposed upon dissentient creditors if that would be disadvantageous to them as members of the general body of creditors their dissent should not be upheld if to do so could be prejudicial to the general body of creditors.
[22] At 205.
[23]Re Bennetts’ Proposal HC Christchurch B 138/81; M306/81, 1 February 1982 at 9.
Initially, Mr Langford submitted that our powers were circumscribed by the orthodox factors applying to an appeal against a discretion. In particular, he submitted, this Court should only interfere if satisfied that the Associate Judge relied on a wrong principle, failed to take into account relevant factors, took into account irrelevant factors or was plainly wrong.[24]
[24]May v May (1982) 1 NZFLR 165 (CA) at 170; recently applied in Rowley v Commissioner of Inland Revenue[2011] NZCA 160 and affirmed by the Supreme Court when declining leave to appeal: Rowley v Commissioner of Inland Revenue [2011] NZSC 76.
However, Mr Langford properly modified this approach in argument. He accepts that Associate Judge Christiansen’s decision was not based on the exercise of a discretion. That was because he was not satisfied that either of the two statutory preconditions to refusal in s 333(3)(b) or (c) were made out. So the appeal must be determined in the usual way by examining whether the Associate Judge was correct. In this respect, as Richardson J observed in Rowley,[25] we must conduct our own assessment of the evidence, giving due weight to the Associate Judge’s findings, with Magsons carrying the onus of showing that the decision was wrong.[26]
[25] At [200].
[26] Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [13].
Against that brief review we will now examine each of the two grounds of Magsons’ appeal.
Decision
(a) Unreasonable terms
Mr Orton submits that Associate Judge Christiansen should have refused approval on the ground that the terms of the proposal were not reasonable or calculated for the benefit of the general body of creditors.[27]
[27] See s 333(3)(v).
When exercising its independent judgment to determine whether a proposal is reasonable, the Court:[28]
... 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. It is important to emphasise, too, that it is the creditors who stand to lose the benefit if a proposal is rejected and bankruptcy ensues. Unless there are special public interests or other commercial considerations present the assessment of the substantial body of the creditors ought to be accepted.
[28] Farmer v Rowley at 201.
We endorse Asher J’s observation in Kelly v Structured Finance[29] that reasonableness under s 333(3)(b) is best assessed objectively from the perspective of the “commercially experienced prudent creditor” rather than the public, whose interests are protected under s 333(3)(c). Additionally, while the reasonableness element imports into the Court’s independent judgment the views of the creditors, the alternative touchstone of benefit to the general body of creditors under s 333(3)(b) raises the fairness of the proposal between classes of creditors, requiring a comparative analysis of the creditors’ relative positions under the proposal or bankruptcy respectively.
[29] Kelly v Structured Finance Ltd [2009] 2 NZLR 785 (HC) at [45].
Mr Orton submits that the terms of the proposal are not reasonable on two primary bases. First, he relies on Richardson J’s obiter statement in Farmer v Rowley that:[30]
... First there is in my view no basis in the evidence for concluding that the terms of the proposal are not calculated to benefit the general body of creditors. It is not as if the majority benefiting creditors are the alter egos of the Farmers or creditors who have other remedies, or that one or more of the creditors are in a position of dominance because of the size of their indebtedness.
(Mr Orton’s emphasis.)
[30] Farmer v Rowley at 200.
Accordingly, Mr Orton submits that because the majority of Mr Cummins’ creditors have other remedies or can dominate because of the size of their indebtedness, his proposal is not calculated to benefit the general body of creditors. Mr Orton goes further and says that in these circumstances the Court is not required to exercise an independent judgment on whether the proposal is calculated to benefit the general body of creditors.
We do not accept this submission. In Farmer’s case, Richardson J was simply giving examples of particular factors which might in the circumstances deprive the proposal of benefit to the general body of creditors. He was not purporting to impose a statutory gloss or lay down a rigid rule.
It is true, (see the table set out above at [13]), that Mr Cummins’ proposal anticipates a full satisfaction of his indebtedness to the secured creditors of $16.79 million, and a partial recovery of $7.057 million for the partially secured creditors. Nevertheless, it is anticipated that the latter group will be unsecured for at least $3.517 million. To that extent they fall into the same category as Magsons. On that adjusted basis, we agree with Mr Langford that Magsons’ indebtedness is about 17 per cent of the total unsecured debt.
The question is whether the proposal is calculated to benefit the general body of creditors. As the Associate Judge found, the fact that secured and partly secured creditors have other remedies has limited weight. The only tangible benefit of the proposal to the secured creditors is Mr Cummins’ agreement to assist in realising their securities. The Associate Judge expected that the securities will sell for sufficient sums to discharge their indebtedness. But, if not, the secured creditors will not share in the proposed distribution to the extent of their shortfall; in that event, and for that amount, they will not receive a benefit to be enjoyed by the two other classes of creditors. And there is no evidence of dominance in the sense that one class of creditors has acted in its own interests to the clear prejudice of minority creditors; the secured creditors stand to gain little whereas the partly secured and unsecured creditors will share equally in the proposed distribution.
Mr Cummins has assets to the value of $10,000. He has no apparent income. As the Associate Judge found, a recovery for each unsecured creditor of 10 cents in the dollar, in Magsons’ case a total of $55,000, is better than what would otherwise be nothing. The same applies to other unsecured creditors.
Second, Mr Orton submits that the terms of the proposal are unreasonable because more than $460,000 should be available to creditors from Mr Cummins’ estate. While he does not challenge Mr Cummins’ evidence that his assets are valued at $10,000, he focuses on two areas.
One relates to the terms of settlement of Concept 128’s recovery of $3.35 million from Java (see at [5] above). An additional factual narrative is required. In March 2010, after the creditors’ meeting, Concepts 128 settled its claim. The litigation had been funded by two companies, Sage Securities Ltd and Manchester Securities Ltd. Manchester is also the trustee of Mr Cummins’ family trust. Mr Orton does not challenge the priority distributions from the fund made to those two companies and Marac. Instead, he questions two payments to be made to Manchester totalling $225,000 – one of $125,000, being a refund of costs paid, and a separate $100,000 to secure Mr Cummins’ future co-operation.
However, there is no evidence that Mr Cummins is entitled to any part of these payments or to the settlement proceeds as a whole. A statement prepared by Buddle Findlay on 1 April 2010 recites all individual disbursements. No money was paid or was apparently payable to Mr Cummins. His estate had no financial interest in the result. In the event, as Mr Cummins has deposed, Manchester has volunteered to allocate the discrete sum of $125,000 of its entitlement towards the $460,000 payable to creditors under the proposal: Mr Orton does not suggest that it will be paid pursuant to a legal obligation to contribute. It is anticipated that this $125,000 will form the first distribution immediately payable to unsecured creditors upon approval. We are not satisfied that any additional funds are lawfully available to creditors from the settlement proceeds.
Separately, Mr Orton speculates that an additional $600,000 should be available from another source. Mr Cummins expects a surplus of about $600,000 to be yielded on the sale of properties comprising securities for a group of creditors. The properties are owned by special purpose companies formed by Mr Cummins. He deposes that some of the surplus will be made available to Manchester which will in turn contribute the money to the pool for distribution under the proposal.
Again, we are not satisfied that Mr Cummins’ estate is entitled to any part of this projected surplus of $600,000. Moreover, we note that it is an estimate given on behalf of a financially distressed seller in a depressed property market.
Mr Orton has failed to show that the Associate Judge erred in concluding that the proposal is not unreasonable and is calculated to benefit the general body of creditors. In the absence of a compelling reason to the contrary, we are satisfied, like the Associate Judge, that weight should be given to the commercial judgment of the great majority of the voting creditors in this respect. Mr Orton has not shown why they should lose the benefit of this proposal because one creditor, holding a relatively small part of Mr Cummins’ total debt, objects.
(b) Expediency
Alternatively, Mr Orton submits that it is not expedient under s 333(3)(c) that Mr Cummins’ proposal be approved.
In determining whether it is expedient to approve a proposal, all three members of this Court in Farmer v Rowley emphasised the wider public interest element inherent in s 333(3)(c).[31] As Asher J explained in Kelly v Structured Finance:[32]
[53] It was presumably the predecessor to s 333(3)(c) that Hardie Boys J had in mind in Re Bennetts’ Proposal when he referred to the Court considering the wider public interest. The Court may refuse to approve a proposal if it considers that for any reason it is not expedient that the proposal be approved. 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.
...
[59] ... I consider however that a limited interpretation of the word “expedient” cannot be justified. It would seem artificial to exclude considerations of the public interest when considering expediency, given the wide meaning of the word. One of the consequences of bankruptcy is that s 149 applies to the bankrupt, and restricts the bankrupt’s ability to enter business. This protects members of the public who might have had dealings with the insolvent person but for the bankruptcy. This protection can be seen as one of the purposes of the insolvency legislation. It would be defeated if the public interest could not be considered in relation to approval of a proposal.
[60] I have already referred to Farmer v Rowley and the approval of the statement of Hardie Boys J to the effect that the wider public interest is relevant in considering a proposal. The public interest was referred to as relevant in Re Davison HC CHCH B412/89 13 December 1989, Holland J at p 9. In Re Trott and Joy HC AK B1471/88 14 April Tompkins J, after referring to the expediency ground, stated at p 28:
An insolvent's misconduct may be so irresponsible and its effects on creditors or others so devastating that a Court may conclude that it is in the public interest that the person responsible should not escape the stigma of bankruptcy. Rather, it may be in the public interest that such a person should be marked as a bankrupt and further, that he should suffer the various disqualifications that go with bankruptcy. Those disqualifications are after all designed to protect the unsuspecting community from the ravages of irresponsible financial conduct. And the stigma of bankruptcy is itself a deterrent to others from behaving in a like manner.
[61] I respectfully adopt that reasoning as it applies to the relevance of the public interest, while acknowledging that the purpose of the Act is not to punish a debtor.
[31] Farmer v Rowley at 201, 202 and 205.
[32] Kelly v Structured Finance Ltd [2009] 2 NZLR 785 (HC).
Mr Orton refers to a number of factors under the rubric of expediency. Cumulatively, they constitute an attack on Mr Cummins commercial and moral integrity and conduct. Mr Orton’s general purpose is to establish that it is in the public interest that Mr Cummins be bankrupted. He says that Mr Cummins should not escape that stigma. He says that the Associate Judge erred in concluding that the evidence did not support a finding that Mr Cummins is a commercial hazard.
First, Mr Orton submits that Mr Cummins allowed his business operation to end in a position where he and his entities owe in excess of $49 million of which $600,000 is unsecured against personal assets of $10,000. He cites the gap between assets and liabilities. He draws a close analogy with Asher J’s refusal in Kelly v Structured Finance Ltd to approve a creditors’ proposal by an insolvent whose total assets amounted to $15,000 and whose liabilities for actual and contingent debts exceeded $28 million. Mr Kelly was also a property developer who had formed single purpose companies for individual developments.
While the magnitude of Mr Cummins’ insolvency is relevant – that is the gap between assets and liabilities – we do not accept that it is decisive. It is one factor to be taken into account, as Asher J found in Kelly v Structured Finance Ltd. In that case the Judge refused to approve the proposal on a number of grounds. The proposal, in his words, gave “no comfort to a commercially experienced prudent creditor”, because it was vague and optimistic. Mr Kelly’s “procedural ineptitude through the course of the proposal process”[33] cast doubt on his business abilities and his capacity to achieve any future benefits for creditors. He was tardy in his approach to the bankruptcy. In particular, Asher J noted, the fact that Mr Kelly’s financial problems arose well before the 2008 downturn reflected poorly on his business acumen and his attitude to financial responsibilities[34] and there was evidence that a substantial body of the unsecured creditors voting for the proposal, to a value of $1.6 million, were apparently associated with Mr Kelly.[35] Significantly, also, three major secured creditors opposed and the Judge accepted that Mr Kelly had sought to frustrate one, the Southland Building Society, from exercising its rights against a security.[36]
[33] At [64].
[34] At [65].
[35] At [55].
[36] At [65].
The similarity between Mr Cummins’ proposal and Kelly’s case begins and ends in the magnitude of indebtedness. In this case, the Associate Judge found that FBCL’s demise was principally caused by the structural engineering problems encountered at the Stancombe Road development. Those problems, and the delays they caused, had a flow on effect causing “significant additional delays to the completion of other projects which essentially derailed Mr Cummins’ group of companies”.[37] These findings had a proper evidential foundation.
[37] Re Cummins HC Wellington CIV-2009-485-2192, 21 July 2010 at [42].
The Associate Judge also found, on a proper evidential foundation, that Mr Cummins had been forthcoming in complying with requests for information. He was apparently cooperative with all creditors. He has agreed to assist in completing projects. He has secured a third party’s agreement to pay moneys which would otherwise be unavailable to his creditors.[38] He has no apparent financial association with any of the creditors which voted for the proposal. Magsons does not criticise the structure or provisions of his proposal, except as to amount. These facts are well removed from those which proved decisive in Kelly.
[38] As did Mr and Mrs Farmer in Farmer v Rowley at 206-207.
Second, Mr Orton submits that Mr Cummins was reckless in running up credit for FBCL and in incurring personal liability while work on the Stancombe Road development was stalled. However, that submission does not accord with the facts. Magsons agreed to supply credit to FBCL and Mr Cummins in October 2007. But it was not until six months later, in May 2008, that Magsons started to supply FBCL with building materials. This was some three months after FBCL had resumed work on the project. In this respect, we note that Magsons did not request Mr Cummins to supply a statement of financial position when giving his guarantee.
Third, Mr Orton submits that Mr Cummins failed to make full disclosure of relevant material to creditors. In particular, he makes much of Mr Cummins’ alleged failures to advise the creditors’ meeting of the anticipated surplus of $600,000 from the sale of a project and of the likely or actual recovery of $3.5 million by Concept 128 against Java and his alleged failure to comply with requests for details of the settlement including the amount and copies of the settlement agreement and pleadings.
This submission is also misconceived. It is irrelevant whether Mr Cummins disclosed the existence of the anticipated $600,000 surplus to the creditors’ meeting. What matters, as Mr Langford submits, is that if the surplus materialises Manchester will allocate most of it to the sum of $460,000 which is to comprise Mr Cummins’ proposed pool for distribution to creditors. We repeat that we have no evidence that Manchester is under an obligation to take this step. But if it does not, Mr Cummins will be unable to comply with the terms of his proposal.
The argument about Mr Cummins’ non-disclosure of the litigation settlement is even less tenable. The Associate Judge was satisfied that Mr Cummins advised the creditors’ meeting of Concepts 128’s claim. Beyond divulging that information, and perhaps a report on the status of the litigation, Mr Cummins could not publicly comment. Concepts 128’s claim was then set down for trial. A settlement did not occur until about March 2010, well after the meeting.
Mr Cummins disclosed the nature of the settlement and the terms of distribution in a supplementary affidavit filed in the High Court. Provision of copies of the terms of the pleadings or the settlement deed would add nothing. Mr Orton does not challenge the accuracy or integrity of Buddle Findlay’s disbursements statement. Nor does he suggest that any part of the settlement proceeds are due to Mr Cummins. Again what matters is that Manchester intends to apply $125,000 of this money towards satisfying Mr Cummins’ obligations under the proposal.
Fourth, and finally, Mr Orton raises Mr Cummins’ previous convictions for fraud in 1996. In apparent acknowledgement of the Associate Judge’s dismissal of this submission, Mr Orton has modified his argument to acknowledge that while Mr Cummins’ previous convictions are not necessarily relevant in isolation they are of “general significance in the context of his presentation of this application”.
We do not accept this submission. We agree with the Associate Judge. Mr Cummins was convicted of criminal offending some 15 years ago. Apart from being remote in time, the offending has no causal linkage with Mr Cummins’ insolvency. There is no evidence that he has acted dishonestly in his dealings with his creditors, either when incurring liabilities or formulating the terms of his proposal. It is not suggested, for example, that Mr Cummins misled or gave inaccurate information to any of the sophisticated commercial property funders which provided accommodation. We endorse the Associate Judge’s emphasis on this point.[39]
[39] Re Cummins HC Wellington CIV-2009-485-2192, 21 July 2010 at [59].
In summary, we are not satisfied that expedience requires that Mr Cummins be visited with the stigma of bankruptcy. The Associate Judge was right that the evidence did not support a finding that Mr Cummins is a commercial hazard. He is not somebody from whom the public including the commercial community requires protection. As Asher J noted in Kelly v Structured Finance Ltd,[40] the courts’ power under s 333(3)(c) is not to be used for the purpose of punishing a debtor; the power is to avoid the risk of further harm to the public. That risk is not apparent here.
[40] At [63].
It follows, given our satisfaction that neither of the statutory preconditions for refusal set out in s 333(3)(b) or (c) have been established, that it is unnecessary for us to consider whether any grounds exist for exercising our residual discretionary power to refuse.
Accordingly, Magsons’ appeal must fail.
Result
The appeal is dismissed.
Magsons must pay Mr Bogiatto’s costs for a standard appeal on a band A basis and usual disbursements.
Solicitors:
Corban Revell, Waitakere City, for appellant
J A Langford, Wellington, for respondent
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