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,…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Magsons Hardware Ltd v Bogiatto

Details

AGLC: Magsons Hardware Ltd v Bogiatto [2011] NZCA 378
Case: [2011] NZCA 378
Decision Date: 8 August 2011

CaseChat Overview and Summary

The Court of Appeal of New Zealand heard an appeal by Magsons Hardware Ltd, trading as Mitre 10 Mega, against the decision of the High Court to approve a creditors' proposal submitted by Robert Cummins, the sole director of Flat Bush Construction Ltd (FBCL). FBCL, which had constructed a number of properties, was now in liquidation, with Magsons being an unsecured creditor owed $553,000. Cummins had personally guaranteed FBCL's debt to Magsons. A creditors' meeting accepted Cummins' proposal for the payment or satisfaction of their debts, with Magsons being the sole dissenter. George Bogiatto applied to be the creditors' trustee under the proposal, which was approved by the High Court. Magsons appealed the decision, arguing that either the terms of Cummins' proposal were not reasonable or calculated to benefit the general body of creditors or it was not expedient that the proposal be approved.

The Court of Appeal considered whether the terms of the proposal were reasonable and calculated to benefit the general body of creditors. The Court noted that the majority of benefitting creditors under the proposal had other remedies and were in a position of dominance due to the size of their indebtedness. However, the Court found that the secured creditors were expected to make a full recovery and partly secured creditors would make a significant recovery. The Court concluded that 10 cents in the dollar was better than nothing, and the proposal was calculated to benefit the general body of creditors. The Court also considered whether it was expedient to approve the proposal, taking into account the wider public interest element. The Court found that the evidence did not support a finding that Cummins was a commercial hazard, and there was no apparent risk of further harm to the public. Therefore, the appeal was dismissed, and Magsons was ordered to pay Bogiatto's costs for a standard appeal on a band A basis and usual disbursements.

Orders