Meltzer v Parker Street Holdings HC Auckland CIV-2010-404-008293

[2011] NZHC 1581

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-008293

IN THE MATTER OF     the Insolvency Act 2006

AND IN THE MATTER OF of a proposal under Part 5, Subpart 2 of the Act made by PETER BRYCE MCMILLAN  an Insolvent, Applicant

BETWEEN  JEFFREY PHILIP MELTZER Applicant

ANDPARKER STREET HOLDINGS Creditor

Hearing:         28 July 2011

Appearances: A Halloran for Parker Street Holdings Ltd

R Brennan for Trustee
T Cooley for P McMillan

Judgment:      28 July 2011

ORAL JUDGMENT OF ASSOCIATE JUDGE BELL

Solicitors/Counsel:

Jones Young, PO Box 189, Shortland Street, Auckland Blackwells, PO Box 9325, Newmarket, Auckland Kensington Swan, PO Box Private Bag 92101, Auckland

JEFFREY PHILIP MELTZER V PARKER STREET HOLDINGS HC AK CIV-2010-404-008293 28 July 2011

[1]      On 3 March 2011, I made an order under s 333 approving a proposal for Peter McMillan.  After I made the order, Parker Street Holdings Ltd filed an application for recall of my order.  Parker Street Holdings Ltd had not taken part in the meeting to consider Mr McMillan’s proposal and did not take part in the hearing before the Court.

[2]      The matter was to be heard as a defended application yesterday, 27 July 2011. However, at the start, Ms Halloran announced that a company, Monterey Logistics Ltd, was to make a payment to Parker Street Holdings Ltd.   The effect of that payment was to encourage Parker Street Holdings Ltd to take a pragmatic approach and to withdraw its application. The matter was adjourned until today to see whether the payment would go through.

[3]      Today, Ms Halloran has advised me that the payment did go through.  The application is to be withdrawn subject to some clarification as to the quantum of the debt owed to Parker Street Holdings Ltd.  The insolvent had advised the trustee that he was indebted to Parker Street Holdings Ltd for about $69,000 and that was shown in the materials circulated to creditors.  That was basis on which I considered the matter on 3 March, but Parker Street Holdings Ltd says that the debt is higher, approximately $180,000.  In the course of this application, the insolvent has agreed that in terms of his liability under a guarantee, he can be liable for up to approximately $163,000.  It is not clear at this stage exactly how much is owed by the insolvent to Parker Street Holdings Ltd.  That is something that will have to be determined by the trustee.

[4]      It may be useful if I indicate to the trustee that he should treat the $163,000 figure as the cap on Mr McMillan’s liability. He may take into account the records of the Parker Street Holdings Ltd as to the indebtedness under the lease to Mr McMillan’s company, but may also take into account payments that Parker Street Holdings Ltd has received from Monterey Logistics Ltd.  That sum would then be treated as the amount to be taken into account under the proposal as approved by the Court. If there are difficulties with establishing that sum, then leave is reserved to the trustee to apply to the Court for directions.

[5]      Aside  from  that  debt  question,  Parker  Street  Holdings  Ltd  alleges  that Monterey  Logistics  Ltd  ought  not  to  have  been  allowed  to  take  part  in  the proceedings because it was alleged to be a related company and it is alleged that Mr McMillan’s partner, Ms Jury, was simply a front for him and that he was really running that company instead of her.   He was in effect a kind of shadow director. Obviously those matters are no longer alive and   do not require the Court’s determination because the application has been withdrawn.

[6]      The upshot is that Parker Street Holdings Ltd has withdrawn because of a payment received from Monterey Logistics Ltd but has received some recognition that the amount due to it is higher than the amount acknowledged by Mr McMillan.

[7]      All parties seek costs.   I begin first with the trustee.   The trustee took a limited role in the application.  The trustee filed an affidavit.  It in effect confirmed that steps that had been taken did comply with the Act. Otherwise the trustee took a largely neutral role.    That was an appropriate course for the trustee to take.   Mr Brennan has claimed costs on the basis of .6 of a day.   That is an appropriate allowance.  It is appropriate that the trustee be covered for his costs.  To the extent that I will make no order for costs, the trustee’s costs will fall on Mr McMillan. I will consider where the burden of the trustee’s costs should lie later, but I fix costs for the trustee in the sum of $1,128.

[8]      It may be useful if I state my general approach on costs applications in ordinary applications for approval of proposals.  In the ordinary course of events, a trustee will ensure that the requirements of the Insolvency Act have been complied with and will not present an application to the Court unless there has been compliance.  But once the requirements of the Act have been met and the requisite majorities have been satisfied, then a trustee is duty bound to present an application to the Court for the Court’s approval.  In carrying out that duty, the trustee ought not to be exposed to the risk of the costs except in cases of misconduct.  In the ordinary course of events a trustee should not be exposed to costs whatever the outcome of an approval application. In this case there is nothing to suggest that there has been any misconduct by trustees.

[9]       If  a  creditor  is  successful  in  opposing  an  application  for  approval,  the invariable consequence of that successful opposition is that the insolvent will be adjudicated bankrupt.  A creditor will end up with a barren award of costs.  After all, any order for costs on a proposal does not have any priority in a bankruptcy.

[10]     Given that a successful creditor does not receive an effective award of costs for succeeding, it would be unduly harsh on the creditor if the creditor were to be punished with an award for costs for unsuccessful opposition.  To avoid that double whammy effect, a more even-handed approach is not to award costs against unsuccessful creditors.  In other words, if an application for approval of a proposal is treated more as an inquiry to find the best way of dealing with a debtor’s insolvency, where the Court looks to see where the best interests of both the debtor and creditors lie, then there is not adversarial litigation where there are winners and losers.  The fact that each party pays their own costs may itself have its own inhibiting effect on willingness to litigate recklessly.

[11]     In this case, Parker Street Holdings Ltd did not take the opportunity available to appear either at the creditors’ meeting or at the hearing before the Court.  I am satisfied that the trustee took proper steps by notifying the debt collection agency acting for Parker Street Holdings Ltd who were trying to collect payment from Mr McMillan.  They were obviously the agent appointed by Parker Street Holdings Ltd to act for it in this matter.  It can be expected that a debt collection company would be able to advise the creditor as to the procedures when an application is made for approval of a proposal.  It is not for the trustee or the insolvent to look past the agent whom the creditor has appointed.

[12]     There appears to have been some miscommunication and some breakdown in relations  between  the  debt  collection  company  and  Parker  Street  Holdings  Ltd perhaps later in the process.  If there is any issue over Parker Street Holdings Ltd not having taken steps earlier at the time of the creditors’ meeting or at the time of the hearing in the Court, that is a matter that lies between Parker Street Holdings Ltd and its debt collection agency.  It is not something that should be taken into account in relation to costs for other parties.

[13]     So to the extent that it sought to get its foot in the door after the door had closed, Parker Street Holdings Ltd was making its run late.

[14]     Mr Cooley, for the insolvent, criticised the procedure taken by Parker Street Holdings Ltd of seeking a recall and suggested that instead the proper procedure to take was to apply for cancellation or amendment of the scheme under s 339 of the Insolvency Act.  I have not heard full argument on that.  On a costs decision where the application has been withdrawn, it is inappropriate that I express a concluded view on the point, but it appears to me that there was some error in the procedure taken by Parker Street Holdings Ltd because of the lack of joinder of sufficient parties.  Parker Street Holdings Ltd’s application was on notice only to the trustee and the insolvent and not anyone else.  Any application to disturb the decision of 3

March 2011 is of interest not only to the trustee and the insolvent, but also to other creditors.  Other creditors have not been given the opportunity to appear and present their arguments on the application by Parker Street Holdings Ltd. To that extent, there has been a shortfall in procedure.

[15]     Ultimately, Parker Street Holdings Ltd has made its run late.  It is somewhat like the person who has had judgment by default regularly entered against him and then comes to Court and asks to have the judgment set aside.   Those people are invariably required to pay costs because they are seeking an indulgence of the Court after having failed to take steps in a timely way.  Parker Street Holdings Ltd is in a similar case here.

[16]     In those circumstances, the normal approach I take as to costs does not apply. There ought to be an award of costs against Parker Street Holdings Ltd.   I see no basis for making an award of costs in favour of Parker Street Holdings Ltd.  On the trustee’s application, costs are awarded to the trustee and will be paid by Parker Street Holdings Ltd.

[17]     On the insolvent’s application, Mr Cooley submitted for increased costs.  He suggested that there had been some ulterior motives at work that somehow pressure had been brought to bear to induce Monterey Logistics Ltd to make the payment it did to Parker Street Holdings Ltd.  I was unable to follow that argument.  I do not

accept that there has been improper pressure brought.   There has simply been an application which I find was perhaps ill-founded and is unlikely to succeed but I see no basis for awarding increased costs.   Instead, I am going to award costs to the insolvent on the 2B basis without any uplift.  That includes the costs of preparing an

application for further affidavits. The amount is $4,888.

R M Bell

Associate Judge