Mutual Finance Group Limited HC Napier CIV 2008-441-154
[2008] NZHC 2676
•13 November 2008
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
CIV 2008-441-154
BETWEEN MUTUAL FINANCE GROUP LIMITED Judgment Creditor
AND ALAN DUFF Judgment Debtor
CIV 2008-441-423
AND BETWEEN FM CUSTODIANS LIMITED Plaintiff
ANDALAN DUFF AND JOANNA ROBIN HARPER
Defendants
Hearing: 13 November 2008
Appearances: Mr Ross - Counsel for the Applicant - Mr Duff
N Wenley - Counsel for the Plaintiff Creditor
N Wenley - Counsel for the Supporting Creditor Property Finance
Funding Nominees Limited
Reasons for Decision: 13 November 2008
REASONS FOR DECISION
OF ASSOCIATE JUDGE D.I. GENDALL
Solicitors: McKay Hill, Barristers & Solicitors, PO Box 1143, Napier 4140
Macky Roberton Limited, Lawyers, Level 1 144 Parnell Rd Parnell Auckland
John Waymouth, Barrister, PO Box 33774, Takapuna
Rhodes & Co, Barristers & Solicitors, PO Box 13444, Christchurch
MUTUAL FINANCE GROUP LIMITED V A DUFF HC NAP CIV 2008-441-154 13 November 2008
[1] On 19 August 2008 the applicant, Mr Alan Duff (“Mr Duff”) filed what was in effect an application for approval by the Court of a proposal to creditors by Mr Duff as an insolvent pursuant to Part 5 Sub-Part 2 Insolvency Act 2006.
[2] This application was in response to an application by a judgment creditor, Mutual Finance Group Limited (“Mutual”) filed 13 May 2008 to have Mr Duff adjudicated bankrupt. This related to a debt owing to Mutual of $36,156.08 being a judgment obtained against him in the District Court at Hastings on 18 January 2008.
[3] Turning to the application for approval of the Part 5 proposal, the specific terms of Mr Duff’s proposal to creditors were:
“1. That payment of my direct debts as directed by the Insolvency Act
2006 to be paid in priority to all other debts will be made as follows:-
2.As determined by my Trustee if there are such priority claims, otherwise all creditor claims are considered to be unsecured claims will be paid as per paragraph 4.
3.That provision for payment of all proper fees and expenses of the Trustee on an(d) incidental to the proceedings arising out of this proposal will be made in the following manner. The Trustee’s reasonable professional fees in accordance with normal time and attendance charges by professional accountants, including disbursements and GST, will be paid from funds received on my behalf by the Trustee before distribution to creditors.
4.That the terms of the proposal in respect of unsecured claims are as follows. I seek a delay in settlement of all claims until my two current books in the course of preparation have been completed and sold through my publishers and the proceeds which I am entitled to are realized. The net proceeds payable by my publishers will be forwarded to my Trustee to distribute to my creditors as soon as those
funds become available. I expect at the outside that the delay will be approximately eighteen months from the date of this proposal.
5.I undertake to keep my Trustee reasonably informed of progress in my writing and the realization of profits and that my Trustee in turn will from time to time by circular, keep creditors informed of that progress.
6.That the money payable under this proposal will be paid over to the Trustee, Mr JK Collinge, Chartered Accountant c/- 308 Princess Street, Hastings and the money will be held by him in a trust account until distribution to creditors.
7.That Jeremy Kaye Collinge of 308 Princess Street, Hastings, Chartered Accountant is willing to act as Trustee in terms of this proposal.”
[4] When the application for approval by the Court of this proposal came before me today, 13 November 2008 after hearing from Mr Ross, counsel for Mr Duff, Mr Wenley, counsel for Mutual and an original supporting creditor, Property Finance Funding Nominees Limited, and Ms Hall counsel for creditors E & D Begley, I indicated that approval to the proposal was given in terms of s. 333 Insolvency Act
2006. I said that my detailed reasons for this decision would follow. I now give those reasons.
[5] Mr Duff is clearly insolvent. Before me it was suggested his creditors totalled a little in excess of $3.6 million and he has minimal assets of about
$5,000.00. The proposal before the Court from Mr Duff, as an insolvent, is effectively an offer to pay his debts at some time in the future in accordance with s.
326(2)(d) Insolvency Act 2006.
[6] The form of the proposal was accompanied by a statement of Mr Duff’s affairs verified by an affidavit of Mr Duff dated 29 August 2008. It confirmed that Mr Duff had assets totalling $5,000.00 and creditors of $3,107,595.00. An affidavit
of the proposed Trustee, Jeremy Kaye Collinge (“Mr Collinge”) sworn 14 October
2008 together with a report from Mr Collinge dated 16 October 2008 have also been filed. These confirm that the notice and other requirements of the Insolvency Act
2006 have been complied with and a meeting of creditors took place on 23
September 2008 to consider Mr Duff’s proposal.
[7] That meeting of creditors on 23 September 2008 was presided over by Mr Collinge as Chairman. Mr Collinge confirms that the proposal was accepted by the required majority of creditors in terms of s. 331(3) Insolvency Act 2006. Those creditors who voted in favour of the proposal were Bryan Hutchinson Limited, Les Salter, Performance Plastering Ltd, PN Riley, N Duff, TC Ellis Family Trust, G Harris, National Bank of New Zealand Limited, Westpac NZ Limited, ASB Bank Limited, Finco Holdings Limited, Avenue 115 Limited, Anytime Engineering Limited, Avenue Capital Limited, KC Foote, D Rosser, FM Custodians Limited and Toyota Financial Services. Together they represent approximately $2.9 million in value of Mr Duff’s total creditors.
[8] The only creditor voting against the proposal was the plaintiff in the bankruptcy proceeding, Mutual. As I have noted above the debt owing by Mr Duff to Mutual is $36,156.08. The report of Mr Collinge as proposed Trustee contains a copy of the minutes of this Creditors’ Meeting confirming the procedures undertaken and the result of 18 votes approving the proposal and 1 vote against.
[9] I remind myself that s. 331(3) Insolvency Act 2006 provides:
“331 Procedure at meeting of creditors
……………
(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.”
[10] Before me today a slight twist in this matter developed. This represented the disclosure in a memorandum from counsel for Mr Duff and in a report from Mr Collinge that subsequent to the Creditors’ Meeting particulars of certain new parties who now claim to be creditors of Mr Duff were identified. Notwithstanding this, as I understand it, Mr Collinge has been in touch with these additional creditors and they have all agreed to accept and participate in Mr Duff’s Part 5 insolvency proposal. In addition, as I understand the position from Mr Collinge, creditors who voted in favour of the proposal at the Creditors’ Meeting have all agreed to the inclusion of these additional creditors in the proposal.
[11] And, finally, as I understand the position, in any event those additional parties claiming to be creditors would not distort the requirement for a majority in number and three-quarters in value of Mr Duff’s total creditors voting in favour of the proposal at his Creditors’ Meeting. Well over 50% in number of total creditors and about 80% in value (approximately $2.9 million of total debts of about $3.6 million) accepted the resolution to approve the proposal.
[12] Turning now to the proposal itself, on its face the circumstances of this proposal here would appear to be somewhat unusual. The proposal does not specify when particular payments might be forthcoming for creditors but instead suggests that over a period of approximately 18 months, “at the outside”, Mr Duff intends to be in a position to clear all his debts from the net proceeds of his two current books. As I understand it one book is completed. The second book is presently in the course of preparation and when completed and both books sold on international markets through his publishers the proceeds will clear his debts.
[13] Although it must be said this proposal does seem to lack some specificity, the other circumstances of this case are unusual. Mr Duff is a well-known and prolific New Zealand author who it seems earns (and is capable of earning) significant amounts from major book and film royalty arrangements. Mr Collinge in his report on the proposal says:
“(c) The debtor’s proposal is an advantageous one for the creditors for the following reason – on my knowledge of and understanding of the
affairs of the insolvent, Mr Duff, it appears that his asset base is now minimal but that he does have the capacity with his current writing program to generate publishing fees and royalties from a book currently completed and from a further book in the course of preparation, that are expected to yield substantial returns when published, the proceeds of which, subject to a modest allowance for living expenses, are to be paid into my trust account to be distributed to creditors which will obviously yield a return to them which is currently not available. The moratorium term of the proposal is designed to give an adequate time for these publications to be completed, distributed and the proceeds received which in my opinion, is far preferable to creditors in all the circumstances of this case.”
[14] In addressing similar provisions in the earlier Insolvency Act 1967, Brookers
Insolvency Law at para. IA143.14(6) states:
“(6) Creditors shared view that no better proposal could be made
In Farmer v Rowley [1992] 2 NZLR 195 (CA), Richardson J, after noting that the insolvent and the provisional trustee were agreed that no better proposal could be made, recognised that the majority of the creditors shared that view, and that it was not unreasonable for an insolvent whose proposed means for providing for its creditors was by entrepreneurial activity should be allowed some incentive to do so in preference to becoming bankrupt. McKay J. noted that the proposal involved payments of $250,000.00 which, on the face of the documents, would not be available on a bankruptcy.”
[15] The situation in the present case, has similar aspects to that which were noted in Farmer v Rowley. Mr Duff has virtually no assets and substantial debts. To provide some allowance or incentive for Mr Duff to pursue his creative and entrepreneurial book publishing activities over the next 18 months, in my view, is desirable in that it may lead to payments to creditors which would not otherwise be
available on his bankruptcy. Further, this would appear to be the view of the vast majority of his creditors.
[16] Section 333(2) and (3) Insolvency Act 2006 provide:
“(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.”
[17] Here, the only objection from a creditor was from Mutual which is owed a judgment debt from Mr Duff totalling $36,156.08. On this, before me, in response to my invitation to outline Mutual’s objection, its counsel Mr Wenley simply requested that this objection from Mutual be noted in terms of s. 333(2) but he said that he had no instructions to advance any specific grounds to support the objection.
[18] As I have noted, Mutual is the creditor who commenced the current bankruptcy proceedings against Mr Duff. There can be no doubt that these proceedings were properly brought at the time. Mr Duff’s proposal, however, has intervened and in my view, under the circumstances here and given the overwhelming support for the proposal from all but one of his creditors, the proposal should be approved. I am satisfied that under present circumstances the terms of the proposal although perhaps somewhat vague and unusual are reasonable and it can be said that they are calculated to benefit the general body of Mr Duff’s creditors. I say this also bearing in mind that although there is difficulty in assessing the future income of an insolvent (see Re Hart [1991] 2 NZLR 219), the unusual circumstances of the present case given Mr Duff’s reputation as a renowned author support the case for approving the proposal before the Court. Further, there is no real suggestion
before the Court that the creditors have not been given all the facts here (as in Re Sharma High Court, Hamilton, 14/11/01, Master Faire, B296/00) or that Mr Duff’s conduct and affairs require urgent investigation. Finally, I am satisfied that Mr Duff’s proposal has a reasonable chance of achieving a far greater recovery of assets for his creditors than would be likely to be obtained in a bankruptcy – on this see in Re McGarry High Court, Auckland, 29 May 1990, Greg J. B2320/89.
[19] It is for all these reasons that approval of this Court is given to Mr Duff’s Part
5 proposal outlined at paragraph 3 above. This approval is given in terms of s. 333
Insolvency Act 2006.
[20] In the meantime I confirm the earlier direction made today that the judgment creditor, Mutual’s proceeding, under CIV 2008-441-154 in this Court is stayed until further order of this Court is made. I say this bearing in mind the provisions of ss.
334, 335, 336, 337, 338 and 339 Insolvency Act 2006 which now all apply here.
[21] Costs, however, on the bankruptcy proceeding are awarded to Mutual as judgment creditor and to the supporting creditor, Property Finance Funding Nominees Limited on a Category 2B basis together with disbursements as fixed by the Registrar.
‘Associate Judge D.I. Gendall’
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