Official Assignee v Haines

[2012] NZHC 1774

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV-2008-419-001290 [2012] NZHC 1774

IN THE MATTER OF     THE INSOLVENCY ACT 1967

AND

IN THE MATTER OF     the bankruptcy of QUENTIN STOBART HAINES

BETWEEN  OFFICIAL ASSIGNEE Applicant

ANDQUENTIN STOBART HAINES Respondent

Hearing:         18 July 2012

Counsel:         S N Cameron for Applicant (Official Assignee) Mr Haines in person

M Neal for Starlight 2005 Limited

Judgment:      20 July 2012

JUDGMENT OF LANG J

[on application for approval of composition with creditors]

This judgment was delivered by me on 20 July 2012 at 12 noon, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

OFFICIAL ASSIGNEE V QUENTIN STOBART HAINES HC HAM CIV-2008-419-001290 [20 July 2012]

[1]      Mr Haines was adjudicated bankrupt on 18 May 2009 on the petition of

Starlight 2005 Limited.  He was discharged from bankruptcy on 25 May 2012.

[1]      Notwithstanding the fact that he has been discharged from bankruptcy, Mr Haines now seeks to enter into a composition with his creditors under ss 315 and 316 of the Insolvency Act 2006 (“the Act”).  His creditors have approved the proposed composition, and he now seeks the approval of the Court in respect of it.   If the Court  approves  the  composition,  Mr  Haines  can  seek  an  order  annulling  his

adjudication.[1]

Background

[1] Insolvency Act 2006, s 317(2).

[2]      At the time of his adjudication, Mr Haines owed debts to creditors totalling

$1,686,515.87.   Most of these were owed to private investors, who had advanced personal loans to Mr Haines without taking security.  Mr Haines had on-lent the bulk of these loans to his company, Balmoral Financial Services Limited (“Balmoral”). Balmoral was placed in liquidation on 15 December 2008, owing creditors approximately $660,000.

[3]      In the statement of affairs Mr Haines provided to the Official Assignee, he advised that the causes of his bankruptcy were “high leverage property development with secondary causes including speculation, excessive use of creditor facilities, economic conditions, lack of business ability, excessive interest payments, lack of working capital and failure to provide adequately for taxation”.

[4]      The Official Assignee admitted creditor claims in the bankruptcy totalling

$1,761,515.87.   These consisted of the costs and disbursements awarded by the Court ($5,026.77), and debts owing to 13 unsecured creditors ($1,756,489.10).  The largest  single  debt  was  a  loan  owing  to  the  petitioning  creditor,  Starlight  2005

Limited, in the sum of $357,098.10.

The proposal

[5]      Mr Haines has received an offer from his mother to provide him with an unsecured advance in the sum of approximately $60,000.00.  In addition, the Official Assignee currently holds funds amounting to approximately $20,400.00.

[6]      Mr Haines proposes that the administration costs of the Official Assignee and the costs awarded by the Court are to be paid in full in accordance with the priority prescribed under the Act.  Thereafter, all proved creditors in the bankruptcy will be paid a dividend representing three per cent of their respective claims as previously admitted by the Official Assignee.  The creditors will receive that dividend in full and final settlement of their debts.

Creditors’ meetings

[7]      A preliminary resolution in accordance with s 312 of the Act was put to Mr Haines’ creditors at a first meeting of creditors on 31 May 2012. At that meeting the terms of the proposed composition were accepted by a majority in number and in excess of 75 per cent in value of the creditors who were either present or who voted by postal vote.

[8]      A second creditors’ meeting was then held on 21 June 2012 in order to consider a confirming special resolution in accordance with s 313 of the Act.  The

outcome of that meeting was as follows:

AMPM   Marketing

Ltd

VALUE $

For  Against  Invalid

18,756.13

Ajay Bhatt  1,000.00

Brystar Limited  38,519.00

Josephine Donovan  251,222.57

Inland      Revenue

Department

20,552.13

Instant Finance NZ Limited

Roland            and Lorraine Meissner Property          Finance Funding  Nominees Limited

8,492.00

75,000.00

230,937.81

Sanita Ram  479,260.00

Geoff Smith  162,500.00

Starlight 2005 Ltd  357,098.10

Swift       Concepts

Limited

9,225.00

Total  $1,256,156.38               357,098.10               $39,308.26

For  Against/Invalid Voting           78%  22% Number  9  3

[9]      As can be seen from the above table, the only creditor who voted against the proposal was the petitioning creditor, Starlight 2005 Limited.  The Official Assignee reports that Ms Neal, the sole director and shareholder of that company, attended the meeting to object in person.   She did not wish Mr Haines to get an annulment because she would still be left with the debt owing to her company.

Decision

[10]     All of the statutory requirements to date have been met.  Notice of the present application has been sent to all creditors as required by s 316(2) of the Act.   The Official Assignee has filed a report as required by s 316(3)(a) of the Act.  He does not oppose Mr Haines’ application, but remains neutral in respect of it.  The only creditor opposed to the proposed composition is Starlight 2005 Limited.

Starlight’s opposition

[11]     Ms  Neal  appeared  on  Starlight’s  behalf  at  the  hearing,  and  confirmed Starlight’s opposition.  She explained that the loss Starlight has suffered as a result of the debt owed by Mr Haines has been disastrous for it, and for her personally.  She did not consider Mr Haines should be permitted to pay just three cents in the dollar in respect of his debts.  Instead, she believed he should be required to pay the full amount owing to his creditors.   I took her to submit that Mr Haines’ debts should remain in existence until such time as they are paid in full.

[12]     I appreciate that Ms Neal feels very strongly about all of these issues.  The fact remains, however, that Mr Haines has now been discharged from bankruptcy and no further avenues remain open to compel repayment of his debts.  The present

proposal represents the only opportunity Mr Haines’ creditors will have to receive any payment at all in respect of the amounts owing to them.

The factors to be considered under s 315 of the Act

[13]     Section 315 of the Act sets out the grounds on which the Court may approve or refuse to approve a composition.  It provides as follows:

315    Court must approve composition

(1)     The Court must approve the composition if it is to be binding.

(2)     The composition approved by the Court binds all the creditors in respect of provable debts due to them by the bankrupt.

(3)     The  Court  may  refuse  to  approve  the  composition  if  it  considers that—

(a)     section 312 or 313 has not been complied with; or

(b)     the  terms  of  the  composition  are  not  reasonable  or  are  not calculated to benefit the general body of creditors; or

(c)     the bankrupt is guilty of misconduct that justifies the Court in refusing, qualifying, or suspending the bankrupt's discharge; or

(d)     for any other reason it should not approve the composition.

(4)     The Court must not approve the composition if the composition does not provide for the payment, before any other debts are paid, of those debts that have priority under subpart 10 of Part 3.

(5)     The   Court's   approval   is  conclusive   as   to   the  validity  of   the composition.

[14]     Of particular importance in  the present  case is  s  315(3), which  sets  out grounds upon which the Court may refuse to approve the composition.  I am satisfied that ss 312 and 313 of the Act have been complied with.

[15]     The issue of whether or not the composition is reasonable has largely been answered by the view Mr Haines’ creditors have taken of it.  Faced with the certainty they will receive nothing from his bankruptcy, the creditors have elected to accept three cents in the dollar through the composition. That is a commercial decision they are entitled to make, and it cannot be said to be unreasonable.  In the past, the courts

have been prepared to declare that, in similar circumstances, it is reasonable for creditors to only receive a few cents in the dollar.[2]

[2] See for example Re Trott & Joy HC Auckland B1471/88, 14 April 1989 (Tompkins J); Re Lowndes

HC Auckland B2161/90, 10 May 1991 (Barker J); Re Wilson HC Wellington B345/91, 15 October

1991 (Greig J).

[16]     There is no uncertainty, either, as to the source of the funds to be used to meet the terms of the composition.[3]   Mr Haines’ ability to enter into the composition has only arisen because of his mother’s offer to make the sum of $60,000.00 available for that purpose.  There is no suggestion that Mr Haines has a hidden source of funds that might otherwise be available to his creditors.

[3] As was the case in Fava v Zaghloul [2007] NZCA 594.

[17]     It is also significant that all creditors will benefit equally from the terms of the composition.   It does not favour any creditor or group of creditors over any others.  For that reason the proposed composition can properly be said to benefit the general body of creditors as a whole.

[18]     I am also satisfied that Mr Haines has not been guilty of misconduct that would justify the Court refusing to grant approval to the proposed composition.  The Official Assignee confirms that Mr Haines has been co-operative throughout his bankruptcy.  In addition, Mr Haines has made contributions at the rate of $100.00 per week towards payment of his debts.

[19]     Both the Official Assignee in his report, and Mr Haines in his submissions, dwelt  at  some  length  upon  the  issue  of  the  point  at  which  Balmoral  became insolvent.  The suggestion for the Official Assignee was that Mr Haines may have permitted the company to trade at a time when he must have known that it was insolvent.

[20]     The present application is not an appropriate forum within which to resolve such  a  complex  issue.    The  important  point  is  that  the  Official  Assignee  has conducted a thorough investigation into the circumstances leading to Mr Haines’ bankruptcy.  Having done so, the Official Assignee did not prosecute Mr Haines in

respect of his conduct prior to the point at which he was adjudicated bankrupt.  Nor

has he taken any other form of enforcement action against him in relation to that conduct.   In particular, the Official Assignee did not object to his discharge from bankruptcy, or seek to impose conditions on his discharge.  For that reason I do not regard the circumstances surrounding Balmoral’s insolvency as carrying any particular weight in the present context.

[21]     The only remaining  issue is  whether  any other reason  exists  that  would justify the Court withholding its consent under s 315(3)(d)). The fact that Mr Haines has already been discharged from bankruptcy is an important factor in this context. It means that the Official Assignee has already had the opportunity to examine Mr Haines’ affairs, and to gather in such assets as may be available.  In practical terms the creditors stand to gain nothing, and to lose the prospect of receiving a payment, if the Court declines to approve the proposal.

[22]     Mr  Haines  puts  forward  two  reasons  for  seeking  to  enter  into  the composition.   The first is that, although he has no legal obligation to contribute further to his creditors, he still feels a moral obligation to make a further payment to them. The second is that the composition will allow him to obtain an order annulling his bankruptcy.   That will assist him, he believes, in an application he intends to make to the New Zealand Law Society for a certificate entitling him to resume practice as a barrister and solicitor.  Mr Haines is a qualified lawyer, but took the responsible step of handing in his practising certificate in 2008 when Balmoral went into liquidation.  He now wishes to be able to resume his former career.

[23]     I  do  not  consider  either  of  these  aspirations  can  properly  be  criticised. Whether or not Mr Haines is a fit and proper person to be entitled to practise law is a matter in the first instance for the Law Society.  As I stressed to Mr Haines during the hearing, he will be obliged to disclose his circumstances fully to the Law Society. In particular, he will need to disclose the circumstances leading to both Balmoral’s liquidation and his own bankruptcy.

Result

[24]     No  other  reason  exists  to  justify  the  Court  withholding  its  approval.     I

therefore make an order under s 315 of the Act approving the proposed composition in its present form.

Lang J

Solicitors:

Crown Solicitor, Hamilton

Copy to:

Respondent