Rahman v American Express International (NZ) Inc
[2024] NZHC 2429
•28 August 2024
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE
CIV-2022-470-165
[2024] NZHC 2429
UNDER the Insolvency Act 2006 BETWEEN
ANISUR RAHMAN
Insolvent
AND
AMERICAN EXPRESS
INTERNATIONAL(NZ) INC
CreditorBANK OF NEW ZEALAND
CreditorBAYCORP (NZ) LIMITED
Creditor(Creditors Continued)
Hearing: On the papers Counsel:
MD Arthur and YSBV Yang for the Trustee
Judgment:
28 August 2024
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 28 August 2024 at 4 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Chapman Trip, Auckland
RAHMAN v AMERICAN EXPRESS INTERNATIONAL(NZ) INC [2024] NZHC 2429 [28 August 2024]
COLLECTION HOUSE (NZ) LTD
Creditor
CREDIT CORP NEW ZEALAND PTY LTD
Creditor
MILTON GRAHAM
Creditor
QUADRANT GROUP NZ
Creditor
Introduction
[1] The insolvent, Anisur Rahman, filed a proposal to his creditors for the payment or satisfaction of his debts under sub-pt 2 of pt 5 of the Insolvency Act 2006 and has sought approval from the Court.
[2] The proposal is to pay $550 per fortnight for five years in respect of debts totalling $111,881.01. Through the proposal, Mr Rahman will repay approximately 65 cents in the dollar, less the trustee’s fees and expenses as recorded in the proposal.
[3] Applying to the Court for approval is the final stage in the process allowing an insolvent to avoid bankruptcy by making a proposal to creditors for the payment or satisfaction of the insolvent’s debts.1
[4] The first stage is for a proposal to be filed satisfying the requirements of s 327 of the Act. This includes nominating a trustee for collection and distribution of instalments paid. The trustee nominated becomes the provisional trustee until the proposal is approved.
[5] The second stage is for the provisional trustee to call a meeting of the insolvent’s creditors pursuant to s 330 of the Insolvency Act and for the passing of a resolution accepting the proposal by a majority of the creditors in number and three quarters in value of the creditors who vote.
[6] The trustee must then apply to the Court for approval of the proposal and send notice of the hearing in the prescribed form to the insolvent and every known creditor.
[7] When the matter was called, there was no appearance on behalf of any creditor or otherwise objecting to the proposal.
[8] There has been some delay in determining this application for a variety of reasons. Newly instructed counsel for the trustee has confirmed, however, that
1 Insolvency Act 2006, s 326 and as contained in sub-pt 2 of pt 5 of the Act.
Mr Rahman has been making payments to the trustee in accordance with the proposal since the proposal was filed and is up to date with these obligations.
[9]I now approve the proposal for the reasons set out below.
The proposal
[10] Mr Rahman is based in the Bay of Plenty and unfortunately lost his job during the COVID-19 pandemic. The trustee records that before the pandemic Mr Rahman had a good credit history but this changed with the loss of his employment.
[11] Based on his statement of affairs, as at 28 November 2022, Mr Rahman’s debts totalled $114,026.02. Mr Rahman says in his statement that having this level of debt has affected his health and he is always stressed and worried about how he will be able to pay his debts back.
[12] Mr Rahman sought the assistance of Debtfix, a debt management entity, to resolve his debt situation and nominated Christine Liggins, the director of Debtfix and a licenced insolvency practitioner, to be his trustee.
[13] Mr Rahman says that the creditors’ proposal will allow him to pay back his debts to the best of his ability.
[14] The proposal records that the fees and expenses of the Trustee will be paid in the following manner:
(a)$1,000 in expenses;
(b)20 per cent of the first $3,000;
(c)10 per cent of the following $7,000; and
(d)5 per cent in excess of $10,000.
Approval of proposals — relevant legal provisions and principles
[15]Section 333 of the Insolvency Act provides:
333 Court must approve proposal
(1)After the proposal has been accepted by the creditors, the trustee must, as soon as practicable,—
(a)apply to the court for approval of the proposal; and
(b)send notice of the hearing of the application in the prescribed form to the insolvent and to each known creditor.
(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.
(4)The court must not approve a proposal if it does not provide for the payment, before any other debts are paid, of—
(a)those debts that would have priority under this Act if the insolvent was adjudicated bankrupt; and
(b)the trustee’s fees and expenses that are properly incurred by the trustee in respect of the proposal; and
(c)costs incurred by a person other than the insolvent in organising and conducting a meeting of creditors for the purpose of voting on a proposal.
(5)Subsection (4)(a) does not apply to the extent that a creditor waives the priority that the debt of that person would otherwise have had.
(6)When it approves the proposal, the court may correct any formal or accidental error or omission, but must not alter the substance of the proposal.
[16] From the use of the words “may” and “must” in ss 333(3) and (4), the Court retains a discretion whether to refuse to approve a proposal in the circumstances set out in s 333(3) whereas the Court’s refusal is mandatory in the circumstances set out in s 333(4).
[17] In terms of the second of the discretionary circumstances in s 333(3)(b), whether the proposal is reasonable, this is to be assessed objectively from the perspective of the “commercially experienced prudent creditor”.2
[18] In Herbert v New Zealand Guardian Trust Co Ltd the Court of Appeal held that when considering reasonableness, the Court is required to exercise its independent judgment but that it must be influenced by the commercial judgment of creditors.3 The Court held that unless there are special public interest or other commercial considerations present, the assessment of the general body of creditors ought to be accepted.
[19] The third discretionary basis is whether there is any reason why it is not expedient that the proposal be approved.4 As Asher J explained in Kelly v Structured Finance Ltd:5
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.
[20] Section 333(4) requires the Court to refuse the proposal if the proposal does not provide for the payment before other debts are paid of:
(a)debts that would be preferential in a bankruptcy;
(b)the trustee’s fees and expenses properly incurred by the trustee in respect of the proposal; and
(c)the costs of any other person other than the insolvent in relation to the meeting of creditors.
2 Kelly v Structured Finance Ltd [2009] 2 NZLR 785 (HC) at [45] approved by the Court of Appeal in Magsons Hardware Ltd t/a Mitre 10 Mega v Bogiatto [2011] NZCA 378 at [29].
3 Herbert v New Zealand Guardian Trust Co Ltd [2012] NZCA 442.
4 Insolvency Act 2006, s 333(3)(c).
5 Kelly v Structured Finance Ltd, above n 2, at [53].
Have the requirements of sub-part 2 been complied with (s 333(3)(a))?
[21] The trustee, Ms Liggins, in her report to the Court dated 12 April 2023 confirms that on 12 December 2022 she gave notice to every known creditor, the names and addresses of whom are attached to her report, that a meeting of creditors would be held on 9 February 2023 to consider the proposal. The notice incorporated the required declaration of independence, relevant relationships and indemnities together with the arrangements with regard to recovery of her future fees and disbursements. A copy of the letter to creditors is attached to her report.
[22] Ms Liggins advises that on 8 February 2023 the Bank of New Zealand emailed to inform the trustee that EC Credit Control had returned a debt back to the Bank. EC Credit Control has therefore been removed from the intituling and replaced with the Bank of New Zealand.
[23] The meeting of creditors was held on 9 February 2023. No creditors attended in person. Five of the seven creditors voted. All five who voted, voted by postal vote and accepted the proposal.
[24]Section 331(3) of the Act provides:
(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 s 332 or have voted by postal vote.
[25] These thresholds therefore only relate to those creditors voting. As those who voted, were unanimously in favour, the proposal was therefore approved by the requisite majority in number and over three quarters in value.
[26] The trustee records that she did not receive any documents from BayCorp (NZ) Ltd or from Collection House (NZ) Ltd. Only creditors whose claims have been admitted are able to vote at creditor meetings.6
6 Insolvency (Personal Insolvency) Regulations 2007, reg 31.
[27] The proposal sets out the trustee’s fees and expenses as recorded above as required by s 327 of the Act and Form B 9 of the High Court Rules 2016. These are in accordance with reg 40 of the Insolvency (Personal Insolvency) Regulations 2007.
[28] An affidavit has been filed confirming that the notice of change of representation for the trustee was served on the creditors and the former solicitor for Debtfix.
[29] There does not appear to be any confirmation on the file that the creditors were given notice of the original hearing date of this application. As there was unanimous support for the proposal by the creditors who voted and in circumstances where the two creditors who did not return documents have not corresponded with the Court or apparently with counsel for the trustee.
[30] Even if the requirements of sub-pt 2 of pt 5 are not complied with, the Court still retains a discretion to approve the proposal. I do not consider the failure to provide evidence that the creditors were informed of the hearing should prevent the proposal being approved. In addition, s 333(6) allows the Court to correct any formal or accidental error or omission that does not alter the substance of the proposal. I am therefore satisfied that the requirements of sub-pt 2 of pt 5 have been sufficiently complied with.
Is the proposal reasonable (s 333(3)(b))?
[31] The trustee’s report to the Court advises that in her opinion, Mr Rahman’s assets have a total value of $9,000 yet his total liabilities are $111,881.01. His debts therefore far exceed the value of realisable assets in his possession. The total amount of the payments to be made by Mr Rahman under the proposal is $71,500. After deduction of the trustee’s costs and expenses, there will be $66,125 available for distribution to the creditors, resulting in a distribution of approximately 59 per cent of the total debts.
[32] The trustee confirms in her report that the payments by Mr Rahman will be made from his salary.
[33] The voting creditors have voted unanimously in favour of the proposal and there are no apparent public interest or other commercial considerations that ought to prevent the assessment of the general body of creditors being accepted (as held in Herbert).7
[34] Although the return on this proposal is only 59 per cent, I am still satisfied that the proposal will result in a better and more certain return for the creditors than if Mr Rahman were to be adjudicated bankrupt. Ms Liggins also confirms in her report that she considers the insolvent’s proposal is an advantageous one for the creditors as the proposal recovers more debt than could be achieved through any alternative method such as a debt repayment order or bankruptcy.
[35] I therefore consider the proposal is reasonable and calculated to benefit the general body of creditors.
Is there any reason that it is not expedient to approve the proposal?
[36] There is nothing in the application that suggests it would not be expedient for the proposal to be approved. A memorandum was filed on behalf of the trustee dated 26 July 2024 confirming that Mr Rahman has been making payments to the trustee in accordance with his obligations under the proposal and that as of the date of the memorandum, Mr Rahman was up to date with all of his payment obligations under the proposal.
[37] Furthermore, counsel confirms that no other matters have come to the trustee’s attention that impact the proposal. I am not aware of any reason therefore why it would not be expedient to approval the proposal.
Section 333(4) matters
[38] In terms of s 333(4) matters, in this case there are no preferential debts, and the proposal provides that the trustee’s fees and expenses will be paid for. The trustee organised the meeting of creditors to approve the proposal and does not claim any
7 Herbert v New Zealand Guardian Trust Co Ltd, above n 3.
separate costs. None of the matters for which the Act mandates refusal therefore prevent approval of this proposal.
Conclusion
[39]I am satisfied that:
(a)the provisions of sub-pt 2 of pt 5 of the InsolvencyAct have been sufficiently complied with;
(b)the terms of the proposal are reasonable and calculated to benefit the general body of the creditors;
(c)it is expedient that the proposal be approved; and
(d)there are no grounds under s 333(4) of the Insolvency Act which mandate against approval of the proposal.
Result
[40] For the reasons set out above, I approve the proposal by Anisur Rahman dated 28 November 2022 pursuant to s 333 of the Insolvency Act.
Associate Judge Sussock
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