Ritchie v Bank of New Zealand HC Hamilton CIV-2010-419-687

[2011] NZHC 215

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV-2010-419-687

BETWEEN  WILLIAM ALEXANDER RITCHIE Judgment Debtor

ANDBANK OF NEW ZEALAND Judgment Creditor

Hearing:         15 March 2011

Appearances: Mr T J G Allan for creditor

Mr G L Wilkin for debtor

Judgment:      15 March 2011

(ORAL) JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

W.A.RITCHIE V BANK OF NEW ZEALAND HC HAM CIV-2010-419-687 15 March 2011

[1]      This  matter  was  called  in  the  bankruptcy list  before  me  on  Monday  14

March.  Mr Wilkin indicated opposition to the bankruptcy order being made on the basis that a proposal had been put to creditors resulting in creditors’ approval of a scheme for payment.  The bankruptcy application had been previously adjourned by this Court to enable an application to be made to the Court in accordance with the requirements  of  the  Insolvency Act  2006  for  approval  of  a  scheme,  if  indeed creditors’ approval was attained.  No such application had been made by 14 March.

[2]      Notwithstanding that, Mr Wilkin informed me that creditors’ approval had in fact been obtained and produced evidence from Mr Oliphant, the proposed trustee of the scheme, that he had made an error in not filing an application for Court approval prior to the required date.

[3]      It was evident that this matter would take some time to argue so I adjourned it to Tuesday 15 March 2011 at 3 pm for that purpose.  Today, Mr Allan and Mr Wilkin have  argued  the  point  in  considerable  detail.    I am  now  required  to  determine whether  the  bankruptcy  application  should  be  adjourned,  or  whether  it  should proceed today.  Mr Allan’s argument is that the latter course should be followed.  Mr Wilkin says that if the application is adjourned, the application for approval of the proposal can be filed in short order and duly served on the creditors and then taken through proper process towards approval by the Court.

[4]      I deal first with a document sent to the Registry by Minter Ellison Rudd Watts, Solicitors, titled ―Memorandum of counsel for Financial Trust Limited and Matrix Custodians Limited‖.   It will be noted that neither of these companies are parties to this proceeding.   The memorandum purported to set out a number of matters of fact.  Prior to the hearing, I read the memorandum.  Mr Wilkin objects to my taking any account of the contents of the memorandum on the basis that it was an unsolicited intervention by companies who are not parties to this proceeding, contained factual assertions not supported by affidavit, and was not produced by counsel  appearing  in  the  Court  with  leave.    Indeed,  no  appearance  for  either company was made or leave sought.   Mr Allan wished me to consider the memorandum and  sought to rely on  some of the factual propositions  contained within it to support part of his argument.

[5]      I  have  considered  the  position  and  decided  that  in  this  case  it  is  not appropriate to take into account the contents of the memorandum, and in reaching my decision on this adjournment request, I have not done so.  Given the proceeding before me, its importance to the debtor and its importance in the public interest, I am not prepared to act on factual assertions which are not before the Court by way of evidence properly adduced.

[6]      In  seeking  to  proceed  with  the  application  for  bankruptcy,  Mr  Allan submitted that the requirements of the Insolvency Act 2006 and Regulations had not been followed.  The first proposal which was intended to be put to creditors involved a payment to the creditors amounting to $72,000 over a period of three years.  On the evidence, Mr Oliphant and the debtor attended at the proposed time of the meeting. Regulation 26 of the Insolvency Regulations provides that two creditors or their representatives present at the meeting constitute a quorum and that a creditor is present at a meeting for that purpose if that creditor is a person who has voted by postal vote in accordance with s 330(2) of the Insolvency Act 2006.  Section 330(2) provides that a creditor who has proved a claim in the prescribed manner may vote on the proposal by sending a postal vote that reaches the provisional trustee before or at the meeting.

[7]      In relation to the events at the first meeting on 20 January 2011, Mr Oliphant in his affidavit dated 11 March 2011, said the following:

Prior to and after the meeting, I received five completed creditor claim forms and voting papers from other creditors listed in the Statement of Affairs.  I also  received  phone  calls  and  emails  from these  creditors,  some  of  the creditors required amendments to be made to the proposal.

[8]      Mr Oliphant has not given any evidence about the number of creditors who attended the meeting for the purposes of establishing that there was a quorum in terms of Regulation 26 and s 330(2) of the Insolvency Act 2006.  Regulation 26(3) provides that if no quorum is present at the meeting the proposal is deemed to be not accepted by the creditors.  Mr Allan submitted that on the evidence the proposal is deemed not to have been accepted by the creditors as at 20 January 2011.

[9]      I accept Mr Allan’s submission. There is no evidence in relation to any postal vote being received by the trustee before or at the first meeting, nor, in particular, whether there were two creditors deemed to be present at the meeting by virtue of having voted by postal vote, that is to say a postal vote ―that reaches the provisional trustee before or at the meeting‖ in terms of s 330(2).  I am not prepared to speculate whether that may have occurred or otherwise.  There has been an opportunity for it to be proved, if it did occur, and it has not been.  The consequence of that finding is that  under  Regulation  26(3)  the  proposal  is  deemed  not  to  be  accepted  by the creditors.

[10]     If that conclusion is correct, that is sufficient to dispose of the opposition to bankruptcy because there is no proposal to form the foundation of an application to the Court for approval.  However, in case I am wrong in that conclusion, I turn to subsequent events.  Mr Oliphant said some creditors required amendment to be made to the proposal.  He then said in his affidavit:

The proposal was amended by negotiation with the insolvent and voting creditors.  The amendments were made; extending the payments and period from three years to four years and adding an annual review condition.

[11]     It was intended when this matter was called on 7 February 2011 that there would be a further meeting of creditors who would consider an amended proposal. As noted by Associate Judge Faire:

Adjourned to 10 am on 14/3/11 to await the outcome of a creditor’s proposal meeting on 24/2/11.  If the proposal is accepted the application for approval must be filed by 7/3/11 and have as its date of hearing 10 am on 14/3/11.

[12]     The affidavit of Mr Oliphant dated 11 March 2011 was not filed in this bankruptcy   proceeding   CIV-2010-419-687,   but   on   a   separate   proceeding, unsupported by an application, which has been given the number CIV-2011-419-

1372.  That file was given to me in Court so I could consider Mr Oliphant’s affidavit. Mr  Oliphant  also  filed an  affidavit  dated  15  March  2011.    In  this  affidavit  he indicated that it was his fault that an application for approval had not been made. However, he went on to say:

6.The  affidavit  of  11  March  2011  confirms  that  five  creditors  filed proofs of debt and voted by postal vote to approval or disapprove the

proposal.  Of the five creditors who were entitled to vote, and who did vote, four of them representing 75.7% of the proven debt, approved the proposal. The BNZ rejected the proposal.

7.The reason that the proposed second creditors’ meeting was cancelled was threefold.  Firstly no creditor had bothered to actually show up in person or by representative at the first creditors meeting on 20 January

2011.   Secondly, after the first creditors’ meeting I negotiated with those creditors who had lodged proofs of debt, apart from BNZ, and

obtained confirmation that they supported the proposal.  Thirdly, as a

result of those negotiations the necessary majorities were obtained, thus another meeting was not in my opinion required.

[13]     In my view that is not the way the scheme of the legislation works.  Even assuming that there was a proposal still alive after the first meeting to go forward to a second meeting after amendment, it is, in my view, still essential that a second meeting be held.  In my opinion the scheme of the legislation is designed to avoid precisely what occurred in this case – negotiations with individual creditors who are generally in favour of the debtor’s position without a meeting being held.  The first meeting could have been adjourned to a second meeting and the same provisions of the legislation would have applied to the second meeting, namely s 331 setting out the procedure which is required to be followed.  Section 331(3) 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.

[14]     Mr Allan stressed the past tense of the phrase ―or have voted by postal vote‖. There is no evidence before me of how the creditors who are said to have approved this proposal voted in favour of it, but it is plain from the evidence that there was no second meeting to consider the amended proposal and no postal vote giving rise to a decision by a majority, representing three-quarters in value of the creditors, to accept the amended proposal.

[15]     Thus, even if I am incorrect in my conclusion in relation to the outcome of the first meeting, and even if it may be said that it was adjourned to a second meeting, that second meeting did not take place.  The evidence does not satisfy me that the provisions of s 331 have been followed in relation to subsequent process in relation to this matter.

[16]     It is therefore my finding that there is no current proposal to put to the Court which would justify adjourning the application for bankruptcy which is before me today. The application should proceed.

[17]     Out of an abundance of caution, I record one further matter.  It is plain on the evidence I have and from certain information given to me by counsel that creditors of the debtor amount to some $16 million and roughly half of the creditors would oppose  the  proposal,  and  are  represented  by  Mr  Allan,  seeking  to  have  the bankruptcy proceed.  Unless there is a real prospect of a proposal being approved by the Court under the relevant provisions of the Act, the strength of the public interest in ensuring that a person who is insolvent is in fact adjudicated bankrupt should prevail.   Under the amended scheme the  proposal is to pay some $90,000 (but subject to the possibility of an increase) which amounts to not much more than 0.6 cents in the dollar.  With half the creditors against the proposal, in my opinion, the public interest directs in any event that the bankruptcy should proceed.

[18]     Mr Allan produced to me a certificate under his hand that the debt due to the Bank of New Zealand as at Monday was $2,497,931.11.  He also produced a notice from Marac Finance Limited intending to appear in support of the application and advising it is a creditor, in the sum of $1,048,863.95.  He produced another notice in support on behalf of BRG Holdings Limited, a creditor, in the sum of $4,687,307.03. Mr Allan represents all three parties.

[19]     There is an order for adjudication of the debtor timed at 4.57 pm on 15 March

2011.

[20]     Costs are allowed on a 2B basis with allowance for the one half day hearing

which has taken place today.

J G Matthews

Associate Judge

Solicitors:

Grove Darlow & Partners, Auckland Minter Ellison Rudd Watts, Auckland Counsel:

Mr G L Wilkin, Hamilton