Scott v APN New Zealand Limited HC Auckland CIV-2010-404-4876
[2011] NZHC 260
•28 March 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2010-404-4876
BETWEEN GREGORY ALLAN SCOTT Judgment Debtor
ANDAPN NEW ZEALAND LIMITED First Judgment Creditor
ANDAPN PRINT NZ LIMITED Second Judgment Debtor
Hearing: 25 March 2011
Appearances: Mr G P Denholm for judgment debtor
Mr N Moffatt and Ms N Van Peer for first and second judgment creditors
Mr C Jones for Commissioner of Inland Revenue
Judgment: 28 March 2011 at 4:00 PM
JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
This judgment was delivered by me on 28 March 2011 at 4 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
SCOTT V APN NEW ZEALAND LTD HC AK CIV-2010-404-4876 28 March 2011
Introduction
[1] The judgment debtor was adjudicated bankrupt on 21 October 2010. He has applied to annul the adjudication on the ground set out in s 309(1)(a) of the Insolvency Act 2006 (―the Act‖). This provides:
309 Court may annul adjudication
(1) The Court may, on the application of the Assignee or any person interested, annul the adjudication if—
(a) the Court considers that the bankrupt should not have been adjudicated bankrupt; or
…
[2] In August 2010 the judgment debtor had filed a proposal under Part 5 of the Act. By the time of the adjudication there had been three meetings of creditors to consider the proposal, which had been amended to present more favourable terms for creditors. The creditors did not pass resolutions in relation to the proposal at either the first or the second meetings, but at the third a resolution was put. A majority in number of the creditors voted for the resolution to accept the proposal, but only
66.29 per cent of the creditors in value voted in favour. Accordingly, the resolution was not passed as required by s 331(3) of the Act.
[3] The resolution was supported by Westpac New Zealand Limited which, on
11 October 2010, filed a proof of debt in the sum of $1,968,167.59.
[4] When the proposal was first made Westpac filed a proof of debt in the sum of
$4,400,507.00. Between the filing of that proof of debt on 26 August 2010 and the amended proof of debt on 11 October 2010 Westpac had sold the former matrimonial home of the judgment debtor and his wife and applied the proceeds in reduction of the debt.
[5] The resolution of creditors on 19 October 2010 records the Westpac debt as
$2,055.915.40. This figure was transposed from an earlier joint proposal of the judgment debtor and his wife.
[6] The case for the judgment debtor was that had Westpac’s vote been recorded for $4,400,507 instead of the sum recorded, or for that matter the amount recorded in Westpac’s proof of debt dated 11 October 2010, the resolution would have been passed by 75.33 per cent in value of the creditors.
[7] An application for approval of the proposal was to be heard by the Court on
23 November 2010. It was therefore argued that adjudication should not have been ordered on 21 October 2010; rather, the application for bankruptcy should have been adjourned until after the Court undertook a full consideration of the application for approval of the proposal during which this point could have been considered. Mr Denholm accepted, however, that the amount in value of the Westpac vote was raised by him at the adjudication hearing, but said that the Court file for the proposal was not present in Court and he was unable therefore to refer the Court to any relevant documents.
[8] The minute of Associate Judge Christiansen on this file, the Court file for the bankruptcy application, on 21 October 2010 reads:
Crd mtg held this week – 19/4/10.
Reg has fixed 23/11/10 11.45 to hear Mr and Mrs Scott’s proposal.
Counsel took brief adjournment to consider figures just forwarded by trustee in a report to Mr Denholm. Ms Goatley provided with a copy 45 mins before Court called.
It is clear from figures provided thro’ the t’ees report that the proposal
cannot succeed.
Ms Goatley refers to issues about votes recorded.
[9] The file is then noted with the order of adjudication.
Insolvency Act Part 5
[10] Sub-Part 2 of Part 5 sets out the statutory framework for proposals to creditors for payment or satisfaction of the debts of insolvent persons. Section 328 provides that a proposal to creditors is first filed in the Court, and s 330 provides that the provisional trustee under the proposal must, as soon as practicable after that, call
a meeting of creditors to consider the proposal. Section 331 sets out the procedure to be followed at a meeting of creditors. The creditors may examine the insolvent and may accept the proposal, with or without amendments or modification, by passing a resolution that sets out the proposal in its final form. The resolution accepting the proposal must be decided by a majority in number and three-quarters in value of the creditors who vote and are personally present or are represented at the meeting by a person specified in s 332, or have voted by postal vote.
[11] Section 333 empowers the Court to approve the proposal on application made as soon as practicable after the proposal has been accepted by the creditors.
[12] Section 325 contains definitions. ―Debt‖ means a debt that would be provable in the insolvent’s bankruptcy. Sub-section 2 provides that the debt of an insolvent is provable under this sub-part.
[13] Sub-Part 2 does not make express provision for adjournment of a creditor’s meeting, as occurred here. It does provide for amendment or modification of a scheme by the creditors. Section 331(2)(b) provides that the creditors may accept the proposal made by the insolvent ―with or without amendments or modification, by passing a resolution that sets out the proposal in its final form‖.
[14] Regulation 25 of the Insolvency (Personal Insolvency) Regulations 2007 permits the chairperson of the creditors’ meeting to adjourn the meeting from time to time.
The argument for the judgment debtor
[15] Mr Denholm argued that the vote of Westpac should have been recorded for the proposal in the sum of $4,400,507.00. He based this argument on s 328(3) which provides:
328 Proposal must be filed in Court
....
(3) The time when the proposal is filed in Court is the time when the claims of creditors are determined.
...
[16] Mr Denholm submitted that the sum for which the vote was recorded was, as he put it, a fiction because at no time was the figure shown, $2,055,915.40, an accurate record of the debt of Mr Scott solely; rather, that was a figure recorded in an earlier joint proposal by Mr and Mrs Scott which did not proceed.
Discussion
[17] The basis on which Mr Denholm argued that the vote for Westpac should have been recorded as valued at $4,400,507.00 was the wording of s 328(3). He asked the Court to interpret that sub-section as fixing the value of a creditor’s vote at the time the proposal is first filed in Court. However, in this case a period of well over two months lapsed between the filing of the proposal and the calling of the application for adjudication and a further month would have elapsed before the proposal was considered by the Court. In that time, not only did the judgment debtor improve the terms of the proposal to his creditors, but Westpac also received well over half its debt from the proceeds of sale of the former matrimonial home. Apart from having an air of commercial unreality about it, because debts owed to creditors can change over time for a number of reasons including, as here, receipt of proceeds of the realisation of an asset, it is unsupported by relevant legislative provisions. The proposal itself may be amended (s 331(2)), the meeting may be adjourned from time to time (r 25), and a creditor may amend its claim if the trustee agrees (r 35(2)). I am satisfied that the scheme of the legislation is to allow an initial proposal to evolve by amendment or successive amendments, and for creditors’ claims to be amended to reflect changes in the debts owed.
[18] This is supported also by s 325. A debt for the purposes of sub-part 2 means a debt that would be provable in the insolvent’s bankruptcy. Section 232 provides that a debt provable in bankruptcy is a debt that the bankrupt owes at the time of adjudication. Here, Westpac could only have proved in the bankrupt’s insolvency for the amount owed after sale of the matrimonial home Therefore, this was the only amount with which it could vote under Sub-Part 2. That is what it did.
[19] In my view the correct interpretation of s 328(3) is that the claims of creditors are determined at the date that any amended proposal, for which consent is ultimately sought, is filed in Court.
[20] The record of the voting at the meeting should in fact have recorded Westpac’s vote for the sum of $1,968,167.59, not $2,055.915.40, as it did. This would not have affected the outcome of the vote; it would have meant that a slightly lower percentage of the total of the debtor’s liabilities was recorded as voting for the resolution, which of course would have still remained below the requisite 75 per cent for the resolution to be passed. The error is of no moment in terms of the outcome of the vote.
[21] Mr Denholm stressed that the proof of debt form by Westpac dated
11 October, in which the reduced indebtedness of the judgment debtor was recorded at $1,968,167.59, expressed that debt to be owing as at 13 August 2010, which was the date at which the initial debt of Westpac was first stated to be owing. This point cannot, in my view, assist the judgment creditor’s position. Mr Denholm submitted that this proof of debt was a ―fiction‖ because the sum stated was not owed at the date shown, but he accepted that if this were correct the result would be that the vote by Westpac in the sum of $2,055,915.00 was a nullity and that would have reduced the percentage of votes in favour even further.
[22] In relation to Mr Denholm’s argument that the Court should not have proceeded with adjudication as the file for the proposal was not before the Court at the time of the adjudication hearing, counsel for the judgment creditors drew my attention first, to Brooker’s Insolvency Law and Practice at IN309.04:
If the bankrupt contends that the order should not have been made, they (sic) will have to adduce evidence of matters that were not before the Court when the adjudication was made.
[23] Secondly, in Hunter, Ex Parte v Commissioner of Inland Revenue[1] Robertson
J held that s 309(1)(a) does not provide grounds for interfering with a discretion exercised on a properly brought application for adjudication unless there has been
some defect in procedure, abuse of process or when some material fact was not brought before the Court making the adjudication order.
[1] (2000) 19 NZTC 15,722
[24] In this case, the judgment debtor’s contention that the vote of Westpac should have been recorded in the sum of $4,400,507.00 was brought to the attention of the Court prior to the adjudication even though the Court file for the proposal was not physically present in the Court, and there has been no material defect in procedure for the reasons I have analysed.
[25] Finally, there was no evidence before the Court that had Westpac’s debt still stood at the original sum when the vote was finally taken on the proposal, its vote would have been exercised the same way. Nothing turns on this point because by the time the resolution was put to the creditors the sum originally owing to Westpac was irrelevant. Westpac could not have voted with that figure for the reasons given.
[26] I am satisfied that, at the time of adjudication, there was no prospect of the judgment debtor’s proposal being approved by the Court because it had not been approved by the creditors in accordance with the requirements of s 331(3) of the Insolvency Act 2006. I am further satisfied that at the date of adjudication the requirements set out in s 13 of the Act were established and the Court correctly exercised its discretion to adjudicate the debtor bankrupt. There is therefore no basis, in terms of s 309(1)(a), for the Court to consider that the bankrupt should not have been adjudicated bankrupt.
Outcome
[27] The application is dismissed.
[28] Counsel for the judgment creditors did not seek costs in his submissions, nor does there appear to be any practical reason for doing so. However, I reserve leave for an application for costs to be filed by way of memorandum within seven days; if
that course is followed any reply is to be filed within a further seven days.
J G Matthews
Associate Judge
Solicitors:
Bell Gully, Auckland
Insolvency and Trustee Service, Auckland
Counsel:
Mr G P Denholm, Auckland
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