West v American Express International (NZ) Inc

[2024] NZHC 1993

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2024-419-18

[2024] NZHC 1993

UNDER

the Insolvency Act 2006

BETWEEN

MARTIN WEST

Insolvent

AND

AMERICAN EXPRESS INTERNATIONAL (NZ) INC

Creditor

BANK OF NEW ZEALAND
Creditor

HUMM-GROUP LIMITED T/A FARMERS CARD
Creditor

HARMONEY LIMITED
Creditor

(Creditors Continued)

Hearing:	15 July 2024
Appearances:	M Arthur for Applicant Trustee
Judgment:	19 July 2024
Reissued:	29 July 2024

JUDGMENT OF ASSOCIATE JUDGE SUSSOCK

This judgment was delivered by me on 19 July 2024 at 4 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

Chapman Tripp, Auckland

MARTIN WEST v AMERICAN EXPRESS INTERNATIONAL (NZ) INC [2024] NZHC 1993 [19 July 2024]

INLAND REVENUE DEPARTMENT

Creditor

LATITUDE FINANCIAL SERVICES LIMITED

Creditor

HUMM-GROUP LIMITED T/A Q CARD

Creditor

SBS MONEY LIMITED T/A PURPLE VISA

Creditor

UDC FINANCE LIMITED

Creditor

Introduction

[1]                  The insolvent, Martin West, filed a proposal to his creditors for the payment or satisfaction of his debts under subpart 2 of part 5 of the Insolvency Act 2006 and has sought approval from the Court.

[2]                  Applying to the Court for approval is the third 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

[3]                  The first stage is for a proposal to be filed satisfying the requirements of s 327 of the Act, including nominating a trustee for collection and distribution of instalments paid.

[4]                  The second stage is for the trustee to call a meeting of the insolvent’s creditors pursuant to s 330 of the Act and for the passing of a resolution by a majority of the creditors in number and three quarters in value of the creditors who vote.

[5]Finally, the trustee must seek the Court’s approval pursuant to s 333 of the Act.

[6]                  When the matter was called on 15 July 2024 there was no appearance in opposition. Having considered the proposal and documents filed, I confirmed to counsel for the trustee, Mr Arthur, that the proposal was approved. I now issue this judgment confirming this and setting out my reasons.

Background

[7]                   The insolvent, Mr West, is based in the Waikato. As a result of personal difficulties resulting in litigation, Mr West has incurred substantial debt and has been unable to meet those financial obligations.

[8]                  As at January 2024, Mr West's debts totalled approximately $183,000. These debts are comprised of:

1      Insolvency Act 2006, s 326 and as contained in sub-pt 2 of pt 5 of the Act.

(a)$154,000, owed to 8 unsecured creditors; and

(b)$29,000, owed to one secured creditor.

[9]                  Mr West 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 assume the role of provisional trustee.

[10]              Mr West’s proposal, among other things, included that in full and final satisfaction of all existing debt Mr West would:

(a)continue to make contractually agreed payments to all secured creditors directly; and

(b)make fortnightly payments of $1,182 over the course of five years (130 payments) to his trustee to be distributed to his unsecured creditors by monthly pro-rata payments.

[11]              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 provision

[12]Section 333 of the 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.

[13]              As set out in s 333(3)(a), the Court may refuse to approve the proposal if it considers that the provisions of sub-pt 2 of pt 5 of the Act have not been complied with. I discuss these requirements below.

[14]              Section 333(3)(b) then provides that the Court may refuse to approve a proposal where the terms of the proposal are not reasonable or are not calculated to benefit the general body of creditors. Whether the proposal is reasonable is to be

assessed objectively from the perspective of the “commercially experienced prudent creditor”.2

[15]              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.

[16]              The final question for the Court pursuant to s 333(3) 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.

Have the requirements of sub-pt 2 been complied with?

[17]              The trustee, Ms Liggins, in her report to the Court dated 19 March 2024 confirms that:

(a)on 19 January 2024, she gave notice to all known creditors of Mr West affected by the proposal that a meeting of creditors would be held on 7 March 2024;

(b)on 7 March 2024, the meeting of creditors was held. No creditors attended in person but all but one of the unsecured creditors voted by way of postal vote;

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].

(c)the secured creditor did not vote, nor did it seek to have its debt admitted by the Provisional Trustee;

[18]              The number of voting creditors was seven with the total value of their debts amounting to $110,947.37. All seven of the voting creditors voted in favour of the proposal. The proposal was therefore decided by a majority in number and over three‑quarters in value, as required by s 331(3) of the Insolvency Act.

[19]              Furthermore, the proposal sets out the trustee’s fees and expenses as set out above. These are in accordance with reg 40 of the Insolvency (Personal Insolvency) Regulations 2007.

[20]I am satisfied the requirements of sub-pt 2 of pt 5 have been complied with.

Is the proposal reasonable?

[21]              The trustee’s report to the Court advises that in her opinion Mr West’s assets have a total value of $33,000, including a motor vehicle secured to UDC Finance Ltd. His debt therefore far exceeds the value of realisable assets in his possession.

[22]              The total amount of the payments to be made by Mr West under the proposal in respect of unsecured creditors is $153,660.

[23]              After deduction of the trustee’s costs and expenses, there will be $147,187 available for distribution to the unsecured creditors, resulting in a distribution of approximately 95 per cent of the total unsecured debts.

[24]              The trustee confirms in her report that the payments by Mr West will be made from his salary.

[25]              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).6

[26]              I am satisfied the proposal will result in a much better and certain return for creditors than if Mr West were to be adjudicated bankrupt. Ms Liggins also confirms in her report that in her view the proposal recovers more debt than could be achieved through any alternative method.

[27]              I therefore conclude 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?

[28]              There is nothing in the application that suggests it would not be expedient for the proposal to be approved.

[29]              Counsel confirmed at the hearing that Mr West has made and continues to make timely payments to the trustee in accordance with the proposal and that following approval by the Court Ms Liggins will release those funds to repay the creditors.

Section 333(4) matters

[30]Section 333(4) requires the Court to refuse the proposal if the proposal:

(a)does not provide for the full payment of debts that would be preferential in a bankruptcy; or

(b)does not provide for the payment of the trustee’s fees and expenses.

[31]              In this case there are no preferential debts, and the proposal provides that the trustee’s fees and expenses will be paid for.

Conclusion

[32]I am satisfied that:

6      Herbert v New Zealand Guardian Trust Co Ltd, above n 3.

(a)the provisions of sub-pt 2 of pt 5 of the Act have been 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) which mandate against approval of the proposal.

Result

[33]              As ordered on 15 July 2024, the proposal by Martin West dated 4 January 2024 is approved pursuant to s 333 of the Insolvency Act.

Associate Judge Sussock