Westpac New Zealand Limited v Jacob HC Auckland CIV 2010-404-005069
[2010] NZHC 2424
•6 December 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2010-404-005069
IN THE MATTER OF The Insolvency Act 2006
BETWEEN WESTPAC NEW ZEALAND LIMITED Judgment Creditor
ANDCHRISTOPHER THOMAS JACOB Judgment Debtor
AND
CIV 2010-404-000336
IN THE MATTER OF a proposal purusant to Part 5 subpart 2 of The
Insolvency Act 2006
BETWEEN CHRISTOPHER THOMAS JACOB Insolvent
ANDWESTPAC NEW ZEALAND LIMITED, ASB BANK, PROPERTY FINANCE SECURITIES LIMITED, HSBC BANK & ORS
Creditors
Hearing: 23 November 2010
Appearances: E C Gellert for Westpac New Zealand Limited, judgment creditor
C T Jacob judgment debtor in person
P W J Paalvast as trustee of debtor's proposal
Judgment: 6 December 2010 at 5:30pm
JUDGMENT OF ASSOCIATE JUDGE ABBOTT
This judgment was delivered by me on 6 December 2010 at 5:30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Simpson Grierson, Private Bag 92518, Auckland for judgment creditor
C T Jacob, 9 Makepiece Place, Birkenhead, Auckland judgment debtor
P W J Paalvast, C/- Morgan Freeman Penn, PO Box 6798, Auckland
WESTPAC NEW ZEALAND LIMITED V JACOB HC AK CIV 2010-404-005069 6 December 2010
[1] These related proceedings came before the court in a miscellaneous insolvency list on 23 November 2010. In the first, Westpac New Zealand Limited (Westpac) seeks an order adjudicating Christopher Thomas Jacob bankrupt after he failed to comply with a bankruptcy notice requiring him to pay a judgment sum of
$436,593.11. In the second, Mr Jacob has applied under s 333 of the Insolvency Act
2006 for court approval of a proposal made to his creditors, which was allegedly accepted at a duly called meeting of his creditors.
[2] If the court does not approve the proposal, Westpac will be entitled to an order of adjudication (Mr Jacob has not opposed Westpac’s application on any other ground).
Procedural background
[3] Westpac filed its application on 15 September 2010. It was first called in the bankruptcy list before me on 2 November 2010. At that time, Mr Peter Paalvast appeared and advised the court that an application had been made the previous day for approval of a proposal that Mr Jacob had made to his creditors. The application for adjudication was adjourned to the first call date for the application for approval of the proposal, being 23 November 2010.
[4] An application for approval of proposal was filed on 1 November 2010. It was made (incorrectly) by Mr Jacob himself (as the insolvent),in respect of a proposal that Mr Jacob had filed in this court on 23 January 2010. Mr Paalvast had endorsed that original proposal that he was willing to act as trustee for it. He was appointed trustee of the proposal at a meeting of creditors on 26 February 2010.
[5] On 18 November 2010 an amended application for approval was filed. Both the original application and the amended application attached a report on the proposal by Mr Paalvast (as trustee), and a separate, multi-paged and discursive, document signed by Mr Paalvast and described as “Resolution accepting the proposal for Christopher Thomas Jacob”. This “Resolution” does not clearly set out
the information required by reg. 22 of the Insolvency (Personal Insolvency) Regulations 2007. Attached to it were documents described as minutes of meetings of creditors of Mr Jacob held on 26 February 2010 and 31 August 2010, signed by Mr Paalvast as Chairman trustee The amended application also had attached to it a single page affidavit by Mr Paalvast (affirmed on 15 November 2010) as to steps taken by him to serve creditors with the original proposal in January 2010.
[6] Throughout these documents, reference is made to documents being attached, which they were not, making it difficult to identify what may or may not have been provided to creditors at material points in time.
[7] It appears from the documents presented with the application that the creditors present at the first meeting on 26 February 2010 decided to hold a second meeting on or before 31 August 2010, to receive a report back from the trustee on various matters. Although it is difficult to ascertain from the minutes the specific purpose for the adjourned meeting, it appears that the creditors present at the second meeting voted on an amended proposal, and it is the amended proposal for which approval is sought.
[8] The proposal appears to be that Mr Jacob will pay $10,000 over a period of two years (by six monthly instalments of $2,500) towards debts due to several unsecured creditors totalling $2,259,277, and to two secured creditors totalling
$764,000, as at 21 January 2010. It is difficult to tell, one way or the other, whether the two secured creditors are excluded from the proposal.
[9] Westpac has filed a notice of objection to the application for approval. Its counsel submitted that the application could be determined without the need to adjourn for a defended hearing, as there was clear evidence that the proposal had not been accepted by the requisite majority in value. Both applications were stood down, for argument at the end of the list as to whether the requisite majority of creditors had voted for the proposal. As there was no time to deliver a judgment that day, I reserved my decision, and have since been able to consider the application in greater depth than would usually be the case at a first call.
[10] Having now considered that point argued at the hearing, and other aspects of the application, I have come to the view that not only has the proposal not been accepted by the requisite majority in value of creditors entitled to vote, but also that there are such serious flaws in the application that it should be dismissed.
Failure to prove requisite majority
[11] Counsel for Westpac argued that on the evidence before the court it was clear that the proposal had failed to reach the 75% majority required, because debts due to Westpac and another unsecured creditor opposing the proposal (Property Finance Securities Limited) between them total slightly more than 25% of the total indebtedness (including secured debt). She argued that:
a) Both debts were recorded on the schedule of unsecured creditors filed with the application;
b)Westpac’s debt has been listed incorrectly at $417,832, given that its proof of debt was submitted for the sum of $436,593 (which was the amount of its judgment);
c) Mr Paalvast had incorrectly recorded in the minutes of the meeting that Westpac had abstained when it had stated clearly in its voting letter of 18 February 2010 that it voted against the proposal;
d)The debt to Property Finance Securities Limited had been rejected improperly and should have been recorded as a vote against the proposal: counsel referred to evidence by one of Westpac’s managers of discussions with representatives of Property Finance Securities Limited to the effect that it had responded to the original proposal and voted against it. The minutes of the meeting show that (notwithstanding that the debt was recorded in the schedule of creditors) it was rejected on what counsel submitted was the spurious ground that the creditor was allegedly under investigation by the Commerce Commission or the Serious Fraud Office.
[12] In response, Mr Paalvast argued that debts only counted if they were proven, and it was the view of the creditors at the meeting that the debts had not been properly established (it is significant that none of the bank or finance company creditors was present). He also said that the creditors had accepted that several of the bank and finance company debts had been met prior to the second meeting by tender of documents said to constitute bills of exchange, and that that meeting was accordingly able to proceed on the basis that those debts were paid (it is not clear exactly which debts are said to have been met by this unusual process - a matter to which I will return).
[13] There seems to be merit to the points made by counsel for Westpac. There is no reason to accept Westpac’s debt at less than the judgment sum of $436,593. Further, Mr Jacob accepted the debt of Property Finance Securities Limited at
$347,000 in his affidavit of assets and liabilities which was compiled with the assistance of Mr Paalvast and filed in January 2010 in support of the proposal. It is for the trustee to compile a list of creditors and determine their claims. There is no good reason to reject the debt because of an alleged investigation into the creditor (particularly as there is no evidence to support that allegation and, specifically, none to suggest that the debt is in doubt because of the investigation).
[14] However, I also have wider concerns. These relate to a number of deficiencies in the application. I will now deal with those.
Deficiencies in the application
[15] The first, general, point that has to be made is that the proposals (both original and as amended) are difficult to understand. The proposal to pay $10,000 by instalments is clear. However, it is not clear how the bank and finance company creditors in particular are to be treated under the proposal. On one hand, there seems to be a suggestion that secured creditors should be excluded, but this is not clearly stated. The proposal, the minutes of meeting, the “discursive” resolution and the subsequent reports by Mr Paalvast are all in convoluted language, and do not state explicitly which debts are to be covered by the proposal and which are excluded.
The documents filed also suggest, without establishing an evidential basis for the suggestion, that some of the debts have been paid by the purported bills of exchange.
[16] As I have already said, it is difficult to establish from the minutes of the first meeting the reason for calling the second meeting, but it appears to have been to allow time for the curious process of tendering documents as bills of exchange in satisfaction of debt. In addition to there being no evidence of what was tendered to the creditors, there is no apparent legal basis for this process.
[17] As already mentioned, the “Resolution” on which the proposal is based is a compilation of information from various sources, rather than an explicit resolution clearly addressing the matters required by regulation 22 of the Insolvency (Personal Insolvency) Regulations 2007.
[18] Even more significantly, I am not satisfied that all creditors have been given notice of the proposal or the application for approval.
[19] As I have already stated, pinned into the amended application is a single page affidavit by Mr Paalvast that states that he sent notice of the initial meeting to each of Mr Jacob’s creditors “as listed below”. There was no list attached to the affidavit, although there was one attached to his amended report. Even allowing for the possibility that notice of the meeting was posted to all creditors, there is no evidence that creditors (and particularly the bank and finance company creditors) were given advice of the outcome of that meeting or notice of the second meeting on 31 August
2010 (where the amended proposal is said to have been approved). This absence of proof has to be viewed in conjunction with evidence produced by Westpac’s manager that he has spoken with other bank creditors and been told they have no knowledge of the proposal.
[20] There is also cause for concern in that Mr Paalvast is in breach of regulation
36 of the Insolvency (Personal Insolvency) Regulations 2007 for failure to advise Westpac (and presumably Property Finance Securities Limited) that its claim was not accepted for the sum claimed. Compounding that failure, he failing to advise Westpac of the meeting on 31 August 2010 even though Westpac’s solicitors had
contacted him in July 2010 enquiring as to the outcome of the meeting on 26
February 2010.
[21] These procedural issues are continued in the application for approval. First, the application has been made by the insolvent, Mr Jacob. It is for the trustee to apply for approval: s 333(1) Insolvency Act 2006. There is good reason for this requirement. The proposal affects creditors’ rights. The process has to be undertaken responsibly and in accordance with legislative requirements. A trustee is expected to bring objectivity and responsibility to the process. Secondly, there is no proof of service of either the original or the amended proposal. Westpac learned of the application only when Mr Paalvast informed the court on 2 November 2010 that it had been filed. There is no evidence that the application went to all other creditors that would be bound by an approval. To the contrary, Westpac has produced evidence that other creditors were unaware of it.
[22] A proposal for a compromise with creditors is a serious matter. It has the potential to have a substantial effect on a creditor’s rights. It is incumbent on the insolvent initially, and on the trustee of the proposal subsequently, to prove that the statutory pre-requisites to court approval have been met. It is fundamental that creditors be given proper notice of the proposal, and of the application for approval. It is implicit in the statutory requirements that first the creditors and secondly the court are left in no doubt as to the detail of the proposal, and that creditors must have a reasonable opportunity to examine and challenge it. Regrettably, I am not satisfied that this is the case with this application.
[23] I have considered whether I should adjourn the application, to allow the trustee an opportunity to correct the deficiencies. However, at best, this would required a further meeting to be held. An important consideration in that respect is whether the proposal properly put to creditors, and properly brought before the court, would have a reasonable prospect of acceptance and approval. On the evidence before the court, I consider that it would not. Whether the proposal is limited to unsecured creditors or covers all creditors, the evidence indicates that he will be unable to obtain the requisite majority in value for a proposal properly put to
creditors given the firm positions taken by Westpac and Property Finance Securities
Limited.
[24] I also take into account the delay in bringing this matter before the court. The insolvent is hopelessly in debt. He is offering less than half a cent in the dollar, regardless of whether secured creditors are included. The interests of creditors generally require that the Official Assignee take over his affairs without further delay.
Decision
[25] For the reasons I have given I have come to the view that the application for approval is incurably deficient and must be dismissed. I direct accordingly.
[26] At the conclusion of the hearing I indicated that if I decided to dismiss the application for approval I would bring the application for adjudication back before the court in an early list for determination. Having now considered the matter in greater depth, I do not see that anything can be gained by that. Mr Jacob has not advanced any grounds, other than the application for approval of his compromise, for resisting an order for adjudication. He acknowledges that he is hopelessly insolvent. Westpac has met all the pre-requisites for an order for adjudication. There is no reason to put it to the further cost of attending court simply to have that order made.
[27] I make an order on Westpac’s application adjudicating Christopher Thomas
Jacob bankrupt. This order is made at 5:30pm.
[28] Counsel for Westpac advised that it wished to seek costs against the trustee, relying on Re Liddle ex parte Bank of New Zealand HC Auckland CIV 2009-404-
5377/CIV 2010-404-2349, 25 June 2010, Associate Judge Christiansen.
[29] I make the following timetable orders to address any claim for costs against
Mr Paalvast:
a) Westpac is to file and serve any memorandum in support of a claim for costs by 14 January 2011;
b) Mr Paalvast is to file and serve any memorandum in reply by
28 January 2011;
c) Costs will be determined on the basis of the memoranda filed, unless the court considers that there are issues arising from which it would be assisted by hearing the parties. In that event the parties will be notified of a hearing date.
[30] If Westpac decides not to pursue an application for costs against Mr Paalvast, it is to advise accordingly by 14 January 2011, and can then seal an order for costs against Mr Jacob on a 2B basis, together with disbursements as fixed by the
Registrar.
Associate Judge Abbott
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