Westpac New Zealand Limited v Venning

[2013] NZHC 549

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2012-485-1989 [2013] NZHC 549

IN THE MATTER OF     Part 5 of the Insolvency Act 2006

AND

IN THE MATTER OF     the bankruptcy of CAMPBELL JAMES ROBERT VENNING

Judgment Debtor

BETWEEN  WESTPAC NEW ZEALAND LIMITED Judgment Creditor

Hearing:         19 March 2013

(Heard at Wellington)

Counsel:         J. Haig - Counsel for Applicant

Judgment:      25 March 2013

JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

This judgment was delivered by me on 20 March 2013 at 4.15 pm pursuant to r 11.5 of the High Court Rules.

...............................................................................

Registrar/Deputy Registrar

Date: ....................................................................

Solicitors:           Graeme Skeates Law, Solicitors, PO Box 56 179, Dominion Road, Auckland

WESTPAC NEW ZEALAND LIMITED V CJR VENNING HC WN CIV-2012-485-1989 [25 March 2013]

[1]      Before the Court is an application under s 333 of the Insolvency Act 2006 for approval of a Part 5 Sub-Part 2 Insolvency Act 2006 creditors’ proposal made by Campbell James Robert Venning (the applicant).

[2]      There is no opposition to this application before me.

[3]      This Part 5 Proposal with respect to debts of the applicant which exceed some

$13.6 million, proposes a pay out to creditors of approximately 1.43 cents in the dollar which raises significant issues which have been before this Court before.

[4]      Recently in Ulrich Aluminium Co Limited v Blackmore HC, Wellington, 11

December 2012, CIV-2012-485-730 [2012] NZHC 3287, Associate Judge Gendall, I

noted in a somewhat similar case before this Court:

(a)      It is rare that this Court has before it for approval a Part 5 Insolvency Act 2006 Proposal from a grossly insolvent debtor to settle substantial multi-million dollar debts owing to his/her creditors for a paltry payment of less than 0.4 of a cent in the dollar. And, in the past, it has been even rarer that such a creditor’s proposal involving settlement of substantial debts at that miniscule 0.4% level has been approved by this Court.  But, that is precisely what this Court, with the support of a majority of the insolvent’s creditors, is being asked to entertain in this proceeding.

[5]      In that Blackmore decision, however, the debtor’s Part 5 Sub-Part 2 Creditors’ Proposal which as I have noted above was also for payment of only 0.4% of all debts was approved in the special circumstances prevailing there.  I turn now to consider the Part 5 Proposal which is before the Court in this case.  That Proposal is set out in the application filed in this Court on 4 February 2013 together with certain affidavits in support and a report dated 23 January 2013 of Grant Bruce Reynolds (Mr Reynolds) the proposed trustee for the Proposal.

[6]      The applicant has been involved in property development ventures for over 5 years. The vehicle for driving the various property developments in which he has been  involved  has  been  a  company  known  as  Merge  Property  Group  Limited (Merge).   He states that up to December 2009 Merge and he had carried out a number of successful developments in respect of which all creditors were paid.

[7]      The applicant says that he was quite successful until February 2010 when the Global  Financial  crisis  started  a  domino  of  financial  triggers  that  subsequently caused him to be in his present predicament.  He confirms at that time Merge had property  developments  at  various  stages  of  completion  totalling  approximately

$160,000,000.00 based upon end realisation values.  Having received a development loan offer of $42 million in December 2009 to complete two of these major development projects, the applicant complains that less than three months later, this funding offer was withdrawn.  This, he contends caused his business to grind to a halt.   Since then, the applicant maintains he has worked hard with lenders and investors over a period of time to mitigate the losses and thus, in his view this has meant that what he describes as “very amicable” relationships with those lenders throughout have continued.

[8]      Material before the Court confirms that the applicant’s present assets and their fair realisable values are as follows:

(a)      Stock in Trade  $Nil (b)      Book Debts  $Nil (c)      A half share in ASB Joint Bank Account ($1,500.00)

-  Applicant’s Share  $   750.00

(d)      Furniture and Other Personal Property

-  Applicant’s Share  $33,378.00 (e)   Real Estate           $Nil

(f)       Shares  $Nil         

$34,128.00

[9]      As  to  the  applicant’s  present  liabilities,  the  actual  claims  from  creditors

accepted by the proposed trustee total $13,651,778.96 and are as follows:

Creditor  Claim

Merge Property Investment Fund No. 1 Ltd            $  1,500,000.00

Crown Asset Management Ltd  $     544,635.75

ANZ  $  2,043,001.00

Kiwibank  $  2,047,266.41

Westpac  $  1,252,199.00

Willis & Bond Co  $     101,126.00

Petherick Property  $      63,753.00

Penguin Corporation  $  5,817,899.80

Ventre Trustee Ltd trustee of Venning

Family Trust  $     281,898.00

TOTAL  $13,651,778.96

[10]     Originally, Mr Venning’s proposal to creditors stated that his debts totalled a larger amount of $19,569,897.00.   Apart from some minor adjustments to other debts, the principal change to these figures represented a reduction in the applicant’s major debt to his largest creditor Penguin Corporation, under which he had said approximately $12 million was owing.  It was following the creditors’ meeting held in this matter on 17 January 2013 that the total accepted creditors’ claims were revised down to the $13.6 million figure noted above, with the Penguin Corporation debt being assessed at $5,817.899.80.  This turned out to be the correct amount that this particular creditor would accept from the applicant in satisfaction of its debt.

The Applicant’s Present Proposal

[11]     The substance of the applicant’s proposal before the Court provides for a sum of $175,000.00 to be made available to the trustee to distribute to all creditors 45 days after the Proposal might be approved.   This sum is to be advanced to the applicant by the Pohutakawa Trust and paid pro-rata to all creditors (excluding three specific  joint  creditors  of  the  applicant  and  his  wife  who  are  owed  a  total  of

$10,785.00 for personal lending).  The Pohutakawa Trust I am told is a family trust

in which the trustees are the applicant’s wife, Samantha Venning (Ms Venning) and a professional accountant.  The beneficiaries of this trust are essentially the Venning children with Mr and Mrs Venning also being beneficiaries but discretionary beneficiaries  only.     Before  me,  Mr  Haig  for  the  applicant  advised  that  the Pohutakawa Trust also owns the residential home at Martinborough occupied by the applicant,  his  wife  Ms  Venning  and  their  children,  a  home  that  was  relatively recently  transferred  to  the Trust  at  a  value  of  $760,000.00  and  is  subject  to  a mortgage to ASB Bank.

[12]     The proposal intends that the distribution of $175,000.00 will be made pro rata to all the creditors listed at para [9] above with the exclusion of one of them. This is Ventre Trustee Limited the trustee of the Venning Family Trust which, as I understand it is a trust for the applicant’s father.   The Venning Family Trust debt totals $281,898.00 and as it will not feature in any distribution under the proposal, I presume  it  is  to  be  gifted/forgiven.    I  am  told  also  that,  for  the  purposes  of calculation of the distribution to be made, Penguin Corporation has agreed that its total debt is to be accepted as $5 million and not the $5,817,899.80 specified at para [9] above.  This represents a further reduction of over $817,000.00 in the total debts to share pro-rata in the suggested distribution.

[13]     Thus, all this will result in the creditors’ claims to be paid from the proposed

$175,000.00 distribution being reduced to a total of about $12,225,100.00, with a return to creditors on a pro-rata basis calculated at 1.43 cents in the dollar.

[14]     And, as to the proposed Trustee for the applicant’s proposal, this is to be Mr Reynolds (Grant Bruce Reynolds) who it is accepted is an experienced and well- known Auckland insolvency practitioner.  As such, I am satisfied he is a perfectly proper person to undertake that role.

Section 333 Insolvency Act 2006

[15]     I turn now to consider first, whether the provisions of Part 5 Sub-Part 2

Insolvency Act have been complied with in this case and secondly, whether the terms of the Proposal are such that it should be approved by the Court.

[16]     As noted above, the present application is brought under s 333 Insolvency

Act 2006, which 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.

[17]     Addressing first the matters contained in s 333(3)(a) Insolvency Act 2006, the present creditors’ proposal was originally filed in this Court on 27 November 2012. The meeting of the applicant’s creditors was held on 17 January 2013 and I am satisfied that proper notice of this meeting was provided to all creditors.   At the meeting, five creditors voted in favour of the proposal, the value of their claims being said to be $11,690,066.11.   Two creditors voted against the proposal, they having total claims said to be to the value of $1,796,834.75.  Accordingly, 71% of

the number of voting creditors and 87% of the creditors in value voted in favour of the proposal.   The minimum voting majorities set out in s 331(3)(a) and (b) Insolvency Act 2006 are made out here, these requiring only a majority in number and 75% in value to vote in favour.

[18]     One of the major creditors who voted against the proposal at the creditors’

meeting was Westpac New Zealand  Limited (Westpac).   It  had  a debt totalling

$1,252,199.00.  On 12 October 2012 Westpac had filed in this Court a bankruptcy application seeking an adjudication order against the applicant with respect to a debt of $487,845.37 for which the bank had obtained judgment against him.   That bankruptcy application at Westpac New Zealand Limited’s request has now been adjourned, and on 20 February 2013 counsel for the bank advised the Court that:

... despite Westpac voting against Mr Venning’s insolvency proposal at the creditors’

meeting held on 17 January 2013, Westpac will not be opposing the application ...

[19]     Following the creditors’ meeting, on 4 February 2013 the present application for approval and supporting material was filed.  All creditors were then notified by the proposed Trustee Mr Reynolds of the hearing of this application pursuant to s

333(1)(b)  Insolvency Act  2006  and  none  have  opposed  this  application.    I  am satisfied therefore that the provisions of Part 5 Sub-Part 2 Insolvency Act 2006 as required by s 333(3)(a) have been complied with here.

[20]     That  leaves  the  Court  to  consider  the  provisions  of  s  333(b)  and  (c) Insolvency Act 2006 and issues as to whether first, the terms of the Proposal are reasonable or calculated to benefit the general body of creditors and secondly, whether for any reason it might not be expedient that the proposal should be approved.

[21]     The Court  of Appeal  decision  in  Magsons Hardware Limited  v Bogiatto [2011] NZCA 378 provides guidance on the application of these two paragraphs of section 333(3):

[22]     We agree with [the] identification of a two-step process to be followed when considering application.  The first of the threshold enquiries whether either or both of the s 333(3)(b) or (c) tests have been met:   if so, the

second enquiry is whether the Court should exercise its residual discretion to refuse approval. As Richardson J observed in Farmer v Rowley.

“The Court may refuse its approval if and only if it is the opinion that one or more of the trigger paras (a), (b) and (c) [under the predecessor s 143(3) of the Insolvency Act 1967] applies.   It follows that the exercise of the discretion reposed in the Court under this section must be related to the particular paragraphs or paragraph relied on.”

[23]       In the same case, McKay J  sited  with approval this passage from the judgment of Hardie-Boys J in re Bennetts proposal:

Therefore I think it proper to deal with an application under s 143 a little differently from one under s 122. Rather than it being for the proponents of a scheme to show that it ought to be approved.  I think the Court should accept the view of creditors, or the majority of them, and grant approval unless it is apparent that one of the grounds for refusing approval exists. The Court is clearly required to exercise its independent judgment, for considerations of  wider public interest are  relevant and  therefore even unanimity amongst the creditors will not be predeterminative of approval. But unless it is clear that creditors would generally fare better under a bankruptcy, approval ought normally to be given unless other special circumstances militate against it. While a proposal ought not to be imposed upon dissentient creditors if that would be disadvantageous to them as members of the general body of creditors their dissent should not be upheld if to do so would be prejudicial to the general body of creditors.

[22]     The terms of the applicant’s proposal to his creditors here are quite simple. The Proposal provides for one payment of $175,000.00 to be made available to the proposed trustee for distribution amongst creditors 45 days after the date of approval of the Proposal.  As noted above, that $175,000.00 is to be provided by an advance to the applicant from the Pohutakawa Trust.  An affidavit dated 18 March 2013 from Mr Reynolds confirms that the Pohutakawa Trust has a credit balance in its bank account of some $191,277.48 and that he has received confirmation from the trustees that  they will  deal  with these trust  funds by advancing the $175,000.00  to  the applicant if the present proposal is approved.  As I see it there is therefore a level of confidence that this payment will be made to creditors in the period specified.

[23]     As I have signalled at para [4] above, a matter which must be of concern to the Court in this case is the suggested minimal level of dividend payable overall to creditors, considering the extent of the applicant’s total indebtedness.   As to that aspect, however, Mr Haig for the applicant referred me to the decision in Re:  Marsh ex p Commonwealth Bank of Australia HC, Auckland, 16 March 2010, CIV-2009-

404-336.   Associate Judge Sargisson in that case accepted, although  with some

hesitation, that an amount to be paid to creditors amounting to 0.08 cents in the dollar as a prospective dividend was not so small as to be regarded as unreasonable in the circumstances prevailing there.

[24]     And, as I have noted above, in my recent decision in this Court in Ulrich Aluminium Co Limited v Blackmore, a proposal to share $100,000.00 amongst creditors totalling either $26.9 million or $18.4 million giving a maximum return of between 0.37 cents in the dollar and 0.54 cents in the dollar was approved under all the circumstances prevailing in that case.

[25]     Finally,  in  Re Connett,  HC Auckland, 26  November 1999,  B1374-IM99,

Master Ann Gambrill, a creditors’ compromise to pay $25,000.00 on debts totalling

$4.9 million was approved where the bulk of creditors had voted in favour of the proposal with only one creditor opposed to it.   There, the dividend amounted to approximately 0.5 cents in the dollar to all creditors, again a rather similar situation to that prevailing in the present case.

[26]     The amount outstanding and due to the applicant’s existing creditors here, which for present purposes is accepted at over $13.6 million, is substantial.   The applicant it seems has minimal assets and in the normal course of events would be quite unable to raise funds to even partially meet multi-million dollar claims to that extent.  The applicant’s present proposal has resulted no doubt from significant work being undertaken on the part of he and his family to make available the proposed advance of $175,000.00 from the Pohutakawa Trust.

[27]     As I see the position, the proposal in this case for a payment essentially assured  of  $175,000.00  to  be  divided  amongst  the  majority  of  the  applicant’s creditors within what is less than 7 weeks from now must be seen as being of practical advantage to those creditors who otherwise it seems clear would receive nothing.  This is also advantageous, given the decision of the applicant’s father, who is in control of the creditor the Venning Family Trust, to effectively forego any payment towards the trust’s debt claim of over $281,000.00.  The decision too of the Penguin Corporation to reduce its entitlement by bringing down its total creditors’ claim  to  $5  million  is  also  significant.     In  addition,  in  my  view  given  the

circumstances prevailing in this case, this $175,000.00 payment is a considerable amount of money to be raised by the applicant in the short term.  It also represents an amount which the applicant’s commercial creditors including bank lenders (other than Westpac New Zealand Limited initially) have assessed and approved at a creditors’ meeting. With the indication from Westpac that it does not now oppose the present application, it might also be said that this bank also takes the view that it is better to receive something in the hand, rather than both to receive nothing and to incur further costs on its stalled bankruptcy proceeding.  It follows therefore that the present application for approval by this Court of the proposal is not effectively opposed by any creditor in this case.  That said and despite the tiny percentage return of about 1.43 cents in the dollar available to creditors under the Proposal, as I see it the present compromise   with   the   applicant’s   creditors   is within the kind of proposals that the s 333 Insolvency Act 2006 procedure was designed to facilitate.

[28]     In addition, the material before the Court, in my view, provides all parties here with some degree of comfort that there is an assurance of payment of this significant $175,000.00 amount within the proposed 45 day period.

[29]     It also needs to be noted here that this is the first occasion on which the applicant has come before this Bankruptcy Court.   From submissions advanced to me by Mr Haig on his behalf, it is implicit that the applicant says he is here with “clean hands” in the sense that there has been no misconduct on his part in the events that arose prior to his insolvency.  It is presumed that most if not all of his liabilities have resulted from personal guarantees provided to financiers through the extensive recent property developments in which he was engaged.  Mr Haig suggests that the applicant has been caught out through the global financial crisis and the sudden withdrawal of the large previously approved loan for the major development noted above in which he was involved, and not through any financial extravagance on his own part.  It is suggested too that this present proposal has culminated as a result of hard work which has been undertaken by the applicant in recent months first, to pay significant sums back to his creditors, and secondly, to arrange from family sources which would otherwise not be available, the not insignificant guaranteed advance of

$175,000.00 to provide an early payment to creditors.

[30]     On all of this, I conclude that there is no evidence before this Court of any misconduct on the part of the applicant here.  Positive references have been provided for him, one from the well-known politician and business woman, Ms Fran Wild, which states:

I have known Campbell for 20 years, in both a business and personal capacity, and during this time I have always found him to be a man of integrity.

Campbell found himself in his current financial position because he made some bad decisions in a buoyant property market and got caught out like many developers by the global financial crisis.  However, I believe that he has learnt from his mistakes and will be wiser and more prudent in the future.

I would support the proposal he has put to his creditors and believe he deserves a second chance to re-establish himself.

[31]     Further, an affidavit has been provided in support of the present application by a Mr Hudson, an accountant for ANG Finance Limited (formerly Penguin Corporation Limited).  This is the applicant’s largest single creditor and Mr Hudson deposes in his affidavit first, at para [6] that Penguin Corporation Limited sees the present proposal as the best outcome in all the circumstances here and secondly, at para [7] that he found the applicant to be “trustworthy, reliable and true to his word” and importantly, that Penguin would not rule out doing business with him again.

[32]     One  matter  which  might  have  been  considered  to  be  of  concern  here, however, is the applicant’s personal involvement with the Pohutakawa Trust which has agreed to lend him the $175,000.00 for this proposal. As noted above, that Trust was set up for the benefit of the applicant’s wife and family and I am told that he and his wife are purely discretionary beneficiaries in the Trust.  This Trust however, as I have noted above,  simply owns the family home of the applicant  his wife and children at Martinborough which as noted above had an agreed value when it was transferred to the Trust recently of $760,000.00.  It is subject to a mortgage to ASB Bank.  There is nothing before the Court to suggest that the Trust has other assets other than the fund held in its bank account which is to be made available to meet the

$175,000.00 payment.  I conclude that there is nothing before the Court to suggest that a detailed investigation of this Trust or any of the applicant’s financial affairs is required to be undertaken here.

[33]     Although it does need to be remembered that decisions made in the past on other applications under s 333 Insolvency Act 2006 have noted the desirability in appropriate cases of investigations being carried out into a bankrupt’s affairs by the Official Assignee, no creditor has suggested that this should be undertaken in the present case.  I note also that, whilst the scale of losses and debts incurred by the applicant in this case are substantial, there is no evidence before the Court of any grave financial misconduct on his part such that for example entries into voidable transactions or other matters require investigation.  I conclude therefore that there is no general public interest which requires scrutiny by the Official Assignee of the applicant’s affairs to be necessary in this case.

[34]     On balance and taking into account all the above matters, I am satisfied from all the material before the Court here that, despite the tiny percentage return offered to the applicant’s creditors under the present proposal, it is a proposal that is still likely to result in a greater recovery to those creditors than that which would be available if he was bankrupted.  Certainly it does seem that his creditors agree and accept that this is the position.

[35]     The scale of losses  and  debts  incurred  by the  applicant  in  this  case are substantial, but the $175,000.00 fund the applicant has been able to garner together is  nevertheless  not  an  insignificant  amount.    In all  the particular  circumstances surrounding the present proposal I take the view that this is one of those unusual cases where the proposal should be approved, notwithstanding the extremely modest percentage return it provides to creditors.

[36]     And in  terms  of  s  333(3)(c)  Insolvency Act  2006  I am  satisfied  that  in considering the wider public interest it is expedient that this proposal should be approved.  There has not only been no suggestion made here that the applicant poses a continuing threat of harm to the commercial community and wider public, but as noted above there has been support from a number of people to the conclusion that his predicament is clearly not as a result of irresponsible financial conduct on his part.   Clearly this does not seem to be a case where egregious financial mismanagement has lead to substantial losses to creditors.

[37]     For these reasons also I am of the view that the present proposal should be approved.

Conclusion

[38]     An order is now made approving the proposal in the application before the

Court by Campbell James Robert Venning.

[39]     As to costs on the present application in my view it is appropriate under all the circumstances prevailing here for costs to lie where they fall.  There is to be no order made as to costs.

‘Associate Judge D.I. Gendall’