Wikely, re, ex parte Jacomb
[2014] NZHC 2677
•30 October 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-001589 [2014] NZHC 2677
UNDER the Insolvency Act 2006
IN THE MATTER OF a proposal under Part 5, Subpart 2 of the
Act by KENNETH DAVID WIKELEY AND
UNDER Regulation 32(1) Insolvency (Personal
Insolvency) Regulations 2007
IN THE MATTER OF an appeal by MICHAEL JOHN JACOMB, TRENA KATHLEEN JACOMB and PETER REGINALD RICHARDSON as trustees of the GENSET TRUST of the decision of JEFFREY PHILIP MELTZER as provisional trustee of the creditor's proposal of KENNETH DAVID WIKELEY to admit for voting purposes creditor's claims filed by GEMMA WIKELEY, JOHN SORENSON and JONATHON COLLINS
Hearing: 18 September 2014 Appearances:
J W G Grant for Appellants
A C Sorrell for Insolvent (K D Wikeley) K M Quinn for G Wikeley
No appearance by J Collins
M Taylor for provisional trustee (J P Meltzer) (abiding) (attendance excused)
Judgment:
30 October 2014
Re Wikeley, ex p Jacomb [2014] NZHC 2677 [30 October 2014]
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
on Insolvency Act appeal
This judgment was delivered by me at pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
Introduction
[1] Kenneth Wikeley (Mr Wikeley) is hopelessly insolvent.
[2] He has made a proposal to his creditors (the proposal) under Part 5, Subpart 2
Insolvency Act 2006.
[3] The appellants, as trustees of the Genset Trust, are creditors of Mr Wikeley. They have a judgment debt for USD 875,768.42 in relation to debts which Mr Wikeley guaranteed. Mr Wikeley owes the appellants a further $8,864.49,1 representing a costs judgment following Mr Wikeley’s unsuccessful appeal in relation to a High Court judgment in which the Court refused to set aside a bankruptcy notice issued by the appellants in August 2013.
[4] Mr Wikeley (in May 2014) filed the proposal. In his Statement of Affairs he deposed that he had debts of $4,874,756.04. The debts Mr Wikeley identified included those owed to the appellants but also included some said to be owed to a number of Mr Wikeley’s relations and colleagues.
[5] Jeffrey Meltzer, the provisional trustee (the trustee), received claim forms from eight claimants.
[6] At the meeting of creditors, held on 4 June 2014, the appellants alone (recorded by the trustee as creditors for $1,053,302.33) voted against the proposal. The trustee recorded seven votes (for $3,820,517.71) in favour of the proposal. He therefore recorded that majority in favour of the proposal as being 87.5 per cent by number and 78.39 per cent by value. Shortly afterwards, he filed an application for approval of the proposal. That application stands adjourned whilst this proceeding is determined.
[7] The appellants filed an appeal against the trustee’s decision to admit for voting purposes three claims. The claims were by:
1 In this judgment all the monetary figures are in New Zealand currency unless otherwise identified.
(a) Mr Wikeley’s daughter, Gemma Wikeley, who claimed a debt of
$3,032,828.00;
(b)Jonathon Collins, a Melbourne horse trainer acquainted with Mr Wikeley for some years, who claimed a debt of $58,707.13 (converted from AUD 55,000.00); and
(c) John Sorrenson who claimed a debt of $491,059.32.
[8] By their notice of appeal, the appellants asserted that the three named claimants had not properly proved their claims for the creditors’ meeting and are either not creditors of Mr Wikeley at all or, if creditors, are creditors for lower sums than claimed.
[9] Both Mr Wikeley and Ms Wikeley opposed the appeal, filing opposition affidavits. Mr Collins filed an affidavit on the eve of the hearing.
[10] Mr Sorrenson also filed an affidavit. He gave details of advances made to Mr Wikeley, totalling $496,214.32. Having regard to Mr Sorrenson’s evidence, the appellants have withdrawn their appeal in relation to the claim of Mr Sorrenson.
[11] It was common ground between counsel that Ms Wikeley’s and Mr Collins’s forms of claim did not comply with Regulation 12, Insolvency (Personal Insolvency) Regulations in that they did not:
(a) have attached to them evidence of the claimed debts; and
(b) provide any other evidence supporting the claim; and
(c) provide a description of how and when the debt was incurred.
The issues for decision
[12] The issues raised on this appeal require the Court to determine –
(a) What is the nature of the regime for proving debts for a Part 5 proposal?
(b)What are the consequences in this case of non-compliance with the regime for proving debts for Part 5 proposals?
(c) What is the nature of the appeal jurisdiction under reg 12? (d) Application of the appeal jurisdiction in this case.
[13] I shall also refer to, but by reason of my other findings not determine, an alternative submission for the appellants, namely that Ms Wikeley and Mr Collins do not in fact have debts which are provable against Mr Wikeley.
What is the nature of the regime for proving debts for a Part 5 proposal?
The statutory/regulatory scheme for creditors’ claims
[14] On a Part 5 proposal, known creditors will receive from the provisional trustee a bundle of documents which includes a copy of the proposal and a creditor’s claim form.2 The right to vote at the creditors’ meeting arises under s 330(2) Insolvency Act which provides:
330 Provisional trustee must call meeting of creditors
…
(2) 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.
[15] Insolvency (Personal Insolvency) Regulations, reg 35(1) prescribes what is required of a claim form:
(1) A creditor’s claim form for a claim under a proposal must comply
with regulation 12.
[16] In turn, reg 12 provides:
2 Insolvency Act 2006, s 330(1).
12 Creditor's claim form
(1) A creditor's claim form under section 233 or 247 must— (a) be signed by the person completing the form; and (b) be dated; and
(c) have attached to it evidence of the debt and any other evidence supporting the claim.
(2) A creditor's claim form under section 233 or 247 must contain the following information:
(a) the creditor's full name:
(b) the creditor's current address, telephone number, and any other contact detail (such as a mobile telephone number or an email address):
(c) the creditor's goods and services tax registration number
(GST number), if any:
(d) if the form is completed on behalf of the creditor, the full name of the person completing the form:
(e) the full name of the bankrupt or debtor: (f) the amount of the debt claimed:
(g) a description of how and when the debt was incurred: (h) whether the debt is secured:
(i) if the debt is secured, a description of the security and the estimated value of the security.
(my emphasis)
[17] Regulations 12(1)(c) and 12(2)(g) are the requirements of central importance in this case.
The application of Regulation 12(2) to Part 5 Proposals
[18] For Mr Wikeley, Mr Sorrell noted that in reg 12 the requirement for a creditor’s claim form expressly relates only to ss 233 and 247 Companies Act (which apply only to a person who has already been adjudicated bankrupt). In his written submissions, Mr Sorrell suggested that reg 12 therefore does not strictly apply to
insolvency proposals. He had overlooked reg 35.3 The application of reg 12 to
insolvency proposals is also reflected in the words “the bankrupt or debtor” in reg
12(2)(e), the reference to “debtor” being required precisely because reg 12 is not limited in its application to post-adjudication situations. Mr Sorrell conceded in his oral submissions that a creditor’s claim form in relation to a Part 5 proposal must comply with the requirements of reg 12.
The statutory/regulatory scheme for the admission or rejection of claims
[19] The admission or rejection of creditors’ claims is dealt with in reg 32
Insolvency (Personal Insolvency) Regulations 2007, which provides:
32 Admission or rejection of claims for purposes of voting
(1) The provisional trustee has the power to admit or reject a claim for the purposes of voting at a creditors' meeting, but his or her decision is subject to appeal to the court.
(2) If the provisional trustee is uncertain whether a claim may be admitted or rejected, he or she must allow the creditor to vote subject to that vote being declared invalid in the event of the claim being rejected for purposes of voting.
[20] The specific powers of admission or rejection which a trustee now holds were provided for following judicial criticism of the lack of guidance in the 1987
Insolvency Act as to the powers of the chairman of the meeting and the procedures to be followed.4 Until the current regulations were enacted, there was a conflict of authorities as to the power of the trustee to admit, reject or reduce a creditor’s claim for the purpose of voting, a position reviewed by Tompkins J in Re Farmer.5
[21] Notwithstanding the earlier questions as to the extent of the trustees’ powers at the creditors’ meeting, it was already established that, when a vote occurred at a creditors’ meeting, no account could later be taken of a proof of debt and voting
letter received after the conclusion of the meeting.6
3 Above at [15].
4 See Re Farmer (1991) 4 PRNZ 628 (HC) per Tompkins J at 638.
5 At 632–638. See also The Laws of New Zealand Personal Bankruptcy and Insolvency Reissue 1
Kalev Crossland, [555].
6 Re Farmer, above n 3, per Tompkins J at 638.
Proving the debt
[22] The regime applying to creditors’ claims has as a significant goal the proof of claims. (Under s 141 Insolvency Act 1967, reference had been made to a “form of proof of debt” whereas the current Act, in s 330, modernises the expression with reference to a “creditor’s claim form”. Nothing turns on that particular change of wording. What the creditor is doing by submitting a compliant claim form is
endeavouring to prove its claim. The Regulations clearly indicate this by requiring7
that the resolution accepting the proposal contain information as to the number of creditors voting in favour and against the resolution and the total amounts of their proven claims (my emphasis). The requirement in reg 22 stems from the statutory provision under s 330(2) of the Act whereby only a creditor who has proved a claim in the prescribed manner may vote on the proposal (my emphasis).
[23] Insolvents are required to identify in their statement of affairs their assets, debts and liabilities.8 The proposal, once approved by the Court, is binding on all the creditors whose debts are provable under Subpart 2 of Part 5.9 The distinction indicated by the use of “provable” as against “proved” is significant. Only creditors who have proved their debts and had their claims admitted may vote. On the other
hand all the creditors to whom provable debts were owed are bound by the proposal, whether or not they proved for them at the time of the proposal.
[24] Finally, s 325 defines the word “debt” as used in Subpart 2 of Part 5, Insolvency Act. It means a debt which would be provable in the insolvent’s bankruptcy.
[25] Regulation 32(2)10 makes provision in relation to a situation in which the trustee is uncertain as to whether the claim ought to be admitted or rejected. The Regulation, instead of requiring the trustee to resolve the issue on a burden of proof basis, requires the trustee to allow the creditor for the time being to vote (thereby neither admitting nor rejecting the claim but leaving to later date the determination
of whether the vote should be declared invalid.
7 Insolvency (Personal Insolvency) Regulations, reg 22.
8 Insolvency Act 2006, s 327(2).
9 Insolvency Act 2006, s 334(1).
10 Above at [19].
[26] The special situation of uncertainty addressed in reg 32(2) differs from the situation where it is clear that the claim as submitted ought to be rejected. In that situation it should never, even on a temporary basis, be counted in the creditors’ voting.
[27] The structure under reg 32(2) of a temporary arrangement whereby the creditor with an uncertain claim is allowed to vote has its direct parallel in the Insolvency Regulations 1986 (UK), in particular in reg 6.94(3). Of the requirement under that rule that the creditor be allowed to vote, Ian Fletcher in The Law of Insolvency11 has accurately observed:
This need not result in the invalidation of the proceedings themselves, or any decision arrived at, provided that the majority in favour of any particular resolution was sufficiently large to be unaffected by the removal of any support from creditors whose claims are later disallowed.
Guest v Duffy – the deficiencies in the Insolvency Act 1967
[28] Mr Sorrell focussed on observations of Richardson J in delivering judgment of the Court of Appeal in Guest v Duffy.12 First, Mr Sorrell referred to the observation of Richardson J that there were regrettable ambiguities and deficiencies in the process described for approval of a proposal. The suggestion was that the claimants should not be penalised for any failures to meet what are found to be requirements of a deficiently drafted regime. I observe that the Court’s criticism was
in relation to what was Part XV of the then Insolvency Act 1967. The criticism reflected similar observations made as to legislative deficiencies by Holland J in the High Court judgment appealed from.13 Given the subsequent amending legislation and the express provisions of the 2007 Regulations in relation to the creditor’s claim form, the Guest v Duffy criticisms have no continuing application to the claim form requirement. The relevant requirements of the current regime are clear.
Guest v Duffy - the mandatory/directory dichotomy
[29] Mr Sorrell also invoked the distinction between mandatory and directory provisions. He submitted that the detail of the claim form as prescribed by the
11 Ian F Fletcher (ed) The Law of Insolvency (4th ed, London, Sweet & Maxwell, 2009) at [7–040].
12 Guest v Duffy [1991] 1 NZLR 183 (CA).
13 Re Guest ex p BNZ Finance Ltd [1990] 3 NZLR 700 (HC).
current Regulations is merely directory. He relied upon the Court of Appeal’s conclusion in Guest v Duffy that the requirements of a particular form in the Insolvency Regulations 1970 (being form 14) were to be regarded only as directory, not mandatory. Form 14 did not deal with the content of a creditor’s claim. Rather it dealt with the timing of the lodgment of a proof of debt and the consequences of not meeting the time limit. The Court of Appeal found that an absolute time bar would not serve the purposes of the legislation. As the crucial time for determining the validity and effect of creditors’ votes is when the vote is called for and taken (rather than the nominated starting time of a meeting), the Court concluded that there was
no justification for rejecting late proofs.14 It is implicit in the judgment in Guest v
Duffy that, notwithstanding the directory nature of the form 14 requirements, a proof of debt lodged after the taking of the creditors’ votes would have been too late to allow that (anticipated) proof of debt to support a vote.
[30] In the current Act and particularly the current Regulations, a claimant must
provide the information prescribed in reg 12.
[31] I do not consider it appropriate to consider Ms Wikeley’s and Mr Collins’s claim in terms of a mandatory/directory dichotomy. As was explained by Randerson J in Yang v Minister of Internal Affairs:15
The Courts no longer find helpful the distinction between mandatory and directory provisions. Rather, the consequences of non-compliance are to be considered in the statutory context, relevant factors including the place of the provision in the scheme of the Act or Regulation, the degree and seriousness of the non-compliance, the potential consequences which may arise through the non-compliance, and whether prejudice has occurred or is likely to have occurred: see the discussion by McMullin J in A J Burr Ltd v Blenheim Borough Council [1980] 2 NZLR 1, 13 referring to the earlier decision of the Court of Appeal in New Zealand Institute of Agricultural Farms Inc v Ellesmere County [1976] 1 NZLR 630, 636 and the speech of Lord Hailsham LC in London and Clydeside Estates Ltd v Aberdeen District Council (1979)
3 All ER 876, 883.
[32] Such has been reinforced by the majority of the Supreme Court in their judgment in Tannadyce Investments Ltd v Commissioner of Inland Revenue.16
Tipping J, delivering the majority judgment, observed:17
The courts no longer attempt to classify procedural requirements as strictly mandatory or only directory. No longer does failure to comply with an apparently mandatory requirement lead automatically to the process miscarrying, or to a statutory body such as the Inland Revenue Department having to decline to accept a proffered document. The statutory language or framework may, of course, indicate, particularly as regards time issues, that failure to comply exactly will have certain consequences. But the correct modern approach to procedural requirements is for the courts to focus not on literal classification but rather on what should be the legal consequence of non-compliance with a statutory or regulatory provision.
[33] Tipping J cited the judgment of Lord Hailsham LC in London & Clydeside Estates Ltd v Aberdeen District Council,18 in which his Lordship, in cautioning against the confining use of rigid legal clarifications (such as “mandatory” and “directory”), observed:19
Such language is useful; indeed, in the course of this opinion I have used some of it myself. But I wish to say that I am not at all clear that the language itself may not be misleading in so far as it may be supposed to present a court with the necessity of fitting a particular case into one or other of mutually exclusive and starkly contrasted compartments, compartments which in some cases (e.g. “void” and “voidable”) are borrowed from the language of contract or status, and are not easily fitted to the requirements of administrative law.
When Parliament lays down a statutory requirement for the exercise of legal authority it expects its authority to be obeyed down to the minutest detail. But what the courts have to decide in a particular case is the legal consequence of non-compliance on the rights of the subject viewed in the light of a concrete state of facts and a continuing chain of events. It may be that what the courts are faced with is not so much a stark choice of alternatives but a spectrum of possibilities in which one compartment or description fades gradually into another. At one end of this spectrum there may be cases in which a fundamental obligation may have been so outrageously and flagrantly ignored and defied that the subject may safely ignore what has been done and treat it as having no legal consequences upon himself. In such a case if the defaulting authority seeks to rely on its action it may be that the subject is entitled to use the defect in procedure simply as a shield or defence without having taken any positive action of his own. At
16 Tannadyce Investments Ltd v Commissioner of Inland Revenue [2011] NZSC 158, [2012] 2
NZLR 153.
17 At [74].
18 London & Clydeside Estates Ltd v Aberdeen District Council [1980] 1 WLR 182 (HL).
19 At 189.
the other end of the spectrum the defect in procedure may be so nugatory or trivial that the authority can safely proceed without remedial action, confident that, if the subject is so misguided as to rely on the fault, the courts will decline to listen to his complaint.
[34] Counsel in this case did not directly take me through a consideration of listed factors. I find it useful to consider the legal consequences of a breach of reg 12 by reference to the factors identified by Randerson J in Yang v Minister of Internal Affairs.20
The reg 12 requirement’s place in the scheme of the Act and Regulations
[35] The current Part 5 regime and the role of the trustee in relation to the admission or rejection of claims makes it a prerequisite of the admission of a creditor’s claim that the required information and supporting documents be provided. Otherwise, the trustee will not be in a position to make the informed decision (on admission or rejection) which is necessary to justly process the proposal in the interests of the individual creditors and the insolvent.
[36] A claim which is not accompanied by the material information as prescribed under the Regulations cannot, within the scheme of the Act and the Regulations, support a vote. The right to vote at a meeting arises precisely because the creditor has supplied sufficient information to the trustee to justify the conclusion that a claim has been proved, that being the terminology of s 330(2) of the Act.
[37] The provision by a claimant of a compliant form, which the trustee is in a position to accept as a proven claim, constitutes a claimant’s qualification to join what is the voters’ club. I note that it is solely the right to vote which is lost through non-compliance. The claimant does not lose its right subsequently to prove its debts for the purposes of distributions should it still have a “provable claim”.21 What a claimant does not have when it fails to file a compliant claim is a “proved claim”.
[38] The procedures governing proposals in part 5 Insolvency Act are designed to provide a prompt, efficient vote on the proposal. The process is an alternative to
adjudication in bankruptcy – a proposal is often pursued in the shadow of either a bankruptcy notice or an application for adjudication. The proposal, if it is approved by correct procedures by the required majorities, binds all creditors with provable claims (ones approved by the Court).
[39] The Regulations do not give the trustee a discretion to admit an unproved claim or to reject a proved claim – the only leeway the trustee has is to find a claim “uncertain” under reg 32(2), which requires the trustee to then allow the claimant to vote (albeit on a provisional basis).
[40] I conclude that the legislative and regulatory scheme in relation to the admission and rejection of creditors’ claims is a powerful factor against permitting, after the event of voting, repair of the substantially defective claim forms. The scheme is simple. If the claimant does not comply with the reg 12 requirements, its claim must be rejected with the consequence that the creditor is ineligible to vote.
What are the consequences in this case of non-compliance with the regime for proving debts for Part 5 proposals?
The degree and seriousness of the non-compliance
[41] Ms Wikeley’s and Mr Collins’s degree of non-compliance with reg 12 could scarcely have been greater. They provided, apart from the amount of their claims, neither detail of how and when the debts were incurred, nor evidence of the debts, nor any other evidence supporting the claims.
[42] The claimants in their claim form provided to the trustee no evidential basis upon which he could correctly admit their claims. At the point the trustee/chairman decided to take the vote on Mr Wikeley’s proposal, the trustee first had to make his decision on admission or rejection. The claimants simply had no right at that point to have the trustee ignore the deficiencies of their claim forms. There was nothing before the trustee which could be accepted as proving the claims.
[43] Nothing in this conclusion impacts upon the trustees’ ability to ignore immaterial, insubstantial or trivial defects in a claim form. The reg 12 requirements must be met in substance.
The potential consequences of non-compliance
[44] Leaving aside at this point22 the potential for prejudice through finding that substantially non-compliant claims must be disregarded, it is appropriate to consider the potential consequences of non-compliance both for creditors and the insolvent. The most significant consequence for creditors is what the scheme of the Regulations requires, namely that the claims of those who have not substantially proved their claims cannot be admitted for the purposes of voting. They must be
either rejected23 or treated by the trustee as uncertain (and in that case allowed to
vote subject to later invalidation).24
[45] The most significant consequence of this regime for the insolvent is that only those who have proved their claims (or for the time being are in the reg 32(2) “uncertain”) category have the ability to contribute to the propositions which the insolvent requires in order to gain approval of his or her proposal.
[46] Such an outcome may clearly be significant for the purposes of the vote on a Part 5 proposal, as is evidenced by the facts of this case: without Ms Wikeley’s and Mr Collins’s vote, Mr Wikeley’s proposal will not have received its required majorities. But such a consequence reflects the legislation’s clear purpose that only those who have sufficiently proved their debts should vote and thereby influence the outcome of the proposal. Claimants who fail to submit a compliant claim do not thereby forfeit their debts – the documents remain able to prove their “provable” debt and are bound by the proposal if passed or alternatively are able to prove in the
insolvent’s estate if the insolvent is bankrupted.25
22 Dealt with below at [47].
23 Under reg 32(1), above [19].
24 Under reg 32(2), above [19].
Prejudice
[47] Upon the creditors’ meeting having been duly commenced, the trustee had to make his decision to admit or reject claims or to exercise the reg 32(2) duty in relation to certain claims. At that point, the trustee as chairman had the ability to take Mr Wikeley’s proposal to a vote. Or the trustee could have deferred the taking of a vote to an adjourned meeting or meetings. Ultimately, when the vote has been taken, it is too late for the trustee to accept or reject a claim or amended claim for the
purposes of voting.26
Conclusion
[48] The legal consequence of non-compliance with the statutory scheme in this case should have led to the trustee rejecting the claims of Ms Wikeley and Mr Collins, with the consequence their votes ought not to have been counted.
What is the nature of the appeal jurisdiction?
[49] The appellants’ right of appeal from the trustee’s admission of the disputed claims arises under reg 32(1) Insolvency (Personal Insolvency) Regulations, which for convenience I repeat:
(1) The provisional trustee has the power to admit or reject a claim for the purposes of voting at a creditors' meeting, but his or her decision is subject to appeal to the court.
[50] The appeal in this case has been correctly brought by the appellants as an appeal to which Part 20 High Court Rules applies.27 The appeal requires this court to come to its own view on the merits of the issue as to whether the disputed claims were admissible as having been proved. The extent of consideration given to the
decision appealed from is for the High Court’s own judgment.28
26 Re Farmer, above at n 3, per Tompkins J at 638.
27 High Court Rules, r 20.1(1).
28 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103; [2008] 2 NZLR 141; per Elias
CJ, giving the Court’s reasons, at [5].
[51] The parties who entered appearances sought leave to adduce affidavit evidence on the appeal.29 In the absence of objection to that course, I granted leave to each party to adduce the affidavit evidence filed.
Application of the appeal jurisdiction in this case
Examination of the claim forms filed by Ms Wikeley and Mr Collins
[52] The claimants each completed a creditor’s claim form as provided by the trustee. The detail each provided is directly parallel, and is exemplified by Ms Wikeley’s claim form, attached as Schedule A. The only information provided by each creditor to the trustee in relation to the claimed debt was the amount of the claim.
[53] Regulation 12(1)(c) required the claim form to have attached to it:
… evidence of the debt and any other evidence supporting the claim.
[54] Regulation 12(2) required the claim form to contain a description of how and when the debt was incurred.
[55] There is no evidence before me that the documents package sent by the trustee to the various creditors alerted the creditors specifically to those requirements of reg 12. But the form (exemplified in Schedule A) identified at paragraph 2 that the debt was:
As detailed on the attached…
[56] Neither Ms Wikeley nor Mr Collins provided supporting detail in an attached document or documents. The trustee’s decision to admit the two claim forms without provision of supporting detail is unexplained, the trustee not having provided evidence on this appeal. On the eve of the hearing he filed a memorandum recording that he abides the Court’s decision.
[57] Good practice for all provisional trustees would be to provide with their documents package an explanatory form, and preferably a copy of reg 12 itself,
29 As required by High Court Rules, r 20.16(2).
alerting creditors to the fact that creditors must comply with the requirements of reg
12.
[58] In the event, the two claimants did not provide detail as indicated by paragraph 2 of the claim form.30
[59] The trustee ought not to have admitted the two claims as they stood. That situation would have changed if the documents submitted before the voting amended claims supported by the material details. Regulation 35(2) expressly allows a creditor to amend a claim form if the trustee agrees.
[60] The decision of the trustee to admit the claims of Ms Wikeley and of Mr Collins was wrong by reason of the failure of the claimants to provide the material detail of their claims as prescribed in reg 12.
Consideration of the seriousness of a breach
[61] Mr Sorrell submitted that the seriousness of any breach in process by a trustee “should be weighed”. He submitted that in light of the right of appeal (with additional evidence from any party seeking to adduce it and obtaining leave to do so) any lack of rigour at the creditors’ meeting in relation to the substantiation of debts is not a breach which should be given material weight.
[62] Mr Sorrell’s submission overlooks the nature of this appeal. The decision of the trustee to admit the claims was either right or wrong. Similarly, on appeal the decision will either be upheld or overturned. The issue is not whether there was a lack of or ample rigour at the meeting – the issue is whether the trustee correctly admitted the disputed claims.
The relevance of Mr Wikeley’s views and of informal explanations given to the
trustee?
[63] Mr Quinn, who appeared for Ms Wikeley, submitted that Ms Wikeley’s
failure to annex evidence as to the existence and quantum of the debt should not
matter because of Mr Wikeley’s acceptance of the debts or because of further explanation provided to the trustee. Neither of those propositions is compelling. The propositions were as follows:
(a) “Ms Wikeley’s failure to attach supporting detail was in circumstances where the insolvent had already acknowledged the existence of the debt and in the correct amount”. This submission ignores the specific requirements of the Regulations. Furthermore, its focus on the insolvent and his agreement ignores the statutory regime, whereby it is the provisional trustee (not the insolvent) to whom the material information is provided and who is required to decide whether it is appropriate to admit or reject the claim. The trustee’s decision must rest on the adequacy of the information provided; not upon the insolvent’s view. The trustee is exercising a judgment which affects the rights of all creditors, including creditors who have submitted compliant claims and may intend to vote against the proposal.
(b)“It can be presumed, though there is no direct evidence on the point, that the origin of the debt was explained to the trustee by the insolvent”: Mr Quinn’s acknowledgment that there is no direct evidence on the point is telling. There is no room for a “presumption” that something may have been explained to the trustee, when neither the insolvent nor the trustee has given evidence of such a conversation. In any event, such oral explanation does not meet the requirements of the Regulations. The requirement for the claim form to contain all the material information exists for the benefit of other
creditors as well, with creditors entitled31 to inspect each other’s claim
forms (and thereby to be in a position to take up with the trustee or on appeal any issues as to the basis of the claim).
[64] The two points made in Mr Quinn’s submissions do not entitle the Court to ignore Ms Wikeley’s (or Mr Collins’s) failure to include the material necessary to
support their claims. The correct decision was for the trustee to reject the claims with the consequence that the creditors with admitted claims would then have voted.
Examination of other evidence of the substantive merits of the claims
[65] Mr Sorrell, for Mr Wikeley, sought to justify the trustee’s admission of the disputed claims by reference to the further information adduced by the claimants through their affidavit evidence.
[66] Mr Sorrell submitted that this Court should examine the substantive merits of the claims of the evidence adduced since the creditors’ meeting in order to determine whether the claims could have been proved in substance. Mr Sorrell referred to the Insolvency Regulations 1986 (UK) which govern insolvency proposals in the United Kingdom. He submitted that the following principle should apply:
The Court will not simply review whether the Chairman [provisional trustee] has made procedural errors; rather it will (or should, if following the UK approach) examine the merits of the dispute over the debt based on evidence placed before it and conclude whether the creditor’s claim is established and, if so, in what amount.
(my emphasis)
[67] The regime of the New Zealand legislation does not lend itself to this Court, on an appeal under reg 32(1), allowing a claimant to bring to bear information which could and should have been provided with the claim form. The claimant who correctly proves its claim has the privilege of voting on the proposal. There is intended by the legislation to be one vote which (subject to Court approval) binds all creditors with possible claims. The regime could not work efficiently if all claimants were to be permitted to have a second bite at providing proof of their claims after a
vote has been taken. The decision in Re Farmer reflects this position.32
[68] The appeal, under reg 32(1), is in relation to the trustee’s decision. That decision relates to the proof of claim which was before the trustee. There is nothing in the Act or Regulations to support a construction which permits the party to justify
the trustees’ acceptance or rejection by reference to material which the claimant
failed at the time to include in its claim form.
[69] Mr Sorrell referred to the position in the United Kingdom. Mr Sorrell commenced his analysis to support this “principle” by reference to the United Kingdom legislation, and in particular reg 5.22 Insolvency Regulations 1986 (UK). Regulation 5.22(1) to (4) has close parallels to the New Zealand legislation which deals with how the Chairman or provisional trustee deals with the admission or rejection of claims. The United Kingdom regulations also provide a right of appeal to the Court by the creditors or the debtor.
[70] The (United Kingdom) regulation 5.22(5) has no counterpart in the New
Zealand legislation. It provides for the summoning of fresh creditors’ meetings:
If on an appeal the chairman’s decision is reversed or varied, or votes are declared invalid, the court may order another meeting to be summoned, or make such order as it thinks just. The court’s power to make an order under this paragraph is exercisable only if it considers that the circumstances giving rise to the appeal are such as to give rise to unfair prejudice or material irregularity.
[71] Mr Sorrell accepted that through the specific provisions in reg 5.22(5), the
United Kingdom legislation differs from New Zealand’s legislation in that reg
5.22(5) “spells out what should happen if the Chairman’s decision is reversed or varied”. Mr Sorrell submitted that if a New Zealand Court were to uphold an appeal under reg 32, it should call another creditors’ meeting only if it is not clear which way the voting would pan out.
[72] The United Kingdom Regulations had been promulgated well before New Zealand’s Insolvency (Personal Insolvency) Regulations. Those Regulations did not incorporate the breadth of orders available under the UK Regulation 5.22(5). In the absence of detailed submissions as to any legislative history, I am not prepared to assume that the New Zealand legislation is intended in an appeal under reg 32(1) to implicitly confer on the Court, such broad powers as a United Kingdom Court has to “make such order as it thinks just”. I accept that where the Court overturns a trustee’s rejection of a proof of debt, it must be permissible for the Court in allowing the appeal to direct the trustee to recount the votes in light of the judgment rejecting
the creditor’s vote, or (if the rejected creditor was not able to submit a vote) to have the trustee reconvene the creditors’ meeting for the purpose of taking a vote of all the now-admitted creditors. On the facts of this case, I do not need to determine whether, when reversing the trustee’s decision to admit two claims, there is any permissible scope for the Court to order the reconvening of the creditors’ meeting.
[73] If the United Kingdom reg 5.22(5)33 were to be taken as a model for some form of implicitly broad jurisdiction to make ancillary orders when dealing with rejection/admission decisions on appeal, the express provisos in the last sentence of reg 5.22(5) would militate against a reopening of the creditors’ meeting process in this case. The creditors’ meeting took place on its scheduled date. Ms Wikeley and Mr Collins are either closely related to or closely acquainted with Mr Wikeley. They must be taken to have had adequate notice of the need to submit their claims in time for the meeting. The failure of Ms Wikeley and Mr Collins to provide the supporting material with their claim forms deprived the trustee (and other creditors) of any opportunity to consider whether that supporting detail “stacked up”. Both Ms Wikeley’s and Mr Collins’s votes were submitted by post. As persons who chose not to attend the creditors’ meeting, they would not have been able to submit further detail before the voting at the meeting if the liquidator had, before the meeting commenced, rejected the claims as I have found he should have.
[74] If it transpired that Ms Wikeley and/or Mr Collins had valid substantive claims (which I do not find), it may well be that the rejection (on appeal) of their claims constitutes a prejudice, but it is not an “unfair prejudice” as the United Kingdom test stands. The claimants had their opportunity to submit their properly supported claims and failed to do so. As a result, with the decision now made on appeal, it is established that they were not entitled to vote. This outcome is not unfair. It is a consequence of the claimants’ failures to support their claims with proper detail. Equally, the circumstances giving rise to the appeal are not such as to create a “material irregularity” (in the terms used in United Kingdom legislation). The circumstances themselves (the claimants’ failure to file compliant claim forms) constitute a material irregularity which the trustee apparently overlooked when
admitting the claims. But neither the conduct of the claimants nor the admission of
33 Above at [70].
the claims gave rise to a further material irregularity. The meeting itself was properly conducted with votes taken and counted. The corrected count, taking into consideration the two newly rejected claims, flows directly from the Court’s rejection of the claims in allowing this appeal.
The decision to admit the disputed claims in this case – without further background of the debts
[75] It is clear in this case that without further background in relation to the disputed claims, the appeal must succeed because the claims were not proved as required by the legislation.
Were Ms Wikeley and Mr Collins creditors?
The appellants’ alternative ground
[76] The appellants’ alternative ground of appeal was (whether or not they submitted complaint claim forms) that Ms Wikeley and Mr Collins were either not creditors of Mr Wikeley or not creditors in the sums set out in their claims.
[77] By reason of the conclusion which I have reached (to substitute a rejection of their claims for the provisional trustee’s admission), I do not need to make a determination in relation to this further ground of appeal. I will not do so. I nevertheless recognise force in Mr Grant’s submission that it may have been proper for the trustee to reject the claims on the substance of the claims as well as the claimants’ procedural failures.
[78] Having observed these weaknesses in relation to the claims of Mr Wikeley and Mr Collins, I take the examination of the evidence in that regard given my conclusion on the failure of the claimant to provide compliant claims.
Costs
[79] Costs must follow the event. The appeal was actively opposed by both Mr Wikeley and Ms Wikeley. It is appropriate that there be a single order as to costs and disbursements against them jointly. Mr Collins did not actively engage in the
litigation. He assumed the role of witness only. Appropriately no costs order is sought against him. As between the active parties, this is a category 2 case and I so determine. I allocate time on scale B.
The trustees’ application for approval of the proposal
[80] My decision is to substitute, for the trustees’ admission of the claims of Ms Wikeley and Mr Collins, a decision rejecting those claims. As a result, the supporting votes of the creditors entitled to vote will fall short of the required majorities. By a Minute which I will issue contemporaneously in the approval proceeding, I will be seeking counsel’s indication as to the trustees’ intentions with regard to that application.
Orders
[81] I order:
(a) The decisions of the provisional trustee, Jeffrey Meltzer, on or about 4
June 2014 to admit the claims of Gemma Celeste Wikeley and Jonathon Collins as claims against Kenneth David Wikeley are hereby set aside;
(b)The claims of the said Gemma Celeste Wikeley and Jonathon Collins against the said Kenneth David Wikeley are hereby rejected;
(c) Gemma Celeste Wikeley and Kenneth David Wikeley are to pay to the appellants a single set of the costs of this proceeding on a 2B basis together with disbursements to be fixed by the Registrar.
Solicitors:
JT Law, Wellington
Jones Young, Auckland
Counsel: A C Sorrell, Auckland
Rutherford Law, Auckland
Counsel: K M Quinn, Barrister, Auckland
Blackwells, Auckland
Counsel: M Taylor, Barrister, Auckland
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