Withnell v ANZ Bank New Zealand Limited

[2024] NZHC 3974

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2024-404-2195

[2024] NZHC 3974

UNDER

the Insolvency Act 2006

BETWEEN

STEVEN WITHELL

Insolvent

AND

ANZ BANK NEW ZEALAND LIMITED

Creditor

INTERCOLL LEDGER LIMITED T/A DEBT MANAGERS
Creditor

INLAND REVENUE

Creditor

RECOVERIES CORPORATION NEW

ZEALAND LIMITED (formally known as MILTON GRAHAM)

Creditor

Hearing:	26 September 2024
Counsel:	YSBV Yang for the Provisional Trustee, Christine Liggins
Judgment:	20 December 2024

JUDGMENT OF ASSOCIATE JUDGE SUSSOCK

This judgment was delivered by me on 20 December 2024 pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

Chapman Tripp, Auckland

WITHELL v ANZ BANK NEW ZEALAND LTD [2024] NZHC 3974 [20 December 2024]

Introduction

[1]                 The provisional trustee, Christine Liggins, seeks orders that the Court approve the proposal of Steven Withell, dated 4 January 2024, made pursuant to pt 5, sub-pt 2 of the Insolvency Act 2006 (Proposal).

[2]                 Mr Withell has four unsecured creditors owed $120,193.98 but no secured or preferential creditors.

[3]                 Through the Proposal, Mr Withell will repay approximately 65 cents in the dollar to the unsecured creditors, less the trustee’s fees and expenses as set out in the Proposal.

[4]                 Applying to the Court for approval is the final 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

[5]                 When the matter was called, there was no appearance on behalf of any creditor or otherwise objecting to the Proposal.

[6]                 Having heard from counsel for the Trustee, I approve the Proposal for the reasons set out below.

Background

[7]                 The insolvent, Mr Withell, is based in Henderson, Auckland. Mr Withell operated a tour bus company but following COVID-19 the business was not sustainable. Mr Withell’s income reduced as a result and he was unable to repay his creditors.

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

[8]                 Mr Withell sought the assistance of Debtfix, a debt management entity, to resolve his debt situation and nominated Ms Liggins, the director of Debtfix and a licensed insolvency practitioner, to be his trustee.

[9]                 The Proposal is dated 4 January 2024 and was filed together with a statement of affairs and affidavit of Mr Withell of the same date on 3 September 2024. Counsel for the trustee explained that there was some delay in filing the Proposal as a result of issues for the trustee in obtaining representation and with former counsel.

[10]Under the Proposal, Mr Withell will:

(a)make weekly payments of $300 for five years (260 payments) to the trustee to cover all proven debts filed with the trustee; and

(b)not enter into any further personal borrowing or seek an increase to existing borrowing during the term of the Proposal.

[11]             The Proposal provides that the fees and the expenses of the trustee will be paid as follows:

(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)five per cent in excess of $10,000.

[12]             The first report of the Trustee, dated 18 July 2024, was filed together with the Proposal on 3 September 2024. The trustee then filed a further report on 25 September 2024 updating the Court and advising that one of the debts had been assigned to Intercoll Ledger Limited trading as Debt Managers. A change has been made to the intituling to reflect this assignment.

Proposal process and approval by the Court

[13]             The first stage in seeking the Court’s approval is for a proposal to be filed satisfying the requirements of s 327 of the Insolvency Act. This includes nominating a trustee for collection and distribution of instalments paid. This person is the provisional trustee until the proposal is approved.

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

[15]             The trustee must then apply to the Court for approval of the proposal and send notice of the hearing of the application in the prescribed form to the insolvent and every known creditor.

[16]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.

[17]             From the use of the words “may” and “must” in ss 333(3) and (4), the Court retains a discretion whether to refuse to approve a Proposal in the circumstances set out in s 333(3), whereas the Court’s refusal is mandatory in the circumstances set out in s 333(4).

[18]             The first discretionary requirement, s 333(3)(a), is to consider whether the requirements of subpart 2 of the Insolvency Act have been complied with. I do so below.

[19]             In terms of the second of the discretionary circumstances in s 333(3)(b), whether the Proposal is reasonable, this is to be assessed objectively from the perspective of the “commercially experienced prudent creditor”.2

[20]             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.

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.

[21]             The third discretionary basis 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.

[22]             Section 333(4) requires the Court to refuse the Proposal if the Proposal does not provide for the payment before other debts are paid of:

(a)debts that would be preferential in a bankruptcy;

(b)the trustee’s fees and expenses properly incurred by the trustee in respect of the Proposal; and

(c)the costs of any other person other than the insolvent in relation to the meeting of creditors.

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

[23]             The trustee,  Ms  Liggins,  confirms  in  her  18  July  2024  report  that  on  15 January 2024 she gave notice to all known creditors of Mr Withell that a meeting of creditors would be held on 7 March 2024 to consider the Proposal.

[24]             On 7 March 2024, Ms Higgins gave notice to all known creditors that the meeting would be adjourned until 11 April 2024 to allow two of the creditors further time to consider the Proposal.

[25]             The meeting of creditors was then held on 11 April 2024. No creditors attended in person but three creditors voted by way of postal votes.

4      Insolvency Act 2006, s 333(3)(c).

5      Kelly v Structured Finance Ltd, above n 2, at [53].

[26]             Two of the three creditors who voted, were in favour and one against, with the total value of those voting in favour being $85,562.79 and those against, $13,887.10.

[27]             Section 331(3) of the Act sets out the requirements for acceptance of a proposal at the creditors’ meeting, providing:

(3)The resolution accepting the proposal must be decided by a majority in number and three quarters in value of the creditors who—

(a)vote; and

(b)are personally present or are represented at the meeting by a person specified in s 332 or have voted by postal vote.

[28]             These thresholds therefore only relate to those creditors voting. The resolution of creditors accepting the Proposal was therefore decided by the required majority in number of those voting and over three quarters in value, satisfying the requirements of the Insolvency Act.

[29]             The Proposal sets out the trustee’s fees and expenses (as set out above) as required by s 327 of the Act and Form B9 of the High Court Rules 2016. These are in accordance with reg 40 of the Insolvency (Personal Insolvency) Regulations 2007.

[30]             In addition, an affidavit has have been filed confirming that all known creditors were advised of the hearing date for the application to the Court for approval.

[31]             I am therefore satisfied that the procedural requirements under sub-pt 2 of pt 5 have been complied with.

Is the Proposal reasonable under s 333(3)(b)?

[32]             The Trustee’s original report to the Court dated 18 July 2024 advises that in her opinion Mr Withell’s assets have a total value of approximately $15,000. His debts amount to $120,193.98 and therefore considerably exceed the value of realisable assets in his possession.

[33]             The total amount of the payments to be made by Mr Withell under the Proposal in respect of his creditors is $78,000.

[34]             The requisite majority of voting creditors by number and value have voted 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

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

[36]             I am satisfied the Proposal will result in an improved and more certain return for creditors than if Mr Withell were to be adjudicated bankrupt. Ms Liggins also confirms in her first report that in her view the Proposal recovers more debt than could be achieved through any alternative method.

[37]             I therefore consider the Proposal is reasonable and calculated to benefit the general body of creditors.

Is there any reason that it is not expedient for the Proposal to be approved?

[38]             The Trustee’s first report sets out the current salary of the insolvent and confirms that at Debtfix they work with the client on a detailed budget with a net income and all outgoings of the insolvent to determine that there is enough of a surplus to afford a proposal.

[39]             In Ms Liggins’  further  report  to  the  Court  dated  25  September  2024,  Ms Liggins confirms that Mr Withell has made and continues to make timely payments to her of $300 per week in accordance with the Proposal and that he has been doing so since 30 March 2023 (with the delay attributable to issues with representation for the Trustee as mentioned above).

[40]             Upon approval by the Court, Ms Liggins confirms that she will release the funds collected so far to creditors. At the time of the report these amounted to $4,800.

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

[41]             I do not therefore consider that there is anything in the application to suggest that it would not be expedient for the Proposal to be approved.

Section 333(4) matters

[42]             In terms of s 333(4) matters, in this case there are no preferential debts, and the Proposal provides that the trustee’s fees and expenses will be paid for. The trustee organised the meeting of creditors to approve the Proposal and does not claim any separate costs. None of the matters for which the Act mandates refusal therefore prevent approval of this Proposal.

Conclusion

[43]I am satisfied that:

(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) of the Act which mandate against approval of the Proposal.

Result

[44]             For the reasons set out above, I approve the Proposal of Steven Withell dated 4 January 2024 pursuant to s 333 of the Insolvency Act.

Associate Judge Sussock