Anca Properties Limited v Burt HC Napier CIV-2011-441-411 [2011] NZHC 1757 (16 November 2011)

Last Updated: 14 December 2011

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

_{CIV-2011-441-411}

IN THE MATTER OF the Insolvency Act 2006

BETWEEN ANCA PROPERTIES LIMITED Judgment Creditor

AND MARK ANTHONY BURT Judgment Debtor

CIV-2011-441-412

AND IN THE MATTER OF the Insolvency Act 2006

BETWEEN ANCA PROPERTIES LIMITED Judgment Creditor

AND PENELOPE MARY BURT Judgment Debtor

Hearing: 3 November 2011 (Heard at Napier)

Counsel: D. Kerr - Counsel for Judgment Creditor

N. Gray - Counsel for Judgment Debtors

Judgment: 16 November 2011 at 3:30 PM

_{JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL}

This decision was delivered by Associate Judge Gendall on 16 November 2011 at

3.30 pm under r 11.5 of the High Court Rules.

Solicitors: Lunn & Associates Ltd, Solicitors, PO Box 846, Napier 4140

_{Sainsbury Logan & Williams, Solicitors, PO Box 41, Napier}

ANCA PROPERTIES LIMITED V MA BURT & P M BURT HC NAP CIV-2011-441-411 16 November 2011

Introduction

[1] On 3 November 2011 I heard together, two applications for approval of creditors’ proposals by Mark Antony Burt (Mr Burt) and by Penelope Mary Burt (Mrs Burt). Both applications were opposed by the judgment creditor Anca Properties Limited and by Mr Kenneth Wheadon (Mr Wheadon) two of the three creditors who had voted against the proposal at the creditors’ meeting.

[2] In addition, I heard in the alternative two applications by the judgment creditor for orders adjudicating Mr Burt and Mrs Burt bankrupt.

[3] It is appropriate to deal first with the applications for approval of the creditors’ proposal. These are brought pursuant to Part 5 of the Insolvency Act 2006, they are effectively identical and will be considered together.

[4] All parties accept that if the Part 5 Creditors’ Proposal applications succeed

then there is no need to consider the two bankruptcy applications. [5] It is useful first, however, to set out some background facts. Background Facts

[6] According to their own evidence Mr and Mrs Burt who are married both acknowledge that they are seriously insolvent – at para 2 of their joint affidavit sworn 25 October 2011, they state that they are insolvent and note that their debts under the creditors’ proposal total $5,146,397.90.

[7] They go on to depose that their only assets comprise household furniture and personal property outlined in their earlier statement of affairs between them totalling

$26,600.00 and cash totalling $1,700.00. As general background, they begin by stating that they have been in the hospitality business for 30 years and in 1995, through a company they had established, purchased and operated the Masonic Hotel Napier business. At the Masonic Hotel, they established a Breakers Restaurant and a Rosie O’Grady’s bar.

[8] From early in 2000 until 2006 Mr and Mrs Burt depose that they set up more Breakers restaurants and Rosie O’Grady’s bars in addition to these businesses they had established in the Hawkes Bay. They depose at para 47 of their 25 October 2011 affidavit that they established subsidiary companies to run restaurants and bars in Napier, Gisborne, Henderson, Manukau, Taupo, Rotorua, Palmerston North, Hastings, Taranaki and Hamilton and in 2006-2007 at their peak these businesses employed up to 350 staff.

[9] They depose at para 49 of that affidavit that:

The only businesses that failed were the Breakers restaurants in Henderson and

Manukau.

and at para 50:

All of the other businesses in the Group were sold to third parties in 2007. All but one of them had operated profitably – the business in Taranaki (operated over 2005-

2010) also struggled with high rents and a lack of sales.

[10] Although Mr and Mrs Burt themselves do not directly provide evidence as to this aspect, as I understand the position, certain of the Breakers restaurants and Rosie O’Grady’s bars have been retained by other members of the Burt family – in particular including by companies controlled now by their daughters. The shares in these companies are principally owned by a family trust, the Burt Development Trust, originally established in July 2005 by Mr and Mrs Burt.

[11] In this regard the evidence before the Court from Mr and Mrs Burt’s daughter, Jacinta Marie Burt (affidavit dated 25 October 2011) specifically confirms that members of the family continue to own and operate the Breakers restaurant at Gisborne (under a company, Marpen Gisborne Limited) and the Breakers restaurant in Napier (under another company, Marpen Investments Limited). Directors of these two companies are Mr and Mrs Burt’s daughters and effectively the sole shareholder of both companies is the family trust, the Burt Development Trust. This is a Trust established on 8 July 2005 by Mr and Mrs Burt who were two of the three initial trustees. The current trustees of this Trust, however, are Mr and Mrs Burt’s two daughters and the family’s solicitor Mr Andrew Wares. The Burt Development

Trust is a wholly discretionary trust with Mr and Mrs Burt and other members of their family listed as discretionary beneficiaries.

[12] It is interesting at this point to note also that at para 7.1 of the Declaration of Trust for this Trust, it is Mr and Mrs Burt alone who have the right to appoint or remove any person as a discretionary beneficiary under the Trust, and in terms of para 17, the initial power of appointment and removal of trustees lies solely with Mr and Mrs Burt.

[13] The house in which Mr and Mrs Burt reside which is at 559 Main North Road, Bayview, Napier is also owned by the Burt Development Trust. I understand the Trust has an equity in this property of about $100,000.00. Mr and Mrs Burt depose that they reside in the property on a tenancy basis paying rental to the Trust of $350.00 per week.

[14] As an aside at this point, I note from Companies Office records for Marpen Investments Limited exhibited to Mr and Mrs Burt’s affidavit, that the address for their two daughters Jacinta Marie Burt and Karly Melinka Boast, the trustees of the Burt Development Trust, is also 559 Main North Road, Bayview, Napier.

[15] Finally, from the evidence before the Court it would appear that the Burt Development Trust and/or one of the continuing companies in which it holds shareholding, may also own and hold the head franchise and intellectual property rights for the Breakers restaurants chain and the Rosie O’Grady’s bars brands and name. No indication as to the potential value of these assets however is before the Court.

[16] Turning now to the suggested causes of their insolvency, at paras 19 and 20 of their 25 October 2011 affidavit, Mr and Mrs Burt outline what they contend to be these causes. On this, they depose:

19. Our insolvency can be linked directly to the termination of the lease of the Masonic Hotel premises by Anca Properties Limited (the judgment creditor) in early August 2010. Prior to this happening we had been in the hospitality business for 30 years. Over that time neither of us had been sued for the recovery of money owed by businesses we were involved in. The only exception was in 1987 when the ANZ sued Mark to recover

money. The claim was disputed and was settled. Neither of us have been bankrupt.

20. This termination was fatal to the future of the businesses operated at the premises (a Breakers restaurant, Rosie O’Grady’s Irish bar, the Med restaurant and the accommodation upstairs). The revenue from the Masonic Hotel businesses, operated by Masonic Hotel Napier (formerly Mini Maid) and which were the most profitable of the Turbo Group, was also crucial to the viability of the businesses operated by other subsidiary companies in the Group, which were less profitable.

[17] It seems however that the leases at the Masonic Hotel Napier which had some history of rental arrears were terminated because the tenant company Masonic Hotel Napier Limited was in arrears at that time of some two months rental and outgoings. As I understand it, under the leases, which were partly with the judgment creditor and partly with Mr Wheadon as landlords, these arrears were substantial and totalled

$174,100.38 and $125,965.00 respectively.

The Proposal

[18] The proposal from Mr and Mrs Burt to their creditors which is before the Court is for a one-off payment dividend of 1.5 cents in the dollar to be paid on all unsecured debts on 30 November 2011. The funds under this proposal which are coming by way of advances to Mr and Mrs Burt from the existing companies, Marpen Gisborne Limited and Marpen Investments Limited would amount to the sum of approximately $86,195.97 and be paid over to a nominated trustee a Mr Hamish Pringle (Mr Pringle), Chartered Accountant of Hastings to be distributed to the creditors.

[19] The proposal itself provides the required statement of Mr and Mrs Burt’s assets, debts and liabilities. As to their combined assets, as I have noted at para [7] above these are listed in the sworn statement of affairs dated 12 September 2011 at a total of $28,300.00.

[20] As to their debts and liabilities, Mr and Mrs Burt show no secured creditors but unsecured creditors as at 12 September 2011 totalling $4,707,984.00. These were listed at the time at this rather lower total figure than those outlined at (6) above, and were detailed as follows:

(a) ANZ National Bank Limited $3,329,153.49 (b) Touchstone Five Limited $ 873,097.60 (c) Kenneth Wheadon $ 125,765.65 (d) Anchor Properties Limited $ 174,100.38

(e) Lion Beer Spirits and Wine (NZ) Limited $ 200,000.00 (approx) (f) Bruce Moroney Electrical Limited $ 659.49

_{(g) Sainsbury Logan & Williams $ 5,207.45}

_{$4,707,984.00}

Counsels’ Arguments and My Decision

[21] The present application is made under s 333 of the Insolvency Act 2006 (the

Act).

[22] Section 333(3) of the Act sets out the circumstances where the Court may refuse to approve a proposal if it considers that:

(a) The provisions of Part 5 Sub-Part 2 dealing with proposals generally have not been complied with.

(b) The terms of the proposal are not reasonable or not calculated to benefit the general body of creditors.

(c) For any reason it is not expedient that the proposal be approved.

[23] The application of s 333(3) was considered recently by the Court of Appeal in Magsons Hardware Ltd v Bogiatto [2011] NZCA 378 at paras [22] and [23] in the following way:

[22] We agree with [the] identification of a two step process to be followed when considering an application. The first or threshold inquiry is whether either or both of the s 333(3)(b) or (c) tests have been met; if so, the second inquiry 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 of 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 paragraphs relied on.

[23] In the same case, McKay J cited with approval1 this passage from the judgment of Hardie Boys J in Re Bennetts’ Proposal:2

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 the 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 the creditors generally would fare better under a bankruptcy, approval ought normally to be given unless other special circumstances militate against it. Whilst 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 could be prejudicial to the general body of creditors.

[24] In determining whether a proposal is reasonable, the Court is to assess this from the perspective of creditors – Re: Kelly Ex P Structured Finance Limited [2009] 2 NZLR 785. Reasonableness does not import considerations of the public interest which it is said can be best considered under s 333(3)(c).

[25] As Asher J noted in Re: Kelly the question for the Court is to “objectively assess whether the proposal would be acceptable to a commercially experienced prudent creditor” (at para 45). In addition, the Court of Appeal in Magsons Hardware Ltd v Bogiatto at [29] went on to note:

Additionally, while the reasonableness element imports into the Court’s independent judgment the view of the creditors, the alternative touchstone of benefit to the general body of creditors under s 333(3)(b) raises the fairness of the proposal between classes of creditors, requiring a comparative analysis of the creditors’ relative positions under the proposal or bankruptcy respectively.

[26] It is also clear from the decision in Re: Trott and Joy, HC, Auckland, 14

April 1989, Tompkins J, B1471/88 that it is in considering whether it is expedient for a proposal to be approved under s 333(3)(c) that considerations of public interest will

_{be relevant.}

1 _{At 205.}

2 Re Bennetts’ Proposal HC Christchurch B 138/81; M306/81, 1 February 1982 at 9.

[27] In the present case the creditors’ meeting was held on 10 October 2011 and was presided over by Mr Hamish Pringle the provisional trustee. At that meeting the proposal by Mr and Mrs Burt was accepted by the required majority of creditors. Those creditors voting in favour of the proposal were the ANZ National Bank, Touchstone Five Limited, Bruce Moroney Electrical Limited and Sainsbury Logan & Williams. The total amount in dollar values of their claims was said to be “Approximately $5.1-5.2 million”. This represented over 75% in value and the majority in number of all creditors.

[28] The creditors at the meeting who voted against the proposal were the judgment creditor, Anca Properties Limited, Mr Kenneth Wheadon and Lion Beer Spirits & Wine (NZ) Limited. Their final debts were said to total $542,609.50 which represented well under 25% in value of the total creditors.

[29] As a result, Mr and Mrs Burt contend that the required majorities under the Insolvency Act 2006 have been reached and in terms of s 333(3)(a) the provisions of sub-part 2 of Part 5 of the Act have been complied with.

[30] As I have noted above, the present application for approval of the creditors’ proposal is opposed by two of the three creditors who voted at the meeting against the proposal. These are Anca Properties Limited and Mr Kenneth Wheadon. In his submissions on behalf of these creditors, Mr Kerr contended that Part 5 sub-part 2 may not have been complied with here in the sense that one of the debts in question, the debt owing to Bruce Moroney Electrical Limited, was not in fact a true “debt” of Mr and Mrs Burt. He claims that this debt was not in fact one guaranteed by Mr and Mrs Burt personally, and thus simply remained a debt incurred by and due from one of their companies at the time.

[31] As to this, on the evidence before the Court, which includes evidence from Mr Bruce Moroney on behalf of the creditor company, there seems little doubt to me that this small debt is indeed due from Mr and Mrs Burt pursuant to a valid guarantee given by them back in September 2000, details of which are before the

[32] Next, it is clear from s 327 Insolvency Act 2006 that to properly inform all creditors, the proposal must be accompanied by a statement of affairs from the debtors which sets out their “assets, debts and liabilities”. Here the statement of affairs from Mr and Mrs Burt as noted above shows their combined assets as simply being a relatively small amount of cash in the bank, furniture and personal effects. No mention is made of any other assets they may own.

[33] Subsequent to the creditors’ meeting on 10 October 2011, however, Mr and Mrs Burt acknowledge that they did not disclose in their statement of affairs other “assets” involving notional debts owing to them by a Trust known as the Dome Trust. They explain that these loan debts were omitted because there is no prospect of their being recovered from the Dome Trust, as it is insolvent. This is confirmed by other evidence before the Court.

[34] Although this oversight on their part is significant, in my view it does not affect their true financial and net asset position which is parlous, and therefore this omission is not fatal to their present application. I proceed on this basis.

[35] On balance, I find therefore that the provisions of sub-part 2 of Part 5 of the

Act have been complied with and s 333(3)(a) is met.

Terms of the Proposal are not Reasonable or Not Calculated to Benefit the

General Body of Creditors

[36] As I have noted, the proposal before the Court would result in a payment to all unsecured creditors of 1.5 cents in the dollar with this payment being made virtually immediately. Obviously this has the attraction to creditors of their receiving some payment without delay as opposed to what Mr and Mrs Burt contend is the likelihood that they would receive nothing in the event of their bankruptcy.

[37] Indeed, Mr and Mrs Burt’s two largest creditors ANZ National Bank Limited and Touchstone Five Limited have not only voted in favour of the proposal but they

have provided an affidavit by Mr Bruce McCallum an experienced insolvency practitioner as a director of Touchstone Five Limited on this issue. It is significant in my view however that Mr McCallum’s position here is not entirely independent. From 2007 to 2010 his position was one of direct involvement in the whole Burt family business as Chairman of the group (the Turbo Group) consequent upon an approx $700,000.00 investment his company Touchstone Five Limited had made by way of redeemable preference shares in the overall business. Despite (or perhaps because) of this Mr McCallum deposes in his affidavit dated 27 October 2011 in support of the present proposal, that in his view the proposal is reasonable as:

It is better to receive 1.5 cents in the dollar rather than nothing, particularly given the money for the payment under the proposal is to come from borrowed funds.

[38] In response, Mr Kerr for the opposing creditors contends that because the 1.5 cents in the dollar the creditors are to receive under the proposal is so small and of little practical benefit, the proposal must be considered as unreasonable under all the circumstances prevailing in this case. He notes that Anca Properties Limited, the judgment creditor stands to receive only $2,611.50 under the proposal out of a total debt of $174,100.38 and Mr Wheadon stands to receive $1,871.48 out of a total debt of $125,965.00. He contends that these amounts are far less than what Mr and Mrs Burt previously offered in settlement to these creditors, and in addition they are less than the amounts to which the judgment creditor, Anca Properties Limited would be entitled by way of costs and disbursements if it obtained adjudication orders against Mr and Mrs Burt. He argues that Anca Properties Limited in particular would not therefore receive more under the proposal then in bankruptcy, but of course this is always subject to there being funds in the bankruptcy to meet any such costs judgment (a preferential debt) to Anca Properties Limited.

[39] Mr Kerr goes on to argue that although Mr and Mrs Burt and the provisional trustee suggest that the creditors would get nothing if the proposal is not approved, this is by no means certain. He notes that although Mr and Mrs Burt appear to have limited personal assets, they are beneficiaries under the Burt Development Trust (albeit discretionary beneficiaries) and the total asset and income position of this Trust is entirely unclear but may well be able to assist them here.

[40] A further reason why the opposing creditors submit the proposal is not reasonable or calculated to benefit the general body of all creditors is that one supporting creditor and by far the largest in dollar terms, the ANZ National Bank has already received nearly $400,000.00 of the total debt owed to it including through the receivership of one of the Burt’s companies, Turbo Associates Limited.

[41] Finally, Mr Kerr contends that both the ANZ National Bank and the other major supporting creditor Touchstone Five Limited may be able to have recourse to the assets of other guarantors and/or assets of Trusts to settle all or part of their debts here and these are matters which should also be taken into account. There is, however a marked absence of any detail before the Court regarding any such other arrangements with these entities.

[42] At the outset I acknowledge that there may well be something in many of those arguments advanced by Mr Kerr for the opposing creditors which I have outlined in the preceding paragraphs.

[43] In addition, however, one thing is abundantly clear in this case. This is the fact that Mr and Mrs Burt’s present proposal, being simply for a one-off 1.5 cents in the dollar payment to their creditors in some three weeks time if approved will “save” the Burts from the stigma of otherwise inevitable bankruptcy adjudication and all that flows from this change of status. Also, in the proposal nothing is proposed by way of contribution to those creditors from the future income stream of Mr or Mrs Burt. On this aspect, there is evidence before the Court that Mr and Mrs Burt are employed in the Breakers Napier business by Marpen Investments Limited, a company directed by their daughter and owned by the Burt Development Trust. They state this employment is at a combined income of $55,000.00 per annum. In addition it seems they have the exclusive use of a company car purchased by that company in 2009 at a price of some $70,000.00.

[44] Against that background (and acknowledging that Mr and Mrs Burt, although in their mid-50s, have themselves deposed as to their lengthy and successful history in the hospitality business over some 30 years), questions may be asked as to

whether some future payment towards their creditors might be made in the event that

Mr and Mrs Burt were adjudicated bankrupt.

[45] On all of this, an issue must remain as to whether, even simply through the eyes of their creditors, the local commercial community and the general public, Mr and Mrs Burt, although acknowledging they are insolvent, might be seen as “continuing to live a relatively high life” in occupying the Burt Development Trust house property (purchased in October 2007 for $559,000.00) at Bayview, Napier (albeit at what may be a relatively modest rental), driving an expensive late model car and continuing to have access through their family and their position as discretionary beneficiaries in the family trust to several remaining Breakers and Rosie O’Grady’s businesses and general franchises.

[46] In the present case, substantial losses have been caused to Mr and Mrs Burt’s creditors. Although the amount of the principal indebtedness has resulted from personal guarantees of debts owed by certain of their failed businesses, the dividend to creditors in their present proposal must be considered as minimal. As I have noted above, it is unclear whether the major creditors, ANZ National Bank and Touchstone Five Limited might have other guarantees or security open to them but, in a general sense, there is a possible argument open that the proposed payment is of little practical advantage to all creditors.

[47] In saying that, I do not criticise the creditors who voted in favour of the proposal. Their motives in doing so are matters for them.

[48] Suffice to say here that if the proposal cannot be considered to be of any significant benefit to the supporting creditors the same must be said of opposing creditors – on this see Herbert v Allied Nationwide Finance, HC, Auckland, 26

September 2011, CIV-2010-404-8294, Associate Judge Doogue.

[49] Applying all these matters to the general circumstances prevailing in the present case, and in endeavouring to consider this proposal from the perspective of a commercially experienced prudent creditor, I take the view that it is a finely balanced matter whether or not this proposal could be considered to be “reasonable”

within the meaning of s 333(3)(b). On this, I do have some doubt as to whether or not it is calculated to benefit “the general body of creditors”. The opposing creditors, each of whom is owed substantially in excess of $100,000.00, are both strongly opposed to the proposal being approved. It is only the ANZ National Bank and Touchstone Five Limited (on the recommendation of Mr McCallum) who are significant creditors that voted in favour of the proposal. The debts owing to Bruce Moroney Electrical Limited ($659.49) and to Sainsbury Logan & Williams ($5,207.45), both of whom might be considered to be “friendly creditors” as supporters of the proposal, are not substantial in the overall scheme. In addition, the motives of these particular creditors have been questioned somewhat by the judgment creditor. Their motives in voting as they did however are matters for them. Nevertheless, their significantly lower debts, and the lesser total dollar value impact upon them of accepting a proposal such as the present one, in my view must have some relevance here. And, it is clear that if their votes in favour of the creditors’ proposal had been excluded, the requisite majority in number of creditors required to approve the proposal would not have been reached. Finally, it is effectively two major involuntary creditors (the judgment creditor and Mr Wheadon as unpaid lessors under their leases) and one large brewery supply creditor (Lion-Beer Spirits

& Wine (New Zealand) Limited) who have voted against the proposal.

[50] I remind myself that, although the Court is required to exercise independent judgment when considering an application to approve a creditor’s proposal, nonetheless it must to some extent be influenced by the views of the creditors of the applicants, the majority of whom in value and number have voted here in favour of the proposal – Re: Kelly ex P Structured Finance Limited [2009] 2 NZLR 785 and in Re: Marsh ex P Commonwealth Bank of Australia HC, Auckland, CIV-2009-404-

3336, 16 March 2010, Associate Judge Sargisson.

[51] Bearing this in mind, as I have noted at [49] above, I come to the view here that, despite the approval of those creditors who voted in favour, it is finely balanced as to whether the present proposal could be considered to be unreasonable or not calculated to benefit the general body of all creditors in a broad sense.

[52] Even if I may be wrong in reaching this rather tentative conclusion however,

in my judgment approval for the creditors’ proposal in the present case should be declined in any event in terms of the “expediency” test at s. 333(3)(c) of the Act, as I outline below.

For any reason it is not expedient that the Proposal be Approved

[53] In considering this aspect, at the outset I need to say that I find the application of this expediency test here provides compelling reasons to support the conclusion that the present proposal should not be approved. I now set out those reasons.

[54] From the material before the Court it is abundantly clear that over the years Mr and Mrs Burt have operated a range of businesses under a huge and complex array of different entities.

[55] In a letter dated 30 September 2011 from Mr Pringle annexed as exhibit “C” to his report on the proposal, he states that Mr and Mrs Burt are personal guarantors to the ANZ Bank in respect of indebtedness owed to the bank by entities with which they have been involved which he lists as:

(a) Turbo Associates Limited;

(b) Masonic Hotel Napier Limited; (c) Breakers Hamilton Limited;

(d) Dome Trust;

(e) Breakers Taupo Limited;

(f) Breakers Tauranga Limited; (g) TJ Developments Limited;

(h) Breakers Mount Maunganui Limited; (i) Breakers NZ Franchising Limited;

(j) Rosie O’Grady’s Hastings Limited;

(k) Breakers Henderson Limited; (l) Burt Ventures Limited;

(m) DCB Enterprises Limited; (n) Tennyson TIG Limited;

(o) Tennyson BG Limited;

(p) Breakers Palmerston North Limited;

(q) Rosie O’Grady’s Palmerston North Limited;

(r) Breakers Rotorua Limited; (s) The Birds Arms Limited; (t) Turbo Trust.

[56] In addition, from other evidence before the Court, it is clear that either now or at some point in the past Mr and Mrs Burt have conducted business through, or at least had a close involvement with, a range of other entities. These have been named by various parties in material before the Court and include:

(a) Marpen Investments Limited – the current owner/operator of the

Breakers Restaurant, Napier.

(b) Marpen Gisborne Limited – the current owner/operator of the

Breakers Restaurant, Gisborne. (c) Burco Enterprises Limited.

(d) Tavistock 2008 Limited.

(e) Turbo Investments Group Limited. (f) Masonic Hotel Limited.

(g) Breakers Restaurant Limited, which I understand may be responsible for the franchising of Breakers Restaurants and Rosie O’Grady’s Bars nationally.

(h) Burt Development Trust.

[57] Many of these business entities it seems may no longer trade. In the case of some, they have been placed into receivership or liquidation, and in the case of others, it is said that they remain and are now owned and operated by other members

of the immediate Burt family. These family members include in particular their two daughters, Jacinta Maree Burt and Karly Melinka Boast (as trustees and directors) both of whom have given their addresses as being that of their parents, as I note at [14] above.

[58] On these aspects, it is also useful to consider first, the comments advanced by the opposing creditor Mr Wheadon at para [32] of his 2nd November 2011 affidavit filed in this proceeding where he states:

32. I rejected the Burts’ proposal and I am opposed to the Court approving it too. You can see from the Burts’ own affidavits that they have created a structure of trusts and companies and used those to operate a number of businesses. I am aware from my many dealings in the community that many of those businesses have failed and left large amounts owed to a large number of creditors throughout Hawke’s Bay. The Burts have gone from one failed company to another to another. I believe that the offer of

1.5 cents in the dollar is so small as to be worthless, as repayment to me at that rate will do nothing to help cover the huge losses I have personally suffered. I would prefer to see an orderly and supervised unravelling of the Burts’ affairs in bankruptcy, and some restriction on their ability to be in business.

and secondly, the comments of Mr Craig Alan Hay, a director of the judgment creditor at paras 11 and 42 of his 2 November 2011 affidavit filed in this proceeding where he reiterates these comments and states:

11. In addition, from my direct involvement with them and as a local businessman, I am aware that the Burts have been behind various developments undertaken by numerous trusts and companies in recent years, many of which have left a trail of bad debts and unhappy creditors. This is essentially confirmed in the affidavit sworn by the Burts on 25

October 2011, although they have tried to minimise the extent of their control of various entities, and also to minimise the business failures.

and

42. I take issue with suggestions that the Burts are successful business people with a record of establishing and running profitable businesses. As I said above at paragraph 11, their legacy is self-evidently one of creating an elaborate network of trusts and companies whose businesses have ultimately proved unsuccessful and left creditors significantly out-of- pocket.

[59] Mr and Mrs Burt have endeavoured (in my view rather unsatisfactorily) to reply to these allegations of Mr Wheadon and Mr Hay in their reply affidavit dated 2

November 2011. Their only effective responses to those allegations noted at para

[58] above are at paras 4 and 9 of their affidavit which read as follows:

4. We refer to paragraph 11. Mr Hay refers to his being aware that we have been behind various developments undertaken by trusts and companies in recent years, many of which he says have left a trail of bad debts and unhappy creditors. Mr Hays’ comments are very general and do not provide any specifics. In any event, as we have explained in our first affidavit, the catalyst for the demise of the businesses in the Turbo Group was Anca Properties’ termination of the lease in August 2010. That caused the deck of cards to fall. That was the cause of the various business failures. As a result, creditors missed out because there was no money to pay them. While we appreciate that Anca Properties was entitled to look after its own interests, it ought to have been foreseeable to it that the termination of the lease would have consequences for creditors of at least Masonic Hotel Napier Limited (the lessee) because the ability to earn revenue would have ceased upon termination. What we can say is that prior to the termination of the lease creditors were paid as the seasonal cash flow allowed.

and at para 9:

9. We refer to paragraph 42. Up until Anca Properties terminated the lease in August 2010 we had operated successfully in business for some 30 years. As we have said, it was only upon termination of the lease that the deck of cards fell resulting in the insolvency of the businesses (and related companies) within the Turbo Group and the related trusts. Prior to the termination of the lease over 2007-2010 the Group was operated under the prudent commercial management of Bruce McCallum/Touchstone. But for the termination of the lease the businesses would have continued operating successfully in reliance upon seasonal cash flow and creditors would have been paid. As stated in our earlier affidavit (para 31), at the time the lease was terminated trade creditors of Masonic Hotel Napier Limited were less than 60 days.

[60] In that 2 November 2011 reply affidavit Mr and Mrs Burt make no reference

to para 32 of Mr Wheadon’s affidavit noted at [58] above.

[61] Essentially therefore, it seems that Mr and Mrs Burt endeavour to lay the entire blame for their current predicament upon the decision by Anca Properties Limited the judgment creditor to terminate their lease of the Masonic Hotel Napier premises. As I have noted above, this termination was based upon a default in paying substantial amounts by way of outstanding rent and outgoings for some two months and was a decision taken after what I understand were a range of previous defaults under the lease.

[62] No specific mention is made by Mr and Mrs Burt of their position at the time concerning the various other businesses they had been operating. On this from their own evidence which I have noted at [8] above there were some ten Breakers restaurant outlets and Rosie O’Grady bars which they had established between 2000

and 2006 and in 2006-2007 at their peak these employed up to 350 staff. And again no detailed comment or explanation is advanced by them as to the fate of the 28 companies and entities noted at [55] and [56] above in which they were involved.

[63] As I see the position, for them now to suggest that their non-payment of rental under the lease of premises for the Napier business only was the cause of the collapse of their entire business operations is far-fetched to say the least. I do note that Mr McCallum, in his affidavit filed in support of the present application, also appears to suggest that it was this Masonic Hotel Napier lease termination which was the reason for the collapse of all the Burt businesses but again, issue must be taken with this claim.

[64] To endeavour to blame the fall of all the Burt businesses on this one event, an event as fundamental for any business as requiring prompt payment of its premises rent, in my view is extreme and barely supportable.

[65] Further, on the evidence which is before the Court, two of the Breakers businesses at least (those being in Napier and Gisborne) are still continuing to operate and one of these businesses is employing both Mr and Mrs Burt at present. In addition, it is those businesses which have agreed to provide funds for the payments to creditors under the present proposal. No explanation is provided by Mr and Mrs Burt however as to why this may be so and what may have happened to their earlier interests and involvement in these particular businesses. Both Mr and Mrs Burt were directors of these companies Marpen Investments Limited and Marpen Gisborne Limited up until as recently as July 2011. Those are matters, in my view, which require some examination.

[66] The authorities accept that while the magnitude of a debtor’s insolvency (being the gap between assets and liabilities) is relevant when considering a creditors’ proposal, it is not decisive and only one factor to be taken into account – Kelly v Structured Finance Limited and Magsons Hardware Limited v Bogiatto [2011] NZCA 378 (CA). In the present case, the level of Mr and Mrs Burt’s insolvency is substantial being in excess of $5,100,000.00. Their level of assets is minimal which might well be seen as somewhat surprising given their claims that

they have been engaged in principally successful hospitality business ventures for some 30 years.

[67] In my view, a possible argument exists that Mr and Mrs Burt, on their own admission experienced in business matters, may have been reckless here in running up credit for their various companies and in incurring personal guarantee and other liability, whilst many of those businesses it would seem from the late 2000’s were in some difficulty.

[68] Next, I have some concern that Mr and Mrs Burt may in a strict sense have failed to make full and complete disclosure of all relevant material both to their creditors and to the Court on their present application. As I have noted above, they did omit certain asset details from their statement of position for creditors and certainly in my view they have failed to provide any detailed history of the many business entities they have been involved with in the recent past. In my judgment this is unacceptable under all the circumstances here.

[69] In addition, the lack of what I see as a proper explanation for the failure of these businesses (other than Mr and Mrs Burt’s attempt to blame the decision terminating their lease of the Masonic Hotel Napier premises for their recent failures) might well suggest an inability on their part to acknowledge their business misgivings and to manage their affairs in the future.

[70] The close involvement too of their daughters in the continuing Breakers and Rosie O’Gradys businesses (until July 2011 run by the Burts) and the continued holding nationally of franchise and intellectual property rights for these business operations, with nothing at all to show from this in the Burts’ financial positions, again in my view should attract some closer examination.

[71] Whilst I accept that in some cases of this type, the tenor of certain aspects of creditors’ opposition to a proposal has savoured of vengeance and punishment of debtors on the basis that the losses suffered by an insolvent creditor should be met by the stigma of bankruptcy, in the present case, and despite accusations to the contrary, I am satisfied that this is not the case. The purpose of the judgment creditor and Mr

Wheadon here in opposing the present application as I see it is not principally to see Mr and Mrs Burt punished but rather to have an independent authority conduct a proper examination of all their affairs for the benefit of all creditors.

[72] In the present case, Mr and Mrs Burt have been responsible for what is a serious commercial failure involving personal debts principally through guarantees in excess of $5,000,000.00. Their lack of personal assets here is somewhat surprising and certain of their businesses are now operated by their daughters who show as their addresses the home of Mr and Mrs Burt. In my view it is in the public interest here for a detailed enquiry and investigation into their financial affairs to occur.

[73] Whilst the public interest inherent in s 333(3)(c) Insolvency Act 2006 in considering the expediency of a creditors’ proposal is best approached from the perspective of protecting the public from the insolvent (Re: Kelly ex P Structured Finance Limited) in my view the present case is one not only needing the further investigation of Mr and Mrs Burt’s position by the Official Assignee noted above, but also is one where a possible risk of further conduct to the detriment of the commercial community by Mr and Mrs Burt is real and should be avoided. As I see it the general integrity of the insolvency regime requires this to occur.

[74] For all these reasons, I conclude that in terms of s 333(3)(c) Insolvency Act

2006 it is not expedient that the present proposal before the Court is approved even though the proposal might possibly on one view be considered in the narrower sense of s 333(3)(b) to be a reasonable one.

[75] The present application for approval of the creditors’ proposal is therefore

dismissed.

Bankruptcy Applications

[76] It follows therefore that, given the acknowledged insolvency of both Mr Burt and Mrs Burt here, the judgment creditor’s application for adjudication orders against them both must succeed.

[77] The following orders are accordingly made.

Orders

[78] With respect to proceeding CIV-2011-441-411, an order is now made adjudicating Mark Antony Burt bankrupt.

[79] This order is timed today, 16 November 2011 at 3.30 pm. [80] Costs on this matter are dealt with below.

[81] As to proceeding CIV-2011-441-412, an order is now made adjudicating

Penelope Mary Burt bankrupt.

[82] This order is timed today, 16 November 2011 at 3.32 pm. [83] Costs on this application are also dealt with below.

Costs

[84] As the judgment creditor and Mr Wheadon have been successful in opposing the application for approval of the creditors’ proposal, they are entitled to costs on that application on a category 2B basis together with disbursements as fixed by the Registrar. Orders to this effect are now made against Mr and Mrs Burt.

[85] As the judgment creditor has been successful in its application to have both Mr and Mrs Burt adjudicated bankrupt, the judgment creditor is entitled to costs on those applications calculated on a category 2B basis together with disbursement as fixed by the Registrar. Orders to this effect are now made against Mr and Mrs Burt.

‘Associate Judge D.I. Gendall’