Carters, A Division of Carter Holt Harvey Limited v Fry [2012] NZHC 1040 (15 May 2012)

Last Updated: 23 May 2012

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2010-409-1781 [2012] NZHC 1040

BETWEEN CARTERS, A DIVISION OF CARTER HOLT HARVEY LIMITED

Creditor

AND JAMES ARTHUR FRY Debtor

CIV-2010-409-001782 [2012] NZHC 1040

AND BETWEEN CARTERS, A DIVISION OF CARTER HOLT HARVEY LIMITED

Creditor

AND GRANT MARSLAND BLACKMORE Debtor

Hearing: 15 May 2012

(Heard at Christchurch)

Appearances: M J Wallace for Applicants (and on behalf of P A McBride for Carter

Holt Harvey Ltd a creditor in support) Judgment: 15 May 2012

JUDGMENT OF ASSOCIATE JUDGE OSBORNE [as to approval of insolvency proposals]

[1] The insolvents seek approval of proposals under Part 5 of the Insolvency Act

2006.

[2] The insolvents had previously lodged proposals in July 2010. Although those proposals had received the required majorities at creditors’ meetings, the Court, accepting the submissions of one creditor (Carters, a division of Carter Holt Harvey

_{Ltd), found that it was inexpedient that the proposals be approved and therefore}

CARTERS, A DIVISION OF CARTER HOLT HARVEY LIMITED V FRY HC CHCH CIV-2010-409-1781 [15

May 2012]

refused to approve the proposals: see my single judgment delivered on 5 December

2011 in relation to both proceedings (CIV-2010-409-001667 and CIV-2010-409-

001668).

[3] As my earlier judgment indicates, the insolvents were the directors of a Christchurch construction company, CBD Construction Ltd, which was placed in liquidation in March 2010. CBD had been involved in construction work at the Kawarau Falls site at Queenstown. The liquidator’s initial assessment was that the unsecured creditors of CBD would receive approximately 0.20 cents in the dollar. The insolvents had guaranteed CBD’s obligations to twelve suppliers. Additionally, they were debtors of CBD through overdrawn current accounts.

[4] Carters obtained judgment (pursuant to guarantees) against each of the insolvents for $237,131.43 on 28 June 2010. Carters had subsequently pursued bankruptcy proceedings against each insolvent, which proceedings were adjourned pending the outcome of the earlier proposals. Carters was the single creditor which voted against the proposals. Other creditors had been prepared to accept from the insolvents a proposal which would have equated to 0.15 cents in the dollar for each insolvent on all unsecured debts so that the unsecured creditors would receive a total dividend from both insolvents of 0.30 cents in the dollar.

The current proposal

[5] The current proposal was that a dividend of 0.20 cents in each dollar be paid by each insolvent to unsecured creditors so that the unsecured creditors would receive a total dividend from both insolvents of 0.40 cents in each dollar.

My approach to the approval of the proposals

[6] Section 327 of the Insolvency Act 2006 requires a proposal to satisfy an insolvent’s debts to be in the prescribed form and to be accompanied by a statement of affairs in the prescribed form. I am satisfied that that was done. Under s 330 the person appointed provisional trustee had to call the meeting of creditors as I have

referred to, and I am satisfied that the provisions of both s 330 and 331 were met. These are:

330 Provisional trustee must call meeting of creditors

(1)The provisional trustee must, as soon as practicable after the proposal is filed, call a meeting of creditors by posting to every known creditor at the creditor's last known address—

(a)a notice of the date, time, and place of the meeting: (b)a summary of the insolvent's assets and liabilities:

(c)a copy of the proposal and particulars of any charge or guarantee: (d)a creditor's claim form:

(e)a postal vote in the prescribed form.

(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.

(3)If the provisional trustee receives a postal vote before or at the meeting, the postal vote has effect as if the creditor had been present and voted at the meeting.

331 Procedure at meeting of creditors

(1)The provisional trustee is the chairperson of the meeting of creditors, unless the creditors elect their own chairperson.

(2)The creditors may—

(a)examine the insolvent:

(b)accept the proposal with or without amendments or modification, by passing a resolution that sets out the proposal in its final form:

(c)confirm the provisional trustee as trustee, or appoint another person who is willing to act as trustee, in which case that person becomes the trustee.

(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 section 332 or have voted by postal vote.

(4)If the insolvent consents, the creditors may include in the proposal teams for the supervision of the insolvent's affairs.

[7] In this case, all 11 of the creditors who attended the meeting or voted by proxy voted in favour of the proposals.

[8] Following the acceptance of the proposal it was then the obligation of the trustee to apply to the Court, as he has now done through Mr Wallace, for approval. Sections 333 (1) – (3) provide:

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

[9] The process is therefore in three stages. The first stage was achieved through the filing of the proposal at the meeting of creditors; the second stage was that the acceptance of the required majorities had to be secured; and the third is the stage which has now reached me this morning. I have to consider the reasonableness of the proposal, and I have to consider the expediency of the proposal.

[10] It is well settled law that while I have some discretion to refuse an approval I should refuse approval only if one or more of the trigger paragraphs in s 333(3) apply. The approach normally taken to proposals is that set out by Hardie Boys J. in Re Bennetts Proposal (HC Christchurch B138/81 and M306/81 1 February 1982) which was subsequently quoted with approval in Farmer v Rowley [1992] 2 NZLR

195 at 196:

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

[11] I note also, as has been pointed out by this Court previously, that the very heading to s 333 is that the “Court must approve proposal”, which emphasises the limited nature of the discretion.

Have the provisions of the sub-parts of s 333 been complied with?

[12] I find that each of the statutory requirements has been complied with.

Are the terms of the proposal “not reasonable” or “not calculated to benefit the general body of creditors”?

[13] The earlier proposals failed to gain Court approval for reasons set out in the earlier judgment. In particular the Court found that creditors, and especially Carters, had been disadvantaged by the late notice of the creditors’ final meeting. There were additional, unsatisfactory features relating to a lack of transparency and certainty of debts claimed by creditors closely associated with the insolvents.

[14] The process whereby the insolvents have put forward new proposals which all creditors have had full opportunity to explore gives the Court assurance that the general body of creditors has found the new proposals reasonable and beneficial. I find that the combination of a proper process and a significantly increased dividend to shareholders has resulted in proposals which are now reasonable and calculated to benefit the general body of creditors.

Expediency of the proposal

[15] Adopting the previously used judicial approaches of such terminology as “practicable”, “suitable” or “appropriate”, I find the present proposals have all those qualities.

Exercise of the discretion

[16] Ultimately, having been through those steps I stand back and look at the proposals in their entirety and determine whether there is anything that should adversely impact on the exercise of my discretion in this case. I find that there is none.

Result

[17] The application for approval of each proposal is granted.

[18] The bankruptcy application pursued by Carters against each insolvent has been called in the List at Christchurch today. I adjourn each bankruptcy application to the List on 12 June 2012, with leave to counsel to file memoranda seeking leave

_{to withdraw each application, in which event attendance on the day will be excused.}

Associate Judge Osborne

Solicitors:

M J Wallace - Email: [e-mail]