Liguori v Golden Fund Limited [2012] NZHC 2840 (29 October 2012)

Last Updated: 9 November 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2011-404-004878 [2012] NZHC 2840

UNDER The Insolvency Act 2006

IN THE MATTER OF the proposal of Alfonso Liguori

BETWEEN A LIGUORI Insolvent

AND GOLDEN FUND LIMITED, KNIGHT COLDICUTT LIMITED, K J KNIGHT, K F GOULD, R J WARBURTON T/A WARBURTON, NATIONAL DEBT MANAGEMENT (R J WARBURTON) LIMITED, WESTMINSTER FINANCE LIMITED, M J MCCARTNEY,

P A LIGUORI, D P LIGUORI, S I SAMSA, BROADLANDS FINANCE LIMITED, F BARTOLI, TSB BANK LIMITED, ASB BANK LIMITED, RICHELIEU INVESTMENTS LIMITED, MALL SUPPLIES & SERVICES LIMITED, F J HAWKE & CO LIMITED Creditors

Hearing: By memoranda dated 11 October 2012

Counsel: B M Cunningham for applicant trustee

G Bogiatto for creditor in opposition

Judgment: 29 October 2012

_{SUPPLEMENTARY JUDGMENT OF ASSOCIATE JUDGE ABBOTT}

This judgment was delivered by me on 29 October 2012 at 4.45pm, pursuant to Rule 11.5 of the High Court Rules.

_{Registrar/Deputy Registrar}

_Solicitors:

Date...............

B Coburn, Hesketh Henry, Private Bag 92093, Victoria Street West 1142

G Bogiatto, PO Box 106-120, Auckland

Counsel:

_{B Cunningham, PO Box 3599, Shortland Street, Auckland 1140}

A LIGUORI V GOLDEN FUND LIMITED & ORS, HC AK CIV 2011-404-004878 [29 October 2012]

[1] On 3 September 2012 I gave conditional approval to an application for approval of a proposal made by Alfonso Liguori to his creditors.[1] The matter has come back before the Court to decide whether the conditions have been met and, if not, whether approval should be given in any event.

Background

[2] Mr Liguori is clearly and substantially insolvent (he owes creditors nearly

$3,205,000). He made a proposal to his creditors to pay them $4,000 per month over a three year period, to be sourced from the earnings of a hairdressing business operated by a company (Dovan Properties Ltd (Dovan)) of which he is sole director and shareholder. The business was to be run on a cash basis to avoid any risk of loss to trade creditors.

[3] The proposal was unusual in that it was very similar to one that had previously been rejected by this Court.[2] Following rejection, the earlier proposal was modified to avoid the need for any borrowing to set up the business, and supported by one of Mr Liguori’s creditors in the form of an undertaking to underwrite any trade debts incurred over the period of the proposal. The proposal was accepted by all but one of his creditors.

[4] I had concerns as to whether the proposal was achievable (the business was still in a “start up” phase at the time of the hearing) so I made approval conditional on three matters underpinning the proposal, namely that all tax obligations had been met in the period since the hearing, that Mr Liguori had appointed an accountant to oversee the management of the business for the period of the proposal (and co-sign all cheques), and that the business was generating sufficient revenue after the start up period (a six month period put forward by Mr Liguori) to fund the proposal.

Conditions of approval

[5] The conditions of approval, as set out in the earlier judgment, were:[3]

[59] For the reasons I have given I make an order approving the proposal, subject to the following conditions:

(a) The trustee is to investigate and file a report within 20 working days as to whether the business is now (more than six months after the start date) generating sufficient revenue to fund the proposal; and

(b) Mr Liguori is to file and serve an affidavit, also within 20 working days:

(i) Confirming that all GST tax returns have been filed up to that date, and that any GST payable has been paid (copies of the GST returns are to be exhibited); and

(ii) Proving the engagement of a chartered accountant to supervise the financial management of the business over the term of the proposal, and to be co-signatory of all cheques.

[6] I dealt with the consequences of the responses to the conditions in the following paragraph of the judgment:[4]

[60] The approval of the proposal will lapse if the business is not now generating sufficient revenue to fund the proposal or if these conditions are not met in any other respect. If the conditions are met, the proposal is to take effect according to its terms. In other words, the first payment will be due four months from the date of this judgment.

The responses received

[7] The trustee of the proposal filed a report on 1 October 2012. In that report he stated that over the previous five months the business had generated an average net revenue of $1,330 per month excluding any drawings or wages paid to Mr Liguori. He also commented that he had not been able to establish whether the landlord had waived or merely agreed to defer the difference between monthly rental stated in the lease agreement of ($2,800 plus GST), and what Dovan was actually paying (one of the concerns). He added that a chair in the salon had (recently) been leased for $500

plus GST per week for a period of 12 months commencing on 1 November 2012 and Mr Liguori was negotiating with another hairdresser to lease a second chair. He also recorded that Mr Liguori has said that he would forego any drawings or wages from the business (clearly in an effort to make the proposal work).

[8] The trustee stated the following conclusion:

Based on the performance over the last 5 months it is my opinion that Alta Moda Hair has only been able to generate an average of $1,330 per month which is not sufficient to fund the $4,000 per month due in terms of the proposal.

Mr. Liguori has advised that he is negotiating the rental of a second chair and that he is prepared to work without compensation until the business can fund payments due to creditors under the compromise. If Mr. Liguori is successful in obtaining the second chair rental the business could generate sufficient funds to meet the monthly payment of $4,000 due under the proposal.

[9] Mr Liguori also filed an affidavit, as required, on 1 October 2012. He attached GST returns for the months from March 2012 to August 2012, showing that claimable expenses exceeded returnable income for all but the last of those months (resulting in small refunds). In August sales exceeded purchases by a modest sum ($365). Mr Liguori also produced confirmation from a chartered accountant that he had accepted an engagement to assist with supervision and financial management of the business over the term of the proposal (and to be co-signatory of the business account) and evidence of the arrangement to rent out a chair from 1 November 2012 for $500 per week plus GST.

Submissions

[10] Counsel for the opposing creditor, and for the trustee/Mr Liguori have also filed memoranda.

[11] Counsel for the opposing creditor submits that it is clear from the trustee’s report that the business is not now generating the revenue needed to fund the proposal, and accordingly (and in terms of my earlier judgment) the approval lapses. He contends that the Court should disregard evidence of possible further income from chair rental in the future, Mr Liguori’s statement that he is not dependent on

profits from the business for personal living, and a statement that the landlord has agreed to extend the period for reduced rental to the end of April 2013, as falling outside the terms of the conditional approval.

[12] Counsel for the trustee/Mr Liguori relies on the evidence of Mr Liguori that he considers he is able to rent out a further chair, and submits that this will put the business in a position to fund the proposal on the date that the proposal is to commence (I note that the start date has always been four months from date of approval, although creditors may not have appreciated that it would have taken so long to get this far). He submits that approval should not lapse as the creditors generally would not fare better if Mr Liguori was adjudicated bankrupt, and the risk of further losses is negligible given that the business has generated $1,330 per month over the past five months.

Discussion

[13] At the time of granting conditional approval I commented[5] that success of the proposal depended on Mr Liguori’s projections of income and expenditure being borne out. I endorsed comments of Associate Judge Doogue in declining approval of the first proposals that creditors were no doubt supporting this proposal because they saw it as the lesser of two evils. I expressed a number of doubts as to the viability of the proposal (and hence whether on an objective assessment it could be acceptable to a commercially experienced and prudent creditor), but was prepared to put those doubts to one side if the business was now (after the six month start up period envisaged by Mr Liguori) generating the necessary funds.

[14] It is clear from the trustee’s report that the business is not now generating the income to support the proposal, and hence the condition has not been satisfied. The submission of counsel for the trustee/Mr Liguori was, in effect, that I should revisit that decision, and take into account future eventualities. There is no certainty in that respect. It is significant, in my view, that Mr Liguori has not provided any evidence from the landlord of the premises as to the alleged reduced rental at present, let alone

_{extension of any deferral until April 2013, and that the proposal was initially put}

forward on the basis that the business would generate $10,000 per year to meet Mr Liguori’s living expenses. Even on Mr Liguori’s own case for the future, the latter seems an unlikely prospect. Additionally, however, there is now no further ability to reduce expenses if the projected income is not realised.

[15] I see no reason to revisit the condition for approval as requested. As with Associate Judge Doogue on the first proposal, I am not satisfied that there is sufficient certainty as to the outcome for the business, notwithstanding the time that Mr Liguori has had. It is telling that he has given no explanation as to why it has taken so long to get the chair rental in place, and it does not seem as if there has been any significant build up of business of the independent contractor who first came in with him or indeed of business generated by Mr Liguori himself.

[16] Mr Liguori has said that he would continue with the hairdressing business, if possible, even if he was adjudicated bankrupt. That would be a matter for him to discuss with the Official Assignee, but if some appropriate terms can be structured (he would obviously have to step down as director and from control of the business) and he wants to take up the challenge, it may still be a way of keeping some faith with the creditors who have been supporting him.

Decision

[17] The condition for approval has not been met. It lapses accordingly. The application for approval of the compromise is declined.

_{[18] I make no order as to costs in relation to the further submissions.}

Associate Judge Abbott

---

[1] _{Liguori v Golden Fund Ltd [2012] NZHC 2253.}
[2] Liguori v Bartoli HC Auckland CIV 2010-404-002668, 6 September 2010

[3] _{At [59].}

[4] At [60].

[5] At [35].