IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2014-485-11276 [2015] NZHC 940

UNDER	Part 5 of the Insolvency Act 2009	

IN THE MATTER OF	
A proposal made by Stephen John Edward
Pack	

BETWEEN	
STEPHEN JOHN EDWARD PACK Applicant	

AND	
ULTRA PROJECTS LIMITED (in liquidation)
Objector	

Hearing:	16 February 2015	

Counsel:	
D G Dewar for Applicant
J C Corry for Objector
No appearance for provisional trustee	

Judgment:	
6 May 2015	

JUDGMENT OF ASSOCIATE JUDGE SMITH

[1]       This is an application by Mr Pack for approval of a proposal to his creditors made under pt 5(2) of the Insolvency Act 2006 (the Act).  Under s 333 of the Act, a proposal by an insolvent, once approved by the requisite majority of the insolvent’s creditors, must also be approved by the Court.  Creditors who object to the proposal have the right to oppose the application for approval.

[2]       A meeting of creditors to consider Mr Pack’s proposal was scheduled for

22 October 2014.   That meeting was adjourned to 6 November 2014, and on that

date the requisite majority of Mr Pack’s creditors approved the proposal.

[3]       The statement of affairs which was sent to Mr Pack’s creditors before the meeting showed that he had total assets of $41,500.  In a report made to the Court

STEPHEN JOHN EDWARD PACK v ULTRA PROJECTS LIMITED (in liquidation) [2015] NZHC 940 [6 May
2015]

following the creditors’ meeting at which the proposal was approved, the provisional trustee, Ms Susan Wylde, expressed the view that the value of Mr Pack’s assets was overstated at $41,000.  She did not consider there was any value in the household chattels which had been included as assets in the statement of affairs.  In her view the only assets of value were a motor vehicle having an approximate value of $3,000 and an item of plant called a “scissor lift”, worth approximately $7,000.

[4]       Mr Pack has since abandoned his claim to ownership of the scissor lift.

[5]       Mr Pack’s statement of affairs disclosed that he had three unsecured creditors, with debts totalling $278,951.80, and two secured creditors, with debts totalling
$2,660,447.69.   The two secured creditors were Otago Fund Managers / FM Custodians Ltd (Otago Fund Managers) and Heartland Bank Ltd (Heartland).  Of the unsecured creditors, by far the largest was the objector, Ultra Projects Ltd (in liquidation) (Projects), with a debt of $274,741.80.

[6]       Projects is a company of which Mr Pack was the sole director, and which he formerly controlled.   It was put into liquidation on 8 October 2013.   Mr Pack’s indebtedness to Projects arises out of advances made by Projects to him on his shareholder’s account with the company.

[7]       Otago Fund Managers and Heartland had lent money to another company formerly owned and controlled by Pack, Ultra Developments Ltd (Developments), which is also now in liquidation.  Mr Pack personally guaranteed these two debts.

[8]       Another unsecured creditor (not referred to in Mr Pack’s statement of affairs) submitted a proof of debt, attended the meeting of creditors on 22 October 2014, and voted on the proposal: the Commissioner of Inland Revenue claims that Mr Pack owes her a (non-preferential) debt of $142,372.00.   The Commissioner’s claim includes a claim for income tax payable by Mr Pack on personal drawings taken from Projects prior to that company’s liquidation.

The proposal

[9]       In his proposal, Mr Pack agreed to make a payment of $10,000 to the trustee upon the proposal coming into effect (i.e. on approval of the proposal by the Court). He then undertook to make further payments of $10,000 on each anniversary of the date of Court approval for the ensuing five years.   The total amount paid would therefore be $60,000, spread over a period of five years.

[10]     The proposal stated that a shortfall was anticipated on the realisation of the securities given to the two secured creditors, and that the shortfall would be paid by pro-rata distribution to the two secured creditors in the same manner as the proposed payments to unsecured creditors.

Mr Pack’s personal circumstances

[11]     Mr Pack is now 65 years of age, and lives with his wife in a Wellington property which is owned by a family trust (the SS Pack Family Trust).  He works for a company called Graceland Properties Ltd (Graceland), which undertakes project management work.  He is the sole director of Graceland, and owns 95 per cent of the shares in the company. At the time of the proposal, he had a contract with Graceland which would provide him with an income for the following 9 months.

How the creditors voted on the proposal

[12]     For the proposal to be approved by the creditors, it had to be accepted by a majority in number and three-quarters in value of the creditors who:

(1)	Voted; and

(2)	were  personally  present  or  were  represented  by  an  authorised representative at the meeting, or who voted by postal vote.1

[13]     Four creditors voted in favour of the proposal, and two against.  The creditors who voted against were Projects and the Commissioner of Inland Revenue.   Both

1	Section 331(3) of the Act.

secured creditors voted for the proposal.  The total value of the debts owing to the creditors who voted in favour of the proposal was $1,623,242.71, representing approximately 79.5 per cent of the value of the debts owing to all creditors who voted.

[14]     The debts owing to Otago Fund Managers and Heartland were admitted for voting purposes in sums which were lower than the amounts stated by Mr Pack in his statement of affairs: the debt to Otago Fund Managers was accepted by the provisional trustee at $993,805.50 and the debt to Heartland at $625,227.21.

The provisional trustee’s reports on the proposal

[15]     In her report to the Court dated 19 November 2014, Ms Wylde submitted that the  proposal  would  be  advantageous  to  Mr  Pack’s  creditors  for  the  following reasons:

(1)       Mr Pack’s commitment to ongoing payments over a five year period would provide a dividend from his future income which would not otherwise be available to his creditors.

(2)       The proposal would create incentives for Mr Pack to continue to assist creditors to realise their securities; there would also be an incentive to ensure that the annual payments are made, to avoid the stigma of bankruptcy.

(3)       The creditors would be better off than they would be if Mr Pack were bankrupted.

[16]     In  a  further  report  dated  12  February  2015,  Ms  Wylde  stated  that  the intention, confirmed to creditors, is that the costs of her administration of the proposal, if approved, will be borne by Mr Pack.  The $60,000 contributed by him will be applied solely to distributions made to creditors.  Ms Wylde also confirmed that the debt owing to the Commissioner of Inland Revenue is a non-preferential debt, and that it has not been the subject of any separate arrangement or agreement between Mr Pack and the Commissioner.

The failures of Mr Pack’s three companies

[17]     Projects was incorporated in December 2003.   It carried on business as a project manager.  Mr Pack says that initially Projects traded successfully, but things went badly wrong for the company in the period 2006-2009.   During that time, Projects did not complete annual financial statements, and its tax affairs were not finalised.  Mr Pack nevertheless continued to draw money from Projects for his day- to-day living costs.

[18]     Developments was incorporated in February 2006.  Developments acquired some land in Wainuiomata on which it planned to build a retirement home.  Mr Pack says that Developments was in the process of getting a resource consent for the retirement home when it was put into liquidation in November 2014.  Developments had borrowed substantial sums of money from Otago Fund Managers and Heartland to fund the retirement village project.  Both lenders took security over the retirement village land.

[19]     A third company, Meremere Retirement Village Ltd (Meremere), was also established by Mr Pack.   Developments held the land purchased for the retirement village, and it was intended that Meremere would operate the retirement village business.     Although   Meremere   was   incorporated   in   2010   to   complete   the development and the establishment of the retirement village, the project was never completed.

[20]     Projects,   Developments   and   Meremere   are   all   now   in   liquidation. Mr Ian Caddis is the liquidator of Projects, and the Official Assignee is the liquidator of Developments and Meremere.

[21]     The last set of financial statements for Projects was that completed for the year  ended  31 March 2008.    The  statements  show  that  Mr Pack  owed  Projects
$281,229 on his shareholder’s advance account as at that date.

[22]     Following  his  appointment  as  liquidator  of  Projects  in  October  2013, Mr Caddis found that Mr Pack continued to draw substantial sums from Projects after 31 March 2008.  Having reviewed Projects’ account ledgers for the period from

1 April 2008 to the date of Projects’ liquidation, Mr Caddis and his investigating accountant Ms Cummins calculated that the balance owing on Mr Pack’s shareholder advance account with Projects had increased to $664,685.60 by 31 March 2012.

[23]     In addition to the drawings taken from Projects for Mr Pack’s own day-to-day living expenses, Ms Cummins calculated that Mr Pack caused Projects to pay a total of $236,663 to Developments between 1 April 2008 and November 2012.  It appears that these payments were made to Developments primarily to enable it to pay interest owing to Otago Fund Managers and Heartland.

[24]     As with Projects, it appears that Developments failed to keep proper financial records: there are financial statements up to the year ended 31 March 2009 (the statements for that year were not prepared until 14 May 2014), but no financial statements were prepared for any of the subsequent years through to the date of Developments’ liquidation  in  November  2014.    Nor  were  tax  returns  filed  for Developments in respect of any period after 31 March 2009.

The Cable Price project

[25]     Late in 2011, Projects entered into a contract to manage the construction of a substantial new head office, workshop, and warehouse facility for Cable Price Corporation Ltd (Cable Price), at Gracefield, Lower Hutt.   The original contract price was $7,250,000, and Mr Pack says that the figure included a substantial margin for Projects.   He thought the agreed price would enable Projects to meet all its obligations to its creditors.

[26]     The Cable Price project turned out to be a disaster for Projects.  Mr Pack says that there were very substantial variations to the contract, reflecting significant alterations to the building as originally costed, both as to fit-out and earthquake strengthening.  Initially, the variations did not cause cashflow problems for Projects, but they became a problem in late 2012 when Cable Price took issue with the increased costs.  It contended that Projects had been overpaid, and that cost increases claimed by Projects had not been documented in accordance with the contract.

[27]     Projects sought legal assistance, but it was unable to reach any satisfactory resolution with Cable Price.  Mr Pack says he accepted a settlement with Cable Price that, in hindsight, was imprudent.  It resulted in loss to Projects, its contractors and himself.  (He contends that the settlement was forced on Projects by Cable Price, and that his mistake lay in accepting a price adjustment without recognition that it was to include all PC sums (i.e. sums allocated to initial budgeting based on estimates (e.g. internal floor coverings, wiring etc.)).

[28]     Notwithstanding the difficulties Projects had run into in its relationship with Cable  Price,  on  9  October  2012  Mr Pack,  in  his  capacity  as  Projects’  sole shareholder, passed a resolution that his director’s remuneration for the year ended
31 March 2012 be authorised at $300,000.  That sum was to be treated as a “bonus shareholder salary”.  It appears that the $300,000 salary was subsequently credited to Mr Pack’s  shareholder  advance  account,  which  was  then  substantially  in  debit. Projects  also  paid  $90,000  income  tax  to  the  Inland  Revenue  Department  on Mr Pack’s behalf.

[29]     In a letter sent to Projects’ creditors on 16 July 2013, Mr Pack stated that he had entered into the settlement agreement with Cable Price believing that, with good management, he would be able to ensure that Projects would be able to recover sufficient money to meet its obligations to its creditors.   That belief proved to be unfounded:  by July 2013  there  was  a  shortfall  of approximately $845,000,  and Projects’ was  putting a  compromise proposal  to  its  creditors.   The  compromise proposal was not accepted.

[30]     Mr Caddis contends that both Projects and Developments were insolvent from  at  least  March  2008,  and  that,  notwithstanding  the  insolvency,  Mr Pack continued to divert Projects’ money (which after August 2011 was  substantially comprised of progress payments received from Cable Price) to himself for living expenses, and to Otago Fund Managers and Heartland.

Applications by insolvent individuals for approval of proposals made to their creditors – relevant legal principles

[31]     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.

[32]     A proposal that is approved by the Court under s  333 is binding on all creditors whose debts are provable. The Court’s approval is also conclusive as to the validity of the proposal.2    No creditor whose debt was provable in the proposal is
permitted to take an enforcement step after the proposal has been approved by the

2	Section 334 of the Act.

Court (and while the proposal remains in force), except with the permission of the

Court given on such terms as the Court thinks appropriate.3

[33]     The section has been considered by the Court of Appeal on a number of occasions.   In Magsons Hardware Ltd trading as Mitre 10 Mega v Bogiatto,4  the Court confirmed that a two-step process is to be followed when considering an application under s 333.  The first, or threshold, enquiry is whether either or both of the s 333(3)(b) or (c) tests have been met.  If so, the second enquiry is whether the Court should exercise its residual discretion to refuse approval.5

[34]     In delivering the judgment of the Court in Magsons Hardware, Harrison J referred to the Court’s earlier decision in Farmer v Rowley, in which Richardson J observed:6

The Court may refuse its approval if and only if it is of the opinion that one or more of the trigger paragraphs (a), (b) and (c) [under the predecessor section 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 paragraph or paragraphs relied on.

[35]     The Court in Magsons Hardware also referred with approval to the following passage from Hardie Boys J in Re Bennetts’ Proposal, which had been cited by McKay J in Farmer v Rowley:7

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.

3	Section 335 of the Act.
4	Magsons Hardware Ltd trading as Mitre 10 Mega v Bogiatto [2011] NZCA 378.
5	At [22].
6	Farmer v Rowley [1992] 2 NZLR 195 (CA) at 199.
7	Re Bennetts’ Proposal HC Christchurch B/138/81; M306/81, 1 February 1982 at 9.

[36]     The passage quoted from Re Bennetts’ Proposal has also been approved by the Court of Appeal in Herbert v New Zealand Guardian Trust Co Ltd.8

[37]     In considering whether a proposal is “reasonable” under s 333(3)(b) of the Act,  the Court  must  make an  objective  assessment  from  the perspective of the commercially   experienced   prudent   creditor.9          In   Magsons   Hardware,   the Court of Appeal considered that, in addition to considering the Court’s independent judgment of the views of the creditors, the words “the general body of creditors” in s
333(3)(b) raises the fairness of the proposal as between classes of creditors, requiring a comparative analysis  of the creditors’ relative positions under the proposal or bankruptcy respectively.10     In Herbert, the Court noted that the views of secured creditors ought to carry less weight to the extent that they are secured, as they have other means of recovering the debt due to them.11

[38]     A proposal which provides a dividend to creditors which is so small as to provide them with no practical advantage over a bankruptcy has been held to be not reasonable.    In  Herbert,  the  Court of Appeal  found  that  the  proposal  was  not reasonable because it offered little material return in comparison with what creditors could expect to recover if Mrs Herbert were bankrupted.12

[39]     In considering whether, for any reason, it is not expedient that the proposal be approved,13  the expression “expedient” is to be given a broad meaning.   It will include  matters  relevant  to  the  public  interest,  although  the  subsection  is  not confined  in  its  scope  to  public  interest  considerations.    In  Re  Kelly,  Asher  J considered that subsection (3)(c) requires an open-ended approach – any attempt to focus on a specific matter would be to impose a limitation that does not arise from
the words of the subsection.14

8	Herbert v New Zealand Guardian Trust Co Ltd [2012] NZCA 442 at [27].
9	Re Kelly ex parte Structured Finance Ltd [2009] 2 NZLR 785 HC, at [45] per Asher J.  The approach adopted by Asher J in Re Kelly was approved by the Court of Appeal in Magsons
Hardware trading as Mitre 10 Mega v Bogiatto, above n 4 at [29].
10	At [29].
11	Herbert v New Zealand Guardian Trust Co Ltd, above n 8, at [34].
12	At [35].
13	Section 333(3)(c) of the Act.
14	Re Kelly ex parte Structured Finance Ltd above n 9, at [53].

[40]     In Re Trott & Joy, Tompkins J considered that for misconduct to amount to a reason why it is not expedient that a proposal be approved, the misconduct had to be so serious and irresponsible as to make it contrary to the public interest for the proposal to succeed. 15     As examples of such misconduct, Tompkins J cited the deliberate and wilful squandering of assets, excessively extravagant living, and misconduct of a gross character.  Tompkins J accepted that misconduct may in an
appropriate case be such that the insolvent should not be permitted to avoid the stigma of bankruptcy and its resultant disqualifications, or that the public interest may require a detailed inquiry and investigation that would be available in a bankruptcy, but not available following approval of a proposal.  In Re Kelly, Asher J accepted the reasoning of Tompkins J in Re Trott & Joy as it applies to the relevance of the public interest, noting that the purpose of the Act is not to punish a debtor. Asher J considered that focussing on the word “misconduct” was unhelpful, and that the public interest was best approached from the perspective of protecting the public from the insolvent by avoiding the risk of further conduct to the detriment of the community.

Issues for determination

[41]     The following issues arise out of Ultra Projects’ notice of opposition:

(1)       Does the proposal provide for the payment, before any other debts are paid, of the trustee’s fees and expenses properly incurred in respect of the proposal?

(2)       Did  Mr  Pack’s  statement  of  affairs  substantially  set  out  the  true position of his assets, debts, and liabilities?

(3)	Were the names, addresses, and occupations of each of Mr Pack’s
creditors properly disclosed in the statement of affairs and/or proposal as required by s 327(2)(b) of the Act?

15	Re Trott & Joy HC Auckland B 1471/88, B 1472/88, 14 April 1989 at [29].

(4)	Are the terms of the proposal reasonable, and calculated to benefit the general body of creditors?

(5)	Is it expedient that the proposal be approved?

[42]     The application for approval of the proposal will be refused because of the views I have come to on issues (2), (4) and (5) above: I am not satisfied that Mr Pack fully disclosed his assets in his statement of affairs and I consider that the terms of the proposal are neither reasonable nor calculated to benefit the general body of creditors.  I also consider that it would not be expedient to approve the proposal.

[43]     I will set out my conclusions on those three issues first.  My conclusion on those issues means that it is not necessary for me to address issue (3).   Nor is it strictly necessary for me to address issue (1), relating to the requirement that the proposal must include provision for the priority payment of the trustee’s fees and expenses.  However in deference to the arguments made by counsel on issue (1), I will set out my views on it at the end of this judgment.

Issues 2 and 3: Did Mr Pack’s statement of affairs substantially set out the true position of his assets, debts, and liabilities? And were the names, addresses, and occupations of each of Mr Pack’s creditors properly disclosed in the statement of affairs and/or proposal as required by s 327(2)(b) of the Act?

[44]     Section 327(2) of the Act provides:

327 Form of proposal

…

2)	The statement of affairs must set out the following information: (a)	the insolvent's assets, debts, and liabilities:
(b)	the name, address, and occupation of each of the insolvent's creditors:

(c)	the securities (if any) held by each creditor.

Submissions for Projects

[45]     Mr Corry submits that there are a number of respects in which the proposal failed to set out the true position of Mr Pack’s assets, debts and liabilities.  First, he submits that Mr Pack’s shares in Graceland were not properly disclosed.  The shares in Graceland were disclosed as an asset in Mr Pack’s statement of affairs submitted with the proposal, with an estimated value of $1,000.  Mr Caddis contests that value, particularly as Graceland purchased some items of plant from him as liquidator of Projects following Projects’ liquidation, at a price of approximately $7,500.

[46]     Mr Corry also submits that the scissor lift (value $7,500) was wrongly shown as an asset when it was in fact owned by Projects.

[47]     Mr Corry’s other principal submission under this head is that the debt owing to Projects was significantly understated in Mr Pack’s proposal documents.

Submissions for Mr Pack

[48]     Mr  Dewar  submits  that  there  is  insufficient  evidence  for  the  Court  to conclude that Mr Pack’s estimate of $1,000 for the value of his Graceland shares was wrong.   He accepts that the scissor lift will no longer be an asset available to Mr Pack’s creditors.

[49]     As for the size of the debt owing to Projects, Mr Dewar notes that Projects is now seeking to claim a debt which is significantly higher than the debt admitted by the trustee for the purposes of voting on the proposal.  He submits that there has been no process by which any other debt was determined, and accordingly the Court ought not to consider the evidence that Projects is now claiming a substantially higher debt.

Discussion and conclusions on Issues 2 and 3

[50]     As for Mr Pack’s shares in Graceland, I have no evidence before me on which I could conclude that Mr Pack’s estimate of $1,000 for the value of these shares was inaccurate.   While Graceland purchased some assets from Projects following the liquidation for $7,500, I do not have sufficient evidence to conclude

that those assets would still have been worth $7,500 at the date Mr Pack made his proposal, or any evidence on the extent of Graceland’s liabilities.  There is no basis on which I could conclude that the statement of affairs did not set out Mr Pack’s assets insofar as they consisted of shares in Graceland.

[51]     The fact that Mr Pack has now abandoned his claim to ownership of the scissor lift means that Mr Pack’s assets were overstated in the statement of affairs by
$7,500.  That in turn means that the statement of affairs did not accurately set out Mr Pack’s assets, and to that extent I accept that there was a failure to comply with s 327(2)(a) of the Act.  The Court therefore has jurisdiction to decline to approve the proposal under s 333(3)(a) on the basis that “the provisions of this subpart have not been complied with”.  However if this were the only matter of concern I would not have been prepared to exercise my jurisdiction against approving the proposal on account of it.  The situation with the scissor lift is not one where Mr Pack has failed to disclose a substantial asset, and in the context (very modest assets and relatively large debts), the breach of s 327 would not on its own have been enough to justify a decision declining the proposal.

[52]     Mr Corry’s third ground of complaint under this head is that the statement of

affairs significantly understated the debt owing to Projects.

[53]     Under  s  328(3)  of  the  Act,  the  time  when  the  claims  of  creditors  are determined is the time when the proposal is filed in Court.  In Re Scott ex parte APN New   Zealand   Ltd,   Associate Judge   Matthews   considered   that   the   correct interpretation of the subsection is that the claims of creditors are to be determined at the date that any amended proposal, for which consent is ultimately sought, is filed
in Court.16   In this case, no amended proposal was put to the creditors, so the claim

made by Projects was to be determined as at the time the proposal was filed in Court.

[54]     It appears from the trustee’s reports that forms of proof of debt were sent to

each creditor in advance of the first of the creditors’ meetings, and that the trustee

16	Re Scott ex parte APN New Zealand Ltd HC Auckland CIV-2010-404-4876, 25 March 2011 at
[19].

subsequently admitted proofs submitted by all six creditors.  Projects’ proof is said to

have been admitted in the sum of $274,741.80. Votes were counted on that basis.

[55]     The argument that the debt owing to Projects was substantially understated is

concerned   with   the   “bonus   salary”   of   $300,000   credited   to   Mr Pack   on

9 October 2012,  and  the  $90,000  payment  of  income  tax  on  that  salary  which Projects paid to the Inland Revenue Department.  Mr Caddis says that the crediting of the $300,000 was both a transaction which was reversible by a liquidator under s 292 of the Companies Act 1993,17  and a “major transaction” of Projects which could not be undertaken without the approval of a special resolution of the company. But the effect of s 292 is only that the impugned transaction is “voidable” and, so far as the evidence shows, Mr Caddis had not filed any notice under s 294 of the
Companies Act 1993 to set aside the transaction by the date Mr Pack’s proposal was filed in Court.  As at that date, then, there was no basis under s 292 for assessing the liability  of  Mr Pack  to  Projects  at  $574,741.80  (the  figure  derived  by  adding
$300,000 to the amount of Projects’ proof as admitted by the provisional trustee).

[56]     Nor is there any evidence that the crediting of the salary was or could have been set aside as an unauthorised “major transaction” under s 129.  Breach of s 129 is deemed to be “unfairly prejudicial conduct” for the purposes of s 174 of the Act,18 but again, s 174 is only an enabling provision, under which affected shareholders and other entitled persons who consider that the affairs of the company have been conducted in a manner that is unfairly prejudicial to them may apply to the Court for
relief.  As far as the evidence shows, no such application had been filed by the date Mr Pack’s proposal was filed in Court.  Indeed, it is difficult to see how it could have been given that Mr Pack was the only shareholder and he had signed a shareholder’s resolution approving the salary.

[57]     Accordingly, I see no basis for the contention that the amount of Projects’

debt was understated by an amount equivalent to the $300,000 bonus salary.

17         In broad general terms, ss 292 and 294 provide that a payment made by a company within the period  of  two  years  before  the  company’s  liquidation,  at  a  time  when  the  company  was insolvent, is voidable by the liquidator.
18	Companies Act, s 175(1)(e).

[58]     Projects may have a stronger case on the $90,000 paid by it to the Inland Revenue Department for income tax on the bonus salary.    It  seems to me that Mr Pack must have been personally liable for income tax on the $300,000, and if the tax was paid by Projects I accept that in the ordinary course the payment would have been treated as an advance by Projects to Mr Pack, and added to the amount of his shareholder’s account with the company.  However Mr Pack argues that the $90,000 was also allocated to him as salary due from Projects in respect of his years of work with the company.

[59]     Mr Pack’s liabilities may have been understated by $90,000, and if that is the case I accept that he did not fully state his liabilities in the statement of affairs which he filed with his proposal.  To that extent, there would have been a failure to comply with s 327(2)(a) of the Act, and therefore grounds under which the Court might exercise its discretion to refuse to approve the proposal under s 333(3)(a) of the Act.

[60]     But I do not consider that a $90,000 understatement of the debt owing to Projects, on its own (or considered with the inclusion of the scissor lift as an asset), would provide a sufficient basis for the Court to exercise its discretion to decline to approve the proposal.  First, it is highly improbable that the small reduction in the dividend which would otherwise have been distributed to shareholders under the proposal would have been enough to cause any of the creditors who voted for the proposal to change their minds (the addition of a $90,000 debt would mean the reduction of the dividend which would otherwise be made to creditors under the proposal, from approximately 3 cents in the dollar to approximately 2.9 cents in the dollar).  Secondly the addition of $90,000 to the debt owing to Projects would not have affected the three-quarters majority in value required for the creditors’ approval of the proposal – that threshold would still have been reached.   Thirdly, Projects appears to have been at least partly at fault in submitting a proof which apparently did not include the $90,000.

[61]     A more substantial matter raised by Mr Caddis was the ownership of a boat, the MV Lady Sylvia.  Mr Caddis suggests the vessel is in fact owned by Mr Pack; Mr Pack says it is owned by the SS Pack Family Trust.

[62]     In support of his position, Mr Pack produced documents showing that the boat was sold by Mr and Mrs Pack to the Family Trust in January 1998 for the sum of $150,000.  The purchase price was left in by Mr Pack and his wife as the vendors, on the basis of a deed of acknowledgment of debt completed on 28 January 1998. The deed shows that the principal sum of $150,000 is not due for repayment until
30 January 2018.  In the meantime, interest is payable on the outstanding sum at the rate of 9 per cent per annum, if demanded by Mr and Mrs Pack.   Mr Pack also produced   a   copy   of   the   minutes   of   a   meeting   of   the   trustees   of   the SS Pack Family Trust,  held  on  28  January  1998.    The  minutes  referred  to  the proposed acknowledgment of debt associated with the purchase of the boat from Mr and Mrs Pack, and recorded that, at that time, the Family Trust owed the sum of
$45,000 to each of Mr and Mrs Pack.  The minutes went on to record that, if the matter proceeded, the trustees would owe Mr Pack and his wife the sum of $120,000 each.

[63]     I have not seen anything in the evidence showing that the Family Trust has repaid the debt (apparently $120,000) owing to Mr Pack, and that debt appears to be an asset of Mr Pack which was not disclosed in his statement of affairs, or put before the creditors subsequently.   On the face of it, there would be no reason for the trustees of the Family Trust to repay Mr and Mrs Pack the $150,000 on the boat before they were required to do so, which was not until January 2018.   On the limited evidence which Mr Pack has seen fit to provide, I conclude that the $150,000 owing to him and his wife by the Family Trust probably remains owing, and that there exists a debt of not less than $75,000 (somewhat less if one were to calculate a net  present  value  of  $75,000  payable  in  January 2018)  which  is  an  asset  not disclosed to the creditors in Mr Pack’s statement of affairs or subsequently.  The debt owed by the Family Trust to Mr Pack may in fact be higher if the $45,000 recorded in the minutes of the trustee’s meeting of 28 January 1998 has not been repaid to Mr Pack.

[64]     The omission of these debts from Mr Pack’s statement of assets appears on its face to constitute a breach of s 327(2)(a) of the Act, under which Mr Pack was obliged to include all of his assets in the statement of affairs.

[65]     In the context of a proposal offering creditors a total of $60,000 payable in instalments spread over five years, the omission to disclose an additional asset roughly equivalent in value to the total of the payments Mr Pack proposes to make is significant, and in my view it is sufficient on its own for the Court to exercise its discretion against approving the proposal.  If there is a further $45,000 owing by the SS Pack Family Trust to Mr Pack, as the trustees’ 1998 minutes suggest may be the case, the failure to disclose assets would be even more significant.

[66]     The remaining matter under this heading is issue 3, the alleged failure to include in the statement of affairs the names, addresses and occupations of each of Mr Pack’s creditors.  In the view to which I have come on the issue of the MV Lady Sylvia, and on issues 4 and 5 below, it is not necessary for me to consider this claim.

Issues 4 and 5: Are the terms of the proposal reasonable, and calculated to benefit the general body of creditors? And is it expedient that the proposal be approved?

Submissions for Projects

[67]     Mr Corry submits that Mr Pack’s track record shows that he has been the sole director of three failed companies, to which he owes substantial sums of money.  He is said to have been lacking in judgment and commercial prudence, proceeding recklessly  and/or  on  inadequate  or  incomplete  information.    Mr Corry  relies  in particular  on  the  failure  of  Mr Pack  to  arrange  for  financial  statements  to  be completed for either Projects or Developments over a period of five to six years, during which time both companies continued to trade while insolvent.  He points to Projects’ failure to pay tax and GST, and to the accumulation of substantial sums in late payment penalties due to the Commissioner of Inland Revenue.  He submits that the overall  picture  is  one of someone  who has  shown  himself  to  be  unable to competently manage his companies’ affairs.

[68]     Mr Corry also relies on Mr Pack’s conduct in continuing to increase his personal debt to Projects by taking drawings from Projects, and in diverting money from Projects’ subcontractors in order to make payments owing by Developments.

[69]     Mr Corry further submits that there are serious grounds for enquiry as to the total of approximately $2 million advanced to Developments by Otago Fund Managers and Heartland.   The land in Wainuiomata is now said to be worth only approximately $447,000 (although Mr Pack contends that if the resource consent is granted for the retirement village the value is  likely to be approximately $1.25 million).  Mr Corry asks rhetorically what happened to the funds advanced by the two secured creditors? He submits that that is a proper matter for investigation.

[70]     As for the proposed annual payments of $10,000, Mr Corry submits that in the context of total indebtedness exceeding $2 million these payments amount to not much more than nothing at all.   Further, there is a risk that Mr Pack, who is now aged 65 and not in perfect health, will be unable to complete the scheduled repayments,  which  will  extend  until  he is  70  years of age.    (According to  the proposal and Mr Pack’s answers to questions put to him at the creditors’ meetings, the annual payments of $10,000 will be funded by Mr Pack personally, either out of his salary with Graceland or with a salary or wages he might derive from any substitute employment.)

[71]     If the proposal is approved, Mr Corry submits that Mr Pack will carry on pretty much as before, in the same line of business (project management consulting), and with the likelihood that he will behave in the same fashion as he did when he was sole director of the three failed companies.  In the circumstances, there is a need to  protect  the  commercial  community  from  any  repetition  of  that  conduct  by Mr Pack.  Mr Corry invites me to follow the decision of Asher J in Re Kelly, and decline to approve the proposal on the basis that further conduct to the detriment of the community should be avoided.

Submissions for Mr Pack

[72]     Mr Dewar submits that there is a limit to which the Court can conduct a “trial within a trial” in an application such as this, and determine disputed matters of fact relating to Mr Pack’s involvement in the affairs of Projects and Developments.  This is not a proceeding in which there can be a determination as to the prudence of

Mr Pack’s decision to enter into contracts, or as to the solvency or otherwise of

Projects or Developments at relevant times.

[73]     Mr Pack has offered his creditors $60,000 in tax-paid money, in addition to which  he  will  meet  the  costs  of the  proposal,  so that  the  full  $60,000  will  be available to his creditors.  While that dividend is modest, it is not derisory (as was found to be the case in Herbert v New Zealand Guardian Trust Co Ltd19).  Mr Dewar submits that the case is more comparable with the decision of Associate Judge Faire (as he then was) in St Laurence Lending Ltd v Olliver, in which an insolvent’s
proposal which would have resulted in creditors receiving less than 1 cent in the dollar on their debts was approved by the Court.20

[74]     The Court must take heed of the attitude of creditors, and only depart from their views  if  it  considers that  the attitude taken  by the  creditors  is  manifestly unreasonable.  In this case, the two most substantial creditors are reputable lending institutions which are to be taken as unsecured as to the debts proved.

[75]     Mr Pack is not living in a lavish property; his living circumstances are very modest.  The fact that his home (and a boat) are owned by a family trust should not affect the proposal (the insolvents in St Laurence and Magons Hardware were both beneficiaries  of  family  trusts),  particularly  as  the  trust’s  assets  have  not  been acquired or improved at the expense of creditors, or in the conduct of ventures that have led to Mr Pack’s insolvency.

[76]     While the “magnitude” of the insolvency is a relevant consideration, and any past  misconduct  may  be  considered,  Mr Pack  has  not  been  before  the  Court previously.   He has a 50 year work history, has never been insolvent, and has no convictions.   While two separate projects have failed (Projects and the retirement home development undertaken by Developments), there is no evidence to infer that either project failed as a result of reckless disregard of the company’s obligations to its creditors.   Clearly the Cable Price project led to the failure of Projects (and in
turn, Developments).  However Projects has not put in evidence any analysis of the

19	Herbert v New Zealand Guardian Trust Co. Ltd above n 8, at [33].
20	St Laurence Lending Ltd v Olliver HC Wellington CIV-2008-404-7417, 13 May 2009.

imprudence of that contract in the first instance, nor sufficient evidence for the Court to make any useful assessment of the merits of the dispute which arose.  The Court can do no more than note the differing points of view.

[77]     While Mr Pack drew a “bonus salary” of $300,000 from Projects, and caused Projects to pay $90,000 in income tax on that salary, that payment is to be viewed against the background of an expected contractor’s margin on the Cable Price project of up to $700,000.  And the salary was allocated to Mr Pack in consultation with Projects’ chartered accountant.  In those circumstances, no adverse inference can be drawn about the propriety of the payment.

[78]     Mr Pack is 65 years old, and there is no reason to conclude that he presents any risk to the commercial building community in which he works.   He is now employed with another company, and the only project he has undertaken with that company has been undertaken successfully.

[79]     Overall, the proposal is reasonable and calculated to benefit the general body of creditors.  It cannot be said, Mr Dewar submits, that reasons of expedience call for the Court to overrule the majority creditor view that the proposal ought to be approved.

Discussion and Conclusions on Issues 4 and 5

[80]     The  starting  point  in  assessing  whether  a  proposal  is  reasonable  and calculated to benefit the general body of creditors is that approval of a proposal accepted   by   the   creditors   should   normally   be   given   unless   other   special circumstances militate against it.21    I think, though, that there are circumstances in this case that militate against approval of the proposal.

[81]     Mr Pack’s failure to disclose what appears to be a substantial asset in the form of a debt due to him in January 2018 by the SS Pack Family Trust was not merely a breach by him of his duty to fully disclose his assets in his statement of
affairs.  It was a factor which on any view rendered the proposal unreasonable and

21	Magsons Hardware Ltd trading as Mitre 10 Mega v Bogiatto, above n 4, at [23]..

not calculated to benefit the general body of creditors.   The likelihood is that the majority of the creditors approved the proposal in the belief that anything was better than the amount (probably nothing) they thought they would receive if Mr Pack were bankrupted.   But it appears that the creditors would do just as well or better if Mr Pack were bankrupted than they would do if the proposal were approved.

[82]     A second  matter  of  concern  is  that  the  net  value  of  the  debts  owed  by Mr Pack to the two secured creditors never seems to have been made clear.  To the extent that those creditors hold securities which have not yet been realised, the net debts owed to Otago Fund Managers and Heartland may be significantly less than the figures of $993,805 (Otago Fund Managers) and $625,227.21 (Heartland) which were accepted by the provisional trustee.  The point is important, because creditors’
views may carry less weight to the extent those creditors hold security. 22

[83]     No clear explanation has been provided for the discrepancy between  the figures for these debts which Mr Pack included in the statement of affairs, and the final figures accepted by the provisional trustee.  (Mr Pack said that the debt owing to Otago Fund Managers was $1,316,447, but the figure adopted by the provisional trustee was $993,805.  Mr Pack’s figure for the Heartland debt was $750,000, but the provisional trustee only accepted the debt at $625,227.21.)   The total discrepancy between  Mr Pack’s  figures  and  those  accepted  by  the  provisional  trustee  is
$447,414.79, and it is not clear whether that difference represents an attempt by either the secured creditors themselves or by the provisional trustee to put values on the securities over Developments held by those companies, or if the provisional trustee’s figures would be reduced even further if a value for the securities were taken into account.

[84]     Mr Caddis produced with his evidence transcripts of recordings made of the two creditors’ meetings.   The transcripts show that Mr Caddis closely questioned Mr Pack on the value of the securities held by the secured creditors.  It appears from Mr Pack’s answers that the figures provided by him in the statement of affairs were the amounts of the creditors’ claim figures, without any reference to the value of
their securities.  (Mr Pack’s answers to questions put to him at the creditors’ meeting

22	Herbert v New Zealand Guardian Trust Co Ltd, above n 8, at [34].

suggest that one claim figure came from a Property Law Act notice sent by Otago Fund Managers, and the other from a settlement amount advised in an email from Heartland.)

[85]     Mr  Caddis’  recording  of  proceedings  at  the  second  creditors’  meeting

included the following exchange:

Caddis: My concern is that one of the companies which is a creditor here has claimed $993,000 on an asset that they have valued at $450,000 I think it is?

Pack: It also has a valuation as a um…consented retirement village at $1.25
million.

Caddis: So are you suggesting that a sale by that mortgagee, who told me
that they would be willing to sell it at $450,000…

Pack: I have no control over what the first mortgagee does.

[86]     On the basis of that exchange, it appears to me that the position is that the debt  owing  to  Otago  Fund  Managers,  accepted  by  the  provisional  trustee  at
$993,805.50, is secured over a property which is valued at not less than $450,000 (and possibly more than that, depending on the question of whether a resource consent will be issued for the retirement village).

[87]     If  the  debt  owing  to  Otago  Fund  Managers  were  reduced  by  $450,000 (reflecting the likely minimum value of the security held by it), and the debt owing to  Projects  were  increased  by  the  $90,000  tax  payment  made  by  Projects,  the proposal would have failed to reach the threshold level of 75 per cent in value of the debts of creditors voting on the proposal (by my reckoning, the percentage would have been approximately 69 per cent).  I take this factor into account in exercising my discretion against the approval of the proposal.

[88]     I am also of the view that it would be inexpedient to approve this proposal. For  periods  which  appear  to  have  been  in  excess  of  five  years,  Mr Pack singlehandedly ran Projects and Developments without attending to fundamental duties owed by a company director.   In particular, tax and GST returns were not filed,  and  no  financial  statements  were  completed.    Mr Pack  appears  to  have preferred to fund Developments (which has obligations to secure creditors whose

debts  are  guaranteed  by  him)  rather  than  pay  Projects’ creditors,  and  I  accept Mr Caddis’ assessment  that  either  or  both  of  Projects  and  Developments  were probably trading while insolvent for some considerable time prior to the liquidation of Projects in 2013 and Developments in late 2014.

[89]     The cases, including Re Kelly, make it clear that s 333(3)(c) of the Act is not concerned with punishing the insolvent for past commercial misconduct – it is more likely to be engaged if there is a perceived need for investigation of the insolvent’s affairs by the Official Assignee, or a need to protect the commercial community from commercial risks which the Court considers would be likely to recur.

[90]     In this case, I think the risks of further commercial defaults by Mr Pack must be  considered  high.    I  accept  Mr  Corry’s  submission  that,  through  Graceland, Mr Pack is continuing to operate a very similar business to that which he operated through Projects.  Although he is now 65 years old it appears that his intention is to continue to carry on a business of that sort for at least the five years which would be necessary for him to fund the payments which would be due under the proposal.

[91]     While  Mr Pack  appears  to  be  suggesting  that  he  is  not  in  control  of Graceland’s operations, I note that he is a director of the company and holds some 95 per cent of the shares: if he is not presently controlling the company, I see little reason why he could not rapidly bring about a position of control as and when he decided to do so.

[92]     Mr  Johnston,  the  chartered  accountant  who  formerly  acted  for  Projects, provided an affidavit in which he referred to an email his firm had sent early in 2013 to the accountants who were then endeavouring to assist Mr Pack and Projects with Projects’ compromise proposal.   In the email, Mr Johnston noted that his firm had only just completed financial accounts for Projects for the year ended 31 March
2007, and that they had always been “in catch up mode” with Mr Pack’s affairs.  Mr Johnston said that Mr Pack seemed to have “gone to ground” again, and that many attempts to communicate with him had not resulted in any success.   Mr Johnston commented in the email:

I have  had  many discussions  with [Mr Pack]  on these matters trying to impress upon him the importance of getting the tax returns up to date, his likely current account position, solvency, his personal exposure as a Director etc.  Unfortunately when things get difficult he “buries his head”.

[93]     Mr Pack’s commercial track record, including years of failure to attend to his duties as a director of the three failed companies, leaves me with no confidence that he will not “bury his head” in the conduct of Graceland’s affairs in the future if he is allowed to do so.  I am satisfied, on the evidence of his past conduct as a director of the three failed companies and what I perceive to be the substantial risk that similar conduct will occur again, that there is a need to protect the community from commercial detriment similar to that which befell Projects, Developments and their creditors.

[94]     My conclusions set out above on issues (2), (4) and (5) are each sufficient to persuade me that the proposal should not be approved.  I add only that my decision to refuse to approve the proposal on the basis of my conclusions on issue 2 might have been justified on the alternative ground that approval of the proposal would be inexpedient because there is evidence that suggests Mr Pack has an additional asset which he failed to disclose, a matter which would have justified an investigation by the Official Assignee.

Issue 1: Does the proposal provide for the payment, before any other debts are paid, of the trustee’s fees and expenses properly incurred in respect of the proposal?

[95]     Under s 333(4) of the Act, the Court must not approve a proposal which does not provide for the payment, before any other debts are paid, of the trustee’s properly incurred fees and expenses.

[96]     In this case, the relevant provision in the proposal read:

Trustee’s Costs

4.         That provision of payment of all proper fees and expenses of the Trustee on and incidental to the proceedings arising out of the Proposal will be made in the following manner:

a           I  will  pay  or  procure  payment  of  the  Trustee’s  fees  in connection with the preparation and approval of the Proposal up to $2,500.00, plus GST.

b          The balance of the fees and disbursements of the Trustee in respect of the preparation of the Proposal, the holding of the Creditors’ meetings and the attainment of Court sanction to the Proposal, and the Trustee’s remuneration and out of pocket  expenses  in  connection  with  her  responsibilities under the Proposal, will be met from the funds referred to in paragraph 2 above.

[97]     The first problem with paragraph 4(b) of the proposal is that the reference in it to paragraph 2 appears to be a mistake.  Paragraph 2 is concerned with satisfaction of debts having priority under the Act (there were none) and Mr Pack’s personal income tax obligation, which would “continue to be met from my earnings which, at the time of this proposal, is solely national superannuation which is deducted at source”. There was nothing in paragraph 2 about the trustee’s remuneration.

Submissions for Projects

[98]     Mr Corry submits that the reference at the end of paragraph 4(b) of the proposal  to  “paragraph  2  above”  should  have  been  a  reference to  paragraph  3. Paragraph 3 is the paragraph that provided for the initial payment of $10,000 and the additional payments totalling $50,000 over the ensuing five years.

[99]     Mr Corry further submits that the effect of the proposal, when adjustment is made for that error, is that all costs, other than the initial $2,500.00 plus GST, will have to be paid out of the $60,000 which Mr Pack proposes to pay to the trustee for the benefit of his unsecured creditors.  But there is no indication in the proposal of the expected impact of the trustee’s costs on the annual payments of $10,000 – all that is known is that the annual payments of $10,000 would be reduced by whatever amount was charged by the trustee for (among other things) holding creditors’ meetings,  obtaining  court  approval  of  the  proposal  and  out-of-pocket  expenses. Mr Corry submits that there might not be a great deal left after those costs had been deducted.

Submissions for Mr Pack

[100]   In  response,  Mr  Dewar  submits  that  Mr  Pack  repeatedly  informed  the creditors’ meetings (and Mr Caddis) that the trustee’s costs would be paid by him separately (a matter confirmed by Ms Wylde in her second report to the Court), so that the initial payment of $10,000 and the subsequent annual payments of that amount would be applied fully to payment of proven debts.

[101]   In answer to the point that that is not what the proposal actually says, Mr Dewar invites me to exercise the Court’s residual power in s 333(6) of the Act, which provides:

333	Court must approve proposal

…

(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.

[102]   Mr Dewar points out that Mr Pack’s undertaking that the full sum of $60,000 would be available exclusively for creditors, benefits the creditors.  He submits that the proposal should be approved on terms confirming that the funds available under the proposal for creditors are to be exclusive of the trustee’s costs, which are to be borne by Mr Pack.

Discussion and conclusions on Issue 1

[103]   I accept Mr Corry’s submission that the reference in paragraph 4(b) of the proposal  to  “paragraph  2  above”  was  probably  intended  to  be  a  reference  to paragraph 3 of the proposal, which is the paragraph which provides for the six payments of $10,000 to be made by Mr Pack to the trustee.   The same mistake appears to have been made in paragraph 6 of the proposal, where the relevant part of the text reads: “the amounts shown in paragraph 2 are subject to adjustment for any other creditors that can…establish claims…”.   There are no amounts shown in paragraph 2, but there are in paragraph 3.

[104]   Looking only at paragraph 4b, the intention of the proposal therefore appears

to have been that the trustee’s fees and expenses would be met from the $60,000

Mr Pack would pay to the trustee.  But paragraph 5 of the proposal provides that “the trustee will distribute the total sums received pro rata to the creditors” (emphasis added).  The “total sums received” clearly contemplates the entire $60,000 Mr Pack would be paying to the trustee under paragraph 3 of the proposal.  If that is right, none of the payments made by Mr Pack under paragraph 3 would be available to meet the trustee’s fees and expenses, and there would effectively be no provision in the proposal for payment of the trustees fees and expenses before the payment of any other debts, beyond the initial payment of $2,5000 to be made by Mr Pack under paragraph 4(a).

[105]   I have considered the possibility that the reference in paragraph 4(b) to the “funds referred to in paragraph 2 above” may have been correct (notwithstanding what I took to be Mr Dewar’s acceptance that the reference should have been a reference to paragraph 3).  Paragraph 2 does at least refer to Mr Pack’s “earnings”. But I do not think the expressions “funds” used in paragraph 4(b) is apt to include Mr Pack’s ongoing earnings from national superannuation.  And paragraph 3 of the proposal does refer to “funds”.   I conclude that on the true interpretation of the proposal as drafted, the balance of the trustee’s fees and expenses was to come from the $60,000 which Mr Pack would pay over the five year period.

[106]   The problem  then  is  twofold.    First,  paragraph  5  provides  that  the total

$60,000 is to be distributed to the creditors.  Secondly, if that difficulty is somehow

overcome, and the balance of the trustee’s fees and expenses can be paid from the

$60,000, there is no provision in paragraph 5 giving the payment of the trustee’s fees

and expenses priority over the distributions to creditors.

[107]   I conclude that the proposal as circulated did not comply with s 333(4)(b). That means that the Court cannot approve the proposal unless a correction can be made under s 333(b) which makes the proposal compliant with that subsection.

[108]   The issues under s 336(6) are whether a correction to the proposal to reflect the intention that Mr Pack would pay the balance of the trustee’s fees and expenses

in addition to the $60,000, would “alter the substance of the proposal”, and (more fundamentally) whether there was an “error or omission” or whether Mr Pack now wishes to make a change to the proposal which was originally circulated to creditors.

[109]   I accept that there has been an accidental omission in this case, namely an omission to provide for payment of the balance of the trustee’s fees and expenses beyond the first $2,500.  In my view, this omission is one which would have been capable of correction under s 333(b): the proposed correction (that Mr Pack will pay these  fees  and  expenses  in  addition  to  the  $60,000)  would  have  benefited  the creditors as a whole, and in my view would not have altered the substance of the proposal.  If the proposal had survived the other challenges mounted by Projects, I would therefore have been prepared to make the corrective order sought by Mr Dewar.

Orders

[110]   For the foregoing reasons, the application for approval of the proposal is refused.

[111] The objector is entitled to costs, which are fixed on a 2B basis, with disbursements as fixed by the registrar.

Associate Judge Smith

Solicitors: