IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-3163 and 3166 [2014] NZHC 1109

IN THE MATTER	of a proposal by Peter Thomas Vegar and a
proposal by Helen Jean Vegar under the
Insolvency Act 2006	

BETWEEN	
PETER THOMAS VEGAR First Insolvent

HELEN JEAN VEGAR Second Insolvent	

AND	
AORANGI FORESTS LTD & ORS Creditors	

CIV-2013-404-3685

IN THE MATTER	of an appeal under Regulation 32(1) of the Insolvency (Personal Insolvency) Regulations 2007

BETWEEN	ANTHONY JOHN EBERT AND JENNIFER JANE EBERT Appellants

AND	PETER THOMAS VEGAR Respondent

CIV-2013-470-536

IN THE MATTER	of an appeal under Regulation 32(1) of the Insolvency (Personal Insolvency) Regulations 2007

BETWEEN	HILLERSDEN VINEYARD CONTRACTING LTD (IN LIQUIDATION)
Appellant

AND	PETER THOMAS VEGAR AND HELEN JEAN VEGAR
Respondents

VEGAR v AORANGI FORESTS LTD & ORS [2014] NZHC 1109 [23 May 2014]

Hearing:	17 December 2013 and 7 February 2014	

Counsel:	
RB Stewart QC for Provisional Trustee
K Fulton for Mr and Mrs Vegar
SP Bryers for Trustees of Florence Trust
JK Boparoy for Hillersden Vineyard	

Judgment:	
23 May 2014	

JUDGMENT OF BREWER J

This judgment was delivered by me on 23 May 2014 at 3:00 pm pursuant to Rule 11.5 High Court Rules.

Registrar/Deputy Registrar

Solicitors:	Kevin McDonald & Associates (Takapuna) for the Provisional Trustee
Craig Griffin & Lord (Auckland) for Mr and Mrs Vegar
Gaines Law (Blenheim) for Trustees of the Florence Trust
Waterstone Insolvency (North Shore City) for Hillersden Vineyard

Introduction

[1]       Mr Peter Vegar and Mrs Helen Vegar are insolvent.   On 11 July 2013, a creditors’ meeting was convened in Tauranga to allow their creditors to vote on proposals which they made pursuant to s 326 of the Insolvency Act 2006 (“the Act”). They were linked proposals and I will refer to them as “the proposal”.  Five creditors voted for the proposal, three against it, and three of the votes were rejected by the Provisional Trustee of the Creditors’ Proposal.

[2]       The reason the votes were rejected was that the Provisional Trustee did not consider that the voters were creditors with provable debts.  He, therefore, used his power under reg 32(1) of the Insolvency (Personal Insolvency) Regulations 2007 (“the Regulations”) to reject their claims.

[3]       Two of the thwarted voters, the Florence Trust (“the Trust”) and Hillersden Vineyard Contracting Ltd (in liquidation) (“Hillersden”) now appeal the Provisional Trustee’s rejection of their claims.1

The issue

[4]       As I explain below, the Trust and Hillersden are prospective creditors.  The issue is whether a prospective creditor has a claim which can be admitted for the purposes of voting at a creditors’ meeting.

Background

The Trust’s claim

[5]       The Trust says it lent $100,000 to Mr Peter Vegar.   It has a single page document, not professionally drawn, which it says evidences the debt.   Mr Peter Vegar denies being a debtor under the document and has a number of arguments, factual  and  legal,  as  to  why he  is  not  a debtor.    On 8 August  2012,  the Trust commenced  proceedings  against  Mr Vegar  in  the  District  Court  at  Warkworth seeking judgment for the loan.   Mr Vegar is defending the action.   It will not be
allocated a trial date until the outcome of the creditors’ proposal is known.

1	Regulation 32(1) provides a specific right of appeal.

Hillersden

[6]       Mrs Vegar was a director of Hillersden.  On 23 March 2010, while a director, Mrs Vegar transferred $68,312.35 to a joint bank account she held with Mr Vegar. On   8 September   2011,   Hillersden   was   put   into   receivership   by   way  of   a shareholders’ resolution.   When Hillersden submitted its claim to the Provisional Trustee, it was on the basis that the payment of $68,312.35 was a voidable transaction.   The claim is now advanced on the basis that this sum is owed by Mrs Vegar because her current account is overdrawn.  Mr and Mrs Vegar deny that they owe any money to Hillersden and have arguments of fact and law to back their denials.

Discussion

[7]       A person who is insolvent may make a proposal to creditors for the payment or satisfaction of the insolvent’s debts.2    The proposal may include, as is the case here, an offer to compromise the insolvent’s debts at less than 100 cents in the dollar.3   The proposal must be filed in the Court,4 at which time the trustee named in the proposal becomes the Provisional Trustee.5    The Provisional Trustee must then call a meeting of creditors in the prescribed way.6   At the meeting, creditors have a number of options.  However, for a vote to accept the proposal to be binding there
must be a majority in number and three-quarters in value of the creditors entitled to vote.7

[8]       That is not the end of the matter.  After a proposal has been accepted by the creditors, the Provisional Trustee must apply to the Court, on notice to the insolvent and to each known creditor, for approval of the proposal.8   A creditor has a right to object to the proposal being approved by the Court.  The Court has a discretion to
refuse to approve the proposal if it considers, among other reasons, that its terms are

2	Insolvency Act 2006, s 326(1).
3	Section 326(2)(c).
4	Section 328.
5	Section 329.
6	Section 330.
7	Section 331(3).
8	Section 333(1).

not reasonable, are not calculated to benefit the general body of creditors or for any reason it is not expedient that the proposal be approved.9

[9]       Once a proposal is approved by the Court, it is binding on all the creditors whose debts are provable and who are affected by the terms of the proposal.  Further, the Court’s approval is conclusive as to the validity of the proposal.10

[10]     Finally, in summarising the regime, it is relevant to note that after it has approved the proposal, the Court retains the power to vary or cancel it.11   It can do so if it determines that the insolvent was materially mistaken or misleading in setting out his affairs, failed to carry out or comply with the terms of the proposal or that the creditors generally will suffer injustice or undue delay if the proposal proceeds.  The Court can also vary or cancel the proposal if it finds any other reason for doing so.12

[11]     It seems to me that the policy behind this regime is plain.  A person who is insolvent need not become bankrupt if he or she can satisfy a majority of his or her creditors by number and three-quarters in value that there is a better alternative.  The interests of dissenting creditors are protected by the broad oversight powers of the Court.  If it transpires that a proposal was approved on faulty information, through misapprehension, or for any other reason going to the interests of justice, the Court retains a broad jurisdiction to vary or cancel it.

[12]     It is obvious that decisions on who qualifies as a creditor for the purposes of voting at a creditors’ meeting can be of real significance.  The threshold question is “who is a creditor?”

[13]     Neither the Act nor the Regulations define “creditor”.  Instead, the matter is

approached through the meaning of debt:13

9	Section 333(3).
10	Section 334(2).
11	Section 339.
12	Section 339(2)(d).
13	Section 325.

325      Meaning of debt, etc

(1)        In this subpart, unless the context otherwise requires,—

debt means a debt that would be provable in the insolvent's bankruptcy

insolvent means a person who is not a bankrupt, but who is unable to pay his or her debts as they become due.

(2)        The debt of an insolvent is provable under this subpart.

[14]	Therefore, only a person with a provable debt may vote as a creditor at a

creditors’ meeting.  “Provable debt” is defined as follows:14

231      Meaning of provable debt

(1)	A provable debt is a debt or liability that a creditor of the bankrupt may prove in the bankruptcy.

(2)	A creditor's claim form is the document that a creditor submits to the Assignee for the purpose of proving the debt.

(3)        A debt is proved when it is admitted by the Assignee.

232      What debts are provable debts

(1)        A provable debt is a debt or liability that the bankrupt owes—

(a)	at the time of adjudication; or

(b)	after  adjudication  but  before  discharge,  by  reason  of  an obligation incurred by the bankrupt before adjudication.

(2)        A  fine,  penalty,  sentence  of  reparation,  or  other  order  for  the payment of money that has been made following any conviction or order made under section 106 of the Sentencing Act 2002—

(a)	is not a provable debt; and

(b)	is  not  discharged  when  the  bankrupt  is  discharged  from bankruptcy.

[15]	I note that s 232 speaks in the present tense (“owes”).  This is different to the

predecessor Act, the Insolvency Act 1967, where the definition was:15

14	Sections 231 and 232.
15	Insolvency Act 1967, s 87.

87        Provable debts

(1) Except as provided in subsections (2) and (3) of this section, all debts and liabilities, present or future, certain or contingent, to which the bankrupt is subject at the time of his adjudication, or to which he becomes subject before his discharge by reason of any obligation incurred before the time of his adjudication, shall be debts provable in bankruptcy.

[16]     The words “present or future, certain or contingent” are no longer part of the definition of “provable debts”.16

[17]     It was argued for the Trust and Hillersden that their claims meet the definition of a contingent debt and that the Act should be interpreted to include contingent debts.  The parties drew my attention to the decisions of Cook v Official Assignee17 and Re Chambers.18     However, both of these judgments apply the definition of provable debt contained within the 1967 Act, not the 2006 Act.  Furthermore, these
cases discuss the nature of a guarantee as a form of contingent debt; neither decision classifies a party attempting to prove their debt in Court as a contingent creditor.

[18]     I agree with Associate Judge Bell:19

A prospective creditor is different from a contingent creditor who is owed an existing  obligation  which  may  mature  into  a  present  liability  on  the happening of some future event or at some future date.

[19]     I agree also that an example of a contingent debt is a guarantee.  The liability of the guarantor is contingent on circumstances arising which permit the lender to enforce the guarantor’s obligations under the guarantee.

[20]     I note that Associate Judge Bell went on to hold:20

As prospective creditors of Mr Tauber the liquidators have claims which would be provable in his bankruptcy under s 232 of the Insolvency Act 2006. They also count as creditors under s 325 of the Insolvency Act: as the debt is provable in his bankruptcy, their claim is also a debt for the purpose of subpart 2 of Part 5 of the Insolvency Act.

16         The words continue to appear in the corresponding provision of the Companies Act 1993 which, as the learned authors of Heath and Whale on Insolvency at [7.4] note, might give rise to inconsistent treatment between personal and corporate regimes.
17	Cook v Official Assignee HC Auckland CIV-2007-404-141, 27 November 2008.
18	Re Chambers HC Auckland B1222/92, 20 May 1993.
19	Sheppard v Blanchett [2012] NZHC 789 at [28].
20	At [29].

[21]     Given the change in the definition of “provable debts” in the 2006 Act, I

respectfully disagree.

[22]     In  this  case,  neither  the  Trust  nor  Hillersden  can  point  to  an  existing obligation which can be called upon in a contingent event.  Their claims amount to allegations of present liabilities which are contested and which are as yet unproven.21

[23]     The term “prospective creditor” was borrowed by Associate Judge Bell from the Companies Act. A prospective creditor, according to Holland J,22 is a person who has a real prospect of being a creditor.  It is a useful description and I adopt it here. In my view, both the Trust and Hillersden have claims to be creditors which are not fanciful, but neither are they certain.  I classify them as prospective creditors.

[24]   The creditors’ proposals regime would be significantly undermined if prospective creditors with disputed claims could assert the same rights at creditors’ meetings as those with provable debts.  Such claims could take a year or longer to resolve, and could result in no claim being proven.  Parliament removed the words “present or future, certain or contingent” from the definition of “provable debts”.  It is not for me to reinstate them.

[25]     I note also that contingent debts can become provable debts if they fall within s 232(1)(b).  That seems to me, on its face, to be how Parliament intended to include them in the insolvency regime.

[26]     The Trust and Hillersden argued further that they should have been permitted to vote by operation of reg 32(2).  Regulation 32(2) provides:

If the provisional trustee is uncertain whether a claim may be admitted or rejected, he or she must allow the creditor to vote subject to that vote being declared invalid in the event of the claim being rejected for purposes of voting.

21         I acknowledge that the loan document held by the Trust could in the final event be held as evidencing a guarantee by Mr Peter Vegar.  But that is by no means certain, both on disputes of fact and arguments of law.
22	Re Austral Group Investment Management Ltd [1993] 2 NZLR 692.

[27]     However,  it  seems  clear  to  me  that  this  is  an  administrative  provision designed to allow a meeting to proceed where there is uncertainty as to whether a claim is a provable debt or not.  Possibly in situations where claims are made at the last minute.  After the meeting, the Provisional Trustee can have a calm look at the claim and decide whether to reject it or not.   This would not involve, in effect, making a judicial decision as to the merits of a disputed claim.  It would be a simple decision as to whether the claim was a provable debt or not.

[28]     In my view, the rights of contingent and prospective creditors are protected by their ability to oppose the Court approving a proposal, or to seek to cancel or vary it after any approval by the Court.23

Decision

[29]     In  this  case,  the  Provisional  Trustee  had  claims  by  the  Trust  and  by Hillersden.   In each case, the Provisional Trustee did not accept that the claims evidenced provable debts sufficiently to merit voting status.  He rejected the claims for the purposes of voting at the creditors’ meeting. That was within his power.

[30]     The appeals are dismissed.

Costs

[31]     I will receive memoranda as to costs within three weeks of the date of this judgment.

Brewer J

23         Sections 333 and 339 would, in my view, permit contingent or prospective creditors standing. “Creditor” is not defined and there is no reason to limit the meaning of the word to those with provable debts in this context.