In the Court of Appeal decision of Herbert v New Zealand Guardian Trust Company Limited, the Court declined to grant Mrs Herbert's appeal in relation to the High Court's refusal to approve her creditor's proposal (see the summary in our October 2011 update). The Court found that the High Court had been correct in approaching Mrs Herbert's application as essentially a joint application with her husband, as there were many issues common to both. The Court of Appeal also found that the High Court was correct in concluding that Mrs Herbert's proposal was not reasonable and not in the interest of the body of creditors as a whole. In particular, the Court noted that the amount of return to creditors of 0.096 cents in the dollar was "derisory" and of little or no tangible benefit to creditors.
The Court stated that while the views of creditors would ordinarily carry substantial weight when deciding whether a creditor's proposal was reasonable, the significance of this factor was undermined here for two reasons. The first reason was that the views of the creditors were not unanimous. The second was that the views of the secured creditors ought to carry less weight as they held security which could offer some relief.
An aspect of the proposal which the Court found troubling was that the mortgagees of the property concerned in the case would continue to receive significant annual payments against their mortgage. The Court found that this represented a clear preference of the secured creditors. In these circumstances, the Court of Appeal agreed that it was desirable to have the Official Assignee review the circumstances of the insolvency of both Mr and Mrs Herbert, particularly to carry out enquiries regarding their source of the funds required to pay the mortgage. On these grounds Mrs Herbert's appeal was declined.
See Court decision here.