06 May 2015

Insolvency: re Pack

The High Court refused approval to a part payment scheme offered to creditors by insolvent Wellington property developer Stephen John Edward Pack because of his poor business record and his failure to tell creditors his true financial position.  Being pursued for debts amounting to nearly three million dollars and having drawn director’s remuneration in one year at $300,000 he claimed to have only minimal personal assets totalling $41,500.
The court was told Mr Pack, now aged 65, has a Wellington home held in a family trust.  He undertakes project management work through his company, Graceland Properties Ltd.  Evidence was given that a number of his property projects failed financially: proposals for retirement villages at Wainuiomata in Wellington and Meremere in the Waikato failed to get off the ground and a $7.25 million commercial rebuild in Lower Hutt was completed at a loss after cost overuns.
Unable to pay his creditors in full, Mr Park offered a deal: unsecured creditors would share in $10,000 paid per year for six years, a total of $60,000.  On best estimates, unsecured creditors would get three cents in the dollar.  While a majority of unsecured creditors agreed to the proposal, two objected: Inland Revenue claiming $142,000 primarily for unpaid income tax and accrued penalties together with the liquidator of one of Mr Pack’s property companies chasing Mr Pack for company funds siphoned off to support his other companies and to meet his personal living expenses.
Part payment schemes designed to avoid bankruptcy require High Court approval, even where a majority of creditors vote in favour.  Associate Judge Smith declined approval, ruling that Mr Park failed to fully put his financial position before creditors and that in any event the proposed part payment proposal was not reasonable.
Judge Smith said it was unclear to what extent two secured creditors would face a shortfall on realising their securities.  This affected the dollar value of their votes in voting on the proposal and the resulting need to get a approval of unsecured creditors by a majority in number and 75% by value.
There was criticism of a failure to properly disclose financial dealings between Mr Pack and his family trust.  There was evidence that a boat called the MV Lady Sylvia then valued at $150,000 had been sold to his family trust back in 1998 with payment not due until 2018.  Creditors were not told of such deals before voting.
Court approval for the proposal was refused.  On the evidence of his past conduct as director of three failed companies and the substantial risk that similar conduct will occur again, there is a need to protect the business community, Judge Smith said.  There was evidence that Mr Pack’s companies had traded whilst insolvent for a considerable time before going into liquidation and that when problems arose he had, in the words of his accountant, a tendency to “go to ground” and to “bury his head”.
re Pack – High Court (6.05.15)

15.041