By: Stephanie Woods

You are a creditor and have served a bankruptcy notice on a judgment debtor.  The debtor puts forward a payment proposal which you reject.  The debtor then applies to the Court seeking to set aside the bankruptcy notice and requests that the payment proposal be approved.  Does the Court have jurisdiction to approve the payment proposal, despite the creditor's refusal?
The Court of Appeal in Commissioner of Inland Revenue v Wilson [2007] NZCA 100 recently considered this issue.  The answer is a firm "no".
Mr Wilson applied to the High Court to set aside a bankruptcy notice issued by the Commissioner and for the Court to approve his payment proposal.  The proposal was declined by the Commissioner.
The High Court accepted the Court had inherent jurisdiction to entertain Mr Wilson's application.  The Judge was impressed that Mr Wilson was offering payment in full and approved the payment proposal.
Court of Appeal judgment
The Court of Appeal reversed the earlier decision and helpfully clarified the law as follows:
  • A debtor can comply with a bankruptcy notice by making a payment proposal under subpart 2 of Part 5 of the Insolvency Act 2006.  Those provisions provide a detailed regime requiring the Court's approval of a payment proposal, but only after it is accepted by a majority of creditors.
  • A debtor can compromise a debt with a creditor outside the subpart 2, Part 5 process.  This does not require the Court's approval.
  • The Court does not have the power, statutory or inherent, to approve a payment proposal where it has been rejected by creditors.  This would cut across the subpart 2, Part 5 process.
  • Parties cannot by consent or by concession, vest in the Court the jurisdiction to approve a payment proposal in Mr Wilson's situation.
This decision brings certainty to the bankruptcy process.  A judgment creditor can rest assured that when it declines a payment proposal, that decision is final.
The Wynn Williams national Dispute Resolution Team has experience in all facets of debt collection. For advice on how this decision might affect you, please contact one of the team to discuss.
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