FAVA V E ZAGHLOUL, ASB BANK LIMITED, BANK OF NEW ZEALAND AND LION FINANCE LIMITED CA CA568/07

FAVA V E ZAGHLOUL, ASB BANK LIMITED, BANK OF NEW ZEALAND AND LION FINANCE LIMITED CA CA568/07 21 December 2007IN THE COURT OF APPEAL OF NEW ZEALAND CA568/07 [2007] NZCA 594BETWEEN PHILIP JOSEPH FAVA Appellant AND EKHLAS ZAGHLOUL, ASB BANK LIMITED, BANK OF NEW ZEALAND AND LION FINANCE LIMITED Respondents Hearing: 15 November 2007 Court: William Young P, Chambers and Ellen France JJ Counsel: P J Fava In Person N S Gedye for Respondents G A D Neil for Official Assignee Judgment: 21 December 2007 at 2 pmJUDGMENT OF THE COURT A The appeal is dismissed. B Mr Fava is to pay the respondents costs of $6,000 together with usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by William Young P)Introduction[1] Mr Philip Fava was adjudicated bankrupt on 6 December 2006 at the instance of Mrs Ekhlas Zaghloul. At the time of his adjudication, he was the sole director ofa number of companies which were pursuing a major claim ("the Churchill litigation") against two defendants. His adjudication meant that these companies no longer had a director and were thus unable to continue to instruct their solicitors and counsel who therefore withdrew from the case. The upshot was that the Judge entered judgment for the defendants under r 485 of the High Court Rules. Mr Fava subsequently promoted a proposal under the Insolvency Act 1967 ("the Act") under which his adjudication would be set aside. His purpose is to resuscitate the Churchill litigation and to cause his creditors to be paid from the proceeds of that case. This proposal has been agreed to by the requisite majority of his creditors but approval of the High Court was declined by Potter J: Re the Bankruptcy of Fava HC AK CIV 2006-404-5233 30 August 2007. Mr Fava now appeals. [2] We will address his appeal under the following headings: (a) The statutory provisions; (b) Factual background; (c) The approach of the Judge; (d) Arguments of the respondents which the Judge did not address; (e) The arguments advanced by Mr Fava; (f) Analysis; and (g) Disposition.The statutory provisions[3] Section 121 of the Act provides that where a person has been adjudged bankrupt his creditors may by special resolution accept a composition in satisfaction of the debts due to them by the bankrupt.[4] Section 122 of the Act provides:122 Approval of compositions by Court(1) When the confirming resolution has been passed, either the bankrupt or the Assignee may apply to the Court to approve the composition, and notice of the application shall be given to each creditor. (2) The Court shall, before approving a composition, hear a report of the Assignee as to the terms of the composition and as to the conduct of the bankrupt, and any objection which may be made by or on behalf of any creditor. (3) The Court may refuse to approve the composition if it is of opinion: (a) That the provisions of section 121 of this Act have not been complied with; or (b) That the terms of the composition are not reasonable or not calculated to benefit the general body of creditors; or (c) That the bankrupt has committed any such misconduct as would justify the Court in refusing, qualifying, or suspending his discharge; or (d) That for any reason it is not expedient that the composition should be approved. (4) No composition shall be approved by the Court which does not provide for the payment in priority to other debts of all debts directed to be so paid in the distribution of the property of a bankrupt. (5) A composition so approved by the Court shall be binding on all the creditors, so far as relates to any debts due to them and provable under the bankruptcy. (6) At the time when a composition is approved, the Court may correct or supply any accidental or formal error or omission therein, but no alteration in the substance of the composition shall be made. (7) The approval of the Court shall be conclusive as to the validity of the composition.Factual backgroundThe dispute between Mr Fava and Mrs Zaghloul[5] Mr Fava had been a tenant of Mrs Zaghloul in a house in Remuera for about a year. They fell out and there were proceedings before the Tenancy Tribunal whichresulted in orders requiring Mr Fava to pay Mrs Zaghloul $3,255.04 for unpaid rent and water rates and another $250 for repairs. Subsequent appeals to the District Court and the High Court by Mr Fava were dismissed as were applications for recall of the High Court judgment and leave to appeal to the Court of Appeal. [6] In the course of the proceedings, Mr Fava told the Tenancy Tribunal that he had money set aside to pay Mrs Zaghloul should he lose the case. At one stage he gave her a cheque for the amount outstanding but later cancelled it. The dispute was very rancorous. [7] Even when the dispute as to liability had run its course, Mr Fava was not prepared to meet his liability to Mrs Zaghloul. On 9 June 2006 Mr Fava sent an email to Mrs Zaghloul's lawyer in an effort to avoid enforcement proceedings. This email included the following statement:Finally, I might just add further in relation to the potential enforcement of the judgment, that in the unlikely event the High Court do not stay your client's judgment I can always compromise with my creditors. This is an area of the law in which, from a company perspective, I have much experience . I can assure you a creditors compromise has a 100% chance of success but it too is just the sort of distraction I and my Queens [sic] Counsel wish to avoid.[8] Mrs Zaghloul nonetheless served a bankruptcy notice on Mr Fava and subsequently sought an order declaring him bankrupt. These proceedings were listed for hearing on 6 December 2006.The Churchill litigation[9] Between 2001 and December 2006, Mr Fava, through companies he controlled (Churchill Group Holdings Ltd and others), was engaged in litigation against Aral Property Holdings Ltd and David Leung. At stake was a claim for damages of approximately $50m of which some $25m was for exemplary damages. He had pursued this claim with some tenacity. The substantive hearing of the case started in the High Court at Auckland before Williams J in October 2006. By 6 December 2006, the case had been running for some 31 days. Counsel andsolicitors for the plaintiffs were operating on a contingency fee agreement and Mr Fava was heavily involved in the day to day running of the case.The bankruptcy proceedings[10] Mr Fava recognised that being adjudicated bankrupt would have serious implications for the Churchill litigation. That this is so is apparent from an affidavit which he swore in opposition to the creditor's petition. Options open to him included paying the approximately $7,000 then owed to Mrs Zaghloul (albeit that this may have affected the attitude of his other creditors) or seeking an adjournment of the bankruptcy proceedings pending either the conclusion of the Churchill litigation or the approval by his creditors of a scheme of arrangement. But Mr Fava in the end simply withdrew his opposition to bankruptcy and he was duly adjudicated bankrupt on 6 December 2006.The consequences of the adjudication on the Churchill litigation[11] Mr Fava's adjudication meant that he was disqualified from continuing to hold the directorships in the plaintiff companies. No one was appointed to replace him. This meant that the counsel and solicitors acting for the plaintiffs no longer had instructions and they withdrew from the case. [12] This left the plaintiff companies unrepresented and unable to continue to prosecute the case. Accordingly, on 13 December 2006, Williams J gave judgment for the defendants under r 485 of the High Court Rules: Churchill Group Holdings Ltd v Aral Property Holdings Ltd HC AK CIV 2001-404-2302. The defendants have indicated that they will be seeking costs against not only the plaintiffs but also Mr Fava and the solicitors involved in the case. Their costs total more than $3m.Mr Fava's proposals in relation to the Churchill proceedings[13] Mr Fava is of the view that if he can secure his release from bankruptcy, he will be able to resuscitate the Churchill litigation.[14] It certainly is possible that the judgment under r 485 might be set aside, a possibility that Williams J recognised in his 13 December 2006 judgment: see r 486. On the other hand, it is difficult to see how that result could be achieved without Mr Fava (or the Churchill companies or some other party) meeting the defendants' costs associated with the abandoned trial and providing substantial security for costs. Further, given the circumstances in which the case collapsed, it is far from clear that the counsel and solicitors who were previously acting or any replacements would be prepared to proceed on a contingency basis. There is a marked absence of information originating from Mr Fava as to how these problems can be addressed. [15] There is also no material (in the form of a report from counsel or anyone independent of Mr Fava) as to the prospects of success of the claim. Mr Fava's position, however, is that one way or another he would be able to get the case up again and that if the claim succeeds (and he is confident that it will) the proceeds will be more than enough to enable all creditors to be paid.The makeup of Mr Fava's creditors[16] The creditors who have proved in the bankruptcy are:Name AmountPJ Fava No 1 Trust 729,947.28 Murdoch Price 6,750.00 C Wardrope claim i 276,374.77 C Wardrope claim ii 7,000.00 D Dustin claim i 263,873.00 D Dustin claim ii 26,878.06 McDonald Vague 28,907.43 Morgan Coakle 6,630.14 Dr Wardrope 50.00 C Taylor 43,421.62 E Zaghloul 12,595.28 ASB 14,986.51 Lion Finance (Westpac) 13,898.53 BNZ 14,165.25A proof of debt by Nomoi Holdings for $257.34 has been rejected. [17] Save for Mrs Zaghloul, the ASB Bank, BNZ and Lion Finance, all creditors have a family, social or business association with Mr Fava which predisposes them to favour either Mr Fava personally or at least a compromise which would permit the Churchill litigation to be resuscitated. Mr Fava's family trust is the major creditor with its debt of $729,947.28. The next largest creditor is Mrs C Wardrope, who is Mr Fava's sister. Dr Wardrope is Mr Fava's brother in law. Mr D Dustin is an acquaintance of Mr Fava. The other creditors, one way or another, have a connection with the Churchill litigation. [18] Although the ASB Bank, BNZ and Lion Finance now oppose the proposed compromise they were, prior to Mr Fava's adjudication, prepared to await the outcome of the Churchill litigation before taking steps to recover their debts.An initial proposed compromise[19] After his bankruptcy Mr Fava initially proposed a composition which involved no payment to creditors apart from a payment to Mrs Zaghloul of the costs awarded on the adjudication. The composition would have simply suspended all creditors' rights for three years. Although it was approved by the appropriate majorities in number and value of his creditors, Mr Fava, in the end, did not seek approval of this composition in the Court and it has now lapsed.The current proposed compromise[20] The currently proposed composition would provide: (a) For payment of $2,620 costs and disbursements on the order for adjudication to Mrs Zaghloul. (b) An interim dividend of 2.5 cents in the dollar to be paid to the creditors within one day of Court approval of the composition.(c) A first final dividend of 7.5 cents in the dollar payable three years after the date of Court approval of the composition. (d) Payment of the balance from the proceeds of the Churchill litigation with payment of liquidator's costs and creditors of Matam Investments Ltd (one of the Churchill plaintiffs) ranking ahead of the creditors. These liabilities exceed $1m. And (e) All property of the bankrupt vested in the Official Assignee to revert immediately to Mr Fava. The proposal does not provide any detail as to how the creditors will obtain access to the proceeds of the Churchill litigation. The plaintiff companies (who still lack a director) are, of necessity, not parties to the proposal. [21] The creditors who oppose the composition are Mrs Zaghloul, ASB Bank, BNZ and Lion Finance. All other creditors favour the compromise. [22] The defendants to the Churchill proceedings are paying Mrs Zaghloul's costs associated with her opposition to the proposal.The approach of the Judge[23] The reasons given by the Judge for refusing approval were as follows:[49] The composition provides for payment of 90 cents in the dollar to be deferred pending, and contingent upon, a successful outcome for the plaintiffs in the Churchill proceedings. Mr Fava has provided in his affidavits a lot of comment about the Churchill proceedings including his own opinions and conclusions in relation to the proceedings, and as to the conduct of the defendants and their legal advisors in the litigation. [C]omment of this nature is inadmissible as evidence, and is not relevant to the issue before the Court. Perhaps Mr Fava contemplated that the Court would embark upon an assessment of the strength or otherwise of the plaintiffs' claims in the Churchill litigation. But it is not the function of the Court to assess the merits of the plaintiffs' claims in the litigation, nor would the Court be in any position to do so on the basis only of the assertions and opinions of Mr Fava coupled with such information as he chose to provide.[50] [N]o opinion or assessment has been made available to creditors from anyone with the requisite independence, knowledge and expertise to give an objective and informed assessment of the prospects of success of the plaintiffs in the Churchill proceedings, and of the Court reinstating them under r 486. [51] Secondly, no information has been provided as to how the Churchill proceedings, if allowed by the Court to be reinstated, would be funded. No information is given about the financial situations of the plaintiffs' companies. Mr Fava says he has no funds. He, of course, is not a party to the litigation but on his evidence he owns or controls the plaintiff companies. Mr Fava says that Mr Judd QC represented the plaintiffs on a contingency fee basis until the hearing was discontinued and judgment was given for the defendants, when he sought leave to withdraw. There can be no assurance that Mr Judd would continue to provide his services on that basis were the proceedings to be reinstated. And quite apart from professional fees, there would inevitably be not insignificant costs and disbursements associated with the litigation. There is no information provided as to how these might be met. If Mr Fava were intending to provide funding, the creditors are entitled to know, for those are funds which are not being made available to them. [52] Thirdly, Mr Fava's own actions in relation to the Churchill proceedings are very difficult to explain. Mr LaHatte submitted that Mr Fava stands to lose everything if the Churchill proceedings cannot be secured, i.e. all his assets. Mr Fava obviously regards the Churchill proceedings as highly important. Yet on 6 December 2006 he withdrew his opposition to the petition for bankruptcy and adjudication promptly followed. At this point the hearing had continued during 31 days. The plaintiffs' case was completed and two of the defendants' witnesses had given evidence. Mr Fava was at pains to explain in his affidavits how closely he had been involved in the litigation. He had the benefit of legal advice – Mr Judd QC was acting for the plaintiff companies in the litigation. Mr LaHatte accepted this in submissions but could not say whether Mr Fava took legal advice in relation to withdrawing his opposition to the petition for bankruptcy. If Mr Fava, having been closely associated with the litigation since 2001 throughout interlocutory applications, preparation for trial and the hearing, assessed the plaintiffs' case to be strong, as he asserts, it is inexplicable that he did not continue vigorously to oppose bankruptcy, at least to the extent of placing before the Court full details as to the state and stage of the Churchill proceedings and seeking an adjournment of the hearing of the petition until the case concluded. That is, unless the explanation lies in Mr Fava's assumption expressed to Mrs Zaghloul by email dated 9 June 2006 ( that a composition of creditors would readily follow his bankruptcy (" a 100% chance of success"), thus enabling the bankruptcy to be annulled and the Churchill proceedings to be reinstated. On that reasoning Mr Fava could "have his cake and eat it too", i.e. both avoid paying his creditors and pursue the Churchill litigation. [53] Fourthly, there is the concern addressed by the Official Assignee that there is no assurance that any proceeds of the Churchill litigation would reach the creditors. The plaintiff companies in the Churchill proceedings are not debtors of the creditors. No information has been provided about the liabilities or potential liabilities of the plaintiffs at the present time or at the time any litigation proceeds might be available. Future liabilities wouldpresumably include costs of the litigation which could be significant and the composition provides priority for over $1m to creditors of Matam Investments Limited. No information or assurance has been made available to the creditors that addresses this concern. Mr Fava's statement that he will have effective control of "any eventual fruits of the litigation", certainly does not bridge this gap for the creditors. [54] There are other respects in which the composition is lacking in detail and certainty, including:• The source of funding for both initial dividend and first final dividend. This is particularly relevant in respect of the first final dividend which is to be deferred three years.• Mr Fava's commitment and ability to obtain employment to earn funds to pay the first final dividend. • Mr Fava's credibility is a further concerning factor. I cannot accept that in withdrawing his opposition to bankruptcy Mr Fava simply made a bad judgment, a mistake. He was far to [sic] well acquainted with the Churchill proceedings and the inevitable impact on those proceedings of his bankruptcy, to make such a "mistake". Notwithstanding Mr Fava's apparent co-operation with the Official Assignee, I am drawn to the conclusion that he has not been fully up-front with his creditors.• Mr Fava's Trust and persons associated with him comprise a significant majority in number and value of the creditors. I make no comment about the debts which have been admitted to proof. If Mrs Zaghloul or any other creditor considers any item should be challenged, procedures are available under the Act. But the fact remains that about $1.3m of the total of $1.44m, or 90% of creditors claims, are attributable to Mr Fava's Trust, Mrs Wardrope and Mr Dustin. They may more readily adopt Mr Fava's perspective or have access through him to information not available to the general body of creditors. They can provide the necessary majority to approve a compromise which while viewed as reasonable by Mr Fava and his interests, is not reasonable for the remaining creditors. [55] In summary, in return for a minimal initial dividend (2.5%) the creditors are being required to wait three years before any further payment is made. The source of the first final dividend (7.5%) is unsure. Whether and when any further dividend will be paid depends entirely on the outcome of the Churchill proceedings, which on the basis of the information available, is speculative. Their viability simply cannot be assessed. [56] In all those circumstances I am of the opinion that the terms of the composition are not reasonable and are not calculated to benefit the general body of creditors.Arguments of the respondents which the Judge did not address[24] The Judge refused approval on the grounds provided for in s 122(3)(b) of the Act. In this Court, the respondents sought to defend the judgment on the basis that refusal was also justified under s 122(3)(c) and (d). Their entitlement to do so was challenged by Mr Fava, for reasons associated with delays on the part of the respondents in giving the required notice. Given the statutory context, it seemed to us that if we accepted Mr Fava's arguments as to s 122(3)(b) we would still necessarily have to address s 122(3)(c) and (d). Further, we had difficulty perceiving any prejudice to Mr Fava on the facts as the issues raised by the respondents in relation to s 122(3)(c) and (d) were also relevant to s 122(3)(b). We nonetheless provided Mr Fava with an opportunity to make further written submissions as to s 122(3)(c) and (d) and he duly availed himself of this opportunity. [25] It is fair to say that we do not see anything approaching disqualifying misconduct on the part of Mr Fava. We do, however, regard s 122(3)(d) as being material to the case.The arguments advanced by Mr Fava[26] Mr Fava challenged all the reasons given by the Judge for refusing approval. [27] He contended that the third of the reasons which the Judge gave (at [52]) and the associated point made in the third of the bullet points in [54] were critical to the case being determined against him. He complained that the Judge read into the 9 June 2006 email words ("would readily follow his bankruptcy") that were not there. He challenged her linked conclusion that he had set out to "have his cake and eat it too". He claimed that what he intended to convey by the email was that he could compromise with his creditors to avoid bankruptcy, a possibility to which he had also referred in his affidavit in opposition to the creditors' petition. His position was that when he withdrew his opposition to bankruptcy he had simply made a mistake (due to exhaustion associated with the Churchill litigation) and it was not part of a plan to "have his cake and eat it too".[28] Mr Fava compared the immediate benefits to creditors – payment of 2.5 per cent of their debts plus the costs allowed on the adjudication – to the comparable distributions provided for in a number of compositions which have been approved. He also emphasised the unconditional requirement for the payment after three years of a further dividend of 7.5 cents in the dollar. If the compromise is not approved, it is clear that the creditors will receive nothing. [29] He accepted that there had been no independent appraisal of the prospects of success of the Churchill proceedings but said that such appraisal was unnecessary given the commercial assessment made by the creditors who supported the proposal, who had exercised "commercial judgment". He noted that the Official Assignee in a previous role as liquidator of Matam Investments had supported the removal of that company from liquidation with a view to facilitating the Churchill litigation. As well, a number of the creditors who supported the proposal have previously had a professional connection with the claim and were well placed therefore to assess its merits. [30] Mr Fava accepted that there would be difficulties in relation to the resuscitation of the Churchill proceedings, but he maintained that he had already overcome a number of major obstacles to get the case as far as he had. He said that he can only take one step at a time and the first step was the approval of the composition. Again he invoked the commercial judgment of the creditors who supported the proposal. [31] He challenged the Judge's conclusion that there was no assurance that any proceeds of the Churchill litigation would reach the creditors. He said that s 124 of the Act (which provides for enforcement of compositions) would provide a mechanism for this but again he invoked the commercial judgment of the creditors supporting the composition. [32] Broadly he contended that the controlling considerations were the commercial judgment of the creditors who supported the proposal and the reality that under the compromise the creditors would receive at least something, whereas without it they will receive nothing.Analysis[33] We regard the decision of Mr Fava to submit to bankruptcy on 6 December 2006 as surprising - indeed almost inexplicable. Given Mr Fava's overall situation, the decision was irrational and we accept his contention that it was a mistake on his part resulting from the pressures on him associated with the Churchill litigation. Accordingly we disagree with the Judge's conclusion that he was setting out to "have his cake and eat it too". [34] We also accept the point made by Mr Fava that the creditors whose debts are associated with earlier stages of the Churchill litigation (all of whom support the composition) probably have a basis for assessment of its prospects of success. This also is a point which was not expressly allowed for by the Judge. [35] That said, however, we are not disposed to differ from the ultimate conclusion of the Judge. [36] In the first instance there are aspects of Mr Fava's behaviour (and his underlying thinking) which, while not amounting to misconduct for the purposes of s 122(3)(c), are troubling: (a) Mr Fava made extravagant allegations against Mrs Zaghloul which were rejected. He also ran her through the legal system over a comparatively small sum of money. On our interpretation of events, Mr Fava's determination not to pay Mrs Zaghloul drove her to resort to the bankruptcy proceedings which in the end led to the collapse of the Churchill litigation. We doubt if he is any better disposed towards her now or any more anxious to see that she is paid. (b) An aspect of the Churchill litigation which Mr Fava addressed at some length in his submissions to us is his contention that a partner in the firm of solicitors acting for the defendants misled the High Court in the course of an interlocutory hearing. We are not in a position to form a judgment as to whether this contention is correct or not. Butwhat is clear is that this controversy is very much a side-show in the context of his situation as a whole. The attention which this issue has attracted (and the language with which Mr Fava has used in relation to it) seem to be part and parcel of the pattern of thinking which is associated with his imbroglio with Mrs Zaghloul. (c) The claim for exemplary damages of $25m in the Churchill litigation might be thought to border on the extravagant. (d) As we have already recorded, we accept that Mr Fava's decision to submit to bankruptcy was a mistake on his part. It is fair to say, however, that Mr Fava was remarkably insouciant about the consequences for other people of this mistake. His decision to submit to bankruptcy left his counsel and solicitors high and dry. The costs incurred by the defendants (in all probability wasted) appear to have been in excess of $3m. He blames the defendants for the pressures which led him to submit to bankruptcy and, consistently with this, he displayed no remorse for the consequences of his actions. The single- mindedness with which he has pursued what he sees as his entitlements is combined with a lack of concern for the effect of this on other people. [37] While it is true that the Official Assignee has accepted all proofs of debt, there is only limited evidence or documentary proof supporting the debts of those creditors who have personal (family or friendship) associations with Mr Fava. Although there are business creditors, independent of Mr Fava but with a connection to the Churchill litigation, who support the compromise, the debts owed to them (around $86,000) do not swamp the debts owed to those who oppose the compromise (around $55,000). In those circumstances, the commercial judgment of his creditors is of less significance than would ordinarily be the case. [38] There is very little information available to the Court as to the prospects of success of the Churchill litigation. It is true that the Official Assignee presumably has some information about the litigation given his previous role as liquidator ofMatam Investments and the same is true of some of Mr Fava's creditors. But none of that information could be regarded as particularly current, particularly given that the case occupied some 31 days of trial before collapsing. Moreover, none of this information has been shared with the Court which, under the statutory scheme, must exercise some independent judgment. Not fully explained was the inability of Mr Fava to find someone to assume the role of director in the plaintiff companies in the period between his adjudication and 13 December 2006 (when judgment was entered for the defendants). If the claim was as meritorious as we have been told, it should have been possible to find someone who was prepared to take the risks associated with becoming a director of those companies. As well, while we accept that there may be some issues as to the ability of counsel acting for the Churchill companies to provide a report (given the obligations of confidentiality owed to the now paralysed plaintiff companies), we find it hard to believe that these difficulties could not have been circumvented (perhaps by the appointment of a director for the limited purpose of authorising disclosure). There is, as well, nothing to suggest how difficulties associated with the costs of the proceedings to date would be addressed or how the defendants to those proceedings might be protected against the possibility of further wasted costs. [39] Mr Fava has not been open and candid about the arrangements behind the proposal. He has not indicated who will be providing the funds to enable the initial payments to be made. There is not the slightest indication of who will be prepared to fund the dividend of 7.5 per cent in the event that the Churchill litigation produces no cash. The apparent present availability of approximately $39,000 to fund the first set of payments required under the proposal invites the question why Mr Fava did not last year pay whatever was required to sort out the claim by Mrs Zaghloul. Mr Fava's response to this – that the money is available now but was not then – is not satisfactory. [40] When challenged on his lack of openness, Mr Fava said that it was because he did not wish to expose his backer (or backers) to the wrath of the defendants to the Churchill litigation who have already shown their willingness to seek costs against non-parties. But Mr Fava never sought confidentiality. As well, if the support his backers will provide is such as to attract a claim for costs, we have realreservations whether Mr Fava would be able to maintain confidentiality as to the their identities in the event of a later claim for costs by the Churchill defendants. [41] In short, on the evidence and in the absence of any information as to how a continuation of the Churchill litigation would be funded and the second payment of 7.5 per cent would be met if that litigation produces nothing, we approach the case on the basis that the practical benefit of the proposal to the creditors is confined to payment to Mrs Zaghloul of the costs of the adjudication and the payment to creditors of 2.5 per cent of their debts. This renders practically irrelevant the concerns expressed as to how the creditors would achieve legal access to the proceeds of the Churchill litigation (should there be proceeds) given the lack of precision in the drafting of the proposal. This particular issue, if it were critical, could perhaps have been addressed by way of an undertaking, as now proposed by Mr Fava in his supplementary submissions filed after the hearing. [42] Since the payment of costs of adjudication is for the benefit of Mrs Zaghloul only, we see no reason not to defer to her willingness to forgo that payment. But, given that her opposition to the proposal is being funded by the defendants to the Churchill litigation (who plainly have their own motives for resisting Mr Fava's release from bankruptcy) we place no other relevance on her commercial judgment. The other creditors, however, who oppose the proposal are all banks and are, as far as we are aware, independent of the Churchill litigation. [43] As the cases cited by Mr Fava show, proposals providing creditors with benefits comparable to the 2.5 per cent offered here have sometimes been approved. But: (a) The commercial judgment of creditors favouring the proposal may be affected by their associations with Mr Fava or prior involvement with the Churchill litigation. The only creditors who we regard as truly independent are the banks who oppose the proposal. (b) There is insufficient information provided to enable the Court to be confident that what is proposed is reasonable as compared to theoption of leaving the bankruptcy in place. As to this we have in mind the absence of information as to where the money is coming from and why that money was not forthcoming earlier. (c) The amount of money apparently available to meet the initial payments is not particularly large and we would have thought that it was not beyond the ability of Mr Fava to get a job and make contributions to his creditors from his earnings. (d) The matters referred to in [36] leave us with a sense that Mr Fava has not shown restraint in his dealings with other people in relation to the events which gave rise to the bankruptcy and has given effect to his own sense of entitlement at the expense of what is sensible in terms of the economic interests of himself and others. [44] In short we are left with the view that, on the information presently available, the terms of the composition are not reasonable (s 122(3)(b)) and that it is, in any event, not expedient that it be approved (s 122(3)(d)).Disposition[45] The appeal is dismissed. [46] Mr Fava is to pay the respondents costs of $6,000 together with usual disbursements.Solicitors: Hornabrook Macdonald, Auckland for Respondents Meredith Connell, Auckland for Official Assignee