BNZ's pursuit of Fontein in courts 'an abuse of bankruptcy process'

Patrick Fontein. Photo / Paul Estcourt

BNZ is motivated by "ill will" by trying to bankrupt Auckland developer Patrick Fontein who had fronted up to his responsibilities, the court heard yesterday.

David Connor, Fontein's barrister, said the bank was going too far in its moves and allegations against him which verged on the edge of criminal activity.

"It has become personal. This is about an abuse of the bankruptcy process and when is enough enough," Connor said.

Associate Judge John Faire in the High Court at Auckland, said he recognised Fontein's actions.

"There's no question he has manfully faced up to these problems, investing $5.5 million into Kensington Park Properties. Those factors have not escaped me and they have to be taken into account," the judge told Connor.

The case follows a $47 million debt Fontein's company incurred to the BNZ in transforming Orewa's former camping ground into an master-planned housing community. The court heard yesterday how three proposals went to creditors owed $93.3 million but the judged struggled to ascertain what decision Connor was seeking.

Scott Barker for the BNZ yesterday objected to Connor's submissions, said the bankruptcy application had been filed eight months ago and the court was yesterday on a second, unscheduled day of the hearing.

Judge Faire said that Connor's proposals could have the effect of cutting out some creditors. But Connor suggested the judge could halt rather than dismiss the bank's application, subject to certain terms which could include putting a fourth proposal to the creditors under the Insolvency Act.

Fontein failed to get creditor approval for the previous three part-payment schemes. He earned more than $600,000 in the past 18 months as a consultant to 10 businesses.

Connor emphasised another lender's support for Fontein, citing Fidelity owed $20.9 million and Fidelity Finance owed $10 million. Creditors were deprived of a partial payout by the BNZ which voted against the schemes and got other creditors to back it. Connor said the bank wanted to impose the stigma of bankruptcy on Fontein.

Liquidators of other parts of Fontein's businesses found no wrong, Connor said, failing to identify voidable transactions or reckless trading.

The judge weighed up the size of Fontein's debts, which total $120 million, including personal guarantees.

"Mr Fontein has been very frank in his affidavit. He spoke about perhaps a mistake he made in going too big, taking on more than he should and that's made against the context that he didn't have the precise funding in place to do it. He didn't have a legal commitment from the BNZ to complete additional stages. That's an error of judgment and the question I will have to determine is when you make an error of judgment of the size he has, does that require some market disapproval by an order of adjudication [for bankruptcy]. It's one of the most important aspects of this case because it clears out all the other material and allegations," the judge said.

Connor said BNZ had changed loan conditions at Kensington Park and a valuation was completed based on the bank's suggested methodology which caused problems. "There was expenditure of $13 million but the land only goes up in value by about $3 million," he said.

The judge told Connor putting money into an asset did not mean it went up in value by the same amount and the bank was entitled to instruct the valuer. But Connor said the value rose by such a small degree after building roads and drains, securing further resource consents and adding infrastructure.

"The bank seems to be saying 'we made a big loss, therefore Mr Fontein is imprudent or irresponsible'. The BNZ's case is riddled with words like mismanagement and reckless. Tightening rules by the BNZ had blown out unfunded portions of the project," Connor said.

Shareholder equity of $32 million was injected during 2007 and 2008 and Fontein personally put in $5.5 million, Connor said, contributing every dollar he had.

"Mr Fontein didn't make any secret of the full extent of his wealth. BNZ could not have thought it was limitless. So the suggestion that he is in a category of his own as an over-extender is not borne out. This was an extraordinary loss the BNZ suffered. It's huge. But it's reflective of the economic climate," Connor said.

BNZ made assurances of flexibility and high-quality loans but Connor said it either failed to respond promptly or at all to requests for further facilities. He challenged the bank to produce evidence. The bank's complaints against Fontein verged on the edge of criminal activity but his actions were nowhere near this, Connor said.

The hearing finished yesterday and Judge Faire reserved his decision.