Burnett v Commissioner of Inland Revenue HC Christchurch CIV 2009-409-2700

[2010] NZHC 1088

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2009-409-002700

IN THE MATTER OF     the Insolvency Act 2006

AND IN THE MATTER OF  an application to adjudicate the

Judgment Debtor bankrupt

BETWEEN  GRAHAM LESLIE BURTON BURNETT Judgment Debtor

ANDCOMMISSIONER OF INLAND REVENUE

Judgment Creditor

Hearing:         24 June 2010

Appearances: D Russ for Judgment Debtor

D Tasker & K Reid for Judgment Creditor

Judgment:      24 June 2010

ORAL JUDGMENT OF ASSOCIATE JUDGE DOHERTY

[1]      The  judgment  creditor  has  applied  for  an  adjudication  order  under  the Insolvency Act 2006 to adjudicate the judgment debtor bankrupt.  This is in respect of an amount of unpaid taxation commitments which comes in several guises: personal income tax, non-custodial parent assessment and student loan borrowings relating to personal obligations of Mr Burnett.   There is also a further taxation commitment for Goods and Services Tax for a partnership of the judgment debtor and another.

[2]      The assessed amounts, which total now in the vicinity of $500,000, relate to obligations  in  some  cases  going  back  to  1999,  and  are  on  default  assessments because the judgment debtor has refused or been unable to file returns.  Of the total

amount  outstanding,  about  $160,000  is  assessed  as  the  taxation  or  allowance

BURNETT V COMMISSIONER OF INLAND REVENUE HC CHCH CIV-2009-409-002700  24 June 2010

assessment.   The balance is penalties and interest applied under the appropriate legislation.

[3]      To say that the judgment debtor has buried his head in the sand and tried to deal with all of these matters himself is an understatement.  He now throws himself on the mercy of the Court to seek an adjournment so that he can perhaps regularise what he can of his commitments.  He has been dealing with his affairs himself and has not taken professional advice until very recently.   He has been put in funds through a settlement of another facet of his affairs.  That has enabled him to instruct both counsel and an accountant to assist him to get his issues with the judgment creditor sorted out.   He also has an amount of $50,000 which could be paid on account of his obligations.

[4]      What  is  intended  is  that  he,  using  his  professional  advisers,  files  the appropriate  returns  and  presents  them  to  the  judgment  creditor.    The  judgment creditor then has an ability to exercise a discretion to make reassessments pursuant to s 113 of the Tax Administration Act 1994.

[5]      Counsel’s submission is that an exercise of discretion in his favour, together with the actual returns which will take into account considerable business losses, might well mean that the amount owed in terms of taxation itself (putting aside penalties and interest) might be negligible.

[6]      The  judgment  creditor  opposes  the  adjournment,  because  that  is  the application the judgment debtor makes – that he be given a further six weeks’ grace to enable him to do what I have just described.  Counsel for the judgment creditor says that it would be extremely unlikely that there would be exercise of the judgment creditor’s discretion in favour of the judgment debtor.

[7]      That is not only because of the amount of time that has gone by, but the fact that to deal with such ancient and historic returns will mean the application of considerable  resource  by  the  judgment  creditor  –  something  he  might  not  be prepared to do.

[8]      This is of course an exercise of a discretion that must be applied at the time of the application for reassessment.  Counsel is not intending to bind the judgment creditor at all: merely give me his informed assessment of the likely reaction.

[9]      The  question  is,  what  real  prejudice  might  there  be  in  such  a  short adjournment?  There might well be the spending of money by the judgment creditor which will be, to put it in the vernacular, “down the drain” and therefore unavailable for creditors in a bankruptcy.   As far as I am aware, and as far as the judgment creditor can tell me, the only significantly outstanding creditor of the judgment debtor other than the Commissioner is PGG Wrightsons, which had a claim which has been settled and which the judgment debtor is paying over time.   Bankruptcy would enable PGG Wrightsons to prove in the bankruptcy, but it is probably not likely to find itself prejudiced too much as the compromise may well be getting them their money to the best possible advantage.

[10]     The judgment creditor has taken some time to bring this proceeding.  It has been on foot for some six months, but relates to a judgment of the District Court which was sealed in either November 2005 or May 2006 – whichever the date, some time ago.  The creditor has not seen fit to take this action until very recently.

[11]     Part also of the adjournment is the fact that there will be a formal withdrawal of the judgment debtor’s opposition to this application.   It might well be said that that is the least he could do, because frankly, on the papers before the Court, there is no defence to this application.   But that would mean there would effectively be a consent to the adjudication order, and there is very little in the way of cost that might be incurred by the judgment creditor in coming again.

[12]     I am conscious that an adjudication at this stage is a finality in a sense for the judgment debtor.  For the first time he has people who could help him involved, and he has the money to do so.  He is also prepared to put his money where his mouth is, in a sense, to ensure that the balance of funds (namely the $50,000) be paid forthwith to Inland Revenue.

[13]     For those reasons I grant the adjournment.

[14]     The application is adjourned until 10 a.m., 23 August 2010 to a bankruptcy list.  That is because the adjournment is on the following terms:

i)        That the judgment debtor’s opposition is formally withdrawn.

ii)That the judgment debtor irrevocably instruct his solicitors to pay $50,000 to the judgment creditor within 24 hours.

iii)      That that payment be made within 24 hours.

iv)The judgment debtor is stayed from taking any further action to oppose this application other than with leave of this Court.

[15]     Costs are reserved

ASSOCIATE JUDGE DOHERTY

Solicitors:

Fletcher Vautier Moore, Nelson
Inland Revenue Department, Christchurch