Commercial Management Ltd v Commissioner of Inland Revenue
[2018] NZHC 2224
•28 August 2018
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2018-485-138
[2018] NZHC 2224
UNDER the Companies Act 1993 IN THE MATTER
of an application to restore companies to the register under s 329 of the Act
BETWEEN
COMMERCIAL MANAGEMENT LTD, EQUITY CAPITAL INVESTMENTS LTD and DOWNSVIEW NOMINEES LTD
Applicants
AND
COMMISSIONER OF INLAND REVENUE
First Respondent
REGISTRAR OF COMPANIES
Second Respondent
Hearing: 26 July 2018 Appearances:
Mr A Beck for applicants
Ms M Deligiannis and Ms N Delamore for first respondent
Judgment:
28 August 2018
JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
Table of Contents
Para No.
Introduction [1]
The Commissioner of Inland Revenue’s standing [5]
The form of this proceeding [7]
The applicants’ case [11]
COMMERCIAL MANAGEMENT LTD v COMMISSIONER OF INLAND REVENUE [2018] NZHC 2224
[28 August 2018]
The Commissioner’s opposition [17]
The overarching principles [21]
Delay [23]
Reasons for removal [27]
Apparent reasons for the application [37]
No live dispute [41]
The balancing exercise [45]
Discussion and conclusion [59]
Introduction
[1] The applicants, Commercial Management Ltd, Equity Capital Investments Ltd and Downsview Nominees Ltd, seek orders pursuant to s 329 of the Companies Act 19931 restoring five defunct companies to the Companies register:
(a)Belmonte Dairy Ltd, which was incorporated on 25 November 1983 and removed from the register on 17 February 1998;
(b)Corporate Transport Ltd, which was incorporated on 12 March 1940 and removed from the register on 25 September 1996;
(c)Manly Estates Ltd, which was incorporated on 9 July 1970 and removed from the register on 27 June 2000;
(d)Marketing Agencies Ltd, which was incorporated on 27 February 1939 and removed from the register on 23 April 1998;
1 The application in relation to two of the defunct companies, Marketing Agencies Ltd and Corporate Transport Ltd, are made pursuant to the Companies Act 1955 (repealed) as those companies did not transition between the 1955 and 1993 Acts prior to being removed from the register. However, the case was argued by counsel for both the applicants and the first respondent on the basis that there was no material difference between the relevant provisions of the previous and current legislation (s 304 of the 1955 Act and s 329 of the current Act).
(e)Mountforts Pharmacy Ltd, which was incorporated on 24 January 1969 and removed from the register on 22 December 2011.
[2]Section 329 provides as follows:
329 Court may restore company to New Zealand register
(1)The court may, on the application of a person referred to in subsection (2), order that a company that has been removed from the New Zealand register be restored to the register if it is satisfied that,—
(a)at the time the company was removed from the register,—
(i)the company was carrying on business or a proper reason existed for the company to continue in existence; or
(ii)the company was a party to legal proceedings; or
(iii)the company was in receivership, or liquidation, or both; or
(iv)the applicant was a creditor, or a shareholder, or a person who had an undischarged claim against the company; or
(v)the applicant believed that a right of action existed, or intended to pursue a right of action, on behalf of the company under Part 9; or
(b)for any other reason it is just and equitable to restore the company to the New Zealand register.
(1A) In considering whether to restore a company to the register on the ground referred to in subsection (1)(a)(i) or (b), the court must have regard to the reasons for the company’s removal and whether those grounds existed at the time of removal or exist at the time of the hearing of the application.
(2)The following persons may make an application under subsection (1):
(a)any person who, at the time the company was removed from the New Zealand register,—
(i)was a shareholder or director of the company; or
(ii)was a creditor of the company; or
(iii)was a party to any legal proceedings against the company; or
(iv)had an undischarged claim against the company; or
(v)was the liquidator, or a receiver of the property of, the company:
(b)the Registrar:
(c)with the leave of the court, any other person.
(3)Before the court makes an order restoring a company to the New Zealand register under this section, it may require any provisions of this Act or any regulations made under this Act, being provisions with which the company had failed to comply before it was removed from the register, to be complied with.
(4)The court may give such directions or make such orders as may be necessary or desirable for the purpose of placing the company and any other persons as nearly as possible in the same position as if the company had not been removed from the New Zealand register.
[3] It is common ground that the applicants have standing to make these applications. One or other of them was a shareholder of each of the five defunct companies at the time that each was removed from the register. That is all that is required by s 329(2)(a)(i) to get the applicants in the door.
[4] These applications are made pursuant to s 329(1)(b) so the overarching question is whether “… it is just and equitable to restore [each of the defunct companies] to the … register”.
The Commissioner of Inland Revenue’s standing
[5] Mr Beck for the applicants raises a question as to the standing of the Commissioner of Inland Revenue to oppose the applications. He submits that the Commissioner is only involved because there may be an impact on the revenue if the five defunct companies were to be restored to the register and if any one or more of them (or any other party through any one or more of them) were able to secure a tax advantage of one sort or another. Other than that, Mr Beck submits, it is the Registrar of Companies, the second respondent, who has responsibility for maintaining the register. The Registrar is abiding the decision of the Court. In relation to this point, Mr Beck referred me to Re Marketing Distribution Services Ltd where Potter J rejected arguments advanced by the Commissioner in opposition to the restoration of a company to the register. 2 It is apparent from Potter J’s judgment that she did not
2 Re Marketing Distribution Services Ltd HC Auckland, M1835/97, 2 March 1998.
regard it as appropriate in that case for the Commissioner to enter the fray at the point when an application was made.
[6] I do not think that the applicants can object to the Commissioner opposing their application here. In Marketing Distribution Services Ltd the Commissioner was not cited as a party. In commencing this proceeding the applicants cited the Commissioner as the first respondent. Accordingly, she is a party, and indeed the foremost party, in the proceeding, and it is her status as such that confers standing on her.
The form of this proceeding
[7] The applicants have commenced this proceeding by originating application pursuant to pt 19 of the High Court Rules 2016. As submitted by Ms Deligiannis for the Commissioner they require leave to do so. Rules 19.1–19.3 identify certain categories of cases which may be commenced by originating application as of right. These do not include applications pursuant to s 329. However, there is a catch-all provision in r 19.5 which effectively provides that the Court may grant leave for comparable cases to be commenced by way of originating application.
[8] Ms Deligiannis acknowledges that there are any number of examples of s 329 applications being commenced by originating application.3 But she submits that this case is out of the ordinary because it involves five applications, all of those applications raise slightly different factual and legal issues and those issues are complex. She submits that the proper disposal of this case calls for formal pleadings and the more elaborate processes of an ordinary proceeding.
[9] I accept that these applications are not run-of-the-mill. They probably do require the Court to look at a broader range of considerations than in a conventional s 329 application. But that said, I do not perceive them to be especially complex - factually or legally.
[10] The applicants have commenced their proceeding by originating application, and filed affidavit evidence in support. The Commissioner has responded with a notice
3 See for example Re Salamanca Investments Ltd [2015] NZHC 572, 3 NZLR 411.
of opposition and affidavit evidence. The applicants have replied. The parties have filed detailed submissions. Both have proceeded right down to the hearing on the basis that the Court would deal with the case as an originating motion. It is not my sense that either has been handicapped by the format of the proceeding. In my view, the time to object to the vehicle for dealing with this litigation has passed, and the better course is simply to dispose of it on that basis.
The applicants’ case
[11] The basis upon which the applicants contend that the Court should restore the five defunct companies to the register is not complicated.
[12] In FB Duvall Ltd v Commissioner of Inland Revenue Ellis J determined that the Commissioner had erred in refusing to accept late objections by a number of companies controlled by the late Mr J G Russell or his firm in relation to assessments for GST.4 Her Honour effectively ordered the Commissioner to accept and consider the objections. Following that judgment, issued nearly seven years ago, there have been ongoing negotiations between Mr Russell’s firm on behalf of the objectors and the Commissioner directed at resolving the underlying dispute.
[13] In the course of those negotiations, Mr Russell’s firm has sought to include not only the companies that were the plaintiffs in the FB Duvall case but others, including the five defunct companies who are the subject of this application, all of which Mr Russell’s firm maintains – rightly or wrongly – are in a comparable position to the FB Duvall plaintiffs (or, in the case of the five defunct companies, would be if they existed).
[14] The affidavit evidence before the Court includes exchanges between the parties in the context of these negotiations.
[15] Mr Beck drew my attention to exchanges between Mr Russell’s firm and the Commissioner in mid-October 2017. At that time, Mr Russell’s firm was pressing for a global settlement covering all taxpayers said to be in a comparable position to the
4 FB Duvall Ltd v Commissioner of Inland Revenue HC Auckland CIV-2009-404-1193, 15 December 2011.
FB Duvall plaintiffs. The Commissioner was asked in an email whether such a settlement would include “… the removed companies …”. The Commissioner’s response to this query was “No. Struck off companies no longer exist”.
[16] So, Mr Beck submits, in order to progress these negotiations in the way that Mr Russell’s firm wishes, by including all the taxpayers said to be in a comparable position to the FB Duvall plaintiffs, it became necessary for this application to be made to restore the five defunct companies to the register.
The Commissioner’s opposition
[17] The bases on which the Commissioner opposes the application are summarised by Ms Deligiannis as follows:
4.3It is not just and equitable to restore the Struck Off Companies to the register for the following reasons:
4.3.1the applicants do not have genuine claims pursued in good faith against the Struck Off Companies.
4.3.2the purported receiverships of Settlers Brewing Co Ltd and South City Heating Ltd are not genuine (albeit this is no longer an issue as the restoration of these companies is not being pursued).
4.3.3the Struck Off Companies have no independent or arm’s length third party creditors.
4.3.4there are no live disputes or claims against the first respondent that can be pursued nor are there any settlement negotiations in relation to these entities.
4.3.5there has not been full and frank disclosure by the applicants to the Court of the circumstances leading to the Struck Off companies being removed from the Register of Companies.
4.3.6the length of time that has elapsed since the Struck Off Companies were removed from the register is considerable.
4.3.7the Struck Off Companies were not carrying on a business or in operation when they were removed from the register and there is no proper reason for the Struck Off Companies to continue in existence.
4.3.8the disadvantages to the public interest if the Struck Off Companies are restored outweighs any private advantages to the applicants.
[18] Because the applicants’ originating application was not specific about the basis for their application (it referred only to s 329 and did not specify that the application was made pursuant to s 329(1)(b)), and because the applicants have withdrawn applications relating to three defunct companies originally included, some of those grounds are no longer relevant.
[19]In particular:
(a)4.3.1 is no longer relevant because s 329(1)(b) does not require that the applicants have potential claims against the defunct companies;
(b)4.3.2 is no longer relevant because orders are no longer sought in relation to the two defunct companies mentioned; and
(c)4.3.3 is no longer relevant because s 239(1)(b) does not require that the applicants have third party creditors.
[20] Below, I deal with the principles involved in applications such as this and then address the remaining objections in what appears to me to be the logical order.
The overarching principles
[21] The leading case concerning the factors to which the Court will have regard in an application under s 329 is Re Saxpack Foods Ltd.5 Subsequent authorities have relied heavily on Hammond J’s judgment in Saxpack, most particularly in the case of applications pursuant to s 329(1)(b) such as this.
[22]Hammond J set out these considerations as follows:6
It appears to me that the principles here relevant are as follows:
1.There are two broad procedures for restoring a company: declaring the dissolution void under s 335, and restoration under s 336. Both of these provisions closely follow the English statute.
5 Re Saxpack Foods Ltd [1994] 1 NZLR 605 (HC).
6 At 609–611.
2.The effect of a restoration under s 336 is that it validates retrospectively all acts done in the name of or on behalf of the company during the period between dissolution and restoration: Tyman's Ltd v Craven [1952] 1 All ER 613 per Sir Raymond Evershed MR and Hodson LJ; Jenkins LJ dissenting. See also Re Donald Kenyon [1956] 3 All ER 596.
3.The applicant under s 336(7) must be the Registrar or a member or creditor of the company. The term "creditor" is wide enough to include contingent or prospective creditors; and the debt need not be liquidated: Re Harvest Lane Motor Bodies Ltd [1969] 1 Ch 457.
4.As to standing to oppose an application, Mr Heath unearthed Re Conrad Hall & Co (1916) 60 Sol J 666. In that case Astbury J held that a litigant in other proceedings involving the company had no standing to oppose the restoration application. Unfortunately Astbury J gave no reasons for this holding, though he clearly thought standing was an issue. But the Registrar having not opposed, His Lordship granted the application.
Mr Heath suggested that the rationale for Astbury J's holding is that whenever there is a restoration application, it is usual - indeed invariable - to require the Registrar of Companies and the Attorney-General to be served. If there is a public interest reason for refusing the application, in Mr Heath's view those officials should raise it. Private litigators, on the other hand, could be characterised as officious inter-meddlers. Their remedy, he suggested, lies in a more appropriate procedural forum.
Mr Heath, I think rightly, recognised that procedural arguments of this kind do not find much favour in this day and age, and he felt confident enough on the merits of his client's case. In any event, in this particular case Penlington J had already ordered service of the proceedings on Watties. I do not think it now open to me to go behind that order. Presumably Mr Heath would have to appeal Penlington J's directions as to service to advance his standing point further.
However, in case I am wrong on that, and in case the point should arise again, my own view would be against that expressed by Astbury J. On the one hand, there is no doubt that the creation of a company is an act of law, sanctioned by the State, and the company takes on a distinct kind of personality on the terms contained in the corporations legislation. The Crown must always have an interest in a restoration application because there may (at least) be issues of bona vacantia. The Registrar of Companies has an interest as the public administrator of the corporations legislation and will almost routinely wish to collect back fees or see that all proper documentation has been filed. That in turn might suggest that it is only persons with a public interest who ought to be served. But s 336(7) goes further than that – it refers to "placing the company and all other persons in [a restored] position" (emphasis added). In terms, the section is not therefore limited in effect to those with what could be termed a public interest. This is not to say that there might not be an occasion on which an officious inter-meddler with no legitimate connection would be refused standing. But a litigant in the position of Watties I think has
standing to oppose the application, although, on the merits of such an opposition, such a party will obviously have real difficulty in opposing simply on a self-serving basis. If necessary therefore, I would hold against Mr Heath on this point.
I would summarise the standing position thus: where there is opposition to an application to restore a company on the grounds that its restoration would not be "just", the person opposing same must have a legitimate interest in that opposition. Such an interest may arise out of the fact that prior to the striking off, the opposer was involved in other litigation which had actually been commenced by the company which is sought to be restored. I express no view as to the position where litigation had not yet been commenced. But a litigant in these other proceedings with the applicant would have to show very unusual circumstances to succeed: normally procedural objections will be taken on applications under the High Court Rules in the actual litigation.
5.There must be a full and frank disclosure to the Court as to the circumstances leading up to the striking off. In Re Ghuznee Securities Ltd (1983) 1 NZCLC 95-097, O'Regan J dismissed an application for restoration where a company had been struck off for failure to file annual returns for a number of years. A director applied for restoration in order to pursue a cause of action after a fire which had destroyed the company's premises 10 years previously and after which the company had ceased trading. However, in the application filed in that case O'Regan J seems to have been heavily influenced by the applicant not having proffered any reason for or explanation of the defaults: "in the absence of such the Court is without material upon which it can make an assessment of the justice of the matter. Indeed, I am inclined to the view that in the absence of any such explanation I must needs conclude that no exculpatory or mitigating factors obtain". See also Re Durweston.
6.The personal circumstances of the applicant which led to the striking off may be considered: Re L Carroll Ltd [1975] 1 NZLR 79 (illness and ignorance of the striking off held relevant).
7.The countervailing public and private disadvantages to the applicant and the public must be identified and assessed. In Re Austral Group Investment Management Ltd [1993] 2 NZLR 692, Holland J made an order restoring a company to the register because there were perceived advantages in having the company wound up and no perceived disadvantages to directors unless they had been guilty of misfeasance.
8.The length of time which has elapsed since the striking off is a relevant factor. The statute itself allows up to 20 years. However, the usual judicial principle is that a party must act timeously upon becoming possessed of the necessary knowledge that an application for restoration could or should be made. This is the normal equity principle.
9.Misconduct on the part of an applicant requires consideration, but the Court when considering a restoration order has no power to impose a penalty on an applicant. Buckley J in Re Brown Bayley's Steel Works
Ltd (1905) 21 TLR 374 said that if he had such jurisdiction he would mark his disapproval by doing so as a condition of an order; and that he hoped that those responsible for the control of the amendment of company law would consider whether the law on this subject did not require alteration. In Re Moses and Cohen Ltd [1957] WLR 1007, Roxburgh J agreed, and said at p 1011 that "Perhaps after fifty years it may not seem premature to remark on the frequency of these applications, and to the underlying cause. [Generally, incompetence and inattention to duty . . . with respect to important statutory duties]
. . . This leaves a court in the position of confirming an interment has occurred - the ultimate penalty - or none at all". And in Re Court Lodge Development Co Ltd [1973] 1 WLR 1097 Megarry J lamented that public funds should continue to subsidise those who disregard their statutory obligations and then seek for their own benefit to have the consequences undone. But he did not impugn the "no penalty principle" developed earlier this century.
10.An order can be made on terms.
Delay
[23] In Saxpack, Hammond J observed that the law generally expects parties with interests to pursue them within a reasonable period of time. I infer from his Honour’s observations that he considered there are circumstances in which an application for an order restoring a defunct company to the register will fail because the applicant has sat on his or her hands, there is no reasonable explanation for the delay and the delay may result in prejudice.
[24] Here, the five defunct companies were removed from the register between 7 and 22 years ago. Those periods of time do seem to be extreme. However, there is an explanation for the delay. It was not until the decision in FB Duvall and the developments in the negotiations between the parties discussed above that it was perceived that there was an immediate need to apply for their restoration. Moreover, there is no evidence of prejudice merely by reason of delay.
[25]My assessment is that delay is not an absolute bar to this application.
[26] But it does mean that the Court must look carefully at the other relevant factors before deciding in favour of an application that would restore to the register companies that have been defunct for such periods of time.
Reasons for removal
[27] Section 329(1A) provides that in considering whether to restore a company to the register under subsections (1)(a)(i) or (b), the Court is obliged to have regard to the reasons for the company’s removal and whether those grounds still exist at the time of the hearing.
[28] On its face this means that the Court cannot restore any company to the register under the s 329(1)(a)(i) or (b) unless it has before it and considers evidence as to the reasons for the company’s removal.
[29] Neither the applicants’ originating application nor the supporting affidavit sworn by Ms Glenda Rogers,7 a director of each of the applicant companies, addressed the reasons for the companies being removed from the register in the first place. The Commissioner, in her notice of opposition, pleads that the applicants have not made full and frank disclosure to the Court, which is a reference to this gap in the applicants’ case. In the affidavit sworn in support of the Commissioner’s opposition,8 the deponent, Mr Trevor Strang, a senior Inland Revenue Department Officer, provided some evidence as to why each of the five defunct companies was removed from the register.
[30]From Mr Strang’s affidavit evidence it appears that:
(a)Belmonte Dairy Ltd was placed in liquidation on the application of the Commissioner. The Official Assignee was appointed as liquidator. It was struck from the register following the liquidator’s final report;
(b)Corporate Transport Ltd ceased trading around the conclusion of the FYE 1997 and was subsequently struck from the register, presumably for failure to comply with its statutory obligations;
7 Sworn on 15 February 2018.
8 Sworn on 9 March 2018.
(c)Manly Estates Ltd ceased trading around the conclusion of the FYE 2002 and was subsequently struck from the register, presumably for failure to comply with its statutory obligations;
(d)Manly Marketing Agencies Ltd ceased trading some time prior to the conclusion of the FYE 1994 and was subsequently struck form the register, presumably for failure to comply with its statutory obligations;
(e)Mountforts Pharmacy Ltd ceased trading some time prior to the conclusion of the FYE 2011 and was subsequently struck from the register, again presumably for failure to comply with its statutory obligations.
[31] It also emerges from Mr Strang’s affidavit that, at the time that three of the five defunct companies (Belmonte Dairy Ltd, Manly Estates Ltd and Manly Marketing Agency Ltd) were removed from the register, they had undischarged tax obligations. In two cases the outstanding tax obligation was substantial — approximately $42,000 and $56,000.
[32] In her affidavit in reply,9 Mrs Rogers did address the circumstances in which the five defunct companies were struck from the register, but her evidence does not add materially to the information provided by Mr Strang.
[33] So, in terms of s 329(1A) it would seem that Belmonte Dairy Ltd was placed in liquidation after it amassed a substantial debt to the Revenue and then removed from the register following the liquidation. The remaining four companies appear to have simply ceased trading, did not comply with their statutory obligations (presumably in relation to such things as the filing of annual returns) and were removed from the register as a result. The other important factor is that three of the defunct companies had undischarged tax obligations to the Revenue at the time they were removed.
9 Sworn on 21 March 2018.
[34] To the extent that those considerations were grounds for the five defunct companies to be removed from the register I regard it as fair to conclude that there has been no change.
[35]That is as far as the evidence goes.
[36]On balance this consideration weighs against restoration.
Apparent reasons for the application
[37] As none of the five defunct companies appear to have been carrying on business at the time they were removed from the register, Ms Deligiannis submits that there is no proper reason for them to be restored to the register.
[38] Counsel accepted during the course of argument that the Court was not in a position in this proceeding to reach any view as to the merits of the contention that the five defunct companies would, if restored to the register, be in the same position as the FB Duvall plaintiffs or whether there is any merit in the claims they are said to have to tax advantages of one sort or another.
[39] That being so, the question of whether there is a proper reason to order the restoration of the companies to the register reduces itself to whether it is proper to do so in order to enable them to test that issue, no doubt by seeking to participate in the current negotiations and if those were to fail any litigation.
[40] Viewed in isolation, that appears to me to be a legitimate objective on the part of the applicants. In my judgement this factor weighs in favour of granting the applications.
No live dispute
[41] The Commissioner’s contention that there is no live dispute strikes me as circular.
[42] Ms Deligiannis submits - uncontroversially - that upon their being removed from the register the defunct companies ceased to have any existence in law. She
emphasises that none of the companies objected to any tax assessment prior to being removed and of course they could not have done so thereafter.
[43] On those bases she submits that there is no live issue between the five defunct companies and the Commissioner and therefore no basis upon which it can be said that they should be restored in order to pursue claims.
[44] At one level, that submission is unanswerable. But, in the end, it does little more than beg the question of whether the defunct companies should be restored to the register so that they can file late objections and matters can take their course from that point. I do not accept that a “Catch 22” of the sort that the Commissioner seeks to set up should stand in the way of the Court granting an effective remedy if other circumstances indicate that that is the appropriate course. I do not regard this as a factor that should influence the outcome here.
The balancing exercise
[45] In Saxpack Hammond J referred to the countervailing private and public interests of ordering or refusing restoration and envisaged a balancing of these.
[46]I see this as the dispositive - and most difficult - aspect of the case.
[47] From the perspective of the applicants and the five defunct companies, it is easy to see that they envisage a private advantage to be gained by restoration, that is to say the prospect of being able to pursue a tax advantage down the line.
[48]It is fair to add - though Mr Beck did not advance this point in so many words
- that there may be a public interest involved here too. The restoration of the five defunct companies to the register would enable five corporate taxpayers - as they would then be - to pursue their rights through the avenues available to all taxpayers. The right to do so is fundamental. In my view, there is a public good in its reinforcement.
[49] As against that, Ms Deligiannis submitted that there are public interests that would be detrimentally affected by the restoration of these five defunct companies to the register.
[50] She referred first to the threat to the Revenue that these companies would pose were they to be restored. This, she submitted, was contrary to the public interest. As I have said it is the right of every taxpayer to join issue with the Commissioner in relation to their tax obligations, and the mere fact that the restoration of these companies to the register would in all probability result in a dispute with the Inland Revenue Department which might result in a reduction of the tax base is not, in my view, something which should be brought to account against their restoration.
[51]However, the Commissioner’s argument goes further than that.
[52] Ms Deligiannis referred me to Mr Strang’s detailed evidence concerning the history of litigation involving Mr Russell, his firm and other entities with which he has been associated on the one hand and the Commissioner on the other.
[53] Mr Strang’s uncontradicted evidence is that this litigation began in the early 1980s and has been pursued relentlessly ever since. It has involved Mr Russell’s personal affairs (which ultimately led to his bankruptcy), a scheme referred to as “the Russell template” and other litigation including numerous applications for judicial review of decisions made by the Commissioner. In the course of describing all of this, Mr Strang referred to judgments of the Taxation Review Authority and the courts, including the Privy Council and the Supreme Court. He emphasised Mr Russell’s lack of success in most of the litigation, especially that involving the Russell template, which was ultimately declared to be a tax avoidance arrangement. He gave examples of serious criticisms levelled at Mr Russell, his firm and the Russell template scheme.
[54] Mr Strang gave unchallenged evidence of the relationship between Mr Russell and Mrs Rogers and her husband. He described how this relationship began and developed. His evidence was that, at least since Mr Russell’s bankruptcy, Mrs Rogers has effectively stepped into his shoes and is continuing to chart the same course. In
this regard, Mr Russell’s death earlier this year has no doubt resulted in Mrs Rogers taking a more leading role.
[55]I am not altogether sure what I am being invited to make of all this evidence.
[56] Certainly Ms Deligiannis submitted that this application is just another example of Mr Russell’s firm and those now associated with it looking to prolong meritless claims against the Commissioner of Inland Revenue. Here is how she put it:
The Struck Off Companies are all companies associated with Mr John George Russell (Mr Russell). Based on many years of experience dealing with Mr Russell and his numerous companies, the Commissioner is concerned that associates of Mr Russell are seeking restoration of the Struck Off Companies for their own benefit as part of a wider route to attempt to extract money from the tax base.
[57] To an extent, in making that submission, Ms Deligiannis is pushing against an open door. For the applicants, Mr Beck makes no attempt to deny the objective of this application. Plainly this is to place the five defunct companies on legal footings that will enable them to pursue some tax advantage or other.
[58] I do not think it would be appropriate in the context of this application for me to form any conclusions based on the history of litigation between Mr Russell’s firm and the Commissioner, either as to the propriety of the applicants’ motives in seeking to have the five defunct companies restored or as to the merits of the claims that everyone understands they wish to make. Any view I might have as to the historical propriety of Mr Russell or his firm would be neither here nor there. The fact that Mr Russell’s firm’s clients have generally been unsuccessful in the past is not necessarily a reason to conclude that the claims by the current FB Duvall plaintiffs (and the five defunct companies that are the subject matter of this application, if they are restored to the register) are without merit. In any event, to get to that point I would have to make some assessment of the merits of the parties’ positions in that dispute, which both Mr Beck for the applicants and Ms Deligiannis for the Commissioner acknowledge that I am not in a position to do.
Discussion and conclusion
[59] On balance I have reached the conclusion that the applicants are entitled to the orders they seek.
[60] I am acutely conscious that such orders will restore to the register five defunct companies:
(a)that were removed from the register between seven and 22 years ago and which will now be deemed to have been in existence for all those years;10
(b)two of which were originally incorporated under the 1955 Act and never transferred to the current Act;
(c)one of which was removed following its liquidation, with the result that it will be necessary, to ensure that the order for its restoration is efficacious, to make an ancillary order overturning the liquidators’ final report;
(d)none of which were trading at the time that they were removed;
(e)none of which, in my assessment, have any real prospect of resuming trading;
(f)three of which were removed at a time when they had outstanding tax obligations (which may or may not re-emerge);
(g)all of which are being restored for the sole purpose of what on its face appears to be a speculative attempt to pursue a tax advantage.
[61] However, the considerations that have lead me to the conclusion I have reached are as follows:
10 See s 330(2) of the Companies Act 1993.
(a)although the periods of time that have passed since these five defunct companies were removed from the register are extreme (indeed, my own research has not thrown up any instance of longer periods), there is no limitation provision in the Act, there is an explanation for why the applications are being made now, and there is no obvious prejudice to the Commissioner caused merely by the delay;
(b)the applications are made in order to facilitate the five defunct companies pursuing a legitimate purpose, namely to establish whether they are entitled to a tax advantage of some sort. As already said, I reach no view as to the merits of their cases. That is a matter to be determined elsewhere;
(c)on balance my view is that the private and public interests involved favour the making of the orders sought:
(i)the five defunct companies have private claims that they wish to pursue;
(ii)there is a public interest in the facilitation of New Zealand taxpayers (or potential tax payers) pursuing claims that they perceive themselves to have in the proper way;
(iii)I do not accept that the mere fact that the restoration of these companies might result in them pursuing tax advantages to the detriment to the Revenue is itself contrary to the public interest;
(iv)to the extent that I have any regard to the history of litigation between Mr Russell’s firm, and entities associated with it, and the Commissioner, I accept that it is not in the public interest that the Commissioner should be embroiled in what on their face appear to be long standing disputes. But the reality is that there is already a dispute between the existing F B Duvall plaintiffs and other parties and the Commissioner, and the
marginal cost of including five additional claimants will be minimal;
(v)in the end, I find myself reaching the same conclusion as Potter J reached in Re Marketing Distribution Services where her Honour said:11
In summary, there are matters of dispute between the company and the Commissioner which require to be determined. It is in the interests of justice that they be determined. It is not appropriate that other disputes between the Commissioner and Mr Russell’s group of companies, some but not all which have been resolved by litigation or otherwise, should influence the Court’s determination of this matter. Restoration of the company to the register will enable the companies’ objection to the Commissioner’s assessment to be determined on its merits.
Likewise, in this case, the restoration of the five defunct companies will enable them to file objections to the Commissioner of Inland Revenue’s assessments and matters can then take their course.
[62]For those reasons, I make the following orders:
(a)there will be an order restoring Belmonte Dairy Ltd, Corporate Transport Ltd, Manly Estates Ltd, Marketing Agencies Ltd and Mountforts Pharmacy Ltd to the register pursuant to s 329(1)(b) of the Companies Act 1993;
(b)there will be an ancillary order overturning the liquidator’s final report in relation to the Belmonte Dairy Ltd liquidation.
[63] I did not hear counsel on costs. My preliminary view is that the applicants are entitled to their costs on a 2B basis together with necessary disbursements. I invite counsel to agree as to the incidence and quantum of costs. If they are unable to do so
11 Re Marketing Distribution Services, above n 2, at 15.
they may file memoranda and I will deal with them on the papers.
Associate Judge Johnston
Solicitors:
Wilson McKay, Auckland for applicants
Crown Law, Wellington for first respondent
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