Commissioner of Inland Revenue, ex parte Ashby

[2012] NZHC 176

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

CIV-2011-412-000432 [2012] NZHC 176

IN THE MATTER OF     the Insolvency Act 2006

AND IN THE MATTER OF the insolvency of NEIL EDWARD ASHBY

BETWEEN  THE COMMISSIONER OF INLAND REVENUE

Judgment Creditor

ANDNEIL EDWARD ASHBY Judgment Debtor

Hearing:         7 February 2012 (in Court) and 8 February 2012 (by telephone conference)

(Heard at Dunedin)

Appearances: D Tasker for the Judgment Creditor

N E Ashby (Judgment Debtor) in person

Judgment:      10 February 2012

JUDGMENT OF ASSOCIATE JUDGE OSBORNE

UPON APPLICATION FOR ADJUDICATION IN BANKRUPTCY

[1]      The judgment creditor (the Commissioner) obtained a judgment against Mr

Ashby for $29,215.56 on 12 August 2010.

[2]      Mr  Ashby  did  not  settle  the  judgment  debt  following  the  issuing  of  a bankruptcy notice in relation to it.   As a result Mr Ashby committed an act of bankruptcy on 8 August 2011.

[3]      The Commissioner then on 22 September 2011 filed a creditor’s application

for an adjudication order.  The Commissioner asserted that Mr Ashby by then owed

$43,291.10.  The difference between the judgment debt and the debt then claimed by

THE COMMISSIONER OF INLAND REVENUE V ASHBY HC DUN CIV-2011-412-000432 10 February

2012

the  Commissioner  lay  in  additional  Goods  and  Services  tax  and  Income  tax, penalties and interest.

[4]      Mr  Ashby  has  not  taken  issue  in  this  Court  with  the  Commissioner’s assessment.   Nor has  he filed any document in opposition or any other formal appearance.

[5]      Mr Ashby appeared in person upon the first hearing date of the application on

21 November 2011.   He sought leave to be heard, following which I reluctantly granted him an adjournment.  He had spoken to the Court of steps he had been taking over the last six months to raise finance.  His failure to contact the Department of Inland Revenue to discuss the possibility of adjournment and additional time to raise finance counted against an adjournment but the Court granted a two week adjournment to enable Mr Ashby time to put detailed proposals to the Commissioner.

[6]      At the second call, in December 2011, Mr Ashby outlined a proposal to pay promptly approximately $32,000 representing the original judgment debt and some related calculations, and to also immediately engage with counsel for the Commissioner as to the other accrued tax debts.

[7]      I adjourned the proceeding to 7 February 2012 upon the expectation that Mr Ashby would be attending promptly to the judgment debt and would have further settlement negotiations with the Commissioner.

[8]      When the matter was called in the List on 7 February 2012, Mr Ashby again appeared on his own behalf.  It was common ground that Mr Ashby had made to the Commissioner the substantial payment promised.  The judgment debt was cleared. Mr Ashby had not been able to persuade the Commissioner to accept a time payment regime for the balance of the debt (now certified by counsel as $13,291.10).

[9]      I granted leave to Mr Ashby to be heard.  He requested a further adjournment of the proceeding.  He suggested that he deserved some leniency as he had come up with “a small fortune” to resolve the judgment debt.  He had put a proposal to the Department’s Case Officer but it had been rejected as recently as the previous day.

He advised the Court that he did not wish to suggest that he had been misled by Mr Tasker  who  appeared  for  the  Commissioner  but  indicated  he  felt  a  sense  of grievance.  He had understood that if he got approximately $30,000 into the Bank for the Commissioner, then the Commissioner would be content to “talk about the rest later”.

[10]   Mr Tasker, for the Commissioner, opposed further adjournment of the application.  Mr Tasker suggested that if Mr Ashby considered further time would allow him to settle the full debt, then the Court might order his adjudication in bankruptcy immediately but direct that the order lie in Court for a period of time. The effect of such an approach, in my view, would be to make a conditional bankruptcy order in the sense that the bankruptcy order, although made and effective from its date, would never be sealed if Mr Ashby within the specified period was to settle the balance of the debt.  A direction that an adjudication order lie in Court as a device to  make the adjudication  order effectively a  conditional  order  is,  in  my judgment, not appropriate.

[11]     In these circumstances I indicated to Mr Tasker and to Mr Ashby that I would not be contemplating the nature of order suggested by Mr Tasker.  I instead would be reserving my decision on the substance of the application with a view to giving a written decision today.

The quantum of the debt

[12]     Mr  Tasker,  as  counsel  for  the  Commissioner,  responsibly  drew  to  my attention the extent to which the debt specified by the Commissioner in his application for an adjudication order exceeded the value of the judgment debt (the judgment debt being $29,245.56; the total debt identified in the application being

$43,291.10).

[13]     Mr Tasker referred me to Curtis v Commissioner of Inland Revenue  HC Wellington B244-97, 12 November 1997.  In that case the Commissioner had issued a bankruptcy notice in relation to a District Court judgment for $3,493.14.   The bankruptcy notice having expired without the debt settled, the Commissioner then

issued a petition for bankruptcy.  The Commissioner asserted that by the time of the petition the debtor then owed the Commissioner the sum of $120,128.67.  The Court accepted that that figure was accurate.

[14]     On the day after the bankruptcy notice had expired, the Department had accepted payment of the sum demanded in the bankruptcy notice.

[15]     Master Thomson was required to determine whether acceptance of payment upon the bankruptcy notice disentitled the Commissioner from issuing a petition based on the sum covered by the bankruptcy notice.

[16]     Master Thomson found, applying the English decision (in Re Powel Ex Parte Powel  (1891) 2QB 324) that the Commissioner had been entitled to issue his petition.

[17]     The position of the Commissioner in the present proceeding is stronger, in that Mr Ashby neither offered nor made any payment between the time the bankruptcy notice expired and the time the application for an adjudication order was made.   In making the application for an adjudication order, the Commissioner correctly identified the substantially larger sum by then owing, which indicated the extent to which Mr Ashby was unable to meet this debt.

[18]     In Curtis, Master Thomson described the Commissioner’s right to issue his petition as a “technical entitlement”.  His Honour held that the Court should exercise its discretion under (the then) s 26(2) Insolvency Act, by finding it just and equitable not to make a bankruptcy order or alternatively holding that other sufficient cause existed to dismiss the petition.   The Master noted particularly the action of the Commissioner  whose  cashier  accepted  payment  of  the  bankruptcy  notice.    The Master held that the conduct constituted a form of “engagement” that the Commissioner would not proceed further on the bankruptcy notice in circumstances where the debtor believed he was in fact paying the sum demanded in the bankruptcy notice within time.   The Master drew an analogy with the circumstances in  Re Peacock [1956] NZLR 365 where a creditor accepted payment of the sum claimed in the petition but then sought to withdraw the petition while asking for costs. Turner J

held that the petitioning creditor, by accepting payment of the bare sum of the judgment debt had engaged that he would not proceed further upon the petition and could not therefore be heard on an application for costs.

[19]     Re Peacock is a different case to the present in that it appears that the only debt claimed by the creditor was the judgment debt, which was paid in full.  In the present case the sum which Mr Ashby has paid since the adjudication application was filed represents part only of the total debt owed to the Commissioner.  It cannot be suggested in the present case that the creditor, in receiving payment of the judgment  debt,  was  making  any  representation  that  the  adjudication  application would be withdrawn.  I consider Re Peacock distinguishable on this basis.  I add this. It may be that the decision in Re Peacock, decided more than 50 years ago may need to be revisited insofar as it ruled that a creditor who accepts payment of the judgment debt (without saying that costs are being abandoned) is taken to have abandoned its right to costs.  There is at least room for argument that the High Court Rules in their current form leave the Court with a discretion rather than a requirement to apply something akin to a special rule excluding costs in that particular situation.

[20]     As it is, I find that the Commissioner is entitled in this case to rely upon the non-payment of the balance of Mr Ashby’s accrued tax debt in order to seek his adjudication.

[21]     Notwithstanding the validity of the Commissioner’s application, the Court retains a discretion to dismiss the application if it is just and equitable not to make an order of adjudication or there is other sufficient cause why no order should be made. Although Mr Ashby understandably did not address me on the discretion in his submissions,  I  have  given  consideration  to  the  possibility  of  exercising  the discretion.  Such a course was taken by Master Thomson in Curtis.  Curtis, as I have said, is a different case on its facts.  The present case involves accruing tax debts. The element left unpaid by Mr Ashby is not simply the costs associated with the proceeding but rather a significant sum of actual debt.  It falls properly within the sum referred to in the application for adjudication.  Mr Ashby’s own position is that he is unable to pay that debt unless the Commissioner agrees to a series of progress payments in reduction.  A proposal has been put and considered by the Department.

The Commissioner has against the background of Mr Ashby’s tax debts and in the light of what is proposed, come to the view that he should reject the proposal.  There is nothing in the circumstances of this case that should lead the Court to view the Commissioner’s decision as so fickle or arbitrary as to lead the Court to leave the Commissioner  to  other  remedies.    Mr  Ashby is  unable  to  pay  his  debt  and  is insolvent.  There is no sufficient cause to dismiss the petition.

[22]     In these circumstances there is an order of adjudication.  The debtor is to pay costs on a 2B basis together with disbursements to be fixed by the Registrar.  This

order is timed at 3.30 pm.

Associate Judge Osborne

Solicitors:

Inland Revenue Department, PO Box 1247, Dunedin 9054 - [email protected]

Mr N E Ashby – [email protected]