Commissioner of Inland Revenue v A1 Automotive Services Limited

[2015] NZHC 2573

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

CIV-2014-470-41 [2015] NZHC 2573

IN THE MATTER OF

the Companies Act 1993

BETWEEN

COMMISSIONER OF INLAND REVENUE

Plaintiff

AND

A1 AUTOMOTIVE SERVICES LIMITED

Defendant

Hearing:	20 October 2015
Appearances:	C D Walmsley for Plaintiff K J Patterson for Defendant
Judgment:	20 October 2015

ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL

Solicitors:

Inland Revenue, Legal & Technical Services (C D Walmsley) Hamilton, for Plaintiff

K J Patterson, Tauranga, for Defendant

COMMISSIONER OF INLAND REVENUE v A1 AUTOMOTIVE SERVICES LIMITED [2015] NZHC 2573 [20 October 2015]

[1]      This is an opposed application for an order that A1 Automotive Services Ltd be put into liquidation.  The ground of the application is that the company is unable to pay its debts under s 241(4)(a) of the Companies Act 1993.  The Commissioner of Inland Revenue is the creditor.

[2]      In the statement of claim,  the Commissioner says that she is a creditor of A1

Automotive Services Ltd for $38,643.22 made up as follows:

Goods and services tax	$4,305.33
PAYE	$32,665.21
Income tax	$100.00
Kiwisaver employee deductions	$1,398.03
Kiwisaver employer contributions	$162.05
Employer superannuation contribution tax	$12.60
TOTAL:	$38,643.22

The key taxes are goods and services and PAYE.

[3]      At the hearing today, Mr Walmsley tendered a fresh summary of account, showing the taxes due as at 19 October 2015:

Kiwisaver employee deductions	$1,494.85
Kiwisaver employer contributions	$162.05
PAYE tax deductions	$46,192.09
Goods and services tax	$8,466.60
Employer superannuation contribution tax	$12.60
Income tax	$150.00
TOTAL:	$56,478.19

[4]      Income tax is claimed at $50.00 per year reflecting the fact that there were no assessments for income tax.  The statement also shows that there were no returns for goods and services tax for May and July 2015.  In other respects, the increases over the sum claimed in the statement of claim are due to further returns having been filed

and further interest and penalties.  The Commissioner’s evidence is that the company has not paid any taxes since April 2013, some two and a half years ago.

[5]      I  mention  some  of  the  procedural  history.    The  Commissioner  served  a statutory  demand  on  the  registered  office  of  A1  Automotive  Services  Ltd  on

29 January  2015.     The  company  did  not  comply  with  the  demand.     The Commissioner began this proceeding on 27 March 2015.   A statement of defence was filed on 18 May 2015.  The company denied owing the taxes.  It denied being served with the statutory demand.  It said that it was solvent and able to pay its debts.

[6]      The case has had a number of adjournments.   I adjourned the matter on

25 May to 20 July 2015.  I recorded that the matter was expected to be resolved by the time the case was called on 20 July.   When the matter was called on 20 July

2015, the case had not been resolved and I directed a hearing to take place on

22 September 2015.  I directed the defence evidence and any amended pleadings to be filed and served by 10 August 2015, with any reply evidence to be filed by

7 September 2015.   On 20 August 2015, Associate Judge Christiansen vacated the fixture and directed that the case was to be heard on 20 October 2015. That direction was given because Mr Patterson had a clash: he had a commitment in front of the Employment Relations Authority on 22 September 2015.

[7]      The Commissioner has filed an updating affidavit by an officer of the Inland Revenue giving background information on the Inland Revenue’s dealings with the company and its taxes.  The company has not filed any evidence or any amended pleadings.  While the Commissioner prepared written submissions for the hearing, the company did not.  I am asked to deal with the matter on the basis of no evidence by the company at all. The statement of defence is not supported by evidence.

[8]      At the start of the hearing, Mr Patterson requested an adjournment.   He advised me that while many returns had not been filed, outstanding returns had been filed with the Commissioner on 13 October 2015.  He informed me that the company has used various accountants but for various reasons their competence was in question.   He had urged those behind the company to obtain proper accounting advice from a chartered accountant.  He proposed some sort of order with delayed

effect, so that if the company did not put its tax affairs in order within that time, and payments are not made, the company would go into liquidation without requiring any further hearings.

[9]      I comment, first, that liquidation orders are made in court and take effect when they are made.   I do not understand that it is possible to make a liquidation order with delayed effect and conditional on events happening.   In particular, the court is required to record the time when it makes the order.

[10]     If I were to follow the approach suggested by Mr Patterson, I would simply adjourn this case to another date and see whether an order was required then.  As it is, however, I do not propose to adjourn this matter further.   Mr Patterson’s submission was in effect a request for an adjournment to allow the company more time to put its affairs I order.  I do not propose to grant that adjournment.

[11]     The  updating  affidavit  for  the  Commissioner  shows  that A1 Automotive Services Ltd was incorporated on 6 June 2012.  When it was incorporated, the sole shareholder was Mr Suresh Sathiya.   He was also the company’s sole director on incorporation.  Later in June 2012 Mr Kirti Patel and Mrs Rupalben Patel replaced Mr Suthiya as director, and Mr Sathiya transferred his shares to Mr and Mrs Patel. I understand,  however,  that  Mr  Sathiya  has  been  the  effective  man  behind  the company throughout.  He is, in effect, the manager of the company.

[12]     Mr Patterson advised me that because Mr Sathiya is not the director of the company, the Inland Revenue Department has refused to deal with him and insisted instead on dealing with Mr and Mrs Patel.     Mr Patterson also advises that arrangements were put in hand for Mr Sathiya to be reappointed a director of the company.  The shareholders had signed a resolution for his appointment as director. I accept that that resolution would take effect, even though it will not have been registered with the Companies Office as yet.

[13]     The company carries on business providing general car mechanical services.

[14]     The Commissioner has received proposals over time from Mr Sathiya for the company to pay off outstanding taxes but, from the Commissioner’s experience, invariably these proposals have come to nothing.  The officer’s affidavit says that an arrangement was made in February 2013 for the company to pay $354.00 a week towards tax arrears up to February 2013, but no payments were made.

[15]     In August 2013, arrangements were made whereby the company would pay

$100.00 per week.  But, again, nothing was done.

[16]     The Commissioner’s dealings with various accounting firms instructed by the company have been unsatisfactory.  The Commissioner’s experience is that trying to resolve matters with Mr Sathiya is just not practical because they never result in any concrete arrangements being adhered to.

[17]     The Inland Revenue also contacted Mr Patel.   Mr Patel claims not to be aware of tax arrears or the non-filing of tax returns.

[18]     Mr Patterson submitted that the Commissioner’s statement of account did not correctly reflect the actual state of affairs for the company.   Whereas the Commissioner’s account shows major defaults in PAYE, Mr Patterson contended that Mr Sathiya was not drawing any wages from the company at all.  He is living off his wife’s earnings while running the company, and they are living in accommodation at the company premises.  Apparently the returns for PAYE are said to be erroneous and could not be relied upon.

[19]     In response, Mr Walmsley pointed out that the provision of accommodation was  a  benefit  Mr  Sathiya  is  receiving  as  a  result  of  his  employment  with  the company.  I note also that the company has made GST returns, but no GST has been paid since May 2013.

[20]     I am refusing the adjournment because the company has been on notice since January this year that the Commissioner does want to enforce her rights as a creditor of the company for unpaid taxes.  Since January 2015, if not earlier, the company has had the opportunity to put its tax affairs in order.   In particular, even if I were to

accept some of the explanations that the company’s tax affairs were not in order because of incompetence of accountants, the company has had plenty of time in which to rectify matters and take matters up with the Commissioner.  In particular, the company has had adjournments.   The first adjournment was granted in May, which gave it two months in which to deal with matters.  The directions for hearing allowed the company further time in which to deal with matters.   And then the adjournment, because of Mr Patterson’s other commitment, allowed it further time to deal with matters.   Its failure to address its tax affairs is symptomatic of the Commissioner’s experiences with the company.

[21]     There are clearly outstanding tax liabilities.  The company has not taken them seriously.  I am satisfied that the company is insolvent.  That is not just because a statutory demand was served on the company and the company did not comply with it within 15 working days.   It is also apparent from the fact that the company has made returns for various taxes that have fallen due and there is now a long history going back two and a half years with the company not making any payments at all. Given that ongoing failure to pay lawful debts, the only available inference is that the company is not able to pay its debts as they fall due.

[22]     I have heard the proposal that the company be given more time.   That is redolent of the company coming along, only when put under pressure, and then making noises about taking efforts.  But I am suspicious, as the Commissioner must be, of the company actually doing anything.  There were promises of payment before but in the end nothing has ever transpired.

[23]     Given the history of the matter, I am not satisfied that any benefits will arise from adjourning this matter further.  This matter was set down for hearing today to determine one way or the other whether a liquidation order should be made.  The company has not raised anything that persuades me that in my discretion I should not make a liquidation order, given the ongoing insolvency.

[24]     The Commissioner has provided a certificate as to indebtedness.  I make an order putting A1 Automotive Services Ltd into liquidation.  I appoint Vivian Judith Fatupaito and Shaun Neil Adams liquidators.  I approve their rates of remuneration

except with one qualification;  their maximum rate of remuneration is not to exceed

$450.00 per hour, excluding GST.   The normal terms for approval of liquidators’

remuneration apply.  I record the time of my order at 10:50am.

[25]     I make an order for costs in favour of the Commissioner in the sum of

$12,025.00 and disbursements of $1,838.76.    That is to be paid out of the assets of the company under Schedule 7 of the Companies Act.

………………………………………..

Associate Judge Bell