Commissioner of Inland Revenue v Chesterfields Preschools Ltd
[2017] NZHC 3172
•15 December 2017
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2015-409-000043 [2017] NZHC 3172
BETWEEN THE COMMISSIONER OF INLAND
REVENUE Plaintiff
AND
CHESTERFIELDS PRESCHOOLS LIMITED
First Defendant
THERESE ANNE SISSON Second Defendant
Hearing: 14 December 2017 Appearances:
S Weston for the Plaintiff
No appearance for the company
Ms Sisson, in personJudgment:
15 December 2017
JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
[1] The Commissioner of Inland Revenue applies for an order under s 246 of the
Companies Act 1993 appointing an interim liquidator to the company.
[2] This follows the judgment of the Supreme Court dated 23 November 2017 by which the Court set aside the order made by this Court putting the company into liquidation. The liquidation proceeding has been remitted to this Court for rehearing. In due course the substantive application to place the company into liquidation will be
heard.
THE COMMISSIONER OF INLAND REVENUE v CHESTERFIELDS PRESCHOOLS LTD & SISSON [2017] NZHC 3172 [15 December 2017]
[3] Section 246(1) provides that if an application has been made to the Court for an order that a company be put into liquidation the Court may appoint a named person or the Official Assignee as an interim liquidator if it is satisfied that it is necessary or expedient for the purpose of maintaining the value of assets owned or managed by the company.
[4] The application was served by email on 5 December on all three of the persons named as directors on the Companies Office website. Two of them, Mr Hampton and Ms Sisson are undischarged bankrupts. Accordingly they are both disqualified from holding office as directors by s 151(2)(b) of the Companies Act.
[5] The company therefore has just one director, and it has not taken any step to oppose the making of an order.
[6] Ms T A Sisson, one of the named directors who is an undischarged bankrupt, filed a “Notice of Opposition by Defendants to Plaintiff’s Application Seeking the Appointment of Interim Liquidator”. She names herself as second defendant on this proceeding. She was joined as a second defendant for the sole purpose of bringing an appeal to the Court of Appeal in relation to the liquidation of the company. That appeal and the subsequent appeal to the Supreme Court have now concluded. She therefore has no further reason to be a party to this proceeding. She is not a shareholder in Chesterfields and for the reason I have given she is not a director. In a separate judgment I have ruled that she may not represent the company. I therefore disregard the notice of opposition which she has filed.
[7] In Robert Bryce & Co Ltd v Chicken & Food Distributors Ltd the Court said the following factors should be considered in relation to an application under s 246:1
(a) Whether the company’s assets are in jeopardy;
(b) Whether the status quo should be maintained;
(c) Whether the interests of creditors are safeguarded.
1 Robert Bryce & Co Ltd v Chicken & Food Distributors Ltd HC Wellington M297/90, 13 August
1990.
[8] Chesterfields has just two assets. First, it owns a property at 854 Colombo Street, Christchurch. Secondly, it owns an insurance policy over a building which was previously on this land. It seems that a further payment will be due to Chesterfields from the insurer, IAG, though various views are given on how much Chesterfields might receive. At present IAG takes the view that Chesterfields is entitled only to the indemnity value of the property, part of which has already been paid, but from material provided to the Court by Ms Sisson it seems that she is of the view that IAG should either pay replacement cost, or the cost of a replacement building on another site. The claim has been handled by the liquidators until the liquidation ended. It is clear that Ms Sisson has either taken up the matter with the insurer again, or intends to do so, a point to which I return below.
[9] The value of the land was assessed by Ms Sisson at $875,000 for the purposes of a transaction which, without the consent of the liquidators, she appears to have been trying to negotiate with the neighbours of the property, who wish to undertake a comprehensive development of their land and Chesterfields’ land as well. This is within a band of estimated value given by Mr Mark O’Loughlin, a real estate agent who practices principally in relation to city properties. For present purposes the sum which Ms Sisson evidently negotiated as a sale price is the best evidence of the likely value of the section.
[10] A sale at that price would be inclusive of GST if sold to an unregistered person or entity. Mr Doubleday, a senior investigator with the Commissioner’s office in Christchurch, gave evidence that he has seen the proposed documentation for a sale, which indicates that there would be a liability to account for GST on the sale price if this sale were to proceed. This means that Chesterfields would receive around
$755,000 after allowing for GST, and a small sum allowed by Mr Doubleday for costs associated with the sale. For present purposes there is clear evidence before the Court emanating from Ms Sisson that she has been negotiating to sell the property on these terms.
[11] Mr Doubleday expressed the view that given the location of the section next to an intended development by a neighbour the property has a particular value to that neighbour and its value may be higher. There is no registered valuation of the property
before the Court. Whilst the information the Court has suggests that the sale Ms Sisson has been organising may be for around the section’s market value, the terms on which the property might be sold are not before the Court. There is some evidence that Ms Sisson has been contemplating a transaction by which Chesterfields would sell the section to the neighbouring owner and in return for that transfer, and a cash payment of some $900,000, receive an apartment in the intended development. Whether this is advantageous to the company or not is at least moot. There is no definite source of the cash required. Further, it seems Ms Sisson has been undertaking negotiations about this without the knowledge of the liquidators who were in office at the time. This factor, coupled with uncertainty about value and terms of sale establishes prima facie that this asset is in jeopardy.
[12] It is also clear that Ms Sisson has been negotiating a mortgage over a title to the property to secure an advance sufficient to pay approximately $109,000 to the Commissioner, this being the sum in relation to which the Court of Appeal imposed a condition on the termination of the liquidation. The lender is evidently intended to be Crester Finance Limited. The terms of any loan obligation that Chesterfields might enter are not disclosed. Crester Finance Limited is a second-tier lender. In particular the interest rate is not given. There is no evident source of money to pay interest.
[13] For this reason, too, there is a prospect that the property may be in jeopardy.
[14] Weighed against all this is the fact that there is a caveat on the title to the property. Ms Sisson sought, by memorandum, an order releasing the caveat on the basis that the freezing order which it was registered to support has been discharged. The Court issued a Minute on 11 December advising that it would not consider releasing the caveat on the basis of a memorandum and would require an interlocutory application and, if necessary, evidence. No application is before the Court. Further, the freezing order has not been discharged. Therefore the caveat remains. As a result Ms Sisson would not, in any event, be in a position to transfer title to the property or register a mortgage over it. That would not stop Chesterfields, however, entering into contractual arrangements with the neighbouring owner, the intended lender, or other party or parties, and I am satisfied on the evidence before the Court that she is presently intent on doing so. The transaction also appears to involve Chesterfields’ other asset,
its insurance policy as the scheme Ms Sisson proposes involves achieving agreement with the insurer that it will fund the purchase of an alternative building on another site. I am satisfied therefore that the assets of the company are in jeopardy.
[15] The Commissioner of Inland Revenue is the principal creditor of Chesterfields. Whilst there has been some debate about the amount owed to the Commissioner, the Court has the benefit of evidence on this occasion from Mr Doubleday. He swore an affidavit and then at my request appeared in court to explain the affidavit to me. Income tax and GST arrears amount to $1,088,461.15. This figure was established as at 22 July 2008 after application of a 15 per cent penalty relief, as the Court of Appeal suggested might be a sufficient sum to cover issues raised before that Court in relation to the methodology of assessment. It also allows for the cancellation of some interest as a result of a GST credit having been applied as at 1 December 2007.
[16] Since 22 July 2008 no payment has been received by the Commissioner. The Commissioner has stopped accumulating interest and penalties so this figure remains the same today. In addition to this sum there is $32,105 owing by way of unpaid court costs. Therefore the debt presently at issue in the liquidation proceeding of Chesterfields is $1,120,566.15.
[17] The Commissioner also says that when Chesterfields sold a neighbouring property at 856 – 858 Colombo Street, it should have accounted to the Commissioner for GST on the sale in the sum of $85,118.16. Likewise, in relation to insurance proceeds already received, it should have accounted for GST in the sum of
$117,667.25. Use of money interest on these sums amounts to $88,173.51. As well, the Commissioner has advanced $280,000 to the liquidators to enable them to carry out their duties. As a result of all these factors, a further sum of $570,958.92 is payable to the Inland Revenue by Chesterfields.
[18] Finally, Mr Doubleday told me that he is aware that costs in the sum of approximately $220,000 are owed to Minter Ellison Rudd Watts on a joint and several basis by Chesterfields, Ms Sisson, and another named director, Mr Hampton.
[19] If the Commissioner and Minter Ellison were to prove in a liquidation for these sums, the total claimed would be $790,958.92, plus $1,120,566.15, $1,911,525.07. If only the Commissioner proved, it would be for $1,691,525.07.
[20] It is clear that the assets of Chesterfields will not cover the total sum it owes. As noted earlier, the likely sum to be realised from its property is $755,000. Ms Sisson estimated that Chesterfields should receive $900,000 from IAG giving total assets of
$1,655,000.2
[21] This may be compared with the liabilities which I have listed. Even if the remaining assets realise the estimated sums, there will be a shortfall in the amount available to pay creditors. No allowance is included in these figures for ongoing liquidators’ fees. Additional fees will result in the position deteriorating further.
[22] There is evidence therefore that Chesterfields is insolvent. In order to maximise a return to creditors it is imperative that realisation of the remaining assets is handled responsibly. Unless everything Ms Sisson is doing is without her knowledge, it seems that the sole director of Chesterfields is content to put the management of its affairs in the hands of Ms Sisson who is herself an undischarged bankrupt who does not hold office in the company. This reflects very adversely on the governance of the company.
[23] I am satisfied on this application that the interests of the creditors would be safeguarded by interim liquidators being appointed, as its assets are in jeopardy and only by careful management can creditors be protected. Given that Ms Sisson is evidently negotiating deals on the company’s behalf, presumably holding herself out as being authorised to do so, this protection must be given immediately.
Result
[24] I order as follows:
2 Para 2.8 Ms Sisson’s interlocutory application for interim relief pending the outcome of the application for leave to appeal to the Supreme Court, dated 24 October 2017.
1. The defendant company is placed into liquidation.
2. Malcolm Grant Hollis and Wendy Ann Somerville are appointed as liquidators.
3. Their remuneration is approved at the rates set out in their consent dated 1
December 2017, subject to final approval of fees by the Court at the end of the liquidation.
4. The liquidators may exercise their powers individually.
5. The Commissioner will have costs on a 2B basis plus disbursements fixed by the Registrar.
J G Matthews
Associate Judge
Solicitors:
Crown Law, Wellington
Lane Neave, Christchurch
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