Commissioner of Inland Revenue v D P Alarm Horticulture Limited

[2015] NZHC 3166

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

CIV-2015-441-26 [2015] NZHC 3166

UNDER

The Companies Act 1993

IN THE MATTER OF

Liquidation proceedings

BETWEEN

THE COMMISSIONER OF INLAND REVENUE

Plaintiff

AND

D P ALAM HORTICULTURE LIMITED Defendant

Hearing:	10 December 2015
Counsel:	M Mitchell for the Plaintiff R Hill for the Defendant M J Wenley for K J Williams, a supporting creditor
Judgment:	11 December 2015

ORAL JUDGMENT OF ASSOCIATE JUDGE SMITH

[1]      The claim in this case commenced on 27 March 2015.  The Commissioner seeks a liquidation order based on a debt which was then said to be $292,950.21.

[2]      The proceeding was served on the defendant on 10 April 2015 and was first called in Court on 14 May 2015.  There have been a number of adjournments since then. The defendant filed, on 9 October 2015, an application for extension of time to file a statement of defence.  No supporting affidavit was filed with the application.

[3]      When the case was first called on 14 May 2015, Mr Hill appeared for the defendant, and advised that outstanding returns were either filed or in the process of being filed.  Mr Williams had filed a notice of intention to support the liquidation claim, relying on a debt of $26,489.62.  The application was adjourned by consent to

9 July 2015.

THE COMMISSIONER OF INLAND REVENUE v D P ALAM HORTICULTURE LIMITED [2015] NZHC

3166 [11 December 2015]

[4]      On 9 July 2015 a further adjournment was sought for the Commissioner to consider a large volume of further material which the defendant’s accountants had produced.   The adjournment was not opposed, and the matter was adjourned to

17 September 2015.

[5]      When the case was called on 17 September 2015 the defendant sought a further adjournment.   Again, it was not opposed, and the claim was adjourned to

12 October 2015.

[6]      When the matter came before me on 12 October 2015, the amount of the

Commissioner’s  claim,  with  penalties  and  interest,  had  risen  to  approximately

$440,000.  The defendant had filed his application to extend time for filing a defence only three days before that hearing.  I nevertheless adjourned the matter to today, for the purpose of allowing the defendant to put the picture properly before the Court.  I noted that the application for extension of time to defend could then be dealt with on the basis of sworn evidence as to the defendant’s financial position.  I made various directions for the hearing on the basis that if the application for an extension of time to defend  were refused,  the Court would proceed immediately to deal  with the liquidation claim.   One of those directions was that the defendant was to file its affidavits by 2 November 2015.

[7]      No  affidavits  have  been  filed  by  the  defendant,  and  there  is  no  sworn evidence before the Court on the defendant’s financial position.  Mr Hill considered that he may have to withdraw as counsel for the defendant, but he received late instruction and filed a memorandum attaching certain correspondence between the defendant’s accountant and the Commissioner.  The Commissioner objected to the filing of that material.

[8]      The material attached to the memorandum submitted by Mr Hill does not appear to show any prospect of immediate payment of the amount claimed by the Commissioner.   The main bone of contention appears to be over withholding tax credits – the defendant says that it should be entitled to an immediate credit of approximately $130,000 for withholding tax credits.    Ms Mitchell for the Commissioner submits that that is a matter to be resolved at the end of the financial

year, and that there is no certainty over the amount of any credit that would then be assessed.

[9]      Mr Hill conferred with the defendant’s accountant (who was present in Court) and advised that his expectation was that the withholding tax credit might double by the  end  of  the  financial  year,  which  would  produce  a  figure  of  approximately

$260,000 which I apprehend would be available to go towards the Commissioner’s

claim.

[10]     However a summary of the present claim which has been produced by the Commissioner shows that the debt has now risen to $479,228.10.  The arrears appear to go back to at least May 2013, and it seems clear that defaults by the defendant in meeting its tax obligations go back for some years.

[11]     It was for the defendant to show that it has a defence which ought to be heard, notwithstanding its lamentable failure to comply with Court timetable directions and its particular failure to put before the Court any sworn evidence of the kind which might have persuaded the Court that the defendant is solvent, or at least has good prospects of paying off the debt within the near future.  I bear in mind that this matter has now been before the Court for approximately seven months already, and the defendant has had a substantial period of time (far longer than that allowed to many defendants in this Court) to put its house in order with the Commissioner.

[12]     I acknowledge that however egregious a defendant’s procedural defaults may have been, if there is sufficient merit put before the Court to show that there is a defence which ought to be heard, then in an appropriate case the justice of the case might require the procedural defaults to be put on one side, perhaps subject to questions of costs.   In this case, however, there is nothing before the Court which gives the Court any reasonable ground for belief that the defendant will be able to pay the sum claimed by the Commissioner as indicated above.  It appears, on a best case, that there might be a credit of $260,000 available at the end of the financial year, but that would appear to fall well short of where the Commissioner’s claim now lies.

[13]     I note too Mr Wenley’s advice that the supporting creditor, with a debt of

$26,489.62, apparently remains unpaid notwithstanding that its notice of appearance in support was filed as long ago as 12 May 2015.  That, coupled with the defendant’s past  failures  to  meet  its  tax  obligations,  suggests  that  the  defendant  is  indeed insolvent as the Commissioner claims.

[14]     Weighing those factors, I am not satisfied (particularly in the absence of any sworn evidence) that the defendant has made out a case for the extension of time which is sought. That application is accordingly dismissed.

[15]     Although I indicated to the parties on 12 October 2015 that the Court would deal with the liquidation claim immediately if the application for extension of time were dismissed, Mr Hill has mentioned to me in the course of his submissions today that, although the defendant does not have much in the way of available assets, there may be a prospect of borrowing on the security of property owned by a trust or trusts.  I am also mindful of the fact that the defendant is a substantial employer in the region, and that if there is any prospect of rescue its function as a substantial employer is a factor pointing in favour of further time being allowed to refinance and pay the debt.   For that reason, I will not make a liquidation order today, but will adjourn the matter to 10am on 18 February 2016.  That should give the defendant reasonable time to see if there is a prospect of refinancing, and to work out an appropriate  arrangement  to  settle  the  matter  with  the  Commissioner  if  that  is possible.  The defendant should be aware, however, that the prospects of any further adjournment  being  granted  after  18  February  2016  if  the  matter  has  not  been resolved by then, must be regarded as low.

Associate Judge Smith