Commissioner of Inland Revenue v Dymock

[2013] NZHC 3016

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2013-485-8675 [2013] NZHC 3016

UNDER

Companies Act 1993 and Parts 18 and 32

of the High Court Rules 2009

IN THE MATTER OF

an interlocutory application without notice for freezing order

BETWEEN

COMMISSIONER OF INLAND REVENUE

Plaintiff

AND

MARCUS SEYMOUR DYMOCK First Defendant

CHARLOTTE JANE DYMOCK Second Defendant

Hearing:	On the papers
Counsel:	P H Courtney for Plaintiff
Judgment:	14 November 2013

JUDGMENT OF WILLIAMS J

[1]      The Commissioner of Inland Revenue seeks a without notice freezing order under Part 32 of the High Court Rules in relation to a portion of the funds held by the defendants in their personal bank accounts.

[2]      On 1 November 2013, the Commissioner assessed the income tax liability of two related companies, Cheshirecom Ltd and Cheshirez Ltd in respect of the 2014 year.  The assessment totalled $462,018.92.  This resulted from the sale by each of the companies of two properties in Auckland.  The Commissioner says the proceeds

from such sale were assessable as taxable income.  The first defendant is the sole

COMMISSIONER OF INLAND REVENUE v DYMOCK & ANOR [2013] NZHC 3016 [14 November 2013]

director and shareholder of these companies.  The second defendant is his wife.  The assessments were due to be paid on 4 November 2013.

[3]      Both  companies  went  into  voluntary  liquidation  on  26  June  2013.    The proceeds from the sale of the Auckland properties was transferred to the accounts of each of the companies but (and although they were in liquidation) the first defendant retained control of the accounts and (it seems) the liquidator inexplicably allowed the first defendant to transfer the sale proceeds from the companies in liquidation to the personal bank accounts of himself and his wife on 1 August 2013.

[4]      The Commissioner argues  that  the transfers were completed prior to  the IRD’s assessment of the companies for income tax with a view to avoiding creditors. The funds may therefore be clawed back by a creditor in accordance with the terms of s 301 of the Companies Act 1990 if a person in the first defendant’s position has breached his duty, or a trust in relation to the company.  The Commissioner argues that the transfer creates a constructive trust, or alternatively because of the first defendant’s  knowing  participation  in  a  dishonest  attempt  to  evade  creditors, sufficient to create a remedial constructive trust.

[5]      The Commissioner says there is a real risk that those funds will be dissipated. He says that is because the defendants are currently located in the Netherlands, they transferred the sale proceeds out of the companies’ control and subsequently used at least some of those funds for their own purposes, and the first defendant has a history of non-compliance, both personally and through his related companies.

[6]      An affidavit was filed by a senior investigator from the Department.   The affidavit comprehensively set out the background to the transactions, the transfers and, the liquidation and the Commissioner’s subsequent income tax assessment of the companies.

[7]      Freezing orders can be granted under Part 32 if:

(a)      the Commissioner can establish that she has a good arguable case against the two companies so as to warrant the making of a freezing order;

(b)there are available assets to which the orders can attach, and clear connections between the defendants and the companies;

(c)      there is a factual basis upon which a prudent, sensible, commercial person might properly infer a danger that the defendants may dissipate or dispose of assets to defeat a judgment against them;

(d)the interests of justice must fall on the side of the need to protect the creditor and against any prejudice or hardship to the defendants.

[8]      The Court can grant a freezing order against a third party if it is possible to establish a link between assets purportedly owned by the third party or parties in question and the party with whom the plaintiff has a claim that needs to be satisfied. I am satisfied that such a link can be established. As stated, the first defendant is the sole director and shareholder of the companies.

[9]      I am satisfied that there is a good arguable case that the transfers were made in order to avoid creditors, and that by the various mechanisms referred to in the applicant’s submissions, those funds may be clawed back by the Commissioner to meet the companies’ tax liabilities.  I am satisfied that there are funds in the relevant accounts of the defendants to which the orders may attach.  I am also satisfied that the transfer from the companies to the defendants personally, and their current location in the Netherlands, would entitle a prudent, sensible, commercial person to infer that there was a danger of dissipation.

[10]     Finally,  I  am  satisfied  that  the  interests  of  justice  weigh  in  favour  of protecting the Commissioner and that any prejudice or hardship to the defendants (at least as I am presently informed) will be limited.  Any other matters that the defendants may wish to bring before a court can be addressed adequately in the leave provisions of any order issued.

[11]     Ordinarily  an  applicant  for  a  freezing  order  is  required  to  provide  an undertaking that  it  will  comply with  any order for the payment  of damages  to compensate the respondent for any damage sustained in consequence of the freezing order.1   However, the court has a discretion whether or not to require an undertaking if there are special circumstances.2    I agree with the Crown’s submissions on this issue.  I see no practical purpose in requiring an undertaking.

[12]     As the Crown has indicated, a freezing order must not prohibit the defendants in  this  case  from  accessing  their  assets  to  pay  ordinary  living  expenses,  legal expenses or disposing of assets and making payments in good faith in the ordinary course of business.

[13]     The Crown indicates that there is ample other capital from which to meet expenses I have described here. At this stage I am prepared to rely on that indication on the basis that the cap on the value of the deposits frozen by this order is less than the monies held on account.   If for any reason, the defendants wish to argue that point, they of course have leave to do so, and there may be costs implications for the Crown if it is found that the indication given was incorrect.

[14]     I make the following orders:

(a)       the draft freezing order filed by the plaintiffs is granted;

(b)the freezing order will remain in place until the matter can be further heard on notice on a date to be fixed by the Registrar on an urgent basis hearing of the Commissioner’s application for continuation of the freezing order; and

(c)       the first and second defendants are to be served in the manner outlined

in the plaintiff’s interlocutory application without notice for directions

as to service dated 8 November 2013.

1      High Court Rules, r 32.2(5).

2      Rule 32.6(4).

Williams J

Solicitors:

Crown Law, Wellington