Commissioner of Inland Revenue v Elite Empire Limited

[2015] NZHC 2546

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV-2015-419-000094 [2015] NZHC 2546

IN THE MATTER

of the Companies Act 1993

BETWEEN

THE COMMISSIONER OF INLAND REVENUE

Plaintiff

AND

ELITE EMPIRE LIMITED Defendant

CIV-2015-419-000093

BETWEEN  THE COMMISSIONER OF INLAND REVENUE

Plaintiff

ANDNEW SETTLER HOMES LIMITED Defendant

Hearing:	14 October 2015
Appearances:	Michelle Brown for the Plaintiff Mary Williamson on behalf of David Hayes for the Defendants
Judgment:	16 October 2015

JUDGMENT OF MOORE J

This judgment was delivered by me on 16 October 2015 at 11:00am pursuant to Rule 11.5 of the High Court Rules.

Registrar/ Deputy Registrar

Date:

THE  COMMISSIONER  OF  INLAND  REVENUE  v  ELITE  EMPIRE  LIMITED  [2015]  NZHC  2546 [16 October 2015]

Introduction

[1]      The Commissioner of Inland Revenue (“the Commissioner”) seeks to have the  statements  of  defence  filed  by  Elite  Empire  Limited  (“Elite  Empire”)  and New Settler Homes Limited (“New Settler Homes”) dismissed.  The Commissioner also seeks orders placing both companies into liquidation.

[2]      In support of these applications are affidavits sworn in relation to each of the companies  in  reply  to  the  statement  of  defence.    These  are  the  affidavits  of Jean Marie Harris sworn on 5 June 2015 and Kathleen Marcelle Gavin sworn on

8 June 2015.

Background to proceedings

[3]      The  Commissioner  served  each  company  with  a  statutory  demand  on

4 February 2015.   The time for compliance with the statutory demand expired on

26 February 2015.

[4]      On 30 March 2015 the Commissioner filed a statement of claim in respect of each of these proceedings.   These were accompanied by verifying affidavits and Notice of Proceeding for Putting Company into Liquidation (“the proceedings”).

[5]      On 15 April 2015 all documents were served on Lijun Zang, the registered director of each of the companies.

[6]      On 7 May 2015 each of the proceedings was advertised in the New Zealand

Gazette and the Waikato Times.

[7]      On 14 May 2015 the Commissioner was served with a statement of defence and supporting affidavit on behalf of New Settler Homes.  On the same date Elite Empire served the Commissioner with its statement of defence and supporting affidavit.

[8]      Both proceedings were scheduled for a half day hearing on 14 October 2015.

[9]      On 6 October 2015, Mr Hayes, counsel both defendants, advised that on

14 October  2015  he  would  be  appearing  to  seek  leave  to  withdraw.    In  the memorandum filed for that purpose he advised that he had received no instructions since the initial appearances.  He advised he had made contact with the companies’ accountant who had been assisting him in relation to this matter.   Mr Hayes was advised that the accountant had been dismissed from his engagement and had lost contact with the director and her husband.  He then made contact Mr Nolan who had appeared on the companies’ behalf in another matter.  On 31 August 2015, Mr Nolan advised he did not act for the companies and that a Mr Guo did.  When Mr Guo was contacted Mr Hayes was advised that it was understood the director of the companies was overseas.  An undertaking that Mr Guo would forward Mr Hayes’ email to the director and their contact person together with a request that they contact Mr Hayes was given.  Mr Hayes advises there has been no further contact.  Mr Hayes advises the residential address of the director on the Companies Office’s website appears to be a past show home and so he was unable to contact the director there.

[10]     When  this  matter  was  called  on  14  October  2015  Ms  Williamson,  on instructions from Mr Hayes sought leave to withdraw which was granted.

Statements of defence (applications to dismiss)

[11]     The statements of defence filed by New Settler Homes and Elite Empire are essentially the same.  Each makes three claims namely:

(a)       the company denies it was served with the statutory demand; and

(b)      the company denies it is insolvent; and

(c)       the company denies that it is just inequitable that the company be placed in liquidation.

[12]     In addition to the claims raised in the statements of defence the affidavits in support affirmed by the director, Lijun Zang on 14 May 2015 make the following claims:

(a)       tax  assessments  made  against  the  companies  in  2014  were  not

“morally correct”;

(b)the  tax  assessments  were  issued  without  first  issuing  a  notice  of proposed adjustment (“NOPA”) meaning that the company did not have the opportunity to engage in the disputes process;

(c)       the companies were default assessed for GST for the January 2015

GST period in the absence of returns being filed.  Once returns were filed the companies will be entitled to a large GST refund; and

(d)one of the reasons for the delay in filing statements of defence is because Lijun Zang had serious health issues.

[13]     In respect of claim (a) Ms Brown refers to the affidavit of the process server sworn on 12 February 2015.  He deposes he served the statutory demand on each company by delivering it to Ms Zang at 49 Rhys Avenue, Hamilton on 4 February

2015.  Furthermore, Ms Harris in her affidavit deposes to the fact that she attended a meeting with Ms Zang at 49 Rhys Avenue, Hamilton on 10 February 2015.   This links Ms Zang to that address.

[14]     In respect of New Settler Homes, the only evidence provided in support of the claim that the company is not insolvent is a list of assets and loans annexed to Ms Zang’s affidavit.  The list does not include additional creditors nor is any further evidence provided to support the market values noted or the loan values.  The same situation applies in relation to Elite Empire.  The only evidence that company is not insolvent is a list of assets and loans.  Not only does the list fail to include additional creditors, but there is also no further evidence to support the market values noted or the loan values.

[15]     In relation to the claims that the tax assessments were not morally correct, they were issued without first issuing a NOPA and the claim that each company would  be  entitled  to  a  large  GST  refund  Ms  Brown  relies  on  the  affidavit  of Ms Harris in its entirety which addresses those issues.

[16]     In response to the claim that the delay in filing the statements of defence was because Ms Zang had serious health issues, Ms Brown notes that Ms Zang deposed that as late as 23 April 2015 her husband and their accountant had been attempting to negotiate settlement.

[17]     Rule 31.17 of the High Court Rules provides that a statement of defence must be filed and served within 10 working days after the date on which the statement of claim is served.  The statements of claim were served on 15 April 2015 which means that the statements of defence should have been filed and served by 30 April 2015. This means that during the period in which the companies should have filed a statement  of  defence  there  was  an  active  attempt  to  enter  into  a  payment arrangement.  This suggests it would have been possible for a statement of defence to have been filed within the prescribed timeframe.

The law

[18]     A statement of defence for each of the companies was filed approximately 10 days late.  Neither did either company file an interlocutory application for leave to file a statement of defence out of time.

[19]     Even if that had been done the onus is on the applicant to show an arguable basis on which it is not liable for the amount claimed.  Even if there is an arguable defence leave should not be granted if the applicant is insolvent.   The onus of demonstrating solvency rests with the applicant and it must provide cogent evidence to support its claim.  Bland assertions will not suffice.1   This principle is supported

by Commissioner of Inland Revenue v Volcanic Investments Limited.2

[20]     I am easily satisfied that in relation to both companies the statements of defence were filed out of time, do not disclose an arguable defence and there is no

cogent evidence in support of the claim that either company is solvent.

1      Fresh Cut Flowers Wholesalers Limited v The Living and Giving Gift Company Limited (2001)

16 PRNZ 173 (HC).

2      Commissioner of Inland Revenue v Volcanic Investments Limited (2007) 23 NZTC 21,225 (HC).

[21]     In the circumstances I do not grant leave to file the statements of defence. As a result, these statements are, in effect, struck-out.

Applications to liquidate companies

[22]     Section 241(4) of the Companies Act 1993 (“the CA”) provides that the

Court may appoint a liquidator if it is satisfied that:

(a)       the company is unable to pay its debts; or

(b)the  company  or  the  board  has  persistently  or  seriously  failed  to comply with the CA; or

(c)       the company does not comply with s 10 of the CA; or

(d)      it is just inequitable that the company be put into liquidation.

[23]     Section 287 of the CA provides that a company is presumed to be unable to pay its debts if it has failed to comply with the statutory demand.  Neither company has complied with the statutory demand issued in respect of it.  Each company has incurred further debt to the Commissioner.  Furthermore, each company has failed to provide any evidence which satisfactorily suggests that it is able to pay its debts.

[24]     Because the statutory demand was not satisfied within the timeframe set out in s 289 of the CA each company is presumed to be insolvent and it has not provided sufficient evidence to rebut that presumption.

[25]     The appointment of a liquidator is a discretionary power of the Court.  The

Court reserves the right to refuse to put a company into liquidation.

[26]     In  Commissioner  of  Inland  Revenue  v  Chester  Trustee  Services  Limited

Tipping J commented on the cause discretionary powers in relation to the CA:3

“[3]      … I agree with Baragwanath J that the general policy of the Act that insolvent companies should be put into liquidation, if a creditor seeks such an order, should not be departed from lightly.  To justify such departure there must be some other factor, be it policy, principle or simply the justice of the particular case, which outweighs the prima facie entitlement of the creditor to an order putting the insolvent company into liquidation.  If the focus is on the justice of the particular case the discretion must always be exercised on a principled  basis  and  not  on  some  ad  hoc  perception  of  what  individual justice might require. All cases involving a s 290(4)(c) must in the end come down to a judgment by the Court as to whether the creditor’s prima facie entitlement is outweighed by some factor or factors making it plainly unjust for liquidation to ensue.   The ground advanced by the insolvent company must be sufficiently compelling to overcome the general policy of the Act with regard to insolvent companies.”

[27]     Applying the principles in Chester Trustees Services there is no apparent policy or principle which prohibits the making of an order to place a company into liquidation.   Furthermore, the onus is on the company to provide a “sufficiently compelling” argument as to why it would be unjust for an order placing the company into liquidation to be made.  I am satisfied that in the present case neither company has provided such an argument.

Result

[28]     I do not grant leave to the companies to file their statements of defence.  The statements of defence are struck-out.

[29]     At the hearing before me Ms Brown filed evidence as to unpaid debt in respect of each company.   In respect of Elite Empire the evidence is that as at

7:34am on Wednesday, 14 October 2015 the debt of $334,466.87 remained owed to the Commissioner by the defendant and remained unpaid.

[30]     In  respect  of  New  Settler  Homes  the  evidence  is  that  as  at  7:36am  on

Wednesday,  14  October  2015  the  debt  of  $360,471.08  remained  owed  to  the

Commissioner by the defendant and remained unpaid.

3      Commissioner of Inland Revenue v Chester Trustee Services Limited [2003] 1 NZLR 395 (CA)

at 397.

[31]     Ms  Brown  also  filed consents  by David  Murray Blanchett  and  Malcolm

Grant Hollis to act as liquidators in respect of both companies.

[32]     Accordingly  Elite  Empire  and  New  Settler  Homes  are  each  put  into liquidation.

[33]     In respect of each company I appoint the said Messrs Blanchett and Hollis as liquidators.

[34]     I approve remuneration at the rates stipulated in paragraph 3 of the consents.

[35]     I order costs in favour of the Commissioner on a 2B basis plus disbursements as fixed by the Registrar.

[36]     This order is timed at 11:00am.

[37]     Leave  is  reserved  to  the  Commissioner  to  seek  such  further  orders  or directions as may be necessary to give effect to this decision.

Moore J

Solicitors:

Inland Revenue Department, Hamilton