Commissioner of Inland Revenue v Glenvale Holdings Limited

[2018] NZHC 2667

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-830 [2018] NZHC 2667

IN THE MATTER OF

the Companies Act 1995

BETWEEN

COMMISSIONER OF INLAND REVENUE

Plaintiff

AND

GLENVALE HOLDINGS LIMITED Defendant

Hearing:	11 October 2018
Appearances:	Cloete Van Der Merwe for the Plaintiff A J Lloyd for the Defendant
Judgment:	11 October 2018

ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL

Solicitors:

Inland Revenue Department, Manukau, Auckland, for the Plaintiff

MinterEllisonRuddWatts (A J Lloyd), Auckland, for the Defendant

COMMISSIONER OF INLAND REVENUE v GLENVALE HOLDINGS LIMITED [2018] NZHC 2667 [11 October 2018]

[1]      The  Commissioner  applies  for  Glenvale  Holdings  Ltd  to  be  put  into liquidation.  She says that Glenvale Holdings Ltd is unable to pay its debts and that she is a creditor of the company.  The company filed a statement of defence.  The matter was set down to be heard today as a defended hearing. Until recently, Skeates Law Ltd were solicitors acting for Glenvale Holdings Ltd and they instructed Mr Paul Sills as counsel.  Mr Sills filed a memorandum on 10 October 2018, advising that he did not have instructions and sought leave to withdraw.  The court granted leave to Mr Sills to withdraw. His appearance today was excused.

[2]      Mr Lloyd has received very late instructions from Glenvale Holdings Ltd – at

5:30 last night.  He sought an adjournment.  After hearing counsel, I indicated that I would not grant the adjournment.   Before giving my reasons for refusing the adjournment, I set out the background.

[3]      The Commissioner is a substituted plaintiff.  The original plaintiff was Sayer

Drainage Ltd. It had served a statutory demand on Glenvale Holdings Ltd in February

2018 requiring payment of $53,428.69.   The company did not comply with that demand. Sayer Drainage Ltd began this proceeding on 2 May 2018. It pleaded that it was a creditor of the company and that the company was presumed insolvent because of the non-compliance with the statutory demand.   The Commissioner of Inland Revenue filed an appearance. When the case was first called on 22 June 2018, the Commissioner was substituted for Sayer Drainage.   I infer from that that Sayer Drainage has been paid.

[4]      Following the substitution order the Commissioner filed documents within the required five working days. The Commissioner relies on service of her own statutory demand dated 16 April 2018.  In that demand the Commissioner required payment of

$334,993.25.  That was made up primarily of unpaid goods and services tax.  The demand shows that there were returns by the taxpayer for 31 October 2017 and

30 November 2017. There were default assessments for December 2017 and January

2018.

[5]      The Commissioner’s statement of claim relies on non-compliance with the statutory demand as evidence of insolvency, and pleads indebtedness of $255,115.82. The Commissioner claims $50.00 as a late filing fee for income tax. That sum is trivial in this case.  The Commissioner relies on the assessments of goods and services tax for October 2017 and November 2017.   She has not claimed for any GST for December 2017 to January and February 2018 but has made a default assessment of

$78,000 for March 2018.

[6]      Glenvale Holdings Ltd’s statement of defence of 11 July 2018 pleads that the Commissioner assesses the amount owing as at 3 May 2018 at $170,662.24, not the sum of $255,115.82 claimed by the Commissioner.   The pleading says that the Commissioner’s assessment is made up in part of default assessments which were incorrect, and it has filed GST returns that negate the default assessments.   The statement of defence also pleads that Glenvale Holdings Ltd will have the ability to pay the amount to the Inland Revenue once the amount has been properly assessed from either future GST or surplus equity in the defendant.

[7]      In July 2018 directions were given for the liquidation application to be heard on a defended basis.   Glenvale was required to file any evidence no later than

24 August 2018, and the Commissioner was given time to file evidence in reply by

7 September 2018. The company did not file any evidence at all, either before or after

24 August 2018.   The Commissioner, however, has filed evidence by an Inland Revenue officer.  Her evidence is directed at proving liability for goods and services taxes for the periods 31 October 2017 and 30 November 2017.  She also proves the late filing fee on the income tax assessment but I regard that evidence as insignificant for this case.  Her evidence shows that Glenvale Holdings Ltd made GST returns for October 2017 and November 2017.  She shows that the amounts were self-assessed by Glenvale Holdings Ltd and that no payment has been made.  The Commissioner’s evidence shows an indebtedness of $173,460.97 as at 27 August 2018. That suggests that the Commissioner has abandoned her pleading that the company is liable for the default assessment for GST for the period ending 31 March 2018. For this proceeding, I accept that the Commissioner has proved the indebtedness set out in the affidavit of the Inland Revenue officer.

[8]      Mr Lloyd’s appearance was a new development.  He had been instructed only last night.  He sought an adjournment for four weeks.  He submitted that Glenvale Holdings Ltd is carrying out a subdivision at Te Kauwhata. Caveats had been lodged against the title. Those caveats prevented Glenvale Holdings Ltd from refinancing its liabilities.   Caveats had only just  been removed on Monday last week, that  is,

1 October 2018.  An adjournment would allow the company to arrange fresh finance which would clear its liability to the Commissioner.  It was also submitted that the Commissioner was the only creditor of Glenvale Holdings Ltd.

[9]      I was advised in submissions that the company had also made further tax returns. On the basis of those further returns, the Commissioner provided a summary of account showing added GST liabilities for December 2017 and January 2018.  In particular, there is an assessment of $213,740.00 for the month ending 31 December

2017. Mr van der Merwe, for the Commissioner, advised that his instructions were to pursue with the liquidation application today.

[10]     Notwithstanding Mr Lloyd’s protest that there would be greater advantages if the company were given the opportunity to refinance and clear its liability to the Commissioner, I indicated that the adjournment would not be granted. I disregard the more recent GST returns filed by the company.  The company has self-assessed itself for GST for October 2017 and November 2017.  It is patently insolvent.

[11]     It instructed lawyers who filed a statement of defence and directions were given for this matter to be heard today. At no stage in the proceeding before today did the company indicate that there was a difficulty with caveats against titles, and that on releases of caveats there would be the prospect of refinancing and paying the Commissioner.   By electing to defend the proceeding, the company sought the opportunity for the court to decide whether it should be put into liquidation on a defended basis. The court has allocated time to hear the parties and decide that matter today. The company had to prepare its case to defend the Commissioner’s application. It was directed to file evidence.  It did not use that opportunity to do so.  At the very least, that suggests some disarray on the part of the company.

[12]     It is for the Commissioner to assess whether it should entertain requests from taxpayers for further time to clear their liabilities.  That is very much a matter for decision by the Commissioner under ss 6 and 6A of the Tax Administration Act 1994. That does not mean to say that the court does not itself retain its own discretion to grant further time if the circumstances suggest that that is appropriate.   But I see nothing in the circumstances of this case to suggest that I should grant an adjournment, notwithstanding the Commissioner’s wish to proceed today.  There is clear evidence of insolvency. The fact that a contractor also had to take steps to obtain payment from the company suggests that Glenvale Holdings Ltd has significant cash-flow difficulties. It is incumbent on developers to ensure that they manage their cash-flow and meet their liabilities as they fall due.  I take it that the GST returns have shown that output tax is payable, suggesting that the company has been making taxable supplies.  Funds should have been available to meet those liabilities.  The fact that those liabilities were not been cleared when they fell due at the end of 2017 suggests ongoing difficulties on the part of the taxpayer.  In my view, if the Commissioner is prepared to take the risk of not getting paid by the company refinancing its liabilities, that is for the Commissioner to call and I will not second-guess that decision.

[13]     The result is that the adjournment application is refused.  The grounds for a liquidation  order  have  been  made  out.    The  Commissioner  is  a  creditor  for

$173,460.97.  The company is insolvent.  The presumption of insolvency arises from the non-compliance with the statutory demands of Sayer Drainage Ltd and the Commissioner of Inland Revenue.  Once insolvency is established the onus is on the taxpayer to show why a liquidation order ought not to be made. For the reasons I have given for refusing the adjournment, I also say that the company has not shown reason why it should not be put into liquidation.

[14]     Accordingly, I make an order putting Glenvale Holdings Ltd into liquidation. The time of the order is 10:56am.   I appoint the liquidators nominated by the Commissioner and approve their rates of remuneration on the normal terms.   The Commissioner has been represented by in-house counsel.  I accordingly reserve costs until the Court of Appeal clarifies whether costs can be awarded for in-house counsel. The Commissioner may recover disbursements as approved by the Registrar.

…………………………….

Associate Judge R M Bell