Commissioner of Inland Revenue v KD Transport Limited

[2025] NZHC 2671

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2025-404-569 [2025] NZHC 2671

UNDER  the Companies Act 1993

IN THE MATTER             of the liquidation of KD Transport Ltd

BETWEEN  THE COMMISSIONER OF INLAND REVENUE

Plaintiff

AND  KD TRANSPORT LIMITED

Defendant

Hearing:                   4 September 2025 Appearances: H F Tanielu for Plaintiff

A S Nair for Defendant

Judgment:                15 September 2025

JUDGMENT OF ASSOCIATE JUDGE PAULSEN

This judgment was delivered by me on 15 September 2025 at 11.00 am pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date:

THE COMMISSIONER OF INLAND REVENUE v KD TRANSPORT LIMITED [2025] NZHC 2671 [15

September 2025]

[1]                 The Commissioner has applied to liquidate the defendant company, KD Transport Ltd (the company), which owes substantial tax arrears. The application has been advertised and the Commissioner has taken all steps necessary to obtain the order for liquidation.

[2]                 The application presently before me is made by the company under r 31.11 of the High Court Rules 2016 (the Rules) for a stay pending the hearing of another proceeding it recently commenced for judicial review of the Commissioner’s refusal of financial relief under s 177 of the Tax Administration Act 1994 (the Act).

Background

[3]                 The company is a cartage contractor. It has not complied with its taxation obligations for several years.

[4]                 In early December 2024 a customer service officer of the Inland Revenue notified the director of the company, Mr Dhaliwal, via email and mylR that it had an outstanding tax debt of $621,757.04 and that failure to engage with Inland Revenue in respect to it may result in legal action.

[5]                 On 9 December 2024 Mr Dhaliwal responded that he was in India and would contact his tax agent to make a payment plan. No payment plan was made.

[6]                 On 21 January 2025 the Commissioner served a statutory demand on the company in respect to the amount then understood to be owing of $650,031.07. The company failed to comply with the statutory demand.

[7]                 The Commissioner applied to liquidate the company, filing this proceeding on 11 March 2025. The company was served on 18 March 2025. The date set for the hearing was 9 May 2025.

[8]                 On 24 March 2025 the company filed some of its outstanding GST and PAYE returns which added a further $256,041 to its tax debt.

[9]                 The Commissioner’s liquidation application was advertised in the New Zealand Gazette and The Herald newspaper on 17 April 2025.

[10]              On 9 May 2025 the Commissioner’s liquidation application was called before Associate Judge Sussock and adjourned until 12 June 2025 to allow Mr Dhaliwal time to file a payment proposal.

[11]              On 30 May 2025 the company’s counsel, Mr Nair, made a request on behalf of the company and Mr Dhaliwal for relief in respect to the company’s taxation arrears under s 177 of the Act on the ground of serious hardship.

[12]              The request for relief was advanced on the basis that the company was a relief company as defined in the Act,1 and that under s 177A recovery of the company’s outstanding tax would place Mr Dhaliwal and his dependants in serious hardship. The application referred to and relied upon the ill-health of Mr Dhaliwal’s father (who was in India), wife and son and said if relief was not provided Mr Dhaliwal would not be able to provide for his dependants.

[13]              The relief sought was that the Commissioner accept  a proposal whereby    Mr Dhaliwal would sell a property he had on the market and some chattels and that:

(a)a lump sum of $100,000 would be paid to the Commissioner by the end of June 2025;

(b)further monthly payments of $12,000 would be made to clear what was said to be the “core taxation arrears”; and

(c)the Commissioner would write off all penalties and interest charges.

[14]             On 5 June 2025 the Commissioner made a request for further information so as to be able to consider the request for relief. The information requested was:

(a)evidence of the health issues raised by Mr Dhaliwal;

1      Tax Administration Act 1994, s 3 – relevantly defines a relief company as, in relation to a taxpayer, a company in which the taxpayer owns 50 per cent or more of the shares.

(b)disclosure of Mr Dhaliwal’s financial position, including an IR590 financial disclosure form;

(c)bank statements for the company and Mr Dhaliwal;

(d)bank statements  for  all  credit  cards  used  by  the  company  and  Mr Dhaliwal for the last three months;

(e)Mr Dhaliwal’s mortgage balance as of 31 May 2025; and

(f)the 2024 income tax return for Mr Dhaliwal.

[15]              On 12 June 2025 the Commissioner’s application was called again before Associate Judge Sussock and adjourned until 28 August 2025 to allow time for the information to be provided to the Commissioner.

[16]              Not all of the information requested was provided. Notably, the IR590 form was  never  completed,  and  information  concerning  the  medical  conditions  of  Mr Dhaliwal’s family members was also not provided at that time.

[17]             The Commissioner rejected the request for relief on 5 August 2025 for several reasons. First, the company was not paying its current taxes as they fell due. There were no GST payments for the 15 return periods from January 2023 to May 2025. Second, it was considered that the request did not maximise recovery of the company’s outstanding tax liability and fell short of the core debt that was owing. Third, other matters relied upon were that:

(a)on 20 March 2025 missing GST and PAYE returns had been filed which added approximately $256,041.00 to the company’s tax debt;

(b)no payments had been made by the company between September 2022 and February 2024 in respect to its tax liabilities, one payment was made in 2024 and then nothing further paid until 21 March 2025; and

(c)granting the relief requested would be preferring the company over taxpayers who complied with their tax obligations.

[18]             The Commissioner’s evidence is that on 26 August 2025 Mr Nair advised that Mr Dhaliwal had sold his property, and that the proceeds of sale were now to be used to do up trucks for sale and the company was wrapping up its business. Mr Nair raised the possibility of a further proposal for relief being made.

[19]             Instead, on 27 August 2025 the company filed its proceeding for judicial review of the Commissioner’s refusal of 5 August 2025 along with the application for a stay of this proceeding. The judicial review proceeding was filed under CIV-2025- 404-23048 and is to be called for case management on 1 October 2025.

[20]             This proceeding was called before Associate Judge Sussock on 28 August 2025 for the third time. The Judge made orders to have the application for a stay heard on an urgent basis before me on 4 September 2025.

[21]             On 2 September 2025 Mr Nair wrote to the Commissioner with a fresh request for relief under s 177 of the Act. The request was made “in light of a change in circumstances and supersedes the previous proposal dated 30 May 2025”. The change of circumstances was the death of Mr Dhaliwal’s father in July 2025 which shifted the focus “to the severe and continuing hardship caused by the health of Mr Dhaliwal’s wife and children”. In this respect it was said that the costs associated with these health issues “are substantial and are beyond what Mr Dhaliwal can meet if [the company] is liquidated”, and that liquidation of the company would remove the family’s sole source of income rendering them to unable to meet their basic living expenses. The relief requested was that:

… the Commissioner cease enforcement against [the company] on the basis that continued recovery will cause serious hardship to Mr Dhaliwal and his family.

[22]             The Commissioner rejected the new request for relief on 3 September 2025. In the letter notifying the decision reference was made to the judgment of Toogood J in P v Commissioner of Inland Revenue and the two-step approach that was to be taken

to applications for relief on the ground of serious hardship.2 This approach required first a determination of whether recovery of the debt would place the shareholder of a relief company in serious hardship and, second, consideration of the appropriate response if recovery would cause such hardship.

[23]             The Commissioner accepted that paying of the tax debt by the company “might place your client in a hardship position”, but it was not considered appropriate to either write off the debt or withdraw the liquidation proceeding consistent with the Commissioner’s obligations to protect the integrity of the tax system and to encourage taxpayers to comply with their tax obligations. It was noted:

(a)there were significant non-compliance issues by the company and a definite pattern of not meeting tax obligations by the due date;

(b)employment taxes were not paid in full for two years between February 2023 and March 2025;

(c)GST had not been paid since January 2023 and was still not being paid;

(d)since commencing the liquidation proceeding there had been no change in the compliance behaviour of the company and the debt owed to the Commissioner had increased to $1,023,137;

(e)there had been a change in the GST filing frequency from two-monthly to six-monthly, which would result in larger GST liabilities if the company continued to trade and ongoing risk to the revenue;

(f)a  new  company,  SKD  Carrier  Ltd,  had  been   incorporated  by  Mr Dhaliwal’s wife as director and shareholder, raising concerns that this was a de facto company of Mr Dhaliwal being set up to take over the business of the company; and

2      P v Commissioner of Inland Revenue [2015] NZHC 2293 at [46].

(g)the failure to pay GST indicated the company was insolvent and liquidation was the appropriate action to take.

The law

Rule 31.11 of the High Court Rules

[24]This application is brought under r 31.11 of the Rules, which provides:

31.11   Power to stay liquidation proceedings

(1)If an application for putting a company into liquidation is made under rule 31.3, the defendant company, or, with the leave of the court, any creditor or shareholder of that company or the Registrar of Companies, may, within 5 working days after the date of the service of the statement of claim on the defendant company, apply to the court—

(a)for an order restraining publication of an advertisement required by rule 31.9 or any other information relating to that statement of claim; and

(b)for an order staying any further proceedings in relation to the liquidation.

(2)The court must treat an application under subclause (1) as if it were an application for an interim injunction and, if it makes the order sought, it may do so on whatever terms the court thinks just.

(3)The inherent jurisdiction of the court is not limited by this rule.

The requirement to obtain an extension of time

[25]             Rule 31.11 requires that any application to stay a liquidation proceeding or restrain advertising must be made within five working days of the date of service of the statement of claim. The company did not make its stay application in time and accordingly needs an extension of time to do so.

[26]             In Pauaco Ltd v Seasir Ltd I was required to determine an application for an extension of time to make a stay application under r 31.11.3 Relevant to the present case, I said:

3      Pauaco Ltd v Seasir Ltd [2025] NZHC 2058 (footnote omitted).

[13]      I accept that the Court may extend time for an application under       r 31.11 to be made. In addition to the authorities I was referred to, I note that r 1.19 relevantly provides:

1.19     Extending and shortening time

(1)The court may, in its discretion, extend or shorten the time appointed by these rules, or fixed by any order, for doing any act or taking any proceeding or any step in a proceeding, on such terms (if any) as the court thinks just.

(2)The court may order an extension of time although the application for the extension is not made until after the expiration of the time appointed or fixed.

[14]      While the Court has an unfettered discretion to extend and shorten time there is a need for such applications to be justified. In this context, the authors of McGechan on Procedure refer to Lord Guest in Ratnam v Cumarasamy:

The rules of Court must prima facie be obeyed, and in order to justify a Court in extending the time during which some step in procedure requires to be taken there must be material upon which the Court can exercise its discretion. If the law were otherwise, a party in breach would have an unqualified right to an extension of time which would defeat the purpose of the rules, which is to provide a timetable for the conduct of litigation.

The approach to stay applications pending judicial review

[27]             In Commissioner of Inland Revenue v RLITS Contracting Ltd the defendant company sought a stay of liquidation proceedings on the ground it was seeking judicial review of the Commissioner’s decision not to accept an instalment arrangement under s 177 of the Act.4 Associate Judge Brittain noted:

(a)the Court’s jurisdiction to stay liquidation proceedings is to prevent an abuse of the process and there is no inflexible rule as to when those circumstances exist, the governing consideration being whether the proceeding suggests unfairness or undue pressure;5

(b)the approach taken to an application for a stay under r 31.11 pending judicial review ought to be consistent with the approach taken to

4      Commissioner of Inland Revenue v RLITS Contracting Ltd [2024] NZHC 1258.

5      At [7], citing Nemisis Holdings Ltd v North Harbour Industrial Holdings Ltd (1989) 1 PRNZ 379 (HC) at 385.

applications for interim relief under s 15 of the Judicial Review Procedure Act 2016;6

(c)under s 15, an applicant for interim relief must generally demonstrate more than a serious question to be tried but less than a prima facie case, requiring a preliminary consideration of the merits of the judicial review proceeding;7

(d)the Court should be satisfied that an interim order is reasonably necessary to preserve the applicant’s position before considering whether the Court should exercise its broad discretion to order a stay of the liquidation proceeding;8 and

(e)the applicant must establish that it has not already had an opportunity to have its proposal considered fairly, and that there is a real possibility the judicial review proceeding would result in the Commissioner being directed to consider the proposal afresh.9

The approach to applications for relief

[28]             The parties agree that the approach to be taken to applications for relief under s 177 of the Act is as set out by Toogood J in P v Commissioner of Inland Revenue.10 Toogood J said when dealing with an application for relief on the ground of serious hardship the two-step process was:11

(a)Step one: The Commissioner considers whether information about the taxpayer’s financial position, after allowing for payment of a relevant amount of outstanding tax, would show that the taxpayer would be likely to have significant financial difficulties after the date of application for relief because: (a) the taxpayer or their dependent has a serious illness; or (b) the taxpayer is not able to meet minimum living expenses according to normal community standards, the cost of

6 At [11].

7      At [12], citing Carlton & United Breweries Ltd v Minister of Customs [1986] 1 NZLR 423 (CA) at 430 per Cooke J.

8      At [13], citing Shane Warner Builders Ltd v Commissioner of Inland Revenue [2018] NZHC 1654 at [7].

9      At [14], citing Eastbus Ltd v Commissioner of Inland Revenue HC Dunedin CIV-2006-412-153, 3 March 2006 at [16].

10     P v Commissioner of Inland Revenue, above n 2.

11     At [46] (footnotes omitted).

medical treatment to them or their dependent, or the cost of education for their dependent; or (c) other factors would likely arise that the Commissioner believes to be relevant. The Commissioner must not take into account compliance or non-compliance with tax obligations when in this step determining whether the taxpayer suffers serious hardship.

(b)Step two: If the Commissioner has decided that requiring the taxpayer to pay the outstanding tax would place the person in serious hardship, then the Commissioner considers how to best deal with the debt. The Commissioner has two options available to her: she may write off the outstanding debt or allow the debt to remain and take steps preparatory to, or necessary to, bankrupt the taxpayer, including debt proceedings in the District Court or the High Court.

[29]             In Anthony v Commissioner of Inland Revenue, Andrew J decided a judicial review challenge to the Commissioner’s decision to decline a proposal for relief under s 177.12 The taxpayer argued that the Commissioner’s decision was unlawful because he had taken into account irrelevant matters outside those which could be taken in the exercise of his discretion under s 177 of the Act, and because the decision was contrary to s 176 of the Act as it did not prioritise the maximisation of collection of revenue.

[30]             Andrew J undertook an analysis of the statutory scheme under pt 11 of the Act as well as the Commissioner’s broader responsibilities under ss 6 and 6A of the Act to protect the integrity of the tax system and the duty to collect over time the highest net revenue practicable within the law. Relevantly for present purposes, Andrew J said:13

[52]      In addressing these contentions, it is first important to acknowledge, as the above legal analysis indicates, that in deciding whether to accept a proposal for relief, the Commissioner has a broad discretion to exercise judgment within the statutory framework. A range of factors of differing weight may be relevant to the decision depending on the circumstances of each case. There is a clear statutory duty on the Commissioner and officials to at all times use their best endeavours to protect the integrity of the tax system and to collect, over time, the highest net revenue practicable within the law. The Commissioner may justifiably reject a financial proposal in the face of a taxpayer’s poor compliance history. That is so, even if the proposal might appear to maximise recovery of outstanding tax from the individual taxpayer in the short term. This is because the long-term prospects of collecting revenue from the whole body of New Zealand taxpayers over time may be better served by taking firm and resolute action against those who do not meet their tax obligations and have no reasonable excuse for failing to do so. Firm and resolute action against non-compliant taxpayers promotes voluntary compliance amongst taxpayers generally. Such action may include, as here,

12     Anthony v Commissioner of Inland Revenue [2025] NZHC 1382.

13     (Footnotes omitted).

seeking to put a corporate taxpayer into liquidation rather than accepting a proposal for an instalment arrangement.

[53]      The fundamental problem to the challenge brought by Summit Scaffold is that, in substance, it seeks to conflate the distinction between maximising recovery of outstanding tax from a single specified taxpayer under s 176 and the more general duty under s 6A. It is manifestly clear from the jurisprudence analysed above, that in considering requests for financial relief, the Commissioner and his delegates must balance considerations of maximising recovery from individual taxpayers with broader public interest considerations  including,  importantly,  the  integrity  of  the  tax  system. Mr Nair’s submissions, effectively a challenge to the settled jurisprudence, must be rejected.

The impugned decision and grounds relied upon

[31]             The company’s statement of claim in the judicial review proceeding identifies that its challenge is to the Commissioner’s decision of 5 August 2025, which it says should be quashed and the Commissioner directed to reconsider it. This is said to be because the Commissioner improperly relied upon past compliance failures of the company (which, it is argued, is a consideration that is explicitly prohibited by s 177A of the Act) and because the Commissioner failed to take into account several relevant considerations. These are said to include the extent to which the company’s proposal would maximise revenue for the Commissioner and the company’s efforts to rectify compliance by selling property and personal chattels.

My analysis

[32]             At the hearing both the requirement that the company obtain an extension of time to make its application under r 31.11 and the substantive grounds being advanced for the stay were canvassed.

[33]             In my view, there is no basis for the Court to grant the company an extension of time to make an application under r 31.11, and even if such an extension was granted the application for a stay must be refused.

[34]             As to the application for an extension of time, the company has been behind in its tax obligations for several years. As noted above, it was put on notice in early December 2024 that the Commissioner may take legal action against it. Mr Dhaliwal then indicated that a proposal would be made to the Commissioner but that did not

occur. When the statutory demand was served on the company no proposal was made. When this proceeding was filed and served the company still made no proposal to the Commissioner until three weeks after its first call. There is no explanation by the company why it could not have made a request for relief to the Commissioner earlier and applied for stay of the proceeding within the time required by r 31.11 so that the request could be considered. There is obvious prejudice to the Commissioner when taking action to recover outstanding tax if liquidation or bankruptcy proceedings can be delayed by last minute applications for financial relief and then for stay pending challenge by judicial review. It is the experience of the Court that the Commissioner does not move hastily to take liquidation or bankruptcy proceedings and the Court can expect taxpayers to seek relief at an early stage.

[35]             More substantively, granting the company an extension of time to make its application for a stay will serve no purpose. Mr Nair advised me that it was accepted there had been a change of circumstances since the first request for relief was made. The company is also not in a position to comply with the terms of its first request for relief insofar as its proposal was to use the proceeds of sale of a property and chattels to make a substantial payment to the Commissioner and thereafter monthly instalment payments. It is now offering the Commissioner nothing by way of payments.

[36]             The sole basis advanced for the granting of a stay was so that the company’s application for judicial review of the Commissioner’s decision of 5 August 2025 could be determined. Whatever the merits of that application for judicial review may have been, there is no longer any live issue as between the company and the Commissioner in relation to the impugned decision. That is because the company is not in a position to comply with the terms of its request for relief, and it made a fresh request for relief on 2 September 2025 on the express basis that it superseded the earlier request. What that means is that in respect to the Commissioner’s decision of 5 August 2025 the company no longer has a position which needs to be protected by a stay. There is also no prospect that the Court will grant relief requiring the Commissioner to reconsider that decision.

[37]             I raised this difficulty with Mr Nair at the commencement of the proceeding. He argued there are grounds upon which the company could seek judicial review of

the Commissioner’s refusal to grant the second request for relief. I understand the company’s position to be that having accepted in the decision that the liquidation of the company might result in hardship to Mr Dhaliwal and his dependants the Commissioner cannot then  proceed  to  liquidate  the  company.  I  do  not  accept Mr Nair’s submission which does not recognise, as was held by Andrew J in Anthony v Summit Scaffold NZ Ltd, that in considering whether to accept or refuse a request for relief the Commissioner exercises a broad discretion and range of factors within the statutory framework.14

[38]             Further, the company’s request for relief of 2 September 2025 was entirely unrealistic. The company is insolvent and has no prospect of paying its tax liabilities, which are made up substantially of PAYE and GST, being money held on trust for the Commissioner. What the company proposes by its second request for relief is that the Commissioner withhold all action against it and allow it to continue to trade and incur further tax liabilities to the detriment of the Commissioner and other taxpayers (and potentially other creditors) without any proposal for payment of all or any portion of its existing or future liabilities. This is despite it using money previously offered to the Commissioner for other purposes. There is no realistic prospect that a Court would find the Commissioner was wrong to reject that request, as he did, on the grounds that he had duties to protect the integrity of the tax system, minimise further risk to the revenue and ensure that taxpayers meet their obligations.

[39]             In this regard, in Shane Warner Builders Ltd v Commissioner of Inland Revenue Nation J rejected an application by a taxpayer for interim relief pending the hearing of an application for judicial review of the Commissioner’s decision declining a request for financial relief.15 I agree with the following comments of Nation J, which are pertinent to the circumstances of this case:16

[84]      I accept it is in the public interest that the Commissioner be able to carry out her statutory duties under [the Act], including completing enforcement action expeditiously. I accept the public interest in maintaining the integrity of the tax system, including the ability of the Commissioner to collect taxes when they become due. I consider that the integrity of the tax system will be undermined if the right of the Commissioner to enforce

14     Anthony v Commissioner of Inland Revenue, above n 12.

15     Shane Warner Builders Ltd v Commissioner of Inland Revenue, above n 8.

16     (Footnote omitted).

payment of an undisputed debt for unpaid tax through liquidation proceedings is frustrated by requiring the Commissioner to be a party to continuing judicial review proceedings which are without merit.

[85]      When a company has deducted tax to pay PAYE and been paid GST by other taxpayers and then withheld such payments from the IRD, other taxpayers are entitled to expect the Commissioner would take a firm line, either in terms of securing recovery of taxes or, if the Commissioner is not confident this will be achieved, through proceedings that will lead to the winding up of the company. For the Commissioner to permit a company to carry on in business when she is not confident it will meet its tax obligations would be to the detriment of other taxpayers and creditors.

[40]             I therefore do not grant the company an extension of time to apply for a stay, noting that had there been grounds to do so I would have refused a stay in any event.

[41]             That raises the issue of what orders should be made other than to dismiss the company’s application. As noted earlier, the Commissioner is in a position to obtain an order for the immediate liquidation of the company and asks that such an order be made. I raised with Mr Nair this prospect and he advised that Mr Dhaliwal is aware the Court may make an order for liquidation if a stay is refused.

[42]             Mr Nair asked that I give the company further time to apply to a High Court Justice for interim relief under s 15 of Judicial Review Procedure Act. I am not prepared to do so in circumstances where that was an option which could have been taken earlier and there is no realistic prospect that relief would be granted.

[43]             While I fully recognise the issues of concern to Mr Dhaliwal, including the health issues of family members and economic hardship and uncertainty which may result from the making of an order for liquidation, I consider that an immediate order should be made for the liquidation of the company. There is nothing unfair or unjust in the making of such an order. The company is insolvent, has large liabilities and the intention of Mr Dhaliwal to continue to trade in those circumstances puts those dealing with the company at substantial risk. Furthermore, it is necessary to make an order to protect the assets of the company which it appears that Mr Dhaliwal has already sold or intends to sell. In my view, it is better that the assets of the company are sold under the supervision of a liquidator.

Result

[44]             The defendant company’s application for an extension of time to apply for a stay is dismissed.

[45]             There shall be an order putting the defendant company into liquidation and appointing the Official Assignee as liquidator.

[46]             The Commissioner is awarded costs on a 2B basis plus reasonable disbursements as fixed by the Registrar.

[47]This order is timed at 11.00 am on 15 September 2025.

O G Paulsen Associate Judge

Solicitors:

Inland Revenue Legal Services, Manukau Nair & Associates, Auckland