Commissioner of Inland Revenue v Kiwi Painters Limited

[2017] NZHC 1948

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2017-485-331 [2017] NZHC 1948

UNDER

the Companies Act 1993

IN THE MATTER

of liquidation proceedings

BETWEEN

THE COMMISSIONER OF INLAND REVENUE

Plaintiff

AND

KIWI PAINTERS LIMITED Defendant

Hearing:	15 August 2017
Appearances:	Ms D B Padmanabhan for the plaintiff Mr A Romanos for the defendant
Judgment:	15 August 2017

ORAL JUDGMENT OF ASSOCIATE JUDGE SMITH

[1]      On 20 July 2017 Associate Judge Osborne gave judgment extending the time for the defendant to file a defence in this liquidation proceeding.   The order for extension of time to file the defence was subject to the following conditions:

(a)      the defendant shall pay a first tranche of $40,000 to the Commissioner of Inland Revenue (“the Commissioner”) within five working days from today;

(b)Mohammed Qaiyuim Ali shall provide within five working days from today his personal guarantee of the defendant’s existing indebtedness to the Commissioner and such additional indebtedness as accrues in

the next 90 working days;

THE COMMISSIONER OF INLAND REVENUE v KIWI PAINTERS LIMITED [2017] NZHC 1948 [15 August 2017]

(c)      the defendant shall keep current in its tax returns to the Commissioner and in its payment of tax as it falls due;

(d)the defendant shall retain through the next 90 working days its current accountant to both keep the defendant’s accounts up to date and to process  the  defendant’s  tax  returns  and  payments  to  the Commissioner;

(e)      the defendant shall pay three further tranches of $50,000 each to the Commissioner in each of the months of July 2017, August 2017 and September 2017, on account first of arrears and (upon settlement of the arrears) newly accruing taxation obligations; and

(f)      the defendant shall execute an assignment to the Commissioner of payment entitlements from Spotless Facility Services (NZ) Limited (and any associated company) if called upon by the Commissioner to do so.

[2]      The Associate Judge then ordered that in the event that the defendant failed to comply with those conditions, the leave granted to the defendant to file and rely upon   its   defence   would   be   rescinded   immediately   at   the   election   of   the Commissioner, notified to the court by counsel’s memorandum filed and served.

[3]      The defendant did not pay the $40,000 “first tranche” referred to at condition (a) above.  Nor did the defendant pay the first instalment of $50,000, due by the end of July 2017, referred to in condition (e).

[4]      On 31 July 2017 counsel then acting for the defendant (Mr Hearn) filed a memorandum advising that a statement of defence had been filed on 28 July 2017 in accordance with the leave granted.  Also, some of the conditions imposed by Associate Judge Osborne on granting the leave had been complied with.  However it was not suggested that the first tranche payment of $40,000 had been paid, nor that the $50,000 instalment due in July had been paid.

[5]      Instead, Mr Hearn referred in his memorandum to certain difficulties Mr Ali had perceived with the form of guarantee he was required to sign under condition (b).   Mr Hearn submitted that a pure guarantee of the defendants “existing indebtedness” could expose Mr Ali to an immediate obligation to pay the Commissioner the entire debt immediately, rather than in the series of instalments contemplated by the judgment of 20 July 2017.  With his memorandum, Mr Hearn submitted a proposed new form of guarantee to be completed by Mr Ali, which would extend the times for payment (it would have allowed for payment of the first tranche of $40,000 on  or before 4 August 2017, and subsequent instalments of

$50,000 before the end of each of the months ended 31 August, 30 September, and

31 October 2017).  The form of guarantee was also prefaced with the qualification that it would be subject to adjournment of the liquidation proceeding against the defendant to a date after 1 October 2017.

[6]      The case was called in the list on 1 August 2017.  By consent, the matter was adjourned  to  today’s  list,  to  allow  counsel  for  the  Commissioner  to  consider Mr Hearn’s memorandum and to allow for payment of the first $40,000.

[7]      The first two payments, totalling $90,000, not having been paid by 11 August

2017, Ms Padmanabhan for the Commissioner filed a memorandum confirming that the $40,000 had not then been paid, and that the $50,000 due in July 2017 had not been paid either (the court and the plaintiff not having consented to that payment being   made   in  August   2017).      Further,   Ms   Padmanabhan   advised   in   her memorandum that the defendant’s PAYE for June 2017, due on 20 July 2017, was not paid until 31 July 2017.   In accordance with para [30](2) of the judgment of

20 July 2017, Ms Padmanabhan asked that the leave granted to file a statement of defence be rescinded.

[8]      When the matter was called today, Mr Romanos produced a further form of guarantee, signed by Mr Ali. The form of guarantee is in substantially the same form as the form which was attached to Mr Hearn’s memorandum of 31 July 2017 (there are some changes in proposed payment dates, and one typo has been corrected).

[9]      Mr Romanos accepts that it would be open to the Court to rescind the leave to file the statement of defence immediately, having regard to the failure to pay the first tranche of $40,000, and the first instalment of $50,000, on the dates set out in the

20 July 2017 judgment.  However, he submits that the reality of the situation is that there was never going to be a defended hearing in October 2017 if the payments had been made by due date in accordance with the 20 July judgment, and the defendant should  have the opportunity to  bring itself  into  compliance with  the  conditions (albeit late).  He suggests that the situation could be met by an “unless order”, under which a total $90,000 would be paid to the Commissioner by 29 August, failing which a liquidation order would be made that day.

[10]     Ms Padmanabhan does not accept that proposal.  The Commissioner relies on her entitlement to elect to have the extension of time for filing the defence rescinded.

[11]     I accept Ms Padmanabhan’s submissions on this issue.   The judgment of Associate Judge Osborne was in relatively peremptory terms as far as the conditions were concerned, and his Honour made it clear that rescission would be a matter for the election of the Commissioner, without the need for further debate.   I have not been notified of any appeal against the decision of Associate Judge Osborne, and I think the judgment must be given effect to.  That means that, on the failure of the defendant to comply with the conditions, the Commissioner was entitled as of right to elect to have the extension of time rescinded.  The Commissioner has done that by counsel’s memorandum filed on 11 August 2017.

[12]     I record also  that  the default  by the defendant  in  paying PAYE due  for payment on 20 July 2017 (it was not paid until 31 July 2017) provides a further reason   for  the   Court   to   decline  to   interfere  with   the   clear  intent   of  the Associate Judge’s judgment of 20 July 2017, namely that strict compliance with the conditions was required.  Accordingly, I proceed on the basis that the extension of time for filing the defence granted on 20 July 2017 is rescinded, and I make an order accordingly.

[13]     Mr Romanos then asked for the case to be adjourned to 29 August 2017, on the same basis as set out above (and stipulated in Mr Ali’s guarantee dated 14 August

2017), namely that the first tranche payment of $40,000 would be made by 17

August 2017 and the first $50,000 instalment would be made on or before 28 August

2017.  Thereafter, the remaining two instalments ($50,000 each) would be paid on or before 28 September 2017, and on or before 28 October 2017.

[14]     Ms  Padmanabhan  advises  that  the  Commissioner  would  not  accept  that payment proposal, which is similar to that included in Associate Judge Osborne’s conditions, with an extension of time for the last payment until 28 October 2017.

[15]     I am not prepared to delay the matter further.  The events since 20 July 2017 show  a) that  the defendant  is  and  remains  insolvent,  and  b) that  the defendant apparently  could  not  comply  with  the  payment  conditions  imposed  by  the Associate Judge in granting an extension of time for filing a defence.

[16]     Ms  Padmanabhan  having  produced  the  appropriate  certificate  of  non- payment, there will accordingly be a liquidation order.

[17]     I make the following orders:

(a)       the defendant company is put into liquidation;

(b)John Howard Ross Fisk and Marcus James McMillan are appointed liquidators;

(c)      the defendant company is to pay scale 2B Costs to the plaintiff plus disbursements as fixed by the Registrar;

(d)the rates of remuneration of the liquidators and staff working under their supervision  and  control  are  fixed  at  the  rates  set  out  in  the liquidators’ consents dated 11 May 2017;

(e)      the liquidators are to apply at the conclusion of the liquidation for approval of their overall remuneration.

[18]     The foregoing orders are timed at 12.08pm.

Associate Judge Smith

Solicitors:

Corcoran French, Christchurch for the defendant