Commissioner of Inland Revenue v Lvo Limited as Trustee in the Lvo Trust

[2012] NZHC 372

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2011-404-5968 [2012] NZHC 372

IN THE MATTER OF     the Companies Act 1993

BETWEEN  THE COMMISSIONER OF INLAND REVENUE

Plaintiff

ANDLVO LIMITED AS TRUSTEE IN THE LVO TRUST

Defendant

CIV 2011-404-5971

IN THE MATTER OF the Companies Act 1993

BETWEEN  THE COMMISSIONER OF INLAND REVENUE

Plaintiff

ANDMARLIN PROPERTY CONSULTANTS LIMITED AS TRUSTEES OF THE MARLIN PROPERTY TRUST Defendant

Hearing:         16 March 2012

Counsel:         MF Nelson for plaintiff

RB Hucker for defendant companies

Judgment:      16 March 2012 at 2:25pm

(ORAL) JUDGMENT OF ASSOCIATE JUDGE FAIRE

[on application that defendant companies be placed into liquidation]

Solicitors:           Inland Revenue Department, PO Box 76 198, Auckland 2241

Hucker & Associates, PO Box 3843, Auckland 1140

THE COMMISSIONER OF INLAND REVENUE V LVO LIMITED AS TRUSTEE IN THE LVO TRUST HC AK CIV 2011-404-5968 16 MARCH 2012

CIV 2011-404-5980

IN THE MATTER OF the Companies Act 1993

BETWEEN  THE COMMISSIONER OF INLAND REVENUE

Plaintiff

AND  401 L LIMITED AS TRUSTEE IN THE

401 L TRUST Defendant

[1]      The plaintiff applies for an order that the defendant companies be placed into liquidation and that a liquidator be appointed.   This judgment relates to the three cases which are linked by the fact that the defendants have a common single director and shareholder and the background circumstances are similar.

[2]      The companies do not contest the debt.  Affidavits have been filed on behalf of the defendant companies.  Their purpose was to inform the court of steps taken by the sole director and shareholder for the defendants to realise assets from sources unrelated to the defendant companies and with a view to paying the debts which are the subject of the proceedings.

[3]      The three proceedings have been called on 11 November 2011 before Lang J and on 18 November, 15 December, 19 December 2011 and 15 February 2012 before me.  The reasons for the adjournments and the steps contemplated by the court are best recorded by my simply setting out the minutes at each call, which I now do.

Minute of Lang J of 11 November 2011

[1]       In  each  of  these  proceedings,  the  Commissioner  seeks  an  order placing the defendant in liquidation.  The defendants have not taken formal steps to oppose the Commissioner’s application.

[2]       When the proceedings were called this morning, counsel for the defendants tendered a memorandum in support of an application for a short adjournment of each proceeding.    The Commissioner opposed the adjournment, and submitted that it was appropriate to place each defendant I liquidation.  She pointed out that the defendants are to current with PAYE and GST payments, and that attempts to make contact with the director of each defendant have been fruitless.

[3]       I am prepared to grant the defendants a short adjournment in order to enable  them  to  reach  an  accommodation  with  the  Commissioner.    A condition of the adjournment is that the director of the defendants is to file an affidavit no later than 5pm on 16 November 2011 verifying the matters contained in counsel’s memorandum dated 11 November 2011.

[4]       It is likely that an order will be made placing each defendant in liquidation when the matter is called next.  For the reason the defendants are encouraged to reach some form of resolution with the Commissioner.

Minute of Associate Judge Faire of 18 November 2011

[1]       These three files were called before me today.  The Commissioner of

Inland Revenue seeks the appointment of a liquidator in the case of each of

the companies and the placing of the companies into liquidation.   No statements of defence have been filed.   The files were first called before Lang J on 11 November 2011.  At that time a memorandum had been placed before his Honour which sought an adjournment of the proceedings.   His Honour granted a short adjournment and directed that the grounds for any further adjournment had to be provided by way of affidavit.

[2]       An affidavit by Mr Layne Campbell Kells, the sole shareholder and director of the three companies was filed yesterday.

[3]       Mr Kells, who is also a director of a number of other companies, including E Jack Trustees Ltd, 401 F Ltd, Gulf Harbour Marlin Ltd and Gabrielle’s Trust Co Ltd and who is one of the trustees of the Layne Kells Family Trust is involved in a sell-down of the assets of his companies and the trust with the primary objective being to settle this indebtedness to the secured creditors and the Inland Revenue Department. A number of sale and purchase contracts have been entered into which are referred to in his affidavit.

[4]       Mr Hucker, today, seeks an adjournment to a December list so that a formal proposal can be placed before the Commissioner, which will involve the giving of guarantees by the other companies and the family trust to the effect that the proceeds of sale of assets will be applied, firstly, to payment of secured  creditors  and,  secondly,  in  payment  of  the  debt  to  the  Inland Revenue Department.

[5]       The Commissioner is concerned that any lengthy adjournment might serve no useful purpose because a number of the entities including the three companies  are  in  default  of  their  obligations  so  far  as  the  filing  of appropriate tax returns is concerned.  In addition, the Commissioner does not have   sufficient   information   concerning   the   financial   position   of   the companies and the trust which are said to own the assets which would be the source of the payments to satisfy these defendants’ debts to the Commissioner.

[6]       These matters I refer to very generally but clearly will have to be set out in considerable detail before the Commissioner could consider any proposal which involves the withdrawal of the current proceedings.

[7]       I am satisfied, however, that it would be premature to appoint a liquidator and place these companies into liquidation at this stage without at least providing the opportunity to see if the debts of these three companies can be paid effectively from the outside sources.

[8]       Accordingly, I adjourn these proceedings to a miscellaneous list at

11:45am on 15 December 2011.  The adjournment, however, is conditional upon the following:

a)By 28 November 2011 the three companies and Mr Kells shall place a proposal for the Commissioner’s consideration together with executed guarantees from Mr Kells and the companies which are to support, or make payment in respect of the defendants’ debts to the Commissioner;

b)If  the  proposal  is  declined  and  the  defendants  wish  to judicially review the Commissioner of Inland Revenue’s decision, a memorandum with a draft application for judicial review shall be filed and served within seven days of the decision to decline the proposal.

[9]       On 15 December 2011 the court will consider whether, based on the proposal, a stay of these proceedings is appropriate and, if necessary, the terms upon which any stay should be granted. Accordingly, counsel must be ready to address these issues at that time.

Minute of Associate Judge Faire of 15 December 2011

[1]       Matters have proceeded in a different direction from that which was contemplated when my minute of 18 November 2011 was issued in respect of these three proceedings.

[2]       There  was  understandably  I  think  a  misunderstanding  between counsel  as  to  the  nature  of  the  correspondence  which  passed  between counsel  shortly  after  the  hearing  on  18  November  2011.    Mr  Hucker assumed, as it now turns out, wrongly that the Commissioner had not got to the point of declining a proposal which was advanced on behalf of the three defendant companies.  I do not intend to go into that further in this minute.

[3]       What is necessary to record at this stage, however, is that the sole shareholder  and  director  of  the  three  defendant  companies  who  has substantial interests in a trust and other related companies, has placed the before the court further evidence which indicates that sales of properties are likely to settle on or before 29 February next year.  I cannot tell, from the material before me, whether that necessarily means that Mr Kells’ interests, will in fact be sufficient to satisfy the debts which are particularised in the three statements of claim.  Mr Hucker’s instructions at this stage are that that is Mr Kells’ position.

[4]       I take that into account and although Ms Nelson strongly urges me not to grant an adjournment, I have decided that an adjournment on a conditional basis, subject to an initial check is justified.  The initial check is necessary to see that documents are executed to protect the position in the interim.

[5]       Accordingly I express the court’s intention, at this stage, which is

that the proceeding be adjourned subject to conditions to 11:45am on 15

February 2012 with a view to the defendant companies providing evidence that  all  the  sale  and  purchase  contracts  have  been  executed  and  are

unconditional and are due for settlement on or before 29 February 2012.  If

that is established on 15 February 2012, a further adjournment would then be granted to 11:45am on 16 March 2012.

[6]       Before ordering that adjournment, however, it is necessary that the conditions which justify the adjournment are met.  Those conditions are as follows:

a)That Mr Layne Campbell Kells has executed a guarantee of payment of the debts as currently pleaded in the three statements of claim by 2 March 2012.  Such guarantee must

be in the form which will be provided by counsel for the plaintiff to counsel for the defendants by 10am tomorrow, 16

December 2011;

b)That  the  following  companies  provide  guarantees  in  the same form, namely the three defendant companies, the companies  which  are  the  registered  proprietors  of  399

Manukau  Road  and  405  Manukau  Road  and  340  Gulf

Harbour Drive and 36 Eric Paton Way, St Johns Road, Auckland and 7A Emmett Street, Auckland and Gabrielle’s Trustee Company Ltd;

c)That the companies referred in (b) above execute mortgages in the latest form approved by the Auckland District Law

Society in respect of the amounts pleaded in the three statements of claim and agree that the plaintiff may lodge a

caveat protecting interests secured by such mortgages.

[7]       To ensure that the conditions can be met I adjourn this proceeding to

2pm on Monday, 19 December 2011.

Minute of Associate Judge Faire of 19 December 2011

Hucker for plaintiff and with plaintiff’s consent.  The conditions have been

met. Adjourned to 11:45am on 15/2/12.

Minute of Associate Judge Faire 15 February 2012

[1]       Mr Hucker advises me that all the contracts referred to in paragraph

6(b) of my minute of 15 December 2011 on the instructions given him are expected  to  settle,  at  the  latest,  by  28 March  2012.    Indeed,  with  the

exception of the properties at 36 Eric Patton Way, St Johns Road, Auckland the balance of the contracts are expected to settle before 16 March 2012.

[2]       Mr Hucker further confirms to me that the mortgages and caveats referred to in paragraph 6(c) of the minute of 15 December 2011 have been put in place.  That is important because it does give some measure of protection to the Commissioner’s position, although whether it is real or not cannot be determined until the results of the sales and the settlement with those parties who hold securities over the relevant properties is achieved.

[3]       I am satisfied that these proceedings should be further adjourned but the adjournment must be made subject to a condition.  That condition is that copies of the sale and purchase contracts in respect of the properties referred to in paragraph 6(b) of the minute of 15 December 2011 are made available to the Commissioner’s counsel within seven working days of today’s date.

[4]       Accordingly I order:

a)These three proceedings are adjourned to the miscellaneous companies list at 11:45am on 16 March 2012;

b)The defendant companies are put on notice that should the condition as to production of copies of the agreement not be complied with or if the transactions, save for that involving

36 Eric Patton Way, St Johns Road, have not settled, it is

likely that an order appointing a liquidator in relation to the three companies will be made.   If, on the other hand, the condition is met and the contracts referred to have settled, it is likely that I would further adjourn these three proceedings to the miscellaneous companies list at 11:45am on 27 April

2012 by which time it is anticipated that 36 Eric Patton Way, St  Johns  Road,  Auckland  would  have  been  sold  in  its

entirety    and    the    proceeds    made    available    to    the

Commissioner to settle the debt owed to the Commissioner in respect of these three defendants.

[5]      The three proceedings are accordingly adjourned in accordance with

this minute.  I reserve costs in relation to today’s appearances.

[4]      When the matter was called today, Ms Nelson advised the court that two of the matters referred to in paragraph [4]b) of my minute of 15 February 2012 had not been met.  Not all the contracts had been provided.  Not all the contracts due to settle before the call had settled.  I regard the second of these matters – the non-settlement

– as the matter of most concern.  Mr Hucker advised that the reasons related to the position of the purchasers in each case.   Mr Hucker sought a further adjournment. Ms Nelson opposed my granting any further adjournment.

[5]      The Companies Act 1993, s 241 gives the court a discretion to appoint a liquidator  if  it  is  satisfied  that  the  company  is  unable  to  pay  its  debts.    The Companies Act 1993, s287 provides that:

287     Meaning of “inability to pay debts”

Unless the contrary is proved and subject to s288 of this Act, a company is presumed to be unable to pay its debts if –

(a)      the company has failed to comply with a statutory demand

…

[6]      A statutory demand has been served on each of the defendant companies.  It is therefore presumed that each is unable to pay its debts.  The statutory grounds for the appointment of a liquidator have been made out.  There is no basis to suggest the making of a winding up order would be an abuse of process in this case.   The companies have been given fair warning of what is required.   Unfortunately, the companies, or their director, have not been able to arrange the payment that was contemplated.

[7]      If their director can settle the sale of properties and settle the debt then an application for termination of the liquidation pursuant to the Companies Act 1993, s 250 could be made.  Because Mr Hucker indicated that this is a possibility, I record in this judgment that the plaintiff must be ready to receive a short notice application for stay of the liquidation orders which I will make in the event that settlements of the sales of the properties which are expected to produce funds to pay the debts have occurred.

[8]      In the case of LVO Ltd, a further consideration needs to be mentioned.  I was advised that there is currently a review being undertaken by the plaintiff as to part of the debt.  However, I was further advised that even if that review was successful, the whole debt would not be extinguished.  This circumstance, by itself, does not justify any special treatment in respect of this company.   The statutory grounds for the making of an order are met and, as I have earlier recorded, I cannot see that there is any basis to suggest that there would be an abuse of process by the making of an order.

Conclusions

[9]      I am satisfied therefore that orders should be made.   Proof of the debt has been confirmed by counsel’s certificate.  I have been provided with consents in each case signed by the proposed liquidators, David John Bridgman and Craig Alexander Sanson to their being appointed liquidators.

Orders

[10]     Accordingly, I order:

(a)       The defendant companies are put into liquidation;

(b)David John Bridgman and Craig Alexander Sanson, Insolvency Practitioners of Auckland, are appointed the liquidators of each company.

Costs

[11]     The defendants shall pay costs based on Category 2 Band B together with disbursements as fixed by the Registrar.

[12]     The liquidators’ consents indicate that their hourly charge-out rates have been previously approved by the court. Accordingly, I order:

(a)      The rates of remuneration of the liquidators and their staff working under their supervision  and control are  set at the rates set out in the liquidators’ consent dated 16 March 2012;

(b)Leave is reserved to the liquidators to apply from time to time, but not more frequently than six-monthly, for the approval of other rates, any such application being supported by affidavit evidence of the liquidators  deposing  to  the  rates  and  of  an  independent  expert deposing to their reasonableness; and

(c)      The above orders are made in terms of (a) and (b) hereof are subject to the requirement that at the conclusion of the liquidation, an application will be made to fix the overall remuneration of the liquidators.

[13]     These orders are made at 2:25pm on 16 March 2012.

JA Faire

Associate Judge