Commissioner of Inland Revenue v Mani HC Auckland CIV 2010-404-1918
[2010] NZHC 1753
•29 September 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2010-404-001918
IN THE MATTER OF the Insolvency Act 2006
AND
IN THE MATTER OF the bankruptcy of R Mani
BETWEEN THE COMMISSIONER OF INLAND REVENUE
Judgment Creditor
ANDRITESH MANI Judgment Debtor
Hearing: 29 September 2010
Counsel: SL Law for judgment creditor Appearance: R Mani, judgment debtor in person Judgment: 29 September 2010 at 4:45pm
JUDGMENT OF ASSOCIATE JUDGE FAIRE
[on application for order setting aside a bankruptcy notice]
This judgment was delivered by me on 29 September 2010 at 4:45pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Inland Revenue Department, PO Box 76 198, Manukau
And To: R Mani, 5 Karori Crescent, Orakei
THE COMMISSIONER OF INLAND REVENUE V MANI HC AK CIV 2010-404-001918 29 September 2010
[1] The judgment debtor applies for an order setting aside a bankruptcy notice dated 20 May 2010.
[2] The application relies on the following principal grounds in support:
a) That the judgment debtor is willing to compromise the amount owing on terms that satisfy the court or the judgment creditor;
b)That the application for bankruptcy is an abuse of process as the amount claimed by the judgment creditor is disputed; and
c) It is just that the court exercise its inherent jurisdiction to set aside the bankruptcy notice.
[3] It is appropriate that I record that this application does not involve the most common ground which is advanced by applications to set aside bankruptcy notices. That ground relies on the Insolvency Act 2006, ss 17(1)(d)(ii) and 7. It is concerned with the alleged existence of a cross-claim.
[4] The judgment creditor obtained judgment against the judgment debtor in the District Court at Auckland on 30 September 2008. A certificate for evidential purposes was issued by the district court recording the total sum for which judgment was entered and including the cost of the certificate as $229,611.39. The certificate is dated 5 November 2008.
[5] The amount of the claim as recorded in that document is $229,401.39. The balance is made up of costs and disbursements.
[6] On 29 March 2010 the judgment creditor filed a request to issue a bankruptcy notice in the High Court. The bankruptcy notice was issued and served. This current application follows that service. It is accepted by the Commissioner of Inland Revenue that the application was filed within the time specified in the Insolvency Act 2006, s 17 and in the notice. The result is that by the operation of hcr 24.10 the time for compliance with the bankruptcy notice is extended until this application is determined.
[7] The Commissioner of Inland Revenue opposes the setting aside of the bankruptcy notice and advances four principal grounds in support of his opposition. They are:
a) The Commissioner of Inland Revenue has issued assessments to the judgment debtor/applicant stating how much is owing for the relevant tax periods;
b)The Commissioner of Inland Revenue has obtained judgment by default in the District Court for the amount owing. The judgment debtor has not paid the amount owing as detailed in the bankruptcy notice;
c) The judgment debtor has not initiated the statutorily defined disputes procedure within the statutorily defined time limits and consequently the assessments are deemed to be correct; and
d)Neither the District Court nor the High Court (other than within its judicial review jurisdiction) has the jurisdiction to determine the validity or otherwise of the assessments.
[8] The judgment debtor was formerly represented by counsel. When this fixture was allocated directions were made for the filing and service of submissions. The judgment debtor did not comply. An urgent conference was called before Justice Lang to deal with that non-compliance. His Honour minuted the file as follows:
1.The proceeding will proceed as scheduled on 29 September 2010, whether or not the debtor has filed any submissions.
2. The debtor is to file and serve his written submissions no later than
Wednesday, 22 September 2010.
[9] The judgment debtor has not filed any written submissions.
[10] The judgment debtor appeared when this matter was called. He further advised me that he had not received the most recent affidavit filed on the Commissioner’s behalf. That affidavit was filed so that the court could be brought
up to date with steps taken principally by the judgment debtor since the last affidavit was filed. I arranged a short adjournment so that the opportunity was available to the judgment debtor to examine the further affidavit. He advised me that he had considered it and was ready for the matter to proceed.
[11] The first ground advanced in the judgment debtor’s application is the allegation of his willingness to compromise the amount owing. I need not review the evidence in full. What is clear is that there has been a considerable history of material exchanged between the judgment debtor and his tax agent and the Commissioner. No compromise has been able to be effected. There is, in fact, simply no support for this as a ground for setting aside the bankruptcy notice. Having said that, I encourage the judgment debtor to place whatever new proposal he might have before the Commissioner for consideration. He should not leave matters literally at the door of the court before these steps are taken.
[12] The second ground relates to an allegation that the amount claimed in the bankruptcy notice is disputed. This matter is an entirely different position from the first. It was not clearly enunciated in the papers. However, what is apparent from the evidence which was placed before me is that the Commissioner, on 12 February
2010, notified an adjustment to amounts previously assessed for the income years
31 March 2006 and 31 March 2007. That adjustment was made subsequent to the judgment which is the basis for the bankruptcy notice. No adjustment, however, has been made to the figures recorded in the bankruptcy notice to reflect the adjustments made by the Commissioner pursuant to the Tax Administration Act 1994, s 113.
[13] The Commissioner’s adjustment as recorded in the written advice of
12 February 2010 is that the tax payable for the 2006 year is $82,817.01 and that there was, at that time, a shortfall penalty obligation of $16,563.40. The same letter advised that for the 2007 year, the tax payable was $25,382.52. It recorded that the amended shortfall in penalties payable as a result was $5,076.50. The letter, therefore, indicates that, as at 12 February 2010, the unpaid taxes and penalties which were the subject of the original District Court judgment, at that time, were
$129,839.43.
[14] The figure referred to in the last paragraph is significantly less than the amount contained in the bankruptcy notice. There is no evidence before me as to a re-calculation of penalties and interest following the adjustments made by the Commissioner pursuant to the Tax Administration Act 1994, s 113 other than, of course, that which I have mentioned. The result is that I have clear evidence that the amount due, which was the subject of the determination in the District Court and about which there can be no dispute is $129,839.43. Because the adjustment was downward there is at least the implication here that there is a dispute as to the balance.
[15] The Insolvency Act 2006, s 30 provides that:
30 Effect of overstatement of amount owing
(1)Overstatement in a bankruptcy notice of the amount owing by the debtor does not invalidate the notice, unless—
(a)the debtor notifies the creditor that the debtor disputes the validity of the notice because it overstates the amount owing; and
(b) the debtor makes that notification within the time specified in the notice for the debtor to comply with the notice.
(2)A debtor complies with a notice that overstates the amount owing by—
(a)taking steps that would have been compliance with the notice had it stated the correct amount owing (for example, by paying the creditor the correct amount owing plus costs); and
(b)taking those steps within the time specified in the notice for the debtor to comply.
[16] The judgment debtor has not established a basis for the notice being declared invalid.
[17] I am therefore faced with the situation where the debt recorded in the bankruptcy notice is overstated. The question then arises is whether the bankruptcy notice should be amended. In Re Ebbett, ex parte Fletcher Merchants Ltd[1] the court amended a bankruptcy notice but refused to set the notice aside.
[1] Ebbett, ex parte Fletcher Merchants Ltd HC Tauranga B109/92 9 October 1992, per Fisher J.
[18] I shared with both counsel and Mr Mani that my view was that the bankruptcy notice, in this case, should be amended to reflect the undisputed sum due and owing of $129,839.43 and that, as a condition of such amendment, the judgment debtor should be allowed ten days from the issue of this judgment to make payment failing which an act of bankruptcy would occur. Both counsel and Mr Mani were in agreement that this was the appropriate course to follow in view of the finding I had made. I record that I make no ruling on what may also be due for penalties and interest. I simply have no evidence as to what might be due in respect of these matters.
[19] Before pronouncing the order, however, it is appropriate that I briefly refer to the third ground advanced in support of the application. The judgment debtor sought the intervention of the court’s inherent jurisdiction to set aside the bankruptcy notice.
[20] The debtors' submission in respect of this matter relies upon the judgment in re Wise, ex parte Benecke.[2]. In that case Master Kennedy-Granted noted that relief was not available to the debtors in that case pursuant to the Insolvency Act 1967, s 19(1)(d) and the appropriate Rule. That was because the debtors did not have a counterclaim, set-off or cross-demand. After analysing the authorities, however, he concluded that the court has an inherent jurisdiction where the debtors' case is based
on an alleged defect in the process by which a judgment was obtained or where there is an arguable defence to the claim for which judgment was given. After satisfying himself that there was a foundation for the debtors' claim based on the two circumstances to which I have made reference, Master Kennedy-Grant then adjourned the application so that the court could determine if the debtors' application to the District Court to set aside the judgment against them had been heard and determined. He ordered that a further adjournment would only be entertained if the debtors satisfied the court that they had taken every step possible to ensure that their application to set aside the District Court judgment had been undertaken.
[2] re Wise, ex parte Benecke HC Auckland B227/95 and B228/95 21 June 1995, Master Kennedy- Grant
[21] The court’s inherent jurisdiction, in my view, is yet a further way of justifying the amendment to the bankruptcy notice and the condition that I have
attached to that amendment. It does not, however, in this case, justify the setting aside of the bankruptcy notice itself. Here there is evidence of a sum which was incorporated in the judgment figure which is clearly undisputed. That part of the judgment has not been met. By allowing the judgment debtor ten working days to pay from the date of this judgment he retains all the rights that he would have had to make payment and thereby avoid an act of bankruptcy had a further bankruptcy notice been served. In my view, the facts do not justify any other appropriate order to deal with the situation which has arisen in this case.
[22] I invited Ms Law to address on the question of costs. She very properly did not press that an order for costs be made because of the result which has necessitated an amendment to the bankruptcy notice itself. That, then, is the reason why no order for costs is made in the Commissioner’s favour. It would not be appropriate to make any order for costs in the judgment debtor’s favour. He represented himself but, in any event, did not avail himself of a position that he might have had, had he exercised the position provided for in the Insolvency Act 2006, s 30.
Orders
[23] I order as follows:
a) The application to set aside the bankruptcy notice is refused; and
b)The bankruptcy notice is, however, amended to show the amount due and payable as $129,839.43. It is a condition of this amendment of the bankruptcy notice that the judgment debtor shall have ten working days from the date of issue of this judgment to pay that sum, failing
which an act of bankruptcy will arise.
JA Faire
Associate Judge
0
0
0