Commissioner of Inland Revenue v McIlroy

[2016] NZHC 1726

IN THE HIGH COURT OF NEW ZEALAND WHANGANUI REGISTRY

CIV-2016-483-5 [2016] NZHC 1726

BETWEEN

COMMISSIONER OF INLAND

REVENUE Judgment Creditor

AND

KIRSTY ANNE MCILROY Judgment Debtor

Hearing:	27 July 2016
Counsel:	J Snelson for the Judgment Creditor No appearance for Judgment Debtor
Judgment:	27 July 2016

ORAL JUDGMENT OF ASSOCIATE JUDGE SMITH

[1]      In this case, the Judgment Creditor (the Commissioner) asks for an order adjudicating Ms McIlroy bankrupt.  The application is based on a judgment obtained against Ms McIlroy on the 4 December 2015 in the District Court at Whanganui, and Ms McIlroy’s subsequent failure to comply with a bankruptcy notice served on her on 4 March 2016.

[2]      The application was first called in this Court on 8 June 2016.  On that day, Ms McIlroy had filed a notice of opposition stating that she intended to dispute the Commissioner’s debt:

…

(a)      on the following grounds:

·    I have been working to get income returns finalised; and

·    I  believe that when that is completed the debt owed to the IRD

will be substantially less (possibly even halved)

and

COMMISSIONER OF INLAND REVENUE v MCILROY [2016] NZHC 1726 [27 July 2016]

(b)      on the evidence contained in the affidavit filed in support of this notice.

[3]      In support of her notice of opposition, Ms McIlroy filed an affidavit in which she acknowledged that income tax returns were overdue – she stated that she had been working to get the income returns prepared and close off PAYE for employees who had left some time ago.   Ms McIlroy said that she had previously engaged a firm of chartered accountants to assist her, and (presumably on the strength of advice from that firm) expressed the view that she would be able to “substantially reduce” the money owed to the Commissioner (particularly having regard to the unfiled income tax returns and the penalties which had been imposed).

[4]      Ms McIlroy indicated that her work had been substantially delayed due to the hotel (which she presumably operates) having no power and no internet over the preceding month.  Ms McIlroy advised that the hotel was being reconfigured, with new people coming in.   She expressed optimism that she would be able to earn a salary sufficient to allow her to arrange a payment plan with the Commissioner for the balance due, once the correct tax figures had been worked out.  She suggested that she might be able to make payments of $150.00 per week to the Commissioner fairly soon, to avoid bankruptcy.  More generally, she indicated that she would prefer not to be bankrupted, as things were looking up, and she would like a chance to get back on track with the Commissioner.

[5]      At the hearing on 8 June 2016 I adjourned the matter to this afternoon to enable Ms McIlroy to take steps to reach an agreement with the Commissioner.

[6]      Ms McIlroy failed to appear when the case was called today.   Ms Snelson advises  that  there  has  been  some  discussion  between  the  Commissioner  and Ms McIlroy, but no agreement has been reached, and the late returns have still not been filed.  Further, it appears that returns falling due for filing more recently have not been filed.

[7]      In the foregoing circumstances the Commissioner wishes to proceed today with  the  application  for  adjudication.    I  am  satisfied  that  the  requirements  of s 13 of the Insolvency Act 2006 have been made out in this case.

[8]      Section 13 of the Insolvency Act 2006 materially provides:

13       When creditor may apply for debtor’s adjudication

A creditor may apply for a debtor to be adjudicated bankrupt if—

(a)       the debtor owes the creditor $1,000 or more or, if 2 or more creditors join in the application, the debtor owes a total of $1,000 or more to those creditors between them; and

(b)       the debtor has committed an act of bankruptcy within the period of 3 months before the filing of the application; and

(c)       the debt is a certain amount; and

(d)       the debt is payable either immediately or at a date in the future that is certain.

[9]      The issue is whether Ms McIlroy has produced any evidence which might justify the Court declining to make an adjudication order under s 37 of the Act.  The only conceivable parts of s 37 which might be relevant are subss (c) and (d).

…

(c)       it is just and equitable that the Court does not make an order … or,

(d)      for any other reason an adjudication order should not be made.

[10]     Ms McIlroy has put forward nothing which might justify the refusal of the order which is sought, under either of those sub-sections.   It is apparent that she accepts that, even based on the amount for which she accepts she would be liable once she had got her returns up to date, there would still be a substantial balance owing to the Commissioner (on Ms McIlroy’s own assessment, possibly even half of the amount).

[11]     The failure to file returns, and the failure to avail herself of the adjournment granted on 18 June 2016, are also red flags which satisfy me that it is appropriate to make an order for adjudication.

[12]     I make an order for adjudication accordingly, with costs on scale 2B to the Commissioner, plus disbursement as fixed by the Registrar.  Those orders are timed at 2.40pm.

Solicitors:

Associate Judge Smith

Inland Revenue Department, Legal and Technical Services, Wellington for the Judgment Creditor

Copy to:

K A McIlroy