Commissioner of Inland Revenue v MSL Capital Markets Limited

[2021] NZHC 3516

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA

TE WHANGANUI-A-TARA ROHE

CIV-2021-485-513

[2021] NZHC 3516

UNDER

the Companies Act 1993

BETWEEN

THE COMMISSIONER OF INLAND REVENUE

Plaintiff

AND

MSL CAPITAL MARKETS LIMITED

Defendant

Hearing:

16 December 2021

Appearances:

T N Carr for plaintiff

M J Leggat for defendant

Judgment:

16 December 2021

ORAL JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

[1]    This is an orthodox proceeding under pt 16 of the Companies Act 1993 in which the Commissioner of Inland Revenue is seeking an order winding up the defendant company, MSL Capital Markets Ltd. It is not contended on behalf of MSL that the Commissioner cannot make out the grounds for such an order, or that, prima facie at least, she is not entitled to an order. MSL relies on the Court’s residual discretion to decline to wind the company up. That such a discretion exists is not in doubt, but of course, like all discretions, it must be exercised on a principled basis.

[2]    The case was first called on 16 November 2021. Ms Carr for the Commissioner sought an order winding up MSL at that hearing. Mr Leggat resisted this. He acknowledged that the company, which provides investment advisory services, was insolvent. He said that in part at least this was a result of trading

THE COMMISSIONER OF INLAND REVENUE v MSL CAPITAL MARKETS LIMITED [2021] NZHC 3516

[16 December 2021]

conditions under the Covid-19 pandemic. He described various projects that the company and its director, Mr Andrew McDouall, were involved in, and which were expected to generate revenue that could be used to meet the company’s obligations. He sought an adjournment in the expectation that those opportunities would come to fruition. Ultimately, Mr Leggat submitted, it would not be in anyone’s interests to wind up MSL. Ms Carr resisted an adjournment. She emphasised that the legislative requirements were met. She also traversed the history of the matter, indicating that the core debt had been accumulated over a significant period of time, technically commencing in October 2017, but realistically since September 2018, that it featured failure to account for PAYE deductions, and the amount involved, which was then in the region of $500,000. That being the first call of the matter, I acceded to the request made on MSL’s  behalf  and adjourned the matter to the next call which was on        7 December 2021. My reason for doing so was essentially to give MSL the opportunity to negotiate a settlement with the Commissioner in order to avoid a winding up.

[3]    When the matter was called on 7 December 2021, it became apparent that the parties were really no closer to a resolution. What the Court did on this occasion have in front of it was a detailed affidavit from Mr McDouall providing information about the transactions in which he was involved and which Mr Leggat had outlined in a more general way at the earlier hearing. As Mr Leggat had indicated, Mr McDouall’s affidavit made it clear that revenue from the projects in which he was involved would be made available to the meet the company’s tax obligations. At Mr Leggat’s urging, and once again over Ms Carr’s objection, I adjourned the matter for a further week or so to today, to give MSL a further opportunity to settle the dispute with the Revenue.

[4]    That has not happened. What Mr Leggat has been able to say today is that the company has taken serious steps towards raising sufficient funds to discharge its tax obligations immediately. This has involved, as I understand it, the sale of two parcels of shares, a commitment on Mr McDouall’s behalf to contribute a personal tax credit to the discharge of the company’s obligations, and the prospect of the sale of a further small parcel of shares. Mr Leggat tells me, and of course I accept from him, that these transactions are likely to be settled within a matter of days. He indicated that they would be resolved by early next week, which I take to be in the first half of the week. All in all, these steps will raise $598,000, Mr Leggat tells me. This should be sufficient

to meet almost all of the debt, even although this has risen in the last week. It is worth noting that whilst the total debt is now in the order of $600,000, the core debt is considerably less than that, at last count about $225,000.

[5]    Once again the Commissioner objects to any delay. That objection is entirely understandable. The position remains that this is a company with a very large tax debt accumulated over many years of failing to account to the Revenue for other people’s money. As Mr Leggat put it, there is no getting away from the fact that its failure to comply with its obligations has been lamentable.

[6]    Having said all of that, given the apparently imminent realisation of substantial funds, I am prepared to accept Mr Leggat’s submission that the company should be given one final opportunity to comply. I am not prepared to accede to his request that the matter be stood over until early next year, primarily because, as I have already said, this is a company which is trading whist hopelessly insolvent, and that presents a danger not only to the Revenue but a wider danger to the commercial community.

[7]    In those circumstances, I make the following order: on the application of the Commissioner of Inland Revenue there will be an order placing the defendant company, MSL Capital Markets Ltd in liquidation. The approved liquidators are Vivienne Judith Fatapaito and Elizabeth Helen Keene on the basis of their consent to act dated 10 November 2021. That order is made subject to s 284 of the Companies Act 1993. The liquidators will be entitled to exercise their powers individually pursuant to s 242 of the Act. The Commissioner will have her costs and disbursements in the total sum of $1,216.55, those to be paid out of the assets of the company. That order will come into force at 4.00 pm on Thursday 23 December 2021 unless, by that time and date the defendant company has paid the full amount of the debt then owing to the Commissioner of Inland Revenue (or such lesser amount as it can negotiate having regard to the ratio of core debt to interest and penalties), together with costs.

Associate Judge Johnston

Solicitors:

Inland Revenue, Upper Hutt for plaintiff M J Leggat, Wellington for defendant