Commissioner of Inland Revenue v Nagra NZ Limited

[2025] NZHC 1815

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2024-404-2008

[2025] NZHC 1815

BETWEEN

COMMISSIONER OF INLAND REVENUE

Plaintiff

AND

NAGRA NZ LIMITED

Defendant

Hearing:

11 June 2025

Appearances:

Cloete van der Merwe for the Plaintiff

B P Molloy and I R W Eustace-Smith for the Defendant

Judgment:

4 July 2025

JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR

[Application for an order putting company into liquidation]

This judgment was delivered by me on 4 July 2025 at 3:00pm

pursuant to Rule 11.5 of the High Court Rules

…………………………. Registrar/Deputy Registrar

Solicitors:

Inland Revenue, Legal Services (Cloete van der Merwe/Hosanna Tanielu), Manukau, for the Plaintiff Haigh Lyon Lawyers Limited (Ben Molloy/Isaac Eustace-Smith), for the defendant

COMMISSIONER OF INLAND REVENUE v NAGRA NZ LIMITED [2025] NZHC 1815 [4 July 2025]

[1]    The Commissioner of Inland Revenue (the Commissioner) seeks an order that Nagra NZ Limited (Nagra) be put into liquidation. Nagra did to comply with a statutory demand issued against it by the Commissioner.

[2]    As at 8 August 2024, Nagra was indebted to the Commissioner for $557,928.75 in unpaid GST and income tax. The debt has since increased as penalties and interest continue to accrue.

[3]    Nagra opposes the application for a liquidation order on the grounds that the debt can be paid within a reasonable time and it is not just and equitable to put Nagra into liquidation at this time.

Background

[4]    On 24 June 2024, the Commissioner served a statutory demand on Nagra for unpaid GST and income tax in the sum of $554,702.37. The amount demanded was not paid, nor was an application made to set aside the statutory demand.

[5]    On 9 August 2024, the Commissioner filed a statement of claim and initiated liquidation proceedings against Nagra for $557,928.75 of unpaid tax.

[6]    The proceeding was served on 27 August 2024 and the statement of defence was served on 10 September 2024.

[7]    The first call of the proceeding occurred on 11 October 2024. An adjournment of four weeks was granted to allow time for Nagra to submit a proposal. The second call occurred on 12 December 2024. An adjournment of three months was granted to allow time for Nagra to sell properties and make payment. The third call occurred on 13 March 2025 and this fixture was set down.

Further submissions

[8]    During the hearing Mr van der Merwe, for the Commissioner, raised as issues of concern, inter alia, that:

(a)All financial information presented on behalf of Nagra pertained to a related    company    of    Nagra,    Nagra    Orchards    Limited (Nagra Orchards), and was therefore irrelevant to the financial position of Nagra;

(b)the loan owed by Nagra Orchards to Nagra was repayable “on demand” and there was no certainty that even if Nagra Orchards’ refinancing was successfully achieved and funds became available in Nagra Orchards, a demand would be made by Nagra and the loan repaid to put Nagra in funds to allow repayment of the debt to the Commissioner.

[9]    In the light of these concerns, the Court issued a minute dated 16 June 2025 making the following directions:

(a)By 27 June 2025 Nagra was to provide a further submission as to what security (if any) may be provided by Nagra Orchards to the Commissioner, or what further certainty could be provided by Nagra Orchards in respect of repayment of the loan from Nagra Orchards to Nagra in the event Nagra Orchards refinancing was achieved;

(b)by 11 July 2025 the Commissioner was to file any response to any submissions made by Nagra in accordance with the direction at (a) above.

[10]   Nagra filed a further submission dated 25 June 2025, and the Commissioner filed a response dated 1 July 2025.

The law

[11]Section 241 of the Companies Act 1993 provides:

(1)A company may be put into liquidation by the appointment as liquidator of a named person or of an Official Assignee for a named district.

…

(2)The court may appoint a liquidator if it is satisfied that—

(a)the company is unable to pay its debts; or

(b)the company or the board has persistently or seriously failed to comply with this Act; or

(ba) the company, or 1 or more of its directors or shareholders, has intentionally provided the Registrar with inaccurate information; or

(bb) the company, or 1 or more of its directors or shareholders, has in a persistent or serious way failed to comply with duties relating to the company—

(i)under this Act; or

(ii)under the Financial Reporting Act 1993 while in force, except that this subparagraph does not apply after 5 years have elapsed after this subparagraph came into force; or

(c)the company does not comply with section 10; or

(d)it is just and equitable that the company be put into liquidation.

[12]   The Court has a discretion to stay or dismiss a liquidation proceeding founded on a debt that is the subject of a genuine and substantial dispute. Enforcing a genuinely disputed debt by liquidation may constitute an abuse of process.1

[13]   A defendant company may raise a dispute in a liquidation proceeding even though the company did not apply to set aside the statutory demand on the basis that the debt was disputed.2

[14]   The failure to apply to set aside a statutory demand is a factor that may be taken into account when the Court considers whether a dispute raised later by the defendant is genuine.3

1      Cummins v Body Corporate 172108 [2021] NZCA 145, [2021] 3 NZLR 17 at [20], citing Re Bayoil SA [1999] 1 WLR 147 (CA) at 156. See also Yan v Mainzeal Property and Construction Ltd (in rec and in liq) [2014] NZCA 190 at [61].

2      Heron’s Flight Ltd v NZ Properties International Ltd [2012] 1 NZLR 424 (HC) at [23], [25] and [27].

3      National Finance 2000 Ltd v All Star Cars Ltd [2002] BCL 972 at [37].

[15]   Where the relevant requirements under s 241 of the Companies Act 1993 for the appointment of a liquidator have been met, the applicant is generally entitled to an order putting a company into liquidation. The Court retains a discretion, exercised sparingly, not to place the company into liquidation.4

Submissions for the Commissioner

Undisputed debt

[16]Mr van der Merwe submits that:

(a)Nagra does not dispute the debt. It is settled law that the effect of s 109 of the Tax Administration Act 1994 (the TAA) is that once a tax assessment has been made, its correctness can only be challenged in proceedings under the TAA. Nagra accepts that there is no outstanding challenge to the assessments that gave rise to the debt in issue. The debt is due and owing and cannot be disputed in this Court;

(b)there is no right of objection to the imposition of interest5 and the late payment and filing penalties also cannot be challenged;6

(c)the affidavit of  Customer  Services  Officer,  Mr  McMurtrie,  dated 15 May 2025 deposes that Nagra’s debt as at that date was $754,168.18.

Inability to pay

[17]Mr van der Merwe submits:

(a)the statutory demand issued against Nagra was not met and therefore it is presumed to be insolvent and unable to pay its debts;

4      Commissioner of Inland Revenue v Chester Trustee Services Ltd [2003] 1 NZLR 395 at [3]; Feltex Carpets Ltd (in rec) v N&I Investments Ltd [2007] BCL 137 at [38].

5      Tax Administration Act 1994, s 120I.

6      Tax Administration Act 1994, s 138L.

(b)Nagra has failed to make a voluntary payment of $100,000 which it said it would pay by 30 April 2025. It also said it was due to receive funds from Nagra Orchards which would satisfy its debts, but it has not done so. The last payment Nagra made was on 7 May 2024 in the sum of $4,057.88;

(c)the Commissioner considers that the company has the ability to realise assets to settle the debt including a shareholders overdrawn account of

$389,642.77 and an intercompany loan to Nagra Orchards of approximately $2.1 million;

(d)the proposed refinancing by Nagra Orchards, which is to generate funds to pay off Nagra’s debt to the Commissioner, does not provide assurance of payment.

Residual discretion

[18]   Mr van der Merwe submits that Nagra has no arguable case that the Court should exercise its discretion not to put the company into liquidation for the following reasons:

(a)Nagra has had sufficient time to make satisfactory arrangements with the Commissioner, as it has been aware since June 2024 when the statutory demand was served, that it faced the prospect of liquidation if but it did not settle the debt. Nagra has either chosen to, or been unable to, pay the debt in full and the Court should not allow Nagra to trade while insolvent in the absence of a settlement with the Commissioner;

(b)it is in the public interest that there should be a proper level of scrutiny in relation to insolvent companies conducted by a liquidator as an officer of the Court. A loan of $2.1 million was advanced to Nagra Orchards in 2022 and the overdrawn shareholder account of

$389,642.77 was reflected in its balance sheet for the year ending 2023. The debt in this proceeding pertains to unpaid GST and income tax accrued during the 2022 and 2023 tax years, and it appears the

overdrawn shareholder account and the inter-company loan had prevented Nagra from meeting its tax obligations;

(c)the Commissioner is charged with collecting income taxes and must at all times use his best endeavours to protect the integrity of the tax system.7 The integrity of the tax system includes the public perception of that integrity. The voluntary compliance scheme which is central to the proper functioning of the tax system would be placed in jeopardy unless all taxpayers know that the Commissioner will act firmly and resolutely with those who do not meet their obligations and have no reasonable excuse for not doing so.

Mr van der Merwe relies on the decision in Raynel v Commissioner of Inland Revenue8in support of his submission at [18](c).

[19]   In conclusion, Mr van der Merwe submits that Nagra has not rebutted the presumption of insolvency and accordingly an order for putting the company into liquidation should be made.

Submissions for Nagra

[20]   Mr Molloy for Nagra, advises that Nagra’s main assets are two properties and the loan owed to it by Nagra Orchards. He advised the Court that one of its properties is subject to an unconditional agreement for sale and purchase, which will settle on 22 July 2025. The other property was due to be auctioned on 3 July 2025. He submits the sales of both properties would allow refinancing to occur, which would allow debts to the Commissioner to be paid in full.

[21]   Mr Molloy submits that liquidation at this point would require the immediate repayment of the loan by Nagra Orchards, and in that circumstance the financial recovery of Nagra Orchards would not be possible. He submits that Nagra’s inability to pay is temporary, and that it would not be just an equitable to place it into liquidation.

7      Tax Administration Act 1994, ss 6 and 6A.

8      Raynel v Commissioner of Inland Revenue (2004) 21 NZTC 18,583 (HC) at [54].

Nagra’s liquidity

[22]   Mr Molloy submits that the delay in payment to the Commissioner has resulted from the impacts of Cyclone Gabrielle which delayed repayment of the loan by Nagra Orchards owing to Nagra, and the delay in the sale of two investment properties owned by Nagra, namely:

(a)20 Picton Street, Papatoetoe, Auckland (20 Picton Street);

(b)67 Ngaio Street, Christchurch (67 Ngaio Street).

[23]   Mr Molloy submits that once the properties are sold, Nagra group will be in a position to re-pay the Bank of New Zealand, and refinance, making the funds available for payment to the Commissioner. Hence, he submits, the liquidity constraints are temporary.

Grounds for exercising the Court’s discretion

[24]Mr Molloy submits:

(a)that the principles the Court may take into account in determining whether it is just and equitable to make a liquidation order mirror those that apply in the context of an application to set aside a statutory demand or a stay of liquidation, citing Commissioner of Inland Revenue v Atlas Food and Beverage Limited;9

(b)there must be some other factor which outweighs the prima facie entitlement of the creditor to an order putting the insolvent company into liquidation; and

(c)the Court should consider all relevant circumstances to the company and its operations, including the reasons for and against liquidation, the

9      Commissioner of Inland Revenue v Atlas Food and Beverage Limited HC Christchurch CIV-2009-409-1342, 27 October 2010 at [19].

interests of other creditors and the weight to be attached to the opposition of the creditors.

[25]   Mr Molloy submits that in the present case the broad justice of the case outweighs any entitlement of the Commissioner to put Nagra into liquidation for the following reasons:

(a)Should Nagra be put into liquidation the sale of 20 Picton Street will be compromised. The reason for this is that the sale is intended to proceed with other properties owned by entities in the group, and if sold as a block of properties would attract a higher sale price;

(b)Nagra is part of a group of companies. The proposed way forward to repay the Commissioner relies on the group co-ordinating assets and if Nagra is placed into liquidation this approach will be compromised;

(c)at present the Commissioner is the sole creditor of Nagra. A liquidation of Nagra has the potential to undermine the wider group of companies associated with Nagra and the anticipated refinance by Nagra Orchards. This could seriously impact on the wider value of the group’s assets and potentially widen the pool of affected creditors.

Further submissions

[26]   In response to the Court’s minute of 16 June 2025, Nagra filed a further submission dated 25 June. Nagra have proposed that the loan owing by Nagra Orchards to Nagra, which is currently repayable on demand, be formalised to a term loan with payment to be made after November 2025 to allow for the refinancing to be undertaken by Nagra Orchards to be completed.

[27]The Commissioner has filed a response dated 1 July 2025 submitting:

(a)The Commissioner maintains his position that the information provided does not concern the financial position of Nagra but Nagra Orchards, and is therefore not relevant to the solvency position of Nagra;

(b)relying on the decision of Raynel v Commissioner of Inland Revenue10 the Commissioner is not obliged to make an arrangement with a defaulting taxpayer and the Commissioner is required to have regard to the importance of promoting compliance, especially voluntary compliance, by all taxpayers and is justified in refusing compromise in circumstances where such action is necessary to preserve the integrity of the tax system, citing again the decision in Raynel.

Result

[28]   I am of the view that the Commissioner’s application for liquidation of Nagra should be adjourned to give Nagra time to pay the debt subject to the conditions set out in the orders below.

[29]The reasons for my view are:

(a)It is just and equitable that Nagra be given the opportunity to complete a sale of the properties at 20 Picton Sreet and 67 Ngaio Street, and Nagra group to complete the refinancing and repay the loan owing to Nagra to allow payment to the Commissioner;

(b)if Nagra is liquidated at the present time and the liquidator demands repayment of the loan from Nagra Orchards, it has the potential to compromise the Nagra group with potential adverse consequences for a wider pool of creditors;

(c)the Commissioner is currently the only creditor of Nagra and there is no evidence before the Court of other creditors being prejudiced by the adjournment.

Orders

[30]I make the following orders:

10     Raynel v Commissioner of Inland Revenue [2004] 21 NZTC 185,83 (HC).

(a)The Commissioner’s application to put Nagra into liquidation is adjourned  to  the  Companies  Liquidation   List   at   10:00am   on 12 December 2025, subject to compliance by Nagra with the conditions set out in these orders.

(b)The loan owing by Nagra Orchards to Nagra be promptly documented as a term loan repayable on or before 12 December 2025 or on such earlier date upon which Nagra Orchards completes its refinancing. Copies of the executed loan documentation is to be provided to the Commissioner promptly.

(c)Nagra is to keep the Commissioner advised as to the completion of the sale of the 67 Ngaio Street property and disposition of the proceeds of sale.

(d)Nagra is to keep the Commissioner advised as to the completion of the sale of the 20 Picton Street property and disposition of the proceeds of sale.

(e)Nagra is to keep the Commissioner advised as to progress by Nagra group with the refinancing process at reasonable intervals during the period of the adjournment.

(f)The Commissioner will be entitled to bring the matter back into Court if Nagra breaches any of the conditions set out in these orders.

(g)Costs are reserved.

…………………………….. Associate Judge Taylor