Commissioner of Inland Revenue v Onsite Roofing and Cladding Limited

[2013] NZHC 2487

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-3435 [2013] NZHC 2487

UNDER

the Companies Act 1993

BETWEEN

COMMISSIONER OF INLAND REVENUE

Plaintiff

AND

ONSITE ROOFING AND CLADDING LIMITED

Defendant

Hearing:	20 September 2013
Appearances:	K C Francis for Plaintiff D Hoskin for Defendant
Judgment:	20 September 2013

ORAL JUDGMENT OF ASSOCIATE JUDGE BELL

Solicitors:

Meredith Connell (N Malarao/K C Francis) Auckland, for Plaintiff Steindl Williams Legal (D Hoskin) Ponsonby, Auckland, for Defendant

COMMISSIONER OF INLAND REVENUE v ONSITE ROOFING AND CLADDING LIMITED [2013] NZHC

2487 [20 September 2013]

[1] Onsite Roofing and Cladding Ltd has applied for a stay of this proceeding under r 31.11 of the High Court Rules and for an order restraining advertising. The matter was first called on 23 August 2013. In my minute of 23 August 2013 I made certain observations about the proceeding.

[2]  The Commissioner says that she is a creditor of Onsite Roofing and Cladding Ltd for $494,019.20. That is for unpaid taxes. The bulk of the taxes are for PAYE. There are arrears in payments of PAYE and KiwiSaver deductions that go back to late 2011.

[3] The company carries on a cladding business. The effective man behind the company is Mr Turner. He has had difficulties. He was convicted for offending for which he had to undergo a period of home detention. That restricted his ability to conduct the business of the company. The convictions also resulted in his being prohibited from holding office as a director of the company. The company, inevitably, suffered as a result. Another complicating personal factor is that earlier this year his wife was diagnosed as having breast cancer.

[4] Mr Turner’s company got behind in meeting its obligations to the Commissioner. The Commissioner has taken a firm response against the company. I infer that the reason for the Commissioner taking a hard response is the failure of the company to forward PAYE and KiwiSaver deductions. The Commissioner invariably views those matters as more serious than a failure to pay income tax.

[5] Mr Turner addressed his prohibition by applying to the court.[1]  On 19 August 2013 there was a hearing before Woolford J, who made an order allowing him to be a director. One effect of that was that not only was Mr Turner restored as a director of the company but the Commissioner was then prepared to negotiate with the company. Since 23 August 2013 there has been an opportunity for the Commissioner and the company to try to negotiate some arrangement.  Mr Hoskin

says that although the company had put a proposal to the Commissioner, only yesterday did the Commissioner come back turning down the company’s proposal.

[1] Under the Companies Act 1993, s 382.

[6] Against that background, the company continues with its stay application. It seeks further time to negotiate with the Commissioner. Mr Hoskin also adds to the application the need for advertising to be avoided as that would impact on the company’s ability to carry on business.

[7] It is necessary to return to the basis on which the court does order a stay under r 31.11. An application under r 31.11 is to be made promptly – within 5 working days after the company has been served. The purpose of a stay application is to assess as a threshold issue whether there is a proper basis for applying for liquidation. Where they are brought a creditor relying on the company’s inability to pay its debts, liquidation applications involve three main elements:

(a)whether the plaintiff is a creditor;

(b)whether the company is insolvent; and

(c)how the court should exercise its discretion if those first two matters have been satisfied.

[8] Applications under r 31.11 are usually directed at the first issue – that is, whether the plaintiff can claim to be a creditor of the company. The standard approach under r 31.11 is that if there is a proper basis for disputing the debt asserted by the plaintiff, then a liquidation application is not usually an appropriate proceeding in which to determine the liability, if any, of the company. The use of a liquidation proceeding when there is a dispute as to liability can bring improper pressure to bear upon the company. For those reasons such proceedings may be regarded as abusive and the court may well order a stay.

[9] The Courts do not lightly order stays. That can be seen in the judgment of Woodhouse P and McMullin J in Anglian Sales Ltd v South Pacific Manufacturing Co Ltd:[2]

[T]he right to have a winding-up petition determined, being a right conferred by statute, ought not to be taken away except where the existence of that very statutory right itself is seriously challenged; that is, where the challenge can on appropriate grounds be made to the petitioning creditor’s status as such. If a challenge were allowed in circumstances short of this, the Court would in effect be refusing to give effect to the very right which the statute has conferred upon a creditor to have the petition itself considered. In bringing his petition the creditor is doing no more than asserting the right which the statute entitles him to do. In our opinion a creditor’s right in this respect ought not to rest simply on the balance of convenience considerations which may be relevant to an application for an interim injunction.  Something more than that is required

The judgment of Wallace J in Nemisis Holdings Ltd v North Harbour Industrial Holdings Ltd[3] is to similar effect.

[2] Anglian Sales Ltd v South Pacific Manufacturing Co Ltd [1984] 2 NZLR 249 (CA) at 251-252.

[3] Nemisis Holdings Ltd v North Harbour Industrial Holdings Ltd (1989) 1 PRNZ 379 (HC) at 385 and 388.

[10] In this case there is no challenge to the status of the Commissioner as a creditor of the company. There is no dispute that the Commissioner is a creditor and that the company is in arrears in paying taxes to the Commissioner. With that, the normal basis for the court to consider a stay application is missing.

[11] I come back to the point I made in my minute of 23 August 2013. Where the Commissioner is a creditor with long-standing arrears, and where the Commissioner has served a statutory demand which has not been complied with, there is a clear basis on which the Commissioner can say that she is a creditor and that the company is insolvent. On that, the Commissioner has proper grounds on which to resist any application for a stay.

[12]   The company has instead, it seems to me, tried to use the present application as a way of obtaining time in which to negotiate further with the Commissioner. That raises a separate matter from the issues that arise in a stay application.

[13] In liquidation applications it is common for defendants to ask for time in which they can put a proposal to the creditor. They seek an opportunity for the parties to resolve their matters without requiring the court to make a liquidation order. Generally, the courts view such requests favourably and are willing to allow the parties to explore matters further to see if matters can be resolved, without the need for a liquidation order.

[14]  I understand that although the negotiations have not been successful so far, the defendant has been possibly caught on the back foot in the sense that the Commissioner has just rejected the defendant’s proposals. Only yesterday was the defendant told that it would have to deal with this application today.

[15]    While that development does not give a ground for staying this proceeding, it is still possible to arrange matters to give the parties further time in which to try and see if matters can be resolved without requiring the court to make a liquidation order. There has been some time spent on negotiations already, but I am prepared to give directions which would allow a small space of time in which the parties can explore settlement further. I propose to do that by extending the time before the Commissioner can advertise the proceeding. I make an order that the Commissioner is not  to  advertise  this  proceeding  for  another  two  weeks,  that  is,  not  before 4 October 2013. After that date, the Commissioner will be free to advertise.

[16] I direct that this matter is to be called in this court on Thursday, 25 October 2013 at 10:00am. That gives the parties time to see if they can resolve this matter. Failing any resolution between them, the Commissioner will be entitled to maintain the present application.

[17] If the defendant wishes to oppose the application on the merits the defendant will need to file and serve any statement of defence by 4 October 2013. The matter will still be called on 25 October 2013 to see what further directions should be given then.

[18]     To sum up:

(a)The application for stay is dismissed.

(b)There is an order restraining advertising before 4 October 2013.

(c)The time for the defendant to file a statement of defence is extended to 4 October 2013.

(d)The matter will be called at 10:00am on 25 October 2013.

[19] The Commissioner asks for costs. The Commissioner will have costs under category 2 on the stay application only. The Commissioner will not have costs on the substantive proceeding as that is still to be determined. Costs are to be fixed. However, they are not yet payable. The Commissioner may ask later for an order that they be paid.  I record that this hearing has required a quarter of a day.

...............................................

Associate Judge R M Bell