Commissioner of Inland Revenue v Patterson HC Wanganui CIV-2011-483-191

[2011] NZHC 1789

IN THE HIGH COURT OF NEW ZEALAND WANGANUI REGISTRY

CIV-2011-483-191

IN THE MATTER OF     the Insolvency Act 2006

BETWEEN  THE COMMISSIONER OF INLAND REVENUE

Judgment Creditor

ANDWAYNE THOMAS PATTERSON Judgment Debtor

Hearing:         30 November 2011 (Heard at Wanganui)

Counsel:         D. McDonald - Counsel for Judgment Creditor

W.T. Patterson - Judgment Debtor in person

Judgment:      1 December 2011 at 4:00 PM

JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

This judgment of Associate Judge Gendall is delivered on 1 December 2011 at 4.00 pm under r 11.5 of the High Court Rules.

Solicitors:           Armstrong Barton, Solicitors, PO Box 441, Wanganui 4540

THE COMMISSIONER OF INLAND REVENUE V WT PATTERSON HC WANG CIV-2011-483-191 1

December 2011

Introduction

[1]      Before the Court is an application by the judgment creditor seeking an order to adjudicate the judgment debtor bankrupt in terms of s 13 Insolvency Act 2006.

[2]      In terms of the judgment creditor’s adjudication application which was filed in this Court on 11 August 2011 the debt claimed from the judgment debtor at that point totalled the sum of $2,959,737.20.

[3]      Earlier,  the  judgment  debtor  had  issued  a  bankruptcy  notice  against  the judgment debtor which claimed the sum of $2,659,811.77.  This amount represented a judgment obtained in the District Court at Wanganui by the judgment creditor against the judgment debtor sealed on 5 May 2011 for this sum including costs.

[4]      As  I  understand  the  position,  this  judgment  represented  approximately

$1,100,000.00  of  core  income  tax  due  from  the  judgment  debtor  together  with interest and penalties.  This income tax liability related to default assessments of tax due from the judgment debtor for the years ending 31 March 2004, 2005, 2006 and

2007.

[5]      According to a certificate just filed by the judgment creditor the total amount for  assessed  tax  penalties  and  interest  now  due  from  the  judgment  debtor  is

$3,098,037.79.

[6]      As to the Bankruptcy Notice issued against the judgment debtor noted above, this was served on him on 14 July 2011.  Service took place at the Wanganui Prison, Kaitoke where he is a serving in-mate having been convicted on fraud charges.

[7]      The time for remedying the default claimed in the Bankruptcy Notice expired unremedied and no effective steps of any kind were taken by the judgment debtor. Certainly, no application to set-aside the Bankruptcy Notice was filed.  In failing to comply with the Bankruptcy Notice within the time required, the judgment debtor committed  an  act  of  bankruptcy  which  remains  unremedied  in  terms  of  s  17

Insolvency Act 2006.

[8]      In reliance on this, the judgment creditor on 12 August 2011 filed in this Court the present bankruptcy application and this, together with supporting material, was subsequently served upon the judgment debtor on 25 August 2011.

[9]      No formal Notice of Opposition or defence to this proceeding has been filed by the judgment debtor.  Instead, on 2 September 2011, on 5 October 2011 and again on 23 November 2011 he filed in this Court documents under his signature headed “Motion to Adjourn Proceedings”.   The essence of the matters contained in these “Motion” documents, appears to be a request from the judgment debtor for adjournments of this proceeding given that first, he had been in prison for the last five  years  and  needed  legal  representation  and  secondly that  he  had  lodged  an application for legal aid to fund a lawyer to defend the proceeding but that this application was still being considered by the Legal Services Agency.

[10]     When this proceeding was initially due for call on 14 September 2011 and subsequently on 12 October 2011 the judgment creditor indicated that he did not object to an adjournment on the basis requested by the judgment debtor. Adjournments were granted accordingly.

[11]     When  this  matter  came  before  me  for  hearing  on  30  November  2011, however, the judgment debtor Mr Patterson appeared in person and indicated that the Legal Services Agency had just declined his application for legal aid.  He went on to indicate that he was intending to appeal or seek a review of this decision and he believed the 21 day period he had for this purpose had not at that point expired.  On this basis the judgment debtor again sought a further adjournment of this proceeding to pursue such an appeal or review application.

[12]     Although no formal Notice of Opposition or Statement of Defence to the present adjudication application has been filed, as I understand the position, the essential opposition from the judgment debtor relates to the income tax assessments made against him which he disputes.   Those assessments, as I have noted above, were default assessments for the years ending 31 March 2004, 2005, 2006 and 2007. The core tax assessed is a little over $1.1 million dollars.  Penalties and interest bring this amount now up to a figure of just under $3.1 million dollars.

[13]     Again,  although  there  is  no  documentary  information  before  the  Court regarding this, I understand from the judgment debtor that the default assessments of core income tax made against him related to what he described as “theft income” much of which he claims now to have “paid back”.  How this may impact upon the judgment creditor’s earlier assessments which I understand were effectively unchallenged is unclear however.

[14]     The judgment debtor did go on to suggest that he had always intended to file a Notice of Proposed Adjustment with the Commissioner when these default assessments were issued but in his words this was not possible because “he was not sent the proper forms in time despite requesting them”.

[15]     Again, there is no documentary or other evidence of any of this before the

Court however.

[16]     Further, there is no independent evidence of any kind as to the judgment debtor’s financial position.  At the hearing of this matter the judgment debtor did state to the Court that he had no assets of any kind and in addition, other than this debt to the Commissioner of Inland Revenue, he had no other debts or liabilities.

Parties Arguments and My Decision

[17]     The present application as I have noted is brought pursuant to s 13 Insolvency

Act 2006 which provides as follows:

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.

[18]     In the present case the District Court judgment which as I have noted, has not been the subject of an appeal or review by the judgment debtor, substantially exceeds the $1,000.00 threshold provided in s 13(a) Insolvency Act 2006.

[19]     In addition, the judgment debtor has committed an act of bankruptcy within the period of three months before the filing of the present adjudication application. As I have noted the application was filed on 12 August 2011 and the judgment debtor had failed to comply with the Bankruptcy Notice served on him on 14 July 2011 within the time allowed within the Notice.

[20]     Further, the substantial $2,659,811.77 judgment debt was not disputed by the judgment debtor at the time, has been outstanding for some considerable period, relates to income tax assessment for periods dating back to 2004, it is payable immediately and is clearly a certain amount.

[21]     I am satisfied, therefore, that the requirements of s 13 Insolvency Act 2006 have been satisfied here.

[22]     Notwithstanding these matters, s 37 Insolvency Act 2006 sets out the basis upon which the Court at its discretion may refuse to adjudicate a judgment debtor bankrupt. This section reads:

37        Court may refuse adjudication

The Court may, at its discretion, refuse to adjudicate the debtor bankrupt if
–

(a)        the applicant creditor has not established the requirements set out in section 13; or

(b)        the debtor is able to pay his or her debts; or

(c)        it is just and equitable that the Court does not make an order of adjudication; or

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

[23]     Turning to consider these grounds, as I have noted above at [21], s 37(a) does not apply here.

[24]     Turning next to s 37(b) there is no evidence of any kind before this Court from the judgment debtor or otherwise as to his financial position, assets and liabilities and commitments. There is nothing before the Court to show that the

judgment debtor is able to pay his debts. The ground set out in s 37(b) is also not met here.

[25]     That   leaves   the   remaining   two   grounds   under   s   37(c)   and   (d)   for consideration. These provide that, where a judgment debtor is able to establish that it is just and equitable that the Court does not make an order of adjudication or for some other sufficient cause an order for adjudication ought not to be made, the Court may refuse to make such an order.

[26]     It is clear that the onus of satisfying the Court in terms of s 37(c) Insolvency Act 2006 that it is just and equitable not to make an order for adjudication or that under s 37(d) for some other sufficient cause no order should be made rests with the judgment debtor – McHardy v Wilkins & Davies Marinas Limited (In Receivership)

7 April 1993, CA54/93 (Court of Appeal).

[27]     Under these provisions the circumstances in which the debt in question was incurred is also clearly relevant – Re:  Fidow [1989] 2 NZLR 431. In this regard, a broad suggestion seems to be made here by the judgment debtor that the judgment creditor might be acting unreasonably in bringing the present proceeding given his claim that there might be some problem with the default income tax assessments levied against him. Apart from this bare allegation, however, there is simply no evidence of any kind before the Court to substantiate this suggestion.

[28]     What is clear is that the default income tax assessment appears to be made on the basis of income said to be fraudulently accumulated by the judgment debtor over a period of time and it was this fraud for which he was criminally convicted and is now serving a prison sentence.

[29]     These circumstances and the reason for the debt incurred in my view do not in any way assist the judgment debtor here.  The fact that his application for legal aid to defend this proceeding has been declined, presumably on grounds questioning the merits of his defence to this proceeding against him, cannot also go unnoticed.

[30]     I conclude that the judgment debtor has placed nothing before the Court to show either that he is not liable for the judgment debt claimed by the judgment creditor or for some other reason that the Court should exercise its discretion under s

37 Insolvency Act 2006 to refuse the adjudication order sought.

Conclusion

[31]     For all the reasons noted above, I am satisfied that the judgment creditor’s

present application must succeed.

[32]     The following orders are now made:

(a)       An order is made adjudicating the judgment debtor Wayne Thomas

Patterson bankrupt.

(b)Costs are awarded to the judgment creditor on this application on a category 2B basis together with disbursements as fixed by the Registrar.

(c)       This order is timed at 4.00 pm today, 1 December 2011.

‘Associate Judge D.I. Gendall’