Commissioner of Inland Revenue v Retro Civil Construction Limited

[2017] NZHC 309

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

CIV 2016-404-002618

[2017] NZHC 309

IN THE MATTER

of the Companies Act 1993

BETWEEN

THE COMMISSIONER OF INLAND REVENUE

Plaintiff

AND

RETRO CIVIL CONSTRUCTION LIMITED

Defendant

Hearing:	1 March 2017
Appearances:	C Van Der Merwe for the Plaintiff CJC McLean for the Defendant
Judgment:	1 March 2017

ORAL JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

THE COMMISSIONER OF INLAND REVENUE v RETRO CIVIL CONSTRUCTION LIMITED [2017] NZHC 309 [1 March 2017]

Background

[1]The statement of claim filed on 18 October 2016 pleads:

(a)The defendant (Retro) owes $101K including $45K PAYE and $53K GST.

(b)Refers to the statutory demand of $169K served on 30 August 2016.

(c)Retro neglected to pay the $169K.

[2]The evidence discloses:

(a)The parties agreed, 14 days prior to service of the statutory demand to pay the statutory demand sum at $40K per month.

(b)That within four months Retro paid that sum off.

[3]This overview of matters creates some confusion.

[4]        Despite their agreement the Commissioner served a statutory demand (although Retro says it has no recollection of having received it). The Commissioner’s evidence is Retro was informed that would be done.

[5]        But the Commissioner’s case is that it is appropriate to proceed with the liquidation application because although the statutory demand was paid, ongoing tax obligations were not – and that explains the reference in the statement of claim at paragraph 8 where it is pleaded that Retro is presumed to be insolvent and unable to pay its debts.

[6]        That said, clearly there is some confusion because paragraph 8 includes that reference to the fact that the statutory demand sum had not been paid when it was, albeit more than one month after this proceeding was filed.

[7]        This proceeding therefore is pursued not because of an unsatisfied statutory demand debt but for another reason, which is not clearly expressed by the terms of the statement of claim. There is authority permitting a creditor to proceed if there is sufficient evidence of insolvency even though the statutory demand debt is paid.

Considerations of solvency

[8]        In this case the Commissioner provides evidence of non payment of ongoing tax obligations – i.e. those continuing to run beyond the date of the parties’ agreement.

[9]        Of course the Court should treat any calculation of tax liability as accurate unless that calculation is challenged by the statutory process available and that has not happened here.

[10]      The Court’s impression is that Retro thought it had met its debt obligations when those were only identified in the statement of claim as relating to the statutory demand amount. That is not an unreasonable view to be taken of the pleading.

[11]      But although a past debt is paid that does not excuse Retro’s failure to meet its ongoing tax obligations. However it might explain some initial confusion by Retro about the claim it was defending.

[12]      The Commissioner says there is clear evidence of ongoing insolvency and that a s 241(4)(a) Companies Act 1993 order for liquidation is appropriate because the evidence is acceptable and the Court is entitled to treat it as conclusive in the absence of any evidence demonstrating to the contrary.

[13]Retro says there is other evidence.

[14]Mr Yang, an independent accountant instructed by Retro deposes that:

(a)Retro’s assets exceed their liabilities, and that assumptions of insolvency should not be drawn by reference merely to “balance sheet” considerations alone.

(b)There is sufficient liquidity to meet all debts owing.

Overview

[15]What we have is:

(a)Some confusion regarding the state of the agreement reached for the payment of $169K.

(b)That debt was paid.

(c)Ongoing tax obligations were not paid.

(d)A further debt of $83K remains unpaid.

[16]Questions for the Court’s consideration include:

(a)Whether there is sufficient evidence of insolvency to order liquidation?

(b)Should that decision be made now when it has only recently become clear that this case was not about non payment of a statutory demand, even though the statement of claim pleaded that Retro neglected to pay the $169K – when their arrangement did not require that payment by the time the statement of claim was filed, and the evidence now is that amount was within six weeks thereafter fully paid.

[17]In recent days Retro has tried to reach an agreement to pay the outstanding

$83K owing. It wants to pay $30K on 3 March, $30K on 3 April 2017 and $30K on 3 May 2017 and will continue to pay $30K monthly until it is up to date with its obligations.

[18]      By that brief description of matters it is clear this case bears similarity to that decided by Gendall AJ in CIR v Aotearoa Coolstores Limited1.

1 CIV 2008-454-940 HC Palmerston North.

[19]      In that case His Honour had previously adjourned the hearing to permit further affidavit evidence of insolvency for the Court’s consideration.

Summary

[20]      The Court retains a residual discretion whether or not to make an order for liquidation. There has been a review of the evidence indicating good cause for confusion about the Commissioner’s statutory basis for proceeding.

[21]The focus is now primarily upon considerations of insolvency.

[22]      Retro relies on the evidence of Mr Yang who was instructed to assist Retro with its affairs prior to this proceeding.

[23]      No explanation has, by evidence, been offered to explain how and why the defendant continues to accumulate significant debt monthly.

[24]      Even if the Court accepted that Retro’s assets exceed its liabilities as it claims, that is not conclusive of solvency.

[25]      Solvency is also about cash flow and about a company’s ability to meet current financial demands. Having a wealth of assets is one thing; having insufficient means to meet current liabilities is another.

[26]      There is no evidence of Retro having other creditor demands to meet. However in the absence of any explanation for its inability to meet regular ongoing commitments to the Commissioner, there appears to be no discretionary reason why an order for appointment of a liquidator should not be made.

Conclusions

[27]      Reasons have been provided however that encourages the Court to offer Retro a final opportunity to pay all its tax debts and as well to prove it can continue to pay its ongoing tax responsibilities.

[28]      The Court directs this hearing be adjourned for call in the liquidation list before me on 12 May 2017 at 10:45am.

[29]      It is the Court’s expectation that by that date Retro would have paid all its tax arrears and as well be up to date with its current tax obligations. Also Retro is to pay the Commissioner’s 2B costs and disbursements upon this application.

[30]      Retro’s cheque for $30,000 for clearance on 3 March 2017 is to be accepted by the Commissioner on account of tax arrears, as Retro has proposed.

Associate Judge Christiansen