Commissioner of Inland Revenue v RLITS Contracting Limited
[2024] NZHC 1258
•21 May 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-482
[2024] NZHC 1258
UNDER The Companies Act 1993 IN THE MATTER OF
The Liquidation of RLITS Contracting Limited
BETWEEN
THE COMMISSIONER OF INLAND REVENUE
Plaintiff
AND
RLITS CONTRACTING LIMITED
Defendant
Hearing: 6 May 2024 Appearances:
C D Walmsley for the Plaintiff R B Hucker for the Defendant
Date of Judgment:
21 May 2024
JUDGMENT OF ASSOCIATE JUDGE BRITTAIN
This judgment was delivered by me on 21 May 2024 at 12 midday Pursuant to r 11.5 of the High Court Rules.
…………………..
Registrar/Deputy Registrar
Solicitors/Counsel:
Inland Revenue Legal Services, Auckland Molloy Hucker, Auckland
THE COMMISSIONER OF INLAND REVENUE v RLITS CONTRACTING LTD [2024] NZHC 1258 [21 May 2024]
Introduction
[1] The defendant, RLITS Contracting Limited (RLITS), began trading in late 2021, and by early 2022 was behind in meeting its tax obligations. On 11 May 2022, the Commissioner of Inland Revenue (the Commissioner) issued a statutory demand for outstanding taxes. The demand was not satisfied and the Commissioner commenced this liquidation proceeding in July 2022 (the liquidation proceeding).
[2] The liquidation proceeding was not served until May 2023, and then adjourned on several occasions while RLITS attempted to put its tax affairs in order. In November 2023, the Commissioner agreed not to advertise the liquidation proceeding before 8 March 2024.1
[3] On 7 March 2024, RLITS requested the Commissioner accept an instalment arrangement under s 177 of the Tax Administration Act 1994 (TAA). The Commissioner declined the request the following day (the decision).
[4] On 11 March 2024, RLITS filed a proceeding seeking judicial review of the decision (the judicial review proceeding), and RLITS applied to stay the liquidation proceeding and for an order restraining advertising of the liquidation proceeding. The Commissioner opposes that application, which is determined in this judgment.
[5] Whether the liquidation proceeding should be stayed pending determination of the judicial review proceeding raises three issues:
(a)Should the application for a stay be determined by an Associate Judge in the liquidation proceeding or by a Judge of the High Court on an application for interim relief in the judicial review proceeding?
(b)Does the application for judicial review have any merit?
(c)Are there other factors relevant to the Court’s exercise of its discretion?
1 As required by r 31.9 of the High Court Rules 2016.
[6] After the conclusion of the hearing, the Commissioner applied for leave to adduce further evidence. The evidence relates to RLITS’s compliance with its tax obligations since 7 March 2024. I will deal with that application when I deal with the third issue stated above.
Should the application for a stay be determined by an Associate Judge?
Legal principles
[7] The Court has inherent jurisdiction to stay liquidation proceedings to prevent abuse of process. There is no inflexible rule. The governing consideration is whether the proceeding suggests unfairness or undue pressure.2
[8] An Associate Judge of the High Court has jurisdiction to hear liquidation proceedings brought under pt 16 of the Companies Act 1993 (CA),3 including jurisdiction to stay liquidation proceedings under r 31.11 of the High Court Rules 2016 (HCR).
[9] Applications for judicial review are governed by the Judicial Review Procedure Act 2016 (JRPA). A decision of the Commissioner on a proposal under s 177 of the TAA is a decision that is amenable to judicial review.4
[10] Section 15 of the JRPA confers jurisdiction on a Judge of the High Court to make interim orders, including an order staying any civil proceeding in connection with any matter to which the application for judicial review relates. An Associate Judge does not have jurisdiction under the JRPA.
[11] The approach to be taken when an application for a stay pending judicial review is determined in a liquidation proceeding under r 31.11 of the HCR ought to be consistent with the approach taken by the Court when a similar application is made under s 15 of the JRPA.
2 Nemisis Holdings Ltd v North Harbour Industrial Holdings Ltd (1989) 1 PRNZ 379 (HC) at 385.
3 Senior Courts Act 2016, s 20(2)(b).
4 P v Commissioner of Inland Revenue [2014] NZHC 760, (2014) 26 NZTC 21-067.
[12] Under s 15 of the JRPA, the applicant for interim relief must demonstrate that the prospects of success in the judicial review proceeding are more than a serious question to be tried, but less than a prima facie case.5 That requires a preliminary consideration of the merit of the judicial review proceeding.
[13] The Court should be satisfied that an interim order is reasonably necessary to preserve the applicant’s position, before considering whether the Court should exercise its broad discretion to order a stay of the liquidation proceeding.6
[14] It is necessary to ascertain the position of the applicant that is sought to be preserved. The applicant must establish that it has not already had an opportunity to have its proposal under s 177 of the TAA considered fairly, and that there is a real possibility that the judicial review proceeding will result in the Commissioner being directed to consider the proposal afresh.7
Argument and analysis
[15] For RLITS, Mr Hucker argued that the application for a stay should be determined by a Judge of the High Court exercising the powers conferred by the JRPA given the fundamental constitutional importance of judicial review.
[16] I do not accept that RLITS’s application for a stay should be deferred for determination by a Judge of the High Court for two reasons. First, RLITS has filed an application for a stay in the liquidation proceeding, and in doing so submitted to the jurisdiction of an Associate Judge to determine the application. RLITS filed the judicial review proceeding on 11 March 2024. RLITS has not filed an application for interim relief in that proceeding, despite having an opportunity to do so.
[17] Secondly, when Associate Judges exercise their liquidation jurisdiction generally, including applications for stays and the exercise of the discretion as to liquidation conferred by s 241 of the CA, they are frequently called upon to assess the
5 Carlton & United Breweries Ltd v Minister of Customs [1986] 1 NZLR 423 (CA) at 430 per Cooke J.
6 Shane Warner Builders Ltd v Commissioner of Inland Revenue [2018] NZHC 1654 at [7].
7 At [12]; Eastbus Ltd v Commissioner of Inland Revenue HC Dunedin CIV-2006-412-153, 3 March 2006 at [16].
merits of the myriad of causes of action held or asserted by defendant companies. Associate Judges are well placed to do so.
Does the application for judicial review have any merit?
Background
[18] RLITS registered with the Inland Revenue Department (IRD) for PAYE and GST in September and October 2021. On 16 February 2022, the Commissioner accepted RLITS’s request for an instalment arrangement in respect of tax arrears of
$175,072.80.
[19] It was a term of the accepted arrangement that RLITS file all future tax returns and pay any new tax amounts that became due during the arrangement in full and on time. RLITS breached that term when it failed to pay its GST assessment due on 28 March 2022, resulting in the statutory demand and liquidation proceeding.
[20] There is no explanation as to why the liquidation proceeding was not served until May 2023. On 25 May 2023, RLITS filed an application in the liquidation proceeding to restrain advertising of the liquidation proceeding.
[21] On 12 June 2023, RLITS wrote to IRD requesting 30 days to file outstanding tax returns and to put forward a formal payment proposal. RLITS stated that it would continue to make weekly payments of $8,000 towards the arrears and ensure that future payments of PAYE and GST were on time. On that basis, the Commissioner agreed that it would not oppose RLITS’s request for an adjournment of the liquidation proceeding to 18 August 2023.
[22] Later in June 2023, RLITS established a direct debit of $9,987.22 per week to IRD allocated to Employer Taxes.
[23] When the matter was next called in court on 18 August 2023, RLITS had not filed all outstanding tax returns or presented a detailed payment proposal to the Commissioner. The Court made directions for a hearing of the application for a stay.
[24] Between 18 August 2023 and 3 November 2023, RLITS did not communicate with the Commissioner. Some employer tax returns were filed but the amount due was not paid in full. No further GST returns were filed. RLITS did not comply with the directions made for the hearing of the application for a stay. In September 2023, RLITS unilaterally reduced its weekly payment of $9,987.22 to $4,000.
[25] In November 2023, RLITS engaged new solicitors, Molloy Hucker, and a new external accountant, Mr Whitley. Molloy Hucker wrote to the Commissioner on 13 November 2023, presenting an application by RLITS for an instalment arrangement under s 177 of the TAA.
[26] The proposal was that RLITS “continue” with payments of $10,000 per week, which appears to be a reference to the weekly payment of $9,987.22 by direct debit which had been unilaterally reduced to $4,000 in September 2023.
[27] The proposal stated that RLITS would lodge various outstanding returns by specified dates and ensure that current returns and taxes were kept up to date. The proposal noted that RLITS had debtors of approximately $1.6 million and that amounts collected from those debtors would be applied to the tax debt.
[28] On 15 November 2023, counsel for the parties signed a joint memorandum filed in the liquidation proceeding recording an agreed interim position:
(a)the liquidation proceeding be adjourned to March 2024;
(b)the Commissioner undertook not to advertise the liquidation proceeding prior to 10 working days before the next call;
(c)RLITS’s application to stay the liquidation proceeding was withdrawn;
(d)the recorded intention was that RLITS would have all outstanding tax returns filed by 31 January 2024;
(e)RLITS would pay $10,000 per week towards outstanding tax; and
(f)RLITS would keep all current taxes up to date as they fell due.
[29] On that basis, the liquidation proceeding was adjourned for call on 22 March 2024.
[30] RLITS failed to comply with the agreed terms recorded in the joint memorandum. RLITS failed to make the payments of $10,000 per week. By 11 December 2023, the shortfall was $208,444.45.
[31] RLITS failed to communicate with the Commissioner until 30 January 2024, when RLITS provided a brief update and advised that the outstanding tax returns were expected to be filed by the end of February 2024. RLITS did not address the issue of its failure to pay the agreed interim payments.
[32] On 6 March 2024, there was a lengthy telephone discussion between RLITS’s accountant, Mr Whitley, and the IRD case officer, Ms Mattyasovszky. The conversation was recorded and a transcript is in evidence. Both parties relied on the transcript when making their submissions.
[33] By the time of the conversation, RLITS’s tax liability was approximately $2.8 million. It is obvious from the transcript that Mr Whitley was endeavouring to persuade Ms Mattyasovszky that RLITS should be granted an indulgence and allowed further time to file its outstanding tax returns and to put forward a proposal to deal with the substantial tax arrears. Mr Whitley was seeking the Commissioner’s agreement to a further adjournment of the liquidation proceeding.
[34] Mr Whitley was frank and realistic in his comments on RLITS’s history of non- compliance with its tax obligations and previously agreed arrangements. Mr Whitley expressed his opinion that RLITS was capable of turning matters around based on a new contract that it had secured that would produce a significant revenue stream.
[35] Ms Mattyasovszky’s comments focused on the need to protect the integrity of the tax system. Ms Mattyasovszky made it clear that the Commissioner would not
agree to any further adjournments. There was discussion about RLITS making a proposal for an instalment arrangement, which I will return to.
[36] On 7 March 2024, RLITS presented a written proposal to the Commissioner for an instalment arrangement under s 177 of the TAA, which was prepared by Mr Whitley. The proposal was that outstanding returns were to be filed progressively from March to July 2024, and all future tax returns were to be made on time and paid on time.
[37] The proposal assumed outstanding tax obligations of $4.39 million after outstanding returns were filed, to be paid by instalments of:
(a)$100,000 per month from April 2024 to June 2024;
(b)$150,000 per month from July 2024 to February 2025;
(c) $500,000 in March 2025; and
(d) $170,000 per month from April 2025 to March 2026.
[38] In support of the proposal, Mr Whitley prepared and supplied budget reports for the financial years ending 31 March 2025 and 31 March 2026. These reports projected a surplus for RLITS before payment of the tax arrears of approximately
$4.7 million and $6.3 million.
[39] The Commissioner declined the proposal by a letter dated 8 March 2024 (the decision).
The relevant legislation and legal principles
[40] Section 6(1) of the TAA imposes on the Commissioner an obligation to use best endeavours to protect the integrity of the tax system. Section 6A(2) of the TAA imposes on the Commissioner a duty to collect over time the highest net revenue that is practicable within the law having regard to: the resources available to the Commissioner; the importance of promoting compliance, especially voluntary
compliance, by all persons with the Inland Revenue Acts; and the compliance costs that result.
[41] The Commissioner’s duty to maximise the recovery of outstanding tax imposed by s 6(1) is qualified by s 6A(2)(b) which requires the Commissioner to have regard to the importance of promoting compliance (especially voluntary compliance) by all taxpayers with the Inland Revenue Acts. Significantly, the obligation in s 176 to maximise the recovery of outstanding tax must be read alongside s 6A(2).8
[42]Section 176 of the TAA relevantly provides:
176Recovery of tax by Commissioner
(1)The Commissioner must maximise the recovery of outstanding tax from a taxpayer.
(2)Despite subsection (1), the Commissioner may not recover outstanding tax to the extent that—
(a)recovery is an inefficient use of the Commissioner’s resources; or
(b)recovery would place a taxpayer, being a natural person, in serious hardship.
…
[43]Section 177 of the TAA relevantly provides:
177Taxpayer may request financial relief
(1)A taxpayer, or a person on a taxpayer’s behalf, requests financial relief by either—
(a)making a claim stating why recovery of the taxpayer’s outstanding tax or a relief company’s outstanding tax would place the taxpayer, being a natural person, in serious hardship; or
(b)requesting to enter into an instalment arrangement with the Commissioner.
(1B) For the purposes of this section, the Commissioner must consider the taxpayer’s financial position at the date on which the request for financial relief is made.
…
(3)Upon receiving a request, the Commissioner may—
(a)accept the taxpayer’s request; or
(b)seek further information from the taxpayer; or
8 Raynel v Commissioner of Inland Revenue [2004] 21 NZTC 18,583 (HC) at [52], [65] and [67].
(c)make a counter offer; or
(d)decline the taxpayer’s request.
…
[44]Section 177B relevantly provides:
177B Instalment arrangements
(1)The Commissioner must not enter into an instalment arrangement with a taxpayer or a relief company to the extent that the arrangement would place the taxpayer, being a natural person, in serious hardship.
(2)The Commissioner may decline to enter into an instalment arrangement if—
(a)to do so would not maximise the recovery of outstanding tax from the taxpayer; or
(b)the Commissioner considers that the taxpayer is in a position to pay all of the outstanding tax immediately; or
(c)the taxpayer is being frivolous or vexatious; or
(d)the taxpayer has not met their obligations under a previous instalment arrangement.
...
[45] Applications for relief under s 177 of the TAA will often require the Commissioner to balance the competing responsibilities and duties under ss 6 and 6A. The relationship between those provisions in the context of proposals under s 177 was discussed by Randerson J in Raynel v Commissioner of Inland Revenue:
[54] Sections 6 and 6A(3)(b) [now 6A(2)(b)] emphasise that there is a broader public interest in the integrity of the tax system and in ensuring that taxpayers meet their obligations. Taxpayers who comply with the requirements of the Inland Revenue Acts are entitled to expect that appropriate and (where necessary) firm action is taken against taxpayers who shirk their obligations. If not, complying taxpayers will justifiably perceive there is a lack of integrity in the system and an unfair burden is cast on those who conscientiously comply with their obligations. As well, as Master Lang pointed out, the voluntary compliance scheme which is central to the proper functioning of the Inland Revenue Acts will 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 doing so.
[55] Ordinarily, where a higher net recovery will be achieved through a proposed compromise than by winding up or bankrupting a taxpayer and there are no countervailing considerations, the Commissioner’s duty will be to
accept the compromise. But there may be circumstances where, in order to preserve the integrity of the tax system and promote compliance by other taxpayers, the Commissioner will be justified in refusing an offer and, instead, taking enforcement proceedings. Where, for example, there has been a flagrant and on-going failure to comply with the taxpayer’s obligations and where recovery is dubious or is likely to result only in a relatively minor proportion of the overall debt being recovered, the Commissioner may be justified in initiating or continuing enforcement proceedings to secure the wider interests identified by the legislation.
[46] The Court will be slow to interfere with the Commissioner’s discretionary decision on a proposal under s 177, which involves a multi-faceted exercise of judgment and the application of the policy considerations set out in ss 6 and 6A of the TAA, and factual commercial considerations including the particular factors in s 177B.9
[47] For RLITS, Mr Hucker submitted that the Commissioner must follow a two- step process: the first step, required by s 177(1B), is a comparison of the maximum net recovery under a liquidation compared to the recovery under a taxpayer’s proposal; and the second step requiring an exercise of the Commissioners discretion under s 177(3). Mr Hucker relied on the decision of Wylie J in P v Commissioner of Inland Revenue.10
[48] I do not accept that submission. In P v Commissioner of Inland Revenue, Wylie J was concerned with a request for financial relief under s 177(1)(a) of the TAA.11 The principal issue was serious hardship and the effect of s 177(1B), then recently introduced into s 177.12 Wylie J broadly adopted a two-step process for that type of application, the first step requiring an assessment of the taxpayer’s financial position at the date of the application, which in P v Commission of Inland Revenue involved considering whether the criteria of serious hardship was met.13 There is no authority, and no reason in principle, to support Mr Hucker’s contention that the decision applies to s 177(1)(b) requiring the counterfactual comparison that Mr Hucker proposed.
9 Russell v Commissioner of Inland Revenue [2015] NZHC 754 at [12], upheld by the Court of Appeal in Russell v Commissioner of Inland Revenue [2015] NZCA 351, (2015) 27 NZTC 22- 018.
10 P v Commissioner of Inland Revenue [2014] NZHC 760, (2014) 26 NZTC 21-067.
11 At [18] and [21].
12 At [3] and [35].
13 At [48], [58] and [69].
[49] I accept that the Commissioner must consider a taxpayer’s financial position, and that the consideration must be as at the date on which the request for financial relief is made.
The alleged errors by the Commissioner
[50] Mr Hucker criticised the Commissioner’s decision-making process on the following grounds:
(a)the decision was predetermined, relying on the phone conversation on 6 March 2024 between Mr Whitley and Ms Mattyasovszky;
(b)the speed of the decision did not allow the Commissioner sufficient time to properly consider the proposal, also suggesting predetermination;
(c)a failure to undertake any analysis of RLITS’s financial position, and the maximum net recovery under a liquidation compared to the proposal; and
(d)a failure to consider other options open to the Commissioner under s 177(3), such as seeking further information from the taxpayer or making a counter offer.
Is it arguable that the decision was predetermined?
[51] The phone conversation between Mr Whitley and Ms Mattyasovszky on 6 March 2024 began with Mr Whitley providing his assessment of the background to the default, and the reasons for it. Mr Whitley then discussed his assessment of RLITS future profitability.
[52] When the conversation turned to whether RLITS should be given another chance to remedy its defaults, Ms Mattyasovszky commented on the need for protection of the integrity of the tax system, confirming that the Commissioner wished
to proceed with advertising the liquidation proceeding, and the Commissioner would not agree to an adjournment.
[53]Subsequently, the following exchanges occurred:14
HMYes, yeah, yeah, yeah. I mean we don’t take these decisions lightly, but this is, like, very extenuating circumstances with the way that they’ve, um, their complete disregard to, um, yeah, meeting tax obligations.
KWYeah, these people are, it’s more than beyond. Um, okay, it is what it is. So there’s, so there’s no, ah, in your view, no point in putting up a proposal?
HMNo, we-, we-, well, I mean, I’ve just told you what the history’s like and you, you, you can kind of see it as well too, that, um - - -
KW Yeah.
HM - - - there’s just, um, just huge risk to it and we’re quite motivated to have it liquidated and for a liquidator to go and, um, look at the financial decisions made and see if any of the transactions can be unwound to try and get some payment across to the creditors that way.
KW I don’t think you’ll be getting any payment, in my opinion.
HM Mm, yip. Well, yip, that’s, that’s, (INDISTINCT 31.15) the liquidator comes back and says that, then that, then that’s what’s happened, but, yeah, it’s just, um, yip, we just can’t have this company continuing to trade and not pay any taxes to us.
[54]That was shortly followed by:
KW… All right, so ah, you’re more concerned with exercising the, um, ah, the removal of these people from the commercial world of New Zealand, ah, is more important to the Revenue than getting the taxpayers’ money?
HM In this, ah, for this particular company, yes, that’s right, yip, protecting the integrity of the tax system is, is a, a more, um, is, um, really the Commissioner’s role in this one, yip.
KW All right.
HM Mm.
KW Um, I will put up the proposal anyway, um, and table that through - -
-
HM Mm’hm.
14 HM is Ms Mattyasovszky and KW is Mr Whitley.
[55]And further:
HMMm. Yip. Okay, so when you go back to, um, you know, if you have to, um, go back and correspond with Robert Hucker, just refer him to the joint memorandum, that, you know, ha-, had, um - - -
KW (INDISTINCT 35.36) - - -
HM - - - yeah, he wanted, this is what he wanted, to give them their last chance, see what I mean, um - - -
KW Yeah.
HM - - - and he had a talk to our solicitor at the same time, we said, look, you know, this is the last chance to do it, but, you know, this will give you time cos you said your client’s advised this is going to happen - -
-
KW Yeah.
HM - - - but, yeah, effectively it’s just broken all aspects of it, you know what I mean, so the Commissioner is quite in the right to, um, yeah, go ahead and - - -
KW Oh, look - - -
HM- - - do what we always intended, you know, to do because of the long thing - yeah, we, you know, we, I think we’ve been more than lenient, actually, about how many chances we’ve given them, you know what I mean, but, yeah - - -
KW Yeah.
HM - - - you’ve got to draw a line in the sand somewhere and we did that quite some time ago, yeah, so, mm.
[56] By these exchanges, Ms Mattyasovszky gave Mr Whitley a clear indication that the Commissioner was not receptive to a further proposal for an instalment arrangement. That is hardly surprising given the history of RLITS’s compliance with its tax obligations and previous arrangements. Ms Mattyasovszky was fairly advising Mr Whitley of the difficulties that RLITS faced in securing the Commissioner’s agreement to an instalment arrangement before RLITS incurred the cost of attempting to do so.
[57] I do not consider that the phone conversation on its own would support a finding of predetermination.
Is it arguable that the Commissioner did not allow sufficient time to properly consider the proposal?
[58] Molloy Hucker emailed RLITS’s proposal to Ms Mattyasovszky at 4.35 pm on 7 March 2024. The Commissioner’s response was emailed to Molloy Hucker at
2.24 pm on 8 March 2024, allowing less than one working day for consideration of the proposal. Within that time, the draft letter declining the proposal prepared by Ms Mattyasovszky was reviewed by another IRD officer, Ms Jobson.
[59] IRD’s consideration of the proposal was rapid. The proposal itself, excluding attachments, is slightly more than two pages in length including the proposed schedule of payments. Excluding the proposed schedule of payments, the remaining analysis occupies no more than a page. The key supporting information was the two budget forecasts prepared by Mr Whitley. They are financial forecasts in a conventional form, and easily understood.
[60] Ms Mattyasovszky was familiar with the file. I do not consider that the speed of the decision-making process alone would support an inference of predetermination or a failure to properly consider the proposal.
Is it arguable that the Commissioner should have undertaken an analysis of RLITS financial position and the maximum net recovery under a liquidation compared to the proposal?
[61] This challenge rests on the substance of IRD’s decision letter. The preambulatory comments in the letter included:
Careful consideration has been given to this request. This consideration includes factors such as, but not limited to, circumstances that created the debt, what actions have been taken to assist and reduce the company’s respective liability to the Commissioner, the company’s past and recent compliance and the likelihood of on-going non compliance in regard to Revenue Acts.
[62] Consistent with that summary, the letter does not include any analysis of RLITS’s financial position or Mr Whitley’s budget forecasts. There was no assessment of the return that the Commissioner might receive from a liquidation compared to the proposed instalment arrangement.
[63] The focus of the letter was on the extent of RLITS previous non-compliance, noting that RLITS was trading while insolvent. The decision, and reasons for it, were stated as follows:
The payment proposal has therefore been declined as:
·The company is trading while insolvent
·The company still poses a serious risk of not adhering the payment proposal
·The company still poses a serious risk of not paying taxes they fall due
·The company still poses a risk of not filing returns as they fall due
·The company has used GST and Employer Taxes collected on behalf of the CIR, for it’s own use and use of related entities, rather [than] meeting its statutory obligation to pass those funds collected to the CIR, and this non compliant behaviour has been demonstrated since the company commenced in August 2021.
·The approval of this proposal does not meets [sic] the CIR’s Statutory obligation to uphold the integrity of the tax system
In summary, the CIR has a statutory requirement to protect of [sic] the integrity [of the] tax system and the proposed relief application has been declined as the company still poses a serious risk of not paying taxes they fall due along with adhering a payment arrangement as well.
[64] The Commissioner was required to consider RLITS’s financial position at the date on which the proposal was made. However, Mr Whitley had not provided any current statement of financial performance or balance sheet. The proposal was based on RLITS forecast financial performance. In my view, the Commissioner was not required to carry out a detailed financial analysis of what might be achieved from a liquidation compared to the proposal.
[65] Any consideration of a repayment proposal inherently requires an assessment of the payer’s ability to pay, and therefore, the payer’s financial position. There is no suggestion that the Commissioner considered RLITS’s financial position other than as at the date of the proposal.
Is it arguable that the Commissioner should have considered other options under s 177(3)?
[66] Mr Hucker submitted that the Commissioner failed to consider the options open to the Commissioner under s 177(3)(b) and (c), namely failing to seek further information from RLITS or to make a counter offer.
[67] Section 177(3) sets out four actions that the Commissioner may take upon receiving a request that the Commissioner enter into an instalment arrangement. The section confers a discretion on the Commissioner to elect which option to take. One of those options was to decline RLITS’s request. The Commissioner was under no mandatory obligation to seek further information or to make a counter offer.
[68] Notwithstanding that the decision does not record that the Commissioner considered the options of seeking further information from RLITS or making a counter offer, it does not follow that those options were wrongly disregarded.
[69] I remind myself that I am making a preliminary assessment of the merit of the claim for judicial review, and in particular, whether it meets the standard of something more than a serious question to be tried.
[70] The Commissioner’s decision-making process was completed in less than a working day. It is reasonably arguable that:
(a)the Commissioner is unlikely to recover any of the tax arrears from a liquidation of RLITS;
(b)the Commissioner may have recovered some or all of the outstanding tax from the proposed instalment arrangement;
(c)the Commissioner undertook only a cursory examination of the financial projections provided in support of the proposal, with no detailed analysis of the efficacy of the projections or the ability of RLITS to pay tax in the future; and
(d)the case officer that undertook the initial analysis of the proposal was predisposed to continue with the liquidation proceeding.
[71] However, balanced against those factors the Commissioner has a strong argument that the decision made was one open to a reasonable decision maker in the circumstances, relying on:
(a)RLITS history of non-compliance with primary tax obligations;
(b)RLITS’s failure to comply with a previous instalment arrangement and the interim terms agreed in November 2023 for adjournment of the liquidation proceeding; and
(c)the Commissioner’s responsibility to protect the integrity of the tax system, including voluntary compliance by taxpayers generally.
[72] When I take a step back and consider the circumstances as a whole, I find that RLITS cannot discharge the onus upon it to establish that it has more than a serious question to be tried.
[73] In addition, RLITS must show that there is a real possibility that the judicial review proceeding will result in the Commissioner being directed to consider the proposal afresh.
[74] Even if RLITS can persuade the Court to overturn the decision requiring the Commissioner to consider the matter afresh, the Commissioner will retain a broad discretion when reconsidering the proposed arrangement. That reconsideration may well still result in a justified decision that preservation of the integrity of the tax system warrants enforcement action by a liquidation proceeding.
The exercise of the Court’s discretion
[75] This is not an appropriate case for a stay, based on my finding that RLITS cannot discharge the onus upon it to establish that the claim for judicial review amounts to more than a serious question to be tried.
[76] Therefore, I am not required to consider any other factors that are relevant to the exercise of the discretion to grant a stay of the liquidation proceeding. However, I will do so, in case I am wrong in my conclusion on the merit of the judicial review proceeding.
[77] Counsel for both parties made submissions on RLITS’s compliance with its tax obligations since it submitted the proposal on 7 March 2024. Even though the instalment arrangement was not accepted by the Commissioner, RLITS has been endeavouring to comply with the proposed terms.
[78] It is common ground that RLITS has now filed all outstanding tax returns. As a result, the amount of the arrears has crystalised, being $4,993,414.28 on 2 May 2024.
[79] On Mr Whitley’s analysis, RLITS made payments to IRD from 6 March 2024 to 4 May 2024 totalling $377,000. Mr Whitley assesses this to be full payment of current tax and the first instalment of $100,000 towards arrears due in April 2024 under the proposed arrangement.
[80] However, the Commissioner raises issues with that analysis, and sought leave to file a further affidavit from Ms Mattyasovszky after the hearing, confirming recent events.
[81] The proposed evidence is in direct response to the evidence of Mr Whitley affirmed on 5 May 2024 and filed the day before the hearing. The proposed evidence could not be marshalled in time for the hearing. The proposed evidence contradicts some of the assumptions made by Mr Whitley, and the interests of justice are best served by admission of the evidence. I grant permission to the Commissioner, under s 98 of the Evidence Act 2006, to adduce the evidence.
[82]On that basis, the evidence on behalf of the Commissioner is:
(a)a payment of $4,000 on 6 March 2024 was dishonoured;
(b)The $377,000 includes payments of $14,000 made in May, which arguably should not be applied to the $100,000 lump sum instalment payment that would have been due in April;
(c)$74,000 of the payments shown as made in May are not showing in IRD’s records or show as dishonoured;
(d)Mr Whitley has allowed a credit of $40,000 against the first instalment of $100,000 for ten payments of $4,000 made prior to 7 March 2024. The instalment proposal did not make any reference to that credit, but simply referred to a first instalment payment of $100,000;
(e)RLITS failed to make the current payments due for PAYE on 6 May 2024 and GST on 7 May 2024.
[83] The evidence that is available suggests that RLITS is continuing to trade while insolvent. This is not an appropriate case for a stay of the liquidation proceeding or a restraint of advertising.
Orders and Costs
[84] The defendant’s application for a stay of this proceeding and for an order restraining advertising is dismissed.
[85] The joint memorandum dated 15 November 2023 reserved the defendant’s right to make an application for leave to file a statement of defence out of time. I direct the defendant to file and serve any such application within 10 working days of delivery of this judgment.
[86] Any notice of opposition from the Commissioner shall be filed and served within a further five working days.
[87] My preliminary view is that costs should follow the event, and the Commissioner is entitled to an award of costs. If the parties are unable to agree on costs, then:
(a)the plaintiff shall file and serve a memorandum seeking costs, of no more than five pages, by 31 May 2024;
(b)the defendant may file and serve any submissions in reply, of no more than five pages, by 14 June 2024.
[88] The proceeding is adjourned to the Companies List on 21 June 2024 at 10:45am.
Associate Judge Brittain
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