Commissioner of Inland Revenue v Singh
[2023] NZHC 1647
•29 June 2023
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2022-419-112
[2023] NZHC 1647
BETWEEN THE COMMISSIONER OF INLAND REVENUE
Judgment Creditor
AND
JASWEEN SINGH
Judgment Debtor
Hearing: 21 June 2023 Counsel:
C D Walmsley and Ms Hunt for Judgment Creditor D Hayes for Judgment Debtor
Judgment:
29 June 2023
JUDGMENT OF ASSOCIATE JUDGE BRITTAIN
This judgment was delivered by me on 29 June 2023 at 3.00 pm.
Pursuant to Rule 11.5 of the High Court Rules.
…………………..
Registrar/Deputy Registrar
Solicitors/Counsel:
Inland Revenue Legal Services, Hamilton Hunwick Law Limited, Hamilton
THE COMMISSIONER OF INLAND REVENUE v SINGH [2023] NZHC 1647 [29 June 2023]
Introduction
[1] The Commissioner of Inland Revenue (the Commissioner) applies for an order under s 36 of the Insolvency Act 2006 (the Act) adjudicating Jasween Singh bankrupt.
[2] On 28 May 2021, the Commissioner obtained judgment by default against Mr Singh in the Hamilton District Court, for $100,379.84 for outstanding tax (the judgment debt). Judgment was entered with Mr Singh’s consent.
[3] On 8 June 2022, the Commissioner served a bankruptcy notice on Mr Singh in respect of the judgment debt. Mr Singh did not comply with the bankruptcy notice, therefore committing an act of bankruptcy on 23 June 2022.
[4] Mr Singh opposes an order for adjudication, arguing that the Court should exercise its discretion to decline the order.
Legal principles
[5]Section 36 of the Act provides:
36 Court may adjudicate debtor bankrupt
The court may, at its discretion, adjudicate the debtor bankrupt if the creditor has established the requirements set out in section 13.
[6] Section 13 requires that the debtor owes the creditor a debt for a certain amount of $1,000 or more, payable immediately or at a date in the future that is certain, and that the debtor has committed an act of bankruptcy within a period of three months before the filing of the application for an order for adjudication.
[7] The Commissioner has met the jurisdictional requirements of ss 13 and 36 of the Act.
[8] Section 37 of the Act confers a discretion on the Court to decline to make an order for adjudication:
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.
[9] The following general principles, extracted from the caselaw, are relevant to the Court’s discretion to refuse adjudication:
(a)The onus is on the debtor to show why an adjudication order should not be made.1
(b)In exercising its discretion, the Court may consider, inter alia, the following factors:
(i)the views of all affected parties, including the petitioner, other creditors and the debtor;2
(ii)the wider public interest, including whether adjudication is “conducive or detrimental to commercial morality and the interests of the general public”;3
(iii)the circumstances in which the debt was incurred and whether those circumstances suggest that the creditor is acting unreasonably in pursing adjudication;4
(iv)whether adjudication would be pointless in the sense that the creditors are unlikely to receive payment;5 and
1 McHardy v Wilkins & Davies Marinas Ltd (in rec) CA 54/93, 7 April 1993 at 3.
2 Re Sturdee [1985] 2 NZLR 627 (HC) at 635.
3 Re Nisbett, ex parte Vala [1934] GLR 553 (SC) at 556.
4 Re Epirosa, ex parte Diners Club (NZ) Ltd HC Wellington B498/91, 6 March 1992 at 6.
5 Re Fidow [1989] 2 NZLR 431 (HC) at 444.
(v)whether adjudication would render the debtor unable to support him or herself.6
(c)In exercising its discretion, the Court should also remain cognisant of the broader purposes of bankruptcy which include:
(i)allowing for administration of the debtor’s estate in the interests of creditors;
(ii)holding the debtor accountable for his or her debts;
(iii)punishing or stigmatising the debtor for misconduct;
(iv)protecting the community from a debtor who runs up credit without being able to honour it; and
(v)allowing the debtor to eventually take up commercial activity once freed from his or her liabilities after the discharge of their bankruptcy.7
(d)Ultimately, the Court must balance the various considerations relevant to an application when concluding whether the debtor has succeeded in showing that the order sought should not be made.8
[10] The primary issue in dispensing with this application is whether Mr Singh has established grounds under s 37 of the Act which justify this Court exercising its discretion to decline to adjudicate him bankrupt.
Mr Singh’s submissions
[11]The grounds advanced by Mr Singh can be summarised as follows:
6 Re Epirosa, above n 4, at 7.
7 Sheppard v Blanchett [2012] NZHC 789, (2012) 3 NZTR 22-014 at [35]–[43].
8 McHardy v Wilkins & Davies Marinas Ltd (in rec), above n 1, at 4.
(a)the Commissioner wrongfully declined an application for tax relief, made by Mr Singh on 16 June 2023;
(b)other challenges to Mr Singh’s tax debt;
(c)there is no public interest in an order for adjudication; and
(d)it would be inequitable to make an order for adjudication given Mr Singh’s personal circumstances.
Mr Singh’s application for tax relief
[12] On 16 June 2023, Mr Singh’s solicitors, of the firm Norling Law, wrote to Inland Revenue, making a proposal on Mr Singh’s behalf for the settlement of his tax debt. The letter stated that the total outstanding debt comprised:
(a)core tax of $64,740.64;
(b)penalties of $66,174.32; and
(c)interest of $35,316.98.
[13] A debt summary statement produced in evidence by the Commissioner confirms that the total of the payments made by Mr Singh towards his tax debt since the consent judgment on 28 May 2021 is $1,470. Even if those payments are applied to the judgment debt, the judgment debt remains substantially outstanding, and is therefore included within the amounts stated in the Norling Law letter.
[14] The Norling Law letter does not expressly refer to pt 11 of the Tax Administration Act 1994. However, the letter does make submissions regarding serious financial hardship for Mr Singh, and includes a request that the Commissioner write off all of the tax debt in excess of $30,000. The settlement proposal was that Mr Singh pay $30,000 at the rate of $3,000 per month, commencing on 12 July 2023.
[15] The Norling Law letter constitutes a request by Mr Singh for tax to be written off under s 177C of the Tax Administration Act, and for an instalment arrangement
under s 177B of that Act. By a letter from the Inland Revenue to Norling Law dated 21 June 2023, the Commissioner declined both requests, stating:
We have some concerns that the arrangement you have proposed may not be viable. However, we have not sought further information from you to clarify this point on the basis that even if the arrangement was viable and was the maximum that the Commissioner could recover in the circumstances, we do not consider the Commissioner should grant Mr Singh relief on the basis that to do so would undermine the integrity of the tax system. In particular, we consider that Mr Singh knew about his tax debts and made a deliberate choice not to pay them when he received the funds from the sale of his properties in 2020. Although he claims that he did not know how much was payable, he did not seek clarification from the Commissioner when he sold the properties. Nor did he make any payments when judgment was amended by agreement in 2021.
[16] Counsel for Mr Singh submitted that the Commissioner’s decision was prima facie ultra vires s 177A(3) of the Tax Administration Act. Section 177A provides:
177A How to apply serious hardship provisions
(1)Subsections (2), (3), and (4) provide the rules for the Commissioner to decide (the decision) whether,—
(a)for the purposes of section 176, recovery of outstanding tax would place a taxpayer, being a natural person, in serious hardship:
(b)for the purposes of section 177, the Commissioner may accept the taxpayer’s request for financial relief on the basis of a claim that 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:
(c)for the purposes of section 177B, an instalment arrangement entered into by a taxpayer or a relief company would place the taxpayer, being a natural person, in serious hardship:
(d)for the purposes of section 177C, recovery of the outstanding tax would place the taxpayer, being a natural person, in serious hardship.
(2)The Commissioner makes a decision under this section by determining whether financial information, after allowing for payment of a relevant amount of outstanding tax, and subject to subsections (3) and (4), shows that the taxpayer would, after the request under section 177 (the request), likely have significant financial difficulties because, after the request,—
(a)the taxpayer or their dependant has a serious illness:
(b)the taxpayer would likely be unable to meet—
(i)minimum living expenses estimated according to normal community standards of cost and quality:
(ii)the cost of medical treatment for an illness or injury of the taxpayer, or of their dependant:
(iii)the cost of education for their dependant:
(c)other factors that the Commissioner thinks relevant would likely arise.
(3)Compliance with, and non-compliance with, tax obligations must not be considered by the Commissioner when making a decision under this section.
(4)The Commissioner must use only financial information that the Commissioner has at the date on which the decision is made
[17]Also, material to the present situation is s 177C(1BA), which provides:
(1BA) The Commissioner may use, as a ground for deciding whether or not to write off the outstanding tax of a taxpayer or of a relief company, the basis that recovery of the outstanding tax would place the taxpayer, being a natural person, in serious hardship. The Commissioner is not required to write off the outstanding tax if the ground exists.
[18] Counsel for Mr Singh submitted that it would be inequitable for the Court to make an order for adjudication until Mr Singh has had an opportunity to challenge the Commissioner’s decision rejecting his request for tax relief and settlement proposal. Counsel accepted that this would involve an application for judicial review.
[19] In reply, counsel for the Commissioner referred to P v Commissioner of Inland Revenue,9 a decision of the High Court on judicial review, in which the Court considered pt 11 of the Tax Administration Act. Toogood J referred to ss 176–177C, stating that the provisions:10
… require the Commissioner to take a two-step approach when dealing with an application for relief on the ground of serious hardship:
(a)Step one: The Commissioner considers whether information about the taxpayer’s financial position, after allowing for payment of a relevant amount of outstanding tax, would show that the taxpayer would be likely to have significant financial difficulties after the date of application for relief because: (a) the taxpayer or their dependent has a serious illness; or (b) the
9 P v Commissioner of Inland Revenue [2015] NZHC 2293.
10 At [46] (footnotes omitted).
taxpayer is not able to meet minimum living expenses according to normal community standards, the cost of medical treatment to them or their dependent, or the cost of education for their dependent; or (c) other factors would likely arise that the Commissioner believes to be relevant. The Commissioner must not take into account compliance or non-compliance with tax obligations when in this step determining whether the taxpayer suffers serious hardship.
(b)Step two: If the Commissioner has decided that requiring the taxpayer to pay the outstanding tax would place the person in serious hardship, then the Commissioner considers how to best deal with the debt. The Commissioner has two options available to her: she may write off the outstanding debt or allow the debt to remain and take steps preparatory to, or necessary to, bankrupt the taxpayer, including debt proceedings in the District Court or the High Court.
[20] Counsel for the Commissioner submitted that the passage from the Inland Revenue’s letter dated 21 June 2023, reproduced above in para [15], was a decision under step two of the process explained by Toogood J wherein the integrity of the tax system is a factor that can be taken into account by the Commissioner when deciding whether to write off tax. Therefore, there is no prima facie case of an ultra vires decision.
[21] As the Court of Appeal noted in Commissioner of Inland Revenue v Wilson, a decision whether to accept an arrangement under s 177B is a decision for the Commissioner.11 The same can be said of a decision whether to write off tax. Such decisions are amenable to judicial review, but not by this Court sitting in its bankruptcy jurisdiction.
[22] Based on the material that is before the Court, I do not accept that Mr Singh has a strong prima facie case for judicial review of the Commissioner’s decisions declining to write off tax or to accept the instalment arrangement that was offered. Even if I am wrong about that, I am not prepared to dismiss or adjourn the bankruptcy proceeding on the basis that Mr Singh might commence a judicial review of the Commissioner’s decisions, due to the public interest factors discussed below.
11 Commissioner of Inland Revenue v Wilson [2017] NZCA 100, [2017] NZCCLR 12 at [40].
Mr Singh’s other challenges to his tax debt
[23] Mr Singh criticises the conduct of the Inland Revenue throughout his numerous dealings with the department over recent years. Mr Singh asserts that he has received a lack of information about the composition of his tax debt. He also complains that the Commissioner has failed to grant him tax relief under the Tax Administration Act on previous occasions.
[24] These criticisms by Mr Singh amount to a collateral attack on the consent judgment entered by the Hamilton District Court on 28 May 2021, which is the basis for the bankruptcy notice and the application for an adjudication order.
[25] Judgment by default was first obtained against Mr Singh on 14 June 2019. Thereafter, the Commissioner discovered an error in the quantum of the judgment and applied to the District Court to amend it.
[26] The amended judgment for $100,379.84 was recorded in a minute of Judge Menzies dated 28 May 2021, which records an appearance by counsel on behalf of Mr Singh, and notes that the Commissioner’s application to amend the existing judgment was unopposed.12
[27] Prior to entry of the consent judgment, Mr Singh’s solicitor had requested comprehensive information from the Commissioner in respect of the debt, and the Commissioner had provided that information.
[28] Mr Singh has not sought to set the judgment aside, or to appeal it, which is unsurprising given that he consented to it. I reject Mr Singh’s collateral attacks on the judgment.
The public interest
[29] Mr Singh asserts that he has no assets available to meet the judgment debt, and he submits that an adjudication is therefore pointless. Mr Singh says that he wishes to satisfy the judgment debt. He says further that his wife, Deepika Singh, is a plaintiff
12 Commissioner of Inland Revenue v Singh DC Hamilton CIV-2019-019-306, 28 May 2021.
in litigation, and if successful that litigation may result in the sum of approximately
$37,000 becoming available to meet Mr Singh’s judgment debt.
[30] I accept the Commissioner’s submission that these are not factors that justify the Court exercising its discretion in Mr Singh’s favour, and that there is a public interest in Mr Singh being adjudicated bankrupt.
[31] Mr Singh completed a statement of financial position dated 19 June 2022. The statement records two amounts of money that Mr Singh considers to be owed to him. The first is the sum of approximately $37,000, which appears to be funds that Mr Singh advanced to his wife for a business investment that failed. The business failure is purportedly the subject of Mrs Singh’s litigation. The second is a loan of $190,000 owed to Mr Singh by a named party. Both amounts are assets of Mr Singh, and the Official Assignee would be able to investigate options for recovery.
[32] There is no evidence from which the Court might draw an inference regarding the likelihood of Mrs Singh coming into funds from her litigation. Even if she does so, the basis for a legal obligation on her part to return those funds to Mr Singh is unclear.
[33] If $37,000 was recovered by litigation and returned to Mr Singh, the Court can have no confidence that the funds would be used to meet his judgment debt, based on his past behaviour.
[34] In 2020, Mr Singh sold two residential properties at 5A and 5B Pollen Crescent, Hamilton. Mr Singh received net sale proceeds of $244,375.49, paid into a bank account in his wife’s name. After meeting other obligations, the balance had reduced to $119,827.79 by 2 June 2021. That was sufficient to satisfy the consent judgment obtained on 28 May 2021, but no payment was made to the Commissioner.
[35] Mr Singh’s evidence is that the funds were instead used to make two business investments which failed, one of which is the basis of the litigation apparently underway by Mrs Singh.
[36] As the Commissioner submits, if Mr Singh is adjudicated bankrupt then the Official Assignee can investigate the basis on which Mr Singh advanced $244,375.49 to Mrs Singh, and the investments. If Mrs Singh is successful with her litigation, the Official Assignee may have a claim to any funds recovered.
[37] Other public interest factors which support an order for adjudication in the present application include the protection of public integrity in the tax system and the promotion of voluntary compliance with tax obligations.13
[38]I consider the public interest is best served by an order for adjudication.
Mr Singh’s personal circumstances
[39] The personal circumstances that Mr Singh relies on are retrospective and prospective.
[40] Retrospectively, Mr Singh refers to a work accident in 2014 that led to his unemployment; the breakdown of his previous marriage; the loss of his mother from cancer; and the outcome of his unsuccessful business investments.
[41] Prospectively, Mr Singh points to the effect an order for adjudication would have on his work prospects and family relationships.
[42] None of the retrospective circumstances justify the Court exercising its discretion in Mr Singh’s favour. The circumstances are not unusual in the context of a person who ends up in a situation where debts cannot be met as they fall due.
[43] Mr Singh had funds available of $244,375.49 following the sale of his properties in Pollen Crescent in 2020. He chose not to use any portion of those funds to pay his tax debt, and instead made business investments which proved to be unsuccessful. He should meet the consequences of those decisions.
[44] Regarding the prospective circumstances, every order of adjudication carries personal consequences, and there is nothing remarkable about Mr Singh’s situation.
13 See Commissioner of Inland Revenue v Wilson [2018] NZHC 236 at [31].
[45] Regarding his ability to work, Mr Singh says that he is currently employed by Deejazz Transport Limited, as a courier driver. The company is operated by his wife. It is reasonable to anticipate that his employer will have no issue in continuing to employ him if he is adjudicated bankrupt, provided that the Official Assignee consents. It will be open to Mr Singh to seek the Official Assignee’s consent in the usual way. The Official Assignee would be required to assess any application according to the criteria prescribed in the regulations, and not arbitrarily.
[46] Mr Singh’s tax debt is now approximately $150,000. An adjudication will provide him with an opportunity to start afresh without the burden of that debt hanging over him.
Result
[47] The Commissioner has established the jurisdictional requirements for the Court to make an order for adjudication. Mr Singh has failed to satisfy the Court that an order should not be made.
[48]Accordingly, I make the following orders:
(a)The judgment debtor is adjudicated bankrupt.
(b)The order is timed at 3 pm, 29 June 2023.
(c)The judgment creditor is entitled to actual costs plus disbursements as fixed by the Registrar. The judgment creditor shall file a memorandum setting out the costs claimed within five working days of delivery of this judgment.
Associate Judge Brittain
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