Commissioner of Inland Revenue v Stephens
[2018] NZHC 519
•23 March 2018
IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY
I TE KŌTI MATUA O AOTEAROA TE PAPAIŌEA ROHE
CIV-2017-454-46
[2018] NZHC 519
BETWEEN THE COMMISSIONER OF INLAND REVENUE
Judgment creditorAND
TAINUI BRENT RAPATA STEPHENS
Judgment debtor
Hearing: 15 February 2018 Counsel:
C R Mailer and J Snelson for Judgment creditor T B R Stephens in person
Judgment:
23 March 2018
JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] The judgment creditor (the Commissioner) applies for an order adjudicating Mr Stephens bankrupt.
[2]The Commissioner’s application is based on a judgment for the total sum of
$551,027.63, including costs and disbursements, entered in the Wellington District Court on 14 June 2017. By the time of the hearing on 15 February 2018, the debt owed by Mr Stephens to the Commissioner, with interest and penalties, had climbed to $675,868.88.
[3] The Commissioner served a bankruptcy notice on Mr Stephens on 10 July 2017, demanding the sum of $551,027.63 together with further costs associated with the bankruptcy notice. Mr Stephens did not make payment within the 10 working days stated in the bankruptcy notice, and he did not make any application under s 17 of the Insolvency Act 2006 (the Act) to set aside the bankruptcy notice. He accordingly
THE COMMISSIONER OF INLAND REVENUE v STEPHENS [2018] NZHC 519 [23 March 2018]
committed an act of bankruptcy on the expiry of the 10 working day period on 25 July 2017.
[4] The Commissioner then filed her application for an order adjudicating Mr Stephens bankrupt. The adjudication application was called on 5 October 2017, and Mr Stephens appeared in person that day. I adjourned the matter to 16 November 2017 to allow Mr Stephens to attempt to resolve matters with the Commissioner if he could.
[5] Prior to the hearing on 16 November 2017, Mr Stephens produced a number of references, primarily from people in the New Zealand broadcasting and film industries. Some of these references made it clear that if Mr Stephens was to be adjudicated bankrupt, he might have difficulty obtaining contracts for work in his specialist area.
[6] I advised counsel for the Commissioner and Mr Stephens at the hearing on 16 November 2017 that I would require further argument on the exercise of the Court’s discretion to make an adjudication order, and adjourned the application to 15 February 2018 for that purpose.
[7]I now give judgment on the application for adjudication.
The Commissioner’s evidence
[8] An affidavit was provided by Ms Janine Cross, a collections officer employed by the Commissioner. Ms Cross noted in her affidavit that Mr Stephens has a history of non-compliance with his tax obligations. She refers to his failure to file personal income tax returns for the years ended 31 March 2007 to 31 March 2011 until 2 August 2016, and his failure to file income tax returns for the years from March 2012 to March 2014 until 17 September 2015. As at the date she swore her affidavit (5 February 2018), Mr Stephens’ personal income tax return for the year ended 31 March 2017, due on 7 July 2017, remained outstanding.
[9] Ms Cross also deposed that Mr Stephens has failed to meet previous due dates for GST payments and the filing of GST returns. He registered for GST in July 2017,
with returns to be filed on a two-monthly basis. His return for the period ended 31 July 2017 was due on 28 August 2017, but was not received until 27 October 2017. The GST liability of $389.14 was paid late on 18 December 2017. Similarly, the GST liability of $772.62 in respect of the period ended 30 September 2017, was paid late on 2 November 2017.
[10] On 30 October 2016, Mr Stephens completed a “disclosure of financial position” form for the Commissioner. The form included details of two properties in Otaki, one in Moana Street and one in Toi Street, owned by Mr Stephens and his wife. Mr Stephens estimated the current value of the Moana Street property at $560,000, and the current value of the Toi Street property at $260,000. Both were said to be subject to mortgages to the ANZ Bank, securing then-current balances of $267,000 (Moana Street) and $173,705 (Toi Street).
[11] Ms Cross stated that Mr Stephens was the sole director of the company Pito One Productions Ltd (Pito One). Pito One was liquidated on the application of the Commissioner on 23 February 2017, with outstanding tax of $232,793.47. Realised receipts in the liquidation amounted to only $16,155.30.
[12] On 20 March 2017, Mr Stephens’ accountant wrote to the Commissioner requesting that all personal taxes up to and including the year 31 March 2011 be written off on the grounds of hardship. That request was declined.
[13] Ms Cross referred to various proposals from Mr Stephens to settle his tax debts, including a proposal made on 9 May 2017 for payment of a lump sum of $24,000. The lump sum payment then proposed would be funded by a loan from family members, to be repaid at $1,000 per month.
[14] The Commissioner has declined to settle with Mr Stephens on any of the bases he has put forward. Her reasons have included his long history of non-compliance, going back to 2007, and that he purchased property while he remained non-compliant with his tax obligations. The Commissioner also referred to her statutory duty to uphold the integrity of the tax system.
[15] Mr Stephens’ accountant wrote to the Department on 29 June 2017 requesting a reconsideration of the situation. The request for review was declined by the Commissioner on 16 August 2017, on the basis that Mr Stephens had not provided sufficient information.
[16] On 4 October 2017, the proposed lump sum payment was increased to $30,000, and on 13 November 2017 it was further increased to $50,000.
[17] On 14 November 2017, the Commissioner, having considered the increased offers made on Mr Stephens’ behalf, again declined his proposal. The Commissioner’s reasons for declining included the circumstances in which the debt had been created, the actions which had been taken to assist and reduce the liability to the Commissioner, the likelihood of ongoing non-compliance, the Commissioner’s over-arching obligation to the care and protection of the revenue, and the integrity of the tax system.
[18] Ms Cross has also ascertained from Land Information NZ (LINZ) that, during the period of non-compliance with his tax obligations, Mr Stephens and his wife sold properties in Ngāruawāhia and Auckland. Further searches conducted in January 2018, showed that Mr Stephens’ wife is the registered proprietor of five other properties in Otaki, each purchased during the period Mr Stephens remained in default with his tax obligations.
Mr Stephens’ statements
[19] Mr Stephens did not file any affidavits. However, he submitted two written statements, one for the hearing on 16 November 2017 and another, including his submissions on legal issues, for the hearing on 15 February 2018. A number of written references were also provided.
Mr Stephens’ work
[20] Mr Stephens said that he has been a contract worker in film and television for 37 years. His employment has always been on a project-by-project basis, sometimes for short periods of less than a day, sometimes for several weeks. He said that he had projects scheduled well into 2018.
[21] Throughout his working life, Mr Stephens has raised funds for film and television production work, whether on his own account or with partners. He said that he is now senior enough in the industry to be raising money from offshore to fund feature film production, and he expressed concern that he would no longer be able to do that if he were declared bankrupt. He explained that his greatest business expense by far is travel; the production work he does involves frequent travel around New Zealand, and sometimes overseas. He attends international markets and festivals to raise finance, and to work with filmmakers and agencies.
[22] Mr Stephens submitted that in his work he has made (and is making) a positive contribution to the Māori/Pākehā dynamic in New Zealand. He is committed to exploring indigenous knowledge and sharing it through television, film, radio, and the printed media. He participates as a board member and trustee of various industry and community organisations, including the Māoriland Charitable Trust, which he has chaired. He said that he has been extremely successful with these cultural and community endeavours, and in realising considerable artistic and economic potential.
Mr Stephens’ references
[23] Prior to the hearing on 16 November 2017, Mr Stephens submitted a number of references. Included among them were references from some very senior people in the New Zealand film and television industries. One of them described Mr Stephens (who she has known for some 30 years) in the following terms:
Tainui is widely recognised as a gifted broadcaster and storyteller in New Zealand and abroad, and is an expert on tikanga and Te Reo. He is a pioneer Māori television broadcaster, beginning his career under the late Whai Ngata, who mentored and encouraged Tainui to provide an authentic Māori perspective in an organisation that was avowedly white. As one of those fellow New Zealand broadcasters who have encountered Tainui in the 1980s it did not occur to me for some years how hard that road must have been. His screenography comprises some of the most important productions of the last decades.
…
Tainui has spent his career building bridges between Pākehā and Māori and walks comfortably in both cultures.
…
At this stage of his career it is logical that Tainui will be offered appointments to boards and trusts. If he is made bankrupt this will adversely affect his prospects. Tainui has an enormous and rare contribution to make to governance and business in many different types of organisations. It will be a genuine loss for governance in New Zealand if Tainui cannot make himself available for such work.
...
[24] Another referee referred to the nature of the film and television industry in New Zealand. In the vast majority of cases, funding is made available on a project- by-project, series-by-series basis. There are few employees in the sector, and very few with the seniority and experience of Mr Stephens in the making of films and television programmes, with particular reference to Te Reo and tikanga Māori. The structure of the industry requires that most people contribute their skills as contractors rather than as employees.
[25] Other referees referred to Mr Stephens’ very valuable work for trusts, including the Māoriland Charitable Trust, a trust supported by the NZ Film Commission. Mr Stephens’ work for the Māoriland Charitable Trust and his other work as a cultural and Te Reo advisor on films was said to be extremely beneficial to the screen industry, at a time when it is working hard to embrace a Māori point of view and appropriate cultural practice.
[26] All of the referees described Mr Stephens in complimentary terms. He was described in one reference as a person of rare gifts, who is a very accomplished screen storyteller, as well as a major contributor to New Zealand’s screen culture through his work on numerous boards and committees. He was said to have “an uncommon ability to span the Māori and Pākehā worlds”, and to have an international reputation as an important writer, producer, director in television documentary and feature film.
The tax debts and how they arose
[27] In his statement for the 16 November 2017 hearing, Mr Stephens explained that he had been unable to keep up with his tax returns during a dark period in his life that began in 2007, when his late wife and business partner died after a long illness. He had no previous history of financial failure, and had always delivered his television and film productions on budget. His trading company (Pito One) was later liquidated
on the application of the Commissioner, and he was required to pay a significant sum by way of costs and to buy back the assets of the business. He says that his personal assets were exhausted in that process.
[28] From 2015, Mr Stephens says that he has incurred considerable expense ensuring that eight years of tax returns have been filed. Over that period, he and his accountant have been trying to negotiate a settlement with the Commissioner, but those efforts have been unsuccessful. The most he was able to offer was $50,000, which would have been borrowed from family and friends.
[29] Mr Stephens noted that the “core debt” is approximately $166,000. He stated that he first contacted the Inland Revenue Department (the Department) in 2010 to let them know of the difficult situation in which he then found himself. As early as September 2011 he met with his accountant to start working out how to compile the information that would be necessary for the preparation of outstanding tax returns. Thereafter, he said that he received only occasional notifications from the Department that returns were overdue.
[30] In 2015, Mr Stephens filed returns for the three tax years to March 2014, and in 2016 returns were filed for the earlier years, from 2007 to 2011. He stated that he brought all his returns up to date at the beginning of 2017.
[31] Mr Stephens said that he now has a new wife and work partner who guides him to ensure that his financial affairs and tax matters are up to date and correct. He trades in his own right as a sole trader, offering his personal services. He has no need or interest in setting up another company, and he says that he will create no financial risk for anyone else.
Legal principles applicable to adjudication applications
[32]Section 13 of the Act provides:
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.
[33]Section 17 of the Act materially provides:
(1)A debtor commits an act of bankruptcy if—
(a)a creditor has obtained a final judgment or a final order against the debtor for any amount; and
(b)execution of the judgment or order has not been halted by a court; and
(c)the debtor has been served with a bankruptcy notice; and
(d)the debtor has not, within the time limit specified in subsection (4),—
(i)complied with the requirements of the notice; or
(ii)satisfied the court that he or she has a cross claim against the creditor.
…
(4)The time limit referred to in subsection (1)(d) is,—
(a)if the debtor is served with the bankruptcy notice in New Zealand, 10 working days after service; or
…
[34]The other relevant statutory provision is s 37 of the Act. That section provides:
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.
[35] In this case, the Court clearly has jurisdiction under s 13 to make an adjudication order. The Commissioner holds a judgment debt for a sum in excess of
$1,000 that Mr Stephens does not dispute, and the debt is for a certain sum. The judgment is payable immediately, and there is no dispute that Mr Stephens committed an act of bankruptcy when he failed to comply with the bankruptcy notice within the 10 working day period prescribed for compliance. He acknowledges that he cannot pay the debt. There is accordingly no basis for the Court to refuse to make an adjudication order on the basis of either s 37(a) or s 37(b) of the Act.
[36] The issue, then, is whether the Court should exercise its discretion under s 37(c) or (d) of the Act, to refuse to make the adjudication order the Commissioner seeks.
[37] The Court’s general discretion was described by the Court of Appeal in Baker v Westpac Banking Corporation as follows:1
It is proper for the court to consider not only the interests of those directly concerned – the petitioner, other creditors, the debtor – but also the wider public interest. A creditor who establishes the jurisdictional facts as set out in [the equivalent of s 13 of the Act] is not automatically entitled to an order. On the other hand, it is for an opposing debtor to show why an order should not be made. The court will give proper weight to the commercial judgment of the petitioner but the oppressive use of the bankruptcy process may be a ground for refusing an order. Another ground may be the undoubted absence of assets but that will not necessarily preclude an order given the range of interests involved including the public interest in the continuing oversight of a bankrupt’s affairs and the disqualifications that go with bankruptcy. In the end the court must balance the various considerations relevant to the case and determine whether the debtor has succeeded in showing that an order ought not to be made.
[38] In Rabobank Australia Ltd ex parte Tootell,2 Associate Judge Osborne referred to the decision of Master Williams QC in Re Epirosa.3 In that case, the Master set out a list of factors which he considered relevant to the exercise by the Court of its discretion:
1 Baker v Westpac Banking Corporation CA 212/92, 13 July 1993 at 4, per Richardson J.
2 Rabobank Australia Ltd ex parte Tootell [2013] NZHC 2975.
3 Re Epirosa, ex parte Diners Club NZ Ltd, (HC) Wellington, B498/91/B532/91; 6 March 1992.
(a)What are the wishes of all affected parties, including the applying creditor, other creditors and the debtors?
(b)Does the debtor have the ability to meet his or her debts over time and, if so, does that meet the requirements of achieving finality within a reasonable period?
(c)What were the circumstances in which the debt was incurred, and do those circumstances suggest that the creditor is acting unreasonably in pursuing adjudication?
(d)Will adjudication be pointless?
(e)Will the debtor, if adjudicated, be rendered unable to support himself or herself?
(f)Does the debtor have such a standing in the community that significant issues of stigma or embarrassment will result?
[39]In Re Fidow Fisher J noted:4
…it does appear that as a matter of legal authority one should not necessarily decline a bankruptcy merely on the ground that there are no obvious assets for the creditors. Clearly that must be a powerful factor to consider. But there are several other considerations which may be of equal importance.
One of these is the potential for further investigation. A bankruptcy makes available to creditors an array of procedures for investigating the financial circumstances of the debtor. Those procedures are likely to prove more effective than an investigation conducted by other means. I have previously adverted to the possibility that some investigation in this case might be rewarding. I intend no reflection upon Mr Fidow by that comment. In the finish, investigation may reveal nothing that is not already known. But I cannot entirely rule it out as a possible avenue of benefit for the creditors.
The next matter to be borne in mind here is that on a bankruptcy petition the Court must have regard to the public interest in a way which transcends the interest of the immediate party to the proceedings…The public interest in exposing and controlling an insolvent debtor is one which exists quite independently of the separate question of debt collection by his immediate creditors.
4 Re Fidow (a debtor) [1989] 2 NZLR 431, at p 33-34.
The legal submissions
The Commissioner
[40] Ms Mailer identified three particular elements of the case which she submitted are important to the exercise of the Court’s discretion under s 37:
(a)the interests of Mr Stephens himself – in particular, his ability to support himself, his age, and the impact of the stigma of bankruptcy on his work and community activities;
(b)the possible presence of assets, and the potential for matters requiring the investigation of the Official Assignee; and
(c)the public interest.
[41] As for Mr Stephens’ personal interests, Ms Mailer submits that an order for adjudication would not necessarily prevent Mr Stephens from continuing his work in a self-employed capacity: he would be able to apply to the Court or the Official Assignee for permission to continue business activities.5 But even if Mr Stephens could not obtain consent to self-employment, his ceasing to be self-employed would not justify the exercise of the discretion under s 37(c) or (d) to refuse the adjudication order.
[42] Ms Mailer refers to a number of decisions of this Court, including Re Carroll, where the debtor was a practising solicitor, in support of the proposition that the Court has exhibited some reluctance to view a debtor as being entitled to work of a specific status.6 On the other hand, in Re McLafferty the Court did place weight on the negative impact adjudication would have on the debtor’s career as an insurance broker. In that case, there was evidence that the debtor’s contract would be terminated if he were
5 Insolvency Act 2006, s 149.
6 Re Carroll HC Auckland B736/90, 17 May 1990 at [8]:
Whilst an adjudication may deprive the debtor of his rights to hold a practising certificate and retain a Law Society membership, it does not deprive him of employment where he may use his expertise.
adjudicated bankrupt, and the Court found that he had not acted “irresponsibly” in incurring the debt. The Court declined to make the adjudication order sought.7
[43] Ms Mailer submits that the Courts have been especially wary of giving weight to the impact of bankruptcy on a debtor’s professional and business concerns, where the debt arises out of tax defaults and irresponsible conduct. She refers to Re Tiar, where the debtor submitted that employment with an accountancy firm would be lost if an adjudication order were made. The Court still adjudicated the debtor bankrupt, because of the debtor’s “fragrant disregard” of tax obligations for a long period of time.8
[44] Ms Mailer also noted Commissioner of Inland Revenue v Sala, where evidence that the debtor’s contract with a specific employer would be terminated was not enough to justify the Court refusing to make an adjudication order.9 Similarly, in Commissioner of Inland Revenue v Brown the Court made an order for adjudication even though it found the debtor would be rendered “effectively unemployable” as a financial service provider.10
[45] Ms Mailer acknowledges that the stigma of bankruptcy, and its impact on a debtor’s participation and standing in the community, is a relevant consideration under s 37(c). However, the two cases Ms Mailer found where the impact of a bankruptcy order on a debtor’s standing in the community did result in the Court declining to order adjudication can be distinguished, because in those cases the debts arose from business enterprises of family members, and it was clear in both cases that the debtors had no assets.11
[46] Ms Mailer also acknowledges that the age of the debtor can be a relevant consideration, particularly where it appears unlikely that the debtor will carry on business. However, Mr Stephens’ history of unpaid income tax is evidence of “chronic insolvency”, and in that situation there is a strong public interest in granting an order
7 Re McLafferty HC Auckland 1915/93, 20 May 1994 at p 15.
8 Re Tiar (1994) 16 NZTC 11,183 (HC) at 11,185.
9 Commissioner of Inland Revenue v Sala [2013] NZHC 640 at [52].
10 Commissioner of Inland Revenue v Brown [2016] NZHC 1232 at [31].
11 Re Morehu HC Rotorua 251/89, 21 December 1989 at p 3; and Re Smith HC Auckland 1603/94, 1 September 1995 at p 8 and 13-14.
for adjudication, to promote accountability.12 That public interest displaces other considerations, including the debtor’s age.
[47] That long history of non-compliance also displaces considerations regarding the effect of bankruptcy on Mr Stephens’ community participation.
[48] Referring to the second relevant discretionary element she identified, Ms Mailer submits that the Courts have consistently made adjudication orders even if there is little, if anything, in the way of assets to be realised for creditors.13 In this case, there is insufficient evidence to support Mr Stephens’ contention that he has few assets of value, and that there is little prospect of recovery.
[49] Ms Cross’ evidence shows that there are a number of properties owned by Mr Stephens and his wife that Mr Stephens has not disclosed, and Mr Stephens and his wife have acquired and sold other property during the period of his tax non- compliance. Ms Mailer submits that it is appropriate that Mr Stephens’ property interests should be investigated and assessed by the Official Assignee. While Mr Stephens says that he has no personal assets, he has not produced an up-to-date statement of his assets and liabilities, and those of his wife and any associated entities. The Court should be reluctant to accept his uncorroborated evidence that he has no significant assets.14
[50] The last of the discretionary factors relied upon by Ms Mailer is the public interest, and the Commissioner’s statutory duties. She refers to s 6A(3) of the Tax Administration Act 1994 (the TAA), under which the Commissioner has an obligation to “collect over time the highest net revenue that is practicable within the law”. And s 176(1) of the TAA requires that the Commissioner must also “maximise the recovery of outstanding tax from a taxpayer”.
[51] In this case, and notwithstanding the existence or non-existence of recoverable assets, the public interest and considerations of commercial morality weigh in favour
12 Citing Commissioner of Inland Revenue v Brown [2016] NZHC 1232 at [26].
13 At [33].
14 Citing Re Marra HC Auckland CIV-2003-404-2931, 13 February 2004 at [24]-[25].
of adjudication. The necessity of payment of tax is a matter which is “inseparable from considerations of commercial morality”.15
[52] The Commissioner’s duty to “protect the integrity of the tax system” under s 6 of the TAA requires the Commissioner to uphold the expectations of compliant tax payers, and ensures that an unfair burden is not imposed on them through their compliance.16
[53] As Master Lang commented in Re Marra, it would be “detrimental to the public interest and would do nothing to enhance commercial morality, particularly in the field of compliance with tax obligations”, if the judgment debtor were to “walk away unscathed from his present situation”.17
[54] Finally, Ms Mailer acknowledges Mr Stephens’ bereavement, but submits that the bereavement does not explain the full extent of Mr Stephens’ failure to comply with his tax obligations. She notes the recent failure of Pito One, and points to the fact that Mr Stephens is still not keeping current with his tax obligations. His settlement proposals would account for only a fraction of the debt.
Mr Stephens
[55] In his submissions, Mr Stephens addressed each of the three factors identified by the Commissioner as going to the exercise of the Court’s discretion under s 37(c) and (d) of the Act.
[56] On the matter of his personal interests, Mr Stephens submits that the specialist nature of his life’s work has not been properly understood. Any comparisons with particular professions, such as accountants and lawyers, are inapt, as Mr Stephens’ work goes beyond the parameters of any particular profession. While Mr Stephens acknowledges his position as a tax payer, and does not ask to be treated differently
15 Re Commissioner of Inland Revenue ex parte Musuku [2016] NZHC 2773, (2016) 27 NZTC 22,078 at [18].
16 Citing Raynel v Commissioner of Inland Revenue HC Hamilton CRI-2003-419-1461, 23 April 2004 at [54].
17 Re Marra above n 14, at [36].
from anyone else, he submits that his own unique circumstances should be taken into account in the exercise of the Court’s discretion.
[57] Mr Stephens relies particularly on the Māori dimension of his work, and what he views as his special place within the Māori world. He submits that notions like “stigma” and “reputation” sit easily alongside concepts like mana (personal authority) and whakamā (shame). He submits that he has used his work in the screen industry to enhance Māori pride, Pākehā interest, and an honest conversation between the two cultures that form the basis of our way of life.
[58] Mr Stephens says that he has been at the forefront of most of the developments that have seen Māori television grow and that he has become a respected player in the media landscape. With that in mind, it would be appropriate for the Court’s understanding of Māori values and knowledge to be brought to bear in the exercise of its discretion.
[59] Mr Stephens acknowledges that his tax non-compliance is a blemish on his personal financial management, but says it was brought on by grief, exacerbated by a lengthy period obtaining probate in his late wife’s estate. There was then a period of “re-entry into life”. Mr Stephens submits that this “dark period” does not provide a true reflection of his many prior decades of full compliance and responsibility. Mr Stephens submits that the fact of non-payment, in and of itself, does not warrant the use of language such as “fragrant disregard”.18
[60] In respect of his employment, Mr Stephens says that it is less concerned with skills than it is with ideas. He devises story ideas, gets them funded, and then gets the programme or film made. Much of his time is spent writing proposals. If he is adjudicated bankrupt, he will be unable to make those proposals – they would not be considered viable or worthy, and he would be denied the chance to employ himself to his fullest potential at a time in his life when he is primed to do so.
[61] Mr Stephens says that he has been a freelancer all his working life, and has never had a full-time job in the media. But any possibility of self-employment if he is
18 Citing Re Tier (1994) 16 NZTC 11,183 (HC) at p 4.
adjudicated bankrupt would be confined to work outside his specialist abilities. The cultural and economic benefits that flow on from his ideas, and the work he generates for others, would cease.
[62] In the circumstances just described, Mr Stephens submits that notions of stigma are of acute importance: an order for adjudication would create a stigma that would be inequitable, less for reasons of personal shame than for lost opportunities to engage with people and organisations of power and influence. The loss of mana and reputation which would go with a bankruptcy order would directly compromise Mr Stephens’ ability to support himself, and to serve the community, and would affect him personally, to an inequitable degree.
[63] Mr Stephens also refers to the impact his bankruptcy would have on others. The leadership initiatives in which he has engaged, including initiatives through his chairmanship of Māoriland Charitable Trust and the Māoriland Film Festival, would no longer be open to him. There is also the impact bankruptcy would have on his wife, who he married in 2014. He attributes to her the credit for his efforts to rehabilitate himself since then, including addressing the tax situation.
[64]Mr Stephens denies any attempt to conceal assets.
[65] On the public interest and integrity of the tax system issues, Mr Stephens acknowledges that getting behind with his tax returns was irresponsible, but he says that it was not motivated by any desire to “flout with impunity” those obligations. He refers to the letter he sent to the Commissioner in December 2010, in which he said he was up-to-date with his GST returns, and that his accountant had all the records for his small company, with no major issues. He referred in the letter to three reasons for the delays with filing, being a burglary in 2007, his then-wife’s illness with cancer, and the time spent after her death in the administration of her estate.
[66] Specifically on the issue of the public interest, Mr Stephens emphasises that his life’s work has been devoted to the public interest – he submits that it is in the public interest that he be able to continue with that work.
[67] Finally, Mr Stephens raised the question of how the refusal of an adjudication order could be justified, consistent with commercial morality and the integrity of the tax system. I set out his answer in full:
I submit that a response could reflect the following:
Recognition that debtors in difficulty require negotiation, with all relevant facts, options and support available for consideration. Recognition that a debtor who makes a significant contribution to society that is specialised and demonstrably needed shall be allowed consideration, only if it can proved that the disqualifications of insolvency will be a net loss for that society; Recognition that the debt incurred during a marriage with a deceased person should not be visited upon a subsequent marriage partner of that debtor, or if it is, it must be proportionate to the period of the respective relationships; Recognition that the Treaty of Waitangi and the values and principles of partnership are given appropriate weight with the equivalent Pākehā imperatives when considering orders of insolvency for debtors whose circumstances straddle both worlds.
[68] In general terms, Mr Stephens submits that an order for adjudication would apportion a greater sense of punishment and containment than is warranted. He asserts that he is “in no threat of getting behind in my tax again”. He would still like to negotiate a settlement plan with the Commissioner over time, which would enable him to discharge his liability.
Discussion and conclusions
[69] I accept that the principal factors affecting the exercise of my discretion are those identified by Ms Mailer and set out at [40] of this judgment:
(a)Mr Stephens’ personal interests, including his age and ability to support himself, and the impact bankruptcy would have on his work and community activities; and
(b)the possible existence of assets, and the potential for matters requiring the investigation of the Official Assignee; and
(c)the public interest.
[70]It will be convenient to consider the first and third of those factors together.
[71] I acknowledge at the outset the significant contributions Mr Stephens has made over many years, particularly in the world of television and film production, and in his community contributions through organisations such as the Māoriland Charitable Trust. I acknowledge too that those contributions are likely to be reduced, or at least made more difficult, if an order for adjudication is made. In the end, I think the question is whether the public interests in maintaining the integrity of the tax system, and in ensuring that those who do not meet their tax commitments are appropriately held to account for their defaults, outweigh those considerations. In the particular circumstances of this case, I am satisfied that they do.
[72] Mr Stephens says that he acknowledges his position as a taxpayer, and does not ask to be treated differently from anyone else. But in fact that is exactly what he is asking for. He says, in effect, that his ongoing contributions, particularly to the enhancement of a broader understanding between Māori and Pākehā, are so important that they should not be interfered with by adjudication in bankruptcy, notwithstanding his substantial tax debts going back many years.
[73] That submission raises an initial question as to whether or not that is in fact so; whether it is in fact the case that there are no others within Māoridom capable of making the contributions Mr Stephens has been making. That is not a question I can answer on the limited information I have before me, beyond making the obvious observation that, at least in “non-creative” matters such administration and fundraising, few of us find in life that we are indispensable. I think for present purposes the more important question is whether an order for adjudication would necessarily prevent Mr Stephens from pursuing his talents in the areas of devising story ideas, and writing proposals. I note in that regard the impressive and extensive support he appears to have, not only from his wife, who I accept has played a central role in helping him turn his life around following the death of his first wife, but also from very senior and influential people within the film and television industries. If Mr Stephens’ contributions are as important as these people clearly believe them to be, could they not find ways to use his considerable talents notwithstanding his bankruptcy? Perhaps working in collaboration with the Official Assignee to that end?
[74] There are parts of Mr Stephens’ submissions that I am unable to accept. First, his invitation to the Court to bring to bear its knowledge of Māori values and knowledge is not, at least without reference to particular Treaty principles; values; or aspects of tikanga Māori, of great assistance. All New Zealanders, whether Māori or Pākehā, have a clear and obvious interest in their fellow citizens meeting their tax obligations, and I think it was for Mr Stephens to articulate clearly the values to which he was referring, and how they are said to be relevant in this case.
[75] Secondly, I am unable to accept that Mr Stephens’ bereavement in 2007 sufficiently explains his failure to pay his taxes, and to get his tax returns for the years ended 31 March 2007 to 31 March 2011 filed until 2 August 2016. I note in that regard that he was able to correspond with the Commissioner in respect of his tax affairs as early as December 2010, had engaged an accountant by 2011, and remarried in 2014. In the absence of any better explanation from Mr Stephens, I am left with the clear impression that he did not see attending to his tax obligations as something which called for any particular urgency. (One of the factors contributing to that impression is Mr Stephens’ statement that he received only occasional notifications from the Department that returns were overdue: it was clearly Mr Stephens’ own responsibility to get his returns filed on time, without the need for “reminders” from the Commissioner.)
[76] I reject also Mr Stephens’ apparent belief that he has been wrongly denied opportunities to meet with a representative of the Commissioner to discuss his tax position. His accountant was clearly in communication with the Commissioner while attempts were being made to settle the Commissioner’s claims, and Mr Stephens apparently did not engage with the Commissioner or her solicitors when the Court claim and subsequent bankruptcy notice were served on him (both obvious occasions when communication might have been initiated by Mr Stephens).
[77] Those are not the only reasons for disquiet about Mr Stephens’ attitude to meeting his tax obligations. Given the difficulties he must have known he was facing, one would have expected him to have his March 2017 tax return filed by the due date, namely 7 July 2017. In fact, it was still outstanding on 5 February 2018 when Ms Cross swore her affidavit. Similarly, GST returns have been filed late, at a time
when the Commissioner had commenced action to recover outstanding tax. These episodes create a real concern on the issue of whether income and business taxes such as these are likely to be paid on time in the future if an order for adjudication is not made.
[78] The failure of Pito One, with tax debts of $232,793.47, is another significant cause for concern. The company was not eventually put into liquidation until February 2017, close to a decade after Mr Stephens’ lost his first wife and entered a period in his life when he had difficulty coping. As I have said, I do not accept that that early “dark period” sufficiently explains nearly 10 years of ongoing defaults. Mr Stephens says that he was “required” to pay a significant sum by way of costs and to buy back the assets of the business, but he does not say how much, or what those assets were. The costs seem likely to have been no more than an ordinary incident of any business failure, and the decision to purchase Pito One’s assets at a time when Mr Stephens appears to have been insolvent has not been adequately explained.
[79] Ordinarily, lengthy and substantial defaults such as those of Mr Stephens would justify the making of an order for adjudication, in the public interest. The only question is whether the impact of an adjudication on Mr Stephens and his family, and possibly on the communities who have been served by his work, requires some different conclusion. I do not consider it does.
[80] This is not a case like Re McLafferty, where the debtor did not act irresponsibly in incurring the debt. Here, the evidence of irresponsibility is clear, and is at least partially acknowledged by Mr Stephens. There has been a disregard, or disrespect, for tax obligations in this case, and that factor makes the case closer to Re Tier, where an order for adjudication was made. Nor is this a case like Re Morehu, or Re Smith, where the debts arose out of the unsuccessful business enterprises of family members.
[81] Considerations of public morality also weigh in favour of an order for adjudication. I agree with the statement of Master Lang in Re Marra that (at least in an appropriate case) it can be detrimental to the public interest, and do nothing to enhance commercial morality, particularly in the field of compliance with tax obligations, to “let the debtor walk away from his present situation”. In my view, that
statement applies in this case, and I am not persuaded that either Mr Stephens’ work and community contributions or his personal or family situation are sufficient to displace it.
[82] As for Mr Stephens’ personal and family situations, I accept that bankruptcy will result in some stigma in his work and community spheres of activity. But he is clearly a very intelligent and resourceful man, and he has the support of his wife and some very senior and experienced people in the film and television industries who are aware of the fact that he is facing bankruptcy but still hold him in high regard. It should not be beyond the capacity of some of these people to work with Mr Stephens and the Official Assignee to ensure that he can continue to make important contributions in at least some of the ways he has done in the past. I accept that he will not be able to do everything that he has done in the past, but that is a situation he has brought upon himself.
[83] Will there be losses to the public of New Zealand if Mr Stephens is adjudicated bankrupt? Maybe, but I would be surprised if there are not talented and creative individuals who will be able to pick up at least part of Mr Stephens’ mantle, especially if those with the capacity to do so bring Mr Stephens in to assist in that process to the full extent he is able, given what will be his bankrupt status. If there is some public loss, I am of the view that the wider public interest requires that that loss be accepted. Given the duration and extent of Mr Stephens’ tax defaults and the concern that they may well continue if he is not adjudicated bankrupt, I do not think this is a case to make some sort of “exception” for Mr Stephens because of his perceived importance. That would not be the right answer. It would not reflect the seriousness of the situation, and would not send the right messages to others who might have attained high standing in the community through important contributions of one kind or another, but failed to meet their tax obligations.
[84] Mr Stephens submits that an adjudication order would be disproportionate, but I do not accept that submission. First, bankruptcy will not necessarily prevent Mr Stephens from carrying out at least some of the activities at which he is talented – that is something to be discussed with the Official Assignee and those people in the industry who may be willing to help. Secondly, there is in my view a need for
Mr Stephens to accept responsibility for the situation he finds himself in,19 and I doubt that will occur if there is no adjudication order. Thirdly (and this is related to the second point), I do not have confidence that there will be no further defaults if no adjudication order is made.
[85] Ms Mailer’s second issue, whether Mr Stephens might have some assets, also points in favour of adjudication. The evidence of Ms Cross suggests Mr Stephens might have some assets in the form of properties or the proceeds of sale of properties, and I accept Ms Mailer’s submission that that is a proper matter for the Official Assignee to look into. Quite apart from the public interest factors discussed above, it appears adjudication will not be pointless in this case.
[86] Mr Stephens did not put before me any material that would suggest that he would not be able to support himself if an adjudication order were made.
[87] Having considered all of the matters put to me, I am satisfied that an adjudication order should be made. I therefore make an order adjudicating Mr Stephens bankrupt, with costs to the Commissioner on a 2B basis, and disbursements as fixed by the Court.
[88]Those orders are timed at 12 midday on 23 March 2018.
Associate Judge Smith
Solicitors:
Inland Revenue Department, Legal & Technical Services, Wellington for Judgment Creditor
19 As Associate Judge Bell noted in Commissioner of Inland Revenue v Brown [2016] NZHC 1232 at [34], bankruptcy is often ordered to ensure accountability for non-payment of creditors, and that is equally applicable in the case of the Commissioner of Inland Revenue.
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