Commissioner of Inland Revenue v Tawera Land Company Limited HC Palmerston North Civ-2010-454-615

[2010] NZHC 2370

IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY

CIV-2010-454-615

BETWEEN  THE COMMISSIONER OF INLAND REVENUE

Plaintiff

ANDTAWERA LAND COMPANY LIMITED Defendant

Hearing:         2 December 2010

Appearances: P.H.B Latimer - Counsel for Plaintiff

M.B. Ryan - Counsel for Defendant

Judgment:      3 December 2010 at 12.30 pm

JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

This judgment was delivered by Associate Judge Gendall on 3 December 2010 at

12.30 pm under r 11.5 of the High Court Rules.

Solicitors: Inland Revenue Department, Legal and Technical Services, PO Box 1462, Wellington

MB Ryan, Solicitor, PO Box 12504, Palmerston North

THE COMMISSIONER OF INLAND REVENUE V TAWERA LAND COMPANY LIMITED HC PMN CIV-

2010-454-615  3 December 2010

[1]      On 1 September 2010 the defendant filed proceedings in this Court seeking an order to place the defendant company into liquidation.

[2]      These proceedings related to a claim expressed in the plaintiff’s statement of claim for the sum of $534,493.56 for outstanding Goods and Services Tax, PAYE tax deductions, Kiwi Saver Employee deductions and contributions together with penalties and interest.

[3]      Earlier, a statutory demand had been served on the defendant company on 30

June 2010 with respect to tax debts due to the plaintiff but this demand had gone unanswered.

[4]      The substantive liquidation proceedings against the defendant were served on

14 September 2010 and advertised in the Manawatu Standard on 17 November 2010 and the New Zealand Gazette on 18 November 2010.

[5]      These  proceedings  were  first  called  before  me  on  6  October  2010.    Mr

Latimer appeared at that point for the plaintiff and requested an enlargement to 2

December 2010 for advertising to be completed.  There was no appearance for the defendant.  The enlargement requested was granted and the matter came before me for hearing on 2 December 2010.   At that hearing Mr Latimer again appeared as counsel for the plaintiff and Mr Ryan appeared as counsel for the defendant.

[6]      Although  no  statement  of  defence  or formal  opposition  to  the  plaintiff’s application  had  been  filed  by  the  defendant,  an  affidavit  of  Richard  William Thurston (“Mr Thurston”) a director of the defendant dated 1 December 2010 was filed  in  this Court  on that  date.     And  before  me,  Mr  Ryan  indicated  that  the application was opposed and sought an adjournment upon the principal ground that a proposal to settle a portion of the debt had been put, was reasonable and should be considered by the plaintiff.  The debt claimed was not disputed however.

[7]      This  settlement  proposal  broadly  speaking  provided  for  a  payment  plan involving $200,000.00 to be paid by 1 February 2011 with further payments to clear the core debt including monthly payments stretching out to 30 June 2011.   The

proposal, as I understand it would simply have cleared the core tax outstanding with an “arrangement” then to be reached with the plaintiff as to the amount he sought for penalties and interest.

[8]      It became clear at the hearing before me that this particular proposal had been put by the defendant to the plaintiff some time ago and it had been formally rejected by the plaintiff.   As explained by Mr Latimer, this was because the plaintiff had real concerns regarding the certainty of any payments which were to be forthcoming and in addition and in any event the defendant was failing to keep up with its current taxation payment requirements, and had been somewhat deceptive and recalcitrant in providing information as to its true financial position.

[9]      With respect to the ongoing taxation liabilities, Mr Latimer for the plaintiff expressed real concern that a September 2010 GST return recently filed for the defendant company, as I understand the position, omitted to account for a substantial GST liability of $353,750.00 which was due from the defendant as a repayment of a GST tax credit received by the defendant on a farm sale contract which had been cancelled as a result of default by the purchaser.   This $353,750.00 GST amount should have been returned in the defendant’s September 2010 GST return and it seems it was directly omitted.

[10]     And critically, Mr Latimer for the plaintiff indicated real concern that despite many requests to do so, the defendant had effectively refused to disclose its true financial position either to the plaintiff or the Court by way of any verified financial statements, and this can only lead to unfavourable conclusions being drawn.

[11]     It is true that the defendant in the affidavit of Mr Thurston did provide financial budgets for the company prepared by an agricultural consultant for the next

3 or 4 years but the only evidence of any kind before the Court of the defendant company’s present financial position are unverified statements which seem to claim that  the  defendant  has  an  equity  in  certain  farm  properties  totalling  about  $19 million.  Those unverified statements are in fact attached to an affidavit of Ms Tan sworn 1 December 2010 which was provided for the plaintiff and not the defendant. In addition no independent verification of the values of the various farm properties

claimed in this statement is provided, and as Mr Latimer points out, the statement seems to omit potential cross-guarantee liabilities which the defendant company has entered  into  on  behalf  of other  companies  in  the  group  now  in  receivership  or liquidation which may well total in excess of $14 million.

[12]     From the affidavit of Ms Tan, it is also clear that a number of officers of the plaintiff, in many discussions undertaken in recent months with both Mr Thurston and the then independent accountant for the defendant company (who has recently ceased his involvement with the defendant) made numerous requests for independently  verified  statements  of  the  defendant’s  financial  position  to  be provided.  These requests it seems were ignored.  No such statements have ever been provided.

[13]     Nor has anything of this kind been put before the Court.   The defendant company has known at least since 30 June 2010, when the statutory demand from the plaintiff was served upon it, of the seriousness of the situation and the intention of the plaintiff to seek an order placing the defendant company into liquidation.

[14]     Indeed, from the unopposed evidence of Ms Tan, it is clear that the plaintiff on a number of occasions even held off advertising the liquidation proceeding and pursuing liquidation orders, to allow the defendant time to both provide the information requested and put a suitable settlement proposal.  Despite this nothing acceptable was put forward.

[15]     It is clear in the present case that the defendant company is deemed to be insolvent in terms of s 287 Companies Act 1993 as it has failed to comply with the statutory demand  served  upon  it.    Although  the  Courts  have  been  prepared  on occasions to restrain liquidation proceedings if a company was able to establish that it was in fact solvent, it is clear here that the defendant company has fallen a long way short of establishing this.   The scanty material it has endeavoured to place before the Court is largely deficient and at least in part misleading, and the defendant has clearly ignored the many opportunities provided to it by the plaintiff in recent months to put forward an independently verified statement of its financial position.

[16]     The evidence before me indicates that the defendant is continuing to incur taxation debt which it is not meeting and it is worrying that its recent GST return for the  September  period  has  a  substantial  omission  of  an  amount  in  excess  of

$350,000.00.  Mr Ryan for the defendant also confirmed to the Court that some of the defendant’s creditors have placed the company on a cash trading basis.

[17]     There is no dispute advanced by the defendant over the taxation amounts due to  the  plaintiff.    Of  concern  too  is  that  these  core  taxation  debts  include  over

$500,000.00 for assessed GST (which I understand excludes the over $350,000.00

GST noted in the preceding paragraph) and nearly $61,000.00 of assessed PAYE, the latter being monies effectively held in trust by the defendant.

[18]     Under all these circumstances, in my view, there is no alternative here but for an order to be made placing the defendant company into liquidation.

[19]     The defendant does not dispute the debt claimed, it made no effort to apply to set-aside the statutory demand served upon it on 30 June 2010 and is deemed to be insolvent.  The Court has received no independently verified information as to the defendant’s financial position and indeed what little information is provided to the Court by the defendant has been shown in the affidavit of Ms Tan to be deficient and misleading in a number of significant respects.

[20]     Finally, Brookers Company and Securities Law at CA241.04 notes that:

CA241.04    Appointment of the liquidator — at Court’s discretion

Even if the applicant has standing to institute the liquidation process before the Court and it is found that the facts support one or other of the grounds for the appointment of a liquidator, the Court reserves the right to refuse to put a company into liquidation.

The Court will exercise this jurisdiction sparingly. The normal rule is that if the relevant requirements have been met, the person making the application is entitled to his or her order for the company’s liquidation. This is so even if it is shown that in the liquidation it is unlikely there will be any assets available for distribution to the unsecured creditors.  In cases such as this, often the Court still regards the liquidator as serving useful functions in the investigation of the company’s affairs and as acting as a guardian of the interests of the unsecured creditors.

[21]     In the present case, the plaintiff, in my view, is clearly entitled to an order for the defendant’s liquidation.  The normal rule should apply here as I see the position.

This is not one of those cases where the Court should exercise its sparing jurisdiction to refuse to put the defendant into liquidation.

[22]     For all these reasons the application before me succeeds and the following orders are now made:

(a)       An order is made placing the defendant company into liquidation.

(b)       David Stuart Vance and Barry Philip Jordan are appointed liquidators. (c)    Costs are awarded to the plaintiff on a category 2B basis together

with disbursements as fixed by the Registrar.

(d)An order is made approving the rates of liquidator’s remuneration in accordance  with  the  affidavit  of  David  Stuart  Vance  dated  29

November  2010  filed  in  this  proceeding  subject  to  s  284  of  the

Companies Act 1993.

(e)       A further order is made allowing the liquidators to exercise their powers individually pursuant to s 242 of the Companies Act 1993.

(f)       These orders are timed today, 3 December 2010 at 12.30 pm.

‘Associate Judge D.I. Gendall’