Gardiner v Registrar of Companies

[2021] NZHC 887

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-000046

[2021] NZHC 887

UNDER

the Companies Act 1993

IN THE MATTER

of an application to restore its It’s a Sign Limited to the Companies Register

BETWEEN

MARK RICHARD GARDINER

Applicant

AND

REGISTRAR OF COMPANIES

First Respondent

AND

THE TREASURY

Second Respondent

Hearing:

26 March 2021 (by AVL)

Further submissions received: 14 April 2021

Appearances:

P J Bedogni for Applicant

C G Van der Merwe for the Commissioner of Inland Revenue

Judgment:

23 April 2021

JUDGMENT OF ASSOCIATE JUDGE PAULSEN

This judgment was delivered by me on 23 April 2021 at 3.00pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

GARDINER v REGISTRAR OF COMPANIES [2021] NZHC 887 [23 April 2021]

[1]                 This is an application to restore It’s a Sign Ltd (company number 4349065) (the company) to the Companies Office Register.

[2]                 The application relies specifically upon s 329(1)(b) of the Companies Act 1993 (the Act), that is, that it is just and equitable to restore the company to the New Zealand register.

The facts

[3]                 The applicant is Mark Richard Gardiner. He was the director and only shareholder in the company when it was removed from the Register.

[4]Mr Gardiner has standing to make the application under s 329(2) of the Act.

[5]                 The company was incorporated on 11 March 2013. It was removed from the Companies Register on 20 February 2018. This was as a result of a failure to file its annual return in 2017.

[6]                 At the time of its removal, the company was not trading and Mr Gardiner was working as a salaried employee. He intended to use the company again in the future.

[7]                 Mr Gardiner did not receive notice of the Registrar’s intention to remove the company from the Register. That notice was sent to his accountants and they did not inform him.

[8]                 When removed from the Register, the company had no creditors other than Mr Gardiner in his current account. The company had tax losses amounting to

$141,136. The company’s financial position has not changed since removal.

[9]                 When  he  learned  the  company  had  been  removed  from  the  Register   Mr Gardiner raised it with his accountants who advised him that he should incorporate a new company and he did that. They did not advise him to apply to restore the company or about the possibility the tax losses might be utilised if he did.

[10]              The new company that was incorporated is called It’s a Sign (2018) Ltd and it is presently trading.

[11]              It’s a Sign (2018) Ltd is to file its annual tax return. Mr Gardiner has new accountants and has now been advised that use could be made of the tax losses of the company. He understands that upon restoration the company its tax losses may be off-set against tax owing by It’s a Sign (2018) Ltd. It is to obtain the benefit of the tax losses that this application is made.

The course of the proceeding

[12]              On 3 February 2021, Mr Gardiner was granted leave to commence this proceeding by originating application under pt 19 of the Act. Associate Judge Bell also made directions that service of the application should be effected upon the Registrar of Companies, Treasury and on the Commissioner of Inland Revenue.

[13]              The application has been properly served. There have been no objections to the application.

[14]              Most relevantly, the Commissioner of Inland Revenue advises that whilst it does not oppose the application that does not indicate an acceptance by the Commissioner that the company’s tax losses will be available upon restoration.  In   a letter from Crown Law to Mr Gardiner’s lawyers of 23 February 2021, the Commissioner’s position was stated as:

The Commissioner’s position is the matters of a possible subvention payment and available losses are stand-alone matters that will need to be properly determined using the correct statutory provisions and procedures in the Income Tax Act 2007 and the Tax Administration Act 1994.

[15]              The application has come before the court on a number of occasions. Further information in support of it has been requested and provided. Relevantly, a second affidavit in support of the application was filed by Mr Gardiner, an affidavit was filed by his present accountant, Helen Carbery, and a memorandum of counsel with legal submissions was also filed.

Discussion

[16]              As Associate Judge Gardiner stated in her minute of 26 February 2021, the Court of Appeal has indicated a critical approach should be taken to s 329 applications.

[17]              This is reflected also in s 329(1A) of the Act that in considering such applications the court must have regard to the reasons for the company’s removal and whether those grounds existed at the time of the removal or exist at the time of the hearing of the application.

[18]              In Commissioner of Inland Revenue v Commercial Management Ltd, the Court of Appeal said: 1

In circumstances where s 329 is invoked, and in particular where the “just and equitable” ground is relied on, an evaluative judgment is required. … A s 329 application is not simply a mechanical procedural hurdle to be overcome before arriving at an inevitable destination.

[19]              Later the Court set out the matters that should be addressed in an affidavit accompanying the application as follows:

[61]      The applicant should identify the steps that would need to be taken to remedy any failures to comply with filing requirements under the Companies Act, and provide copies of the documents that would be filed on restoration to remedy those failures. If any orders under s 329(3) would be appropriate, these should be identified in the application.

[62]      The application should address the financial position of the company at the time of removal, and on restoration. If a restored company would be insolvent (as it appears two of the removed companies would be in the present case), there would need to be a compelling reason to bring it back to life: for example, the discovery of overlooked rights or assets which could be realised for the benefit of creditors, or the desire to appoint a liquidator to investigate the company’s affairs.

[63]    The application should also identify any outstanding creditors of the company, and describe its financial affairs in sufficient detail for the court to be able to form a view on whether any orders should be made under s 329(4). If for example the company had outstanding obligations at the time it was removed from the register, and subsequently became aware of rights or assets that had been overlooked, appropriate orders should be made to ensure that despite the passage of time creditors will be paid before any residual assets are distributed to shareholders.

1      Commissioner of Inland Revenue v Commercial Management Ltd [2019] NZCA 479 at [32].

[20]              I am satisfied that it is just and equitable to make the order sought in this case for the following reasons.

[21]              There has been a delay in the making of this application but not to an extent that it should disentitle Mr Gardiner to the order he seeks.

[22]              While the company was not trading at the time it was removed from the Register, I accept Mr Gardiner intended to use it again and this is demonstrated by the incorporation of It’s a Sign (2018) Ltd which is trading.

[23]              Importantly, the company was removed from the Register because Mr Gardiner was not advised that this might occur by his accountants. I accept that it was not a deliberate decision on his part to allow the company to be removed.

[24]              The company had no creditors other than Mr Gardiner at the time it was removed and its position has not changed since then.

[25]              In her affidavit, Ms Carbery has set out the steps that have and will be taken to remedy any failures by the company to comply with filing requirements under the Act.

[26]              There is a good reason to restore the company. The Court of Appeal recognised in Commissioner of Inland Revenue v Commercial Management Ltd that a reason to bring a company back to life included “the discovery of overlooked rights or assets which could be realised for the benefit of creditors…”.2 The situation here is analogous as the intention is to take advantage of overlooked tax losses ultimately for the benefit of Mr Gardiner, the creditor of the company.

[27]              Finally, I note there is no objection to the application. Importantly, this is not a case where it has been suggested the application is contrary to the public interest.   I note that there is also no suggestion that the application is not pursed for genuine reasons or that the intention to take the benefit of the company’s tax losses is entirely untenable.

2 At [62].

Result

[28]The application is successful.

[29]              I make an order under s 329(1)(b) of the Companies Act 1993 restoring It’s  a Sign Ltd to the Register of Companies.

[30]I reserve leave to apply further for any ancillary orders that may be required.

O G Paulsen Associate Judge

Solicitors:

Martelli McKegg, Auckland

Crown Law Office, Wellington