M J Pidgeon Builder Limited (in liquidation) v Pidgeon
[2016] NZHC 1566
•11 July 2016
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2016-409-136 [2016] NZHC 1566
UNDER the Companies Act 1993 IN THE MATTER OF
the liquidation of M J Pidgeon Builder
Limited (in liquidation)BETWEEN
M J PIDGEON BUILDER LIMITED (IN LIQUIDATION)
First Plaintiff
VIVIEN JUDITH MADSEN-RIES AND HENRY DAVID LEVIN
Second Plaintiffs
AND
MICHAEL JOHN PIDGEON Defendant
Hearing: 4 July 2016 Appearances:
K Wakelin and G Campbell for First and Second Plaintiffs
No appearance by or on behalf of DefendantJudgment:
11 July 2016
JUDGMENT OF MANDER J
[1] In November 2015, M J Pidgeon Building Limited (the company) was placed into liquidation on the application of the Commissioner of Inland Revenue. The second plaintiffs, Ms Vivien Madsen-Ries and Mr Henry Levin were appointed as liquidators of the company. The defendant, Mr Michael Pidgeon, was the sole director and shareholder of the company.
[2] The company in liquidation and the liquidators commenced proceedings
against Mr Pidgeon seeking compensation for alleged breaches of director’s duties
under s 301 of the Companies Act 1993 (the Act). Mr Pidgeon filed no defence to
M J PIDGEON BUILDER LIMITED (IN LIQ) & ANOR v PIDGEON [2016] NZHC 1566 [11 July 2016]
the liquidators’ claim. As a result, the matter has proceeded before me by way of formal proof.
Background
[3] The company was incorporated in May 2008, and Mr Pidgeon has been the sole director and shareholder since that time. The company carried out building work, primarily in respect of residential homes, until it ceased trading in October
2015. It was put into liquidation the following month. Inland Revenue has filed a claim in the liquidation totalling $198,446.62.
The liquidators’ claim
[4] The liquidators, on behalf of the company, allege Mr Pidgeon owed the company certain duties under the Act. These are identified as follows:
(a) To act in good faith and what the director believes is in the best interests of the company.1
(b)Not to agree to cause or allow the business of the company to be carried on in a manner likely to create a substantial risk of serious loss to the company’s creditors.2
(c) Not to agree to the company incurring an obligation unless the defendant believed at the time on reasonable grounds the company would be able to perform the obligation when it was required to do so.3
(d)To exercise powers or perform duties with the same care, diligence and skill that a reasonable director in the same circumstances would
exercise.4
1 Companies Act 1993, s 131(1).
2 Section 135.
3 Section 136.
4 Section 137.
[5] In support of the claim an affidavit by one of the liquidators, Mr Levin, an insolvency specialist, was tendered. He has an extensive background in dealing with insolvent companies, liquidations and receiverships. As an insolvency practitioner he is accredited by Chartered Accountants Australia and New Zealand. He is familiar with the affairs of the company post its liquidation, and the company’s documentation and correspondence. He together with the other liquidator and their staff have investigated the financial affairs and dealings of the company, and reviewed its financial statements, bank records and information provided by the Inland Revenue Department.
Financial state of the company
[6] Mr Levin has deposed to having analysed the financial position of the company and of reviewing its financial records to identify whether the company was able to pay its debts as they became due in the normal course of business, and the value of the company’s assets compared to the value of its liabilities. This focus accords with the solvency test provided by s 4 of the Act which requires a company to be both balance sheet and cash flow solvent to pass the solvency test. The former requires the value of a company’s assets to be greater than the value of its liabilities, including contingent liabilities; the latter requires a company to be able to pay its debts as they become due in the normal course of business. Should a company fail either limb it is insolvent.
[7] Mr Levin’s analysis resulted in him concluding that the company, at least from 31 October 2011, was unable to pay its debts as they became due in the normal course of business. These were primarily its tax obligations to Inland Revenue. According to the company’s financial statements, the company was operating with a trading deficit from the financial year ending (FYE) 31 March 2012 onwards, and with a significant working capital deficit from FYE 2011. Its liabilities were significantly greater than its assets from FYE 2012 onwards.
[8] Mr Levin found the company was also frequently operating outside its banking facility, incurring insufficient funds fees, unarranged overdraft fees and dishonour fees from June 2012 until November 2015. The company first began
defaulting on its obligations to account for PAYE in the period ending 31 October
2011, and consistently thereafter for most periods until 30 September 2015. Throughout that period the company accrued a total of $109,950.19 in tax debt, and a further $129,140.57 in interest and penalties. While the company made some payments towards its outstanding tax debt, as at the date of liquidation its total debt to the Inland Revenue amounted to $194,855.65 (excluding the petitioning creditor’s Court costs).
The liquidators’ assessment
[9] Based on his experience, Mr Levin deposed that a company’s failure to pay its tax obligations on a regular basis over an extended period is a “sure sign” of a company in difficulty. A business which collects PAYE must hold such moneys on trust for the Commissioner.5 Companies collecting PAYE, as with GST and Kiwi Saver deductions, are acting as mere intermediaries between the actual taxpayer and the Inland Revenue. In the absence of transferring those funds in accordance with its legal obligations, a company is using money which is not its own to stem its own level of debt.
[10] The company in liquidation and the liquidators submitted the company had insufficient cash flow to meet its debts from 31 October 2011 at the latest. They point to the company’s default on its tax obligations from that time, together with a net asset deficit from that point onward from which to pay new debts. Notwithstanding that position, Mr Pidgeon, as the company’s sole director, allowed it to continue to trade, and continued to draw a salary and made drawings on the shareholders current account.
[11] Mr Levin’s evidence is that it would have been apparent to Mr Pidgeon from the company’s financial records that from October 2011 the company was incurring significant and increasing unmet obligations to Inland Revenue and accruing significant penalties and interest. Notwithstanding that position, Mr Pidgeon failed to make a proper assessment of the company’s financial position, its likely future
income stream and its ability to pay debts as they fell due.
5 Tax Administration Act 1994, s 167(1).
[12] Despite the company’s dire financial position, Mr Pidgeon chose to have the company continue to trade. Between FYE 2011 and FYE 2012, the company’s gross revenue reduced significantly, from which point it never recovered and was never subsequently able to generate a profit. In Mr Levin’s opinion, when the company became unable to meet its debts as they became due, Mr Pidgeon could have immediately taken steps to cease trading the company, thereby preventing any further tax liabilities. By so doing the company would have stopped causing further loss to its creditors.
[13] Despite the company’s worsening financial position, Mr Pidgeon during this period periodically sought to enter into arrangements with Inland Revenue. Inland Revenue records, which Mr Levin has seen, record a history of failed negotiations and arrangements.
[14] Drawing on his specialist insolvency knowledge and experience, Mr Levin deposes that he has seen many instances where directors regularly make decisions that involve an element of risk in the normal course of business. In his opinion, when making those decisions a competent director would consider the financial position of the company and determine whether the action contemplated gives a substantial risk of serious loss to creditors. This would require an assessment of the prospects of success in accordance with orthodox commercial practice.
[15] Mr Levin further deposes that if the degree of risk involved in any action approximates a serious or substantial risk, it is necessary to assess the financial position of the company, and the possible consequences and impact on the company’s creditors. When faced with the possibility the company may be insolvent, or at risk of becoming insolvent, in his view, directors need to raise their level of vigilance and governance. In his experience in such situations he has seen many competent directors make very good decisions.
[16] However, Mr Levin’s evidence is that Mr Pidgeon failed to adequately monitor the company’s financial position and allowed the company to incur significant further unmet obligations. Such a course cannot, in his view, be regarded as activities associated with the normal risk of running a business. Such failures are
much more fairly described as a consequence of the defendant’s failure to carry out
his duties as a director.
[17] Mr Levin opines the creditors’ losses in the present case could have been avoided if Mr Pidgeon had not allowed the company to continue to incur obligations to Inland Revenue. The company should have ceased to trade when it became apparent that continuing to do so was likely to cause further losses to creditors.
Alleged breaches of directors’ duties
[18] The plaintiffs submitted Mr Pidgeon breached his obligations as a director under the Act. They emphasised that a company is a separate legal entity and that directors are required to be diligent in the conduct of the affairs of the company to ensure any party dealing with it is not exposed to any illegitimate risk as a result of the company’s limited liability. The limitations of liability provided by incorporation
are conditional upon proper compliance with the Act.6 Part of the objective of
compliance with directors’ duties to the company under the Act is to protect the interests of creditors when the company approaches insolvency.7
[19] The company and the liquidators maintain Mr Pidgeon did not comply with his obligations under the Act, and failed in his duties as a director. Accordingly, pursuant to s 301, they seek compensation for the resulting losses derived from those breaches.
[20] Section 301 of the Act provides as follows.
301Power of court to require persons to repay money or return property
(1) If, in the course of the liquidation of a company, it appears to the court that a person who has taken part in the formation or promotion of the company, or a past or present director, manager, administrator, liquidator, or receiver of the company, has misapplied, or retained, or become liable or accountable for, money or property of the company, or been guilty of negligence, default, or breach of duty or trust in relation to the company, the court may, on the application of the liquidator or a creditor or shareholder,—
6 Mason v Lewis [2006] 3 NZLR 225 (CA) at [83].
7 Sojourner v Robb [2007] NZCA 493, [2008] 1 NZLR 751.
(a) inquire into the conduct of the promoter, director, manager, administrator, liquidator, or receiver; and
(b) order that person—
(i) to repay or restore the money or property or any part of it with interest at a rate the court thinks just; or
(ii) to contribute such sum to the assets of the company by way of compensation as the court thinks just; or
(c) where the application is made by a creditor, order that person to pay or transfer the money or property or any part of it with interest at a rate the court thinks just to the creditor.
(2) This section has effect even though the conduct may constitute an offence.
(3) An order for payment of money under this section is deemed to be a final judgment within the meaning of section 17(1)(a) of the Insolvency Act 2006.
(4) In making an order under subsection (1) against a past or present director, the court must, where relevant, take into account any action that person took for the appointment of an administrator to the company under Part 15A.
[21] In Löwer v Traveller, the Court of Appeal described the principal purpose of s 301 is to compensate those who have suffered loss as a result of illegitimate trading.8 While s 301 does not of itself impose any duties on directors, it provides a means by which a type of derivative action may be taken by a liquidator, creditor or shareholder to pursue claims which a company in liquidation may have against certain office holders, including directors.9
[22] In Mason v Lewis, the Court of Appeal observed that when pursuing a claim pursuant to s 301 it is necessary for the Court to carry out a two-stage evaluation:10
(a) Has there been a breach of duty owed by a director to the company?
(b)If so, to what extent should the director contribute to the losses of the company?
8 Löwer v Traveller [2005] 3 NZLR 479 (CA) at [78].
9 Sojourner v Robb, above n 7, at [15] and [53].
Has there been a breach of duty owed by Mr Pidgeon?
Alleged breach of s 131 of the Act
[23] Section 131 of the Act provides:
131Duty of directors to act in good faith and in best interests of company
(1) Subject to this section, a director of a company, when exercising powers or performing duties, must act in good faith and in what the director believes to be the best interests of the company.
…
[24] The duty imposed by s 131(1) is subjective. In order to prove breach it is necessary to draw a reasonable inference from circumstances that no director faced with such a situation could truly have believed his or her actions were in the best interests of the company. Where realistically it is inconceivable that a director with any appreciation of his or her fiduciary responsibilities would cause the company to act as it did, the inference can readily be drawn. The best interests of the company include the company’s obligations to its creditors. In Sojourner v Robb, Fogarty J in
this Court summarised the position in the following terms:11
[102] In this context the standard in s 131 is an amalgam of objective standards as to how people of business might be expected to act, coupled with a subjective criteria as to whether the directors have done what they honestly believe to be right. The standard does not allow a director to discharge the duty by acting with a belief that what he is doing in the best interest of the company, if that belief rests on a wholly inappropriate appreciation as to the interests of the company... Creditors are persons to whom the company has ongoing obligations. The best interests of the company include the obligation to discharge those obligations before rewarding the shareholders.
[25] In the present case, Mr Pidgeon allowed the company to continue trading and to incur accumulating debt for a further three and a half years after it had become insolvent. In his capacity as sole director, he clearly knew of the company’s rising debt to Inland Revenue, yet he continued to allow the company to trade. Mr Pidgeon must have been aware that the company’s financial position was not improving and, on the evidence before me, that there appeared no prospect of any likely change in
the company’s deteriorating situation. However, he allowed the company to continue to trade and to incur further debt to Inland Revenue.
[26] Mr Pidgeon was obliged to act in the best interests of the company, yet he continued to fail to ensure it met its tax obligations as they became due. As a result, both the company and its creditors suffered increasing losses. The irresistible inference is that Mr Pidgeon must have been aware the company could not discharge its obligations to its creditors. He chose instead to draw from his shareholder account. In the absence of any contest by Mr Pidgeon or evidence to the contrary, it is apparent he did not act in good faith and in the best interests of the company in performing his duties as a director, and was therefore in breach of s 131.
Alleged breach of s 135 of the Act
[27] Section 135 of the Act provides as follows:
135 Reckless trading
A director of a company must not—
(a) agree to the business of the company being carried on in a manner likely to create a substantial risk of serious loss to the company’s creditors; or
(b) cause or allow the business of the company to be carried on in a manner likely to create a substantial risk of serious loss to the company’s creditors.
[28] In Mason v Lewis, the Court of Appeal set out the “essential pillars” of a claim under s 135 of the Act:12
(a) the duty which is imposed by s 135 is one owed by directors to the company (rather than to any particular creditors);
(b) it is an objective test;
(c) the focus is not on a director’s belief but rather on the manner in which a company’s business is carried on, and whether that modus operandi creates a substantial risk of serious loss; and
(d)when the company enters “troubled financial waters” directors are required to carry out an ongoing “sober assessment” of the company’s likely future income prospects.
[29] The prohibition set out in s 135 encompasses a director’s obligation to protect the interests of creditors in a situation where the company faces insolvency difficulties. It includes the obligation owed by directors to the company to take into account the interests of creditors. Where a company is insolvent or nearing insolvency creditors are to be seen as having a direct interest in the company itself.
Such an interest cannot be overridden by the shareholders.13
[30] To prove Mr Pidgeon’s breach of s 135, the liquidators rely on the evidence of Mr Levin that the company was unable to pay its debts as they fell due, and was therefore insolvent from 31 October 2011 at the latest. They submitted the only responsible course open to Mr Pidgeon was to cease trading when there was no realistic prospect of paying its ever increasing tax debt. By continuing to trade whilst insolvent, Mr Pidgeon placed the company’s creditors, and in particular Inland Revenue, at substantial risk of serious loss, and so it has proved.
[31] The liquidators point to cash flow projections, provided to Inland Revenue as part of an earlier settlement proposal on behalf of the company, as showing limited prospective cash flow and negligible net income from which to pay its debts. Mr Pidgeon’s evidence is that there was no proper basis or reasonable prospect of the company’s financial position improving, and that a “sober assessment” of the company’s situation at anytime during this period could only have resulted in the
reasonable conclusion that the company had no choice but to cease trading.
13 Sojourner v Robb, above n 7, at [25], citing Re New World Alliance Pty Ltd; Sycotex Pty Ltd v
Baseler (1994) 51 FCR 425 (FCA) at 444.
[32] The liquidators draw similarities between this case and Boutique Tanneries Ltd (in liq) v Handley.14 In that case, this Court concluded that the company had only been kept afloat for a number of years by paying all its creditors with the exception of the Inland Revenue. Against a history of non-payment of GST and PAYE prior to its liquidation, Dobson J accepted the analysis put before him that businesses with cash flow difficulties may be tempted to defer obligations to IRD
because the department does not provide services or materials required to continue trading. However, penalties imposed for late payment resulting from the deferral of obligations to Inland Revenue for any significant period are indicative of poor business judgment. Companies with unpaid tax obligations which continue to endure for over six months will often have a fundamental issue as to whether they
are able to pay their debts as they fall due.15
[33] That analysis essentially reflects Mr Levin’s assessment of the present company’s situation. When measured against the undeniable and ongoing state of indebtedness, it is clear Mr Pidgeon was in breach of his obligation to avoid reckless trading, and that by causing the business of the company to be carried on, as he did in the face of its mounting tax bill, he created a substantial risk of serious loss to the company’s creditors generally, and to Inland Revenue in particular.
Alleged breach of s 136 of the Act
[34] Section 136 of the Act provides:
136 Duty in relation to obligations
A director of a company must not agree to the company incurring an obligation unless the director believes at that time on reasonable grounds that the company will be able to perform the obligation when it is required to do so.
[35] The Court of Appeal in Peace and Glory Society Ltd (in Liq) v Samsa
identified three key elements required to be established to prove a breach of the s 136 duty:16
14 Boutique Tanneries Ltd (in liq) v Handley HC Auckland CIV-2006-404-2713, 24 July 2008.
15 At [15].
16 Peace and Glory Society Ltd (in liq) v Samsa [2009] NZCA 396, [2010] 2 NZLR 57 at [45].
(a) that the defendant was a director of the company;
(b) that an obligation was incurred by the company; and
(c) that at the time of incurring the obligation the defendant did not honestly believe on reasonable grounds that the company would be able to perform the obligation when it was required to do so.
[36] The first two elements are beyond dispute. The third element is a combination of the director’s subjective state of mind, and whether objectively there were reasonable grounds for a belief the company would be able to perform the obligation incurred.17
[37] Whether Mr Pidgeon was in breach of s 136 needs to be measured in the context of the company’s precarious financial position over the period it continued to breach its tax obligations. Reasonableness of any belief held by Mr Pidgeon must be assessed against the background of the company’s insolvency and the disproportionate risk that arises when a company incurs obligations in such a situation. In agreeing to allow the company to incur such obligations, it is necessary for a director to pay close attention to the position of its creditors. Whether there is a rational and reasoned basis to allow the company to incur such obligations must be assessed in the context of the dire financial position of the company.
[38] The liquidators submitted that one only need consider the scale of Inland Revenue’s claim at the date of liquidation, with some $198,446.62 in tax and penalties owed, to conclude Mr Pidgeon could not have genuinely believed the ongoing obligations the company was incurring would be performed. Even if he had such an honest belief there were no reasonable grounds upon which it could be based.
[39] From the date the company became insolvent in October 2011, or at least shortly thereafter, there were no reasonable grounds for Mr Pidgeon to believe the
company would be able to meet its further ongoing tax liabilities by the company
17 Fatupaito v Bates [2001] 3 NZLR 386 (HC) at [80].
continuing to trade. The company’s existing and overdue debts represented an insurmountable obstacle to its ability to meet its ongoing obligations to Inland Revenue.
[40] I accept, in the absence of any evidence of a contrary nature, the obvious inference to be taken from the financial position of the company was that the growing and large tax debt owed by the company realistically prevented any reasonable likelihood of the company being able to meet its further obligations. Nothing has been put before me to indicate a basis upon which to believe the company’s financial position would significantly improve or which could have provided an objective foundation for any credible belief that the company would be able to satisfy both its past debts and meet its ongoing new obligations.
[41] This is borne out by an analysis of the steadily accumulating PAYE owed by the company from 31 October 2011 until shortly before the company ceased trading for the period ending 30 September 2015. Over that period the obligation to pay tax and additional penalties and interest meant there was no reasonable basis upon which Mr Pidgeon could believe the company could meet the obligations it was incurring. This is particularly so when set against the company’s significantly reduced gross revenue over the course of the FYE 2012. For these reasons, I conclude that Mr Pidgeon has also breached his obligations as a director under s 136 of the Act.
Alleged breach of s 137 of the Act
[42] Section 137 of the Act provides:
137 Director’s duty of care
A director of a company, when exercising powers or performing duties as a director, must exercise the care, diligence, and skill that a reasonable director would exercise in the same circumstances taking into account, but without limitation,—
(a) the nature of the company; and
(b) the nature of the decision; and
(c) the position of the director and the nature of the responsibilities undertaken by him or her.
[43] Section 137 essentially reflects the overarching obligation of a director in the performance of his or her office to exercise reasonable care and skill. The test for compliance is an objective one based on the standard of a reasonable director.18
[44] The liquidators submitted that a reasonable director in the position of Mr Pidgeon would not have continued to trade the company after it had become insolvent. As will be apparent from my findings in respect of Mr Pidgeon’s breaches of his obligations under ss 131, 135 and 136, it follows that he has failed to exercise the care, diligence and skill that would otherwise have been expected by a reasonable director to avoid such breaches of those specific duties.
To what extent should Mr Pidgeon as the director of the company contribute to its losses?
[45] Having found the jurisdictional basis for the exercise of the Court’s power under s 301 established it is necessary that I inquire into Mr Pidgeon’s conduct to determine the extent to which he should be ordered to contribute to the assets of the company in compensation for the proven breaches of his duties as a director.
[46] The Court of Appeal in Mason v Lewis provided guidance to the approach to be taken to the exercise of assessing the quantum of relief under s 301. The Court articulated the approach in the following terms:19
[109] The standard approach has been to begin by looking to the deterioration in the company’s financial position between the date inadequate corporate governance became evident (really the “breach” date) and the date of liquidation.
[110] Once that figure has been ascertained, New Zealand Courts have seen three factors - causation, culpability, and the duration of the trading - as being distinctly relevant to the exercise of the Court’s discretion ...
…
[118] Finally, claims of this character necessarily have to be approached in a relatively broad-brush way. The jurisdiction to order recompense is of an “equitable” character.
18 Morgenstern v Jeffreys [2014] NZCA 449, (2014) 11 NZCLC 98-024 at [89].
19 Mason v Lewis, above n 6, at [109], [110] and [118].
Determining the timing of the breach
[47] In Mason v Lewis, the Court of Appeal observed that the “standard approach” in cases involving reckless trading is to assess compensation by reference to the deterioration in the company’s financial position between the date its inadequate corporate governance became evident, and the date of the liquidation.20 The liquidators have urged me to take the appropriate starting point of inadequate governance as being the point at which the company was insolvent and had no
prospects of returning to solvency, being, on Mr Levin’s evidence, 31 October 2011.
[48] Mr Levin’s evidence was that, at the latest, by October 2011 it would have been clear the company was incurring significant and increasing unmet obligations to Inland Revenue and, as a result, accruing significant penalties and interest. In his opinion it was at this point that Mr Pidgeon failed to make a proper assessment of the company’s financial position, its likely future income stream and its ability to pay debts as they fell due. The liquidators’ seek a calculation of compensation from the end of October 2011.
[49] I consider the appropriate breach date is the point at which it was no longer reasonable for Mr Pidgeon to consider the company could trade its way out of its insolvent position. That is the point at which its outstanding tax debt and its ongoing obligations, together with the company’s cash flow forecast, rendered it apparent it would not be able to trade its way out of its financial predicament, to the obvious detriment of its creditors.
[50] In essence, Mr Pidgeon’s fundamental breach arises out of his decision to continue to cause the company to trade when that simply was no longer a reasonable course. The decision to cease trading will be a difficult one but, when appropriate regard is had to the interest of creditors, where there is no rational prospect or reasoned basis to think the company’s insolvency can be avoided the breach date will be fixed. In a case such as the present, where a company’s financial position has deteriorated to such an extent that it has become insolvent, the point of no return is
readily discernible by reference to the immutable state of the company’s dire
20 Mason v Lewis, above n 6, at [109].
financial position, and the irreversible state of its growing debt. At the risk of erring on the side of caution, I consider that by 31 March 2012 there was no realistic likelihood of the company being able to meet its outstanding tax bill and its ongoing commitments to creditors, and in particular Inland Revenue.
Causation
[51] The element of causation is focussed on the link between the reckless continuation of the company’s business, the knowledge of the director, and the indebtedness of the company, in respect of which personal liability is sought to be imposed.21
[52] Mr Pidgeon had sole responsibility for the management of the company and was its only director. There is a strong causal link between Mr Pidgeon’s breaches of his duties and his failure to cease to trade the company when its insolvency was irremediable. Had he done so, the company’s outstanding debts would be substantially less. The company’s indebtedness was solely the responsibility of Mr Pidgeon.
Duration
[53] Mr Pidgeon’s course of conduct was persistent and continued over a lengthy period of approximately some three and a half years from when the company became insolvent. The duration of the wrongful trading was lengthy.
Culpability
[54] This factor requires an assessment of the blameworthiness of the director’s conduct.22 The spectrum of culpability is a wide one, ranging from befuddlement and blind faith to actions of dishonesty and fraud. There is a deterrent aspect which is required to be considered in cases involving a high degree of culpability which requires orders to be both punitive as well as compensatory. The liquidators submitted that in the present case, Mr Pidgeon’s actions were at the upper end of the
range of culpability.
21 Löwer v Traveller, above n 8, at [79].
22 At [83].
[55] I accept that Mr Pidgeon must have been aware of the company’s increasing tax liability when he continued to trade despite the company’s worsening financial position and reducing cash flow. Mr Pidgeon diverted moneys paid by employees and customers which were not the company’s to apply as he did.
[56] I accept the liquidators’ submission Mr Pidgeon’s actions sit towards the more serious end of the scale of culpability.
Conclusion
[57] Having considered the issues of causation, culpability and the duration of the wrongful trading, in the absence of any identified factors which might have otherwise reduced the contribution Mr Pidgeon is required to pay, I consider he is liable for the total loss incurred by the company from 1 April 2012 onwards.
[58] Based on the summary of account as at 1 December 2015, annexed as exhibit
L to Mr Levin’s affidavit, I have reduced the creditor claims total of $198,446.62 by
$32,784.81. This represents the sums owed by the company for PAYE tax deductions and GST incurred between 31 October 2011 and 31 March 2012. The liquidators have leave to revert to the Court should they consider my calculations of the adjustment of the amount claimed to be incorrect for the purpose of removing debts incurred by the company between 31 October 2011 and 31 March 2012 from the assessment of compensation.
Result
[59] I make an award in the sum of $165,661.81, together with interest calculated from the date of liquidation.
[60] The plaintiffs are entitled to an award of scale costs on a 2B basis.
Solicitors:
Meredith Connell, Auckland
Copy to:
Mr Pidgeon
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