Practical Civil Services Limited v Commissioner of Inland Revenue - [2016] NZHC 593

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2015-404-3037 [2016] NZHC 593

UNDER the Companies Act 1993

IN THE MATTER OF

an application under s 290 of the Companies Act 1993 to set aside a statutory demand

BETWEEN

PRACTICAL CIVIL SERVICES LIMTED

Applicant

AND

COMMISSIONER OF INLAND REVENUE

Respondent

Hearing: 4 April 2016

Appearances:

M Keating and P F Chambers for the Applicant
C van der Merwe for the Respondent

Judgment:

4 April 2016

ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL

Solicitors:
Henley-Smith Law (Mark Keating), Glen Eden, Auckland, for Applicant
Inland Revenue Department (C van der Merwe), Manukau, for Respondent

Counsel:
P F Chambers, Barrister, Auckland, for Applicant

PRACTICAL CIVIL SERVICES LIMTED v COMMISSIONER OF INLAND REVENUE [2016] NZHC 593 [4 April 2016]

[1] Practical Civil Services Ltd applies under s 290 of the Companies Act 1993 to set aside a statutory demand which the Commissioner served on it in December
2015. The demand required Practical Civil Services Ltd to pay $418,674.62 alleged to be due for income tax for the year ending 31 March 2006. That sum comprises a core income tax of some $94,000 plus accrued interest and penalties.

[2] Practical Civil Services Ltd has pleaded all three limbs of s 290 of the Companies Act. The purpose of a statutory demand is to create a presumption of insolvency if the company served with the demand does not comply with it. Under s 290 a statutory demand may be set aside so that it may not be relied upon to create the presumption. The overall purpose of s 290(4) is to prevent the presumption of insolvency arising when it would be unjust. The ground under s 290(4)(a) is when there is a substantial dispute as to the debt alleged to be due. That is the essential ground on which Practical Civil Services Ltd relies. I regard the other grounds as no more than cautious pleading. They do not add anything to the case.

[3] On an application under s 290(4)(a) the onus is on the applicant to show a substantial dispute. Mere assertion of a dispute is not enough. The applicant has to show a fairly arguable basis for the dispute. The court does not resolve disputed questions of fact on affidavits. And it does not decide the substantive merits of the dispute. If a genuine dispute is found, it is more properly decided in other proceedings.

[4] In short, the applicant’s case is that the Commissioner of Inland Revenue broke an agreement that she would recognise loss offsets available within the group of companies to which Practical Civil Services Ltd belongs. The Commissioner assessed income tax in 2010. In response, a notice of proposed adjustment was filed. That was withdrawn on the basis that the parties would enter into a process which, if successful, would lead to the Commissioner amending the assessment under s 113 of the Tax Administration Act 1994 by reason of loss offsets available from other companies so as…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

AGLC: Practical Civil Services Limited v Commissioner of Inland Revenue [2016] NZHC 593
Case: [2016] NZHC 593
Decision Date: 4 April 2016

CaseChat Overview and Summary

Practical Civil Services Ltd sought to set aside a statutory demand served by the Commissioner of Inland Revenue, which required payment of income tax assessed for the year ending 31 March 2006. The statutory demand was issued under s 290 of the Companies Act 1993. The applicant relied on three grounds under s 290(4) to argue that the statutory demand should be set aside. However, the court found that the main ground was the substantial dispute as to the debt alleged to be due, as per s 290(4)(a). The applicant argued that the Commissioner had broken an agreement to recognize loss offsets available within the group of companies. The court found that there was a plausible foundation for an agreement, but it was ultimately cancelled by the Commissioner's letter in May 2014, which gave notice that time had become of the essence. The applicant failed to act within the given time, which justified the cancellation of the agreement.

The court considered the legal issues regarding the agreement between the Commissioner and Practical Civil Services Ltd, the application of tax loss offsets, and the time limits for fulfilling the agreement. The court concluded that the applicant did not have an arguable case that the Commissioner was in breach of contract in not amending the assessment of 1 March 2010. The original assessment continued to stand, and the applicant remained liable to pay the debt arising under that assessment. There could not be a genuine and substantial dispute as to the liability. The court dismissed the application to set aside the statutory demand and ordered Practical Civil Services Ltd to pay the Commissioner the sum of $418,674.62 by 18 April 2016. If the company did not pay that sum in full by that date, the Commissioner could make an application for liquidation. The court also ordered the company to pay costs on the application on a 2B basis, plus disbursements.

Orders