Commissioner of Inland Revenue v Salepro Limited HC Masterton CIV-2010-435-255 [2011] NZHC 432 (20 April 2011)

Last Updated: 17 June 2011

IN THE HIGH COURT OF NEW ZEALAND MASTERTON REGISTRY

_{CIV-2010-435-255}

IN THE MATTER OF the Companies Act 1993

BETWEEN THE COMMISSIONER OF INLAND REVENUE

Plaintiff

AND SALEPRO LIMITED Defendant

Hearing: 19 April 2011

(Heard at Wellington)

Counsel: D.B. Padmanabhan - Counsel for Plaintiff

R.J.G. Tomkies - Chief Executive Officer of Defendant

Judgment: 20 April 2011 at 4:15 PM

_{JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL}

This judgment was delivered by Associate Judge Gendall at 4.15 pm on 20 April

2011 under r 11.5 of the High Court Rules.

_{Solicitors: Inland Revenue Department, Legal & Technical Services, PO Box 1462, Wellington}

THE COMMISSIONER OF INLAND REVENUE V SALEPRO LIMITED HC MAS CIV-2010-435-255 20

April 2011

Introduction

[1] Before the Court are two applications:

(a) The first application is one by the plaintiff to have the defendant company placed into liquidation.

(b) The second application is one brought by the defendant to restrain advertising and stay this proceeding.

[2] The plaintiff’s liquidation application relates to an original debt of

$15,653.01 claimed in the plaintiff’s statement of claim for outstanding PAYE tax deductions, Kiwi Saver Employee Deductions, Kiwi Saver Compulsory Employer Contributions, penalties and interest. Slightly under this amount was the subject of a statutory demand issued by the plaintiff and served on the defendant company on 5

October 2010.

[3] No application to set-aside that statutory demand was made by the defendant. [4] Instead, when the statement of claim and these proceedings were served on

the defendant company on 27 January 2011 Mr Robert Julian Gretton Tomkies (Mr Tomkies) a Director and on behalf of the defendant filed the application to restrain advertising and stay the proceedings as noted above.

[5] Some confusion ensued regarding that application made on behalf of the defendant and misunderstandings arose it seems between the plaintiff and the defendant as to the issue of advertising.

[6] In the event, advertising of this proceeding did take place in the Dominion

Post newspaper on 23 February 2011 and in the New Zealand Gazette on 24

February 2011.

[7] That said the defendant’s application to stay advertising has effectively become redundant. Insofar as that application sought, however, to stay the proceeding the proper course is for it to be considered if necessary as part of and

once the liquidation application before me has been disposed of. I proceed here on that basis.

[8] I now turn to consider the plaintiff’s liquidation application.

Parties’ Arguments and My Decision

[9] The present liquidation application is brought pursuant to s 241(4)(a) Companies Act 1993. This provision permits the Court to appoint a liquidator if it is satisfied that the defendant company in question is “unable to pay its debts”.

[10] Section 287 Companies Act 1993 provides that a company is presumed to be unable to pay its debts if it has failed to comply with a statutory demand. That is the case here.

[11] In conducting a consideration of s 241 Companies Act 1993, Brookers Company & Securities Law Volume 1 at para CA241.04 notes the limited discretion the Court retains to refuse an order for liquidation once the initial grounds are established. At that paragraph the learned authors state:

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 the 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 is acting as a guardian of the interests of the unsecured creditors

.....

[12] Notwithstanding that the defendant company has failed to comply with the statutory demand and therefore is deemed to be unable to pay its debts and thus a clear ground exists here for the appointment of a liquidator, the essential defence advanced on behalf of the defendant before me appeared to relate to an alleged dispute the defendant maintains it has with the amount claimed for taxation by the plaintiff.

[13] In the defendant’s application to stay the proceeding, it states clearly that the amounts quoted in the plaintiff’s statement of claim are inaccurate and “only approximately $3,000.00 of PAYE tax is outstanding”. Then, before me, Mr Tomkies for the defendant appeared to revise this figure and suggested that the outstanding tax amounted only to $2,300.00. In support of these contentions, Mr Tomkies provided to the Court yesterday various documents including a number of Notices of Proposed Adjustment which he contended supported the defendant’s view.

[14] Leaving these matters on one side, what is clear to me is that even if the

defendant’s arguments have some substance, there is still a sum of between

$2,300.00 and $3,000.00 on the defendant’s own admission which is outstanding to the plaintiff at present.

[15] There was also nothing put before the Court by way of verified evidence to show the financial position of the defendant company and that it was in any way able to meet any debt outstanding to the plaintiff.

[16] In his submissions before me, Mr Tomkies endeavoured to suggest that the defendant company has substantial assets but no verification of any kind regarding this claim was put before the Court. In addition, Mr Tomkies did acknowledge that the defendant company has liabilities of some $51,000.00 and, in response to questions from the bench, Mr Tomkies confirmed that the defendant’s bankers would not consider providing any financial assistance to the company to meet the taxation debt even if it was only in the region of $2-3,000.00 as acknowledged. On all this, I must say that it is difficult not to reach an obvious conclusion when faced with these comments from Mr Tomkies.

[17] And, all these matters must also raise some real concerns for the Court here. Of additional concern must be the fact that the amounts due from the defendant, even on its own acknowledgement, are for outstanding PAYE tax deductions, KiwiSaver Employee Deductions and KiwiSaver Compulsory Employer Contributions. These payments carry a trust nature (and possible issues of failing to account) and no explanation has been provided to the Court on behalf of the defendant company as to why these payments were not paid and presumably diverted elsewhere.

[18] Instead, Mr Tomkies for the defendant argued that the liquidation order sought should be refused to enable more time for the defendant company to continue its negotiations with potential purchasers of the business operated by the defendant. Again, however, no verified evidence as to specific progress of any business sale negotiations with potential purchasers was placed before the Court.

[19] I repeat that there are no financial accounts for the defendant before the Court, no independent verification of any of the defendant’s assets or liabilities and no evidence of any kind before me regarding its solvency.

[20] Even on the defendant’s own admission, there is PAYE taxation owing to the plaintiff of between $2,300.00 and $3,000.00 and this has remained unpaid for a considerable time.

[21] Already this proceeding has taken in excess of six months since the statutory demand was served upon the defendant on 8 October 2010. In the past, the Courts have often expressed the view that it is not appropriate for lengthy delays or adjournments of liquidation proceedings to occur because of the prejudicial effect this may have on creditors. Liquidation commences on the day on which the liquidator is appointed by the operation of s 241(5) Companies Act 1993. The avoidance provisions contained in that Act (s 292 dealing with insolvent transactions having a prejudicial effect, s 293 relating to voidable charges, s 297 relating to transactions at an undervalue, s 298 relating to transactions for inadequate or excessive consideration and s 310 dealing with mutual credits and set-off) have a trigger or start date for the period that can be reviewed, being the date when a liquidator is appointed. It is clear therefore that any delay in the disposal of an application for the appointment of a liquidator under s 241 Companies Act 1993 has potential prejudice to a liquidator’s ability to make a recovery in appropriate cases.

[22] In the present case, as I see it there is effectively no arguable defence to the plaintiff’s liquidation application. Nor is there anything before the Court which could allow it to exercise its discretion to refuse the present application.

[23] Further, even if there may be any substance in the claim by Mr Tomkies that there are potential purchasers of the defendant’s business then, in my view, there is nothing to stop the liquidator in conjunction with Mr Tomkies pursuing this avenue. If the Court is to make an order liquidating the defendant company now and if Mr Tomkies might be successful in raising funds or obtaining a business sale without delay, then it is open to him in his capacity as a director of the defendant to apply to the Court for an order terminating the liquidation pursuant to s 250 Companies Act

1993.

Conclusion

[24] Under all the circumstances outlined above, I have no doubt that the appropriate course here is for an order to be made placing the defendant company into liquidation. It is clearly insolvent in that it is unable to pay its debts as they fall due, even on its own admission regarding outstanding tax liability to the plaintiff. There is no evidence of any kind before the Court regarding its balance sheet and financial position or to confirm that its assets might exceed its liabilities.

[25] A solicitor’s certificate that the debt is still owing and Consents to Act from the proposed liquidators have been provided to the Court.

[26] For all these reasons the application before me succeeds. The following orders are now made:

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

(b) Jeremy Michael Morley and John Howard Ross Fisk are appointed liquidators.

(c) Costs are awarded to the plaintiff on this application on a category 2B

basis together with disbursements as fixed by the Registrar.

(d) An order is made approving the liquidator’s rates or remuneration in accordance with the affidavit of Jeremy Michael Morley filed herein dated 28 February 2011, 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 at 4.15 pm on 20 April 2011.

‘Associate Judge D.I. Gendall’