Commissioner of Inland Revenue v Commercial Management Limited [2019] NZCA 479 (3 October 2019)

Last Updated: 8 October 2019

IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA

CA583/2018 [2019] NZCA 479

	BETWEEN	COMMISSIONER OF INLAND REVENUE Appellant
	AND	COMMERCIAL MANAGEMENT LIMITED, EQUITY CAPITAL INVESTMENTS LIMITED AND DOWNSVIEW NOMINEES LIMITED Respondents

Hearing:	18 September 2019
Court:	Clifford, Collins and Goddard JJ
Counsel:	M Deligiannis and N S Delamore for Appellant A C Beck for Respondent
Judgment:	3 October 2019 at 2.30 pm

JUDGMENT OF THE COURT

1. The appeal is allowed.
2. The order that Belmonte Dairy Ltd, Corporate Transport Ltd, Manly Estates Ltd, Marketing Agencies Ltd and Mountforts Pharmacy Ltd be restored to the Companies Register is set aside.

100. The respondents must pay the appellant’s costs for a standard appeal on a band A basis and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Goddard J)

Introduction

[1] The High Court made orders under s 329 of the Companies Act 1993 restoring five companies (the removed companies) to the Companies Register (the register):^[1]

• (a) Belmonte Dairy Ltd, which was incorporated on 25 November 1983 and removed from the register on 17 February 1998;
• (b) Corporate Transport Ltd, which was incorporated on 12 March 1940 and removed from the register on 25 September 1996;
• (c) Manly Estates Ltd, which was incorporated on 9 July 1970 and removed from the register on 27 June 2000;
• (d) Marketing Agencies Ltd, which was incorporated on 18 December 1939 and removed from the register on 23 April 1998;
• (e) Mountforts Pharmacy Ltd, which was incorporated on 24 January 1969 and removed from the register on 22 December 2011.

[2] The application to restore these companies to the register was made by three companies that were shareholders in one or other of the removed companies: we refer to them below as “the applicants”. It was opposed by the Commissioner of Inland Revenue (the Commissioner). The Registrar of Companies (the Registrar) abided the decision of the High Court.
[3] The Commissioner now appeals to this Court. The applicants no longer wish to have Belmonte Dairy Ltd restored to the register. So the focus of the appeal is on the other four removed companies.^[2]

Background

“Russell template” tax avoidance arrangements

[4] The application to restore the removed companies to the register is another chapter in the long running litigation saga involving the late J G Russell, and the “Russell template” tax avoidance arrangements. A typical Russell template arrangement involved one company controlled by Mr Russell entering into a contract with another company controlled by Mr Russell for provision of administration or management services (management services contracts). No management services were in fact provided. The fee paid for those “services” was primarily a device to shift profits from a profitable trading company to another company with large accrued losses, in order to avoid paying income tax on the former company’s profits. The Commissioner reassessed the relevant companies for income tax on a basis that disregarded the arrangements.^[3] The income tax consequences of the arrangements, and the Commissioner’s reassessments, have been the subject of extensive litigation over many decades. The Russell template arrangements were repeatedly held to be tax avoidance arrangements.^[4]

GST implications of non-provision of services under template arrangements

[5] In light of the findings made about the arrangements in the income tax context, Mr Russell asserted that the Commissioner should take a consistent approach in the context of GST assessments for the relevant companies. If the Commissioner was contending in an income tax context that no services had been provided by the relevant Russell template companies, Mr Russell said, it necessarily followed that no GST was payable by the companies that had returned and paid GST output tax in relation to the fees they received.
[6] The Commissioner did not initially accept this analysis. A Russell template company, FB Duvall Ltd (Duvall), challenged that stance in proceedings before the Taxation Review Authority (TRA). The Commissioner was successful in the TRA.^[5] Duvall appealed to the High Court. While that appeal was on foot, the Commissioner formed the view that Duvall’s contention was correct: because no services had been provided, no GST was payable in connection with the management services contracts. The Commissioner conceded Duvall’s appeal in the High Court. There was then a dispute about the consequences of that concession for Duvall’s GST assessments for certain periods.^[6] The litigation on that issue eventually reached this Court, which held that the Commissioner was required to amend Duvall’s GST assessments by deleting the amounts shown as payable by way of output tax in respect of administration fees for supplies made by Duvall to subsidiary companies.^[7] This led to GST refunds to Duvall for the periods with which the proceedings were concerned.^[8]
[7] Mr Russell then sought to obtain similar outcomes in relation to GST paid by Duvall in other periods, and in relation to GST paid by a number of other Russell template companies. He filed late objections to GST assessments on behalf of those companies. The Commissioner declined to accept the late objections and revisit the original GST assessments. The companies brought judicial review proceedings in relation to the Commissioner’s decision. That application was successful. The Commissioner was ordered to reconsider the decision to refuse to accept late GST objections from the plaintiff companies.^[9]
[8] That judicial review decision was delivered in December 2011. A settlement agreement was subsequently entered into between the Commissioner and seven plaintiff companies in that proceeding.

Request to negotiate settlement in relation to GST paid by removed companies

[9] Following the settlement reached with those companies, Commercial Management Ltd (Mr Russell’s firm) advised the Commissioner that it wished to enter into settlement negotiations in relation to GST issues in respect of a number of other Russell template companies. Mr Russell’s firm sought to include in those negotiations a number of companies that had been removed from the companies register, including the removed companies with which this appeal is concerned.
[10] The removed companies were all parties to Russell template arrangements. The Commissioner had reassessed the removed companies for income tax purposes. It appears from the limited information before the Court that those reassessments related to periods in the 1980s and early 1990s. There was no reassessment of the removed companies for GST purposes. None of the removed companies filed an objection to its GST assessment for any relevant period, prior to its removal from the register.
[11] The Commissioner has made it clear in correspondence with Mr Russell’s firm that she will not entertain settlement discussions in relation to companies that have been removed from the register, and which therefore no longer exist. The Commissioner’s stance in relation to inclusion of the removed companies in any settlement negotiations led to the application to restore the removed companies to the register. The genesis of that application explains why the Commissioner was named as a respondent in the application, in addition to the Registrar.

The asymmetric nature of the reassessments sought by the applicants

[12] At the time the removed companies entered into the management services contracts, GST was a “closed loop” within the Russell group companies. A GST invoice was issued by the company that purportedly provided the management services. That provider company was required to account for GST output tax. The company that purportedly received the management services and paid for those services was entitled to a GST input tax credit of the same amount. The net result for GST purposes was a wash: the Russell template companies were not required to make any net GST payments in respect of the management services contracts.
[13] Correspondence between the Commissioner and Mr Russell’s firm records the Commissioner’s view that there had been no need for any reconstruction for GST purposes (as distinct from income tax purposes) as a result of the Commissioner’s conclusion that no services had been provided under the Russell template arrangements because “it was considered that the GST was a closed loop in that one Russell company paid, while another claimed.” The response from Mr Russell’s firm read as follows:

Historically there may have been a closed loop with most of the GST involved but any loop is now broken beyond repair with some of the companies removed and the time bar on GST assessments that increase tax liability.

[14] It is necessary to bear in mind, when considering the application to restore the removed companies to the register, that the objective that Mr Russell’s firm is pursuing is to secure a tax advantage — refunds of GST output tax paid by the removed companies — that would result from:

• (a) the Commissioner’s determination, upheld by the courts, that the management service arrangements were tax avoidance arrangements under which no services were in fact provided; and
• (b) the time that has elapsed since the periods in which the GST was returned and paid, as a result of which it has become difficult (Mr Russell’s firm says, legally impossible) for the Commissioner to reassess and recover the input tax credits that were obtained by other Russell template companies in connection with the arrangements, and that offset the GST payments that Mr Russell’s firm now seeks to recover.

[15] The goal of Mr Russell’s firm in restoring the removed companies to the register is to achieve a partial and asymmetric reversal of the GST consequences of the highly contrived and artificial tax avoidance arrangements entered into by those companies. As that firm has in effect acknowledged, this result could only be achieved because of the passage of time since the removed companies were in existence and filed the relevant GST returns. That is not a promising starting point for an argument that it would be just and equitable to restore the companies to the register.

The application to restore the removed companies to the register

[16] The applicants sought restoration of the removed companies to the register under s 329(1)(b) of the Companies Act on the grounds that it is just and equitable for them to be restored. The application was supported by a brief affidavit from Mrs Glenda Rogers, a longstanding business associate of the late Mr Russell. The affidavit did not provide any information at all about the circumstances in which the removed companies were removed from the register, or about the financial position of those companies at the time of their removal. Mrs Rogers asserted that the removed companies have similar claims to the plaintiffs in the Duvall judicial review proceedings. But no information was provided about the periods to which any such GST claims related, or about the specific Russell template arrangements to which those companies were parties and the counterparties to those arrangements. The affidavit explained that the purpose of restoring the removed companies to the register was to enable them to be parties to any settlement negotiations with the Commissioner in relation to GST.
[17] The Commissioner opposed the application on a number of grounds, including:

• (a) failure by the applicants to make full and frank disclosure of the circumstances leading to the removal of the companies from the register;
• (b) delay in making the application;
• (c) failure by the removed companies to comply with a number of requirements of the Companies Act;
• (d) the absence of any live disputes or claims by the removed companies against the Commissioner; and
• (e) the risk to the tax base posed by restoration of the removed companies.

[18] In these circumstances, the Commissioner said, restoration of the removed companies would not be just and equitable.
[19] The Commissioner filed an affidavit from an Inland Revenue Department (IRD) officer summarising the history of Mr Russell’s tax litigation, and providing information about the removed companies drawn from the companies register and from IRD records. Two of the removed companies, Manly Estates Ltd and Marketing Agencies Ltd, had outstanding GST debts at the time they were removed from the register.^[10] Those outstanding GST debts were written off by the Commissioner in 2001, following the removal of the companies from the register.
[20] The affidavit records that the removed companies did not appear to be trading at the time they were removed from the register. There are no outstanding or live disputes between the removed companies and the Commissioner. It also records that no settlement offers have been advanced by Mr Russell’s firm in respect of the removed companies or any other Russell entities. From the Commissioner’s perspective there are no live settlement discussions in relation to the removed companies or other Russell entities.
[21] Mrs Rogers filed a short affidavit in reply. She reaffirmed that the primary aim of the applicants was to restore the removed companies to the register so they can be party to settlement negotiations with the Commissioner. She accepted that the removed companies were not trading when they were struck off the register, and said that the purpose of the application was not to enable them to trade.
[22] Mrs Rogers said she had sought further information in relation to the removed companies in response to the points raised by the Commissioner. But the information she provided about the removed companies was scant. So far as relevant, her affidavit said that:

• (a) the Commissioner had objected to the removal of Corporate Transport Ltd from the register in 1995;
• (b) there were four objections to the removal of Manly Estates Ltd from the register in 1995. No information was provided about who lodged those objections;
• (c) Marketing Agencies Ltd was one of the parent companies of companies that were plaintiffs in the Duvall proceedings. It was removed from the register before that case was heard in 2011; and
• (d) Mountforts Pharmacy Ltd “was removed from the register for failing to file an annual return”.^[11] No relevant documents were provided to support this statement. No other information was provided about the removal process, and in particular why Mr Russell’s firm took no steps to remedy any relevant non-compliance and avoid removal of the company from the register. In 2010 the Commissioner noted in a letter to Mr Russell that there appeared to be an unresolved objection to the GST deregistration of the company, and asked whether Mr Russell wished to have this objection considered. (If so, the letter advised, further information was required before the objection could be considered.)

[23] Ms Rogers said that there had been ongoing correspondence with the Commissioner regarding the possibility of settlements. But as she acknowledged the Commissioner’s position, as conveyed in that correspondence, was that there cannot be a live dispute with a deregistered company.

Relevant Companies Act provisions

[24] Part 17 of the Companies Act sets out the circumstances in which a company may be removed from the register, and the process by which a company is removed. It contains a number of safeguards designed to ensure that a company is removed from the register only if there is no good reason for it to continue in existence. It confers powers on the Registrar (s 328) and on the court (s 329) to reverse a removal, and restore a company to the register, where with the benefit of hindsight there is a good reason for the company to have continued in existence. If a company is restored to the register, it is deemed to have continued in existence as if it had never been removed (s 330). The removal regime provides important context for the operation of s 329.

Grounds for removal

[25] Section 317 of the Companies Act provides that a company is removed from the New Zealand register when a notice to that effect signed by the Registrar is registered under that Act. Section 318 sets out the grounds for removal from the register:

318 Grounds for removal from register

(1) Subject to this section, the Registrar must remove a company from the New Zealand register if—

(aaa) the company does not comply with section 10 [which prescribes essential requirements for a company, including having at least one shareholder and one director]; or

(a) the company is an amalgamating company, other than an amalgamated company, on the day on which the Registrar issues a certificate of amalgamation under section 224; or

(b) the Registrar has reasonable grounds to believe that—

(i) the company is not carrying on business; and

(ii) there is no proper reason for the company to continue in existence; or

(ba) the company has failed to respond to a requirement made under section 365(1)(caaa) or (c) [which relate to the Registrar’s powers of inspection]; or

(bb) the Registrar has reasonable grounds to believe that the company, or 1 or more of its directors or shareholders, has failed to respond to a requirement made in relation to that or another company under section 365F or 365G [which relate to disclosure of information about who controls a company]; or

(bc) the Registrar has reasonable grounds to believe that the company, or 1 or more of its directors or shareholders, has intentionally provided the Registrar with inaccurate information; or

(bd) the Registrar has reasonable grounds to believe that the company, or 1 or more of its directors or shareholders, has failed in a persistent or serious way to comply with duties relating to the company—

(i) under this Act; or

(ii) under the Financial Reporting Act 1993 while in force, except that the Registrar may not rely on this ground after 5 years have elapsed after this subparagraph came into force; or

(c) the company has been put into liquidation, and—

(i) no liquidator is acting; or

(ii) the documents referred to in section 257(1)(a) have not been sent or delivered to the Registrar within 6 months after the liquidation of the company is completed; or

(d) there is sent or delivered to the Registrar a request in the prescribed form made by—

(i) a shareholder authorised to make the request by a special resolution of shareholders entitled to vote and voting on the question; or

(ii) the board of directors or any other person, if the constitution of the company so requires or permits—

that the company be removed from the New Zealand register on either of the grounds specified in subsection (2); or

(e) a liquidator sends or delivers to the Registrar—

(i) the documents referred to in section 257(1)(a); and

(ii) a copy of the notice referred to in section 320(4); or

(f) the company has failed to pay the fee prescribed by regulations for the application for registration of the company under section 12.

...

(4) The Registrar must remove a company from the New Zealand register under subsection (1)(b) only if—

(a) the Registrar has complied with section 319; and

(b) the company has not satisfied the Registrar that it is carrying on business or that a proper reason exists for the company to continue in existence; and

(c) the Registrar—

(i) is satisfied that no person has objected to the removal under section 321; or

(ii) if an objection to the removal has been received, has complied with section 322.

...

The removal process

[26] Section 319 requires a written notice of the Registrar’s intention to remove a company under specified limbs of s 318(1) to be given to the company, and to certain other persons. It sets out the information that must be included in the notice, including the section under, and grounds on which, the Registrar proposes to remove the company. It also provides for public notice to be given of the proposed removal.
[27] Section 321 allows any person to object to removal of a company from the register. It sets out the grounds on which an objection can be made, including that the company is carrying on business or there is a proper reason for it to continue in existence;^[12] that the company is a party to legal proceedings;^[13] or that for any reason it would not be just and equitable to remove the company from the register.^[14]
[28] Section 322 addresses the consequences of the Registrar receiving an objection to removal of a company from the register. Those consequences depend on the ground on which the objection is made. An objection may result in the Registrar deciding not to proceed with the removal, or advising the objector that the removal will proceed unless they apply to the court under s 323 for an order that the company not be removed from the register. Section 323 provides for applications to the court for an order that the company not be removed from the register where an objection to its removal is made on certain grounds, including the “just and equitable” ground.

Restoration of a company to the register: ss 328 and 329

[29] As noted above, the provisions concerning removal of a company from the register are designed to ensure that a company is only removed if there is no good reason for it to continue in existence. The controllers of the company and other interested persons are given the opportunity to object to removal for a range of reasons. But there can be cases where a company is removed from the register as a result of an error or oversight, or where circumstances change and it becomes apparent with the benefit of hindsight that there were good reasons for the company to continue in existence. In such cases, a company can be restored to the register.
[30] Section 328 provides for the circumstances in which the Registrar can restore a company to the New Zealand register after it has been removed. It provides:

328 Registrar may restore company to New Zealand register

(1) Subject to this section, the Registrar must, on the application of a person referred to in subsection (2), and may, on his or her own motion, restore a company that has been removed from the New Zealand register to the register if he or she is satisfied that, at the time the company was removed from the register,—

(a) the grounds for the removal did not exist at the time the company was removed; or

(b) the company was a party to legal proceedings; or

(c) the company was in receivership, or liquidation, or both.

(1A) The Registrar may, on the application of a person referred to in subsection (2), or on his or her own motion, restore a company that has been removed from the register to the register if the Registrar is satisfied that the company was carrying on business at the time of its removal and there is a proper reason for the company to continue in existence.

(2) Any person who, at the time the company was removed from the New Zealand register, was—

(a) a shareholder or director of the company; or

(b) a creditor of the company; or

(c) a liquidator, or a receiver of the property, of the company—

may make an application under subsection (1).

(3) Before the Registrar restores a company to the New Zealand register under this section,—

(a) in the case of a company that was removed from the New Zealand register under section 318(1)(aaa), (b), (ba), (bb), (bc), (bd), or (c), the Registrar must give public notice setting out—

(i) the name of the company; and

(ii) the name and address of the applicant; and

(iii) the section under, and the grounds on which, the application is made or the Registrar proposes to act, as the case may be; and

(iv) the date by which an objection to restoring the company to the register must be delivered to the Registrar, not being less than 20 working days after the date of the notice:

(b) in the case of a company that was removed from the New Zealand register under paragraph (d) or paragraph (e) of section 318(1), the person who made the application under subsection (1) must give public notice setting out—

(i) the name of the company; and

(ii) the person’s name and address; and

(iii) the section under, and the grounds on which, the application is made; and

(iv) the date by which an objection to restoring the company to the register must be delivered to the Registrar, not being less than 20 working days after the date of the notice.

(4) The Registrar must not restore a company to the New Zealand register if the Registrar receives an objection to the restoration within the period stated in the notice.

(5) Before the Registrar restores a company to the New Zealand register under this section, the Registrar may require any of the provisions of this Act or any regulations made under this Act, being provisions with which the company had failed to comply before it was removed from the register, to be complied with.

(6) The court may, on the application of the Registrar or the applicant, give such directions or make such orders as may be necessary or desirable for the purpose of placing a company that is restored to the New Zealand register under this section and any other persons as nearly as possible in the same position as if the company had not been removed from the register.

(7) Nothing in this section limits or affects section 329.

[31] Section 329 sets out the circumstances in which the court may restore a company to the register:

329 Court may restore company to New Zealand register

(1) The court may, on the application of a person referred to in subsection (2), order that a company that has been removed from the New Zealand register be restored to the register if it is satisfied that,—

(a) at the time the company was removed from the register,—

(i) the company was carrying on business or a proper reason existed for the company to continue in existence; or

(ii) the company was a party to legal proceedings; or

(iii) the company was in receivership, or liquidation, or both; or

(iv) the applicant was a creditor, or a shareholder, or a person who had an undischarged claim against the company; or

(v) the applicant believed that a right of action existed, or intended to pursue a right of action, on behalf of the company under Part 9; or

(b) for any other reason it is just and equitable to restore the company to the New Zealand register.

(1A) In considering whether to restore a company to the register on the ground referred to in subsection (1)(a)(i) or (b), the court must have regard to the reasons for the company’s removal and whether those grounds existed at the time of removal or exist at the time of the hearing of the application.

(2) The following persons may make an application under subsection (1):

(a) any person who, at the time the company was removed from the New Zealand register,—

(i) was a shareholder or director of the company; or

(ii) was a creditor of the company; or

(iii) was a party to any legal proceedings against the company; or

(iv) had an undischarged claim against the company; or

(v) was the liquidator, or a receiver of the property of, the company:

(b) the Registrar:

(c) with the leave of the court, any other person.

(3) Before the court makes an order restoring a company to the New Zealand register under this section, it may require any provisions of this Act or any regulations made under this Act, being provisions with which the company had failed to comply before it was removed from the register, to be complied with.

(4) The court may give such directions or make such orders as may be necessary or desirable for the purpose of placing the company and any other persons as nearly as possible in the same position as if the company had not been removed from the New Zealand register.

[32] Section 328 contemplates a relatively simple and uncontroversial restoration process where it is apparent that the company should not have been removed from the register having regard to circumstances at the time of that removal, and where no one objects to that restoration. Section 329 enables a wider range of grounds to be invoked, including the broad “just and equitable” ground. It is available in cases where restoration is opposed. In circumstances where s 329 is invoked, and in particular where the “just and equitable” ground is relied on, an evaluative judgment is required. Responsibility for making that judgment is conferred on the court rather than on the Registrar. As is apparent from the structure of these provisions, s 329 is aimed at more complex cases where restoration may or may not be appropriate. A s 329 application is not simply a mechanical procedural hurdle to be overcome before arriving at an inevitable destination.
[33] There was no equivalent to s 328 under the Companies Act 1955. All restoration applications, including straightforward cases, had to be dealt with by the court.^[15] As one would expect, those straightforward cases predominated. The pre‑1993 Act case law reflects that fact. The sense one gets from many of those cases is that restoration was almost a foregone conclusion, and that refusal of applications for restoration under the 1955 Act would be rare.^[16] But that approach cannot be carried over uncritically to applications under s 329 of the 1993 Act, bearing in mind that the straightforward and uncontroversial cases have been filtered out by s 328.
[34] Section 330 provides that a company is restored to the register when a notice to that effect signed by the Registrar is registered under the Companies Act. A company that is restored to the register is deemed to have continued in existence as if it had not been removed.^[17]

High Court decision

[35] The applications in this case were made under s 329(1)(b).^[18] So as the Associate Judge noted, the overarching question for the Court was whether it was just and equitable to restore each of the removed companies to the register.^[19]

Preliminary matters

[36] The applicants challenged the standing of the Commissioner to oppose the applications.^[20] The Associate Judge held that the applicants could not object to the Commissioner opposing their application in this case.^[21] Here, the Commissioner was named as a respondent in the originating application. That distinguished the present case from Re Marketing Distribution Services Ltd, where Potter J rejected arguments advanced by the Commissioner in opposition to the restoration of a company to the register, and indicated that those arguments were relevant to the merits of the tax disputes and not to the restoration application.^[22]
[37] The Associate Judge then proceeded to deal with an objection by the Commissioner to use of the originating application procedure to commence the proceeding. The Associate Judge considered that the time to object to the vehicle for dealing with the litigation had passed, and the better course was simply to dispose of it on the basis on which it had been made.^[23]

Relevant principles

[38] The Associate Judge summarised the basis on which the applicants sought restoration of the removed companies to the register, and the grounds on which the Commissioner opposed the application.^[24] He then proceeded to identify the relevant principles governing such applications, setting out the frequently cited summary in Re Saxpack Foods Ltd.^[25]

Identification of relevant factors

[39] The Associate Judge then worked through each of the factors identified in Saxpack that he saw as relevant in this case. He began by noting that the five removed companies were removed from the register between 7 and 22 years ago.^[26] His assessment was that delay was not an absolute bar to the application.^[27] But, he said, the delay meant that the Court “must look carefully at the other relevant factors before deciding in favour of an application that would restore to the register companies that have been defunct for such periods of time”. ^[28]
[40] The Associate Judge noted that s 329(1A) requires the court to have regard to the reasons for the companies’ removal and whether those grounds still exist at the time of the hearing.^[29] He addressed this topic as follows:

[28] On its face this means that the Court cannot restore any company to the register under the s 329(1)(a)(i) or (b) unless it has before it and considers evidence as to the reasons for the company’s removal.

[29] Neither the applicants’ originating application nor the supporting affidavit sworn by Ms Glenda Rogers, a director of each of the applicant companies, addressed the reasons for the companies being removed from the register in the first place. The Commissioner, in her notice of opposition, pleads that the applicants have not made full and frank disclosure to the Court, which is a reference to this gap in the applicants’ case. In the affidavit sworn in support of the Commissioner’s opposition, the deponent, Mr Trevor Strang, a senior Inland Revenue Department Officer, provided some evidence as to why each of the five defunct companies was removed from the register.

...

[33] So, in terms of s 329(1A) it would seem that Belmonte Dairy Ltd was placed in liquidation after it amassed a substantial debt to the Revenue and then removed from the register following the liquidation. The remaining four companies appear to have simply ceased trading, did not comply with their statutory obligations (presumably in relation to such things as the filing of annual returns) and were removed from the register as a result. The other important factor is that three of the defunct companies had undischarged tax obligations to the Revenue at the time they were removed.

[34] To the extent that those considerations were grounds for the five defunct companies to be removed from the register I regard it as fair to conclude that there has been no change.

[35] That is as far as the evidence goes.

[36] On balance this consideration weighs against restoration.

[41] The Associate Judge recorded that counsel had accepted in the course of argument that the Court was not in a position to reach any view about the merits of the contention that the removed companies would, if restored to the register, be in the same position as the Duvall plaintiffs, or whether there was any merit in the claims they are said to have to tax advantages.^[30] So, he said:^[31]

... [T]he question of whether there is a proper reason to order the restoration of the companies to the register reduces itself to whether it is proper to do so in order to enable them to test that issue, no doubt by seeking to participate in the current negotiations and if those were to fail any litigation.

He considered that appeared to be a legitimate objective on the part of the applicants, which weighed in favour of granting the applications.^[32]

[42] The Associate Judge did not accept the Commissioner’s submission that there was no live dispute involving the removed companies. He considered that this argument was circular.^[33] There was no live dispute because the companies had been removed from the register, so did not exist in law. That did little more than beg the question of whether the defunct companies should be restored to the register, so they can file late objections and matters can take their course from that point.^[34]

The balancing exercise

[43] The Associate Judge then turned to what he described as the most difficult aspect of the case: balancing the countervailing private and public interests in restoration of the removed companies.^[35] He identified a private interest for the applicants and the five removed companies in being able to pursue a tax advantage in the future.^[36] He considered that there may be a public interest involved in this as well, as restoration of the companies to the register would enable them to pursue their rights through the avenues available to all taxpayers.^[37] He described the right to do this as “fundamental”.^[38] He expressed the view that there is a public good in reinforcement of this right.^[39]
[44] The Associate Judge then proceeded to summarise the public interest factors relied on by the Commissioner in opposing the restoration of the removed companies.^[40] These focussed on the history of tax avoidance litigation involving Mr Russell, his firm, and other entities with which Mr Russell had been associated. The Commissioner submitted that this was another example of Mr Russell’s firm seeking to prolong meritless claims against the Commissioner, and to attempt to extract money from the tax base.^[41]
[45] The Associate Judge declined to form any conclusions based on the history of litigation between Mr Russell’s firm and the Commissioner in relation to the propriety of the applicants’ motives in seeking restoration of the removed companies, or the merits of the claims that they wished to make.^[42]
[46] The Associate Judge concluded that the removed companies should be restored to the register. He summarised his reasons for reaching that view as follows:

[60] I am acutely conscious that such orders will restore to the register five defunct companies:

(a) that were removed from the register between seven and 22 years ago and which will now be deemed to have been in existence for all those years;

(b) two of which were originally incorporated under the 1955 Act and never transferred to the current Act;

(c) one of which was removed following its liquidation, with the result that it will be necessary, to ensure that the order for its restoration is efficacious, to make an ancillary order overturning the liquidators’ final report;

(d) none of which were trading at the time that they were removed;

(e) none of which, in my assessment, have any real prospect of resuming trading;

(f) three of which were removed at a time when they had outstanding tax obligations (which may or may not re-emerge);

(g) all of which are being restored for the sole purpose of what on its face appears to be a speculative attempt to pursue a tax advantage.

[61] However, the considerations that have [led] me to the conclusion I have reached are as follows:

(a) although the periods of time that have passed since these five defunct companies were removed from the register are extreme (indeed, my own research has not thrown up any instance of longer periods), there is no limitation provision in the Act, there is an explanation for why the applications are being made now, and there is no obvious prejudice to the Commissioner caused merely by the delay;

(b) the applications are made in order to facilitate the five defunct companies pursuing a legitimate purpose, namely to establish whether they are entitled to a tax advantage of some sort. As already said, I reach no view as to the merits of their cases. That is a matter to be determined elsewhere;

(c) on balance my view is that the private and public interests involved favour the making of the orders sought:

(i) the five defunct companies have private claims that they wish to pursue;

(ii) there is a public interest in the facilitation of New Zealand taxpayers (or potential tax payers) pursuing claims that they perceive themselves to have in the proper way;

(iii) I do not accept that the mere fact that the restoration of these companies might result in them pursuing tax advantages to the detriment to the Revenue is itself contrary to the public interest;

(iv) to the extent that I have any regard to the history of litigation between Mr Russell’s firm, and entities associated with it, and the Commissioner, I accept that it is not in the public interest that the Commissioner should be embroiled in what on their face appear to be long standing disputes. But the reality is that there is already a dispute between the existing F B Duvall plaintiffs and other parties and the Commissioner, and the marginal cost of including five additional claimants will be minimal;

(v) in the end, I find myself reaching the same conclusion as Potter J reached in Re Marketing Distribution Services where her Honour said:

In summary, there are matters of dispute between the company and the Commissioner which require to be determined. It is in the interests of justice that they be determined. It is not appropriate that other disputes between the Commissioner and Mr Russell’s group of companies, some but not all which have been resolved by litigation or otherwise, should influence the Court’s determination of this matter. Restoration of the company to the register will enable the companies’ objection to the Commissioner’s assessment to be determined on its merits.

Likewise, in this case, the restoration of the five defunct companies will enable them to file objections to the Commissioner of Inland Revenue’s assessments and matters can then take their course.

(Footnotes omitted.)

[47] No orders were made under s 329(3) requiring provisions of the Companies Act to be complied with, or under s 329(4) for the purpose of placing the company and other persons in the same position as if the company had not been removed from the register. In particular, no consideration appears to have been given to making orders that would enable the written-off GST obligations of the removed companies to be pursued by the Commissioner.

The Commissioner’s submissions on appeal

[48] The Commissioner appeals on the basis that the exercise of discretion by the Associate Judge under s 329 was “plainly wrong”. She says the Associate Judge failed to give appropriate weight to a number of relevant considerations, and gave undue weight to the purported objectives of the applicants.
[49] In particular the Commissioner says that the Associate Judge gave too much weight to the private interests of the applicants, and insufficient weight to the public interest factors that supported refusal of restoration of these companies, having regard to the length of time for which the companies had been removed from the register and the threat to the integrity of the tax system posed by restoration of the companies.
[50] The Commissioner submits that the High Court was wrong to conclude that there was a public interest in enabling the removed companies to pursue their rights “through the avenues available to all taxpayers”.^[43] The public interest was in fact entirely the opposite. It is highly likely that any attempt to extract money from the tax base through restoration of these companies will be nugatory.
[51] The Commissioner also emphasised the long delay in seeking restoration of the removed companies, the prejudice to the Commissioner in terms of the ability to recover written-off GST, and absence of full and frank disclosure about the circumstances in which the companies were removed from the register.

The applicants’ submissions

[52] The applicants support the decision of the Associate Judge. They submit that he correctly identified and applied the principles relevant to s 329 applications. The Associate Judge considered all the relevant factors and exercised his power appropriately. No proper basis has been identified to justify interference with the decision.
[53] The applicants emphasise that there is a public interest in ensuring that access to justice is preserved. The Associate Judge’s approach on this issue was consistent with the approach taken in the past in cases such as Re Marketing Distribution Services Ltd and Downsview Nominees Ltd v Commissioner of Inland Revenue.^[44]
[54] In response to the lengthy submissions by the Commissioner that focus on the history of tax litigation involving Mr Russell’s firm, and companies controlled by it, the applicants say that it is not appropriate for courts to make decisions based on the identity of the litigants. The rule of law requires that justice be done to all even‑handedly.

Registrar’s submissions

[55] The Registrar did not wish to appear and be heard on this appeal. The Court invited the Registrar to file a memorandum setting out the Registrar’s approach to the issues raised by the application. Counsel for the Registrar advised the Court that:

• (a) it is not the usual practice of the Registrar to seek conditions under s 329(3) and (4) regarding the filing obligations of the relevant company;
• (b) the Registrar’s usual practice is to liaise with the director(s) of the relevant company or their legal advisers to ensure that the company’s current filing obligations are complied with when the relevant company is restored;
• (c) that has occurred in this case. Current annual returns, directors’ consent forms, updated company addresses (if required) and details of the ultimate holding company (if required) have been filed for the four removed companies;
• (d) the companies were not required to file financial statements on the register;
• (e) it was open to creditors of the removed companies to apply to the court for restoration of the companies. If there are limitation issues those creditors can seek conditions under s 329(4). Because any creditors have those remedies when a company is removed, the Registrar does not consider that it is appropriate to seek such conditions on a later application to restore a company made by a person who is not a creditor. The creditors are not prejudiced because they had their remedy under section 329(1)(a)(iv) and elected not to enforce it.

Analysis

Delay

[56] We agree with the Associate Judge that the long delay in making an application to restore these companies to the register is a factor that points against their restoration.^[45] It needed to be satisfactorily explained. It was not.

Application for restoration failed to provide necessary information

[57] More generally, we consider that the application for restoration of the removed companies was hopelessly inadequate. An applicant for an order under s 329 needs to provide all the information that the court requires in order to consider the merits of the application. As we explained above, a s 329 application is not a mere procedural formality. It involves the exercise of judgement by the court in a case that falls outside the straightforward circumstances that are provided for under s 328.
[58] Section 329(1A) provides that the court must have regard to the reasons for the company’s removal and whether those grounds existed at the time of removal or exist at the hearing of the application. It is incumbent on an applicant associated with the removed company (such as a former shareholder or director) to provide the information that the court requires in order to consider this mandatory relevant consideration. The applicant should identify:

• (a) the ground on which the company was removed;
• (b) whether that ground was in fact satisfied at the time of the company’s removal;
• (c) the position in relation to that ground at the time of the restoration application;
• (d) what steps if any the company and its controllers took to prevent removal from the register. If no steps were taken, the reason for the failure to do so needs to be explained;
• (e) what if anything has changed since the time the company was removed from the register, which would justify the controllers of the company changing their position on the appropriateness of the company continuing in existence; and
• (f) the explanation for any delay between the time when the reason for seeking restoration was first identified, and the making of the application.

[59] These matters should be addressed in an affidavit accompanying the application. Relevant documents should be exhibited.
[60] The importance of this information was identified in Re Saxpack Foods Ltd. Hammond J referred to the decision of O’Regan J refusing restoration of a defunct company to the register in Re Ghuznee Securities Ltd.^[46] In that case the applicant’s failure to provide any reason for or explanation of the defaults that led to the company being removed from the register was the central factor in the Judge’s decision to refuse restoration. As O’Regan J observed, in the absence of such information “the Court is without material upon which it can make an assessment of the justice of the matter”.^[47]
[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.^[48] 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.
[64] There was an almost complete absence of relevant information in this case. Sketchy information was provided about why one of the four companies was removed from the register. No information was provided about whether the other companies were removed on the initiative of the shareholders or of the Registrar,^[49] or about the grounds for their removal. No explanation was provided about why the persons controlling the companies had initiated, or acquiesced in, their removal from the register. No explanation was provided for the lengthy delay between Mr Russell forming the view that some Russell template companies might be entitled to GST refunds, and the application for restoration of these companies.
[65] For this reason alone we consider that the High Court should have declined to restore the removed companies. The applicant failed to provide the information that the Court needed in order to give proper consideration to the application. The consequence of failure to provide such information will generally be dismissal of the application.

Restoration either nugatory or contrary to the public interest

[66] The application should also have been refused because restoration of the removed companies after such a long period of being deregistered would either be nugatory, or contrary to the public interest.
[67] We agree with the Associate Judge that access to justice is a relevant principle when considering an application under s 329.^[50] There is a public interest in restoring the ability of a company that has been removed from the register to pursue a claim that it wishes to bring, where it is acting in good faith and has taken timely steps to pursue the claim after becoming aware of it. We also agree with the Associate Judge that it is not appropriate, in the context of a s 329 restoration application, to embark on a detailed analysis of the merits of a claim that an applicant says the company may be able to pursue.^[51] But we do not agree that there is a public interest in the removed companies being permitted to pursue their proposed claims against the Commissioner in this case.
[68] There are significant hurdles in the way of a successful claim by the removed companies for GST refunds, if they are restored to the register. Those companies would not have any current right to object to their GST assessments for the relevant periods under Part 4A of the Tax Administration Act 1994: the time for making such objections has long expired. They would need to apply for the Commissioner’s approval to make a late objection under s 89K. The Commissioner could only grant that approval in relation to the removed companies if exceptional circumstances had prevented those companies from making their objections in a timely way, and those companies had taken steps to make the objection as soon as reasonably practicable after becoming aware of that failure. The prospect of the removed companies making out those grounds seems slight. The removed companies might in the alternative ask the Commissioner to exercise the Commissioner’s power to correct an assessment under s 113 of the Tax Administration Act. But that discretion will not be exercised where to do so would circumvent the normal disputes process.^[52] So even on a preliminary assessment that focuses solely on the process for making a late objection, and does not go into the merits of any such objection, the prospect of a successful claim by the removed companies for a GST reassessment and refund seems poor.
[69] The significant delay in seeking to pursue any claims that the removed companies might have had to GST refunds also counts against restoration of the companies for the purpose of pursuing those claims. There is a public interest in finality that is reflected in limitation statutes and in equitable principles of laches. In the present case, Mr Russell appears to have identified the potential claims by Russell template companies for GST refunds by 1993 at the latest, when Duvall pursued its claim before the TRA. Some 25 years then passed before any formal steps were taken to assert similar claims on behalf of the removed companies. They could all have pursued those claims before their removal from the register, and could have been kept in existence for that purpose. But a choice appears to have been made not to do so. No explanation has been offered for this extraordinary delay, or for why despite that delay it would now be just and equitable to permit them to pursue those claims.
[70] The delay in asserting the claims is closely linked to another factor that counts against restoration of the removed companies to the register. It appears that the only way that pursuing a late objection could produce a benefit for the controllers of the removed companies would be if those companies could obtain GST refunds, but the associated companies to which the removed companies purported to provide services under a series of tax avoidance arrangements could avoid the corresponding increase in GST liabilities, either because they had been removed from the register or because reassessments of those companies would be time-barred. If this unlikely prospect were to eventuate, it would provide the applicants and their controllers with a windfall benefit from their entry into tax avoidance arrangements, coupled with the passage of time since those arrangements were entered into. We agree with the Commissioner’s submission that such a result would undermine the integrity of the tax system in the eyes of law-abiding taxpayers. It is plainly contrary to the public interest. The applicants’ private interest in such an outcome is obvious: but the Associate Judge was wrong to suggest that there is a public interest in the belated pursuit of asserted rights to perverse outcomes of this kind.
[71] If the position in relation to the proposed tax claims were less clear cut, then the approach adopted by the Associate Judge of leaving the merits of those claims to be resolved through the disputes process might have been appropriate. But in this case, the position is clear. Either restoring the removed companies to the register will be pointless because they will not be able to obtain any benefit from belatedly seeking a reassessment of their GST liabilities, or it will achieve a positively undesirable and unjust outcome. Either way, it is not just and equitable to restore the removed companies to the register in order to enable them to pursue the claims that the applicants have identified as the sole rationale for their restoration.

Conclusion

[72] The approach adopted in the High Court decision was wrong as a matter of principle. There were two compelling reasons to dismiss the application. We therefore allow the Commissioner’s appeal.
[73] Because we have allowed the appeal, we do not need to consider the request made by the parties that the High Court order be amended to omit the reference to Belmonte Dairy Ltd. The basis on which this Court could make such an order if it did not allow the appeal was not identified by the parties, and is not immediately apparent to us. But that is not an issue we need to address.

Result

[74] The appeal is allowed.
[75] The order that the removed companies be restored to the Companies Register is set aside.

[76] Costs should follow the event in the ordinary way. The respondents must pay the Commissioner costs for a standard appeal on a band A basis and usual disbursements.

Solicitors:
Crown Law Office, Wellington for Appellant
Douglas Burgess Law, Auckland for Respondents

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^[1] Commercial Management Ltd v Commissioner of Inland Revenue [2018] NZHC 2224 [High Court decision].

^[2] The parties asked the Court to make an order by consent amending the orders made by the High Court to omit Belmonte Dairy Ltd from the list of companies to be restored to the register. We return to that request at [73] below.

^[3] FB Duvall Ltd v Commissioner of Inland Revenue [2011] NZHC 1783; (2011) 25 NZTC 20-101 (HC) at [5]. For a more detailed description of the Russell template arrangements see Miller v Commissioner of Inland Revenue [2001] UKPC 17, [2001] 3 NZLR 316 at [6]–[8].

^[4] See Great North Motor Co Ltd (in rec) v Commissioner of Inland Revenue [2017] NZCA 328, (2017) 28 NZTC 23-022, see especially at [5] and [44].

^[5] Case Q34 (1993) 15 NZTC 5,159 (TRA).

^[6] See FB Duvall Ltd v Commissioner of Inland Revenue (1997) NZTC 13,470 (HC); FB Duvall Ltd v Commissioner of Inland Revenue (1999) 19 NZTC 15,039 (HC); and FB Duvall Ltd v Commissioner of Inland Revenue (No 3) (1999) 19 NZTC 15,515 (HC).

^[7] FB Duvall Ltd v Commissioner of Inland Revenue [2000] NZCA 54; (2000) 19 NZTC 15,658 (CA) at [28].

^[8] See FB Duvall Ltd, above n 3, at [10] and [11].

^[9] At [38].

^[10] That was also the case in relation to Belmonte Dairy Ltd.

^[11] This is not in fact a ground for removal of a company from the register. But failure to file annual returns can provide grounds for the Registrar to form the view that the company is not carrying on business, and there is no proper reason for it to continue in existence: Companies Act, s 318(1)(b).

^[12] Companies Act, s 321(1)(a).

^[13] Section 321(1)(b).

^[14] Section 321(1)(f).

^[15] See Companies Act 1955, ss 335, 335A(8), 336(7).

^[16] See John Hammonds & Co Ltd v Registrar of Companies [1999] 3 NZLR 690 (HC) at [50]–[51]. The application in that case was brought under the Companies Act 1955, as the company had been removed from the register in 1989.

^[17] Companies Act 1993, s 330(2).

^[18] High Court decision, above n 1, at [4].

^[19] At [4].

^[20] At [5].

^[21] At [6].

^[22] Re Marketing Distribution Services Ltd HC Auckland M1835/97, 2 March 1998.

^[23] High Court decision, above n 1, at [10].

^[24] See [11]–[20].

^[25] At [22], quoting from Re Saxpack Foods Ltd [1994] 1 NZLR 605 (HC) at 609–611.

^[26] At [24].

^[27] At [25].

^[28] At [26].

^[29] At [27].

^[30] At [38].

^[31] At [39].

^[32] At [40].

^[33] At [41].

^[34] At [44].

^[35] At [46].

^[36] At [47].

^[37] At [48].

^[38] At [48].

^[39] At [48].

^[40] At [49]–[56].

^[41] At [56].

^[42] At [58].

^[43] High Court decision, above n 1, at [48].

^[44] Re Marketing Distribution Services Ltd, above n 22; and Downsview Nominees Ltd v Commissioner of Inland Revenue (2006) 22 NZTC 19, 971 (HC).

^[45] High Court decision, above n 1, at [23].

^[46] Re Saxpack Foods Ltd, above n 25, at 610, citing Re Ghuznee Securities Ltd (1983) 1 NZCLC 95‑097 (HC). See also Re Durweston Properties Ltd (1992) 6 PRNZ 95 at 98-99.

^[47] Re Saxpack Foods Ltd, above n 25, at 95-098.

^[48] See Re Durweston Properties Ltd, above n 46, at 98.

^[49] It appears that at one stage Mr Russell pursued a deliberate strategy of having some Russell template companies removed from the register: Downsview Nominees Ltd v Commissioner of Inland Revenue, above n 44, at [4] and [34]. No information was provided about whether the removal of any of the removed companies with which this case is concerned was initiated by Mr Russell’s firm.

^[50] See High Court decision, above n 1, at [48].

^[51] At [58].

^[52] Westpac Securities NZ Ltd v Commissioner of Inland Revenue [2014] NZHC 3377, see especially at [67].