Commissioner of Inland Revenue v West Coast Brewery Limited [2012] NZHC 1185 (30 May 2012)

Last Updated: 22 August 2012

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2011-409-2524 [2012] NZHC 1185

IN THE MATTER OF the Companies Act 1993

BETWEEN THE COMMISSIONER OF INLAND REVENUE

Plaintiff

AND THE WEST COAST BREWERY LIMITED

Defendant

Hearing: 29 May 2012

(Heard at Christchurch)

Counsel: H Sumner - Counsel for Plaintiff

Ms Roberts for the supporting creditor

New Zealand Customs Service and Mr Russell for the defendant

Reasons: 30 May 2012

_{REASONS FOR DECISION OF ASSOCIATE JUDGE D.I. GENDALL}

Solicitors: Inland Revenue, PO Box 1782, Christchurch

_{Forest, Harrison, Solicitors, PO Box 828, Auckland}

THE COMMISSIONER OF INLAND REVENUE V THE WEST COAST BREWERY LIMITED HC CHCH CIV-2011-409-2524 [30 May 2012]

[1] On 29 May 2012 an application by the plaintiff to place the defendant company into liquidation came before this Court and I heard argument from all parties.

[2] At the conclusion of those submissions, at 10.27 am on 29 May 2012 the following orders were made on this application:

(a) An order was made placing the defendant company, The West Coast

Brewery Limited into liquidation.

(b) Wayne John Deuchrass and Iain Andrew Nellies were appointed liquidators.

(c) Costs were awarded both to the plaintiff and to the supporting creditor, New Zealand Customs Services, on a category 2B basis together with disbursements as fixed by the Registrar.

[3] In making these orders, I indicated that my detailed reasons for this decision would follow. I now set out those reasons.

[4] The application before the Court brought by the plaintiff sought an order that the defendant company be placed into liquidation based upon outstanding taxation debts said to be outstanding by the defendant totalling $205,319.65. These debts related to Goods and Services Tax, PAYE Tax, Income Tax, Kiwi Saver deductions and Student Loan deductions together with penalties and interest which were due from the defendant company but unpaid for periods dating back to January 2010 (although for the PAYE tax this dated back as far as 30 June 2009).

[5] No formal opposition to this application was filed by or on behalf of the defendant.

[6] This liquidation application followed service on 6 October 2011 upon the defendant of a statutory demand requiring payment of the sums then outstanding being $201,046.89.

[7] The statutory demand required a response from the defendant within 15 working days of 6 October 2011 but no response was forthcoming.

[8] Accordingly, in terms of s 287 Companies Act 1993 the defendant company having failed to comply with the statutory demand was presumed to be unable to pay its debts. It followed therefore pursuant to s 241(4) Companies Act 1993 that the Court was entitled to appoint a liquidator to the defendant on the basis that it was satisfied the defendant company was unable to pay its debts and was thus regarded as insolvent.

[9] Following service of the statutory demand, the plaintiff filed its present liquidation application on 8 December 2011. This was served on the defendant on 11

January 2012. Subsequently, advertising of the liquidation application took place in the Press newspaper at Christchurch on 18 May 2012 and in the New Zealand Gazette on 17 May 2012.

[10] Then, on 25 May 2012 the New Zealand Customs Service filed a Notice of Appearance as a creditor in support of the present application indicating that the defendant company owed $26,426.07 to the Service.

[11] As I have noted above no formal Notice of Opposition to this application has been filed by or on behalf of the defendant company, nor has any evidence of any kind been placed before the Court by or on behalf of the defendant.

[12] Subsequently on 29 May 2012, the plaintiff filed in this Court a certificate confirming that the debt of $205,319.65 remained owing and unpaid by the defendant, and a Consent to Act as liquidators by Wayne John Deuchrass and Iain Andrew Nellies.

[13] Given the matters noted above, at the outset it is clear that by failing to respond to the statutory demand issued against it, the defendant is presumed to be unable to pay its debts such that the Court is entitled to appoint a liquidator in terms of s 241(4)(a) Companies Act 1993. A discretion remains however as to whether a liquidator should be appointed in all the circumstances prevailing here. That said, Mr Russell appeared before me on 29 May 2012 as counsel for the defendant and made submissions suggesting that the Court should exercise its discretion to refuse the order sought and adjourn this matter on the following principal ground:

(a) The defendant company still continues in operation and employs some 31 people.

(b) Despite the failure of earlier settlement negotiations which resulted in adjournments of this matter on 21 February 2012 and 3 April 2012 without success, the defendant now wishes to put to its creditors a creditors’ compromise proposal under Part 14 Companies Act 1993.

(c) On this, Mr Russell indicated that, in addition to the debt owing to the plaintiff which now stands at some $234,000.00, the defendant has other creditors which total approximately $100,000.00.

[14] What is clear on all of this, however, is that for any such compromise to be binding on the company and all its creditors, a resolution approving the proposal must be passed by a majority in number representing 75% in value of all creditors of the company present and voting at a properly convened meeting either in person or by proxy.

[15] Before me Ms Sumner counsel for the plaintiff confirmed that under no circumstances would the plaintiff vote in favour of any such compromise proposal. That said, given the substantial percentage of the defendant’s debt held by the plaintiff here, there is no chance such a compromise could be properly approved in terms of s 230 Companies Act 1993.

[16] It must follow therefore that any defence advanced for the defendant here based upon a Part 14 creditors’ compromise proposal is to be dismissed.

[17] Turning now to the only other defences advanced for the defendant in his submissions, Mr Russell contended that the defendant might be in a position to pay

$54,000.00 from moneys to be advanced to it by a related party. Mr Russell suggested this was the core tax involved here and the payment could possibly be made by the end of August 2012 if the defendant was given time to do so now.

[18] In response, Ms Sumner for the plaintiff made a number of forceful submissions:

(a) To date the defendant had put at least three different but unacceptable proposals before the plaintiff and these had each been properly and carefully considered at a senior level by officers of the plaintiff before being rejected.

(b) There were matters in this case which the plaintiff contended needed careful investigation by a liquidator. These included a range of what were said to be improper preferential payments made by the defendant to other creditors in the recent past, payments which were clearly to the detriment both of the plaintiff and the defendant’s other unpaid creditors.

(c) The defendant had received ample opportunities in the past to clear the debt owing to the plaintiff, much of which Ms Sumner noted was effectively monies held in trust for employees (being unpaid PAYE, Student Loan employee contributions, Kiwi Saver employee deductions and Kiwi Saver employer contributions). She argued that the defendant company had effectively used employee’s money which it held in trust improperly as working capital to meet its ongoing daily business requirements. This was unacceptable and she said represented dishonesty on the part of the company in the sense that they were using employees’ monies for their own purposes. Ms

Sumner voiced the opinion that this clearly needed to be brought to an end.

(d) It was specifically suggested by Ms Sumner that as a result, the defendant represented a continuing risk to the community and should be placed into liquidation now.

[19] These allegations advanced on behalf of the plaintiff are serious. They raise matters which if established would require proper investigation by a liquidator.

[20] In addition, as I have noted above, the defendant has put no financial information before me of any kind to indicate that it is solvent and that given time it might be able to pay its debts on a progressive basis.

[21] And, as I conclude at [15] above, there is no possibility that the proposed Part

14 Creditors’ Compromise Proposal would be accepted by creditors holding the

required 75% majority of the total indebtedness.

[22] The defendant in failing to comply with the statutory demand is presumed to be unable to pay its debts such that a liquidation order is justified under s 241(4)(a) Companies Act 1993.

[23] Under all these circumstances I am satisfied that matters must now be brought to a head. There is no alternative as I see it but for an order to be made placing the defendant company into liquidation.

[24] It is for these reasons that the orders I have noted at para [2] above were made.

[25] One further matter requires mention. In their consent to act as liquidators Mr Deuchrass and Mr Nellies seek approval by this Court of certain rates of remuneration outlined in that consent. That approval is appropriate here.

[26] An order is now made approving the liquidators’ rates of remuneration

outlined in the affidavit of Wayne John Deuchrass sworn 25 May 2012 subject to s

284 Companies Act 1993.

[27] A further order is made allowing the liquidators to exercise their powers individually pursuant to s 242 Companies Act 1993.

‘Associate Judge D.I. Gendall’