Commissioner of Inland Revenue v Fantail Management Limited [2012] NZHC 1373 (18 June 2012)

High Court of New Zealand

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Commissioner of Inland Revenue v Fantail Management Limited [2012] NZHC 1373 (18 June 2012)

Last Updated: 27 June 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-939 [2012] NZHC 1373

UNDER the Companies Act 1993

BETWEEN THE COMMISSIONER OF INLAND REVENUE

Plaintiff

AND FANTAIL MANAGEMENT LIMITED Defendant

Hearing: 18 June 2012

Counsel: FF Nizam for plaintiff

JD Turner for defendant

Judgment: 18 June 2012

JUDGMENT OF ASSOCIATE JUDGE FAIRE

_{[on application to put defendant company into liquidation]}

Solicitors: Meredith Connell, PO Box 2213, Auckland 1140

McVeagh Fleming, PO Box 300 844, Albany 0752

THE COMMISSIONER OF INLAND REVENUE V FANTAIL MANAGEMENT LIMITED HC AK CIV-2012-

404-939 [18 June 2012]

[1] The plaintiff applies to put the defendant into liquidation and to appoint a liquidator.

[2] The application is based on non-compliance with a statutory demand which was served on the defendant on 16 January 2012.

[3] The statement of claim, notice of proceeding and affidavit verifying the statement of claim were served on the defendant on 5 March 2012.

[4] A statement of defence was filed on 23 March 2012.

[5] The debt which is pleaded in the statement of claim and which is the subject of this proceeding is said to be income tax and penalties and interest thereon in respect of the tax periods ended 31 March 2009 and 31 March 2010. In addition, some additional interest is claimed.

[6] The defence pleaded is that with respect to the period ending 31 March 2009, the defendant’s prior accountant prepared financial statements for that period which wrongly included land (a capital asset) held by the defendant as being sold and returned as income rather than as capital with the result that the income position was incorrectly stated. So far as the period ended 31 March 2010 is concerned, the defendant says that the interest claimed is interest accrued on the incorrect statement of income returned for the year ended 31 March 2009.

[7] Section 241 of the Companies Act 1993 gives the Court a discretion to appoint a liquidator if it is satisfied that the company is unable to pay its debts. Section 287 of the Companies Act 1993 provides that:

287 Meaning of “inability to pay debts”

Unless the contrary is proved, and subject to section 288 of this Act, a company is presumed to be unable to pay its debts if—

(a) The company has failed to comply with a statutory demand;

[8] The company in fact has not complied with the statutory demand.

[9] The approach that the Court should take in considering an opposed application to appoint liquidator has been examined in a number of authorities. In Bateman Television Limited (in liq) & Anor v Coleridge Finance Company Ltd the Privy Council referred to the general rule that no order will be made on a petition founded on a debt which was genuinely disputed.[1] To apply to wind up a company in such a circumstance is an abuse of the Court’s process. The Court has an inherent jurisdiction to prevent such an abuse of process. The position has been considered in a number of cases both in relation to opposed applications to wind up and in respect of applications for orders restraining advertising and staying proceedings.[2]

Exchange Finance Co Ltd v Lemington Holdings Ltd; Taxi Trucks Ltd v Nicholson;

Edge Computers Ltd v Colonial Enterprises Ltd.

[10] From the authorities I extract the following specific principles which are applicable to such applications:

(a) A winding up order will not be made where there is a genuine and substantial dispute as to the existence of a debt such that it would be an abuse of the process of the Court to order a winding up;

(b) In such circumstances, the dispute, if genuine and substantially disputed, should be resolved through action commenced in the ordinary way and not in the Companies Court;

(c) The assessment of whether there is a genuine and substantial dispute is made on the material before the Court at the time and not on the hypothesis that some other material, which has not been produced might, nonetheless be available;

(d) The governing consideration is whether proceeding with an application savours of unfairness or undue pressure.

[11] I shall not, in this judgment, summarise in detail the steps that have lately been taken by the defendant to have its tax position reconsidered by the Commissioner. What is important, however, for the purposes of this judgment is that a notice of proposed adjustment was served on the Commissioner on 23 April 2012. The Commissioner is yet to consider whether the defendant’s assessment should be considered pursuant to s 113 of the Tax Administration Act 1994.

[12] I invited in the course of the hearing of this application the parties to consider a staged process for disposal of the case. It necessarily is dependent upon the fact the defendant is, or should be, in a position to give security for the outstanding tax whilst the Commissioner considers the defendant’s current assessment pursuant to s 113 of the Tax Administration Act 1994.

[13] I am able to record in this judgment that there was broad agreement between counsel as to the appropriate way forward. That necessarily requires me to make what is effectively a conditional order for stay in reliance on r 31.11. I am happy to do that because that, in this case, is the best way to ensure that the Court’s jurisdiction, which I have summarised paragraph [10] is best applied to the facts of this case. The security which I order to be paid is in fact the sum which has been provided by an affidavit filed this morning which sets out the indebtedness as matters currently stand to the plaintiff and before clearly the consideration of a position pursuant to s 113 of the Tax Administration Act 1994.

[14] Accordingly I order:

(a) This proceeding is adjourned for a 30 minute hearing before me at

9am on 9 July 2012;

(b) It is a condition of the adjournment that:

(i) the defendant pay the sum of $56,647.77 into the trust account of McVeagh Fleming Lawyers and give notice to the plaintiff of such payment by 2 July 2012. Such sum shall be held by

the lawyers pending further order of this Court or the consent of the parties; and

(ii) reply to the notice issued by the plaintiff seeking further information to enable consideration of the position under s 113 of the Tax Administration Act 1994 by 2 July 2012. In respect of this last condition, the Court expects substantial compliance. It is understood there may be a need to obtain access to documents not actually held by the defendant, which would take additional time. Nevertheless, the Court expects substantial compliance. Any additional information to be provided will be considered at the hearing on 9 July 2012;

_{(c) Costs are reserved.}

JA Faire
Associate Judge

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[1] _{Bateman Television Ltd (in liquidation) v Coleridge Finance Co Ltd [1971] NZLR 929 (PC).}

[2] Exchange Finance Co Ltd v Lemmington Holdings Ltd [1984] 2 NZLR 242; Taxi Trucks Ltd v

Nicholson [1989] 2 NZLR 297; Edge Computers Ltd v Colonial Enterprises Ltd (1996) 9 PRNZ

621 (CA).