Commissioner of Inland Revenue v Tannadyce Investments Ltd [2012] NZHC 369; (2012) 25 NZTC 20-110 (6 March 2012)

Last Updated: 23 March 2012

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2010-409-001330 [2012] NZHC 369

IN THE MATTER OF the Companies Act 1993

BETWEEN THE COMMISSIONER OF INLAND REVENUE

Plaintiff

AND TANNADYCE INVESTMENTS LIMITED

Defendant

Hearing: 6 March 2012

Appearances: P H Courtney for Plaintiff

A J Forbes QC for Defendant

Judgment: 6 March 2012

_{ORDER OF ASSOCIATE JUDGE MATTHEWS}

[1] There is an application by the Commissioner of Inland Revenue for a liquidation order in respect of the defendant company. The order is based on indebtedness for taxation now amounting to $586,699.37.

[2] There is an application before the Court for leave to file a statement of defence out of time. Both applications have been adjourned on a number of occasions because the defendant company has been awaiting the decision of the Supreme Court on an appeal against a judgment of the Court of Appeal, which had earlier declined an application for a declaratory judgment by which the defendant company sought to challenge, broadly stated, the Commissioner’s assessments of tax. The Supreme Court decision was handed down in December. The Court

_{reaffirmed that statutory review procedures are the correct mechanism by which to}

THE COMMISSIONER OF INLAND REVENUE V TANNADYCE INVESTMENTS LIMITED HC CHCH CIV-2010-409-001330 [6 March 2012]

challenge assessments. Accordingly the taxation indebtedness is now beyond dispute.

Application for leave to file statement of defence

[3] I have reviewed the pleaded basis and materials in support. It is necessary for the defendant to establish first that it has an arguable defence: Mosaed v Roy Turner Ski Shop Ltd.[1] I am not satisfied in this case that it does, particularly given first its inability, now, to challenge the Commissioner’s assessment of tax and secondly, the lack of any evidence from the defendant, beyond a bald assertion, that it is solvent. Thirdly, the defendant has not in my view advanced a reasonable explanation for its

failure to file and serve a defence within time. Fourthly, looking at the justice of the case overall, I am not satisfied that time should be extended.

[4] Special leave is also sought. For this, a convincing reason must be put forward. For the reasons just enunciated, I am not satisfied that there is a convincing reason to grant special leave. Any such application must be seen in the context of the general policy of the provisions of the Companies Act relating to liquidation, namely that companies that are insolvent should be liquidated. I am conscious of the element of public interest which underpins this policy. Again, there being no evidence of solvency and there being a large unpaid and, now, indisputable debt, the policy should prevail.

[5] For these reasons I decline leave and special leave to file a statement of defence.

Application for liquidation

[6] There is a substantial indisputable and unpaid debt to the plaintiff. In CIR v

Berrytime Ltd,[2] the Court said:

[30] There was limited argument before me on how the power to judicially review could be relevant to exercise of the jurisdiction that I have under the

Companies Act to deal with liquidation applications. It is obvious that the power to judicially review cannot be exercised in the course of proceedings of the kind before me. Further, it is plain that I have to proceed on the basis that the assessments shall stand until a court of competent jurisdiction sets them aside. The result is that the taxpayers, as a result of the tax legislation, remain indebted to the Commissioner unless and until the assessment are set aside by way of judicial review. That being so, the existence of the debts and the admitted fact that they have not been paid are available as evidence that the company is unable to pay its debts. That the non-payment of debts have such evidential force is established by the decision of Re Taylor’s Industrial Flooring Ltd (1990) 8 ACLC 3,081. In that case a company applied to have a winding-up petition proceeding against it struck out. This was on the basis of an alleged oral agreement for credit terms, as well as an argument that the failure to issue a statutory demand against it meant that evidence that the company was unable to pay its debts would be insufficient to support a winding-up petition. At first instance, this argument was upheld, with the judge saying the difficulty could be avoided by the issue of a statutory demand. On appeal, however, it was held that if a debt was due, undisputed, and unpaid, a failure to pay was itself evidence of an inability to pay.

[7] Applying the principles summarised in these cases, I am satisfied that the company is unable to pay its debts and that it is appropriate that it be placed in liquidation.

Outcome

[8] The defendant company is placed in liquidation. David Donald Crichton and Keiran Anne Horne, chartered accountants of Christchurch are appointed as liquidators of the defendant company in accordance with their consent dated

3 August 2010. The plaintiff is entitled to costs on a 2B basis with disbursements to be fixed by the Registrar. This Order is timed at 11.55 am on Tuesday, 6 March

_2012.

J G Matthews

Associate Judge

Solicitors:

Crown Law, PO Box 2858, Wellington 6140. Email: [e-mail]

A J Forbes QC, PO Box 2929, Christchurch 8140. Email: [e-mail]

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[1] _{Mosaed v Roy Turner Ski Shop Ltd HC Wanganui M63/92, 10 December 1992.}

[2] CIR v Berrytime Ltd (2009) 24 NZTC 23,447.