ANDREW ILICH V THE COMMISSIONER OF INLAND REVENUE HC AK CIV 2007-404-003735

ANDREW ILICH V THE COMMISSIONER OF INLAND REVENUE HC AK CIV 2007-404-003735 2 February 2011IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV 2007-404-003735UNDER the Insolvency Act 1967IN THE MATTER OF the bankruptcy of Andrew Ilich (alsoknown as Andrew Milan Ilich)BETWEEN ANDREW ILICHApplicantAND THE COMMISSIONER OF INLANDREVENUERespondentHearing: 1 February 2011Appearances: A Ilich in person the ApplicantT M Molloy for the RespondentJudgment: 2 February 2011JUDGMENT OFASSOCIATE JUDGE CHRISTIANSENThis judgment was delivered by me on02.02.11 at 4:00pm, pursuant toRule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDateSolicitors/Counsel: T Molloy, S J Eisdell Moore, Auckland – tom.molloy@meredithconnell.co.nzCopy to: A Ilich – ilich@ihug.co.nz[1] On 4 November 2010 Associate Judge Osborne adjudicated Mr Ilich bankrupt. Mr Ilich has filed an appeal against that order. The application before me concerns his application for suspension of the adjudication order until his appeal is heard. Mr Ilich is concerned about the legal process that occurred at the time the adjudication order was made. Also, he has issues outstanding before the Court ofAppeal and the Taxation Review Authority (TRA) which he claims concern the debtwhich provided the foundation for the adjudication proceeding. The issue before thisCourt concerns the extent to which Mr Ilich's appeal issues can be considered at all,or whether instead the Court's concern is only about the impact of the order foradjudication upon an appellant during that period until his appeal is heard.Background[2] It is longstanding and factually complex. It has been chronicled in a number of Court decisions in the District Court, the High Court and in the Court of Appeal. Iwill attempt a further if somewhat abbreviated account.[3] Initially issues arose concerning Mr Ilich's tax return and GST return for theperiod ended 31 March 1997. For that period the Commissioner made an assessment. This assessment was the subject of an agreed adjustment which arose from a meeting held on 23 May 2000 and by which Mr Ilich agreed to pay fifty per cent of the tax assessed over those periods.[4] The tax went unpaid and the Commissioner issued proceedings in the District Court to recover the sum assessed. In June 2002 judgment was entered against Mr Ilich for $360,909.47. At that time counsel appearing for Mr Ilich consented to judgment being entered in those sums.[5] A bankruptcy notice was served on 21 November 2002. Later on 5 March 2003 a bankruptcy petition was served. When the matter was first called Mr Ilich advised he intended to challenge the assessments which were the basis of the debt recovery proceedings.[6] Eventually in 2004 an application to the TRA was filed seeking to set aside the assessments arising from the agreed adjustments. On 14 May 2004 the TRA dismissed the application on the grounds it had no jurisdiction to make the orderssought. The authority noted Mr Ilich's counsel had withdrawn an application toextend the time to challenge the assessments and said it was right that this be done for the challenge had no prospect of success and counsel had responsibly recognised this.[7] The progress of the Commissioner's petition before the High Court wasmeanwhile stalled due to adjournments granted whilst Mr Ilich pursued his challenges. When in 2004 Mr Ilich applied to the District Court to obtain a hearing of the underlying judgment against him, the High Court dismissed the then current petition noting the amount of time that had lapsed since it was filed, and the time that would likely lapse before a decision on the rehearing was known.[8] The rehearing before Judge Hole in the District Court in March 2005 proceeded on the basis that new evidence had come to light which challenged the integrity of the process when Mr Ilich had agreed to and indeed signed an agreed adjustment to his liability for payment of tax.[9] By Judge Hole's judgment dated 5 April 2005, judgment was again enteredagainst Mr Ilich in the sum of $359,657.41.[10] On 1 August 2007 a new bankruptcy notice was served on Mr Ilich. Mr Ilich applied to set it aside. On 23 July 2008 Mr Ilich filed an application for leave toappeal against Judge Hole's decision.[11] Associate Judge Doogue heard Mr Ilich's setting aside application in theAuckland High Court on 29 July 2008. By Associate Judge Doogue's judgment dated 5 August 2008 Mr Ilich's application was dismissed.[12] On 24 December 2008 Mr Ilich filed an application seeking to stay the bankruptcy proceeding pending determination of an appeal of the decision of Associate Judge Doogue, and an appeal against the decision of Judge Hole. TheCommissioner did not oppose the application and an order for stay was accordingly granted.[13] Mr Ilich's application for leave to appeal out of time against the decision of Judge Hole came before Stevens J in the Auckland High Court on 18 June 2009. His Honour dismissed the application stating that Mr Ilich had completely failed to offer an adequate explanation for a delay of 38 months in bringing an appeal. He also observed the intended appeal likely lacked merit but that this was not determinative in his judgment.[14] On 22 July 2009 Mr Ilich filed in the Auckland High Court an application for leave to appeal against the decision of Stevens J. By his judgment dated 1 March 2010 Stevens J dismissed the application on the basis that it was misconceived and that Mr Ilich had a direct right of appeal to the Court of Appeal and there was norequirement to obtain the leave of the High Court before bringing such an appeal.[15] Subsequently Mr Ilich has filed an application for leave to appeal out of time the aforesaid decision of Stevens J.[16] As well as that appeal, and Mr Ilich's appeal of the adjudication order, MrIlich has outstanding an application to the TRA filed in September 2009 by which he has applied for an extension of time to challenge the aforesaid agreed adjustment.Grounds for suspension application[17] These appear to be:1. His reputation has and will be damaged and his future employment prospects affected.2. The order for adjudication will impact negatively upon the outcome of the other existing proceedings.3. Counsel for the respondent misled the Court by suggesting that settlement negotiations with a legal practitioner (Mr Gubb) had concluded unsuccessfully.Considerations[18] I accept Mr Molloy's submissions that:(a) There is no evidence before the Court of any unusual prejudice ordamage that will be caused to Mr Ilich's reputation/employmentprospects.(b) Mr Ilich can continue to pursue his appeal against the order for adjudication without an order suspending the adjudication.(c) That he, (and before me Mr Ilich agreed), did not mislead the Court on 4 December 2010 concerning discussions with Mr Gubb – indeed Mr Gubb was advised there could be no discussion about the case due to the secrecy provisions of the Tax Administration Act 1994.[19] There is nothing by these reasons that could persuade a Court to grant asuspension for the adjudication order. But, the real import of Mr Ilich's suspensionapplication is his concern that an order for adjudication will prevent him from pursuing his appeal of the judgment of Stevens J refusal to grant leave to appeal out of time, and also his application to the TRA for an extension of time to challenge an assessment.[20] It is clear from s 9(2) of the Insolvency Act 1967 (by which Mr Ilich'ssuspension application needs to be considered) that a bankrupt may apply for an order for suspension pending the disposal of an appeal against an order for adjudication. This means that Mr Ilich can continue to pursue his appeal against the order for adjudication without an order suspending the adjudication. However his rights to pursue his appeal of the decision of Stevens J, and to pursue his application to the TRA for an extension of time to challenge an assessment, are delimitedbecause of his status as a bankrupt. Whilst a bankrupt his legal status to pursue proceedings other than an appeal of his adjudication, is affected. The decision on whether or not those other proceedings may be pursued, vests with the Official Assignee, even though those proceedings raise a challenge concerning that very debt upon which the bankruptcy petition was based.[21] The Court has received no evidence that the Official Assignee wishes to pursue an appeal of Stevens J decision or the TRA application.[22] In summary, the Court considers there is no proper basis for suspending the order of adjudication not only for the reasons Mr Ilich claims affect him personally, but also because the decision about whether to pursue those other non adjudication proceedings no longer lies with Mr Ilich.[23] If this judgment is wrong in its conclusion that it should, in the absence of any request by the Official Assignee, ignore the wishes of a bankrupt intent on pursuing proceedings by which the bankrupt could challenge his liability for that debt which has led to his adjudication, then I should say this about the prospects of those challenges succeeding.[24] The appeal against the decision of Stevens J was an appeal against the refusal to grant leave to bring an appeal out of time. It was nothing more than that and quite clearly the decision then made is unchallengeable. If, as it seems, that appeal was intended by Mr Ilich to provide a mechanism for challenging the judgment of Judge Hole then it is to be observed that his claim of the availability of "new evidence" tochallenge the integrity of the process surrounding the agreed adjustment was raisedupon Mr Ilich's earlier application for leave to appeal the decision of Judge Hole. Indeclining that application, Stevens J observed that the strength and relevance of the new material was dubious:[46] With respect to the allegedly new evidence, it is fair to say that it is somewhat difficult on the limited factual information available to reach a categorical view on the impact of the alleged new evidence. On an impressionistic basis, I have real doubt that, even if the new evidence were admissible as fresh evidence, it would have made any difference at all. The strength of this material is dubious to say the least. Nevertheless, I amprepared for the sake of analysis, to assume as did the Court of Appeal inHillary 1 that the proposed appeal is not totally meritless.[25] It appears that the application for the TRA will/would have invited that authority to give some consideration also to that "new evidence".[26] Mr Ilich has constantly protested that whilst he has no assets at all his only debt has ever been to the Commissioner. Mr Ilich claims that he is entitled to a GSTcredit resulting from the sale of his "private business" to "the company" with theresult that he owes a smaller amount of core tax. This credit would he said have been sufficient from the beginning to have paid the full extent of core tax owed by him. However he has never provided any details of the alleged sale for which he says a GST credit was due. Also it is clear that even if he had been entitled to a GST credit he would not have been entitled to set off this amount against his other tax liabilities.[27] In brief, even if the Court ought upon a suspension application to haveaddressed issues challenging Mr Ilich's liability for the core debt which gave rise tohis bankruptcy, the Court would have no hesitation in concluding there is no reasonable probability that those challenges would be successful.Judgment[28] The application for suspension is dismissed.Associate Judge Christiansen1 Ilich v Commissioner of Inland Revenue (2009) 24 NZTC, 23, 556.