BRISTOL FORESTRY VENTURE LIMITED and BEN NEVIS FORESTRY VENTURES LIMITED v COMMISSIONER OF INLAND REVENUE [2013] NZHC 2384

BRISTOL FORESTRY VENTURE LIMITED and BEN NEVIS FORESTRY VENTURES LIMITED v COMMISSIONER OF INLAND REVENUE [2013] NZHC 2384 [12 September 2013]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2013-404-2424[2013] NZHC 2384UNDER the Companies Act 1993IN THE MATTER of an application under s290 to set aside astatutory demandsBETWEEN BRISTOL FORESTRY VENTURELIMITED and BEN NEVIS FORESTRYVENTURES LIMITEDPlaintiffsAND COMMISSIONER OF INLANDREVENUEDefendantHearing: 4 and 6 September 2013Counsel: GJ Judd QC for plaintiffsRL Roff and SJ Leslie for defendantJudgment: 12 September 2013JUDGMENT OF ASSOCIATE JUDGE FAIRE[on application to set aside statutory demands]This judgment was delivered by me on 12 September 2013 at 4:30pmpursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDateSolicitors: Wynyard Wood, Auckland (R Ewen)Crown Law, WellingtonThe application[1] The application is made by Bristol Forestry Venture Ltd and Ben Nevis Forestry Ventures Ltd to set aside statutory demands. In the case of Bristol Forestry Venture Ltd, the statutory demand seeks payment of $819,268.16 and was served on 29 April 2013. In the case of Ben Nevis Forestry Ventures Ltd, the statutory demand seeks payment of $1,612,108.36 and was served on 2 May 2013. In each case, the statutory demands were signed by RL Roff, solicitor for the Commissioner of Inland Revenue.[2] The demands record that they are in respect of the amounts that eachcompany is indebted to the Commissioner "in respect of amounts owing underRevenue Acts for the 1998 tax year" and being "31/3/03 ATP shortfall penaltyassessment", and "4/12/12 interest".[3] The application invites the court in the alternative to order declaring that the documents are not statutory demands.The grounds advanced in support[4] The plaintiffs plead that:(a) there is a substantial dispute whether or not the debts are owing or overdue and rely on s 290(4)(a) of the Companies Act 1993;(b) the demands ought to be set aside on other grounds in that the circumstances of the case the serving of statutory demands is an abuse of process. This ground appears to rely on s 290(4)(c) of the Companies Act 1993; and(c) the demands do not fall within the definition of a statutory demand contained in s 289 of the Companies Act 1993 and are therefore not statutory demands.[5] Mr Judd advised that ground (c) did not need to be considered separately. The plaintiffs rely on the matters advanced in respect of (a) and (b) in [4]. Ground (c) had been pleaded simply to emphasise the plaintiffs' proposition that any debtowed to the Commissioner was not yet due, and therefore a demand for it did not satisfy the requirements of s 290(4)(a). Clearly, that submission is encompassed in ground (a).Origin of the debts[6] The plaintiff companies claimed tax deductions in connection with a forestry investment in the 1997 and 1998 tax years. The plaintiff companies were at the relevant time Loss Attributing Qualifying Companies (LAQC). The result of theplaintiffs' claimed tax deductions was that they were attributed to their shareholders. The Commissioner reassessed the shareholders and imposed tax on them and imposed penalties both on the shareholders and the two plaintiff companies in respect of the 1998 tax year.[7] As explained by the Supreme Court the two plaintiff companies in this proceeding were nevertheless liable for penalties, by operation of the definitions of"tax shortfall" and "tax positions".1 The former definition includes a shortfall where a tax position results in too little tax paid or payable by the taxpayer "or another person", or overstates a tax benefit, credit or advantage of any type or description whatever by or benefiting the taxpayer "or another person". As "another person",being a shareholder, paid too little tax and benefitted by the tax position taken by the plaintiff companies, the plaintiff companies, as well as the shareholders were held to be liable for the penalties, notwithstanding the fact that this results in the doubling up of the penalties. The Supreme Court described the mechanism to deal with relief from double penalties.2 The penalties on the shareholders must be reduced where the plaintiff companies (the LAQCs) pay in full the amount of the shortfall penalty and the shareholders request application of the relevant section.1 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2008] NZSC 115 at [210]–[215], [2009] 2 NZLR 289 (SC).2 Ibid, at [215].[8] The plaintiff companies and others challenged the defendant's assessmentsunder Part 8A of the Tax Administration Act 1994. The challenges were heard before Venning J. He dismissed the challenges.3 Venning J's judgment went on appeal to the Court of Appeal4 and then to the Supreme Court.5 The appeal courts upheld the decision dismissing the challenges.The statutory basis for the applications[9] The first ground relies on s 290(4)(a) of the Companies Act 1993. The relevant parts of s 290(4)(a) provide:290 Court may set aside statutory demand(4) The Court may grant an application to set aside a statutory demand if it is satisfied that—(a) There is a substantial dispute whether or not the debt is owing or is due; orThe court's approach to an application to set aside a statutory demand based onthe Companies Act 1993, s 290(4)(a)[10] The approach that the court adopts to an application that relies on the Companies Act 1993, s 290(4)(a) can be shortly stated. The court is required to determine whether there is a substantial dispute whether or not the debt is owing or is due. The applicant must show a fairly arguable basis upon which it is not liable for the amount claimed: Forge Holdings Ltd v Kearney Finance (NZ) Ltd6 andQueen City Residential Ltd v Patterson Co-Partners Architects.7 That formulation was approved in United Homes (1988) Ltd v Workman.8 Once that position is reached the statutory demand should be set aside and the dispute is then disposed of, if necessary, by other proceedings in the ordinary way.3 Accent Management Ltd v Commissioner of Inland Revenue (2004) 22 NZTC 19,027 (HC).4 Accent Management Ltd v Commissioner of Inland Revenue [2007] NZCA 230, (2007) 23 NZTC 21,323 (CA).5 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue above, n 1.6 Forge Holdings Ltd v Kearney Finance (NZ) Ltd HC Christchurch M149/95, 20 June 1995 at 2.7 Queen City Residential Limited v Patterson Co-Partners Architects Ltd [1995] 3 NZLR 307 (HC).8 United Homes (1988) Ltd v Workman [2001] 3 NZLR 447 (CA) at 451-452.[11] The second ground relies on s 290(4)(c) of the Companies Act 1993. Section 290(4)(c) provides:290 Court may set aside statutory demand(4) The Court may grant an application to set aside a statutory demand if it is satisfied that—(c) The demand ought to be set aside on other grounds.The court's approach to an application to set aside a statutory demand based onthe Companies Act 1993, s 290(4)(c)[12] Before analysing the facts of this case it is appropriate that I refer to the examination of this question by the Court of Appeal in Commissioner of Inland Revenue v Chester Trustee Services Ltd:9That said, I agree with Baragwanath J that the general policy of the Act that insolvent companies should be put into liquidation, if a creditor seeks such an order, should not be departed from lightly. To justify such departure there must be some other factor, be it policy, principle or simply the justice of the particular case, which outweighs the prima facie entitlement of the creditor to an order putting the insolvent company into liquidation. If the focus is on the justice of the particular case the discretion must always be exercised on a principled basis and not on some ad hoc perception of what individual justice might require. All cases involving s 290(4)(c) must in the end comedown to a judgment by the Court as to whether the creditor's prima facieentitlement is outweighed by some factor or factors making it plainly unjust for liquidation to ensue.[13] The Court of Appeal has given guidance in those situations where the company relies on an alleged ground of its solvency as a stand-alone ground for setting aside a statutory demand under the Companies Act 1993, s 290(4)(c). InAMC Construction Ltd v Frews Contracting Ltd the Court of Appeal said:10If there is no dispute as to the company's liability, so that para (a) or (b) [ofs 290(4)] cannot be invoked, it is difficult to imagine circumstances in which the company should be able to avoid paying a debt, merely by proving that it is able to pay that debt. If the debt is indisputably owing, then it should be paid. If the company simply refuses to pay, without good reason, it should not be able to avoid the statutory demand process by proving, at the statutory demand stage, that it is solvent. The demand should be allowed to proceed. If it is not met, and an application for liquidation is filed, in reliance on the9 Commissioner of Inland Revenue v Chester Trustee Services Ltd [2003] 1 NZLR (CA) 395 at [3].10 AMC Construction Ltd v Frews Contracting Ltd [2008] NZCA 389, (2008) 19 PRNZ 13 at [7].presumption in s 287(a) that the company is unable to pay its debts, then the company will have an opportunity on the liquidation application to rebut thestatutory presumption, which applies "unless the contrary is proved". Theremight be circumstances in which it is appropriate to advance the inquiry as to solvency to the s 290 stage, but that would require some particular circumstance not present in this case.The opposition[14] The Commissioner of Inland Revenue opposes the application and pleads that:(a) There is no substantial or genuine dispute as to whether or not the debt is due or owing;(b) Alternatively, it is not appropriate that the court exercise its discretion on other grounds pursuant to s 290(4)(c) of the Companies Act 1993 as there is no abuse of process in this case; and(c) The demands are statutory demands in terms of s 289 of the Companies Act 1993.[15] The Commissioner invites the court to exercise its powers under s 291 of the Companies Act 1993 to dismiss the application and forthwith make an order under s 241(4) of the Companies Act 1993 putting both plaintiff companies into liquidation on the grounds that both are unable to pay their debts. For completeness I set out the options available to the court should the application to set aside the statutory demand be dismissed. Section 291 of the Companies Act 1993 provides:291 Additional powers of Court on application to set aside statutory demand(1) If, on the hearing of an application under section 290 of this Act, the Court is satisfied that there is a debt due by the company to the creditor that is not the subject of a substantial dispute, or is not subject to a counterclaim, set-off, or cross-demand, the Court may—(a) Order the company to pay the debt within a specified period and that, in default of payment, the creditor may make an application to put the company into liquidation; or(b) Dismiss the application and forthwith make an order under section 241(4) of this Act putting the company into liquidation,—on the ground that the company is unable to pay its debts.(2) For the purposes of the hearing of an application to put the company into liquidation pursuant to an order made under subsection (1)(a) of this section, the company is presumed to be unable to pay its debts if it failed to pay the debt within the specified period.[16] I will discuss later in this judgment the court's approach to the two possibleconclusions to an examination of an application under s 290 of the Companies Act 1993.Previous analysis of plaintiffs' position by the courts[17] I adopt the summary of the various proceedings taken by the plaintiffs contained in the recent judgment of the Supreme Court in Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd:11[2] On 19 December 2008 this Court delivered judgment in an appeal by nine investors and loss-attributing qualifying companies (the Trinity investors), who had claimed tax deductions as a result of their participation in a forestry development project known as the Trinity scheme. The Court's judgment, in favour of the Commissioner of Inland Revenue, concluded that the Trinity scheme was a tax avoidance arrangement. Assessments by the Commissioner, disallowing the claimed deductions and imposing penalties on the investors for taking an abusive tax position, were upheld by this Court. Earlier High Court and Court of Appeal judgments had reached the same conclusions (but taking different views on the analysis of the scheme under specific tax provisions).[3] Four days after this Court's judgment, Accent Management Ltd and six other Trinity investors (including Redcliffe Forestry Investment Ltd) brought a representative proceeding seeking judicial review of the assessments upheld by the Supreme Court. An application by the Commissioner to the High Court to strike out this proceeding was granted by Keane J on 12 March 2010. An appeal against that judgment was later abandoned. Other challenges to the tax treatmentof the Trinity scheme have also been brought since this Court'sjudgment, but it is only necessary for our purposes to refer to the proceeding next mentioned, which is the subject of the present appeal.11 Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd [2012] NZSC 94, [2013] 1 NZLR 804 (SC) at 812.[4] On 15 September 2009, Redcliffe and six other Trinity investors, along with Dr Muir, a director of Redcliffe who had devised and set up the Trinity scheme, brought a new proceeding against theCommissioner. These plaintiffs, to whom we refer as "Redcliffe",sought orders setting aside the judgment of the High Court, delivered by Venning J in 2004, in the Trinity scheme litigation on the ground that the Commissioner had obtained that judgment by knowinglypresenting a "false case" in the High Court. Redcliffe pleaded thatthe Commissioner had deliberately refrained from putting material facts and law, applicable to the treatment of the scheme by the Inland Revenue Department, before the High Court, so as to secure a judgment that departmental officers knew would not have been available if there had been full and frank disclosure of the legalposition. Redcliffe's specific contention is that the Commissioner knowingly and wrongly applied a depreciation allowance to expenditure incurred by the Trinity investors under subpart EG of the Income Tax Act 2004 when subpart EH8(l) required that the expenditure be calculated under its provisions.[5] Redcliffe accepts that, in general, following completion of available appeals the decision of a court is final and a trial court is functus officio. Relying, however, on the exception to that principle which allows such a judgment to be attacked on the ground of fraud, Redcliffe contends that the Commissioner is not able to rely on thefinality of the Supreme Court's judgment concerning the taxtreatment of the Trinity scheme. (Citations omitted)[18] The Supreme Court concluded:[45] In this appeal Redcliffe's error in commencing a fresh proceeding in the High Court on the correctness of the legal conclusions of theSupreme Court is one that goes to the High Court's jurisdictionbecause what Redcliffe alleges does not constitute a case capable of leading the High Court to set aside the 2004 judgment. The High Court accordingly lacks jurisdiction to determine whether theSupreme Court's legal conclusions in Ben Nevis were wrong and forthis reason Redcliffe's proceeding must be dismissed[19] To that summary I make reference to the proceedings that commenced before the Judicial Conduct Commissioner and which culminated in the judgment of Goddard J on an application for judicial review.12[20] The application for judicial review was made in respect of a decision of the Judicial Conduct Commissioner to the effect that he would take no further action in respect of complaints made by the applicants Dr Muir, Mr Bradbury and Mr Peebles– the last two who are the shareholders in the plaintiff companies involved in the12 Muir v Judicial Conduct Commissioner [2013] NZHC 989, (2013) 26 NZTC 21-019.applications before me. The complaints were made in respect of Venning J, the trial judge, in the original Trinity case. The purpose of the allegations that the Judicial Complaints Commissioner was asked to investigate were described by Goddard J as follows:13These, it was said, could lead to plausible findings that at the time of theTrinity litigation and the subsequent recusal hearing, the Judge had deliberately failed to disclose the extent of his involvement in Tahakopa. Eight possible contentions were put forward as potentially plausible, all essentially reiterating in expanded version the basic assertion that the Judge was opportunistically misusing his judicial office over the period of his tenure to cover up a debt to the CIR incurred through alleged failure to pay stamp duty on the Tahakopa conveyance to the Trust (as if there had been such a conveyance) and to cover up his signature on false statutory declarations. The conclusion contended for was that the Judge has ever since been exercising biased judgement in determining cases in favour of the CIR, including in the Trinity case, because he is beholden to the CIR.[21] The Judge added:14It is a direct allegation of presumptive bias arising out of an alleged corrupt collusion on the part of the Judge and the CIR (in any case in which the CIR has an interest) to pervert the course of justice. It is undoubtedly directed at impugning the integrity of the judgment inAccent Management Ltd v Commissioner of Inland Revenue.[22] The Judge summed up the position as follows:15It is evident that all of the allegations relating to the so-called disclosure have one end in sight: and that is to establish a relevant connection between the Judge and the CIR as the successful defendant in the Trinity proceedings. It is for the single purpose of establishing that the Judge is somehow"beholden" to the CIR in a Saxmere sense that the plaintiffs have striven to conjure up a relevant connection between the Judge and the CIR. By this means, they have clearly hoped to articulate a logical connection betweenthe alleged relationship and the "feared deviation" from the decision inAccent Management Ltd v Commissioner of Inland Revenue having been determined on its merits. The desired end result is for that judgment to be setaside, consequent upon the Judge's removal from office. That is evident inthe eight contentions they put forward as plausible in the first restatement of their complaint; and again in the reformulated eight questions in the second restatement. This narrow goal is very plainly stated in the eighth question,quoted in [121], above. The plaintiffs' theory, of an "asymmetry" ofknowledge between the Judge and the CIR, is, however, totally lacking in foundation, as the Commissioner found. (Citations omitted)13 Ibid, at [118].14 Ibid, at [122].15 Ibid, at [166].[23] The Judge dismissed the application for judicial review.[24] Ms Roff referred to this judgment as an area where allegations are similar to those that are in the proceedings currently the subject to a protest to jurisdiction hearing before Katz J. Those proceedings are central to Mr Judd's submission thatthere is currently no sum due.[25] Reference was also made to other decisions involving the taxpayers and the Commissioner. There was also a reference to cases involving Venning J's refusal torecuse himself in respect of a cost hearing arising out of the first Trinity judgment. Mr Judd pointed out that his clients were not parties to those proceedings.The plaintiff companies' new proceedings[26] The plaintiff companies and their shareholders, Mr CR Bradbury and Mr GA Peebles are parties to a proceeding issued in the High Court at Auckland under CIV- 2012-404-7682. That proceeding seeks to set aside the original decision of Venning J, which dismissed the challenges by a number of taxpayers, including the plaintiffs in this proceeding, ignore the assessments made by the Commissioner of Inland Revenue in respect of the 1997 and 1998 tax years.[27] The defendant has protested the High Court's jurisdiction and has applied todismiss the proceedings on the basis that the court has no jurisdiction. The application also contained an application to strike out pursuant to r 15.1. That has not yet been pursued. After these reasons were prepared in draft, the decision of Katz J on that dismissal application was issued. I have had the benefit of reading herHonour's judgment in concluding this judgment.16[28] The plaintiffs applied to join the Attorney-General as a second defendant and to seek a remedy against the Crown for breach of the New Zealand Bill of Rights Act 1990. The plaintiffs sought to have that application heard in conjunction with thedefendant's application to dismiss. The High Court decided to hear the defendant'sapplication first. The plaintiffs appealed to the Court of Appeal.1716 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2013] NZHC 2361.17 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue, [2013] NZCA 164.[29] It is convenient that I adopt the Court of Appeal's description of the currentHigh Court proceeding where the Court said:18The appellants' claim in the High Court is that the decision in Accent Management is voidable on the ground that the Judge was or may be seen to be biased because he was beholden to the Commissioner of Inland Revenue, the respondent, in respect of an alleged stamp duty debt. The appellants also filed an interlocutory application to join the Attorney-General to the proceeding. A draft amended claim for compensation under the New Zealand Bill of Rights Act 1990 was attached to that application.[30] The Court of Appeal determined that it would delay hearing the appeal pending the determination by Katz J of the jurisdiction question.The plaintiffs' primary submission[31] Mr Judd submitted that the plaintiffs are entitled to have Venning J'sdetermination set aside ex debito justitiae. That is because the plaintiffs allege that the Judge acted in breach of the principles of natural justice and, in particular, the matters reinforced by s 27(1) of the New Zealand Bill of Rights Act 1990.[32] Mr Judd submitted that if Venning J's judgment is set aside, the shortfallpenalties and interest would not be owing and due. He submitted that this is a result of the statutory regime. Section 138I(2) of the Tax Administration Act 1994 provides that a disputant is not liable to pay a shortfall penalty where the penalty is payable in respect of any tax in dispute, until the due date for payment of the deferrable tax. Nor is the disputant liable to pay interest accruing on the shortfall penalty until that due date. Mr Judd observed that the due date for payment of deferrable tax is the day which is the thirtieth day after the last day of the relevant period of deferral.19 The relevant period of deferral resulting from a Part 8A challenge proceedings ends at the expiry of the day that, in relation to the deferrable tax, is the day of determination of final liability. That flows from the definition of"period of referral".[33] If a challenge is determined by a court, whether or not by way of appeal, the day of determination of final liability is the day on which the challenge is finally18 Ibid, at [3].19 Section 142F, Tax Administration Act 1994.determined, whether in those proceedings or in a subsequent appeal. That arisesfrom the definition of "day of determination of final liability" for the purposes ofPart 8A.[34] Mr Judd also observed that s 109 of the Tax Administration Act 1994 provides that except in objection proceedings, or a challenge under Part 8A, no disputable decision may be disputed in a court or in any proceeding on any ground whatsoever. He observed that the effect of the statutory challenge regime is tosuspend the defendant's assessment pending orders of the hearing authority under s 138P of the Tax Administration Act 1994. He submitted that the effect of this is that assessments give rise to a contingent debt. The contingency, that is whether or not the debt is owing, is only removed when the challenges are finally resolved.[35] He further submitted that what is in issue in the setting aside proceeding thathas now been launched, is not the correctness or validity of the defendant'sassessments. It is the validity or legality of the hearing authority's determinationunder s 138P of the Tax Administration Act 1994. The result, he submitted, is that ifthe hearing authority's determination is set aside the challenges will have to bereheard de novo by a new hearing authority. As a consequence, there would be no possibility of shortfall penalties and interest thereon being owing and due until the final determination of that rehearing. That is, because until that time the day of final determination will not have arrived.[36] The above position led Mr Judd to point to two fundamental issues in the proceeding which was before Katz J. First, does the High Court have jurisdiction? Secondly, are the plaintiffs able to prove their case on the merits? He submitted thatif they succeed on both points and on the merits, the hearing authority's decision,that is the decision of Venning J, must be set aside because it is clear that presumptive bias is a breach of natural justice, which will result in the determination being set aside ex debito justitiae.The current status of the challenge proceeding judgments[37] Keane J conveniently summarised the authorities dealing with the position where the validity of a judicial decision is in question.20 Keane J referred to the statement of principle in R v Smith where the Chief Justice at [46] said:21Unless a judgment of a court is set aside on further appeal or otherwise set aside or amended according to law, it is conclusive as to the legal consequences it decides. If it were not so, the principle of legality would be undermined.[38] Keane J, adopting this statement added:22I see no reason why an assessment by the Commissioner should stand any differently; at least since the passing of the Tax Administration Act 1994. Even before that Act Henry J took it to be axiomatic, in BASF NZ Ltd v Commissioner of Inland Revenue [1994] 1 NZLR 172, that the relative principle of invalidity applied. As he said, at 178, of the assessment there challenged:The assessment is not a nullity in the sense that it does not have present legal existence and effect. It remains unless and until such time as it is declared by a competent authority to be invalid.[39] The challenge judgments, unless declared invalid, bring to an end any right to question liability to pay the shortfall penalties and interest by the operation of s 109 of the Tax Administration Act 1994. The result is that, as the position currently stands, the debt is not a contingent or prospective debt. It is a debt which is currently due. It is not, for example, subject to the restriction on the placement of the debtor company into liquidation for contingent and prospective debts as prescribed by s 288(5) of the Companies Act 1993.[40] The question that Mr Judd poses, however, is: does this go far enough toanswer the plaintiffs' claim that there is a substantial dispute whether or not the debt is owing or due? In my view, it does. To find otherwise is simply to ignore the principle of finality of judgment and the fact that the judgments stand until a court declares it invalid.20 Accent Management Ltd v Commissioner of Inland Revenue (2010) 24 NZTC 24,126 (HC).21 R v Smith [2003] 3 NZLR 617; (2002) 20 CRNZ 124 (CA).22 Accent Management Ltd v Commissioner of Inland Revenue, above n 20 at [63].[41] Unless a judgment is stayed, there cannot be a substantial dispute over the debt it establishes.23 The possibility that a present existing and enforceable debt might be set aside in the future under a subsequent appeal does not give rise to a general dispute about the existence of the debt.24[42] Accordingly, I conclude that the first ground advanced by the plaintiffs in reliance on s 290(4)(a) of the Companies Act 1993 fails. The ancillary ground related to it, namely that the debt is not yet due, fails for the same reason. The challenge process has been completed. Section 109 of the Tax Administration Act 1994 applies. There is, therefore, a debt that satisfies the definition of a statutory demand as prescribed by s 289 of the Companies Act 1993.Can the plaintiffs call in aid s 290(4)(c) of the Companies Act 1993?[43] The question, here, is whether or not the demand ought to be set aside on other grounds. The grounds are that there is a proceeding that seeks to challenge the validity of the judgment itself, which is the foundation for the conclusion of the challenge proceedings.[44] I invited Mr Judd to advise if he had located any authority that might assist in the determination of this question. His research, he advised me, indicated that the matter had not previously been considered in relation to tax matters, and where a specific challenge to the validity of the judgment that was said to conclude the challenge proceedings, was itself the subject of a set aside proceeding.[45] What is under consideration is the statutory demand itself, not the question of whether or not the company should be put into liquidation. That latter question requires a consideration of s 241 of the Companies Act 1993, and I will deal with it specifically when I consider the consequence of a failure to set aside a statutory demand under s 291 of the Companies Act 1993.[46] An accurate asset and liability position of these companies has not been placed before the court, as it might well have been by the plaintiffs. The companies23 Remote Camps Australia Pty Ltd v Hazeldine Pty Ltd [2012] FCA 130.24 Birchfield Developments Ltd v Kent Prier Real Estate Ltd (1999) 8 NZCLC 261,889 (HC).appear to be, for all intents and purposes, assetless. They are not trading. No evidence has been placed before me indicating that any arrangements have been made to cover the debt owed to the Commissioner. However one looks at the state of the evidence at this stage, the plaintiff companies do not meet the solvency test prescribed in s 4 of the Companies Act 1993. Section 4(1) of the Companies Act 1993 provides:4 Meaning of "solvency test"(1) For the purposes of this Act, a company satisfies the solvency test if—(a) The company is able to pay its debts as they become due in the normal course of business; and(b) The value of the company's assets is greater than the value of its liabilities, including contingent liabilities.[47] For completeness' sake, I refer to subs (4) which provides:4 Meaning of "solvency test"(4) In determining, for the purposes of this section, the value of a contingent liability, account may be taken of—(a) The likelihood of the contingency occurring; and(b) Any claim the company is entitled to make and can reasonably expect to be met to reduce or extinguish the contingent liability.[48] I cannot, in this case, find any specific factor – whether it is policy, a matter of principle or the justice of this case – that would justify the application of s 290(4)(c) of the Companies Act 1993 in respect of the application. The defendant was entitled to issue a statutory demand in reliance on judgment which brought to an end the challenge process and which, as a consequence of s 109 of the Tax Administration Act 1994, prevents the position being disputed in a court, or in anyproceedings "on any ground whatsoever".What is the appropriate order?[49] Having reached the conclusion that the statutory demand should not be set aside it is now necessary to consider the additional powers that the court has pursuant to s 291 of the Companies Act 1993.[50] In particular, I must first consider whether this is an appropriate case to make an order under s 241(4) of the Companies Act 1993 putting the companies into liquidation.[51] Counsel for the Commissioner provided me with the usual certificate pursuant to r 31.21. Counsel also presented me with a consent by proposed liquidators, Colin Thomas McCloy, chartered accountant and Craig Alexander Sanson, insolvency practitioner, to their appointment as liquidators of both companies.[52] The approach that the court should take in considering an opposed application to appoint a liquidator has been examined in a number of authorities. InBateman Television Limited (in liq) & Anor v Coleridge Finance Company Ltdreference was made to the general rule that no order will be made on a petition founded on a debt which was genuinely disputed.25 To apply to wind up a companyin such a circumstance is an abuse of the court's process. The court has an inherentjurisdiction 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: Exchange Finance Co Ltd v Lemmington Holdings Ltd;26 Taxi Trucks Ltd v Nicholson;27 Edge Computers Ltd v Colonial Enterprises Ltd.28[53] From those authorities I extract the following specific principles which are applicable in such cases:25 Bateman Television Ltd (in liquidation) & Anor v Coleridge Finance Co Ltd [1971] NZLR 929 (PC).26 Exchange Finance Co Ltd v Lemmington Holdings Ltd [1984] 2 NZLR 242.27 Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297.28 Edge Computers Ltd v Colonial Enterprises Ltd (1996) 9 PRNZ 621 (CA).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.[54] The jurisdiction provided by s 291(1)(b) has been considered in two recent cases.[55] In Norman v ANZ National Bank Ltd the Court of Appeal, in referring to s 291(1)(b) said:29The section provides for a discretion. The discretion must be exercised in the circumstances of the particular case before the Court. Other than to observe the discretion need not be limited to cases where the company is"moribund", as referred to by Associate Judge Bell, it is neither appropriatenor necessary for this Court to provide any general direction about the matter.[56] In 329 Queen Street Developments Ltd v Watts & Hughes Construction LtdAssociate Judge Bell drew attention to considerations that apply when the court is invited to make an order s 291(1)(b). He said:30[15] When the court makes an immediate order for liquidation under s 291(1)(b), it by-passes the normal procedures of a liquidation application. There is no advertising. No opportunity is given to shareholders or other creditors to be heard whether a liquidation order should be made or not. The scope for an inquiry as to the29 Norman v ANZ National Bank Ltd [2012] NZCA 356, (2012) 21 PRNZ 261 (CA) at [43].30 239 Queen Street Developments Ltd v Watts & Hughes Construction Ltd [2012] NZHC 1791.exercise of the discretion under s 241 is limited. Even though a presumption of inability to pay debts under s 287(a) may not be established, the company is treated as unable to pay its debts.[16] This means that if the court is to take the short-cut route under s 291(1)(b), the court must have clear evidence that the company is insolvent; there may be no presumption of inability to pay debts under s 287. The court must also be persuaded that to give creditors and shareholders the opportunity to be heard, and to give the opportunity to consider whether the discretion should be exercised, would not serve any useful purpose. To take that course, the court has to be satisfied that the company is clearly unable to pay its debts, and that liquidation is such a foregone conclusion that any inquiry as to the exercise of the discretion is unnecessary.[17] The creditor seeking an order under s 291(1)(b) must establish these matters to the court's satisfaction. It would not be wise to circumscribe the kinds of cases where this might arise, but there are two kinds of cases that come to mind. First, a company might be moribund. It may have ceased trading or carrying on any other form of activity. A second case is that creditors' interests are in such peril that the need to give urgent relief takes priority. These are situations akin to when the court might consider the appointment of interim liquidators. [Citations omitted][57] The following factors do have a bearing on the approach that I should adopt in this case under s 291, namely:(a) The indebtedness to the Commissioner could well be satisfied by the shareholders of the companies advancing sufficient funds to enable the companies to pay the debt. The advantage in their doing so is that it would probably discharge the shareholders from their responsibility for the debt. No evidence was placed before the court as to theshareholders' ability to adopt this course. That, however, is affectedby the next factor that I take into account.(b) No advance warning that an application for immediate liquidation would be made by the Commissioner was signalled to the plaintiffcompanies ahead of receipt of counsel's submissions. That is not acriticism of counsel for the Commissioner but, perhaps, is a reason why no evidence was produced by the plaintiff companies on the issue. The opportunity for the shareholders to take action as outlined in (a) above perhaps was not available.(c) The liquidation of these two companies will not bring the matter to a conclusion in any event. The shareholders can carry on with the proceedings that they have signalled and which was the subject of the application before Katz J before an appellate court. The Commissioner will, no doubt, pursue his attempts to recover the tax due from the shareholders irrespective of what might transpire as a result of the liquidation of the plaintiff companies.(d) My judgment has not been approached on the basis that it is effectively an application for stay in the alternative in respect of the judgments that are the subject of the bias challenge. Had it been treated as analogous to a stay application, one would have thought the factors that were outlined in judgments dealing with stay applications would have been addressed.31 They were not.(e) There does not appear to be any evidence of the dissipation of theplaintiff companies' assets or the possibility of that occurring. A final conclusion on this cannot be made on the material before me. I recordit has not been suggested in counsel's submissions. The need for anearly appointment of a liquidator utilising the powers in s 291(1)(b) is not readily apparent.(f) Wider considerations than those that apply on either an application to set aside a statutory demand, or an application to set aside a bankruptcy notice, have been recognised by the Court of Appeal. An example is contained in the construction case, Laywood v Holmes Construction Wellington Ltd.32 There the court referred to the fact that it was considering only the first of the two stages involved. The court noted that different considerations arise at the point that the31 Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999) 13 PRNZ 48 at [9],Videbeck v Auckland City Council HC Auckland M 1053-sw02, 21 October 2002 at [7]. The above factors were cited with approval by the Court of Appeal in Keung v GBR Investment Ltd[2010] NZCA 396, [2012] NZAR 17 at [11],.together with an additional factor, namely the apparent strength of the appeal.32 Laywood v Holmes Construction Wellington Ltd [2009] NZCA 35, [2009] 2 NZLR 243 (CA) at [65].court must determine whether it will exercise its discretion, either to adjudicate a bankrupt or to order the liquidation of a company.(g) I now have the benefit of the judgment of Katz J which has ordered that the new proceeding referred to in [26] and following be dismissed on the ground that the High Court has no jurisdiction to determine the issue raised. The possibility of the issue being litigated before theappropriate appellate court was recognised in her Honour's judgment.Orders[58] I conclude that the appropriate course in this case is not to order the immediate liquidation of the companies but, rather, to make an order in terms of s 291(1)(a).[59] Accordingly, I order that:(a) Bristol Forestry Venture Ltd pay the sum of $819,268.16 within ten working days of this judgment and, should a default in payment be made, the defendant may make an application to put Bristol Forestry Venture Ltd into liquidation; and(b) Ben Nevis Forestry Ventures Ltd pay the sum of $1,612,108.36 within ten working days of this judgment and, should a default in payment be made, the defendant may make an application to put Ben Nevis Forestry Ventures Ltd into liquidation.Costs[60] I discussed with counsel what the outcome would be. Both agreed that there was no reason to depart from the position that the successful party was entitled to an order for costs based on Category 2 Band B, together with disbursements as fixed by the Registrar.[61] Accordingly, I order that the plaintiffs pay the defendant costs in respect of one application based on Category 2 Band B together with disbursements as fixed by the Registrar._____________________JA FaireAssociate Judge