COMMISSIONER OF INLAND REVENUE V AOTEAROA COOLSTORES LIMITED HC PMN CIV-2008-454-940

COMMISSIONER OF INLAND REVENUE V AOTEAROA COOLSTORES LIMITED HC PMN CIV-2008- 454-940 27 August 2009IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY CIV-2008-454-940BETWEEN COMMISSIONER OF INLAND REVENUE Plaintiff AND AOTEAROA COOLSTORES LIMITED Defendant Hearing: 21 August 2009 Appearances: P. Latimer - Counsel for Plaintiff Commissioner of Inland Revenue M.B. Ryan - Counsel for Defendant Aotearoa Coolstore Limited R. Oakley - Counsel for Creditor in Support James Bull Holdings Limited P. Drummond - Counsel for Creditors in Support Jones Refrigeration Services Ltd and Antony Refrigeration Services Ltd Judgment: 27 August 2009 at 4.15 pmJUDGMENT OF ASSOCIATE JUDGE D.I. GENDALLThis judgment was delivered by Associate Judge Gendall on28 August 2009 at 4.15 p.m. pursuant to r 11.5 of the High Court Rules.Solicitors: Inland Revenue Department, PO Box 1462, Wellington M.B. Ryan, Solicitor, PO Box 12054, Palmerston North Cooper Rapley, Solicitors, PO Box 1945, Palmerston North P.J. Drummond, Solicitors, PO Box 12164, Palmerston North[1] The plaintiff seeks an order that the defendant company be placed into liquidation on the grounds that the defendant is unable to pay its debts. [2] On 18 December 2008 the plaintiff filed a statement of claim seeking orders to put the defendant company into liquidation. The statement of claim asserted that a debt of $849,851.01 was due and owing from the defendant. [3] The statement of claim followed the service on 6 November 2008 of a statutory demand upon the defendant requiring payment of the sum of $809,359.99. The demand stated that this debt represented amounts due from the defendant in respect of PAYE, KiwiSaver Employee Deductions, KiwiSaver Employer Contributions, Student Loan Repayment Deductions, Goods and Services Tax and Income Tax. [4] The amount claimed in the plaintiff's statement of claim being $849,851.01 represented an increased figure from the amount demanded from the defendant in the statutory demand. The increase, as I understand the position, represented the addition of further taxes and penalties that had accrued in the mean time since the issue of the demand. [5] The statement of claim and notice of proceeding were served on the defendant on 9 January 2009. The hearing date inserted in the notice of proceeding was 9 February 2009. [6] Appearances in support of the application to place the defendant company into liquidation were filed as follows: (a) By Fitzherbert Rowe claiming $9,089.86 filed on 4 February 2009. (b) By Emmerson Transport Limited claiming $39,405.87 filed on 6 April 2009.(c) By AB Equipment Limited and AB Rental Limited claiming $3,842.24 filed on 29 April 2009. (d) By Antony Refrigeration Services Limited claiming $59,471.95 filed on 9 June 2009. (e) By Lion in the Sun NZ Limited claiming $8,513.54 filed on 25 June 2009. (f) By East Coast Packing Limited claiming $13,501.22 filed on 3 July 2009. (g) By Red Consulting Group Hawkes Bay Limited claiming $12,585.95 filed on 8 July 2009. (h) By Jones Refrigeration Services Limited claiming $6,015.44 filed on 14 July 2009. (i) By James Bull Holdings Limited claiming $54,012.03 filed on 20 July 2009. [7] On 20 August 2009, however, AB Equipment Limited and AB Rental Limited filed Notices of Discontinuance of their appearance as creditors in support. This indicated that settlement had been reached with regard to their debts claimed from the defendant. [8] When this matter was originally called on 9 February 2009 advertising had not taken place and it was adjourned to 2 March 2009 both for advertising and for settlement discussions. It was noted at the time that a payment on account of the debt claimed by the plaintiff was to be made and settlement proposals were expected. [9] The proceeding was then called again on 2 March 2009 and adjourned unopposed to a further call at 10.00 am on 11 May 2009. This was on the basis that a proposal from the defendant company to the plaintiff was under consideration by the Commissioner.[10] The matter was again called on 11 May 2009 where it was further adjourned this time at the request of the plaintiff for settlement discussions to a call on 23 July 2009. At this time advertising had still not taken place. [11] Advertising of the proceeding did take place both in the New Zealand Gazette on 9 July 2009 and in the Manawatu Standard on 15 July 2009. [12] At the call of this matter on 23 July 2009, it was again adjourned at counsel's request to 10.00 am on 20 August 2009 in what was described as an "endeavour to resolve issues with all outstanding creditors of the defendant". [13] The matter was again called before me on 20 August 2009. Mr. Latimer appeared for the plaintiff and Mr. Ryan for the defendant. Mr. Drummond appeared for certain creditors in support and Ms. Oakley for James Bull Holdings Limited as a further creditor in support. A further adjournment was granted but this time only for 24 hours to 10.00 am on 21 August 2009 "to clear the debt due". A minute I issued at the time on 20 August 2009 went on to state "No further indulgence is to be provided". [14] Finally this matter was called before me at 10.00 am on 21 August 2009. Mr. Latimer appeared for the plaintiff, Mr. Ryan for the defendant and Mr. Drummond for certain creditors in support. Again, Ms. Oakley appeared for James Bull Holdings Limited as a creditor in support and she also appeared with respect to related liquidation proceedings issued by James Bull Holdings Limited against the defendant under CIV 2009-454-467. [15] No statement of defence had been filed by the defendant company. Instead Mr. Ryan for the defendant sought leave to bring a defence out of time and in the over all interests of justice in this matter, leave was granted for that purpose. [16] At the hearing on 21 August 2009 Mr. Latimer for the plaintiff sought an order to place the defendant company into liquidation. A solicitor's certificate as to the outstanding debt owing to the plaintiff Commissioner was provided. This specified that the sum of $2,022,658.51 was outstanding.[17] Mr. Drummond for various minor creditors in support indicated that his instructions were to take a generally neutral role in this matter given the size of the debts outstanding to his clients. He said they would simply abide the decision of the Court. [18] Ms. Oakley for James Bull Holdings Limited as a further creditor in support, advised the Court that in the morning of 21 August 2009 her client had been provided with a cheque to settle the entire debt of $54,012.03 due from the plaintiff. This was a personal cheque of the defendant company and a special answer was sought on the cheque that day. On this basis, Ms. Oakley indicated that her instructions were to leave the related liquidation proceedings by James Bull Holdings Limited under CIV-2009-454-467 on foot, and again to simply abide the decision of the Court with respect to the present proceeding. [19] Subsequently, the position with respect to the James Bull Holdings Limited debt changed somewhat. I will deal with this aspect later in this judgment at paras. [24] and [25]. [20] At the hearing on 21 August 2009 Mr. Ryan for the defendant company indicated the defendant's surprise that the plaintiff was still proceeding with this application and seeking an order for its liquidation. This was because over the days leading up to 21 August 2009 the defendant had made several payments in cleared funds to the plaintiff Commissioner totalling $849,851.01. This total amount was paid in response to the statutory demand (under which only $809,359.99 was demanded) the amount claimed in para. 4 of the plaintiff's statement of claim ($849,851.01) and in particular with regard to a faxed letter datd 19 August 2009 from the plaintiff Commissioner (under the signature of Victoria Williams) to the defendant which stated:"As requested please find attached a statement of account confirming the amount payable. This being $849,851.01. I trust this is the information you require. Yours sincerely"[21] Notwithstanding these payments, however, Mr. Latimer for the plaintiff referred to other earlier correspondence between the Commissioner and the defendant indicating total arrears outstanding including penalties and interest significantly in excess of this $849,851.01 figure. These arrears as I understand it concerned further assessments, penalties and interest outstanding from the defendant company since the date of the original statutory demand. [22] In the face of this, and given that this matter had been adjourned on a number of previous occasions, the plaintiff sought an order for liquidation Mr. Latimer said in order that the defendant's affairs could then be properly in the hands of liquidators and asset sales pursued to clear creditors on an equitable basis. [23] In response, Mr. Ryan for the plaintiff requested a short amount of additional time to provide further information to the Court as to the solvency of the company and especially concerning its income and expenditure and net asset position which he said was substantial. Accordingly, his request was for a short further adjournment of this matter in order that details of the company's complex financial position and solvency could be provided to the Court. This would enable a proper hearing as to solvency issues and the overall desirability of placing this company into liquidation to occur. On this, Mr. Ryan contended that the defendant is a substantial company with operations and properties in five different locations throughout the country and thirty-nine employees. He confirmed the defendant had considerable assets and that any order for liquidation would obviously result in serious consequences both for the company, its creditors and a number of related parties. [24] Turning back to the position regarding the creditor, James Bull Holdings Limited for a moment, since the hearing of this matter, Ms. Oakley, counsel for that company has filed in this Court a memorandum dated 25 August 2009. This memorandum indicates that the cheque in payment of the James Bull debt for $54,012.03 received on 21 August 2009 had been dishonoured. On that basis, she said that James Bull Holdings Limited was supporting the application by the plaintiff Commissioner to liquidate the defendant.[25] Subsequently however, on 26 August 2009 Mr. Kenneth William Thurston ("Mr. Thurston"), a director of the defendant company, has filed in this Court an affidavit which states that the $54,012.03 cheque was simply dishonoured because it bore an incorrect signature in terms of the bank's signing authority. At para. 4 of his affidavit Mr. Thurston confirms that "On 25 August 2009, two payments totalling $54,012.03 were directly credited to Cooper Rapley's Trust Account on behalf of Aotearoa Coolstores Limited by internet cleared funds transaction." [26] That 26 August 2009 affidavit from Mr. Thurston went on to confirm that on 21 August 2009 the defendant made a further payment of $145,511.66 to the plaintiff Commissioner in addition to the earlier payments of $849,851.01. [27] As to the issue of the defendant's solvency, a relevant consideration on any liquidation proceeding, the only substantial evidence before the Court at present appears to be the Annual Report and Accounts for the defendant for the year ended 30 June 2008 annexed to Mr. Thurston's 21 August 2009 affidavit. Those accounts obviously are somewhat out of date. To some extent, however, it would appear that the company's position may have improved somewhat in particular as Mr. Thurston at para. 22 of his 21 August 2009 affidavit deposes to a substantial reduction in the ANZ Bank indebtedness of the defendant to approximately $9,000,000.00 by late July 2009. [28] In the present case I am mindful that the defendant has provided no statement of defence to the plaintiff's application nor has it made available to the Court evidence as to its solvency other than this last minute affidavit of Mr. Thurston and the 30 June 2008 accounts. No evidence from independent accountants is provided. Notwithstanding this, the defendant seeks some further time to place before the Court this evidence to support its claim to solvency. [29] To meet that adjournment request, I am mindful of what would amount to further delay in this matter. On this aspect, I note the comments of Associate Judge Abbott in Auckland City Council v Centro Construction Limited HC Auckland, 25 March 2009, CIV-2008-404-7696 at para. 32 where he states:"32. The Court does not allow liquidation proceedings to be protracted, for good reason. A creditor which has proved its debt and that the debtor company is unable to pay it promptly is prima facie entitled to a liquidation order. Where there is concern as to insolvency, the Court has to have regard to the possible risk to other creditors as well."[30] In the present case, however, it is clear that the defendant company albeit at the eleventh hour has paid to the plaintiff the $849,851.01. This was the amount specified in the plaintiff's statement of claim and confirmed in the 19 August 2009 correspondence from the plaintiff. The defendant contends first that it was entirely taken by surprise at the hearing on 21 August 2009 when the plaintiff sought an order for liquidation, secondly that it is solvent, and thirdly that it will be able to establish this if given a short period of time to place detailed financial evidence before the Court. [31] Although this matter has been the subject of some delay to date, in part this was as a result of requests on the part of the plaintiff for adjournments in order that settlement proposals could be considered. [32] Weighing up all these considerations and under the circumstances prevailing here I am satisfied that a further short adjournment of this matter to allow the defendant an opportunity to provide the Court with detailed and independent verification of its solvency both on the basis of its asset and liability position and the "cash flow" test is in the best interests of justice here. This will enable the Court to have all the available evidence before it when considering and making a proper decision on the present application. [33] That said a direction is now made that this matter is adjourned to a defended hearing commencing at 11.00 am on 1 October 2009 (1-2 hours allowed). [34] Leave is granted to the defendant to file and serve its statement of defence to the plaintiff's application out of time. A direction is made that this statement of defence is to be filed and served within 5 working days of today. [35] A further direction is made that the defendant is to file and serve detailed affidavit evidence as to its solvency or otherwise for consideration by the Court within 15 working days of today.[36] The plaintiff is to have a period of a further 5 working days from that date to file and serve any affidavit evidence in reply. [37] The present application for liquidation will proceed and be heard on 1 October 2009 on the basis of all the material then before the Court. [38] Costs are reserved.'Associate Judge D.I. Gendall'