COMMISSIONER OF INLAND REVENUE v GLENVALE HOLDINGS LIMITED [2018] NZHC 2667 [11 October 2018]

COMMISSIONER OF INLAND REVENUE v GLENVALE HOLDINGS LIMITED [2018] NZHC 2667[11 October 2018]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2018-404-830[2018] NZHC 2667IN THE MATTER OF the Companies Act 1995BETWEEN COMMISSIONER OF INLANDREVENUEPlaintiffAND GLENVALE HOLDINGS LIMITEDDefendantHearing: 11 October 2018Appearances: Cloete Van Der Merwe for the PlaintiffA J Lloyd for the DefendantJudgment: 11 October 2018ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELLSolicitors:Inland Revenue Department, Manukau, Auckland, for the PlaintiffMinterEllisonRuddWatts (A J Lloyd), Auckland, for the Defendant[1] The Commissioner applies for Glenvale Holdings Ltd to be put intoliquidation. She says that Glenvale Holdings Ltd is unable to pay its debts and thatshe is a creditor of the company. The company filed a statement of defence. Thematter was set down to be heard today as a defended hearing. Until recently, SkeatesLaw Ltd were solicitors acting for Glenvale Holdings Ltd and they instructed Mr PaulSills as counsel. Mr Sills filed a memorandum on 10 October 2018, advising that hedid not have instructions and sought leave to withdraw. The court granted leave toMr Sills to withdraw. His appearance today was excused.[2] Mr Lloyd has received very late instructions from Glenvale Holdings Ltd – at5:30 last night. He sought an adjournment. After hearing counsel, I indicated that Iwould not grant the adjournment. Before giving my reasons for refusing theadjournment, I set out the background.[3] The Commissioner is a substituted plaintiff. The original plaintiff was SayerDrainage Ltd. It had served a statutory demand on Glenvale Holdings Ltd in February2018 requiring payment of $53,428.69. The company did not comply with thatdemand. Sayer Drainage Ltd began this proceeding on 2 May 2018. It pleaded that itwas a creditor of the company and that the company was presumed insolvent becauseof the non-compliance with the statutory demand. The Commissioner of InlandRevenue filed an appearance. When the case was first called on 22 June 2018, theCommissioner was substituted for Sayer Drainage. I infer from that that SayerDrainage has been paid.[4] Following the substitution order the Commissioner filed documents within therequired five working days. The Commissioner relies on service of her own statutorydemand dated 16 April 2018. In that demand the Commissioner required payment of$334,993.25. That was made up primarily of unpaid goods and services tax. Thedemand shows that there were returns by the taxpayer for 31 October 2017 and30 November 2017. There were default assessments for December 2017 and January2018.[5] The Commissioner's statement of claim relies on non-compliance with thestatutory demand as evidence of insolvency, and pleads indebtedness of $255,115.82.The Commissioner claims $50.00 as a late filing fee for income tax. That sum is trivialin this case. The Commissioner relies on the assessments of goods and services taxfor October 2017 and November 2017. She has not claimed for any GST forDecember 2017 to January and February 2018 but has made a default assessment of$78,000 for March 2018.[6] Glenvale Holdings Ltd's statement of defence of 11 July 2018 pleads that theCommissioner assesses the amount owing as at 3 May 2018 at $170,662.24, not thesum of $255,115.82 claimed by the Commissioner. The pleading says that theCommissioner's assessment is made up in part of default assessments which wereincorrect, and it has filed GST returns that negate the default assessments. Thestatement of defence also pleads that Glenvale Holdings Ltd will have the ability topay the amount to the Inland Revenue once the amount has been properly assessedfrom either future GST or surplus equity in the defendant.[7] In July 2018 directions were given for the liquidation application to be heardon a defended basis. Glenvale was required to file any evidence no later than24 August 2018, and the Commissioner was given time to file evidence in reply by7 September 2018. The company did not file any evidence at all, either before or after24 August 2018. The Commissioner, however, has filed evidence by an InlandRevenue officer. Her evidence is directed at proving liability for goods and servicestaxes for the periods 31 October 2017 and 30 November 2017. She also proves thelate filing fee on the income tax assessment but I regard that evidence as insignificantfor this case. Her evidence shows that Glenvale Holdings Ltd made GST returns forOctober 2017 and November 2017. She shows that the amounts were self-assessedby Glenvale Holdings Ltd and that no payment has been made. The Commissioner'sevidence shows an indebtedness of $173,460.97 as at 27 August 2018. That suggeststhat the Commissioner has abandoned her pleading that the company is liable for thedefault assessment for GST for the period ending 31 March 2018. For this proceeding,I accept that the Commissioner has proved the indebtedness set out in the affidavit ofthe Inland Revenue officer.[8] Mr Lloyd's appearance was a new development. He had been instructed onlylast night. He sought an adjournment for four weeks. He submitted that GlenvaleHoldings Ltd is carrying out a subdivision at Te Kauwhata. Caveats had been lodgedagainst the title. Those caveats prevented Glenvale Holdings Ltd from refinancing itsliabilities. Caveats had only just been removed on Monday last week, that is,1 October 2018. An adjournment would allow the company to arrange fresh financewhich would clear its liability to the Commissioner. It was also submitted that theCommissioner was the only creditor of Glenvale Holdings Ltd.[9] I was advised in submissions that the company had also made further taxreturns. On the basis of those further returns, the Commissioner provided a summaryof account showing added GST liabilities for December 2017 and January 2018. Inparticular, there is an assessment of $213,740.00 for the month ending 31 December2017. Mr van der Merwe, for the Commissioner, advised that his instructions were topursue with the liquidation application today.[10] Notwithstanding Mr Lloyd's protest that there would be greater advantages ifthe company were given the opportunity to refinance and clear its liability to theCommissioner, I indicated that the adjournment would not be granted. I disregard themore recent GST returns filed by the company. The company has self-assessed itselffor GST for October 2017 and November 2017. It is patently insolvent.[11] It instructed lawyers who filed a statement of defence and directions weregiven for this matter to be heard today. At no stage in the proceeding before today didthe company indicate that there was a difficulty with caveats against titles, and that onreleases of caveats there would be the prospect of refinancing and paying theCommissioner. By electing to defend the proceeding, the company sought theopportunity for the court to decide whether it should be put into liquidation on adefended basis. The court has allocated time to hear the parties and decide that mattertoday. The company had to prepare its case to defend the Commissioner's application.It was directed to file evidence. It did not use that opportunity to do so. At the veryleast, that suggests some disarray on the part of the company.[12] It is for the Commissioner to assess whether it should entertain requests fromtaxpayers for further time to clear their liabilities. That is very much a matter fordecision by the Commissioner under ss 6 and 6A of the Tax Administration Act 1994.That does not mean to say that the court does not itself retain its own discretion togrant further time if the circumstances suggest that that is appropriate. But I seenothing in the circumstances of this case to suggest that I should grant an adjournment,notwithstanding the Commissioner's wish to proceed today. There is clear evidenceof insolvency. The fact that a contractor also had to take steps to obtain payment fromthe company suggests that Glenvale Holdings Ltd has significant cash-flowdifficulties. It is incumbent on developers to ensure that they manage their cash-flowand meet their liabilities as they fall due. I take it that the GST returns have shownthat output tax is payable, suggesting that the company has been making taxablesupplies. Funds should have been available to meet those liabilities. The fact thatthose liabilities were not been cleared when they fell due at the end of 2017 suggestsongoing difficulties on the part of the taxpayer. In my view, if the Commissioner isprepared to take the risk of not getting paid by the company refinancing its liabilities,that is for the Commissioner to call and I will not second-guess that decision.[13] The result is that the adjournment application is refused. The grounds for aliquidation order have been made out. The Commissioner is a creditor for$173,460.97. The company is insolvent. The presumption of insolvency arises fromthe non-compliance with the statutory demands of Sayer Drainage Ltd and theCommissioner of Inland Revenue. Once insolvency is established the onus is on thetaxpayer to show why a liquidation order ought not to be made. For the reasons I havegiven for refusing the adjournment, I also say that the company has not shown reasonwhy it should not be put into liquidation.[14] Accordingly, I make an order putting Glenvale Holdings Ltd into liquidation.The time of the order is 10:56am. I appoint the liquidators nominated by theCommissioner and approve their rates of remuneration on the normal terms. TheCommissioner has been represented by in-house counsel. I accordingly reserve costsuntil the Court of Appeal clarifies whether costs can be awarded for in-house counsel.The Commissioner may recover disbursements as approved by the Registrar..Associate Judge R M Bell