THE COMMISSIONER OF INLAND REVENUE V GRAY FUR TRADING CO. LIMITED HC GRY CIV-2005-418-5

THE COMMISSIONER OF INLAND REVENUE V GRAY FUR TRADING CO. LIMITED HC GRY CIV- 2005-418-5 14 July 2006IN THE HIGH COURT OF NEW ZEALAND GREYMOUTH REGISTRY CIV-2005-418-5IN THE MATTER OF the Companies Act 1993 BETWEEN THE COMMISSIONER OF INLAND REVENUE Plaintiff AND GRAY FUR TRADING CO. LIMITED Defendant Hearing: 12 July 2006 Appearances: Mr Saunders and Ms Dykma for Plaintiff Ms Connors for Defendant Judgment: 14 July 2006JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN[1] On 5 January 2005 the plaintiff filed liquidation proceedings against the defendant. On 21 January 2005 these proceedings were served upon the defendant. Advertisement of the plaintiff's proceedings was published on 9th and 10th November 2005. On 21 November 2005 the defendant filed an application to file and serve its defence out of time. That is the sole matter for determination by me today. [2] In support of its application the defendant claims the plaintiff entered into discussions and negotiations with it whereby the plaintiff made certain warranties, undertakings and/or representations that the liquidation proceedings would be withdrawn, and that the plaintiff would enter into a compromise arrangement regarding payment of tax due. [3] Upon applications for leave the Court will be concerned to inquire about reasons for delay in filing a statement of defence, but also will give consideration tothe merits of matters in dispute. Further, in liquidation proceedings, the Court will expect to consider information regarding the company's solvency. If the company is not solvent then it should have no business to delay its winding up unless there is a proper basis for it to challenge a plaintiff's claim that the company has not paid a debt properly due. [4] In this case the defendant argues it has throughout communicated and negotiated in good faith with the plaintiff for the purpose of agreeing upon a repayment regime. Further, it claims that directly and implicitly the plaintiff agreed to forestall action whilst consideration was given to information provided on the company's behalf. [5] The plaintiff's primary position is that the defendant cannot in any event succeed with its defence to a claim for winding up. The plaintiff's claim arises as a result of its assessment of the defendant's liability for tax, and pursuant to s.109 of the Tax Administration Act 1994 its assessment may not be disputed in a Court or in any proceedings on any ground at all. [6] What we have in this case is not a dispute regarding the plaintiff's calculation of tax due, including penalties and interest, but rather an assertion that the plaintiff made representations it would not issue these proceedings, or having issued them, continue with them whilst efforts were made to negotiate an agreement. [7] Mr Saunders submits there is no evidence of such representations having been made. However, it might be open for a Court to conclude such representations were at least implicit by reason of certain facts have occurred, including: (i) In consultation with the plaintiff's officers the defendant applied in writing for a tax liability to be written off on grounds of hardship. That application was made in December 2003. (ii) Early in October 2004 the plaintiff responded and advised the application was refused.(iii) On 29 October 2004 a statutory demand was served upon the defendant identifying the sum of $163,481.54 was due. A significant portion of the claimed debt arose as a result of interest and penalties which had accumulated since that time when in December 2003 the defendant had applied for relief. The plaintiff's explanation for delay in responding to that application attributes reasons due mainly to administrative process. (iv) In response to receipt of the plaintiff's decision refusing its hardship application the defendant wrote to the plaintiff asking for its decision to be reviewed. The plaintiff responded by letter dated 22 December 2004 advising, inter alia, that consideration would be given to doing a review but only after payment of a sum of $15,762.08 to rectify continuing defaults. The defendant paid this sum while continuing to communicate with three separate officers of the plaintiff concerning information requested by them. (v) Until the liquidation proceedings were served it received no advice from the plaintiff that action upon the statutory demand was being pursued. The defendant says it believed an arrangement was in place whereby it was agreed the liquidation proceedings would not be pursued. For that reason it entered into a compromise with its other creditors, a compromise that did not include the plaintiff because of the understanding the defendant had with the plaintiff at that time. (vi) For this reason it did not respond to the liquidation proceedings when they were first served upon them. Correspondence by them, and on their behalf, continued with the plaintiff during 2005 until 21 October 2005 when the defendant was advised by the plaintiff that its payment proposal was declined. Even then the defendant continued tocommunicate with officers of the plaintiff to try and achieve a compromise. [8] Neither reason or inference could exclude, at this stage, the defendant establishing a defence relying upon the matters I have just highlighted. It is a matter upon which oral evidence ought to be heard. Further, and by the summary I have provided, the Court is satisfied there would be proper reason for granting leave to the defendant to file its statement of defence. [9] However, I could not accept the defendant should be granted leave whilst there is a core debt of $89,000 approximately which the defendant acknowledges is due. It has not been that sum about which there has been frequent consultation and contact between the parties over repayment arrangements, but rather those arrangements have primarily been concerned in calculating the extent of penalties and interest which have accrued. Accordingly, if it is to grant leave the Court would certainly require the defendant to pay a significant portion, perhaps even all of the said $89,000 to the plaintiff as a condition of granting leave upon the defendant's application. Of course, at that point in time the question of the company's solvency likely arises for consideration. Regretfully, there is too little recent information regarding the company's current trading position with which to make an assessment of solvency. Ms Connors is aware that further information is needed, but she has only been instructed for today's appearance within the last two days or so. Further, the evidence shows the principals of the defendant are persons of good faith and integrity. Their company is a significant employer in Hokitika in an industry reliant upon tourist trade. The company's principals have given me unverified information that the defendant is in a solvent trading position. The company ought at least to be given the opportunity to prove that claim. [10] Accordingly, I am adjourning the defendant's application to be recalled in the list at 10am on 6 September 2006. [11] In the course of discussion with counsel, Mr Saunders advised that he was authorised to put an offer of compromise to the defendant. The offer required a substantial payment forthwith, together with a commitment to pay interest for use ofmoney, plus a 10% penalty for late payment. Mr Saunders advised the Court of the amount the plaintiff required by way of initial instalment. The sum is less than the amount I would likely have required the defendant to pay as a condition of granting it leave upon the present application. Obviously, it is in the interests of both parties to try and achieve some settlement of this matter before it is called again on 6 September. ________________________________ Solicitors Inland Revenue Department, Christchurch Guinness & Kitchingham, Greymouth for Defendant