THE COMMISSIONER OF INLAND REVENUE V HARBOUR CITY TOW AND SALVAGE (2003) LIMITED HC WN CIV-2006-485-2002

THE COMMISSIONER OF INLAND REVENUE V HARBOUR CITY TOW AND SALVAGE (2003) LIMITED HC WN CIV-2006-485-2002 16 October 2006IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV-2006-485-2002IN THE MATTER OF the Companies Act 1993 BETWEEN THE COMMISSIONER OF INLAND REVENUE Plaintiff AND HARBOUR CITY TOW AND SALVAGE (2003) LIMITED Defendant Hearing: 16 October 2006 Appearances: Mr Latimer for Plaintiff L. Pratley for Defendant Judgment: 16 October 2006ORAL DECISION OF ASSOCIATE JUDGE D.I. GENDALL[1] Before the Court is an interlocutory application by the defendant to restrain advertising and stay further proceedings in this matter. [2] The plaintiff served a statutory demand upon the defendant on 20 July 2006 demanding payment of $226,044.40, representing arrears of goods and services tax and PAYE, together with interest and penalties. [3] On 7 September 2006, there being no effective response from the defendant, the plaintiff filed a Statement of Claim seeking an order placing the defendant company into liquidation.[4] On 19 September 2006 the defendant filed the current interlocutory application to restrain advertising and stay further proceedings relating to the liquidation application. [5] On 27 September 2006 the plaintiff filed a Notice of Opposition to the defendant's stay application. [6] The grounds set out in this Notice of Opposition are broadly that the defendant has not shown a genuine and substantial dispute as to the existence of a debt and indeed it appears to dispute only a portion of the quantum sought, which does not justify a stay. The plaintiff contends that the defendant is indebted to the plaintiff in a substantial amount which remains outstanding, and further that the defendant has not established its solvency. Finally, the plaintiff submits that the defendant continues to trade and incur debt, and that this places creditors at further potential risk. [7] Before me today Mr Pratley for the defendant sought an adjournment of this matter, and a continuation of what I understand has been an agreement between the parties to restrain advertising. The purpose of this adjournment, as I understand it from Mr Pratley, is to enable the defendant through its shareholders to refinance certain properties they own, to provide a cash injection for the defendant company to be applied towards repayment of the plaintiff's debt. [8] Mr Pratley pointed to affidavits before the Court of Mr Stephen Rinhold Okeby sworn 18 September 2006 and 13 October 2006 providing information as to these refinancing possibilities. Mr Pratley submitted that there were real prospects of achieving a satisfactory refinancing arrangement over two residential properties and one commercial property owned by shareholders in the defendant company, and that within the next two weeks the position concerning refinancing should become clear. [9] Mr Pratley also confirmed that the defendant company continues to trade, and his instructions are that other than the debt to the Commissioner of Inland Revenue Department, the company at present has only normal monthly accounts totalling$8,000 or $9,000 as outstanding debts. All other debts of the company are up to date. [10] Mr Pratley confirmed that it is the intention of the defendant company once refinancing arrangements are in place, to clear at least the major part of the debt to the Commissioner of Inland Revenue which is undisputed. Mr Pratley therefore sought an adjournment of this proceeding for a period of at least two weeks to enable this to take place. [11] In response, Mr Latimer for the plaintiff opposed any adjournment. He indicated that matters had reached a point where the present attempts by the defendant were "far too little and far too late". He contended that the evidence before the Court tended to indicate that the defendant company is insolvent, and that the present interlocutory application to restrain advertising and stay this proceeding should be dismissed today without my hearing the matter further. [12] As to this last aspect, with respect, I reject Mr Latimer's urging that the present application to restrain advertising and stay this proceeding should be dismissed today. A formal hearing of this matter has not taken place. The defendant is entitled to have this matter properly heard by the Court. [13] Accordingly, I now set down the defendant's application to stay the proceeding and to restrain advertising for hearing at 11.45am on 6 November 2006 (one and a half hours are allowed). [14] I direct that any further material which the defendant wishes to file in support of this application is to be filed and served by 25 October 2006. [15] I further direct that any material in support of the plaintiff's opposition to this application is to be filed and served by 1 November 2006. [16] This leaves one matter outstanding upon which a decision is required today. This is the application by the defendant for an interim order restraining advertising in this proceeding until 6 November 2006.[17] As to this, Mr Pratley indicated that as the defendant company is continuing to trade and is confident of its ability to obtain further funds to clear the plaintiff's debt at least within the next fortnight, it would be unnecessary and unduly prejudicial to the defendant for advertising to take place in the meantime. [18] Mr Pratley maintained that this is particularly the case given that other than the debt to the Commissioner of Inland Revenue, the defendant company is up to date with its other creditors. [19] Before me Mr Latimer for the plaintiff, however, strongly opposed the making of any interim order staying advertising of this proceeding, given what Mr Latimer described first as the lengthy delays which have occurred on the part of the defendant in this matter, and secondly, the longstanding liability which the defendant has for GST and PAYE. [20] As to this latter matter, Mr Latimer noted that there is some $91,200 assessed GST and $59,500 assessed PAYE outstanding from the defendant (in addition to interest and penalties) which dates back in the case of GST to as late as July 2003, and in the case of PAYE to as late as May 2004. [21] These points are properly made by Mr Latimer. [22] There is no doubt in my mind that the defendant company needs to settle promptly the substantial outstanding taxation amounts due to the Department. This is particularly the case, as the taxation due effectively carries an obligation in the nature of a Trust, bearing in mind that the monies involved (GST and PAYE) were not the defendant company's monies in the first instance. [23] Notwithstanding those comments, however, I must accept, too, that there is something in the contention put forward by Mr Pratley for the defendant here. These are to the effect that the interim order restraining the advertising sought by the defendant is only for a period of approximately three weeks, and it is to enable the defendant company to clear the debt through refinancing arrangements which are presently underway.[24] Weighing up all these matters, I come to the conclusion that in this case an interim order restraining advertising of the present liquidation proceedings should be made, but only up to and including 6 November 2006. [25] That said, an order is now made restraining advertising of the current proceeding until 6 November 2006 when a further order of this Court will be made. [26] If there is any issue as to costs with respect to matters before the Court today, these are reserved. __________________________Associate Judge D.I. GendallSolicitors:Technical and Legal Support, Wellington Service Centre, IRD, Wellington for Plaintiff Lance Pratley Law, Wellington for Defendant