THE COMMISSIONER OF INLAND REVENUE v KIWI PAINTERS LIMITED [2017] NZHC 1948

THE COMMISSIONER OF INLAND REVENUE v KIWI PAINTERS LIMITED [2017] NZHC 1948 [15 August 2017]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYCIV-2017-485-331[2017] NZHC 1948UNDER the Companies Act 1993IN THE MATTER of liquidation proceedingsBETWEEN THE COMMISSIONER OF INLANDREVENUEPlaintiffAND KIWI PAINTERS LIMITEDDefendantHearing: 15 August 2017Appearances: Ms D B Padmanabhan for the plaintiffMr A Romanos for the defendantJudgment: 15 August 2017ORAL JUDGMENT OF ASSOCIATE JUDGE SMITH[1] On 20 July 2017 Associate Judge Osborne gave judgment extending the time for the defendant to file a defence in this liquidation proceeding. The order for extension of time to file the defence was subject to the following conditions:(a) the defendant shall pay a first tranche of $40,000 to the Commissionerof Inland Revenue ("the Commissioner") within five working daysfrom today;(b) Mohammed Qaiyuim Ali shall provide within five working days from today his personal guarantee of the defendant's existing indebtednessto the Commissioner and such additional indebtedness as accrues in the next 90 working days;(c) the defendant shall keep current in its tax returns to the Commissioner and in its payment of tax as it falls due;(d) the defendant shall retain through the next 90 working days its currentaccountant to both keep the defendant's accounts up to date and to process the defendant's tax returns and payments to theCommissioner;(e) the defendant shall pay three further tranches of $50,000 each to the Commissioner in each of the months of July 2017, August 2017 and September 2017, on account first of arrears and (upon settlement of the arrears) newly accruing taxation obligations; and(f) the defendant shall execute an assignment to the Commissioner of payment entitlements from Spotless Facility Services (NZ) Limited (and any associated company) if called upon by the Commissioner to do so.[2] The Associate Judge then ordered that in the event that the defendant failed to comply with those conditions, the leave granted to the defendant to file and rely upon its defence would be rescinded immediately at the election of theCommissioner, notified to the court by counsel's memorandum filed and served.[3] The defendant did not pay the $40,000 "first tranche" referred to at condition(a) above. Nor did the defendant pay the first instalment of $50,000, due by the end of July 2017, referred to in condition (e).[4] On 31 July 2017 counsel then acting for the defendant (Mr Hearn) filed a memorandum advising that a statement of defence had been filed on 28 July 2017 in accordance with the leave granted. Also, some of the conditions imposed by Associate Judge Osborne on granting the leave had been complied with. However it was not suggested that the first tranche payment of $40,000 had been paid, nor that the $50,000 instalment due in July had been paid.[5] Instead, Mr Hearn referred in his memorandum to certain difficulties Mr Ali had perceived with the form of guarantee he was required to sign under condition (b). Mr Hearn submitted that a pure guarantee of the defendants "existing indebtedness" could expose Mr Ali to an immediate obligation to pay theCommissioner the entire debt immediately, rather than in the series of instalments contemplated by the judgment of 20 July 2017. With his memorandum, Mr Hearn submitted a proposed new form of guarantee to be completed by Mr Ali, which would extend the times for payment (it would have allowed for payment of the first tranche of $40,000 on or before 4 August 2017, and subsequent instalments of $50,000 before the end of each of the months ended 31 August, 30 September, and 31 October 2017). The form of guarantee was also prefaced with the qualification that it would be subject to adjournment of the liquidation proceeding against the defendant to a date after 1 October 2017.[6] The case was called in the list on 1 August 2017. By consent, the matter wasadjourned to today's list, to allow counsel for the Commissioner to consider Mr Hearn's memorandum and to allow for payment of the first $40,000.[7] The first two payments, totalling $90,000, not having been paid by 11 August 2017, Ms Padmanabhan for the Commissioner filed a memorandum confirming that the $40,000 had not then been paid, and that the $50,000 due in July 2017 had not been paid either (the court and the plaintiff not having consented to that payment being made in August 2017). Further, Ms Padmanabhan advised in her memorandum that the defendant's PAYE for June 2017, due on 20 July 2017, wasnot paid until 31 July 2017. In accordance with para [30](2) of the judgment of 20 July 2017, Ms Padmanabhan asked that the leave granted to file a statement of defence be rescinded.[8] When the matter was called today, Mr Romanos produced a further form of guarantee, signed by Mr Ali. The form of guarantee is in substantially the same form as the form which was attached to Mr Hearn's memorandum of 31 July 2017 (thereare some changes in proposed payment dates, and one typo has been corrected).[9] Mr Romanos accepts that it would be open to the Court to rescind the leave to file the statement of defence immediately, having regard to the failure to pay the first tranche of $40,000, and the first instalment of $50,000, on the dates set out in the 20 July 2017 judgment. However, he submits that the reality of the situation is that there was never going to be a defended hearing in October 2017 if the payments had been made by due date in accordance with the 20 July judgment, and the defendant should have the opportunity to bring itself into compliance with the conditions (albeit late). He suggests that the situation could be met by an "unless order", underwhich a total $90,000 would be paid to the Commissioner by 29 August, failing which a liquidation order would be made that day.[10] Ms Padmanabhan does not accept that proposal. The Commissioner relies on her entitlement to elect to have the extension of time for filing the defence rescinded.[11] I accept Ms Padmanabhan's submissions on this issue. The judgment ofAssociate Judge Osborne was in relatively peremptory terms as far as the conditions were concerned, and his Honour made it clear that rescission would be a matter for the election of the Commissioner, without the need for further debate. I have not been notified of any appeal against the decision of Associate Judge Osborne, and I think the judgment must be given effect to. That means that, on the failure of the defendant to comply with the conditions, the Commissioner was entitled as of right to elect to have the extension of time rescinded. The Commissioner has done that bycounsel's memorandum filed on 11 August 2017.[12] I record also that the default by the defendant in paying PAYE due for payment on 20 July 2017 (it was not paid until 31 July 2017) provides a further reason for the Court to decline to interfere with the clear intent of the Associate Judge's judgment of 20 July 2017, namely that strict compliance with the conditions was required. Accordingly, I proceed on the basis that the extension of time for filing the defence granted on 20 July 2017 is rescinded, and I make an order accordingly.[13] Mr Romanos then asked for the case to be adjourned to 29 August 2017, on the same basis as set out above (and stipulated in Mr Ali's guarantee dated 14 August2017), namely that the first tranche payment of $40,000 would be made by 17 August 2017 and the first $50,000 instalment would be made on or before 28 August 2017. Thereafter, the remaining two instalments ($50,000 each) would be paid on or before 28 September 2017, and on or before 28 October 2017.[14] Ms Padmanabhan advises that the Commissioner would not accept thatpayment proposal, which is similar to that included in Associate Judge Osborne'sconditions, with an extension of time for the last payment until 28 October 2017.[15] I am not prepared to delay the matter further. The events since 20 July 2017 show a) that the defendant is and remains insolvent, and b) that the defendant apparently could not comply with the payment conditions imposed by the Associate Judge in granting an extension of time for filing a defence.[16] Ms Padmanabhan having produced the appropriate certificate of non- payment, there will accordingly be a liquidation order.[17] I make the following orders:(a) the defendant company is put into liquidation;(b) John Howard Ross Fisk and Marcus James McMillan are appointed liquidators;(c) the defendant company is to pay scale 2B Costs to the plaintiff plus disbursements as fixed by the Registrar;(d) the rates of remuneration of the liquidators and staff working under their supervision and control are fixed at the rates set out in the liquidators' consents dated 11 May 2017;(e) the liquidators are to apply at the conclusion of the liquidation for approval of their overall remuneration.[18] The foregoing orders are timed at 12.08pm.Associate Judge SmithSolicitors:Corcoran French, Christchurch for the defendant