THE COMMISSIONER OF INLAND REVENUE v MANUKAU FAMILY DOCTORS, ACCIDENTS AND MEDICAL LIMITED [2023] NZHC 1355

THE COMMISSIONER OF INLAND REVENUE v MANUKAU FAMILY DOCTORS, ACCIDENTS ANDMEDICAL LIMITED [2023] NZHC 1355 [31 May 2023]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2022-404-1319[2023] NZHC 1355IN THE MATTER of the Companies Act 1993BETWEEN THE COMMISSIONER OF INLANDREVENUEPlaintiffAND MANUKAU FAMILY DOCTORS,ACCIDENTS AND MEDICAL LIMITEDDefendantHearing: 31 May 2023(by AVL)Appearances: C van der Merwe for PlaintiffNo appearance for DefendantJudgment: 31 May 2023ORAL JUDGMENT OF ASSOCIATE JUDGE LESTERThis judgment was delivered by me on 31 May 2023 at 1.00pmpursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:[1] Manukau Family Doctors, Accidents and Medical Limited (Manukau), wasincorporated on 7 March 2006 and as its name suggests, is a general practice in SouthAuckland.[2] Manukau has failed to pay GST and other tax as assessed byThe Commissioner of Inland Revenue (The Commissioner) for an extended periodresulting in a statutory demand being issued by The Commissioner in May 2022 in thesum of $310,409.44. That sum is made up of GST but also what are called employeractivities of $65,280.00 and a small amount of income tax of $100. Employeractivities is a catchall for PAYE, KiwiSsaver employer deductions, student loandeductions and specified superannuation contributions. It is noteworthy that PAYEarrears commenced August 2019, Goods and Services arrears commenced May 2019.I say that is noteworthy as the main reason given by the defendant company for notpaying its tax was the impact of COVID but the lockdown did not occur inNew Zealand until April 2020.[3] Manukau has previously defaulted in its tax obligations and in March 2015 itwas liquidated on the application of The Commissioner but was able to clear itsindebtedness and in April 2015 obtained an order terminating the liquidation.[4] It is no longer open to Manukau to dispute or challenge The Commissioner'sassessment of what it owes. Manukau has not exercised the statutory proceduresavailable to it to challenge the assessment by The Commissioner meaning the debt isdeemed to be correct.[5] It is clear The Commissioner is entitled to seek an order that Manukau beplaced in liquidation. The statutory demand issued against Manukau was not met andtherefore Manukau is presumed to be insolvent and unable to pay its debts.[6] Following The Commissioner in August 2022 applying for an order ofliquidation, Manukau filed a statement of defence. As I have said, Manukau has saidit finds itself in its present situation due to the impact of the COVID pandemic on itsbusiness. Again, that cannot be entirely correct given when the arrears first started toaccrue.[7] Manukau says it wants to settle The Commissioner's debts and said it is ableto do so now that its business has returned to normal and it asserts that TheCommissioner has a duty to act reasonably to resolve the debt.[8] As I have noted, the statutory demand amount was just over $310,000.00. Asat the date of this hearing, 31 May 2023, it owes approximately $309,000.00notwithstanding that Manukau has recently paid $50,000.00. Accordingly, in the timesince the statutory demand, its net tax position has hardly changed.[9] In an open letter, the director of the defendant, says it will pay $50,000.00 andthen make monthly payments of $20,000.00 against the arrears. However, I note thatManukau has also defaulted in filing its income tax returns for the years ended31 March 2020 and 31 March 2021. The director said at the end of March 2023 thatthose returns were now signed and that Manukau would shortly file returns for theMarch 2022 year. However, it seems that any income tax that becomes due as a resultof those returns will also have to be subject to a payment programme.[10] The company's proposal hardly gives grounds for confidence. Manukau doesnot have the ability to clear its existing tax liability and its reference to the potentialfor it to have to pay off income tax by instalments indicates that Manukau is simplyunable to meet its obligations as they fall due.[11] It is not for Manukau to bargain with The Commissioner as to how it wouldmeet its liabilities. The situation would look very different if Manukau had paid the$50,000.00 offered at the time of the statutory demand or even at the time of theliquidation proceedings and then maintained its monthly payments of $20,000.Manukau's proposal is too little too late and Manukau is trading while it is insolvent.[12] Here, there is no genuine dispute as to the level of the debt, as I have said, thatis an option no longer open to Manukau. There are no other creditors in the liquidationthough I note that a creditor in support, the Auckland Council, which was owed justover $30,000.00 has apparently been paid. This is a neutral factor. Really, the onlyoption open to Manukau is to have recourse to the Court's residual discretion. In thatregard, the starting position is Manukau's insolvency, in which case a liquidation orderwill ordinarily follow. The onus is on Manukau to show that the circumstances warrantthe Court exercising its residual discretion not to make a liquidation order. Thatdiscretion is exercised sparingly.[13] As to whether The Commissioner had to enter a payment arrangement, it isclear that The Commissioner does not have to make such an arrangement witha defaulter. Were that the case, then a tax payer would be free to not to pay their taxand when enforcement action was commenced by The Commissioner, say that TheCommissioner had to enter a payment programme, in effect turning TheCommissioner into a bank of last resort.[14] The Court has held there is no primary obligation on The Commissioner tomaximise the recovery of taxes but rather, the duty is to collect over time the highestnet revenue that is practicable within the law. The Commissioner is entitled to takeinto account Manukau's history of non-compliance, its failure to file returns on timeand its inability to meet current taxes, in deciding to decline the proposal.1 Thishearing is not a de facto judicial review of The Commissioner's decision to declinethe proposal that has been made.[15] The Commissioner is also entitled to take into account Manukau's attitude toits tax obligations which is summed up by its director saying that if its offer is notaccepted, then its director will "need to set up another company to operate the medicalpractice". This gives the impression that the director considers that he can discardcompanies simply because of insolvency and start afresh.[16] At the end of the day, Manukau is trading while it is insolvent. The fact itsdirector has to make the payment offers set out above, confirms that insolvency – itcannot pay its liability to The Commissioner which is unquestionably due. There isno dispute in respect of the amounts owed and it seems clear that Manukau has chosento use GST and PAYE to subsidise its own trading.1 Raynel v Commissioner of Inland Revenue (2004) 21 NZTC 18,583 which involved an applicationfor judicial review of a decision of the Commissioner not to accept a proposal.[17] While no doubt Manukau has done good work in its community, that is nota justification for it not meeting its obligations to The Commissioner. Manukauoperates as a business and it is not open to the Court to allow it to trade while insolventin the absence of a settlement with The Commissioner.[18] I am satisfied there is no basis for declining The Commissioner's applicationand there is an order placing Manukau Family Doctors, Accidents andMedical Limited in liquidation.[19] Janet Sprosen and Leon Francis Barker are appointed liquidators. Theirremuneration as set out in their consent of 23 November 2022 is confirmed.[20] The liquidation order is timed at 10:25am.[21] The Commissioner is entitled to actual costs of $766.50 and disbursements of$1,321.21, a total of $2,087.71.[22] I conclude by noting that the day before the hearing, submissions were receivedby the Court for counsel apparently newly appointed for the defendant, earlier counselhaving been given leave to withdraw. Those submissions relied on the idea of timebeing sought for a proposal to be put. Counsel did not appear when the proceedingwas called on the morning of 31 May 2023 and I requested that the Registrar ask inthe Court's precinct whether there was an appearance, and there was none.______________________________Associate Judge Lester