COMMISSIONER OF INLAND REVENUE v NEW ORLEANS HOTEL (2011) LIMITED [2017] NZHC 2769

COMMISSIONER OF INLAND REVENUE v NEW ORLEANS HOTEL (2011) LIMITED [2017] NZHC 2769[10 November 2017]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYI TE KŌTI MATUA O AOTEAROAŌTAUTAHI ROHECIV-2016-409-814[2017] NZHC 2769BETWEEN COMMISSIONER OF INLANDREVENUEPlaintiffAND NEW ORLEANS HOTEL (2011)LIMITEDDefendantHearing: 7 November 2017Appearances: P Saunders and G McGillivray for the PlaintiffR Hearn for the DefendantJudgment: 10 November 2017JUDGMENT OF MANDER J[1] The Commissioner of Inland Revenue (the Commissioner) has filed liquidationproceedings against New Orleans Hotel (2011) Limited (New Orleans). TheCommissioner seeks to advertise the proceeding to enable her to obtain an orderliquidating the company.1[2] New Orleans applied to restrain advertising and to temporarily stay theproceeding in order to allow for the sale of the company's business. In the alternative,New Orleans sought leave to file a statement of defence out of time. Associate JudgeOsborne dismissed New Orleans' applications.2 The defendant company now seeksto review that decision.31 High Court Rules 2016, r 31.9.2 Commissioner of Inland Revenue v New Orleans Hotel (2011) Limited [2017] NZHC 2500.3 Judicature Act 1908, s 26P; High Court Rules 2016, r 2.3.Background[3] In July 2016, the Commissioner served a statutory demand on New Orleans forunpaid tax in the sum of $140,257.44. It failed to pay. As a result, the Commissionerfiled liquidation proceedings on 1 September 2016. New Orleans did not file astatement of defence. However, on 23 September, New Orleans agreed terms for thesettlement of the outstanding tax.[4] New Orleans agreed to pay its debt in full, together with any ongoing interest,by 22 December 2016. It would make payment of $1,500 per week and theCommissioner would receive a mortgage over a property at Amherst Terrace and threesections situated in Akaroa, owned by the company's sole director, Mr PeterWhittaker, and a company associated with him. These properties were to be sold priorto Christmas 2016.[5] The Commissioner agreed to suspend the advertising of the liquidationproceeding pending payment of the debt in full by 22 December of that year. AfterNew Orleans provided the Commissioner with a signed Mortgage and Financial ReliefAgreement, the proceedings were adjourned to 26 January the following year.[6] New Orleans did not pay its debt to the Commissioner by 22 December.Thereafter and throughout the first half of 2017 the proceedings were the subject of anumber of adjournments to accommodate delays associated with the sale of theproperties.4 Settlement of the sale of the Amherst property finally took place on2 June. The Commissioner was paid $56,000 on 8 June.[7] When the proceeding was called again on 15 June, New Orleans sought afurther adjournment, without opposition, to 21 September on the understanding theCommissioner would receive before the next hearing a $50,000 lump sum payment, afurther $10,000 from a GST refund personally owed to Mr Whittaker, $50,000 arisingfrom a GST refund from a property purchased in Rapaki and weekly payments of$2,500 commencing 1 July 2017. The adjournment was granted on that basis.4 There were adjournments on 9 March, 6 April, 4 May and 15 June 2017.[8] On 26 June, $50,000 was paid and credited to the company's GST arrears.However, none of the $2,500 weekly payments due to commence on 1 July were made,nor was the personal GST refund credited to New Orleans' tax account. By19 September, the defendant company's outstanding debt to the Commissioner hadincreased to $185,288.67. Against that background, when the proceedings were calledagain on 21 September, the Commissioner sought an adjournment for one month toallow for the proceeding to be advertised. New Orleans' response was to file theinterlocutory applications that were the subject of Associate Judge Osborne's decision.[9] As at the date of the hearing of the review application, New Orleans' tax debtstands in the sum of $209,638.62, of which $157,863.68 comprises outstanding GSTand $51,160.83 PAYE. The growing tax debt represents the continuing failure by NewOrleans to meet its ongoing tax liabilities. The existence of the tax debt has neverbeen disputed by the company.New Orleans' business[10] The defendant company operates the New Orleans Hotel in Arrowtown whichis a combined pub and restaurant with attached boutique accommodation. Its cashflow is said to fluctuate with the seasons, being particularly busy December throughMarch during the summer and in the peak winter season during July and August. NewOrleans leases it premises. The landlord has a right of re-entry which, as submittedon behalf of the company, is arguably triggered in the event of liquidation proceedings.Mr Whittaker has deposed of his belief the landlord would cancel the lease in the eventof the proceedings being advertised. The business employs some 25 staff.[11] At the time New Orleans' applications were heard by Associate Judge Osborne,Mr Whittaker was in the process of exploring the sale of New Orleans' business, andhad asked two brokers to present offers. By the end of September 2017, Mr Whittakerexpected offers from two interested parties "within the next fortnight" and deposedthat should there be any further buyers introduced they were not likely to make offersbefore early November. At that stage, he expected the sale of the business to fetch "atan absolute minimum" $350,000. He had rejected an offer earlier in 2017 for thatsum.[12] Since Associate Judge Osborne's decision there have been furtherdevelopments regarding the sale of the business which New Orleans relies upon insupport of its review application. It is contended on behalf of New Orleans that thebusiness's value is in its good will, and that the continuation of the lease is essentialto the operation of the business. The company maintains that cancellation of the leasewould destroy value in the business. Further, that to advertise the proceeding wouldhave a prejudicial effect on the realisation of the full value of the business and have adetrimental impact on the prospects of recovery for all creditors.The Associate Judge's decision[13] Associate Judge Osborne observed that the predominant feature of the settingagainst which New Orleans made its application was that the company had beenunable to pay its debts since mid-2016, and that its tax liability had continued toincrease despite some payments having been made and adjournments obtained inresponse to assurances of imminent settlement. The Associate Judge considered theCommissioner's lack of confidence in the company's ability to clear its debt throughthe sale of the business before Christmas 2017 was unsurprising.[14] It was not disputed that New Orleans was indebted to the Commissioner formore than $188,000 (as at the time of the hearing before the Associate Judge).Associate Judge Osborne noted that represented a figure some 35 per cent greater thanwhen the Commissioner had served her statutory demand in July 2016. He acceptedthe company must be presumed to be unable to pay its debts as a result of failing tomeet the statutory demand, and he rejected Mr Whittaker's analysis that New Orleanswas solvent on a balance sheet basis.5[15] The defendant company's counsel, Mr Hearn, sought to rely on the propositionthat a temporary lack of liquidity may not amount to insolvency if the debtor is ableto realise assets or borrow funds within a relatively short time to meet its liabilities asthey fall due.6 However, Associate Judge Osborne rejected that such a principle hadapplication to New Orleans' situation. In coming to that conclusion it was noted the5 Companies Act 1993, s 287(a).6 Yan v Mainzeal Property & Construction Ltd (in rec and liq) [2014] NZCA 190.company's lack of liquidity had remained unaltered for over a year since theproceeding had issued, and that the subsequent failure to repay the debt over thatperiod constituted incontrovertible evidence of New Orleans' insolvency.[16] Associate Judge Osborne applied the recognised approach to an application tostay liquidation proceedings; namely, that in the absence of a genuine dispute aboutthe debt, the governing consideration is whether the proceeding savours of unfair orundue pressure, and that the jurisdiction exists to prevent abuse of process.7 Asubmission that where a temporary stay is being sought the lesser test for an interiminjunction should be applied was rejected. The Associate Judge did not consider theCommissioner's approach to the proceeding was unfair, nor that it involved theexertion of undue pressure capable of being proximate to an abuse of process. NewOrleans had throughout the proceeding owed the (increasing) tax debt. It had beeninsolvent at the outset of the proceeding and, a year later, remained insolvent.[17] The application for leave to file a statement of defence was declined. NewOrleans had no arguable basis available to it by which it could dispute its liability forthe outstanding tax debt and the Associate Judge found that, in any event, leave shouldnot be granted where the applicant was insolvent.8Approach to the review application[18] The approach to the review of an Associate Judge's decision, which proceedsby way of rehearing, is not in dispute.9 New Orleans has the burden of showing theJudge was wrong.10 Where the decision under review involves the exercise of adiscretion, as is acknowledged by New Orleans was the situation in the present case,the applicant must show the Associate Judge erred in law, was plainly wrong, took intoaccount irrelevant considerations, or failed to take into account relevant7 Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297 (CA).8 Nemesis Holdings Ltd v North Harbour Industrial Holdings Ltd (1989) 1 PRNZ 379 (HC); FreshCut Flower Wholesalers Ltd v The Living and Giving Gift Company Ltd (2001) 16 PRNZ 173(HC).9 High Court Rules, r 2.3(5).10 Ophthalmological Society of New Zealand Inc v Commerce Commission [2003] 2 NZLR 145(CA).considerations.11 However, the review Court may also justifiably reconsider thematter afresh if there have been significant developments since the decision.12[19] In support of its applications New Orleans sought leave to file further affidavitevidence. The Commissioner did not object to the admission of that evidence otherthan to the extent it included hearsay statements. The additional affidavits wereadmitted on that basis.Grounds for review[20] New Orleans brings its review application on dual grounds. Firstly, that theAssociate Judge erred in the exercise of his discretion. Secondly, that since his decisionthere have been material developments relating to the sale of the business whichrequire its application to restrain publication and stay the proceeding to be examinedafresh.Erroneous exercise of discretion[21] Mr Hearn submitted the Associate Judge erroneously exercised his discretionbecause he either made errors of law, or he failed to take into account relevantconsiderations, or considered irrelevant factors. Mr Hearn acknowledged the majorityof the grounds relied upon could not individually have had a material effect on thedecision, but that when taken cumulatively they amounted to reviewable error. It isconvenient to approach the alleged errors under the following headings:(a) Errors of fact and assessment.(b) The treatment of New Orleans' debt to a related entity.(c) The inclusion of New Orleans' past failures when assessing its currentinsolvency.(d) The approach taken to mortgages relating to the Akaroa properties.11 McCullagh v Robt Jones Holdings Ltd [2016] NZHC 263.12 Wilson v Neva Holdings Ltd [1994] 1 NZLR 481 (HC); Robinson v Whangarei Heads EnterprisesLtd [2013] NZHC 2247.(e) The failure to take into account securities offered by related companies.(f) The test for granting a temporary stay.(g) The position of other creditors.(a) Errors of fact and assessment[22] In summarising New Orleans' arrangements to settle the debt, Associate JudgeOsborne recorded two payments totalling $106,000 which had been made by NewOrleans. It is accepted the evidence established that three payments totallingapproximately $156,000 had been paid and that an additional $50,000 payment wasomitted. However, the Court correctly identified the total debt owed by the company.I do not consider the omission of the third payment had any material bearing on theAssociate Judge's assessment of the defendant's attempts to pay the debt. Theoversight does not detract from the indisputable position that whatever attempts havebeen made to reduce its indebtedness, New Orleans' tax liability has grown since thestatutory demand issued in July 2016.[23] New Orleans also disputed the Associate Judge's conclusion that the interestand penalties which would accrue over the period of any temporary stay wouldsignificantly add to the debt. Mr Hearn submitted that, on his calculation, under theTax Administration Act 1994 interest and late payment penalties would amount toapproximately $4,000. He contended, in the context of the total debt and currentarrangements to realise the company's assets, this represented a minor additional cost.[24] The point raised on behalf of the company is irrelevant. The Associate Judge'sreference to interest and penalties sought to highlight the ever-increasing nature of thetax debt. Debate as to whether these could be described as significant is overtaken bythe fact that in the month since Associate Judge Osborne's decision New Orleans' taxliability has increased by a further 11 per cent. A debt which stood at $188,000 on 9October (when the matter was heard by Associate Judge Osborne) now stands at$209,600 as at 6 November.(b) The treatment of New Orleans' debt to a related entity[25] New Orleans owes a debt of $772,530.54 to a related entity, 3H Limited (3H).Mr Whittaker deposed that he does not intend to take any funds from the company topay 3H until all the other company's creditors, including the Commissioner, are paidin full. 3H has not yet formally waived its debt, but it was submitted that Mr Whittakerwas prepared to formalise such a waiver and render the debt, which is the subject of ageneral security agreement, subordinate (to the extent necessary) to allow theCommissioner and other creditors to be paid in full.[26] Mr Hearn submitted that, based on the willingness for the 3H debt to beformally subordinated to all other creditors, it was no longer in substance owed byNew Orleans, and this would allow the Court to proceed on the basis that the defendantcompany is solvent, at least on a balance sheet basis, by ignoring the debt recorded to3H. Mr Hearn submitted that Associate Judge Osborne's statement that the 3H debtremains owing by New Orleans, and that if put in to liquidation 3H would share pro-rata in any distribution to unsecured creditors, was in error. I do not accept NewOrleans' contention which I consider is based on a false premise.[27] The approach sought to be taken by Mr Whittaker to the 3H debt is effectivelyan attempt to wipe the debt from New Orleans' balance sheet in order to achieve a netequity position and claim the company to be solvent. However, the defendantcompany is not entitled to simply ignore debts to related parties for the purpose ofassessing whether or not it is solvent. New Orleans and 3H are separate legal entities,and, whatever arrangement Mr Whittaker seeks to put in place as between thecompanies, it does not alter the fact that New Orleans' debt remains owing to 3H. Itis immaterial whether 3H is a secured or unsecured creditor, as is its priority againstother creditors. The debt owed by New Orleans to 3H remains extant and is requiredto be included in the assessment of its solvency.(c) The inclusion of New Orleans' past failures in assessing its state of insolvency[28] In concluding that New Orleans had no substantial argument of solvency totake to trial, Associate Judge Osborne observed that New Orleans' lack of liquidityhad been unaltered for more than a year since the proceeding was issued. He held thatthese failures constituted incontrovertible evidence of the defendant company'sinability to pay its debts, and of its insolvency.[29] Mr Hearn submitted the Court erred in taking into account the defendant's pastfailures when making its assessment as to whether New Orleans could pay its debtwithin a reasonable time. He submitted the past failures by the company to meet itsobligations were not relevant, and that the test for insolvency is to be judged on aprospective basis, as at a particular point in time, namely the date of the hearing.[30] The Associate Judge's reference to New Orleans' past lack of liquidity must beread in the context of New Orleans' preceding submission which was based on theproposition that "a temporary lack of liquidity may not equate to insolvency if thedebtor is able to realise assets or borrow funds within a relatively short timeframe inorder to meet its liabilities as they fall due".13 Associate Judge Osborne remarked thatsuch an argument may have been available to New Orleans in September 2016 whenMr Whittaker proposed to repay the debt by Christmas 2016 by realising relatedparties' assets. Such a proposal at that time may have been capable of falling withinthe "relatively short timeframe" recognised by the Court of Appeal in Yan v MainzealProperty and Construction Ltd (in rec and liq). However, over a year had by thenpassed since the commencement of the proceeding.[31] New Orleans' inability to meet its liabilities as they fall due represents ademonstrable long-term failure, and its solvency is required to be assessed throughthat lens. I do not consider the Associate Judge erred in approaching his assessmentin that way. Indeed, he was obliged to do so. As submitted on behalf of theCommissioner, the failure of the defendant company to pay the statutory demand by18 August 2016, its failure to pay its tax debts as they fall due since the liquidationwas commenced, and the steadily rising level of tax over the course of the year are allfactors which clearly evidenced New Orleans' insolvency and its deterioratingposition.13 Yan v Mainzeal Property and Construction Ltd (in rec and in liq), above n 6, at [59].(d) The approach taken to mortgages relating to the Akaroa properties[32] Mr Hearn submitted the Court erred in holding that the Commissioner couldnot enforce mortgages over the Akaroa properties, which he argued must have beenmaterial to the Court's consideration of potential prejudice to the Commissionershould a temporary stay be granted.[33] The Commissioner accepts the Associate Judge's reference to her notaccepting mortgages over the Akaroa properties as securities in late 2016 waserroneous, and that, while no mortgages were executed, their availability was part ofthe package the Commissioner accepted for the purpose of agreeing to adjournmentsat an earlier stage in the proceeding.[34] Evidence was tendered in explanation of why, shortly prior to the hearingbefore the Associate Judge, the value of the security was significantly reduced. Therevised value of the properties was the subject of some limited adverse comment bythe Associate Judge, who referred to the inadequate security as perhaps having resultedfrom a combination of Mr Whittaker's over-optimism and a lack of appropriatequalified advice as to the value of the assets. The Commissioner did not contestevidence that the value of the proposed security was adversely affected by a recentlydiscovered easement which neither Mr Whittaker, nor registered valuers who hadprovided earlier valuations, had been aware.[35] Again, I do not consider this aspect of the challenge to the Associate Judge'sdecision is of material consequence. The inadequacy of the Akaroa properties assecurity remains unchanged. I accept the Commissioner's submission that theAssociate Judge's concern regarding the combination of securities being offered bythe defendant company was not over whether they had been accepted by theCommissioner, but whether they were capable of securing the full amount of the debt.Similarly, whatever the root cause of the overvaluation of the properties, the revisedvaluation contradicted numerous assurances provided by New Orleans to theCommissioner that the tax debt was fully secured. Successive adjournments of theproceeding were obtained in reliance of that representation.1414 Adjournments were granted on 21 February, 9 March, 10 March, 16 March, 3 May and 19(e) The failure to take into account securities offered by related companies[36] Mr Hearn submitted the Associate Judge erred by failing to take into accountsecurities that were offered by way of guarantees from related companies (TheRockpool and Hotel Ashburton). He submitted these securities offered theCommissioner some guarantee of part payment which was relevant to what he stressedwas the temporary, as opposed to permanent, nature of the stay being sought to allowthe sale of New Orleans' business and the payment of the debt.[37] Both these related companies were assessed by the Commissioner as beingnon-compliant, with each owing outstanding amounts of tax. The Rockpool hasunpaid GST and PAYE as at 4 October 2017 of $217,489, and Hotel Ashburton,similarly, unpaid GST and PAYE in the sum of $152,827. New Orleans sought to relyon forecast cash flows for those two companies for the October 2017 to March 2018period, which Mr Whittaker deposed was based on last year's trading figures. I do notconsider those projections assist New Orleans. They only beg the question, why, ifthose companies are so profitable, are hundreds of thousands of dollars owed in unpaidGST and PAYE? That question was not addressed in Mr Whittaker's evidence, nor byMr Hearn before me.[38] Having regard to the size of both companies' tax indebtedness, it could notrealistically be suggested that any omission to refer to proposed guarantees from thesetwo related companies was material either to Associate Judge Osborne's deference tothe Commissioner's assessment of the unsuitability of the proposed package ofsecurities, or his conclusion that the bundle of securities being offered did notrealistically, on any commercial analysis, provide reasonable assurance to theCommissioner.(f) The test for granting a temporary stay[39] Mr Hearn submitted the Court erred in applying the same test for granting atemporary stay as for a permanent stay. He submitted that, because of the temporarySeptember 2017. While the Associate Judge was in error in his belief the Commissioner had notaccepted the Akaroa mortgages were available to her and had no ability to enforce the security, itwas formally acknowledged on the Commissioner's behalf that if the review application isdeclined she will not take steps to enforce the security.nature of the orders being sought, a lower threshold should be required. Heacknowledged the high test required to be met to obtain a permanent stay, butsubmitted the policy reasons behind that requirement did not apply where the staybeing sought was merely temporary.[40] Associate Judge Osborne rejected the proposition that a different standardapplied to an application under r 31.11 of the High Court Rules where a defendantelected to seek only a "temporary" stay. He noted that no authority was cited tosupport the suggestion of different standards.[41] Mr Hearn sought to rely upon a decision of this Court, Camanda Boy Pty Ltdv Bierton Downs Ostriches, to illustrate the Court's ability to grant temporary restraintand stay orders.15 However, in that case the temporary orders granted by the Courtwere made "in the interests of all parties concerned" and without opposition by theplaintiff for the purpose of allowing the defendant to obtain instructions.16 That is asituation far removed from the present case. The Commissioner opposes NewOrleans' application for a temporary stay and clearly does not view it as being in theRevenue's interest for a temporary stay to be granted.[42] I do not consider the categorisation of the stay as "temporary" supports anylesser test being applied to prevent an applicant progressing its liquidation proceeding.This is apparent from a review of the relevant legal principles concerning the Court'sjurisdiction to stay liquidation proceedings, which were summarised by Wallace J inNemesis Holding Ltd v North Harbour Industrial Holdings Ltd.17 In that case, WallaceJ provided what has been described as a "classic summary of the principles":18(a) The Court has an inherent jurisdiction to stay proceedings where thedebt upon which the proceeding is founded is the subject of genuinedispute. In such circumstances the plaintiff cannot show itself ashaving the status of a creditor or there having been a failure by thecompany to pay.15 Camanda Boy Pty Ltd v Bierton Downs Ostriches HC Rotorua M349/97, 21 May 1997.16 At [12].17 Nemesis Holding Ltd v North Harbour Industrial Holdings Ltd, above n 8, at 385.18 McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR 31.11.02].(b) The jurisdiction is an inherent one to prevent abuse of process althoughthere is no inflexible rule.(c) The governing consideration is whether the proceedings suggestunfairness or undue pressure.Wallace J observed it is a serious matter to stay a winding up proceeding, and that thedecision to do so is never to be made lightly.[43] Mr Hearn submitted the Court's jurisdiction to impose a stay extended beyondthe situation where there was a genuine dispute regarding the outstanding debt. Iaccept that is so. However, in discharging the onus upon it, an applicant is clearlyrequired to demonstrate "something more" than simply where the balance ofconvenience may fall. In the absence of the debt being in genuine dispute, the effectof a stay is to prevent a creditor accessing a legitimate legal remedy. While a Courtmay make an order on whatever terms it thinks just (which could include theimposition of a stay for a limited period), the threshold for restraining a creditorrequires the defendant company to demonstrate the Court's process is being usedunfairly, or to exert illegitimate pressure.[44] It is necessary to establish such an abuse in order to justify the Court'sintervention to prevent a creditor from accessing what would otherwise be its rightfuland legitimate use of the Court's process to obtain a remedy in the face of theundisputed default. If the threshold is not maintained an application for a temporarystay or the restraint of advertising risks becoming the equivalent of a contestedadjournment. Such an approach jeopardises the rights of the litigant creditor beingrelegated to considerations of convenience. Furthermore, the equating of the test fora temporary stay pursuant to r 31.11 with that for an interim injunction ignores that tosecure the latter, the applicant must demonstrate there is a serious question to be tried.Where neither the company's insolvency, nor its outstanding debt, is seriouslycontestable New Orleans' argument that a lesser threshold should apply to obtain atemporary stay does not ultimately advance its position.(g) The position of other creditors[45] New Orleans contended the Court erred in holding the interests of othercreditors was not an appropriate focus when assessing the stay application. Mr Hearnsubmitted that in the present case the position of other creditors will likely be affectedby advertising the proceeding, and that their interests "plainly" require to beconsidered. He submitted the Court should take into account the best interests of thosecreditors notwithstanding their ignorance of the application.[46] Associate Judge Osborne's response to that submission was that the interestsof creditors can properly be addressed by the Court at the hearing of theCommissioner's application after advertising. Such creditors will be free to appeareither in support or opposition of the liquidation proceeding. The Associate Judgeconsidered that advertising the proceeding would likely enhance the interests of othercreditors by preserving "their right of engagement" in the proceeding should they sochoose.[47] There is no evidence before me as to the position taken by other creditors, andit would be speculative to suggest the approach they may consider best secures oradvances their interests. I do not consider such an uninformed consideration assistsNew Orleans' argument. The objective of advertising is to provide notification to othercreditors in order to provide them with the opportunity to make their own informeddecisions in response to another creditor's initiative. Preventing the proceeding frombeing advertised because the defendant company itself is of the view that such a coursewould not be in the interests of other creditors assumes a dubious prerogative on thepart of the debtor.Conclusion on challenge to discretion[48] I do not consider that either individually or collectively the grounds raised byNew Orleans substantiates its contention that the Associate Judge erred in the exerciseof his discretion.Developments since the previous hearing[49] Since the hearing, New Orleans has entered into a conditional contract for thesale of its business for the sum of $400,000. A number of conditions, including thoserelating to the purchaser's due diligence and the landlord's consent to the assignmentof the lease were due for confirmation on 6 November. At the purchaser's request,these conditions have been extended to 13 November. Should the sale becomeunconditional, settlement will take place on 18 December.[50] The defendant company's solicitor has deposed that, based on his discussionswith the purchaser's solicitor, he is not aware of any concern the purchasers have withthe business or its sale. While the solicitor acknowledges confirmation of duediligence and the obtaining of liquor licence conditions are at the purchasers'discretion, he anticipates the contract being confirmed.[51] Based on the recent progress to secure a contract for the sale and purchase ofNew Orleans' business, Mr Hearn submitted I could re-examine New Orleans'applications afresh. In support of such a course, Mr Hearn advised that it was proposedthat an immediate payment of $65,000 together with guarantees provided by MrWhittaker and related entities could be imposed as conditions to the grant of any stay.On the basis the sale of the business would generate $380,000 after payment ofcommission fees, and the subordination of the 3H debt, Mr Hearn, by reference to theAugust 2017 balance sheet, submitted that all creditors would be paid in full.[52] However, a difficulty for New Orleans is that since the drafting of the Augustbalance sheet it has incurred further tax debts in the order of $25,000. Putting to oneside the $770,000 debt to 3H, there remains a shortfall of $66,000 after deducting theprospective net proceeds of the sale of the business ($380,000) from the company'scurrent liability (including the tax debt as it then stood) of $446,609. With theapproximate $25,000 in unpaid taxes, the shortfall amounts to $91,000. It followsthat, on the company's own figures, New Orleans remains insolvent. Even includingthe proposed $65,000 cash which Mr Whittaker has now paid into his solicitor's trustaccount, there still remains a shortfall of $26,000.[53] As an aside, it was not explained to me why Mr Whittaker was not prepared topay the $65,000 directly to the Commissioner in reduction of New Orleans' tax debtwhich includes some $51,000 in unpaid PAYE deducted from employees' salaries thatwas required to be held on trust by the company. Mr Whittaker advises that this moneywill be applied to New Orleans' debts only in the event the defendant company ispermitted time to sell its business.[54] Mr Hearn argued that the Commissioner's decision to pursue the liquidationproceeding was unfair. He submitted that both parties had proceeded to date on anerroneous belief that New Orleans' position was secured and that, once it becameapparent this was not the case, the company had taken immediate steps to sell itsbusiness. He referred to potential detrimental consequences to New Orleans' businessin the event of advertising, including the possible cancellation of its lease and thefrustration of the conditional sale. This was contrasted with the Commissioner'sposition. Mr Hearn submitted there would be no prejudice to the Commissioner byallowing further time for New Orleans to complete the sale contract, and that whilethe present debt is only partly secured, there would be minimal exposure to furtherdebt.[55] Finally, Mr Hearn emphasised that only a temporary stay was being sought andthat, as an alternative course, only the advertising need be restrained while other stepsrelating to the proceeding could be advanced. He suggested that a fixture for adefended hearing could be obtained for the new year and timetabling directions made,with advertising to occur at a specified date prior to the hearing. However, heacknowledged that leave to file a statement of defence out of time would be required.[56] I do not consider the conditional sale of the business provides a sufficient basisto restrain advertising and stay the proceeding. Even approaching the matter afresh,the fundamental elements entitling the Commissioner to proceed with the liquidationproceeding remain. New Orleans has never been able to assert any genuine disputeabout the existence of the tax debt. Despite arguments to the contrary, it is equallyclear that throughout the proceeding the defendant company was insolvent andremains so. Its debt to the Commissioner has increased substantially throughout thisperiod and its tax obligations are ongoing.[57] As matters presently stand, there is no impediment to the winding up of thedefendant company.19 As previously observed, over the course of the previous year,and notwithstanding the Commissioner's extant application, New Orleans' debtposition has steadily worsened. Even since Associate Judge Osborne's decision lastmonth there has been a further default. The GST for the period ending 30 September2017 ($15,477.78) remains unpaid. Effectively, New Orleans is seeking an indulgenceto further delay the proceeding because it has advanced the sale of its business.Justification for that approach is based on a submission that a balance of conveniencetest should be applied which would favour a temporary stay of proceeding, or,alternatively, a restraint of advertising until mid-January 2018.[58] For the reasons set out earlier in this judgment, I do not consider that representsa legitimate approach to the assessment of whether a stay should be granted, orpublication of an advertisement restrained. Having regard to the history of theproceeding, I do not consider the Commissioner's approach savours of unfairness orundue pressure from which the Court must protect its processes. In the absence ofsuch a conclusion, any further forbearance is a matter for the Commissioner, and notthe discretion of the Court.[59] I do not demur from Associate Judge Osborne's observations that New Orleanshas received the benefit of the Commissioner's patience and leniency in an effort toresolve its tax liability for over a year, yet its indebtedness has not reduced. TheCommissioner's view is no doubt legitimately informed by the history of this matterand the repeated failures by the defendant company to abide by previous arrangementsto meet its outstanding tax obligations. Notwithstanding the current progress tocomplete the sale of the company's business, after applying the relevant principles tothe exercise of the power to stay and/or restrain the advertising of the liquidationproceeding, I have concluded that neither injunction can justifiably be imposed on theCommissioner.19 Commissioner of Inland Revenue v Property Ventures Ltd HC Christchurch CIV-2010-409-123,27 July 2010 at [43].Leave to file a statement of defence out of time[60] The High Court Rules provide that a person who fails to file a statement ofdefence is not allowed to appear at the hearing of the proceeding without special leaveof the Court.20 In declining New Orleans' application for special leave, AssociateJudge Osborne applied Paterson J's distillation of the applicable principles which heset out in Fresh Cut Flower Wholesalers Ltd v The Living and Giving Gift CompanyLtd.21 Leave should not be granted unless the applicant can show on the papers anarguable basis upon which it is not liable for the amount claimed. Even should therebe an arguable defence available, leave should not be granted if the applicant isinsolvent. Because there was no dispute that New Orleans was liable for the tax debtand the defendant company had been insolvent for a lengthy period, the Court declinedits application.[61] Mr Hearn sought to challenge the Associate Judge's conclusion by arguing thathis finding of insolvency on a balance sheet basis failed to take into account therepresentations made regarding the discounting or subordination of the 3H debt. Itwas further submitted that because Associate Judge Osborne had applied a "backwardlooking analysis" to the question of insolvency, he failed to appreciate that theassessment of a temporary lack of liquidity, of the type discussed in Yan v MainzealProperty and Construction, was required to be considered by looking forward fromthe date of the hearing.22[62] I have already discussed the status of the 3H debt, at [25]-[27], and rejectedNew Orleans' submission that this liability can be ignored for the purpose ofdetermining the company's insolvency. Similarly, I have held, at [28]-[31], that whenassessing whether the company's lack of liquidity can be considered temporary, itsindebtedness over the prior period of the proceeding is not to be artificially ignored.[63] Even if Mr Hearn's submission is accepted and the issue of New Orleans'"temporary lack of liquidity" should be judged as at the date of hearing without regardto how long it has been insolvent to that point, should the sale agreement settle, the20 High Court Rules, r 31.20.21 Fresh Cut Flower Wholesalers Ltd v The Living and Giving Gift Company Ltd, above n 8, at [9].22 Yan v Mainzeal Property and Construction, above n 6.funds generated will still not meet the defendant company's present liabilities, evenafter putting the 3H debt to one side. Furthermore, notwithstanding the expectedincrease in turnover and cash flow over the summer, New Orleans will have to meetits ongoing tax obligations which will include at least one further period of PAYE andGST over the proposed period of the stay.[64] In the absence of New Orleans demonstrating the Associate Judge erred infinding that it had no arguable basis to contend it is not liable for the outstanding tax,its challenge to his refusal to grant leave must fail. In any event, because of thecompany's present insolvency, leave should not be granted.Result[65] New Orleans' application to review the Associate Judge's refusal to restrainadvertising and grant a temporary stay of the Commissioner's proceeding is declined.The defendant company's application to review the decision to decline special leaveis also dismissed.[66] The proceeding is adjourned for a further call on 16 November at 10.00 am.Solicitors:Inland Revenue Department, ChristchurchCorcoran French, Christchurch