COMMISSIONER OF INLAND REVENUE V POLAR KING LIMITED HC AK CIV 2006-404-1319

COMMISSIONER OF INLAND REVENUE V POLAR KING LIMITED HC AK CIV 2006-404-1319 3 July 2006IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2006-404-1319BETWEEN COMMISSIONER OF INLAND REVENUE Plaintiff AND POLAR KING LIMITED Defendant Hearing: 28 June 2006 Appearances: Mr Bassett for Applicant (given leave to withdraw) Mr Farmer for Respondent Judgment: 3 July 2006 at 2.30 p.m.JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE [Application for stay of winding up and advertising][1] The applicant, Polar King Limited, was served with a statutory demand on 1 February 2006. The Commissioner claimed in the statutory demand that the applicant owed $66,644.46 under various heads, including PAYE tax deductions and Goods and Services Tax. [2] On 15 March 2006 the Commissioner filed a statement of claim to put the company into liquidation. [3] On 3 May 2006 the applicant filed an application for an order pursuant to Rule 700K of the High Court Rules. The grounds given were these:3. The defendant requires time to: (a) Satisfy the plaintiff as to the terms of a likely settlement and effect settlement; or, (b) For its sole director and shareholder William Douglas Hamill to raise capital and inject it into the defendant company to pay the plaintiff. 4. The irreparable damaging effect of advertising. 5. The making of such orders and just and equitable. 6. And upon the further grounds appearing by the affidavit of William Douglas Hamill to be filed in support herein.[4] When the matter was called before me 28 June 2006, Mr Bassett who was counsel on the records sought leave to withdraw. I required Mr Bassett to appear at the hearing where I would deal with the application to withdraw. [5] Mr Bassett gave as his grounds for wishing to withdraw that the applicant's solicitors and counsel had no instructions. I gave Mr Bassett leave to withdraw at the hearing. I asked him if he would be prepared to give what assistance that he could as there was no other counsel for the applicant. Very properly Mr Bassett agreed to do so. [6] He advanced on behalf of the company an application for Mr Hamill, a director of the applicant, to represent the company on the hearing of the application. I declined to grant such leave. The situation was in no way an emergency or out ofthe ordinary. Nor was the application a straight-forward routine matter where it would be suitable for the company to appear by lay representation. [7] Mr Bassett made submissions on behalf of the applicant. He emphasised the essential points that the applicant relied upon, namely that great hardship would be done to the company if the winding-up was advertised. He said that the company had finance offers which were nearly at the stage where sufficient funds would be forthcoming to meet the liability to the Commissioner. In detail, he said there was an amount of $40,000 available in the next few days and a further $69,000 which would become available a little further in the distance. He also drew my attention to the fact that Mr Hamill's affidavit asserted that the judgment debtor's assets exceeded liabilities. [8] Mr Farmer opposed the application. His first submission was that I should decline to hear the application and strike it out because of failures to comply with the timetable orders that I made in this matter 17 May 2006. I declined to strike-out the application. [9] Mr Farmer made the point that there was no dispute that the Commissioner had issued a statutory demand for $66,000 which had not been complied with. No steps had been taken to set aside the Commissioner's assessments of tax owing which resulted in that figure being due. He said in those circumstances the proceedings should be permitted to continue its course to a point where the statement of claim was considered. He submitted that I should not grant a stay. He said that no grounds had been made out for a stay. [10] The principle that I intend to apply is that enunciated by Thorp J in Morrison v Speedy Parcels Limited HC AK M139/89 7 April 1989 that a liquidation may be stayed although the existence of the debt is not attacked in circumstances where the applicant can prove that the proceeding cannot succeed or that there is some special circumstance which would make prosecution of it an abuse of process. [11] In this case, the existence of the debt is not attacked. I do not believe that the applicant has established that the proceeding will not be able to succeed. TheCommissioner is able to call in aid the presumption of insolvency that arises from the fact that the company has not complied with a statutory demand. It will then be for the company to establish at the hearing that notwithstanding that presumption, it can establish that it is able to pay its debts. [12] In Mr Hamill's affidavit in the proceedings dated 2 May 2006 he describes the business of the company. He says that the company has "faced financial issues" because of increase in costs for labour and other charges. He deposes that the assets of the company exceeds its liabilities. He also said that he has an ability to "inject capital" into the company by means of offering security over assets owned by another company which he is also the proprietor of. [13] The first problem with the affidavit is that it is imprecise and equivocal as to just what the company owes. The key assets which make the difference between there being an excess of assets or a deficiency are five refrigeration units. Mr Hamill describes them in this way:(c) Five refrigeration units which provide coolstore services to customers, although I am still to clarify which entity is the owner of those refrigeration units – either (a related company) or Polar King Limited however it is my belief that the defendant owns at least four of them. (As I stated above this affidavit has been prepared in haste this morning by my legal advisors). The five refrigeration units have recently been valued at a total fair market value (in situ for insurance purposes) of $442,000.[14] Since Mr Hamill filed that affidavit there has been no further deposition from him or anyone else clarifying the position or producing evidence of ownership of the refrigeration units. Such evidence would be very important because if one excludes the refrigeration units from consideration, there is a net deficiency of some $221,000. That is before any allowance is made for current liabilities. [15] The affidavit does not assert and prove that the applicant is able to pay its debts. Taken overall, the evidence offered by the application falls well short of establishing the company's solvency. The applicant has failed to establish that the Commissioner's proceeding cannot succeed. No other ground is suggested which might justify a conclusion that the proceeding is an abuse of process. I decline tomake the orders sought. The application is dismissed. The applicant will pay the Commissioner's costs on a 2B basis. _____________ J.P. Doogue Associate Judge