THE COMMISSIONER OF INLAND REVENUE v SAMS BAY HOLDINGS LIMITED [2016] NZHC 815

THE COMMISSIONER OF INLAND REVENUE v SAMS BAY HOLDINGS LIMITED [2016] NZHC 815 [27 April 2016]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYCIV-2015-485-987[2016] NZHC 815UNDER the Companies Act 1993IN THE MATTER OF liquidation proceedingsBETWEEN THE COMMISSIONER OF INLANDREVENUEPlaintiffAND SAMS BAY HOLDINGS LIMITEDDefendantHearing: 27 April 2016Counsel: J E Ellison for the plaintiffJ Sumner for the defendant (granted leave to withdraw)Judgment: 27 April 2016ORAL JUDGMENT OF ASSOCIATE JUDGE SMITH[1] The plaintiff (the Commissioner) applies for an order putting the defendant (Sams Bay) into liquidation. The application is based on Sams Bay's failure to comply with a statutory demand served on 1 October 2015, in which the Commissioner demanded payment of $46,868.70. The amount claimed was substantially comprised of Goods & Services Tax, penalties, and interest thereon. $50 was claimed for income tax penalties.[2] Sams Bay has filed a statement of defence, in which it pleads:4. there are issues concerning the correct quantum of penalties and interest and the treatment of any net amount due to the plaintiff, which require reconciliation:4.1 It is unclear what periods and amounts for penalties and interest are being claimed. Further particulars providing a breakdown of the amount claimed is required to clarify this.4.2 The plaintiff's claim appears to include sums which relate toperiods included in a prior settlement agreement between the parties, and which have been paid by the defendant.5. the defendant has submitted a settlement proposal to the plaintiff to resolve the matter in an appropriate commercial manner, and in a way that ought to avoid the need for both parties to deal with the accounting that will be necessary to resolve the issue of quantum.[3] Mr Michael Garnham has filed an affidavit in opposition the liquidation claim. Mr Garnham is a director of Sams Bay. In his affidavit, Mr Garnham says that penalties and interest on a January 2015 GST assessment of $17,082.06, were wrongly included in the statutory demand and subsequent liquidation claim. The$17,082.06 had been paid, but the Commissioner's claim still included a late payment penalty of $183.02 and interest of $21.80 (total $204.82) in respect of the 31 January 2015 GST assessment.[4] The Commissioner has filed a reply, in which she admits that the statutory demand and the claim wrongly included penalties and interest on the $17,082.06 referred to by Mr Garnham. The penalty and interest on that sum has since been written off. She says that an up-to-date summary of accounts setting out the breakdown of the assessments, interest, and penalties was emailed to Sams Bay on 28 January 2016.[5] The Commissioner's claim was set down for a defended hearing today. When the case was called, Mr Sumner sought leave to withdraw as counsel. He indicated that he had received no instruction to file written submissions for Sams Bay within the time directed by the Court, and had received advice from Sams Bay that it intended to instruct another firm to act for it. Mr Sumner told Sams Bay that if that occurred, a notice of change of solicitor would have to be filed, as required by the High Court Rules. No such notice has since been served and none has been filed in Court.[6] When Mr Sumner had no instruction last week, he notified Sams Bay that he intended to seek leave to withdraw as counsel. He repeated that advice yesterday evening, and that advice was acknowledged in an email Mr Sumner received this morning. I was satisfied that Mr Sumner was without instruction, and that Sams Baywas aware of his intention to seek leave to withdraw this morning if that remained the position. In the circumstances just described, I granted Mr Sumner's applicationto withdraw as counsel.[7] The Commissioner's statement annexed to the statutory demand claimed the sum of $33,176.63 together with a late payment penalty of $2,728.03 and interest of $823.85, in respect of a GST assessment for the period ended 31 May 2015. There was also a claim for $9,806.20 in respect of a GST assessment for the period ended 31 July 2015. Interest of $79.17 was claimed on the July 2015 assessment. The demand also claimed the $50 penalty in respect of income tax.[8] In an email dated 28 January 2016 Mr Garnham acknowledged that Sams Bay had not accounted for the May and July 2015 GST assessments, totalling $42,982.83. He advised the Commissioner that following the sale of a building by Sams Bay, its banker had taken approximately $65,000 at settlement, leaving Sams Bay unable to cover the final two GST payments when the returns were finalised. Mr Garnham indicated that he would look to other business entities within his business group to ensure the sums were paid. Mr Garnham offered payment of the $42,982.83 by three instalments of $14,327.61 payable on 2 February 2016, 2 March 2016, and 2 April 2016. He asked for the liquidation claim to be adjourned to enable Sams Bay to complete that payment programme.[9] In his affidavit (sworn 18 March 2016) Mr Garnham said that the position then stalled pending either the Commissioner's acceptance of the instalment payments arrangement proposed by Mr Garnham and/or finalisation of the accounts of a company related to Sams Bay, which would enable that to occur. Mr Garnham said that he had been offered a facility that would enable the debt to be cleared on a lump sum basis in late April 2016. He stated that Sams Bay has no other realisable assets, and has some residual guarantee obligations. He expressed the view that a liquidation would realise a nil return for the Commissioner.[10] Ms Jobson, a Collections officer at the Inland Revenue Department, has provided a reply affidavit. She said that penalties and interest have continued to accrue on the amounts owing for GST for the 31 May and 31 July 2015 GST periods.[11] In respect of Mr Garnham's instalment payment proposal, Ms Jobson stated that further information had been sought to support the proposal, but (as at 5 April 2016, the date of her affidavit) no response had been received. The Commissioner wrote to Mr Garnham on 31 March 2016 declining the proposal.[12] A further proposal put forward by Mr Garnham on 18 March 2016, which proposed a lump sum settlement covering both Sams Bay's tax liabilities and those of another liable tax payer, was also rejected on 31 March 2016.The Commissioner's submissions[13] Ms Ellison relies on Sams Bay's failure to comply with the statutory demand,and the resulting presumption that, unless the contrary is proved, the company is presumed to be unable to pay its debts.1 Inability to pay its debts is a ground on which a company may be put into liquidation.2[14] Ms Ellison submits that sections 120D and 156A of the Tax Administration Act 1994 (the TAA) allow the Commissioner to recover interest and civil penalties payable as if the amounts were tax of the same type payable by the taxpayer. Those sections provide:120D Liability to pay interest(1) A taxpayer is liable to pay interest on unpaid tax to the Commissioner in accordance with this Part.(2) The Commissioner may recover interest payable on unpaid tax as though it were tax (of the same type as the unpaid tax) payable by the taxpayer.(3) The Commissioner is liable to pay interest on overpaid tax to a taxpayer in accordance with this Part.(4) Interest overpaid by the Commissioner may be recovered in the same manner as income tax that is payable under the Income Tax Act 2007.156A Recovery of civil penalties1 Section 287, Companies Act 1993.2 Section 241(4), Companies Act 1993.(1) For all purposes relating to the recovery of an unpaid civil penalty by the Commissioner, the civil penalty is deemed to be a tax of the same type as the tax—(a) for which the penalty is imposed; or(b) if the penalty is a late filing penalty, for which the tax return is to be provided; or(c) if the penalty is a non-electronic filing penalty, for which the return is provided.(3) Without limiting subsection (1), a civil penalty is recoverable from a taxpayer—(a) at any time after it has become payable:(b) whether or not the taxpayer has been convicted of an offence under this Act or a former Act in relation to any act, omission, matter, or thing that gives rise to the liability to pay the civil penalty, or otherwise.(4) Subsection (3) applies to a person acting as a PAYE intermediary if section 141JB(1) applies, and references to a taxpayer are to be read as references to a PAYE intermediary.[15] Ms Ellison further notes that under s 120I of the TAA, a taxpayer has no right to challenge the imposition of interest payable under the TAA (at least if there has been no objection or challenge in respect of the underlying tax). There is a general right to challenge the penalties imposed under the TAA, but it does not apply to the late payment of tax.3[16] Ms Ellison notes that the settlement proposals put forward by Sams Bay were declined because of the company's failure to provide supporting informationshowing how the proposed payments would be funded.Sams Bay's submissions[17] Notwithstanding Mr Sumner's then-current retainer, Mr Garnham purported to file written submissions on behalf of Sams Bay. I will refer to them briefly. Mr Garnham expressed the belief that Sams Bay had no other creditors (apart from a possible contingent guarantee liability), and that it and Mr Garnham had done3 Tax Administration Act, s 138L(2).everything reasonably possible to endeavour to effect a settlement of Sams Bay'sobligations to the Commissioner.[18] He challenged the additional penalties sought by the Commissioner, saying that in large part they accrued during a period of negotiation between the parties,with the Commissioner's accounting ultimately shown to be incorrect.[19] Mr Garnham submitted that the settlement proposals put forward on behalf of Sams Bay were intended to maximise the Commissioner's recovery of outstandingtax, and were accordingly consistent with the Commissioner's statutory duty in that regard under s 176 of the TAA.[20] Mr Garnham concluded his written submission by saying that Sams Baywould abide the Court's direction as to whether it is in the Revenue's best interestthat the Commissioner be required to reconsider her position in relation to the settlement proposals made, or whether in the circumstances Sams Bay should be liquidated. He says that in the latter case, Sams Bay does not intend to oppose such a direction.Discussion and Conclusions[21] It is clear that Sams Bay is unable to pay its debts. It has not disputed liability for the May 2015 and July 2015 GST assessments, and Mr Garnham has acknowledged that Sams Bay has no other assets to pay the debt. The liability for interest and civil penalties as claimed appear to be beyond challenge in terms of s 120D and 156A of the TAA, and it appears that there has been no challenge or objection which would enable the Court to look behind the imposition of the interest charge or penalties.[22] On Mr Garnham's own account, the debt could not be less than approximately $40,000, and there can be no doubt that Sams Bay is insolvent. Jurisdiction therefore exists to make a liquidation order under s 241(4)(a) of the Act.[23] I accept that the Court retains a residual discretion under s 241 whether to make an order for liquidation. But as I noted in Satuit Properties Ltd vCommissioner Inland Revenue,4 the general policy of the Companies Act is that insolvent companies should be put into liquidation if the creditor seeks an order, and that policy should not be departed from lightly. In Chester Trustee Services Ltd, Tipping J said:5to justify such a departure there must be some other factor, be it policy,principle, or simply the justice of a particular case which outweighs the prima facie entitlement of the creditor to an order putting the insolvent company into liquidation.[24] The question is whether it is "plainly unjust" for a liquidation order to bemade in this case.[25] In Satuit, I noted the five factors suggested in MacPherson's Law ofCompany Liquidations, (third edition) as being relevant to the exercise of the Court'sdiscretion. Those factors were:6(1) the applicant's debt amounts to less than the statutory minimum;(2) the debt is bona fide disputed by the company;(3) the company has paid or tendered payment of the applicant's debt;(4) winding up is opposed by other creditors;(5) the company is in the process of being wound up voluntarily.[26] None of those factors apply in this case, and in my view no factors have beenput forward which would outweigh the Commissioner's prima facie entitlement to a liquidation order.[27] I therefore make the following orders:(1) Sams Bay is put into liquidation;4 Satuit Properties Ltd v Commissioner Inland Revenue [2014] NZHC 1300.5 Commissioner of Inland Revenue v Chester Trustee Services Ltd [2003] 1 NZLR 395 (CA) at [3].6 Referred to by Baragwanath J in Chester Trustee Services Ltd, above n 5, at [47].(2) Colin David Owens and David Stuart Vance are appointed liquidators;(3) Sams Bay is to pay scale 2B costs to the Commissioner plus disbursements as fixed by the registrar;(4) the rates of remuneration of the liquidators and staff working under their supervision and control are fixed at the rates set out in theliquidators' consents dated 15 and 16 December 2015;(5) the liquidators are to apply at the conclusion of the liquidation for approval of their overall remuneration.[28] The foregoing orders are timed at 11.12am.Associate Judge Smith