THE COMMISSIONER OF INLAND REVENUE V THE FISHING COMPANY LTD HC AK CIV-2010-404-004955

THE COMMISSIONER OF INLAND REVENUE V THE FISHING COMPANY LTD HC AK CIV-2010-404- 004955 14 December 2010IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2010-404-004955IN THE MATTER OF the Companies Act 1993 BETWEEN THE COMMISSIONER OF INLAND REVENUE Plaintiff AND THE FISHING COMPANY LTD Defendant Hearing: 9 December 2010 Appearances: D M Brabant and S L Law for Plaintiff T M Chemaly for Defendant Judgment: 14 December 2010 at 4:45 pmINTERIM JUDGMENT OF ASSOCIATE JUDGE BELLThis judgment was delivered by me on 14 December 2010 at 4:45 pm pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate: .Solicitors: Inland Revenue Dept., PO Box 76 198, Manukau T M Chemaly, PO Box 3697, Auckland[1] The Commissioner of Inland Revenue applies for an order that The Fishing Company Limited be put into liquidation. On 9 June 2010, the Commissioner served a statutory demand on The Fishing Company Limited for $217,217.55 for arrears of goods and services tax ($95,748.93) and arrears in income tax ($121,468.42), including penalties and interest. The Fishing Company Limited paid $96,261.93, leaving $121,468.42. The Commissioner says that further penalties and interest have accrued so that the amount due at 19 November 2010 was $134,082.05. The Commissioner says that he is an unpaid creditor and The Fishing Company Limited is unable to pay its debts as they fall due. [2] The Fishing Company Limited says that it has made payments of $96,261.93. It also claims that it lodged a GST assessment with the Commissioner in July 2009, under which it is entitled to a refund of $122,426.75. This claim for GST input credits is enough to eliminate its debt to the Commissioner at the end of June 2009 and it is accordingly not a debtor of the Commissioner. It also says that it is solvent. [3] The two matters for consideration are: a) How should the Court treat the claim for the GST input credit? b) Is The Fishing Company Limited solvent?The Commissioner's prima facie case[4] The Commissioner says that he has not accepted the claim for the GST input credit. It is under investigation. He complied with the provisions of the Goods and Services Tax Act 1985 allowing him to withhold payment in the meantime. The Fishing Company Limited is not allowed to raise its claim to the credit as a relevant consideration in this proceeding. The Commissioner also challenges the company's assertion that it is solvent. [5] Leaving aside the claim for the GST input credit, there is no dispute about the amounts of income tax and GST set out in the statutory demand and the statement of claim. The Commissioner refers to the provisions of the Tax Administration Act1994 to show that those amounts can no longer be disputed. The Fishing Company Limited did not file a notice of proposed adjustment within time under s 89B of the Tax Administration Act. Under s 109 of the Tax Administration Act, the amount of GST and income tax assessed for the relevant periods is deemed to be correct and cannot be disputed, other than by judicial review (and then only in limited circumstances). [6] Again putting the GST input credit and solvency questions to one side, The Fishing Company Limited does not take issue with those parts of the Commissioner's case. [7] The Commissioner has established a prima facie case for the Court to make an order that The Fishing Company Limited be put into liquidation. In particular, The Fishing Company Limited did not comply in full with the statutory demand served on it on 9 June 2010. Under s 287(a) of the Companies Act 1993, The Fishing Company Limited is presumed to be unable to pay its debts, unless the contrary is proved. The Commissioner can rely on that presumption, because he began the present proceeding on 16 July 2010, within 30 working days after the last date for compliance (s 288(1)).The GST input credit – the Commissioner's argument[8] The Fishing Company Limited carries on a commercial fishing business. It has two subsidiary companies, TFC Vessels Ltd and TFC Sails Ltd. Its director says that the group employs 16-17 people. In 2009, it began a boat charter operation to supplement the commercial fishing activities. The fishing operation is still the major part of the company's business and the charter operation is still in a growth phase. He says that last year the company's turnover was $2.5 million, of which only $40,000 came from the charter operation. [9] The Fishing Company Limited is registered for Goods and Services tax on a payments basis with two-monthly filing of returns. On 22 July 2009, The Fishing Company Limited filed its GST return for May/June 2009. In that return, its GST taxable outputs were $346,836.30 and its GST input credits were $1,448,677.12. Itclaimed a net GST input credit of $122,426.75. It says this GST input arose from buying a charter boat costing $1,448,677.05. [10] On 30 July 2009, the Commissioner wrote to the company's accountant, copying the letter to the company's director. The letter advised that the refund claimed by the company would be delayed until the circumstances of the return had been investigated. The letter referred to s 46 of the Goods and Services Tax Act as the basis for withholding payment. It also asked for records and information by 27 August 2009. The Commissioner continued his investigation leading to the issue of a notice of proposed adjustment on 17 November 2010. The circumstances of the investigation will be referred to later. [11] The Commissioner's position is that the GST input credit claimed by The Fishing Company Limited can be disregarded. The Commissioner says that under s 46 of the GST Act, he is not required to pay a refund where he has decided to investigate the circumstances of the refund and has given timely notice to the taxpayer that the matter is to be investigated. For this, the Commissioner relies on the decision of the Supreme Court in Contract Pacific Ltd v Commissioner of Inland Revenue [2010] NZSC 136. The Commissioner says that the refund is payable only when he determines that the amount is refundable after having investigated the matter, or there is a determination that it is refundable under the disputes resolution provisions of the Tax Administration Act 1994. [12] Section 46 of the Goods and Services Tax Act says:46 Commissioner's right to withhold payments(1) Subject to this section, if the Commissioner is required to refund an amount to a registered person under section 19C(8) or section 20(5) of this Act, the Commissioner shall refund the amount— (a) Except when paragraph (b) applies, not later than 15 working days following the day on which the registered person's return was received by the Commissioner; or (b) The day after the working day on which the Commissioner— (i) Determines the amount is refundable, after first having—(A) Investigated the circumstances of the return in accordance with subsection (2); or (B) Reviewed the information requested in accordance with subsection (2); and (ii) Is satisfied that the registered person has complied with the person's tax obligations. (2) If the Commissioner is not satisfied with a return made by a registered person, the Commissioner— (a) May investigate the circumstances of the return: (b) May request the registered person to provide further information concerning the return. (3) If a registered person fails to provide a return for any taxable period as required by this Act, the Commissioner may withhold payment— (a) Of any tax otherwise refundable under this Act or the Tax Administration Act 1994; or (b) Of any interest payable under Part 7 of the Tax Administration Act 1994— until the registered person complies with the requirement. (4) The Commissioner must give a request for information concerning a return under subsection (2)— (a) Within a period of 15 working days following the day on which the return is received by the Commissioner (in the case of an initial request for information); and (b) Of the Commissioner's intention to investigate the circumstances of the return under subsection (2); and (c) Within a period of 15 working days following the date of receipt of any information previously requested by the Commissioner (for subsequent requests for information). (5) The Commissioner must notify the registered person— (a) Of the Commissioner's intention to investigate the circumstances of the return under subsection (2); and (b) Of the Commissioner's intention to withhold payment under subsection (3)— within 15 working days following the day on which the return is received by the Commissioner. (6) If, but for this subsection, a registered person would be entitled to an amount as a refund under section 19C(8) or 20(5) or [45 or78B(5)(c)] or under the Tax Administration Act 1994, or as a payment of interest under Part 7 of the Tax Administration Act 1994, the Commissioner may apply the amount, in accordance with a request under section 173T of the Tax Administration Act 1994 or in the absence of a request in such order or manner as the Commissioner may determine, in payment of— (a) tax that is payable by the person: (b) an amount that is payable by the person under another Inland Revenue Act.(7) If, but for this subsection, a person who is a specified agent of an incapacitated person, as those terms are defined in section 58(1), would be allowed an amount as a deduction under section 20(3) by virtue of section 58(1C), the Commissioner may apply the amount in payment of— (a) tax that is payable by the incapacitated person: (b) an amount that is payable by the incapacitated person under another Inland Revenue Act.[13] The Commissioner is correct to rely on the Supreme Court's decision inContract Pacific Ltd v Commissioner of Inland Revenue to say that, having given notice to the taxpayer inside the 15 working days under s 46(5), he is entitled to withhold payment of the GST refund under s 46 until he is relevantly satisfied under s 46(1)(b). [14] The Commissioner also relies on r 5.61(1) of the High Court Rules:In a proceeding by the Crown for the recovery of taxes, duties or penalties, a defendant is not entitled to advance any set-off or counterclaim.[15] The Commissioner says that this proceeding to put The Fishing Company Limited into liquidation is a proceeding for the recovery of taxes, duties or penalties and that the GST input credit raised by the defendant is an impermissible set-off or counterclaim. It should therefore be disregarded when the Court considers the exercise of the discretion whether to put the company into liquidation. [16] Rule 5.61 is a pay now, argue later provision. In proceedings by the Crown for recovery of taxes, matters that a defendant might otherwise raise under the statutes of set-off, equitable set-off or by counterclaim cannot be advanced. The result is that the Crown is entitled to enforce any claim for taxes, while the taxpayermust run any claim against the Crown separately. No doubt the policy underlying the provision is to promote the efficiency of tax collection by the Crown, supported by the low risk of the Crown's insolvency if the taxpayer later succeeds in his own proceeding. [17] The law has other pay first, argue later cases. They include: a) In claims for freight, the shipper is not allowed to raise claims for damages, like claims involving damage to the goods shipped, short delivery or delay – Aries Tanker Corp v Total Transport Ltd [1977] 1 WLR 185. b) Unliquidated cross-demands cannot be raised in proceedings to enforce payment of a bill of exchange or other negotiable instrument:Nova (Jersey) Knit Ltd v Kammgarn Spinnerei GmbH [1977] 1 WLR 713 per Lord Wilberforce at 721; Finch Motors Ltd v Quinn [1980] 1 NZLR 513, 516; International Ore & Fertiliser Corporation v East Coast Fertiliser Co Ltd [1987] 1 NZLR 9, 14-15; c) Claims for payment under ss 23, 24 and 59 of the Construction Contracts Act 2002 allow counterclaims, set-offs and cross-demands under s 79 only in limited circumstances, and cannot be resisted on the basis that the payer has a stronger countervailing claim under s 26(1) – see Laywood v Holmes Construction Wellington Ltd [2009] 2 NZLR 243; d) Under s 4 of the Wages Protection Act 1983, an employer is restricted in making deductions from the wages of an employee; e) In many contracts, a right to claim set-off may be contractually excluded – Grant v NZMC Ltd [1999] 1 NZLR 8 at 13.[18] These cases of pay first, argue later set up interim arrangements. The payee may later be found liable to the payer, but in the meantime he is allowed to enforce his entitlement to payment, with his potential liability to be determined later.[19] Pay now, argue later cases apply while payers are not in bankruptcy or liquidation. But once a payer is put into liquidation or is adjudicated bankrupt, pay now, argue later cannot apply. That is because the mutual credit and set-off provisions apply instead - Section 310 of the Companies Act 1993 and s 254 of the Insolvency Act 2006. Section 310 of the Companies Act 1993 says:310 Mutual credit and set-off(1) Where there have been mutual credits, mutual debts, or other mutual dealings between a company and a person who seeks or, but for the operation of this section, would seek to have a claim admitted in the liquidation of the company,— (a) An account must be taken of what is due from the one party to the other in respect of those credits, debts, or dealings; and (b) An amount due from one party must be set off against an amount due from the other party; and (c) Only the balance of the account may be claimed in the liquidation, or is payable to the company, as the case may be. (2) A person, other than a related person, is not entitled under this section to claim the benefit of a set-off arising from— (a) A transaction made within the specified period, being a transaction by which the person gave credit to the company or the company gave credit to the person; or (b) The assignment within the specified period to that person of a debt owed by the company to another person— unless the person proves that, at the time of the transaction or assignment, the person did not have reason to suspect that the company was unable to pay its debts as they became due. (3) A related person is not entitled under this section to claim the benefit of a set-off arising from— (a) A transaction made within the restricted period, being a transaction by which the related person gave credit to the company or the company gave credit to the related person; or (b) The assignment within the restricted period to that person of a debt owed by the company to another person—unless the related person proves that, at the time of the transaction or assignment, the related person did not have reason to suspect that the company was unable to pay its debts as they became due. (4) This section does not apply to an amount paid or payable by a shareholder— (a) As the consideration, or part of the consideration, for the issue of a share; or(b) In satisfaction of a call in respect of an outstanding liability of the shareholder made by the board of directors or by the liquidator. (5) In this section, related person means a related company and includes a director of the company in liquidation. (6) For the purposes of subsection (2) of this section, specified periodmeans— (a) The period of 6 months before the date of commencement of the liquidation together with the period commencing on that date and ending at the time at which the liquidator is appointed; and (b) In the case of a company that was put into liquidation by the Court, the period of 6 months before the making of the application to the Court together with the period commencing on the date of the making of that application and ending on the date on which, and at the time at which,the order of the Court was made; and (c) If— (i) An application was made to the Court to put a company into liquidation; and (ii) After the making of the application to the Court a liquidator was appointed under paragraph (a) or paragraph (b) of section 241(2),— the period of 6 months before the making of the application to the Court together with the period commencing on the date of the making of that application and ending on the date[and at the time] of the commencement of the liquidation. (7) For the purposes of subsection (3) of this section, restricted periodmeans— (a) The period of 2 years before the date of commencement of the liquidation together with the period commencing on that date and ending at the time at which the liquidator is appointed; and (b) In the case of a company that was put into liquidation by the Court, the period of 2 years before the making of the application to the Court together with the period commencing on the date of the making of that applicationand ending on the date on which, and at the time at which,]the order of the Court was made; and (c) If— (i) An application was made to the Court to put a company into liquidation; and (ii) After the making of the application to the Court a liquidator was appointed under paragraph (a) or paragraph (b) of section 241(2),— the period of 2 years before the making of the application to the Court together with the period commencing on the date of the making of that application and ending on the date and at the time of the commencement of the liquidation.[20] Section 310 is a mandatory provision that operates at the time of liquidation. In Rendell v Dawes & Dawes Ltd [1975] 2 NZLR 191 at 199, Chilwell J said that the mutual credit and set-off provision cannot be bargained away. When applied, the section produces a balance upon the basis of which the liquidation proceeds. Only the balance can be claimed in the liquidation. As Lord Hoffman explained in Stein v Blake [1996] 1 AC 243 at 251-254, the set-off operates automatically to extinguish credits, debits and dealings. It is self-executing and does not require action on the part of the parties. [21] In Stein v Blake, Lord Hoffman addressed how cross-claims are quantified at 252:How does the law deal with the conundrum of having to set-off, as at the bankruptcy date, "the sums due" which may not yet be due or which may become owing upon contingencies which have not yet occurred? It employs two techniques. The first is to take into account everything which has actually happened between the bankruptcy date and the moment when it becomes necessary to ascertain what, on that date, was the state of account between the creditor and the bankrupt, if by that date the contingency has occurred and the claim has been quantified, then that is the amount which is treated as having been due at the bankruptcy date But the winding-up of the estate of a bankrupt or an insolvent company cannot always wait until all possible contingencies have happened and all the actual or potential liabilities which existed at the bankruptcy date have been quantified. Therefore the law adopts a second technique, which is to make an estimation of the value of the claim.[22] In England, provisions equivalent to s 310 of the Companies Act have been applied to the Crown's claim for taxes and taxpayer's claims for refunds:Re D H Curtis (Builders) Ltd [1978] 1 Ch 162, Secretary of State for Trade & Industry v Frid [2004] 2 AC 506. [23] It only needs to be added that it would not be in the Commissioner's interests to resist the application of s 310 to proofs of debt for unpaid taxes. As Re D H Curtis Builders Ltd illustrates, if the set-off under s 310 could not be applied, the Crown would face having to pay a refund to the company in liquidation, but would be limited to lodging a proof of debt for unpaid taxes and receiving a dividend. [24] Once a company goes into liquidation, r 5.61(1) of the High Court Rules no longer applies. There is no longer a proceeding by the Crown for the recovery of taxes. Any proceedings by or against the company are stayed under s 248(1)(c) of the Companies Act (except to the extent that the liquidator agrees or the Court orders otherwise). Once the company is in liquidation, s 310 applies. In any proceedings to determine the company's liability to the Crown for taxes, the Court will apply s 310 of the Companies Act to determine the correct balance between the Crown and the taxpayer in liquidation. As that is a final balance, there is no room for an interim pay now, argue later regime under a liquidation. [25] Re Bayoil SA [1999] 1 WLR 147 (CA) is an example of pay now argue later being applied in a liquidation application. The petitioner had obtained an arbitration award in a claim for freight. The shipper had not been able to set up its counterclaim for breach of charterparty in the arbitration, but the Court of Appeal held that the counterclaim for breach of charterparty should have been taken into account in the exercise of the discretion whether to make a winding up order. [26] If an order for liquidation is made in this case, the liquidator will apply s 310 in accepting or rejecting proofs of debt submitted by the Commissioner. When he does that, he will have to take into account The Fishing Company Limited's claim for a GST input of credit. [27] If the insolvency set-off under s 310 results in there being no net indebtedness to the Commissioner, then putting the company into liquidation may be futile. The company would stop operating, the staff would be thrown out of workand assets would be realised to meet the costs of the liquidation. While there might be good grounds for imposing this on the company if it is indebted to the Commissioner and cannot pay, there would not be if the Commissioner is not a creditor. [28] Because pay now, argue later provisions such as r 5.61 cannot operate once a taxpayer is put into liquidation, the Commissioner cannot succeed in his argument that r 5.61 requires the Court to disregard The Fishing Company Limited's claim for a GST input credit. The Commissioner's claim to be a creditor is subject to the claim for a GST input credit.The GST input credit claim – The Fishing Company's argument[29] While the Commissioner's stance was that the company's claim for a GST input credit could not be taken into account at all, The Fishing Company Limited took an equally strong, but opposite, stance. Its argument was that the GST input credit was presumptively correct and could not be questioned in the proceeding. [30] The argument for The Fishing Company Limited ran that when it filed its GST return for May/June 2009, that was an assessment under s 3(1)(d) of the Tax Administration Act 1994:Assessment means (d) an assessment of a refund due under the Goods and Services Tax Act 1985.[31] Section 92B makes clear that when a taxpayer files a GST return, there is a relevant assessment:(1) A taxpayer who is required under the Goods and Services Tax Act to provide a GST tax return for a GST return period must make an assessment of the amount of GST payable by the taxpayer for the return period. (2) An assessment under this section is made on the date on which the taxpayer's GST tax return is received at an office of the Department.(3) This section does not apply to a taxpayer for a GST return period if the Commissioner has made an assessment of the GST payable by the taxpayer for the return period.[32] As "disputable decision" under s 3(1) includes an assessment, The Fishing Company Limited claimed the benefit of s 109 of the Tax Administration Act:109 Disputable decisions deemed correct except in proceedingsExcept in objection proceedings under Part 8 or a challenge under Part 8A,— (a) No disputable decision may be disputed in a court or in any proceedings on any ground whatsoever; and (b) Every disputable decision and, where relevant, all of its particulars are deemed to be, and are to be taken as being, correct in all respects.[33] It says that the present proceeding is not an objection proceeding under Part 8 or a challenge under Part 8A. Accordingly, its GST input credit cannot be disputed in the present proceeding. It must be taken to be correct in all respects. [34] It supports its argument by saying that if the position under s 109 is not accepted, then the Commissioner is entitled to delay the time for amending an assessment under s 108A of the Tax Administration Act for up to four years. It says that the Commissioner can take unfair advantage by delaying the investigation process and refusing to recognise the GST input credit, while at the same time pressing for payment of other taxes. [35] It says that the additional sums for interest and penalties claimed by the Commissioner as accruing after the end of June 2009 will be written off under s 173L of the Tax Administration Act on its GST input credit being recognised. [36] It therefore says that its GST input credit for May/June 2009 extinguishes its liability for GST and income tax due at that time. It says that as there is no net liability to the Commissioner, then it should not be placed in liquidation. [37] While there is force in the argument, it needs to be put in context. Here the Court is required to consider what will happen on The Fishing Company Ltd beingordered into liquidation. Again the liquidators will apply s 310 of the Companies Act to find the final balance between the Commissioner and the company. Its claim for a GST input credit has not been accepted by the Commissioner. It is under investigation. Simply because the company filed a return under which it claimed a refund, does not mean that is the final position. While its return may be an assessment and that assessment may have the benefit of s 109, an investigation by the Commissioner may show that the refund is not in fact due. If the company does not accept the Commissioner's findings, the matter may be resolved under the Tax Administration Act. In a liquidation, Section 109 states only an interim position, which may be reversed on an assessment being set aside. In the application that The Fishing Company Limited be put into liquidation, it is an error to rely on r 5.61 as stating a final position. It is equally wrong to rely on the filing of a GST input assessment as a final position. [38] On an application for liquidation, the Court cannot itself decide the correctness of the claim for a refund. But it can neither disregard it nor treat it as presumptively correct. The claim for the credit is a relevant factor in the exercise of the discretion whether to order the liquidation of the company, given the futility of making an order if there is no net indebtedness.The strength of a taxpayer's claim for a GST input credit[39] There must be some assessment of the strength of The Fishing Company Limited's claim for a GST input credit. On the one hand, if the claim for the GST input credit is quite flimsy, the Court would have little difficulty in disregarding it. On the other hand, if the entitlement to a refund is obvious, the Court will have little difficulty in finding that a mutual set-off under s 310 will apply on liquidation. [40] In Covington Railways Ltd v Uni-Accommodation Ltd [2001] 1 NZLR 272, the Court of Appeal held that in applications to set aside a statutory demand on the basis of a set-off, counterclaim or cross demand under s 290(4)(b) there is a "clear and persuasive" standard. At 274 it said:Where a company which is the subject of a liquidation application is indisputably in debt to the applicant creditor, it may nonetheless be able toshow that it has a claim against the applicant which reduces the net balance owing to the creditor or even off-sets it altogether. Where there are liquidated sums due each way, that is simply an arithmetical exercise. It is more difficult if, on the applicant's side, there is an indisputable liquidated sum, but the other party's claim is for an unliquidated sum with liability and/or quantum in dispute. Then in order to impeach the statutory demand and overcome the presumption of s 287(a) that the company is unable to pay its debts when it has failed to comply with that demand, it must be able to do more than merely assert that there is an available set-off. It must be able to point to evidence before the Court showing that it has a real basis for the claimed set-off and that accordingly, the applicant's claim to be a creditor is, to the extent of the set-off, seriously in doubt. In the words of Buckley LJ inBrian Stone Finance Ltd v De Vries (No. 2) [1976] Ch 63, 78, it must show that there are "clear and persuasive grounds" for the set-off claim. Where this can be done, the party who has issued the statutory demand against the company will be shown to be using the statutory demand in liquidation procedures improperly because there is a "genuine and substantial dispute" about the net amount of the company's indebtedness (Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297, 299). The dispute should then be resolved in the ordinary way – except as to any undisputed balance, rather than upon the hearing of a liquidation application.[41] That was an application under s 290(4)(b) of the Companies Act to set aside a statutory demand on the basis of a counterclaim, set-off or cross-demand. But I see no reason why the same test of "clear and persuasive grounds" should not be applied on the hearing of the liquidation application.Assessment of the claim for the GST input credit[42] The issue is whether the company's purchase of the vessel is for a taxable activity under s 6(1)(a) of the Goods and Services Tax Act. Under s 6(3)(aa), a taxable activity does not include any activity which, if it were carried on by a natural person, would be carried on essentially as a private recreational pursuit or hobby. [43] The Fishing Company Limited does not give very much information in support of its claim for a GST input credit. It has put in evidence financial statements, which show a Beneteau yacht as an asset. A statement of financial performance shows charter income of $40,444. The company's director says that the GST input credit arises from the acquisition of a charter boat costing $1,448,677.05. The director is aware that the Commissioner is querying whether the charter boat operation is a taxable activity. To this, the director responds:This is factually incorrect; the boat is available and used for charter. The GST has been paid on the purchase of the boat and the plaintiff is obliged to compensate the defendant accordingly. The boat was acquired for the principal purpose of making taxable supplies, and is in fact doing so.[44] An Inland Revenue officer responsible for investigations has sworn an affidavit describing inquiries by the Commissioner. The Commissioner has obtained the following information. The vessel in question is called "Bird on the Wing". It has a Maritime Safety Authority registration No. 876494. According to MSA records, the vessel is described as a pleasure yacht, not a commercial vessel. Its skipper is Gary Thomas Foster, who holds an offshore master licence. The vessel used to belong to a director of the company and his wife. In October 2009, the vessel was still insured in their names. The vessel was insured for racing, but not for charter work. The vessel is kept at the Westhaven Marina in a berth used by private vessels, not by charter vessels. The Fishing Company Limited has not produced any written records of any advertising or promotional work to show the vessel is used for chartering and has not produced any business feasibility plans for the charter operation. The Fishing Company Limited has produced log books and charter records for the Commissioner but those were not put in evidence. [45] The Commissioner's evidence shows that The Fishing Company Limited has been generally slow in responding to the Commissioner's requests for information and has at times asked for extensions of time. [46] The Commissioner's concern about the genuineness of the GST input credit is understandable. It appears that a pleasure craft, insured for racing and formerly owned by a director of the company and his wife, has now been transferred into the company's ownership and the company has claimed a GST credit on that transfer. The information supplied by the company is consistent with the vessel still being used for pleasure purposes. [47] Faced with this, I would have expected The Fishing Company Limited to give fuller information to allay these concerns. In this regard, the dictum of Lord Mansfield in Blatch v Archer (1774) 1 Cowp 63 is useful:It is certainly a maxim that all evidence is to be weighed according to the proof which it was in the power of one side to produce, and in the power of the other to have contradicted.[48] Knowing that the Commissioner was challenging its claim that the racing yacht was being used for charter purposes, I would have expected The Fishing Company Limited to have set out far more information to show that it had a clear and persuasive case that the family yacht was being used for a taxable activity under the Goods and Services Tax Act. [49] Applying the clear and persuasive test, I accept that The Fishing Company Limited has adduced some evidence, although some of it is only assertion, that "Bird on the Wing" is being used for charter, but I do not accept that the evidence before the Court comes to the standard of a clear and persuasive case. On that basis, The Fishing Company Limited has not satisfied me to the required standard that it has a GST input refund that should be taken into account in exercising the discretion whether to put the company into liquidation.Solvency[50] As already mentioned, the company put in evidence financial statements. These showed that the company had made a trading loss during the eight months ending 31 May 2010. The statement of financial position shows shareholders' equity of $455,000. There is a net working capital of $58,000. Aside from trade creditors (said to be current), the company has term liabilities to the Bank of New Zealand of $1,276,000 and shareholders' loans. The director says that the Bank is happy with the company's financial performance. He says that the company is up to date with all its obligations. [51] At this stage, it is not possible to make any final finding as to solvency. That is because it emerged at the hearing that the application for liquidation has not been advertised. The Fishing Company Limited asked the Commissioner not to advertise, saying that advertising the proceeding could be embarrassing while it was negotiating to purchase quota. The parties did not obtain a direction from the Court dispensing with advertising.[52] Advertising in liquidation proceedings is important. It gives the opportunity for creditors to be informed of the proceeding and to take part, if they wish, and, if appropriate, to support the application. Dispensing with advertising risks leaving other creditors uninformed. Other creditors may be able to provide the Court with relevant information as to the solvency of the company. It would be premature to decide the solvency issue without giving creditors the opportunity to enter an appearance. [53] Accordingly, before I make any final determination as to the solvency of the company, I direct that the present application be advertised in the NZ Herald and theNZ Gazette, the advertisements to appear at least five working days before the case is next called. [54] The case is to be called before me on Friday, 18 February 2011 at 11:45 am. [55] At that hearing, I will consider what final orders should be made. The point I have reached so far is that the Commissioner of Inland Revenue has established a prima facie case for an order that The Fishing Company Limited should be put into liquidation. The Fishing Company Limited has not shown a clear and persuasive case in favour of its GST input refund. I have still to determine whether The Fishing Company Limited has rebutted the presumption of insolvency. I have still to consider what orders ought to be made if the taxes remain unpaid when the matter is next called. [56] Any question of costs will be determined at the next hearing. __________________________ R M Bell Associate Judge