HENDERSON v COMMISSIONER OF INLAND REVENUE [2016] NZHC 1987

HENDERSON v COMMISSIONER OF INLAND REVENUE [2016] NZHC 1987 [24 August 2016]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYCIV-2016-409-000014[2016] NZHC 1987BETWEEN DAVID IAN HENDERSONAppellantAND THE COMMISSIONER OF INLANDREVENUERespondentHearing: 17 August 2016Appearances: Appellant D I Henderson - In PersonP Courtney for RespondentJudgment: 24 August 2016JUDGMENT OF GENDALL JIntroduction[1] The appeal before this Court relates to s 61 of the Goods and Services Tax Act 1985 (the GST Act). This provision allows the Commissioner of Inland Revenue (the Respondent) to recover outstanding taxation from directors who have entered into arrangements involving transactions that have depleted the assets of their companies so that the companies are unable to pay those tax liabilities.[2] David Ian Henderson (the appellant) was a director at the relevant time of three companies, FM1 Limited (FM1), FM3 Limited (FM3) and Property VenturesInvestments Limited (PVIL) (together referred to in this judgment as "the companies"). When the appellant was a director of the companies, no doubt at hisinstigation, they sold certain properties they owned in Christchurch to the Christchurch City Council (the Council). The agreements for sale and purchase for these sales were signed on 1 August 2008. The sales were on the basis that theproceeds of sale the companies received from the Council were to include GST of $1.7 million.[3] Prior to settlement of the property sales by the companies, the appellant arranged for another company, ILR Holdings Limited (ILR) to be incorporated. He was the sole director of this company. ILR was incorporated on 1 August 2008.Debts owed by the companies to yet another company under the appellant's control(Property Ventures Limited (PVL)) were assigned to ILR early August 2008 for an initial consideration of $1, subsequently amended to $1.7 million.[4] Upon settlement of the property sale transactions to the Council, the companies, no doubt under the direction of the appellant, used their sale proceeds first to discharge mortgages registered against the titles to the properties in question, and secondly to pay the costs of sale. The remaining net sale proceeds were paid to ILR. That meant that the companies, having paid away all the sale proceeds, were unable to pay to the respondent their GST liabilities which were due on 28 September 2008. GST invoices for the $1.7 million due had been issued earlier by the solicitors acting for the companies on 6 August 2008.[5] As a result of all this, the respondent contended that the transactions in question were steps in an arrangement, an effect of which and one of the purposes of which was that the companies could not pay their GST liability on the supply of the three properties. The companies had self assessed as being liable to pay this total $1.7 million GST for the period ended 31 August 2008 but simply had no funds to make the payment when it was due a month later. All of the companies have now been placed into liquidation.[6] In the meantime the respondent issued GST assessments against the appellant personally for this $1.7 million. Those assessments were issued under s 61 of the GST Act on the basis that the appellant as an agent for the three companies FM1, FM3 and PVIL had entered into arrangements involving transactions that depleted the assets of the companies so that they were unable to pay their tax liabilities.[7] The appellant then commenced a challenge proceeding in the Taxation Review Authority (the TRA) disputing the correctness of the GST assessments made against him personally.[8] In a decision on this challenge given on 27 November 2015 (the TRA decision) the TRA dismissed the challenge proceeding. In doing so it held that:(a) the appellant did not have standing to bring the challenge proceeding, the right to commence such a proceeding having vested in the Official Assignee when the appellant was adjudicated bankrupt on 29 November 2010; and(b) in any event, even if that finding in paragraph (a) above was wrong (and is not upheld), the requirements of s 61 of the GST Act had been met so the GST assessment the Commissioner made of $1.7 million against the appellant as agent for the companies was correct.[9] The appellant now appeals to this Court against the TRA decision. The respondent opposes this appeal, on the basis that she supports the TRA decision, including its reasoning and the orders made by it. In doing so counsel for the respondent offers the comment that this proceeding represents the first time a Court has had the opportunity to consider s 61 of the GST Act in its current form.Grounds of appeal[10] In his Notice of Appeal filed in this Court on 19 January 2016 the appellant sets out his grounds of appeal as follows:(a) The TRA erred in finding that s 76 Insolvency Act 2006 (IA) did not apply because a challenge proceeding is not a proceeding to recover a debt;(b) The TRA erred in finding that a contingent debt is owing, albeit payable in the future;(c) The TRA erred in relying on s 109 Tax Administration Act 1994 (TAA) in hearing a challenge;(d) The TRA erred in finding that a right to seek to reduce an amount claimed to be owed, and/or to protect the reputation of the appellant can be property for the purposes of s 101 IA;(e) The TRA erred in finding that it was relevant whether the Official Assignee consented to the issue of these proceedings, and/or that he did not.(f) The TRA erred in finding that the transaction with ILR was an arrangement within the meaning of s 61 GST Act;(g) The TRA erred in finding that an arrangement for the purposes of s 61 GST Act can consist of one person;(h) The TRA erred in finding that an effect of any identified arrangement referred to at (f) above was to leave the companies unable to satisfy their GST liabilities. Further the Authority erred in not recognising that the settlement of the sale of the properties merely substituted one asset for another of equal value;(i) The TRA erred in finding that it is reasonable to conclude that an effect of any arrangement is that the companies could not meet their tax liabilities;(j) The TRA erred in finding that the admission recorded at [87] of the judgment requires the conclusion that if the director of the companies at the time of the arrangement he (the appellant) would have anticipated that the GST liabilities of $1.7 million arising at the time of supply of the properties would, or would likely, be required to be met.Tests on appeal[11] Broadly speaking, this appeal is advanced on grounds that it is alleged the TRA erred in making various specified findings as I have outlined above. Those findings are questions of law including questions of mixed fact and law.[12] An appeal of a de novo decision is a general appeal on law and fact.1 An appellate Court is entitled to come to its own view on the merits of the appeal before it.2Issues for determination on this appeal[13] From the appellant's Notice of Appeal, the broad legal issues that require determination on this appeal fall into two main areas.Jurisdiction of the TRA[14] The first question relates to whether the TRA erred in finding that its functions were engaged in this case so that it had the power to make orders under s 138P TAA). Further, this Court is to consider whether the TRA erred in finding that the appellant did not have standing to commence the challenge proceeding, bearing in mind in particular s 101 of the IA.Section 61 of the GST Act[15] The second question raised is whether the TRA erred in finding that, as an alternative, the appellant as a director of each of the companies at the relevant time, had not established on the balance of probabilities that the requirements of s 61 of the GST Act had not been met. The consequence of this, according to the appellant, was that he should not have been treated as the agent of each of the companies and assessed as jointly and severally liable for their unpaid $1.7 million GST liability.1 Austin Nicholls & Co Inc v Stichting Lodestar [2007] NZSC 103.2 At [4] and [5].Factual background[16] For the TRA hearing and relevant to the appeal before me, the parties to this proceeding had reached an agreed statement of facts. On the basis of that agreed statement, the factual background to this matter was set out with some precision in the TRA decision at paragraphs [5] – [27]. For present purposes it is useful to repeat that factual background which I now do (with appropriate amendment to the company names to comply with their description in this judgment):FACTUAL BACKGROUND[5] The company, called in this decision PVL, was incorporated in November 1997. It was the GST Group representative member under s 55 of the GST Act for a number of companies that were part of the Property Group of Companies ("the GST Group"). The disputant was the managing director of PVL and remained so until that company was liquidated in July 2010.[6] The companies in the GST Group included FM1, FM3 and PVIL. All the shares in FM1 and FM3 were held by PVL while 70 of the 100 shares in PVIL were held by PVL and 30 by another company in the GST Group. At all material times the disputant was the managing director of FM1, FM3 and PVIL.[7] By April 2008 PVL and a number of its subsidiaries had substantial outstanding liabilities to creditors including PAYE arrears and other liabilities owing to the Commissioner. The Commissioner served a statutory demand for $104,100.32 (dated 11 July 2008) on PVL and one for $267,714 (dated 15 July 2008) on another company in the GST Group.[8] At this time PVL was owed significant amounts by some of its subsidiary companies including FM1, FM3 and PVIL. The directors of PVL decided to sell certain assets of its subsidiaries to generate funds to pay the debts of PVL and other subsidiaries. By the end of July 2008 the disputant had negotiated agreements for sale and purchase pursuant to which the entity, called in this decision "the Council", agreed to purchase properties owned by FM1, FM3 and PVIL and also by another subsidiary of PVL called in this decision "ABC".[9] In July 2006 PVL provided a guarantee to a finance company in relation to the indebtedness of a company called in this decision Holdings Limited ("Holdings''). Holdings was a property development company and was also the largest subsidiary by value in the GST Group. The finance company held a first ranking registered General Security Agreement (GSA) over both Holdings and PVL. In July 2008 the finance company placed Holdings into receivership.[10] Against this background the directors of PVL were concerned that if the finance company became aware of the sale of the properties to the Council it would take action to ensure that it received the net sale proceeds. In particular, the directors were concerned that the finance company would or might appoint receivers to all of PVL's assets. If this happened then thefinance company would have control of all the shares of the companies undertaking the sales to the Council. It would be in a position to demand repayment of the intercompany advances owed to PVL and to then use those funds to reduce its own debt.[11] The disputant and the other directors of PVL did not consider that such action by the finance company would be in the best interests of PVL or the group as a whole as funds were required to meet claims from a large number of creditors. After taking legal advice it was decided to incorporate the company called in this decision ILR and for that company to acquire shares in certain subsidiaries of PVL including those companies selling properties to the Council and to acquire, by way of assignment, the intercompany debts owed by those subsidiaries to PVL.[12] ILR was incorporated on I August 2008. The disputant was its sole director. Of the 100 shares issued, the disputant held 3 A class shares and a trustee company held 97 B class shares. The A class shares had full voting rights but no entitlement to receive capital distributions or dividends. The B class shares had no voting rights but had entitlement to receive all capital distributions or dividends.[13] The trustee company held the shares in ILR as trustee for PVL. This shareholding structure meant that although the value of ILR remained in PVL, the control resided with the disputant so that if the finance company did appoint receivers to the assets of PVL, the companies could complete the sales to the Council and deal with the proceeds without the finance company's interference.[14] On 1 August 2008 the Companies and ABC entered into the agreements for sale and purchase with the Council. The sale by ABC was on a going concern basis. In respect of the sales by each of the other Companies the sale price was plus GST.[15] On 4 August 2008 PVL transferred all 100 shares held by it in FM1 to ILR. It also transferred 51 of the 100 shares which it held in FM3 and in PVIL to ILR. In each case, the consideration was $1.00. The respective share transfers were signed on behalf of PVL by the disputant and one other in their capacities as directors of PVL and on behalf of ILR by the disputant in his capacity as director of that company.[16] Also on 4 August 2008 the Commissioner received separate applications from PVL (all dated 31 July 2008) to exclude 8 companies from the GST Group as from 1 July 2008 including FM1, FM3 and PVIL.[17] As well, on 4 August 2008 PVL and ILR entered into a Deed of Assignment assigning debts in the total amount of$14,932,498 to ILR. These debts included amounts owed by FM1 ($1,773,097); FM3 ($2,086,743) and PVIL ($8,530,243). The consideration for the assignment was $1.00. To secure these debts, the Companies granted mortgages over the land contained in the various certificates of title that were the subject of the sale and purchase agreements. These mortgages were not registered. Each of these Companies also granted a GSA to ILR.[18] On 6 August 2008 GST invoices were issued by the solicitors acting for the Companies. The GST output liabilities of each company arising from the sale transactions were:(a) FM l the sum of $684,375;(b) FM3 the sum of $612,500;(c) PVIL the sum of $500,000.[19] As at 6 August 2008, after the Companies had issued the GST invoices to the Council, the financial position of each company (excluding any GST output liability) was as follows:(a) Particulars of FM1's assets and liabilitiesAssetsPrice of land and buildings sold to the Council(GST inclusive) $6,159,375.00LiabilitiesRegistered mortgages ($4,226,297.03)Debt to ILR ($1,773,097.00)Total liabilities ($5,999,394.03)Excess of liabilities over assets(excluding GST liability) $159,980.97(b) Particulars of FM3's assets and liabilitiesAssetsPrice of land and buildings sold to the Council(GST inclusive) $5,512,500.00LiabilitiesRegistered mortgages ($4,418,932.69)Debt to ILR ($2,086,743.00)Total liabilities ($6,505,675.60)Excess of liabilities over assets(excluding GST liability) ($1,605,675.69)(c) Particulars of PVIL's assets and liabilitiesAssetsPrice of land and buildings sold to the Council(GST inclusive) $4,500,000.00Unknown asset disposed of in May 2009(GST inclusive) $225,000.00Total assets $4,725,000.00LiabilitiesRegistered Mortgages ($3,065,632.36)Debt to ILR ($8,530,243.00)Total liabilities ($11,595,875.36)Excess of liabilities over assets(excluding GST liability) ($7,370,875.36)[20] Each of the sale and purchase agreements settled on 8 August 2008. The disputant in his capacity as managing director of each of the Companies, PVL and ILR made the decision to apply the net proceeds to pay the intercompany debts which had been assigned to ILR. He subsequently used those funds to pay certain debts of PVL and some of its subsidiaries.[21] Between 8 August 2008 and 14 August 2008 the total amount transferred from the Companies to the trust account (held by the Group's solicitors) for ILR was $3,246,547.70. Of that amount, the sum of $3,243,700 was subsequently paid (or transferred) from that trust account to the bank account of PVL or to an accountant, called in this decision Accounting Limited. These payments were made on the instructions of the disputant and are detailed below:(i) $2,562,700 was paid to the bank account of PVL This amount was applied to meet the operational costs of that company and other companies in the GST Group including $310,936.83 paid to the Commissioner on 8 August 2008 in settlement of the statutory demands dated 11 and 15 July 2008 referred to above.(ii) $626,000 was transferred into the bank account of Accounting Limited. Of that amount $320,000 was paid out to companies associated with the disputant. The balance of $306,000 was paid to a company associated with the disputant's partner and of that sum $235,935.60 was used to pay an outstanding GST liability owed by the partner's company.(iii) Finally $55,000 was transferred from the trust account for ILR to the trust account for another company associated with the disputant and then paid out to another law firm in part satisfaction of a mortgage guaranteed by the disputant.[22] On 23 October 2008 PVL (as assignor) and ILR (as assignee) entered into a deed titled "Agreement" signed by the disputant in his capacity as director of PVL and as director of ILR. The recitals provided:(a) The Assignor and Assignee entered into a Deed of Assignment of Debt dated 4 August 2008.(b) The Deed of Assignment of Debt recorded that the consideration for the assignment of the debts was for anominal sum of $1.00. The parties acknowledged that the true consideration for the assignment of debt was to be subsequently negotiated and finalised.(c) The Assignor and Assignee have agreed on the consideration and wish to record their agreement in writing.[23] The operative part of the Agreement stated:(a) The parties record their agreement that the consideration for the assignment of debt shall be $1,796,875.00.[24] After the net proceeds had been paid to ILR there were no remaining funds or assets left in the Companies to pay the GST liabilities. The GST returns for each of the Companies for the period ending 31 August 2008 which were required to have been provided on or before 28 September 2008 were received by Inland Revenue on 29 October 2008. The returns were signed in each case by the disputant. No agreements that resulted in the Companies having input credits in the relevant GST period were included.[25] In respect of the GST period ended 31 August 2008 the Companies had the following GST liabilities:(a) FM1 $679,534.30 plus use of money interest ("UOMI") and penalties;(b) FM3 $609,682.34 plus UOMI and penalties;(c) PVIL $490,352.48 plus UOMI and penalties The Companies each failed to comply with statutory demands served on them by the Commissioner in respect of these GST liabilities and in June 2010 the High Court made orders putting each of the Companies into liquidation.[26] The disputant was assessed as agent on 25 August 2009 and in November 2010 he was adjudicated bankrupt. The Commissioner has filed a proof of debt in the bankruptcy for the amount of the assessments. The Official Assignee has not admitted, rejected or quantified any of the claims as there are no funds available to meet any provable debts.[27] The present challenge proceedings were issued by the disputant in May 2011 some months after the disputant's bankruptcy.(Citations omitted)Counsel's submissions and my decision[17] As I have noted at para [10] above, the appellant in his Notice of Appeal of the TRA decision outlined 10 grounds in support of this appeal. Notwithstanding this, in his written and oral submissions on the hearing of this appeal before me, the appellant generally addressed only two broad issues. Essentially, these were first, the ground outlined in the Notice of Appeal at para (a) that the TRA had erred infinding that s 76 of the IA did not apply here because a challenge proceeding is not a proceeding to recover a debt in terms of that section and secondly, the broad ground outlined at para (f) and following that the TRA erred in finding that the transaction in question was an arrangement for the purposes of s 61 of the GST Act, such that s 61 was activated.[18] Despite this, in addition to dealing in this judgment with these specific grounds upon which I did hear argument from the appellant, for completeness, I will also address briefly each of the other stated grounds of appeal in the appellant'sNotice of Appeal.Issue (a) – whether s 76 IA 2006 applies?[19] In his submissions before me the appellant spent some time advancing the contention that the TRA erred in finding that s 76 of the IA did not apply because a challenge proceeding is not a proceeding to recover a debt in terms of that section, and therefore it follows that the TRA should not have heard the appeal without leave (which was not obtained) in the first place.[20] Section 76 of the IA provides:76 Effective Adjudication on Court Proceedings(1) On adjudication, all proceedings to recover any debt provable in the bankruptcy are halted.(2) However, on the application by any creditor or other person interested in the bankruptcy, the Court may allow proceedings that had already begun before the date of adjudication to continue on the terms and conditions that the Court thinks appropriate.[21] In his submissions before me the appellant pointed to what he said were the relevant facts relating to this issue:(a) The respondent issued the Disputed Assessments on 29 August 2009.(b) The appellant was adjudicated bankrupt on 29 November 2010 and issued the current proceedings in the TRA in May 2011.(c) If the appellant had not challenged the Disputed Assessments he would have been indebted to the respondent and if the respondent had not contested the challenge she would not have become a judgment creditor of the appellant.(d) The purpose of the respondent in contesting the challenges was essentially to obtain an order that the appellant was indebted to her and accordingly then to enable her to enforce the debt, a process which she undertakes with regard to many taxpayers on a regular basis.(e) The respondent filed a proof of debt with the Official Assignee but the Official Assignee had taken no steps in relation to it because she had already completed administration of the appellant's estate and it issaid determined that there was no possibility of recovering anything from the estate for the benefit of creditors.[22] Essentially, as I understand his submissions, the appellant argued that therespondent's contesting of his challenge to the disputed GST assessments was in reality directed specifically to "recovery of a debt" and this was caught by s 76(1) of the IA. Quantification of a debt, the appellant suggested, had to be a necessary and vital part of the debt recovery process. The appellant contended that in terms of the decision in Bradbury & Peebles & Ors v CIR & Ors,3 the challenge proceedings and their opposition should not have been brought without leave being given under s 76(2) of the IA, and no application for leave was made. The appellant says therefore that the respondent here is both proving for a debt and being a party to proceedings to recover the debt, without this leave being sought. Thus it is suggested the TRA should not have heard the challenge, because it could not have been satisfied that it was not an action to recover a debt.[23] The appellant maintains that, s 76(1) does apply here, thus halting the TRA proceeding. He says what should have happened in the present circumstances was something along the following lines. The respondent should have filed a proof of3 Bradbury & Peebles & Ors v CIR & Ors [2015] NZSC 80.debt claim with the Official Assignee for the GST amount on the appellant'sbankruptcy. Once this proof of debt had been filed by the respondent, the next appropriate step was simply for the Official Assignee to assess and undertake a valuation of the claim and that did not happen.[24] I now turn to address these arguments. In doing so, I need to say at the outset that the issue as to whether s 76 IA had the effect of halting the proceeding in this case in my view can be readily answered. Process issues over filing by the respondent of a proof of debt claim, as I see it, generally are irrelevant to the present enquiry. This enquiry relates to s 76 IA. It is clear that s 76 IA only halts proceedings to recover "any debt provable in the bankruptcy". I am satisfied that in all the circumstances here, this was not the nature of the proceeding which was before the TRA. Significantly, the challenge proceeding in question was one brought by the appellant himself. The respondent's role was simply one to providean opposition. And the proceeding itself was brought only to confirm whether the GST tax liability had been correctly assessed and quantified by the respondent. If the respondent was successful in opposing the challenge proceeding, and thus obtaining confirmation of the correctness of the assessment, then a separate proceeding would be required to enforce payment of what was then an undisputable tax debt that remained unpaid.[25] I am satisfied therefore that of its nature the challenge proceeding was not a debt-recovery one, and that therefore s 76(1) IA did not apply here. The TRA did not err on this aspect.Issues (b) and (c) – whether the TRA erred in finding that a contingent debt is owing, albeit payable in the future and in relying on s 109 TAA in hearing the challenge?[26] As best I can tell, although this constituted grounds in the appellant's Noticeof Appeal in support of this appeal, before me he did not advance submissions on this aspect either oral or written. Notwithstanding this I turn briefly to address this issue.[27] It does seem that the appellant's contention in this area is that his liability to pay GST as agent of the companies existed only as a contingent debt at the time he was adjudicated bankrupt on 29 November 2010.[28] The relevant findings of the TRA (at [38] and [39] of its judgment) are that assessments are valid until set aside by a Court of competent jurisdiction. I agree and note that this is supported by the policy that underpins s 109 of the TAA. That Act contemplates a tax debt being an actual debt despite a challenge to the underlying assessment being on foot.4[29] To suggest therefore that only a contingent debt had arisen at the time the appellant was adjudicated bankrupt in my view cannot be right.[30] In an earlier decision, the same approach adopted in Allen v Commissioner of Inland Revenue was taken when the Court of Appeal stated:5Oncean assessment has been madethat assessment will be treated asvalid until a Court rules otherwise. Until then it has at least a de facto operation, and cannot be treated as if non-existent[31] Section 138I(2) of the TAA does allow a taxpayer to defer payment of tax that is subject to a challenge, while s 138I(2)B provides that the Commissioner may require a disputant to pay all tax in dispute that is subject to a challenge if she considers there is a significant risk that it will not be paid if the challenge is unsuccessful. Clearly, if the assessed amount was not a debt it would not be possible for it to be collected.[32] Finally, I am satisfied that once tax is assessed it is presently owing, but if challenge proceedings are on foot it may not be presently payable.[33] For these reasons I find the TRA did not err in finding that a contingent debt is owing, albeit payable in the future, nor in relying on s 109 TAA here.4 Allen v Commissioner of Inland Revenue [2004] 21 NZTC 18,718 (CA) at [58].5 Golden Bay Cement Co v Commissioner of Inland Revenue [1996] 2 NZLR 665 (CA) at 671.Issue (d) – whether the TRA erred in finding that the challenge proceeding is"property" under s 101 IA 2006?[34] Again, as far as I could tell, the appellant chose to make no oral or written submissions to me with respect to this particular ground of appeal. Notwithstanding this, I will now briefly address this aspect.[35] Section 101 of the IA states in part:101 Status of bankrupt's property on adjudication(1) On adjudication –(a) All property (whether in or outside New Zealand) belonging to the bankrupt or vested in the bankrupt vests in the Assignee without the Assignee having to intervene or take any other step in relation to the property, and any rights of the bankrupt in the property are extinguished; and(b) The powers that the bankrupt could have exercised in, over, or in respect of any property (whether in oroutside New Zealand) for the bankrupt's own benefitvest in the Assignee.[36] In the TRA decision at [47] the Authority concluded that the rights in a taxchallenge come within the very broad concept of "property" within s 101 and pass tothe Official Assignee here on the appellant's bankruptcy.[37] On this aspect, it is clear that the term "property" is widely defined in s 3 of the IA to mean "property of every kind, whether tangible or intangible, real or personal, corporeal or incorporeal, and includes rights, interests, and claims of everykind in relation to property however they arise".[38] This definition is an expansive one and would include "things in action"which are legal property capable of being assigned. It would, as I see it, include causes of action and challenge rights.[39] The decisions in Case H85,6 Commissioner of Inland Revenue v Neal7 andRe Wilson8 would all seem to support the conclusion that the appellant's attack onthis assessment and the tax debt might well be seen as property vesting in the Official Assignee. That said, I tend to the view here that the TRA did not err in making its decision that the appellant's right to issue the challenge proceedingspassed to the Official Assignee on his bankruptcy pursuant to s 101(1) IA. But, in any event, given my conclusion on the other grounds of appeal here, no final decision needs to be made on that aspect.Issue (e) – was the question as to whether the Official Assignee consented to the issue of the tax challenge proceedings irrelevant?[40] Once again, this ground was not argued by the appellant in his written or oral submissions before me. But, in any event, I find that there is little in this ground.[41] The appellant in his Notice of Appeal seemed to contend that the TRA erred in finding that it was relevant in this case whether the Official Assignee had consented to the issue of the challenge proceedings.[42] In its decision at [52] the TRA found that the Official Assignee had not assigned or otherwise consented to the appellant commencing the challenge proceedings. Evidence to this effect was before the TRA.[43] But, in any event the TRA in its decision considered that the right to challenge vested in the Official Assignee, given that the appellant was an undischarged bankrupt, and that this right was not assigned to the appellant here.[44] Taking into account the provisions of s 101 of the IA which I have addressed under Issue (d) at paras [34] – [39] inclusive above, I am satisfied that the TRA was correct in concluding at [53] of its decision that the appellant had no standing to commence the challenge proceedings. Accordingly, on the basis of this conclusion as well, I would dismiss this appeal.6 Case H85 (1986) 8 NZTC 592,7 Commissioner of Inland Revenue v Neal HC Auckland B1719/97, 2 October 1998.8 Re Wilson HC Christchurch B348/89, 5 December 1989.Issue (f) – whether the TRA erred in finding that the transaction with ILR involved an"arrangement" within the meaning of s 61 of the GST Act?Issue (g) – whether the TRA erred in finding that an "arrangement" can consist ofone person?Issue (h) – whether the TRA erred in finding that an effect of any identified"arrangement" was to leave the companies unable to satisfy their GST liabilities?Issue (i) – whether the TRA erred in finding that it is reasonable to conclude that aneffect of any "arrangement" is that the companies could not meet their taxliabilities?Issue (j) – whether the TRA erred in finding that the admission recorded at [87] of its decision requires the conclusion that if the director of the companies at the time ofthe "arrangement" would have anticipated that the GST liabilities of $1.7 millionarising at the time of supply of the properties would, or would likely, be required to be met?[45] Written and oral submissions were advanced by the appellant in support of these broad grounds of his appeal which I will now address.[46] In this area by way of summary again, the TRA had determined that the appellant, as a director of each of the companies at the relevant time, had not satisfied the onus on him to establish that the Commissioner's assessment of him asthe agent of each company in relation to their GST liability was wrong.[47] This draws on s 61 of the GST Act which specifically incorporated s HD15 of the Income Tax Act 2007 which has four effective requirements for s 61 to apply:(a) An arrangement needs to have been entered into in relation to a company.(b) An effect of the arrangement is that the company cannot meet a tax liability (either an existing liability or one that arises later).(c) It is reasonable to conclude that:(i) A purpose of the arrangement is that the company cannot meet a tax liability; and(ii) If a director of the company at the time of the arrangement made reasonable enquiries, they could have anticipated at the time that the tax liability would, or would likely, be required to be met.[48] There are certain defences outlined in s HD15(3), but here the appellant does not contend that he comes within any of the specific statutory exceptions.First requirement – was an "arrangement" entered into?[49] In this area, the appellant contends that the arrangements, represented by the companies entering into the debts which were repaid on sale of the properties to the Council, did not have the effect required by s HD15 because:(a) The companies received full consideration for the debts and/or because there were at that time no taxable activities in contemplation that could give rise to unpaid GST (un-impugned debt obligations).(b) The debts pre-dated any "arrangements" that the Commissioner couldrely on, and were enforceable when such "arrangements", if theyexisted, were not.(c) By paying the debts the companies discharged the un-impugned debt obligations.(d) Whether any later "arrangements" existed, they did not have the "effect" of discharging the un-impugned debt obligations; only payments on account of the debts could have done that.[50] In addition, the appellant argued before me that the pre-existing right to demand payment of these debts was not altered by the fact that subsequent securities were taken (or attempted to be taken) which ultimately proved not to be enforceable here. Nor, he contends, do matters change by the assignment of those debts to ILR. He says first, there was a pre-existing obligation on the companies to pay the debts,and secondly, that the companies owed the debts to whoever was entitled to demand them and, in particular, assignment did not prejudice the respondent's position here.[51] And, before me the appellant suggested it was irrelevant in this case whether one person can have an arrangement with themselves because, whoever the alleged arrangement was between, it could not have the effect required by s HD15 in the circumstances prevailing in this case.[52] Finally, the appellant contended that Parliament has provided the respondent with a remedy in a case such as this where insolvent companies pay on demand debts for which full consideration had been given, and where these debts had arisen before any GST liability existed. This remedy, it is said, is the same as for other creditors. Here the appellant says the respondent should have placed the companies in liquidation and then the liquidator could, if possible, have sought to avoid what were said to be preferential transactions. The appellant noted that the liquidation provisions of the Companies Act 1993 ensure that no creditor, including the respondent, can claim assets other than pari passu in the general pool.[53] On these aspects relating to s 61 the TRA appeared to make the following findings:(a) At [74] the TRA stated:...[the appellant] is director and consequently the controlling mind of all the relevant companies involved in the various transactions making up the Arrangement. In my view the transactions were closely connected; they all occurred over a relatively short period and formed part of an overall plan. [The appellant] played an active role in the implementation of the various transactions. In these circumstances I am satisfied for the purposes of s 61 that an arrangement was entered into involving each of the companies and consisting of the transactions collectively referred to as the Arrangement.(b) At [66] and [67] the TRA rejected the appellant's contentions that thepre-existing debt to ILR was owed before any arrangement was entered into, as the debt only arose after it had been assigned to ILR as part of the arrangement.(c) At [72] and [73] the TRA rejected the appellant's contention thatwhere only one party is involved in the decision-making there cannot be an arrangement, as there is clear authority to the contrary.(d) At [79] that the effect of the arrangement was that the companies could not meet their GST liabilities because, although the sale converted the assets from one form to another, the TRA alsoconcluded that the "sale proceeds were then stripped from the companies under the Arrangement".(e) At [85] the TRA found that the only reasonable conclusion, viewed objectively, one could reach was that an effect of the arrangement was that the companies could not meet their tax liabilities. The companies were insolvent. The arrangement, involving the payment of the sale proceeds to ILR, left the companies with no assets and no ability to pay their GST liabilities.(f) And at [87] it was reasonable to conclude on an objective test that, at the time the arrangement was entered into, if the appellant had made enquiries he could have anticipated the GST liability of $1.7 million.[54] In addressing all of these matters I turn to consider the question needed to satisfy the first requirement: Was an "arrangement" entered into?[55] On this I find without hesitation that the TRA was correct to determine that there was an arrangement entered into here, an arrangement which included the following steps:(a) The appellant arranging for the companies to enter into the agreements to sell the properties to the Council on 1 August 2008 and completing those sales.(b) The incorporation on 1 August 2008 of ILR, a company of no apparent substance at all, which some seven days later on 8 August 2008 received and then paid out some $1.7 million.(c) Restructuring of the companies by transferring their shares on 4 August 2008, assigning the relevant debts, and extending the unregistered mortgages and registered general securities to ILR.(d) Applying on 31 July 2008 to remove the relevant companies from the PVL GST group.(e) Paying the net sale proceeds to ILR following settlement of the sales.(f) Paying certain amounts to ILR in accordance with payment authorities signed by the appellant.(g) Paying the sale proceeds from ILR to PVL.(h) Using the funds transferred to PVL to pay debts owing by PVL and its subsidiaries.[56] From Ben Nevis Forestry Ventures Limited v Commissioner of Inland Revenue9 it is clear that an arrangement can be found in individual steps or a combination of steps such that an arrangement is not limited to a single document or transaction. An arrangement does require some prior plans linking or sequencing matters, which I am satisfied occurred here.[57] In this case the appellant appears to contend that no arrangement existed either because:(a) The transfer of assets satisfied pre-existing debts; or(b) The appellant unilaterally chose to pay ILR.9 Ben Nevis Forestry Ventures Limited v Commissioner of Inland Revenue [2008] NZSC 115; [2009] 2 NZLR 289.[58] The TRA did not accept these arguments and I agree with the respondent that it was right to reach this conclusion.[59] All of the transactions I have noted above were sufficiently connected, in my view, to form an arrangement entered into in relation to each of the companies. The timing of the steps taken here was significant, all of the transactions happened within a relatively short period of time, they were not carried out in isolation, and I have no doubt they were all steps taken as part of an overall plan to strip the companies of funds with the precise effect of rendering them unable to meet their tax liabilities.[60] I am satisfied the TRA correctly determined that, in making the findings it did, an arrangement in terms of s 61 of the GST Act existed here.Second requirement – was it an effect of the arrangement that each company cannot meet a tax liability?[61] Under s 61 of the GST Act an effect of the arrangement must be that the company in question cannot meet a tax liability (either an existing liability or one that arises later).[62] In this case the sale to the Council of the properties concerned converted the assets of the companies from land and buildings to cash. There can be no doubt that the net sale proceeds were then stripped from the companies under the arrangement and following the various transactions and steps that were taken, the companies were unable to satisfy their GST debts. I am left in no doubt that this was the end result of the arrangement. It is what the arrangement achieved irrespective of any motive otherwise which the appellant maintains he had. It was the effect of the arrangement and it must follow therefore that the TRA was correct to find that the second requirement under s 61 is satisfied.Third requirement – is it reasonable to conclude that a purpose of the arrangement is that a company cannot meet a tax liability?[63] This third requirement is that it must be reasonable to conclude that in a case such as this, a purpose of the arrangement is that the company in question cannot meet a tax liability (either an existing liability or one that arises later).[64] Here the determination of a purpose of an arrangement requires an objective examination. In deciding what the purpose or purposes of an arrangement are it is necessary to consider what it achieved, that is the end result. It must then be considered whether that was one of the things the arrangement was designed to achieve.[65] I am satisfied that if any purpose of the arrangement was to have the effect of stripping assets from the company, so that they were unable to satisfy their liabilities to creditors (of which their tax liability is one), then that is a sufficient purpose for this requirement to be met. It is not necessary that the purpose is the dominant or principal purpose.[66] Here, the companies were insolvent at the relevant time. They could not pay both the GST and their other unsecured creditor, ILR. That part of the arrangement that involved disbursing the net sale proceeds to ILR (and subsequently to PVL and then its creditors and the creditors of its subsidiaries) left the companies with no assets. This resulted in them being unable to pay their GST liabilities. Irrespective of the stated motive of the appellant, objectively that was the outcome of the arrangement, and that was the end result the arrangement was designed to achieve. It must be accepted therefore that it was a purpose of that part of the arrangement. It is reasonable to conclude therefore that an objective purpose of the arrangement was to have the effect that the companies could not meet their GST liabilities.[67] Effectively here, the companies were insolvent at the time and it cannot be right that they can enter into arrangements as a result of which they receive windfall amounts they would otherwise not be entitled to and then use such amounts for their own purposes without paying their tax liabilities.[68] Based on all the circumstances prevailing in this case I am satisfied that the TRA was correct to find objectively that it was a purpose of the arrangements put in place by the appellant that each company here transacted so that the effect would be that the company in question could not meet their GST liability.[69] Plainly the end in view was something that defeated the intention and application of the GST Act. In my judgment it simply cannot be said, as the appellant has tried to suggest, that looked at objectively, the only purpose of each arrangement was to keep the proceeds out of the hands of the receivers of PVL. Paying the GST liability to the respondent, before paying away the amounts to ILR and PVL, would have achieved that same result.[70] I find that the TRA was correct to find that the third requirement of s 61 noted at para [47](c)(i) above was satisfied here.Fourth requirement – is it reasonable to conclude that if a director made reasonable enquiries they could have anticipated the GST liabilities would, or would likely, be required to be met?[71] This fourth requirement is quickly disposed of.[72] In the agreed statement of facts in this case at para 39, the appellant has admitted that he:anticipated at the time that the agreements for sale and purchase of real property involving FM 1, FM 3, and PVIL were entered into that 12.5% GST was required to be added to the agreed purchase price and that any input credits available to the companies would be substantially less than the outputs required to be returned.[73] Again the test here is an objective one. From the appellant's admission notedat [72] above, there can be no doubt that, at the time of the arrangement, he had presumably made reasonable enquiries, and anticipated that GST liabilities of around $1.7 million arising at the time of supply of the properties under the sales to the Council would be required to be met.[74] This fourth requirement is clearly met.Conclusion[75] It will be apparent from the above that I reach the clear finding in this case that the appellant has been unable to establish that the TRA erred in its decision of27 November 2015 such that this appeal should be granted. There is ample support in my view for the findings the TRA made.[76] Accordingly this appeal is dismissed.[77] As to costs, before me the respondent sought costs on a category 2B basis. In this case, I see no reason why costs should not follow the event in the normal way.[78] Costs on this appeal are therefore awarded to the respondent against the appellant on a category 2B basis together with disbursements as approved by the Registrar....................................................Gendall JSolicitors:Crown Law, WellingtonCopy to Mr Henderson