FORTUNE TECHNOLOGY CORPORATION LIMITED v THE COMMISSIONER OF INLAND REVENUE [2016] NZHC 2489

FORTUNE TECHNOLOGY CORPORATION LIM ITED v THE COMM ISSIONER OF INLAND REVENUE [2016] NZHC 2489 [18 October 2016]IN THE HIGH COURT OF NEW ZEALANDHAMILTON REGISTRYCIV-2016-419-119[2016] NZHC 2489UNDER The Companies Act 1993BETWEEN FORTUNE TECHNOLOGYCORPORATION LIMITEDApplicantAND THE COMMISSIONER OF INLANDREVENUERespondentHearing: 18 October 2016Appearances: Mrs Scott for defendant/applicantMs Marama for plaintiff/ respondent(by telephone link)Judgment: 18 October 2016JUDGMENT OF ASSOCIATE JUDGE J P DOOGUEThis judgment was delivered by me on18.10.16 at 5 pm, pursuant toRule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate[1] The defendant has filed an application for stay of advertising of a liquidation proceeding which the plaintiff has brought against it. The application is made pursuant to r 31.11 of the High Court Rules and the inherent jurisdiction of the Court.[2] The application has been made in circumstances of urgency and for that reason I agreed to hear the parties by telephone at 11.45 a.m. this morning.[3] The documentation before the Court was scant. The papers which the defendant provided to the Court were limited to the application for stay of advertising and a memorandum by counsel for the defendant. After the matter was referred to me I directed that such documents as were on the Court file were to be served on the plaintiff. As a consequence of this being done, the plaintiff filed a memorandum by her counsel, Ms Marama.[4] No affidavit has been filed on either side. Counsel however agreed the major important aspects of the factual position.Background[5] The background is that the proceeding for winding up was filed in April ofthis year. Mrs Scott's predecessor as counsel (who was from a different law firm)filed an application for orders staying liquidation and advertising. The Commissioner having indicated that such an application would be opposed, a fixture was sought and allocated. Prior to the matter being reached, though, then counsel for the defendant informed the plaintiff that it would not be proceeding with that application. Thereafter the proceeding was called again in one or more liquidation lists. It is currently scheduled to be heard in the liquidation list on 31 October 2016.[6] The circumstance of urgency that arises is that the Commissioner must advise the publishers of the Gazette by 11 a.m. tomorrow if it decides to withdraw the advertisement of the proceeding. Further, it must advise the publishers of the Waikato Times, which has also been instructed to advertise the proceedings, by 5p.m. tomorrow night. Unless advertising is completed the proceeding will not be able to go ahead on 31 October 2016 and will be deferred for another month until the list on 28 November 2016.[7] The defendant says through counsel that it has been attempting to obtain funds with which to meet the obligation to the Inland Revenue. On 14 October adirector of the defendant and the company accountant met with the Commissioner 'sofficers in an effort to come to a settlement but were unsuccessful.[8] Mrs Scott has today advised in her memorandum and confirmed in her oral submissions that the proposal to pay the Commissioner is to be funded by the sale of a commercial building in Tauranga which the defendant occupies. The building is not owned by the defendant but by a trust associated with a director of the company. As well, that trust is prepared to make an application to a bank in order to raise funds from that source to meet the balance of the amount outstanding.[9] Mrs Scott said that the agreement for sale and purchase in regard to the building which is to be sold only became conditional last Friday, 14 October. Neither the agreement nor any correspondence evidencing that it has become unconditional have been provided to the Commissioner.[10] There was no evidence before the Court as to the extent of the indebtedness to the Commissioner. Ms Marama made reference to a summary of the current position of the company supplied by the Commissioner. Ms Marama told me that the amount which is owed is $809,500. While Mrs Scott was prepared to accept that the defendant owes a substantial debt to the Commissioner she was unable to confirm whether her client accepted that figure of $809,500. In a discussion with Mrs Scott on this point I mentioned that it appeared that summaries of theCommissioner's accounts are typically the type of information which counsel appearing for the Commissioner in liquidation courts bases counsel's certificate ofindebtedness on. In the absence of any evidence to the contrary or any evidence that there is a substantial dispute about the amounts I will accept for the purposes of this decision that the amount owing is in fact approximately $809,500.[11] The Commissioner, as I will shortly mention, is not confident that the sale of the building and the related arrangements will in fact eventuate or that there will be sufficient funds made available to clear the indebtedness owed to her.[12] In that regard, Mrs Scott advised that the gross amount of the sale price of the commercial building in Tauranga is $750,000 with $50,000 deposit having been received and being held by the vendor. However Mrs Scott did not have any information about what if any secured indebtedness there might be over the building.[13] Ms Marama for the Commissioner told me that there should be no order made restraining the Commissioner. She pointed out that the company has had some six months to attempt to meet its liability. She said that the Commissioner is also concerned that the level of indebtedness is mounting monthly. She said, for example, that the PAYE liability for August of $16,500 had not been meet. I should acknowledge, though, that Mrs Scott says that payment of this amount is about to be attended to. Ms Marama said that even if that is so, the latest PAYE return has not been filed and therefore, as I understand her contention, it is unlikely that it will be paid on time and it will add to the arrears already owing. Ms Marama says that the statement of accounts prepared by the Commissioner shows that GST has not been paid and there are substantial amounts of interest accruing on two monthly GST debts that are becoming outstanding. The Commissioner regards the defendant as posing a significant risk to the Commissioner, Ms Marama told me.[14] Obviously having regard to the level of indebtedness outstanding and the rate at which it is accruing that contention on behalf of the Commissioner is likely to be correct. Ms Marama said that the Commissioner does not want to see another month go by without the liquidation order being made and that will be the result if the advertising has to be postponed this month. The proceeding will not then be reached until 28 November 2016.[15] Mrs Scott in her brief reply said that the arrangements which were now in train had come up very much at the last minute and that there had not been an opportunity to provide the Commissioner with documentation of the transactions. She further said that the transactions and borrowing arrangements which thecompany was putting forward were the best chance for the Commissioner to get paid out and she might not otherwise receive payment of the debt.[16] The inherent jurisdiction and the power to stay that arises under r 31.11 is designed to prevent an abuse of process. Such an abuse of process would arise in cases where winding up proceedings are taken in circumstances where the debt is the subject of genuine dispute. The governing consideration is whether the proceedings suggest unfairness or undue pressure. Further it is a serious matter to stay winding up proceedings so the decision is never made lightly. The onus is on the applicant and is normally to demonstrate something more than balance of convenience considerations which are usually considered on an application for an interim injunction. The foregoing principles are found in the judgment of Wallace J inNemisis Holdings Limited v North Harbour Industrial Holdings Limited. 1 Mrs Scott did not, as I have noted, contend that the defendant was substantially indebted although she was not prepared to accept the exact figure which the Commissioner put forward. However it is clear that the company owes a debt which it cannot dispute because it arises under decisions which the Commissioner had made: See section 109 of the Tax Administration Act 1994. Given that there is such a debt, it cannot be said that the liquidation proceedings represent an abuse of process.[17] Essentially the position for the defendant is the not uncommon one that defendants in liquidation proceedings take namely that it would be better for the creditor to accept the proposed compromise offer rather than proceeding to a liquidation hearing. In my view that is not a proper ground upon which the Court can exercise its jurisdiction to stay the proceedings. The Commissioner has a right to bring liquidation proceedings and similarly the question of whether acceptance of a compromise offer is or is not a preferable outcome is entirely a matter for the Commissioner to determine and not for the Court. These considerations are enough to dispose of the application. I do not consider that other matters such as hard ship to the company which could be relevant to the question of any discretion to stay do in fact require consideration because the company has not made out an entitlement to a1 Nemisis Holdings Limited v North Harbour Industrial Holdings Limited (1989) 1 PRNS 379 at 385. (See also commentary in McGechan 2 HCR 31.11)stay order on discretionary grounds. For those reasons the application is dismissed and costs are reserved._____________J.P. DoogueAssociate Judge