PALLADIUM PROPERTIES LTD & ORS V COMMISSIONER OF INLAND REVENUE HC AK CIV 2006-404-006942

PALLADIUM PROPERTIES LTD & ORS V COMMISSIONER OF INLAND REVENUE HC AK CIV 2006- 404-006942 20 June 2007IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2006-404-006942IN THE MATTER OF section 290 and the Companies Act 1993 BETWEEN PALLADIUM PROPERTIES LIMITED, KEEL INVESTMENTS LIMITED AND DENNING PROPERTIES LIMITED Applicants AND COMMISSIONER OF INLAND REVENUE Respondent Hearing: 20 June 2007 Counsel: M Black for applicants J Ridling for respondent Judgment: 20 June 2007 at 17:00JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application to set aside statutory demand]Solicitors: Nielsen Law, PO Box 1108, Waikato Mail Centre for applicants Inland Revenue Department, PO Box 76 198, Manukau for respondent[1] Mr John Williams is the sole director and shareholder of the three applicant companies. The applicants apply to set aside statutory demands issue by the Commissioner of Inland Revenue in respect of alleged non-payment of GST and income tax. The applicant companies are involved in property development. That is there taxable activity. [2] The three statutory demands are dated 27 October 2006. They were served on the applicants on 1 November 2006. [3] The applications are made in reliance on s 290(4) of the Companies Act 1993. The principal ground relied upon by Mr Black in his submissions is that specified in s 290(4)(a). That provides:(4) The Court may grant an application to set aside a statutory demand if it is satisfied that— (a) There is a substantial dispute whether or not the debt is owing or is due;[4] The approach that the Court adopts to an application which relies on s 290(4)(a) of the Companies Act 1993 can be shortly stated. The Court is required to determine whether there is a substantial dispute whether or not the debt is owing or is due. The applicant must show a fairly arguable basis upon which it is not liable for the amount claimed. Forge Holdings Ltd v Kearney Finance (NZ) LimitedHC CHCH M 149/95 20 June 1995 at 2 and Queen City Residential Limited v Patterson Co-Partners Architects (No 2) [1995] 3 NZLR 307 (7 NZCLC) 260,936. That formulation was approved by the Court of Appeal in United Homes (1988) Ltd v Workman [2001] 3 NZLR 447 at 451-2. Once that position is reached the statutory demand should be set aside and the dispute is then disposed of, if necessary, by other proceedings in the ordinary way. [5] Out of an abundance of caution, I refer to s 290(4)(c) of the Companies Act 1993. That provides that the Court may grant an application to set aside a statutory demand if it is satisfied that the demand ought to be set aside on other grounds.[6] With respect to the Court's power to set aside a statutory demand under s 290(4)(c) the Court of Appeal examined this question in Commissioner of Inland Revenue v Chester Trustee Services Ltd [2003] 1 NZLR 395. At 397 Tipping J said:If the focus is on the justice of the particular case the discretion must always be exercised on a principled basis and not on some ad hoc perception of what individual justice might require. All cases involving s 290(4)(c) must in the end come down to a judgment by the Court as to whether the creditor's prima facie entitlement is outweighed by some factor or factors making it plainly unjust for liquidation to ensue.[7] No issue is taken with the timeliness of the applications.Palladium Properties Limited[8] The statutory demands served in respect of Palladium Properties Limited provides:THE COMMISSIONER OF INLAND REVENUE at Wellington HEREBY DEMANDS from you payment in the sum of ONE MILLION TWO HUNDRED AND EIGHTY THOUSAND, NINE HUNDRED AND FORTY FIVE DOLLARS AND THIRTY ONE CENTS ($1,280,945.31) being moneys due by you in your capacity as trustee of the Palladium Properties Trust for Goods and Services Tax ("GST") due by the Palladium Trust, particulars of which are set out in the attached Statement of Account.[9] The respondent accepts that Palladium Properties Limited has filed a notice of proposed adjustment ("NOPA"). The respondent has filed a notice in response ("NOR"). The respondent therefore accepts that the amount demanded from Palladium Properties Limited is still in the disputes process as defined by Part VIII of the Tax Administration Act 1994. The respondent no longer opposes the setting aside of the statutory demand which was served on Palladium Properties Limited. An order to that effect will be made at the conclusion of this judgment.Keel Investments Limited[10] The statutory demand served in respect of Keel Investments Limited provides:THE COMMISSIONER OF INLAND REVENUE at Wellington HEREBY DEMANDS from you payment in the sum of FIVE HUNDRED AND EIGHTY -NINE THOUSAND, THREE HUNDRED AND THIRTEEN DOLLARS AND FIXTY-SEVEN CENTS ($589,313.57) being moneys due by you in your capacity as trustee of the Art Trust for Goods and Services Tax ("GST") due by the Art Trust, particulars of which are set out in the attached Statement of Account.[11] The Commissioner of Inland Revenue now acknowledges that the debt for GST owing by this taxpayer for the period covered by the statutory demand and ending 28 February 2007 is $160,421.17. [12] Mr RC Hutchinson, the chartered accountant and senior manager in respect of taxation services at BDO Spicers has sworn two affidavits on behalf of the applicant in support. He has confirmed his knowledge of the matters involved in relation to the applicant's taxation affairs. He has confirmed that the basis for the amendments to this company's 28 February 2002 GST return assessment was agreed with the Commissioner of Inland Revenue. He further acknowledges that, because of that agreement, the Commissioner did not need to issue an NOPA before issuing the amended assessment pursuant to the provisions of s 89C(c) of the Tax Administration Act 1994. [13] What is in dispute, however, is the due date for payment and the consequence in terms of the balance of the amount due and owing. Mr Ridling quite properly acknowledged that is a genuine dispute and should not be resolved in this statutory demand application. [14] The conclusion that I draw from the above position is that the sum of $160,421.17 is a sum currently due and payable about which there is no dispute. Accordingly, to that extent, the statutory demand served on Keel Investments Limited in respect of the sum of $160,421.17 must not be set aside.Denning Properties Limited[15] The statutory demand served in respect of Denning Properties Limited provides:THE COMMISSIONER OF INLAND REVENUE at Wellington HEREBY DEMANDS from you payment in the sum of TWO MILLION, FIVE HUNDRED AND FIFTY -FOUR THOUSAND, THREE HUNDRED AND FORTY-FOUR DOLLARS AND NINETY -EIGHT CENTS ($2,554,344.98) being moneys due by you in your capacity as trustee of the Denning Trust for Goods and Services Tax ("GST") and Income Tax ("INC") due by the Denning Trust, particulars of which are set out in the attached Statement of Account.[16] The amount demanded of $2,544,344.98 can be broken into two separate components. $1,993,660.44 relates to GST plus penalties and interest. $560,684.54 relates to default assessments of income tax for the tax year ended 31 March 2004. [17] The Commissioner confirms that since the issuing of the statutory demand the assessment of income tax for the tax year ended 31 March 2004 has been reversed. The result is that the amount claimed in the statutory demand for income tax is no longer outstanding. [18] The remaining balance relates to outstanding GST payments for the GST periods ending 30 September 2003 and 31 January 2004. [19] Correspondence entered into between the Commissioner of Inland Revenue and the tax agents for the company discloses an acknowledgement that the GST owing for the period ending 30 September 2003 is $817,899.57 and for the period ending 31 March 2004 is $412,799.15. Accordingly, the amount which is undisputed in respect of the statutory demand issued to this company is $1,230,692.72. [20] What now remains is the position in relation to the sum claimed for late penalties and interest. Liability for same may ultimately only be resolved when the issue as to whether a new date for payment should be set for the actual GST which is owing. There is no need for me to investigate that matter further in this judgmentbecause Mr Ridling acknowledged that that portion of the debt was the subject of a dispute and should not therefore properly be determined in this application. [21] Because the undisputed portions of the demands in respect of Keel Investments Limited and Denning Properties Limited now arise from acknowledgements in the documents placed before me, Mr Black did not advance any basis upon which I could found a serious dispute under s 290(4)(a) of the Companies Act 1993 in respect of those sums. In my view, the stance he adopted is entirely proper having regard to the material that was placed before me.Conclusions[22] I have already made reference to the fact that the statutory demand in relation to Palladium Properties Limited is the subject of a dispute and accordingly must therefore be set aside. [23] In respect of Keel Investments Limited, the conclusion that I have reached is that there is no dispute as to a portion of the amount demanded, that is, $160,421.17. [24] In respect of Denning Properties Limited, the conclusion I have reached is that there is no dispute as to that portion of the amount demanded in the sum of $1,230,692.72. [25] Section 290(5) provides that a demand must not be set aside by reason only of a defect or irregularity unless the Court considers that substantial injustice would be caused if it were not set aside. Section 290(6) provides that a defect includes a material misstatement of the amount due to the creditor. It has not been suggested to me that there would be any substantial injustice by my not setting aside both statutory demands in respect of the undisputed portions of the claims made. When that position arises a debtor company has the responsibility for paying the debt which is found to be due. A creditor will be justified in bringing an application for the company's liquidation if the debt remains unpaid: re Hart Systems Ltd (1986) 3 NZCLC 99,504 and Datasouth Holdings Ltd v Melco Sales (NZ) Ltd HC CHCH M41-96 17 May 1996 Master Venning.[26] Section 291 sets out the additional powers which a Court may exercise in relation to an application to set aside a statutory demand. In my view, the power given by s 291(1)(a) is applicable in this case. In short, the appropriate order is that unless the undisputed portions of the debts are paid within fifteen working days, as that term is defined in the Companies Act 1993, the respondent may make application to put the defaulting company into liquidation. I intend, therefore, to exercise the power vested in me to make an order in those terms.Orders[27] I order as follows: a) The statutory demand dated 27 October 2006 and served on Palladium Properties Limited on 1 November 2006 is set aside; b) In respect of the application to set aside the statutory demand issued to Keel Investments Limited, the statutory demand is set aside except for the sum of $160,421.17. If $160,421.17 is not paid by Keel Investments Limited within fifteen working days of the date of this judgment, as that term is defined in the Companies Act 1993, the respondent may make application to put Keel Investments Limited into liquidation; c) In respect of the application to set aside the statutory demand issued to Denning Properties Limited, the statutory demand is set aside except for the sum of $1,230,692.72. If $1,230,692.72 is not paid by Denning Properties Limited within fifteen working days of the date of this judgment, as that term is defined in the Companies Act 1993, the respondent may make application to put Denning Properties Limited into liquidation.Costs[28] One application has been filed in respect of the three companies. The three companies are, in a sense, linked by virtue of the fact that their sole director and shareholder is Mr Williams. The issues were similar in each statutory demand. The combined applicants' position has had similar success to that which has been achieved in opposing the applications by the respondent. I apprehend, having considered the papers, that the time spent in preparing the material in support would not be greatly different from that which was spent in preparing the opposition. When these factors are taken into account and when I apply, particularly the guidance given by the Court of Appeal in Packing In Ltd (in liquidation) v Chilcott16 PRNZ 869, I conclude that there should be no order for costs. That has the effect that costs lie where they fall. [29] Accordingly, no order for costs is made. _____________________ JA Faire Associate Judge