SHANE WARNER BUILDERS LTD v COMMISSIONER OF INLAND REVENUE [2018] NZHC 1654

SHANE WARNER BUILDERS LTD v COMMISSIONER OF INLAND REVENUE [2018] NZHC 1654 [5 July2018]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYI TE KŌTI MATUA O AOTEAROAŌTAUTAHI ROHECIV-2018-409-000263[2018] NZHC 1654BETWEEN SHANE WARNER BUILDERS LIMITEDApplicantAND COMMISSIONER OF INLANDREVENUERespondentHearing: 6 June 2018Appearances: R A Hearn for the ApplicantK I S Naik-Leong and Ms Patterson for the RespondentJudgment: 5 July 2018JUDGMENT OF NATION J[1] At 25 April 2018, Shane Warner Builders Ltd (the applicant) had tax arrears of$105,679.35. Since 2012, the applicant had regularly been unable to pay GST andPAYE when they were due. Approximately $106,000 of outstanding tax was writtenoff in 2015 and 2016 by the Commissioner.[2] On 31 January 2018, the Commissioner filed an application for theappointment of a liquidator. The applicant has taken no steps to oppose thatapplication.[3] In separate judicial review proceedings, the applicant sought declarations thatthe Commissioner erred in law and acted unreasonably by refusing to accept theapplicant's proposals for payment of the outstanding tax over time, thereby decliningits application for financial relief. Through an interlocutory application, the applicantseeks a stay of the liquidation proceedings until final disposition of the judicial reviewproceedings.[4] The applicant says that, if it is liquidated, it will be impossible to continue withthe judicial review proceedings and those proceedings will be rendered worthless.[5] The Commissioner opposes the application. He says the applicant is aninsolvent company, has no defence to the liquidation proceedings, has no reasonableprospect of succeeding in the judicial review proceedings and has no position topreserve.Legal principles[6] Section 15 Judicial Review Procedure Act 2016 provides that, where therespondent is the Crown, a court may, where "it is necessary to do so to preserve theposition of the applicant", make an interim order declaring that the Crown ought notto take any further action that is consequential on the exercise of a statutory power orinstitute or continue with any civil proceedings in connection with any matter to whichthe judicial review application relates.1[7] In Carlton and United Breweries Ltd v Minister of Customs, the Court ofAppeal held, in relation to the earlier s 8 Judicature Amendment Act 1972, theprospects of success in the review proceedings should be better than that there is aserious question to be tried, although it was not necessary to show there was a primafacie case.2 The Court must be satisfied that an order is reasonably necessary topreserve the applicant's position. Only if that condition is satisfied is it necessary forthe Court to consider whether it should exercise its wide discretion to make the orderssought.3[8] Pursuant to the Act, it must be necessary to preserve the applicant's positionbefore any of the discretionary factors may be taken into account. The Commissioner1 Judicial Review Procedure Act 2016, s 15(3)(b).2 Carlton & United Breweries Ltd v Minister of Customs [1986] 1 NZLR 429 (CA).3 Those principles were confirmed by the Supreme Court in Minister of Fisheries v Anton's TrawlingCo Ltd [2007] NZSC 101, (2007) 18 PRNZ 754.contends the applicant has no position to preserve because it is insolvent and it hastaken no steps to defend the liquidation application.[9] There is no dispute that the applicant has been unable to pay its GST and PAYEwhen they were due since 2012. The third statutory demand on which the currentliquidation application is based was for $64,584.97 for GST and PAYE. Liability forthat sum is not in dispute.[10] The applicant says that the position it seeks is to preserve its right to have itsapplication for financial relief considered fairly and in terms of the Tax AdministrationAct 1994 (TAA). The applicant accepts that the relief it seeks in the judicial reviewproceedings would not result in the debt being written off or the assessments altered.Rather, it says its application for financial relief, under s 177 TAA, would likely beaccepted if considered in accordance with the law, with the result that its tax debtsmight be paid by instalments rather than immediately.[11] The applicant acknowledges that, technically, a liquidator would be able topursue the company's substantive judicial review application.4 Nevertheless, it saysit is inherently unlikely he/she would do so and irreparable damage to the companywould be likely if a liquidator is appointed.[12] Mr Hearn, for the applicant, referred to the judgment of Andrews J in BerrytimeLand Ltd v Commissioner of Inland Revenue as providing support for argument that,while it might be technically possible for a liquidator to continue judicial reviewproceedings, interim orders might be necessary to preserve the company's position.5Andrews J however then went on to say it was necessary to consider what that"position is". This required consideration of the judicial review proceedingsthemselves and the statutory framework within which they had been brought. Shethen went on to consider the strengths and weaknesses of the company's claim forjudicial review. She concluded that the company's case for establishing exceptionalcircumstances for judicial review proceedings could only be described as weak. Shedeclined the application for interim orders under s 8 Judicature Amendment Act 1972.4 Companies Act 1993, s 260(2).5 Berrytime Land Ltd v Commissioner of Inland Revenue (2009) 24 NZTC 23,453 (HC).[13] To meet the threshold on the basis the applicant contends, the applicant musttherefore establish it has not already had an opportunity to have its proposalsconsidered fairly and, through the judicial review proceedings, there is a realpossibility the Commissioner would be directed to consider the proposals afresh.Background[14] Ms O'Keeffe, a Customs Service Officer employed by the Commissioner, fileda detailed affidavit of 15 May 2018 recounting the Commissioner's dealings with theapplicant since 2012.[15] Mr Warner is the sole shareholder of the company. The company was requiredto file GST returns on a two-monthly basis, accounting for GST on a payments basis.PAYE employer schedules and employer deductions forms were to be filed monthly,with payments due by the 20th of the following month.[16] The company was first notified of overdue GST on 23 March 2012. By 13 July2012, the company's arrears for GST and PAYE were $3,507.46. Between 6 August2012 and September 2013, the applicant's GST and PAYE arrears increased to$39,108.59.[17] On 12 September 2013, Mr Warner agreed to pay $1,000 per month for arrears.Because of defaults with those payments, the Commissioner cancelled this instalmentarrangement. By early February 2014, with penalties and interest, arrears totalled$48,196.34.[18] The Commissioner issued a s 157 deduction notice requiring payments to bemade from the applicant's bank account. On 20 February 2014, Mr Warner advisedthe Commissioner he was approaching the bank for a loan. The Commissioner agreedto cancel the s 157 deduction notice. The Commissioner also agreed that no penaltieswould be imposed for a period. There continued to be defaults.[19] On 14 August 2014, Mr Warner was advised that arrears stood at $85,489.14.He was told that, if this sum was not paid in full, recovery action would be takenthrough legal proceedings.[20] In October 2014, the case officer expressed to Mr Warner the seriousness offailure to account and that employer deductions are held in trust whereby they cannotbe used for cash flow. The case officer said they were considering the possibility ofprosecution. Outstanding PAYE deductions were then $76,152.37, outstanding GSTwas $24,571.86. There continued to be defaults both as to the filing of the applicant's2014 income tax return and payment of PAYE for October 2014. Arrears continued toincrease. In March 2015, tax arrears were $123,888.85. Mr Warner advised therewould be a payment of $60,000.[21] On 25 May 2015, the Commissioner accepted proposals made by Mr Warner.The applicant was to pay $60,000 within two weeks and $24,000 was to be paid overtwo years in $1,000 monthly instalments. The balance of $59,000 was to be writtenoff. The instalment arrangement was to be set up on payment of the $60,000.[22] Only $40,000 of the required $60,000 was paid promptly. In January 2016,$5,000 of the original $60,000 lump sum payment had still not been paid. There hadbeen defaults with the $1,000 monthly instalment payments. The Commissionernevertheless wrote off $63,000 on the basis it would not be recovered. In January2016, the applicant's tax arrears totalled $70,964.76. A statutory demand was issuedfor that amount. The Commissioner then began liquidation proceedings.[23] In July 2016, Mr Warner proposed paying $1,000 monthly for 22 months infull and final settlement of the applicant's tax arrears which then totalled $73,021.72.They settled on a counter offer where the Commissioner required $1,000 monthly for36 months plus interest. There was a write-off of $38,890.[24] In December 2016, there was a further write-off of $5,356.57. By that time,new arrears of $9,458.65 had accrued.[25] In May 2017, new arrears were $22,876.51. A second statutory demand wasissued. There was then communication between Mr Warner and the case officerbecause of confusion as to whether some of the payments he had been making hadbeen allocated as he intended, either to current PAYE or to the instalment arrearsarrangement.[26] Since 2012, IRD case officers have frequently attempted to educate Mr Warneras to the importance of the company paying its tax when it was due, and the seriousnessof keeping from the Commissioner PAYE tax which was due and GST paid to thecompany on the basis it would be returned to the Commissioner. It was also stressedto Mr Warner that, when the company did receive relief, either through having taxwritten off or through being allowed to pay arrears in instalments, this was conditionalon it then paying current tax when it was due.[27] In an affidavit of 1 May 2018, Mr Warner said "I have always intended that thecompany pays its tax in full. It cannot afford to do that immediately, but it offered topay in full over time." He accepted that he had "not been good at keeping on top ofthis in the past". In its first proposal to the Commissioner of 9 April 2018, through itssolicitor, the applicant accepted that its tax compliance had been unsatisfactory.The liquidation proceedings and further applications for financial relief[28] On 24 November 2017, a statutory demand requiring payment of $64,584.97was issued and soon served.[29] On 31 January 2018, the Commissioner filed the application to put theapplicant into liquidation.[30] In March 2018, the liquidation proceeding was adjourned. On 9 April 2018,the applicant's solicitors presented an application for relief (the first proposal). It wasfor payment of $65,000 by way of:• a lump sum payment of $10,000 on 4 May 2018;• a further lump sum payment of $5,000 by 31 May 2018; and• ongoing monthly payments of $2,000 per month beginning 30 June 2018,increasing to $3,000 per month once the current arrangement concluded.[31] On 11 April 2018, the case officer, Ms O'Keeffe, sent a letter to the applicantadvising the 9 April 2018 proposal had been considered and declined. This decisionwas made on the basis of the applicant's history of failed instalment arrangements, itshistory of failed lump sum payments agreed to as part of financial relief write-offs andthe applicant's history of accruing new arrears on its account whilst under saidinstalment arrangements. She said:Although the company has advised that it will be working closely with anaccountant and business advisor, no additional substantive information hasbeen provided to give Inland Revenue confidence that this request forfinancial relief will resolve the non-compliance towards meeting ongoing taxobligations on top of instalment arrangement payments.[32] There was a further adjournment of the liquidation proceedings to 26 April2018 to allow the applicant and its solicitor to make a new proposal.[33] On 23 April 2018, the applicant's solicitor, Mr Hearn, sent the Commissioneranother proposal (the second proposal). This proposed:• a $10,000 lump sum payment by the end of April 2018;• a $5,000 payment by the end of May 2018;• $2,000 per month from 30 June 2018 until paid in full;• monthly instalments to increase to $3,000 per month when the currentarrangement for $1,000 monthly payments for arrears was finished;• the company's terminal tax liability would be met by 7 May 2018 and thecompany's terminal tax liability for 2017 of approximately $15,000 wouldbe paid in full by the end of May; and• a personal guarantee to support that proposal.[34] Ms O'Keeffe went back with queries. She requested information as to wherethe funds for the terminal tax payments were coming from, evidence of the loanapplication for $45,000, information as to personal assets associated with theguarantee, and workings that would confirm the business could afford the instalmentarrangements and meet ongoing obligations.[35] On 24 April 2018, Mr Hearn responded. Mr Warner's listed assets totalled$66,591: a car $10,000, household chattels $34,950 and bank accounts $21,641. Headvised a loan application for $45,000 had been declined but asked that the proposalbe considered on the basis of statements he had made that the company was profitableand the instalments it would pay amounted to $36,000 a year, which was less than thecompany's net profit.[36] Ms O'Keeffe says she considered the proposal based on the information thathad then been provided, and the Commissioner responded by 4.00 pm on 24 April2018 as Mr Hearn, for the applicant, had requested. In that emailed letter of responsedated 24 April 2018, she advised the applicant that its request for an instalmentarrangement had been declined for the following reasons:• the history of failed instalment arrangements;• the history of failed lump sum payments agreed to as part of a financialrelief write-off;• the history of accruing new arrears on account whilst under an instalmentarrangement; and• there being no new evidence provided with this new request for aninstalment arrangement that would give the Inland Revenue confidencethat the applicant would be able to meet its instalment payments andcurrent ongoing obligations.[37] In support of its application for an interim order, the applicant filed an affidavitfrom its sole shareholder and director Mr Warner, and an affidavit from its accountantand tax agent, Michelle Tubb. Annexed to Mr Warner's affidavit were Ms O'Keeffe'sexecutive summaries of information for the Commissioner to consider, the InlandRevenue recommendation, and the team leader review. Together, these set out thebasis on which the Commissioner had made the decisions declining financial relief.The errors alleged against the Commissioner[38] In the judicial review proceedings, the applicant says the Commissioner erredin law or acted unreasonably in taking into account or failing to take into accountfactors set out in its statement of claim. I deal with those.[39] Three of those factors, as alleged, were that the Commissioner:(a) Failed to take into account that some of the tax arrears were due tomisapplication of payments by the Commissioner, and the punitive effectof the resulting interest and penalties on the balance owing.(b) Failed to take into account a payment made by the Applicant ofapproximately $15,000 on 20 April 2018.(d) Wrongly took into account that the Applicant had failed to provideinformation requested, when it had not failed to provide it and/or theinformation had not been requested.Particulars:Full details of assets to support guaranteeDetails of Mr Warner's bank account2018 financials / tax agent workings.[40] Ms O'Keeffe's executive summary as to the second proposal referred to thecompany having total arrears of $91,000 and total new arrears of $79,000 over andabove the instalment arrangement. The company had failed to make its first twoprovisional tax instalments for 2018 totalling $9,548, not included in the total debtalready noted. She referred to earlier failures to make previous lump sum settlementpayments as agreed, failure to meet terms and conditions of instalment arrangementsby either defaulting or accruing new arrears. She said:The company has not provided any new evidence with this second proposal(to cease legal action) and has failed to provide requested financial statements(or workings from the tax agent), full documented details of the director'spersonal assets were requested to support the personal guarantees he hasoffered. Full details were not provided or details of the bank account notedwhere the director holds $21,000. The client's offer of lump sum paymentstotalling $20,000 by the end of May is still based on invoiced work. Althoughcopies of these invoices have been provided there is no guarantee that thecompanies who have been invoiced will pay these invoices, allowing the clientto make lump sum payments on offer. Although the client has advised thatthey will now be working with a tax agent/business adviser to file and payreturns, this is not enough to give IR confidence that they will be compliantmoving forward. The second proposal initially included a lump sum of$45,000 by way of a loan. We have been notified today that the bank hasdeclined this application and the lump sum of $45,000 is no longer on offerwith this proposal.[41] There is no suggestion that there had been any incorrect allocation ofinstalment payments at the time the statutory demand was issued in respect of defaultsin payment of new tax. There was some suggestion that, after that demand had issued,payments that the applicant intended to make for new tax were allocated to theinstalment arrangement. To the extent this happened, it was because of the way thepayments had been coded by the applicant, not a mistake by the IRD. At the time theCommissioner declined the second proposal, the applicant was not asking for anyfunds that had been credited against the instalment arrangement to be transferred forthe purpose of paying new tax.[42] With the proposal of 23 April 2018, the applicant's solicitor began byacknowledging he had received an updated summary of account but said the applicanthad paid "approximately $17,000" the day prior to receiving that information. It isapparent, from the requests she made for particular information as to variousstatements, that Ms O'Keeffe had considered all parts of that letter.[43] It is clear, from the documents, that of primary concern to the Commissionerwas that the applicant had: failed to make previous lump sum settlement payments agreed as part of aproposal and failed to meet the terms and conditions of instalmentarrangements by either defaulting or accruing new arrears.[44] The Commissioner's decision was made based on her assessment of the historyof the applicant's ability to meet its tax payment obligations, with respect to PAYE orGST where the applicant held funds in trust for the IRD. Although there is somedispute as to specific amounts, that dispute makes no material difference to the overallsituation and the background to the Commissioner's decision. There is no dispute overthe debt which was the basis for the liquidation proceedings.[45] The way in which the company described the assets available to support theguarantee would have provided little reassurance that those assets would be of anyvalue in supporting a guarantee.[46] Another factor alleged against the Commissioner is that she:(c) Wrongly took into account that the Applicant had failed to pay New Taxeson time on the basis such failures breached the terms of the Arrangement,when they did not.[47] The record establishes that, when the Commissioner entered into previousarrangements for the payment of arrears by instalments, it was on the basis that, aswell as paying those instalments, the applicant would pay new taxes when due. Thereis no dispute that there were defaults in the payment of new tax at the time the applicanthad been allowed to pay arrears in instalments. Quite reasonably, that was a matter ofsignificance to the Commissioner in rejecting the second proposal.[48] Another alleged factor is that the Commissioner:(e) Wrongly took into account that the Proposal included the offer of a$45,000 lump sum which was later retracted, when this was not the case.[49] The applicant's second application was made in the emailed letter to theCommissioner's solicitor, sent at 1.58 pm on 23 April 2018. In that, the applicant setout various matters which it asked the Commissioner to take into account inconsidering the proposal and added:In addition, the company is in the process of applying for a lump sum loan of$45,000. It had hoped to receive confirmation of that by the close of last week,but has not had confirmation at this point in time. A response is expectedwithin 24 hours. If approved, the lump sum will be paid to IRD in addition tothe monthly instalments set out above.[50] The IRD's solicitor responded with specific queries as to a number ofstatements that had been made with the proposal letter. These included a request forevidence of the loan application for $45,000. At 9.25 am on 24 April, the applicant'ssolicitor responded to those requests with information and said Mr Warner was stillchasing the lender regarding a response to the application for the $45,000 loan. Hesaid that, if it was through before 10.30 am, the lender's decision would be providedrather than the application form. At 9.58 am on 24 April 2018, he emailed the IRDand said the lending application had been declined but, in conjunction with that, saidthe proposal did not rely in any way on the receipt of financing, the loan had beensought "to make a further lump sum payment to IRD".[51] The prospect of a loan being obtained and used to make an additional paymentto the IRD was advanced to encourage the Commissioner to accept the proposal. Thefact the loan was declined was relevant to the Commissioner in deciding whether ornot it should effectively enter into an arrangement which would be tantamount togranting significant credit to the applicant to pay tax which was already overdue.[52] Other errors alleged in the statement of claim are that the Commissioner:(f) Wrongly took into account that the company had an overdraft facilitywhich was not offered in payment of the debt.(g) Failed to take into account that the Applicant had changed its behaviourtowards compliance.(h) Found that there was no evidence that the Applicant had changed itsbehaviour towards compliance.(i) Failed to consider the Commissioner's obligations under sections 6A(3)and 176 of the TAA, and that the Proposal would result in collection ofall taxes due to the Commissioner.(j) Failed to consider using the Commissioner's power under section 177(3)to counter offer or to request further information when considering theProposal.[53] In his emailed letter of 24 April 2018, the applicant's solicitor said that MrWarner "advises he has a $20,000 bank overdraft facility which he can call on ifneeded to meet payments". In the recommendation leading to the decision, MsO'Keeffe had noted simply that "the client makes reference to an overdraft facilitywhich he can call on if needed. This has not been offered as an option for an additionallump sum payment."[54] With the proposal of 23 April 2018, Ms O'Keeffe was advised "the companyhas approached the business consultant as previously indicated". To that, Ms O'Keefferesponded: "what exactly is the business consultant doing for the business". Nofurther information was provided. In his affidavit of 1 May 2018, in support of thecurrent applicant, Mr Warner said he had his "first meeting with him" on 31 April2018.[55] The matters referred to in paragraphs 17(f)-(j) of the statement of claim allrequired the Commissioner to exercise judgment as to the merits of the applicant'sproposal.[56] In Raynel v Commissioner of Inland Revenue, Randerson J in the High Courtconsidered that a decision by the Commissioner, made in the performance of her broadcare and management obligations under ss 6 and 6A of the TAA in relation to thecollection of outstanding tax, is not generally amenable to judicial review.6[57] In Russell v Commissioner of Inland Revenue, Asher J was considering theCommissioner's statutory power to accept an instalment officer.7 He said:It has been noted that the Commissioner is given "broad managementresponsibilities" under the statute, and that a Court will be slow to interferewith discretionary decisions in relation to the recovery of outstanding taxationrevenue, as such decisions involve the exercise of judgment within a statutoryframework. Insofar as there is a sliding threshold of caution before Courtintervention in an administrative decision, the threshold for an applicant in acase where the Commissioner makes a decision on a settlement proposal willbe high, as it will be a decision involving a multi-faceted exercise of judgmentand the application of a number of policy considerations set out in ss 6 and 6Aof the Tax Administration Act 1994 ("the TAA"), and also factual commercialconsiderations including the particular factors in s 177B.[58] The statements of principle in the High Court in both judgments were approvedby the Court of Appeal in Russell v Commissioner of Inland Revenue.8 Relevantly, inRussell v Commissioner of Inland Revenue, they were adopted at the interlocutorystage of proceedings on an application to strike out judicial review proceedings inwhich the applicant sought declarations that the decisions declining his proposals wereinvalid and an injunction preventing the Commissioner from taking any further stepsto recover the debt.[59] Mr Hearn acknowledged that a proposal does not have to be accepted justbecause it might result in a better tax recovery than continuing with enforcementproceedings but said the Commissioner must at least consider whether liquidation willbe more beneficial to other taxpayers.6 Raynel v Commissioner of Inland Revenue (2004) 21 NZTC 18,583 (HC).7 Russell v Commissioner of Inland Revenue, [2015] NZHC 754.8 Russell v Commissioner of Inland Revenue [2015] NZCA 351, (2015) 27 NZTC 22-018.[60] Section 6A(3) poses a duty on the Commissioner to collect over time thehighest net revenue that is practicable within the law, having regard to:(a) the resources available to her;(b) the importance of promoting compliance, especially voluntarycompliance, by all taxpayers with the Inland Revenue Acts; and(c) the compliance costs incurred by tax payers.[61] In Raynel v Commissioner of Inland Revenue, Randerson J stated:9[54] Sections 6 and 6A(3)(b) emphasise that there is a broader publicinterest in the integrity of the tax system and in ensuring that taxpayers meettheir obligations. Taxpayers who comply with the requirements of the InlandRevenue Acts are entitled to expect that appropriate and (where necessary)firm action is taken against taxpayers who shirk their obligations. If not,complying taxpayers will justifiably perceive there is a lack of integrity in thesystem and an unfair burden is cast on those who conscientiously comply withtheir obligations. As well, as Master Lang pointed out, the voluntarycompliance scheme which is central to the proper functioning of the InlandRevenue Acts will be placed in jeopardy unless all taxpayers know that theCommissioner will act firmly and resolutely with those who do not meet theirobligations and have no reasonable excuse for doing so.[55] Ordinarily, where a higher net recovery will be achieved through aproposed compromise than by winding up or bankrupting a taxpayer and thereare no countervailing considerations, the Commissioner's duty will be toaccept the compromise. But there may be circumstances where, in order topreserve the integrity of the tax system and promote compliance by othertaxpayers, the Commissioner will be justified in refusing an offer and, instead,taking enforcement proceedings. Where, for example, there has been aflagrant and on-going failure to comply with the taxpayer's obligations andwhere recovery is dubious or is likely to result only in a relatively minorproportion of the overall debt being recovered, the Commissioner may bejustified in initiating or continuing enforcement proceedings to secure thewider interests identified by the legislation.[62] There can be no doubt here that Ms O'Keeffe turned her mind to the recoverythat might be obtained through agreeing to an instalment arrangement in preference tocontinuing with the liquidation proceedings. Her correspondence in relation to boththe first proposal and the second proposal was directed at obtaining information whichwould assist in her decision-making regarding the prospects of both recovering9 Raynel v Commissioner of Inland Revenue, above n 6.outstanding arrears and ensuring there would be compliance with future taxobligations.[63] In his letter of 11 April 2018 for the applicant, Mr Hearn said the company'sterminal tax liability would be met by 7 May 2018 and the company's terminal taxliability for 2017, of approximately $15,000, will be paid in full by the end of May.Ms O'Keeffe responded: "where is this money coming from – please provideevidence". Elsewhere in her response, she said "please provide workings that confirmthe business can afford the instalment arrangement amount and ongoing obligations".[64] The only specific information which the applicant provided in response werefour invoices all dated 23 April 2018 due for payment 18 May 2018. Mr Hearnreferred back to the information that had been provided in connection with the firstproposal of 9 April 2018. No up to date accounts or budgets were provided with eitherproposal. With the proposal of 9 April 2018, Mr Hearn had said:The company's accountant has reviewed the proposal and based oninformation provided by Mr Warner considers that it is affordable and that thecompany will be able to maintain its ongoing tax compliance in addition tomaking the proposed payments on account of new arrears.[65] In responding to the second proposal, Ms O'Keeffe wrote "please provideworkings that confirm the business can afford the instalment arrangement amount andon-going obligations. Please provide evidence of what has changed."[66] The company had a history of not meeting its tax obligations when they weredue. Mr Hearn had said this was not through any intention to avoid paying tax. Thebackground would have indicated to the Commissioner that it did not have thecashflow to be able to pay tax when it was due. It was in relation to that backgroundthat Ms O'Keeffe asked for evidence of what had changed. She had not asked forevidence as to how arrangements for the payment of tax had changed.[67] In submissions, Mr Hearn submitted the Commissioner had made an error infailing to properly take into account the arrangements the company had put in place tomake the accountant responsible for tax compliance rather than Mr Warner. Thesearrangements were, however, expressly referred to in the executive summary on whichthe Commissioner's ultimate decision was based. The contemporaneous documentsshow that the information provided had been insufficient to satisfy the Commissionerthere would be a change from the previous pattern and the applicant would have theresources to pay tax when it was due.[68] The applicant further complains that the Commissioner did not make a counter-offer or allow the company 20 days to provide the information sought.[69] Section 177(3) gives the Commissioner a wide discretion as to what she mightdo in response to a request for financial relief. The options included declining therequest outright, obtaining further information or making a counter-offer.10[70] In this case, the Commissioner did seek further information. Because of theimpending hearing date on the liquidation proceedings, it was agreed between theapplicant and the case officer that the information would be provided in time for theCommissioner to make a decision on 24 April 2018. The information was providedthat morning.[71] Section 177(3) placed no obligation on the Commissioner to seek anyinformation or further information. She could have declined the request for reliefoutright. In these circumstances, it was not unfair for the Commissioner to haverequired information to be given within 24 hours, for the Commissioner to have thenconsidered the request in light of the information provided and to have made herdecision taking into account that information. There was thus no error in her notdelaying making a decision for 20 days from when that information was provided.[72] Through submissions, Mr Hearn also argued the Commissioner's decision-making process could be impugned on the basis of predetermination and apparent bias.For this submission, he relied on the fact that Ms O'Keeffe had said to Mr Warner on20 November 2017 that the Commissioner would not be looking to consider anotherinstalment arrangement in his case as the applicant had been unable to meet its currentongoing obligations.10 Section 177(3)(a)-(d).[73] That statement was made after new arrears in payment of PAYE and GST hadarisen to the extent of some $41,000 in October 2017. Mr Warner had been telling MsO'Keeffe of his attempts to arrange a loan. It is clear, from the context in which thestatement was made, that it was said to ensure Mr Warner was under no illusions as tothe need for his company to pay the arrears that were due.[74] The evidence establishes that Ms O'Keeffe engaged with Mr Hearn over boththe first and second proposals. She did not dismiss the second proposal out of hand,consistent with predetermination or bias. Instead, she responded seeking furtherspecific information as to various points made in support of the proposal. Althoughshe had authority to make a decision on the proposal herself, she had herrecommendation peer-reviewed. The Commissioner also agreed to successiveadjournments of the liquidation proceedings to allow time to the applicant to developits proposal and for it to be considered by the Commissioner. None of this is consistentwith predetermination or bias. The Commissioner's experience of the applicant, itsprevious non-compliance and breach of instalment arrangements, were quitereasonably going to be important in the decision the Commissioner made as to thesecond proposal.[75] In her affidavit of 1 May 2018, the applicant's tax agent, Michelle Tubb, setout the role she was to have in ensuring monies received or retained for tax were heldin a separate account and applied in payment of tax. Information in that detail was notprovided to the Commissioner at the time she had to make her decision in the contextof the ongoing liquidation proceedings. The information in the affidavit does nothowever materially alter the situation that the Commissioner had to consider in a waywhich might suggest fairness requires the Commissioner to take a fresh look at theproposal.[76] On Ms Tubb's evidence, Mr Warner would still be responsible for invoicingthe work he and his company were doing and obtaining payment on those invoices.He would thus have control over whether monies would be available for tax. Althoughthe accountant was to agree with Mr Warner on a budget and a PAYE wage for MrWarner that would leave sufficient cashflow in the business to meet IRD obligations,Mr Warner would still have access to that account, even if that would not be with theaccountant's agreement. With the proposed arrangement, he was not handing oversigning authority for withdrawals to the accountant. The accountant said thecompany's ability to meet its ongoing tax obligations was dependent on the companytrading profitably, maintaining its current profit levels and Mr Warner ceasing fromtaking drawings (as he had agreed to do).[77] Ms Tubb had previously been the company's tax agent when there had beenproblems with tax compliance. Ms O'Keeffe said Mr Warner had a tax agent since 27May 2011 but the company's compliance had not improved.[78] With his affidavit of 1 May 2018, Mr Warner provided financial statements forthe applicant for the year ended 31 March 2018. They included comparative figuresfor 2017. The statements had not been provided earlier to the Commissioner despiterequests for workings that could confirm the applicant would be able to meet theproposed instalment arrangement and ongoing obligations.[79] Ms O'Keeffe made comments as to those statements in her affidavit of 15 May2018. She considered they appeared to show the applicant was trading while insolvent.Its current liabilities as at 31 March 2018 were significantly higher than current assets.The taxation liabilities shown in the financial statements as being current were put at$42,000. The Commissioner's record showed outstanding arrears at 31 March 2018of $96,000. The applicant's profits were shown to have reduced from $42,547 in 2017to $5,621 in 2018. Ms O'Keeffe was concerned that, although the applicant had areasonable profit in 2017, it had not maintained the $1,000 per month instalmentarrangement and kept up with current ongoing obligations over that time. She alsonoted that in 2018 Mr Warner had increased his annual remuneration by $24,036 inpreference to repaying the Commissioner. Ms O'Keeffe said that her review of thefinancial statements further justified the decision that had been made declining thesecond proposal.Overall assessment[80] The applicant seeks interim relief to provide it with the opportunity to have itsapplication for financial relief considered fairly and in terms of the TAA. It has alreadyhad that opportunity. The evidence from Mr Warner and the company's accountant,filed in support of the application, is insufficient to indicate there is a real possibilitythat, if there was to be a further review by the Commissioner, the result would be anydifferent.[81] That is especially so when taking into account the further evidence providedby Ms O'Keeffe in an affidavit of 5 June 2018 in which she responded to theapplicant's allegations as to the decision-making process and further explains how andwhy she recommended rejection of the second proposal.[82] This is not a case where the applicant has a reasonable chance of succeedingon either the judicial review application or on the application to the Commissioner forfinancial relief.[83] The applicant has therefore not satisfied me it has a position to preserve thatwould justify the granting of interim relief. Had that threshold been met, I would stillhave had to exercise my discretion as to whether to grant relief. In that regard, Iacknowledge that at the hearing Mr Warner, through counsel, gave a personalundertaking that he would guarantee payment of the company's taxes falling duebetween now and when the judicial review proceedings would be finally determinedand, if successful, the Commissioner had reconsidered the proposal. He would alsoguarantee monthly payments of $3,000 for arrears over that same period.[84] I accept it is in the public interest that the Commissioner be able to carry outher statutory duties under the TAA, including completing enforcement actionexpeditiously. I accept the public interest in maintaining the integrity of the taxsystem, including the ability of the Commissioner to collect taxes when they becomedue. I consider that the integrity of the tax system will be undermined if the right ofthe Commissioner to enforce payment of an undisputed debt for unpaid tax throughliquidation proceedings is frustrated by requiring the Commissioner to be a party tocontinuing judicial review proceedings which are without merit.[85] When a company has deducted tax to pay PAYE and been paid GST by othertaxpayers and then withheld such payments from the IRD, other taxpayers are entitledto expect the Commissioner would take a firm line, either in terms of securing recoveryof taxes or, if the Commissioner is not confident this will be achieved, throughproceedings that will lead to the winding up of the company. For the Commissionerto permit a company to carry on in business when she is not confident it will meet itstax obligations would be to the detriment of other taxpayers and creditors.11Conclusion[86] The application for interim relief is declined.[87] The respondent is entitled to costs on a 2B basis. If there is no agreement overthis, a memorandum for the respondent is to be filed within four weeks, amemorandum for the applicant is to be filed within six weeks. Memoranda are to beno longer than four pages.Solicitors:Corcoran French, ChristchurchCopy to:Commissioner of Inland Revenue, Wellington.11 As Randerson J took into account in Raynel v Commissioner of Inland Revenue, above n 6, wherethe Commissioner was seeking to bankrupt the taxpayer and wind up his company where therewere unpaid PAYE arrears, GST and income tax.