THE COMMISSIONER OF INLAND REVENUE V LVO LIMITED AS TRUSTEE IN THE LVO TRUST HC AK CIV 2011-404-5968

THE COMMISSIONER OF INLAND REVENUE V LVO LIMITED AS TRUSTEE IN THE LVO TRUST HC AK CIV 2011-404-5968 [16 March 2012]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV 2011-404-5968IN THE MATTER OF the Companies Act 1993BETWEEN THE COMMISSIONER OF INLANDREVENUEPlaintiffAND LVO LIMITED AS TRUSTEE IN THELVO TRUSTDefendantCIV 2011-404-5971AND IN THE MATTER OF the Companies Act 1993BETWEEN THE COMMISSIONER OF INLANDREVENUEPlaintiffAND MARLIN PROPERTY CONSULTANTSLIMITED AS TRUSTEES OF THEMARLIN PROPERTY TRUSTDefendantCIV 2011-404-5980[2012] NZHC 372AND IN THE MATTER OF the Companies Act 1993BETWEEN THE COMMISSIONER OF INLANDREVENUEPlaintiffAND 401 L LIMITED AS TRUSTEE IN THE401 L TRUSTDefendantHearing: 16 March 2012Counsel: MF Nelson for plaintiffRB Hucker for defendant companiesJudgment: 16 March 2012(ORAL) JUDGMENT OF ASSOCIATE JUDGE FAIRE[on application that defendant companies be placed into liquidation]Solicitors: Inland Revenue Department, PO Box 76 198, Auckland 2241Hucker & Associates, PO Box 3843, Auckland 1140[1] The plaintiff applies for an order that the defendant companies be placed into liquidation and that a liquidator be appointed. This judgment relates to the three cases which are linked by the fact that the defendants have a common single director and shareholder and the background circumstances are similar.[2] The companies do not contest the debt. Affidavits have been filed on behalf of the defendant companies. Their purpose was to inform the court of steps taken by the sole director and shareholder for the defendants to realise assets from sources unrelated to the defendant companies and with a view to paying the debts which are the subject of the proceedings.[3] The three proceedings have been called on 11 November 2011 before Lang J and on 18 November, 15 December, 19 December 2011 and 15 February 2012 before me. The reasons for the adjournments and the steps contemplated by the court are best recorded by my simply setting out the minutes at each call, which I now do.Minute of Lang J of 11 November 2011[1] In each of these proceedings, the Commissioner seeks an order placing the defendant in liquidation. The defendants have not taken formalsteps to oppose the Commissioner's application.[2] When the proceedings were called this morning, counsel for the defendants tendered a memorandum in support of an application for a short adjournment of each proceeding. The Commissioner opposed the adjournment, and submitted that it was appropriate to place each defendant I liquidation. She pointed out that the defendants are to current with PAYE and GST payments, and that attempts to make contact with the director of each defendant have been fruitless.[3] I am prepared to grant the defendants a short adjournment in order to enable them to reach an accommodation with the Commissioner. A condition of the adjournment is that the director of the defendants is to file an affidavit no later than 5pm on 16 November 2011 verifying the matterscontained in counsel's memorandum dated 11 November 2011.[4] It is likely that an order will be made placing each defendant in liquidation when the matter is called next. For the reason the defendants are encouraged to reach some form of resolution with the Commissioner.Minute of Associate Judge Faire of 18 November 2011[1] These three files were called before me today. The Commissioner of Inland Revenue seeks the appointment of a liquidator in the case of each ofthe companies and the placing of the companies into liquidation. No statements of defence have been filed. The files were first called before Lang J on 11 November 2011. At that time a memorandum had been placed before his Honour which sought an adjournment of the proceedings. His Honour granted a short adjournment and directed that the grounds for any further adjournment had to be provided by way of affidavit.[2] An affidavit by Mr Layne Campbell Kells, the sole shareholder and director of the three companies was filed yesterday.[3] Mr Kells, who is also a director of a number of other companies, including E Jack Trustees Ltd, 401 F Ltd, Gulf Harbour Marlin Ltd andGabrielle's Trust Co Ltd and who is one of the trustees of the Layne KellsFamily Trust is involved in a sell-down of the assets of his companies and the trust with the primary objective being to settle this indebtedness to the secured creditors and the Inland Revenue Department. A number of sale and purchase contracts have been entered into which are referred to in his affidavit.[4] Mr Hucker, today, seeks an adjournment to a December list so that a formal proposal can be placed before the Commissioner, which will involve the giving of guarantees by the other companies and the family trust to the effect that the proceeds of sale of assets will be applied, firstly, to payment of secured creditors and, secondly, in payment of the debt to the Inland Revenue Department.[5] The Commissioner is concerned that any lengthy adjournment might serve no useful purpose because a number of the entities including the three companies are in default of their obligations so far as the filing of appropriate tax returns is concerned. In addition, the Commissioner does not have sufficient information concerning the financial position of the companies and the trust which are said to own the assets which would be the source of the payments to satisfy these defendants' debts to theCommissioner.[6] These matters I refer to very generally but clearly will have to be set out in considerable detail before the Commissioner could consider any proposal which involves the withdrawal of the current proceedings.[7] I am satisfied, however, that it would be premature to appoint a liquidator and place these companies into liquidation at this stage without at least providing the opportunity to see if the debts of these three companies can be paid effectively from the outside sources.[8] Accordingly, I adjourn these proceedings to a miscellaneous list at 11:45am on 15 December 2011. The adjournment, however, is conditional upon the following:a) By 28 November 2011 the three companies and Mr Kells shall place a proposal for the Commissioner's considerationtogether with executed guarantees from Mr Kells and the companies which are to support, or make payment in respectof the defendants' debts to the Commissioner;b) If the proposal is declined and the defendants wish tojudicially review the Commissioner of Inland Revenue'sdecision, a memorandum with a draft application for judicial review shall be filed and served within seven days of the decision to decline the proposal.[9] On 15 December 2011 the court will consider whether, based on the proposal, a stay of these proceedings is appropriate and, if necessary, the terms upon which any stay should be granted. Accordingly, counsel must be ready to address these issues at that time.Minute of Associate Judge Faire of 15 December 2011[1] Matters have proceeded in a different direction from that which was contemplated when my minute of 18 November 2011 was issued in respect of these three proceedings.[2] There was understandably I think a misunderstanding between counsel as to the nature of the correspondence which passed between counsel shortly after the hearing on 18 November 2011. Mr Hucker assumed, as it now turns out, wrongly that the Commissioner had not got to the point of declining a proposal which was advanced on behalf of the three defendant companies. I do not intend to go into that further in this minute.[3] What is necessary to record at this stage, however, is that the sole shareholder and director of the three defendant companies who has substantial interests in a trust and other related companies, has placed the before the court further evidence which indicates that sales of properties are likely to settle on or before 29 February next year. I cannot tell, from the material before me, whether that necessarily means that Mr Kells' interests,will in fact be sufficient to satisfy the debts which are particularised in thethree statements of claim. Mr Hucker's instructions at this stage are that that is Mr Kells' position.[4] I take that into account and although Ms Nelson strongly urges me not to grant an adjournment, I have decided that an adjournment on a conditional basis, subject to an initial check is justified. The initial check is necessary to see that documents are executed to protect the position in the interim.[5] Accordingly I express the court's intention, at this stage, which isthat the proceeding be adjourned subject to conditions to 11:45am on 15 February 2012 with a view to the defendant companies providing evidence that all the sale and purchase contracts have been executed and are unconditional and are due for settlement on or before 29 February 2012. If that is established on 15 February 2012, a further adjournment would then be granted to 11:45am on 16 March 2012.[6] Before ordering that adjournment, however, it is necessary that the conditions which justify the adjournment are met. Those conditions are as follows:a) That Mr Layne Campbell Kells has executed a guarantee of payment of the debts as currently pleaded in the three statements of claim by 2 March 2012. Such guarantee mustbe in the form which will be provided by counsel for the plaintiff to counsel for the defendants by 10am tomorrow, 16 December 2011;b) That the following companies provide guarantees in the same form, namely the three defendant companies, the companies which are the registered proprietors of 399 Manukau Road and 405 Manukau Road and 340 Gulf Harbour Drive and 36 Eric Paton Way, St Johns Road,Auckland and 7A Emmett Street, Auckland and Gabrielle'sTrustee Company Ltd;c) That the companies referred in (b) above execute mortgages in the latest form approved by the Auckland District Law Society in respect of the amounts pleaded in the three statements of claim and agree that the plaintiff may lodge a caveat protecting interests secured by such mortgages.[7] To ensure that the conditions can be met I adjourn this proceeding to 2pm on Monday, 19 December 2011.Minute of Associate Judge Faire of 19 December 2011Hucker for plaintiff and with plaintiff's consent. The conditions have been met. Adjourned to 11:45am on 15/2/12.Minute of Associate Judge Faire 15 February 2012[1] Mr Hucker advises me that all the contracts referred to in paragraph 6(b) of my minute of 15 December 2011 on the instructions given him are expected to settle, at the latest, by 28 March 2012. Indeed, with the exception of the properties at 36 Eric Patton Way, St Johns Road, Auckland the balance of the contracts are expected to settle before 16 March 2012.[2] Mr Hucker further confirms to me that the mortgages and caveats referred to in paragraph 6(c) of the minute of 15 December 2011 have been put in place. That is important because it does give some measure ofprotection to the Commissioner's position, although whether it is real or not cannot be determined until the results of the sales and the settlement with those parties who hold securities over the relevant properties is achieved.[3] I am satisfied that these proceedings should be further adjourned but the adjournment must be made subject to a condition. That condition is that copies of the sale and purchase contracts in respect of the properties referred to in paragraph 6(b) of the minute of 15 December 2011 are made availableto the Commissioner's counsel within seven working days of today's date.[4] Accordingly I order:a) These three proceedings are adjourned to the miscellaneous companies list at 11:45am on 16 March 2012;b) The defendant companies are put on notice that should the condition as to production of copies of the agreement not be complied with or if the transactions, save for that involving 36 Eric Patton Way, St Johns Road, have not settled, it islikely that an order appointing a liquidator in relation to the three companies will be made. If, on the other hand, the condition is met and the contracts referred to have settled, it is likely that I would further adjourn these three proceedings to the miscellaneous companies list at 11:45am on 27 April 2012 by which time it is anticipated that 36 Eric Patton Way, St Johns Road, Auckland would have been sold in its entirety and the proceeds made available to the Commissioner to settle the debt owed to the Commissioner in respect of these three defendants.[5] The three proceedings are accordingly adjourned in accordance withthis minute. I reserve costs in relation to today's appearances.[4] When the matter was called today, Ms Nelson advised the court that two of the matters referred to in paragraph [4]b) of my minute of 15 February 2012 had not been met. Not all the contracts had been provided. Not all the contracts due to settle before the call had settled. I regard the second of these matters – the non-settlement– as the matter of most concern. Mr Hucker advised that the reasons related to the position of the purchasers in each case. Mr Hucker sought a further adjournment. Ms Nelson opposed my granting any further adjournment.[5] The Companies Act 1993, s 241 gives the court a discretion to appoint a liquidator if it is satisfied that the company is unable to pay its debts. The Companies Act 1993, s287 provides that:287 Meaning of "inability to pay debts"Unless the contrary is proved and subject to s288 of this Act, a company is presumed to be unable to pay its debts if –(a) the company has failed to comply with a statutory demand[6] A statutory demand has been served on each of the defendant companies. It is therefore presumed that each is unable to pay its debts. The statutory grounds for the appointment of a liquidator have been made out. There is no basis to suggest the making of a winding up order would be an abuse of process in this case. The companies have been given fair warning of what is required. Unfortunately, the companies, or their director, have not been able to arrange the payment that was contemplated.[7] If their director can settle the sale of properties and settle the debt then an application for termination of the liquidation pursuant to the Companies Act 1993, s 250 could be made. Because Mr Hucker indicated that this is a possibility, I record in this judgment that the plaintiff must be ready to receive a short notice application for stay of the liquidation orders which I will make in the event that settlements of the sales of the properties which are expected to produce funds to pay the debts have occurred.[8] In the case of LVO Ltd, a further consideration needs to be mentioned. I was advised that there is currently a review being undertaken by the plaintiff as to part of the debt. However, I was further advised that even if that review was successful, the whole debt would not be extinguished. This circumstance, by itself, does not justify any special treatment in respect of this company. The statutory grounds for the making of an order are met and, as I have earlier recorded, I cannot see that there is any basis to suggest that there would be an abuse of process by the making of an order.Conclusions[9] I am satisfied therefore that orders should be made. Proof of the debt hasbeen confirmed by counsel's certificate. I have been provided with consents in each case signed by the proposed liquidators, David John Bridgman and Craig Alexander Sanson to their being appointed liquidators.Orders[10] Accordingly, I order:(a) The defendant companies are put into liquidation;(b) David John Bridgman and Craig Alexander Sanson, Insolvency Practitioners of Auckland, are appointed the liquidators of each company.Costs[11] The defendants shall pay costs based on Category 2 Band B together with disbursements as fixed by the Registrar.[12] The liquidators' consents indicate that their hourly charge-out rates have been previously approved by the court:(a) The rates of remuneration of the liquidators and their staff working under their supervision and control are set at the rates set out in theliquidators' consent dated 16 March 2012;(b) Leave is reserved to the liquidators to apply from time to time, but not more frequently than six-monthly, for the approval of other rates, any such application being supported by affidavit evidence of the liquidators deposing to the rates and of an independent expert deposing to their reasonableness; and(c) The above orders are made in terms of (a) and (b) hereof are subject to the requirement that at the conclusion of the liquidation, an application will be made to fix the overall remuneration of the liquidators.[13] These orders are made at 2:25pm on 16 March 2012.