Counterclaim action during liquidation proceedings
2006 case note – during liquidation proceedings Rule 146 of the High Court Rules prevents a counterclaim or set-off defence being raised.
Rule 146, High Court Rules
During the course of liquidation proceedings Rule 146 of the High Court Rules prevents a defence from being raised on the ground of counterclaim or set-off once the liquidation proceeding is issued.
The Commissioner served a statutory demand upon the taxpayer companies in May 2006 claiming amounts for GST, income tax and also PAYE tax deductions for Churton Farms Limited.
On 25 July 2006 the Commissioner issued Statements of Claim to put the companies into liquidation. The requisite advertising of the liquidation proceedings took place in August 2006.
Churton Farms Limited at this time filed a Statement of Defence disputing the amount claimed, and counterclaimed various amounts from the Commissioner for GST refunds. The counterclaim was withdrawn.
Ngaturi Properties Limited filed a Statement of Defence and a counterclaim to the effect that the amount of $230,000 was due from the Commissioner for the loss resulting from not purchasing some property. The company contended that the Commissioner had failed to allow the company from completing the purchase of the Reynolds Road property.
With regard to the company Churton Farms Limited, Gendall AJ noted that no application to set aside the statutory demand on the basis that the debt was not due was made by the company. There was no evidence before the Court indicating on what basis the amounts may not be due, nor any evidence of the company's financial position or solvency.
Further, Gendall AJ was satisfied that the company had every opportunity since the statutory demand was served to take appropriate steps to properly dispute the debt due. He was further satisfied that the company had no defence to the Commissioner's claim and an order placing the defendant company into liquidation was appropriate.
With regard to the company Ngaturi Properties Limited, Gendall AJ held that the counterclaim could not possibly succeed. It was barred by Rule 146 of the High Court Rules which prevents a defence from being raised on the ground of counterclaim or set-off once the liquidation proceeding is issued. (The Commissioner of Inland Revenue v Carswell Investment Co Ltd.) It also lacked a factual basis as the loss of the opportunity to purchase the property was caused by the bankruptcy of the vendors and not due to any action taken by the Commissioner. There was no evidence to suggest that the Commissioner interfered with the attempted purchase of the property by the taxpayer.
Ngaturi Properties Limited had failed to comply with the statutory demand and had failed to produce any evidence of its financial position or solvency. It was therefore appropriate to make an order placing the taxpayer into liquidation.