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15 Feb 2006
Appeal Status
Not appealed

Section 17 notice served upon a liquidator

2006 case note – CIR may employ section 17 notices during the liquidation of a company even when a creditor of the company – audit.

Re: Next Generation Investments Ltd (in liq) v The Commissioner of Inland Revenue (Judicial Review)

Tax Administration Act 1994; Companies Act 1993


The Commissioner may employ section 17 notices during the liquidation of a company even though he is a creditor of the company. Section 17 prevails over section 256 Companies Act 1993 ("CA"). A as long as the Commissioner's status as a creditor is merely incidental to the subject matter of the notice.


The applicants are the liquidators of Next Generation Investments Limited ("NGI"). The Commissioner filed a proof of debt in the liquidation for $415,866.77 but was of the view that NGI's GST liability required further investigation. NGI was notified of a forthcoming GST audit about a week before the shareholders appointed a liquidator.

As part of the audit, the Commissioner issued a section 17 Tax Administration Act 1994 ("TAA") notice. The liquidators declined to comply stating they were prevented by section 256 CA which requires a creditor to seek court orders before inspecting the records of a company in liquidation. The liquidators believed that they were prohibited from allowing such records to be released by the earlier decision of the High Court in re Tasman Pacific Airlines of NZ Ltd [2002] 1 NZLR 688.


His Honour Priestley J discussed the broad ambit of section 17 as approved by the Privy Council in The Commissioner of Inland Revenue v New Zealand Stock Exchange; The Commissioner of Inland Revenue v The National Bank of New Zealand Ltd [1990] 3 NZLR 333, 337 where it rejected a submission designed to limit section 17 to situations where the Commissioner had a serious question in mind as to a specified taxpayer's tax liability.

The recent decisions of the High Court in Vinelight Nominees Ltd v The Commissioner of Inland Revenue (2005) 22 NZTC 19,298 and Chesterfield Preschools Ltd and Others v The Commissioner of Inland Revenue (2005) 22 NZTC 19, 500 were also discussed as relevant to the present matter. In the former, the applicants sought to limit the operation of section 17 where court proceedings were commenced on the grounds that it gave the Crown, as a litigant an advantage. In the latter case, a similar argument was deployed regarding the use of section 17 notices which the Commissioner issued in support of an application for a Mareva injunction. In both cases, the use of section 17 notices was supported by the Court.

Regarding the Chesterfield decision, Priestley J said:

[17] If Fogarty J's dicta were to be advanced in support of a proposition that section 17 is tantamount to a procedural nuclear weapon which can be deployed by the Commissioner in an unfettered way on a civil litigation battlefield, then I disagree. The power to issue a section 17 notice is a conferred statutory power. As such it is clearly reviewable under the Judicature Amendment Act 1972. The TAA has specific purposes. The Commissioner has defined statutory duties including the duty to protect the integrity of the tax system (section 6). An ultra vires or improper use of section 17 which might, as Simon France J has observed, be discernible on a case by case analysis, to gain an otherwise unachievable advantage in a civil proceeding might well be amenable to judicial review."

There are then, certain limits to the operation of section 17 but His Honour declined to specify what they might be other than hinting at illegality or impropriety.

Regarding the operation of section 256 CA, His Honour accepted both parties' proposition that the purpose of the section is to ensure that no creditor obtains company information to the detriment of other creditors. In the Tasman Pacific case, as a matter of statutory interpretation Laurenson J held that section 256 was dominant, with the result that the inspection right contained in section 131 of the Insolvency Act 1967 was not incorporated into the CA by section 302(1).

He accepted however, that although the Commissioner is a creditor, his status as a creditor of the company is purely incidental. He seeks to inspect the company's accounts and records, not as a creditor, but for the legitimate purpose of advancing an investigation. That purpose is clearly permitted under section 17 of the TAA.

"[26] I am satisfied that the Commissioner is legitimately invoking section 17 for the purpose of investigating a company's taxation liability. Significantly, the Commissioner signalled a GST audit just over a week before the company appointed a liquidator."

The applicants submitted that nonetheless, the CA is binding on the Crown and that for whatsoever purpose, the Commissioner must apply to the court first. This would allow the court to both oversee the liquidation and check on any potential abuse of section 17. His Honour declined to place such an obstacle before the Commissioner:

"[35] However, the obligations which flow from a valid section 17 notice such as that issued by the Commissioner on 3 June 2005 cannot, in my judgment, be avoided merely because the Commissioner is a creditor to whom section 256(1)(a) applies.

[36] In cases where the Commissioner is arguably invoking his section 17 power unreasonably or for questionable or improper reasons, then the appropriate redress is to seek judicial review. This is not such a case.

[37] The Commissioner, pursuant to his statutory duties, is endeavouring to ascertain the company's correct taxation liability. To that end he is entitled to use section 17.

[38] In my judgment, the fact that the Commissioner might be a creditor in a company's liquidation, who would otherwise have to obtain permission to inspect materials in possession of the liquidator under section 256(1)(a)(ii), does not make obtaining such an order a condition precedent to complying with section 17 of the TAA."

Accordingly, the Court declined the liquidator's application.