Stay of liquidation pending appeal of compromise application refused
2010 case note – taxpayer's applications to the Court of Appeal for a stay of the CIR's liquidation proceedings dismissed.
The taxpayer companies' applications to the Court of Appeal for a stay of the Commissioner's liquidation proceedings (pending an appeal of the High Court's refusal of their compromise applications) were dismissed.
Impact of decision
There are no particular implications for the Commissioner. The case turns on its own facts.
The applicant companies have goods and services tax (GST) debts. The GST debts arose after the applicants sold commercial properties and failed to pay the output tax. After the registered mortgages on the properties were settled the applicants paid the balance of the proceeds of the sales in payment of debts owed to related entities.
The Commissioner applied to liquidate the applicants. The applicants responded by applying to the High Court under section 236 of the Companies Act for approval of compromises of their tax debts. The effect of the compromise proposals was that the Commissioner would be paid $1 million of a $2.4 million debt over a period of five years.
The Commissioner successfully opposed the section 236 compromise applications. The applicants applied to the High Court for a stay of the liquidation proceedings pending an appeal. The High Court refused the stay application. The applicants then made a further application to the Court of Appeal for a stay of the liquidation proceedings pending an appeal of their section 236 applications.
After setting out a non-exhaustive list of factors to be taken into account in making its decision, the Court refused the applications for a stay. The Court had serious doubts about the bona fides of the applicants in pursuing the appeal. The Court noted that the applicants had not provided an explanation for paying the GST away for their own purposes.
The Court considered that there was a strong public interest in having an independent enquiry into the affairs of the applicant companies, sooner rather than later.
The Court considered that the merits of the compromise applications were weak and had little prospects of success.
As well, the Court took into consideration that the applicant companies did not have positions to preserve. None of them were trading, none had any employees and all appeared to be insolvent.
Companies Act 1993