Issued
2011
Decision
16 Nov 2011
Appeal Status
Appealed

Freezing orders against third party

2011 case note - Court considered that the freezing order could not be upheld without more evidence and an undertaking by the CIR.

Case
Commissioner of Inland Revenue v Giovanni Holdings Ltd and Ors
Legal terms
Undertaking, freezing orders

Summary

The Court considered that the freezing order could not be upheld without more evidence and an undertaking by the Commissioner.

Impact of decision

Where the Commissioner has issued assessments and an enforcement action to freeze assets to assist in the collection of the debt from a property owned by a third party, the Commissioner should indicate that relief sought against the third party in his statement of claim.

Facts

Mr Petroulias and Ms Clark have been assessed by the Commissioner for promoter penalties amounting to over $6 million. Ms Clark has also been assessed for income tax.

On 6 September 2010 the Commissioner sought and obtained a freezing order without notice over a property owned by Giovanni Holdings Ltd ("Giovanni"). The freezing order was obtained on the basis that Mr Petroulias and Ms Clark were/are the beneficial owners of the property.

Proceedings

On 18 August 2011 the Commissioner applied for a recall of a discovery order made on 28 July 2011. McKenzie J convened a telephone conference for 5 October 2011 and during that conference ordered a hearing to determine whether the freezing order should continue.

Decision

The Court noted that the freezing order applies to land of which Giovanni is the registered proprietor and the Commissioner's claim is that Mr Petroulias and Ms Clark are/were the beneficial owners of the property. McKenzie J stated that the statement of claim filed by the Commissioner does not seek relief against Giovanni. His Honour acknowledged, however, that this fact does not bar the Commissioner from seeking a freezing order against Giovanni, on the basis the assets are in truth the assets of Mr Petroulias and Ms Clark.

The Court considered that while the Commissioner could establish he had a good arguable case for a freezing order on the basis of the assessments against Mr Petroulias and Ms Clark, the Commissioner is required to show the property is that of Mr Petroulias and Ms Clark to establish a case for a freezing order.

The Court considered that an undertaking as to damages is a pre-requisite for the grant of a freezing order. Accordingly, the Commissioner was ordered to file an undertaking as to damages to compensate all or any damage sustained as a consequence of the freezing order.

Public Finance Act 1989, High Court Rules, Land Transfer Act 2007