Trinity investor’s application to set aside the commissioner’s statutory demand dismissed by High Courts
2013 case note – High Court dismisses Trinity Scheme investor's application to set aside CIR's statutory demand – liquidation, recall.
Companies Act 1993, Tax Administration Act 1994
An application made by the plaintiff to set aside the Commissioner of Inland Revenue's ("the Commissioner") statutory demand application. The plaintiff submitted that the amount claimed by the Commissioner was yet to be determined. The Court found that the amount owing had been determined in an earlier judgment and ordered the plaintiff to pay the sum of $819,268.18 within 10 working days of this judgment.
Impact of decision
Pending challenges as to a loss attributing qualifying company's ("LAQC") shareholder's tax liability will not be sufficient ground to set aside a statutory demand requiring payment from the LAQC.
Redcliffe Forestry Venture Limited ("the plaintiff") applied for various orders relating to a statutory demand which was served. The statutory demand is sought by the Commissioner for the payment of $819,268.18, made up of tax shortfall penalties and interest for the 1998 tax year arising from Redcliffe's involvement in the Trinity tax avoidance arrangement.
The Supreme Court in 2008 found the plaintiff liable for shortfall penalties (Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue  NZSC 115,  2 NZLR 289 at –). The plaintiff was a party to the challenge to the Commissioner's assessment under Part 8A of the Tax Administration Act 1994 ("TAA") which was heard before Venning J as a hearing authority and subsequently upheld by the Court of Appeal (Accent Management Ltd v Commissioner of Inland Revenue  NZCA 230, (2007) 23 NZTC 21,323) and the Supreme Court (Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue,  NZSC 115,  2 NZLR 289).
The plaintiff submitted that the Commissioner's claim was a claim for a contingent or prospective composite sum, the amount of which was yet to be determined. It was submitted that the amount would not be known until the challenges made by the shareholders had been determined and that a separate calculation was required by virtue of section 141(3) of the TAA.
The Court determined that the calculation had already been undertaken and approved by the courts' decisions taken in their capacity as hearing authority and the subsequent appellate courts. Faire AJ concluded that there was no substantial dispute in that the plaintiff had failed to make out a case based on section 290(4)(a) of the Companies Act 1993. The debt is due.
An application to the Supreme Court was made by the plaintiff after the hearing, to recall a paragraph (paragraph 214) of the Supreme Court judgment (Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue  NZSC 115,  2 NZLR 289). Faire AJ found that this application confuses the judgment on the one hand with the reasons for the judgment on the other. He found that the formal judgment is admissible evidence of the outcome of the case and that without recall of the formal judgment the result as pronounced by the Supreme Court stands.
The Court considered the decision in Commissioner of Inland Revenue v Chester Trustee Services Ltd  1 NZLR (CA) 395 at  where it was observed that:
- All cases involving s 290(4)(c) must in the end come down to a judgment by the Court as to whether the creditor's prima facie entitlement is outweighed by some factor or factors making it plainly unjust for liquidation to ensue.
Guidance was also given by the Court of Appeal in AMC Construction Ltd v Frews Contracting Ltd  NZCA 389, (2008) 19 PRNZ 13 at  stating that:
- … it is difficult to imagine circumstances in which the company should be able to avoid paying a debt, merely by proving that it is able to pay that debt. If the debt is indisputably owing, then it should be paid.
The Court considered the alternative ground referred to in the papers that relied on section 290(4)(c) of the Companies Act 1993. The argument was based on there being an abuse of process due to the fact that challenges to assessments that had been filed by the shareholders had not been concluded. Faire AJ concluded that that matter is no answer to the plaintiff's liability to the Commissioner, having regard to the Supreme Court's decision and that there were no proper grounds for applying section 290(4)(c) to this case.
In respect of immediate liquidation, both parties advised that they did not wish to contest the conclusions that were set out in  to  of the judgment in Bristol Forestry Ventures Ltd  NZHC 2384 case. It was therefore concluded that it was not an appropriate case to order the immediate winding up of the company and the appointment of a liquidator.
The plaintiff was ordered to pay the sum of $819,268.18 within 10 workings days of the judgment. In the event of default of payment, the Commissioner is permitted to make an application to put the plaintiff into liquidation.