Application to stay liquidation proceedings
2014 case note - Court held that the CIR entitled to bring proceedings as a creditor - Trinity, liquidation, stay proceedings.
The Court dismissed the defendant's application to stay liquidation proceedings brought by the Commissioner of Inland Revenue ("the Commissioner"), finding the Commissioner was a creditor for the purposes of recovering tax and further that the application to appoint liquidators was not an abuse of process.
Impact of decision
The Court held that the Commissioner is entitled to bring these proceedings as a creditor.
The judgment reinforces the points made in Raynel v Commissioner of Inland Revenue (2004) 21 NZTC 18,583 (HC) ("Raynel") and Commissioner of Inland Revenue v Ben Nevis Forestry Ventures Ltd  NZHC 1746 regarding the Commissioner's obligation to preserve the integrity of the tax administration system in enforcement/recovery proceedings. In this case, although recovery was unlikely, the integrity of the tax system provided a sound justification for liquidation proceedings.
Redcliffe Forestry Venture Ltd ("Redcliffe") was a party to a forestry venture (known as the Trinity scheme) which was held to be a tax avoidance scheme by the High Court (Accent Management Ltd v Commissioner of Inland Revenue (2005) 22 NZTC 19,027 (HC)), Court of Appeal (Accent Management Ltd v Commissioner of Inland Revenue  NZCA 230; (2007) 23 NZTC 21,323 (CA)) and Supreme Court (Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue  NZSC 115;  2 NZLR 289). The Commissioner applied to appoint a liquidator in respect of unpaid tax assessments confirmed by the Supreme Court. This proceeding concerned Redcliffe's application to stay those proceedings.
Is the Commissioner a creditor?
Courtney J referred to, and relied upon, similar applications brought by Ben Nevis Forestry Ventures Ltd and Bristol Forestry Venture Ltd (Commissioner of Inland Revenue v Ben Nevis Forestry Ventures Ltd  NZHC 1746) in which she had to consider the same arguments. Her Honour concluded that section 156 of the Tax Administration Act 1994 ("TAA") conferred creditor status on the Commissioner for the purposes of bringing liquidation proceedings under section 241 of the Companies Act 1993.
Her Honour also noted that the Court of Appeal has rejected a similar argument by Redcliffe (and others) made in appeals against Associate Judge Faire's (as he was then) decision not to set aside statutory demands issued by the Commissioner (Redcliffe Forestry Venture Ltd v Commissioner of Inland Revenue  NZCA 349).
Are the liquidation proceedings an abuse of process?
Her Honour referred to Raynel, where Randerson J considered that section 6A(3) of the TAA prevailed over other provisions in the Inland Revenue Acts, including section 176 of the TAA; and that the obligation to collect the highest net revenue was not an absolute one. The Commissioner was also required to have regard to the available resources, the importance of promoting compliance by all taxpayers and the compliance costs incurred by taxpayers.
Her Honour, agreeing with Randerson J, considered that Redcliffe, not trading and having no assets, had engaged the Commissioner in expensive litigation and held that, as a consequence, there is no abuse by the Commissioner in seeking to have liquidators appointed.
Is there a genuine dispute and should a stay be granted pending the outcome of outstanding appeal?
Her Honour noted that the outstanding appeal against Associate Judge Faire's refusal to set aside a statutory demand, which the applicant was referring to, has now been dismissed.
Referring to Associate Judge Faire's finding that there was no basis on which to find a genuine dispute as the position had been finally determined by the Supreme Court in 2008, her Honour found that tax is due under assessments confirmed by the Supreme Court in 2008 and the application to appoint liquidators is part of that process.
Her Honour also held that the existence of an appeal against the decision not to set aside the statutory demand is not a good reason for staying the proceedings.
Is there prejudice to the Commissioner in granting the stay?
The defendant submitted that there was no prejudice to the Commissioner in granting the stay as Redcliffe is not trading and there are no assets at risk of dissipation. However, her Honour did not find this submission to be persuasive, stating that so long as Redcliffe's status remains undetermined, the Commissioner will continue to incur costs in relation to the litigation pursued by this insolvent company.
The High Court dismissed the defendant's stay application.
Companies Act 1993, Tax Administration Act 1994