Convictions for offences under the TAA do not disqualify individuals from acting as liquidators under the Companies Act 1993
2016 case note - Convictions under the Tax Administration Act do not disqualify individuals from acting as liquidators - prohibition order, strike-out.
The High Court struck out two proceedings brought by the Commissioner of Inland Revenue ("the Commissioner") seeking orders prohibiting an individual from acting as a liquidator for up to five years. The Court found it could not overcome the fact that convictions under the Revenue Acts are not expressly included within the disqualifying criteria set out in s 280 of the Companies Act 1993 ("the Act"). The Court also found that the Act does not impose any general "fit person" requirement on potential liquidators and that resignation as liquidator prior to the proceedings being brought ended any supervisory powers the Court may have had in respect of orders under s 286 of the Act.
The decision confirms that unless an individual falls within any of the express categories set out in s 280 of the Act, they will not be disqualified from acting as a liquidator. The decision also confirms there is no general "fit person" requirement for potential liquidators and the Court does not appear to have jurisdiction to make s 286 orders in relation to liquidators who resign prior to proceedings commencing.
From 17 October 2005 Mr Kamal and his company Accountants First Limited ("AFL") were on the Commissioner's list of approved tax agents.
On 15 February 2013 Mr Kamal, having pleaded guilty to six charges under the Tax Administration Act ("the TAA") of aiding and abetting AFL in providing false income tax and GST returns, and in providing misleading information to the Commissioner by way of altered tax invoices, was sentenced to three months' home detention and 150 hours of community work.
On 19 February 2014, the Commissioner sought to remove AFL from the list of approved tax agents. Mr Kamal unsuccessfully sought judicial review of that decision.
The Commissioner was a creditor of two companies, Hillman Ltd ("Hillman") and GDZ Services Ltd ("GDZ") which were both put into liquidation by shareholder resolution in 2014. In both instances the liquidator appointed was Mr Kamal who, through AFL, had continuing business relationships with two other companies involving some of the same directors and shareholders of the companies in liquidation.
In each liquidation Mr Kamal issued a Liquidator's First Report noting that he proposed to dispense with a meeting of creditors pursuant to s 245 of the Act. In each instance the Commissioner gave notice she required that a creditor's meeting be called (with a view to appointing replacement liquidators) and in each instance Mr Kamal failed to comply. The Commissioner subsequently sent Notices of Failure to Comply with Liquidator's Duties inviting a response as to how the failure would be remedied and that any failure to rectify would result in legal action to compel compliance. Mr Kamal declined to hold creditors' meetings.
The Commissioner served notices on Mr Kamal under s 286(2) of the Act requiring him to resign as liquidator and provide a written undertaking that he would not accept appointments as liquidator of any company for five years from that date. Mr Kamal resigned as liquidator but declined to give any such undertaking.
The Commissioner sought to have Mr Kamal prohibited from acting as a liquidator on the basis that he was unfit to accept appointment, or act, as liquidator. Mr Kamal pleaded that he resigned as liquidator before the Commissioner commenced the proceedings and there is no basis for the prohibition order the Commissioner now seeks. Mr Kamal applied to strike out portions of the Commissioner's statements of claim.
The Court struck out the entirety of both the Hillman and GDZ proceedings.
Was it reasonably arguable for the Commissioner that any general unfitness of Mr Kamal to accept appointment, or act as, liquidator amounted to a failure to comply with a "duty" as defined in s 285 of the Act? (Issue 1)
The Court noted that s 280 (which sets out a list of circumstances which disqualify someone from accepting appointment as a liquidator) does not include in the list conviction for offences involving dishonesty under the TAA. The Court did not accept the Commissioner's submission that the list in s 280 is not exhaustive.
The Court found that the references to s 280 in s 286(4) suggest that the power to remove a liquidator under s 286(4) is limited to the particular circumstances which are identified, in s 280, as disqualifying circumstances and that if there were a broader disqualifying ground of "unfit for appointment as liquidator generally", it is difficult to see why Parliament would have limited the relevant part of s 286(4) to disqualification under s 280.
The Court found that the Act does not impose any general requirement of fitness on liquidators, and it would be beyond the Court's function to add an overarching "fitness" requirement to the detailed list of disqualifying circumstances which Parliament has prescribed in s 280.
The Court held that there was no continuing failure by Mr Kamal to comply with a general duty to be a fit person to accept appointment as or to act as liquidator at the time the Commissioner commenced these proceedings.
If the answer to Issue 1 was "yes", was it reasonably arguable for the Commissioner that Mr Kamal was guilty of a continuing breach of that duty at the time these proceedings were commenced? (Issue 2)
Given the conclusion reached on Issue 1, the Court did not find it necessary to examine Issue 2.
Was it reasonably arguable for the Commissioner that, at the time these proceedings were commenced, there was a continuing failure by Mr Kamal to comply with duties to disqualify himself from appointment as liquidator of Hillman and/or GDZ on account of his alleged continuing business relationships with directors of those companies and to convene meetings of the creditors of Hillman and/or GDZ? (Issue 3)
The Court considered that while Mr Kamal's respective resignations as liquidator of Hillman and GDZ may not have had the effect of curing the breaches relied upon by the Commissioner, they did have the effect of eliminating any continuing failure to comply with the relevant duties. The Court found that once Mr Kamal had resigned he was no longer bound by the duties on which the Commissioner was relying to seek the prohibition orders sought.
The Court took the view that Mr Kamal was no longer bound by the relevant Companies Act duties when he resigned and that s 284(2) could not be called upon to try and overcome the plain words of s 286(2).
If it was reasonably arguable for the Commissioner that when these proceedings were issued Mr Kamal was guilty of a continuing failure to comply with a relevant duty or duties, was it also reasonably arguable for the Commissioner that the seriousness or persistence of the failure or failures was such as to make Mr Kamal unfit to act as a liquidator? (Issue 4)
Given the conclusion on Issue 3, the Court did not find it necessary to resolve this issue.
The Companies Act 1993