Perpetual Trust: Trustees Executors v. Perpetual Trust

High Court orders have smoothed the way for Perpetual Mortgage Fund to be wound up.  The fund is illiquid.  It cannot honour the 437 redemption requests outstanding as at 11 September 2012 seeking payment of $18.3 million due to investors.

Investors learned in July 2012 that Perpetual was not able to honour Mortgage Fund redemption requests.  A court-ordered moratorium was imposed and two independent observers, Ms Fatupaito and Mr Duffy, were appointed to oversee Fund management.  This followed regulatory concerns about loans totalling $28.2 million made to business interests related to Perpetual.  The loans have since been repaid but investor nervousness about the probity of Perpetual management caused a run on its investment funds.

The Securities Act allows investment funds to be brought under judicial control where there is a significant risk that investors will be harmed.

The High Court was told that Perpetual’s Mortgage Fund is illiquid and cannot meet the avalanche of redemption requests.  Assets held by the fund may be insufficient to repay investors in full.  Short of a winding up, there is a risk some investors will be paid in full while others paid later may not.  This raises the possibility of unequal payouts to Mortgage Fund investors.

The Court was also told of concerns that further related party lending could be sourced from the Perpetual Cash Fund.

Court orders were made streamlining the process for winding up the Perpetual Mortgage Fund and to block any potential related party lending from the Perpetual Cash Fund.

Trustees Executors v. Perpetual Trust – High Court (19.09.12)

12.028

Tax: Tauber v. Inland Revenue

The Court of Appeal has dismissed challenges to search warrants obtained by Inland Revenue for access to private homes of people behind the Honk Group of companies.  Tax investigations allege tax avoidance and false tax returns. 

Inland Revenue must get a search warrant before entering the private home of any taxpayer.  Warrants were obtained to search the homes of David Andrew Tauber and Paul Nigel Webb, entrepreneurs behind the Honk group of companies and also the home of Maree Anne Bockett, a chartered accountant acting as tax agent for the Honk group through her company MB Accountants Ltd.

They argued the warrants were invalid because Inland Revenue had “over-egged the pudding” when applying for the warrants by presenting misleading information and overstating any alleged wrongdoing by the taxpayers.  The Court ruled that even if such flawed information was stripped out of the warrant application there were still grounds for issuing the search warrants.

The Court was told the tax investigation has been underway since 2008.  There had been extensive delays in providing information requested by Inland Revenue.  There were doubts as to the completeness of information provided. 

Inland Revenue was running up against statutory deadlines for issuing tax assessments and suspected the taxpayers were exploiting delays as a deliberate strategy.

Files seized had been embargoed while validity of the search warrants was argued in court.  The Court of Appeal ruled that Inland Revenue could use the information seized.  Honk Airport Trustees Ltd and Honk Land Trustees Ltd, two companies in the Honk group, are already involved in disputes before the Taxation Review Authority.  Inland Revenue said it took special care in both planning the investigation and carrying out the search and seizure to ensure it did not take any documents relevant to this litigation.

Tauber v. Inland Revenue – Court of Appeal (7.09.12)

12.042

Proceeds of crime: Solicitor-General v. Field

Disgraced member of parliament Philip Hans Field has been ordered to pay $27,480 being the assessed value of work carried out on his properties by immigrants providing free labour in the hope of getting a New Zealand visa.  This payment is in the nature of a fine, paid to the government not the immigrants personally.

Sentenced to six years imprisonment in 2009 after being convicted of bribery and attempting to pervert the course of justice, Field was sued under proceeds of crime legislation.  These rules are designed to stop offenders benefitting from crimes committed.

A number of Thai immigrants worked on five properties owned by Field: four properties in New Zealand and a house under construction in Samoa.  The work involved tiling, plastering and painting.  Evidence for the government priced the value of the “free” labour at $58,000.  Some of the work was described as being of a low standard and “pretty shoddy”.  Field said there is a difference between a thorough job and a quick job; he valued the labour at approximately $15,500.

The High Court fixed the penalty payable at $27,480.

Evidence was given that the four New Zealand properties were sold at an aggregate profit of $387,500 after being owned on average for a period of 18 months.

Solicitor-General v. Field – High Court (3.09.12)

12.025