Tax: Inland Revenue v. Wilson

The High Court has no power to unilaterally approve taxpayer offers of a deal over tax arrears without Inland Revenue first agreeing.

Inland Revenue successfully appealed a High Court order allowing Rotorua car dealer Ronald Maxwell Wilson resist bankruptcy by paying $150,000 over five years supposedly in full settlement of tax arrears.  He made this offer when faced with a bankruptcy notice in the High Court; a precursor to bankruptcy.  The High Court was sympathetic, expressing the view this would see Inland Revenue paid in full.

The Court of Appeal was told it was not that simple.  In fact, Mr Wilson at that time had tax arrears totalling some $225,000 for unpaid income tax, child support, GST and penalties for late payment.  Inland Revenue turned down previous offers to pay arrears by instalments.  It said figures presented by Mr Wilson left him and his wife with only $585 per month to live on after making promised instalment payments.  Suggestions of raising a loan to make payments lacked evidence of how such a loan could be repaid.  The integrity of the tax system required firm action be taken against those not complying, Inland Revenue said.  Bankruptcy sent this message.

Creditors have a say under the Insolvency Act when deals are on offer.  A creditor may agree to withdraw a bankruptcy notice in return for a favourable offer of payment.  Or creditors collectively may vote on a proposal for debts to be reduced or payment terms extended. 

Inland Revenue v. Wilson – Court of Appeal (31.3.17)

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Tax: Exfc 16 Ltd v. Customs

Possession is nine-tenths of the law and Customs looks to have first claim against $587,000 held as security against imported clothing released during inquiries into a long-running double-invoicing scam run by Auckland retailers Jenny Elizabeth Joblin and Nicholas James Clegg.

Joblin and Clegg were convicted and fined in 2016 for engineering a double-invoicing scam between 2010 and 2014 that saw GST and customs duty totalling some $680,000 evaded with bulk clothing imported from China undervalued by about $2.8 million.  Chinese exporters provided two sets of invoices for Joblin’s and Clegg’s companies Federation Clothing Ltd, Public Gallery Ltd and Only For You Ltd enabling a reduced price to be declared at the border for tax assessment.

These companies went into liquidation in February 2016, leaving liquidators to tidy up the mess.  The High Court ruled it was in the public interest for prosecutions to continue against all three insolvent companies despite their liquidation.  The liquidators challenged fines imposed: Federation $450,000; Public Gallery $45,000; Only For You $20,000.  They said it was pointless fining the companies when creditors were not going to be paid in full.  Justice Lang refused to reduce the fines.  Significant fines are required to deter others, he said.  The rewards from false invoicing are great and the risk of detection is low.

Payment of the fines is a separate issue.  Court fines are not a provable debt on insolvency. Fines remain outstanding despite personal bankruptcy or company liquidation, although in the case of a company this is of limited benefit since a company does not live on after liquidation. The liquidators demanded Customs hand over $587,000 cash held as security for the release of one container holding stock required for sale.  These funds were borrowed from ASB Bank after Customs held up the container when first investigating suspicions of a double-invoicing scam.  ASB claims the loan’s circumstances were misrepresented and it is an innocent victim of double-dealing by Joblin and Clegg.  Justice Lang said the Customs and Excise Act allows Customs to seize goods for unpaid taxes.  This right of seizure extends to cash bonds paid over as substitute for the goods' release.    

Exfc 16 Ltd v. Customs – High Court (28.03.17)

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Construction: Eltek Australia v. Firth

One party to a construction dispute can unilaterally force Construction Act adjudication under a commonly used standard-form subcontract the High Court ruled in a $2.5 million dispute between Hawkins Construction and Eltek, an Australian power train supplier.  

Hawkins allege the Eltek power train intended to provide back-up emergency power for a data centre in South Auckland was defective.  It is looking to recover losses in excess of its insurance recovery for downtime at the Takanini data centre plus the cost of replacement parts.  Eltek claims Hawkins is to blame by not providing filtered air leading to contamination by dust, moisture and salt.

Eltek’s equipment was provided under a standard-form subcontract agreement in common use throughout New Zealand which states: Disputes may be dealt with by adjudication as provided for in the Construction Contracts Act. These statutory adjudications create a relatively quick and cheap way of settling disputes.  It does not preclude court action.  Adjudication can be used as a “dummy run” before heading to court.

Hawkins opted for adjudication.  Eltek said it couldn’t be forced into adjudication.  Justice Wylie ruled Hawkins alone could force adjudication.  By signing up to the standard-form subcontract, Eltek had agreed either party “may” demand adjudication.  

Eltek Australia v. Firth – High Court (16.03.17)

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