Christchurch
entrepreneur Richard Bethune was ordered to pay tax arrears of $538,200 after
washing staff tax costs for bar and restaurant Town Ball through related
company FAF Holdings and then hanging FAF out to dry, insolvent.
Mr Bethune generated publicity
for Town Ball using a giant inflatable rugby ball purchased from Tourism New
Zealand to mark his Christchurch bar and restaurant. After stopping trading in June 2014, Town Ball
cleared off its major debts except liabilities to FAF Holdings another Bethune
company responsible for Town Ball’s staff tax costs.
Mr Bethune operated the
Boogie Nights and Shooters bars briefly for three months before the second
major Christchurch earthquake in 2011 forced their closure. Eleven months later he set up a new venture: Town
Ball bar and restaurant. The High Court
was told a related company FAF Holdings Ltd was used to manage staff costs for
Town Ball. FAF was responsible for Town
Ball’s staff wages, PAYE, Kiwisaver deductions and student loan
obligations. Town Ball was invoiced
weekly. Town Ball claimed a GST credit
for the cost of FAF’s services. The
intent was for FAF Holdings to be tax neutral: money in from Town Ball would
meet all its tax liabilities. Evidence
was given that Town Ball’s operating losses caused FAF to stop full invoicing,
improving Town Ball’s liquidity but leaving a mounting unpaid tax debt with
FAF. When FAF Holdings was wound up
insolvent by Inland Revenue in December 2014, Mr Bethune as director denied all
knowledge of its deteriorating tax position.
An employee had hidden the true position he said. Justice Woodhouse held Mr Bethune liable for
breach of his duties as director of FAF: failing to act in good faith and
trading recklessly. He dismissed Mr
Bethune’s claim to have no knowledge of FAF’s deteriorating financial
position. Mr Bethune monitored the cash
flows of both Town Ball and FAF. Mr
Bethune improperly preferred the interests of Town Ball over that of FAF,
Justice Woodhouse ruled. Mr Bethune had
personally guaranteed Town Ball’s lease and its banking accommodation. Continuing to trade FAF Holdings for nearly
eighteen months with its escalating unpaid tax debt amounted to reckless
trading. As director of FAF he did not
force payment by Town Ball of its weekly staff costs. He was in a position to cancel the management
contract with Town Ball in order to limit FAF’s liabilities, but did not. This amounted to washing Town Ball’s ongoing tax
obligations into FAF. Mr Bethune was
held personally liable to compensate FAF Holdings for its unpaid tax bill.
FAF
Holdings Ltd v. Bethune – High Court (15.11.17)
18.003