Trish Perry was ordered to repay $132,900 of their Opotiki company’s
cash used for family expenses at a time when the aluminium business owned jointly
with her husband was insolvent. Justice
Palmer pointed out that when family companies are in financial difficulty it is
tempting to stall on payments to Inland Revenue, but PAYE or GST are not a
company’s or its directors’ funds to use.
Having repaid many of the company’s creditors personally, the Perrys may
be in for a refund.
In 2013,
Inland Revenue put East Coast Aluminium Ltd into liquidation for unpaid taxes. Mrs Perry and husband Don are joint
shareholders and co-directors. The High
Court was told East Coast had traded successfully for many years, employing up
to twelve staff at its peak. But
competition in the aluminium joinery market and Mr Perry’s worsening health saw
company revenue fall. The Perrys said
they decided to defer payment of GST in March 2010, hoping to trade the company
out of its financial difficulties. The
position did not improve. Justice Palmer
ruled the company was clearly insolvent by that date. Company cash used to meet private expenses
from then amounted to an unsecured loan from the company to the Perrys
repayable on demand. Mrs Perry was
responsible for East Coast’s primary accounting records. She recorded the drawings as ‘Perrys’. Their accounting advisers drafting tax
accounts at year’s end labelled these drawings as ‘salary’. Justice Palmer ruled the withdrawals were not
at law a salary expense for the company: There was no evidence of an employment
contract; PAYE was not deducted; and there was no connection between the
Perry’s work done on behalf of the company and the irregular payments received.
Mrs Perry
said if liable, she was responsible for repayment of only half the value of
drawings taken. The drawings account was
in both their names. They were jointly
liable, Justice Palmer ruled. As a joint
obligation, Mrs Perry was liable for the full amount if her husband could not
contribute. Mr Perry was bankrupted in
2014. Now discharged from bankruptcy,
the slate is wiped clean. He is not
liable for any pre-bankruptcy debts.
There was
evidence that unpaid company debts at the date of the court hearing totalled only
$52,000. The Perrys personally paid some
of their company’s outstanding debts after liquidation. The Perrys are in line for a refund should
liquidators’ costs and legal expenses not exceed $80,000.
East Coast Aluminium Ltd v. Perry – High Court (5.03.18)
18.048