Clooney restaurant owner Tony Stewart was ordered to pay Inland Revenue $585,200 after setting up a ‘phoenix company’ to stay in business while attempting to escape tax debts.
Clooney was the place to dine in Auckland inner city suburb Freemans Bay from the mid-2000s. Tony Stewart was sole owner by 2013, as fellow investors dropped out. The High Court was told Clooney was hopelessly insolvent. Inland Revenue threatened legal action. A scheme was hatched: all company assets were transferred to a new company trading under the name Clooney; all debts were also transferred, except debts owed Inland Revenue. The net purchase price was $3300, with tax debts cut free. The ‘old’ Clooney business was then put into liquidation. Having no assets, it left Inland Revenue high and dry. A ‘phoenix company’ rose from the ashes to carry on his restaurant business.
Inland Revenue sued Mr Stewart personally for his companies’ tax debts. Justice Jagose ruled Mr Stewart personally liable for tax debts of both his old business and his phoenix company.
As regards his old business, left to crash and burn, Mr Stewart was in breach of the Property Law Act (moving assets to the detriment of Inland Revenue as a creditor) and in breach of his duties as a director under the Companies Act (prejudicing creditors). Damages were assessed at $385,958.
In addition, Mr Stewart was held personally liable for tax debts of his new phoenix company; $201,256 and counting. Company law prohibits directors of a failed company from carrying on the same business under a similar name for the next five years.
Inland Revenue v. Clooney Restaurant Ltd – High Court (10.03.20)
20.053