Used-car importer Auto Terminal’s restructuring in 2009 was triggered by a scheme to hide its true financial position; a restructuring which resulted in Inland Revenue disallowing six million dollars in past tax losses and is now resulting in worldwide litigation over control.
Robert Stone and Hohua Hemi built up a lucrative used car trade, exporting vehicles from Japan for the New Zealand market. Their Japanese registered company IBC Japan Ltd hoovered up used cars in Japan; Auto Terminal New Zealand Ltd on-sold them in New Zealand. That was before Mr Stone and Mr Hemi fell out. The High Court was told Auto Terminal had a net worth of some $43 million as at September 2019. Ownership is fiercely disputed.
Auto Terminal’s financial position was not always so rosy. The High Court was told Auto Terminal had negative equity of some fifteen million shortly after the 2008 global financial crisis. The corporate structures used by Mr Stone and Mr Hemi had Auto Terminal one hundred per cent foreign owned. It would have to file financial statements with the Companies Office, auditors told them. This would disclose Auto Terminal’s parlous financial position to both creditors and customers. A scheme was hatched, giving Auto Terminal the appearance of a locally-owned company no longer required to file financial statements. Auto Terminal’s shareholding was transferred to Hamilton resident Mike Tyler.
This change of ownership triggered tax issues for Auto Terminal. Trading in tax loss companies is discouraged; tax rules prohibit carrying forward tax losses following a change in ownership. A 2014 Inland Revenue audit disallowed $15 million in tax losses Auto Terminal claimed for the 2009 tax year, a tax assessment later amended to six million dollars tax losses disallowed.
Mr Tyler acknowledges he holds his Auto Terminal shares in trust, but disputes terms of this trust. There is nothing signed. Mr Hemi pushed the issue. In the High Court, Mr Tyler acknowledged he holds the shares on trust for a Cayman Island company: Auto Net. He said returning the shares to Auto Net requires approval from both Mr Stone and Mr Hemi. Mr Stone told the High Court he wanted the shares to remain with Mr Tyler until all ongoing disputes with Mr Hemi are sorted out. Mr Tyler also said he is entitled to keep control of the shares as security to meet legal expenses.
Associate judge Smith dismissed Auto Net’s immediate demand to regain control of Auto Terminal. A full court hearing is needed to establish clearly the terms of trust on which Mr Tyler controls Auto Terminal. The Trustee Act allows Mr Tyler to recover his legal expenses from the value of Auto Terminal shares under his control, Judge Smith ruled. But this indemnity relates only to legal action over the terms of trust on which he holds the shares; it does not extend to legal expenses incurred defending other legal proceedings Mr Hemi has currently underway. Mr Hemi alleges Mr Tyler is in breach of directors’ duties in management of several companies within the Stone/Hemi corporate empire.
Auto Net v. Tyler – High Court (21.09.20)
20.154