It is a common tax tactic to split income by arranging consultancy work through a corporate, a tactic which hampered Philip Middleton in his dispute with Douglas Leef in their tussle over control of a one million dollar pot left unused from a Social Development grant to train Maori apprentices in the construction industry.
The two are 50/50 shareholders in West Auckland based Mana Within Ltd, which had a two year contract with Social Development starting late 2021. It was expected Mana would provide training and pastoral support to about fifty apprentices.
Both are directors. Neither Mr Middleton nor Mr Leef were on the Mana payroll as fulltime employees. Each set up separate consultancy companies, invoicing Mana Within for work done.
This arrangement worked to Mr Middleton’s disadvantage when the two fell out
He alleges Mr Leef was working behind his back, bad mouthing him to Social Development and attempting to cut him out of any contract renewal.
In turn, Mr Leef alleges Mana funds have been wrongly diverted to Mr Middelton’s consultancy company.
In 2023, Mr Middleton had the High Court partially freeze Mana’s bank account; as leverage in negotiations between the two, Mr Leef alleges.
Two years later, their dispute came to a full court hearing.
In the interim, Social Development has been undertaking an audit of Mana’s performance and use of funds. To date, it has not stepped in asking the unspent one million dollars be kept frozen, the court was told.
In the High Court, Justice Gardiner ruled Mr Middleton, as a shareholder of Mana Within, had no grounds to demand company assets be frozen. He had suffered no harm or loss, as a shareholder.
The earlier freezing order was lifted.
Mr Middleton’s primary complaint is that Mr Leef’s conduct may have adverse consequences for his future consultancy work. In his role as an outside consultant to Mana Within Ltd, Mr Middleton cannot use Companies Act rules to resolve a dispute with a fellow director, she ruled.
As a final observation, Justice Gardiner commented the only sensible way forward is for one shareholder to buy out the other, or their company be liquidated.
Middleton v. Leef – High Court (18.03.25)
25.086