Clearly frustrated with his continued tax defaults, Inland Revenue was outmanoeuvred by Wellington lawyer Mike Garnham who had the High Court approve an Insolvency Act part-payment scheme, forcing Inland Revenue to accept less in full payment than offered previously and rejected.
The High Court was told of Mr Garnham’s thirty year history of tax non-compliance which has seen legal action taken against him multiple times, various settlement offers negotiated, and significant tax write-offs agreed.
Over the last two decades, Inland Revenue commenced legal action on five separate occasions to recover tax arrears.
In 2023, Inland Revenue took steps to bankrupt Mr Garnham on tax debts then amounting to $737,000. Further penalties have since accrued.
This was not the first time bankruptcy has been threatened by Inland Revenue.
He applied for Tax Administration Act financial relief on hardship grounds, blaming non-payment variously on his spouse’s ill health, the incompetence of his former office manager and the later illness of a newly employed accountant.
Inland Revenue did not agree to yet another tax write-off benefitting Mr Garnham. Multiple write-offs threaten the integrity of the tax system, challenging conscientious taxpayers who pay tax when due, it said.
Refused any tax relief, Mr Garnham set up an Insolvency Act part-payment scheme.
If approved by a majority of creditors who between them hold seventy five per cent of affected debt, the proposal is binding on all creditors, following court approval.
Associate judge Skelton approved a proposal which saw a family trust providing $380,000 to part-pay Mr Garnham’s unsecured creditors an estimated ten to fifteen cents in the dollar. The exact payout depends on how much of the $380,000 is used to pay costs of getting court approval and then administering the proposal.
Inland Revenue voted against; owed $300,000 as a preferential creditor for unpaid GST and about $600,000 as an unsecured creditor.
Mr Garnham’s proposal offers full payment to creditors owed less than $5000; part-payment to creditors owed above $5000.
Inland Revenue complained that included as unsecured creditor votes in favour were a family trust and family companies; owed $4.3 million by Mr Garnham. They should be excluded from the vote, Inland Revenue said. His proposal specifically deferred any payment going to these related party creditors.
Excluding the $4.3 million owed related party creditors from the vote would see Inland Revenue in control, defeating the proposal by voting against with a now re-calculated ninety per cent of unsecured debt.
Judge Skelton left in the related party votes; meaning seventy-five per cent of debt by value remained in favour.
Family finances are funding the proposal, he said. Creditors would receive less on bankruptcy.
Separately, Inland Revenue argued it is not bound by Insolvency Act part-payment proposals; it has its own bespoke procedure in the Tax Administration Act for negotiating hardship concessions with tax defaulters.
Tax Administration work-outs are a bilateral process between Inland Revenue and individual taxpayers, Judge Skelton said. Where there are multiple creditors affected by a part-payment proposal, Insolvency Act rules apply and Inland Revenue is bound by these rules, he said.
Approving Mr Garnham’s part-payment proposal, Judge Skelton required proposal wording be amended to make it clear that Inland Revenue’s preferential claim for $300,000 takes priority, and is to be paid in full, before any part-payment to unsecured creditors.
Inland Revenue v. Garnham – High Court (17.10.25)
25.220