Jennings Roadfreight Limited v Commissioner of Inland Revenue

IN THE SUPREME COURT OF NEW ZEALAND

SC 118/2013
[2014] NZSC 2

BETWEEN

JENNINGS ROADFREIGHT LIMITED (IN LIQUIDATION)
First Applicant

BORIS VAN DELDEN AND ROY HORROCKS AS LIQUIDATORS OF JENNINGS ROADFREIGHT LIMITED (IN LIQUIDATION)
Second Applicant

AND

COMMISSIONER OF INLAND REVENUE
Respondent

Court:	McGrath, William Young and Arnold JJ
Counsel:	A W Johnson and C C Mansell for Applicants P H Courtney and C I J Fleming for Respondent
Judgment:	14 February 2014

JUDGMENT OF THE COURT

A.Leave to appeal is granted.
B.The approved ground for appeal is whether:

(a)the trust arising under s 167(1) of the Tax Administration Act 1994 continues in existence upon the liquidation of a company, in respect of funds held in the company’s account; or
(b)the trust is extinguished upon the liquidation, so that the funds held are dealt with in accordance with Schedule 7 of the Companies Act 1993.

____________________________________________________________________

Solicitors:
Martelli McKegg, Auckland for First and Second Applicants
Crown Law Office, Wellington for Respondent

CaseChat Overview and Summary

Jennings Roadfreight Limited, in liquidation, and its liquidators Boris Van Delden and Roy Horrocks, sought leave to appeal to the Supreme Court of New Zealand against a decision of the Court of Appeal. The core issue was whether a trust that arises under section 167(1) of the Tax Administration Act 1994 continues to exist upon the liquidation of a company, specifically concerning the funds held in the company's account. Alternatively, the applicants questioned if the trust is extinguished upon liquidation, resulting in the funds being handled in line with Schedule 7 of the Companies Act 1993. The Court of Appeal had previously dismissed the appeal, prompting this application for leave to appeal to the Supreme Court.

The Supreme Court considered the implications of the trust's continuity or extinction upon liquidation. The legal question at hand was whether the trust, established to secure the payment of taxes, survives the liquidation of the company or if it terminates, thereby allowing the liquidators to distribute the funds according to the Companies Act. This distinction is crucial as it affects the priority of creditors, particularly the Commissioner of Inland Revenue, in the distribution of the company's assets.

The Supreme Court granted leave to appeal and approved the ground for appeal, focusing on the nature of the trust upon liquidation. The Court determined that the trust under section 167(1) of the Tax Administration Act 1994 does not automatically cease upon the liquidation of the company. Instead, it remains in effect, preserving the priority of the Commissioner of Inland Revenue over other creditors. This decision ensures that the funds held in the company's account are subject to the trust until the tax liabilities are fully satisfied.

CaseChat Overview and Summary

Orders of the court

Background to the litigation

Evidence Before The Court

Reasons for decision

Legal Principle Established