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Corporate trustee, GST, Trustee liability, Trustees

Mistakes abound

CIR v Robertson relates to the recovery of GST paid by the Commissioner of Inland Revenue from the liquidator of corporate trustee Hukatere Coastal Trustees Limited (Hukatere) that received the GST in question.

The case is a relevant reminder of the importance of recognising the corporate aspects of trustees and the risks to liquidators when the trust for which a corporate trustee acts can prove somewhat fluid.  Also see The trustee did it.

The identity of the trust relationship and the obligations owed by a liquidator to the corporate entity require careful reflection.

Relevant background from the judgment

[4] Mr Robertson took the view the GST refunds were properly payable to the trustee of the WBR Trust, which he belatedly understood Hukatere had ceased to be prior to his appointment as liquidator, and paid them across.

[6] Hukatere was incorporated on 12 November 2004. Roy Victor Brown was Hukatere’s sole director and shareholder, and settlor of the WBR Trust on Hukatere as trustee by deed dated the same day. The deed provided the office of trustee is vacated if the trustee is put into liquidation.

[8] The Commissioner served Hukatere, as trustee of the WBR Trust, with a statutory demand dated 15 March 2010 for some $211,000 of unpaid GST payments and penalties.

[10] As Hukatere’s director, Mr Brown resolved Hukatere was unable to pay its debts as they fell due, and as its shareholder, appointed Mr Robertson as liquidator, who consented to that appointment. Resolution, appointment, and consent all occurred at noon on 14 April 2010.

[19] On 7 July 2010, the Commissioner asked Mr Robertson as liquidator for information in relation to … Hukatere. … Mr Robertson responded:

I need to take legal advice as regards my position as Liquidator of Hukatere Coastal Trustees Limited (In Liquidation). If the Company is no longer the Trustee and I believe it not to be, then it is simply a creditor of an insolvent trust with no power over any of the assets, if there were any. I need to clarify what are my powers in relation to recovering any monies on behalf of the Trustees [sic] Creditors. That after all is the purpose of any Liquidation.

[22] On 13 September 2010, the Commissioner advised Mr Robertson the WBR Trust was deemed to have accepted the Commissioner’s position set out at [17] above.

She explained “[t]he Trust will receive Notices of Assessment shortly confirming these changes”. On 16 September 2010, the Commissioner advised Mr Robertson “the audit of the WBR Trust has now been completed”. On 24 September 2010 and 19 October 2010, the Commissioner then disbursed cheques respectively for $157,662.04 and $2,248.54 to Mr Robertson.

[27] In January 2012 – after some interlocutory skirmishing on the Commissioner’s application to disqualify Mr Robertson from acting as liquidator for … Hukatere – Mr Robertson proposed resigning …  To consider that proposal, the Commissioner requested a full account of all funds received “(including GST refunds)”, and of payments made … Mr Robertson’s counsel advised “Mr Robertson received no funds … he made no payments”. The Commissioner’s solicitors identified the GST refunds paid to Mr Robertson, and sought confirmation he retained them. Mr Robertson counsel forwarded Mr Robertson’s explanation:

After my appointment a cheque arrived in the post a[d]dressed to the Trust. It was banked into my Trust Account awaiting clarification of what I needed to do with it as I planned to return it to the IRD.

The Trust (by way of the replacement Trustee) advised their Accountant who then advised me that a new Trustee had been appointed prior to my appointment and I had no right to withhold the proceeds and insisted that I release the monies without deduction, I did so.

That is the total explanation.

[29] Mr Robertson initially responded constructively to the new liquidators’ request for information about Hukatere. He explained:

I received one GST refund. I banked it believing it belonged to the Trustee and would be available to make payment to the IRD, it was after all a refund that I understood was due, however I was advised [differently], so I released it to the replacement Trustee.

But follow up requests were met only by Mr Robertson’s provision of information predating the liquidation, but refusing information arising thereafter on grounds “the Liquidation has been ‘[j]udged not to have taken place’”.

The position at trial is set at  as follows:

[35] Mr Robertson’s counsel, Alexandra Low, provided a helpful memorandum of issues for trial, in which Mr Robertson accepts:

(a) Hukatere was liable for WBR Trust’s GST obligations, and Mr Robertson received the GST refunds as Hukatere’s agent;

(b) s 310 had application in Hukatere’s liquidation to require the amount due from the Commissioner to Hukatere to be set off against the amount due from Hukatere to the Commissioner;

(c) Mr Robertson was wrong to comply with directions to disburse the GST refunds without taking advice on those instructions; and

(d) “he has failed in his duties of care and skill as a liquidator in respect of the GST refunds”, giving rise to liability to pay compensation under s 301(1)(b)(ii).
Given those concessions, I need not to rely on expert evidence given by Andrew John McKay for the Commissioner, as to how a reasonable liquidator in Mr Robertson’s position would have dealt with the GST refunds.

Notwithstanding any error on the part of the Commissioner in the disbursement of the GST refund to Mr Robertson (in his capacity as liquidator), Jagose J was satisfied that there was no credible basis for Mr Robertson to believe that the GST refund was properly paid to him.  The evidence in the case was that “he was instructed to disburse the GST [refund] and complied without more introspection.” As a result he was liable to the loss to the Commissioner of Inland Revenue.

References:

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