Capital + Merchant receivers win right to appeal personal liability

Thursday 5th April 2012

The receivers for failed lender Capital + Merchant Investments (CMI) have won the right to appeal a High Court judgment that left them personally liable for a tax bill from the sale of five mortgagee properties, though they’re obliged to make sure Inland Revenue gets paid.

The Court of Appeal allowed Richard Simpson and Tim Downes of Grant Thornton to appeal a High Court decision that left them personally liable to pay $1.2 million in goods and services tax when they sold five CMI properties through the course of their receivership, according to a March 30 judgment delivered by Judge Douglas White.

Still, Judges Terence Arnold, Ellen France, and White, directed the receivers that they are obliged as receivers to pay the GST. The judgment was published on the Ministry of Justice’s website this week.

“Messrs Simpson and Downes, as receivers of CMI, do not at this stage have ‘personal liability’ for payment to the commissioner of the GST payable by CMI in relation to the five specified mortgagee sales undertaken by CMI,” the judgment said.

“No question of the receivers being required to put their hands into their own pockets arises, because for the reasons we have given, the receivers are obliged to account to the commissioner for the GST that was in fact received from the purchasers of the five properties,” it said.

The receivers accepted CMI was liable for the GST, but contended because of its receivership, the tax department ranked behind secured creditor Fortress Credit Corporation and they in their role weren’t obliged to pay it.

“While the receivers are correct that they have no personal liability for CMI’s debts, that does not mean that they are entitled to keep the GST and pass it on to the secured creditor,” the judgment said.

“The corollary of the receivers having no liability for CMI’s debts is that as agents they cannot have a greater claim to the proceeds of sale than CMI itself.”

That left the tax department ranking ahead of Fortress in terms of proceeds from the mortgagee sales.

“As receivers, Messrs Simpson and Downes are not entitled to frustrate the fulfilment of the company’s obligation,” the judgment said.

The bench made no order for costs.

BusinessDesk.co.nz

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