IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA
TĀMAKI MAKAURAU ROHE
CIV-2017-404-3000
[2020] NZHC 451
BETWEEN

COMMISSIONER OF INLAND
REVENUE
Plaintiff

AND

CLOONEY RESTAURANT LIMITED
First Defendant
ANTONY STEWART
Second Defendant

Hearing:

2 March 2020

Appearances:

N H Malarao and H Salisbury for the plaintiff
No appearance for the defendants

Date of judgment:

10 March 2020

JUDGMENT OF JAGOSE J
This judgment was delivered by me on 10 March 2020 at 11.00am.
Pursuant to Rule 11.5 of the High Court Rules
…………………………
Registrar/Deputy Registrar

Solicitors/Counsel:
Meredith Connell, Auckland
Inland Revenue Department, Wellington

COMMISSIONER OF INLAND REVENUE v CLOONEY RESTAURANT LIMITED [2020] NZHC 451 [10
March 2020]

 [1]

In this proceeding, the Commissioner of Inland Revenue seeks declaratory and

compensatory relief against the defendants, in connection with the Clooney restaurant
business’ tax liabilities. The defendants have not continued their defence of the
proceeding. By reason of procedural directions of this Court,1 it now comes before me
for formal proof.2
Background
[2]

Clooney was a restaurant of some repute, operating from premises in

Auckland’s Freemans Bay since the mid-2000s. It initially operated through a
partnership formed between four separately-owned companies. The second defendant,
Antony Stewart, was sole director and (by 2010) shareholder of one of those
companies. He became sole director of each of the other three companies in August
2012, all of which he acquired on 6 November 2013, thus becoming also each
company’s sole shareholder. The companies’ only material asset was the Clooney
restaurant business. They ceased trading from 1 April 2014.
[3]

Mr Stewart then operated the Clooney business through Clooney Restaurant

Limited, the first defendant, of which he also was sole director and shareholder.
The formal transfer of the business from the vendor companies to the first defendant
on 25 September 2014 expressly excluded the vendor companies’ liabilities to the
Commissioner of Inland Revenue for tax periods in the twelve months ending
31 March 2014, amounting to $383,958.40 (and to specified creditors in the sum of
some $3,000). Consideration for the transfer was $3,301.20, calculated by netting the
value of transferred assets ($411,546.00) against liabilities to be assumed by the first
defendant ($408,244.80) in respect of assigned creditors.
[4]

Also on 25 September 2014, Mr Stewart placed the vendor companies into

liquidation. According to the liquidator, Henry David Levin, their combined financial
statements at 30 September 2014, after transfer of the business (and its assets and

1
2

Commissioner of Inland Revenue v Clooney Restaurant Ltd, CIV-2017-404-3000, minute, 12
December 2019.
High Court Rules 2016, r 15.9, and the principles referred to in Chen v Zhong HC Auckland CIV2010-404-1995, 14 November 2011; Neumayer v Kapiti Coast District Council [2013] NZHC
1106; Ferreira v Stockinger [2015] NZHC 2916; Kim v Cho [2016] NZHC 1771, [2016] NZAR
1134; and Superior Blocklayers Ltd (in liq) v Bacon [2016] NZHC 2601, (2016) 14 TCLR 425.

 assigned liabilities), “left a shell with virtually no assets (only $3,713) and liabilities
of $927,691”. The Commissioner previously had issued statutory demands for
payment of their tax liabilities, and then served liquidation proceedings on the
companies on 15 September 2014.
[5]

Clooney ceased operations in October 2019, the first defendant then liable to

the Commissioner for tax debts in the amount of $152,741.94. That sum since has
grown with associated penalties and interest to $201,256.53 as at 27 February 2020.
Commissioner’s claims
[6]

The Commissioner alleges:
(a)

transfer of the Clooney business to the first defendant was a disposition
of property intended to prejudice creditors, liable to be set aside under
s 348 of the Property Law Act 2007, and seeks the first defendant pay
$383,958.40 as compensation to the vendor companies and associated
relief;

(b)

transfer of the Clooney business to the first defendant was in breach of
Mr Stewart’s director duties to the vendor companies under ss 131(1),
133, 135, 136, and 137 of the Companies Act 1993, and seeks he pay
compensation to the vendor companies or to the Commissioner and
associated relief; and

(c)

as director of the failed vendor companies, Mr Stewart’s directorship of
the first defendant and involvement through it in the continuing
Clooney business was in breach of s 386A of the 1993 Act, rendering
him personally liable to the Commissioner for the first defendant’s
debts under s 386C, and seeks judgment and associated relief
accordingly.

 Discussion
—first cause of action: disposition prejudicing creditors
[7]

Section 348 of the Property Law Act 2007 enables prejudicial dispositions to

be set aside, so (the value of) the prejudicially-disposed property is “restored for the
benefit of creditors”.3
[8]

I am satisfied the Commissioner is prejudiced by the transfer from the vendor

companies to the first defendant.
[9]

The Commissioner is a creditor of the vendor companies at least in the amount

of their tax liabilities. The transfer alienates the vendor companies’ property, rendering
it a qualifying “disposition”.4 As illustrated by the partnership’s financial accounts for
30 September 2014, it was a disposition made at a time the vendor companies were
insolvent, as “unable to pay all [their] debts, as they fall due, from assets other than
the property disposed of”.5
[10]

It is prejudicial, because it defeats the Commissioner’s exercise of any right to

recourse in respect of the property.6 That clearly was the transfer’s objective,7 coming
immediately after the Commissioner’s service of liquidation proceedings, and
expressly to exclude “[a]ll Taxation duties and excise of the Vendor (as those terms
are defined in the Tax Administration Act)”, leaving only the vendor companies’
heavily-indebted ‘shell’. In those circumstances, the first defendant “must be taken to
have intended this consequence”.8
[11]

There is no proof of the available defences (and no prospect either may be

established).9 As an alternative to vesting the Clooney business in the vendor
companies, I therefore may require the first defendant to pay “reasonable
compensation” to the vendor companies.10
3
4
5
6
7
8
9
10

Property Law Act 2007, s 344.
Section 345(2).
Section 345(1)(d).
Section 345(1)(a).
Section 346(1)(b).
McIntosh v Fisk [2017] NZSC 78, [2017] 1 NZLR 863, at [35]–[36].
Property Law Act 2007, s 349(1).
Section 348(2)(b).

 [12]

The ‘alternative’ illustrates the restitutionary nature of the relief: “to correct

normatively defective transfers of value, usually by restoring the parties to their pretransfer positions”.11 The vendor companies thus otherwise would have restored their
assets, which the transfer valued at $411,546, as well as the balance of their liabilities.
[13]

The Commissioner’s counsel, Nick Malarao, proposes the transfer’s asset

value could be identified as ‘reasonable compensation’ (although he only seeks
payment of the lesser tax liability). Without netting off the assumed liabilities, such
does not appear restitutionary, but a windfall to the vendor companies’ remaining
creditors, who would have access to a larger sum than if the assigned creditors also
were competing for the funds.
[14]

Mr Levin identifies the vendor companies’ 30 September 2014 liabilities, other

than those owed predominantly to the Commissioner, to be “the partnership loan
accounts of $583,750” owed to shareholders (being Mr Stewart, deemed to have
surrendered any charge for the general benefit of creditors)12. There is no evidence as
to the position of the assigned creditors, for trade and operational debts. Presumably
the first defendant met those liabilities in the course of the continuing Clooney
business, or otherwise is accepted to be responsible for them.
[15]

But the Commissioner is a preferential creditor in the amount of $235,862.81,

to which other creditors’ interests are in any event deferred.13 ‘Reasonable
compensation’ must be at least that sum. Given the Commissioner is the only creditor
to claim in the vendor companies’ liquidation, reasonable compensation in the
circumstances should be the whole of its claim.
—second cause of action: breach of director duties
[16]

It is trite law directors have duties to the company to act in good faith and in

its best interests. These duties are recited, and with greater specificity, in the
Companies Act 1993.14 In particular, a director “must exercise a power for a proper
11
12
13
14

Investment Trust Companies v Revenue and Customs Commissioners [2017] UKSC 29, [2017] 2
WLR 1200 at [42].
Companies Act 1993, s 302; Insolvency Act 2006, s 7.
Companies Act 1993, Sch 7.
Sections 131–138.

 purpose”,15 and not agree to, cause or allow “the business of the company to be carried
on in a manner likely to create a substantial risk of serious loss to the company’s
creditors”.16 The “best interests of the company” include taking account of its
obligations to creditors, which have greater weight in circumstances of at least pending
insolvency.17 Directors “must exercise the care, diligence and skill that a reasonable
director would exercise in the same circumstances”.18
[17]

I have no difficulty in concluding Mr Stewart’s transfer of the Clooney

business from the vendor companies to the first defendant was in multiple breach of
his duties to the former companies. Relieving the companies of their only significant
asset, while leaving them without means to meet substantial liabilities, is not in their
best interests. No proper purpose of the vendor companies was met by exercise of his
powers to transact the transfer; it was exercised instead to enable the Clooney business
to continue to trade for the benefit of the first defendant. Thus it was a transfer in the
conduct of the vendor companies’ business, creating significant risk of substantial loss
to creditors. Inferentially, the transfer and vendor companies’ liquidation precisely was
motivated by the Commissioner’s service of liquidation proceedings on the vendor
companies. A reasonable director in circumstances of the Clooney business’
insolvency would ‘soberly’ have assessed the companies’ – not the business’ – future
prospects,19 which assessment on any objective view could not have resulted in
alienation of the vendor companies’ only asset while retaining their material liabilities.
[18]

On liquidation, as is the present case, a director may be required to compensate

the company for such breach, or pay such sum to an applicant creditor.20 The amount
of that contribution is to be determined by reference to the cause of, culpability for,

15
16

17
18
19
20

Section 133.
Section 135. There is uncertainty if the s 136 prohibition on a director agreeing to the company
incurring particular obligations extends to tax debts: compare Peace and Glory Society Ltd (in liq)
v Samsa [2009] NZCA 396, [2010] 2 NZLR 57 and Cooper v Debut Homes Limited (in liq) [2019]
NZCA 39, [2019] 3 NZLR 57; the Supreme Court has reserved its decision on appeal from the
latter. In the circumstances, the Commissioner seeks to adjourn its s 136 claim, with leave to revisit
it in wake of the Supreme Court’s decision. That aspect of the Commissioner’s claim will be
adjourned accordingly.
Nicholson v Permakraft (New Zealand) Ltd (in liq) [1985] 1 NZLR 242 (CA) at 250.
Companies Act 1993, s 137.
Mason v Lewis [2006] 3 NZLR 225 (CA) at [48]–[51].
Companies Act 1993, s 301.

 and duration of trading under “inadequate corporate governance” leading to
deterioration of the company’s financial position.21
[19]

Again, I have no hesitation in concluding the vendor companies’ unmet

liabilities to the Commissioner exclusively is caused by Mr Stewart failing to ensure
the companies remit tax payments to the Commissioner. The Commissioner only
evidences the partnership’s prior overdue PAYE payments for the period to
30 November 2008, which appear to have been resolved in 2009. But GST ceased to
be remitted in March 2013. By July 2013, employee deductions also ceased to be
remitted. No further payments were made before the companies ceased to trade from
1 April 2014.
[20]

For the entirety of that time, Mr Stewart was the companies’ sole director.

Although he spent extended periods away from New Zealand pursuing business
opportunities in San Francisco, that is not exculpatory; he remained the companies’
sole director with all the obligations for the companies’ governance that entailed. The
companies’ business pattern of conduct continued under the first defendant;
Mr Stewart explained the sums intended for remittance to the Commissioner were
used by the business “to pay [other] creditors”.
[21]

For all those reasons, I think it just Mr Stewart should be liable to contribute

the whole sum of the vendor companies’ liability to the Commissioner, for payment to
the Commissioner on her application.
—third cause of action: ‘phoenix’ company director liability
[22]

Except with presently irrelevant exceptions,22 s 386A of the 1993 Act prohibits

a director of a failed company, for a period of five years after commencement of its

21
22

Mason v Lewis, above n 19, at [108]–[110].
Companies Act 1993, ss 386D–386F. The last section allows an exception for a company known
by the same or a similar name as of a failed company’s pre-liquidation name(s), if known by that
name for at least twelve months before the liquidation commenced and was not dormant during
that period. A company is not dormant if its transactions “have occurred throughout that period”:
s 386F(2). ‘Throughout’ means “during the whole of (a period of time, event, situation, etc.)”:
Oxford English Dictionary (online 3rd ed, Oxford University Press, Oxford, 2017). Clooney
Restaurant Limited, while incorporated under that name on 18 June 2012, filed GST and employer
deduction nil returns for the six months prior to 1 April 2014. The exception does not apply to

 liquidation, from being a director of a “phoenix company”, or being involved in its
promotion, formation, management, or in the carrying on of a business in the same or
a similar name. A ‘phoenix company’ is one known by a name that is, or is similar to,
a failed company’s pre-liquidation name. By ‘similar name’ is meant a name that is so
similar to a name (including a trading name) of a failed company in the twelve months
prior to its liquidation “as to suggest an association with that company”.23
[23]

Prior to name changes on 19 September 2014, less than a week prior to

Mr Stewart placing them in liquidation on 25 September 2014, the vendor companies
were named respectively Clooney Limited, Clooney No 1 Limited, Clooney No 2
Limited, and Clooney No 3 Limited. Clooney Restaurant Limited self-evidently is
those companies’ ‘phoenix’. Indeed, the vendor companies’ partnership expressly was
given the name “Clooney Restaurant Partnership”. Miranda Jane Law, giving evidence
for the Commissioner, produces an undated extract from the Clooney business
website, referring to “the arrival of Clooney in 2006”, which Mr Stewart continues
“[t]welve years later”, inferentially in 2018.24
[24]

As director of Clooney Restaurant Limited, Mr Stewart’s contravention of

s 386A(1)(a) accordingly renders him personally liable for its relevant debts, being
those incurred during Mr Stewart’s management of the company.25
Result
[25]

Under s 348 of the Property Law Act 2007, I order Clooney Restaurant

Limited to pay compensation to the vendor companies in the amount of $383,958.40

23
24

25

Clooney Restaurant Limited, which was dormant during the twelve months before the vendor
companies’ liquidations commenced on 25 September 2014.
Companies Act 1993, s 386B(1) (definitions of ‘phoenix company’ and ‘similar name’).
Ms Law additionally explained she could “see from the documents” Mr Stewart communicated
with the National Business Review at the time of the vendor companies’ liquidation to assure it the
Clooney business had been purchased by Clooney Restaurant Limited and continued to trade. The
documents to which she refers do not appear to be in evidence; I am provided with no basis on
which to assess its reliability; and Mr Stewart (who sat in the public gallery throughout the hearing
plainly was available to give evidence. All that renders Ms Law’s assertion inadmissible hearsay
and I therefore disregard it. She does produce the NBR’s subsequent correspondence with Mr
Stewart (who identifies himself as “Owner   Clooney”), advising him “there’s no story here, you
can rest easy”. Nonetheless, I am not prepared to infer the non-‘story’ is that outlined by Ms Law.
Evidence Act 2006, ss 17 and 18.
Companies Act 1993, s 386C.

 (plus interest for the period commencing 25 September 2014, calculated in accordance
with the Interest on Money Claims Act 2016).
[26]

I reserve the Commissioner leave to seek additional compensation if

Mr Stewart, or any party related to him, makes any claim to the compensation ordered
in the preceding paragraph, whether as secured or unsecured creditor of the vendor
companies.
[27]

Under s 301(1) of the Companies Act 1993, I:
(a)

declare Mr Stewart breached his duties to the vendor companies under
ss 131(1), 133, 135, and 137 of the Act;

(b)

adjourn the Commissioner’s claim Mr Stewart breached his duty to the
vendor companies under s 136 of the Act, and reserve leave to the
Commissioner to reactivate that claim;

(c)

order Mr Stewart to pay the Commissioner $383,958.40 (plus interest
for the period commencing 25 September 2014, calculated in
accordance with the Interest on Money Claims Act 2016).

[28]

Subject to any additional compensation ordered to be paid, I direct the total

recovery by the vendor companies and the Commissioner under [25] and [27](c) above
is not to exceed $383,958.40 (plus interest for the period commencing 25 September
2014, calculated in accordance with the Interest on Money Claims Act 2016).
[29]

Under s 386C of the Companies Act 1993, I adjudge Mr Stewart liable to the

Commissioner for $201,256.53, plus any further tax debts accrued after 27 February
2020 to the date of this judgment.
Costs
[30]

In my preliminary view, the Commissioner is entitled to category 2B costs for

all steps taken in the proceeding, and disbursements. That is because, from what
I presently know of it, nothing in the steps the Commissioner took in this averagely
complex proceeding required other than a normal amount of time. If that is not

 accepted by the Commissioner, costs are reserved for determination on a short
memorandum of no more than five pages – annexing a single-page table setting out
any contended allowable steps, time allocation, and daily recovery rate – to be filed
and served by the Commissioner within ten working days of the date of this judgment.

—Jagose J