Payment to IRD cannot be undone

Last updated 05:00 29/11/2012
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LIABILITY: The forestry firms' receivers authorised the payment because they wrongly feared they might have been liable for the GST had they withheld the money.

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Call it a $127.5 million tax mistake that can't be undone.

Bank of New Zealand and other secured creditors in two collapsed forestry companies can't reclaim $127.5m that was paid to Inland Revenue by a partnership owned by the companies, the Supreme Court has ruled.

The forestry firms' receivers, Michael Stiassny and Grant Graham, authorised the payment because they wrongly feared they might have been liable for the GST had they withheld the money.

The forestry firms, Forestry Corporation of New Zealand and CITIC, formed a partnership, the Central North Island Forest Partnership, which was sold overseas for US$621 million (NZ$756m) plus GST after the companies hit the rocks in 2001.

Stiassny and Graham, who had taken over the governance of the partnership after they had been appointed as receivers of the two firms, paid the NZ$127.5m to Inland Revenue, fearing they might otherwise be liable for the sum plus penalties and interest.

The Supreme Court said they paid the bill thinking it was safer to do so and to try to claim back the money on behalf of secured creditors in the failed firms if it could be established they had no personal liability.

However, the court ruled that as Inland Revenue was owed the money, a clause in the Personal Property Securities Act gave the Crown the right to the money once the payment had been made.

"The payment was made by the partnership. On the basis that the receivers were not personally liable, it was made because of a mistake by them. But it is not recoverable from the Crown."

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