Published 18 September 2006
While bankrupt & banned Auckland cbd property developer Colin Godfrey was supposedly sunning himself on Queensland’s Sunshine Coast (nobody was confirming the precise whereabouts), lawyers for Inland Revenue & 3 of the Godfrey companies’ lenders were in court today fighting over the seemingly innocuous issue of comparatively small change from the First City Developments group’s 37-storey Fort St apartment block.
Inland Revenue has applied to wind up Gore Street Trustee Ltd, the Godfrey company which had come to be the trustee of the development’s owner, First City Trust. As a prospective creditor for gst â€“ the debts won’t fall due until settlements in October â€“ Inland Revenue applied to Justice Raynor Asher in the Auckland High Court to appoint interim liquidators to Gore Street.
The hearing should finish on Tuesday and Justice Asher said he expected to be able to issue a decision by the end of the week.
Mr Godfrey has developed a number of central Auckland apartment projects over the past 5 years, including 100 The Avenue on Anzac Avenue, another block round the corner on Eden Crescent and, most recently, the Harbour City development on the corner of Fort & Gore Sts.
Unfortunately, Inland Revenue counsel James Coleman told the judge, the IRD found out that the companies owning the previous developments had short-changed the department by several million dollars by under-representing sales then dissipating the gst which ought to have been paid.
Although Mr Godfrey was bankrupted on 23 August, banned from being a director for 4Â½ years from 4 May and was out of the country, Mr Coleman said Inland Revenue expected the same failure to pay gst out of the Harbour City settlements because the director of Gore Street, Douglas Williams, had been a director of numerous other Godfrey companies which had failed to keep proper accounts & records.
Inland Revenue has had something of a runaround trying to tie down some returns out of the Godfrey companies. It had applied to wind up the First City Trust’s previous corporate trustee, First City Trust No 2 Ltd, but withdrew that application on 11 September. There was no point in pursuing that liquidation because the trustee role had moved on.
Mr Godfrey had been both director & shareholder of First City Trust No 2, but resigned in June. Mr Williams was appointed, resigned on 31 July and was reappointed on 29 August; John Martin, a director of Contributory Mortgage Investments Ltd, was appointed on 31 July and resigned on 29 August.
Gore Street was incorporated on 4 July with Mr Williams as its director & holder of the solitary share. IRD counsel Mr Coleman said Mr Godfrey was the beneficiary of the First City Trust and had the power to appoint trustees. “On 6 July he, under that power, appointed Gore Street as trustee.”
Mr Coleman said Inland Revenue sought the appointment of Bruce McCallum (McCallum Petterson Ltd) as interim liquidator through its position as prospective creditor, on just & equitable grounds (based on the previous corporate trustee’s “persistent & habitual failure to keep accounts & records”) and because of a loss of confidence in the director, Mr Williams, “by virtue of his failure to comply with tax obligations, both personally & with relation to companies”.
Mr Coleman alleged Mr Godfrey had “fraudulently paid away gst” at previous developments. At 100 Anzac Avenue, $1.6 million of gst should have been paid on $16 million of sales in 2003, but wasn’t paid. Mr Coleman said the level of sales was under-returned and should have been about $22 million.
Peter Brannigan was appointed liquidator of The 100 Ltd in April 2005 and replaced by McCallum Petterson liquidators in June 2005. At the Eden Crescent development, gst was again not paid on purported sales totalling $23 million. Mr Coleman said actual sales had been $8 million higher.
“The defendants acknowledged there had been dishonesty but said it was the fault of employees rather than Mr Godfrey.”
Mr Coleman said one company Mr Williams had been a director of, Auckland Labour Services Ltd, paid no tax from the outset and, when it was wound up on Inland Revenue’s application on 7 July, it owed $500,000 of PAYE & $750,000 of gst.
“That company took over the business of selling apartments from Future Planning Ltd (placed in voluntary liquidation in April 2005).”
Geoff Clews, counsel for the defendants in this week’s action and for other Godfrey companies, said the documents in this case didn’t raise any issue of fraud and Mr Williams didn’t accept there was any dishonesty at Auckland Labour Services.
At Fort St, Mr Coleman said the $123 million liability for the 406-unit development was secured by 3 lenders â€“ ANZ National Bank, Structured Finance (NZ) Ltd & Bridgecorp Ltd â€“ which appear in the court case as creditors (in opposition to the IRD proposal), along with first & second defendants Gore Street & Mr Godfrey.
When the lenders were paid out (in full), there was expected to be a $12.9 million (reduced to $12.3 million) shortfall to unsecured creditors. The gst liability was expected to be $9.5 million. In the middle of some changing figures (the secured liabilities rose and a couple of other changes were made), the IRD had its eye on just over $3 million.
Mr Coleman said there would be defence argument that the new trustee hadn’t demonstrated any non-compliance so shouldn’t be penalised, but he said if consequences could be escape simply by changing trustees, they’d be changed all the time.
Inland Revenue’s concern was that the gst owed would be paid away to others, or the remaining Harbour City apartments would be sold at a discount once the secured creditors had got their money (resulting in less gst payable).
He said the lenders argued that appointing an interim liquidator would reduce the value of the remaining apartments, but Inland Revenue said an orderly selldown was possible by giving an insolvency practitioner the resources to act as a director. However, the parties hadn’t been able to agree on the choice of insolvency practitioner – Mr McCallum preferred by Inland Revenue, Anthony McCullagh (Horwath Corporate Auckland Ltd) preferred by the lenders. Inland Revenue said Mr McCullagh had done work for Bridgecorp and had been involved in the winebox case.
Earlier stories (apart from numerous mentions in the U column):
Attribution: Company statement, story written by Bob Dey for this website.