New Zealand: Court creates tax risk for receivers, liquidators - and directors?

​A recent  judgment in the Wellington High Court makes receivers, liquidators – and, potentially, the directors of companies in receivership and liquidation – personally liable for GST on the sale of mortgaged properties even where the mortgagee is not GST registered.1

The decision is being appealed and may be overturned as – in our view – it rests upon an unusual interpretation of the law. 

If it survives the appeal, receivers in similar situations should pay GST to the IRD before they account for the sales proceeds to their appointor. 

The facts of the case in brief

Fortress Credit Corporation appointed receivers to Capital + Merchant Investments Ltd (CMI)

CMI was the lender on various mortgages, some of which were in default.  CMI, as mortgagee, sold the properties.  As the mortgagors were GST-registered, the sales were subject to GST. 

The receivers sought direction from the Court as to whether they were personally liable for the GST.  If they were, the GST would have to be paid to the IRD in priority to other claims.  If they were not, Fortress would be paid first and IRD would be left as an unsecured creditor of CMI.

The Court directed the receivers personally to pay the GST.

The decision 

The Court reached that decision by relying on section 58 of the GST Act 1985.  That section applies to, among other things, liquidations and receiverships. 

Section 58 makes a receiver or other agent of an "incapacitated person" personally liable to pay the GST incurred while the person is "incapacitated".  The concept of "incapacitated" includes being in receivership and liquidation.

The difficulty is that an "incapacitated person" is defined to be a person registered for GST.  So, we would have thought that the section would only apply if CMI was in fact registered for GST.  As a supplier of financial services, CMI was not a registered person

Accordingly, a prerequisite of section 58 was not met so the section should not have applied.  The effect of the judgment is to read the words:

"a registered person who dies, or goes into liquidation or receivership ..."

as if they said:

"a registered  or unregistered  person who dies, or goes into liquidation or receivership ..."

The Court took a purposive approach to interpretation, as has been recently applied in certain tax avoidance cases.2   But a purposive approach is used to interpret ambiguous legislation, not to attribute a strained meaning to a statutory provision which the provision cannot properly bear.

The Court also indicated it would have been prepared to invoke section 185 of the Property Law Act 2007, again – in our view – incorrectly.  Section 185 simply sets out the liabilities of the mortgagee (CMI) when accounting for the proceeds of a sale.  It does not create a personal liability of the receivers, who are merely agents of the mortgagee.    

This brings us to our third point – if receivers are personally liable for GST in the manner described by the Court, then directors are equally liable.  Both are acting in their capacity as agent of a company.

It appears that in coming to its conclusions, the Court was heavily influenced by policy considerations.  The Judge stated:

"I accept that, in public policy terms, it is undesirable to permit receivers to charge 12.5 per cent (now 15 per cent) more than the mortgagor could have retained for sale of its own property, thereafter leaving the Commissioner out of pocket by that same amount by virtue of having to permit the purchaser an input tax credit for paying that amount".

But the Privy Council, confronted with a similar dilemma in another high profile case about GST in insolvency proceedings, was emphatic that the strict interpretation of the law must prevail, even where it seems at odds with the probable policy intention of the law-makers:

"If the mortgagor had sold the property, both Belman and Edgewater would have been entitled to insist on payment in full before releasing their security.  The Crown would have enjoyed no preference against either of them.  Why should the position be different because the sale was by the mortgagee rather than the mortgagor?

Their Lordships consider that the answer to this rhetorical question is:  because that is what s 17 says".3  [emphasis added]


For the reasons outlined above, we look forward to the appeal judgment.  In the interim, receivers should assume that they will be liable for the GST, regardless of whether the company in receivership is GST registered, and pay that money to the IRD before passing the sales proceeds to their appointor.

Unfortunately, the recently enacted compulsory zero-rating provisions for certain land transactions would not necessarily have avoided the dispute in this case as the application of these provisions depends on a number of variables including the registration status of the vendor and purchaser, as well as the intended use of the land.


1. Simpson and Downes v CIR HC Wellington CIV-2010-485-1860, 17 May 2011.

2. See for example, Ben Nevis Forestry Ventures v Commissioner of Inland Revenue  [2009] 2 NZLR.

3. Edgewater Motel Limited & Ors v Commissioner of Inland Revenue  (2004) 21 NZTC 18,664.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions