Court approves proposal under the Insolvency Act 2006 despite Commissioner’s objection

“Commissioner of Inland Revenue v Pronk and Garnham [2025] NZHC 3087 [17 October 2025]”

Facts of the case:

• Mr Garnham was served a notice of bankruptcy by the commissioner, and filed a creditor’s application in the Wellington High Court looking for an order adjudicating Mr Garnham bankrupt. He was previously non-compliant and had a history of non-payment of taxes. 

• Over a year Mr Garnham submitted three hardship applications to the commissioner under the TAA hardship provisions. They were declined with reasons concerning integrity of the tax system or voluntary compliance. 

• Mr Garnham had submitted a proposal that would direct bankruptcy proceedings and proposal proceedings to be managed together under the Insolvency Act.

• The total contribution of the proposal was $380,000 to satisfy the debts of all creditors and will be paid by one of Mr Garnham’s family trusts. The only preferential creditor was the commissioner.

• The commissioner had made a vote to decline the proposal. Seven out of the ten creditors in the proposal had attended and voted. The requirements of a majority in number and three quarters of the total debts were met.

Issues in the case:

• Is commissioner is bound by Insolvency Act 

  • The commissioner was bound by subpart 2 of part 5 of the Insolvency Act 2006 and that there was nothing in the act that suggests that the commissioner was not bound.

• The terms of the proposal were reasonable and geared to benefit the general body of creditors (s 333(b) of the act)

  • The court had considered the commissioner’s argument that creditors other than the CIR and the provisional trustee were likely to receive little to nothing from what was promised. 

  • Arguments for the proposal, were that creditors were likely not to receive any distribution if Mr Garnham is adjudicated bankrupt, and that related party trust would have no obligation to contribute funds and the related party creditors will be entitled to submit claims in the bankruptcy.

  • Judge determined that the proposal was reasonable and benefitted the general body of creditors. 

• It was expedient to approve the proposal (s 333(3)(c) if the act)

  • Judge came to the conclusion that approving the proposal would be expedient because approving the proposal would not be of integrity for the tax.

• Conclusion on commissioner’s objection under s 333(3)(b) and (c) of the act

  • Judge concluded that the proposal was reasonable and geared toward the general body of creditors and that it was expedient to approve the proposal.

This case is important because it highlights tension between:

• the Commissioner’s tax collection powers under the Tax Administration Act, and 

• the insolvency compromise regime under the Insolvency Act. 

Why IRD objected

IRD strongly opposed the proposal because:

• it had already rejected hardship relief under the Tax Administration Act,

• it believed approving the arrangement would undermine the integrity of the tax system,

• and it argued related-party creditors (family trusts and companies owed millions) should not effectively help pass the proposal vote

The practical takeaway is:

Even if IRD refuses financial relief or hardship relief, a taxpayer may still potentially use an Insolvency Act proposal to compromise tax debt if creditor voting thresholds and court approval requirements are satisfied.