Quake-hit company kept trading through ‘loyalty to staff’

Loyalty to staff in the aftermath of the Christchurch earthquakes eventually led to a knitwear company being liquidated and left the firm’s owner being prosecuted for a $250,000 unpaid tax bill.

That was the submission of defence counsel Andrew Riches at the Christchurch District Court sentencing of Rangiora businessman John Robert Stevens, 65, who had admitted 34 tax charges.

In September, Stevens admitted aiding and abetting his company to pay tax deductions or withholding tax for purposes other than tax payments.

Mr Riches said the Shalimar Knitwear company had traded quite successfully since 1992, but the earthquakes had damaged the Christchurch premises, shut down the company for 18 weeks, and disrupted the market.

Inland Revenue had provided some concessions, “but flight from Christchurch meant that this business was never coming back”, he said. With hindsight it would have been better to shut up shop and make workers redundant.

Stevens had carried on out of loyalty to staff, many of whom had been affected by the earthquakes and some had had houses completely destroyed.

“He felt he had some duty to them to keep trading and keep them in employment. In doing so, he had to forego his obligations to the Inland Revenue Department,” Mr Riches said. For a time, the company had continue to meet its current tax payments.

Stevens felt that the company had enough stock to pay its core debt if it was liquidated, but the liquidators had sold the stock at a gross undervalue. For instance, jerseys had been sold at $3 when they had a retail value of $80.

Stevens was now living on a pension and caring for his wife. They were allowed to live in a house owned by a family trust, but they had no assets available to repay the tax. The turmoil caused by the earthquakes had impacted Stevens in a profound way. Previously, he would have had substantial assets available to him, but was now trying to get by on a pension.

Inland Revenue prosecutor Virginia Diefenbach said the prosecution involved large losses and there was no prospect the money being recovered through reparations of liquidation. The offending had continued for three years despite many warnings.

She said Inland Revenue had allowed the company considerable remittance of penalties and interest, in negotiations after the earthquakes.

Judge Brian Callaghan said the company had failed to account for $248,394 in tax deductions, including KiwiSaver, employer deductions and superannuation contributions. This had involved keeping the company trading when things got “really tough” after the earthquakes, hoping that the matter would resolve itself.

There was no suggestion Stevens was “feathering his own nest”, but simply trying to keep the company going. The disruption caused by the earthquakes was a background that needed to be taken into account.

He reduced the sentence for Stevens’ previous life as a “blameless citizen”, his caring obligations, and his early guilty pleas, and imposed a home detention term for six months, with 150 hours of community work. No reparation was ordered.

 

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