K, an Arranging Debtor

• Jurisdiction: Ireland
• Judgment Date: 28 April 1927
• Date: 28 April 1927
• Court: Supreme Court (Irish Free State)

In re K., an Arranging Debtor.

In the MATTER of K., an Arranging Debtor (1)

Supreme Court.

Revenue - Income tax - Default in payment - Goods of an arranging debtor seized - Order restraining the levying of execution - Prerogative of the Crown - Priority of Crown debts - Preferential payments - "Process"- 21 & 22 Geo. 3, c. 20 (Ir.), sect. 4 - Irish Bankrupt and Insolvent Act, 1857 (20 & 21 Vict. c. 60), sect. 343 - Bankruptcy (Ir.) Amendment Act, 1872 (35 & 36 Vict. c. 58), sect. 49 - Preferential Payments in Bankruptcy (Ir.) Act, 1889 (52 & 53 Vict. c. 60), sect. 4 - Income Tax Act, 1918 (8 & 9 Geo. 5, c. 40), sect. 169 - Finance Act, 1923 (No. 21of 1923), sect. 7 - Finance Act, 1924 (No. 27 of 1924), sect. 38, sub-sect.2.

Appellant, a wine merchant carrying on business in the City of Dublin, on 24th November, 1926, presented a petition to the Court, seeking protection for the purpose of carrying an arrangement with his creditors. Among his unsecured liabilities he owed £1,418 9s. 3d. for income tax. On the same day an order was made that the property of the appellant be protected from process until 17th December, 1926, or until further order. The preliminary meeting of creditors was called for 16th December. On 29th November notice of the protection order was served on the Revenue Commissioners. On 7th December the Under-Sheriff of the City of Dublin entered upon the appellant's business premises under the authority of certificates issued to him by a collector of taxes under sect. 7 of the Finance Act, 1923 (No. 21 of 1923), and seized the appellant's stock-in-trade, office furniture, and appointments. The Under-Sheriff subsequently instructed an auctioneer to carry out a sale of the goods so seized, and the sale was to take place on 15th December, i.e. the day preceding the date fixed for the first meeting of the appellant's creditors. The appellant thereupon applied ex parte to Johnston J. for an order restraining the Under-Sheriff "from proceeding by means of process under sect. 7 of the Finance Act, 1923, or otherwise,"to levy upon his chattels the amount assessed for income tax. Johnston J. refused the application.

Held by the Supreme Court, reversing Johnston J., that the application ought to have been granted, as the Under-Sheriff was not authorised by sect. 7 of the Finance Act, 1923, to seize the appellant's property after the appellant had taken protection of the Court by filing a petition for arrangement.

The priority of Crown debts, and the effect of sect. 49 of the Bankruptcy (Ir.) Amendment Act, 1872, and sect. 4 of the Preferential Payments in Bankruptcy (Ir.) Act, 1889, thereon, considered and explained.

Appeal from an order of Johnston J., refusing the application of the appellant for an order restraining the Under-Sheriff for the County of the City of Dublin from proceeding by means of process under sect. 7 of the Finance Act, 1923 (No. 21 of 1923), or otherwise, to levy upon the appellant 's goods the amount of certain assessments for income tax.

The facts are summarised in the head-note, and are fully stated in the judgment of the Chief Justice.

Cur. adv. vult.

Kennedy C.J.:—

This is an appeal against an order of the High Court (Johnston J.), refusing the appellant's application for an order restraining the Under-sheriff of Dublin from proceeding under sect. 7 of the Finance Act, 1923 (No. 21 of 1923), to levy upon the appellant's goods the amount of certain assessments for income tax. The facts are these:

The appellant carries on the business of a wine merchant under a firm name, by which it has been carried on for over one hundred years. He succeeded to the business on the death of his father, in the year 1916, and is now the sole proprietor thereof. The principal offices of the business are situate in leasehold premises in the centre of the city, while the vaults, stores, and stables comprise fee-simple and leasehold premises in another part of the city. The appellant estimates the value of these premises at £7,775. He holds stocks of wines, &c., partly in bond, to a value which he reckons at £13,487. He estimates the value of debts due to him at about £8,500.

On the 24th November, 1926, the appellant presented a petition to the Court seeking protection for the purpose of carrying an arrangement with his creditors. It was stated in the affidavit grounding the petition that his indebtedness to unsecured creditors amounted to about £17,000, and his indebtedness on loan and family charge accounts (with interest) to about £12,000. He was indebted to the Munster and Leinster Bank in a sum of nearly £9,500, secured by a deposit of title deeds and by a charge on wine in bond in Dublin. I am, for convenience stating round figures in these totals. Among his

unsecured liabilities, he stated that he owed the sum of £1,418 9s. 3d. for income tax. The appellant says that the business was insolvent when he took it over in 1916, and that he struggled to save it, but failed, though he improved its position. There is no suggestion of anything either dishonest or dishonourable in the financial difficulties which forced the appellant to seek the protection of the Court.

An order was made on the 24th November, 1926, in pursuance of the statute, that the person and property of the appellant be protected from process from that date until the 17th December, 1926, or until further order. The preliminary meeting of creditors was called for the 16th December.

On the 29th November, 1926, notice of the protection order was served on the Revenue Commissioners, who had, however, already been made aware of the proceedings in correspondence with the appellant's solicitors.

On the 7th December, 1926, the Sub-sheriff of the City of Dublin entered upon the business premises of the appellant, under the authority of certificates issued to him by a collector of taxes under sect. 7 of the Finance Act, 1923.

Each of the certificates was addressed to the Under-sheriff for the City of Dublin, and was in the following form:—

"I, B. E. Slator, collector of income tax for the assessment districts of Dublin, . . . do hereby certify that the person whose name is underwritten has been duly assessed and charged, or, in the case of a Schedule A Assessment, is the landlord or immediate lessor of the premises assessed and charged, with the amount, or amounts, of income tax placed opposite his name for the year, from 6th April 19 , to 5th April, 19 , which, in terms of the statutes in that case made and provided, was, or were, due and payable as stated below, viz.:—

[Here follow in parallel columns particulars of the assessment number, lands and tenements charged (if any), name and address of taxpayer, and the schedule, amount of tax, and date when due.]

I further certify that the above-named has made default in paying the said sums leviable upon him in respect of income tax.

This, my certificate, is issued to you in pursuance of sect. 7 of the Finance Act, 1923, and you are accordingly to levy the sum of £ in default, besides Sheriff's poundage, officers' fees, cost of levying, and all other legal incidental expenses to be paid to you as directed by the statutes in that case made and provided.

Given under my hand this day of , 1926.

(Signed) Benjamin E. Slator,

Collector of Income Tax.

Approved on behalf of the Revenue Commissioners, Dublin Castle.

(Signed) P. Hughes."

There was endorsed on each certificate a full copy of sect. 7 of the Finance Act, 1923. Some of the certificates bore date the 25th November, the others, the 3rd December, 1926.

There were in all six certificates, and they were issued in respect of divers assessments under Schedules A and D for the years 1922/1923, 1923/1924, 1924/1925, and 1925/1926.

The Under-sheriff, having put his officers in possession of the appellant's business premises, instructed an auctioneer to carry out a sale, which was advertised in the daily newspapers to take place on the 15th December—that is to say, the day preceding the date fixed for the first meeting of the appellant's creditors. The sale was, according to the advertisement, to comprise duty-paid wines, whiskies, champagnes, liqueurs, altar wine, trade utensils, office furniture and appointments, the property of Messrs. K. (stating the firm name). Purchasers to pay 5 per cent. commission.

The appellant thereupon applied ex parte to the Court for an order restraining the Under-sheriff "from proceeding by means of process under sect. 7 of the Finance Act, 1923, or otherwise, upon the chattels of the petitioner to levy money assessed for income tax upon the petitioner," which application came before Johnston J. on the 10th December, and was refused. I understand that the learned Judge held that the application was ruled by his decision in the case of In re M., an Arranging Debtor (not reported).

An appeal was forthwith taken to this Court, and on the 14th December, having heard the appellant and counsel for the Revenue Commissioners, and being of opinion that the questions involved in the appeal could not be disposed of before the end of the sittings, we made an order directing the Under-sheriff to withdraw from the appellant's premises, and ordering the Official Assignee in Bankruptcy to possess and receive all the estate and effects of the appellant until further order, and to carry on the business of the appellant pending the determination of the appeal, without prejudice to the rights of priority of the Revenue Commissioners, and to hold the proceeds, to abide the result of the appeal. (Now reported In re K., an Arranging Debtor(1).)

The appellant presses the obvious harshness of the course which has been taken by the Revenue Commissioners, who accept responsibility for what has been done in the name of the income tax collector. The appellant referred to correspondence, and attempted negotiations for payment of the claim by instalments. He points to the fact that he has large...