A High Court judge has foiled a “scheme to defeat the IRD” after a Nelson woman sold her home to avoid paying a tax bill of more than $110,000. 

The “unusual” sale to a telecommunications company in the UK appeared to leave the woman worse off financially, with the parties agreeing the property would be paid off over 25 years, with no deposit and no interest to be paid. 

But in a recent decision at the Wellington High Court, Associate Judge Owen Paulsen cancelled the sale and ordered the property be handed over to a government body that can sell a bankrupt person’s assets to pay back their creditors. 

Mila Amber had been living in the property at 46 Weka St, Nelson and running a bed and breakfast from it. 

“The company went through several name changes but came to unsubtly be called Abbey Services (Killed by Tax Maladministration) Ltd,” Judge Paulsen’s decision said. 

In 2013, Kevin Collins, a friend of Amber’s ex-husband, became the director of the bed and breakfast company, and all the shares in the company were transferred to him. The company was put into liquidation in 2014, and Amber was bankrupted in 2020. 

The matter was dealt with in the Wellington High Court. 

The Inland Revenue Department (IRD) began investigating Amber’s tax affairs in July 2013, and by December 2017 informed her she owed more than $110,000 in overdue tax, shortfall penalties, and overpaid Working for Families tax credits. It was later determined she actually owed nearly $365,000. 

Less than a week after being told she owed more than $110,000 to the IRD, Amber entered into a written agreement to sell the property to Elite Telecommunications, a UK-based company of which Collins is the director. 

The agreement, described by Judge Paulsen as “unusual”, stated the property would be sold to Elite for $847,000.74, with the company taking possession just one working day after the agreement was signed. 

Elite did not pay a deposit, did not pay interest, and was to pay for the property in 25 unequal annual payments, meaning it would not be paid off until December 2042. The first payment of $10,000 was not due for a full year after the sale. 

Amber continued living at the property and paying rent to Elite. The rent is now $412 per week. 

In March last year, the Official Assignee, a part of the Government’s Insolvency and Trustee Services, asked the court to cancel the sale of the property. 

Collins attended a court hearing by audio-visual link to give evidence for Elite, but the judge said he did not find Collins to be a credible witness. 

“I do not accept his evidence in its material respects because it is implausible and, often, defies belief,” Judge Paulsen said. 

He also described Collins’ thought process as “simply odd”. 

“He also says that despite Ms Amber not being initially prepared to sell the property, he persuaded her to do so and the terms agreed were good for both Elite and Ms Amber. He is plainly wrong about that, and I cannot accept that as an experienced businessman, he could possibly consider that was the case.” 

On an interest rate of 4 per cent, had Amber been paid in full at settlement and invested the money, she would have made $33,880 in interest in the first year alone, Judge Paulsen said. 

“She is now paying rent to Elite which, over the course of a year, would far exceed what she might pay by way of outgoings had she remained the owner of the property.” 

Amber has also lost the ability to gain income by renting out other parts of the property. 

“Mr Collins says that if interest had been payable to Ms Amber under the agreement, she would have had to pay tax on it. It is hard to see how it is beneficial to avoid tax by foregoing all income.” 

Judge Paulsen said Amber had no means of paying her debt to the IRD other than from the sale of the property, however, when she sold the property, she was no longer in a position to pay her debt because of the terms of the sale. 

“Ms Amber appears to have had no other reason to sell the property other than as a means to defeat the IRD’s claim.” 

Collins’ lawyer argued Collins did not believe the transaction would be injurious to creditors, but the judge said he was not satisfied Elite had acted in good faith. 

Elite asked the court not to cancel the transaction, and instead to order payment to the Assignee to cover Amber’s debts and costs of the administration of her bankrupt estate. 

But the judge said the Assignee should not assume the risk that Elite cannot or does not pay the sum it is ordered to pay. 

“Further, I do not see why Elite should retain the benefit of the property when it participated in a scheme to defeat the IRD.” 

He cancelled the sale and ordered the transfer of the property. 

Melissa Nightingale is a Wellington-based reporter who covers crime, justice and news in the capital. She joined the Herald in 2016 and has worked as a journalist for 10 years.