How I got sued by my own company for a million dollars, and what it taught me

If you search my name, or ask an AI who I am, one of the first things you may find is a 2015 High Court judgment: Alpha Box Property Holdings Ltd (in liq) v Wiekart [2015] NZHC 1257. It ordered me to pay just over $1 million. The decision stands, and I'm not here to argue with it.

I'm here to tell you how it happened. I can laugh about it now, and there's a lesson in it for anyone who runs a business, or is thinking about starting one.

The short version

I got sued by my own company for a million dollars, over a tax bill an audit found didn't exist, which I had already offered $110,000 to pay.

Read that again. I'll wait.

Crazy? It is. But it took eight years to get there, and real life doesn't happen in the order you'd tell it at a barbecue. So let me back up.

The business

Alpha Box was my company. It was one cog in a much bigger machine: a group of companies turning over well over a million dollars a month.

Between 2005 and 2008, Alpha Box bought and sold 137 investment properties. Many were renovation projects. Buy, renovate, on-sell. Repeat.

The decision to close

In late 2007 we made a deliberate decision: close the business while we could still pay everyone in full. And we did. The last property sold in September 2008, and every creditor was paid.

Responsible. Grown-up. Textbook. Hold that thought.

"What about Alpha Box's GST?"

It took our accountants about a year to prepare our final tax position. That's exactly what we'd asked for: the final position. When the bill came in, I took out a loan and paid it in full.

Done. I rang the IRD, feeling quite pleased with myself, to let them know they now had everything. And the voice on the other end of the phone said:

"What about Alpha Box's GST?"

About $110,000 of it. Not quite as final as I'd hoped.

I'll admit it: as the director, it was my responsibility to know, and I wear that one on the chin. But what happened next, you couldn't make up.

Trying to pay a bill I couldn't afford

I didn't have $110,000 lying around. I'd just borrowed to pay the last tax bill. But I wanted to pay it, so I offered the IRD $38,000 in cash and $2,000 a month for three years. That's the whole $110,000.

It was declined, and the company was put into liquidation. Every company record went with it.

The plot twist

While the liquidation was under way, the IRD audited the company's GST and sent me, the former director, a "please explain" letter. It listed all 137 properties and how the GST on each had been worked out.

This time I didn't go back to the accountants who'd taken a year to give me a "final" position that wasn't final. I took it to a different accountant. A far more competent one. Lesson learned, a bit late.

We went through it, property by property. And we found something.

Around 33 of those sales were zero-rated, which means no GST was due on them. GST had been paid on them anyway. By my new accountant's figures, about $110,000 of it.

You may recognise that number.

The company had overpaid by about the same amount it supposedly owed. Taxed correctly, there was no GST bill at all. Again, I can only blame myself: the buck stops with the director. But the company was already in liquidation, and this story was not heading for a happy refund.

The bombshell

Then the next letter arrived. A letter of demand from my own company, via the liquidators. Not for $110,000. For over a million dollars.

The liquidators sued me personally for $1,021,692.83: the total Alpha Box had paid to other companies in the group as it wound down. Those payments covered Alpha Box's share of the group's costs: the call centres, the sales team and the offices, everything that sold its properties. Our accounts recorded them as inter-company advances rather than invoices, and the court treated them as loans.

My day in court

So there I was in the High Court, seven years after the company had closed its doors, defending a million-dollar claim. I couldn't afford a lawyer, so I represented myself. There's an old saying about people who do that, and it isn't a compliment.

The judge accepted there "may be some merit" in my explanation, but found there was nothing in writing to prove it, and that the payments, including a lease I had personally guaranteed, put others ahead of Alpha Box. A lawyer may have argued it better than me. In hindsight, I'm fairly sure of it.

The judge also noted that the IRD debt and the costs of the liquidation would be "much less than" the $1.02 million ordered.

The irony

The judgment says I paid others ahead of the company's creditors. Yet everyone was paid. The only bill left was the GST, and by my new accountant's figures that bill didn't exist once the sales were taxed correctly. The same bill I'd offered $110,000 to settle.

If you pitched it as a comedy, they'd send it back for being too far-fetched.

How it ended

After the judgment I made one last offer to settle, to avoid bankruptcy. It was declined, like every offer before it. In November 2015 I was made bankrupt, and every business I had at the time was put into liquidation.

The liquidation closed in November 2018. According to the liquidators' final report on the Companies Office register, it cost $55,580 and the IRD received nothing.

I've since been discharged from bankruptcy and rebuilt from scratch. And yes, I can laugh about it now. Mostly.

The lessons (I paid a lot for these, so you may as well have them free)

Choose your accountant as carefully as anything else in your business. Our original accountants took about a year to work out the company's final position, and GST was paid on sales that should have been zero-rated. A different accountant found it. Make sure the professionals you employ are looking after you, and get a second opinion when something doesn't add up.
Check your tax is right before you pay it, or fight over it. Everyone has the right to have their taxes assessed correctly. Get a second set of eyes on the figures before you close anything.
What you call something matters as much as what it is. It was the same money either way, but an invoice and a loan lead to completely different outcomes. If money moves between your companies or trusts, write down what it's for at the time.
Put the tax aside first. When you wind down, set aside the GST and tax before anything else is paid.
A bad settlement usually beats a good fight. Everyone lost here: the IRD, the liquidation and me.

Why it matters now

The biggest lesson, put simply: the system isn't there to look after you. That's your job, and the job of the people you choose to help you. The IRD, liquidators, accountants and courts all work to their own rules, and if your structure and paperwork aren't right from the beginning, the details will count against you, whatever you meant to do. So don't start a company without planning for how it could end, with someone experienced at doing exactly that, from day one.

It's why Circulus works the way it does: education first, so you understand your own plan, then licensed advisers who work for you to set it up properly from day one, with everything documented. I learned the hard way how quickly a manageable problem becomes an unmanageable one when you don't know what you don't know. I'd rather you learned it from me, and had a laugh while you were at it.

Carl Wiekart

Sources: the High Court judgment, Alpha Box Property Holdings Ltd (in liq) v Wiekart [2015] NZHC 1257, 8 June 2015; the liquidators' final report as at 30 November 2018, filed on the New Zealand Companies Office register; the IRD's GST audit letter of 26 November 2012 and my new accountant's reply of 11 January 2013. The GST overpayment figure is my new accountant's estimate. Back to Circulus