Rarotonga Surf Brands Ltd and Coral Investments Ltd owner Chris McKinley was sentenced Monday this week to fines totalling $83,000. His company, Rarotonga Surf Brands was fined $25,000 for offending over a 19 month period between 2010 to 2015 and a fine of $28,000 was imposed on Coral Investments for offending over 17 months during the same period. Mckinley who was up on 10 charges of aiding and abetting the two companies, was fined $30,000.
McKinley had pleaded guilty personally and on the companies’ behalf to the charges on November 28, 2016.
Incorporated in February 2001, Coral Investments with Rarotonga Surf Brands are the wholesale and retail arms of trading firm Turtles Sportswear, dealing in screen printing, manufacture and sale of clothing.
During a May 2015 audit by Inland Revenue it was discovered gross wages of nearly $230,000 had been made with a PAYE deduction of $35,654.82 to five staff. None of the PAYE was paid on to the Collector of Taxes.
In handing down his decision, Chief Justice Sir Hugh Williams said during an interview with Mckinley 10 days after the audit the businessman had put the lack of payment down to insufficient funds, acknowledging the money was used for other things.
When Mckinley was asked if he knew he was breaking the law he responded, “a hundred per cent, yes.”
On November 17 core tax of $35,654.82 was paid by Mckinley’s company – but penalties and late payment fees amounting to $32,679.48 remain unpaid. The court also heard that Coral owes $274,692.19 in taxes and also owes sums for PAYE, VAT and income tax. CJ Williams noted that under an agreement with IRD the company was to pay that amount in instalments of $15,000 over a period of four years. The first instalment became due this month, but only $10,092.97 was paid.
Senior Auditor Andrew Forbes who conducted the company audit expressed the view that Coral was insolvent, although from financial information provided by the prosecution it appeared that the company’s position was “improving but it could not be said to be in a strong financial position,” said CJ Williams.
“Rarotonga Surf Brands shows a similar history,” said CJ Williams. The company was incorporated in January 2008 and audited on May 18, 2015. The audit showed that wages paid to staff of just over $185,000 during a 19 month period, $23,065.65 was deducted for PAYE. The PAYE deductions were not on-paid to the IRD.
The company did make a full PAYE core payment on November 22, 2015 but the court heard late payment fees of $18,992 remain unpaid. Similar to Coral Investments, an agreement was entered into with IRD for the payment of the arrears over three years – of the $15,000 due this month the company paid $10,499.
“The company is also in a difficult financial position although the updated balance sheets and accounts handed up at this hearing showed its position is improving. But Mr Mckinley’s companies are probably still trading while insolvent,” said CJ Williams.
“As far as Mr McKinley himself is concerned, at the interviews he was frank and open in acknowledging the default by the companies and the fact that it was as a result of his directions as the sole working director.
“He said it was he who signed the wage cheques, it was he who is responsible for the default in PAYE payment and it was he that instructed the companies not to meet their obligations for the months in question.”
Submissions by Crown prosecutor Alison Mills had focussed on the intentional, repetitive and premeditated nature of the offences which had occurred over a period of five years and involved significant sums. Mills had made the point that failure to pay PAYE penalises the government’s capacity to continue providing goods, services and pursuing programmes. The Crown had submitted that the tax position of each one of the company’s employees was also jeopardised.
In summary, CJ Williams said there was clearly a necessity to impose fines which recognised accountability for the harm to the employees and to the government by failure to pay on PAYE.”
CJ Williams did not accept the level of fines recommended by the Crown, saying he believed these to be “too high if one looks at the totality principle against the financial position of the companies and the fact that the core PAYE has now been paid.”
He said the level of fines should not be so high as to drive the companies out of business, thereby extinguishing the chance of payment, recovery and the ongoing support of McKinley and his companies for various sporting communities in the country.
CJ Williams concluded that the personal fine should be higher as McKinley had directed his companies to break the law.
He noted that the case was apparently the first such prosecution in the country and there was a precedent aspect to sentencing.