IN THE HIGH COURT OF FIJI
AT LAUTOKA

Companies (Winding Up)
No. 03 of 2008

IN THE MATTER OF MATAPO LIMITED

AND

IN THE MATTER OF THE COMPANIES ACT CAP 247

Appearances: Yash Law for the petitioner
Muaror & Co. for the company
Koyas for Herbert Construction Company (Fiji) Limited
S. B. Patel for IBM New Zealand & Downer Construction Limited
Samuel K. Ram for Vuksich & Borich (Fiji) Limited
Young & Associates for FNPF

RULING

[1]	Before me is an application by Herbert Construction (Fiji) Limited (the applicant) for (i) an order that the Official Receiver be appointed as interim liquidator of Matapo Limited (the company) and (ii) ancillary orders relating to the appointment.

Background of proceedings

[2]	In January this year Vinod Patel & Company Limited (the petitioning creditor) filed a winding up petition against the company. On 8 February learned counsel for the petitioning creditor informed the court that the parties were ‘talking settlement’ and sought an adjournment of the petition. The petition was adjourned before the Master on 9 April 2008. It was further adjourned to 27 May 2008 for hearing. On 27 May the hearing was again adjourned to 9 July. On 11 June the applicant filed an intention to appear and support the petition for what is alleged to be non-payment of a debt in the sum of $17,019,599.65. On the same day the present application by notice of motion to appoint an interim liquidator was filed returnable on 13 June before the Master who directed that the file be returned to the Registry for assignment to a Judge. 

[3]	On 13 June orders for answering affidavits were made and the application was set down for hearing on 11 July. The company’s undertaking given by counsel in regard to dealing with its assets was recorded as an order of the court as follows:

"The company by its officers and agents undertakes not to deal with assets of the company otherwise than in the ordinary course of business, such undertaking to lapse 4.00pm 11 July 2008"

[4]	The order has been extended until today. Other creditors have filed notices of intention to appear and support the petition, namely IBM New Zealand Limited (FJD $124,375.00 & NZD $111,463.00), BP South West Pacific Limited ($49,560.11), Vodafone Fiji Limited ($5,966.06), Vuksich & Borich (Fiji) Limited ($17,098,753.21) and Downer Construction (Fiji) Limited ($3,556,883.00). IBM New Zealand also filed an intention to appear in respect of the summons for appointment of an interim liquidator. 

[5]	The applicant filed twelve affidavits in support of its application. The company filed two affidavits opposing the application and one affidavit in opposition to the winding up petition. Learned counsel for the applicant filed comprehensive written submissions as did learned counsel for the Fiji National Provident Fund (the FNPF). FNPF had been served the application and in appearing at the hearing reserved all its rights and remedies as secured creditor of the company. It sought to be heard to the extent that a liquidator should not be appointed given that some of the orders sought would affect its rights as secured creditor. Mr. Young also submitted that the applicant had not made out a case to warrant the appointment of an interim liquidator.

The Law

[6]	Rule 27 of the Companies (Winding Up) Rules provides that the court may, after the presentation of a winding up petition and upon sufficient grounds being proved by affidavit, appoint an interim liquidator. The remedy is discretionary. The invocation of the jurisdiction of the court is ultimately for the protection of the public. It also safeguards creditors, employees and others who deal with a company upon an assumption that it is viable and solvent. Generally the purpose for which a provisional liquidator is appointed is to preserve the assets of the company and the status quo in relation to its affairs. In Zempilas his Honor also stressed that:

"The appointment of a provisional liquidator pending adjudication upon the petition for winding up, is a drastic intrusion into the affairs of the company and is not to be contemplated if other measures would be adequate to preserve the status quo." 

[7]	The applicable principles for consideration were stated by Master Lee (as Lee J then was) in Re McLennan Holdings Pty Limited, adopted and applied by Justice Kirby in Costantinidis as follows:

"1.	A provisional liquidator is not automatically appointed by the Court for the mere asking …. even when the company presents its own petition.

2.	A provisional liquidator may only be appointed after presentation of a duly authorized petition which must disclose a good ground for winding up …

4.	Whilst the ultimate fate of the petition must be left to the Court finally hearing the matter, a provisional liquidator will not usually be appointed unless it appears in the material that a winding-up order is likely … This presupposes that there should be adequate evidence adduced on an application for appointment of a provisional liquidator to show that a winding-up is, in the absence of material to the contrary, likely.

5.	A company seeking the appointment of a provisional liquidator after presentation of its own petition must at least show that the application is for a bona fide purpose …

6.	The power to appoint a provisional liquidator is in no way limited; … The circumstances (which may constitute sufficient ground) under which a provisional liquidator may be appointed are infinite: Re Club Mediterranean Pty Limited (1975) 11 WR 481, 484 … There is no reason why the public interest should not operate in favour of or against the making of an appointment in particular circumstances …

7.	Whilst mere evidence of insolvency alone is usually insufficient to justify the appointment of a provisional liquidator at the instance of a creditor … such evidence in the case of an application by a company may be sufficient to show that the application is bona fide and may be capable of constituting a ‘sufficient ground’ …" 

[8]	Other principles which emerge from Justice Kirby’s judgment are that the court is duty bound to take into account the reality of the trading position of the company. The court will not look in a narrow and particular way only at the position of unidentified debts or specified creditors. It will consider ‘the debtors financial position in its entirety’. A conclusion of insolvency generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. The court adopts a realistic assessment and takes into account the times extended to the company to pay its creditors, and in turn the times within which it might reasonably expect to receive payments of debts owing to it. 

Public Interest

[9]	While in no way diminishing the significance of the substantial debt owed to the applicant, it seems to me that the public interest represented by the FNPF outweighs the interests of all other creditors. Pension funds of the taxpayers of Fiji are exposed to the tune of $67,000,000.00. In the circumstances I have given more weight to the submissions made by Mr. Young. The FNPF holds a Mortgage and a Debenture over all the assets of the company. One of the orders sought by the applicant is an order that no action or proceeding be proceeded with or commenced against the company except by leave of the court. I agree with Mr. Young that there are no grounds set out in any of the affidavits relied on by the applicant to justify the type of restriction it seeks to impose upon the FNPF over the exercise of its securities. FNPF is not a party to the recently filed action by the landowners in Civil Action No. 124 of 2008 alleging fraud against the company in respect of the land over which the FNPF holds its securities. Even if fraud were established in that action, that fraud must be visited upon the FNPF. As the pleadings stand in the papers before me, there are no such allegations pleaded against the FNPF. 

[10]	I have also upheld Mr. Young’s submission that the orders sought go far beyond the primary object of appointing a provisional liquidator which is to maintain the status quo and to protect the company’s properties. Reliance was placed on Attalex Pty Ltd. v Brian Cassidy Electrical Industries Pty Ltd; Re Brian Cassidy Electrical Industries Pty. Ltd. (No. 2) where His Honor Justice McLelland stated at page 657 that:

"There is, I think, a distinction to be drawn between the appointment of a provisional liquidator on the one hand, and the appointment of a liquidator on the other, bearing in mind the differing emphasis of their respective functions, and particularly the substantial obligation of investigation falling upon a liquidator. As Bowen C.J. in Eq. said in a similar context in Re Stewden Nominees at CLC p. 28, 336; A.C.F.R. p. 188:

"A provisional liquidator’s duties are generally to preserve the status quo pending the hearing of the petition to wind up … He does not have the wide-ranging duties of investigation, examination of directors, and possibly of instituting proceedings which have commonly to be exercised by a liquidator."

One matter to which the Court will ordinarily pay attention is the attitude of creditors, so far as that attitude is ascertained." Emphasis added. 

[11]	Most of the orders sought extend into the realm of the functions and duties of a liquidator, see for example prayers 3 (d) (e) (f) (g) (h), 4, 5, and 6. I also have considerable reservations about several other orders sought given the consequential expenses to the taxpayers of Fiji who will be expected to meet the costs associated with prayers 3 (b) and (c). The applicant makes no offer whatsoever to offset any of the costs, which would be significant, in the event that I were minded to grant the application. 

Assets in Jeopardy

[12]	In support of this contention Mr. Herbert in his affidavit of 10 June stated that ‘Mr. Urwin has tried to sell the uncompleted Resort and I believe he is still attempting to do so. I am concerned that he may sell the company’s assets at undervalue’. Further that ‘Matapo Limited has recently sold some boats to pay creditors. I am concerned that Matapo Limited is selling assets to pay some creditors ahead of others’. The company maintains that the two boats recently sold were not owned by the company. The applicant did not produce any evidence to the contrary. I decline to give any weight to the bare assertion of sale of the uncompleted Resort. Surely, given that the application involved a most drastic interference into the company’s affairs, much more than a bare assertion of unauthorized attempts to sell was required to be proved. The winding up petition has languished in the court system without any serious attempt by the creditors to bring the proceedings to finality for close to six months. That the Momi Project has come to a standstill in the last eighteen months is a matter of public knowledge. No particular event had occurred since the filing of the petition, (aside the sale of the disputed boats) which suggested the urgent need for the court to intervene. The claim of dissipation of assets by the company’s directors has not been adequately established. 

Likelihood of a Winding Up Order

[13]	Mere evidence of insolvency alone is usually insufficient to justify the appointment of a provisional liquidator. However the extent of the company’s indebtedness is of serious concern. Mr. Phillip Temo did not fortify his statement that the company is solvent with any supporting documentation. In the circumstances an extension of the order made on 13 June is called for. In my view an extension of the order would be adequate to preserve the status quo. What has not been disputed is Mr. Temo’s assertion that the company and FNPF are working together to reach an amicable solution to forward the completion of the project. Given the level of public funds at risk this option ought to be allowed to be pursued further without the intervention of an interim liquidator.

Conclusion

[14]	The petitioning creditor opposed the application. Mr. Patel who appeared for IBM New Zealand and on instructions of Messrs Howards for Downer Construction (Fiji) Limited was instructed to take a neutral stand. Mr. Ram for Vuksich & Borich (Fiji) Limited sought to have the present status quo preserved. All his client wants is to get paid. Mr. Young for FNPF opposed the application. The applicant does not have the support of other creditors who filed notices to appear in the winding up proceedings. I find that the balance of convenience favours no disturbance to the status quo. The requirement for urgent independent intervention is simply not made out on the material before me.

Order

(i)	The application is dismissed with costs assessed in the sum of $750.00 to each party that filed a notice to appear and support the petition and who appeared at the hearing, to be paid by the applicant within 14 days.

(ii)	The order restraining the company from dealing with its assets otherwise than in the ordinary course of business is extended until determination of the winding up petition.

Gwen Phillips
Judge

At Lautoka
15 August 2008