IN THE HIGH COURT OF FIJI
AT SUVA
COMPANIES JURISDICTION

Winding Up Action No. HBE 2 of 2014

IN THE MATTER of DAWASAMU TRANSPORT LIMITED a duly registered liability company having its registered office Auckland Street, Verata, Nausori. P. O. Box 79, Tailevu.

AND

IN THE MATTER of the Companies Act 1983, Section 221

BEFORE : Master Thushara Rajasinghe

COUNSEL : Mr. O’Driscoll G. L. for the Plaintiff 
 Mr. Tuberi I. V. for the Defendant
 
Date of Hearing : 7th July, 2014
Date of Judgment : 5th September, 2014

JUDGMENT

A.	INTRODUCTION

1.	The Petitioner, Tebara Transport Limited instituted this winding up proceedings against the debtor company Dawasamu Transport Limited seeking following orders inter alia;

i.	That Dawasamu Transport Limited be wound up by the court under the provisions of the Company Act; or 

ii.	That such other order may be made in the premises as shall deem just, 

2.	Subsequent to filing of this petition, the Petitioner filed it affidavit verifying the petition, which was followed by the affidavit in opposition filed by the debtor company. The Petitioner then filed its memorandum of due compliance pursuant to the winding up rules 28 (1). Subsequently, this petition was set down for hearing on 7th of July 2014. The counsel for the petitioner and the debtor company made their oral arguments and submissions during the cause of the hearing. Having considered the petition, affidavit in opposition, and respective oral submissions of the counsel, I now proceed to pronounce my judgment as follows. 

B.	BACKGROUND, 

3.	This winding up petition is founded on the allegation of that the debtor company is unable to pay its debts pursuant to section 220 (c) of the Company Act. The Petitioner has served the debtor company a winding up notice demanding them to pay sum of $33,691, which is the judgment sum obtained by the Petitioner in the default judgment entered against the debtor company in the Civil Action No HBC 389 of 2011on 15th of April 2014. The Petitioner stated that the debtor company failed to pay that debt amount as demanded in the winding up notice within 21 days of the said notice. Hence the debtor company is now deemed to be insolvent or unable to pay its debts pursuant to section 221 (a) of the company Act. 

4.	The debtor company while admitting its awareness of this debt sum of $33,691 stated that they are not insolvent as claimed by the Petitioner. However, they refused to pay the debt on the ground that the debt has arisen out of a default judgment entered against them due to no fault of them, but due to the fault of their solicitor who was retained by the debtor to represent them in court. 

5.	The debtor company further stated that they had applied to the Fiji Court of Appeal to grant them leave to defend the claim against them. However, the debtor company failed to provide any details or the status of that application in the Fiji Court of Appeal. At the end of their affidavit in opposition, the debtor company deposed that they refuse to pay the debt because of its intention to challenge the default judgment. 

C.	THE LAW,

6.	Section 220 of the Company Act has stipulated the grounds upon which a company could be wound by the court. The inability to pay its debts is one of those grounds stipulated under section 220. This petition for winding up is founded on the ground of the debtor company’s inability to pay its debts. 

7.	The Definition of inability to pay debts has been provided in section 221 of the Company Act, where it states that; 

“A company shall be deemed to be unable to pay its debts-

(a)	if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding $100 then due has served on the company , by leaving it at the registered office of the company, a demand under his hand requiring the company to pay the sum so due and the company has, for 3 weeks thereafter; neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor; or

(b) if execution or other process issued on a judgment, decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part; or

(c) if it is proved to the satisfaction of the court that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the court shall take into account the contingent and prospective liabilities of the company”.

8.	Ungoed – Thomas J in Mann and Another v Goldstein and Another (1968) 2 ALL ER 769 has discussed the requirements for winding up proceedings and the insolvency, where his lordship observed that 

“To enable the companies court to make the winding-up order itself, not only must the petitioner have been shown to be entitled to present the petition, but also one of the grounds specified in s 222 of the Companies Act, 1948a must be established: and the only such ground relied on in the petition and before me was that the company is unable to pay its debts. This requirement is additional to the pre-condition of presenting the petition, that the petitioner must be a creditor, and is not alternative to it. The insolvency requirement, however, unlike the creditor requirement, is only a pre-requisite of the order and not a pre-requisite of the presentation of the petition. So if a person is entitled to present a petition, then the company's inability to pay its debts is the very matter which it is appropriate for the companies court to enquire into and decide in the exercise of its jurisdiction to make a winding-up order.

9.	Master Udit in In re Comsol Fiji Ltd (2009) FJHC77;HBE0048.2007L (25 March 2009) held that section 221 of the Company Act is a deeming provision and the presumption of inability to pay the debts can be rebutted. He further held that  

“when a demand is made the company must act swiftly to dispute the debt or pay the same in order to negate the imposition of the said presumption. Furthermore, if the company opts to dispute the debt it must do so on substantial grounds. The test for a disputed debt was aptly stated in Palmers Company Law Vol.13 as follows:-
 
“To fall within the general principle the dispute must be bona fide in both a subjective and an objective sense. Thus the reason for not paying the debt must be honestly believed to exist and must be based on substantial or reasonable grounds. Substantial means having substance and not frivolous, which disputes the court should ignore. There must be so much doubt and question about the liability to pay the debt that the court sees that there is a question to be decided.” (emphasis added)

10.	Peter Gibson LJ in Raja v Rubin and Another (1999) 3 All ER 73 held that “a person seeking to wind up a company on a disputed debt, as in such case, it is well established that the petition is on abuse of process”. 

11.	In view of the above judicial precedents, it has been affirmed that the Petitioner is entitled to obtain an order to wind up the respondent company only on the ground of undisputed debt. 

12.	Turing to this instance case, this debt is founded on judgment debt and the Petitioner is the judgment creditor. Thus he is entitled to institute this proceeding as per Ungoed – Thomas J’s findings in Mann and Another b Goldstein and Another (supra). 

13.	The debtor company does not dispute the existence of the debt arose from the said default judgment, but contended that the reason of refusal of payment is that they intend to challenge the default judgment. There is no precise evidence before me whether they have already instituted proceedings to set aside the default judgment. If they wish to challenge the default judgment, they should have promptly taken appropriate steps to set aside it, rather than delaying and denying the judgment creditor to enjoy his success. In the absence of such evidence that the debtor company has taken appropriate steps to set aside this default judgment, I do not find the reasons given by the debtor company to refuse the payment are not founded on a substantial ground. 

14.	The Debtor Company vehemently contended that it is not insolvent and its business is running well. Under this circumstance, I find that though the debt is not disputed, it appears that the company is not insolvent. In circumstance such as in this instance case, it needs to be determined that whether the court could grant an order to wind up the debtor company when it appears that the company is not insolvent, though the debt is undisputedly established. 

15.	Hoffmann J in Re a company (No 0012209 of 1991) [1992] 2 All ER 797 held that 

“It does seem to me that a tendency has developed, possibly since the decision in Cornhill Insurance plc v Improvement Services Ltd [1986] BCLC 26, [1986] 1 WLR 114, to present petitions against solvent companies as a way of putting pressure upon them to make payments of money which is bona fide disputed rather than to invoke the procedures which the rules provide for summary judgment. I do not for a moment wish to detract from anything which was said in the Cornhill Insurance case, which indeed followed earlier authority, to the effect that a refusal to pay an indisputable debt is evidence from which the inference may be drawn that the debtor is unable to pay. It was, however, a somewhat unusual case in which it was quite clear that the company in question had no grounds at all for its refusal. Equally it seems to me that if the court comes to the conclusion that a solvent company is not putting forward any defence in good faith and is merely seeking to take for itself credit which it is not allowed under the contract, then the court would not be inclined to restrain presentation of the petition. But, if, as in this case, it appears that the defence has a prospect of success and the company is solvent, then I think that the court should give the company the benefit of the doubt and not do anything which would encourage the use of the Companies Court as an alternative to the RSC Ord 14 procedure.

16.	It has been held in Re a company (Supra) that the court is allowed to adopt the presumption of inability to pay debts if the company failed to provide substantial reasons to dispute the debt and its refusal to pay it, even though the company is appeared to be solvent. It is the onus of the debtor company to rebut the presumption of inability to pay the debts if it genuinely disputes it. Otherwise, the presumption will prevail. 

17.	Having considered the reasons set out above, I find that the reasons given by the debtor company to refuse the payment of this debt are not founded on a reasonable and substantial grounds, wherefore; I am satisfied that the debtor company has failed to rebut the presumption of inability to pay its debts under section 221 of the Company Act. I accordingly hold that the debtor company is unable to pay its debt and make following orders that; 

i.	The Debtor Company, Dawasamu Transport Limited is hereby wound up under the provisions of the Company Act 1983, 

ii.	The Official Receiver is hereby appointed as the Liquidator, 
iii.	The Petitioner is awarded $1,000 cost assessed summarily, 

Dated at Suva this 5th day of September, 2014.

R.D.R. Thushara Rajasinghe
Master of High Court, Suva