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In the Matter of The Companies Act (Ch 146); In the Matter of Paradise Property and Development Pty Ltd trading as Paradise Real [1994] PGNC 36; N1279 (14 December 1994)

N1279

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE AT WAIGANI]

M. P. 281 of 1994

In the Matter of the Companies Act (Ch 146)

AND

In the Matter of Paradise Property and Development Pty Ltd
trading as Paradise Real Estate

Waigani: Kapi DCJ
7 and 14 December 1994

Companies - Winding up - Statutory demand under s 204 - Amount stated in
demand exceeded amount in fact owing - Whether company deemed insolvent - Companies Act (Ch 146) s 240 (2).

The petitioner served a demand on the debtor company for K28,006.64 pursuant to s 240 (2) of the Act. The company failed to comply with the demand. However, the company admitted to a lesser amount. The question arose whether the petitioner had established the requirements for deemed insolvency under s 240 (2) of the Act.

Held: A notice under s 240 (2) of the Companies Act (Ch 146) which claims an amount part of which is in dispute is a valid notice for the purposes of the Act as long as the amount is in excess of K500.

Mr. W. Duma for the petitioning Creditor.
Dr. B. Brunton for the Debtor Company.

14 December 1994.

This is a petition brought by Steamships Trading Company Limited (hereinafter referred to as "the Petitioner) for the winding up of Paradise Property and Development Pty Ltd trading as Paradise Real Estate (hereinafter referred to as "the Company"). The petition is brought on the ground that the company is unable to pay it's debts. The petitioner relies on s 240 (2) (a) of the Companies Act (Ch 146) (hereinafter referred to as "the Act"). So far as it is relevant s 240 (2) provides as follows:

"A company shall be deemed to be unable to pay it's debts if-

(a) a creditor by assignment or otherwise to whom the company is indebted in a sum exceeding K500.00 then due has served on the company, by leaving it at the registered office, a demand under his hand, or under the hand of his agent lawfully authorised for the purpose, requiring the company the sum so due and the company has, for three weeks afterwards, neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor; or

(b) .......

(c) ......."

There is no dispute that the petitioner is a creditor and has made a demand for the company to pay an amount due and that the company has failed to pay the said amount within three weeks of the demand.

The petitioner is a company engaged amongst other things in the business of general traders in all or any type of goods and services as well as hire car services.

The petitioner alleges that by credit arrangement goods and services were supplied to the company. The petitioner alleges that a total amount of K21, 988.00 is still owing for these goods and services. Of this amount the company admits that the proper amount is K13, 891.82 but disputes the balance on the basis that the goods were not supplied.

In respect of the hire of vehicles, the petitioner alleges that the company owes K6,018.64. The company admits to an amount of K4, 617.41 and disputes the balance.

Therefore, the company admits that it owes a total of K18,509.23 (see affidavit of the Managing Director, Albert Bamin sworn 25 November 1994).

Counsel for the petitioner submitted that on the undisputed evidence of the managing director of the company, the amount of K18, 509.23 is owing and as it has been unable to pay the debt within three weeks of the demand, the company should be deemed to be unable to pay it's debts.

Counsel for the company submitted that the notice of demand was for a greater sum than is actually due and therefore, it is an invalid demand.

I have been referred to overseas cases dealing with the equivalent provision to s 240 (2) of the Act. Counsel have submitted that there is no local case on point. In so far as it is relevant to the resolution of the issue before me, it is only necessary to state the general principles without any detailed analysis of the cases.

There are two lines of authority on the point raised before me. The first is that s 240 (2) should be interpreted literally with the effect that if a notice of demand exceeds that actually due, the demand is not valid. The authority for this proposition may be found in the case of Processed Sand Pty Ltd -v- Thiess Contractors Pty Ltd; Breen Holdings Pty Ltd -v- Thiess Contractors Pty Ltd (1983) 7 ACLR 956. The two proceedings were heard together. In this case s 364 (2) of the Companies Act 1981 (NSW) (the equivalent of our s 240 (2) of the Act ) was considered. There was no dispute that each of the plaintiffs was indebted to the defendant in a substantial amount. The issue was whether the question of notice of demand which requires payment of a sum which is greater than the amount actually due is valid. Waddell J at p 961 concluded:

"It seems to me that the provision would work satisfactorily if it were to be recognised that a notice of demand is not valid if the amount required to be paid exceeds that actually due because there would appear to be no reason why if part of an amount claimed is in dispute, a notice of demand should not be given for the amount not in dispute.

Accordingly, in my opinion, s 364 (2) should be interpreted literally. With the greatest respect to the decisions which are to the contrary, and particularly, of course, to Cardiff Preserved Coal & Coke Co, I have come to the conclusion that these should not be followed. There are two immediate consequences.

Firstly, a notice of demand which claims more than the amount actually due will not come within s 364 (2) and non-compliance with it will not give rise to any deemed inability on the part of the company to pay it's debts.

Secondly, if a notice of demand is given for a sum, part of which is genuinely disputed on substantial grounds, an omission on the part of the company to pay any amount in response to the demand will not give rise to a deemed inability to pay its debts."

There are other cases in New South Wales and Queensland which adopt this literal approach.

There is a second line of authority which holds the view that the fact that a notice of demand claims an amount greater than is due is irrelevant and cannot have any effect on the demand. See Cardiff Preserved Coal & Coke Co v Norton (1867) LR 2 Ch AC 405; Re Pardoo Nominees Pty Ltd (1987) 11 ACLR 573; Arafura Finance Corporation Pty Ltd v Kooba Pty Ltd [1987] NTSC 57; 12 ACLR 300.

I am not bound to follow any of these cases. Most of these cases are single judge decisions and the point is yet to be settled in courts of superior jurisdiction. In Papua New Guinea this court is free to follow any of these two lines of authority which it considers to be the correct view. I have considered the merits of both lines of authority and I have come to the conclusion that the narrow or the literal approach is not the correct view. As Muirhead AJ said in Arafura Finance Corporation Pty Ltd v Kooba Pty Ltd (supra) said at p 306:

"The literal approach has an attractive simplicity but I am not confident it accords with modern commercial reality. If there is a bona fide dispute the court must resolve it and the defendant has adequate opportunity of putting his case upon the hearing, and indeed beforehand, if restraining orders are sought. But if that resolution shows clearly that a lesser sum, which is precise in that it can be assessed on balance in excess of $1000, was due apart from matters in dispute, and if those at the helm of the company do not swear that the company is able to pay its debts, I see no injustice, and considerable merit in making a winding up order. Otherwise, it seems to me where there is a finding say that certainly $50,000, but not $100,000 as claimed is due, dismissal of the application will involve protraction of the issue and duplication of litigation."

In every case the court always has a discretion to refuse or withhold an order for winding up. The court may refuse an order if a company appears and assert that the demand is wrong; or that it has cross-claim for similar or larger amount; or that it is able to pay its debts (see Cosgrove J Re Pardoo Nominees (supra) at p 575).

In the present case the petitioner is required to prove:

(a) A debt due in excess of K500.

(b) A demand requiring payment of the debt.

(c) A failure by the company over a period of 3 weeks to pay or secure the debt.

The company admits a debt in excess of K500. There is no dispute that a demand has been made and that no payment has been made. There is no affidavit by the company establishing solvency on its part or that it is able to pay its debt as they fall due. There is no reasonable explanation for the company's failure in not making the payment. I have had regard to paragraph 5 of the affidavit of Albert Bamin sworn 25 November 1994 in which he made reference to his personal money in an interest bearing deposit. However, this money does not belong to the company. In any case no reference is made to the amount of money which should have some relevance to the amount outstanding. I am not satisfied that there is a genuine attempt on the part of the company to pay the amount outstanding. Accordingly I find that the company is deemed to be unable to pay its debts. I will order that the company be wound up.

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Lawyers for the Petitioner: Bake Dawson Waldron
Lawyers for the Respondent: Brunton & Associate