N3337

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

MP 205 OF 2006

BETWEEN:

IN THE MATTER OF THE COMPANIES ACT

AND:

IN THE MATTER OF INTERNATIONAL
CONSTRUCTION PNG LIMITED

Waigani: Hartshorn, J.
2007: 16 & 19 November

LIQUIDATION – Court may appoint a Liquidator- Companies Act 1997, ss.291(1) (2)( c), 335A- Company Rules

Facts: 

An application for the appointment of a liquidator to International Construction PNG Ltd (ICL) was made by MH Holdings trading as MJ Electrical Ltd (MJE). Three creditors supported the application. ICL contended that it remained solvent, had satisfied statutory demands and that a company should not have a liquidator appointed merely to enforce a debt. 

Held: 

1. If a company acknowledges that it owes a large sum, that it has done so for a considerable period of time, that it has not met numerous promises to make payment, and makes requests to pay by instalment when faced with proceedings for a liquidator to be appointed, this is strong evidence of a company unable to pay its debts when they fall due in the ordinary course of business.
 
2. It is just and equitable that a liquidator be appointed pursuant to s. 291(2)(c) of the Companies Act 1997

3. James Kruse is appointed the Liquidator of International Construction PNG Ltd.

4. The Companies Rules have not been repealed by the Companies Act 1997 and are to be followed and applied with necessary modification on an application for the appointment of a liquidator.

Cases cited:
PNG Harbours Board v. Chris Textiles Ltd [2003] N2855

Counsel:

Mr. T. Waisi, for the Company
Mr. S. Nutley, for the substituting petitioning creditor
Mr. D. Koeget, for a supporting creditor 

19 November, 2007

1. 	HARTSHORN, J: This application for the appointment of a liquidator of International Construction PNG Limited (ICL) pursuant to s. 291(2)(c) of the Companies Act 1997 was argued before me on 16 November 2007. 

2.	I reserved my decision to this morning. I now deliver my decision. 

3. 	The application was made by MH Holdings trading as MJ Electrical Ltd (MJE) as substituting petitioning creditor. It was supported by creditors Eurest South Pacific Ltd, Tri-Star Engineering Ltd and Total Equipment Solution PNG Ltd. 

4. 	The application was opposed by ICL. 

Facts

5. 	MJE issued invoices for a total of K473, 749.05 for services provided to ICL between May 2003 and August 2005. K236, 425.00 was undisputed. K136, 425.00 was paid, leaving a balance of K100, 000.00 undisputed and still outstanding. 

6. 	This is conceded by ICL in a letter dated 27 September 2007 to the lawyers for MJE and in submissions made by counsel for ICL to this Court.

7. 	In support of MJE’s application, Michael Pearson, a company director of MJE, deposes inter alia, in numerous affidavits filed that the petition in which this application was made was advertised, that MJE issued a Creditors Statutory Demand to ICL on 6 September 2006, that ICL’s representatives have made constant promises to pay and that the debt has been owing for almost 4 years. 

8. 	Tony Bartlett, the Managing Director of Total Equipment Solution PNG Ltd, deposes inter alia, that TES is owed AUD $64, 640.52 and Alfredo Concepcion, the General Manager of Tri-Star Engineering Ltd, deposes inter alia, that Tri-Star is owed K108,327.18 by ICL. 

9. 	Mark Flynn, the Managing Director of Infratech Management and Consultant Ltd deposes inter alia, that ICL owes Infratech K101, 346.09 for services provided. 

Issue

10. 	Is ICL unable to pay its debts as they become due in the ordinary cause of business?

Law

11. 	Section 335(a) Companies Act 1997 is:

Subject to s.336, a company is presumed to be unable to pay its debts as they become due in the ordinary cause of business where the company has failed to comply with a statutory demand. 

Section 336(1) is: 

On an application to the Court for an Order that a company be put into liquidation evidence of failure to comply with a statutory demand is not admissible as evidence that a company is unable to pay its debts as they become due in the ordinary cause of business, unless the applicatin is made within one month after the last date for compliance with the demand.

12. 	Section 336(2) however, states that s. 335 does not prevent proof by other means that a company is unable to pay its debts as they become due in the ordinary cause of business. 

Procedure

13. 	No objection was taken by ICL to the procedure taken under the Companies Act 1997 in issuing this present petition. Reference was made in its submissions inter alia, to the case of PNG Harbours Board v. Chris Textiles Ltd [2003] N2855, a decision of Sevua J., but only on the question of the Court having a discretion in relation to the just and equitable ground upon which a liquidator can be appointed to a company. 

14. 	In that case Sevua J. questioned whether the Companies Rules could be used in relation to the appointment of a liquidator. This was referred to by Mr. Nutley for MLE and requires consideration by me.

15. 	Section 440(3) Companies Act 1997 provides that:

For the removal of doubt, it is hereby declared that the Companies Rules remain in force and are not repealed by this Section. 

Section 441 is headed "Transitional provisions for existing companies". 

Section 441(1) relevantly is: - 

The provisions of the repealed Act, and of any Rules and Regulations made under that Act that have been repealed by this Act shall continue to apply to existing companies….
(my underlining)

16. 	Section 441(1) does not apply to the Companies Rules therefore, as the Companies Rules are not repealed by the Companies Act 1997.

17. 	Section 449(5) relevantly is:

The Companies Rules, to the extent that they apply to the winding up of companies……. shall continue in force in relation to the winding up of any company commenced before the company was registered.

That section does not say that the Companies Rules do not apply in other circumstances.

18. 	In addition, in s. 449, the use of "winding up" is synonymous with "liquidation", the intention being that they are similar, or one and the same.

19. 	Taking the above into account, as there is no prohibition in the Companies Act 1997 on the use of the Companies Rules, I am satisfied, given s. 440(3), s.441(1) and s.449(5), that the Companies Rules are to be used and followed on applications for the appointment of a liquidator.

20. 	In my view this is in accordance with s. 109(4) Constitution which requires a fair, large and liberal construction and interpretation as will best ensure the attainment of the object of the law according to its true intent, meaning and spirit.

21. 	If I am incorrect on that and the Companies Rules do not apply to this particular case, then there is no adequate provision made as to the practice or procedure concerning the appointment of a liquidator. In those circumstances, if I order the appointment of a liquidator, then pursuant to s. 185 Constitution, I will direct that the provisions of the Companies Rules apply to and shall be followed in respect of the appointment of a liquidator.

Evidence 

22. 	In this case as another creditor had commenced and advertised this petition, MJE did not proceed to apply to put ICL into liquidation relying upon the non-compliance with its statutory demand. Instead, MJE gave notice of its intention to appear in the petition. When the original petitioner withdrew, MJE was appointed substituting creditor.

23. 	The evidence upon which MJE relies is not the non-compliance with its statutory demand but the other evidence of Messrs Harrison, Bartlett and Concepcion.

24. 	Section 291(2)(c) Companies Act provides that:

A company may be put into liquidation by the appointment as liquidator of a named person. The appointment can be made on the application of a creditor of the company. 

25. 	Section 291(3) relevantly provides that a Court may appoint a liquidator where it is satisfied that:

a) the company is unable to pay its debts as they become due in the ordinary course of business, and

d) it is just and equitable that the company be put into liquidation.

26. 	MJE contends that there is overwhelming evidence before the court that ICL cannot pay its debts as they fall due. It further contends that ICL, by arguing that it cannot pay its creditors until its debtors pay ICL, is confirming that it is unable to pay its debts and evidence of its insolvency.

27.	 ICL contends that, it at all material times is solvent, that it has complied with the initial statutory demand upon which the petition was filed, that it has settled the debts of 2 creditors in full, that it has made payments to MGE and that it denies that it owes money to Infratech Management Consultants and Eurest South Pacific Ltd. It concedes that it owes MJE K100,000.00.

28.	 ICL further contends that the power of this court to appoint a liquidator is discretionary and must be exercised judicially. This means, ICL contends, that a company should not have a liquidator appointed merely to enforce a debt. ICL further contends that it is an extreme step to appoint a liquidator and a strong case must be made out. An applicant must demonstrate with evidence that the debtor company is unable to pay its debts.

29.	 ICL contends that under s.219(3) Companies Act, the court does not have to appoint a liquidator if it is satisfied that either subparagraphs a) - d) are met, but may do so. It is in the court's discretion. I agree with this contention. ICL contends that the allegation that it is unable to pay its debts must be proved by evidence, not allegation and that Sevua J. in PNG Harbours Board v. Chris Textiles Ltd (supra) has made the point that just because a company could not pay at a material time does not constitute an inability to pay.

30.	 Here, ICL openly admits that it owes MJE a large undisputed debt and has done so for at least 11 months. That balance owing is K100,000.00 To my mind, if a company acknowledges that it owes a large sum, that it has done so for a considerable period of time, almost a year, that it has not met numerous promises to make payment, and makes requests to pay by instalment when faced with proceedings for a liquidator to be appointed, this is strong evidence of a company unable to pay its debts when they fall due in the ordinary course of business.

31. 	MJE to my mind, has amply demonstrated that ICL cannot pay its debts when they fall due.

32. 	This is not a situation where a company simply does not pay a debt because it does not want to, or a mere debt collecting exercise. There is evidence of continued inability to pay its debts. There is no evidence from the company concerning its financial standing or solvency, merely unsupported statements and submissions.

33. 	I am satisfied that ICL is unable to pay its debts as they fall due in the ordinary course of business and it is just and equitable that a liquidator be appointed pursuant to s. 291(2)(c) and I so order. I further order that James Kruse be appointed as liquidator of International Construction PNG Ltd.

34.	 I also direct, pursuant to s. 185 Constitution, if it is necessary to do so, that the provisions of the Companies Rules be followed and applied with necessary modification in relation to the appointment of James Kruse as liquidator and that all references to "winding up" in those Rules be read to mean "liquidation". 
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Peter Allan Lowing Lawyers: Lawyers for Substituted Petitioning Creditor 
In House Counsel: Lawyers for Company 
Gubon Lawyers: Lawyers for Supporting Creditor