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National Court of Papua New Guinea |
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]
MP 21 of 2017
IN THE MATTER OF THE
COMPANIES ACT 1997
AND:
IN THE MATTER OF
BCMS SOLUTIONS PNG LIMITED
Waigani: Hartshorn J
2019: 21st, 26th March
: 27th March
Petition for the liquidation of a company
Cases Cited:
Cal Exports Ltd v. Camp Administration Ltd (2009) SC1050
In re Piunde Ltd (2015) N5971
In re Star Ships (PNG) Limited (2016) N6580
Counsel:
Mr. S. Nutley, for the Petitioner
Ms. J. Terra, for the Company
Oral decision delivered on
27th March, 2019
1. HARTSHORN J: The petitioner Trans Pacific Assurance Limited (TPAL) petitions that BCMS Solutions PNG Limited (BCMS) be placed into liquidation by the appointment of a liquidator on the basis that BCMS is unable to pay its debts as they become due in the ordinary course of business and that it is just and equitable.
2. BCMS seeks that this proceeding be stayed, restrained or dismissed pursuant to s.297 Companies Act 1997 and Order 12 Rule 40 National Court Rules for being an abuse of process, frivolous and vexatious.
Whether proceeding should be stayed, restrained or dismissed
3. BCMS submits that there is an abuse of process as:
a) The allegations in the petition do not entitle the presentation of a petition or the petitioner is not entitled to petition;
b) The debt is genuinely disputed and a Deed of Settlement that had been prepared had been prepared in error.
4. TPAL submits that:
a) All of the subject of the invoice, insurance, was ordered by TPAL and TPAL is liable to pay for it;
b) BCMS produced a proposed Deed of Settlement to be entered into with TPAL admitting amongst others, that it owed the debt;
c) The debt is not genuinely disputed.
Secxtion 297 Companies Act
5. This section is as follows:
“297. Power to stay or restrain certain proceedings against company.
At any time after the making of an application to the Court under Section 291(2)(c) to appoint a liquidator of a company and before a liquidator is appointed, the company or any creditor or shareholder of the company may—
(a) in the case of any application or proceeding against the company that is pending in the Court or the Supreme Court, apply to the Court or the Supreme Court, as the case may be, for a stay of the application or proceeding; or
(b) in the case of any other application or proceeding pending against the company in any court or tribunal, apply to the Court to restrain the application or proceeding,
and the Court or the Supreme Court, as the case may be, may stay or restrain the application or proceeding on such terms and conditions as it thinks fit.”
6. As I stated in In re Piunde Ltd (2015) N5971, this section does not give this court the jurisdiction to stay or restrain a petition. An application under s. 291(2) (c) to appoint a liquidator of a company is not an, “.... application or proceeding against the company that is pending...” As the Supreme Court in Cal Exports Ltd v. Camp Administration Ltd (2009) SC1050, said at [20]:
“Section 297 of the Companies Act gives jurisdiction to the court to stay proceedings where an application is made to appoint a liquidator under s.291 (2) (c) and at the same time there is another application or proceeding against the company in the National Court or the Supreme Court or any other Court or tribunal which is pending. Section 297 enables the company or any creditor or shareholder to make an application in that other application or proceeding to stay those proceedings until the application under s.291 (2) (c) is determined. The application is made in the other proceedings and before the Court in which the application or proceedings is pending, except that if the proceeding is in a court outside the National Judicial System the application is made to the National Court.”
7. The Court stated that its researches of English, Australian and New Zealand Law had not found any case on similar sections to s.297 in those jurisdictions which had held that those sections gave jurisdiction to stay a petition to wind up or appoint a liquidator.
8. This court is bound by decisions of the Supreme Court. Consequently the application of BCMS pursuant to s.297 Companies Act is refused.
Order 12 Rule 49 National Court Rules
9. BCMS seeks that the petition be stayed or dismissed as an abuse of the process of the court pursuant to Order 12 Rule 40 National Court Rules. Such applications can be made.
10. In Cal Exports v. Camp Administration (supra), the Supreme Court stated at [19] that:
“19. Our conclusion is that the power to stay a petition to wind up a company presented pursuant to s291 of the Companies Act, before the liquidator is appointed, is founded in the inherent jurisdiction of the court to prevent abuses of the process of the court. In terms of rules of court, an application could be based on National Court Rules O8 r 27 (a pleading which is an abuse of the process of the court) or similarly O12 r40, because the Companies Rules Rule 2 provides:
"Subject to the Companies Act and these Rules, the Rules of Court of the National Court and the general practice of that Court, including the course of procedure and practice in Chambers, apply in relation to proceedings to which these Rules relate as far as is practicable".”
11. The Court went on to state that the purpose of a stay application, “...is to prevent abuse of the court process by an applicant who seeks to liquidate the company on some misconceived or unmeritorious grounds.”
12. Then at [23], the Court said:
“23. Where the application is to stay the petition before the appointment of a liquidator, as we have said, the application is really one to prevent an abuse of the processes of the court, usually, either because:
a) The allegations in the petition do not entitle the presentation of a petition or the petitioner is not qualified to petition; or,
b) the debt is genuinely disputed and the petitioner cannot really claim to be a creditor until the debt is established. Thus the petitioner is not qualified to present the petition; or,
c) the company has a genuine counterclaim, which exceeds the petitioner's debt, and the petitioner cannot be allowed to visit the Draconian remedy of winding up on a company, when there are a real prospects that the petitioner's debt will be satisfied by bringing the counterclaim to judgement.”
Consideration
13. As to the contention by BCMS that it has a genuine dispute concerning the debt it allegedly owes to TPAL, the basis of the alleged dispute is that although BCMS ordered 14 different classes of insurance cover from TPAL, that insurance cover covered different companies and each of those companies should be responsible to pay the premium for the insurance cover specific to each company. Further BCMS claims that it has paid the premiums for which BCMS was responsible, the sum of K8,941.61, by payment of K16,628.32, and that the overpayment should be used towards settling the other accounts outstanding for the insurance cover issued.
14. TPAL claims that the order for all of the insurance cover was made by BCMS and that Ms. Dinah Peter, a director of BCMS, wrote to TPAL informing that BCMS was unable to pay the sum owed for the insurance. Ms. Peter purposed for BMCS to pay over a period of time and gave to TPAL a draft deed for extended terms for payment of the debt owed by BCMS in the sum of K177,217.00. TPAL declined to execute this deed and requested payment of the amount owing.
15. In the evidence of Mr. Christopher Giddings, a director of TPAL, there is annexed a copy of email correspondence between him and Ms Dinah Peter, a director of BCMS, concerning the insurance cover, a proposed payment plan for what was outstanding and a draft Deed of Settlement and Release (Deed) prepared by BCMS. Notwithstanding that TPAL did not execute the Deed, the content of the Deed is evidence of BCMS’s position at the time the Deed was prepared by BCMS. In the Deed BCMS is described as taking out 14 different classes of insurance policy cover from TPAL and that most of the insurance cover taken is unpaid, outstanding is the sum of K177,217.00, BCMS has every intention to pay “you” back, and in Recital ‘F’, “As of now we are unable to offset your debts on a one-off upfront payment. We are offering to pay a minimum of K29,536.17 in monthly instalments. However, the amount will increase when the company have (sic) enough funds available.....”
16. Mr. Theodosios Monogenis, who is described as the Chief Executive Office of BCMS, deposes that amongst others that Ms. Peter acted in error as she did not realise that BCMS did not owe the debt to TPAL. The Court was not referred to any evidence from Ms. Peter to this effect however. It is not disputed that Ms. Peter is a director of BCMS and an extract from the Registrar of Companies for BCMS as at 21st January 2019 records Ms. Peter as being the only director and only shareholder of BCMS. I am satisfied that TPAL is able to rely upon the representations of Ms. Peter, the admissions contained in the email correspondence, and the Deed.
17. Further, of significance, the court notes that Ms. Peter, the only director and shareholder of BCMS, has not gone into further evidence on the debt to TPAL notwithstanding that her company faces being put into liquidation.
18. Given the above, I am not satisfied that it has been proved to the requisite standard that BCMS genuinely disputes the debt to TPAL. TPAL is able to claim that it is a genuine creditor and has established the debt owed to it by BCMS. As BCMS claimed that TPAL came within category two of the three criteria referred to in Cal Exports (supra), and I have found that not to be the case, the relief sought in the notice of motion of BCMS filed 18th March 2019 for this proceeding to be stayed, restrained or dismissed is refused.
Whether liquidator should be appointed
19. TPAL relies on the petition presented on 18th December 2018 and an affidavit verifying petition sworn and filed the same day. It seeks that a liquidator be appointed to BCMS pursuant to s.291(1) and 292(2)(c) Companies Act on the grounds that BCMS is unable to pay its debts as they become due in the ordinary course of business and that it is just and equitable.
20. Pursuant to s.291(3)(a) Companies Act, the court may appoint a liquidator where it is satisfied that the company is unable to pay its debts as they become due in the ordinary course of business. Section 335 deals with how a presumption arises that a company is unable to pay its debts. Section 336 (2) provides:
“Section 335 does not prevent proof by other means that a company is unable to pay its debts as they become due in the ordinary course of business.”
21. In this instance TPAL seeks to prove that BCMS is unable to pay its debts by other means by relying on evidence other than that referred to in s.335 Companies Act, which it is permitted to do by virtue of s.336 (2) Companies Act.
Evidence
22. There is evidence in support of the petition concerning amongst others the debt owed to the petitioner and to others, a company search of BCMS, the gazettal and publication of the petition, service, the consent of a person to be a liquidator and a compliance certificate by the Registrar, National Court. I am satisfied from a perusal of the documentation filed and relied upon that all of the procedural requirements of the Companies Act and Rules have been complied with.
23. As to proving the grounds, first, TPAL relies upon the evidence concerning the debt owed to it by BCMS. This debt concerns insurance cover provided to BCMS. I have already considered this debt, and BCMS’s alleged dispute concerning that debt, when considering the application to stay, restrain or dismiss this proceeding. I am satisfied that TPAL has established to the requiste standard that BCMS does owe TPAL K160,588.68 and that it has been owing since or about September 2018.
24. Secondly TPAL relies upon the evidence of various other alleged creditors of BCMS. The first of these which I consider is Pryde Furniture Limited. A director of Pryde Furniture Ltd deposes that BCMS owes it K54,433.91, a proposed Deed of Settlement and Release prepared by BCMS was forwarded, Pryde Furniture did not sign, and in a letter to Pryde Furniture that is in evidence, Ms Dinah Peter, the director of BCMS, informs that amongst others, on BCMS Solutions PNG Ltd letterhead dated 21st September 2018 that, “As of now we are unable to offset your debts on a one-of payment. We are offering to pay a minimum of K5,000.00 in monthly installments.” Mr. Monogenis deposes that BCMS is up to date with its payments. The debt is not denied. To my mind, that BCMS is having to pay by instalment is cogent evidence that it is not able to pay a debt that is due in the ordinary course of business. This is confirmed by Ms. Peter.
25. Next is a debt owed to PNG Environmental Services for K12,801.36 for the provision of merchandise in 2017 and 2018. This debt is not denied however a payment of K9,757.44 is alleged to have been made to an incorrect account in November 2017. In any event, the debt is not denied and even if the alleged incorrect payment is deducted a debt is still owing.
26. Next is a debt owing to Black Swan (PNG) Ltd of K24,121.00 by BCMS. This is admitted by BCMS but BCMS claims that the debt was paid. This payment was made by Pacific International Freight PNG Ltd. Pacific International Freight PNG Limited also owes a debt to Black Swan. Black Swan, after receiving the payment into its account from Pacific International, used the payment in reduction of Pacific International’s debt to Black Swan. The debt of BCMS to Black Swan remains therefore, submits Black Swan. I am satisfied that Black Swan was entitled to treat a payment it received from Pacific International as payment in reduction of Pacific International’s debt to Black Swan in these circumstances. Consequently, BCMS still owes the admitted debt to Black Swan. This is further evidence of BCMS being unable to pay its debts in the ordinary course of business.
27. Next is a debt owed to Vidak Ltd. This debt is for NZ$45,233.00 for the supply of office furniture. In an email dated 9th February 2018 Mr. Mike Vidak, Director writes to CEO BCMS, “Theo, you provided some payments see enclosed invoices, please advise when payments will commence and remittances.”
28. On 9th February 2018, the same day Theo Monogenis replies:
“Just waiting for one more payment in AUD and will release the full outstanding payment.”
29. Mr Vidak deposes that the debt remains owing. This debt is not denied and is further evidence of BCMS not being able to pay its debts in the ordinary cause of business.
30. Next is a debt owed to Eagle Exports & Productions Australia Pty Ltd. The debt owed by BCMS was K365,124.00. A Deed of Settlement and Release was entered into and signed in or about April 2018. It admits the debt on behalf of BCMS. K315,124.00, not including interest, is now outstanding.
31. Mr. Monogenis deposes that a reconciliation was not done and there are discrepancies. The fact remains that BCMS entered into a Deed admitting it owes K365,124.00, that goods were supplied, invoices were furnished by Eagle Exports, the debts were not paid, a creditors statutory demand was issued, but was withdrawn and BCMS offered to settle the debt of K365,124.00 by instalments. This to my mind is further evidence of BMS not being able to pay its debts in the ordinary course of business.
32. There are also other creditors who allege that BCMS owes considerable amounts. BMCS then alleges that it has alleged cross claims for considerable amounts. The number of contacts or agreements that BCMS has in respect of which there are claims, cross claims and alleged disputes is a matter that should in my view be causing concern to the officers and owners of BCMS.
33. I am satisfied from a consideration of the above evidence that the petitioner has proved to the court to the requisite standard that BCMS is unable to pay its debts as they become due in the ordinary course of business. This is so because of the number of debts which remain outstanding and have remained outstanding for a considerable period, and the various admissions that debts are owing and that payment cannot be made.
34. Further, and in addition, I refer to what can only be described as a pattern which has emerged of a debt being incurred by BCMS, the debt not being paid and then a Deed of Settlement and the Release being prepared and sent to the creditors by BCMS to pay in instalments. To consistently not pay and then forward a Deed of Settlement and Release with a request to pay by instalment, is also evidence, in my view, that a company is unable to pay its debts in the ordinary course of business.
35. I also refer to the first of Mr. Momogenis’s affidavits filed on behalf of BCMS. In that affidavit there is a heading to the effect that BCMS is a solvent company.
36. Solvency is not the ground upon which this petition is brought. If solvency is considered, however, s. 4 Companies Act relevantly is a follows:
“4. Meaning of “solvency test”.
(1) For the purpose of this Act, a company satisfies the solvency test where –
(a) the company is able to pay its debts as they become due in the ordinary course of business; and
(b) the value of the company’s assets is greater than the value of its liabilities, including contingent liabilities.”
37. Further, as I said in In re Star Ships (PNG) Limited (2016) N6580:
“I note the comments of Gabi J in Nathaniel Poya v. Rex Paki (2008) N3535. That case concerned an application to terminate a liquidation but His Honour’s comments as to solvency are pertinent. At p10, His Honour said:
“11. Solvency is an important consideration in an application to terminate liquidation. The question is whether the company meets the solvency test. There are 2 requirements: First, the company must be able to pay its creditors as the debts fall due. Second, assets must exceed liabilities. Both requirements must be met for a company is said to be solvent (see In the matter of an application by Agmark Pacific Ltd and James Sinton Spence Liquidator of Sepik Coffee J.V. Ltd (In Liquidation) (2007) N3223....”
38. I am satisfied that on the above definition of the solvency test, as I am of the view that BCMS is unable to pay its debts as they become due in the ordinary course of business, BCMS does not meet the solvency test.
39. In the circumstances and taking all of the evidence into account, I am satisfied that this court should exercise its discretion in favour of appointing a liquidator to BCMS, as it is unable to pay its debts in the ordinary course of business. Further, BCMS does not meet the solvency test in s.4 Companies Act. I am satisfied that it is just and equitable that a liquidator be appointed. Given this is not necessary to consider the other submissions of counsel.
Orders
40. The Court orders that:
a) BCMS Solutions PNG Limited (1-108092) is placed into liquidation;
b) Andrew Pini is appointed the liquidator of BCMS Solutions PNG Limited on 27th March 2019 at 4:55pm;
c) BCMS Solutions PNG Limited shall pay the costs of and incidental to this petition of the petitioner.
__________________________________________________________________
Fiocco & Nutley Lawyers: Lawyers for the Petitioner
BCMS Solutions PNG Limited: Lawyers for the Respondent
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