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Ekri, In re [2020] PGNC 461; N8640 (24 November 2020)

N8640

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

MP (COMM) NO. 63 OF 2019 (NO. 2)

IN THE MATTER OF THE INSOLVENCY ACT

AND

IN THE MATTER OF MICHAEL RAMSEY EKRI

Waigani: Anis J
2020: 13^th & 24^th November

INSOLVENCY PROCEEDING – notice of motion – s. 150 – Insolvency Act Chapter No. 253 – application for court to review and rescind its decision to adjudge the respondent insolvent – whether petition was filed more than 6 months after the act of insolvency – s. 21 and s. 22 of the Insolvency Act considered – want of compliance with court order – when does the act of insolvency commence for failure by a debtor to comply with a court order?

Cases Cited:

Rural Development Bank Ltd v. James Kond (2010) N5876
Yii Ann Hii v. The Deputy Commissioner of Taxation (2017) SC1626
In the matter of the Insolvency Act; In the matter of Michael Ramsey Ekri (2020) N8175

Counsel:

Mr. A Paru, for the Petitioner/Respondent
Mr. A Mana, for the Respondent/Applicant

RULING

24^th November, 2020

1. ANIS J: The proceeding began by way of a petition under the Insolvency Act Chapter No. 253 (the Insolvency Act or Act). The petitioner was Carpenter Retail & Property Limited (the petitioner). I heard the petition on 19 December 2019 and adjudged the respondent insolvent on 31 January 2020 (the insolvency order).

2. The respondent recently took steps and has relisted a notice of motion which he had filed on 5 February 2020 (NoM). The NoM seeks to set aside the insolvency order. The NoM was heard on 13 November 2020. I reserved my ruling thereafter to a date to be advised.

3. Parties have been notified so I will rule on it now.

BACKGROUND

4. The respondent insolvent is Michael Ramsey Ekri (Mr Ekri). The basis for his insolvency relates to a judgment debt that had been obtained against him and others, in proceeding WS 1348 of 2015. Mr Ekri had signed as a guarantor to borrowings that had been advanced by the petitioner to a company called Michael’s & Michael’s Limited. The company later defaulted, and it was sued with others including Mr Ekri in proceeding WS 1348 of 2015. Defaulted judgment for a sum of K2,830,147 together with interests and costs, were entered in favour of the petitioner on 22 April 2016 (default judgment order).

MOTION

5. In the NoM, Mr Ekri seeks these main relief:

2. Pursuant to Section 150 of the Insolvency Act Chapter No 253 and Order 12 Rule 1 of the National Court Rules and Section 155(4) of the Constitution, the Court rescind the judgment Order of 31 January 2020, in adjudicating the Applicant, Michael Ramsey Ekri insolvent on the basis that the creditor’s petition was filed in breach of section 22 of the Insolvency Act.
3. In the alternative, pursuant to Order 12 Rule 8(4) of the National Court Rules, the adjudicating order of 31 January 2020 be set aside and or the insolvency proceedings be dismissed in its entirety on the basis that the act of insolvency as claimed in the Creditor’s Petition of 28 October 2019, occurred more than six (6) months before the presentation of the petition in breach of Section 22 of the Insolvency Act.
4. Pursuant to section 154(b) of the Insolvency Act, the adjudication order of 31 January 2020 be stayed pending determination of the substantive matter.
   

ISSUES

6. The main issues, in my view, are, (i), whether the act of insolvency in this case is continuous, or whether it should be computed from the first date of service of the default judgment order upon Mr Ekri, (ii), whether the insolvency order should be set aside and whether the petition should be dismissed in its entirety, and (iii), whether the insolvency order should be stayed pending the hearing of the substantive proceeding.

POWER TO REVIEW OWN DECISION

7. I refer to the jurisdictional basis of the NoM. Mr Ekri contends this Court has the power to review, vary or rescind its insolvency order. The relevant provision referred to is s. 150 of the Insolvency Act. It reads:

150. Power of review.

The Court may review, rescind or vary any order made by it under this Act.

8. The provision, in my view, is express. As such, I find the source invoked in the NoM to be in order. Similar applications have been made and considered by the Courts in the past. See cases: Rural Development Bank Ltd v. James Kond (2010) N5876 and Yii Ann Hii v. The Deputy Commissioner of Taxation (2017) SC1626.

DECISION OF 31 JANUARY 2020

9. Mr Ekri’s challenge relates to the insolvency order, which was made ex-parte. It is reported as In the matter of the Insolvency Act; In the matter of Michael Ramsey Ekri (2020) N8175. On point and at paragraphs 17 and 19, I said:

17. There is however one matter which I think requires clarification. I refer to the requirement where the alleged act of insolvency must occur within 6 months before the filing or presentation of the petition. In this case, I note that the actual default judgment order was obtained in 2016. It had been served on various occasions in the past on Mr Ekri. Service on those dates in 2016 and 2017 were obviously outside the required 6 months period. However, when I consider the evidence and in particular, the affidavit in support of Sheila Sukwianomb filed on 28 October 2019, she deposes at paragraph 12 that the default judgment order was last served on Mr Ekri on 22 July 2019 whereby the petitioner had requested Mr Ekri to pay the judgment debt. Time computed on that day shows that the alleged act of insolvency was committed within the 6 months period, that is, given the fact that the petition was filed on 28 October 2019.

......

19. The act of insolvency alleged as stated relates to the alleged unsatisfied judgment of 22 April 2016. Evidence of the Court Order, its service upon Mr Ekri and the claim that it has not been complied with since it was last served on 22 July 2019, are all contained in the affidavit of Ms Sukwiannob filed on 28 October 2019. The evidence is uncontested and I have no reason to doubt it. I find that Mr Ekri has committed an act of insolvency, that is, that he has failed to settle the petitioner’s debt of K2, 830, 147 plus interest which in total and as at 24 October 2019, stands at K5, 972,328.09. The said act of insolvency qualifies under section 21(1)(i) of the Insolvency Act. The section states, and I quote in part, if the debtor......having against him the judgment of any court, and......being required to do so by the judgment, has failed......to satisfy it. This, according to section 21(1), constitutes an act of insolvency.

10. Mr Ekri submits essentially that I erred when I computed the time of service of the default judgment order based on the most recent service date, that is, 22 July 2019. He submits that the correct period or computation of time, should begin on 22 April 2016. He submits that 22 April 2016 was the date of the default judgment order. He submits that the act of insolvency should commence on that date, and not on 22 July 2019, as I had applied in my decision of 31 January 2020. In not so doing, he submits, is a breach of s. 22 of the Insolvency Act. Mr Ekri also submits that even if the act of insolvency is to be computed as at the first date of service of the default judgment order, which was on 3 May 2016, it would still be over 6 months before the petition was filed. As such, he submits as his main relief that the insolvency order should be over-turned, and the petition should be dismissed in its entirety.

11. The petitioner submits in reply that there was no error committed. Counsel submits that the Court had correctly computed time based on the most recent service date which was 22 July 2019 which was within the 6 months period as required under s. 22 of the Insolvency Act. Counsel also submits that the judgment sum remains owning to date so reliance cannot be placed on the first date of service of the default judgment to compute time. Counsel further submits that if the Court were to strictly follow the date when the default judgment order was first served on the debtor, it would mean for this case that the petitioner would have to again seek judgment against the debtor, and then to again effect service of the judgment order, which counsel submits, is not practicable or attainable. As such, counsel submits that the Court should not apply this strict approach; that it should regard an act of insolvency of an unsatisfied judgment to mean or to be computed from the last date of service of the court order upon the debtor, that is, to ascertain whether there was compliance under s. 22. Counsel submits that the Court, in this case, had correctly done so it its decision of 31 January 2020.

12. Let me begin by considering the phrase an act of insolvency. It is defined under s. 21, and reads:

21. Definition of acts of insolvency.

(1) The following acts on the part of a debtor are acts of insolvency:—

(a) if the debtor, in the country or elsewhere—

(i) has transferred his property to a trustee for the benefit of his creditors generally; or

(ii) has made a fraudulent conveyance, gift, delivery or transfer of his property, or any part of his property; or

(b) if, with intent to defeat or delay his creditors, the debtor—

(i) has departed the country; or

(ii) being out of the country has remained out of it; or

(iii) has departed from his dwelling-house or otherwise absented himself; or

(iv) has begun to keep house; or

(c) if the debtor has filed in the prescribed manner a declaration admitting his inability to pay his debts; or

(d) if the debtor has presented a petition for adjudication of insolvency against himself under Division 2; or

(e) if—

(i) an execution issued against the debtor on any legal process for payment of not less than K100.00 has been levied by seizure; and

(ii) the debtor has not bona fide satisfied the process, by payment or otherwise, within four days after the seizure; or

(f) if, after the presentation of a petition for adjudication of insolvency against the debtor, he has paid, given or delivered, to the creditor who presented the petition, money or any satisfaction as security for the debt or any part of it, so that the petitioning creditor may receive a greater percentage than other creditors; or

(g) if the debtor has given or executed a fraudulent warrant of attorney or cognovit actionem, or has done any equivalent act; or

(h) if—

(i) the creditor presenting the petition has served on the debtor, in the prescribed manner, a debtor's summons requiring him to pay a sum due, not less than K100.00; and

(ii) the debtor has for such time after the service of the summons as is specified in the summons neglected to pay the sum or to secure it or compound for it to the satisfaction of the creditor; or

(i) if the debtor—

(i) having against him the sentence, judgement or decree of any court; and

(ii) being required to do so by the sentence, judgement or decree,

has failed—

(iii) to satisfy it; or

(iv) to point out to the officer charged with its execution sufficient disposable property to satisfy it; or

(j) if the debtor—

(i) has consented at a meeting of his creditors to present a petition under Division 2; and

(ii) within 48 hours from the time of consenting (or any further time made necessary by illness, distance or other sufficient cause), has not presented the petition; or

(k) if the debtor—

(i) admits at a meeting of his creditors that he is unable to meet his engagements; or

(ii) offers at such a meeting a composition of less than 100% in cash,

and he—

(iii) has been requested by a majority of the creditors present at the meeting to present a petition under Division 2; and

(iv) within 48 hours after the request (or any further time made necessary by illness, distance or other sufficient cause), has not presented the petition; or

(l) if the debtor has given or made any preference to or in favour of a creditor that, if the debtor were adjudicated insolvent under this Act, would be a fraudulent preference of the creditor; or

(m) if a debtor has—

(i) been adjudged or declared bankrupt or insolvent in any British court out of Papua New Guinea having jurisdiction in bankruptcy or insolvency or for the relief of insolvent debtors; or

(ii) presented a petition to any such court praying adjudication of bankruptcy or insolvency against himself.

(Bold lettering is mine)

CONSIDERATION

13. I note that the argument concerning act of insolvency under ss. 21 and 22 of the Insolvency Act, was not raised or contested when Mr Ekri was adjudged insolvent on 31 January 2020. A main reason was that the matter was heard ex-parte without Mr Ekri being present. The second reason is this. This Court had briefly considered the issue in its decision of 31 January 2020. However, it was not raised, argued, or considered in detail as it is in this instance.

14. Mr Ekri has the right to and has, in my view, correctly asked the Court whether it should invoke its power under s. 150 of the Insolvency Act, and, (i), rescind the insolvency order and dismiss the petition, (ii), set-aside the insolvency order, or (iii), stay the insolvency order pending determination of the petition. So, I am essentially reviewing my own decision as permitted by the Act.

15. In this case, the only act of insolvency alleged by the petitioner against Mr Ekri was in relation non-payment of monies that were due from the default judgment order. The provisions under s. 21 that state the various acts of insolvencies, are such that there must be or that they impose, a starting time or event within which compliance is to shall occur, to a point where failure to comply will be regarded as constituting an act of insolvency. And s. 22, in my view, sets the maximum period within which a debtor may be regarded as committing an act of insolvency. It also, in my view, imposes a mandatory time-line or limit where a creditor must, if he or she chooses to liquidate a debtor, file his or her petition under the Insolvency Act.

16. In the present case, it is not an issue that the default judgment order was first served on Mr Ekri on 3 May 2016. This time frame was presented by Mr Mana, counsel for Mr Ekri at the hearing. The petitioner, in its written submission that was handed up in Court, confirms the date, that is, at paragraph 14.1 of its submission. So, the question to ask is this. Should time have been computed from 3 May 2016 and not 22 July 2019? Section 21(1)(i) states, and I quote in part, if the debtor...having against him the ... judgment .... of any court ... and being required to do so by the ... judgment ... has failed ...to satisfy it.... . That, according to s. 21(1)(i) shall constitute an act of insolvency. Mr Ekri had the default judgment entered against him on 22 April 2016. That, in my view, meets the first leg of s. 21(1)(i) where it states, if the debtor ... having against him the ... judgment .... of any court. The second leg is the part where it states that the judgment debtor is required to satisfy the judgment, and I quote, and being required to do so by the ... judgment. For that to occur, in my view, the judgment must be served. In this case, it was served on Mr Ekri on 3 May 2016. And in the absence of any specific date for compliance, in my view, regard should be made to the National Court Rules. In particular, I refer to Order 12 Rule 4, which states:

4. Time for compliance. (40/4)

(1) Subject to Sub-rules (3) and (4), a judgement or order which requires a person to do an act shall specify the time within which he is required to do the act.

(2) The time shall, unless the Court otherwise orders, be 14 days after the date of service of a minute of the judgement or order on the person required to do the act.

(3) Sub-rules (1) and (2) apply to a judgement or order which requires a person to pay money.

(4) Sub-rules (1) and (2) do not apply to a judgement for possession of land or for delivery of goods.

(5) Where a judgement or order requires a person to do an act within a specified time, the Court may, by order, require him to do the act within another specified time.

(6) Where a judgement or order requires a person to do an act but does not specify a time within which he is required to do the act, the Court may, by order, require him to do the act within a specified time.

(Underlining is mine)

17. In this instance, the default judgment order did not give a specific date or time for compliance. Sub rule 2 of Order 12 Rule 4 shall therefore apply which is that upon service of the default judgment order, Mr Ekri would have 14 days to comply. He was served on 3 May 2016. He had 14 days from that day onward within which to comply with the default judgment order. The 14^th day fell on 17 May 2016. So, the second leg has been met in the sense that Mr Ekri had been required to settle the judgment within 14 days from 3 May 2016. The third leg under section 21(1)(i) of the Insolvency Act is, has failed ...to satisfy it. In this instance, it is not disputed that Mr Ekri failed to pay the debt of K2,830,147 plus interest and costs.

18. So, the act of insolvency under s. 21(1)(i) has been met or proven by the petitioner.

19. The next thing to consider after that, is s. 22. It reads:

22. Available acts of insolvency.

A person shall not be adjudged an insolvent on an act of insolvency that occurred more than six months before the presentation of the petition.

20. The petition was presented or filed on 28 October 2019. In the petition, the petitioner also pleads other dates where the default judgment order had been served on Mr Ekri, that is, on 28 October 2017, 30 October 2017, 4 November 2017, and 22 July 2019. I had computed time based on the latest date of service of the default judgment order, that is, 22 July 2019. I concluded then in my decision of 31 January 2020 that if I compute time as of 22 July, the petition would be filed within the 6-months’ time-period that is set under s. 22 of the Insolvency Act. What I did not consider, in my view, is this. A court order, as required under the rules and in practice, can only be served once on a party following the due process for service. It does not make sense to me that a party needs to keep serving a person with a court order. The order would normally be served, and after that, the next stage is compliance. If that fails (i.e., failure to comply with the court order), then enforcement would normally follow. So, in the present case, Mr Ekri had been served on 3 May 2016. He then committed an act of insolvency when he failed to pay the default judgment sum within the 14 days’ period, that is, from the date of service of the default judgment order on 3 May 2016, to the 14^th day which was on 17^th May 2016. His committed act of insolvency, in my view, was the 14 days period where he had failed to comply with the default judgment order. Therefore, in my view and for purposes of computing time to ascertain whether the petition was filed or presented within 6-months, time should have been computed from 17 May 2016 (i.e., on the final day of compliance) to the date of filing or presentation of the petition, and not from 22 July 2019 to the date of filing or presentation of the petition.

21. If I compute time from 17 May 2016 to 28 October 2019, the petition is obviously filed well outside the 6-months period. I therefore uphold the submissions of Mr Ekri.

22. The petition therefore breaches s. 22 of the Insolvency Act. It incompetent in that it is time-barred, and as such, it must fail in its entirety. I am inclined to grant term 2 of the relief sought in Mr Ekri’s NoM.

COST

23. The NoM did not seek cost as part of its relief. I therefore make no order on cost.

THE COURT ORDERS

24. I make the following orders:

1. Pursuant to s. 150 of the Insolvency Act Chapter 253, I rescind entirely my earlier decision of 31 January 2020 where I adjudged the respondent, Michael Ramsey Ekri, insolvent.
   
2. The petition for insolvency was filed outside the 6-months period therefore is incompetent in that it is time-barred pursuant to s. 22 of the Insolvency Act Chapter 253.
   
3. Consequently, the petition is null and void and stands dismissed in its entirety.
   
4. I make no order as to costs.
   
5. Time for entry of these orders is abridged to the date and time of settlement by the Registrar which shall take place forthwith.
   

The Court orders accordingly.

________________________________________________________________
O’Briens Lawyers: Lawyers for the Petitioner
Corrs Chambers Westgarth: Lawyers for the Respondent