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National Court of Papua New Guinea |
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]
MP (COMM) NO. 34 OF 2017
BETWEEN:
In the Matter of the COMPANIES ACT 1997
AND:
In the Matter of NATIONAL HOUSING ESTATE LIMITED
Waigani: Anis J
2021: 20th July, 13th August, 10th September, 1st &11th November
2022: 30th May, 8th,16th & 23rd June
PETITION FOR WINDING UP – Petition filed pursuant to s 291(3)(a) of the Companies Act 1997 – petition premised on company unable to pay its debts as and when they fall due, and, just and equitable – debt consists of a judgment sum – whether the prerequisites for winding up have been met – whether the company should be ordered to be wound up – consideration – exercise of discretion
Cases Cited:
Sunset Rentals Ltd v. Pacific View Apartments Ltd (2020) SC1994
Counsel:
A Paru, with counsel assisting P Smith, for the Petitioner
C Gagma, for the Respondent
JUDGMENT
23rd June, 2022
1. ANIS J: This matter was commenced under the Companies Act of 1997 (CA) on 7 August 2017 by this purported creditor, Niugini Building Supplies Limited (petitioner).
2. I heard the petition on 20 July 2021. The matter was adjourned to 1:30pm on 13 August 2021 to receive the final submissions of the respondent. It was adjourned then thereafter on various occasions by consent of the parties due to a pending related Supreme Court matter, that is, SC Rev No. 32 of 2021 (Supreme Court review). On 16 June 2022, the parties presented their final submissions before I reserved my ruling to this afternoon.
3. This is my ruling.
BACKGROUND
4. On 22 October 2014, the petitioner obtained summary judgment in the sum of K4,879,263.21 (summary judgment) against National Housing Corporation (NHC) and the respondent, in proceeding WS No. 623 of 2014. The judgment remained unsatisfied for several years. On 20 June 2017, the petitioner served a Creditor’s Statutory Demand (CSD) on the respondent at its registered office, demanding payment of K5,918,746.79 which included interest. On 7 August 2017, the petitioner filed this petition to wind up the respondent.
5. The respondent then applied to dismiss the petition. On 9 April 2018, the petition was dismissed by the National Court. The petitioner appealed the decision to the Supreme Court in SCA No. 57 of 2018. On 4 February 2020, the Supreme Court upheld the appeal and reinstated the petition. Presently, there is this Supreme Court review which was filed by the NHC and the respondent against the petitioner which is pending before the Supreme Court. The said review was filed to review the decision of the National Court in proceeding WS 623 of 2014 that granted the summary judgment. The Supreme Court review is presently pending a hearing date.
6. I note that I had confirmed with both counsel during the closing submissions hearing on 16 June 2022 that no stay had been ordered by the Supreme Court against this proceeding.
PRELIMINARY MATTERS
7. At the closing submissions hearing, Mr Gagma, counsel for the respondent, informed the Court that his client had a pending notice of motion (filed on 2 June 2022) which also returned and should be heard as well. I invited both counsel to make submissions on the preliminary matter, and later, on the substantive matter.
8. In considering the preliminary matter, I make these observations. On 8 June 2022, I issued 2 main orders. I firstly granted leave to the respondent to withdraw its Notice of Motion filed on 2 June 2022. The next order I made was to adjourn the matter to 3pm on 16 June 2022 for closing arguments on the substantive matter.
9. It appears, from the submissions of the respondent, that there was another notice of motion filed on the same date, that is, 2 June 2022. So, the first notice of motion is marked as document number 48 in the Court file. That notice of motion was the one that was addressed by the parties on 8 June 2022 where eventually leave was sought and granted for its withdrawal. The subsequent notice of motion, marked as document 49 in the Court, was never brought to the Court’s attention at that time on 8 June 2022.
10. The dilemma I have now is whether this notice of motion, which is marked as document number 49 and filed after document number 48 in the Court file, was filed before or after the Court had dealt with the matter on 8 June 2022. Let me look at the evidence. The respondent has filed an affidavit of service, and I refer to the affidavit of Madeline Paulisbo filed on 7 June 2022. She deposes that on 6 June 2022, which was 2 days before the matter was set to return on 8 June 2022, she served the lawyers of the petitioners with sealed copies of the documents, and she attaches as annexure A, a copy of the DETAILS OF SERVICE form of Gagma Legal Services. I observe that the only notice of motions served were (i) one which was filed on 30 May 2022 and (ii), the other, which was filed on 2 June 2022. The respondent’s notice of motion filed on 30 May 2022 was dismissed for want of prosecution on 1 June 2022. And Mr Paru, counsel for the petitioner, informed the Court that the petitioner was only aware of the respondent’s notice of motion that was filed on 2 June 2022, that is, the one marked as document number 48 in the Court file. The petitioner appeared surprised to learn of another document or notice of motion that was filed on the same day which is document number 49. In other words, if document 49 had been filed together with the other notice of motion marked as document number 48, it could have also been served at the same time by Ms Paulisbo on the petitioner on 6 June 2022. For reasons only known to the respondent, document 49 was never served on the petitioner.
11. So, this is my ruling. I reject the notice of motion filed by the respondent on 2 June 2022, which is marked as document number 49 in the Court file, as a Court document that is properly before the Court. The respondent’s own evidence, which is corroborated with submissions by the petitioner, showed that document 49 was never served with the other 2 motions upon the petitioner on 6 June 2022. The notice of motion marked as document 48 was withdrawn on 8 June 2022. I find as a matter of fact that court document number 49 was not before the Court when the matter returned on 8 June 2022. I find that it was filed sometimes after the status conference hearing of 8 June 2022, which therefore may make its filing improper because it means that it was backdated to 2 June 2022. Even if I may be wrong and the said notice of motion was filed within the time as stated, the respondent had failed to bring that to the attention of the Court on 8 June 2022 for the Court to address it. That matter was set down for hearing and that is what is before me for consideration. It cannot also be regarded as an urgent notice of motion given it was purportedly filed on 2 June 2022 and the respondent had had 6 days where it could have easily served the notice of motion (i.e., document 49) on the petitioner.
12. Regardless of my findings above, I also note that on 8 June 2022, it was acknowledged by the parties at the time when the respondent withdrew its notice of motion filed on 2 June 2022 (i.e., document 48), that the respondent will make submissions in reply to the substantive matter which will serve the same purpose of its intended notice of motion which had been withdraw which had sought to, amongst others, set aside the exparte orders that had appointed an interim liquidator; the parties were happy that if the Court dismisses the petition then the interim liquidation will cease, and if otherwise, then it may be confirmed. It was on that basis that the matter was set down for closing submissions.
13. I therefore find that the only matter for me to hear is the closing arguments/submissions hearing. As such, I note that issues 1, 2, and 3 as alleged or stated in the respondent’s written submission dated 16 June 2022 shall fail or are irrelevant. I will proceed now to address the substantive matter.
ISSUES
14. The main issues herein, in my view, are, (i), whether the petitioner is not a creditor and whether the debt or the judgment where the CSD is based upon is ambiguous, and (ii), subject to the first issue, whether the respondent is unable to pay its debts when they fall due in the ordinary course of business and or (iii), whether it is just and equitable that the respondent be wound up or put into liquidation by appointing a liquidator.
CONTENTIONS
15. The petitioner raised 2 grounds why it says the respondent should be liquidated. The first is that the company is unable to pay its debts as and when they fall due in the ordinary course of business, and second ground is that it is just and equitable that the company be wound up. They are pleaded in paras 7 and 8 of the petition.
LAW
16. Let me address the relevant provisions under the CA. Sections 291, 335 and 336 read:
291. COMMENCEMENT OF LIQUIDATION.
(1) A company may be put into liquidation by the appointment as liquidator of a named person.
(2) A liquidator may be appointed by–
(a) special resolution of those shareholders entitled to vote and voting on the question; or
(b) the board of the company on the occurrence of an event specified in the constitution; or
(c) the Court, on the application of the company, or a director or shareholder, or other entitled person, or a creditor of the company (including any contingent or prospective creditor), or the Registrar.
(3) The 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; or
(b) the company or the board has persistently or seriously failed to comply with this Act; or
(c) the company does not comply with Section 11; or
(d) it is just and equitable that the company be put into liquidation.
(4) The liquidation of a company commences on the date on which the liquidator is appointed
......
335. MEANING OF “INABILITY TO PAY DEBTS”.
Unless the contrary is proved, and subject to Section 336, a company is presumed to be unable to pay its debts as they become due in the ordinary course of business where–
(a) the company has failed to comply with a statutory demand; or
(b) execution issued against the company in respect of a judgment debt has been returned unsatisfied in whole or in part; or
(c) a person entitled to a charge over all or substantially all of the property of the company has appointed a receiver under the instrument creating the charge; or
(d) a compromise between a company and its creditors has been put to a vote in accordance with Part XV but has not been approved.
336. EVIDENCE AND OTHER MATTERS.
(1) 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 course of business unless the application is made within one month after the last date for compliance with the demand.
(2) 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.
(3) Information or records acquired under Section 219 or, where the Court so orders, under Section 220, may be received as evidence that a company is unable to pay its debts as they become due in the ordinary course of business.
(4) In determining whether a company is unable to pay its debts as they become due in the ordinary course of business, its contingent or prospective liabilities may be taken into account.
(5) An application to the Court for an order that a company be put into liquidation on the ground that it is unable to pay its debts as they become due in the ordinary course of business may be made by a contingent or prospective creditor only with the leave of the Court, and the Court may give such leave, with or without conditions, only if it is satisfied that a prima facie case has been made out that the company is unable to pay its debts as they become due in the ordinary course of business.
(Underlining is mine)
CREDITOR
17. I note the respondent’s submissions re meaning of the term ‘creditor’, that is, whether the petitioner is not a creditor; or whether the judgment sum is not a debt; and whether the judgment sum or debt is ambiguous. These issues or arguments, with respect, are made vaguely and without proper basis or points of law that should require a proper consideration by this Court. I therefore dismiss them as unfounded.
18. In any event, I find that the petitioner is a creditor within the meaning of s 290(1) and s 351 of the CA. The debt in question is the summary judgment. It was granted by the National Court on 22 October 2014. It has since, and for this purpose, been converted or stated in the CSD which had been served on the respondent on 20 June 2017 to settle.
USE OF CREDITOR’S STATUTORY DEMAND AS EVIDENCE
19. Although not captured as an issue, the respondent raised a material issue which is contained in its written submission, that is, at para 23 of Exhibit D1 (i.e., the affidavit of Madeline Paulisbo filed on 13 September 2017). Exhibit D1 was the only evidence tendered by the respondent at the trial. The respondent alleges therein that the petition, being filed on 7 August 2017, means that it was filed outside the 1 month required period because the CSD was served on it on 20 June 2017.
20. I note the submissions and evidence adduced by the parties that address this issue. With these, I make this observation. It is not disputed that the CSD was served on the respondent on 20 June 2017. Section 338(2) of the CA reads in part, The application (i.e., application to set-aside Creditor’s Statutory Demand) shall be made, and served on the creditor, within one month of the date of service of the demand. And s 336(1) reads in part, 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 course of business unless the application is made within one month after the last date for compliance with the demand. The application referred to therein refers to a petition. So, when reading the 2 provisions, the petitioner, in order for it to rely on its evidence of default of compliance with the CSD, it must file its petition within 2 months from the date of service of the CSD on 20 June 2017. The petition herein was filed on 7 August 2017, which is within the 2 months period.
21. With these, I dismiss this argument by the respondent. I would also remark that failure to file a petition within the 2 months period does not mean that it is incompetent. It rather means that the petitioner would have to rely on other evidence and not a Creditor’s Statutory Demand notice, to show or prove that the respondent company concerned is unable to pay its debts when they fall due in the ordinary course of business. I also dismiss the respondent’s other claim that no certificate had been received by the petitioner from the Registrar before it filed the petition. There is no basis for this argument.
UNABLE TO PAY ITS DEBT
22. Given that the petition was filed within the required 2 month’s period, evidence of failure to comply with the CSD may therefore be regarded or relied upon by the petitioner as evidence that the respondent is unable to pay its debts as they become due in the ordinary course of business.
23. I must say here at the outset, that at the hearing, both counsel confirmed to the Court when they were asked whether the respondent had made any payments in response to the CSD or to the summary judgment, that no payments had been made or received. And based on the evidence adduced by the petitioner, I note that these monies continue to remain outstanding. This is despite the fact that there may be a review that may be still pending before the Supreme Court. The judgment of the National Court in WS 623 of 2014 remains binding. There is presently no stay order obtained in the Supreme Court, in relation to WS 623 of 2014 or this proceeding. Let me also make this remark. When the trial for this matter was completed in July of 2021, the main reason for the delay of this matter (i.e., to present closing submissions) was premised on the Supreme Court matter. The respondent had almost 1 year since then to progress its review or to successfully apply for and obtain stay order. It has not done so, or there is no order that stays the present proceeding.
24. In regard to the evidence, I note that the petitioner has filed exhibits P1 to P11 in support of its claim. The evidence, in particular, the affidavits of John Bori and Morea Raka, show that the CSD had been duly served on the respondent at its registered office, however, the respondent had failed to pay the debt within the stated period in the CSD. Such failure or default to comply with the CSD is, pursuant to the provisions of the CA and in particular ss 335(a) and 336(1), sufficient evidence to establish that the respondent is unable to pay its debts as they become due in the ordinary course of business.
25. The respondent also raised arguments concerning what a ‘debt’ is; argument that it was not a ‘debtor’ to the sum that was claimed in the CSD; argument that the debt was uncertain given that it was ordered against both the NHC and itself. These arguments, in my view, are baseless. The debt consists of a judgment of the National Court which is valid and binding. It has not been set aside; it has not been successfully appealed against; and there is no valid stay order in place that prevents compliance with the summary judgment. The nature of the said summary judgment obtained on 22 October 2014 is such that the defendants are either jointly or severally liable. All the claims of negotiations to settle that had been advanced by the respondent had come to no fruition and to date, not a single toea has been paid by the respondent to settle the said sum or the sum as stated in the CSD. If we compute time from the date of the judgment, the debt would be outstanding for a period of about 8 years, or 5 years if compute time from the date of service of the CSD.
26. I am satisfied on the balance of probabilities that the petitioner has established its first ground to wind-up the respondent, that is, on the basis that the respondent is unable to pay its debts as they become due in the ordinary course of business.
JUST AND EQUITABLE
27. I turn to the second ground why the petitioner says the respondent should be wound up, that is, whether it is just and equitable that the company be put into liquidation. The petitioner pleads this ground as a consequence to its first ground.
28. I note the submissions of the parties.
29. I make these observations. Firstly, I note that whilst the matter was pending closing arguments, the petitioner applied for, and I granted orders for the appointment of an interim liquidator. I made these orders on 11 May 2022 where Andrew Pini was appointed as the interim liquidator for the respondent. I note that evidence adduced then showed primarily that the National Executive Council had passed a resolution in March of this year to abolish the respondent and transfer its assets over to the NHC. That was the main consideration which the petitioner had put forward which I had considered and upheld before granting the interim liquidation order to, amongst others, preserve the status quo of the respondent’s existence and of its assets. This fact was not disputed or challenged by the respondent when I inquired with counsel for the respondent at the closing submissions hearing.
30. Given the said fact or the undisputed state of affairs of the respondent, it would obviously be, in my view, just and equitable that the respondent company should be put into liquidation. I also note my findings in upholding the first ground and say that that is sufficient in itself to liquidate the company. But further, I also find that based on my earlier findings under ground 1, it is just and equitable therefore, or as a consequence, that the respondent be put into liquidation.
COMPANY SOLVENT
31. However, there is one final argument the respondent raised. It submits that it is solvent in that it has assets that are valued at K72,721,400. This is deposed to at para 14 of Exhibit D1 which includes Annexure E. Annexure E consists of a schedule or list of properties with their descriptions and values.
32. The schedule, I observe, is not prepared, or certified by any formal or proper valuer or valuation firm whether internal or otherwise. It appears as a mere list which could have easily been reproduced or prepared by anyone person or persons. I dismiss it as showing any true value or reflection of the total value of properties or assets that the respondent has. The list or schedule is also regarded as incomplete.
33. However, even if I may be wrong, I note that the solvency status of a company is not in itself a material or determining factor that may oppose the grounds for liquidation. The Supreme Court in Sunset Rentals Ltd v. Pacific View Apartments Ltd (2020) SC1994, stated at paras 17 and 18:
17. A solvency test is broadly applied under the Companies Act to ascertain whether a company is solvent, that is, by applying the 2 tests that are stated under s. 4(1)(a) and (b) of the Companies Act. However, s. 4 and the 2 tests are not expressly regarded as prerequisite requirements for purposes of liquidation of a company under s. 291(3). The minimum requirement for a Court that is hearing a petition to liquidate a company, is any one of those 4 grounds that are stated therein, namely, (i), the company is unable to pay its debts as they become due in the ordinary course of business, or (ii), the company or the board has persistently or seriously failed to comply with this Act, or (iii), the company does not comply with Section 11, or (iv), it is just and equitable that the company be put into liquidation.
18. We think it is prudent to follow the intention of the legislators and as such, that the Court should start at s. 291(3) to determine a petition rather than to begin at s. 4 or to use s. 4 as the material test when it is faced with an application to liquidate a company that is made under s. 291(3) of the Companies Act. For example, s. 291(3)(a)’s requirement does not require a petitioner to also adduce evidence to prove that the value of the company's assets is greater than the value of its liabilities, including contingent liabilities. The said requirement under s. 4 is bestowed on the directors of a company. If a creditor pleads ground (a) under s. 291(3), all that is required of it is evidence of want of compliance with a Creditor’s Statutory Demand or other evidence apart from that, to show that the debtor company is unable to pay its debts as they fall due in the ordinary course of business. Section 291(3)(a) also does not deter the Court from ordering liquidation even if there is evidence that shows that the value of the debtor company’s assets exceeds its liabilities. We therefore dismiss grounds of appeal 3.1 and 3.3.
34. I therefore dismiss this claim by the respondent.
SUMMARY
35. In summary, I find in favour of the petitioner. I uphold the 2 grounds in support of the petition, and in so doing, I will order that the respondent be put into liquidation. I will also order that Andrew Pini be confirmed as the Liquidator.
COST
36. The question of cost is discretionary. I will order cost of the petition to follow the event on a party/party basis which may be taxed if not agreed.
ORDERS OF THE COURT
37. I make the following orders:
The Court orders accordingly
________________________________________________________________
O’Briens Lawyers Lawyer for the Petitioner
Gagma Legal Lawyers: Lawyer for the Respondent
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