N11328

PAPUA NEW GUINEA
[NATIONAL COURT OF JUSTICE]

OS NO.  161 OF 2022

BETWEEN:
IN THE MATTER OF THE COMPANIES ACT 1997

AND
IN THE MATTER OF AHI HOLDINGS LIMITED (Company Number 1-21697)
Applicant

AND
IN THE MATTER OF RIBAC K STEVEDORES LIMITED (In Liquidation) (Company Number 1-3737)
First Respondent

AND
AHI INVESTMENT LIMITED
Second Respondent

LAE: DOWA J
21 OCTOBER 2022; 13 JUNE 2025

COMPANY LAW – leave to commence  proceedings against company in liquidation – exercise of discretion – relevant considerations – whether applicant has serious question to be tried-section 298(1)(c), Companies Act 1997-Application refused

Cases cited
ICCC v PNG Mainport Liner Services Ltd (2018) N7664
PNG Ports Corporation v Canopus No 71 Ltd (2010) N4288
Rex Paki v MVIL (2010) SC1015
Wilfred Pake Giru v POSB (2007) N3155 

Counsel
J Aku for the plaintiff
J Nigs for the first respondent
P Tabuchi for the second respondent

DECISION

1.	DOWA J:	This is a decision on an application by Ahi Holdings Limited for leave under Section 298 (1) of the Companies Act to commence legal proceedings against the first Respondent, Riback Stevedores Limited (In Liquidation).
 
2.	By Originating Summons filed 29 June 2022, the Plaintiff seeks the following: 

1.	Leave of the Court under section 298(1) (c) of the Companies Act to commence legal proceedings against the Respondent and others.
2.	The Applicant’s cost of the Application be paid by the Respondent on a solicitor-client basis.
3.	Any other or further Orders that the court considers appropriate in the circumstances.

Background Facts

3	The Applicant, Ahi Holdings Limited (AHL) is a landowner company owned by the Ahi people of Lae, Morobe Province. It is a former shareholder of Riback Stevedores Ltd (In liquidation) holding 51 % of the shares. AHL was deregistered and was off the IPA records until it was reinstated by the Court on 14th July 2020 in proceedings OS No. 192 of 2020.

4	After deregistration of AHL all its properties, including the shares in Riback, were vested in the Registrar of Companies (ROC). The ROC then subsequently had the shares transferred to another company called Ahi Investment Limited, the second Respondent, in 2017. 

5	In May 2020, Riback was placed on voluntary liquidation by shareholders, Ahi Investment Limited and Steamships Limited and appointed John Clarke as Liquidator.

6	The Applicant alleges the Registrar of Companies unlawfully removed the Applicant from the register of Companies and subsequently transferred all its shares in Riback to Ahi Investment Limited, a company incorporated by the Registrar of Companies. 

7	The Applicant alleges further that the voluntary liquidation by Ahi Investment Limited and Steamship was done to frustrate or prevent the Applicant from recovering its shares and dividends and to avoid giving an account of the affairs of Riback. The Applicant intends to commence recovery proceedings for the restoration of its shares and loss of dividends. The Applicant sought consent from the Liquidator to commence proceedings but has not received a response.

8	The Applicant now seeks leave in these proceedings under Section 298 (1) of the Companies Act to commence recovery proceedings against Registrar of Companies, Riback, Ahi Investment and Steamships on grounds of breach of statutory duty, negligence and fraud. A proposed Statement of claim is attached to the Affidavit of Benson Nablu filed 5th September 2022.

9.	The application is opposed by Riback and Ahi Investment Limited, submitting that the Applicant does not have a cause of action.

Issue

10	The main issue for consideration is whether the Applicant be granted leave under Section 298 (1) (c) of the Companies Act to commence proceedings against the Respondents.
 
Law

11.	Section 298 (1) of the Companies Act is relevant, and it reads:

298.	 EFFECT OF COMMENCEMENT OF LIQUIDATION.

(1) With effect from the commencement of the liquidation of a company–
(a) the liquidator has custody and control of the company’s assets; and
(b) the directors remain in office but cease to have powers, functions, or duties other than those required or permitted to be exercised by this Part; and
(c) unless the liquidator agrees or the Court orders otherwise, a person shall not–
(i) commence or continue legal proceedings against the company or in relation to its property; or
(ii) exercise or enforce, or continue to exercise or enforce, a right or remedy over or against property of the company; and
(d) unless the Court orders otherwise, a share in the company shall not be transferred; and
(e) an alteration shall not be made to the rights or liabilities of a shareholder of the company; and
(f) a shareholder shall not exercise a power under the constitution of the company or this Act except for the purposes of this Part; and
(g) the constitution of the company shall not be altered.
(2) Subsection (1) does not affect the right of a secured creditor, subject to Section 353, to take possession of, and realise or otherwise deal with, property of the company over which that creditor has a charge.”

12.	The principles to be applied when considering  applications for leave under Section 298 (1) of the Act is settled in Wilfred Pake Giru v POSB (2007) N3155 (per Hartshorn J) and ICCC v PNG Mainport Liner Services Ltd (2018) N7664 (per Kariko J) which  adopted  and applied, as part of the underlying law, the principles of law developed in the New Zealand High Court which has a similar provision in the NZ Companies Act to that of PNG Companies Act ( Refer: Hook v  Gulf  Harbour Development Ltd (In Liquidation) & others (2005) NZHC282 and Downer Construction (NZ) Ltd v One Hobson Street Ltd (In Liquidation) (2007) NZHC 744).  

13.	The guiding principles to be applied as set out in paragraphs 8 and 9 of the judgment in ICCC v PNG Mainport are:

“(1) The grant of leave is a discretionary matter for the Court.
(2) There must be equality among various creditors and the proceedings should not produce a comparative advantage to any particular creditor.
(3) The company’s assets should not be dissipated in wasteful litigation particularly if there is a more convenient method for determining the claim.
(4) The applicant for leave has the onus of satisfying the Court that leave should be granted.
(5) The Court must determine whether it is appropriate for the creditor’s claim to be approved in liquidation, or whether leave should be given to allow the claim to be established by way of civil proceedings.
(6) The appropriate test is that the Court be satisfied that the proposed claim is not clearly unsustainable, and the Court should not examine the merits of the case.
(7) Leave will usually be declined if the proceedings, even if successful, are likely to be fruitless
(8) Delay in the application”

Consideration

14.	 The Applicant is not a creditor, let alone a secured creditor. It is a former shareholder in the first Respondent. The shares are now transferred and vested in the second Respondent, Ahi Investment Limited.

15.	The Applicant’s allegations against the Respondents and others as set out in the proposed statement of claim are: 

i.	Alex Tongayu, the former Registrar of Companies, maliciously caused the removal or deregistration of the Applicant.
ii.	 Alex Tongayu, the former Registrar of Companies without lawful authority and maliciously incorporated the second Respondent, Ahi Investment Limited,
iii.	Alex Tongayu, the former Registrar of Companies, without authority and fraudulently transferred the Applicant’s 51% shares in Riback to the second Respondent.
iv.	Steamships Ltd and Ahi Investment Limited maliciously put Riback, the first Respondent, into voluntary liquidation to frustrate and prevent the Applicant from claiming its 5,100 shares in Riback. 

16.	The proposed statement of claim and evidence filed in this proceeding does not disclose a reasonable cause of action against Riback Stevedores. The fraudulent actions referred to in the proposed statement of claim are against persons other than the first Respondent. Section 298 (1) of the Act does not confer any jurisdiction to the Court to grant leave to people other than a company in liquidation. 

17.	The main complaint is against Alex Tongayu, the former Registrar of Companies. It is alleged that he unlawfully removed the Applicant company from the Company register. Without determining the merits of the complaint, there is evidence from Gae Galeng, Director of the Second Respondent, that the Applicant failed to comply with the statutory and regulatory requirements under the Companies Act which led to its deregistration. The evidence shows due notice and warnings were given before deregistration. The Applicant has not provided any evidence in rebuttal. The Directors of the Applicant have not taken any action to reinstate the company until July 2020. The Applicant has not produced any evidence showing that it has complied with the statutory and regulatory requirements under the Companies Act.

18.	The next complaint is that the former Registrar of Companies unlawfully transferred its shares in Riback to the second Respondent. Again, without making any determination on the merits, the evidence shows the shares were vested in the Registrar of Companies when the Applicant was deregistered. The matter was brought to the attention of the shareholders, the Ahi people. The Registrar of Companies in conjunction with the Ahi people and their leaders incorporated the second Respondent in May 2015. Thereafter, with the approval of the Registrar of Companies, they set up Ahi Charitable Trust with Ahi Prudential Development Limited. In February 2017, the Registrar of Companies transferred the 5100 shares in Riback to the second Respondent. Mr. Galeng deposes that these transactions were done in public and for the benefit of the Ahi people.

19.	 Although the Applicant contends that the transactions were not made in public and for the benefit of the Ahi people, it failed to file evidence in rebuttal and provide an explanation for lack of action until 2020. Be that as it may, what is clear though, is the first Respondent is not privy to these transactions.

20.	The final complaint is that second Respondent and Steamships as shareholders in Riback maliciously resolved to voluntarily liquidate Riback (when the company was still solvent) to frustrate and deprive the Applicant of its shares and interest in the first Respondent. In the proposed statement of claim, it seeks termination of the liquidation of Riback. A termination of liquidation can be ordered by the Court under Section 300 of the Companies Act. 

21.	Section 300 (1) and (2) of the Act are relevant and it reads:

“300. COURT MAY TERMINATE LIQUIDATION.
(1) The Court may, at any time after the appointment of a liquidator of a company, if it is satisfied that it is just and equitable to do so, make an order terminating the liquidation of the company.
(2) An application under this section may be made by the liquidator, or a director or shareholder of the company, or any other entitled person, or a creditor of the company, or the Registrar.”

22.	The special resolution to place Riback under liquidation was passed in May 2020. At that time, the Applicant remained deregistered and was not a legal entity and lacked legal capacity and standing to hold shares and conduct business. Although it is reinstated, it is not a shareholder, director or creditor of Riback and thus does not qualify to bring an action under Section 300 of the Companies Act.

23.	It seems, the Applicant must first commence proceedings to take back its shares from the second Respondent before commencing an application under Section 300 of the Companies Act. The Court also notes a series of other related Court proceedings concerning this matter prior to the current application. Although the earlier proceedings do not bar the current application, it contributes to the delay in resolving the disputes between the parties.  The applicant and first Respondents claim they are owned by the Ahi people. The directors of the two companies can and should resolve this matter with the Ahi villagers, rather than battling it in Court involving innocent parties.

24.	Litigation is costly and any protracted wasteful litigation is likely to dissipate the first Respondent company assets and will in the end be a loss to the shareholders, especially where it is highly unlikely for the Applicant to be granted the relief it is seeking. 

25.	In my view, the Applicant does not have a serious cause of action against the First Respondent, although the Plaintiff is at liberty to commence proceedings against other people named in the proposed statement of claim.

Conclusion

26.	In the end, I am not satisfied that the Applicant has established a serious question to be tried. Application for leave shall be refused.

Costs

27.	 Costs follow the event, and thus the Applicant shall pay the cost of the proceedings. The first Respondent submits that cost be paid on indemnity basis relying on the principles enunciated in the cases PNG Ports Corporation v Canopus No 71 Ltd (2010) N4288, Rex Paki v MVIL (2010) SC1015 and others. I note the Respondent’s lawyers sent warning letters to the lawyers for the Applicant for costs on a solicitor-client basis. In my view, this is an appropriate case for costs to be awarded on a solicitor-client basis. The evidence shows the allegations are against the Registrar of Companies and the second Respondent and by extension Steamships Ltd and not the first Respondent. Despite the warning letters, the Applicant persisted in its application, thus is liable to pay costs on a solicitor-client basis. Costs shall therefore be awarded in favour of the Respondents on solicitor client basis.

Orders

28.      The Court orders that:

1.The application for leave to commence proceedings under Section 298(1) of the Companies Act is refused.
2.The Applicant shall pay the Respondents’ costs on a solicitor-client basis to be taxed if not agreed.
3.Time be abridged.

Lawyers for the applicant: Jaku Lawyers
Lawyers for the first respondent: Dentons PNG
Lawyers for the second respondent: Young & William Lawyers