Apex Agencies Ltd v Pacific Schooners Ltd [2017] CKHC 68; Misc 5 of 2017 (22 November 2017)

IN THE HIGH COURT OF THE COOK ISLANDS HELD AT RAROTONGA CIVIL DIVISION

Misc No. 5/2017

BETWEEN APEX AGENGIES LIMITED trading as TOA PETROLEUM a duly incorporated company having its registered office at Rarotonga

1^st Petitioner

AND PORTER GROUP HOLDINGS LIMITED trading as TOA GAS a duly incorporated company having its registered office at Rarotonga

2^nd Petitioner

AND PACIFIC SCHOONERS LIMITED a duly incorporated company having its registered office at Rarotonga, Cook Islands

Respondent

Date of hearing: 21 November 2017 at 10am and 1pm

(22 November 2017 at 9am and 12pm NZT)

Counsel: Mr H Matysik for 1^st and 2^nd Petitioners

Mr D McNair for the captain and one crew member and Mr J D Elliot

Ms M Henry for the Bank of the Cook Islands

Mr T Arnold for Cook Islands Ports Authority (with Mr Tou in attendance)

Mr P Dawson (NZ by leave) for Respondent (with Mr Broadhead in attendance)

No appearance by Mr W Rasmussen for the Penrhyn community

Judgment: 22 November 2017 (CIT)

RESERVED JUDGMENT OF HUGH WILLIAMS, CJ

[1] Paragraphs 2 – 9 of the Court’s minute of 4 September 2017 read:

[2] The proceedings were commenced as a petition issued by Apex Agencies trading as Toa Petroleum and Porter Group Holdings Limited trading as Toa Gas to wind up the respondent, Pacific Schooners Limited, on the ground that it had been served with a notice under s 218 of the Companies Act 1955 (NZ as applied in the Cook Islands by the Companies Act 1970-71) and had failed to comply with the notice by meeting the debt.

[3] The principal - perhaps the only - asset of Pacific Schooners Limited is the ship "Tiare Tiporo" currently lying in Avatiu Harbour and the debts on which the s 218 notice was based totalled $55,472.02 for the supply of bunkers to the ship.

[4] The petition was issued on 23 January 2017 and an expedited hearing was sought on the grounds that the vessel had, it seemed, largely been abandoned by the respondent and that if a cyclone were to strike Rarotonga in the then current cyclone season there was a serious chance of the vessel foundering at its berth or doing damage to the Avatiu Harbour facilities unless it was able to leave the harbour to escape the force of any such storm.

[5] The petition was heard on an expedited basis on 3 February 2017 and it was held that the petitioners had made out a case for an order liquidating the respondent company but that orders to that effect could not be made as nobody had been ascertained who was prepared to accept the duties as liquidator.

[6] Liquidators were later identified, but, for the reasons set out in Judgment No.2 delivered on 16 February 2017, several conditions needed to be met before an order for winding-up could be made, including the appointment of liquidators.

[7] Since then, these proceedings have not moved forward to a conclusion and, fortunately, the 2016-17 cyclone season passed without an occasion arising when the Tiare Tiporo would have needed removal from Avatiu Harbour.

[8] However, with the advent of the 2017-18 cyclone season approaching, the Cook Islands Ports Authority's concern relating to the Tiare Tiporo was such that it instructed Mr Arnold to file the memorandum mentioned from which the following summary of facts is drawn:

a) The Ports Authority is a creditor of Pacific Schooners for rent for its office and warehouse space and, since 1 June 2017, for port dues, the respondent's inter island shipping licence having expired on 31 May 2017;

b) The directors of Pacific Schooners activity to maintain and safeguard the vessel appears to have diminished since early 2017 with, in particular, engine start-ups not having taken place;

c) As a result of that, the Tiare Tiporo is now almost certainly unable to leave Avatiu Harbour under its own power and, in the event removal was required, would need to be towed by the Authority's tug and another vessel;

d) Were the Tiare Tiporo to founder at its moorings or damage the Port's facilities, the attendant disruption of the normal harbour business might well be considerable and would have a major effect on the economic life of the Cook Islands;

e) Suggestions by the directors of the respondent that refinancing was possible and funds would be spent to make the vessel operable have come to nothing.

[9] As a result of all of that, the Ports Authority is of the view that the respondent has abandoned the Tiare Tiporo within the meaning of s 54 of the Ports Authority Act 1994-95 and proposes, by utilisation of the procedures set out in that section, to strip the Tiare Tiporo of all useable and saleable parts and then tow her to sea and scuttle her. Attention is drawn to the similar orders made in In re Mataroa Shipping & Trading Limited where much the same procedure was ordered by the Court in similar circumstances to the present.

[2] Comments were made by the Court as to how the matter might proceed including the possibility of appointing the Registrar of the Court as liquidator of the Respondent with limited authority.
[3] Applications pursuant to those suggestions were lodged on 8 September 2017.
[4] That was followed by minute (No.2) of 12 September 2017 directing that the winding up proceedings be called before Keane J in a public hearing during his sessions which commenced on 11 September 2017. That occurred but the judge was dissuaded to make no order for liquidation of the Respondent because moves were afoot to circulate a Scheme of Arrangement for acceptance or otherwise by the Respondent’s creditors.
[5] That resulted in a further hearing of the proceedings on 13 October 2017 by which stage:

1. It had been demonstrated that the Tiare Tiporo’s engines could be started and the ship could leave harbour and should an adverse weather event occur;
2. The Respondent had applied for the Court’s approval of a Scheme of Arrangement with the required creditors meeting set down to be held on 16 November 2017. That led to the Court’s minute (No.4) being issued on 13 November 2017 that had occurred during a conference call on 9 November 2017.

[6] Paras 2 – 5 and 9 of the minute read:

[2] Prior to the hearing the respondent had filed and served an application to summons a creditors' meeting of Pacific Schooners Limited together with an affidavit by Mr Broadhead in support, a draft advertisement and draft proxy and acceptance forms.

[3] It was proposed that the creditors' meeting take place on 16 November 2017 at 10am with the business being to consider a Scheme of Arrangement between Pacific Schooners Limited and its creditors.

[4] The details of the company's position and its proposal to its creditors were set out Mr Broadhead's affidavit. Broadly put, the affidavit disclosed that the respondent has debts of $2,323,901.41, $181,010.08 being debts to creditors (including shareholders) $359,119.33 of trade creditors and one special creditor of $145,772. Mr Broadhead's affidavit set out the payments and priorities proposed saying that 83.6% of creditors who have responded supported the scheme, 6% opposed it, and 2.3% had not yet responded.

[5] The affidavit also set out the respondent's proposal for the resumption of its shipping operations with a crew being available from on or about 27 November 2017 to undertake maintenance including work on the engine. The company proposed that operations would resume in January 2018 but may be unable so to do until March 2018. The affidavit also detailed difficulties encountered by the respondent in obtaining Port Risks insurance.

...

[9] At the conclusion of the conference call, the respondent's application for a meeting of creditors of the respondent company was granted in terms of the proposal, Mr Broadhead's affidavit and the advertisement.

[7] When the proceedings came back for a further conference call on 21 November 2017, the position was:

1. The required public notification of the creditor’s meeting had been advertised in the issues of the “Cook Islands News” on 11, 13 and 14 November 2017; and
2. A meeting of the creditors of the Respondent had taken place on 16 November 2017 under the chairmanship of Mr Broadhead, a director of the Respondent.

[8] The Scheme of Arrangement is attached as an annex to this judgment as are the results of the creditors meeting showing that 79.14 percent ($1,912,338.32 of a total of $2,416,280.36) approved the Scheme of Arrangement, 14.08 percent opposed; 1.33 percent abstained; and no response had been received at the date of the meeting from 5.35 percent. Subsequent to the meeting additional proxies listed in the meeting results totalling 2 percent had been received thus lifting the total of the supporting creditors to only 1.14 percent.
[9] The Scheme of Arrangement and the list of creditors are attached as an annex to this judgment.
[10] The proceedings were dealt with by way of two further conference calls on 21 November 2017 at the conclusion of which those attending, as set out in the intituling to this judgment, were advised that as a majority in number represented three-fourths in value of the creditors of the company supported the Scheme of Arrangement the Court, pursuant to the Companies Act 1955, s 205(2), would sanction the Scheme of Arrangement with the consequences being as set out in that subsection.
[11] It will now be for the Respondent, pursuant to s 205(3), to deliver to the Registrar for registration a sealed copy of the Court’s order so that, upon such delivery, the Court’s order under s 206(2) shall come into effect.
[12] Without opposition from the petition creditors, the winding up petitions against the Respondent are adjourned sine die.
[13] As is clear from the Scheme of Arrangement, even if it is fully complied with, a considerable period of time – perhaps as much as 2 years – must elapse before all creditors are paid in accordance with the Scheme. Given that winding up proceedings are usually brought to remove companies unable to pay their debts as they fall due from the commercial arena, that, coupled with crewing and other possible difficulties which might arise should the Tiare Tiporo be required to leave port, would ordinarily mean that the Court might be motivated to approve such a lengthy compromise.
[14] However, as Mr Broadhead explained during the conference call on 21 November 2017, if the Respondent proves able to secure sufficient competent crew to fulfil its forecast 10-12 voyages per annum to the outlying islands, the company should generate sufficient profit by the end of 2018 – early 2019 to repay a significant proportion of the creditors in accordance with the Scheme.
[15] It is that factor which mainly motivated the Court to approve the compromise coupled with the desirability of the outer islands needs for a regular service and the fact that under the Scheme creditors stood a reasonable chance of being paid most of their debts whereas, and if the company were put into liquidation, there is very little likelihood of any recovery but disposal of the vessel, however it was effected, would be likely to incur additional cost.
[16] It is, however, appropriate for the Court to exercise oversight of the way in which the Scheme of Arrangement is working and accordingly, pursuant to paragraphs (f) – (h):

1. The Respondent is directed to advise the Court and all creditors of the date on which it is able to resume its operations; and
2. The Registrar is to call these proceedings for a report on the operation of the Scheme of Arrangement three months from the date the Respondent resumes its operations.

[17] it would appear to be appropriate that no orders for costs in favour of any party be made but should any party take a different view, memorandum may be filed within 14 days of delivery of this judgment.

Hugh Williams, CJ