In re Vatulevu Enterprises Ltd [1996] FJHC 154; Hbe0097j.1995s (8 November 1996)

IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION

WINDING UP ACTION NO. 97 OF 1995

IN THE MATTER OF VATULEVU ENTERPRISES LIMITED

AND

IN THE MATTER OF THE COMPANIES ACT 1983

Between:

NATIONAL MBf FINANCE (FIJI) LIMITED
Petitioner

and

VATULEVU ENTERPRISES LIMITED
Respondent

Mr. V. Kapadia for the Petitioner
Mr. T. Fa for the Respondent

JUDGMENT

This is an opposed winding up Petition.

On 3 July 1995 the Petitioner NATIONAL MBf FINANCE (FIJI) LIMITED (the "Petitioner") served on VATULEVU ENTERPRISES LIMITED (the "Company"), a demand under section 221 of the Companies Act calling on it to pay to it the sum of $149,441.65 in respect of monies allegedly due and owing under a Hire Purchase Agreement dated 31 December 1993.

On 29 August 1995 the Petitioner presented a Petition to wind up the Company alleging that more than three weeks had passed since the demand was made but the Company had neglected to pay the said sum or satisfy that sum in whole or in part or to make any offer to the Petitioner to secure or compound the same. Under the circumstances it was claimed that the Company should be deemed insolvent and unable to pay its debts within the said section 221 and should be wound up.

The Company is opposing the Petition and has filed affidavits in support.

The affidavit evidence from both sides and the oral submissions, in short, are these.

The Petition is based on statutory demand of 3 July 1995 demanding the sum of $149,441.65 being the amount due and owing under a Hire and Purchase Agreement dated 31 December 1993 in respect of one only used Caterpillar 220 Model Ultra Bell Logger Registration No. CQ.807. There was another Hire Purchase Agreement dated 26 May 1994 in respect of one only Japanese Nissan Cedric Registration No. CQ.879. The Nissan was seized and sold and $8800 was realized and the Petitioner says that the sum of $34,364.51 is still owing under it. The caterpillar was also seized but it has not been sold as yet because the Petitioner submits that it has not been able to get "any suitable buyers for the same". It says that now the amount due and owing in respect of the Caterpillar is $155,532.47.

Although there is no petition to wind-up in respect of alleged debt on Nissan, the Company in its first affidavit filed herein, denied being liable for payment of the sum of $49,877.11 in respect of Nissan and stated that the Petitioner has also instituted Civil Action No. 342 of 1995 for the same amount against the 2 directors which is being contested. In its second affidavit sworn 19 March 1996 the Company said that it did not receive the Notice of Demand and Notice of Intention to Wind up in respect of the Caterpillar on 3 July 1995. Be that as it may, Mr. Fa submitted to Court that until the Caterpillar is sold the Company does not owe the money. He says that it has been seized and is still in possession of the Petitioner. Therefore, it cannot be said that the Company is unable to pay its debt. Mr. Fa said that the Caterpillar could go for a very good price but at present it cannot be ascertained what the actual debt is as the subject-matter is still in possession of the Petitioner and has not been sold.

Mr. Kapadia submitted that in respect of the amount owing on Nissan there is a separate action on the guarantors and he said that he will proceed with that action once he "gets this out of the way". He said that Notice of Demand and Notice of Intention to wind up dated 3 July 1995 claiming $149,441.65 was sent to the Company's postal address and that before seizure the Company was unable to pay its debts and repossession indicated that too.

Now to the consideration of the issue before me.

It is clear from the affidavit evidence that there is no Petition in regard to the claim for Nissan except in respect of the caterpillar. I hold that because it has not been sold after seizure the debt could not be ascertained and hence the amount which will ultimately be found to be due cannot be stated. Hence there cannot be a winding up petition. I therefore agree with Mr. Fa's contention that in the circumstances it cannot be said that the Company has "neglected to pay" the sum alleged as stated in the purported demand under section 221 of the Act.

On the evidence before me, it seems quite plain that there is a bona fide dispute whether there is any debt at all due and payable because of the Petitioner's inability to say specifically what is the actual amount owing without disposing of the caterpillar. This dispute I find is based not on trivial or unsubstantial but on solid grounds.

I therefore hold that the Company disputes on substantial grounds its liability to pay.

The law on the issue before me is that winding up is not to be used as a system of debt collecting and therefore the court will not grant a winding up order where there is a dispute as to whether or not a debt is actually owed. That is exactly the position in this case. Also, if there is such a dispute, the petitioner will not satisfy the requirements of being a creditor. All that is required for a petition to be struck out is that there is a dispute on 'substantial grounds'. In some of the cases, the courts have required that the debt be disputed 'in good faith and on substantial grounds' (STONEGATE SECURITIES LTD v GREGORY (1980) 1 AER 241 at 243-244) whereas in others the requirement of 'good faith' has been omitted. In Re a company (No. 001946 of 1991) ex. p. FIN SOFT HOLDING SA (1991) BCLC 737 at 740, HARMAN J considered that there were not two tests but simply one which is: 'Is there a substantial dispute as to the debt upon which the petition is allegedly founded?' As a consequence, it has been held that where there is such a dispute then the bona fide of the company is simply irrelevant.

On the facts and on the law applicable this petition must fail. A real dispute turning on disputed questions of fact which require viva voce evidence cannot properly be decided on petition. It was held in In re Company No. 00212 of 1995 THE TIMES LAW REPORTS (1995 p.186) that in such a situation "the correct course was to strike out the petition, whether the company was, or was not solvent at the time". I conclude with the following extract from MEGARRY J's judgment in In re LYMPNE INVESTMENTS LTD (No. 00250 of 1971) 1972 1 WLR 523 at 527 which is apt:

"Nor is it right, or in accordance with the modern practice, to stand over the petition in order that the disputed issues may be resolved in other proceedings. That practice, I may say, seems to stem from In re London and Paris Banking Corporation (1874) [1874] UKLawRpEq 171; L.R. 19 Eq. 444. The Companies Court must not be used as a debt-collecting agency, nor as a means of bringing improper pressure to bear on a company. The effects on a company of the presentation of a winding up petition against it are such that it would be wrong to allow the machinery designed for such petitions to be used as a means of resolving disputes which ought to be settled in ordinary litigation, or to be kept in suspense over the company's head while that litigation is fought out. Further, Mann v. Goldstein [1968] 1 W.L.R. 1091, cited with approval in the New Zealand Court of Appeal in Bateman Television Ltd. v. Coleridge Finance Co. Ltd. [1969] N.Z.L.R. 794, provides authority for saying that when a petition is based on a debt which is disputed on substantial grounds, the petitioner is not a "creditor" within section 224(1) of the Act of 1948 who has the locus standi requisite for the presentation of the petition, even if the company is in fact insolvent."

In the outcome, for the above reasons and bearing in mind the law on the subject the Company succeeds in opposing the Petition. I therefore dismiss the petition with costs to be taxed if not agreed.

D. Pathik
Judge

At Suva
8 November 1996

HBE0097J.95S