In re Casual Shoes (Fiji) Ltd [1998] FJHC 133; Hbe0001j.98s (18 September 1998)

Fiji Islands - In re Casual Shoes (Fiji) Ltd - Pacific Law Materials

IN THE HIGH COURT OF FIJI

AT SUVA

CIVIL JURISDICTION

WINDING UP NO. 1 OF 1998

IN THE MAHE MATTER of CASUAL SHOES (FIJI) LIMITED

AND

IN THE MATTER of Companies Act 1983

&

Mr. G. P. Lala for the Petitioner
Mr. K. Muaror aror for the Company

JUDGMENT

This is an opposed winding up Petition.

The petitioner JOHNSON SHOES LIMITED had on 9 January 1998 petitioned the Court to wind up CASUAL SHOES (FIJI) LIMITED (the "company") on the ground that the company is indebted to the petitioner in the sum of $4155.12 for goods supplied and delivered.

After the petitioner had filed Memorandum of Due Compliance and was entitled to obtain a winding-up order, the company wished to oppose the petition and filed an Affidavit in Opposition on 17 March 1998.

On the day of the opposition hearing both counsel agreed to file written submissions for my consideration which they did and I have given due consideration to them.

Company's submission

Mr. Muaror for the company submits that there is a bona fide dispute on substantial grounds in respect of the amount claimed in the petition. He said that the company cannot be said to have neglected to pay on the statutory demand.

The learned counsel had gone into the circumstances under which the Company came into the picture which also involved another company by the name of Lydiard Shoe Co., Ltd (the "Lydiards"). He said that the parties agreed inter alia as follows:

that the petitioner be responsible for the "making" of the shoes and the company to be responsible for machining of the uppers. Lydiards in New Zealand was required to provide specific machines to the petitioner to handle the "making" process. In addition, Lydiards were to provide personnel from its Auckland office to provide specific training to staff of the petitioner and likewise staff of the company.

The Company says that as agreed it gave a post-dated cheque for $4145.12 in favour of the petitioner for the remaining balance of the debt. But when Lydiards did not pay on the "final invoices" of the petitioner, the company decided to "withhold" its post-dated cheque. It said that had it not been "for the poor quality work of the petitioner, Lydiards would have paid the final invoices of the petitioner and such payment would have been honoured by the company".

Petitioner's submission

The petitioner, inter alia, submits that there was no discussion or negotiation with Lydiards of Auckland. The petitioner was not in breach of its side of the agreement as it produced the shoes under the supervision of the company. The post-dated cheque was dishonoured and the company was therefore in breach of its side of the agreement.

The learned counsel for the petitioner said that the objection is not on substantial or reasonable grounds.

Consideration of the issue

Now to the consideration of the issue before the Court.

The question for Court's determination is whether there is a substantial dispute as to the debt alleged after considering the matters raised in opposition by Mr. Muaror to prevent the making of a winding up order against the company.

The learned counsel for the company submits that at the time the post-dated cheque was given the company had F$32,000.00 to its credit. Hence the impression I get is that according to counsel the company was in a position to pay and that it cannot be said that the company is "unable to pay its debt". It appears that counsel has misunderstood what this term means for it has a special meaning under the Companies Act Cap. 247 (the "Act").

The Petition is presented under s220 of the Act which provides, inter alia, that "a company may be wound up by the Court, if - (e) the Company is unable to pay its debts; (f) the Court is of opinion that it is just and equitable that the company should be wound up; ....."

The term "inability to pay debts" is defined by s221 of the Act as follows:

"221. A company shall be deemed to be unable to pay its debts -

(a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding $100 then due has served on the company, by leaving it at the registered office of the company, a demand under his hand requiring the company to pay the sum so due and the company has, for 3 weeks thereafter, neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor;"

The company neither paid the amount due after the statutory demand was made under s221 of the Act nor raised any objection to the debt within the period allowed. Instead a month after the Memorandum of Due Compliance was filed it lodged an Affidavit in Opposition to the Petition.

On the affidavit evidence before me I find that the amount in question is still outstanding and has not been paid. The company did give a cheque for the amount and either it was 'dishonoured' as the petitioner says or 'withheld' as the company says. The fact remains that the said sum was owing at the time it was given unconditionally. The change of heart in the circumstances is evidence enough of dishonesty and an excuse to deprive the petitioner of what is rightfully due to it. The cheque itself is a good enough evidence of it.

The company says that the debt alleged is disputed. To be able to succeed in a case of this nature, the company has to prove that the dispute is on 'substantial grounds' (Re LYMPNE INVESTMENTS LTD 1972 2 All E.R. 385). In OFFSHORE OIL N.L. and INVESTMENT CORPORATION OF FIJI LIMITED (Civ App. 29/84 F.C.A. at p.15 of cyclostyled judgment) BARKER J.A. said:

"The law is clear that there is a discretion in a Court seized of a winding-up petition, to decline to hear the petition where the debt is contested on substantial grounds."

On the evidence before me I find that there is no substantial dispute. The lateness of the allegations and the evidence of the company's insolvency indicated that it was looking for any defence to avoid payment of the amount due [COMPANY, A (No.001946 OF 1991), Re, ex p. FIN SOFI HOLDINGS SA (1991) BCLC 737, HARMAN J].

Also in BATMAN TELEVISION LIMITED (IN LIQUIDATION) AND ANOTHER v COLERIDGE FINANCE COMPANY LIMITED 1971 NZLR p.929 Judicial Committee, it was held:

"3. The general rule is that an order for winding up will not be made on disputed debt but a Judge has discretion to make a winding up order on disputed debts which is not reviewable unless exercised on a wrong principle or the Judge included or omitted consideration of a relevant fact or was wholly wrong".

I have in this case applied the principles that should be applied in an opposed winding up petition and have analysed the evidence before me as outlined hereabove before coming to the conclusion to which I have come.

This Petition is brought on the ground that the Company is "unable to pay its debts". I find that such is the situation here. The creditor has to prove a negative, that negative being that the company cannot pay its debts. A situation similar to the one before me arose In re GLOBE NEW PATENT IRON AND STEEL COMPANY [1875] UKLawRpEq 129; (1875) LR 20 Eq. 337 in which the headnote reads:

"A company bought goods, giving in part payment its acceptance, which was dishonoured on presentation, and continued unpaid: and the vendor presented a petition for winding up the company:-

Held, that the dishonour of the bill was proof to the satisfaction of the Court under sect. 80, sub-sect. 4 of the Companies Act, 1862, that the company was unable to pay its debts, although the Petitioner had not served a demand requiring payment under sub-sect. 1."

No question of statutory demand arose in GLOBE (supra) but the Companies Act Cap. 247 has provided for certain situations where deemed inability to pay debts arises. Even if the company can show that it is able to pay its debts, it will do no good whatsoever. If the situation exists, it is deemed unable to pay its debts whether or not that is in fact correct. It was so held in CORNHILL INSURANCE PLC v IMPROVEMENT SERVICES LTD and OTHERS (1986 1 WLR p.114) as follows:-

"Held, refusing the application, that where a company was under an undisputed obligation to pay a specific sum and failed to do so, it could be inferred that it was unable to do so; that, accordingly, the defendants could properly swear to their belief in the plaintiff company's insolvency and present a petition for its winding up."

In IN re TWEEDS GARAGES LTD 1962 1 Ch p.407 at 408 where the company admitted the existence of a debt to the petitioner but disputed the amount of the debt alleged in the petition, it was held:

"that the only qualification required of the Petitioner was that it was a creditor; and that, where there was no doubt (and there was none here) that the petitioner was a creditor for a sum which would otherwise entitle it to a winding-up Order, a dispute as to the precise sum owed was not a sufficient answer to the petition".

Similarly, holding as I do that there is no dispute on substantial grounds, the Petitioner as creditor is entitled to present the Petition. The correct test in approaching these matters is as HARMAN J said in CORNHILL (supra) quoting from UNGOED - THOMAS J in MANN v GOLDSTEIN (1968) 1 WLR 1091 at 1096 where he said:-

"When the creditor's debt is clearly established it seems to me to follow that this court would not, in general at any rate, interfere even though the company would appear to be solvent, for the creditor would as such be entitled to present a petition and the debtor would have his own remedy in paying the undisputed debt which he should pay. So, to persist in non-payment of the debt in such circumstances would itself either suggest inability to pay or that the application was an application that the court should give the debtor relief which it itself could provide, but would not provide, by paying the debt."

In this case it appears to me that although the company says it is solvent it has chosen not to pay the debt, and the following words of HARMAN J in CORNHILL (supra) apply to this case also:

"In my view in such circumstances the creditor was entitled to (a) threaten to and (b) in fact if it chose to present a winding up petition,....."

To conclude, for the aforesaid reasons, this Petition must succeed. There is no bona fide dispute on substantial grounds permitting the court to restrain presentation of the Petition. Here I find that the dispute alleged has been based on very trivial and insubstantial and flimsy grounds.

For these reasons the company's opposition to the Petition to wind-up fails and the Petitioner is therefore at liberty to proceed to wind up the company. The company is ordered to pay the costs of the hearing which is to be taxed unless agreed.

D. Pathik
Judge

At Suva
18 September 1998

Hbe0001j.98s