In re Eastern Express Ltd [2003] FJHC 106; HBE0004R.2002B (28 May 2003)

IN THE HIGH COURT OF FIJI
AT LABASA
CIVIL JURISDICTION

WINDING UP PETITION CAUSE NO. HBE0004R OF 2002B

IN THE MATTER of EASTERN EXPRESS LIMITED
a limited liability company having its registered office at Nasea, Labasa.

AND

IN THE MATTER of the Companies Act.

BETWEEN:

FIJI BANDAG LIMITED
PLAINTIFF

AND:

EASTERN EXPRESS LIMITED
DEFENDANT

Counsel for the Plaintiff: P. Ram of Gibson & Co.
Counsel for the Receivers: Kohli of Kohli & Singh
Counsel for the Defendant: A. Sen, Maqbool & Co.
Counsel for Labasa Town Council: M. Rafiq

Date of Ruling: 28 May, 2003
Time of Ruling: 10.00 a.m.

RULING

The Court had on 25 October 2002 ruled that the Petitioning Creditor, could proceed with the Winding Up of the Company provided it complied with Rule 30 (1) of the Companies (Winding Up) Rules. The matter was adjourned to 27 November 2002. The Court further granted, subject to it paying a wasted hearing fee of $200 within 7 days, the Company to file affidavit in opposition within 14 days with liberty to the Petitioner to reply 14 days thereafter. In the meantime, the Petitioner had filed the list of parties attending the hearing of the Petition pursuant to Rule 30 (1) and in accordance with the Court’s direction of 25 October 2002.

The matter was further adjourned to 19 February 2003, following submissions by Counsel that there was possibility of settlement.

At 19th February 2003 in addition to Counsel for the Petitioner and the Company being present, there was also an application on behalf of G. Lal & Company, which had, in the meantime, been appointed as Receivers and Managers of the Company, pursuant to a debenture executed by the Company on 29th December 1999, to be heard and represent the Company in opposing the Winding Up Petition.

Counsel for the Petitioning Creditor vehemently opposed the application arguing that the Receiver did not have any locus to be heard in the Winding Up proceedings. The Court ordered parties to file submissions and thereafter the Court would rule on the preliminary issue of whether the Receivers and Managers of the Company have a right to be heard.

Only the Counsel for the Receivers filed submissions.

Receivers and Managers Submissions

Counsel submits that it is a fundamental principle in Company law that Receivers and Managers of the property of a Company appointed under the powers contained in any instrument, that as agents of the Company, they retain the right and the powers to carry on the business of the Company including during Winding Up proceedings.

This principle was reiterated in the recent decision of Pathik J. in Ilaitia Boila & Ors. (Receivers and Managers of Valebasoga Tropikboards Ltd.) vs. Bahadur Ali & Ors. (HCCA No. 0083.2001) (Unreported). As agents of the Company, the Receivers have the right to oppose the Winding Up proceedings.

Other issues raised in the submissions by the Receivers and Managers of the Company, go to the substance of their arguments on whether the Winding Up of the Company should proceed. The Court will not deal with it at this stage.

Powers of Receivers and Managers

The powers of Receivers are usually contained in the instrument charging the company and/or its property. In addition, section 82 of the Property Law Act (Cap 130) and Part VIII of the Companies Act (Cap 247) set out the powers of Receivers and Managers. These also detail their statutory duties (see sections 352 to 355 of the Companies Act) including the option of application to the Court for directions (section 351) where the appointments are made other than by the Court.

However, whereas in this case, the Receiver and Manager is appointed out of Court and pursuant to a debenture, the debenture holders must prove that the instrument does constitute a charge on the assets of the Company. If not, a Receiver cannot be appointed by the debenture holder; he merely possess the rights of an unsecured creditor, unless the instrument contains express powers to appoint a receiver of the property of the Company. The Receiver, in this situation, has no right greater than the execution creditors or the liquidator : see Kerr or Receivers: R Waltars (16th Ed.) p. 292.

Assuming on the other hand, that the Receiver and Manager is appointed by the debenture holder under an instrument that properly constitutes a charge on the assets of the Company, then the right of the Receiver against execution creditors is governed by the same principles as in the case of a Receiver appointed by the Court.

The right to be heard must be presumed to exist where the Receivers and Managers not only represent the Company, but also the debenture holder. This right subsists throughout the Winding Up proceedings.

It is clear in the circumstances of this case and after reviewing the law including the submissions made by Counsel that before the Receivers and Managers of the Company are granted the right to be heard and represent the Company in this proceedings, they must satisfy the Court of two things. First, that their appointments had been validly made pursuant to the provisions of the debenture. Second, that the debenture from which their appointments are made, does in fact constitute a charge on the assets of the Company.

Effects of Winding Up

On 25 October 2002, this Court had ruled that the Petitioner could proceed with the Winding Up. It however had to comply first with Rule 30 (1) of the Companies (Winding Up) Rules. This the Petitioner did on 8 November 2002.

The matter was adjourned to 27 November 2002 for hearing of the Petition.

At the hearing on 27 November, 2002 Counsel for the Company informed the Court that the matter was almost settled and the parties be given some time to finalise the details. The Court adjourned the proceedings to 22 January, 2003.

In the meantime a debenture holder (Credit Corporation (Fiji) Limited) had on 28 November, 2002 proceeded to appoint Receivers and Managers of the Company, which appointments were duly advertised in the “Fiji Times” daily newspaper on the 29th November 2002 and The Fiji Republic Gazette on 6th December 2002 respectively.

The question is whether the appointment of a Receiver during Winding Up, alters positions and relationship between the parties.

The position in law as between the Petitioning Creditor and the Receiver is very clear. The appointment of a Receiver does not provide any impediments to the Winging Up procedure at all : see In re Chic, Limited {1905} a Ch 345; Re Clandown Colliery [1915] 1 Ch 369. The Court in this proceedings can still make a Winding Up Order notwithstanding the appointment of Receivers and Managers by the debenture holder.

In the result and having considered all matters I find that Receivers and Managers appointed by the debenture holder do have the right to be heard and make submissions to this Winding Up proceedings subject to either the Receivers or Managers filing an affidavit within 21 days proving :

(i) their appointments, and

(ii) that the debenture in question constitutes a charge on the assets of the Company.

The Receivers and Managers are further ordered to pay the $200 wasted hearing fees costs that the Court had imposed on the Company on 25th October 2002. Such payment to be made within 14 days.

Costs in the cause.

F. Jitoko
JUDGE

At Labasa