Re Aanuka Island Resort Ltd [2010] FJHC 116; HBF0047.2007 (12 April 2010)

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Counsels: Ngamoki Cameron Lawyers for the Petitioner
No Appearance for the Company

Supporting Creditors: Mr.Faiz Khan - S.K Davey (Lautoka) Ltd
Mr. D.Gordon - Reddy Diamond Hardware Ltd

[1] The original petition to wind up Aanuka Island Resort Limited ("AIRL") (trading as Amanuca Island Resort) was presented by Marshall Sails Limited ("MSL") on 2nd August 2007.

[2] MSL’s petition was supported by the following creditors. However, AIRL soon settled that debt.

	Name of Supporting Creditor	Debt Alleged	Notice Date	Counsel
(i)	Williams & Gosling	$38,508.54	13.08.07	Vijay Naidu & Associates
(ii)	Jai’s Hydraulic & Industrial Supplies	$5,592.49	15.08.07	Managing Director
(iii)	Gibson Chemicals (Fiji) Limited	$40,375.48	30.08.07	Parshottam & Company
(iv)	Vinod Patel & Company	$68,933.70	27.09.07	Yash Law
(v)	Alok’s Bulldozing Works	$17,102.50	25.10.07	Vasantika Patel
(vi)	Northern Projects Fiji Limited	$758,844.81	08.11.07	Ngamoki Cameron Law
(vii)	Uno Limited	$40,280.73	12.12.07	Ngamoki Cameron Law
(viii)	S. K. Davey (Lautoka) Ltd	$163,549.10	24.01.08	Yash Law

[3] After settlement of the MSL debt, Northern Projects Fiji Limited ("NPFL") was substituted as petitioner on 27th of February 2008. Upon being substituted, NPFL then filed its Amended Winding Up Petition which was verified by the Affidavit of Abdul Aiyaz Khan. It also filed an application under sections 232 and 236 of the Companies Act (Cap 247) for Kamlesh Kumar to be appointed Official Receiver and Provisional Liquidator of AIRL.

[4] On 09th April 2008, AIRL filed two Affidavits of William Frank Bennett, a director of the company. The first opposed the winding up petition. The second opposed the appointment of a Provisional Liquidator. The documents filed in Court confirm that the Amended Petition was duly served on AIRL and that it was advertised in the Fiji Sun on 21st August 2008 and in the Fiji Republic Gazette on Friday 22nd day of August 2008. The following Creditors emerged and filed their Notice of Intention to Appear and Support the Petitioner after NPFL was substituted as Petitioner:

	Name of Supporting Creditor	Debt Alleged	Notice Date	Counsel
(ix)	Reuben’s Security & Safety Systems	$23,805.60	07.04.08	Koyas
(x)	Atrax Civil Suppliers (Fiji) Limited	$24, 571.45	07.04.08	Director appearing
(xi)	Fiji Meats Limited	$42,888.94	08.04.08	S.B Patel & Co
(xii)	Punja & Sons Limited	$73,771.37	09.04.08	Champa Punja
(xiii)	Combined Manufacturers Limited	$828.56	11.04.08	Champa Punja
(xiv)	Matrix Holdings Ltd	$42,239.61	25.08.08	Diven Prasad Lawyers
(xv)	P. Meghji & Co Ltd	$15,412.08	28.08.08	Kevueli Tunidau Lawyers
(xvi)	Mechanical Services Ltd	$64,686.90	27.08.08	Neil Shivam Lawyers
(xvii)	International Hotel Supplies Limited	$4,520.63	05.09.08	Koyas
(xviii)	Rooster Poultry Limited	$6, 202.14	13.10.08	Vijay Naidu & Associates
(xix)	Garden Farm Fresh Produce	$142,204.19	13.10.08	Vijay Naidu & Associates
(xx)	Islands Electric Wholesalers	$801,546.00	13.10.08	Vijay Naidu & Associates
(xxi)	Reddy Diamond Hardware Ltd	$25,190.90	18.02.09	Gordon & Company
(xxii)	B.P South West Pacific Limited	$203,230.75	22.10.09	Neil Shivam Lawyers
(xxiii)	Sharma Music Centre Ltd	$7,502.94	______	______

[5] I note from a List of Parties Attending the Hearing of a Petition that Ngamoki Cameron filed on 09th June 2008 that the Fiji National Provident Fund were also to appear in support of the Petition on a debt allegedly owed to it by AIRL in the sum of $378,316.32.

[6] Bennet is the Director of AIRL. He also was AIRL’s appointed Superintendent of Works to oversee construction works carried out by NPFL at AIRL’s hotel.

[7] According to Bennet, AIRL has "an as yet unliquidated claim against NPF in respect of faulty products". He does not dispute that NPFL did carry out massive construction work for AIRL pursuant to a Construction Contract between them. Nor does Bennet dispute that AIRL has a long-outstanding unsettled account with NPFL.

[8] Bennet’s Affidavit however suggests that the manner in which NPFL has computed the debt-sum it alleges in adding a compound penalty interest component on the debt owing was rather arbitrary because the Contract makes no provision for such.

[9] The overall tone of Bennett’s Affidavit is that the amount alleged is exaggerated and does not tally with the figure(s) on AIRL’s records. In paragraph 10(c) of his Affidavit, Bennet acknowledges the following:

"Nor did I at any time consider the rise and fall claim lodged by NPFL and which comprises over $280,000 worth of claim. It is my view that this claim may be in order, but can only be verified after reference to the various price increases"

"The effect upon the claimed principal sum is to reduce it by that amount. Assuming that the amount claimed is correct (which is denied), it reduces to $441,528.28"

[11] I will not go into detail on Bennet’s Affidavit for two reasons: firstly, because AIRL did not appear at the hearing of the petition and secondly, and in any event, AIRL, by Bennet’s Affidavit, does not dispute that it is indebted to NPFL (though, it merely opposes the extent of its indebtedness).

[12] Mr. Ravi Sharma, the Financial Controller of NPFL, swore an Affidavit on the 31st day of March 2008. He explains that the debt of $758,844.81 was incurred by AIRL for certain building and construction materials and services provided by NPFL between 2004 and 2006. He annexes to his Affidavit a letter dated 29th November 2007 from Muaror & Co to Ngamoki Cameron Law which I reproduce in full below:

We are the solicitors acting for Amanuca Island Resort Limited (the Company). Your client claims to be a creditor of the Company.

Historically the Company had suffered some debtor recovery problems in the past, prior to a recent restructuring which has been taking place. Those problems lead to a breakdown of the system for management of aged debtors which had been instituted and/or maintained. The outcome of those problems was the buildup of a large backlog of claims arising, without due attention being afforded to them.

Up until recently our client has been attempting to deal with the various claims by creditors (including your company) on an ad hoc basis. Such a method is unfair to the creditors of the Company as a whole, preferring some to others.

The Company has recently sought a refinance facility from one of the major retail bankers in Fiji, supported by appropriate securities. We understand that the application has been received favourably and it is now only a matter of time before the bank will respond. There is every indication that the application will be approved, given the value of securities offered and the relatively strong position of the Company. The funding will provide ample money to pay out all properly vouched and approved claims by those claiming to be creditors of the Company.

The main problem at the moment is time we believe realistically that the Bank in question is unlikely to complete the process of loan approval in time for funding to be in place before January 2008. This has nothing to do with our client, it is a function of the Bank administration.

With full clearance in mind, we have been requested to write to ALL the claimed creditors of the Company requesting that each of them agrees to deferring the prosecution of any Court or winding up proceedings until after 25 January 2008, by which time the funding will (barring unforeseen matters) be available.

We have also been requested that each creditor submit a vouched claim (stating the amount of the claim with supporting documentation), so that the company can carry out a proper reconciliation of its aged creditors’ listing. With that end in mind, attached please find a form of claim, which we ask your company to complete with copies of invoices, orders and the like, and forward to the office as soon as reasonably possible.

This will expedite the processing of adjustment (should adjustment be required ) and payment in due course. We have recommended that our client pursue this course for a number of reasons.

2. To attempt to maintain good trading relations with all of the Company’s creditors, and to demonstrate our client’s good faith;

3. To attempt to avoid the need to apply to the High Court for orders to convene a formal meeting of creditors to approve a Scheme of Arrangement under the provisions of the Companies Act. Such a step would be expensive and will mean that payment to those creditors who prove will be delayed for a lengthy period this approach will expedite the payment to those who participate;

4. So the position is clear should any creditor not agree with what is being offered, and wishes to continue with the winding up process already in train, then we will have no option but to formally apply to the Court.

5. As a matter of equality, no creditor can be paid out in preference to others or another for the reason that such a payment can be set aside as a fraudulent preference. Our client will not act in this way.

We hope that you will support our client in this approval. We are mindful of the delay in communicating this to you and the other creditors, but we ask that you give this your sincere and favorable consideration.

[13] Mr. Sharma also annexes to his Affidavit a letter dated 26th March 2008 from Mr. Hercules Karakostas, a director of AIRL, to NPFL which I reproduce in part below:

"As you are aware, Mr. Ian Roach our Solicitor from Muaror and Company, Suva has been acting for Aanuka Island Resort (AIRL) during the past few months regarding AIRL’s non-payment of outstanding account with Aanuka Island Resort Limited (AIRL)

Thank you for your patience you have demonstrated over the last few months.

AIRL Directors are now in a position to make a firm commitment to you, one of our executives will ring you today or Thursday to find time that will be mutually beneficial for you to meet with our Directors to discuss the repayment of your account.

To give you some comfort in the meantime, we have from one of the world’s largest hospitality groups a letter of intent of their substantial investment with AIRL in regard to Amunuca Island Resort Fiji. To conclude this investment Muaror and Company have been instructed to formalize all the necessary legal documentation.

[14] Mr. Sharma’s concern at the time he swore his Affidavit was that AIRL, as evidenced by the above letters, was embarking on a course that threatened the position of unsecured and secured creditors alike. He says:

"If these activities are allowed to continue there is the real risk that the companies assets will be sold to related or third parties at a gross undervalue, that finance will be obtained at above normal rates and the companies assets will be eroded to the detriment of both secured and unsecured creditors"

[15] Mr. David Moorehead was Financial Controller of NPFL. He supervised the supply of goods and building materials to AIRL. Moorehead has also sworn an affidavit which answers the questions raised in Bennet’s Affidavit about the calculation of the debt sum alleged. Without going into detail, suffice it to say that Moorehead’s Affidavit has twelve annexure marked consecutively from DM1 to DM12.

[17] As at 3rd July 2006, AIRL owed a total of $823,478.15 to NPFL. This debt was reduced after NPFL settled part of that debt. Hence, the sum in the petition is shown to be reduced to $571,674.92. The sum alleged in the Petition includes interest which has been added periodically on the debt and also the "rise and fall claims" on the debt using a methodology approved used by the Queensland Master Builders Association and based on CPI figures supplied by the Fiji Bureau of Statistics.

"At no stage during the contract either verbally or in writing did Bennett or the company advise me or the petitioner that they did not agree with this practice of including interest nor did they request any additional information or explanation of any progress claims, either in relation to interest or otherwise".

[19] Moorehead points out that clause 23.2 of the contract in fact provides that interest is to be compounded at six monthly intervals. He annexes marked "DM11" a true copy of pages 23 and 24 of the contract which contain the interest clause. All claims for interest were based on these clauses, according to Moorehead.

[20] Moorehead deposes also that interest was only calculated on the principal amount of those claims and not on the interest component which is what Bennet had suspected. Annexed to his Affidavit and marked "DM12" is a true copy of the interest calculation for the interest amount.

[21] Again, since there was no attendance at the hearing by AIRL, and after formal proof of the contents of all Affidavits filed in support of the Petition by Mr. Patel, I have no alternative but to accept the Affidavit evidence of Sharma and Moorehead.

[22] On the date of hearing, Mr. Kemueli Qoro appeared in Court on instructions from Howards Lawyers and advised that he was instructed not to oppose the Winding Up application. Mr. Qoro said his principal’s only issue was on costs.

[23] Upon query whether his principal was acting for the Receivers or for the Company. Mr. Qoro appeared to be unclear about his instructions and remained indecisive even after a short adjournment for him to clarify his position.

[24] The significance of ascertaining that distinction was canvassed by Mr. Justice Pathik in the following passage in In re Re Pangia Constructions Pty Ltd [1995] FJHC 126; HBE 0050j. 95S (19 July 1995):

Mr. Parshotam says that the Receiver and/or his agent has "no role to play" in these opposition proceedings, that is, he cannot oppose.

Mr. Naidu told the Court ....... that the Receiver is opposing the Petition for he is empowered to do so under the debenture which under clause F (3)(l) gives the power to the receiver "to bring or defend any action suit or legal proceedings in the name of the Mortgagor or otherwise for all or any of the purposes aforesaid;" He said that the Receiver has "no sinister motive" and he is also there to protect unsecured creditors.

Mr. Naidu when asked by Court said that he appears "for the Company and instructed by Receiver/Manager who is empowered to defend legal proceedings against Company". He then referred the Court to said clauses F(3)(1) and (g) of the debenture.

It is important that Mr. Naidu make up his mind as to who he represents whether both the Company and the Receiver's agent or just the Company.

I cannot see how he can represent the Receiver's Agent in these opposition proceedings as no notice has been given that the Receiver is opposing and I have grave doubts that he is empowered to oppose under the said clause F(3)(1). I am of the view that the said clauses in the debenture to which he made reference have no relevance to these proceedings. I reject his submission altogether in this regard..

The Court is not interested in the Receiver's agent for the purposes of these proceedings.

It is only the petitioner and the Company who are entitled to be heard as of right (Re IBO INVESTMENT TRUST LTD [1903] UKLawRpCh 149; (1904) 1 Ch 26. But opposition can come from a different class e.g. secured creditors for in PALMERS COMPANY LAW Vol 3 Part 15 15.217 it states that:

"Where the opposition comes from creditors of a different class, e.g. secured creditors, the court may prefer the wishes of the unsecured creditors since in some cases refusal of the order will rob them of what is virtually their only remedy." (Re CRIGGLESTONE COAL CO. [1906] UKLawRpCh 87; (1906) 2 Ch. 327; Re RUBBER IMPROVEMENTS CO (1962) C.L.Y. 362).

It means that the Receiver himself will have no locus standi in these proceedings but the secured creditor has and it could appear at the hearing either in support of or in opposition to the Petition. In fact, if the receiver so wished, he could have himself commenced winding up proceedings against the company if he could show that a benefit to him would accrue from the winding up (Re BOROUGH OF PORTSMOUTH TRAMWAYS CO (1892) 2 Ch.362)

As far as the Receiver's position is concerned, I agree with Mr. Parshotam's submission in regard to the effect of winding up on receivership, namely, that the right of the debenture-holder to appoint a receiver is not affected by the presentation of a winding up petition (Re HENRY POUND, SONS & HUTCHINS (1942) Ch.d. 402). As secured creditors they stand outside the liquidation (STRONG v CARLYLE PRESS [1892] UKLawRpCh 189; (1893) 1 Ch. 268).

[25] A company may be wound-up if it is unable to pay its debt (section 220 (e)) and the circumstances are such that it is just and equitable to wind-up the company.

[26] Pathik J in re Re Pangia Constructions Pty Ltd (supra) commented as follows:

"As to when a company is unable to pay its debts is provided for both in PT VI and PT IX of the Act in sections 221 and 359. .........

I have no doubt whatsoever that under the above sections in this case the Company is deemed to be unable to pay its debts and the fact of Receiver/Manager having been appointed is ample evidence of its shaky position. No Part of their debt has been paid.

[27] The letters reproduced in paragraphs 10 and 11 above clearly show that AIRL was at that stage commercially insolvent and unable to pay its ever mounting debts.

[28] AIRL is to be wound up under the provisions of the Companies Act (Cap 247).

[29] AIRL is also hereby ordered to pay NPFL’s costs. Mr. Patel had asked for $5,000 costs. This seemed excessive to me at first but a subsequent review of this rather long-drawn out case will show that voluminous Affidavits were filed by Mr. Patel’s principal, Ngamoki Cameron Law, to answer several equally voluminous ones filed by AIRL. Also, the number of adjournments caused by AIRL is evident from a review of the file records. Accordingly, I order that AIRL pay $5,000 costs to NPFL.

High Court of Fiji

Re Aanuka Island Resort Ltd [2010] FJHC 116; HBF0047.2007 (12 April 2010)