In re Ba Provincial Holding Company Ltd [2011] FJHC 459; HBF 32.2009 & HBE02.2010 (19 August 2011)

IN THE HIGH COURT OF FIJI
WESTERN DIVISION AT LAUTOKA

BANKRUPTCY & WINDING UP CAUSES HBF 32 of 2009 & HBE 2 of 2010

IN THE MATTER OF BA PROVINCIAL HOLDING COMPANY LIMITED a duly incorporated company having its registered office at Rogorogoivuda House, Tavewa Avenue, Lautoka, Fiji.

AND

IN THE MATTER OF THE COMPANIES ACT, 1983.

Before: Master Anare Tuilevuka

Solicitors appearing: Kitione Vuataki for Ba Provincial Holdings Company Limited
Mishra Prakash & Associates for Chandra Lok, the Petitioning Creditor in HBF 32 of 2009.
Neil Shivam Lawyers for Vodafone Fiji Limited, the Petitioning Creditor in HBE 02 of 2010.
Vijay Naidu & Associates for Island Electrical Services, supporting creditor.
Donald Gordon
Kamal Kumar for Sigatoka Builders Limited, a supporting creditor.

Date of Ruling: 19 August 2011

RULING

INTRODUCTION

[1]. On 12 August 2011, I made an Order that the Ba Provincial Holdings Company Limited be wound up in accordance with the provisions of the Companies Act 1983 (Cap 247).

[2]. The Order for Winding Up has to date, yet to be formally drawn up.

[3]. Section 252 of the Companies Act empowers the Court to make an order to stay winding up proceedings either altogether or for a limited time after the granting a Winding Up Order.

Power to stay winding-up

252.-(1) The court may, at any time after an order for winding-up, on the application either of the liquidator or the official receiver or any creditor or contributory, and on proof to the satisfaction of the court that all proceedings in relation to the winding-up ought to be stayed, make an order staying the proceedings, either altogether or for a limited time, on such terms and conditions as the court thinks fit.

(2) On any application under this section, the court may, before making an order, require the official receiver to furnish to the court a report with respect to any facts or matters which are in his opinion relevant to the application.

(3) A copy of every order made under this section shall forthwith be forwarded by the company, or otherwise as may be prescribed, to the registrar for registration.

LOCUS

[4]. It is clear from section 252 that only the liquidator of the company, or the official receiver, or any creditor, or any contributory has locus standii to apply for a stay.

[5]. A debtor company does not have locus standii under section 252. The underlying reason for this is explained in Pennycuick V.C.'s Practice Note (Winding Up Order: Rescission)(No. 2) [1971] 1 W.L.R. 757.

After discussion with other judges of the Companies Court, I have the following further statement to make with regard to applications to discharge winding up orders: see Practice Note (Winding up Order: Rescission) [1971] 1. W.L.R. 4. Applications to rescind winding up orders will henceforward only be entertained if made (a) by a creditor, or (b) by a contributory, or (c) by the company jointly with a creditor or with a contributory. In the case of an unsuccessful application the costs of the petitioning creditor and of the supporting creditors will normally be ordered to be paid by the creditor or the contributory making or joining in the application. The reason for this direction is that if the costs of an unsuccessful application are made payable by the company, they fall unfairly on the general body of creditors. (my emphasis)

[6]. I accept Mr. Vuataki's submission that the application in this case is being made jointly by the creditors and BPHCL. The very creditors who, barely a week earlier, had been adamant about the granting of a Winding Up Order – are now urging this Court to stay the winding up proceedings.

ONUS OF PROOF

[7]. All that is required of an applicant seeking a stay under section 252 is to prove to the satisfaction of the court "that all proceedings in relation to the winding-up ought to be stayed".

[8]. The Court, on being satisfied that all proceedings in relation to the winding up ought to be stayed, may order that the proceedings be stayed either altogether, or for a limited time and on such terms and conditions as the court thinks fit.

[9]. Section 252 is silent on what factors the court should consider in assessing whether or not to grant a stay.

[10]. I do not think that it is necessary to consider the principles of stay pending appeal for the simple reason that the application is being brought jointly by the creditors. These are the same creditors who had been adamant about getting a winding up order in the first instance and who in fact succeeded in that quest.

[11]. In fact, in my view, the relevance of the principles of stay pending appeal will be a rarity under section 252, if at all they have some relevance, when one considers that only the liquidator, the Official Receiver, a creditor or a contributory have locus to file an application for stay.

[12]. It is for the above reason that I believe that it is within my jurisdiction to deal with any application for stay under section 252. I am of the view that my jurisdiction under Order 59 Rule 2(g) of the High Court Rules 1988 to "exercise all the power, authority and jurisdiction which may be exercised by a judge in relation to applications for winding up of companies" includes the powers under section 252. All I am dealing with now is an application of some creditors who were once adamant about a winding up order against BPHCL but who, after having obtained a winding up order, now appear have a resurrected-faith in the very company that they had crucified barely a week ago.

RELEVANT FACTORS

[13]. Megarry J in his Practice Note (Winding Up Order: Rescission)(No. 2) [1971] 1 W.L.R. 4 sets out the following which – in my view – is/are just as relevant in the balancing process under section 252:

In recent years, applications to rescind a winding up order before it has been drawn up have become increasingly common. Owing to the great increase in the number of such orders it often happens that some time elapses before the order can be drawn up. The making of the order, however, affects all creditors of the company, and gives the Official Receiver authority to act forthwith; and in the circumstances the inherent power of the court to revoke or vary an order at any time before it is perfected is one that ought to be exercised with great caution. Accordingly, although the matter is one for the discretion of the court in each case, application to rescind a winding up order will not normally be entertained by the court unless it is made within three or four days of the order, and is supported by an affidavit of assets and liabilities. If an application is made later than this, the affidavit should also establish the exceptional circumstances relied upon as justifying the application.

Cases in which the making of the order has not been opposed owing to some matter such as an error or misunderstanding in instructing counsel may, if the application is made promptly, still be dealt with on a statement by counsel of the circumstances; but apart from such cases, the court will normally require any application to be supported by affidavit.

In making this statement, I am speaking after consultation with the other judges of the Companies Court.

[14]. Although section 252 does not stipulate a timeline for the making of an application to stay winding up proceedings, the application in this case was filed promptly on 12 August 2011 which was the same day that the winding up order was handed down.

[15]. Furthermore, the application is supported by an affidavit of assets and liabilities of Ravulolo Draunibaka, who is the Manager Finance of BPHCL.

ASSETS & LIABILITIES

[16]. Draunibaka exhibits to his affidavit marked RD 12 a true copy of the Statement of Comprehensive Income for year ended 31 December 2009 and Statement of Finance Position of BPHCL. This evidence was not made available to this court at any time earlier because the auditors were retaining it pending settlement by BPHCL of bills to the tune of $20,000. These bills have only just been settled a week or so ago.

[17]. I accept the explanation in Draunibaka's affidavit as to why the account is yet unsigned by BPHCL's directors. Draunibaka deposes that the creditors are amenable to arrangements being made to settle their debts. This was confirmed to me in court by the various creditors' counsel who appeared.

[18]. Draunibaka deposes that BPHCL has, at 2009, $17,005,053.00 (seventeen million five thousand and fifty three dollars) worth of assets and $15,299,294 (fifteen million two hundred and ninety nine thousand, two hundred and ninety four dollars liability as at 2009.

[19]. He further deposes as follows:

10. The 2010 accounts is being prepared and will show the same assets but reduced liability. I annex marked "RD 13" a true copy of Company Management Accounts 2010 on profit and Loss and Position of Financial Statement.

11. The position of assets and liability at 2011 is at $17,005,053.00 worth of assets and $8,134,795.00 worth of liability as at 17th August, 2011. The net worth of the Company is $4,587,531.00 which gives the Company a loan valuation ration ("LVR") of 47% so that the Company can apply for a loan as all Banks grant loans on LVR's below 50%. If a stay is granted till December, 2011 or pending appeal this application can be made since we now have the 2009 accounts and on issue of 2010 accounts in October 2011 a Bank willing to consider payment of Company debts once the accounts are given to them can then be approached.

12. The company mainly earns rental income from its buildings and receives $3,656,092.00 per annum in rental with secured Creditors taking $1,896,000.00 per annum and Fiji Revenue and Customs will take $474,000.00 leaving $1,285,092.00 for wages, operation and Creditors. Annexed marked "RD 14" is list of Rental Cash Flow Summary ad Committed Creditors Sigatoka Builders, Technicool, Rentokil, Island Electric, FNPF, Raynil Electric, Hong Kong Doors ad Water Authority showing a surplus of $4,154.00 per month which can go to debt payments to be topped up by fluctuating overdraft facilities available to the company.

13. The 2009 cash flow indicator shows a debt coverage of 2% calculated by operating cash flow divided by Debt. The coverage for the Cash Flow Indicator provides that the Company has ample cash to accommodate the commitments provided in it. So, in this instance the ratio is not meaningful in the conventional sense but clearly indicates the company need not worry about short term financing. The 2009 account shows a Net Cash Flow of $127,331.00.

14. The company has overdraft facilities of $100,000.00 with ANZ Bank and out of these facilities debts have been paid of Vodafone, Chandar Lok, Kimono Sales and legal fees for Island Electric and $20,000.00 balance to KPMG to release the said accounts.

15. Other Creditors with whom the Company has arrangements have written that they prefer our current arrangements ........ Annexed hereto marked "RD 15" are true copies of letters from Raynil Electric Company Limited, Technicool, Fire Care Fiji Limited, Hi-Lite Aluminum Joinery ad Hong Kong Door ad Widow Company Limited.

16. FRCA will be receiving by way of garnishee $39,447.71 per month from September, 2011 and Fiji National Provident Fund is receiving $2,000.00 per month at $1,000.00 for arrears per month and $1,000.00 current.

17. Datt Holdings trading as RSA Carpets was owed $24,125.00 and was fully paid seven payments form 02/10/09 to 27/10/10 but still claims being owed $14,160.80. I annex marked "RD 16" true copy of vouchers with summary of payments to Datt Holdings. If there is stay pending appeal or till December 2011 the disputed account with Datt Holdings. If there is stay pending appeal or till December 2011 the disputed account with Datt Holdings can be sorted out ...........

18. As this date both Petitioning Creditors Vodafone and Chandar Lok have been paid off as well as Supporting Creditor Kimono Sales Limited.

19. Other Supporting Creditors are on scheme of arrangement ..........

COMMENTS

[20]. For the most part, Draunibaka's supplementary affidavit introduces new material that was not put before the court in the winding up proceedings.

[21]. I had alluded to the need for this sort of evidence in my ruling of 12 August 2011.

[22]. In any winding up case where the company admits to its indebtedness but disputes all allegations of its insolvency, evidence of a positive cash flow status and an affidavit showing that its assets are worth more than its total liabilities may well be decisive in the rebuttal of any presumption of insolvency that may arise under section 221(a) of the Companies Act (Cap 247), in particular where the company has failed to act swiftly in settling its debts – as is the case with BPHCL.

[23]. While the adducing of such new evidence may not normally be tolerated in any appeal process, it appears to be perfectly in order in a section 252 application.

[24]. I have considered the supplementary affidavit of assets and liabilities of Draunibaka, and all that it deposes about the cash flow position of BHPCL. While these are not quite up to date, it is enough for present purposes that the creditors are aware of them and also appear to have embraced them. The creditors too were served with a copy of the affidavit of assets and liabilities of BPHCL.

CONCLUSION

[25]. All that the creditors desire at the end of the day is to get paid. The creditors are comfortable in their belief, based on the affidavit of assets and liabilities and the cash flow position of BPHCL, that the granting of a stay will give BPHCL another chance to remain in existence which will see that they (the creditors) get paid in full eventually.

[26]. The above is sufficient for this court to grant a stay of all proceedings in relation to the winding up of BPHCL.

ORDERS

(i) The Winding Up Order made by this Court against Ba Provincial Holdings Company Limited on 12 August 2011 is hereby stayed until 22 January 2012.

Anare Tuilevuka
Master

At Lautoka
19 August 2011