In re Sakims Digging Services Ltd [2012] FJHC 1174; Winding Up 2.2009 (22 June 2012)

IN THE HIGH COURT of FIJI
AT LABASA
CIVIL JURISDICTTION

Winding Up Cause No: 2/09

IN THE MATTER of SAKIMS DIGGING
SERVICES LIMITED

-AND-

IN THE MATTER of the COMPANIES ACT

Before: Master H ROBINSON
Counsel Appearing: Mr. A Ram for the Petitioning Creditor
Ms Waqabitu for the Sakims Digging Services

RULING

Introduction

Carpenters Fiji Limited a limited liability company having its registered office at SUVA presented a petition to wind up Sakims Digging Services Limited (hereinafter referred to as SDSL) which is alleged to be a limited liability company having its registered office the Public Employees Union Building, Main Street, LABASA. The petition alleges that SDSL owes the petitioner the sum of $5,691:53 together with interest for goods and services rendered. The particulars of the goods and services rendered including the time at which it was rendered was not specified in the petition. The petition was filed and issued on the 7 September 2009. The Affidavit Verifying the petition was issued on the 10 September 2009 and within the four (4) day period as specified under the Companies Act. Cap. 247. The petition was served on SDSL on 3rd February 2010 and was advertised in the Fiji Times an 13th February 2010 and in the Government Gazette on 19th February 2010. The Memorandum of Due Compliance was issued on 4th March 2010. A Notice of Intention to Support the winding up petition was filed on behalf of Fiji Bandag Limited by Messrs. Jamnadas & Associates on 28th February 2010 which allege that SDSL owes them the sum of $1695:00.

The Affidavit in Opposition

The Affidavit in Opposition was sworn by Mohammad Sakim the Managing Director of the Company who deposed that:-

1. That he made an application for a trade account with Carpenters Finance which was accepted by them on 19th September 2008 and that he then entered into an agreement for a credit facility thereafter.

2. That he signed the agreement for the credit facility on the 20 September 2008 but that the agreement was in his personal name and not the Company's.

3. That he gave his personal postal address as the address for correspondence and that this was used by Carpenters to correspond with him and that this showed that the account was in his personal name.

4. That as security for the said credit facility he "gave my personal vehicle registration KATO as security for the said account".

5. That "I was the sole proprietor of Sakims Digging Services Limited and as such any alleged debt related to Carpenters account is my personal debt. Carpenters should have been aware of this".

6. That the company does not have a trading account with Carpenters.

7. That the Company Sakims Digging Service Limited has not taken over any of my debts or liabilities and I am separate and distinct person from the Company. All payments to Carpenters were made personally by me and the Company was never involved in such.

8. That the Company genuinely disputes the alleged debt and denies that it owes any sum to Carpenters and challenges the basis on which Carpenters has filed the within Winding Up Petition.

9. That he was advised and he believed that since the company does not owe this debt the Winding Up action is wrong in law and in fact.

10. That he denied being served with the Petition to wind up the company and that he was only served with the affidavit verifying the petition on 3rd February 2010.

11. That he was astounded "to find out that according to the indorsement in the Affidavit Verifying Petition, the Company was required to attend before the Deputy Registrar of the High Court at 9:30 a.m. on the 7th of September 2009 for the hearing of the said petition which was some 5 months before".

12. That "I was never given any opportunity to attend on the 7th of September 2009 and present my case before the Court. I challenge and dispute the service of the documents in the case".

The Affidavit in Reply

In reply to the affidavit in opposition the petitioning creditor filed an affidavit sworn by one Prakash Narayan on the 10 June 2010 in which he deposes so far as is relevant as follows:-

1. That he is the Financial Controller of Carpenters Motors a trading division of Carpenters Fiji Limited and he is authorised to swear the affidavit;

2. That he was informed by his solicitors and verily believe it to be true that a search was conducted at the Registrar of Companies office for registration details of the debtor company. A copy of the search was annexed and marked "PN 1".The annexure consisted of an internal Carpenters Finance document titled "Carpenters Finance Company Search" and contains details of the registered office of the company and its directors and shareholders.

3. That the alleged debtor was served with a section 221 Notice at the registered office of the company and that the petition was served on the 3 February 2010.

4. That after service of the petition their in-house solicitor received a call from Mohammad Sakim alleging that the debt did not belong to the company but was his. That Carpenters Fiji Limited's records showed that the debt belonged to the company.

5. That all the dealings are with the company since the inception of the Trade Account by Mohammad Sakim as the Director of the company.

6. That our records show that the Director of the Company alleged that payments were delayed due to certain garnishee proceedings taken by Fiji Islands Revenue & Customs authority against the company in February 2009.

The Law

There appears to be three distinctive steps necessary in a winding up procedure where the ground for the petition is that a company is unable to pay its debt. The first is that the party wishing to petition must first issue a section 221 notice to the defaulting company. If after three weeks of the service of the demand notice the defaulting company still has not made good the alleged debt the second step is then taken that is, a petition for the winding up of the company is then filed. An affidavit verifying the winding up petition is then filed four days after the issue of the petition and thereafter the third step of filing a memorandum of due compliance. The machinery for the winding up of a company is now in motion.

Of all the documents filed to enable a company to be wound up the most important appears to be the affidavit verifying the petition. Rule 25 of the Winding Up Rules states that:-

25. "Every petition shall be verified by an affidavit, which shall be sworn by the petitioner, or by 1 of the petitioners if more than 1, or where the petition is presented by a corporation, by a director, secretary or other principal officer thereof, and shall be sworn and filed within 4 days after the petition is presented and such affidavit shall be prima facie evidence of the contents of the petition".

The affidavit verifying petition

The fact that the affidavit verifying the petition shall be prima facie evidence of the contents of the petition needs to be further elaborated. What this means is that the affidavit verifying the petition must show all the evidence of the facts contained in the petition. In the first instance this affidavit must contain evidence that the legal entity which is about to be wound up is a company. That it is a company duly registered with the Registrar of Companies under the Companies Act and the affidavit verifying the petition must have annexed in it all the necessary documentation obtained from the registrar of companies satisfying this fact. This is necessary since you cannot wound up anything other than a company.

The second important fact which needs to be verified is the debt. In my view documented proof of the debt is required to be included in the affidavit including a Section 221 demand notice.

The petitioner's affidavit verifying the petition sworn by one Laisenia Takala of Suva consists of three paragraphs and stated the following:-

1. That I am the Relieving General Manager Finance authorised to make this affidavit on behalf of the Petitioner in the above matter.

2. That such of the statements in the Petition herein as relate to the acts and deeds of the said Petition are true and such of the said Statements as relate to the acts and deeds of other persons are true to the best of my knowledge information and belief.

3. That annexed hereto is the said Winding Up Petition.

It need not be said that the above affidavit fell far short of what is required to satisfy this Court that it is prima facie evidence of the truth of the contents of the petition. It provides no evidence at all of the truth of the petition except as to say that acts, deeds and statements of the petition and of other persons are true. At best it is hearsay evidence and ought not be accepted as sufficiently verifying the petition. The sufficiency of the affidavit verifying a petition was discussed at length by Megarry J in the matter of Re Koscot Interplanetary (UK) Ltd (1972) 3 All ER 829. In the above matter Counsel for the petitioner based his argument on two grounds, the first was that hearsay evidence was admissible on a petition such as this irrespective of whether the petition was opposed and no matter how remote the hearsay was because of the operation of Rule 25. The second is that as the affidavit verifying the petition must be made by a petitioner who might only speak of matters by hearsay the rules make the affidavit sufficient prima facie evidence of the statements in the petition. Although Counsel for the petitioner in the Koscot matter accepted that if the petition as it stood was opposed no order would be made solely on hearsay evidence but if there were direct evidence as well the Court should consider the whole body of evidence hearsay as well as direct. And after giving proper consideration to all such evidence decide the case on the totality of the evidence. In this regard the Counsel for the petitioner provided the Chancery Court with the case of Re ABC Coupler & Engineering C Ltd (No:2) (1962) 1 WLR 1236 in support of the proposition. The Court rejected this proposition and said that Buckley J in that case although accepted that the effect of rule 30 (our Rule 25) was that a petition might be sufficiently verified by what was hearsay evidence or worse; but verifying the petition was one thing and establishing a sufficient case to justify making a winding up order was another. While he did not altogether reject the possibility of there being a case in which the Court would be satisfied with hearsay evidence, he indicated considerable doubt about this, and pointed to the desirability of the evidence, so far as possible, conforming to the ordinary civil evidence rules, having regard to the winding up of a company being a drastic remedy.

Again Justice Buckley at page 1243 went further when he said:- ..."At first sight, these authorities may seem to be in conflict with rule 30 (our rule25)of the Companies (winding Up Rules) which provides as I have already said, that the statutory affidavit shall be sufficient prima facie evidence of the statement of the petition; that rule has a statutory force and no decision of the court can modify its effect. ...the court will not (however) in the exercise of its discretionary jurisdiction, be satisfied merely with such prima facie evidence as the statutory affidavit affords but will require the petitioner to substantiate his case more fully. In other words, to follow the language of Danckwerts LJ in such cases the court requires the petitioner to make out his case more fully..."

Taking the above observations into account I am of the view that the above affidavit verifying the petition does not comply with the requirement of rule 25 of the Winding Up rule in that it is not prima facie evidence of the contents of the petition. To quote Megarry J further in Re Koscot Interplanetary (UK) Ltd further at p.833 to justify the above position he stated:-

It seems to me that authorities establish that in relation to petitions such as those before me there are two special categories of material to which the court must give consideration. First by virtue of Rule 30 (our rule 25), the affidavit by the petitioner verifying the petition is admissible for the purpose of providing evidence of the truth of the statements in the petition, even though such evidence may be hearsay. Second the inspectors report made under the Companies Act 1948, under the procedure obtaining before the Companies Act 1967 came into force, have a special status-

"not as evidence in the ordinary sense, but as material on which, if it is not challenged, the court can proceed to make a winding-up order on the ground that it is just and equitable to do so"

...I can find nothing in the cases that supports any contention that in this type of cases there is any open licence to admit hearsay evidence generally.

The existence of a debt as this court sees it is not disputed. It is to whom the debt is owed that is disputed. Is the debt owed to an entity which is a registered company and if so where is the proof that the entity Sakims Digging Services Limited is a registered company? In this Court's view that petitioner has not provided prima facie evidence that the entity Sakims Digging Services is a registered company neither has it shown the link between the debt and the entity. The contract of credit facility was not signed by Mohammad Sakim as a director or secretary of the company nor was the company seal properly affixed to the contract. On the appropriate part of the contract where the company seal ought to be affixed is stamped the words "Prop Mohd Sakim, P O Box 4253, Labbsa, Ph 814633". It is uncertain from the contract of credit facility document to determine between which parties the contract was entered into.

The only thing which is certain is that the debt is owed by the person himself in his personal capacity that much is certain from his own admission. That statement in the affidavit in opposition must be refuted by the Petitioner in its affidavit in reply. In the affidavit in reply the petitioner annexed in its affidavit sworn by one Prakash Narayan a copy of a document which purports to contain the result of a company search conducted by the petitioner. The document is annexed to the affidavit and marked "Annexure PN1". The document is an internal document which is unsigned and has no endorsement by the Registrar of Company to show that a search of it records has been made and that the details contained in the document presented is a true copy of the records of the company held by the Registrar of Companies. It is inconclusive and could not be used by the court as conclusive proof of anything remotely associated with the registration of Sakims Digging Services Ltd as a legal entity which could be would up. In other words the Petitioner has not made out its case to the satisfaction of this court on the first question which needs to be established and that is whether the entity Sakims Digging Services is a company and therefore could be wound up. Neither has the petitioner satisfied this court that the debt is owed by the entity legal or otherwise called a Sakims Digging Services Limited.

CONCLUSION

1. The requirement of rule 25 of the Winding Up rules that the affidavit verifying the petition be prima facie evidence of the truth of the petition has not been made out in that:-

(i). The Petitioner has not provided sufficient evidence that the entity Sakims Digging Services Limited is a legal entity called a company which could be wound up; and

(ii). Neither has the Petitioner satisfied the court that debt was owed by the said legal entity called Sakims Diging Services Limited.

2. That the debt is owed by one Mohammad Sakim in his personal capacity by his own admission;
   

3. That the Petition to wound up the company is therefore denied; and

4. Costs against the Petitioner which is summarily assessed at $500:00

22 June 2012

..........................................................
Master H A Robinson
High Court, LABASA