In re Newmart Auto Sales Ltd [2012] FJHC 1370; HBE20.2011 (12 October 2012)

IN THE HIGH COURT OF FIJI
AT SUVA
COMPANIES JURISDICTION

Winding Up Action No. HBE 20 of 2011

IN THE MATTER of NEWMART AUTO SALES LIMITED
Limited Liability Company having its registered office at 1 Kings Road, Ba

AND

IN THE MATTER of Companies Act 1983, Section 221

BEFORE : Master Deepthi Amaratunga
COUNSEL : Mr. Haniff F. Y. for the Petitioner
Mr. Ram Chand for the Respondent Company

Date of Hearing : 12th August, 2011
Date of Judgment : 12th October, 2012

DECISION

1. INTRODUCTION
   

1. The Petitioner instituted this action for winding up of the Respondent Company for an alleged debt of $57,089.72. The Defendant is stating that it had overpaid the Petitioner. The material evidence before me indicates a serious dispute. When the Respondent has requested for specific documents regarding five specific invoices the Petitioner has not supplied the same. The said documents were not attached even to affidavit in reply, indicating clear evasion of the disputed invoices. The Petitioner without resolving the dispute has instituted this action and blaming the accounting methods of the Respondent.
   

2. ANALYSIS
   

2. The Petitioner has claimed a debt of FJD 57,089.72 but failed to establish it in this action. The Respondent after reconciliation of their accounts deny any debt, but before the reconciliation has admitted a part of it. After reconciliation of their accounts the Respondent has asked further evidence relating to five specific invoices, but the Petitioner has neither provided them nor has annexed the requested delivery dockets and orders to their affidavit in reply and evasive in their reply, to court as well as to the Respondent regarding these five specific invoices.
   
3. Section 220 of the Companies Act ( Cap. 247) states:
   

220. A company may be wound up by the court, if –

.............

(e) the company is unable to pay its debts;

4. Section 221 of the Companies Act states:
   

221. A Company shall be deemed to be unable to pay its debts –

(a) if a creditor ....... 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 he 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; or

................. [ emphasis added]

5. Halsbury's Law 4th Edition, 1988 Reissue, Volume 7(2) Companies at paragraph 1451 (pages 1101 and 1102) provides an accurate summary of the case law regarding disputed debts in a winding up petition:
   

A winding up order will not be made on a debt which is disputed in good faith by the company; the court must see that the dispute is based on a substantial ground. A dispute as to the precise amount due is not a sufficient answer to the petition. If there is a genuine dispute, the petition may be dismissed or stayed, and an injunction may be granted restraining the advertisement or publicizing of the petition...(emphasis added)

6. The Respondent has indicated different amounts at different instances but after the reconciliation has written a letter dated 21st February, 2011 to the Petitioner's solicitor seeking order numbers and delivery copies of five specific invoices. For this the solicitor on the same day replied and did not provide any further documents, but stressed that they would press for winding up. This attitude of the Petitioner is far from a reasonable creditor. If those materials could not be supplied the reasons would have been given and this material could have been provided in this action.
   
7. The reply to the affidavit in opposition state all the materials requested was supplied, but if so why they failed to annex the said additional material to the affidavit in reply is not explained. The receipt of the courier dated 3.12.2010 cannot be the documents requested in 21st February, 2011 and if those were already supplied the reply could have easily said that. The reply of the Petitioner's solicitors letter on 21st February, 2011 does not state that all or some of the materials requested was already delivered, as far back on 3.12.2010.
   
8. The debt must be disputed in good faith and on 'substantial grounds'. Palmers Company Law Vol. 13 as follows:
   

To fall within the general principle the dispute must be bona fide in both a subjective and an objective sense. Thus the reason for not paying the debt must be honestly believed to exist and must be based on substantial of reasonable grounds. Substantial means having substance and not frivolous, which disputes the court should ignore. There must be so much doubt and question about the liability pay the debt that the court sees that there is a question to be decided. [emphasis added].

9. A dispute about the quantum of the debt does not amount to a disputed debt. Plowman J said in Re Tweets Garages, Ltd [1962] 1 All E.R. 121 (at page 124);
   

Moreover, it seems to me that it would in many cases be quite unjust to refuse a winding –up order to a petitioner who is admittedly owed moneys which have not been paid merely because there is a dispute as to the precise amount owing. ...is the company entitled to say: "it is not disputed that you are a creditor but the amount of your debt is disputed and you are not, therefore, entitled to an order?" I think not. In my judgment, where there is no doubt (and there is none here) that the petitioner is a creditor for the sum which would otherwise entitle him to a winding –up order, a dispute as to the precise sum which is owed to him is not itself a sufficient answer to his petition. [emphasis added]

10. In the case of In re Douglas Griggs Engineering Limited [1962] 1 All ER 498.

Pennycuick J said (at page 500):

It seems to me that this prima facie right of the petitioning creditor to a winding – up order is not displaced merely by showing that the company had a disputed claim against the petitioning creditor which is the subject of litigation in other proceedings. [emphasis added].

11. In Seawind Tankers Corporation v Bayoil SA [1998] EWCA Civ 1364; [1999] 1 All ER 374, the Court of Appeal (England) at p 379 cited Buckley on the Companies Act (11th Edi) as follows
    

'A winding up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed by the company. A petition presented ostensibly for a winding up order but really to exercise pressure will be dismissed, and under circumstances may be stigmatized as a scandalous abuse of the process of the Court. Some years ago petitions founded on disputed debt were directed to send over till the debt was established by action. If, however, there was no reason to believe that the debt, if established, would not be paid, the petition was dismissed. The modern practice has been to dismiss such petitions. But, of course, if the debt is not disputed on some substantial grounds, the court may decide it on the petition and make the order'.

12. The annexed 'A' to the affidavit in opposition is a letter by the Respondent dated 11th February, 2011 where the Respondent has admitted a debt of $11,296.86 and further state that the attached document of the Petitioner sought a debt of $36,892.16 and ask how the sum alleged in the notice to wind up was arrived at. The sum alleged in the winding up notice was $57,089.72 and sought details of the said debt. The Petitioner relies heavily on this letter, but it is clear that the said sum was not reconciled and not a confirmed debt.
    
13. The requested details could have easily complied to say the least, as Petitioner could have forwarded the evidence of the relevant accounts with supporting invoices/vouchers/receipts. This was not done, when the Respondent has requested specifically for 'all order numbers on which they have provided services and good and delivery dockets to say that we have received goods and services' regarding five invoices.
    
14. The said letter dated 11th February, 2011 further state
    

'Once the figure is reconciled there is no doubt we will make arrangements for the payment.'

15. So, what the Respondent is seeking is further documentary proof of the alleged debt and time to reconcile the accounts. The letter annexed 18th February, 2011 annexed as 'c' to the affidavit in opposition state that the Respondent has reconciled their accounts and it was revealed that the Respondent has overpaid the Petitioner to the tune of $40,000. The Respondent failed to provide the details of the said accounts.
    
16. But again 3 days later the Respondent in its letter dated 21st February, 2011 which is annexed 'E' indicate the overpaid sum as $24,739.22 and this letter indicate the November and December invoices and payments made during the said time, but the said letter indicate numbers of five invoices and sought 'delivery copies and order numbers for the said invoices'. I can't see the reason not to provide such information to the Respondent. These are not difficult things to provide since the said invoices cannot stand alone, but the prompt reply of the solicitor of the Petitioner has not attached the requested documents and also failed to address the requested documents at all.
    
17. The above reply of the Petitioner's solicitor dated 21st February, 2011 did not provide any document requested by the Respondent and did not state why it was not doing so. This create a serious doubt as to the claim of the Petitioner. The affidavit evidence before me in the proper analysis falls far short of a undisputed bona fide debt. The evidence before me indicate a serious dispute and the failure to supply the additional information supporting the Invoices Nos 26861, 26870, 26990,26975 and the reply to the said letter create a serious dispute on the available evidence before me. The winding up petition is accordingly dismissed and considering the circumstance of the case I do not award a cost.
    

100. FINAL ORDERS
     

1. The Petition for winding up is stuck off.
2. No cost.
   

Dated at Suva this 12th day of October, 2012.

.................................................
Master Deepthi Amaratunga

High Court, Suva