In re Alspec Holdings Ltd [2012] FJHC 1394; HBE45.2009 (11 October 2012)

IN THE HIGH COURT OF FIJI AT SUVA
COMPANIES JURISDICTION

Winding Up Cause No: HBE 45 of 2009

BETWEEN:

IN THE MATTER of ALSPEC HOLDINGS LIMITED

AND:

IN THE MATTER of THE COMPANIES ACT 1983

Counsel : Ms. Naidu for the Petitioning Creditor.
Mr. O' Driscoll for the Alspec Holdings Ltd.

Date of Judgment: 11th October, 2012

JUDGMENT

[1]. This is a petition by New India Insurance Company Ltd (hereinafter referred to as the petitioning creditor) to wind up Alspec Holding Ltd (hereinafter referred to as the company) brought in terms of Section 221 of the Companies Act. The winding-up petition was opposed by the company. A Company Director named Anul Narayan filed an affidavit opposing the winding up application.

[2]. The facts of the affidavit in opposition could be summarised as follows.

[3]. The company had originally been a contractor for part of the development undertaken at Natadola. One of the conditions of the contract was that the company must have a suitable insurance policy. The company arranged insurance cover through the petitioning creditor New India Insurance Company subject to the condition that if the company's contract was cancelled within 3 months, then the insurance policies covering the contracted work would also be cancelled.

[4]. Company's work with the Ministry of Works and Energy was cancelled within 3 months and the cancellation of the contract was notified to the petitioning creditor by letter dated 25.02.2006.

[5]. The company received a demand notice from the petitioner in respect of an outstanding premium in January 2009.

[6]. It is stated that the company was not aware of such an outstanding premium until the demand notice was received. The company received the winding up notice on 22.01.2009.

[7]. It is further stated that the company wrote to the petitioner's solicitors and stated its reasons to dispute the winding-up notice, by letters dated 24.01.2009 and 17.02.2009 respectively.

[8]. Furthermore, the company through their solicitors wrote to the petitioner's solicitors setting out the reasons for the dispute and upon receipt of it, the petitioner's solicitors responded to the company stating that they did not dispute the debt.

[9]. Copies of those letters marked as AN 6 and AN7 are annexed to the affidavit. It is further stated that until now, the winding up petition has not been served on the company and also the dispute give rise seriously triable issues and therefore the winding up petition should not be issued. The company moves to strike out the winding up action.

[10]. In reply to the company's affidavit in opposition, Jayadish Chandra the Assistant Manager of the petitioning creditor filed an affidavit. In the affidavit in reply, it is deposed that there was no such condition for the cancellation of the company's contract within 3 months as stated in the affidavit in opposition. It is further stated that the creditor had no knowledge of the cancellation of the contract between the debtor and the Ministry of Works and Energy; the creditor had no knowledge of any arrangement between the debtor and Dominion Finance Ltd.

[11]. The petitioning creditor denies receiving the letter dated 25.02.2006 for cancellation of the insurance policies and state that the petitioning creditor does not have any notification and or advice from the debtor to cancel the said policies, but on 26.04.2006, the company advised the petitioning creditor that it would make payment to the petitioning creditor as soon as it received the payment from Ministry of Works. A copy of the letter marked as 'C' is annexed to the letter.

[12]. It is further stated that since there was no payment made by the debtor as per their promise made in the aforementioned letter, a formal demand was made in January 2009, but still the company failed to make any payment and the creditor issued the winding up proceedings.

[13]. Furthermore, the petitioning creditor denies that there was any arrangement made between the creditor and or Ashok Garib, and stated that the creditor's insurance policies are never dependent on the length of their policy contracts of the insured.

[14]. Section 220 (a) of the Companies Act reads:

A company may be wound up by the court, if the company is unable to pay its debts.

[15]. The definition of inability to pay its debts is illustrated in Sec 221 of the Act. The petitioner's application is based on Sec 221(a) of the said Act.

Section 221 (a) reads:

A company shall be deemed to be unable to pay its debts-

If a creditor, by assignment or otherwise, 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 the 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;

[16]. According to the above provision, the company is deemed to be unable to pay its debts if following facts are proved

1. The company owes more than $100.00;
   
2. The petitioning creditor has served a demand on the company requiring the company to pay the sum so due; and
   

100. Three weeks after the demand was served, the company neglected to pay its debt.
     

[17]. The court can make a winding up order on any of the grounds contained in Section 220 of the Companies Act.

[18]. In the present case, the burden is on the debtor company to produce evidence to the satisfaction of the court, that it has a substantial dispute as to the debt. Thus, the central issue to be determined in this case is whether there is a substantial dispute existing as to the debt claimed by the petitioning creditor.

[19]. The following judgments provide some important guidelines which are fundamental to the issue of bona fide disputed debts.

[20]. In Viras Development Limited & Others v.The ANZ Banking Group Ltd., Pathik J quoted the following passage from Palmers Company Law;

'To fall within the general principle the dispute must be bona fide in both a subjective and objective sense. Thus the reason for not paying the debt must be honestly believed to exist and must be based on substantial or reasonable grounds. "Substantial" means having substance and not frivolous, which disputes the courts should ignore. There must be so much doubt and question about liability to pay the debt that the court sees that there is a question to be decided. The onus is on the company to "bring forward a prima facie case which satisfies the court that there is something which ought to be tried either before the court itself or in an action or by some proceedings.''...the court's discretion will be exercised in the light of all the circumstances existing'.

[21]. The following extract from Meggary J's judgment in In re Lympne Investments Ltd [1972] 1 WLR 523 at 527 explicates the importance of analysing the nature of the disputed debt as follows;

"...nor is it right, or in accordance with the modern practice, to stand over the petition in order that the disputed issues may be resolved in other proceedings. That practice, I may say, seems to stem from In re London and Paris Banking Corporation (1874) L.R.19 Eq 444. The Companies Court must not be used as a Debt-collecting agency, nor as a means of bringing improper pressure to bear on a company of the winding up petition against it are such that it would be wrong to allow the machinery designed for such petitions to be used as a means of resolving disputes which ought to be settled in ordinary litigation, or to be kept in suspense over the company's head while that litigation is fought out. Further, Mann v. Goldstein [1968] 1 W.L.R. 1091, cited with approval in the New Zealand Court of Appeal in Bateman Television Ltd v. Coleridge Finance Co. Ltd. [1969] N.Z.L.R.794, provides authority for saying that when a petition is based on a debt which is disputed on substantial grounds, the petitioner is not a "creditor" within section 224(1) of the Act of 1948 who has the locus standi requisite for the presentation of the petition, even if the company is in fact insolvent."

[22]. In re Amadeus Trading Ltd, The Times Law Reports 1 April 1997 p 184, Walker J said;

"Where there was a complex raft of disputed facts and allegations n both sides which cried out for cross examination, it was inappropriate for a claimant to resort to a petition to wind up a company which was his adversary."

[23]. In Stonegate Securities Ltd v Gregory (1930) 1 All.E.R.241 at 243-244 the courts have required that the debt be disputed 'in good faith and on substantial grounds'.

[24]. In light of the above legal principles, the burden is on Alspec Holdings Ltd. to establish that there exists a genuine dispute as to the debt claimed by the petitioning creditor. As can be observed from the affidavit in opposition filed by Anul Narayan, the company's main contention is that it cancelled the insurance policy with the petitioning creditor and had informed the same to the petitioning creditor by letter dated 25.02.2006.

[25]. However, annexure 'C' to the affidavit in reply to the petitioning creditor clearly shows that the company had admitted the debt on 26.04.2006, but was unable to settle the same owing to the financial constrains faced by the company. The above position was never disclosed by the company in its affidavit in opposition.

[26]. It is well settled law that winding up proceedings shall not be used to force a debtor to pay a disputed debt. But at the same time, a debtor company who is unable to pay its debts shall not be allowed to thwart the winding up proceedings, on unsubstantiated or frivolous assertions.
[27]. In the instant case, it is apparent that the company though disputed the petitioning creditor's claim by letter dated 25.02.2006, has subsequently admitted its inability to settle the same. In other words, the documentary evidence before this court undoubtedly established that the company is unable to pay its debts.

[28]. Once the petitioning creditor satisfied the criteria stipulated in section 221(a) of the Companies Act, the burden is shifted to the debtor company to prove that it has a substantial dispute as to the debt upon which the petition is allegedly founded.

[29]. In order to prove that there is a substantial dispute as to the debt, the company sought to be wound up cannot rely on whimsical evidence but, must tender substantive evidence.

[30]. In the instant case despite having made various allegations against the petitioner, the debtor company has failed to establish that there is a substantial dispute as to the debt. The company though stated that there existed a condition of the insurance cover that if the company's contract with a 3rd party was cancelled within 3 months then the insurance policies covering the contracted work would also be cancelled, no documentary evidence to that effect was produced with its affidavit in opposition. Thus, the reasons advanced by the company to show that there is a substantial dispute as to the debt, is far from satisfactory, and hence cannot be accepted.

[31]. In this matter the petitioning creditor has served the statutory notice pursuant to Sec.221 (a) of the Companies Act. The company sought to be wound up has not paid the debt within the statutory period but has made an unsuccessful attempt to escape from its financial obligations to the petitioning creditor.

[32]. On the above premise, I conclude that the company Alspec Holdings Ltd is unable to pay its debts, and therefore, be wound up, but considering the facts of the case and the provisions contained in the Section 223(1) of the Companies Act, I am of the opinion that the company must be afforded a chance to pay its debts.

[33]. Section 223(1) of the Companies Act reads:

On hearing a winding up petition, the court may dismiss it, or adjourn the hearing conditionally or unconditionally, or make any interim order, or any other order that it thinks fit, but the court shall not refuse to make a winding up order on the ground only that the assets of the company have been mortgaged to an amount equal to or in excess of those assets or that the company has no assets.

[34]. In the exercise of powers stipulated in the above section, I therefore, stay the winding up order for a period of 21 days to enable the company to pay the debt. If the company failed to pay the debt within that period the company shall be wound up forthwith.

[35]. Cost is summarily assessed in the sum of $ 700.00.

Pradeep Hettiarachchi
JUDGE