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High Court of Fiji |
IN THE HIGH COURT OF FIJI AT LAUTOKA
COMPANIES JURISDICTION
WINDING UP NO. 06 of 2013
IN THE MATTER of CUMBERLAND HOLDINGS LIMITED
a limited liability company having its registered office at HLB Crosbie and Associates, Top Floor HLB House, 3 Cruickshank Road, P.O
Box 10973, Nadi Airport, Nadi, Fiji Islands
AND
IN THE MATTER of the COMPANIES ACT.
AND
IN THE MATTER
of an application for appointment of an interim liquidator pursuant to
Section 27(1) of the Companies Act [Cap 247]
CHRISTOPHER VINIL TIKARAM
of P.O Box 25, Sigatoka, Fiji Islands, Company Director
FIRST RESPONDENT
JENNIFER LEE TIKARAM
of P.O Box 25, Sigatoka, Fiji Islands, Secretary
SECOND RESPONDENT
Appearances: Mr. Lowing and Mr. Vakacakau or the Petitioner/Applicant
Date of Hearing: Tuesday 26 February 2013.
RULING
(Ex-Parte application for Appointment of Interim Liquidator)
BACKGROUND
[1]. Before me is an ex-parte summons by a minority shareholder seeking an Order for the appointment of an interim liquidator pending the determination of his petition to wind up the company. The company concerned is Cumberland Holdings Limited ("CHL").
[2]. The Petitioner, Mark Samuel Tidwell, Christopher Tikaram (1st Respondent) and Jennifer Tikaram (2nd Respondent) are directors/shareholders of CHL.
[3]. CHL is a private company limited by shares [1] with a nominal capital of $10,000.00 divided into 10,000 shares of $1.00 each. It was set up with the intention to developing land in Sigatoka for tourist accommodation and related services.
[4]. Sometime in July 2008, CHL amended its objectives to establish a hotel and special use villas to be managed by the hotel. Tidwell swears by his affidavit that between 3 November 2004 to about 30 June 2012, he transferred approximately AUD$1,753,799.98 to Fiji for CHL purposes[2] and has invested approximately FJD$2,094,005.74 as shareholder's advances to CHL.
[5]. The current shareholding of CHL [3] is as follows:
| Name & Address of Shareholder | Shares Held |
P.O. Box 25 Sigatoka. | 510 shares |
100 Quarry Lane, NSW 2481. | 330 shares |
P.O. Box 25 Sigatoka. |
|
[6]. As is obvious from the above, Tidwell is a minority shareholder in CHL. He says that the Tikarams, who are husband and wife, have always handled the day to day running of CHL and that he (Tidwell) has never ever had any part in that.
SUBJECT OF TIDWELL GRIEVANCE
[7]. Tidwell's grievance stems from a transaction that happened in 2011 which saw CHL transferring by sale to the Tikarams a piece of prime real estate along the Coral Coast Tourism Zone. The land in question is Lot 2 on DP 5359 part land known as "Sanasana" containing 917 square meters and comprised in CT 21529 ("Lot 2").
[8]. The events which led to that sale were as follows. In 2011, the Tikarams approached Tidwell and expressed to him their desire to purchase Lot 2 for their personal residential use for the purchase price of FJD$250,000.00 (Two Hundred and Fifty Thousand Dollars). Tidwell consented, and in due course, a sale and purchase agreement was drawn up and Lot 2 was transferred to the Tikarams for the said price of $250,000.00 on 16 December 2011.
[9]. As it turns out, the Tikarams, all the while, were negotiating on the side with some third parties for the sale of Lot 2 (by the Tikarams) to the said third parties at the price of $460,000.00 (four hundred and sixty thousand dollars). This, the Tikarams did not disclose to Tidwell nor to CHL.
[10]. On 16 December 2011, CHL and the Tikarams settled their sale and purchase agreement and Lot 2 was formally transferred to the Tikarams on the same day. As it turns out, 16 of November happens also to be the date that the Tikarams settled their sale of Lot 2 to the said third parties.
Hence, the title to Lot 2, a copy of which is exhibited in Tidwell's affidavit, would memorialize the transfer (Transfer No. 753399) from CHL to the Tikarams as having occurred on 16 December 2011 at 12.05 p.m. This is followed immediately by another memorial which records the transfer of Lot 2 from the Tikarams to one Neil Samuel Ross, Martin De Luca, Timothy Cruickshank and a Jay Whyte, the said third parties (Transfer No. 753400) as having occurred – also - on the same day and – also - at the same time of 12.55 p.m.
[11]. It appears that whilst Lot 2 was still in the hands of CHL, the Tikarams, who were then (and still are now) directors/shareholders of CHL, were plotting in secret to wrench the property out of CHL's hands at a swindle and to sell it later at a considerable windfall of some $210,000 to themselves personally. Tidwell deposes in his affidavit that he only came to know of Tikarams' scheme after the Fiji Inlands Revenue and Customs Authority had raised some VAT queries with CHL's Accountant, namely HLB Crosbie & Associates, Nadi, who then contacted him (Tidwell). Upon learning the truth, Tidwell, who - understandably, was disappointed and had lost all faith and trust in the Tikarams[4] - did approach the Tikarams with a view to getting them to relinquish their shares in CHL. The Tikarams however got their lawyers to draft a Deed of Release & Acknowledgement which Tidwell refused to sign.
THE DEED OF RELEASE & ACKNOWLEDGEMENT
[12]. The Recital to the said Deed states inter alia:
AND WHEREAS at the First Party's [i.e. Tidwell's] request the Second Party [i.e. Christopher Vinil Tikaram and Jennifer Lee Tikaram] is (sic) desirous of resigning from the office of the Company's Directorship and Secretaryship in exchange for which the First Party and the Company is (sic) desirous of releasing the Second Party of all its liabilities and the parties have agreed to enter into this Deed of Release and Acknowledgement for that purpose upon the several terms and conditions contained herein below.
[13]. Clause 2.1 of the Deed states as follows:
With effect from the date hereof and in consideration of the Second Party entering into this Deed the Company and the First Party hereby agrees (sic) to, and agrees (sic) to procure that the Second Party is released, forever discharged, and the Company and the First Party waives (sic) their rights to pursue any claim howsoever arising against the Second Party from and in respect of all, and all manner of, actions and claims, in law or in equity, which are, were or could have been asserted against the Second Party, because the Second Party holding their office as directors and secretary and shareholders of the Company, irrespective of whether or not such actions or claims are presently known or unknown, formally notified, brought or commenced, and which in any way relate to the Second Party and the relationship and dealings between the parties in the Company; provided that this paragraph shall not release the First Party and the Company from any of their obligations under this Deed and the Deed of Indemnity and otherwise arising.
[14]. Clause 4.1 states as follows:
In consideration for the First Party executing this Deed of Release and Acknowledgement and the Deed of Indemnity the Second Party agrees to relinquish all their rights and interests in all the Shares that they presently hold in the company.
TIDWELL'S APPLICATION
[15]. Tidwell petitions this Court to wind up CHL on the ground that it would be just and equitable in the circumstances. Alternatively, Tidwell seeks orders to remedy the situation as are appropriate in the circumstances. These are remedies to be considered in the substantive hearing on the petition. What is before me now is Tidwell's application for an Order that HLB Crosbie & Associates be appointed interim liquidator to look after the affairs of CHL until the Court finally determines the petition. The scope of duty which Tidwell seeks in favour of HLB Crosbie are as follows:
- (i) protecting company assets
- (ii) safeguarding the company's records
- (iii) investigating the company's affairs only in so far as it is necessary to discover, protect and recover assets
- (iv) convert company assets to cash in the best interest of the contributors
- (v) any such duties the Honorable Court deems appropriate in the circumstance.
THE LAW
[16]. The Companies Act Cap 247 provides as follows:
220. A company e wou by p by the court, ift, if
(f) the court is of opinion that it is just and equitable that the company should bnd up;
>
235. For the purpose of conducting the proceedings in winding-up a comand performing such duti duties in reference thereto as the court may impose, the court may appoint a liquidator or liquidators.
[17]. Part VI of the Companies Winding Up Rules provides under Rule 27(1) as follows:
27.-(1) After a petition has been presented, the court, upon the application of a creditor, or of a contributory, or of the company, pon proof by affidaffidavit of sufficient grounds for so doing, may, upon such terms as the court thinks fit, appoint an interim liquidator.
[18]. From the body of case law, the following emerge clearly as factors that define the principles applicable in whether or not to appoint an interim liquidator.
Discretionary Remedy
[19]. The remedy of appointing an interim liquidator is discretionary (as per Phillips J in In re Matapo Ltd [2008] FJHC 298. In Costantinidis and Ors v Jgl Nos. Ca 40193/95; Ed 1828/95 Companies [1995] NSWSC 141 (8n November 1995) Kirby J said that "[t]he power to appoint a provisional liquidator is in no way limited; ... the circumstances (which may constitute sufficient ground) under which a provisional liquidator may be appointed are infinite. There is no reason why the public interest should not operate in favour of or against the making of an appointment in particular circumstances ..."
Who May Apply?
[20]. As is clear from the wording of Rule 27(1) of the Companies (Winding Up) Rules, only a creditor, a contributory or the company itself may apply for the appointment of an interim liquidator. The law gives locus only to anyone who falls into any of these categories – obviously - because the purpose for which a provisional liquidator is appointed is/are:
- (i) to preserve the assets of the company and the status quo in relation to its affairs, and thereby, prevent any creditor obtaining priority and/or.
- (ii) to protect the public, and/or
- (iii) to safeguard creditors, employees and others who deal with a company upon an assumption that it is viable and solvent.
What Constitutes "Sufficient Grounds" to Appoint an Interim Liquidator?
[21]. Rule 27(1) requires that the applicant must establish by affidavit evidence sufficient grounds for the granting of the remedy. "Sufficient grounds" includes:
- (i) if it appears from the evidence that a winding-up order is likely when the petition is decided.
(as per Justice Kirby in Costantinidis and Ors v Jgl Nos. Ca 40193/95; Ed 1828/95 Companies [1995] NSWSC 141 (8n November 1995) cited in In re Matapo Ltd).
In determining whether a winding-up order is likely when the petition is decided, the court should first look to the sufficiency of the allegations in the petition. The primary facts set out in the petition if assumed to be true and the uncontested evidence taken as a whole, must add up to the conclusion that it is imperative that the winding-up order be made.
(see Malaysian Court of. Appeal in Tuan Haji Ishak bin Ismail v. Leong Hup Holdings Bhd [1996] 1 MLJ 661).
(ii) that the company's assets are in jeopardy.
(see Re Highfield Commodities Ltd [1984] 3 All ER 884; [1985] 1 WLR 149 and 7(2) Halsbury's Laws of England (4th Ed) para 1490 note 3).
(iii) other circumstances which makes it imperative for the court to intervene
(see Re Highfield Commodities Ltd).
Powers of the Interim Liquidator
[25]. The role of the interim liquidator is not to be confused with the role of a liquidator as Phillips J cautions in In re Matapo Ltd citing Re Brian Cassidy Electrical Industries Pty. Ltd. (No. 2) where McLelland J stated at page 657 that:
"There is, I think, a distinction to be drawn between the appointment of a provisional liquidator on the one hand, and the appointment of a liquidator on the other, bearing in mind the differing emphasis of their respective functions, and particularly the substantial obligation of investigation falling upon a liquidator. As Bowen C.J. in Eq. said in a similar context in Re Stewden Nominees at CLC p. 28, 336; A.C.F.R. p. 188:
"A provisional liquidator's duties are generally to preserve the status quo pending the hearing of the petition to wind up ... He does not have the wide-ranging duties of investigation, examination of directors, and possibly of instituting proceedings which have commonly to be exercised by a liquidator."
[26]. It is generally accepted that, given that his or her powers are usually limited to preserving the status quo, the interim liquidator does not have the power to sell and distribute the company's assets. I acknowledge that there is a view that such power to sell and distribute may be given to the interim liquidator specifically[5], but I need say no more on that moot point.
Order to Appointment Interim Liquidator
[27]. Because it is a drastic intrusion into the affairs of the company to appoint a provisional liquidator pending adjudication upon a petition, an Order to effect such an appointment is only to be made if other measures to preserve the status quo are not available (as per Phillips J in In re Matapo citing Zempilas v JN Taylor Holdings Ltd (No. 2) (1990) 55 SASR 103; 3 ACSR 528 per King CJ.
ANALYSIS
[27]. Tidwell is a member of CHL which is a limited liability company. As such, he is a "contributory" as defined in section 215 of the Companies Act[6] and therefore, has locus to apply under Rule 27 of the Companies (Winding Up) Rules. Whether or not the facts alleged in the petition constitute sufficient grounds for the appointment of an interim liquidator pending the final determination of the petition, I must now consider. At this stage, I assume that the primary facts set out in the petition are true, and, taking those facts as a whole, I ask whether they would support the making of a winding-up order. This approach would justify my dealing with this application ex-parte now, contrary to my initial reaction that – given the Zempilas v JN Taylor Holdings position (see para [27] above) – such an application is more appropriately dealt with inter partes. After all, the Tikarams will still have their day in Court to oppose any interim orders made now.
[28]. Mr. Lowing submits that the facts as alleged would support a winding up order on the "just and equitable" ground. He argues that Tidwell is suffering "oppression" and/or that, considering the fact that CHL is a small company akin to a quasi-type partnership, a "deadlock" situation has arisen.
Just & Equitable
[29]. In In re Westbourne Galleries Ltd. [1973] A.C. 360, Lord Wilberforce, in giving content to the concept of "just and equitable" as a ground for winding up – and after reviewing cases on the equitable jurisdiction to require partners to exercise their powers in good faith, said, at page 379:
The words ['just and equitable'] are a recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. That structure is defined by the Companies Act [1948] and by the articles of association by which shareholders agree to be bound. In most companies and in most contexts, this definition is sufficient and exhaustive, equally so whether the company is large or small. The 'just and equitable' provision does not, as the respondents [the company] suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way.
[30]. In O'Neill and Another v. Phillips and Others, 20 May 1999[7] Lord Hoffman, after citing the above passage with approval, cautioned:
I should make it clear that the parallel I have drawn between the notion of "just and equitable" as explained by Lord Wilberforce in In re Westbourne Galleries Ltd. and the notion of fairness in section 459 does not mean that conduct will not be unfair unless it would have justified an order to wind up the company. There was such a requirement in section 210 of the Companies Act 1948 but it was not repeated in section 459. As Mummery J. observed in In re A Company (No. 00314 of 1989), Ex parte Estate Acquisition and Development Ltd. [1991] B.C.L.C. 154, 161, the grant of one remedy will not necessarily require proof of conduct which would have justified a different remedy:
"Under sections 459 to 461 the court is not. . . faced with a death sentence decision dependent on establishing just and equitable grounds for such a decision. The court is more in the position of a medical practitioner presented with a patient who is alleged to be suffering from one or more ailments which can be treated by an appropriate remedy applied during the course of the continuing life of the company."
The parallel is not in the conduct which the court will treat as justifying a particular remedy but in the principles upon which it decides that the conduct is unjust, inequitable or unfair.
[31]. Smith J, in Re Wondoflex Textiles Ltd [1951] VicLawRp 33; [1951] VLR 458 at 465, said that:
[t]here is the rule that in the case of a private company which is in substance a partnership, the Court . . . should apply the same principles as would be applied in a claim for dissolution of partnership.
[32]. The facts as presented by Tidwell, in my view, are more serious that the usual "oppression" and "deadlock" type scenario. The facts demonstrate a serious breach of fiduciary duty on the part of the Tikarams in their capacity as CIH directors. The loss of confidence Tidwell harbors against the Tikarams are justifiable based on their (alleged) lack of probity in their handling of Lot 2. Justifiable Loss of Confidence – in itself – is a valid ground to wind up a company under the "just and equitable" banner (see Loch v John Blackwood Ltd [1924] UKPC 45; [1924] AC 783 at 788). This category embraces the more serious occasions of fraud, directors' breaches of duty, misappropriation of corporate assets, fraudulent payments out of company funds, and failure to observe proper procedures as set out in the Articles of Association.
CONCLUSION
[33]. I have decided to grant Order in Terms of all prayers set out in the summons (save for of the prayer that HLB Crosbie be allowed to convert company assets to cash in the best interest of the contributors). I grant Order in Terms based on the following:
- (i) the alleged lack of probity in the conduct of the Tikarams is borne out by the memorials in Certificate of Title 21529 (Lot 2) which is exhibited in Tidwell's affidavit – and which conduct also amounts to a gross breach of their fiduciary duty to CHL – which duty is to act always on the best interest of CHL, especially when it involves company assets. As directors, the Tikarams should have informed Tidwell and CHL of the interested purchaser and the price he was willing to pay.
- (ii) the Tikarams, from the facts alleged in the petition, used their position as directors of CHL to orchestrate the sale to them of Lot 2 and subsequently, from them to the third party – for their own personal benefit.
- (iii) that, following from the above, Tidwell's lack of confidence in the Tikarams would be wholly justifiable and would support a winding up of the company on the "just and equitable grounds".
- (iv) the fact that the Tikarams are: majority shareholders, in control of CHL, husband and wife – means to me that Tidwell's fears are well-founded that, if an interim liquidator is not appointed by the court to protect the status quo and assets of CHL, there is nothing stopping the Tikarams from further dissipating CHL assets.
- (v) the fact that the Tikarams were prepared to sell their shares to Tidwell upon Tidwell signing a Deed of Release and Acknowledgement, suggests to me, when contextualized against their actions in hastily selling Lot 2, that they are well apprehensive of their own (alleged) lack of probity. Also, given that Tidwell is not willing to sign the said Deed, is indicative of a "deadlock".
- (vi) I am convinced that the appointment of an interim liquidator is, in the circumstances, the ideal means to preserve the status quo pending the determination of the petition and that there is no other alternative.
[34]. This case is adjourned to Friday 15 March 2013 at 8.30 a.m. for mention. The petitioner is to serve all documents and pleadings to the respondents within seven days.
....................................
Master Tuilevuka
At Lautoka
01 March, 2013
[1] CHL was incorporated on 21 September 2004. CHL’s registered office is situated at HLB Crosbie and Associates, Top Floor HLB
House, 3 Cruickshank Road, P.O Box 10973, Nadi Airport, Fiji Islands.
[2] Various Reserve Bank of Fiji approvals relating these transfers of funds are annexed to Tidwell’s affidavit and marked MT-2.
[3] According to a company search exhibited in the affidavit of Tidwell filed herein support of his application.
[4] The affidavit of Mark Tidwell deposes the following:
...............................
24. The relationship between the respondents and I has deteriorated and I no longer trust them and accordingly do not wish to continue as a shareholder in the company with them.
25. It is now impossible for me to rebuild my confidence in the respondents as I have invest so much money in the company but have not generated sufficient income from same.
[5] e.g. in F.S. Kok v Juta Vila (M) Sdn Bhd [1996] Part 1 Case 8 [CAM] the Malaysian Court of Appeal noted obiter at paragraph 3 that the interim liquidator “usually does not have the power to sell and distribute the company’s assets, unless that power is given to him specifically”.
[6] Section 215 defines a contributory as:
215. The term "contributory" means every person liable to contribute to the assets of a company in the event of its being wound up and, for the purposes of all proceedings for determining, and all proceedings prior to the final determination of, the persons who are to be deemed contributories, includes any person alleged to be a contributory.
[7]http://www.publications.parliament.uk/pa/ld199899/ldjudgmt/jd990520/neill01.htm
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