Viti Vanua Holdings Ltd, In re [2016] FJHC 655; HBE3.2015 (19 July 2016)

IN THE HIGH COURT OF FIJI

AT LABASA

CIVIL JURISDICTION

Winding Up Cause No. HBE 3 of 2015

IN THE MATTER OF VITI VANUA HOLDINGS LIMITED a limited liability Company having its registered office at 1^st Floor Dayalal Building Main Street Labasa.

AND

IN THE MATTER of the Companies Act

Counsel Appearing: Mr. Pillay of Reddy & Nandan for the Petitioning
Creditor
Mr. Kohli of Kohli & Singh for the Respondent

JUDGMENT

Introduction

[1] Digmach Civil Contractors Limited presented a petition to wind up Viti Vanua Holdings (herein referred to as VVL) a limited liability company having its registered office at 1^st Floor Dayalal Building Main Street Labasa. The petition alleges that VVL owes the petitioner the sum of $64,609:32 together with interest being the amount owing for the hire of machineries, supply of boulders and spalls and the hire of labourers to the company from 19 June 2010 to March 2011.

[2] The petition was filed and issued on the 24 December 2015. The Affidavit Verifying the petition was issued on the 31 December 2015 and was not in compliance with the requirement of the Companies Act which required that the affidavit verifying the petition should be issued within four (4) days after the petition.
[3] The petition was served on VVL on the 13 January 2016 and was advertised in the Fiji Times on 21 January 2016 and in the Government Gazette on the 29 January 2016. The Memorandum of Due Compliance was issued on 15 February 2016. A Notice of Intention to Support the winding up petition was filed on behalf of RC Manubhai & Co Ltd by the counsel for the petitioner on the 11 February 2016 which also allege that VVL owes them the sum of $43,062:11 for goods purchased on credit. A further Notice of Intention to Support the petition was also filed by the Counsel for the petitioner on behalf of Auto One Importers & Exporters on the same date which alleges that the VVL owes them the sum of $23,785:24 for goods purchased on credit.

[4] The petition was filed and issued six days before the commencement notice appeared in the Government Gazette on which notice was given that the Companies Act is to commence or come into force on the 1 January 2016. It was served after the commencement date and therefore the provision of the new Companies Act applies. One of the most important changes is in the definition of a company’s inability to pay its debts. The threshold in the Companies Act of 2015 has increased the amount indebted to $10,000:00 from the $100:00 in the now repealed Companies Act.

The Affidavit in Opposition

[5] The affidavit in opposition sworn by the company director of VVL Mr. Mohammed Yasin states so far as is relevant the following:-

1. That the demand notice and petition was not served at the registered office of the company but at Vunimoli Labasa.
   
2. That the petitioner is claiming payment of $64,609:32 being for hire of machineries from 19 June 2010 to March 2011 but that he denies being indebted to the petitioner for that amount.
   
3. That an agreement was reached between the parties on the 16 June 2014 where they agreed to pay the sum of $15,000:00 as full and final settlement for the debt owed to the petitioner. A copy of the agreement was then annexed to the affidavit.
   
4. That pursuant to the agreement made payments to the creditor by cheques amounting to $15,000:00.
   
5. That the creditor having agreed to the reduced amount and having accepted the cheques is now estopped from taking any further action against the company.
   

[6] In reply to the affidavit in opposition one Prabha Karan the creditor’s company director in an affidavit sworn on 24 March 2016 states so far as is relevant the following:-

(1) That he is a director of the petitioning creditor company and deposes of the matters in the affidavit from his own knowledge;

(2) That in respect of the service of the petition he was informed from his counsels agent in Labasa that no one was at the registered office of the company and that as a result the petition was served on Mohammed Yasin at his home.

(3) In relation to the debt the affidavit states that the respondent is well aware of the dealings and is just buying time to delay winding up.

(4) That the agreement attached to the affidavit if Mohammed Yasin is defective in that the documents was not signed by the director of both companies or stamped with the common seal of both companies and should not be relied upon.

(5) That he denies that any payments were made to the creditor company and he is not aware of any monies received by Raven Sharma and that no copies of cheques

Determination

[7] It is important to note that the new Companies Act 2015 came into force whilst this application was on foot. That is that the petition was filed on the 24 December 2015 and the new Companies Act came into force or commenced on the 1 January 2016. By notice in the Government of Fiji Gazette of 30 December 2016, as is required under section 2 of the Act, the Minister appointed the 1 January 2015 as the commencement date of the Companies Act 2015.

[8] As a result the petitioning creditor complied mostly with the requirements of the now repealed Companies Act Cap 247, Winding Up rules.

[9] In the new Companies Act 2015 Winding-Up Rules the word petition does not appear at all and the procedure is now by an application which also covers oppression proceedings. The new rules appear to put a great emphasis, and rightly so, on the proof of a debt, no longer will it be sufficient for a creditor to issue a demand notice without that notice being the subject of an application to prove it or to set it aside. The debtor is given an opportunity to question the debt before an application to wind up a company proceeds. In other words it now appears that the debt must be proved first before an application is made. Section 522 (1)(b) of the Act states that the Court must not give a hearing to a winding up application until, inter alia, a prima facie case for winding up has been established. The winding up provision can no longer be used to force a creditor to be paid for outstanding monies owed. Neither can an alleged creditor advertise before serving the debtor with the application to wind-up, winding up a company should always be the last resort.

[10] In this matter the directions given were in compliance with the repealed act and I believe can be determined under the repealed Act by the application of Section 749 of the new Companies Act 2015 which states that:-

“If an Existing Company which in the process of being wound up at the commencement date, is wound up in accordance with a Repealed Act within one year after the commencement date, the provisions of this Act are taken to be complied with”.

[11] As the Company was being in the process of being wound up before the commencement date and that the decision to wound up or not to wound up was made within the twelve months from the commencement date the matter can be dealt with under the old provision.

[12] The debt in question is disputed and the respondent in its submission gave case authorities which determined that where the debt is disputed the company cannot be wound up.

[13] In Vivrass Development Ltd v Australia and New Zealand Banking Group Ltd [2002] FJHC 245; HBC0290d.2001s(15 February, 2002), Justice Pathik stated:

“The question therefore is whether the debt is disputed on substantial grounds. If so, whether the Court ought to grant the relief sought by the plaintiffs. It is a general principle that a petition for winding -up with a view to enforcing payment of a disputed debt is an abuse, of the process of the Court and should be dismissed with costs (Palmer’s Company Law Vol. 3 15.214 and cases cited therein). In Palmer (ibid), on the principles involved it is further stated; 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 or 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 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 out to be tried either before the court itself or an action, or by some other proceedings.”

[14] Master Tuilevuka in Vimal Investments (Fiji) Ltd (2010) FJHC 371 held that:-

“A debt alleged in a winding-up petitioner is prima facie proved when the Affidavit Verifying the Petition is filed. Upon filing of the Affidavit Verifying the Petition, it is then open to the respondent company (e.g. Vimal Investments Limited) to refute the debt alleged.

And if the respondent company does so dispute the debt, it must do so on substantial grounds (as opposed to a mere frivolous assertion) in order to dissuade the Courts from making an order to wind up the company (see Offshore Oil NL and Investment Corporation of Fiji Limited; Civil Appeal No. 29/84; rf. Avery v Worldwide Testing Services Pty Ltd. (1990) 2 ACSR 844, at 841).

Having said that, the Courts also are ever so watchful that the winding up proceedings are not used by petitioners to enforce a debt which is being disputed on substantial grounds. Proceedings instituted in such circumstances amount to an abuse of process and will be struck out with costs to the respondent company (see Re Lympne Investments [1972] 2 All ER 385).

If the debt is being disputed on substantial grounds, the onus then shifts back to the petitioner to prove its debt. As highlighted above, this may in some situations, involve viva voce evidence.”

[15] In Re Travel and Holdings Clubs Ltd (1967) 2ALLER 602 Pennycuick J held that:-

"The Court may not in the exercise of jurisdiction, be satisfied with prima facie evidence but would require the Petitioner to substantiate his case more fully, then in such cases it would require where practicable, the evidence of witnesses with direct knowledge of matters on which they were testifying, and on which they could be cross-examined, and which conformed to the ordinary rules of evidence.."

[16] Most of these decisions echo the need to establish with certainty that a debt exists, the new Companies Act 2015 reflects this position and the establishment of this fact should be paramount before an application is made.

[17] The applicant creditor in its petition filed the required copy of the demand notice which states that the alleged debtor has not complied with the 21 day notice to pay for the debt and therefore is unable to pay the debt. In its memorandum of due compliance it states that the petition was advertised as is required on the 21 January 2016 before the matter was called before the Master on the 25 January 2016. It was when the alleged debtor opposed the petition and thereafter filed an affidavit denying the debt that the question of the proof of debt drew the applicant’s attention. It then filed an affidavit in reply in which it annexed tax invoices to prove that there was a debt.

[18] The copies of annexed tax invoices were not very clear to say the least. It may have indicated that there was some hiring of machines and men to be employed but unfortunately they were well above the figure alleged to be owed by the debtor. The amount on the invoices totalled some $200,430:00 which is approximately $140,000:00 above the amount on the demand notice. Further the details on the invoices themselves were not clear such that one could see the exact details of the services rendered and enable the debtor and the court to determine it. The onus is always on the creditor to prove the debt, without which the Court cannot wind-up a company.

[19] As was stated by Justice Pathik in Vivrass Development Ltd v Australia and New Zealand Banking Group Ltd:-

“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 an action, or by some other proceedings.”

[20] The above sentiment is reflected in the Winding Up Rules of 2015 where the Court is now required under Section 516 & 517 to determine that there is a genuine dispute about the existence or the amount of a debt, failing which, a company could not be wound up. It follows also that the supporting creditors who relied on the winding up of the alleged debtor could not therefore rely on their debt being satisfied from any further action against the creditor.

Conclusion

[21] For the above reasons I am not satisfied that the creditor has provided sufficient evidence to prove that there is a debt and therefore I will dismiss the petition to wind-up the Viti Vanua Holdings Ltd.

[22] I further order that the petitioner pay the costs of the application which I now summarily assess at $750:00.

H Robinson

Master, LABASA

19 July 2016