Dominion Wire & Cables Pte Ltd v AJYNK Electrical Pte Ltd [2022] FJHC 181; HBE26.2021 (12 April 2022)

IN THE HIGH COURT OF FIJI
AT LAUTOKA
CIVIL JURISDICTION

HBE 26 of 2021

IN THE MATTTER of AJYNK ELECTRICAL PTE LIMITED a limited liability having its registered office at Level 3, Aliz Centre, 231 Martintar, Nadi in Fiji.

A N D

IN THE MATTER of the COMPANIES ACT 2015.

Appearances: Mr. Chandar V. for Petitioner and Supporting Creditor
Mr. Nand for Vijay Maharaj
Date of Hearing: 07 March 2022
Date of Ruling: 12 April 2022

R U L I N G

INTRODUCTION

1. The substantive winding up application in this matter was filed by Dominion Wire & Cables Pte Limited (“DWCPL”) on 25 August 2021 seeking the following orders:
   
   • (1) that AJYNK Electrical Pte Limited (“AEPL”) be wound up under the provisions of the Companies Act 2015.
     
   • (2) that the Official Receiver be appointed to conduct the winding up, and such further or other order as may be just.
     
2. DWCPL’s application is supported by an Affidavit of Amit Solanki sworn on 24 August 2021. Solanki is a Director of DWCL. He deposes that DWCL is a creditor of AEPL, a limited liability company which was incorporated on 22 August 2011 with its registered office situated at Level 3, Aliz Center, 231 Martintar, Nadi.
   
3. Solanki further deposes as follows:
   
   • (1) that on or around 13 July 2021, AEPL was indebted to DWCL for the amount of $623,357.97 (six hundred and twenty-three thousand, three hundred and fifty-seven dollars and ninety-seven cents).
   • (2) the said debt actually accrued on account of goods sold and delivered by to AEPL from around 23 June 2018 to 08 July 2020 (being a sum inclusive of VAT) and interest as per agreed between the parties.
   • (3) on 13 July 2021, Millbrook Hills Law Partners, acting on the instructions of DWCL, did serve a statutory demand on AEPL requiring AEPL to pay the amount stated above.
     
   • (4) AEPL however failed for three weeks after service of the statutory demand to settle the amount or to secure or compound for it to the reasonable satisfaction of DWCL.
   • (5) on 02 September 2021, DWCL served on AEPL at its registered office a Winding Up Application.
     
4. An affidavit of service for compliance sworn by Laisa Aditukana on 28 September 2021 and filed on 29 September 2021 confirms the following:
   
   • (i) that the Official Receiver has consented to be appointed as provisional liquidator pursuant to the Companies (Winding Up) Rules 2015.
   • (ii) that a Notice of Winding Up Application was published in the Government of Fiji Gazette Vol. 22 No. 111 on 22 September 2021 and in the Fiji Sun issue of 24 September 2021.
     
5. The Deputy Registrar issued a Compliance Certificate pursuant to Winding Up Rule 19 (2) (a) on 29 September 2021.
   

AEPL’s CROSS-APPLICATION

6. There is also before me a Summons to Set Aside /Stay Statutory Demand and Application for Winding Up filed by AEPL on 01 October 2021 seeking the following Orders:
   
   • (1) an Order that the Respondent be restrained, whether by itself , or its Directors or its servants or agents of otherwise from presenting and/or further advertising Winding Up Petition against the Respondent based on the Statutory Demands dated 13^th July 2021 served on the Respondent n 08^th September 2021 pending the hearing and determination of this action.
     
   • (2) an Order that the Statutory Demand issued by the Respondent Company is wholly set aside.
     
   • (3) an Order that the Application for Winding Up against the Respondent be stayed or dismissed
     
   • (4) that the Applicant pays the costs of and incidental to this application to the Respondent.
     
   • (5) any other Orders, Declarations and reliefs as seems just and equitable by this Court
     
7. The application is supported by the affidavit of Abdul Zalil Khan (“Khan”) sworn on 30 September 2021 in New Zealand. Khan is the sole director and shareholder of AEPL. It makes sense that I should first consider AEPL’s application first.
   
8. Since the application for Winding Up has already been advertised by DWCPL, the first prayer in AEPL’s Summons is now redundant. Accordingly, I shall deal only with the other two prayers namely (a) whether an Order that the Statutory Demand issued by the Respondent Company should wholly set aside, and (b) whether an Order that the Application for Winding Up against the Respondent should be stayed or dismissed.
   

AEPL’S CASE – AFFIDAVIT OF ABDUL JALIL KHAN

9. AEPL does not concede insolvency. Rather, it argues the following things which are set out in the affidavit of Khan.
   
   • (i) that there is a defect in the statutory demand.
   • (ii) that there is a genuine dispute between AEPL and DWCL about the amount of debt to which the demand relates to.
   • (iii) that AEPL is not insolvent
     

Defect in the Demand

10. Khan says that the statutory demand was emailed to him in New Zealand by his accountants, Aliz Pacific, on 13 July 2021. He was in New Zealand at the time. Because the country was under lockdown, he could not instruct AEPL’s lawyers in Fiji to file and obtain a stay order in the Lautoka High Court.
    
11. Later, on 08 September 2021, Aliz Pacific also emailed him the Winding Up application.
    
12. Khan deposes he was caught in the Covid-19 lockdown circumstances in New Zealand at the time. AEPL’s Fiji lawyers were also closed at the time because of similar restrictions in Fiji. Under these circumstances, he was unable to give proper instructions to AEPL’s solicitors until 09 September 2021 when he managed to email them some documents. AEPL’s solicitors responded that
    

“Chamber was not operational and that it could not apply in time to file and apply for stay application in respect of the Demand Notice”.

13. AEPL’s solicitors did manage to speak to DWCL’s lawyers on 18 September 2021 where, according to Khan, the following discussions took place:
    
    • (a) it was confirmed that the application was to be called before the Deputy Registrar at the Lautoka High Court on 04 October 2021 for compliance.
    • (b) DWCL’s counsel had said that the matter would be further adjourned to allow further time for public advertisement of the winding up application.
    • (c) meanwhile, there were two properties of Khan’s/AEPL’s which would be sold off to settle (I quote Khan) “the substantial debt”.
    • (d) it was anticipated that – while court proceedings were being adjourned – the sale of the two properties would proceed to settlement and the sale proceeds would then be applied to settle AEPL’s debt to DWCL after CGT clearance.
      
14. Khan understood from an email of 20 August 2021 by Millbrook Hills Law Partners, DWCL’s solicitors, that DWCL would not take any further action in the winding up proceedings (in particular – would not advertise the application) until after the net proceeds from the sale of the two lots were deposited into Millbrook Hills’ trust account. However, to his surprise, Millbrook Hills went ahead and advertised the application in The Fiji Sun’s issue of 24 September 2021 and also in the Government Gazette.
    
15. On the day of the advertisement, Khan instructed AEPL’s solicitors to place an advertisement about AEPL’s operational status, ability to pay debts, its assets – and the loss of current and future contracts.
    

Genuine Dispute About Debt

16. AEPL does not dispute its indebtedness to DWCL. Khan says that AEPL is making full effort to pay the debt off. However, he says that the Winding Up action is without any justifiable grounds. The company is in a position to pay all its debts and it is not just and equitable to wind it up.
    
17. Khan further highlights that the amount claimed under the Deed and the Statutory Demand and on the application are all different amounts claimed on:
    
    1. Statutory Demand Claim $608,733.00
    2. Debt due under the Deed $616,876.00
    100. Debt shown in the Statement by Applicant Company $566,596.00
    4. Debt claimed in the Petition $623,357.00
       
18. There is a difference of $56,761.00 from the claim filed in the Court therefore the claim is profoundly disputed. He says that the Applicant is misleading this Court.
    
19. Khan also seems to say that the Deed was personally executed by him in a hurry and that although he personally accepted the debt stated therein, the company does not accept it as the company seal was not affixed to the Deed.
    

In hurry I accepted the ‘debt’ personally and signed the Deed but the Company did not acknowledge the debt and the deed was not executed under the Seal as required.

AEPL Not Insolvent & is a Bona Fides in Settling the Debt

20. To establish that it AEPL is not insolvent, Khan relies on the following:
    
    • (a) that AEPL and DWCL did enter into a Deed on 3 October 2020 which shows that AEPL has a bona fide intention to pay off all its debt.
    • (b) AEFL has sold off two of its properties to settle the debt
    • (c) AEPL is pursuing winding up proceedings against its own creditors.
      
21. According to Khan, the claim acknowledged in the Deed was $608,733.16. AEPL agreed to that sum subject to conditions 1.3, 1.5 and 1.6 to raise the funds to settle the debt.
    
22. The two properties were sold off pursuant to the Deed. As of September 2021, instruments of transfer pursuant to the related sale and purchase agreements have been executed and lodged with the Fiji Revenue & Customs Services for CGT clearance. He said he expected to fetch at least $250,000 each for the two properties. However, because of the prevailing market conditions at the time due to Covid-19, he was only able to realise $125,000 each on the two properties. CGT clearance is in process on these sales – following which, he shall proceed to pay DWCPL pursuant to the Deed.
23. Khan deposes that AEPL is also owed $300,000 by a company called Fortech Constructions Pte Ltd and for which there is a pending winding up application (Winding Up Action No. 20 of 2021). The said application was listed for hearing on 02 November 2021.
    
24. Khan further deposes as follows:
    
    • (1) Under terms of 1.6 of the Deed upon instructions to my Company Solicitors in January 2021, I issued recovery proceedings against Fortech Construction Pte Ltd which owed to my Company the sum of $185,337.00 by issuing Statutory Demand Notice dated 22^nd February, 2021 and served on it on 26^th February 2021. This sum upon full recovery has to be paid to the Applicant Company.
      
    • (2) That on 14^th April, 2021 Fortech Construction Pte Ltd upon its failure to apply for stay of proceedings under the Company Act has applied for abridgment of time to the expiry of 21 days to contest the claim.
      
    • (3) I am advised and verily believe that there being no strict time limit to comply with the terms of the under 1.3, 1.5 and 1.6 my Company had made genuine effort so far and is in the process of complying those provisions by selling and setting two personal properties and recovering debt from Fortech Construction Pte Ltd to pay the proceeds of both transactions to the Applicant Company.
      
    • (4) I am further advised and verily believe that my Company is asset rich, and is quite solvent therefore the application by the Applicant Company is to only recover debt which would be paid by my Company given some further time. Under the Deed as already agreed is an abuse of process. The cash flow of the Company is also attached which clearly show that the Company can meet all its obligations. A copy of the self-explanatory assets and liability statement and cash flow chart are attached hereto marked with the letters ‘I’ and ‘J’ respectively.
      
    • (5) My company is in the position to pay for all costs and interests of the debt but due to force – majeure type of situation arising by way of pandemic has caused serious cash flows.
      
    • (6) As part of contracts and agreements that the Debtor and other similar Companies have entered into, such force majeure type conditions would allow such Companies to agree on a period of deferment of liabilities until such time that these Companies are able to resume meeting its obligations.
      
    • (7) I had expected the same from the Applicant Company and understood that by selling the two lots and giving the Applicant Company and giving the Company the proceeds would give the Applicant Company comfort as per the Applicant Solicitor’s email of 20^th August 2021 attached marked ‘A’.
      
    • (8) I am further advised and verily believe that the Winding-Up application by the Applicant Company is premature at this stage and clearly an abuse of the provisions of the Companies Act.
      

WHETHER AN ORDER THAT THE STATUTORY DEMAND ISSUED BY THE RESPONDENT COMPANY SHOULD BE WHOLLY SET ASIDE?

25. Section 516 of the Companies Act provides:
    

516.—(1) A Company may apply to the Court for an order setting aside a Statutory Demand served on the Company.

(2) An application may only be made within 21 days after the demand is so served.

(3) An application is made in accordance with this section only if, within those 21 days—

(a) an affidavit supporting the application is filed with the Court; and

(b) a copy of the application, and a copy of the supporting affidavit, are served on the person who served the demand on the Company.

26. Notably, the time to apply to set aside the statutory demand under section 516 has long lapsed. When a company neglects to apply to set aside a statutory demand, or is unsuccessful in its application to set aside a statutory demand – there is a presumption of insolvency which is raised out of section 513(c) read together with the deeming provision of section 515(a) of the Companies Act 2015.
    
27. In other words, the statutory demand matures into a presumption that the company is insolvent.
    
28. There is nothing in the Companies Act 2015 that gives me a discretion to entertain an application to set aside a statutory demand after the lapsing of the 21-day period stipulated under section 516. Accordingly, I reject the application on this ground.
    

IS AEPL ENTITLED TO RESIST THE WINDING UP APPLICATION ON THE ABOVE GROUNDS SET OUT IN KHAN’S AFFIDAVIT?

29. The short answer to this question is that an AEPL cannot do so unless it had sought and obtained the leave of the court. In this case, AEPL has neither sought nor obtained the leave of the court. I explain the relevant principles and law as follows.
    
30. In this case, AEPL did not apply to set aside the statutory demand within the 21-day period stipulated under section 516. What it is seeking now is an Order to set aside the statutory demand in the winding up proceedings proper.
    
31. In failing to set aside the statutory demand, there is a presumption raised that AEPL is insolvent. Given that there is already in place a presumption that AEPL is insolvent, on account of its failure to set aside the statutory demand, should AEPL be allowed to challenge the winding up proceedings proper on the ground that it is solvent or that the debt is genuinely disputed as set out in Khan’s affidavit?
    
32. Should a company which has, for one reason or another, failed to apply to set aside a statutory demand – and which company, by that very failure –is already presumed to be insolvent - still be allowed to oppose an application to wind up the company on the ground that it is solvent?
    
33. Or, can a company which had applied to set aside a statutory demand – but did not succeed – and which company is therefore presumed to be insolvent – still be allowed to oppose the application to wind up the company in insolvency?
    
34. The general rule is that the presumption of insolvency which accrues from a failure to set aside a statutory demand will prevail until the presumption is rebutted by proof that the company is solvent.
    
35. Having said that, a fortiori that a company is still entitled to rebut the presumption of insolvency at the hearing of the winding up application.
    
36. So – how then might a company which is presumed to be insolvent prove that it is solvent? In particular, can AEPL, which has not set aside a statutory demand, still rely on the argument that there is a genuine dispute about the debt or the amount of the debt to resist the winding up application?
    
37. The normal grounds employed to support an application to set aside a statutory demand are set out in sections 517 which are:
    
    • (a) that there is a genuine dispute between the Company and the respondent about the existence or amount of a debt to which the demand relates (section 517(1)(a)).
    • (b) that the Company has an offsetting claim (section 517(1(b)).
    • (c) that there is a defect in the demanbstantstantial injustice will be caused unless the demand is set aside (section 517(5)(a)).
    • (d) there is some other reason why the demand should be set aside (section 517(5)(b)).
      
38. Having said that, section 529 (1)(a) of the Companies Act 2015 precludes a company from using the same grounds above to oppose a winding up application unless the court has granted leave and that the court will only grant leave if it is satisfied that the ground is material to proving that the company is solvent. In other words, if the ground will assist the company in rebutting the presumption of insolvency:
    

Company may not oppose application on certain grounds

529.—(1) In so far as an application for a Company to be wound up in Insolvency relies on a failure by the Company to comply with a Statutory Demand, the Company may not, without the leave of the Court, oppose the application on a ground—

(a) that the Company relied on for the purposes of an application by it for the demand to be set aside; or

(b) that the Company could have so relied on, but did not so rely on (whether it made such an application or not).

(2)The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the Company is Solvent.

39. When section 517(1)(a) and (b) and section 517(5)(a) and (5)(b) are read together with section 529(1)(a) and (b) and section 529(2), it means:
    
    • (a) if there is a genuine dispute about the existence of a debt, or if there is an offsetting claim, or there is an alleged defect in the statutory demand, or if there will be substantive injustice if the statutory demand is not set aside - then a company must raise these things at statutory demand stage.
      
    • (b) in other words, these things should be raised and resolved then as they are material in whether the statutory demand should prevail – bearing in mind that if the demand prevails – then it will carry with it the presumption of insolvency.
      
    • (c) a company which does not apply to set aside the statutory demand within the 21-day strict time limit set out in section 516, or having so applied, has been unsuccessful in its application to set aside the statutory demand – cannot – at the subsequent winding up application - rely on the existence of a genuine dispute about the debt, or on an alleged offsetting claim, or on an alleged defect in the demand, or an argument that substantial injustice will be cause if the demand is not set aside.
      
    • (d) however, if, at the subsequent winding up application, such a company as described in (a) above wishes to rely on any of the grounds stated above, the company must first seek and obtain the leave of the court under section 529(1).
      
    • (e) the court will only grant leave if it is satisfied that the ground is material to proving that the company is solvent.
      
    • (f) hence, for example, the existence of a genuine dispute about the debt or an offsetting claim should, strictly, only be allowed to be raised as a ground to set aside a statutory demand – that is – to stop the raising of a presumption of insolvency which inevitably arises when a statutory demand is not set aside.
      
    • (g) however – at the subsequent winding up proceedings proper – which only happens if a statutory demand has not been set aside and, consequentially – where a presumption of insolvency subsists – the company may still rely on an argument that there is a genuine dispute about the debt or that there is an offsetting claim – to rebut the subsisting presumption of insolvency (section 529(2)) – provided of course that the company first seeks the leave of the court.
      
    • (h) the Court, of course, will only grant leave if it is satisfied that the alleged genuine dispute about the debt or that the alleged offsetting claim is material to proving that the Company is solvent (section 529(2)). The question is – do these grounds – if they exist - explain why the debt has not been paid?
      
    • (i) in other words, at the hearing of the winding up proceedings proper – it is still open to the company to rebut the presumption of insolvency by relying on any of the above grounds – provided leave has been sought and obtained.
      

WHETHER AN ORDER AN ORDER THAT THE APPLICATION FOR WINDING UP AGAINST THE RESPONDENT SHOULD BE STAYED OR DISMISSED

40. Sections 523 and 524 of the Companies Act give the court a wide discretion to make any order it deems fit at the hearing of an application for winding up. I am of the view that the wide discretion given to the court must include the power to adjourn or stay the winding up proceedings so as to enable any dispute about the debt or offsetting claim to be determined in separate proceedings (see section 523(1)(b) or (c) – section 524).
    
41. As I have said, given that it is still open to the company to rebut the presumption of insolvency by relying on any of the grounds stated above – provided leave has been sought and obtained, it would appear that the court has power to dismiss a winding up application if it is of the view that the company has rebutted the presumption of insolvency.
    
42. However, in this case, as I have said above, the evidence and grounds upon which AEPL relies to rebut the presumption of insolvency, is caught under section 516 of the Companies Act. Furthermore, AEPL has not sought the required leave under section 516.
    
43. Accordingly, I must dismiss the application.
    

Assuming Leave Had Been Granted

44. Had AEPL sought and obtained leave under section 516, the next question would have to be whether or not the evidence supports a finding that the company is solvent and whether there is a genuine dispute about the debt.
    
45. To determine these issues, it would be totally within the court’s discretionary powers as I have said above (see section 523(1)(b) or (c) – section 524) to adjourn the winding up proceedings to enable these issues to be resolved in separate proceedings.
    
46. However, there is nothing in the affidavit of Khan that seriously disputes the debt. The Deed itself acknowledges a debt of $608,733.16 as I have set out above in paragraph 21. As such, it is open to this court to construe AEPL’s failure to settle the sum in full as evidence of its inability to do so.
    
47. Khan also deposes in his affidavit that AEPL genuinely wants to settle the debt and has taken steps to do so.
    
48. Considering that, I ask whether or not it is open to this Court to adjourn the application for a little while so as to give AEPL an opportunity to settle the debt in full.
    
49. There is nothing in the Companies Act 2015 that provides that the Court does not have that discretion. I am of the view that where the interests of justice requires, the court may exercise its discretion accordingly (see Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (Receivers and Managers Appointed) [2011] HCA 18 (1 June 2011 for an excellent discussion on how the Australian High Court has dealt with the same issues especially the point about separating the dispute from the winding up proceedings).
    

COMMENTS ON HOW THE WINDING UP PROCEEDINGS HAD PROCEEDED

50. DWCPL has instituted these winding up proceedings purely on the ground of insolvency. DWCPL has the benefit of the presumption of insolvency created by the deeming provision of 515(a) of the Companies Act 2015 in consequence of AEPL’s failure to comply with the statutory demand served by DWCPL.
    
51. On 04 October 2021, Millbrook Hills filed a List of Person attending the hearing of an application. The said list contains the names of two only creditor companies. Both are also represented by Millbrook Hills. When the matter was first called before me on 04 October 2021, Mr. Nand appeared on instructions from Messrs. Vijay Maharaj and informed this Court that the parties had come to a Deed of Agreement. This was confirmed by Mr. Lagonilakeba that his firm had received an offer of settlement. I then adjourned the case to 12 January 2022 for mention to see if the parties have completed settlement.
    
52. On 12 January 2022, Mr. Nand again appeared for the Company and Mr. Chandar for the Petitioner and Supporting Creditors.
    
53. Mr. Nand again sought an adjournment to see if the matter is settled. Mr. Chandar however informed the Court that Vijay Maharaj has a pending application to set aside statutory demand, which application is misconceived as it was outside the 21 day period.
    
54. He submits that since the application to set aside is out of time and the Respondent has not filed an application seeking leave under section 529 of the Companies Act 2015, the Court is duty bound under the Act to determine the Winding Up application within 6 months.
    
55. Mr. Chandar advised the Court that the Company has settled $100,000.00 in payment, leaving a balance of $421,089.21.
    
56. On 28 February 2022, Mr. Nand again appeared on instructions of Vijay Maharaj and advised the Court that his Principal has filed a Supplementary Affidavit disputing the balance owing. They also submit that the 6 months has expired. I then adjourned the matter for hearing to 07 March 2022. However on 01 March 2022, Vijay Maharaj filed a Summons seeking extension of time to file a Supplementary Affidavit.
    
57. At the hearing on 07 March 2022, Mr. Nand’s argued as follows:
    
    1. the Company is still solvent.
    2. after the Demand Notice was issued by the Applicant, a Deed was entered into between the parties to make arrangement for the payment of the amount in debt.
    100. once the Deed is entered into, it negates the statutory demand served.
    4. the Applicant has paid some monies pursuant to the said Deed.
    5. but there is a dispute as to the balance owing.
    6. the amount acknowledged under the Deed, in total is $608,733.00. The amount in the statutory demand is $616,876.00.
    7. there has been some payments following the Deed which further reduces the balance owing to $566,595.00 as at 30 July, 2021.
    8. since the Deed is there, the applicant should since on the Deed or issue a fresh Statutory Demand.
    9. section 528 (1) grants the Court to extend time if there are special circumstances.
       

CONCLUSION

58. I bear in mind the statutory objective that winding up applications are to be determined within six months. The winding up proceedings were filed on 04 October 2021. The six months would have lapsed on 04 April 2022 which was on Monday last week. Section 528 provides that an application “is to be determined within six months”. However, the Court may by order, extend that time if special circumstances justify the extension provided the order for extension is made within the six months period.
    
59. I am inclined to extend the time as I consider that special circumstances exist in this case. When this matter was heard on 22 March 2022, the six month period had not run out. After the hearing, the matter was then adjourned to 07 April 2022 for Ruling. I note that the 07 April 2022 as fixed by the Court was just barely out of the six month period.
    
60. Having said that, I realise that section 528 requires that an order for extension be made within the six month period. How do I deal with this?
    
61. In this case, the applicant had applied on time and the hearing was also done within time. The company had contributed to some delay by meandering about settling the debt which it clearly acknowledges. This caused some delay in the determination of these proceedings. In the circumstances, I am of the view that this Court has a discretion to step in to preserve the integrity of the processes which the applicant has set in motion in these proceedings. In saying that, I take into account that the ruling date had been set by the court inadvertently with oversight of the fact that the date set would take this judgement to barely a week out of the six months provision. Considering that, I rely on the principle of nunc pro tunc ("an act done retrospectively so as not to prejudice a party- what should have been done then could be done now by court") – with all the necessary time adjustments (Southwick v State [1997] FJCA 5; Aau0020u.96s (14 February 1997). Accordingly, I extend the time for determination of this matter from 04 April 2022 to 12 April 2022.
    
62. Considering all, I grant an order that the company be wound up and that the Official Receiver be appointed provisional liquidator. However, considering that the company appears to bona fides in settling the debt acknowledged in the Deed, that these winding up orders are to take effect after a period of one month to allow the company time to settle its debt as acknowledged in the Deed.
    

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Anare Tuilevuka

JUDGE

Lautoka

12 April 2022