In re Mosbi Glass and Aluminium [2012] PGNC 238; N4925 (7 September 2012)

N4925

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

MP No. 75 OF 2012

IN THE MATTER OF THE COMPANIES ACT 1997
AND
IN THE MATTER OF MOSBI GLASS AND ALUMINIUM LIMITED

Waigani: Sawong, J.
2 012: 13th July, 07th September

COMPANIES ACT – Liquidation – Application for termination of liquidation – Application by a director, s300 Companies Act – factors for consideration – Application refused.

Cases Cited:
Web Kilip in the matter of Kamsi Trading Limited in (2005) SC784
Cakara Alam (PNG) Limited (In liquidation) (2009) N4054

Counsel:
J Tandawa, for the Applicant
E Rere, for the Judgment Creditor

07th September, 2012

1. SAWONG, J: Introduction: Moresby Glass & Aluminum Limited (Moresby Glass) was put into liquidation by order of this Court on 25th May, 2012 and Mr James Kruse was appointed its liquidator.

2. Mr. Francis Toropoi, a director of Moresby Glass applies to the
Court for the liquidation to be terminated pursuant to s.300 (2) of the Companies Act. The application is opposed by the petitioning creditor.

3. The parties have filed written submissions. I have read and considered all the affidavits and the written submissions filed in respect of each of the parties.

4. The main grounds relied upon for the termination of the liquidation are:

1. That it is just and equitable to terminate the liquidation.
   
2. That Moresby Glass is solvent and that it can pay its debts as and when they fall due.
   

100. There has been a delay in the shipment of supplies from overseas suppliers.
     

4. The Director's have been busy with other matters involved in the company.
   
5. Other clients of the company did not pay for the work carried out by the company and as such the judgment creditors debt could not be settled.
   
6. The company has the capacity to repay the debt owed to the judgment creditor and other creditors.
   
7. The company has been awarded projects that would enable the company to have the capacity to repay the debts owed to all creditors.
   
8. There was a shortfall in payments by clients and bad timing resulted in the orders for liquidation.
   

5. The judgment creditor opposes the application for termination on grounds that:

1. No notice of the application has been given to all creditors and contributors.
   
2. There is no information given on the nature and extend of the creditors shown and whether all debts have been or will be discharged.
   

100. The attitude of creditors, contributors and the liquidator
     

4. The current trading position and general solvency of the company should be demonstrated, solvency being of significance.
   
5. Any non-compliance by Directors with their statutory duties should be explained, there is no background information and circumstances provided to the court but let to the order of the liquidation being made.
   

6. From the submissions number of issues have arisen for consideration. These are:

1. Whether or not the applicant has standing to make his application pursuant to s. 300 (2) of the Company's Act.
   
2. Whether or not a liquidation order can be terminated under section 300 (2) of the Company's Act 1997.
   
3. Whether or not there are just and equitable reasons available pursuant to s. 300 (2) of the Company's Act to terminate the present liquidation.
   

7. I now consider each of these issues. The first issue is whether the applicant has standing to make this application.

8. The issue requires the consideration of the relevant provision of the Companies Act. The application relies on Section 300 (2) of the Act. It is necessary to set out Section 300 in its entirety. It reads:

"Section 300

Court may terminate liquidation.

1. The Court may, at any time after the appointment of a liquidator of a company, if it is satisfied that it is just and equitable to do so, make an order terminate the liquidation of the company.
   
2. An application under this section may be made by the liquidator, or a director or shareholder of the company, or any other entitled person, or a creditor of the company, or the Registrar.
   
3. The Court may require the liquidator of the company to furnish a report to the Court with respect to any facts or matters relevant to the application.
   
4. The Court may, on making an order under Subsection (1), or at any time thereafter, make such other order as it thinks fit in connection with the termination of the liquidation.
   
5. Where the Court makes an order under this section, the person who applied for the order shall, within one month after the order was made, submit a certified copy of the order to the Registrar for registration.
   
6. Where the Court makes an order under Subsection (1) the company ceases to be in liquidation and the liquidator ceases to hold office with effect on and from the making of the order or such other date as may be specified in the order.
   
7. Every person who fails to comply with Subsection (5) commits an offence and is liable on conviction to the penalty set out in section 413(2)."
   

9. Section 300(2) of the Act prescribes authorities who may be qualified or have standing to bring an application to the Court to terminate a liquidation. These people include a liquidator, a director, a shareholder of the company, any other entitled person, a creditor or the Registrar of Companies. It is clear that a director is one of those persons authorized by Section 300(2) of the Act to make an application to the Court to terminate a liquidation.

10. This provision has been judicially considered in a number of cases in this jurisdiction. In Web Kilip and in the matter of Kamsi Trading Limited ( 2005) SC 784 the Supreme Court following review of the English, Australian and New Zealand authorities set out some factors for consideration in determining whether it is just and equitable to terminate a liquidation. These factors are:

1. Whether notice of the application has been given to all creditors and contributories.
   
2. The nature and extend of the creditors must be shown and whether all debts have been or will be discharged.
   

100. The attitude of creditors, contributories and the liquidator.
     

4. The current trading position and general solvency of the company should be demonstrated, solvency being of significance.
   
5. Any non-compliance by directors with their statutory duties should be explained, and the background and circumstances that led to the order for the liquidation being made.
   
6. The nature of the business carried on should be demonstrated and whether the conduct of the company was in any way contrary to commercial morality or public interest.
   

11. These factors were considered and applied subsequently by Hartshorn, J. In the matter of the Company's Act and in the matter of Cakara Alam (PNG) Limited (in liquidation) (2009) N4054. There his Honour said section 300 (1) of the Company's Act confers upon the court the discretion to terminate the liquidation of a company if it is satisfied that it is just and equitable to do so.

12. I now turn to consider the issues I have posed earlier.

13. As to the first issue there is no question that a director of the company under liquidation has the standing to make an application to terminate the liquidation. see S. 300 (2).

14. As to whether it is just and equitable to terminate the liquidation, this calls for the exercise of the court's discretion. Just like any other exercise of discretion the court must exercise that discretion on proper principles and on proper basis or grounds. The factors to be taken into consideration in exercising that discretion are set out in the cases that I have referred to earlier. I would adopt those factors as relevant considerations in determining this particular issue in this case. I now consider each of these factors:

1. Notice of application.
   

There is no evidence that all or any creditors, (apart from the judgment creditor) and contributories have been served or notified of this application. As to the nature and extent of creditors, there is evidence of the creditors that have been ascertained by the liquidator and their debts. The affidavit of James Kruse filed 2nd July, 2012, and annexes his initial report dated 20th June 2012 which provides that a total of 18 creditors have registered claims against the company totaling K163,516.63.

2. Attitude of creditors and contributors.
   

The judgment creditor and the appointed liquidator has given the volume of debts as against the prospect of being paid do not support the termination of the liquidation. The other creditors and contributors have not been notified of this application. Obviously they would need to be convinced that terminating the liquidation would be to their advantage. The applicant has failed to address creditors concerns so it is very doubtful that creditors are supportive of this application.

100. Current trading position and general solvency of the company.
     

The solvency test requires that the company must be able to pay it's creditors as and when debts fall due and the company's assets must exceed its liabilities. The evidence from the liquidator confirms that the liabilities of the company substantially exceed the value of its assets. The liquidator is yet to determine the full extent of all liabilities including professional claims and unsecured creditors.

Mr Tropoi's evidence attempts to explain that the company is solvent. It annexes what appears to be a copy of a bank statement showing a balance of K24,148.46 as well as copies of cheques that he claims to have deposited into the company's account. Based on that he deposes that the company is solvent. However, the investigation to date by the liquidator Mr James Kruse states in evidence that the company is and was at the date of his appointment in solvent on the balance sheet as and the cash flow cashed and was unable to pay debts as and when they fell due. The conclusion to make on this point is that on balance the company is clearly insolvent.

4. Non compliance with statutory duties.
   

Section 112 (1) of the Company's Act provides that the directors shall act in good faith and in the best interest of the company. The evidence from Mr Tropoi is that the directors either ignored or did not seriously consider the importance of and failed to respond appropriately in anyway to the petition issued against the company. Mr Tropoi's affidavit filed on the 13th of June 2012 states quiet clearly that he as a director did not have time to attend to the statutory demand or the petition. This to my mine points to the conclusion that the directors did not act in good faith and in the best interest of the company. Furthermore section 115 of the Act provides the directors owe a duty of care to exercise care, diligence and skill as a director in respect to the nature of the company it's decision and position as director and the responsibilities that come with being a director. The evidence from Mr Tropoi is clear that there have been non compliance by the directors both before and after the liquidation order was made.

5. Circumstances of Liquidation.
   

This then leads me to the issue of the circumstances of liquidation order. It is clear from the evidence filed on behalf of the petitioner, ie the affidavit of service of Emmanuel filed 19th April 2012 demonstrate that all documents relating to the petition were served on the registered office of the company. This included the statutory demand dated 22nd of February 2012 which was in factors to be served on the director, one Iana Boromu on the 22nd of February 2012. Circumstances of the liquidation order demonstrates that there were non caring attitude and discharge of their duties and responsibilities as directors led to the liquidation order.

Neither the company nor its directors responded to any letter or court documents served on it, save only one letter requesting a 10 – 14 days extension to cater for the performance of the task.

The judgment creditor allowed this extension in good faith but the company again failed to complete the work of either judgment creditor. There is evidence that Mr Francis Tropoi was firstly served with the affidavit of compliance on the 22nd of May 2012. He actually did nothing on behalf of the company. See the affidavit of service of Segodi Maraga sworn 23rd May 2012. The only action taken by the directors was after the liquidation order was made on the 25th of May 2012. After that event, the directors engaged lawyers to contact the judgment creditor in an attempt to have the liquidation order withdrawn but at that stage a liquidator had already been appointed by the court.

In summary then, it is clear from the evidence that neither the directors, shareholders nor the company took any positive step required of each of them when the proceedings were initiated by the service of the statutory demand. These careless attitude continued pre and post continued liquidation orders being made.

6. Nature of business carried on.
   

There is no evidence of the nature and type of business activity the company is carrying on if any.

In my view there is no evidence as to how the business is carried out by the company. The affidavit of Francis Tropoi filed 13th June 2012 refers to evidence stating that the company is expecting payments, how much it is owed, current jobs and has been awarded jobs etc. This piece of evidence are unsubstantiated. There is no signed contracts or acknowledgement letters proofing awards of such projects to the company. The affidavit of James Kruse filed on the 22nd of July 2012 states that no assets have been realized by the liquidator thus far, apart from the assets being identified by the liquidator soon after his appointment. The annexure to the affidavit of Mr Tropoi filed on 13th of June 2012 refers to alleged arrangement with creditors in respect to the repayment of debts. There are no verified evidence illustrating this arrangements.

7. Non compliance by directors of statutory duties.
   

In addition, the affidavit of James Kruse filed 2nd July 2012 provides evidence that the company has failed to comply with Income Tax Act 1959 and the Goods and Services Tax Act 2003. And that no proof of goods and services tax has been paid to the Internal Revenue Commission. In my opinion non payment of taxes is conduct contrary to corporate morality and public interest it is not in the interest of the public to let an insolvent company re-enter the world of commerce and operate in the market place. It poses danger not only to the existing creditors but to new and potential creditors. It follows that the court has a duty to protect the public from insolvent companies. See In the matter of Company's Act 1997, in the matter of an Application by James Simpton Spence, liquidator of Sepik Coffee JV Ltd (2007) N3223.

15. The applicant in my view has failed to demonstrate with relevant evidence that it is just and equitable for the liquidation to be terminated. The applicant has not satisfied any of the considerations to justify terminating the liquidation.

16. For the reasons that I have given and in exercise of the court's discretion, I refuse to grant the application.

17. My formal orders are:

1. that the application by Francis Tropoi to terminate the liquidation is dismissed.
   
2. that the Applicant shall pay the cost of the liquidator, to be agreed, if not to be taxed.
   

_____________________________________
Manu & Associates: Lawyer for the Appellant
Allens Arthur Robinson Lawyers: Lawyer for the Liquidators