Star Ships (PNG) Ltd (1-50175), In re. [2016] PGNC 357; N6580 (31 October 2016)

N6580
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

MP (COMM) 34 OF 2016

BETWEEN:
IN THE MATTER OF THE
COMPANIES ACT 1997

AND:
IN THE MATTER OF STAR SHIPS
(PNG) LIMITED (1-50175)

Waigani: Hartshorn J
2016: 20^th, 31^st October

Petition for the Appointment of a Liquidator

Cases cited:

Nathaniel Poya v. Rex Paki (2008) N3535

Counsel:

Mr. B. Nutley, for the Petitioner
Ms. J. Maribu ,for the Company

31^st October, 2016

1. HARTSHORN J: This is a decision on a contested application for the appointment of a liquidator of Star Ships (PNG) Limited (SPL). It is made by the petitioner, Niugini Oil Services Limited (NOSL).
   
2. NOSL served SPL with a statutory demand dated 28^th April 2016 on 3^rd May 2016. The statutory demand is in respect of a judgment debt and interest owed by SPL to NOSL. The judgement was ordered by the National court on 2^nd March 2016. The amount of the judgment debt is K460,521.79 and the amount of the interest is K313,205.28. The total sum owing is K773,727.07.
   
3. Payment was not made by SPL and so NOSL filed this petition on 1^st July 2016 on the ground amongst others that SPL is unable to pay its debts as they become due in the ordinary course of business. Section 291(3) Companies Act provides that:
   

“The Court may appoint a liquidator where it is satisfied that-
(a) the company is unable to pay its debts as they become due in the ordinary course of business; or.....”

4. Various evidence by way of affidavit have been filed in support of the petition concerning amongst others, verification of the petition, the judgment debt owed, a company search of SPL, the gazettal and publication of the petition, the service of the statutory demand and petition, the consent of a person to be liquidator of SPL and a compliance certificate of the Registrar of the National Court.
   
5. Counsel for SPL did not take issue with this evidence but informed the Court that SPL disputed that it owed the debt. It was conceded however that SPL has not had the statutory demand set aside pursuant to s. 338 Companies Act and no longer has the benefit of a stay of these proceedings by the Supreme Court.
   
6. As NOSL filed its petition on 1^st July 2016, pursuant to s. 336(1) Companies Act, evidence of failure to comply with a statutory demand is admissible as evidence that SPL is unable to pay its debts as they become due in the ordinary course of business. Mr. John Gourley, the General Manager of NOSL has given evidence that amongst others, SPL has failed to comply with the statutory demand.
   
7. Pursuant to s. 335(a) Companies Act, unless the contrary is proved, and subject to s. 336, a company is presumed to be unable to pay its debts as they become due in the ordinary course of business where the company has failed to comply with a statutory demand.
   
8. SPL relied on the evidence contained in the affidavit of Mr. Bhaskar Ramamoorthy to prove that amongst others, SPL is able to pay its debts as they become due in the ordinary course of business. This affidavit was filed in proceeding MP 33 of 2016 which concerns a petition for the liquidation of a related company, Rabaul Shipping Limited. Counsel for NOSL objected to the use of this affidavit on the basis that amongst others, a separate affidavit should have been filed in this proceeding and SPL could not rely on those parts of the affidavit that in effect disputed the debt owed to NOSL as a court has already ordered judgment and so the issue of whether the debt is disputed has already been determined. Further, the statutory demand the subject of this petition has not been set aside. In addition, objection was taken to the qualifications of Mr. Ramamoorthy to be able to attest to the solvency of SPL as he is not a full-time employee or accountant of SPL and is not a registered member of the Institute of accountants in Papua New Guinea or a certified practising accountant of Papua New Guinea or Australia. It was then agreed that the affidavit of Mr. Ramamoorthy would be allowed into evidence on behalf of SPL but on the basis that I would decide what weight should be given to that evidence. In this regard, as to the evidence of Mr. Ramamoorthy to the effect that the debt to NOSL is in dispute, I do not give it any weight for the reasons submitted by Counsel for NOSL. This Court has already determined that issue and the statutory demand has not been set aside.
   
9. On the issue of whether SPL is able to pay its debts as and when they fall due, Mr. Ramamoorthy attests at paragraph 28:
   

“By virtue of the fact that RS’s assets exceed its liabilities it is solvent in my professional opinion. Apart from the judgement debt obtained by NOC, the company is able to pay its debts as and when they fall due. I am aware RS has made an offer to pay off the judgement debt at the rate of K20,000 per month.

29. Based on the companies financials and imposing some cost savings in the employment services, legal and travel areas over the next half year I am of the view that the company has the capacity to make those payments if that becomes necessary.”

10. At paragraph 22 of his affidavit Mr. Ramamoorthy attests that amongst others, that there is one consolidated balance sheet and profit and loss statement prepared for the Rabaul shipping companies. “There is no separate balance sheet for Starships (PNG) Limited or for RS.”
    
11. It is not clear therefore, when Mr. Ramamoothy attests as to “the company” or “RS”, whether he is attesting as to the company or RS or the Rabaul Shipping Group of Companies or SPL. I will assume that for the purpose of this proceeding he is attesting as to Star Ships (PNG) Limited given that SPL is the subject of this proceeding.
    
12. As to Mr. Ramamoorthy attesting that SPL is able to pay its debts as and when they fall due, “apart from the judgement debt obtained by NOC”, this can be read to mean that when the judgment debt obtained by NOC is taken into account, SPL is not able to pay its debts as and when they fall due. This interpretation is supported by Mr. Ramamoorthy’s next statement to the effect that SPL has the capacity to make payments of K 20,000 per month, if certain cost savings are imposed. So if certain cost savings are not imposed, SPL would not have the capacity to make payments of K20,000 per month.
    
13. To my mind, the evidence of Mr. Ramamoorthy is not sufficient to prove on the balance of probabilities that SPL is able to pay its debts as they become due in the ordinary course of business. That Mr. Ramamoorthy’s professional opinion is that as SPL’s assets exceed its liabilities, it is therefore solvent, does not answer this ground upon which the petition is brought.
    
14. I am satisfied that the evidence of Mr. Ramamoorthy has not negated the presumption that SPL, by not complying with the statutory demand, is unable to pay its debts as they become due in the ordinary course of business. Indeed, Mr. Ramamoorthy’s evidence can be taken as support of this ground upon which the petition is brought. This court is able to place SPL into liquidation on the evidence before it on the ground that it is unable to pay its debts as they become due in the ordinary course of business.
    
15. As to whether this court should appoint a liquidator pursuant to the discretion conferred upon it in s. 291(3)(a) Companies Act, SPL requested this court to consider that the Rabaul Shipping Group employs 130 persons. They would likely lose their employment if a liquidator was appointed. Further, the cargo and passenger services operated by the Group would cease leaving only one operator. Consequently, disadvantaged groups in society would suffer. In addition it was submitted that the assets of SPL substantially outweigh its liabilities and it is solvent.
    
16. First, as to SPL’s assets outweighing its liabilities, and as to its solvency, those aspects are not the grounds upon which this petition is brought. Secondly, if solvency is to be considered, s.4 Companies Act relevantly is as follows:
    

“4. Meaning of "solvency test".
(1) For the purposes of this Act, a company satisfies the solvency test where—
(a) the company is able to pay its debts as they become due in the ordinary course of business; and
(b) the value of the company's assets is greater than the value of its liabilities, including contingent liabilities.”

17. Further, I note the comments of Gabi J. in Nathaniel Poya v. Rex Paki (2008) N3535. That case concerned an application to terminate a liquidation but His Honour’s comments as to solvency are pertinent. At p10, His Honour said:
    

“11. Solvency is an important consideration in an application to terminate liquidation. The question is whether the company meets the solvency test. There are 2 requirements: First, the company must be able to pay its creditors as the debts fall due. Second, assets must exceed liabilities. Both requirements must be met for a company is said to be solvent (see In the matter of an application by Agmark Pacific Ltd and James Sinton Spence Liquidator of Sepik Coffee J.V. Ltd (In Liquidation) (2007) N3223)...”

18. I am satisfied that on the above definition of the solvency test, as I am of the view that SPL is unable to pay its debts as they become due in the ordinary course of business, SPL does not meet the solvency test.
    
19. As to the effect upon the employees of SPL if it is placed into liquidation, the Companies Act makes provision for employees in the event of a liquidation. If as submitted on behalf of SPL, its assets outweigh its liabilities, its employees will be adequately provided for as the law intends. In regard to the submission that disadvantaged groups in society will suffer if SPL is placed into liquidation as they would no longer be able to use the less costly shipping services presently offered by SPL, that such a result may occur is not justification for a court to permit a company not to be placed into liquidation when according to law it otherwise should be.
    
20. In circumstances where proceedings to recover the debt the subject of the petition were commenced in late 2008 and SPL has had since then to make provision for the debt notwithstanding that it was disputed, that the statutory demand the subject of this petition has not been set aside, there is no evidence of a compromise being made by SPL pursuant to Part XV Companies Act, the evidence given on behalf of SPL is amongst others, to the effect that it is unable to pay its debts in the ordinary course of business if it includes the debt to NOSL the petitioner, that it does not have the capacity to make the settlement payments that it has proposed unless various cost savings are imposed, that it does not satisfy the solvency test in s.4 Companies Act and further, that there is evidence that the Supreme Court has refused to stay this petition, I am satisfied that this court should exercise its discretion in favour of granting the relief sought by NOSL. Given this it is not necessary to consider the other submissions of counsel.
    

Orders

21.
a) Star Ships (PNG) Limited is placed into liquidation;

b) Andrew Pini is appointed the liquidator of Star Ships (PNG) Limited on 31^st October 2016 at 10.00 am;

c) Star Ships (PNG) Limited shall pay the costs of the petitioner of and incidental to this petition.

_____________________________________________________________
O’Briens Lawyers : Lawyers for the Petitioner
Solwai Lawyers : Lawyers for the Company