Independent State of Papua New Guinea v Independent Timbers & Stevedoring Ltd (1-50093) [2020] PGNC 231; N8499 (11 September 2020)

N8499

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

MP(COMM) NO. 12 OF 2020

IN THE MATTER OF THE COMPANIES ACT 1997

AND:

INDEPENDENT STATE OF PAPUA NEW GUINEA
Petitioner

V

INDEPENDENT TIMBERS & STEVEDORING LIMITED (1-50093)
Respondent

Waigani: Anis J
2020: 10^th & 11^th September

NOTICE OF MOTION – application to appoint 2 interim liquidators – s. 296(1) – Companies Act 1997 – tests – whether ‘necessary’ or ‘expedient’ – other considerations where the Court may exercise discretion – considering evidence and facts – exercise of discretion

Cases Cited:
Papua New Guinea Cases

Commercial Pacific Lumber Export Pty Ltd, Re [1971] PNGLR 178
Sunset Rentals Ltd v. Pacific View Apartments Ltd (2020) SC 1994

Overseas Case

Robert Bryce & Co. Limited v. Chicken & Food Distributors Ltd (1990) 5 NZCLC 66,648

Counsel:

Mr M Adadikam, for the Petitioner
Mr P Lowing with counsel assisting Ms P Andrew, for the Respondent

RULING

11^th September, 2020

1. ANIS J: The petitioner, on the date of filing its petition, also applied for orders to appoint interim liquidators against the respondent company. The application was contested. It was heard yesterday on 10 September 2020. I reserved my ruling to today at a time to be decided.

2. Parties have been notified so I will rule on it now.

BACKGROUND

3. Briefly, the petitioner seeks the appointments of interim liquidators based on allegations raised in its petition but perhaps more importantly in relation to recent events which it claims necessitates the urgency of the present application. Its claim is this. It says monies that belong to the respondent which are currently held under the custody of a sole arbitrator named Albert Jan van den Berg (the arbitrator) in Singapore in an arbitration proceeding that is pending before the Singapore International Arbitration Centre (SIAC), are about to be released to the respondent. Therefore, it seeks to secure the said funds by the appointment of the interim liquidators before the funds are paid to the respondent. The arbitrator was appointed in December of 2014. His role was to arbitrate a contractual dispute which had occurred between the petitioner, the respondent, and the Fly River Provincial Government. The dispute that had arose relates to a road and related projects agreement described as Gre-Drimgas-Duara-WoiWoi Falls Road that was said to have been signed between the 3 parties on 23 May 2011 (the purported project agreement). It appeared that due to certain obligations not met under the purported project agreement, the project was delayed for some years. In 2014, the respondent commenced proceeding in the SIAC. The petitioner responded by filing a proceeding in the National Court, which was proceeding OS No. 824 of 2015. It sought relief which included orders to permanently stay the arbitration proceeding. On 19 October 2018, the National Court dismissed the proceeding. The petitioner appealed the decision to the Supreme Court, which was under proceeding SCA No. 187 of 2018. On 20 February 2020, the Supreme Court upheld the appeal. In so doing, it also awarded costs of (i), the arbitration, (ii), the National Court and (iii), the Supreme Court, in favour of the petitioner with orders for their taxation.

4. The petitioner has recently learnt that the arbitrator, in light of the Supreme Court’s decision, is about to put an end to the arbitration proceeding in Singapore, and return the funds that had been deposited by or on behalf of the respondent, to the respondent. That is why it has filed the petition and the present urgent application.

NOTICE OF MOTION

5. The notice of motion was filed on 3 September 2020. The main relief is pleaded under term 2. It reads:

Pursuant to Section 296(1) of the Companies Act and Order 12 Rule 1 of the National Court Rule 1983, pending the determination of the Petition and/or further Order of the Honourable Court, the Respondent be put into interim liquidation with David Murray and Gil Grinberg of Deloitte appointed as interim liquidators.

6. The petitioner relies on various affidavits, including (i), 2 affidavits of Daniel Rolpagarea both filed on 3 September 2020, (ii), affidavit of Basil Talonu filed on 3 September 2020, and (iii), affidavit of Violet Barreng filed on 10 September 2020. The respondent on the other hand relies on 2 affidavits of Priscilla Andrew filed on 9 and 10 September 2020, respectively.

SOURCE

7. Section 296 of the Companies Ac 1997 (the Companies Act) reads:

(1) Where an application has been made to the Court for an order that a company be put into liquidation, the Court may, if it is satisfied that it is necessary or expedient for the purpose of maintaining the value of assets owned or managed by the company, appoint a named person as interim liquidator.

(2) Subject to Subsection (3), an interim liquidator has the rights and powers of a liquidator to the extent necessary or desirable to maintain the value of assets owned or managed by the company.

(3) The Court may limit the rights and powers of an interim liquidator in such manner as it thinks fit.

ISSUES

8. The main issue in my view is this, whether the petitioner has convinced this Court to the extent that it is satisfied that it is necessary or expedient for the purpose of maintaining the value of assets owned or managed by the company, that this Court should appoint the 2 named interim liquidators.

PETITION

9. I firstly refer to the petition. It was filed on 3 September 2020. The reasons stated for seeking orders to liquidate the respondent are pleaded at paragraph 47. It reads:

(a) Pursuant to Section 291(3)(a) of the Companies Act the company is not capable of paying its debts as they become due.

(b) Pursuant to Section 291(3)(b) the company has persistently and seriously failed to comply with the Companies Act and Regulations by:

(i) Falsely declaring its solvency in annual returns over a multi-year period.

(ii) Failed to maintain a resident director for a multi-year period.

(iii) Trading and incurring multi-million kina debts while insolvent for a multi year period.

(c) Pursuant to Section 291(3)(d) it is just and equitable that the Company be put into liquidation by the Court.

APPLICATION OF DISCRETION/CONSIDERATIONS

10. In view of s. 296(1) of the Companies Act, the Court’s power is discretionary in this regard. I also note that the relief sought is interlocutory in nature.

11. Let me turn to the case law for assistance. I must say that I am grateful for counsel Mr. Adadikam in providing various case authorities to assist the Court. Of relevance, in my view, is the case, Commercial Pacific Lumber Export Pty Ltd, Re [1971] PNGLR 178. Justice Kelly discussed considerations that may be applicable by a Court in an application to appoint an interim liquidator. At page 9, His Honour stated:

Reported cases indicate that as a general rule the court has been prepared to appoint a provisional liquidator in certain defined sets of circumstances. Two such circumstances, neither of which exists in the present case, are where the petition for winding-up has been presented by the company itself and where the petition is unopposed. Two other circumstances in which a provisional liquidator has been appointed and which it is suggested are applicable here are firstly, where the company is insolvent and secondly, where the situation is such that it is desirable to appoint a provisional liquidator to take possession of and to protect the assets of the company.

12. In regard to the extent of application of the Court’s discretion, Justice Kelly stated at page 10, and reads as:

The Court is being called upon to exercise a discretion and if it seems to it to be proper to do so under the circumstances of any particular case, it will exercise that discretion to appoint a provisional liquidator even though the situation does not fit exactly into any of the categories in which provisional liquidators have been appointed in other cases. The width of the Court’s discretion is indicated by Levy v. Napir [1962] SC.460 where the Lord President said: “ we are not determining in any way at this stage whether the company should or not be wound up compulsorily. All we are concerned with is whether a holding operation under the control of a provisional liquidator is appropriate, pending the decision on whether or not to wind up this company. The operation is provided for by the Act and is designed to maintain the status quo and prevent prejudice to either of the contestants.

13. Of persuasive value, Counsel also referred to the case of Robert Bryce & Co. Limited v. Chicken & Food Distributors Ltd (1990) 5 NZCLC 66,648. The Court, in appointing a provisional liquidator, held as follows:

1. An appointment should be made only where there are special grounds, and it has been shown that the assets of the company are in serious jeopardy. (In re Hill & Plummer Merchants Ltd [1956] NZLR 979 followed). In this case there were special grounds for the appointment of a provisional liquidator and the assets of the company were in serious jeopardy.
2. An applicant must show that there is a valid winding up petition, a likelihood that the petitioner would succeed, and a need for interim control of the company pending a winding up order. In deciding whether interim control is necessary factors to be consider are:

(a) whether the company assets are in jeopardy;

(b) whether the status quo should be maintained; and

(c) whether the interests of the creditors are safeguarded.

CONSIDERATION

14. Based on the evidence filed, the primary motive by the plaintiff in seeking to appoint the 2 interim liquidators, is to secure the balance of the funds that will be returned by the arbitrator in Singapore. The balance to be returned by the arbitrator after deduction of his fees is about SGD 547,414.15. I say this by making reference to the arbitration order of 8 September 2020. It is attached as annexure PA1 to the affidavit of Ms Andrew, that is, the one filed on 9 September 2020.

15. I note from the submissions and evidence of the petitioner, that it tries to portray a scenario where the said funds appear to be the only asset or thing of value of the respondent company where if nothing is done about it now to have them secured, that it would or may be detrimental to the prospects of the petitioner not being able to recover its debts. It also makes references to evidence of annual returns of the respondent from the period 2014 to 2017 which it had obtained from the Investment Promotion Authority. It says the records shows that the respondent had been operating in debts over these years. And it raises or makes serious allegations against the directors of the respondent; it claims that they had given false declarations to say that the respondent was solvent at the material times.

16. The respondent denies these claims. It questions whether the petitioner is actually a creditor within the meaning of the Companies Act. It submits that the cost awards made by the Supreme Court have not been taxed since the time the Court made them on 20 February 2020. Counsel submits that it had not received any itemized bill of cost from the petitioner or its lawyers for these costs. The respondent also submits that the petitioner has not provided a scintilla of evidence that shows that the respondent has failed to pay its debts in the past, or that it was removing its assets from within the Country elsewhere, or evidence that its directors are likely to divert funds that would be returned by the arbitrator, for their own use or elsewhere. It submits that the claims or assertions by the petitioner were unfounded or speculative.

17. I follow the approaches of the Courts as stated by Justice Kelly in Commercial Pacific Lumber Export(supra). In this case, the first 2 considerations are not applicable. In regard to the 2 other considerations, and I quote, where the company is insolvent and secondly, where the situation is such that it is desirable to appoint a provisional liquidator to take possession of and to protect the assets of the company, I will say this. In regard to the question of solvency of the respondent, I note that that may not be a relevant consideration for the purpose of liquidation under s. 291(3) of the Companies Act. I say this because the Supreme Court has recently, in the case of Sunset Rentals Ltd v. Pacific View Apartments Ltd (2020) SC 1994, stated at paragraphs 17 and 18, and I quote:

17. A solvency test is broadly applied under the Companies Act to ascertain whether a company is solvent, that is, by applying the 2 tests that are stated under s. 4(1)(a) and (b) of the Companies Act. However, s. 4 and the 2 tests are not expressly regarded as prerequisite requirements for purposes of liquidation of a company under s. 291(3). The minimum requirement for a Court that is hearing a petition to liquidate a company, is any one of those 4 grounds that are stated therein, namely, (i), the company is unable to pay its debts as they become due in the ordinary course of business, or (ii), the company or the board has persistently or seriously failed to comply with this Act, or (iii), the company does not comply with Section 11, or (iv), it is just and equitable that the company be put into liquidation.

18. We think it is prudent to follow the intention of the legislators and as such, that the Court should start at s. 291(3) to determine a petition rather than to begin at s. 4 or to use s. 4 as the material test when it is faced with an application to liquidate a company that is made under s. 291(3) of the Companies Act. For example, s. 291(3)(a)’s requirement does not require a petitioner to also adduce evidence to prove that the value of the company's assets is greater than the value of its liabilities, including contingent liabilities. The said requirement under s. 4 is bestowed on the directors of a company. If a creditor pleads ground (a) under s. 291(3), all that is required of it is evidence of want of compliance with a Creditor’s Statutory Demand or other evidence apart from that, to show that the debtor company is unable to pay its debts as they fall due in the ordinary course of business. Section 291(3)(a) also does not deter the Court from ordering liquidation even if there is evidence that shows that the value of the debtor company’s assets exceeds its liabilities. We therefore dismiss grounds of appeal 3.1 and 3.3.

18. So with that, I do not see solvency as a material consideration that would be before the Court as a substantive issue for determination. The consideration therefore is inapplicable herein.

19. As for the final consideration, I note that it is also inscribed under s.296(1) of the Companies Act. I ask myself this. Is it necessary or expedient for the purpose of maintaining the value of assets owned or managed by the company, that I should appoint the 2 proposed interim liquidators? When I consider the evidence and the facts that have been disclosed, I note the following which I see as relevant. The first consideration is this. The Supreme Court made the orders for costs as well as for the termination of the arbitration proceeding on 20 February 2020. The petitioner knew or ought to have known of the funds that had been kept by the arbitrator in Singapore. Yet, no attempts had been made to tax its costs to secure a debt against the respondent. And if the matter was urgent for the reasons as is alleged, the actions of the petitioner in doing nothing for the past 6 months does not impress upon me the urgency argument. As I had ruled earlier in refusing the matter to proceed ex parte, the petitioner appeared to have sat on its rights and at the very last minute is reacting to the actions of the arbitrator. The urgency appears to have been constructed rather something that may be regarded as reasonable. The second consideration is this. There is evidence, in my view, which shows that the respondent may be capable of paying it debts. Again, I do not want to get ahead of the matter because it would be part of the substantive arguments in the petition. But the fact that the respondent had monies deposited for arbitration and which is now about to be returned, indicates a positive commercial activity on the part of the respondent. There is also evidence adduced by the respondent, that is, a recent letter dated 9 September 2020 by the Governor of Western Province Hon. Taboi Awiyoto to the Attorney General. It is attached as part of annexure PA1 to Ms Andrews affidavit filed on 9 September 2020. The Governor states that the respondent has existing projects in his province which is backed by US foreign AID programme. He expressed his concern that an appointment of a liquidator may sabotage the project(s) that the respondent currently has in his province. I also take into account the fact that the petitioner and the respondent had engaged in various court challenges over the years and recently as far as this year, when the Supreme Court handed down its decision on 20 February 2020. The respondent has been defending itself with its designated lawyers Leahy Lewin Lowing and Sullivan who continues to act for the company. The third consideration is this. The petitioner has not demonstrated an incident where the respondent failed to pay its debts as and when they fell due in the ordinary course of business. The only reference was in relation to its costs that have been awarded by the Court. But these costs have not been taxed to this day. The estimates put forward in evidence are mere estimates. They cannot be regarded as taxed costs within the requirements of the Court Rules. The fourth consideration is this. Again, the petitioner has not provided any evidence to show that the respondent is dissipating or attempting to diminish the value of its assets or that its board of directors will take for their own personal use the monies that are about to be released back to the respondent by the arbitrator.

SUMMARY

20. For these reasons, I am not convinced that it is necessary or expedient for the purpose of maintaining the value of assets owned or managed by the company, that I should grant the petitioner’s motion and appoint the 2 interim liquidators. The notice of motion shall therefore be refused.

COST

21. Awarding cost in this instance, is discretionary. I am inclined to award cost to follow the event in the usual way, that is, on a party/party basis to be taxed if not agreed.

ORDERS OF THE COURT

22. I make the following orders:

1. The petitioner’s notice of motion filed on 3 September 2020 is refused in its entirety.
   
2. The petitioner shall pay the respondent’s cost in relation to the notice of motion on a party/party basis which may be taxed if not agreed.
   
3. Time for entry of these orders is abridged to the date of settlement by the Registrar which shall take place forthwith.
   

The Court orders accordingly.
________________________________________________________________

Dentons PNG: Lawyers for the Petitioner

Leahy Lewin Lowing & Sullivan: Lawyers for the Respondent