Quan Resources Pty Ltd (in liquidation) v Australian New Zealand Banking Group (PNG) Ltd [1996] PGSC 32; [1997] PNGLR 687 (10 July 1996)

[1997] PNGLR 687

PAPUA NEW GUINEA

[SUPREME COURT OF JUSTICE]

QUAN RESOURCES PTY LTD

(IN LIQUIDATION)

V

AUSTRALIA NEW ZEALAND BANKING GROUP (PNG) LTD

WAIGANI: AMET, CJ; KAPI, DCJ; LOS J
4 April, 10 July 1996

Facts

On an appeal against the National Court decision refusing to set aside the winding up order and appointment of a liquidator, the respondent objected to competency of the appeal.

Held

1. In terms of the powers of liquidators, that the powers do not include challenging a winding up order.
   
2. That the company is competent to appeal against a winding up order and or appointment of liquidator but the appeal must be lodged within the requirement of the Supreme Court Act, s 17.
   

Papua New Guinea case cited

New Zealand Insurance Co Ltd v Chief Collector of Taxes [1988-89] PNGLR 522.

Other cases cited

Arafura Finance Corporation v Kooba Pty Ltd (No. 2) (1988) ACLC 200.

Brinds Ltd & Ors v Offshore Oil & Ors [1986] VicRp 63; (1985) 3 ACLC 848.

Country Traders Distributors [1974] 2 NSWLR 135.

Re Diamond Fuel Company [1879] UKLawRpCh 322; [1879] 13 Ch. D 400.

Re Patridge (1961) SR (NSW) 622.

Re Union Accident Insurance Ltd [1972] 1 All ER 1105.

Counsel

P Mamando, for appellant.
R Riddell, for respondent.

10 July 1996

By the Court. This appeal is against the National Court decision of 13 November 1995 refusing to set aside a winding-up order and appointment of a liquidator on the 16 October 1995. At the hearing, the respondent objected to the competency of the appeal. It was argued that: (i) the company Quan Resources Pty Ltd could not appeal in its name and style because it was (i) in liquidation, and (ii) that as the decision of National Court was interlocutory, no appeal could lie without leave.

We deal with the second ground of the argument first. Under s 14(3)(b) of the Supreme Court Act, a party intending to appeal from an interlocutory judgment must obtain leave before appealing. The section says:

"No appeal lies to the Supreme Court without leave of Supreme Court -

(b) from an interlocutory judgment made or given by the National Court except ...."

Mr Mamando informed the court that an application for leave was lodged but it was rejected by the Registrar on the ground that it was filed out of time. He submitted that it was wrong to reject the application because the time did not run during the court vacation. For that submission, he relied on Order 2 Division 1 of the Supreme Court Rules adopting Order 2 Division 1 Rule 3 of the National Court Rules. Rule 3 says:

"(3) The time of the vacation shall not be reckoned in the times appointed or allowed by these Rules for filing; delivering or amending any pleading unless so directed by a Judge nor shall a pleading be delivered or amended, nor judgement be entered in default, unless under the direction of a Judge."

We pointed out to the counsel that his submission on this point was misconceived because the Supreme Court had answered that issue in the New Zealand Insurance Co Ltd v Chief Collector of Taxes [1988-89] PNGLR 522. Essentially the court held that the sub-rule "applied to times appointed or allowed by the Rules for filing a pleading. It did not apply to the time limit imposed by a statute. A notice of appeal was not a pleading". The 40 days time limit in s 17 of the Supreme Court Act applied to both notice of appeal and application for leave to appeal. The Registrar was therefore correct in rejecting the application for leave to appeal outside the 40-day time limit.

We return to the first ground of objection that is the company could not appeal because it did not have a legal capacity to be the appellant when it was in liquidation. Mr. Riddell relied on s 250(1) of the Companies Act to support the contention. Section 250(1) says:

"Where a winding-up order has been made or a provisional liquidator has been appointed, the liquidator or provisional liquidator shall take into his custody or under his control all the property and things in action to which the company is or appears to be entitled, and if there is no liquidator all the property of the company is in the custody of the Court."

Section 253(4) of the Companies Act was also relied upon. It says:

"The exercise by the liquidator of the powers conferred by this section is subject to the control of the Court, and a creditor or contributor may apply to the Court with respect to any exercise or proposed exercise of any of those powers.

We accept that under Section 261(1) of the Companies Act, a liquidator or a creditor may apply to the court to stay a winding-up. The section says,

"At any time after an order for winding up has been made, on the application of the liquidator or a creditor or a contributory and on proof to the satisfaction of the court that all proceedings in relation to the winding-up ought to be stayed, make an order staying the proceedings either generally or for a limited time and on such times and conditions as the court thinks proper."

Section 294 of the Act is also on the point subsection (1) says,

"The liquidator, or a contributory or creditor may apply to the court ...

1. to determine any question arising in the winding up of a company; or
   
2. to exercise all or any of the powers that the court might
   

exercise if the company were being wound up by the court"

We accept that under s 250(1) of the Act, when a company is wound-up or when a liquidator is appointed "all the property and things in action" are in the control of the liquidator. We also accept that under s 253(4) of the Act, a creditor or contributor may exercise any of those powers in his name and raise the same issues, as the company itself would rise if it had the capacity. On this point, we were informed that the motion dismissed on the 13 November was on the ground that the lawyer who purported to act for the company had no authority from the liquidator to use the company’s name in the proceedings. However, a Mr Pyawa was allowed to use his name because he was a contributor and director. Subsequently he filed a motion to stay the wind-up order but it was dismissed on 21 November 1995 on the merits. We understand this decision is subject to a different appeal.

We understand the status of a director in a company, which is winding-up. He may lose his power when a winding up order is made but he does not necessarily lose his office. See Country Traders Distributors (1974) 2 NSWLR 135. On this state of the law the company may not lose out if it cannot appeal against a winding-up order; it can benefit from an appeal by a director if the grounds of such an appeal are relevant to the wishes of the company. We however question why a company itself cannot appeal against a winding-up order soon or immediately after that order has been made where for any reason the liquidator is put in a situation where he cannot act on behalf of the company.

What the liquidator is supposed to do can be found set out in Part XI - Div 2 of the Companies Act. But the specific functions are provided in s 253(1) and (2).

"(1) The liquidator may, with the authority of the Court or of the committee of inspection -

(a) carry on the business of the company so far as is necessary for the beneficial winding-up of the company, but the authority of the Court or committee is not necessary to so carry on the business during the four weeks after the date of the winding-up orders; and

(b) subject to Section 310, pay any class of creditors in full; and

(c) make a compromise or arrangement with creditors or persons claiming to be creditors, or having or alleging themselves to have a claim (present or future, certain or contingent, ascertained or sounding only in damages) against the company or by which the company may be made liable; and

(d) compromise, on such terms as are agreed -

(i) any calls, liabilities to calls, debts, liabilities capable of resulting in debts and any claims (present or future, certain or contingent, ascertained or sounding between the company and a contributory or other debtor only in damages) subsisting or supposed to subsist between the company and a contributory or other debtor or other person apprehending liability to the company; and

(ii) all questions in any way relating to or affecting the assets or the winding-up of the company.

and take security for the discharge of any such call, debt, liability or claim, and give a complete discharge in respect of it.

(2) The liquidator may -

(a) bring or defend an action or other legal proceeding in the name and on behalf of the company; and

(b) appoint a lawyer to assist him in his duties; and

(c) sell the property of the corporation by public auction, public tender or private contract with power to transfer the whole to any person or to sell in parcels; and

(d) do all acts and execute, in the name and on behalf of the company, all deeds, receipts and other documents, and for that purpose use, when necessary, the company’s seal; and

(e) subject to the Insolvency Act, prove in the bankruptcy of a contributory or debtor of the company or under a deed executed under that Act; and

(f) draw, accept, make and endorse any bill of exchange or promissory note in the name and on behalf of the company; and

(g) raise on the security of the assets of the company any money needed; and

(h) take out letters of administration of the estate of a deceased contributory or debtor, and do any other act necessary for obtaining payment of any money due from a contributory or debtor, or his estate, that cannot be conveniently done in the name of the company; and

(i) compromise a debt due to the company other than -

(i) calls and liabilities for calls; or

(ii) a debt where the amount claimed by the company to be due to it exceeds K200.00; and

(j) appoint an agent to do any business that the liquidator is unable to do himself; and

(k) do all such other things are necessary for winding up the affairs of the company and distributing its assets.

The numerous duties and powers that are listed in s. 253(1) and (2) show that a liquidator assumes a wide power but in our view all these powers are limited and related to winding-up of a company consistent with an order of the court. We are not aware of any decided case in our jurisdiction that has summarised the powers of liquidators. But there is a New South Wales case that succinctly summarises the principal duties of a liquidator for the purpose of our reasoning. That case is Re Patridge (1961) SR (NSW) 622. In that case the Court said:

"Speaking generally, the liquidator’s principal duties are to take possession of and protect the assets, to make lists of contributories, to have disputed case adjudicated upon, to realise assets and to apply the proceeds in due course of administration amongst the creditors and contributors."

It is clear from all the duties listed in s 253 of the Act that all the powers have to do with winding up but no power to defend a company from winding up. That is also true of the powers in s. 294 of the Act. Section 253(2) may give an impression that the liquidator has sole power to appeal because clause (a) says the liquidator may "bring or defend an action or other legal proceeding in the name and on behalf of the company". But read together with the s 253(1), it is clear the power is limited to winding up of a company. Clause "(a)" says the liquidator may "carry on the business of the company so far as is necessary for the beneficial winding up of the company." (Emphasis added)

The apparent reason for concluding that the liquidator’s powers are limited to actions necessary for winding-up a company is because a liquidator cannot challenge an order for winding up when he has been appointed by the same order or as a consequence of that order. He has a conflict of interest. The challenge is directly against the validity of the order that appointed him. It has come to our attention that similar arguments were raised long time ago in England. This was in the case In re Diamond Fuel Company [1879] UKLawRpCh 322; (1879) 13 Ch D 400. To make the point, we quote the counsel’s argument and Lord Justice James’ responses and his decision at pages 404-405:

Pearson, QC: for the company: - The order is made against the company, and the company must have a right to appeal from it. No doubt the liquidator is the only person to act if the winding-up order is valid, but that is the point in dispute. Every body has a right to appeal from an order made against him, and a company cannot be in any different position. It is suggested that we should apply by summons for leave to use the name of the company, but I could not advise the directors thus to go in under an order the validity of which they dispute.

James, LJ: A company is a mere name. Who in fact, authorized the appeal?

The directors at a Board Meeting.

James, LJ: Are not the powers of the directors suspended?

I submit that for this purpose they are not; the company must have a right to be heard to say that the winding up order is wrong. The functions of the directors can only be suspended sub modo, i.e. provided the order can be maintained.

Higgins, QC: In the case of a voluntary winding-up it is provided that powers of the directors cease.... but there is no similar enactment in the case of a compulsory order. The objection involves absurdity: it is said that the company can only appeal through the liquidator. Is he then to appeal from an order by which he derives his title?

James, LJ: It deserves consideration what ought to be done in future with regards to appeals of this nature; but as the present appeal has been presented in conformity with the usual practice we will hear it on the merits.

Subsequently in 1972 the company’s powers in the situation where the liquidator cannot act was spelt out in Re Union Accident Insurance Ltd [1972] 1 All ER 1105. At p. 1113, Plowman J said:

The respondent’s submission was that the appointment of a provisional liquidator automatically put an end to the authority of the company’s directors to instruct solicitors and counsel to represent it and that the solicitors purporting to act on its own behalf were therefore liable to pay the respondents’ costs personally. It is of course was settled that on a winding-up the board of directors of a company becomes functus officio and its powers are assumed by the liquidator, and my attention was drawn to Re Macwon Ltd, where Pennycuick J stated in effect that the appointment of a provisional liquidator had the same result. No doubt that is so, but it is common ground that notwithstanding the appointment of the provisional liquidator the board has some residuary powers, for example it can unquestionably instruct solicitors and counsel to appose the current petition and, if winding-up order is made, to appeal against that order.

The issue to the extent of those residuary powers, and in particular whether they extend to launching of the present motion, we think that it may sometimes be helpful to test the matter by considering the other side of the coin, namely to inquire whether the power which the board is said to have lost is one which can be said to have been assumed by the liquidator. If the answer is that it cannot, that may be a good reason for saying that the board still retains it. Clearly for example, as we have already indicated, the power to instruct solicitors and counsel on hearing of the winding-up petition is not a power which anyone could suggest has passed to the provisional liquidator and therefore the board retains it. If that is true in regard to petition itself, it is, in our judgment, equally true of interlocutory proceedings, which are such that it would not be appropriate for the provisional liquidator to give instructions on behalf of the company. A motion to discharge the provisional liquidator on the ground that he ought not to have been appointed clearly falls within that category, and in those circumstances we therefore dismiss the motion with costs and make no other order in regard to costs.

In Australia, the Supreme Court of Victoria made reference to those two English cases when considering an application for a stay order for winding-up in the case Brinds Ltd & Ors v Offshore Oil N.L & Ors [1986] VicRp 63; (1985) 3 ACLC 848. At p. 851 Fullagar J said:

During the argument, I raised the question whether the applicant Brinds Limited, having been in liquidation since December 1993 and throughout apparently insolvent, had any locus standi to make, itself, this application for a stay, as distinct from on the one hand, such an application made by or with the consent of the liquidator and, on the other hand, a different application by others under Section 383 of the Code.

Since then, the researches of Nicholson J. have discovered that ingenious counsel in 1879 raised the question and put the negative answer to the Court of Appeal in England in Re Diamond Fuel Company [1879] UKLawRpCh 322; [1879] 13 Ch. D. 400 ---- see especially pp. 404-405. Nearly 100 years later, in Re Union Accident Insurance Co. Ltd. [1972] 1 All ER 1105 at pp. 1112-1113, Plowman J. suggested what I think are substantial reasons for an affirmative answer and, in any event, I think this Court should proceed on the footing that the directors of Brinds Limited have power to bring the present application in the name of the company. See also McPherson on Company Law 2nd Ed., p. 394 et seq.

In my opinion, this Court has power to entertain the present applications construed as a motion by Brinds and others for an order, which directs or enjoins that the liquidator shall refrain from all or some acts pursuant to the winding up order pending the determination of the appeal to Her Majesty in Council.

In 1988, the Supreme Court of Northern Territory applied the same principles in Arafura Finance Corporation Pty Ltd v Kooba Pty Ltd (No. 2) (1988) ACLC 200. At page 202 Muirhead J said:

"The authorities suggest an application for a stay may properly be made upon the motion of the directors exercising their residuary power, despite a winding up order. (See Re Union Accident Insurance Co. Ltd. [1972] 1 All ER 1105 per Plowman J. at p. 1113.)

Re Diamond Fuel Co. [1879] UKLawRpCh 322; [1879] 13 Ch. D. 400 is authority for the proposition that despite the fact a liquidator has been appointed, a residual power of appeal remains vested in the directors. This decision is also some authority for the proposition that a company appealing against a winding up order may well be directed to provide security for costs, a matter adverted to by Mr Riley in his submissions. (See also Robert H. Barber & Co. Ltd. & Anor v Simon [1914] HCA 69; (1914) 19 CLR 24 at p. 28)."

After reading and considering the provisions of the Companies Act relating to the powers of liquidators, we are convinced that the powers do not include a power to challenge a winding-up order. The reason is simple: a liquidator cannot assume to have any power to challenge a winding-up order when the validity of the order that appointed him is under challenge. In our view the power to challenge a winding-up order is a residuary power of the company, which in the first place is used through the Board to instruct lawyers to oppose a petition or wind-up order. If a winding-up order is made over the opposition, the company is entitled to appeal against that order.

During the hearing on the objection to the competency, it was pointed out that the liquidator had completed the distribution of the assets and the books and the accounts had been closed. This raises the question just when the period described as ‘soon after or immediately after winding up order’ should end so that the liquidator may feel free to complete the winding-up. It is our view that the matter referred to and others including the costs are matters of prudence that the company must take into account when deciding whether to appeal. But these considerations bear little relevance to the competency issue.

We conclude as a matter of law that a company is competent to appeal against a winding-up order and or appointment of a liquidator. But the appeal must be lodged within the 40-day requirement under s 17 of the Supreme Court Act as we have pointed out earlier in our decision.

Lawyer for the appellant: Mamando Lawyers.
Lawyer for the respondent: Gadens Ridgeway Lawyers.