Mobil Oil Australia Ltd v Fera [2000] SBHC 55; HC-CC 177 of 2000 (18 December 2000)

HIGH COURT OF SOLOMON ISLANDS

Civil Case No. 177 of 2000

MOBIL OIL AUSTRALIA LTD

–v-

REX FERA
(Trading under the firm name or style of “TA’AS MARKETING”)

High Court of Solomon Islands
(F.O. KABUI), J)

Hearing: 13th December 2000
Judgment: 18th December 2000

J. Sullivan for the Creditor
Mrs M. Samuel for the Debtor

JUDGEMENT

(Kabui, J): This is a Creditor’s Petition filed under section 5 of the Bankruptcy Act (Cap. 3) for the purpose of asking the Court to make a Receiving Order against Rex Fera, (the Debtor) of Honiara, and residing at Auki, Malaita Province . Section 5 of the Bankruptcy Act states –

“Subject to the conditions hereinafter specified, if a debtor commits an act of bankruptcy the court may, on a bankruptcy petition being presented either by a creditor or by the debtor, make an order, (in this Act called “receiving order”) for the protection of the estate.”

The Creditor’s Petition was heard by me on Wednesday 13^th December 2000 and on being satisfied that the Creditor was entitled to a Receiving Order. I made that order on the rising of the Court on the hearing date of Creditor’s Petition. I, however, said I would give my reasons in writing today. I do so now.

The Facts

The Creditor is Mobil Oil Australia Pty. Ltd. (formerly Mobil Oil (Australia) Limited). The Debtor is Rex Fera (also known as Rex Buka Fera, Rex Fera Buka, Rex Buka and Rex Faitai). By an Agreement signed between the Creditor and the Debtor on 14 October 1997, the Petitioner was required to supply and invoice the Debtor for the supply of goods. The Debtor was described under that Agreement as Mr Fera trading under the business name Ta’as Marketing. Under this Agreement, the Creditor supplied, sold and delivered a substantial quantity of goods to the Debtor between 11 March 1999 and 31 January 2000. When the Debtor refused or failed to pay his outstanding debt to the Creditor, the Creditor took action and sued the Debtor for the recovery of its credits in the High Court of Solomon Islands. In the Specially Indorsed Writ of Summons filed on 4 June 2000 in Civil Case No. 177 of 2000, the sums claimed by the Creditor stood at $1,518,680.61 being the value of products supplied, sold and delivered plus 5% interest as from 19 May 2000 and costs. There being no filing of defence within the prescribed time, the Creditor applied for a judgement in default of defence and obtained it on 27 July 2000. The effect of this default judgement was that the Creditor was adjudged to recover from the Debtor the sums of $1,518,680.61 plus 5% interest per annum from 19 May 2000 and fixed cost of $180. Resulting from this default judgement and the non-payment of his debt, the Registrar under section 4 of the Bankruptcy Act issued a Bankruptcy Notice signed on 11 October 2000 calling upon the Debtor to pay within 7 days after the date of service the sums of $1,518,680.61 plus $29,045.80 being interest and $180.00 fixed costs. The Bankruptcy Notice also said that the penalty for non-compliance with that Notice would be an act of bankruptcy which could result in bankruptcy proceedings being taken against the Debtor. It also said that the Debtor could set aside the Notice on satisfying certain conditions specified in that Notice. The Bankruptcy Notice was duly served upon the Debtor personally by Mr J. G. P. Bodkin, the Finance Manager of the Creditor on 13 November 2000 at 2.55 pm in Honiara. The above sums of money owed by the Debtor to the Creditor were still outstanding and unpaid by the Debtor on the date of the hearing of the Creditor’s Petition for a Receiving Order.

The Creditor’s Case

The Creditor’s case is straight forward. An act of bankruptcy was committed by the Debtor within the meaning of section 3 (1) (g) of the Bankruptcy Act. Section 3 (1) (g) states -

“3. (1) A debtor commits an act of bankruptcy in each of the following cases –

(a) ......
(b) ......
(c) ......
(d) ......
(e) ......
(f) ......

(g) if a creditor has obtained a final judgment or final order against him for any amount, and execution thereon not having been stayed, has served on him in Solomon Islands or, by leave of he court, elsewhere, a bankruptcy notice under this Act, and he does not, within seven days after service of the notice, in case the service is effected in Solomon Islands, and in case the service is effected elsewhere, then within the time limited in that behalf by the order giving leave to effect the service, either comply with the requirements of the notice or satisfy the court that he has a counter-claim, set-off or cross demand which equals or exceeds the amount of the judgment debt or sum ordered to be paid, and which he could not set up in the action in which the judgment was obtained or the proceedings in which the order was obtained:

For the purposes of this paragraph and of section 4, any person who is for the time being entitled to enforce a final judgment or final order shall be deemed to be a creditor who has obtained a final judgment or final order.

(h) ......”

This fact was not disputed by the Debtor. It is on this basis that the Creditor sought to obtain a receiving order against the Debtor by filing a Creditor’s Petition under Section 5 of the Bankruptcy Act cited above. In terms of section 6 of the Bankruptcy Act, the Debtor’s debt in this case is well over $1000.00 due and payable immediately, the act of bankruptcy upon which the Petition was based occurred within 3 months before the presentation of the Petition, the Debtor is resident in Solomon Islands and lastly, the Creditor is not a secured Creditor. This being the case, the Creditor was entitled to present a bankruptcy Petition against the Debtor in this case for a Receiving Order under section 5 of the Bankruptcy Act.

The Debtor’s Case

The Debtor did not really oppose the Creditor’s Petition. He said he was willing to pay the creditor and other creditors if he was given time and the economy improved. However, he filed an affidavit on 7^th December 2000 in which he revealed that he was no longer a director or shareholder in Remex Investments Limited, Bremex Limited and Richstone Real Estate Limited. That is to say, he resigned as a director of those entities and also had transferred his shares in those entities to his relatives being Clement Tori, Jack Wale, Bradly Boeni, Ferris Foli and Edna Jeoffrey. This came about as a result of a number of Special Resolutions passed by shareholders and directors at extra-Ordinary meetings held on 30^th June 2000. Taking them in turn, they are these –

In Remex Investments Limited, the Debtor is the sole director of this Company. The Debtor holds 9,900 shares whilst Remex Fera holds 100 shares.

In Bremex Limited, Remex Investments Limited is the sole director. It holds 9,900 shares whilst the Debtor holds 100 shares.

In Richstone Real Estate Limited, the Debtor is a director of this Company, holding 9,900 shares whilst Martha Maofalifaga holds 100 shares.

The effect of the Special Resolutions passed at extra-ordinary meetings of the Shareholders and Directors of the above Companies is that the Debtor is no longer a director or shareholder in all these Companies. He is free from them. This is the Debtor’s understanding of the effect of those Resolutions. The Debtor also revealed in his affidavit that he was not personally liable for the debts Ta’as Marketing Limited owed Sullivan (SI) Limited, Solomon Breweries Limited, Fielders (SI) Limited and Solomon Taiyo Limited. He said these debts were owed by Ta’as Marketing Limited.

The Position on the Evidence

The Debtor admits in his affidavit filed on 7^th December 2000 that he is still a director and shareholder in Ta’as Marketing Limited. This Company has now been wound up by this Court. The statement made by the Debtor that he is not personally liable for the debts incurred by Ta’as Marketing Limited appears to be correct in terms of principle in Company law. That is to say, upon incorporation the Company assumes a separate legal entity from its directors and shareholders. The Company is regarded as a separate legal person capable of entering into contracts and carrying on business as if it were a natural person though of course through human agents such as its directors, managers and others employed by the Company. The question to be asked is whether or not this is the position in the case of the Debtor’s business activities. The answer can only be obtained by examining the nature of the Debtor’s dealings with his creditors. In the case of the Petitioner, a Trading Agreement was signed with the Debtor on 14^th October 1997. This is Exhibit “MJ7” attached to Mr. M. D. Jones’ affidavit filed by the leave of the Court on the date of the hearing of the Petition. In the Recital part of that Agreement, the Debtor signed that Agreement as “Rex Buka Fera”, T/A Ta’as Marketing, P.O. Box 551, Honiara. No Company seal was used. In the case of Solomon Breweries Limited, the Debtor signed a Distribution Agreement on 11^th March 1997. This is Exhibit “KA1” attached to Mr. K. Amataga’s affidavit filed in Court by leave of the Court as in the case of “MJ7” above. Again, in the Recital part of the Agreement, the Debtor also signed as “REX FERA t/a TA’AS MARKETING”. No Company seal was used. Clause 19 of the Distribution Agreement provides that the Agreement grants personal rights to the Debtor which cannot be assigned etc without the prior written permission of the Brewery. In both these cases, the suppliers of the products to be distributed understood the Debtor to be entering into the respective Agreements in his personal capacity and not as the human agent of Ta’as Marketing Limited acting for and on behalf of it. I believe this is the case because the Petitioner as a creditor had chosen to proceed under the provisions of the Bankruptcy Act rather than hoping to be a creditor under the provisions of the Companies Act.

The Debtor also confirms in his affidavit that the properties listed in paragraph (k) of Mr. M. D. Jones’ affidavit filed on 24^th November 2000 are all his. Surprisingly, none of these properties is owned by Ta’as Marketing Limited. It would now appear that Ta’as Marketing Limited is only a paper Company with no assets capable of exceeding the Debtor’s personal assets. One wonders why there are these other Companies besides Ta’as Marketing Limited, Remex Limited is obviously a useful conduit for the transfer of the Debtor’s personal assets such as land. Already since May, 2000, the Debtor has transferred 171-001-275, 171-001-394, 171-001-320, 191-027-15, 191-014-155, 191-014-169 and 191-014-147 to Bremex Limited and he intends to continue this practice.

The resolutions of shareholders and directors in Remex Investments Limited, Bremex Limited and Richstone Estate Limited were made on 30^th June 2000. The changes brought about by these resolutions were reflected in the change of Directors and allotment of shares that same date, 30^th June 2000. Whilst this is the case, there is as yet no evidence of the transfer of those shares purported to have been transferred to the Debtor’s relatives. The transfers to be effective will have to be by instrument stamped and registered. Section 73 of the Companies Act states –

“Notwithstanding anything in the articles of a company, it shall not be lawful for the company to register a transfer of shares in or debentures of the company unless a proper instrument of transfer has been delivered to the company:

Provided that nothing in this section shall prejudice any power of the company to register as shareholder or debenture holder any person to whom the right to any shares in or debentures of the company has been transmitted by operation of law.”

There are also no share certificates in evidence. Section 79 of the Companies Act states –

“A certificate, under the common seal of the company, specifying any shares held by any member, shall be prima facie evidence of the title of the member to the shares”

The Debtor may well find that he is still the majority owner of Remex Investments Limited, Bremex Limited, and Richstone Real Estate Limited. All that has happened is the passage of resolutions and the filing of allotment of shares. That is not sufficient in law to divest the Debtor of his shares in Remex Investments Limited, Bremex Limited and Richstone Real Estate Limited.

As I have said in this judgment, the Debtor did not really oppose this Petition. The only reason given by the Debtor for his indebtedness were the adverse effects of the ethnic tension. Mrs Maelyn Samuel, Counsel for the Debtor, however said that the Court should take into account the killing effect of the these proceedings against the Debtor, pointing out that the Debtor must also be in a position to survive and to sustain himself and his family. She also pointed out that the Creditor in this case was partly to bear the blame for the Debtor’s indebtedness because the Creditor did nothing to stop giving credits to the Debtor. Whilst I appreciate these remarks, at this stage of the proceedings, there is no room for mitigating factors to be considered by the Court. There is yet a chance for the Debtor to meet and explain himself to his creditors and may make proposals for composition or scheme of arrangement in satisfaction of his debts. Only if these events, if any, are not resolved in favour of the Debtor will he be adjudged bankrupt by the Court. The purpose of the law of bankruptcy is not to kill the Debtor at the first whistle blow of a Creditor. Dennis J. Rose explains in Lewis Australian Bankruptcy Law 1970, Sixth Edition at page 1 -

“It is now generally accepted in our community that, when a person is unable to pay his debts and is in a hopeless financial position, the law should enable proceedings to be taken, either by the debtor himself or by a creditor, so that most of his property can be taken and used to pay his creditors in proportion to the amounts owed to each of them. It is generally accepted too that, unless the debtor has been guilty of some dishonesty, extravagance or other improper conduct in his financial affairs, the law should enable him to be freed from the burden of his accumulated debts in order to allow him to make a fresh start. It is the modern law of bankruptcy that gives effect to these generally accepted principles.

The modern law of bankruptcy contrasts sharply with the law in past centuries when debtors could be imprisoned for non-payment of their debts and never released from liability for them. Moreover, only the most ruthless creditors, or those with special sources of information as to the debtor’s assets, were likely to get paid, leaving other creditors with nothing ...”

The Debtor in this case has admitted his indebtedness willingly and has not disputed that he has committed an act of bankruptcy. The evidence in support of his indebtedness is overwhelming. It is on this basis that I made the Receiving Order with consequential orders on Wednesday 13^th December 2000. For the sake of completeness, I reproduce those orders in this judgment. That is to say, I ordered that –

“1. The Official Receiver, for the purposes of the protection of the estate of the Judgment Debt, be appointed as Receiver of the property of the Judgment Debtor pursuant to Section 5 of the Bankruptcy Act (Cap. 3);

2. WAYNE FREDERICK MORRIES and BENJAMIN ST. GILES PRINCE (“the Special Managers”) are jointly and severally appointed Special Managers of the property of the Judgment Debtor pursuant to Section 15 of the Bankruptcy Act (Cap. 3);
   
3. The Special Managers shall not be required to give security.
   
4. Subject to the supervision of the Official Receiver, the Special Managers shall have in relation to the property of the Judgment Debtor, all the powers, rights, and obligations of the Official Receiver and the same may be performed or done by any one of them;
   
5. The Special Managers shall take immediate possession and control of all of the property of the Judgment Debtor;
   
6. The Judgment Debtor shall forthwith surrender all and any passports in his possession to the Special Managers;
   
7. All trustees, receivers, bankers, agents, or officers of the Judgment Debtor shall forthwith pay, deliver, convey, surrender, or transfer to the Special Managers all and any money, property, books and papers in their hands to which the Judgment Debtor is prima facie entitled.
   
8. The Judgment Debtor shall within 24 hours of the service on him of this Order provide to Special Managers an address (other than a post box) situated within the Central business district of Honiara for service of notices in respect of the administration of the estate, details of postal address in Honiara to which the same may be posted and details of all his telephone contact numbers in Solomon Islands.
   
9. The Judgment Debtor shall give the Special Managers seven days prior written notice of any change in the particulars provided pursuant to order 7 thereof.
   
10. The injunctions granted on 24 November 2000 against Remex Investment Limited, Bremex Limited and Richstone Real Estate Limited are continued until further order.
    
11. An order for the winding up of Ta’as Marketing Limited order having been made and liquidators appointed this day, the injunction granted on 24 November 2000 against that Company is discharged.
    
12. The costs of the Judgment Creditor of and in connection with the Creditor’s Petition (including the costs of the Bankruptcy Notice and the application to appoint the Interim Receiver) shall be taxed if not agreed by the Special Managers and shall be paid in priority out of the assets of the estate.”
    

F.O. Kabui
Judge