Oilseed Products NZ Ltd v Samoa Coconut Oil Production Ltd [2000] WSSC 44 (28 June 2000)

IN THE SUPREME COURT OF SAMOA
HELD AT APIA

IN THE MATTER
of The Companies Act 1955 (NZ)

BETWEEN

OILSEED PRODUCTS NZ LTD
a duly incorporated company having its registered office at
Level 1, 132 Halsey Street, Freemans Bay, Auckland, New Zealand.
Petitioner

AND

SAMOA COCONUT OIL PRODUCTION LIMITED
a duly incorporated company having its registered office at Vaitele.
Debtor

Counsel: R Drake for petitioner T K Enari for debtor

Hearing:20 June 2000
Judgment: 28 June 2000

JUDGMENT OF SAPOLU CJ

In this case the Court has to deal with a petition for winding up and a motion for an order to restrain further proceedings on the winding up petition. The petition for winding up was filed by Oilseed Products NZ Ltd (the petitioner) which is a company registered in New Zealand against Samoa Coconut Oil Production Ltd (the debtor) which is a company registered in Samoa.

The petition for winding up is founded on section 217 (e) and (f) of the Companies Act 1955. Section 217 (e) and (f) provides:

"A company may be wound up by the Court if:

(e) the company is unable to pay its debts,

(f) the Court is of the opinion that it is just and equitable that the company should be wound up"

I need not deal with the second ground of the petition founded on section 217 (f) as the truly relevant ground is the first ground founded on section 217(c). As I also understood counsel for the petitioner, she did not rely strongly on the second ground.

Now section 218(a) of the Act defines inability to pay debts to mean:

"A company shall be deemed to be unable to pay its debts:

(a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding $100 then due, has served on the company, by leaving it at the registered office of the company, a demand under his hand requiring the company to pay the sum so due, and the company has for 3 weeks thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor."

From the material before the Court, it is clear that the total debts alleged by the petitioner against the debtor exceed $100 and the section 218(a) statutory notice had been served on the debtor for more than 3 weeks but the debtor has not paid or secured or compounded for it to the reasonable satisfaction of the petitioner.

The motion to restrain further proceedings on the petition to wind up seems to be founded on section 221 of the Act which provides:

"At any time after the presentation of a winding up petition and before a winding up order has been made, the company, or any creditor or "contributory may:

(a) where any action or proceeding against the company is pending in the Supreme Court or Court of Appeal apply to the Court in which the action or proceeding is pending for a stay of proceedings therein, or

(b) where any other action or proceeding is pending against the company, apply to the Supreme Court to restrain further proceedings in the action or proceeding,

and the Court to which Application is so made may, as the case may be, stay or restrain the proceedings accordingly on such terms as it thinks fit."

It was not suggested in this case that the debtor's motion should have been for an order to stay further proceedings as provided in section 221 (a). I will therefore proceed on the basis on which the debtor's motion has been filed.

Factual Situation

From the affidavits and other materials placed before the Court, it appears that the debtor was engaged in the business of copra crushing. For that purpose the debtor leased for its operations from Samoa Coconut Oil Ltd, which is a government owned company, the copra mill at Vaitele. The lease was for a term of 5 years with a right of renewal for a further term of 5 years together with an option to purchase the mill. Materials produced by counsel for the debtor show that the debtor started operation in 1993 but its production of coconut oil did not start until the end of 1994 beginning of 1995. The unaudited financial accounts for the debtor's operations for the financial years 1997 and 1998 show that for the year 1997 the debtor made a net profit of SAT$1,107,597 but there were accumulated losses of SAT$1,805,202 carried forward from operations in the previous years. Subtracting the net profit made in 1997 from the accumulated losses for previous years, the balance of accumulated losses carried forward to the 1998 financial year was SAT$697,605. For the 1998 financial year, the debtor made a net loss of SAT$2,827,829.

Add to that sum the balance of accumulated losses carried forward from 1997 and the total accumulated losses as at the end of the 1998 financial year were $3,525,434.

The debtor's unaudited balance sheets for the financial years 1997 and 1998 show that for the year 1997 current liabilities were SAT$3,550,405 and current assets were SAT$3,314,886 so that there was a working capital deficit of SAT$235,519. For the year 1998 current liabilities were SAT$4,302,304 and current assets were SAT$1,646,538 so that there was a working capital deficit of SAT$2,655,766 for that year. I must say that anyone looking at these financial accounts would not fail to see that the debtor was in very bad financial shape. It is therefore no surprise that the debtor's directors did not recommend payment of any dividend in 1998.

From the debtor's accounts, it is also shown that the total unpaid rent for the lease of the mill carried forward from previous years to 1997 was SAT$959,764 and unpaid rent for 1997 itself was SAT$690,939.So the total unpaid rent as at the end of the financial year ending 31 December 1997 was SAT$1,650,703. As at the end of the 1998 financial year the total amount of unpaid rent had increased to SAT$1,834,583. It is therefore no surprise that about the middle of 1999 the government, which owns Samoa Coconut Oil Ltd from which the debtor had leased the mill at Vaitele, decided not to renew the debtor's lease when it expired.

Apart from its accumulated losses, working capital deficits and unpaid rent, were the debts now alleged by the petitioner against the debtor. The first debt is a sum of US$432,047.47.That debt comprises of an advance of US$300,000 made by the petitioner to the debtor in January 1998 repayable on 31 January ,1999 but has not been repaid and a payment of US$132,000 made by the petitioner to the debtor on 5 September1998 for coconut oil and meal to be supplied by the debtor by 30 September 1998. That order has not been supplied. The debtor through the affidavit of its director Tuaopepe Felix Wendt dated 20 June 2000 admits this total debt of US$432,047.47 as owing to the petitioner. The second debt alleged by the petitioner against the debtor is an amount of US$39,604.35 being interest at the rate of 10% on the aforesaid total sum of US$432,047.47. Mr Wendt in his affidavit says that a letter dated 20 May 1999 from the petitioner to the debtor's solicitors suggested that no interest would be claimed prior to February 2000 but interest would be claimed at the rate of 8% rising to 10% after 31 December 2000. The petitioner did not adduce or point to any evidence to counter this part of Mr Wendt's affidavit except to say in its petition that the particulars of this debt were known to the debtor. On this bare material it is very difficult to say that this debt exists and is due. The next debt alleged by the petitioner against the debtor is for the sum of SAT$166,697.21 paid by the petitioner on behalf of the debtor to various creditors and employees of the debtor. The last debt is for another sum of NZ$13,000 paid by the petitioner to the debtor's expatriate employees. Mr Wendt in his affidavit says that the debtor is not aware of the details of these payments. The petitioner in its petition says that the debtor is aware of the particulars of these debts. I will come back to these debts later in this judgment.

Now the principal argument on the debtor's behalf is that any debts owing by the debtor to the petitioner were to be paid out of the debtor's share of profits in the joint venture that was entered into between the debtor and the petitioner in 1999 for their operation of the coconut mill at Vaitele.Apparently, this idea of a joint venture was recommended by the Treasury Department as an acceptable commercial arrangement for the continuing operation of the coconut mill. The response by the petitioner to the principal argument for the debtor is that the joint venture as alleged by the debtor was never concluded.

I think what should be clear first is that the joint venture that was proposed was to be between the debtor and Oilseed Copra Crushing Ltd (OCCL) which is registered in Samoa and is a wholly owned subsidiary of the petitioner. The proposed joint venture was not to be between the debtor and the petitioner. The name of the joint was to be Vaitele Copra Milling & Co (VCMC) or such other name as the partners to the joint venture would agree to from time to time. Under clause 7.3 of the draft deed to establish the proposed joint venture, all of the debtor's share of profits in the joint venture were to be retained and managed by VCMC until all of the debtor's creditors set out in the schedule of creditors to be attached to the joint venture deed had been fully repaid.

The difficulty in the debtor's argument that there is a joint venture is that in the document dated 20 July 1999 signed by the late Hon. Luagalau Levaula Kamu on behalf of the debtor and Jim Dunlop as agent for the petitioner, it is clear that the parties were only agreeing in principle regarding the draft joint venture deed. That agreement in principle was subject to six conditions none of which appears to have been resolved. As a consequence the joint venture deed was never signed. It remained as a draft deed. Eventually the petitioner on 5 October 1999 terminated the proposed joint venture. My view based on the material placed before the Court is that no joint venture ever materialised. Therefore the argument for the debtor that under the joint venture agreement its debts or creditors were to be paid out of its share of profits in the joint venture loses its foundation. It appears that after the proposed joint venture did not materialise, the petitioner continued to operate the coconut mill on its own.

Law

Both counsel referred to a number of New Zealand authorities (all of which I need not refer to) in respect of the Court's inherent jurisdiction to issue an injunction, restraining order or stay of. winding-up proceedings under the New Zealand Companies Act 1955 which has now been replaced by the New Zealand Companies Act 1993. As the New Zealand Companies Act 1955 is still in force in Samoa the authorities cited by counsel are particularly relevant.

The starting authority is perhaps the New Zealand Court of Appeal judgment in the case of Exchange Finance Co Ltd v Lemington Holdings Ltd [1984] 2NZLR 242 which dealt with a motion to stay winding up proceedings pending the determination of an appeal to the Court of Appeal. Cooke J (as he then was) in delivering the judgment of the Court said at p 214-215.

"[The] present petition is based partly on the ground that Exchange is indebted to Lemington in a sum exceeding $100 and that a statutory notice has not been complied with. The court has inherent jurisdiction to restrain winding-up proceedings, so far as they are based on such a ground, if there is a bona fide dispute whether the sum is presently due: see the judgments in the English Court of Appeal in Stonegate Securities Ltd v Gregory "[1980] Ch 576.”

"In those judgments there are some statements capable of being taken to mean that, given the premise that there is a bona fide dispute as to a debt, a company faced with a petition based on the ground that the debt is 'presently due is entitled as of right to an injunction. We think it clear, however, that the law of New Zealand is less unbending. It is settled otherwise by what was laid down by Lord Upjohn in delivering the judgment of the Privy council in Bateman Television Ltd v Coleridge "Finance Co. Ltd [1971] UKPC 8; [1971] NZLR 929,932, a judgment which essentially affirmed, so far as is now relevant, what had been said in the Court of Appeal by North P. Turner and McCarthy JJ. See [1969] NZLR 784 at pp 810, 817, 820. The Bateman judgments show that in New Zealand the general rule is that no winding-up order will be made on a petition founded on genuinely disputed debts, but that rule is not inflexible, as there are cases where the Companies Court in its discretion can find it appropriate on a winding-up petition to determine a dispute as to the existence of a debt”.

"Obviously the jurisdiction to restrain winding-up proceedings has to "be exercised with that settled New Zealand law in mind. We think that the governing consideration can only be whether presenting or proceeding with "a petition savours of unfairness or undue pressure. Whether that stigma attaches to a petition must depend on the particular facts. In many cases where there appears to be a genuine and substantial dispute about the present existence of a debt it will be right to grant an injunction. But there will be cases sufficiently out of the ordinary to justify a Judge in holding "his hand."

The above principles were reaffirmed by the New Zealand Court of Appeal in its judgments in Taxi Truck Ltd v Nicholson [1989] 2NZLR 297 which was a case concerned with an application for an order to restrain the advertisement of winding-up proceedings and to stay any further proceedings on the petition to wind-up, and in Fletcher Development & Construction Ltd v New Plymouth Hotels Holdings Ltd [1986] 2NZLR 302 which was a case concerned with an appeal relating to an interim injunction that was granted to restrain a creditor from petitioning to wind up a debtor.

In Fletcher's case, Cooke P said at p. 303

"The relevant principles and practice in New Zealand are discussed in the judgments in this Court in Exchange Finance Co. Ltd v Lemingtonm Holdings Ltd [1984] 2NZLR 242 and Anglian Sales Ltd v South Pacific Manufacturing Co. Ltd [1984] 2NZLR 249. In short a winding-up order is not normally made if the debt is genuinely disputed, but usually the existence of a genuine counterclaim for an equal or greater sum is not enough to defeat the prima facie right to a winding-up order enjoyed by a creditor in a sum of more than $100 who has made due and unsatisfied demand. Nevertheless the Court has an inherent jurisdiction to prevent abuse of process and will exercise that jurisdiction to restrain winding-up proceedings if, for instance, they are shown to be oppressive or unfair. Similarly there are exceptional cases in which a petition will be allowed to proceed notwithstanding a genuine dispute as to the existence of the alleged debt, as it is occasionally possible and desirable for the Judge in the Companies Court to determine the issue on the hearing of the winding-up petition. And in all cases there is an ultimate discretion to withhold an "order for winding up."

Richardson J in the same case said at p 305

"The principles relating to the grant or refusal of interim injunctions in winding-up cases were recently reviewed by this Court in Exchange Finance Co. Ltd v Lemington Holdings Ltd [1984] 2 NZLR 242 and Anglian Sales Ltd v South Pacific Manufacturing Co. Ltd [1984] 2 NZLR 249. An injunction may be granted under the inherent jurisdiction where the Court is satisfied that to allow an application for winding-up to be made or advertised would constitute an abuse of the process of the Court. Clearly such orders are made sparingly and as emphasised by Cooke J when he delivered the judgment of the Court in the Exchange Finance case, the ultimate and governing consideration can only be whether presenting or proceeding with a petition savours of unfairness or undue pressure; and whether that is so must depend on the particular facts. Subject to that overriding principle the general rule is that a winding-up petition will ordinarily be restrained where there is a genuine dispute as to whether the sum is presently due but that where the debt itself is admitted and a counterclaim is advanced the petition should normally proceed with the Court retaining a discretion as to whether or not it ultimately makes a winding-up order."

What is said about a counterclaim in the two judgments I have cited from Fletcher's case is not relevant to this case. Apart from that, the statements of principles mentioned in that case are a repetition and reaffirmation of the principles stated in the Exchange Finance case.

Application of principles

With the above legal principles in mind I turn now to consider the debtor's motion for an order to restrain further proceedings on the petition to wind-up.

As to the first debt of US$432,047.47 stated in the winding-up petition, Mr Wendt on behalf of the debtor confirms in his affidavit of 19 June 2000 that the debtor owes that sum to the petitioner. The debtor's motion for an order to restrain farther proceedings in relation to the petition for winding-up is founded on the ground that under the joint venture which was to be between OCCL and the debtor, VCMC or Vaitele Copra Milling & Co., which was the name to be given to the joint venture, was to pay the debtor's creditors, as set out in the schedule of creditors attached to the deed from the debtor's share of the profits in the joint venture. The problem here is that no joint venture ever materialised as the deed was never signed because there were several conditions the parties could not resolve. There was not even an agreement on a schedule of the debtor's creditors to be attached to the draft deed so that no such schedule was completed. One, therefore does not know for certain whether the petitioner would have been included in such a schedule. The two advances which make up the debt of US$432,047.47 have been admitted by the debtor and are long due for payment. The advance of US$300,000 made by the petitioner to the debtor in January 1998 was due for repayment on 31 January 1999; the sum of US$132,000 was paid by the petitioner to the debtor on 5 September 1998 for coconut oil and meal to be supplied by the debtor by 30 September 1998 but has never been supplied. The financial accounts of the debtor show that it is insolvent. From the material before the Court, it is also clear that the debtor is no longer trading or operating. I have, therefore, come to the view that there is no bona fide or genuine dispute as to the existence of the present debt which has been long due. The motion for a restraining order in respect of this debt is rejected. An order is made for winding-up the debtor.

As to the second debt of US$39,604.35 which is the amount of interest charged at the rate of 10% from 31 January 1999 to 30 November 1999 on the total amount of the first debt of US$432,047.47, Mr Wendt on behalf of the debtor claims in his affidavit of 19 June 2000, that in a letter dated 20 May 1999 from the petitioner to the debtor's solicitors, it was suggested that no interest would be claimed prior to February 2000 but interest would be charged after 31 December 2000 at the rate of 8% rising to 10%. The petitioner on the other hand simply asserts in its petition that the debtor is aware of the particulars of this debt. If that is so, the debtor through Mr Wendt has given what it knows about this debt which is that interest would not be charged until after 31 December 2000. Whether that is true or not, it is very difficult to conclude on the material before the Court that the present debt does exist and is due. The Court has an ultimate discretion whether to grant or withhold an order for winding up. If this debt had been the only debt on which the petition for winding up was based, I would have been inclined to withhold a winding up order and restrain further proceedings.

In respect of the last two debts for SAT$166,607.21 and NZ$13,000, it appears from the affidavit dated 24 March 2000 of Robert McNamara, the petitioner's governing director, that during negotiations for a joint venture between the petitioner and the debtor, a finance package was agreed upon. As part of that finance package, it was agreed that the petitioner would provide funds to settle the debtor's existing debts. The petitioner then paid SAT$166,697.21 to settle various creditors of the debtor and arrears of wages of various employees of the debtor. The sum of NZ$13,000 was paid to the debtor's expatriate employees for unpaid wages. The petitioner says it was necessary at that stage to make these payments in order to have the mill operating again while negotiations for the proposed joint venture were in progress. For instance, some of the debtor's creditors who were paid by the petitioner were the Electric Power Corporation, Water Authority and the Department of Postal and Telecommunications so that electricity, water supply and telephone service at the mill would continue. Mr Wendt in his affidavit dated 20 June 2000 simply says that the debtor is not aware of the details of the payments made by the petitioner. However, a list of the debtor's creditors and unpaid employees was provided by the debtor to the petitioner and is exhibited "K" to the affidavit of Robert McNamara. It was on the basis of that list provided by the debtor that the petitioner made payments to the debtor's creditors and unpaid employees. Whether or not the debtor actually knew that payments were made is insignificant. The list of the debtor's creditors and unpaid employees was given to the petitioner to pay and the petitioner did pay. I have also found the principal argument for the debtor that all the debts were to be paid out of the debtor's share of the profits in the joint venture to be without substance as no joint venture ever eventuated.

I therefore find that the existence of the last two debts which are now due are not genuinely disputed on any substantial ground. The debtor also appears to be insolvent. The petition for winding-up is also not oppressive or unfair as to amount to an abuse of process. It would be appropriate to issue a winding-up order on the basis of these debts.

All in all in then, the petition is granted and an order is issued to have the debtor wound up.

Counsel to file memorandum as to costs within 10 days if they wish to do so.

CHIEF JUSTICE

Solicitors:
Drake & Co. for petitioner
Kruse, Enari & Barlow for debtor