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In the Matter of Gounder Investment Ltd [2010] FJHC 432; Winding Up Cause 110 of 2009 (20 September 2010)

IN THE HIGH COURT of FIJI at LABASA
COMPANIES JURISDICTION

WINDING UP CAUSE No: 110 of 2009

IN THE MATTER of GOUNDER INVESTMENT LIMITED
a limited liability company having its registered Office at
Anand Prasad Complex. Vulovi, Labasa Fiji.

AND

IN THE MATTER of the Companies Act.

Before: Master H Robinson
Counsels: : No appearance for the Petitioner
: Mr. Sen of Macbool & Co. for the Respondent

RULING

INTRODUCTION
On the 30 September 2009 the petitioner, Flour Mills of Fiji presented a petition to the office of the Acting Chief Registrar of the High Court, Suva to wind up Gounder Investment Limited. Gounder Investment Limited is a limited liability company having its registered office at Anand Prasad Complex Vulovi, Labasa.

The basis of the presentation of the petition is an alleged debt to the sum of $44,749:59 in respect of "Trade Account" rendered to Gounder Investment Limited. The petitioner claims that the said "Gounder Investment Limited is unable to pay its debt and should therefore be wound up.

In accordance with Rule 22 (1) of the Companies (Winding Up) Rules the Acting Chief Registrar appointed that the petition is to be heard at the High Court in Suva on Wednesday the 18 day of November 2009 at 11 O'clock in the forenoon. There is no record on the file that the petition was heard on the appointed date of 18 November only that it was heard before the then Chief Registrar on the 2 December 2009 at which point an application was made to transfer the matter to the High Court at Labasa. The transfer of the file to Labasa was eventually granted by Justice Hettiarachchi on the 3 March 2010.

Contrary to the mandatory requirement under Rule 25 of the Companies (Winding Up) Rulesthat the "Verification of the Petition" is to be filed within 4 days after the petition is presented, the affidavit verifying the petition was filed on the 9 October 2009, that is some 10 days after. No leave to extend the time frame under Rule 201 was made by the petitioner, although this issue was not decisive in this instance.

The petition was served on the respondent company on the 23 October 2009 and its "Memorandum of Due Compliance" on the 17 November 2009 and was ready for the hearing of the petition at the appointed date of 18 November 2009.

The respondent company filed its affidavit in opposition on the 5 November 2009 and when the matter was called on the 2 December 2009 the petitioner requested to be given 21 days to file a reply to the affidavit in opposition and the matter adjourned to the 27 January 2010. The petitioner's affidavit in reply was filed on the 27 January 2010 and the matter adjourned to 17 February 2010 and thereafter adjourned for hearing before a judge on the 3 March 2010. On the 3 March 2010 the matter was transferred to Labasa High Court where it came before the Master. After two further appearances the matter was adjourned for hearing on the 1 September 2010.

HEARING

At the hearing of the petition the petitioner did not appear to prove the debt. The opposition to the petition now being unchallenged the Court is left with no alternative but to deny the application.

Some matters however, need to be clarified regarding the content of the affidavits filed by both parties in respect of this application. Rule 25 enables the petitioner to verify the petition through an affidavit. This particular affidavit has attracted a lot of attention and legal debate since its inclusion as evidence of the contents of the petition. Much care must therefore be taken by petitioners in the preparation of and the establishment of the truth of the information contained in statutory affidavits required to verify a petition of this nature. This is because it is sworn and accepted as prima facie evidence of the contents of the petition.

The form of the affidavit verifying the petition can be found in 2nd Edition of the "Atkins Court Forms" forms Nos 279 to 281. The basis of the affidavit is that the deponent swears that the statement in the petition which relate to the acts and deeds of the petitioner are true. Unless the deponent is a Solicitor acting for the petitioner, in most cases the deponent has acquired these information through the acts of a third party and to which the deponent has no direct knowledge. In other words this affidavit at best is hearsay evidence. What then is the legal rationale behind its acceptance as prima facie evidence for a petition which may result in the termination of an entity to function as a company? The answer to this question may be found in an analysis of the seven grounds for winding up a company under section 220 of the Companies Act, Cap. 247.

Four of the grounds of winding up a company are grounds which relate to the function or non function of the company as an entity. That is they are grounds which changes the texture or the structure of the company which may result in the company being unable to function properly or effectively. For example where by special resolution the company has resolved that the company be wound up or it has defaulted in delivering its statutory report or holding a meeting or has not commenced its business within a year of incorporation or there is a reduction in its membership or where winding up proceedings have commenced in the territory of its incorporation . These grounds can be classified as relating to what I call the "mechanics" of the company which enables it to function, therefore the petitions and the "affidavits verifying" them which are presented under these heads can easily be dealt with summarily and the acceptance of hearsay evidence as to its contents may attract some justification.

However the ground that the company is unable to pay its debt and the ground which can attract the opinion of the court to wind up a company should in my view be treated differently as far as the affidavit verifying the petition is concerned. This is because the evidence required are of a different nature which requires oral evidence to be given and in doing so normal rules of evidence would apply. This approach takes into account that the company is functioning and that a winding up petition is a drastic step taken to terminate its existence as a legal entity.

However the rule regarding affidavits verifying the petition is a statutory rule and no decisions of the court can modify its effect although, in my view, attempts have been made by the Courts to limit its acceptance as evidence by questioning the evidentiary values of the contents of the affidavit. Justice Warrington In re African Farms Limited [1906] UKLawRpCh 43; (1906) 1 Ch 640 stated at p. 642 that:-

"The rule is merely directory as to the kind of affidavit to be accepted as evidence. That leaves it open to the Court, in a proper case, to accept an affidavit which in an ordinary case coming before the Court would be accepted as evidence". Justice Buckley in re ABC Coupler & Engineering Co Ltd (No:2) (1962) 1 WLR at 1243 in accepting that the effect of the rule was that a petition might be "sufficiently verified by what was hearsay evidence or worse, but verifying a petition was one thing and establishing a sufficient case to justify making a winding up order was another". While Justice Buckley did not entirely reject the possibility of there being a case in which the Court would be satisfied with hearsay evidence he indicated considerable doubt about this and preferred rather the use of evidence which conform to the ordinary rules of evidence. See also Re Travel and Holiday Clubs Ltd (1967) 1 WLR 799.

Master Udit in Re Comsol Fij Ltd (2009) FJHC 77 when faced with the preliminary argument about the acceptance of viva voce evidence in a petition based on the company being unable to pay its debt sought direction from the decision of His Lordship Justice Gates in Re Kim Industries Limited, Lautoka High Court Winding Up Action No. HBF 36/96. His Lordship there, stated that although winding up proceedings often proceed on affidavit evidence alone, viva voce evidence is admissible.

In the present case the petition consists of two statements. The first statement relates to the company as a legal entity with a nominal capital divided into shares and the details of the companies purpose and object. The second and more important of the two refers to a statutory demand notice pursuant to section 221 of the Companies Act. Non compliance of the payment of the alleged debt on the "notice" will result on the petition being presented to wind up the company. It is important to note that the affidavits verifying a petition only verifies the statement being made as it relates to the acts and deeds of the petitioner to enable it to present a petition but it does not verify the truth contained in those statements. This is an important distinction.

The section 221 notice in the present case states "...the Creditor Flour Mills of Fiji ...claims that the Company (Gounder Investment Limited) owe to it the sum of $44,749:59 (Fourty four thousand seven hundred and fourty nine dollars and fifty nine cents) ... being the amount due and owing by you in respect of Trade Account rendered to your company, details whereof are well known to the company (emphasis mine) ..." Although section 221 does not prescribe the way in which a demand notice is made accept that a debt is to be paid within a certain period of time, the demand notice itself is not proof of debt. A demand notice which does not include the details or particulars of the alleged debt can attract a general denial from the respondent. In this scenario the expectation that the court accept the conclusions of the petitioner as its own should not be accepted without further evidence. As Master Udit commented in Re Comsol Fiji Ltd " Since the notice is a pivotal document, in my view all necessary details must be contained in/or attached to the notice.

This in turn will provoke a substantive response from the company instead of getting engrossed in several follow up correspondences to and fro seeking detail. "In reply to the petition the respondent company states that every invoice rendered has been satisfied and that they had never purchased goods from the petitioner for the sum claimed. Given the lack of particulars in the demand notice any general denial by the respondent creates a doubt on the alleged debt and puts unnecessary pressure on the summary nature of the petition to wind up a company. Has the petitioner then, in this instance, satisfied the fundamental requirement that there is debt? I am of the view that the petitioner has not satisfied that requirement if it creates a statement of debt which casts a doubt to the existence of that very debt. Hence an omission by a company to comply with a statutory demand which is lacking in the necessary particulars may not amount to a neglect to comply with the statutory demand. The demand could therefore be seen as being without substance and needs further investigation. In Mann & Anor –v- Goldstein & Anor (1968) 2 All E.R.769 it was held that " As the existence of the debt on which each winding up petition was founded was disputed on grounds showing a substantial defence requiring investigation, the petitioner did not establish that he was a creditor and thus had the locus standi to present the petition...accordingly the presentation of the petition was an abuse of the process of the Court".

Therefore I am of the view that the use of phrases such as "the details whereof are well known to the company" or "the company is aware of the particulars of the debt" when used in s.221 notices are not particular enough to establish the existence of a debt and therefore form the basis upon which a petition is presented to wind up a company. Proper functioning companies have a paper trail generated from within identifying every sale or purchase and providing the particulars in a section 221 notice does more to proving that a company cannot pay its debt than a general statement like those referred to above. It is important to consider this point because even if the quantum is wrong but the particulars are right, the Court may still make an order. That is, a dispute as to the amount of indebtedness to a petitioning creditor but not the existence of the indebtedness is sufficient to entitle the petitioner to a winding up order; Re Tweeds Garages Ltd., (1962) 1 All E.R. 121 at 776.

For the above reasons together with the fact that the petitioner did not attend the hearing to provide further evidence proving the debt, the petition to wind up the company is dismissed with costs which I summarily assess in the sum of $750:00.

Accordingly so ordered.

H A ROBINSON
MASTER of the HIGH COURT

20 September 2010.