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In the Matter of Denarau International Ltd [2010] FJHC 435; HBE 19 of 2010 (21 September 2010)

IN THE HIGH COURT OF FIJI ISLANDS
AT SUVA
CIVIL JURISDICTION

Civil Action No: HBE 19 of 2010

BETWEEN:

IN THE MATTER OF DENARAU INTERNATIONAL LIMITED
Plaintiff

AND:

IN THE MATTER OF THE COMPANIES ACT
Defendant

Counsel: Lowing Nandan & Assoc. for the Plaintiff
Howards Lawyers for the Defendant

Date of Ruling: 21st September, 2010

RULING

[1] In this case a winding up petition was presented on 22nd Feburary 2010 seeking an order that Denarau International Ltd be wound up by the court. The petitioner is one Robv Overseas Pvt Ltd who claimed that the company was indebted to it for a sum of $10500.00. The petitioner alleged that the company is unable to pay its debts and therefore the company should be wound up.

[2] The petitioner has filed a memorandum of due compliance in accordance with companies winding up rules 28(1).

[3] Grant Robert Graham a joint receiver of the company namely Denarau filed an affidavit and a supplementary affidavit opposing the winding up petition.

[4] When the case was called on 30.06.2010 the counsel for the petitioning creditor objected the validity of the appointment of receivers. Further, he submitted that Mr Grant Grahem and Mr Brendon Gibson who have been appointed as receivers of the Debtor Company cannot be heard or cannot represent the Company since no supporting documents namely the debentures and the instrument by which the receivers were appointed were attached with the affidavit filed in opposition by the respondent company. Further, he submitted that no evidence is placed before the court to show that they are receivers of Denarau.
[5] Therefore it is necessary for this court to decide whether the receivers, Mr. Graham and Mr. Gibson are duly appointed and whether they have the status to appear and oppose the application to wind up Denarau.

[6] Counsel for the debtor company contended that though the actual debenture was not exhibited with the affidavit filed in opposition, it had been mentioned in their affidavit in opposition. He further submitted that it is not a fatal irregularity even if the debentures are not exhibited with the affidavit in opposition in order to object to an application made under sec 221 of the companies Act. However those documents were tendered subsequently by the respondents.

[7] Respondent further argued that its failure to honour the demand made by the notice sent under Section 221 does not fall within the Section 221 which would give rise to establish inability to pay its debts or it will not be deemed to prove such debt referred to therein. It was further submitted that when the notice to pay the dues was issued on 7.12.2009, an injunction was in place in a related matter namely Trevor Rogan v. DIL preventing the payment of villa revenue to any villa owners.

[8] However, the petitioner contended that the company does admit the existence of the debt but contested only the quantum of it. Petitioner further submitted that although the respondent stated in their affidavit that they deposited a sum of $10500.00 in the Trust Account of their solicitor. It was deposited not by the respondent company but by the Denarau Project construction Company and there is a winding up application No 30/10 against the Denarau Project Construction Company. Therefore a payment made by this entity to the petitioner could be illegal in terms of the Section 313 of the Companies Act.

[9] Section 313 of the Companies Act provides as follows:

313 (1). Any transfer, conveyance, mortgage, charge, delivery of goods, payment, execution or other act relating to property made or done by or against a company within 6 months before the commencement of its winding up which, had it had it been done by or against an individual within 6 months before the presentation of bankruptcy petition on which he is adjudged bankrupt, would be deemed in his bankruptcy a fraudulent preference shall, in the event of the company being wound up, be deemed a fraudulent preference of its creditors and be void accordingly.

(2) Any transfer, conveyance or assignment by a company of all its property to trustees for the benefit of its creditors shall be void to all intents.

[10] One of the main issues to be considered now is, whether the appointment of receivers was done in accordance with the provisions contained in the debentures. It is admitted at the commencement of the hearing that the company has failed to exhibit debentures along with the affidavit filed by the receiver.

[11] However, in the supplementary affidavit filed by one of the receivers namely Grant Robert Graham on behalf of the company pursuant to a direction by the court, the debenture and the instrument of appointment of receivers were filed marked as GR1 to GR 4.

[12] In that affidavit it is stated that Grant Robert Graham and Brendon James Gibson were appointed as the Receivers and Managers of the company on 08.09.2009 by Strategic Nominees Limited. A copy of the Instrument of Appointment also was filed marked as GR1.

[13] It was further stated that their appointment as receivers was made pursuant to a validly executed and registered Debenture dated 31.10.2005 by the Strategic Nominees Ltd. A copy of the debenture marked as GR2 also is annexed with the affidavit.

[14] It was also stated that their authority, powers and jurisdiction as Receivers and Managers is expressly set out in paragraph 27 of the Debenture.

[15] Accordingly, I will now consider whether the appointment of Mr Grahem was validly made in terms of the provisions of the Companies Law.

[16] The decision given by Justice Jitoko in Re Eastern Express Ltd (2003) FJHC provides some important guidelines as to how the validity of the appointment of receivers should be determined.

[17] In that judgment it was held;

"It is clear in the circumstances of this case and after reviewing the law including the submissions made by Counsel that before the Receivers and managers of the Company are granted the right to be heard and represent the company in these proceedings, they must satisfy the court two things. First, that their appointments has been validly made pursuant to the provisions of the debenture. Second, that the debenture from which their appointments are made does in fact constitute a charge on the assets of the company."

[18] In the light of the above judgment following two criteria have to be satisfied when a receiver or Manager of a company is empowered to oppose a petition in a winding up proceedings.

1. There should be a valid appointment of receivers.
   
2. The debentures shall constitute a charge on the assets of the company.
   

[19] The document marked and annexed as GR1 is the instrument of Appointment of Receivers. It reads that Mr Grahem and Mr. Gibson have been appointed as receivers and Managers.

[20] The debenture dated 31.05.2005 had been marked and annexed as GR2 to the supplementary affidavit by the receiver. When the said debenture is examined carefully, It could be observed that the liability under the Deed of Guarantee and the Indemnity dated 31.10.2005, had been granted by the Company in favour of Strategic Nominees Ltd. Further, it demonstrates clearly that the debenture constitutes a valid charge on the assets of the company. I therefore, conclude that the Receivers and Managers are duly appointed and they have the right to oppose the Winding up Application.

[21] On the above premise I, reject the petitioner's preliminary objection on the validity of the appointment of receivers and their capacity to oppose the winding up application.

[22] At this stage, it is important to note that the company sought to be wound up is none other than Denarau International. The Debenture is created by Denarau in favour of Strategic Nominees Ltd by which a liability was undertaken by a Deed of Guarantee dated 31.10.2005. This Debenture has been registered as a charge on the company Denarau. Receiver Graham is appointed by Strategic Nominees Ltd to manage the property on behalf of the Debenture Holders.

[23] Furthermore, it is stated in the affidavit of Mr. Graham that the injunction order obtained on 30.06.2009 by Mr. Trevor Rogan as the Trustee of the Bula Trust in the Suva High Court in Civil Action Number 184 of 2009 prevented the Company from complying with the Sec.221 notice issued by the petitioning creditor.

[24] Section 221 of the Companies Act reads as follows:

221. 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 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; or

(b) if execution or other process issued on a judgment, decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part; or

(c) if it is proved to the satisfaction of the court that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the court shall take into account the contingent and prospective liabilities of the company.

[25] In the affidavit of Mr. Graham the account of the payments made to Villa owners since the appointment of Receivers are set out in detail.

[26] Accordingly, it is pertinent to note that the respondent Denarau Company in its affidavits has stated that the company was genuinely making an effort to pay its debts. In those affidavits it is also stated that the company was prevented from making payment to the creditors as a result of an interim injunction issued in Civil Action No 184/2009. The issuance of that injunction has not been challenged. At the hearing the counsel for the petitioner admitted that the injunction had prevented the Receiver and Manager making payment but he has further submitted that it was subsequently varied. However, the petitioner has not tendered the order said to be varied.

[27] The injunction had been obtained by one of the Villa Owners who is also a supporting creditor of this action. This fact has not been challenged by the petitioner company.

[28] Therefore, it is evident that the company sought to be wound up is faced with an obstruction even though they are making an effort to pay the debts.

[29] In the circumstances it is not proper and equitable to make a winding up order at this stage.

[30] Hence, this court is of the opinion that granting an order under Sec 223 (1) would be the most appropriate way to deal with the present application for winding up.

[31] Section 223 (1) of the Companies Act states:

On hearing a winding up petition, the court may dismiss it, or adjourn the hearing conditionally or unconditionally, or make any interim order, or any other order that it only that the assets of the company have been mortgaged to an amount equal to or in thinks fit, but the court shall not refused to make a winding up order on the ground excess of those assets or that the company has no assets.

[32] In the light of the said provision and also having considered the material before this court, I decide to give an opportunity for the respondent company to take necessary steps in order to pay its debts. Therefore, acting in terms of Section 223(1) I adjourn the hearing of the Winding-up petition to facilitate the Company to take every possible measures to settle its debts.

[33] The respondent is required to inform the court on the next mention date as to the steps that it had taken in accordance with the directive issued in the preceding paragraph.

[34] In the event the respondent company fails to take necessary steps as ordered above, the petitioner is at liberty to pursue this winding up application upon making an application for same.

Pradeep Hettiarachchi
JUDGE

At Suva
21st September 2010