IN THE HIGH COURT OF FIJI
AT SUVA
COMPANIES PROCEEDINGS

CASE NUMBER: HBE 54 OF 2009

IN THE MATTER OF NEW (NAWA) SARDAR TRADING CO. LIMITED

AND

IN THE MATTER OF THE COMPANIES ACT

Appearances: Ms. B. Narayan for the Petitioning Creditor.
Mr. N. Lajendra for the Respondent.

Date/Place of Judgment: Wednesday, 29th June,, 2011 at Suva.
Judgment of: The Hon. Justice Anjala Wati.

JUDGMENT

WINDING UP – debtor company under a contractual obligation to repay monthly instalments towards mortgage repayments-the issue raised by the company in opposition to the petition was that the sale of the mortgaged property during the term of the loan extinguished the monthly obligation for repayment, as the application of the sale proceeds to the loan account had put the loan account in advance of repayments -the argument by debtor company refuted on the grounds that the sale of the mortgaged property was done to manage the debt to bring it down and had not exonerated the monthly liability-held that the company had defaulted in its monthly obligation which entitled the creditor to make a demand for full payment due and owing under the mortgage, which it properly did by serving a section 221 notice under the Companies Act, which demand was not honoured, therefore the company was deemed unable to pay its just debts and should be wound up.

The Cause

1.	The Petitioner, Australia and New Zealand Banking Group Limited has filed a petition to have the company, New (Nawa) Sardar Trading Company wound up on the grounds that the latter owes it a sum of $555, 081.23 plus agreed interest which accrues at the rate of $162.69 per day from 17/03/2009 until full payment is made.

2.	It is alleged that the debtor company is unable to pay its debt and that it is just and equitable that it be wound up.

The Opposition

3.	The petition is opposed on the grounds that the company is solvent and is in a position to pay its debt. 

4.	The company contends that it had obtained credit facility from the petitioner and the terms and conditions of such credit facility were set out in the offer letter dated 04/11/2008. The purpose of the letter was to amalgamate all existing debt owed by the company to the petitioner. Upon execution of the letter of offer, the company made a substantial repayment towards the credit facility by selling one of the mortgaged properties and applying the proceeds towards payment of the loan debt. 

5.	It is stated that due to the substantial repayment the company's loan account is ahead of the repayment schedule and that the action for winding up therefore should not have been commenced and is wrongfully presented.

Petitioners Contention

6.	In response to the opposition, the petitioner stated that the debt claimed is on account of the principal debtor Forum Import and Export Limited which loan account was amalgamated with the company's account by the letter of 04/11/2008. This was done to regularize the accounts which were regularly in default. The purpose of amalgamation was to set up a new repayment scheme towards the amalgamated debt.

7.	The Petitioner states that the debtor company had maintained accounts/credit facilities since 2005 and the accounts were in the names of Forum Import and Export Limited, John Indar Narayan and the company itself. Mr. John Indar Narayan was the Company Director of Forum Import and Export Limited and the father of the other directors. By January 2007 the total debt exposure of the companies was $1, 227,941.00. There were defaults by the debtors. The account became unsatisfactory and the debtors were asked to reduce their indebtness through some bulk repayment. 

8.	The debtors therefore sold one of the mortgaged properties, that is, Certificate of Title Number 35319. The sale was for $394,667.83. The debt was therefore reduced to $729,834.38 on 27/12/2007.

9.	The sale was to reduce the debt and the opportunity was given to the debtors to sell one of the properties otherwise the bank would have had to conduct a forced mortgagee sale of the property to realize the exorbitant debt.

10.	The default continued. Then, there was a further sale of another mortgaged property being Certificate of Title Number 11875 for the sum of $200,000 which further reduced the outstanding debt to $536, 217.04.

11.	The company has not made any repayments at all from 30/12/2008 in the sum of $6,072.61 which was reduced from $8,296.04. This was done to assist the company to pay its debt.

12.	There was a further credit entry of $5,039.63 to the account of the debtors. The money came from realization of the Colonial Life Policy No. 8085403. The bank had a Deed of Defeasance and Registered Assignment over the said Policy. The Policy was in the name of John Indar Narayan. The bank had realized the security as the policy was terminated for non payment of premiums.

13.	The total monthly repayments due on the account calculated on the amount of $8,296.04 per month from 30/01/08 to 30/12/08 and then on the amount of $6,072.61 from 30/01/09 to 31/07/09 would be $142, 060.27. The total repayments excluding the sale and policy credit was $74,664.00. The total arrears would therefore be $67,396.27.

14.	It is finally contended that the sale of the mortgaged property does not affect the Bank's right to seek payment of the entire debt upon demand. The bank has made a demand for payment of all its debt via its demand notice dated 30/03/2009 and the company has failed to comply with the terms of the demand notice.

The Determination

15.	The entire issue in the matter centers around determination of one aspect between the parties and that is whether the application of sale proceeds of Certificate of Title Number 11875 be constituted as loan repayments thereby exterminating the obligation of the company from paying a monthly sum $8,296.04 under the new arrangement entered between the parties on 04/11/2008. 

16.	The winding up action was presented on the 22/06/2009. It is undisputed that on 4/11/08 the debtor company had entered into a new arrangement which required it to continue paying the monthly principal and interest repayments of $8,296.04.

17.	After the new arrangement between the parties, there were two substantial transactions. One was a sale of Certificate of Title Number 11875 in the sum of $200,000 and the other was a realization of insurance policy of John Narayan in the sum of $5,039.63. 

18.	I have examined all the documents provided by the parties and from those documents the following is apparent:-

•	By a letter of offer dated 04/11/2008 which amalgamated all the accounts, the parties had agreed that the obligation of the company was to continue paying the sum of $8,296.04 inclusive of the principal and the interest. The obligation was on going and is not exterminated upon application of sale proceeds from sale of a mortgaged property.

•	The bank had written letters dated 03/07/2008, 10/07/2008, 10/11/2008, and 02/11/2008 to the company. These letters all call for payment of the monthly instalments. It is pertinent to note that these letters were written after the first sale of a mortgaged property on 27/12/2007. These letters are sufficient to indicate to the company that although a mortgaged property was sold, the proceeds were used to reduce the outstanding debt and that it did not extinguish the liability of the debtors to continue the monthly repayment. If it did, then why was the need for the bank to continuously call for monthly repayments? 

The debtors are merely refusing to understand the obligation that existed, not that they are genuinely of the belief that the account is in advance of payments. That is my judgment of the issue.

•	A letter was written by the directors of the company on 16/12/2008. In that letter the directors consented that the "full proceed on sale of property to be remitted directly to ANZ for further reduction of our existing debt todate of $736,217.04 on account of Forum Import and Export Limited". 

Underlining is Mine

The above letter also indicates that the directors clearly understood that the sale proceed was not to extinguish the monthly liability but to reduce the general debt. The monthly obligation to continue with the repayments was therefore never extinguished and that was the clear understanding of the directors.

19.	When the monthly obligations were not respected, a statutory demand was served on the company under s. 221 of the Companies Act to pay the debt and that demand was not honored. Under s.221 of the Companies Act, the company is therefore deemed unable to pay its debt. 

20.	Further, the contract entered between the parties is an "on demand facility" and all and every sum of money becomes due and owing on demand. When the security under the mortgage was sold, the bank made a statutory demand under s.221 of the Companies Act for the entire amount due and owing under the mortgage. When that demand was made, the company cannot rely on the argument that it is in advance of its payment because the entire sum now needs to be repaid and not only the arrears due and owing. 

21.	So even if the company was confused as to its obligation under the new arrangement after the sale of the security, the demand made under the mortgage strictly negates any argument of a nature that the payment of the loan account is in advance. 

22.	By failing to comply with the demand for payment, the company is deemed unable to pay its debt and therefore it should be wound up.

23.	There is no substantial ground on which this petition could have been opposed and as a result the company should pay the costs of this proceeding as well. I have the powers to make a summary assessment of the costs and I do so in this matter.

24.	The parties had agreed that the verdict in one matter should apply in the other matter of case number HBE 55 of 2009 in which Forum Import and Export Limited is the debtor company. The issues are same and there is no point in reiterating the same. I therefore propose to make the same orders in the Winding Up Case Number HBE 55 of 2009.

Final Orders

25.	In terms of final orders:-

a.	I hereby order that the Companies in Winding Up Case Numbers HBE 54 and 55 of 2009 be wound up.

b.	There shall be costs in favour of the petitioning creditor in the sum of $1000.00. This includes the costs of HBE 55 of 2009.

c.	Orders Accordingly.

Anjala Wati
Judge

29.06.2011

To: 

1.	Ms B. Narayan for the Petitioning Creditor.
2.	Mr. N. Lajendra for the Company.
3.	File: HBE 54 and 55 of 2009.