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In re Ba Provincial Holding Company Ltd [2012] FJHC 1064; Winding Up Cause 032.2009 (4 May 2012)

IN THE HIGH COURT OF FIJI
AT LAUTOKA
COMPANIES JURISDICTION

Winding Up Cause No. 032 of 2009 and 002 of 2010.

IN THE MATTER OF BA PROVINCIAL HOLDING COMPANY LIMITED a limited liability company having its registered office at Rogorogo-i-Vuda House, Tavewa Avenue, Lautoka.

IN THE MATTER of the Companies Act.

Before : Master Tuilevuka
Appearances : Mr. Sharma of Vijay Naidu & Associates for Islands Electrical Contractors (a creditor)
Mr. S. Krishna for Datt Holdings Limited (a creditor) for Neil Shivam Lawyers
Mr. Vuataki – for Ba Provincial Holdings Company Limited
Date : 04 May 2012

RULING

INTRODUCTION

[1]. On 12 August 2011, I granted an Order to wind up Ba Provincial Holdings Company Limited ("BPHCL") on the petition of Vodafone Fiji Limited and Chandra Lok. My ruling is reported in paclii.

[2]. At the outset of these proceedings, BPHCL had admitted to the debts alleged by the petitioners and by the supporting creditors.

[3]. The Order to wind up BPHCLwas in fact granted some two years or so from the commencement of the proceedings. During those two years or so, I did call over and adjourn the case numerous times. I did sobased on representation from BPHCL's lawyers that – if given time, BPHCL would eventually succeed in trading itself out of its difficulties and be in a better position to pay off its unsecured creditors.

[4]. However, it became clear as time passed that BPHCL was commercially insolvent. The debts involved had all been outstanding for years. The company was not able to pay them as they fell due. And it was struggling – and failing - to honour the various installment payment plansthat it had entered into with its many creditors.It was on that basis, that I granted the Order to wind up the company on 12 August 2011.

1ST STAY ORDER

[5]. Immediately after I granted the Order, BPHCL managed to muster up the support of all the creditors to seek a stay of the winding up order.The company was not appealing the Order (although it appeared that the company had so contemplated at some stage). Rather, all that BPHCL wanted was time – yet again – to enable it to keep trading and to pay off the creditors. Some two weeks after the Order to wind up BPHCL, I did grant another order to stay the winding up to 24 January 2012. That stay order was granted pursuant to section 252 of the Companies Act (Cap 247). This section gives this Court power to, at any time after an order for winding up is made, make an order staying the proceedings either altogether or for a limited time on such conditions as it thinks fit.

[6]. In granting stay, I took into account the position of the unsecured creditors. Their sole interest was to get paid in full. And it had become apparent to most of them after the granting of the winding up order that - if the winding up was to proceed, there was no guarantee that they (unsecured creditors) would be paid anything at all as the company's substantial assets appear to be all tied up as security in favour of secured creditors.

[7]. I also took into account documentary evidence that was being put before me for the first time which purported to show that the company had assets the total value of which far exceeded its liabilities.

[8]. However, come 24 January 2012, BPHCL had not settled its debt.

1ST STAY EXTENSION

[9]. The Company then made an application to extend the stay on the ground that the company was trying to secure a bank loan to pay off the creditors.The affidavit in support of the application was sworn by one Pauliasi Naivalu, the company's Manager Operations. He is responsible for all legal matters of the company. Naivalu's affidavit exhibited two documents which were purported to be the audited accounts of the company for the years 2009 and 2010 respectively. Inparagraph 9 of his affidavit, Naivalu deposes as follows:

..the audited account of the company shows assets of $17,243.649 in 2009 and $17,791,847 in 2010. I attached marked "PN2" a three copy of page 10 of 2009 audited accounts and "PN3" a true copy of page 10 of 2010 audited accounts.

..the liability for 2009 is $15,899,436 and $15,260,120 in 2010.

..Management accounts for 2011 subject to audit shows a liability of $13,502,360.00 against a current secured Bank loan account of $11,200,000.00.

..the company has sought borrowing of $12, 300,00 to clear the $11,245,685.34 and leave $1,100,00 for unsecured creditors to clear off FIRCA, FNPF and the companies being paid by installments such as some supporting Creditors.

..the Company had hoped to finalise its loan application by December 2012 but this was not possible as the audited 2010 account was not available from the auditors till late November,2012.

..by that time the Bank required the 2012 Management account which is being finalized at date of this application.

..once all documents are finalized and submitted it will take five days for recommendation to approval. The Company's current Bank was paid about $1,000,000 in interest and penalties by the Company in 2010 and this has given incentive to cover the current loan application for payment of all unsecured creditors so that all debts of the Company will become secured under one repayment system.

..security documentation may take two months and I therefore ask for extension for stay for three months to pay off all Supporting Creditors. All Petitioning Creditors have been paid.

(underlining mine - Naivalu later filed a supplementary affidavit to correct the errors in the dates).

[10]. There was again strong support from the creditors to extend the stay.And I granted stay to 14 February 2012 and then extended stay to 02May 2012.However, come 02 May 2012, BPHCL had not secured a Bank loan and had not settled its debts.

2ND STAY APPLICATION

[11]. What is before is yet another application to stay the winding up. The application is filed by Vijay Naidu & Associates for and on behalf of their clients, Islands Electric Wholesalers, which is one of the creditors. Supporting the application is an affidavit ofRaymond Singh, the manager of Islands Electric Wholesalers. Singh deposes that BPHCL has been consistent in its installment of $2,000 per month and is paying off its debt to Islands Electric. An affidavit of Isimeli Bose, the CEO of BPHCL is also filed herein support of the application. Bose deposes as follows in paragraphs 2 to 6:

2. ..the company had approached the Bank of South Pacific ("the Bank") in January 2012 for refinancing to enable it to pay off all its Creditors and had submitted 2011 Management accounts.

3. ..the Bank had required audit of the company's 2011 accounts and physical audit of the accounts was completed on the 26th day of April 2012.

4. ..the Auditors have stated and I believe that the audited accounts will be ready by 15th of May 2012. Annexed marked "A" is a true copy of email from the Company Auditors.

5. ..after such audited accounts is ready the applicant for refinancing will be finalized and submitted to the Bank.

6. ..that s further period of two months is required to finalise the refinancing facility to pay off all Creditors of the Company.

7. I therefore ask for an extension of stay for a further two months.

[12]. A letter dated 30 April 2012 from Zarin Khan, the partner of the accounting firm of aliz is annexed to Bose's affidavit. The letter states as follows:

We write to submit progress relating to the restructure of the Company's finance:-

(1) The Company's audited financial statements for the year ended 31 December 2010 was completed in December 2011 and these together with the projected statements were presented to the Company's Bankers and the Bank of the South Pacific in January 2012.

(2) The Company's audited results for the year ended 31 December 2012 reflected substantial improvement in its financial performance with net profit before interest depreciation and tax of $3,161.518 and net equity of $2,531,727 as of that date.

(3) Both Banks have verbally indicated in participating by way of providing a take-out financing of all unsecured creditors of the Company and to restructure the total long term debt with interest rate below the rates currently charges.

(4) ...to enable the company to finalise the financial arrangements, the Bank requires audited financial statements of the Company for the year ended 31 December 2011.

(5) ...our office has completed the draft financial statements for the year ended 31 December 2011 and expect to finalise the audit of these financial statements by 15 May 2012.

(6) We note from the Company's draft financial statements for the year ended 31 December 2011 that the company made a profit before interest depreciation and tax of $1,816,476 and the net equity profit of the Company has increased to $2,595,438.

Based on these financial results the Company should not have any difficulty in its financial restructure. The financial restructure includes the conversion of all unsecured creditors into long term debt.

(7) We believe that the financial restructure will be completed by 30 June 2012 when all unsecured creditors will remit payment

[13]. Bose has also sworn a supplementary affidavit which is filed herein support of the application. In his second affidavit, Bose exhibits an unsigned report by BPHCL's Acting Manager Finance. According to the above report, BPHCL has settled a total of $323,421.58 in debt from January 2012 to April 2012 leaving real debt of $804,184.36. These figures relate only to the company's seventeen (17) unsecured creditors whose debts are not in dispute and where arrangements are in place between the parties for settlement. Apart from the above, the report also sets out the names of ten (10) creditors whose alleged debts are being disputedby the company. Cumulatively – these debts amount to $138,347.65.No arrangement is in place between the parties with respect to the settlement of these debts.

[14]. According to Bose's supplementary affidavit, BPHCL has also held meetings with FIRCA and there is some promise yet that FIRCA will grant a conditional waiver over certain penalties totaling $329,239.74. In the meantime, the company is continuing to pay off its FIRCA debt vide a garnishee Order that is in place.

OBSERVATIONS

[15]. BPHCL's balance sheets, according to the report of the accounting firm of aliz – is showing promise. aliazis optimistic that the company will recover. From one point of view, all that the history of these proceedings demonstrate, and what the evidence shows clearly, is that -while BPHCL may have substantial assets –it isat the same time commercially insolvent.Despite two extensions of stay already granted to the company, it is still trying to secure a bank loan to pay off its creditors. Obviously, the company's assets are all tied up in investments or as security and are not presently realizable to pay off its debts.However, having said all that I am inclined to grant another extension for the following reasons:

• (i) all the creditors – except one – support an extension.
• (ii) the report of aliz on the planned restructure of the company's finance is optimistic that the company will recover and will secure a bank loan to pay off its debt.
  

ORDERS

[16]. I grant a further stay of the Winding Up Order of the company to 31 July 2012 to inquire if the company's proposed restructure of its finance has been effected as outlined in the report of aliz and to see if the unsecured creditors have all been paid off as part of the proposed refinance plan.Proceedings adjourned to 31 July 2012 at 8.30 a.m. for mention.

............................
Master Tuilevuka

At Lautoka
04 May 2012