IN THE HIGH COURT OF FIJI
AT LAUTOKA
CIVIL JURISDICTION		
	High Court Civil Action No. 141/2011

BETWEEN	:	MEAT CUISINE FIJI LIMITED (In Receivership) a duly incorporated limited liability company having its registered office in Nadi.
	
		Plaintiff
	
AND	:	CARPENTERS FIJI LIMITED a duly incorporated limited liability company having its registered office in Suva, trading under the name and style of MORRIS HEDSTROM

		Defendant	
Solicitors	:	M/S Rams Law for the Plaintiff	
		M/S Krishna & Company for the Defendant	
			
R U L I N G

INTRODUCTION

1.	In the Fiji Sun’s issue of 27 March 2013, an advertisement was published by the Acting Deputy Official Receiver and Provisional Liquidator. By that advertisement, the Deputy Official Receiver was giving Notice of the date, time and venue of a 1st Creditors Meeting for various companies. Amongst the twenty two companies listed, was Meat Cuisine (Fiji) Limited (“Meat Cuisine”).
2.	Meat Cuisine is the plaintiff in this case.  Some eighteen months prior to the above advertisement, on 09 September 2011, Meat Cuisine had filed a Writ of Summons and Statement of Claim against Carpenters Fiji Limited (“Carpenters”). In the intituling page of the originating process, the words “in Receivership” appear after and beside Meat Cuisine’s name. 
3.	That Meat Cuisine was already under receivership at the time it filed its writ of summons and statement of claim is not a point of dispute. However, what would emerge after the close of pleadings is that a Mr. Kamal Sen was appointed receiver (or liquidator?) for Meat Cuisine. 
4.	I say receiver (or liquidator?) because Sen himself, on the one hand, had deposed that he was appointed receiver pursuant to a mortgage-debenture of a creditor and yet, in another affidavit, he deposes that he was appointed company liquidator at an Extraordinary General Meeting of Meat Cuisine members held in July 2011. It is also not in dispute that Sen also has a Receiving Order against him by the Official Receiver.
5.	By summons dated 09 May 2012, Carpenters seeks an Order that Meat Cuisine’s writ and claim be struck out and dismissed and that the “liquidator” be ordered to pay a fine of $10.00 per day from 07 September 2011 “in default and failure of the Liquidator to comply with section 300 of the Companies Act”. Alternatively, the defendant seeks an Order that the Official Receiver be appointed Receiver of Meat Cuisine.

GROUNDS

6.	The application is based on the following grounds:

(a)	that the Official Receiver has never granted consent to the liquidator to institute legal proceedings on behalf of Meat Cuisine/or the liquidator has failed to obtain consent of the Official Receiver to institute legal proceedings on behalf of Meat Cuisine.
(b)	the appointed liquidator of Meat Cuisine is an undischarged, bankrupt and has a Receiving Order issued against him issued on 18 August, 2010. 
(c)	in the alternative, that the liquidator has failed to publish his appointment  in the Gazette and deliver to the Registrar for registration a Notice of his Appointment in the prescribed form. 

7.	I reduce Carpenters’ solicitors’ submissions into three parts: 

(i)	first – is the argument that Sen does not qualify to be liquidator/receiver of Meat Cuisine.

(ii)	second – is that Meat Cuisine is already wound up and as such, the consent of the Official Receiver is required before Meat Cuisine can proceed with this action.

(iii)	third – is the submission that, as a creditor of Meat Cuisine, Carpenters is entitled to show cause for the removal of Sen as Liquidator on account of the fact that it is aggrieved by “the decision of Liquidator”.

PARTIES’ RESPECTIVE POSITIONS

8.	The Summons is supported by an affidavit of Ms. Miriama Latianara, a solicitor who was then in the employ of Carpenters’ Solicitors, Krishna & Company. She deposes that Sen had a Receiving Order issued against him on 18 August 2010 and is an undischarged bankrupt. The Official Receiver, she says, is now the consolidated receiver of Sen’s estate. He has failed to obtain the consent of the Official Receiver to institute these legal proceedings.

9.	Sen confirms that a Receiving Order was issued against him. However, he refutes, and responds to, the allegation that he is an undischarged bankrupt, as follows:

a.	That my and my wife’s house was mortgaged to Fiji Development Bank.  We fell behind in the repayments and the bank sold the property under mortgagee sale at a substantially lower price than the market price.  I even had a buyer who was willing to purchase the property and the bank was aware of it but did not sell it to that person.
b.	That I was not aware that the bank had sold our house for about two hundred thousand lesser than its market value and the value that I was offered. 
c.	That the bank did not serve any documents to me.  I only came to know about their being a receiving order against me when the present application herein was brought to my knowledge.  I did not know that the bank had proceeded to obtain a receiving order against me and my wife on the 18th day of August 2010 and apparently had advertised the same in the Fiji Sun newspaper on the 23rd day of February 2012. 
d.	I have never been served with any documents by the Official Receiver or the bank and I did not read or even came to know the above mentioned publication in the newspaper.
e.	That I am advised by Rangeeta Prasad of the office of the Official Receiver that the  Office of Official Receiver has not taken any steps at all in seeking my statement of affairs and has not taken any steps towards arranging any creditors meeting.  In fact I have been advised by her that they have not taken any action in the matter at all.	
f.	That no bankruptcy orders have even been made against me and I am now in the process of taking actions to have the receiving order set aside.
g.	That I have caused a letter dated the 13th day of June 2012 to be written by the Plaintiff’s solicitors to the Official Receiver in which I have sought the basis for the Official Receiver claiming that I require the Official Receiver’s consent to act as a Receiver.  Despite the said letter and despite my several telephone calls to the said Rangeeta Prasad of the Official Receiver’s office to date it has not responded to the said letter.  A copy of the said latter of the 13th day of June 2012 is annexed hereto and marked as “KS1”.

13.	Although the Official Receiver would become the Receiver of his property, Sen asserts that the Official Receiver has no rights to interfere with his work as Receiver of Meat Cuisine, nor does he need the prior consent of the Official Receiver before he can function as such.
14.	Sen further deposes that he was appointed Receiver pursuant to a registered mortgage-debenture which obliges him to apply any monies he receives in accordance with the relevant provisions of that security instrument. He adds that he has been remunerated for his services as Receiver and that he will account accordingly for this to the Official Receiver.
10.	I seek that the Defendants application be dismissed with costs.	 

10.	Curiously, Sen also deposes in the affidavit opposing this application now before me that he was appointed Receiver pursuant to a registered mortgage-debenture which obliges him to apply any monies he receives in accordance with the relevant provisions of that security instrument.

7.	That I was appointed under as the Receiver of the Plaintiff pursuant clause 21 of the Mortgage Debenture registered at the Companies Office on the 20th day of June 2007.  A copy of the mortgage debenture is annexed hereto and marked as “KS2”.
8.	That I am obliged under the Mortgage Debenture to apply any money I receive in accordance with clause 23 of the Mortgage Debenture.

OBSERVATIONS

11.	After close of pleadings, Meat Cuisine filed Summons for Directions on 01 December 2011. Order in Terms would be granted in due course. By Meat Cuisine’s Affidavit of Documents sworn by Sen on 13 February 2012, the fact was disclosed that the company had been placed in voluntary liquidation at an Extraordinary General Meeting of its members held on 25 July 2011. Of course, nearly two months later, on 09 September 2011, Meat Cuisine would file its writ and claim against Carpenters.
12.	At paragraphs 1 and 2 of his affidavit, Sen deposes that he was appointed Liquidator at that EGM. He deposes that under section 298 of the Companies Act, he has power to bring any action or other legal proceedings in the name of Meat Cuisine without the sanction of the Court.
13.	If Sen was indeed appointed by the members pursuant to their 25 July 2011 EGM resolution to voluntarily wind up the company, his general duty would primarily be to take control of all company assets and sell them to try and repay all (unsecured) creditors. He must be impartial and be seen to act independently and in that regard, is accountable equally to the company and to all creditors. However, the job of a receiver appointed pursuant to a registered mortgage-debenture is to take control of, and sell only, those company assets charged under the security instrument to secure the money owed under a loan. He would primarily be accountable then to the security-holder (see Boila v Ali [2001] FJHC 244; HBC183.2001 (2 November 2001) . 
14.	Both counsel and their clients use the word “receiver” and “liquidator” interchangeably in their submissions. This only adds to the confusion created by Sen.
15.	Indeed, there is a potential conflict if the one person appointed receiver under a security instrument were to also be appointed liquidator by the members of the company in a voluntary winding up. To say the least, a liquidator who is also receiver, may lack impartiality (or at least be seen to lack impartiality) as he will tend to favour the debenture holder in adjudicating proofs of debt.
16.	It is the members whose interests are mostly at risk. Perhaps, because they have appointed Sen knowing (assuming) full well that he is also a receiver for the security holder, then I need say no more with regards to their position. 
17.	But what is to happen to the interest of the body of unsecured creditors. As far as one can gather from the advertisement mentioned above in paragraph 1, the Official Receiver is currently a “provisional liquidator”. 

ANALAYSIS

Does Sen Qualify To Be Receiver /Liquidator of Meat Cuisine

18.	Section 347 of the Companies Act (Cap 247) makes it a criminal offence for an undischarged bankrupt to act as receiver or manager of the property of a company on behalf of debenture holders. 
19.	The fact of the Receiving Order is conclusive evidence that Sen had committed an act of bankruptcy in terms of section 3 of the Bankruptcy Act (Cap 48). But is Sen an undischarged bankrupt? 
20.	Section 20(1) of the Bankruptcy Act sets out those situations/circumstances when a debtor may be adjudged bankrupt. 
Adjudication of bankruptcy where composition not accepted or approved
20.-(1) Where a receiving order is made against a debtor, then, if the creditors at the first meeting or any adjournment thereof by ordinary resolution resolve that the debtor be adjudged bankrupt, or pass no resolution, or if the creditors do not meet, or if a composition or scheme is not approved in pursuance of this Act within fourteen days after the conclusion of the examination of the debtor or such further time as the court may allow, the court shall adjudge the debtor bankrupt; and thereupon the property of the bankrupt shall become divisible among his creditors, and shall vest in a trustee.

(2) Notice of every order adjudging a debtor bankrupt, stating the name, address and description of the bankrupt, and the date of the adjudication, shall be gazetted and advertised in a local paper in the prescribed manner, and the date of the order shall, for the purposes of this Act, be the date of the adjudication.

21.	In the scheme of things, those situations/circumstances must arise after a receiving order is made. In other words, an adjudication of bankruptcy, if the court were to be minded to make one, will come after the receiving order is made. 
22.	Although a receiving order is made after an act of bankruptcy has been committed, the receiving order per se is not an adjudication of bankruptcy. Rather, it is in essence, a court order to constitute the Official Receiver as receiver of the properties of the debtor (as per section 9). The essence of an order of adjudication of bankruptcy by the court is to vest the properties of the debtor in a trustee so they can be divided among the creditors.

23.	Section 28 of the Act provides for when a bankrupt may be discharged by an Order of the Court. In this regard, this section tells us who is an undischarged bankrupt. Clearly, under section 28 (see footnotes), an undischarged bankrupt is one who has been adjudged a bankrupt and who has not received an order of discharge from the court under section 28. 
24.	Since Sen has not been adjudged a bankrupt, notwithstanding the receiving order against him, a fortiori that he cannot be an undischarged bankrupt. In that regard, one can safely say that he has not offended section 347 of the Companies Act. 
25.	Should Sen still be disqualified from acting as receiver/manager under any other branch of the law? It is hard for me to think of any reason why he should be in the particular circumstances of this case. I say that considering that both the members of the company and also a particular secured creditor are clearly in favour of his functioning as a receiver/liquidator at the same time. If anything, it is the interest of the body of unsecured creditors which may yet be left exposed.

Consent Of The Official Receiver Not Obtained. Can Meat Cuisine Yet Proceed With This Action?

26.	 The consent of the Official Receiver, as liquidator, is required before any action or proceeding can brought by, or against, any company that has been wound up by the court. 
27.	Section 229 prohibits a wound-up company and/or a company for which an interim liquidator has been appointed from “proceeding with” an “action or proceeding”.
28.	The section also prohibits a defendant from “commencing against” such a company any “action or proceeding”.
229. When a winding-up order has been made or an interim liquidator has been appointed under section 236, no action or proceeding shall be proceeded with or commenced against the company, except by leave of the court and subject to such terms as the court may impose.

29.	In Khan v Official Receiver [1999] FJHC 109; [1999] 45 FLR 220 (17 September 1999), Mr. Justice Pathik said there are two factors to be taken into consideration:
(i)	the nature of the plaintiff’s claim
(ii)	the balance of convenience and the demands of justice
30.	Pathik J also observed that the Court will not usually interfere with a liquidator’s exercise of power unless he or she is doing something that is utterly unreasonable and absurd that no reasonable man would so act. He then adopts Dunn J’s sentiments in Burnells Pty Ltd (In Liquidation) v Walsh re Burnells Pry Ltd (Supreme Court, Brisbane 1979 Qd.R 440 at 442) that a liquidator who exercises his power in good faith having taken proper advice is not answerable to a creditor or contributory.

Why Leave of Court Required Under Section 229?

31.	When a company is being wound up, debtors are ordinarily required to prove their debts before the Official Receiver. Section 229 ensures that such a company is not subject to a multiplicity of proceedings and contemplates that a claimant will ordinarily be required to lodge a proof of debt in the winding up rather than bringing proceedings against the company. 
32.	The idea is that a multiplicity of proceedings is expensive, time-consuming and may divert available funds away from the orderly winding up of the company. 
33.	I find the New South Wales Supreme Court decision in In the matter of Ozrac Engineering New South Wales Pty Limited (in liquidation) [2013] NSWSC 740 useful as a guide on the exercise of judicial discretion under section 229.
34.	In order to obtain leave under section 229, an applicant must establish that:
(i)	it has a prima facie case in the sense that there is a real dispute about the parties and 
(ii)	that there is good reason why it should be permitted to commence proceedings parallel to rather than instead of the proof of debt process. 

35.	On the first point (i) above, the commentary in Austin and Black’s Annotations to the Corporations Act (para 5.471B) is most helpful:
“The relevant factors to be taken into consideration include the amount and seriousness of the claims; the degree and complexity of the legal and factual issues involved; the stage to which the proceedings, if commenced, have progressed; the risk that the same issues would be relitigated if the claims were to be the subject of a proof of debt; whether the claim has arguable merit; whether proceedings are already in motion at the time of liquidation; whether the proceedings will result in prejudice to creditors; whether the claim is in the nature of a test case for the interest of a large class of potential claimants; whether the grant of leave will unleash an avalanche of litigation; whether the cost of the hearing will be disproportionate to the company’s resources; delay and whether pre-trial procedures such as discovery and interrogatories are likely to be required or beneficial.”

36.	On the second point (ii) above, generally, where a claim could not be proved in the proof of debt process, the court should grant leave.  
37.	Ozrac Engineering also considered it to be “good reason” to preserve the limitation period. In this regard, the Court must consider the following – 
(i)	assuming it were to refuse leave now, and 
(ii)	the applicant was to then pursue his claim through the proof of debt process, and 
(iii)	if it were to transpire later that the Official Receiver or the liquidator were to require the applicant to first establish his claim through a court process, 
(iv)	is there a risk that the applicant would then be in danger of being barred by the expiry of the limitation period? 

If so, then leave should ordinarily be granted.  Also, leave should be more readily granted if the company is insured against the liability which the applicant seeks because there is no prejudice as such against the creditors’ interests (see Re Coastal Constructions Pty Ltd (in liq) (1994) 13 ACSR 329 at 32. 

As A Creditor Of Meat Cuisine, Carpenters Is Entitled To Show Cause For The Removal Of Sen As Liquidator On Account Of Fact That It Is Aggrieved By “The Decision Of Liquidator

38.	Carpenters alleges that it is a “creditor” on the basis of the counter-claim in this case which is yet to be adjudicated upon and which, in any event, has been filed in contravention of section 229 of the Companies Act (see above). Taking both these factors into consideration, I am not inclined to entertain its application in this regard. In any event, it is not clear to me what “decision” of Sen as Liquidator Carpenters is aggrieved by.

ORDERS

39.	After taking all the above into account, I think the most appropriate Order to make is for the Official Receiver to be joined as a party in the interests of the body of unsecured creditors. Case adjourned to 17 August 2016 at 10.30 a.m. Parties to bear their own costs. The plaintiff is to seal the orders and serve a copy on the Official Receiver fourteen days before 17 August 2016. Once the Official Receiver is in Court, I will then consider whether or not to grant leave to both plaintiff and the defendant under section 347.

…………………………
Anare Tuilevuka
JUDGE
20 July 2016