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Piunde Ltd, In re [2015] PGNC 34; N5971 (20 March 2015)

N5971

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

MP 34 OF 2014

IN THE MATTER OF THE
COMPANIES ACT 1997

AND:

IN THE MATTER OF PIUNDE
LIMITED (1-7905)

Waigani: Hartshorn J.
2015: March 16th, 18th and 20th

COMPANY LAW - Petition to appoint a liquidator – application to set aside statutory demand - s.338 Companies Act – whether made in time – service of statutory demand on company – sections 431 (1) and 432 (a) Companies Act considered - application for stay of petition – s. 297 Companies Act, Order 8 Rule 27 and Order 12 Rule 40 considered

Cases:

Papua New Guinea Cases

PNG Pipes Pty Ltd and Sankaran Venugopal v. Mujo Sefa & Ors (1998) SC592

In re International Construction PNG Ltd (2007) N3337

Yama v. Bank South Pacific Ltd (2008) SC921

Pacific Equities & Investments Ltd v. Goledu (2008) N3400

Cal Exports Ltd v. Camp Administration Ltd (2009) SC1050

Overseas Cases

Ebner v. Official Trustee in Bankruptcy [2000] HCA 63
Porter v. Magill [2002] 2 AC 357
Bienstein v. Bienstein [2003] HCA 7

Smits v. Roach [2006] HCA 36
Saxmere Company Ltd & Ors v. Wool Board [2009] NZSC 72; [2010] 1 NZLR 35

Counsel:

Mr. I.R. Shepherd, for the Petitioner
Mr. C.M. Gagma, for the Company

20th March, 2015

1. HARTSHORN J: The petitioner Associated Mills Limited (AML) petitions that Piunde Limited (Piunde) be placed into liquidation by the appointment of a liquidator on the basis that Piunde is unable to pay its debts as they become due in the normal course of business.

2. Piunde seeks that a statutory demand be set aside and that the petition be either stayed, restrained or dismissed as it is an abuse of process.

Preliminary

3. I mention that I had heard and reserved my decision on 16th March. During the course of my consideration of the matter I concluded that as I was the Managing Partner at Blake Dawson Waldron Port Moresby, the predecessor of Ashurst Lawyers the lawyers for AML, in 2004, it was necessary that I ascertain whether I had carriage of certain proceedings referred to by Piunde's Managing Director in his evidence. For that purpose counsel were recalled on 18th March and I made enquiries of counsel for AML.

4. Later on 18th March, counsel made further appearances before me. Counsel Mr. Shepherd for AML deposed that amongst others, proceeding WS 1423 of 2004 in which the subject judgment debt was ordered in September 2012, was instituted in October 2004 and the lawyer with carriage of the matter was Mr. Ralph Diweni under my supervision at Blake Dawson Waldron Lawyers. After I was appointed to the Judiciary, Mr. Ian Shepherd, counsel for AML became the supervising partner and appeared as senior counsel at the trial before Sakora J in June 2009 together with Mr. Diweni as junior.

5. I then made enquiry of counsel for Piunde as to whether any objection was taken to me continuing to hear the matter. Counsel for Piunde Mr. Gagma informed the court that following a perusal of Mr. Shepherd's affidavit his instructions were that no issue was taken with me hearing the matter and that I should continue to do so.

6. In considering whether there may be an apprehension of bias if I continue to hear the matter, I have had regard to the many authorities concerning the relevant law and governing principles. They include: PNG Pipes Pty Ltd and Sankaran Venugopal v. Mujo Sefa & Ors (1998) SC592; Ebner v. Official Trustee in Bankruptcy [2000] HCA 63; Porter v. Magill [2002] 2 AC 357; Bienstein v. Bienstein [2003] HCA 7; Smits v. Roach [2006] HCA 36; Yama v. Bank South Pacific Ltd (2008) SC921; Pacific Equities & Investments Ltd v. Goledu (2008) N3400; Saxmere Company Ltd & Ors v. Wool Board [2009] NZSC 72; [2010] 1 NZLR 35. Notwithstanding that I was the Managing Partner of the lawyer that had carriage of WS 1423 of 2004 and had overall responsibility for all files at Blake Dawson Waldron in 2004, as amongst other matters, over 8 years has elapsed since I was in anyway involved with the proceeding, I am of the view that an objective, fair minded, lay observer knowing all surrounding facts, would not reasonably apprehend that I might not bring an impartial mind to the resolution of this matter. Consequently, I will continue to hear the matter.

7. I consider Piunde's applications first.

Whether statutory demand should be set aside

8. Piunde seeks that an undated statutory demand be set aside pursuant to sections 335, 337 and 338 Companies Act on the grounds that:

a) it is not in the proper form;

b) it was not properly served on Piunde;

c) there is a substantial dispute concerning the debt owed to AML;

9. Piunde further contends that its application is made in time pursuant to s.338 Companies Act as the purported statutory demand only came to the attention of Piunde's Managing Director on 28th January 2015.

10. AML contends that:

a) the statutory demand is properly served;

b) the application to set aside is out of time;

c) the debt of AML is not in dispute as the National Court has

determined the matter.

11. Section 338 (2) Companies Act provides that an application to set aside a statutory demand shall be made and served on the creditor, within one month of the date of service of the demand.

12. To determine whether the application to set aside has been made within time requires amongst others, a consideration of whether and if so when the statutory demand was served in accordance with the requisite service requirements.

13. Piunde contends that the statutory demand was served on a third party and that there is no evidence that the statutory demand was served upon the Directors and Shareholders of Piunde. Mr. Kama confirms in his evidence that the statutory demand was served on Ring & Associates in Mt. Hagen, Western Highlands Province.

14. AML contends that the statutory demand was properly served at the registered office of Piunde on 25th of September 2014.

15. Section 337 (2) (c) Companies Act provides that a statutory demand shall be served on the company. Section 431 Companies Act concerns service of documents on companies in legal proceedings. A statutory demand is not a document in legal proceedings when it is issued and so s. 432 Companies Act, which concerns the service of other documents on companies, applies.

16. Section 432 (a) Companies Act provides that:

"Notwithstanding the provisions of any other Act, a document, other than a document in any legal proceedings, may be served on a company as follows:-

(a) by any of the methods set out in Section 431 (1)(a), (b), (c), (d) or (f);"

17. Section 431 (1) (c) provides that:

"Notwithstanding the provisions of any other Act, a document, including a Writ, summons, notice, or order in any legal proceedings may be served

on a company as follows:-

..............

(c) by leaving it at the company's registered office or address for service;"

18. There is evidence on behalf of AML, that the company extract from the Registrar of Companies for Piunde Limited as at 18th July 2014 indicates that the registered office address, address for service and postal address for Piunde Limited are c/- Ring & Associates in Mt. Hagen. Further, there is evidence that the statutory demand was personally delivered to Ring & Associates on 25th September 2014 at 10 am and that there is an acknowledgement of receipt to that effect signed by Mr. Paul Ring.

19. As referred to, Mr. Kama confirms service of the statutory demand upon Ring & Associates. He further deposes that Ring & Associates in Mt. Hagan, Western Highlands Province have nothing to do with Piunde. He does not however depose that Ring & Associates, Mt. Hagen is not the registered office of Piunde. Further, there is no other evidence to challenge that Ring & Associates in Mt. Hagan is the registered office of Piunde.

20. I am satisfied that AML is entitled to rely on the details in the company extract as to Piunde's registered office. Further, I am satisfied that service of the statutory demand has been effected pursuant to s. 431 (1) (c) Companies Act.

21. As to the submission that the Directors and Shareholders of Piunde were not served, from a reading of s. 431 and s. 432 Companies Act, such service is not necessary if other methods of service prescribed are used. For the above reasons I am satisfied that service of the statutory demand has been properly effected.

22. Given this, an application to set aside the statutory demand should have been made and served upon AML by 25th October 2014. As it was not, the application to set aside is out of time.

23. Section 338 (3) Companies Act is explicit in providing that no extension of time may be given for making or serving an application to have a statutory demand set aside.

24. As to the reliance by Piunde upon s. 335 and s. 337 Companies Act to set aside the statutory demand, these sections do not give this court the jurisdiction to grant that relief. Section 338 is the requisite section and s.339, which is headed "Additional powers of Court on application to set aside statutory demand", appears to confirm this by referring to, "...the hearing of an application under Section 338,...".

25. Consequently, as the application to set aside the statutory demand is out of time, and no extension of time may be given pursuant to s. 338 (3) Companies Act, the application is refused.

Whether petition should be stayed, restrained or dismissed

s. 297 Companies Act

26. Piunde seeks that the petition be stayed or restrained pursuant to s. 297 Companies Act. Section 297 is as follows:

"297. Power to stay or restrain certain proceedings against company.

At any time after the making of an application to the Court under

Section 291(2)(c) to appoint a liquidator of a company and before a liquidator is appointed, the company or any creditor or shareholder of the company may—

(a) in the case of any application or proceeding against the company that is pending in the Court or the Supreme Court, apply to the Court or the Supreme Court, as the case may be, for a stay of the application or proceeding; or

(b) in the case of any other application or proceeding pending against the company in any court or tribunal, apply to the Court to restrain the application or proceeding,

and the Court or the Supreme Court, as the case may be, may stay or restrain the application or proceeding on such terms and conditions as it thinks fit."

27. This section does not give this court the jurisdiction to stay or restrain the petition. An application under s. 291 (2) (c) to appoint a liquidator of a company is not an "...application or proceeding against the company that is pending...". As the Supreme Court in Cal Exports Ltd v. Camp Administration Ltd (2009) SC1050, said at para 20:

"Section 297 of the Companies Act gives jurisdiction to the court to stay proceedings where an application is made to appoint a liquidator under s291(2)(c) and at the same time there is another application or proceeding against the company in the National Court or the Supreme Court or any other Court or tribunal which is pending. Section 297 enables the company or any creditor or shareholder to make an application in that other application or proceeding to stay those proceedings until the application under s291(2)(c) is determined. The application is made in the other proceedings and before the Court in which the application or proceedings is pending, except that if the proceeding is in a court outside the National Judicial System the application is made to the National Court."

28. The Court stated that its researches of the English, Australian and New Zealand Law had not found any case on similar sections to s. 297 in those jurisdictions which had held that those sections gave jurisdiction to stay a petition to wind up or appoint a liquidator.

29. This court is bound by decisions of the Supreme Court. Consequently the application of Piunde pursuant to s. 297 Companies Act is refused.

Order 8 Rule 27 and Order 12 Rule 40 National Court Rules

30. Piunde seeks that the petition be stayed or dismissed as an abuse of the process of the court pursuant to Order 8 Rule 27 or Order 12 Rule 40 National Court Rules. Such applications can be made.

31. In Cal Exports v. Camp Administration (supra), the Supreme Court stated at para 19 that:

"19. Our conclusion is that the power to stay a petition to wind up a company presented pursuant to s291 of the Companies Act, before the liquidator is appointed, is founded in the inherent jurisdiction of the court to prevent abuses of the process of the court. In terms of rules of court, an application could be based on National Court Rules O8 r 27 (a pleading which is an abuse of the process of the court) or similarly O12 r40, because the Companies Rules Rule 2 provides:

"Subject to the Companies Act and these Rules, the Rules of Court of the National Court and the general practice of that Court, including the course of procedure and practice in Chambers, apply in relation to proceedings to which these Rules relate as far as is practicable"."

32. The Court went on to state that the purpose of a stay application, "....is to prevent abuse of the court process by an applicant who seeks to liquidate the company on some misconceived or unmeritorious grounds."

33. Then at para 23, the Court said:

"23. Where the application is to stay the petition before the appointment of a liquidator, as we have said, the application is really one to prevent an abuse of the processes of the court, usually, either because:

a) The allegations in the petition do not entitle the presentation of a petition or the petitioner is not qualified to petition; or,

b) the debt is genuinely disputed and the petitioner cannot really claim to be a creditor until the debt is established. Thus the petitioner is not qualified to present the petition; or,

c) the company has a genuine counterclaim, which exceeds the petitioner's debt, and the petitioner cannot be allowed to visit the Draconian remedy of winding up on a company, when there are a real prospects that the petitioner's debt will be satisfied by bringing the counterclaim to judgement."

34. Piunde contends that it satisfies the above three categories as:

a) Piunde was not served a sealed copy of the court order for the judgment debt the subject of the petition and so the statutory demand is defective and AML was not entitled to present the petition in such circumstances;

b) the debt is genuinely disputed as it did not arise in the normal course of business and AML has not come to court with clean hands;

c) Piunde has a genuine counterclaim against AML for malicious winding up proceedings.

35. Further, counsel for Piunde submitted that he had received instructions to apply for a review of the National Court judgment the subject of the petition, presumably pursuant to s. 155 (2) (b) Constitution.

36. AML contends that:

a) as to the debt the subject of the petition being disputed, that debt is now a judgment debt. On 4th September 2012, Sakora J ordered that default judgment be entered in favour of AML against Piunde for K 200,070.91 plus interest at commercial rate from 21st October 2004 to the date of settlement of the judgment debt. Moreover, Piunde's lawyers filed an application for leave to appeal on 2nd November 2012 in proceeding SCA121/12. However on the 11th April 2013, the Supreme Court granted leave to Piunde to discontinue the proceeding and ordered Piunde to pay AML's costs. Clearly, AML contends, the debt the subject of the petition is not in dispute.

b) the other proceedings to which Piunde refers concerning other petitions relating to the same debt and the malicious winding up proceedings were all issued prior to the decision of Sakora J. His Honour's decision has resulted in the debt being crystallised and those other proceedings being no longer relevant.

c) there is no material evidence before the court to demonstrate that Piunde is solvent and is able to pay its debts as they fall due. The evidence of Mr. Kama is inadequate, misleading and contradictory. The information which should have been given but has not, could only be given by an independent report from a qualified accountant who had undertaken a review of Piunde's accounts.

d) Piunde has made no effort to pay or undertake to pay the judgment debt and has made no undertaking to pay the amount of the judgment debt, interest and costs into court, as should normally be the case in a stay application.

Consideration

37. In considering Piunde's stay application, I will be guided by the comments of the Court in Cal Exports v. Camp Administration (supra) as to the purpose of such an application being to prevent an abuse of the court process, usually for the three criteria to which that Court refers.

38. As to Piunde's contention that it was not served with a sealed copy of the court order for the judgment debt, the subject of the petition, in Mr. Kama's evidence he deposes that the court orders were never served on Piunde and its lawyers and that he as Managing Director was never aware of the existence of a court order "up to date". Mr. Kama then however deposes that he was informed by his lawyer that there appears to be a default judgment and that he instructed that an appeal be filed. That is proceeding SCA 121/12. This evidence is inconsistent.

39. There is in evidence a copy of an affidavit of Mr. Dennis Umba, the then lawyer for Piunde in which he deposes that he was informed by his Port Moresby agents on 5th September 2012 that Sakora J had handed down his decision on 4th September 2012 and that he received a copy of the order on 23rd October 2012. I am satisfied that Mr. Kama and Piunde especially through its lawyer were aware of the court order and Mr. Kama on behalf of Piunde authorised an appeal.

40. As to Piunde's lawyers, Umba Lawyers, not being served with a "dismissal" of the Supreme Court proceeding, the evidence is that Umba Lawyers agents, Mirupasi Lawyers, signed a notice of discontinuance of SCA121/12 as city agents for Umba Lawyers for Piunde. Again, I am satisfied that Mr. Kama and Piunde were aware of the status of the Supreme Court proceeding. In any event, I have already found that the statutory demand was properly served on the registered office of Piunde.

41. As to Piunde's contention that the debt is genuinely disputed; it was the case that the debt was in dispute. The debt was the subject of two previous petitions which were either withdrawn or discontinued on the basis that at those times the debt was in dispute.

42. It is clear though that the debt is now a judgment debt by virtue of an adjudication of this court. Further, an application for leave to appeal that judgment to the Supreme Court was discontinued by Piunde. There is no evidence of any proceeding presently on foot that challenges the judgment debt or that there has been since the application for leave to appeal was discontinued. The debt is not in dispute.

43. Mr. Kama deposes that he has instructed lawyers to "seriously consider" filing an application for review. His counsel informed the court that his instructions now are that he is to file such an application. It is the case however, that Mr. Kama and Piunde on Mr. Kama's evidence, have been aware of the Supreme Court proceeding that Piunde discontinued, since at least April 2013. Why is it only now that it has decided to file an application for review? If the judgment debt was sought to be challenged again and Mr. Kama and Piunde remained genuinely aggrieved as to the judgment debt, it can be concluded that the foreshadowed application for review would have been made after the Supreme Court proceeding had been discontinued.

44. As to Piunde having a genuine counterclaim against AML for the commencement of malicious winding up proceedings; two writs of summons and statements of claim are in evidence. One of those proceedings has been referred to mediation. The basis of the claims against AML appears to be that AML abused the liquidation process under the Companies Act in commencing liquidation proceedings when the debt it was seeking to recover was in dispute. The debt however is now the judgment debt which is no longer in dispute.

45. I am inclined to concur with the submissions of counsel for AML that the proceedings commenced earlier than Sakora J's decision, that were concerned with or related to the debt that is now the judgment debt, are now irrelevant as the debt that is now the judgment debt has crystallised.

46. Apart from one of Piunde's proceedings being referred to mediation, there is no evidence as to the status of the proceedings, such as when they are likely to be substantively heard, or as to the prospects of the proceedings.

47. Given that Mr. Kama and Piunde have been aware, at the very least since April 2013, on Mr. Kama's evidence, that the Supreme Court proceeding SCA 121/12 was discontinued, one would have thought that if the two malicious prosecution proceedings were genuine and remained relevant, notwithstanding Sakora J's decision, efforts would have been taken to have those proceedings heard quickly if not expeditiously given the outstanding judgment debt. As there is no evidence that this has occurred, I am not satisfied that the counterclaims that Piunde has against AML are such that Mr. Kama and Piunde consider them to have real prospects of success and of them being able to satisfy AML's debt.

48. For the above reasons, I am satisfied that the allegations in the petition do entitle the presentation of a petition and that AML is entitled to petition. The judgment debt is not disputed and Piunde's counterclaims are not such that there can be considered to have real prospects of satisfying AML's debt. I am satisfied that the petition of AML is not an abuse of the process of the court, it is not misconceived and does not have unmeritorious grounds.

49. I also take into account that there is no material evidence before the court to demonstrate that Piunde is solvent and able to pay its debts as they fall due. There is no information such as a report from an independent qualified accountant who has undertaken a review of Piunde's accounts. Further, there is no evidence that Piunde has made any effort to pay or has undertaken to pay the judgement debt, interest and costs into court.

50. Consequently, the application of Piunde that the petition be stayed or dismissed pursuant to Order 8 Rule 27 or Order 12 Rule 40 National Court Rules is refused.

Whether liquidator should be appointed

51. AML relies on its petition presented on 9th December 2014 and an affidavit verifying the petition sworn and filed the same day. It seeks that a liquidator be appointed to Piunde pursuant to sections 291 (2) (c) and 291 (3) (a) Companies Act on the basis that Piunde is unable to pay its debts as they become due in the normal course of business.

52. Pursuant to s. 335 Companies Act, unless the contrary is proved, the company is presumed to be unable to pay its debts in the ordinary course of business if it fails for a period of 30 days or more to comply with a statutory demand for payment of debt. Here, the statutory demand for payment of debt was served on Piunde on 25th September 2014 by the delivery of a true copy of the demand to the registered office of Piunde. I have already found that the statutory demand was properly served. As previously referred to the debt in this instance is a judgment debt that AML obtained from the court on 4th September 2012. The amount of the judgment debt being principal and interest is K 418,371.94 as at 18th July 2014.

53. Pursuant to s. 336 (1) Companies Act, any petition to put a company into liquidation based upon a failure to comply with a statutory demand must be made within one month after the last date for compliance with the demand. Here, Piunde had until 25th October 2014 to comply with the demand meaning that AML had to file its petition on or before 25th November 2014. The petition was filed on 24th November 2014 and was within time.

54. The evidence further discloses that the petition and the affidavit verifying the petition were served on Piunde on 28th January 2015, the petition was advertised on 28th and 29th January 2015, no creditors have given notice of their intention to appear to either support or oppose the petition although Piunde itself gave notice that it intended to oppose the petition, and on 13th March 2015 the Registrar issued a Certificate of Compliance.

55. I am satisfied that all of the requirements of the Companies Act and the Companies Rules concerning the appointment of a liquidator to a company have been complied with by AML. In this regard I refer to my decision in In re International Construction PNG Ltd (2007) N3337 concerning this court's jurisdiction and the necessary requirements concerning the appointment of a liquidator. I am also satisfied in the absence of sufficient proof to the contrary, that Piunde is to be presumed to be unable to pay its debts in the ordinary course of business.

56. Moreover I am satisfied that it is just and equitable that a liquidator be appointed pursuant to s. 291 (2) (c) Companies Act and I so order. I further order that James Kruse be appointed as liquidator of Piunde Limited.

57. I also direct, pursuant to s. 185 Constitution, if it is necessary to do so, that the provisions of the Companies Rules be followed and applied with necessary modification in relation to the appointment of James Kruse as liquidator and that all references to "winding up" in those Rules be read to mean "liquidation".

_____________________________________________________________
Ashurst Lawyers: Lawyers for the Petitioner
Gagma Legal Services: Lawyers for the Company