N8723
PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS (COMM) NO. 475 OF 2020

BETWEEN:
PNG AIR LIMITED
Plaintiff

AND:
CUSTOS LIMITED
Defendant

Waigani: Anis J
2021: 26th January, 5th February

ORIGINATING SUMMONS – application to set aside Creditor’s Statutory Demand – s. 338(1) – Companies Act 1997 – whether s. 337(2)(b) or Form 42 has been duly complied with or filled out – whether the issued Creditor’s Statutory Demand is substantially flawed or whether the omissions or errors therein may be regarded as mere defects – whether the substantive relief should be granted

PRACTICE & PROCEDURES – compliance with Form 42 – definition of a creditor – whether a creditor, who intends to wind-up a company under the relevant provisions of the Companies Act 1997 and the Companies Regulation 2015, can include more than 1 creditor and whether it also includes an agent or a third party acting for or on behalf of a creditor – whether a stated debt or debts in a Creditor’s Statutory Demand includes a debt or debts of more than 1 creditor

Case Cited:
Papua New Guinea Cases

Nil

Overseas Cases

Topfelt Pty Ltd v. State Bank of New South Wales [1993] FCA 890, 12 ACLC 15

Counsel:

Mr I Molloy with counsel assisting Mr A Paru, for the Plaintiff
Mr I Shepherd with counsel assisting T Injia, for the Defendant

JUDGMENT

5th February, 2021

1.	ANIS J:  This was a hearing to set aside a Creditor’s Statutory Demand which had been issued under s. 337(2)(b) of the Companies Act 1997 (the Companies Act) against the plaintiff.  The hearing was conducted on 26 January 2021.  I reserved my ruling to a date to be advised.

2.	Parties have been notified so I will rule on it now.

BACKGROUND 

3.	The background of the matter is this.  The plaintiff operates what is referred to as a note program.  The program began in 2004.  The defendant is the trustee for the note holders.  At present, there are 2 registered note holders.  They are PNG Sustainable Development Program Ltd (PNGSDP) and Jasmore Holdings Limited (JHL).  The 2 note holders and the defendant are bound by an agreement called the Note Issuance and Security Trust Deed (Note Deed) which is the basis for the note program.  The Note Deed was signed on 11 October 2004.  

4.	The purpose of the note program was described by John Wylie, who is the Chief Executive Officer of PNGSDP, in his earlier affidavit that he filed in a related proceeding, that is, MP 22 of 2020.  The affidavit was filed on 11 December 2020 (earlier affidavit).  Mr Wylie’s earlier affidavit is marked as annexure B to his recent affidavit filed on 11 January 2020 in the present proceeding.  At paragraph 5 of his earlier affidavit, he stated in part as follows:

The Note Deed established a commercial and legal structure whereby financiers could provide finance to the Company and the Trustee could hold security on behalf of the financiers.  Funds are advanced to the Company and evidenced by a written promise by the Company to repay that amount with interest to the Trustee on a defined date (Note).  Financiers who provide finance in this manner are defined as “Noteholders” under the Note Deed, and current Noteholders are as follow:

(a)	PNGSDP – owed K25,000,000 principal, plus interest; and
(b)	Jasmore – owed K9,000,000 principal, plus interest.

5.	The dispute the subject of this proceeding occurred when the defendant, who is the trustee under the note program, issued a Creditor’s Statutory Demand dated 4 December 2020 (Statutory Demand) on the plaintiff.  According to the Statutory Demand, the defendant claims that the plaintiff owes PNGSDP and JHL (the 2 Noteholders) a debt of K34,000,000.  Following that, the defendant or the 2 Noteholders commenced the winding up proceeding, that is, MP 22 of 2020.  Presently, there is a stay order, which was obtained earlier in this proceeding on 18 December 2020, that stays the winding-up proceeding pending the outcome of this matter. 

ISSUES

6.	The main issues in my view is whether the Statutory Demand should be set aside (i), because it is substantially flawed or defective, or (ii), because it was not completed by a creditor within the definition or requirements under the Companies Act and or its rules and regulations, or (iii) because the debt as claimed in the Statutory Demand cannot be a debt within the meaning or definition of a debt that is due where a Creditor’s Statutory Demand may be issued within the meaning of s. 337(2)(b) of the Companies Act. And subject to my findings on these issues, I may proceed to consider whether there is a substantial dispute to the amount that is claimed to be owed as alleged in the Statutory Demand and also address related issues that may follow or as argued by the parties.

COMPANIES ACT 1997

7.	Section 338 of the Companies Act is the jurisdictional basis for the relief that is sought in the Originating Summons.  It reads:

338.  Court may set aside statutory demand.

(1)	The Court may, on the application of the company, set aside a statutory demand.
(2)	The application shall be made, and served on the creditor, within one month of the date of service of the demand.
(3)	No extension of time may be given for making or serving an application to have a statutory demand set aside, but, at the hearing of the application, the Court may extend the time for compliance with the statutory demand.
(4)	The Court may grant an application to set aside a statutory demand where it is satisfied that—
(a)	there is a substantial dispute whether or not the debt is owing or is due; or
(b)	the company appears to have a counterclaim, set-off, or cross-demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or
(c)	the demand ought to be set aside on other grounds.
(5)	A demand shall not be set aside by reason only of a defect or irregularity unless the Court considers that substantial injustice would be caused if it were not set aside.
(6)	In Subsection (5), "defect" includes an material misstatement of the amount due to the creditor and an material misdescription of the debt referred to in the demand.
(7)	An order under this section may be made subject to conditions.

8.	Sections 290(1) and 337 are also relevant.  They read in part:

290.  Interpretation.

(1)	In this Part, unless the contrary intention appears—
"creditor" means a person who, in a liquidation, would be entitled to claim in accordance with Section 351 that a debt is owing to that person by the company, and includes a secured creditor only—
(a)	for the purposes of Sections 291(2)(c), 297, 300, and 337; or
(b)	to the extent of the amount of any debt owing to the secured creditor in respect of which the secured creditor claims under Section 353 as an unsecured creditor;

337.  Statutory demand.

(1)	A statutory demand is a demand by a creditor in respect of a debt owing by a company made in accordance with this section.
(2)	A statutory demand shall—
(a)	be in respect of a debt that is due and is not less than the prescribed amount; and
(b)	be in the prescribed form; and
(c)	be served on the company; and
(d)	require the company to pay the debt, or enter into a compromise under Part XV, or otherwise compound with the creditor, or give a charge over its property to secure payment of the debt, to the reasonable satisfaction of the creditor, within one month of the date of service, or such longer period as the Court may order.

FORM 42 – CREDITOR’S STATUTORY DEMAND

9.	A sample copy of a Form 42 notice which was extracted from the Companies Regulation 2015 (Company Regulation) was handed up in Court without objection.  The form, I note, is standard and current, and is the first step to take if a creditor intends to wind-up or liquidate a debtor company.  Upon service of a Form 42 notice, an alleged debtor company is given 1 month from the date of service or within such period as ordered by a National Court, to (i) pay the stated alleged debt in the form, or (ii), enter into a compromise under Part XV of the Companies Act, or (iii), compound with the creditor, or (iv), give a charge over the property of the debtor company to secure payment to the reasonable satisfaction of the creditor concerned.

10.	In the present case, copies of the defendant’s Statutory Demand may be seen at annexure B to the affidavit of Anthony Pereira for the plaintiff, which was filed on 22 December 2020, and at annexure JW15 to Mr Wylie’s earlier affidavit.  The plaintiff’s arguments include this.  It says the defendant is not a creditor within the meaning of the relevant provisions under the Companies Act and within the requirements under the Form 42 notice itself.  It says for the defendant to claim and put down details in the Statutory Demand that it was issuing the demand as an agent of the 2 Noteholders, is contrary to the requirements of s. 337, s. 290(1) and Form 42.  The defendant makes no written submissions on this point.  However, it sees or finds no errors to its issued Statutory Demand.  It acknowledges that it had filled out and had issued the Statutory Demand as an agent of the 2 Noteholders.  

11.	Is the defendant a creditor within the meaning of s. 290(1), s. 337 and s. 338 of the Companies Act?  I begin by making these observations.  Item 2 of Form 42 expressly requires a user to, and I quote in part, Provide the full name of the creditor.  In response to that, the defendant fills out its full name and registration number under the said item.  Let me quote in part herein the exact words used under clause 2 of the Statutory Demand:

CUSTOS LIMITED (registration number 1-50762)
(as agent for PNG SUSTAINABLE DEVELOPMENT PROGRAM LIMITED (registration number 3-44724) and JASMORE HOLDINGS LIMITED (registration number 1-7216) pursuant to clause 2.9 (Declaration of Agency) of the Notes Issuance & Security Trust 
Deed (Deed) dated 11 October 2004 between the Debtor and Custos Limited)

12.	So the defendant puts down its name in the box under item 2 where it is designated for a creditor to fill.  It identifies itself as an agent for the 2 Noteholders.  I note that there are no indications whether it be in the Form 42 notice itself or the provisions of the Companies Act, that provides for inclusion of an agent or a third party who could represent and sign off a Creditor’s Statutory Demand as a creditor but for or on behalf of another person that it represents.  I also note and it would seem, that the defendant, as an agent as pleaded therein, cannot be a creditor within the meaning of s. 290(1) of the Companies Act.  I make this observation based on the defendant’s interest or role in the present matter as well as its role in issuing the Statutory Demand.  The defendant presents itself as the agent or to be more precise, as the trustee of the 2 Noteholders within the terms of the Note Deed.  I note that there are no domestic cases on point that could assist as well.  That said, I also note that assistance may be sought on the existing rules and provisions of the Companies Act which appear sufficient, in my view, for this purpose.

13.	Also of significance and in my view, are these facts.  In the Statutory Demand, the defendant who is the purported creditor, puts down the names of 2 persons whom the defendant identifies as its principals, that is, the 2 Noteholders.  And it puts down a fixed sum of K34,000,000 which it claims is owed at the material time.  The first problem I see there is the number of creditors that are listed in the Statutory Demand.  In my view, I do not think that the legislators had intended that a Form 42 notice or demand may be issued by more than 1 creditor in the manner has had been done in this case.  I say this firstly in view of the form itself.  The form (i.e., Form 42) refers to the creditor as in singular and not plural.  Secondly, the same can be said of s. 337 and s. 338 of the Companies Act.  References made to or of a creditor therein are made in singular terms.  At the same time, I note and by that, I mean to say that I do agree with submission by counsel for the plaintiff that there should be no issue if a single creditor pleads a total debt that may represent several individual debts that may be owed to it by the single debtor.  But as counsel submits, that is not the same as what is before the Court.  Here, it seems that we happen to have more creditors who appear to have separate debts against a single debtor.

14.	At this juncture, and of persuasive value as well as a guide, I refer to the case of Topfelt Pty Ltd v. State Bank of New South Wales [1993] FCA 890, 12 ACLC 15.  Lockhart J in the Federal Court of Australia, stated and I read at paragraphs 67, 68 and 69:

67.	It is not asking too much that creditors who issue statutory demands under the Corporations Law should ensure that the demands are expressed in clear, correct and unambiguous terms. If the creditors wish to have the benefit of the presumption of insolvency, the least they can do is to tell the debtor companies in clear terms what amounts are due, whether they include interest or not, and, if so, the amount.

68.	I do not accept, however, the argument of counsel for the applicant that, because of the nature and extent of its defects, the demand does not answer the description of a statutory demand for the purposes of Part 5.4 of the Corporations Law. The demand purports to follow the prescribed form of statutory demand, but falls into error in its description of the monies claimed to be due by the applicant. Nevertheless, it purports to be a statutory demand.

69.	The demand is erroneous because it cannot be complied with on its face even allowing for misstatements. The applicant must make enquiries of one kind or another in order to ascertain the amount of interest that is said to be payable, whether he makes the enquiries from his solicitor or from the Supreme Court or others.

15.	Similarly, and in respect of the present case, the first error or ambiguity is the want of standing or status of the defendant as a creditor in the Statutory Demand.  The second error or ambiguity is pleading more than 1 creditor in the Statutory Demand.  The third ambiguity is the sum that is pleaded.  The K34,000,000 appears to be the joint total of the monies which the 2 Noteholders claim is owed to them under the terms of the Noted Deed.  And based on the attachment to the Statutory Demand, PNGSDP is said to be owed a debt of K25,000,000 whilst JHL is said to be owed a separate debt of K9,000,000.  As stated herein, there is no clarity or express pleading of a single creditor in the Statutory Demand, and no fixed sum is clearly stated in the Statutory Demand for an identified single creditor.  Consequential to all the above, the Statutory Demand appears to be in direct breach of s. 337(2)(b) in that it is not filled out in accordance with the prescribed form as required.  So perhaps and as a slight contrast to Justice Lockhart’s view at paragraph 68 of his decision, in this case, it may be said that the demand does not answer the description of a statutory demand for the purposes of s.337(2)(b) of the Companies Act.

16.	I therefore find as follows.  Firstly, I am not satisfied that there was compliance with the filling out (or filling in) of the Statutory Demand or the Form 42 notice, by the defendant or by a creditor as regarded by law.  The defendant herein is not a creditor within the meaning of s. 290(1) of the Companies Act.  The defendant expressly acknowledges that in the Statutory Demand and in its submissions to the Court.  I find the requirement under item 2 in Form 42 to be express and mandatory.  Item 2 must be duly filled in by the (or a) creditor, and the creditor must also state or fill-in the debtor company’s name under item 1 of Form 42.  Item 2, in my view, shall not be filled-in by putting down the name of a person who is not the creditor of the debtor that is identified under item 1 or vice-versa, or by a third party that may claim to act as an agent of a creditor.  Because of this finding, I find the Statutory Demand to be substantially flawed.  I would not consider the Statutory Demand as merely defective but rather far beyond that, that is, I find it to be void; that it was issued by a person who is not a creditor of the plaintiff, within the meaning of s. 290(1), s. 337 and s. 338 of the Companies Act.  In summary, I find that the demand does not answer the description of a statutory demand for the purposes of s. 337; that it is not in the prescribed form as required by s.337(2)(b).  As such, it is my view that the Statutory Demand ought to be set aside as void, that is, pursuant s. 338(4)(c) where it states, the demand ought to be set aside on other grounds.

OTHER ISSUES/ REMARKS

17.	Because of my findings which essentially determines the validity of the Statutory Demand, determination of the other issues raised including whether there is a substantial dispute to the sum claimed, are untenable.  

18.	But in passing, I will make this remark.  The plaintiff has filed evidence to substantiate its claims.  By that I refer the affidavit of Mr Pereira filed on 22 December 2020.  Evidence therein shows that the plaintiff seriously disputes (i) the amounts claimed by the 2 Noteholders as debts owing and (ii) the reasons that had been relied upon by the 2 Noteholders and the defendant to instigate or carrying out the processes that are laid out under the terms of the Note Deed.  In remarking, I refer to the resolution that had been passed under the terms and conditions of the Note Deed and the authorization that had been given to the defendant as the trustee, again under the terms and conditions of the Note Deed, to pursue the purported debts.  The plaintiff argues, amongst others, that no situation had arisen nor did the plaintiff had breached clauses 12.10 and 12.11 in the Noted Deed, that should have warranted the 2 Noteholders to take the positions as they had or have done in this case, that is, by instigating recovery or winding-up actions against it.  Whilst the defendant strenuously, amongst others, challenges the veracity of Mr Pereira’s affidavit, I note that it has not filed any evidence in direct response to it.  Rather, it referred to and relied on an earlier affidavit which it has filed in proceeding MP 22 of 2020, which is the affidavit of Mr Wylie filed on 11 December 2020.  I note that Mr Wylie’s affidavit was filed before Mr Pereira’s affidavit and therefore may not be regarded as evidence that is filed in rebuttal to Mr Pereira’s affidavit. The defendant had ample opportunity to file a responding affidavit, but it has decided to proceed in this way. Consequently, there appears to be prima facie evidence of facts which are undisputed by the defendant, that is, if one were to assess whether there is a substantial dispute(s) to the debts or the claims by the defendant as set out in the Statutory Demand.  The unopposed evidence of the plaintiff appears to say that the debts are disputed.  I end my remark on that note.

SUMMARY

19.	In summary, I will grant the relief sought in the plaintiff’s originating summons.  I will set-aside the Statutory Demand and order the defendant to pay the plaintiff’s cost of the proceeding, on a party/party basis to be taxed if not agreed.

ORDERS OF THE COURT 

20.	I make the following orders:

1.	Pursuant to Order 4 Ruled 3 of the National Court Rules, Order 12 Rule 1 of the National Court Rules, and Section 338 of the Companies Act 1997, the Creditors Statutory Demand dated 4 December 2020, addressed to and served on PNG Air Limited on 4 December 2020, is set aside.

2.	The defendant shall pay the plaintiff’s cost of and incidental to this proceed on a party/party basis to be taxed if not agreed.

3.	Time for entry of these orders is abridged to the date and time of settlement by the Registrar which shall take place forthwith.

The Court orders accordingly. 
____________________________________________________________________________
O’Brien: Lawyers for the Plaintiff
Ashurst: Lawyers for the Defendant