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Delta Constructions Pty Ltd (under official management), Re [1967] PGSC 13; [1967-68] PNGLR 380 (31 July 1968)

Papua New Guinea Law Reports - 1967-68

[1967-68] PNGLR 380 - Delta Constructions Pty. Ltd. (under official management), Re

[1967-68] PNGLR 380

PAPUA NEW GUINEA

[SUPREME COURT OF JUSTICE]

RE DELTA CONSTRUCTIONS PTY. LTD.

(UNDER OFFICIAL MANAGEMENT)

Port Moresby

Frost J

9 July 1968

31 July 1968

COMPANIES - Winding up by Court - Company under official management - Necessity for leave to present winding-up petition - Considerations on application for leave to present winding-up petition - Companies Ordinance 1963-1966, s. 203b^*[cdlxxiv]¹.

The subject company, which carried on a construction business in the Territory, was placed under official management for two years under Pt. IX of the Companies Ordinance 1963-1966, and during the official management all existing construction contracts were completed. No new contracts for construction work were entered into by the official manager, and the company had no further capacity to carry on business or earn income. The amount available to creditors was substantially less than that required to pay them in full. At a meeting of members pursuant to s. 206(3) of the Ordinance the members refused to pass a resolution to place the company in voluntary liquidation. A proposal for a deed of arrangement to meet unsecured creditors’ debts was placed before a meeting of creditors but no effective resolution was passed. The official manager then sought leave under s. 203B of the Ordinance to present a petition for the winding up of the company.

Held:

N1>(1)      The presentation of a winding-up petition by the official manager was an action or proceeding against the company so that the leave of the Court under s. 203B of the Ordinance was required before such a petition could be presented.

Re High Crest Homes Ltd. (Unreported, S. Ct. Victoria (1962), Little, J.); Re Testro Bros. Consolidated Ltd., [1965] VicRp 4; [1965] V.R. 18, followed.

N1>(2)      As the company was plainly unable to pay its debts, there was no business left for the official manager to continue, and the members had refused to resolve that the company be wound up voluntarily, the only course open to the official manager was to petition the Court for a winding-up order.

N1>(3)      The absence of an effective resolution by the creditors expressing their attitude and the fact that a meeting of creditors had not been called to consider the official manager’s statements and report and the auditor’s statement under s. 203A of the Ordinance should not lead to a refusal of leave under s. 203B and no good purpose would be served by adjourning the proceedings with a view to obtaining the present views of the creditors.

Motion on Notice.

Keith Allan Irish, the official manager of Delta Constructions Pty. Ltd. (under official management) applied by notice of motion under s. 203B of the Companies Ordinance 1963-1966 for an order for leave to present a petition for the winding up of the company. The application was opposed by members of the company and a group of associated companies which claimed to be substantial creditors of the company. The relevant facts and arguments appear in the reasons hereafter.

Counsel:

Wood, for the applicant.

Bayliss, for the respondents.

Cur. adv. vult.

31 July 1968

FROST J:  This is a motion by Keith Allan Irish as official manager of Delta Constructions Pty. Ltd. (under official management) pursuant to s. 203B of the Companies Ordinance 1963-1966 for an order for leave to present a petition for the winding up of the company. The matter first came before this Court on 3rd October, 1967, when Mr. Bayliss was given leave to appear for the members of the company and also for a group of associated companies which claim to be substantial creditors of the company. The notice of motion was then adjourned sine die by consent. In the meantime events have occurred which Mr. Wood on behalf of the official manager, has submitted strongly require that leave should be granted.

The company, a construction company which carried out various works throughout the Territory, was placed under official management for a period of two years from 14th April, 1967, and Mr. Irish appointed official manager pursuant to a special resolution passed on that date at a meeting of the creditors of the company, to the effect that in the opinion of the creditors the company was unable to pay its debts, but that if the company were placed under official management there would, in their opinion, be a reasonable probability that it would be able to pay its debts. According to a statement of the assets and liabilities of the company as at 1st March, 1967 submitted to the meeting of creditors by the directors of the company pursuant to s. 200 of the Ordinance, the estimated deficiency was shown at $202,300.00. At that meeting of creditors the creditors also voted to accept a deed of arrangement from companies associated with the company whereby those companies would pay to the official manager of the company 70% of profits after taxation for the benefit of the unsecured creditors. However the official manager did not consider that this offer could be carried out by the associated companies, and further the original deed of arrangement had become void because certain conditions of appointing outside directors to associated companies had not taken place. Accordingly he called a meeting of members and creditors of the company pursuant to s. 206(3) of the Ordinance and asked the members to place the company in voluntary liquidation. The members refused to pass the resolution, and thus prevented the company from going into voluntary liquidation. A few days prior to the meeting the associated Delta Companies offered a new deed of arrangement to meet unsecured creditors’ debts, and this offer was thus placed before the creditors at the meeting of 25th July, 1967. It was decided that a further meeting of creditors should be held, and that in the meantime the management committee was to study the proposal and see if it was workable. The official manager came to the conclusion in effect, that the proposal was beyond the capacity of the associated Delta Companies. The management committee then considered the matter of a special resolution to be placed before the creditors, if the creditors saw fit, to have the official manager petition the Court for a winding-up order. Of the five members of the committee, only three voted for the resolution, the other two abstaining from voting. Accordingly the official manager convened a meeting of creditors to be held on 8th September, 1967, and circulated a report dated 24th August, 1967 setting out the course of events up to that date. He placed before the meeting the choice of two courses of action, one being a petition for winding up by the Court and the other, the acceptance of the proposed new deed of arrangement, and he advised the creditors of the opinion he had formed of the proposed new deed. The outcome of the meeting was that no effective special resolution was passed adopting either alternative. However an informal resolution authorizing the official manager to seek the leave of the Court for the presentation of a petition for the winding up of the company was passed, on a show of hands twenty-three votes for and eight against, by the creditors other than the associated Delta Companies, being creditors for a total amount of $282,049.00.

The next step that was taken by the official manager purporting to act under s. 306(3) of the Ordinance, which refers to liquidators, was a report dated 11th September, 1967 which he submitted to the Registrar of Companies that in his opinion the company would be unable to pay its unsecured creditors more than $1.00 in $2.00.

In support of the present motion when it first came before this Court, an affidavit was filed which was sworn by Mr. Irish on 22nd September, 1967. He deposed that on 30th June, 1967 he estimated the deficiency between the estimated amount available and the amount needed to pay all creditors as being not less than $323,944.00. No new contracts for the performance of any work by the company had been entered into by him, nor could he ascertain any course of action by the said company which would enable it to pay its debts or establish any real probability that it would be so able.

The company’s annual accounts for the year ending 30th June, 1967 were submitted to the company’s auditors, but because agreement had not been reached between the official manager and the associated Delta Companies as to the respective balances of such companies (which seem certainly very substantial) the auditors were unable to form an opinion as to whether the accounts gave a true and fair view of the state of the company’s affairs as at that date and its business for that period. However a statement of assets and liabilities prepared by Mr. Irish as at 14th April, 1968, shows an estimated deficiency of $310,744.00. As to the associated Delta Companies, the claims are subject to production of adequate supporting evidence, and legal actions for testing of claims. Since that date no income has been earned by the company and no material change has occurred which would result in any reduction of the deficiency. All company contracts have been completed, and no new contracts for constructional work have been entered into by the official manager. In his opinion the company has no capacity to carry on business or earn income. These facts were not controverted before me, nor was the company’s inability to pay its debts.

Mr. Wood submitted that s. 203B of the Companies Ordinance applies to the present application. Section 203b is as follows:

N2>“(1)    Where a company is under official management, no action or proceedings in any court shall, except with the leave of the Court and in accordance with such terms and conditions as the Court may impose, be commenced or proceeded with against the company . . . .”

This question has been considered in Victoria under a section which for the present purpose is in similar terms. It has been held that a winding-up petition is an action or proceeding in a court, and, except in the rare case of the company’s own petition, it is “against the company”, and with those decisions I respectfully agree: Re High Crest Homes Ltd.[cdlxxv]² and Re Testro Bros. Consolidated Ltd.[cdlxxvi]³. Accordingly the official manager requires the leave of this Court to present this petition.

On Mr. Bayliss’ application I granted him leave to appear for the company and the associated companies which are substantial debtors and have large alleged claims against the company. Mr. Bayliss did not argue that the effect of the existing official management was a bar to the present petition but Mr. Wood then proceeded generally to rely on a passage from the judgment of Sholl J., in Re Testro Bros. Consolidated Ltd.[cdlxxvii]⁴ in which he dealt with that argument:

“First, s. 221(1)(f) expressly provides that a company may be wound up by the Court on the petition of the official manager appointed pursuant to Pt. IX. But he is an official manager only while his appointment is valid and still in force. How could he present a petition as official manager if the official management, including his own appointment, had to come to an end before he could present the petition? Plainly, he can only present a petition while still in office. Indeed, the purpose of official management is to enable an insolvent company to obtain a moratorium, to carry on business, and ultimately with the aid of the moratorium to meet all its obligations; see Pyemont’s Company Law of South Africa, 6th ed. (1953), pp. 459 et seq. Although in South Africa these purposes are expressly stated in s. 195 of the Companies Act 1926, and what we call official management is there called judicial management, and is ordered by the Court, and although in our Act there is no such statement of purposes, they are nevertheless, in my opinion, to be implied from s. 205(1)(g), which requires the official manager, if at any time he is of opinion that official management will not enable the company to meet its obligations, to give notice forthwith of that opinion to all members and creditors of the company.” (See under Companies Ordinance, s. 206(3).) “Presumably the creditors could then terminate the official management under s. 203(b),” (now s. 204(1) ) “or the official manager, a creditor, or a member could apply under s. 209(1)” (now s. 2 10(1)) “to cancel it, or (as would be the most likely course), the official manager could petition by virtue of s. 221(1)(f) for a winding-up order on the ‘just and equitable’ ground in s. 222 (1)(h). There is, curiously enough, no ground of winding up expressly corresponding with ss. 205 (1)(g) and 221(1)(f)”[cdlxxviii]⁵.

Again I am content to adopt Sholl J.’s view of the legislation. Mr. Wood then submitted that all that was necessary for him to show to obtain leave to present the petition is the official manager’s opinion, that official management will not enable the company to meet its obligations. He submitted that Mr. Irish’s opinion was in this case amply supported by the fact deposed to in the affidavits and that as the members of the company had effectively prevented the company from being wound up voluntarily, the present proceedings were the only course open to the company. He explained the delay in bringing on the present motion on the ground that the balance sheets and trading and profit and loss accounts had not been audited until 30th May, 1968. He submitted that the basis of official management is that a company, on its own admission unable to pay its debts, having a business to continue under official management is able to continue in that business, so that under official management, the company’s obligations will be met and that this basis had ceased to exist.

Mr. Bayliss submitted at the outset of the hearing that these proceedings were premature, they were not based on current information or on the current views of the members of the company, or the creditors, and he sought an adjournment until the creditors should have an opportunity to consider the audited accounts showing the company’s present financial position. In answer to Mr. Wood he submitted that the Court had a discretion, and that before granting leave it should be satisfied that reasonable steps had been taken to ascertain whether the creditors had a view which they may wish to urge on the Court. He pointed out that the wish of the creditors on 14th April, 1967 was that the company should continue under official management for a period of two years which has not expired. He strongly relied on the fact that in respect of the second period of six months after the date of the official manager’s appointment which ended on 14th April, 1968, no auditor’s statement had been furnished (s. 203A(3) ) nor had a meeting of creditors been called to consider the statement: s. 203A(2). He submitted that no weight should be attached to the informal resolution of 8th September, 1967, and that there was no satisfactory evidence of the attitude of the creditors. The resolution of 14th April, 1967 showed that in their opinion the company had a reasonable probability, under official management, that it would be able to pay its debts, and that there has been no effective expression by the creditors to the contrary since that date. He submitted that the associated companies should have the opportunity, at a properly convened meeting of creditors, to make further proposals or a scheme of agreement to compound the company’s debts. He submitted that the attitude of the members of the company should be considered; if they decided to stand aside this would materially enhance the position of the other creditors. He conceded that the authority of the creditors was not expressly required by the official manager on the present application. Finally he submitted that no material had been placed before the Court as to the views of the committee of management consisting of two members of the company, and three creditors, upon the present motion.

In reply Mr. Wood informed the Court that applications had been made to the Registrar for extensions of time under s. 203A, but no orders by the Registrar were filed. He also submitted that the Court has ample power to consider the views of the creditors on the hearing of the petition.

I have reached the conclusion that I should exercise my discretion by giving leave for the official manager to present the petition. I do so for the following reasons. The company is plainly unable to pay its debts, and no submission to the contrary has been made to me. There is in fact no business left for the official manager to continue. Consequently the whole purpose of the official management has collapsed; there can be no proceeds from which the company might meet its obligations. The members of the company have refused to resolve that the company be wound up voluntarily, and it seems to me, that the present position has been reached which was referred to by Sholl J. in Re Testro Bros. Consolidated Ltd.[cdlxxix]⁶ in which the only course open to the official manager is to petition the Court for a winding-up order. There are no facts before me as to the total debts which were represented by the creditors who voted informally in favour of the winding up, but I propose to take into account the clear conflict of interest between the associated Delta Companies and the other unsecured creditors, and the failure by the former or the company to make, even at this late stage, any effective proposals for composition of the company’s debts. It is very significant that at the meeting on 8th September, 1967 no resolution was passed in favour of the proposed new deed of arrangement. Mr. Bayliss has sought to take advantage of the official manager’s delay in proceeding with this motion by seizing on the failure of the official manager to prepare statements as to the assets and liabilities of the company since the date of his appointment, and to call meetings of creditors to consider them. But as the passage of time has shown no improvement of the company’s financial position, and has involved the cessation of its business, I consider that no good purpose would be served by adjourning the proceedings with a view to obtaining the present views of the creditors.

At the hearing of the petition the Court has ample power to consider the wishes of the creditors having regard to any new proposals which may be put forward by the associated Delta Companies or the company.

I accordingly give leave for the official manager to present a petition for the winding up of the company by the Court.

Leave to present a petition for the winding up of the company by the Court granted.

Solicitor for the applicant: Wm. Lander & Co.

Solicitor for the respondent: Colin Bayliss.

[cdlxxiv]* Section 203B of the Companies Ordinance 1963-1966, so far as is relevant, provides: “Where a company is under official management, no action or proceedings in any court shall, except with the leave of the court and in accordance with such terms and conditions as the court may impose, be commenced or proceeded with against the company .....”

[cdlxxv]Unreported, S. Ct. Victoria (1962), Little J.

[cdlxxvi][1965] V.R. 18.

[cdlxxvii][1965] V.R. 18.

[cdlxxviii][1965] VicRp 4; [1965] V.R. 18, at p. 29.

[cdlxxix][1965] VicRp 4; [1965] V.R. 18.