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Commercial Pacific Lumber Exports Pty Ltd, Re [1971-72] PNGLR 178 (2 June 1971)

[1971-72] PNGLR 178

PAPUA NEW GUINEA
[SUPREME COURT OF JUSTICE]

IN THE MATTER OF COMMERCIAL PACIFIC LUMBER EXPORTS PTY LIMITED

Port Moresby
Kelly J

11-14 May 1971
17-19 May 1971
2 June 1971

COMPANIES - Appointment of provisional liquidator - Circumstances in which appointment will be made - Director not acting in the interest of members as a whole - Effect of opposition by creditors to appointment of a provisional liquidator.

COMPANIES - Winding up - Stay of proceedings - Petitioner also a contractor with third party - Destruction of efficacy of bargain.

COMPANIES - Winding up - Security for costs - Circumstances in which order will be made - Companies Ordinance ss. 221, 363.

X. Pty. Ltd. was formed in 1969 at the instance of W., who became a director, and F. Subsequently the Articles of Association of X. Pty. Ltd. were amended so as to appoint W. as governing director of the company until his resignation, death or disqualification, with wide powers, including the power to exercise all the powers and functions of the directors. Shortly after this amendment was effected, F. sold all his shares in X. Pty. Ltd. to W. A few days later X. Pty. Ltd. entered into three written agreements with C. Ltd. Two of these written agreements were loan agreements providing for advances by C. Ltd. to X. Pty. Ltd. The third agreement was a “joint venture” agreement between the two companies, providing that W. and C. Ltd. would have equal shareholding in, and equal representation on the board of X. Pty. Ltd. The Court found that at the time the agreement was entered into the directors of C. Ltd. or some of them knew that W. was governing director of X. Pty. Ltd., but may not have appreciated the full extent of the powers he possessed as such. In consequence of the agreement C. Ltd. took up its shareholdings in X. Pty. Ltd., and thereafter the Board of X. Pty. Ltd. consisted of W., his brother and Y. and T. representing C. Ltd. Some loans were extended by C. Ltd. pursuant to the agreements. In 1970, X. Pty. Ltd. commenced the business of harvesting timber, and this timber was subsequently sold to C. Ltd. In January 1971 disputes arose between C. Ltd. and X. Pty. Ltd. as to the quality of the timber and as to payment for shipments of timber.

In February 1971, C. Ltd. agreed with D. to sell to D. its shares in X. Pty. Ltd., and that C. Ltd. would participate in a company to be formed by D. after he had acquired a permit to harvest timber in another area.

On 13th April, 1971, the solicitors for W., who also acted for X. Pty. Ltd., demanded payment of the sum of $500,000 which they claimed was the balance of the moneys which C. Ltd. had agreed to advance pursuant to the loan agreements. They stated that X. Pty. Ltd. would attempt to obtain money elsewhere by the creation of a debenture if the money was not forthcoming. On 17th April, 1971, C. Ltd. refused to advance the money, saying that it had met its obligations under the loan agreements and that W. was to blame for the financial crisis. On 20th April, 1971, W., as chairman of X. Pty. Ltd. told C. Ltd. that X. Pty. Ltd. would be in a financial crisis only if C. Ltd. did not comply with its commitments and referred to the alternative course of action open to him.

At about this time W., in purported exercise of his powers as governing director of X. Pty. Ltd. had arranged for a loan of $210,000 from J. on the security of a charge over the whole of X. Pty. Ltd.’s undertaking and certain collateral security. W. passed a resolution of X. Pty. Ltd. to this effect on 28th April, 1971, and an agreement for the loan was executed on 29th April, 1971, though no meeting of the directors of X. Pty. Ltd. was held, and there was evidence that the directors of X. Pty. Ltd. who represented C. Ltd. on the Board had no notice of W.’s actions.

On 31st March, 1971, TB. Ltd., a creditor, gave to X. Pty. Ltd. a notice under s. 222 of the Companies Ordinance demanding payment of the sum of $108,763.71. As a result, on 30th April, 1971, X. Pty. Ltd. executed certain bills of sale to secure part of the moneys payable to it by TB. Ltd.

Also on 30th April, 1971, a petition for winding-up was presented by C. Ltd. and TD. Ltd., another creditor. The petitioners also sought the appointment of a provisional liquidator.

D. applied for a stay of proceedings, and an application was made for an order that the petitioners provide security for costs. All the applications were heard together.

The ground of D.’s application was that C. Ltd., a petitioner, had entered into a contract with him providing, inter alia, for the sale of C. Ltd.’s shares in X. Pty. Ltd. and that C. Ltd. should not be permitted to proceed with its petition because of the principle that a party to a contract shall do nothing to destroy the efficacy of the bargain he has made.

Held

Dismissing D.’s application for a stay of proceedings, that the principle that a party to a contract shall do nothing to destroy the efficacy of the bargain he has made did not prevent C. Ltd. from taking such action as was necessary to protect its interests as a shareholder and creditor, including the presentation of a petition to wind up X. Pty. Ltd., or applying for the appointment of a provisional liquidator of that company.

Held

Further, granting the application for the appointment of a provisional liquidator, that the court would appoint a provisional liquidator if this was desirable to protect the assets of a company, even though the situation did not fit exactly into any of the categories in which provisional liquidators have been appointed in other cases, and even though there was no situation of emergency or urgency, if a holding operation under the control of a provisional liquidator was appropriate to maintain the status quo and to prevent prejudice to interested parties.

In the circumstances, the cleavage of interest between W. and C. Ltd., together with the situation where W. was asserting control of X. Pty. Ltd. to the exclusion of the directors appointed by C. Ltd., and had in fact encumbered the whole of the assets of X. Pty. Ltd., made this an appropriate case for the appointment of a provisional liquidator. Levy v. Napier, [1962] S.C. 469, [1962] S.L.T. 264 applied.

Per Curiam

The views of creditors opposing the appointment of a provisional liquidator should not prevail if the court deems it appropriate that there should be an impartial person appointed to take charge of the assets.

Circumstances considered in which security for costs be ordered in proceedings for the winding up of a company and an undertaking as to damages required on the appointment of a provisional liquidator.

Cases Cited

Foley v. Classique Coaches Ltd., [1934] 2 KB. 1

May & Butcher Ltd. v. The King, [1934] 2 K.B. 17n

Hall v. Busst [1960] HCA 84; (1960), 104 CLR. 206

Suttor v. Gundowda Pty. Ltd. [1950] HCA 35; (1950), 81 CLR. 418

O’Keefe v. Williams [1910] HCA 40; (1910), 11 CLR. 171

In re A Company[1894] UKLawRpCh 61; , [1894] 2 Ch. 349

Rees v. Bank of New South Wales [1964] HCA 47; (1964), 111 CLR. 210

Sandell v. Porter (1966), 115 CLR. 666

Levy v. Napier, [1962] SC 469

In re Hammersmith Town Hall Company [1877] UKLawRpCh 202; (1877), 6 Ch. D. 112

In re Yenidje Tobacco Co. Ltd., [1916] 2 Ch. 426

Loch v. John Blackwood, Ltd., [1924] UKPC 45; [1924] AC. 783

In re Lundie Brothers Ltd., [1965] 1 WLR. 1051

In re Westbourne Galleries Ltd., [1970] 1 WLR. 1378.

Motion for the appointment of a provisional liquidator: cross-application for a stay of proceedings, and for an order that the petitioners provide security for costs.

The facts are set out in the judgment of Kelly J.

Counsel

Pincus and Crommelin, for applicant petitioners.
Staff Q.C. and E. C. E. Pratt, for the respondent company, for the applicant Chamoun, and for F. N. Wakim.
E. A. Francis, by leave, for Tutt Bryant (Pacific) Ltd. and I.A.C. (New Guinea) Pty. Ltd., creditors.
Wood, by leave, for Clark Equipment (Australia) Ltd., a creditor.
McCubbery, by leave, for Commonwealth Trading Bank of Australia, a creditor.
Cur. adv. vult.

2 June 1971

KELLY J: The matfors for my determination in this case arise on a motion for the appointment of a provisional litor of Comm Commercial Pacific Lumber Exports Pty. Ltd. (to which I shall refer as “the company”) pending determination of a winding-up petition presented by New Guinea Co-operation & Development Co. Ltd. (referred to as “Coop”) and New Guinea Trade & Development Co. Ltd. (referred to as “Trade”). Each of the petitioners is stated to be a company constituted in accordance with the law of Japan with a registered office in that country. The grounds of the petition are that the company is unable to pay its debts, that two of its directors namely Farid Nicolas Wakim and Fouad Wakim have acted in the affairs of the company in their own interests rather than in the interests of the members as a whole and otherwise unfairly and unjustly to Coop, and that it is just and equitable that the company be wound up.

On the hearing of the motion both the company and Farid Wakim were represented by the same counsel. Counsel also appeared for the petitioners and leave was given for counsel to appear for three creditors, namely, Tutt Bryant (Pacific) Ltd., I.A.C. (New Guinea) Pty. Ltd. and Clark Equipment (Australia) Ltd. who opposed the appointment of a provisional liquidator and for another creditor, Commonwealth Trading Bank of Australia, whose attitude was not indicated.

Counsel who appeared for the company and Farid Wakim also appeared for one Dory Chamoun for the purpose of moving for a stay of proceedings on the petition in so far as it was maintained and prosecuted by Coop; this of course also involved seeking a stay on the motion for the appointment of a provisional liquidator. After argument I decided that the appropriate course was for me to hear the evidence on the motion for the appointment of a provisional liquidator as well as that particularly directed to the question of a stay before dealing with the latter question in order that all the facts should be before me, although obviously it is necessary that the motion for a stay be now dealt with prior to considering the other matters for determination on the original motion.

In the course of his final address counsel for the company and Farid Wakim sought an order that security for costs be given by Coop and this is a further matter requiring consideration.

The hearing extended over seven sitting days with a considerable volume of documentary material and a deal of oral evidence. Whilst in the circumstances it appeared unavoidable that the various matters in issue between the parties should be canvassed, it is necessary to keep in mind that I am not dealing with the winding-up petition but merely with an application for the appointment of a provisional liquidator. Much of the material, while no doubt providing background which to some extent assisted in placing the relevant facts in their correct perspective, does not require detailed consideration for the purpose of arriving at findings of fact such as might be necessary for the hearing of the petition itself. Various side issues were raised, some of doubtful relevance. However, I can say that the volume of evidence adduced did succeed in presenting me with a reasonably comprehensive picture of the dealings between the parties since August 1969 even though that picture is in some respects somewhat blurred. In the circumstances I do not propose to deal with the facts at any greater length than is necessary for the purpose of this judgment and I shall content myself with setting out what I conceive to be the basic facts for that purpose.

The company was incorporated in May 1969, the original shareholders and directors being Farid Wakim and one Lucien Forbes. In August 1969 Forbes sold to Farid Wakim his shareholding in the company. On 11th August, 1969, immediately prior to Farid Wakim’s purchase of these shares, an extraordinary general meeting of the members of the company resolved to amend the Articles of Association by the addition of articles which appointed Farid Wakim as governing director until his resignation, death or disqualification from holding office. The governing director was given wide powers including the power to appoint and remove directors, to limit and restrict the powers of any other director and to exercise at his discretion all the powers and functions of the directors. On a date which would appear to have been between 14th and 18th August, 1969, the company and Coop entered into three written agreements, each of which however on its face is stated to have been made on 8th August, 1969. These agreements comprised two loan agreements, one of which provided for a loan by Coop to the company of an aggregate amount of US$144,000 “after effective of approval of Japanese Government for overseas investment” and the other for the loan of an aggregate amount of A$2,000,000 with the same qualification as to approval, whilst the third agreement is described as a joint venture agreement between the two companies which in effect provided for equal shareholding between what in fact might be termed the Wakim interests (although not so designated in the agreement) and Coop with equal representation of the respective interests on the board of directors. There was a conflict of evidence to which I shall later refer as to whether at the time these agreements were entered into Coop through its directors was aware of the resolution of 11th August, 1969, appointing Farid Wakim as governing director, as notice of that resolution was not given to the Registrar of Companies until 10th February, 1970.

Subsequent to the agreements of August 1969 Coop took up its shareholding in the company and at all times material to the present proceedings the shareholding has been equally divided between the Wakim interests and Coop. Likewise the board of directors has consisted of two representatives of each interest, Farid Wakim and his brother Fouad Wakim on the one hand and Yoshiaki Katori and Tokumuchi Ogawa as representatives of Coop on the other. Loan money in fact made available by Coop to the company with the approval of the relevant Japanese Government authority (referred to as “Miti”) was US$144,000 in December 1969 and further amounts aggregating A$1,500,000 between August and October 1970. In addition Coop arranged through the Mitsui Bank and the Commonwealth Trading Bank for the company to have available to it a standby credit; this was originally A$500,000 and as from the end of September 1970 was A$300,000.

During the first half of 1970 the company commenced operations in the winning of timber from a lease held by it at Bialla in New Britain and in July 1970 shipments of timber to Japan commenced, the purchaser being Coop. In all, nineteen such shipments have been made. It appears that relations between the two interests were harmonious for some time.

The original agreements made in August 1969 were in somewhat general terms and from about August 1970 onwards efforts were made by Coop to have more comprehensive agreements executed. To this end documents of a much more detailed nature and which would have had the effect of introducing numerous additional terms were prepared by Coop at various times between August 1970 and April 1971 and presented to Farid Wakim for his signature. Of these documents it appears that only those dated 12th December, 1970, and 14th December, 1970, were signed and so far as the evidence shows these were signed by Farid Wakim on behalf of the company but were not executed by Coop.

In 1971 the picture underwent something of a change. Coop began to complain about the quality of logs being supplied and differences arose over payment and in particular over the terms of a letter of credit. From January 1971 onwards questions also arose as to the payment by the company of the sum of US$38,855.82 owed by it to Trade and which will be dealt with more conveniently at a later stage.

Contemporaneously, negotiations had been proceeding over the formation of a consortium for the purpose of applying for a permit for the harvesting of timber at Open Bay in New Britain and if successful to operate that project. In October 1970 an agreement for this purpose was entered into between the company, Coop, a Japanese company and an Australian company, but by March 1971 all the parties to that agreement other than the company sought to rescind it. Meanwhile, early in 1971 an arrangement was made between Coop, Farid Wakim and Chamoun to tender for the Open Bay permit although apparently this was not reduced to writing. Then on 5th February, 1971, an agreement was made between Coop and Chamoun which provided inter alia for the purchase by Chamoun of the shares in the company held by Coop and for participation by Coop in a company which Chamoun was to form after obtaining the Open Bay permit. On 30th April, 1971, a tender for the permit was submitted by a company Integrated Timber Industries Pty. Ltd., the members of which were Chamoun and Farid Wakim.

In April 1971 the stage was set for the present proceedings. On 13th April the solicitors for Farid Wakim (who were also solicitors for the company) by a telex message demanded from Coop $500,000 which they claimed to be the balance of the $2,000,000 loan agreed upon in August 1969. If this was not forthcoming it was threatened that the company would obtain funds elsewhere by creating a debenture as security. Coop replied in a telex message of 17th April that a total amount of $1,978,570 had already been remitted, and placed the blame on Wakim for the fact that the company had encountered a financial crisis. In reply by a further telex message of 20th April, this time sent by Wakim as chairman of the company, it was asserted that the company would be in a financial crisis only if Coop did not comply with its commitment and referred to the alternative courses of action open to Wakim, namely legal proceedings to recover amounts due by Coop to the company, finding another market for the timber produced and arranging necessary finance by way of a debenture against the assets of the company, which Wakim said he had already proceeded to do.

In fact it appears that at about this time Wakim, presumably in purported exercise of his powers as governing director, had taken steps to arrange for a loan of $210,000 from one Chipper on the security of a charge over the whole of the company’s undertaking with certain collateral securities. A resolution of the company for this purpose is stated to have been passed by Wakim as its governing director on 28th April, 1971, and the loan agreement was made on 29th April, 1971. It appears from the evidence of Keechi Shibuya, who resides in Port Moresby where the registered office of the company is situated and who acted as an alternate director of the company for Katori, that no meeting of directors was held on this matter and, further, that about 21st April Wakim told him that he did not wish him to come to the office until the differences between the company and Coop were resolved.

On 31st March, 1971, Tutt Bryant (Pacific) Ltd. (to which I shall refer as “Tutt Bryant”), one of the creditors represented on the hearing of the motion, gave the company a notice under s. 222 of the Companies Ordinance demanding payment of a debt of $108,763.71. On 30th April following a discussion between representatives of Tutt Bryant and Wakim, a number of bills of sale were executed by the company to secure moneys payable by it to Tutt Bryant. It would appear that the result was that part of the money the subject of the s. 222 notice is now thus secured but that an amount of approximately $42,000 for goods supplied and services rendered remains unsecured.

On 30th April, 1971, a petition for winding-up was presented by the present petitioners and proceedings instituted for the appointment of a provisional liquidator. These were in fact the proceedings which originally came before me but by reason of a defect in the affidavit verifying the petition the petitioners elected to present a further petition and notice of motion, and it is upon that notice of motion that the matter ultimately proceeded, further proceedings by the petitioners on the original petition having been stayed.

It is first necessary to consider and determine the application made by Chamoun for a stay of proceedings. This application is based on the agreement of 5th February, 1971, between Coop and Chamoun to which I have already referred. The agreement provides inter alia for the sale by Coop to Chamoun of its shares in the company, for participation by Coop in a company which Chamoun was to form after obtaining the Open Bay permit, contains terms for the formation by the parties of a sales company and provides that they together with Wakim, who is not a party to the agreement, will form a shipping company. The clause in relation to the shipping company is more in the nature of a recital than an agreement. Whilst it is arguable whether there is a completed agreement by reason of the inclusion of clauses such as II(f) (Foley v. Classique Coaches Ltd .[ccv]1; May and Butcher Ltd. v. The King[ccvi]2; and see also Hall v. Busst[ccvii]3) it is not necessary to determine this question in view of Clause IV which provides that: “All of the above Clauses and resolutions will enter into immediate effect only upon the obtaining of the ‘Open Bay Company’ of the permit or rights to harvest the forest of the area known as Open Bay”. The clause then goes on to provide that in the case of non-compliance with the clauses of the agreement, unless separately agreed upon with reference to the agreement, it will become “nil and void and of any effect”; in which event all engagements made in the meantime between the company and Coop with regard to the agreement will also become “nil and void”. At the time of the hearing the necessary permit had not been obtained and it appeared that some time was likely to elapse before it would be known whether or not it would be obtained.

The obtaining of a permit is thus a condition precedent so that the parties are bound to perform their respective obligations only on the performance of the condition. The provision for the agreement becoming void in certain events could only become operative after the performance of the condition precedent as it is only then that the obligation of each party becomes effective. This is a different situation from that dealt with in Suttor v. Gundowda Pty. Ltd.[ccviii]4 where theisrovision was for the avoidance of the contract on the occurrence of a specified event, so therno occasionasion to apply the principles discussed in that case at pp. 440-441. At this stage whilst the condition precedent has not been performed its performance is still possible so that, assuming that there is a completed agreement, the position may arise where each party is called upon to perform his or its part of the bargain and if a party had meantime disabled himself or itself from performance (for example, if Coop were to sell its shares) then he or it would be in breach.

There is a principle that neither party shall do anything to destroy the efficacy of the bargain he has made (O’Keefe v. Williams[ccix]5). However, the application of this principle does not mean that if there is a completed agreement, Coop, because of its obligation as a shareholder on the performance of the condition precedent, is prevented from taking action which it deems necessary, both as a shareholder and as a major unsecured creditor, to protect its interests and for that purpose to seek a winding-up order and the interlocutory relief for which it now applies. I do not, for instance, consider that Coop would be compelled to stand helplessly by and allow the company to become insolvent or otherwise suffer what might be irreparable harm just because it had such a contract in relation to the sale of its shares.

If the time arrives when the condition precedent has been performed and by that time the company has either been wound up or if, as is suggested would be the case, even without winding-up a provisional liquidator should be appointed and the fact of that appointment has so altered Chamoun’s position to his detriment that he has suffered damage, then no doubt he could seek to recover any sum to which he might claim to be entitled by reason of some default on the part of Coop. In that event matters such as whether there was a completed contract, whether Chamoun was entitled to require performance on the part of Coop and if so whether in the events that had happened he was entitled to recover damages from it would all be determined. However, to my mind these considerations do not carry with them the consequence that the petitioners should be prevented at the instance of Chamoun from continuing with their present action. The question of whether a provisional liquidator should be appointed and in due course whether the company should be wound-up concern persons other than the parties to the agreement of 5th February, 1971. It could not be said that there had been an abuse of process in presenting the petition in that it had been presented for purposes other than the ostensible purpose, for example, in an endeavour to put pressure on the company (see In re A Company[ccx]6). I therefore consider that in all the circumstances the proper exercise of my discretion is to refuse the stay sought and I accordingly do so.

From the whole of the material before me, of which as I have indicated the above is but the barest summary of the major matters of relevance to the present proceedings, several matters clearly emerge. One is that the whole basis of the agreement between Wakim and Coop right from the outset has been that the company should be conducted as a joint enterprise between the Wakim interests and Coop with equal powers exercisable by each. This is of course quite inconsistent with the concept of Wakim being in a position to exercise his wide powers as governing director, and the powers conferred by the joint venture agreement and those conferred by the Articles relating to governing director would seem to be reconcilable only on the basis that as between the parties to the joint venture agreement there was necessarily an implied agreement on the part of Wakim not to exercise his powers as governing director while that agreement remained on foot, although it may well be that as against outsiders any purported exercise by him of those powers would be valid. However, I am not called upon to consider the validity of any acts done by Wakim in the purported exercise of such powers, so it is not necessary that I deal further with this aspect.

There was a deal of evidence on the question of whether at the time the agreements of August 1969 were entered into Coop through its directors knew of the terms of the resolution of 11th August, 1969, appointing Wakim as governing director. I have come to the conclusion on the whole of that evidence that when the agreements of August 1969 were signed the directors of Coop, or some of them at all events, knew that Wakim held the appointment of governing director of the company and they had some idea of what this meant although they may not have appreciated the full extent of the powers conferred upon Wakim by the Articles and of the implications which this had in relation to the joint venture agreement. Be that as it may, for the purposes of the present application I do not find it necessary to consider further the legal consequences of this situation, in particular the contractual right of Coop to assert an equal voice in the management of the company notwithstanding the provisions of the governing director articles. I have already indicated a basis on which it seems that it would be possible to reconcile the two provisions and it would certainly make a mockery of the entire concept of the joint venture as indicated both by the original agreements of August 1969 and the documents subsequently signed by Wakim in December 1970 if he could, as it were, keep the ace up his sleeve and whenever he chose do exactly as he liked. His right to do so has been contested by Coop with some apparent justification and it is not appropriate that I should determine the contractual rights of the parties on an application such as at present.

Another matter which is apparent is that disputes do exist between the Wakim interests and Coop. It is true that these disputes to quite some extent are between Coop in its capacity as the purchaser of timber produced by the company rather than as a shareholder, but nevertheless the net result has been a cleavage between the two interests within the company. An attitude of mistrust between the two sets of directors has clearly developed particularly in recent months, and there is no doubt that at this stage mutual confidence between the two interests is lacking. It is but fair to assume that the position has been exacerbated by the present proceedings.

I am bound to observe that whilst the one set of counsel appeared both for the company and Wakim (and also, in relation to the application for a stay, for Chamoun) it would seem that, whilst no doubt their retainer came from the company, in reality they could represent but one set of interests having a fifty per cent shareholding in the company together with such interest as Wakim may have as a creditor. The petitioner Coop, in its capacity as a contributory, has the remaining fifty per cent interest in the company in addition to clearly being a creditor.

Reported cases indicate that as a general rule the court has been prepared to appoint a provisional liquidator in certain defined sets of circumstances. Two such circumstances, neither of which exists in the present case, are where the petition for winding-up has been presented by the company itself and where the petition is unopposed. Two other circumstances in which a provisional liquidator has been appointed and which it is suggested are applicable here are firstly, where the company is insolvent and secondly, where the situation is such that it is desirable to appoint a provisional liquidator to take possession of and to protect the assets of the company.

Without going into a great deal of detail on the subject I will say immediately that on the evidence before me I certainly could not be satisfied that the company is insolvent or even that a prima facie case of insolvency is established by the evidence. The meaning of insolvency was considered by Barwick C.J. in Rees v. Bank of New South Wales[ccxi]7 and in Sandell v. Porter[ccxii]8, and it could e said that the evidence isce is sufficient to satisfy the test there enunciated, namely, that the company did not have or could not command sufficient cash resources to pay its debts as they became due. The evidence left the general position of the company in a somewhat vague state. It is apparent that it has financial problems, but this does not necessarily denote insolvency. The latest accounts of the company which were produced, namely, those as at 31st December, 1970 are not audited and could not be taken to reflect accurately the financial position of the company at that date, nor do they afford any indication of its present position. The forecast made by Sever as to the company’s cash position at various dates is equally valueless as being based on what would appear to be optimistic and unsupported estimates of revenue and by failing to take into account various items of expenditure for which the company would obviously become liable.

Evidence as to the specific debt, namely, the sum of US$38,855.82 stated in the petition to be owing to Trade and on the non-payment of which it was sought to rely as indicating the inability of the company to pay its debts was unsatisfactory. So far as the evidence showed, this sum had not been paid; on 17th May Wakim said that he was making arrangements to pay it that day, and his counsel stated that it had in fact been paid after the close of the evidence, but obviously I could not properly act on this. However, the evidence is not clear as to the point of time at which the company’s liability to pay this amount ultimately arose as it would seem that some indulgence was granted by the creditor, and I would not be prepared to rest any finding of insolvency on this particular debt. The position might well be otherwise in relation to the Tutt Bryant debt the subject of the s. 222 notice on which it seems the petitioners would be entitled to rely, assuming that compliance with all the provisions of s. 222(2)(a) were to be established. This was not the case in the present proceeding so that whatever the position may be on the winding-up petition itself at this stage insolvency is not established.

The question then is whether the situation is such that even though the petitioners cannot show that the company is insolvent, nevertheless it is desirable that the assets of the company be protected pending the determination of the winding-up petition. The court is being called upon to exercise a discretion and if it seems to it to be proper to do so under the circumstances of any particular case, it will exercise that discretion to appoint a provisional liquidator even though the situation does not fit exactly into any of the categories in which provisional liquidators have been appointed in other cases. The width of the court’s discretion is indicated by Levy v. Napier[ccxiii]9 where the Lord President said: “. . . we are not determining in any way at this stage whether the company should or should not be wound up compulsorily. All we are concerned with is whether a holding operation under the control of a provisional liquidator is appropriate, pending the decision on whether or not to wind up this company. The operation is provided for by the Act and is designed to maintain the status quo and prevent prejudice to either of the contestants.” Lord Guthrie[ccxiv]10 at p. 479 aid: “. . . the more we have heard of the ramifications of the disputes bn the petitioner and the rehe respondent, and the more we have heard of the allegations and counter-allegations against the good faith of the other, it is the more desirable that the course adopted by the Vacation Judge should be approved” (that is, the appointment of a provisional liquidator). Whilst the facts of that case differ from those in the present case, the concept of maintaining the status quo and preventing prejudice to interested parties pending determination of the winding-up petition where the circumstances are shown to be such as to warrant this course is clearly indicated.

It has been suggested that it is necessary that the situation should be one of emergency or at least of urgency, but this is not necessarily so. It is true that in the head-note to In re Hammersmith Town Hall Company[ccxv]11 it is said that the Court will, in case of urgency, appoint a provisional lator, without the consent of the company, tny, to take possession of and protect the assets; but the short judgment of Jessel M.R. makes no reference to urgency. Where the case is not one of insolvency or of a petition presented by the company itself or unopposed the test is simply whether the circumstances are such that to use the words of the Lord President in Levy v. Napier[ccxvi]12, “a holding operation under the control of a provisional liquidator is appropriate.”

Whilst I do not have to go so far as to decide whether or not it is probable that the petitioners will establish any one or more of the grounds of their petition, I can say that on the analogy of the partnership principle which has been applied in winding-up cases such as In re Yenidje Tobacco Co. Ltd.[ccxvii]13, Loch v. John Blackwood Ltd.[ccxviii]14, In re Lundie Brothers Ltd.[ccxix]15, and more recently in In re Westbourne Galleries Ltd.[ccxx]16 in whichaute authorities are reviewed, the facts of this case as they emerge before me certainly provide a strong prima facie case for winding-up on the just and equitable ground. As I have already stressed, I am not being asked to determine whether the company should be wound up although no doubt if the evidence had been such as to indicate that the petitioners had but a slender chance of succeeding on their petition the court may well hesitate to take the step of appointing a provisional liquidator; however, that is not the case here.

The present position of this company is that there is a definite cleavage between two interests, each with an equal shareholding in the company and one of which is also a large unsecured creditor. Irrespective of whether, in view of the provisions of the joint venture agreement, he is entitled to do so, Wakim is asserting control of the company to the exclusion of the directors appointed by Coop and indeed has gone so far as to encumber the whole of the company’s undertaking. To my mind this clearly creates a situation in which at the suit of Coop at all events with the interest which it has in the company, the company should be placed in the hands of some neutral person and its assets protected pending the determination of the winding-up petition. I consider that such a “holding operation” is certainly appropriate.

I appreciate that certain of the creditors do not wish this step to be taken as they are understandably concerned with their own interests which they consider would be best severed by the company continuing as it is without the appointment of a provisional liquidator. However, I do not consider that the views of these creditors should be allowed to prevail when it appears so desirable for the reasons which I have indicated that at this stage there should be an impartial person appointed to take charge of the assets.

I therefore propose to appoint a provisional liquidator as sought by the notice of motion. No question has been raised as to the impartiality or suitability otherwise of the official liquidator whose appointment is sought and he will therefore be appointed. It seems to me to be desirable that the provisional liquidator should be given the power to carry on business so far as is necessary for the purpose of preserving the business as a going concern and I therefore include this amongst the powers set out in the order, although I have limited this until further order in case the situation should appear otherwise once the provisional liquidator has assumed his duties.

I have finally decided against requiring from the petitioners an undertaking as to damages, although I was informed that such an undertaking would be given if required. Whilst there are many cases in which this is appropriate it is not, so far as I can ascertain, an invariable requirement. In view of the interests of Coop, both as a substantial shareholder and as a creditor, it does not appear necessary that it should give such an undertaking as against the company and I would not be prepared to require that it be given as against Wakim. In the circumstances there is no occasion to consider the somewhat different position of the co-petitioner Trade and no good purpose would be served by requiring an undertaking from that petitioner alone.

Finally, it is necessary that I rule on the application that Coop give security for costs. Section 221(2)(c) of the Companies Ordinance is not applicable as Coop is not a contingent or prospective creditor since it appears that interest on its loan to the company has accrued due and is unpaid. I would not be justified in applying s. 363(1) as there is nothing to indicate that Coop would be unable to pay the costs for which it might be liable if it were unsuccessful on its petition. In view of the nature of Coop’s interests in the company, I do not consider that the fact that it is a foreign company, to which it would seem Division 3 of Part XI does not apply, should cause me to make an order for security for costs. The application for security is therefore refused.

The order which I make for the appointment of the provisional liquidator is in the following terms.

I appoint Murray James Brown, chartered accountant, an official liquidator, to be the provisional liquidator of the company until the making of a winding-up order herein or until further order.

The duties to be performed by the provisional liquidator are as follows:

(1) To take psssession of and protect the assets of the company.

(2) &#16 ; Toy arry on the business of the company until further ordered, but so far only as m nece sarytfor uhe purposerpose of preserving the business as a going concern.

(3) To receive and collect the debts due to the company, but only so far as may be necessar the surpo e ofepresgrving the the business as a going concern.

(4) ҈ xercise in e in so far as may be necessary r any of the functions and powers which mayh may be performed by an official liquidator upon a winding-up order as provided by the Companies Ordinance 1963.

The nature and description of the property of which the provisional liquidator is to take possession is as follows:

(a) ; All the bohe books of account and the general records of the compap> (b)& &#160 #160; Aal and pend personal estate whats ownethe company.