Wep Kilip and In The Matter of Kamsi Trading Limited (1–13612) v In The Matter of An Application By The Liquidator, Hugh Mosley (2005) SC784

• Jurisdiction: Papua New Guinea
• Judge: Lay J
• Judgment Date: 06 May 2005
• Court: Supreme Court
• Citation: (2005) SC784
• Docket Number: SCA No 35 of 2005
• Year: 2005
• Judgement Number: SC784

Full Title: SCA No 35 of 2005; Wep Kilip and In The Matter Of Kamsi Trading Limited (1-13612) v In The Matter Of An Application By The Liquidator, Hugh Mosley (2005) SC784

Supreme Court: Lay J

Judgment Delivered: 6 May 2005

SC784

PAPUA NEW GUINEA

[SUPREME COURT OF JUSTICE]

SCA NO. 35 OF 2005

WEP KILIP

First Appellant/Applicant

AND

IN THE MATTER OF KAMSI TRADING LIMITED (1-13612)

Second Appellant/ Applicant

AND

IN THE MATTER OF AN APPLICATION BY THE LIQUIDATOR, HUGH MOSLEY

Respondent

LAY J

PORT MORESBY

2005: 2nd and 6th May 2005

Counsel

Mr. A. Furugi for the Applicant Appellant

Mr. I. Shepherd for the Respondent

Application for a stay of National Court order—single judge of the Supreme Court—Supreme Court Act s5(1)(b) & s19—Supreme Court Rules O3 r2—considerations for a stay.

Application for a stay of order refusing termination of liquidation—considerations for terminating a liquidation—Companies Act s300—factors for enquiry into whether termination “just and equitable”.

Cases Cited

SC645 Gary McHardy v Prosec Security and Communications Ltd t/a Protect Security

Overseas Cases

Calgary and Edmonton Land Co Ltd (1975) 1 ALL E.R. 1046; El-Fahkri, in the matter of Elpah Pty. Ltd (In Liq) [2002 FCA 1469;Metledge v Bambakit Pty. Ltd; Manuel Koutsourais, Applicant [2005] NSWSC 160;Re Warbler Pty Ltd (1982) 6 ACLR 526

Re South Barrule Slate Quarry Co (1869) 8 Eq 688;Re Bank of Queensland Ltd (1870) 2 QSCR 113; Krextile Holdings Pty Ltd v Widdows [1974] VR 689; Re Data Homes Pty Ltd [1971] 1 NSWLR 338; In re a Private company (1935) NZLR 120; Re Mascot Home Furnishers Pty Ltd (1970) VR 593; Re Telescriptor Syndicate Ltd [1903] 2 Ch 174; Ayerst (Inspector of Taxes) v C & K (Construction) Ltd AC 167; Buchler and Anor. (as joint liquidators of Leyland Daf Ltd)(Respondents) v Talbot and ANor. (asjoint administrative receivers of Leyland Daf Ltd) and others (Appellants and others [2004] UKHL 9

Facts

The Applicant Appellants sought to stay the order of the National Court refusing an application to terminate the liquidation of the Second Appellant, which was commenced in December 2002. The application was refused inter alia because the Applicants had not demonstrated that (a) the creditors had been paid or consented (b) the shareholders consented (c) the liquidator had been paid.

Held

The factors set out in SC645 Gary McHardy v Prosec Security and Communications Limited trading as Protect Security were applied to determine whether or not to grant a stay. Those factors included (1) whether there was an error on the face of the record and (2) whether a preliminary examination showed an arguable case on the appeal. It was necessary to examine the principles applicable to the termination of a liquidation which is an enquiry into whether it was just and equitable to terminate the liquidation. Factors to consider include (a) whether the creditors and contributories had been served with the application; (b) the nature and extent of the creditors & whether all of the debts have been or will be discharged; (c) the attitude of creditors, contributories and the liquidator; (d) the current trading position of the company and its general solvency should be demonstrated; (e) any non compliance by directors with their statutory duties should be fully explained with all reasons and circumstances; (f) the general background which led to the winding up should be explained; (g) the nature of the business carried on by the company should be demonstrated and whether in any way the conduct of the company was contrary to commercial morality or the public interest.

It had not been demonstrated that the company was solvent, or that all of the creditors had been paid, or that the shareholders agreed. The liquidator had not been paid. The company had not paid tax or lodged returns to the Commissioner of Internal Revenue or the Registrar of Companies. There was no error on the face of the record. There did not appear to be any arguable case on the appeal. The balance of convenience and interests of justice did not favour granting a stay. Application refused.

The Applicant applies for a stay pursuant to s19 of the Supreme Court Act and O3 r2(b) of the Supreme Court Rules, of an order of the National Court dismissing an application to terminate the liquidation of the Second Appellant.

On 10th December 2002 a winding up order was made against the Second Appellant in respect of the petitioning creditor’s debt of K5,627.86. The debt was paid in full on 21st January 2003 to the lawyers for the petitioning creditor. An invitation for proofs of debt was issued which attracted claims totaling K309,498.54 excluding legal and liquidators fees. Unknown amounts may be due for group tax and income tax as the Second Appellant has never paid anything for these taxes. There is a claim by the liquidator for K107,000 in costs including legal costs. K290, 284.20 in claims have been paid, or rejected by the liquidator. The First Appellant, a director and shareholder of the Second Appellant, has not co-operated with the liquidator. He has not provided documents from which the Liquidator might calculate the amount due, if any, to the Commissioner of Taxation. The Liquidator has sold two trucks which were the property of the Second Appellant and at this time the First Appellant still refuses to give possession of one of the trucks to the purchaser.

Submissions

The Appellants submit that the First Appellant is struggling financially, that there are strong grounds for believing the appeal will succeed because the Liquidator did not acknowledge that the petitioners debt had been paid, there was no evidence that other creditors had entered appearances in the proceedings on the petition or sought to be substituted for the petitioning creditor, there was no liquidator’s report, the costs of the liquidator compared with the petitioning creditors debt is unjust, the Court should not have relied upon Re Calgary and Edmonton Land Co Ltd

1 (1975) 1 ALL E.R. 1046

1(“Re Calgary”) because that case dealt with a stay not a termination; and it is not to the point that the Appellant’s wife and co-shareholder did not consent to the termination of the liquidation because s300(1) of the Companies Act is wide enough for a single shareholder to apply. The Order of the National Court causes hardship and inconvenience, its results in a breach of natural justice as assets of the company will continue to be sold after the petitioner’s debt has been paid off. The Liquidator’s costs are excessive and should be pursued by way of writ of summons. A stay will not jeapardise the Liquidator’s position.

The Respondent submitted that there was no evidence that the Second Appellant would be solvent if the liquidation was terminated; the petitioner’s debt was still an issue because it was paid to the petitioner after the liquidation commenced and constituted a preference. The affidavit of the liquidator which was before the judge in the National Court showed there were other debts beside that of the petitioner. Re Calgary was applicable to a stay or a termination and was authority for the proposition that it would not be granted unless (a) all creditors have been paid or consent (b) the liquidator has been paid (c) the shareholders agree. The prospects of obtaining leave are limited. There has been considerable delay in making the application, the liquidation order was made in December 2002 and this application has been instigated by the liquidator seeking to sell certain assets of the Second Appellant. There are little prospects of the appeal succeeding.

The Law

Supreme Court Act s19 provides that an appeal does not operate as a stay unless “otherwise ordered by the Supreme Court or a judge”. Inferentially the Court or a judge may order a stay, and this is an exercise of the jurisdiction given by s5(1)(b) of the Supreme Court Act and O3 r2 of the Supreme Court Rules “to make an interim order to prevent prejudice to the claims of the parties.” Some of the matters to be taken into account when considering an application for a stay are:

“…the judgment creditor is entitled to the benefits of the judgment. The other factors include the following:

Whether leave to appeal is required and whether it has been obtained;

Whether there has been any delay in making the application.

Possible hardship, inconvenience or prejudice to either party.

The nature of the judgment sought to be stayed.

The financial ability of the applicant.

Preliminary assessment about whether the Applicant has an arguable case on the proposed appeal.

Whether on the face of the record of the judgment there may be indicated apparent error of law or procedure.

The overall interest of justice.

Balance of convenience.

Whether damages would be sufficient remedy.”

2 SC645 Gary McHardy v Prosec Security and Communications Limited t/a Protect Security

2

A company may be placed into liquidation if it is insolvent, that is, it is unable to pay its debts as they fall due in the ordinary course of business.

3 Companies Act s.291(3)

3

An application to terminate a liquidation can be...