In the matter of The Companies Act 1997 and In the matter of Waghi Klos Limited (2011) N4283

• Jurisdiction: Papua New Guinea
• Judge: Hartshorn J.
• Judgment Date: 16 May 2011
• Citation: (2011) N4283
• Docket Number: MP 228 of 2008
• Court: National Court
• Year: 2011
• Judgement Number: N4283

Full Title: MP 228 of 2008; In the matter of The Companies Act 1997 and In the matter of Waghi Klos Limited (2011) N4283

National Court: Hartshorn J.

Judgment Delivered: 16 May 2011

N4283

PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE]

MP 228 OF 2008

IN THE MATTER OF THE

COMPANIES ACT 1997

AND:

IN THE MATTER OF

WAGHI KLOS LIMITED

Waigani: Hartshorn J.

2011: 19th April,

: 16th May

Application to reverse decision of liquidator - s. 332 (1) (b) Companies Act

Facts:

A liquidator was appointed to Waghi Klos Ltd on 18th August 2008. In December 2009, Mrs. Tere Clarkson, a shareholder and director of Waghi Klos Ltd filed a notice of motion seeking leave to make application under s. 332 (1) (b) Companies Act that the liquidator's decision to sell certain property to Vixen No 107 Ltd be reversed. On 10th December 2009, this court ordered by consent that Mrs. Clarkson has leave to make her application and that the liquidator was restrained from completing or settling the sale of the property to Vixen. The liquidator now seeks to have the restraining order quashed and Mrs. Clarkson seeks to have the liquidator's decision reversed.

Held:

1. The liquidator's decision has not been shown to be fraudulent, not made in good faith or unreasonable in the circumstances.

2. To enable the liquidator to perform his duties and in the interests of justice the consent order should be quashed.

3. The relief sought in the notice of motion of Mrs. Tere Clarkson filed 4th December 2009 is refused. The relief sought in the notice of motion of the applicant/liquidator filed 2nd March 2011 is granted.

Cases cited:

Papua New Guinea cases

In re PNG Block Company Pty Ltd [1982] PNGLR 28

Salvatori Algeri v. Patrick Leslie (2001) N2119

Simon Mali v The State (2002) SC690

Mainland Holdings Ltd v. Stobbs (2003) N2522

Simon Mali v The State (2008) N3442

Department of Works v In re International Construction (PNG) Ltd (2009) SC1051

Re Companies Act 1997 and Lihir Gold Ltd (2010) N4126

Network Construction Ltd v The State (2010) N4045

Overseas Cases

Waitemata City Council v. MacKenzie [1988] 2 NZLR 242

Re Jay-O-Bees Pty Ltd (in liquidation) [2004] NSWSC 818

Consolidated Technologies Development (NZ) Ltd v. Anthony John McCullagh [2006] NZHC 505

Trinity Foundation (Services No 1) v. Downey and Anor as joint liquidators of CWF Holdings (in Liquidation) as Trustee of the CWF Unit Trust [2006] NZCA 310

Spalla v. St. George Motor Finance Ltd (No 7) [2006] FCA 1177

Counsel:

Mr. I. R. Shepherd, for the Applicant

Mr. R. Bradshaw, for Mrs. T. Clarkson, a shareholder and director of Waghi Klos Ltd

16th May 2011

1. HARTSHORN J: A liquidator was appointed to Waghi Klos Ltd on 18th August 2008. In December 2009, Mrs. Tere Clarkson, a shareholder and director of Waghi Klos Ltd filed a notice of motion seeking amongst others, leave to make application under s. 332 (1) (b) Companies Act that the liquidator's decision to sell certain property (property) to Vixen No 107 Ltd (Vixen) (liquidator's decision) be reversed.

2. On 10th December 2009, this court ordered by consent that amongst others, Mrs. Clarkson has leave to make her application and that the liquidator was restrained from completing or settling the sale of the property to Vixen (restraining order). The liquidator now seeks to have the restraining order quashed and Mrs. Clarkson seeks amongst others, to have the liquidator's decision reversed. I will consider Mrs. Clarkson's application first.

Whether the liquidator's decision should be reversed

3. Mrs. Clarkson seeks to have the liquidator's decision reversed on the grounds that:

a) the liquidator did not notify her of his appointment and Mrs. Clarkson did not become aware of his appointment until 12th November 2009,

b) the liquidator has not filed any affidavit in response to Mrs. Clarkson’s application seeking to reverse the liquidator’s decision and her affidavit in support,

c) the contract for sale of the property was entered into between the liquidator and Vixen on 29th September 2009 and not 29th June 2010 as stated by the liquidator,

d) the advertisements placed by the liquidator advertising the property for sale did not correctly state the developments upon the property,

e) Mrs. Clarkson is not aware whether the liquidator took steps to sell other assets of Waghi Klos Ltd such as motor vehicles,

f) the value of just one building of the property is in excess of K 300,000 and so it was not necessary to sell all of the property

g) offers of over K3 million have been received for the property,

h) if the total claims are K 261,291.78 it is not necessary to sell all of the property,

i) Mrs. Clarkson could have paid the creditor claims,

j) the contract between the liquidator and Vixen can be terminated.

4. As to the duties of a liquidator generally, counsel for Mrs. Clarkson cited extracts from Halsbury’s Laws of England 4th ed, 1996 reissue v.7(3) paras 2324 – 2328 to the effect that a liquidator stands in a fiduciary position towards the company to which he is appointed and, as an officer of the court he:

“… must maintain an even and impartial hand between all the individuals whose interests are involved in the winding up. It is his duty to the whole body of creditors, the whole body of shareholders and to the court to make himself thoroughly acquainted with the company's affairs, and to suppress or conceal nothing coming to his knowledge in the course of his investigation which is material to ascertain the exact truth in every case before the court; and it is for the judge to see that he does his duty in this respect” (para. 2329)

5. The case of Salvatori Algeri v. Patrick Leslie (2001) N2119 was cited as the court in that case had stated that a liquidator:

“… as an “officer of the court”… must act bone fide, impartially and skilfully, and must file reports and accounts with the Court.”

6. Counsel also referred to cases concerning obligations upon a mortgagee when selling a property and the obligation to give reasons in judicial proceedings. Specifically as to the court reversing or modifying a decision of a liquidator, counsel for Mrs. Clarkson cited the case of In re PNG Block Company Pty Ltd [1982] PNGLR 28. In that case the court said:

“…. it would normally be necessary to show either that the liquidator's decision was based upon some error of principle or that it had brought about some manifest injustice.”

I note that this case concerned a decision by the liquidator to rescind a contract for the sale of land and not a decision to sell property as in the present case.

7. Section 332 (1) (b) Companies Act upon which Mrs. Clarkson relies for the liquidator's decision to be reversed, is identical to s. 284 (1) (b) Companies Act 1993 of New Zealand. Indeed, s. 332 is identical to s. 284. This was noted by the Supreme Court in Department of Works v. In re International Construction (PNG) Ltd (2009) SC1051. (In Dept of Works v. International Construction (supra) the Court gave consideration to s. 332 Companies Act but in the context of considering whether an appeal from a refusal to grant leave under s. 332 was from an interlocutory order and itself required leave to appeal.)

8. A consideration of the decisions of the courts of New Zealand concerning s. 284 are therefore likely to be of assistance when applications are made to this court under s. 332 Companies Act. In the High Court of New Zealand case of Consolidated Technologies Development (NZ) Ltd v. Anthony John McCullagh [2006] NZHC 505, Rodney Hansen J said in respect of s. 284:

“The power to review a liquidator's actions will be exercised in cases of fraud, where the liquidator's discretion has not been exercised in good faith or were the liquidator has acted unreasonably – Leon v. York-O-Matic Ltd [1966] 1 WLR 1450, [1966] 3 All ER 277; Callis v. Pardington; Callis v. DFC New Zealand Limited (1996) 7 NZCLC 261, 211 (CA), CIR v. Hulst; CIR v. Oriana Finance Ltd (2000) 8 NZCLC 262, 266. The actions of a liquidator can be unreasonable without being in breach of an express statutory provision. The question is whether in all the circumstances, including the absence of consultation, his actions were unreasonable – Callis (supra) at 217”

9. I note in this regard that Rodney Hansen J referred to an English decision, and a decision concerning the former New Zealand Companies Act: Callis (supra). Further, in the New Zealand Court of Appeal decision of Trinity Foundation (Services No 1) v. Downey and anor as joint liquidators of CWF Holdings (in Liquidation) as Trustee of the CWF Unit Trust [2006] NZCA 310, the Court addressed the case before it concerning s. 284 on the basis that:

“…substantive relief should only be granted if the decisions of the liquidators in issue can be shown to have been wrong or unreasonable.”

10. In Australia, s. 1321 Corporations Act 2001 is a similar provision to our s. 332 and s. 284 Companies Act 1993 of New Zealand as it amongst others, gives the court jurisdiction to reverse or modify an act or decision of a liquidator. In the New...