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Kambang Holdings Ltd (In Liquidation) v Nalau [2015] PGNC 240; N6126 (6 October 2015)

N6126

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

OS 415 of 2014

BETWEEN:

KAMBANG HOLDINGS LIMITED (in liquidation)
Plaintiff

AND:

JUDAS NALAU, Deputy Governor of Morobe Province
First Defendant

AND:

MOROBE PROVINCIAL GOVERNMENT
Second Defendant

AND:

ZERIGA OIDA, KONNIE TAYLOR, PETER BANGIN and former employees of KAMBANG HOLDINGS LIMITED
Third Defendant

AND:

THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Fourth Defendant

AND:

EVANGELICAL LUTHERAN CHURCH OF PAPUA NEW GUINEA
Fifth Defendant

AND:

BISHOP GIEGERE WENGE
Sixth Defendant

Waigani: Hartshorn J
2015: August 18th
: October 6th

DECLARATORY RELIEF – liquidation of company and appointment of liquidator
Cases cited:

Finance Corporation Ltd v. Independent State of Papua New Guinea (2014) N5682
Counsel:

Mr. S. Nutley, for the Plaintiff
Mr. D. Wood, for the Fifth Defendant

6th October 2015:

1. HARTSHORN J: This is a decision on the application by Kambang Holdings Ltd (in liquidation) (Kambang) for declarations that it was put into liquidation by a special resolution of its shareholder and that Mr. David George Guinn was appointed its liquidator. Kambang also seeks permanent injunctive relief to prevent interference with the liquidation process.

2. The trial was permitted to proceed in the absence of representation on behalf of the first, second, third and sixth defendants as I was satisfied from the evidence that the lawyer for these defendants was aware that the trial of the matter was to be heard when it was. The fourth defendant has not participated in the proceeding.

3. Kambang seeks the following orders:

3.1 A declaration that Kambang was duly put into liquidation by a special resolution of its shareholder pursuant to s. 103 (1) and (2) Companies Act 1997.

3.2 A declaration that Mr. David George Guinn was duly appointed as the liquidator of Kambang by a special resolution of its shareholder pursuant to s. 291 (2) (a) Companies Act 1997.

3.3 Pursuant to s. 155 (4) Constitution the first defendant, second defendant, third defendant and fourth defendant and their servants or agents be restrained by permanent injunction from:

1. interfering with the liquidation process undertaken by the liquidator of Kambang;
   
2. entering the premises of Kambang in Lae including not entering or disrupting business passenger and cargo wharfs in Lae where Kambang conducts its business;
   

100. entering or impeding the operations of any of the ships owned and operated by Kambang; and
     

4. entering the premises of Kambang in Madang including not entering or disrupting business at the two wharfs, the slipway and the engineering workshop in Madang where Kambang conducts its business.
   

4. The fifth defendant, the Evangelical Lutheran Church of Papua New Guinea (the Church), consents to the declarations sought by Kambang.

5. Kambang contends that its shareholder the Church, through the Church Council, resolved to voluntarily liquidate Kambang. As the Church consents to the declarations sought that Kambang was put into liquidation and that Mr. Guinn was appointed liquidator, it could be argued that the orders that Kambang seeks from this court are not necessary as the Companies Act provides for shareholders to appoint a liquidator without having to apply to the court for such an appointment.

6. Kambang contends that the orders sought are necessary as the actions of the defendants apart from the fifth defendant, have caused very substantial unnecessary expense and loss to be incurred to Kambang and consequently to its owner, the Church, and that in all of the circumstances, including the likelihood of ongoing disputes concerning the liquidation that may require further relief being sought from court, that it is in the interests of justice that the orders sought be granted so that all disputes concerning the liquidation of Kambang are concluded. It is in this context that the relief is sought.

Declaratory relief sought

7. In support of the declarations sought, the Church contends that Kambang was properly placed into liquidation and Mr. Guinn appointed liquidator as:

7.1 The Church is the sole shareholder of Kambang, which trades as Lutheran Shipping. This is confirmed in the company extract of Kambang which is in evidence.

7.2 The Church is established under the Evangelical Lutheran Church of Papua New Guinea Act 1992 (the Act). In accordance with s. 2, the Church is a corporation and may sue and be sued in its name. Section 3 of the Act provides that:

"3. Church Property.

Church Property shall be managed and administered on behalf of the Church by a Council to be known as the "Evangelical Lutheran Church National Council" and the Council may exercise all the powers of the Church in relation thereto."

7.3 Section 4 (1) and (2) of the Act provides as follows:

"4. Constitution of the Council.

(1) The Council shall consist of—

(a) the Bishop of the Church; and

(b) the Assistant to the Bishop of the Church; and

(c) the President of each District; and

(d) other Members of the Church appointed by the Synod and as specified by the Constitution and by-laws.

(2) The Bishop of the Church shall be the Chairman of the Council and the Assistant to the Bishop shall serve as Assistant Chairman."

7.4 Section 9 (3) of the Church's Constitution which is in evidence, states that the Church Council (the Council) shall comprise:

"a) the Head Bishop who shall be the Chairperson; and

b) the Assistant Bishop who shall be the Deputy Chairperson; and

c) the General Secretary ex officio; and

d) the Church Treasurer ex officio; and

e) the President of each District of the Church; and

f) one lay person representing each District appointed by the District and ratified by the Synod; and

g) a representative of the Youth nominated through the Youth Coordinating Committee and elected at the national youth conference; and

h) two representatives of women nominated through the National Women's Coordinating Committee and elected at the national women's conference."

7.5 Section 7 of the Act provides as follows:

"7. Procedures of the Council.

(1) The Council may regulate its proceedings as it thinks proper and may appoint such officers as it thinks necessary for the proper administration of affairs relating to Church property.

(2) The Chairman, or in his absence, the Assistant Chairman, shall preside at all meetings of the Council.

(3) Ten (10) members are a quorum for a meeting of the Council.

(4) All questions arising at a meeting of the Council shall be decided by a majority of the votes of the members of the Council present and voting, and in the event of an equality of votes, the Chairman has a casting, as well as a deliberative vote."

7.6 It follows that s. 7 (3) of the Act provides that 10 members constitute a quorum for a meeting of the Council. Section 7 (4) of the Act provides that all questions arising at a meeting of the Council shall be decided by a majority of the votes

7.7 Section 21 of the Act provides that the powers of the Church relating to property are to be exercised by the Council subject to the direction and control of the Synod.

7.8 The evidence is that a meeting of the Council was held at Ampo in Lae from 19th to 24th May 2014. On 24th May, the issue of the proposed liquidation of Kambang was discussed. Bishop Wenge, the sixth defendant, stated at the meeting that he could not chair the meeting to discuss the proposed liquidation, however, he remained at the meeting. Reverend Zau Rapa, the Assistant Bishop therefore chaired that part of the meeting when it discussed Kambang. The act of Reverend Rapa standing in as the Acting Chairman of the Council was in compliance with s. 7 (2) of the Act and s. 9 (8) (a) of the Church's Constitution.

7.9 The reason that Bishop Wenge could not chair the meeting relating to matters concerning Kambang was because there was an order that was made on 17th May 2013 in National Court proceeding OS No.134 of 2013, which amongst others, had the following effect:

1. Bishop Wenge was restrained from interfering with the business of Kambang in any way whatsoever and;
   
2. until further order, Bishop Wenge was restrained from effecting decisions calculated to influence the governance and the corporate affairs of Kambang.
   

7.10 Prior to the meeting on 24th May 2014, an agenda for the liquidation of Kambang had been prepared and circulated. After hearing from the Committee, the Council (35 votes) voted unanimously (with the exception of Bishop Wenge who abstained from voting) to place Kambang into liquidation. The evidence is that there was a quorum present for the entire meeting from 19th to 24th May 2014

7.11 The minutes of the meeting on 24th May 2014 detail what issues were discussed prior to the special resolution to place Kambang into liquidation. Although Bishop Wenge refused to sign the minutes of that meeting, he did sign the media release on 27th May 2014 which stated that Kambang had been placed into liquidation and the reasons why it was placed into liquidation.

8. Counsel for the Church also refers to sections 103, 105 and 291 Companies Act in regard to meetings of shareholders and the appointment of a liquidator by shareholders. They are as follows:

"103. Resolution in lieu of meeting.

(1) Subject to Subsections (2) and (3), a resolution in writing signed by not less than 75% of the shareholders who would be entitled to vote on that resolution at a meeting of shareholders who together hold not less than 75% of the votes entitled to be cast on that resolution is as valid as if it had been passed at a meeting of those shareholders.

(2) A resolution in writing that—

(a) relates to a matter that is required by this Act or by the constitution to be decided at a meeting of the shareholders of a company; and

(b) is signed by the shareholders specified in Subsection (3),

is made in accordance with this Act or the constitution of the company.

(3) For the purposes of Subsection (2)(b), the shareholders are the shareholders referred to in Subsection (1).

(3A) Any resolution in writing under this section may consist of one or more documents in similar form (including letters, telegrams, cables, facsimiles, telex messages, electronic mail, or other similar means of communication) each signed or assented to by or on behalf of one or more of the shareholders specified in Subsection (3).

(4) A person who is registered as the holder of parcels of shares having different beneficial owners may expressly sign a resolution under this section in respect of shares having one beneficial owner and refrain from signing the resolution in respect of shares having another beneficial owner.

(5) It shall not be necessary for a company to hold an annual meeting of shareholders under Section 101 where everything required to be done at that meeting (by resolution or otherwise) is done by resolution in accordance with Subsections (2) and (3).

(6) Within five days of a resolution being passed under this section, the company shall send a copy of the resolution to every shareholder who did not sign the resolution or did not sign the resolution in respect of all the shares registered in that shareholder's name.

(7) A resolution may be signed under Subsection (1) or Subsection (2) without any prior notice being given to shareholders.

(8) Where a company fails to comply with Subsection (6)—

(a) the company commits an offence and is liable on conviction to the penalty set out in Section 413(1); and

(b) every director of the company commits an offence and is liable on conviction to the penalty set out in Section 414(1)."

"105. Proceedings at meetings.

The provisions of Schedule 2 govern proceedings at meetings of shareholders of a company except to the extent that the constitution of the company makes provision for the matters that are expressed in that Schedule to be subject to the constitution of the company."

"291. Commencement of liquidation.

(1) A company may be put into liquidation by the appointment as liquidator of a named person.

(2) A liquidator may be appointed by—

(a) special resolution of those shareholders entitled to vote and voting on the question; or

(b) the board of the company on the occurrence of an event specified in the constitution; or

(c) the Court, on the application of the company, or a director or shareholder, or other entitled person, or a creditor of the company (including any contingent or prospective creditor), or the Registrar.

(3) The Court may appoint a liquidator where it is satisfied that—

(a) the company is unable to pay its debts as they become due in the ordinary course of business; or

(b) the company or the board has persistently or seriously failed to comply with this Act; or

(c) the company does not comply with Section 11; or

(d) it is just and equitable that the company be put into liquidation.

(4) The liquidation of a company commences on the date on which the liquidator is appointed."

9. The Constitution of Kambang, with the exception of clause 26 which relates to the division of surplus assets, does not contain any additional provisions relating to the procedure for the liquidation of Kambang.

10. Following the meeting of the Council, Albert Tokave, the General Church Secretary and Noreo Keindip, the Church Treasurer, signed the special resolution on 24th May 2014, where it was resolved to place Kambang in liquidation by the appointment of Mr David Guinn as liquidator with effect from 26th May 2014 (the Special Resolution). The appointment of Mr. Tokave and Mr. Keindip as representatives of the Church was made by the Council at the meeting on 24th May 2014, as referred to in the minutes.

11. In the affidavit of the liquidator of Kambang, Mr. Guinn, he deposes that Kambang cannot pay its debts as and when they fall due and it is insolvent. It is the case that Kambang cannot continue operating and to do so, would only facilitate insolvent trading, which would be unlawful. The Church submits that the Special Resolution to place Kambang into liquidation was valid and the liquidation of Kambang should be allowed to continue.

12. As to the question of Kambang's shareholding, referred to above by the Church, Kambang contends that:

12.1 The incorporation of the Church is confirmed under the Act.

12.2 The company extract of Kambang obtained on 12th June 2014 from the Investment Promotion Authority (IPA) website indicates that Kambang was incorporated on 13th August 1975. Since its incorporation Kambang has only had one issued share. The extract also shows that the shareholder of Kambang is recorded as "Evangelical Church of Papua New Guinea Inc." The evidence is that this is a mistake on the part of the IPA.

12.3 Evangelical Church of Papua New Guinea Inc., without the word "Lutheran" between the words "Evangelical" and "Church", is an entity incorporated under the Associations Incorporation Act and is separate and has no relation whatsoever to the Church or Kambang.

12.4 The annual company returns for Kambang for the years, 1997, 1998, 1999 and 2006 in evidence indicate that the shareholder of Kambang was always the Church. Further, the legal counsel for IPA in his email to the Church Council which is also in evidence confirms that the Church is the shareholder of Kambang. There is no evidence to challenge the fact that the Church is the shareholder of Kambang.

13. After having perused the affidavit evidence of Reverend Zau Rapa, Simon Nutley, Albert Tokave, Soul Manase, Soa Gor, Bishop Wenge, Derrick Bakarum and David Guinn, and after considering the Constitution of the Church and the legislation referred to, and in the absence of evidence and submissions to the contrary, I am satisfied that the Church is the shareholder of Kambang and that the Church, the shareholder of Kambang, did by valid special resolution put Kambang into liquidation pursuant to s. 103 (1) and (2) Companies Act 1997, and that Mr. David George Guinn was appointed liquidator of Kambang by a special resolution of its shareholder pursuant to s. 291 (2) (a) Companies Act 1997.

14. I mention further that it is apparent that some or most of the defendants at various times have attempted to challenge the liquidation, its processes or Mr. Guinn's appointment as liquidator. There is and has been a dispute between the parties as to the liquidation. In all of these circumstances I am satisfied that it is in order to make the declarations that are sought.

15. Further to the above, I also consider whether Kambang is insolvent and must remain in liquidation. In this regard, I have had recourse to the affidavit evidence of Mr. Guinn and to his oral evidence given before this court. Mr. Guinn's evidence is amongst others that Kambang's statement of position as at 8th October 2014 shows that Kambang had a deficit of liabilities over assets of K10, 796,579.00. Kambang is clearly insolvent.

16. In addition, Kambang in Mr. Guinn's opinion cannot pay its debts as and when they fall due. In such circumstances, Kambang should remain in liquidation. The court cannot facilitate insolvent trading which would be the case if Kambang was no longer in liquidation and was allowed to trade.

Permanent injunctive relief

17. Kambang contends that it needs permanent injunction orders to protect the liquidation process from interference from all of the defendants, apart from the Church, and their servants or agents. Kambang contends that the evidence is that, despite the interim injunction orders that have been granted, there have been attempts to take the property of Kambang.

18. The first, second, third and sixth defendants and their agents have been attempting to disrupt the liquidation process using court action or other means. Kambang contends that it is more than likely that these defendants will attempt to interfere with the liquidation process and seek to appropriate the assets of Kambang if the injunctive orders that have been made are not made permanent.

19. This contention is supported by the fact that proceedings have been commenced at the National Court in Lae and also at the Madang District Court seeking relief in essence, against the liquidation. In August 2014, the lawyers for the defendants in this action commenced proceeding OS No. 538 of 2014 in the name of Bishop Wenge. Ex parte orders were sought to the effect that the special resolution appointing Mr. Guinn as liquidator was illegal and void. Eighteen other orders were also sought. This proceeding was eventually struck out as an abuse of process. Then in March 2015, Mr. Robert Kaidai, with the support of Bishop Wenge applied to the Madang District court ex parte for orders against Mr. Guinn. Orders were granted, damage was caused and the liquidator was forced from Kambang's premises and properties in Madang. Eventually those orders were set aside but at considerable expense. Mr. Guinn's evidence is that instances of harassment have continued.

20. Mr. Guinn's evidence is also to the effect that a proposed agreement to sell the shareholding of Kambang in the company Consort Express Lines Ltd, Kambang's most valuable asset, was aborted as the proposed purchasers' became aware of the challenge to Mr. Guinn's position as liquidator. Before the proposed purchasers will consider the purchase of those shares they have informed Mr. Guinn that they require the protection of the declaratory orders that are sought in this proceeding.

21. After perusing the evidence relied upon and in the absence of evidence or submissions to the contrary, I am satisfied that the injunctive relief sought should be granted. In this regard, I refer to the case of Finance Corporation Ltd v. Independent State of Papua New Guinea (2014) N5682 in which the question of mandatory injunctive relief and the circumstances concerning its grant were considered.

22. Consequently, I am satisfied that the plaintiff has properly made out its case for the relief that it seeks.

Orders

23. The formal Orders of the Court are:

a) It is declared that Kambang Holdings Limited (in liquidation) (Kambang) was duly put into liquidation by a special resolution of its shareholder pursuant to s. 103 (1) and (2) Companies Act 1997.

b) It is declared that Mr. David George Guinn was duly appointed as the liquidator of Kambang by a special resolution of its shareholder pursuant to s. 291 (2) (a) Companies Act 1997.

c) Pursuant to s. 155 (4) Constitution the first, second, third, fourth and sixth defendants and their servants or agents are restrained by permanent injunction from:

i) interfering with the liquidation process undertaken by the liquidator of Kambang;

ii) entering the premises of Kambang in Lae including not entering or disrupting business passenger and cargo wharfs in Lae where Kambang conducts its business;

iii) entering or impeding the operations of any of the ships owned and operated by Kambang; and

iv) entering the premises of Kambang in Madang including not entering or disrupting business at the two wharfs, the slipway and the engineering workshop in Madang where Kambang conducts its business.

d) the costs of the plaintiff of and incidental to this proceeding shall be paid by the first, second, third and sixth defendants.

e) time is abridged.

_____________________________________________________________
Fiocco & Nutley Lawyers: Lawyers for the Plaintiff
Young Wadau Lawyers: Lawyers for the First, Second and Third Defendants
Ashurst Lawyers: Lawyers for the Fifth Defendant