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K G Contractors Ltd, In re [2018] PGNC 131; N7224 (8 March 2018)

N7224

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

MP (COMM) 25 of 2017

IN THE MATTER OF THE
COMPANIES ACT 1997

AND:

IN THE MATTER OF
K G CONTRACTORS LIMITED

Waigani: Hartshorn J

2018: 7 & 8 March

Petition for the appointment of a liquidator

Cases Cited:

In re International Construction PNG Limited [2007] N3337
In re Star Ships (PNG) Limited (2016) N6580

Counsel:

Ms. E. Goina, for the Petitioner
Mr. F. Yapao,for the Company
Ms. M. Pint, for Kenmore Ltd trading as Daikin Port Moresby

Oral decision delivered on
8^th March, 2018

1. HARTSHORN J: This is a decision on a contested application for the appointment of a liquidator of KG Contractors Limited (KGC). It is made by the petitioner, Lohberger Engineering Limited. Lohberger Engineering was substituted as the petitioner in the place of Kenmore Limited trading as Daikin Port Moresby, on 15^th November 2017.

2. The petition for the appointment of a liquidator is supported by the former petitioner Kenmore Limited trading as Daikin Port Moresby and Allegion (New Zealand) Limited.

3. The grounds upon which the petitioner relies in the petition for the appointment of a liquidator are that KGC has failed to comply with a statutory demand, is unable to pay its debts as they become due in the ordinary course of business and that it is just and equitable that the company be put into liquidation.

4. Lohberger Engineering claims that it is owed K533,750.00 for outstanding rentals, Kenmore claims that it is owed K67,317.30 for services rendered in March and June 2016 and Allegion claims that it is owed NZ$64,278.20 for goods supplied.

5. KGC opposes the appointment of a liquidator on the ground that it is not insolvent. It seeks that this court give it time to pay its various debts by 30^th May 2018. Those debts are proposed to be paid by the use of proceeds from the sale of a section of vacant land for the sum of K1.8 million. That section of land is owned by a separate company but which has the same directors and shareholders as KCC. There is no evidence of this before the court.

6. Evidence by way of affidavit has been filed in support of the petition concerning amongst others, verification of the petition, the judgment debt owed, a company search of KGC, the gazettal and publication of the petition, the service of the statutory demand and petition, the consent of a person to be liquidator of KGC and a compliance certificate of the Registrar of the National Court.

7. Counsel for KGC did not take issue with this evidence or question whether the petitioner, Lohberger Engineering, had complied with the requirements of the Companies Act or Companies Rules relating to a petition for the liquidation of a company. I am satisfied from a perusal of the documentation filed and relied upon, that all of the requirements have been complied with. Section 291(3) Companies Act provides that:

“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.....”

8. The petition was filed on 7^th July 2017 and was filed within one month after the last date for KGC to comply with the statutory demand. The petitioner is therefore entitled to rely on the evidence that KGC failed to comply with the statutory demand as evidence that KGC is not able to pay its debts as they become due in the ordinary course of business. Further, pursuant to s. 335(a) Companies Act, unless the contrary is proved, and subject to s. 336, a company is presumed to be unable to pay its debts as they become due in the ordinary course of business where the company has failed to comply with a statutory demand.

9. KGC relied upon the evidence of one of its directors, Mr. Kevin John Moran. Mr. Moran deposes that the directors deny that KGC is insolvent but accept that it has a short term cash flow problem. This is caused by a denial of valid progress payments owed to KGC under a completed building contract. This evidence is not supported however.

10. Mr. Moran’s evidence, whilst addressing amongst others, the Lohberger debt, does not deny that debt apart from stating that there was an agreement to pay K300,000.00 in settlement, which payment did not eventuate, and does not at all address the debts owed to Kenmore and Allegion. Other evidence shows that Allegion’s debt is admitted and Kenmore’s debt is not denied. These debts have been owing since March, May and June 2016 and the Lohberger debt since at best, the end of 2016. This to my mind demonstrates more than a short term cash flow problem. Further, that time is needed to conduct a sale of a property owned by a separated company, to pay the debts of KGC, is evidence that KGC is unable to pay its own debts as they become due in the ordinary course of business. I also note the evidence that a written promise or deed was made to Allegion in October 2016 to pay its debt owing but that has not eventuated.

11. As I said in In re International Construction PNG Limited [2007] N3337:

“If a company acknowledges that it owes a large sum, that it has done so for a considerable period of time, that it has not met numerous promises to make payment, and makes requests to pay by installment when faced with proceedings for a liquidator to be appointed, this is strong evidence of a company unable to pay its debts when they fall due in the ordinary course of business.”

12. On the evidence, I am satisfied that KGC is unable to pay its debts as they become due in the ordinary course of business. Mr. Moran’s evidence is not sufficient to prove otherwise.

13. As to Mr. Moran’s evidence that KGC has assets worth more than three times the debt of Lohberger Engineering and the assertion that therefore KGC is not insolvent, solvency is not the ground upon which this petition is brought.

14. If solvency is considered, however, s.4 Companies Act relevantly is as follows:

“4. Meaning of “solvency test”.

(1) For the purposes of this Act, a company satisfies the solvency test where –

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

(b) the value of the company’s assets is greater than the value of its liabilities, including contingent liabilities.”

15. Further, as I said in In re Star Ships (PNG) Limited (2016) N6580:

“I note the comments of Gabi J. in Nathaniel Poya v. Rex Paki (2008) N3535. That case concerned an application to terminate a liquidation but His Honour’s comments as to solvency are pertinent. At p10, His Honour said:

“11. Solvency is an important consideration in an application to terminate liquidation. The question is whether the company meets the solvency test. There are 2 requirements: First, the company must be able to pay its creditors as the debts fall due. Second, assets must exceed liabilities. Both requirements must be met for a company is said to be solvent (see In the matter of an application by Agmark Pacific Ltd and James Sinton Spence Liquidator of Sepik Coffee J.V. Ltd (In Liquidation) (2007) N3223)...”

16. I am satisfied that on the above definition of the solvency test, as I am of the view that KGC is unable to pay its debts as they become due in the ordinary course of business, KGC does not meet the solvency test.

17. As to the effect upon the employees of KGC if it is placed into liquidation, the Companies Act makes provision for employees in the event of a liquidation. If as submitted on behalf of KGC, its assets outweigh its liabilities, its employees will be adequately provided for as the law intends.

18. In the circumstances and taking all of the evidence into account, I am satisfied that this court should exercise its discretion in favour of appointing a liquidator to KGC, as it is clear that it is unable to pay its debts in the ordinary course of business. Further, KGC does not meet the solvency test in s.4 Companies Act. I am satisfied that it is just and equitable that a liquidator be appointed. Given this it is not necessary to consider the other submissions of counsel.

Orders

19. The Orders of the Court are:

a) KG Contractors Limited is placed into liquidation;

b) Andrew Pini is appointed the liquidator of KG Contractors Limited on 8^th March 2018 at 10:00am;

c) K G Contractors Limited shall pay the costs of and incidental to this petition of the petitioner, of Allegion (New Zealand) Limited and Kenmore Limited trading as Daikin Port Moresby.
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Fiocco Nutley Lawyers: Lawyers for the Petitioner
Fydan Lawyers: Lawyers for the Company