Re Opus Offshore Ltd

• Jurisdiction: Bermuda
• Judgment Date: 17 February 2017
• Neutral Citation: [2017] SC Bda 14 Com
• Date: 17 February 2017
• Docket Number: COMMERCIAL COURT 2016: No. 482
• Court: Supreme Court (Bermuda)

[2017] SC (Bda) 14 Com

In The Supreme Court of Bermuda

COMMERCIAL COURT 2016: No. 482

CIVIL JURISDICTION 2016: No. 486

In the Matter of Opus Offshore Limited

And in the Matter of the Companies Act 1981

Mr Christian Luthi and Ms Stephanie Hanson, Conyers Dill and Pearman Limited, for Songa Offshore SE, the Petitioner

Mr Steven White, Cox Hallett Wilkinson Limited, for Mr Lau Chiat Siang, a supporting creditor

Ms Cratonia Thompson, ASW Law Limited, for Mr Vernon Westerhout, a supporting creditor, and Raise Zone Holdings Ltd, a supporting contributory (20 ^th January 2017 hearing only)

Mr Kevin Taylor and Ms Nicole Tovey, Taylors, for TH Investments Pte Ltd and 9 other supporting creditors (20 ^th January 2017 hearing only)

Mr John Wasty, Appleby Bermuda Limited, for Honghua Holdings Limited, a supporting creditor (20 ^th January 2017 hearing only)

Mr Alex Potts, Sedgwick Chudleigh Ltd, for Reignwood International Investment (Group) Limited, an opposing creditor and contributory

Opus Offshore Limited did not appear and was not represented

Mr Alex Potts, Sedgwick Chudleigh Ltd, for Reignwood International Investment (Group) Limited, the Petitioner

Opus Offshore Limited did not appear and was not represented

Applications for winding up order on creditors' petitions — which of two competing petitions should have priority — whether, in absence of company, person appearing on winding up petition has standing to dispute petition debt — whether petition debt disputed in good faith and on substantial grounds — who should be appointed provisional liquidators where there are competing nominations

(In Court)

Introduction

1 This is a judgment on the hearing of two creditors' winding up petitions brought in relation to Opus Offshore Limited (‘Opus’ or ‘the Company’) and two summonses for the appointment of provisional liquidators of Opus.

2 The Petitioning Creditor in 2016 No: 482 is a company called Songa Offshore SE (‘Songa’). The Petition was filed on 16 ^th December 2016 (‘the Songa Petition’). The Petitioning Creditor in 2016 No: 486 is a company called Reignwood International Investment (Group) Limited (‘Reignwood’). The Petition was filed on 20 ^th December 2016 (‘the Reignwood Petition’).

3 Everyone who appeared on either Petition agreed that Opus should be wound up. However they disagreed as to which Petition the Court should proceed upon, and who should be appointed as provisional liquidators.

4 Their disagreement raises the related questions: (i) who, for purposes of the hearing of a winding up petition, counts as a creditor; and (ii) whether on the hearing of a winding up petition a person appearing on the petition other than the company has standing to object to the petition debt.

Statutory scheme

5 The statutory scheme for winding up a company is contained in the Companies Act 1981 (‘the Act’) and the Companies (Winding-Up) Rules 1982 (‘the Rules’). In this judgment, unless the context indicates otherwise, all references to numbered sections are references to sections of the Act and all references to numbered rules are references to the Rules.

6 Section 163(1) provides that an application to the Court for the winding up of a company shall be by petition, which may be presented inter alia by any creditor or creditors, including any contingent or prospective creditor or creditors.

7 Rule 17 provides that every petition shall be in a form prescribed by the Rules with such variations as circumstances may require.

8 Rule 21 provides that every petition shall be verified by affidavit.

9 Rule 25 provides that every person who intends to appear on the hearing of a petition shall give to the petitioner notice of his intention in accordance with certain prescribed formalities. If the person is a creditor, he is required to state the amount by which he claims to be indebted to the company. A person who has failed to comply with the rule shall not be allowed to appear on the hearing of the petition without special leave of the court.

10 Section 161 sets out the circumstances in which a company may be wound up by the Court.

11 Section 161(e) provides that a company may be wound up by the Court if it is unable to pay its debts.

12 Section 162 (a) provides that a company shall be deemed to be unable to pay its debts if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding five hundred dollars then due has served on the company, by leaving it at the registered office of the company, a demand requiring the company to pay the sum so due and the company has for three weeks thereafter ‘ neglected’ to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor.

13 Neglecting to pay a debt on demand means omitting to pay without reasonable excuse. Thus where a debt is bona fide disputed by the debtor then the debtor has not neglected to pay and the case falls outside the wording of the statute. See In re London and Paris Banking Corporation (1874–75) LR 19 Eq 444per Sir George Jessel MR at 446.

14 Section 162 (c) provides that further or alternatively a company shall be deemed to be unable to pay its debts if it is proved to the satisfaction of the Court that the company is unable to pay its debts, and that in determining whether a company is unable to pay its debts the Court shall take into account its contingent and prospective liabilities.

15 A contingent liability is a liability which will only become due in an event which may or may not occur; and a prospective liability is a liability which will certainly become due in the future, whether on some date which has been already determined or on some date determinable by reference to future events. See Stonegate Securities Ltd v Gregory [1980] 1 Ch 576per Buckley LJ at 579 E.

16 The legal theory underpinning the presentation of a creditor's winding up petition on the grounds that a company is unable to pay its debts was summarised by Buckley LJ in Stonegate Securities v Gregory at 579 F to 580 C:

‘ Where a creditor petitions for the winding up of a company, the proceedings will take one of two courses, depending upon whether the petitioner is a creditor whose debt is presently due, or one whose debt is contingent or prospective by reason of the proviso in paragraph (c) of section 224 (1). 1 If the creditor petitions in respect of a debt which he claims to be presently due, and that claim is undisputed, the petition proceeds to hearing and adjudication in the normal way; but if the company in good faith and on substantial grounds disputes any liability in respect of the alleged debt, the petition will be dismissed or, if the matter is brought before a court before the petition is issued, its presentation will in normal circumstances be restrained. That is because a winding up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed. Ungoed-Thomas J. put the matter thus inMann v. Goldstein [1968] 1 W.L.R. 1091, 1098–1099:

“For my part, I would prefer to rest the jurisdiction directly on the comparatively simple propositions that a creditor's petition can only be presented by a creditor, that the winding up jurisdiction is not for the purpose of deciding a disputed debt (that is, disputed on substantial and not insubstantial grounds), since, until a creditor is established as a creditor he is not entitled to present the petition and has no locus standi in the Companies Court; and that, therefore, to invoke the winding up jurisdiction when the debt is disputed (that is, on substantial grounds) or after it has become clear that it is so disputed is an abuse of the process of the court.”

I gratefully adopt the whole of that statement, although I think it could equally well have ended at the reference to want of locus standi. In my opinion a petition founded on a debt which is disputed in good faith and on substantial grounds is demurrable for the reason

that the petitioner is not a creditor of the company within the meaning of section 224 (1) at all, and the question whether he is or is not a creditor of the company is not appropriate for adjudication in winding up proceedings.’

17 The requirement that the debt should be disputed on substantial grounds has been explained in various ways in various cases. There is a helpful overview in Re Alloy Aircraft; Al-Ayed v Mitchell and Alloy Aircraft Co Ltd [2005] Bda LR 79 SCper Kawaley J (as he then was) at 2 – 3. I take it to mean that the objection must be properly arguable, such that had the company issued a writ it would likely not have succeeded on an application for summary judgment.

18 Buckley LJ does not expressly address the question whether the Court is obliged to entertain objections to the petition debt from persons appearing on the petition other than the company. This issue is most likely to arise where the company does not appear on the petition or appears but takes no active part in the proceedings, although it might also arise where it is alleged that the company has entered into a collusive agreement with a creditor to strip the company of its assets to the prejudice of its genuine creditors.

19 In Trade and Commerce Bank v Island Point Properties and another, 13th August 2010 unreported, the Court of Appeal of the British Virgin Islands (‘BVI’) considered the question and, resolving conflicting decisions of Bannister J at first instance, concluded that such persons did have a right to object to the petition debt. See the judgment of the Court, given by George-Creque JA, at paras 10 – 12. The company did not appear on the petition. However the Court appears to have held that the right to object to a petition debt is necessarily implicit in the right to object to the petition irrespective of whether the company also objects.

20 In my judgment, the right to object to the petition debt is not a...