Iririki under a cloud

A recent judgment rendering the iconic resort insolvent cast a pall over Toktok 2017, the premier tourism industry event in Vanuatu that was hosted on the island.

The Supreme Court has decided to extend it decision to stay the liquidation of one of Vanuatu’s signature resorts pending an Appeals Court decision on whether it will hear an appeal of the order.

Justice James Paul Geoghegan made the order after the defense lawyer Dane Thornburg filed to have the ‘liquidation order’ stayed pending appeal in higher court.

Justice Geoghegan said that the stay application was opposed by the liquidator and in a Minute issued on August 31, 2017 the court recorded that it was unable to hear from the parties that day over the heavy schedule ahead and for the sake of the overall interests of justice and the parties, it would grant a stay on an interim basis.

The judge said that the court also took into account the fact that any appeal in respect of his earlier judgment would be heard in the next Court of Appeal session commencing on November 6, 2017.

Geoghegan said that some of the sworn statements that were supposed to be considered in this case have been filed without the leave of the court and accordingly the court needed to determine which of those sworn statements should be considered in respect of the application.

He said that in dealing with this issue he considered that a robust approach should be taken to the admission of evidence in order to avoid an application for stay operating as a de-facto hearing of the appeal.

In this regard, the court considered that the two sworn statements of Shane Pettiona dated September 1 and his further sworn statement dated September 11 are relevant to issues regarding the application for stay.

Leave was accordingly granted for the filing of those statements.

The judge said that the court is not prepared to grant leave in respect of the sworn statement of Jonathan Law dated September 13, 2017.

He said that the effectively amounts to fresh evidence which arguably should have been filed at the time the court was considering the application for the appointment of a liquidator as it goes to the issue of the company’s alleged insolvency.

The judge said that it will also be hopefully clear from this judgment that it does not consider that evidence to be necessary to determine the application for stay.

“I decline to grant leave for the filing of the sworn statements of Roger Jenkins dated September 25, 2017, Shane Pettiona dated September 26, Corrine Hammer dated September 27 and Julie Hawkes dated September 27,” he said.

“They refer to clearly contestable assertions of fact most of which, in my assessment are not relevant to the issue of whether or not a stay should be granted and in the case of the sworn statements of Corrine Hammer and Julie Hawkes are filed in support of a sworn statement which is not even before the Court.

“I consider that the issue to be determined can be adequately determined on the basis of those sworn statements in respect of which leave is granted.”

He said that the liquidator, Mr Fleming submitted that the notice of appeal was incompetent as was the application for a stay.

There was considerable focus in the submissions of both counsels on this question with Mr Fleming arguing that the making of an order placing the company in liquidation severely limited a directors usual powers and that various steps would need to be complied with by the directors before they could file a notice of appeal.

For Iririki Mr Thornburgh referred to a number of issues in this regard, including what he submitted was a constitutional right of appeal.

The judge said that having considered the matter he came to the conclusion that the issue of whether or not the appeal is regular is an issue for the Court of Appeal and not the Supreme Court.

He said that it is not the role of the Supreme Court to act as a filter in the appellate process.

Judge Geoghegan said that only the Court of Appeal can determine the issue of whether or not an appellant has appropriate standing or has followed the correct processes for filing an appeal against a judgment of the Supreme Court.

“For that reason I do not consider that I need to determine the issue of standing or whether the appeal is competent or regular,” he said.

“The Court has made an order for the winding up of a company; the company acting by its directors is allowed to appeal against the winding up order even though the powers of the Directors have come to an end.”

While discussing the case Mr Fleming submitted that in order to obtain an order under section 4, Iririki would need to establish inter alia, that it is solvent, that there is no prejudice to all creditors, and that there is merit in allowing an insolvent company to trade.

Mr Fleming submitted that the foremost issue is whether the company was insolvent with other factors to be taken into account including the interest and protection of all current creditors and the public, generally, that justice is seen to be duly administered, and legislative policy against delaying the liquidation due to associated risks.

Justice Geoghegan said that this case is a difficult issue to assess.

He said that the court has clearly reached the view that the company is insolvent although that finding was principally based on the inability of Iririki to rebut a presumption created by the failure to comply with a statutory demand.

The judge said that if the appellant is able to persuade the Court of Appeal that there was sufficient evidence before the Supreme Court to find that the presumption of insolvency was satisfactorily rebutted or alternatively should Iririki be successful in persuading the Court of Appeal that Mr Laws’ most recent sworn statement as to the solvency of Iririki should be taken into account then it may have a reasonable prospect of success.

In addition, Iririki intends to argue that the court should have exercised its discretion to stay the making of a liquidation order, given subsequent disputes being raised in relation to the original debt owed by Mocha.

“All that can be said is that Iririki’s appeal could not be said to be meritless,” he said.

While Mr Fleming’s submission that Schedule 4, section 4 operates to ensure that the due administration of liquidation is not hindered by unnecessary legal actions, this is an unusual case the court said.

This matter involved the directors of a company through purported residuary powers, challenging the decision which placed the company in liquidation.

As a matter of common sense and fairness the judge takes the view that the directors must have a right to challenge the court’s decision and must also have a right to ask the court to stay its judgment pending an appeal.

Justice Geoghegan said that in all of the circumstances, he is satisfied by a very narrow margin that the stay order made he made on August 31 should remain in place pending determination of the appeal by the Court of Appeal.

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