K.M.C. MOTORS ν. JOREPHANCO TRADING (1984) 1 CLR 390

The respondent in this appeal a trading and contracting company of Al-Khobar, Saudi Arabia, filed a petition for the winding up of the appellant Company on the ground that the Company was unable to pay its debts to the respondent.

The petition was served on 22.9.1983 and was fixed on 20.10.1983. On 3.10.1983 the appellant filed an application praying for the dismissal and/or striking out of the petition as being in substance and in form contrary to law.

As there was a dispute between the parties whether the petition of the respondent or the application of the appellant to strike out the petition, was to be heard first, the trial Court after hearing argument on this issue, held that the Bankruptcy Rules were more or less related to the Companies winding-up Rules and ware applicable; and applying the Bankruptcy Rules it concluded to hear the petition first and made directions for its advertisement.

Upon appeal by the Company:

Held, that bearing in mind the difference in the procedure contemplated in the Bankruptcy Law, Cap. 5 and the Companies Law. Cap. 113, the fact that whilst under the Bankruptcy Law the debtor has a right to dispute the validity of a bankruptcy notice which is a prerequisite under section 3(1)(h) for an act of bankruptcy to take place enabling the creditor to present a bankruptcy petition, whereas no such opportunity is given to the debtor under the Companies Law, this Court is inclined to the view that the remedies which are available to a defendant contesting the issue of service of a writ of summons under the Civil Procedure Rules, may be utilised if one wishes to dispute the validity of a winding-up petition in the circumstances of a case like the present one; that the determination of the legal points raised as to the validity of the winding-up petition, if dealt with preliminary to the hearing of the winding-up petition by means of the application of the appellants would clear the ground for the determination of the petition and any embarrassment or prejudice to the appellant, with likely irreparable consequences, may be avoided; and that, therefore, the ruling of the trial Court must be set aside, and the case will be remitted back for the hearing first of appellant's application, for striking out the petition.

Appeal allowed.

Cases referred to:

Karaoglanian & Sons Ltd. v. Karaoglanian and Another (1976) 12 J.S.C. 1875

Appeal.

Appeal by respondent against the ruling of the District Court of Nicosia (Kourris, P.D.C. and S. Nicolaides, D.J.) dated the 19th November, 1983 (Company Appl. No. 163/83) whereby it was decided that the petition for the winding-up of the petitioner company should be heard before the application for striking out the petition.

L. Papaphilippou, for the appellants.

A. Dikigoropoullos, for the respondent.

A. Loizou J.: The judgment of the Court will be delivered by Mr. Justice Savvides.

SAVVIDES J.: The respondent in this appeal, a Trading and Contracting Company of Al-Khobar, Saudi Arabia, filed on the 20th September, 1983 a petition for the winding-up of the appellant company on the ground that such company was indebted to the petitioner in the sum of U.S. dollars 74,375, plus interest at 9 per cent per annum as from 15.3.1983 and that the company had neglected to pay or satisfy the said sum m whole Or in part or to make any offer to the petitioner to secure or compound the sum to the reasonable satisfaction Of the petitioner. The petition was supported by an affidavit sworn by Tawfiq Hassan Jorephami, the president of the respondent company, on 16.9.1983.

The petition was served on 22.9.1983 and was fixed on 20.10.1983. On 3.10.1983 the appellant led an application praying for the dismissal and/or striking out of the petition as being in substance and in form contrary to law on the following grounds of law:

(a) The petitioner had no right to initiate such proceedings in Cyprus, in that being either a firm or partnership, had not registered in Cyprus and did not carry business in Cyprus under the business name mentioned in the petition.

(b) The affidavit of the president of the petitioner was sworn four days before the filing of the petition.

As there was a dispute between the parties whether the petition of the respondent or the application of the appellant to strikeout the petition, was to heard first, the trial Court after hearing argument on this issue, concluded as follows:

"We have considered carefully the arguments of counsel appearing for both parties. We think that the Bankruptcy Rules are more or less related to the Companies Winding-up Rules and we propose to have resort to them.

According to the Bankruptcy Rules a debtor should file an opposition against the petition it does not state that he should take any steps prior to his opposition. We are not inclined to accept the view of Mr. Papaphilippou that if the respondent, files, an opposition will lose this right to set aside the petition as having taken a step in the proceedings. The respondent can raise any point he wishes in his opposition to the petition.

For these reasons we have reached the conclusion to hear the petition first. As the petition was filed on the 20th September, 1983 and no opposition was filed, in view of the respondents application, we propose to accede to the invitation of counsel for the petitioner and give the appropriate directions as to the advertisement of the petition.

In the circumstances the petition is fixed far hearing on 12.12.1983 at 10.00 a.m. Opposition to be filed within 15 days. Petitioner to publish notice of this petition in the official Gazette and in one Greek daily newspaper showing the date and time of hearing at least seven days prior to the date of hearing".

The appellant as a result, filed the present appeal challenging the validity of such ruling on the following grounds:

"1. The trial Court was wrong to ignore that the civil Procedure Rules apply by virtue of rule 92 of the Companies (Winding-up) Rules and its ruling that, the Bankruptcy Rules are more or loss related to the Companies Winding up Rules is wrong in law.

2. The trial Court was wrong in law to apply the Bankruptcy Rules instead of the Civil Procedure Rules

3. The trial Court was wrong to hold that an opposition on the merits of the Petition was not a fresh step therein.

4. The trial Court was wrong not to deal with and dispose of Appellant's interim application for irregularities on its merits".

At the hearing of the appeal counsel for appellant contended that the preliminary legal objections touching the validity of the petition raised by the application to strike out the petition should have been determined first, in accordance with the Civil Procedure Rules which are the rules applicable in the present case. The application filed on behalf of the appellant was necessary in the circumstances of the case as, otherwise, if the appellant had failed to take such step and opposed the petition, such action on his part would have amounted to the taking of a fresh step in the proceedings amounting to an unconditional appearance and, consequently, he would have been deprived of the light to contest the validity of the petition. He submitted that the trial Court was wrong in his conclusion that the Bankruptcy Rules are more or less related to the Companies Winding-up Rules and he submitted that the proper rules applicable are the Civil, Procedure Rules. He further added that by the ruling of the trial Court for the publication of the petition in the official Gazette of the Republic and in one Greek daily newspaper, the commercial reputation of the appellant will be at stake and even if successful in the end, the financial credibility of the company would be seriously affected, as other creditors of the Company who do not wish at present to press their claims against the appellant, will come into the picture and will have to pursue their claims against it, by a petition which is in substance and in form contrary to the law for the reasons stated in his application and, which is not entertainable by the Court under Order 48(a) rule 1 of the English Rules of the Supreme Court, 1960. He made reference in this respect to the notes in the Annual Practice of 1960 at page 1150 under the heading, "Foreign Firms" to the effect that a partnership firm which has no place of business in England within the meaning of the words "carrying on business within, the jurisdiction" cannot sue or be sued in the firm's name and that the partners must sue or be sued individually in their own names and served as ordinary defendants.

Counsel for: the respondent, on the other hand, submitted that Order 48(a), rule 1 of the English R.S.C. on which the application was based and on which counsel for appellant relied in his argument, is not applicable as in view of the express provision in rule 92 of the Companies Winding-up Rules the English Rules have no application in, winding-up proceedings under our Law. He also added that the trial Court was right in concluding that the Bankruptcy Rules are the Rules more or less related to the Winding-up Rules, and there is express provision in rules 59, 60 and 3 of the Bankruptcy Rules that where a, debtor intends to show cause against the petitions he may raise the matter which he intends to dispute in a notice to be filed before the hearing and such matter is taken up by the Court at the hearing of the petition. Therefore, counsel concluded by raising this matter in the opposition to the petition it will not amount to a new step taken in the proceedings depriving the defendant from disputing the validity of the issue of the winding-up petition.

Rule 92 of the Companies (Winding-up) Rules, 1933, lays down that—

"Where no provision is made in these Rules regarding any matter arising out of winding-up proceedings, the Rules of Court governing Civil Proceedings (including the Bankruptcy Rules) shall, so far as they are not repugnant to these Rules, apply to such matter".

Before embarking on the question as to whether the Civil Procedure Rules or the Bankruptcy Rules ate the more appropriate, we find it necessary to consider certain provisions in the Companies Law, Cap. 113, and the Bankruptcy Law, Cap. 5 as to the commencement of the proceedings for the winding up of a company or for declaring somebody as bankrupt.

Under the Companies Law, the cases in which a company may be wound up by the Court, are set out in section 211, para. (e) of which provides that one of such cases is when a company is unable to pay its debts. Under section 212 a company shall be deemed to be unable to pay its debts if, in circumstances similar to those in the present case, it is proved to the satisfaction of the Court that the Company is unable to pay its debts, and in determining whether a company is unable to pay its debts, the Court shall lake into account the contingent and prospective liabilities of the company. Upon the occurrence of such event, a petition for winding-up may be presented to the Court and in accordance with the provisions of section 218 "the winding- up of a company by the Court shall be deemed to commence at the time of the presentation of the petition for the winding- up".

Under the Bankruptcy Law, Cap. 5, section 3(1), an act of bankruptcy has to take place before a bankruptcy petition may be presented by a creditor. The acts of bankruptcy are enumerated in sub-section (1) of section 3 and in circumstances corresponding to those of the present case a bankruptcy notice has to be served first and the act of bankruptcy is committed if there is failure to comply with such notice Section. 3(1)(h) provides as follows in this respects:

"If being indebted to a creditor in virtue of debt provable in bankruptcy, he fails to pay, or secure, or compound, for, such debt, within such time as shall be allowed by an order made by the Court upon the application of the creditor, provided always no such application shall be entertained by the Court unless a bankruptcy notice, requiring payment of such debt, has first been served upon him, and he has had notice of such application and has been called upon to show cause against the same".

The validity of such bankruptcy notice can be disputed by the debtor, by giving a notice of his intention to dispute same, and only if he fails to give such notice or fails to comply with the contents thereof; within the time allowed, he commits an act of bankruptcy (section 3(b) of the Law) entitling the creditor to present a bankruptcy petition against the debtor under section 5(1)(c) of the Law.

So, whereas under the provisions of the Bankruptcy Law the validity of a bankruptcy notice may be disputed before the bankruptcy proceedings commence no similar provision exists in the Companies Law entitling the debtors to be any steps to prevent the creditor from presenting winding-up petition. Such right however; maybe found in the Civil Procedure Rules under which in any civil proceedings the party against whom such proceedings are taken, may upon service upon him of the writ of summons, before entering appearance or upon entering a conditional appearance, move the Court to set aside the issue or service of the summons upon him.

In the present case the trial Court found that the Bankruptcy Rules are more or less applicable and made the directions challenged by this appeal. There is no doubt that as a result or such directions and in particular the part concerning the publication of the winding-up petition in the press the appellant will be highly prejudiced and its financial credibility will be at stake in view of the fact that other creditors who had no reason to dispute the financial position of the appellant would start doubting it, and would have to take steps for securing their claims, something which they would not have otherwise done if there was no winding-up petition.

We agree with the opinion expressed by a member of this Bench (Pikis, J.) as a President of the District Court of Larnaca in a Full District Court case (Karaoglanian & Sons Ltd. v. Karaoglanian & Another (1976) 12 J.S.C. 1875 at pp. 1880, 1881) as to the consequences flowing from the presentation of a winding-up petition and in particular the effect of publication which is meant to advertise the fact of the presentation of the petition in as wide a circle as possible so as to give notice to any likely interested party while at the same time the public, by receiving such notice, may adjust its dealings with the company accordingly".

The prerequisite of a publication of a notice in a newspaper is one contemplated by the English Companies Winding-up Rules which have no application in Cyprus in this respect, as no such provision exists under our law or the Winding-up Rules. Though such matter is a matter relevant to the service of the petition on all interested parties and in Cyprus it is within the discretion of the Court whether such notice should be published in the newspaper or not, the publication of such notice is normally ordered by the Court as a matter of usual practice.

We find nothing in rule 92 of the Companies Winding-up Rules tending to establish that the Bankruptcy Rules should be preferred to the Civil Procedure Rules. If such was the intention we see no reason by any reference to the Civil Procedure Rules should have been made first in rule 92 instead of reference to the Bankruptcy Rules with a proviso that the Civil Procedure Rules would come into play if there was no provision in the Bankruptcy Rules.

Bearing in mind the difference in the procedure contemplated in the Bankruptcy Law, Cap. 5 and the Companies Law, Cap. 113, the fact that whilst under the Bankruptcy Law the debtor has a Fight to dispute the validity of a bankruptcy notice which is a prerequisite under section 3(1)(h) for an act of bankruptcy to take place enabling the creditor to present a bankruptcy petition, whereas 'no such opportunity is given, to the debtor under the Companies Law, we are inclined to the view that the remedies which are available to a defendant contesting the issue of service of a writ of summons under the Civil Procedure Rules, may be utilized if one wishes to dispute the validity of a winding-up petition in the circumstances of a case like the present one. The determination of the legal points raised as to the validity of the winding-up petition, if dealt with preliminary to the hearing of the winding-up petition by means, of the application of the appellants would clear the ground, for the determination of the petition and any embarrassment or prejudice to the appellant, with likely irreparable consequence, maybe avoided.

For all the above reason, we have decided to set aside the ruling of the trial Court and we remit the case back for the hearing first of appellant application for striking but the petition.

As to the costs of this appeal, we are of the opinion that such costs should be costs in cause in the main proceedings and an order-is made accordingly.

Appeal allowed.

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