282020Jul
Insolvency Law in Mauritius

Insolvency Law in Mauritius

FINACORP SERVICES LTD v. DISTILLED SPIRITS HOLDING 2020 SCJ 162 (Supreme Court of Mauritius)

This is an appeal from a decision of the Judge of the Bankruptcy Division granting the application made by the respondent pursuant to section 181 of the Insolvency Act to set aside a statutory demand which the appellant had caused to be served upon the respondent on 13 April 2016.

Issue

The only issue which the Learned Judge had to determine in this case is whether there was a substantial dispute whether or not the debt is owing or is due as a ground to set aside the statutory demand caused by the Appellant.

Facts

In June 2014 Distilled Spirits decided to terminate its business relationship with Finacorp. On 11 June 2014 following an agreement with Finacorp, Distilled Spirits undertook to pay to it a global sum of Euros 80,000 in settlement of all claims existing between them. Distilled Spirits has pursuant to the agreement, already paid half of the said amount.

The outstanding balance which had to be paid within six months of the agreement, has as at now however, not been settled by Distilled Spirits. Whilst Distilled Spirits does not deny the agreement and does not dispute that the balance still remains outstanding, it has refused to pay same on the ground that it was not satisfied with the work performed by Finacorp and was as such disputing the balance due.

On 13 April 2016 Finacorp served a statutory demand upon Distilled Spirits claiming the outstanding balance on the agreement. On 25 April 2016 Distilled Spirits lodged an application under section 181 of the Insolvency Act moving that the statutory demand be set aside. Finacorp resisted the application.

Law

In order to set aside the statutory demand pursuant to section 181(4) of the Insolvency Act, it was incumbent upon the Judge to ascertain whether – “(a) there is a substantial dispute whether or not the debt is owing or is due”.

The general approach to be adopted when dealing with an application to set aside a statutory demand, is explained in the following extract from the New Zealand case of Amstar Interiors Limited v. AIS Insulation Limited (In Liquidation) – HC AK CIV-2011-404-3320 with reference to Section 290(4)(a) of the Companies Act 1993 of New Zealand which has the same wording as Section 181(4) of the Insolvency Act in Mauritius. The relevant part of the judgment is reproduced hereunder –

  • The applicant must show that there is arguably a genuine and substantial dispute as to the existence of the debt. The task for the Court is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due. The mere assertion that there is a genuine substantial dispute is not sufficient: Queen City Residential Ltd v Patterson Co-Partners Architects Ltd (No 2) (1995) 7 NZCLC 260,936 (HC).
  • (b) The mere assertion that a dispute exists is not sufficient. Material, short of proof, is required to support the claim that the debt is disputed.

Further, the onus is on the applicant to lay a proper foundation that he has a fairly arguable case that he is not liable for the amount claimed as is explained in the New Zealand case of Denize Farms Limited and Spotburn Farms Limited (In liquidation) – (CIV-2011- 404-5374) as follows:

“1. The applicant bears the onus of proof to show that there is a fairly arguable basis upon which it is not liable for the amount claimed. The dispute must be more than a mere assertion.

2. There must be a proper foundation for the dispute and assertions made must pass the threshold of credibility.

The task of the court when dealing with an application to set aside a statutory demand has been also explained in the case of Mibor Investments Pty v Commonwealth Bank of Australia [1994] 2 VR 290. The court observed that “it is not expected that the Court will embark upon any extended enquiry in order to determine whether there is a genuine dispute between the parties and certainly will not attempt to weigh the merits of that dispute. All that the legislation requires is that the Court conclude that there is a dispute and that it is a genuine dispute.”

Analysis

We have carefully considered the arguments of both counsels. It was indeed only incumbent upon the trial Judge to determine whether there was a substantial dispute as to the existence of the debt. Although there was no duty upon him to make a determination as regards the debt itself, he had to be satisfied that there was not merely a dispute but that there was a substantial dispute which seriously questioned the existence of the debt. The learned Judge unfortunately misconstrued and failed to make a proper assessment of the material evidence in that connection.

We are of the view that the Judge wrongly construed the nature and context of the “so called dispute” relating to the Intellectual Property agreement. In the first place, that agreement was made in 2010 more than four years prior to the acknowledgement of debt. Furthermore that so called dispute was between the appellant and Dr. Troller acting in his personal capacity and did not involve or bind directly or in any manner whatsoever, the respondent which is to all intents and purposes, a distinct and separate legal entity. The Learned Judge was wrong to base his conclusions on the premise that the dispute with Dr. Troller should be construed as a dispute between the appellant and the respondent and in any event, any such dispute was prior to, and would have been taken on board by the “solde de tout compte” of 11 June 2014.

The agreement of 11 June 2014 put an end to all existing disputes irrevocably and unconditionally by an acknowledgement of debt of 80,000 Euros by the respondent. There was therefore no more any outstanding issue which can be said to give rise to any dispute with regards to any such contention by the respondent.

Conclusion

The Appeal was succeeded. The decision of the trial court was quashed which had granted the respondent’s application to set aside the statutory demand. The appeal was allowed with costs. An order was made pursuant to Section 181 (6) (a) (i) of the Insolvency Act for the respondent to pay the debt due on the statutory demand within a period of one month from the date of this judgment, failing which the appellant may make an application to put the company in liquidation.

This was a big win for the Appellant and our Mauritian member Mr. D. Erriah, of Counsel, ERRIAH CHAMBERS

A copy of this judgment may be made available upon request to deverriah@intnet.mu.

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