The International Business Companies Act, Chap. 309 of the Statute Laws of The Bahamas

• Jurisdiction: Bahamas
• Judge: Klein, J.
• Judgment Date: 17 November 2020
• Year: 2022
• Court: Supreme Court (Bahamas)
• Docket Number: Commercial Law Division 2020/COM/com/00038

In the Matter of The International Business Companies Act, Chap. 309 of the Statute Laws of The Bahamas

And in the Matter of Finethic Limited

And in the Matter of a Winding-Up Petition filed in relation to the said Finethic Limited and pursuant to section 190 of The Companies (Winding Up Amendment) Act, 2011

And in the Matter of an Order appointing Joint Provisional Liquidators of the said Finethic Limited

And in the Matter of the applications of Finethic Limited, Paul D. Moss, and Dominion Management Services Ltd.

Before:

The Hon. Mr. Justice Loren Klein

Commercial Law Division 2020/COM/com/00038

IN THE SUPREME COURT

Winding-up Petition — Just and equitable ground — Management gridlock created between brothers as equal shareholders — Ex parte Order appointing joint provisional liquidators (JPLs) — Application to set aside Order appointing JPLs — Alleged defect in affidavit verifying petition — Affidavit sworn in November 2019 and Petition presented in 2020 — Ord. 3, r.3, Companies Liquidation Rules (CLR) — Whether “prima facie case” for making winding up order — Standing of Director of company of record where provisional liquidators appointed — Allegations of improper appointment.

Practice and Procedure — Ex parte application — Whether “exceptional circumstances” justifying ex parte application — S. 199 (2), Companies (Winding up Amendment) Act, 2011 — Affidavit in support of appointment of JPLs sworn by counsel of firm representing petitioner — Whether abuse of process — Whether affidavit should be struck out — Hearsay evidence — Whether affidavit containing material that is “scandalous, irrelevant or otherwise oppressive” — RSC Ord. 41, rr. 5(1)(2), r.6

Appearances:

Maurice Glinton QC, with Meryl Glinton for the Applicants

Tara Archer-Glascow, with Audley Hanna for the Petitioner

Raynard Rigby for Joint Provisional Liquidators

Klein, J.

INTRODUCTION AND BACKGROUND

1 This is an application by Finethic Ltd., an International Business Company (“the company”), Mr. Paul Moss, in his capacity as the sole director of the company, and Dominion Management Services Ltd., as the registered agent of the company (“Dominion”), together the applicants, to set aside an ex parte order made 27 August 2020 by Bowe-Darville J. appointing joint provisional liquidators of the company (“the JPL Order”).

2 The appointments were made pursuant to a winding-up petition presented 21 August 2020 by Mr. Georgio Nembri (“Mr. G. Nembri”), one of two equal shareholders, to wind up the company on just and equitable grounds, claiming management deadlock.

3 The application raises, among other issues, an important question of practice relating to the swearing of an affidavit verifying a petition, in particular whether an affidavit sworn in advance of the presentation of the petition is sufficient to witness the truth of its contents. It appears that the issue first reared its head in this jurisdiction, albeit in a somewhat different guise, in the Court of Appeal's decision in In the Matter of China Emperor and ors. v Paulsen [2008] 5 BHS No. 73, but it was not necessary for the court to decide the point. But it has remained a troublesome point in many jurisdictions, not least because the answer appears to turn on the interpretation of the particular rules in play, and judicial exegesis of such rules has naturally produced different results.

Factual Background

4 Finethic was incorporated under the International Business Companies Act (the “IBC Act”) on 18 February 2004. Its registered agent of record is Dominion Management Services Limited, Dominion House, #60 Montrose Avenue, P.O. Box N-9932, Nassau, Bahamas. The authorized capital of the company is US$5,000, divided into 5,000 shares of US$1.00 each. The registered members of the company are the petitioner, Mr. G. Nembri and his brother Mr. Andrea Nembri (“Mr. A. Nembri”), who each holds 2,500 shares. Since 20 April 2017, the president of the company has been Mr. Paul Moss (“Mr. Moss”) and the secretary Ms. Melanie Lightbourne (“Ms. Lightbourne”). As will be revealed presently, the validity of the 2017 appointments of officers as well as the registered office and agent are disputed.

5 The petition recites that the company has been in gridlock since about 2015, as the members have been unable to reach agreement on any fundamental issue concerning the management and direction of the company. Owing to this paralysis, the then appointed directors (Gina A. Martinez and Fernando A. Gil) tendered their resignations on 12 December 2016 with immediate effect, and the then registered agent (Aleman, Cordero, Galindo & Lee (Bahamas) Ltd.), also by letter dated 12 December 2016, resigned with 90 days' notice. The members were apparently unable agree replacements for these resignations.

6 By virtue of a written resolution, apparently passed solely by Mr. A. Nembri on 20 April 2017, the current registered agent, registered office and president of record for the company were appointed. The secretary was appointed by a separate Director's Resolution of the same date. The petitioner alleges this was done without consulting him and that he does not consent to these appointments.

7 On 21 August 2020, Mr. G. Nembri presented a petition to wind up the company in accordance with s. 89 of the International Business Companies Act (the “IBC Act”) and s. 186(e) of the Companies (Winding Up Amendment) Act 2011, (the “Act”), on the ground that it was just and equitable to do so “ due to gridlock”. Mr. Anthony Kikivarakis and Ms. Cheryl Simms, both of Kikivarakis & Co., were nominated for appointment as joint provisional liquidators.

8 On the presentation of the petition, application was also made ex parte by summons for the appointment of joint provisional liquidators of the company. The application was supported by an affidavit sworn by David Hanna, an associate in the firm of attorneys of record who act for the petitioner in the winding up (the “Hanna Affidavit”). As indicated, Mr. Anthony Kikivarakis and Ms. Cheryl Simms were appointed joint provisional liquidators (“JPLs”) of the company by order dated 27 August 2020.

9 By Notice of Motion (“the Motion”) filed 17 September 2020, the applicants applied for twofold relief: (i) to strike out the petition in the Court's inherent jurisdiction, or, alternatively that it be dismissed as an abuse of process pursuant to s. 191 (1)(a) of the Act, on various grounds; and (ii) for an order pursuant to Ord. 32, r. 6 or in the court's inherent jurisdiction to set aside the ex parte JPL Order on various grounds and to strike out the Hanna affidavit. Simultaneously, the applicants filed an ex parte summons to set aside the JPL Order, to strike out the Hanna Affidavit and for further proceedings under and by virtue of the JPL Order to be stayed pending the hearing of the substantive applications. The applications were supported by affidavits of Mr. Moss filed on 17 and 28 September 2020, and a third affidavit was filed on 29 October 2020. The JPLs also filed a joint affidavit on 5 October 2020, responding to certain allegations in the Moss affidavit of 17 September.

10 The petitioner filed a cross-summons on 14 October 2020 to strike out the affidavits of Mr. Moss, on the basis that he lacked the locus standi to advance the applications before the court or swear any affidavits in his capacity as director.

11 The Motion includes some 13 grounds, bifurcated into those directed at the petition (“the petition grounds”) and those directed to setting aside the JPL order (“the JPL grounds”). Some of the grounds directed toward the petition are not so easily assimilable and at times appear contradictory, but they are distilled here (in somewhat redacted terms) as follows:

• 1. The petitioner lacks the requisite standing under the Act to present the Petition.

• 2. The petitioner is not a creditor nor claims to be a contributory, and cannot make out a prima facie case for the appointment of a provisional liquidator in accordance with s. 199(1) and (2) of the Act.

• 3. “ Whilst the Petitioner is a contributory within the terms of s. 183” and the petition is based on Ord. 4, r. 1, the petition is not genuine and not presented bona fide.

• 4. The primary ground of the petition, the alleged management gridlock of the company as a result of the two equal members being unable to reach agreement, is not a basis for a winding-up order under s. 186 of the Act.

• 5. The petition fails to comply with the mandatory requirements of the Act and the CLR, in particular O. 3, and it is outside the powers of the court under s. 186; further, it is presented for an improper purpose and constitutes an abuse of process.

• 6. Winding up of the company on the just and equitable ground, in the absence of any evidence of fraud, misconduct or oppression, is an insufficient basis in law for a winding-up order.

• 7. The petition is fatally flawed for lack of specificity and failure to comply with the provision of the Act and Companies Liquidation Rules 2012 (“CLR”).

• 8. The defects in the petition cannot be cured by amendments.

• 9. There was no evidence of “… exceptional circumstances which justifies the application being made ex parte” as required by the CLR (O. 4, 1(2)).

• 10. There was material non-disclosure of relevant facts and matters before the Judge on the ex parte application.

• 11. That the judge was not properly assisted by counsel with respect to the law on urgent ex parte applications, a significant example being that there was no stipulated return date for the inter partes hearing of the summons.

• 12. That the affidavit filed in support of the ex parte application for appointment of the JPLs, being sworn by counsel for the firm acting for the petitioner, is an abuse of process and tends to embarrass or prejudice the proceedings.

• 13. Ground 8–12 were a miscarriage of justice.

12 It should be apparent that grounds...