Re Adam Holdings Ltd

HCMP002074/1983

M.P. 2074/83

Headnote

Rejection of proof of debt by the Official Receiver in Companies Winding-Up - genuine debt to be established - the maxim omnia praesumuntur rite esse acta does not apply to applications for proof of debt - on the evidence applicant had not shown on a balance of probabilities that a real debt was due.

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Coram: The Honourable Mr. Justice Jones in Chambers

Date of hearing:  23 February 1984

Date of delivery of judgment: 7 March 1984

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JUDGMENT

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1. Adam Holdings Limited (Adam Holdings) formed part of a group of companies which were under the control of George Archibald Taylor now deceased. George Leighton Taylor is a son of the late Mr. G.A. Taylor. The other companies in the group included George Taylor and Staff Pty. Limited (G.T.S.), Mordiesel Company Pty. Limited (Mordiesel) and Associated Colleges Pty. Limited (the applicant). The applicant was an Australian Company and Adam Holdings a Hong Kong Company. Adam Holdings held approximately one third of the issued share capital of the applicant, whilst the applicant held nearly all the shares in G.T.S. and a majority of the shares in Mordiesel.

2. On the 8th November 1974 Mr. D.L. Nicholl and Mr.J.P. Grant, chartered accountants in Sydney, were appointed receivers and managers of the applicant. They acted in this capacity until the 19th December 1979. An extraordinary resolution was passed on the 28th November 1979 for the applicant to be wound up. Mr. Nicholl and Mr. M.I. Wansley were appointed to be joint liquidators in the winding up. Adam Holdings was ordered to be wound up by the Supreme Court in Hong Kong on the 30th July 1975, and the Official Receiver was appointed to be the liquidator.

3. On the 28th November 1975 Mr. Nicholl lodged a proof of debt in the winding up of Adam Holdings on behalf of the applicant for the sum of HK$2,719,533.97 being the equivalent of Australian $432,220.91 in respect of goods sold and delivered, services rendered, advances and disbursements. The amount of the debt claimed was subsequently amended in March 1982 to A $462,013.57.

4. In August 1983 the Official Receiver adjudicated on the proof of debt by admitting the sum of A $99,159.58 and rejecting A $362,853.99. Part of the claim rejected A $2,049.60 for air fares has been abandoned. However, the applicant applies under Rule 95 of the Companies (Winding-Up) Rules to reverse or vary the decision of the Official Receiver in respect of the sum of A $296,000 for cash advances alleged to have been made to Adam Holdings and interest amounting to A $64,804.39. The Official Receiver concedes that if the application relating to the advances is allowed the claim for interest must also succeed.

5. The particulars of the advances that the applicant claims were made are as follows:-

1. 2. 3. 4. 5. 6. 7.

31st March 1972 A $10,000. 1st May 1972 A 10,000. 4th May 1972 A $40,000. 26th May 1972 A $155,000. 31st December 1972 A $40,00. 9th March 1973 A $31,000. 30th June 1973 A $10,000.

The evidence with regard to the advances is set out in the affidavit of Mr. Nicholl sworn on the 3rd January 1984 which exhibits the documents upon which reliance is placed.

Evidence of advances 1, 2 and 3

6. According to the ledger of G.T.S. three advances in cash described as loans were made on the 31st March, 1st May and 4th May 1972. Against an entry of $78,387.66 which includes the amount of the three advances, there appear the words 'Associated Colleges Pty. Ltd. To Adam Holdings Ltd. Being amounts paid by Associated Colleges on behalf of Adam Holdings Ltd.'. The payments are also set out in the cash payments journal of G.T.S. Mr. Nicholl has been unable to ascertain to whom the monies were actually paid, but has referred to accounts prepared by Lowe, Bingham & Matthews the auditors of Adam Holdings which show that three sums alleged to represent the advances were received by Adam Holdings in Hong; Kong. However, there were discrepancies in the amounts received which were attributed to fluctuations in the rates of exchange. The Offical Receiver has rejected these claims on the grounds that the amounts were advanced by G.T.S., and as no assignments of the debts were made to the applicant, G.T.S. must he regarded as the genuine creditor.

Evidence of 4th advance

7. The books of the applicant reveal that A $160,000 was paid in cash to dam Holdings on the 26th May 1972 although only A $155,000 has been claimed in the proof. A cash payments journal entry records this payment, and a cheque stub of the applicant is endorsed 'Armoured Escorts Pty. Ltd.'. The statements of Lowe, Bingham & Mathews show an entry for May 1972 of A $160,000 in the account of Adam Holdings. The Hong Kong dollar equivalent as $1,072,000, but the sum actually received was HK$945,000.

8. The Official Receiver disputes this claims the name of the payee on the cheque was Armoured Escorts Pty. Ltd. and not Adam Holdings. It is also contended that the major credit of Adam Holdings at this time was a sum of HK$630,000 from a Deak's cheque that had been endorsed by Mr G.L. Taylor. Further no assignment of the debt was made by Mr. G.L. Taylor to the applicant.

Evidence of 5th advance

9. The ledger of G.T.S. shows that A $40,000 was advanced to Adam Holdings on the 31st December 1972. Statements prepared by Lowe, Bingham & Matthews show that this amount was received in December 1972 and was recorded as HK$268,000 although only $252,000 was actually received. The claim is disputed because the loan was made by G.T.S. and not the applicant and there was no evidenco that Adam Holdings received the money.

Evidence of 6th advance

10. The cash payments journal of the applicant shows an advance of A $31,000 to Adam Holdings on the 9th March 1973. A cheque for this sum was drawn in favour of the Bank of New Zealand.

11. The Official Receiver rejected this item because the name of the payee was not Adam Holdings. The ledger of Adam Holdings shows that Mr. G.L. Taylor remitted HK$204,000 from Australia to Adam Holdings on the 7th March 1973 two days before the alleged advance.

Evidence of 7th advance

12. A journal entry of Mordiesel reveals an advance of A $10,000 was made to Adam Holdings on the 30th June 1973.A statement prepared by Lowe, Bingham & Matthews confirms this fact. However the payee on the cheque stub is Miss L.M.I.Sexton an officer of the applicant. The Official Receiver disputes the claim as the advance was made by Mordiesel and there is no evidence of an assignment of the debt.

13. A statement of account prepared by Lowe, Bingham & Matthews for the year up to the 30th June 1972 shows a net amount due to the applicant of $242,339.92. These accounts were audited by T.H. McDermott & Company, chartered accountants of Melbourne where reference is made to 'An unsecured loan of $277,079 was made to this Company's Holding Company.' Accounts prepared on behalf of the applicant by Mr. William Atkinson a public accountant of Melbourne for income tax purposes in Australia for the year ended 30th June 1972 shows an item "Loans to Shareholders Adam Holdings Ltd. $277,079". The loans were made between the 1st January 1971 and the 30th June 1972. The reason for the discrepancies in the figures was not explained.

14. On the 2nd September 1974 Adam Holdings wrote to the applicant enclosing an account prepared by Lowe, Bingham & Matthews with a reguest to confirm that the balance due to the applicant as at the 31st December 1973 was HK$3,330,317.95. This account includes an item relating to a cash advance of A $41, 000 that was made to Adam Holdings in March 1973. Mrs. Clough who appeared for the applicant submitted that this was further evidence to support the claims for the sixth and seventh advances being the total of the two advances although she conceded that the dates do not correspond. The account also shows that the balance due to the applicant on the 30th June 1973 was A $374,835.48. Although the letter and statement of account were received by the applicant it does not appear that the confirmation slip was ever returned to Adam Holdings.

15. Draft accounts of the applicant exhibit DLN14 show 'Loans to Shareholders Adam Holdings Ltd. in the sun of $407,561.65. Accounts prepared by Mr. Atkinson up to the 30th June 1973 for income tax purposes includes an item under advances or loans to shareholders Adam Holdings Ltd. in the sum of $409,575. The dates of the loans were stated to be between the 1st January 1971 and the 30th June 1973. In the summary under Over seas Transactions it is stated that the sum of $409,574.95 owed by Adam Holdings Ltd. represented amounts paid on their behalf by George Taylor and Staff (S.E. Asia) Snd. Bhd. a company controlled by Adam Holdings. No explanation has been provided for the discrepancies in the three sets of figures at the 30th June 1973.

16. The applicant contends that no payments have been made to discharge the sum of $3,330,317.95 due at the 31st December 1973. No evidence is available to confirm that Adam Holdings actually received the advances from the applicant. It is conceded that the accounts of Adam Holdings and the other companies are confusing, badly written up, and incomplete. I was told that the documents relating to the advances have either been lost or destroyed. Nevertheless Mrs. Clough submitted that the accounts of the companies in the group have been scrutinised by three firms of accountants, Lowe, Bingham & Matthews, T.H. McDermott & Company and Mr. William Atkinson, who it is assumed would have had access to the relevant vouchers and other documents at the time the accounts were prepared.

17. It is common ground that the onus of proof is upon the applicant to show on a balance of probabilities that s real debt is due. The application is heard de novo on the evidence before the Court see In re Kentwood Constructions Ltd. (1960) 1 W.L.R. 646. However, the evidence in this case is the same that was supplied on behalf of the applicant to the Official Receiver in 1975 in support of the proof.

18. Both Mrs. Clough and. Mr. Lwok who appeared for the Official Receiver drew my attention to In re van Laun (1907) 1 K.B. 155. The appeal is reported in (1907) 2 K.B.23. This case held that the trustee in bankruptcy represented the general body of the creditors, and was entitled to go behind the covenant in a mortgage and the stated account and to require satisfactory evidence, before admitting the proof, that the claim represented a genuine debt. In his judgment at pace 162 which was upheld by the Court of Appeal Bigham J. said:-

'The trustee's right and duty when examining a proof for the purpose of admitting or rejecting it is to require some satisfactory evidence that the debt on which the proof is founded is a real debt. No judgment recovered against the bankrupt, no covenant given by or account stated with him, can deprive the trustee of this right. He is entitled to go behind such forms to get at the truth, and the estoppel to which the bankrupt may have subjected himself will not prevail against him. In the present case the trustee desires to satisfy himself that the claims for costs represent a real indebtedness. He can only do this by seeing and examining the bills.   When he sees them it may be that he will think them fair and reasonable and, if so, he will probably admit the proof. But until Mr. Chatterton furnishes him with the means of forming an opinion I think the trustee cannot do otherwise then reject the proof."

The position of the Official Receiver in determining a proof for admission or rejection in a winding up is the same as for bankruptcy see In re Home and Colonial Insurance Company Limited (1930) 1 Ch. 102.

19. Mrs. Clough said that the applicant has placed all the available evidence before the Official Receiver, and in the absence of evidence to the contrary the maxim omnia praesumuntur rite esse acta should apply. She cited In re Browne (A Bankrupt) (1960) 1 W.L.R. 692 in which it was held that where both the debtor and the creditor were dead, and relevant documentary evidence might have been lost it was for the trustee in bankruptcy to satisfy the Court beyond any reasonable doubt that a proof had been improperly admitted. In his judgment at page 696 Cross J. said: -

"As I see the matter, therefore, the only evidence which I have to show that the proof was wrongfully admitted is the proof itself. In a case where the vital witnesses are dead, and relevant documentary evidence may have been lost, the maxim 'omnia praesumuntur rite esse acta' applies with peculiar force. In such a case it is not enough for the official receiver to say that as the terms of the proof suggest that the debt in question was an unenforceable gambling debt, the onus is thrown on the creditor's representatives to show that it was not. It is for the official receiver to satisfy me that the proof was wrongly admitted, and not, as I see it, simply to satisfy me on the balance of probabilities but to satisfy me beyond any reasonable doubt.''

Mr. Kwok referred me to a passage on page 29 of "Words and Phrases Legally Defined "Second Edition where part of the judgment of Lindley L.J. in Harris v. Knight (1890) 15 P.D. 170 at page 179 was quoted as follows:-

"The maxim, Omnia praesumuntur rite else acta, is an expression, in a short form, of a reasonable probability, and of the propriety in point of law of acting on such probability. Th e maxim expresses an inference which may reasonably be drawn when an intention to do some formal act is established; when the evidence is consistent with that intention having been carried into effect in a proper way but when the actual observance of all due formalities can only be inferred as a matter of probability. The maxim is not wanted where such observance is proved, nor has it any place where such observance is disproved. The maxim only comes into operation where there is no proof one way or the other."

He submits that the maxim does not apply to the circumstances of this case. Clearly no formal act arises in this case nor does the presumption as to the validity of transactions which have stood unchallenged for a long period of time and the validity of documents not less than twenty years old produced from proper custody apply.

20. By invoking the maxim the applicant contends that by production of the documents available a presumption arises which is rebuttable that the documents establish the validity of the claim.  However, a creditor is not entitled to say this is all the evidence that I have and because the best evidence has been lost or destroyed my claim should be admitted. The Official Receiver is not obliged to assume that when the accounts were prepared all the vouchers and other documents were available to the accountants. If this submission were to be accented the Official Receiver's powers of investigation would be severely curtailed. The Official Receiver is under a public duty to investigate claims, and to be satisfied on the evidence that there is a genuine debt due. The burden remains with the applicant to establish proof of the claim on the balance of probabilities on the evidence that is produced. The evidence must be considered on its own merits. No question of a presumption can arise in this situation. In my judgment the maxim has no application to a proof of debt.

21. The applicant also relies on the letter from Adam Holdings to the applicant dated the 2nd September 1974 as proof of an admission made before the winding up order. Mrs. Clough cited London and Westminster Bank v. H. Button 51 S. J. 466 as authority that a bankrupt's acknowledgements bind the trustee. However, whether or not the letter amounts to an admission is irrelevant for it does not affect the trustee's power to admit or reject proofs of debt. Accordingly the Official Receiver is not bound by this document.

22. It is therefore necessary to look at the evidence upon which the claim is based & determine whether the onus of proof has been discharged by the applicant. The main thrust of the Official Receiver's rejection of the claim is the failure by the applicant to produce prime documentation. In respect of the first, second, third and fifth payments it is abundantly clear that the monies were advanced by G. T.S. and not by the applicant. Apart from the accounts of Lowe, Bingham & Matthews there was no evidence to indicate that Adam Holdings received these payments. The fourth item a cheque for $160,000 was advanced to Armoured Escorts Pty. Ltd. The evidence also shows that the genuine creditor was Mr. G.L.  Taylor not the applicant. The sixth payment appears to have been a payment by Mr. G.L. Taylor on the 7th March 1973, and the payee was the Bank of New Zealand. The final advance was made by Mordiesel. None of the debts claimed has been assigned to the applicant. Discrepancies in the amounts have been attributed to fluctuations in the rates of change.

23. It is particularly significant that Parkhill, Lithgow and Gibson, a firm of chartered accountants in Melbourne who were acting for the late Mr. G.A. Taylor wrote to the Official Receiver on the 16th November 1979 to the effect that Mr. Taylor was at a loss to understand how any money could be due to the applicant from Adam Holdings.

24. The case for the applicant is essentially based upon the accounts prepared by the three firms of accountants. The accounts appear to have been properly prepared by men of integrity and Mrs. Clough contends, as I have said, that at the time of preparation they must have had in their possession the appropriate vouchers and other relevant documents. However, this can only be speculation for there is no evidence from any of the accountants on this matter. In order to prepare the accounts the accountants must apart from documentary evidence produced, necessarily rely upon the information and explanations given to them by the officers of the company by whom they were instructed. The Official Receiver is not bound by the accounts and is entitled to go behind them to form his own conclusion as to the truth. There is some evidence to indicate borrowings at one time by Adam Holdings from the applicant, but the late Mr. G.A. Taylor was or the opinion that in 1979 no money was owed. The applicant has made no comment on this statement.

25. I have carefully considered the evidence and all the documents placed before me together with the very able and perusasive submission of Mrs. Clough. The accounts are far from clear with discrepancies in the amounts, the dates, and the details of the payer and the payee. The discrepancies were not satisfactorily explained nor were the conflicts resolved. Having regard to the unsatisfactory nature of the evidence I have come to the conclusion without any hesitation that the burden of proof has not been discharged by the applicant that the advances were made to Adam Holdings. Accordingly the appeal is dismissed with costs.

Representation:

Mrs. M. Clough (Deacons) for Applicant.

Mr. Lester Kwok for Official Receiver.