An amount of $207,636.00 included in the payables item represents interest accrued on the loan facility provided by Investec which has been assigned to BMI and, it is said, assumed by BMI. Similarly, the payables item includes $9,460.00 incurred by GPES No. 1 and that debt has been assumed by BMI. The adjustment is $1,193,251 resulting in a current liability for trade and other payables of $672,566.00. The other significant current liability is in respect of short term borrowings. That amount of $3,154,455 is represented by the loan facility repayable to Investec which has been assumed by BMI. The entire amount has been adjusted out of the balance sheet. Current liabilities are said therefore to be $720,815.00 and current assets are $391,879.00.
212 In Robert Elliott's initial report of 19 July 2006 which was then the subject of a supplementary report correcting errors in the earlier report and, in turn, the subject of oral evidence of further corrections, Robert Elliott concluded that having regard to the adjustments I have mentioned and the assumptions previously discussed concerning the conversion of the relevant loan facilities to equity or the extension or non‑enforcement of the relevant debts, the adjusted pro forma balance sheet at 30 June 2006 reflects a net asset position of $726,341.00. By reason of the further adjustments concerning the trade and other receivables from $178,455.00 to $96,116.00 and some minor additional matters, Robert Elliott concludes that the adjusted consolidated balance sheet demonstrates total net equity of $644,002.00.
213 Although Alfred Wong deposes to the conversion of monies owing under the Richland facilities to shares or alternatively the election not to press for recovery of the debt (assuming no extension), it seems to me that the evidence is not clear that those commitments extend to rent payable to G P Energy or amounts in respect of shared expenses.
214 As to the working capital requirements for a period from July 2006 to 30 June 2007, Robert Elliott said this at page 6 of Schedule E to the material annexed to his affidavit filed 20 July 2006:
'GPE has also restructured its management team since the resignation of the previous MD resulting in a much lesser salary expense of around $38k per month as compared with $91k per month previously. GPE will not take on any other operation in the near future other than the construction of the 13.5MW power plant as the stage 2 project at Staplyton. However, the construction will not start until the facility from FPCFM is available in which case all the construction cost will be covered by this facility.
Under the current operation mode and taking into account other incidental operating costs and interest payable on promissory notes, the total monthly operating cost of the group should be around $80k per month (in terms of cash flow) giving a total of $960k for the next 12 months.'
215 The mechanism to be relied upon to fund those projected capital requirements includes draw downs upon the ABCL facility of $3M, recourse to Richland and Kwok and the proposed issue of further shares in GPEL to raise $418,359.00 in share capital.
216 On the question of the basis for his view as to solvency, Robert Elliott said in answer to counsel for the plaintiff: 'Look I believe the company is solvent because it has the capacity to meet its obligations as and when they fall due'. Counsel for the plaintiff put this proposition: Q: 'And you believe that, don't you, because of the unsecured loans that you think are available to the company?' … A: 'Yes'. Edwin Yeung also accepted in cross examination by counsel for the plaintiff that GPEL's ability to draw upon the loans is 'essential to GPE's solvency'.
217 Robert Elliott was also asked to explain the cash flow test for solvency and apply the quick ratio test to determine the ratio in the case of GPEL. In applying the quick ratio test, Robert Elliott identified that the ratio as 0.54.
218 On the state of the present evidence, Robert Elliott accepts that the question of whether GPEL is, at the date of the hearing, having regard to all relevant circumstances, in a position to pay its debts as and when they fall due, is to be determined on the footing that GPEL has demonstrated access to sufficient cash flow by reason of unsecured loans which are both certain and available to GPEL. All projected working capital requirements can be met through draw downs upon the Richland, Kwok or ABCL facilities. If the ABCL facility is disregarded for the moment, the projected working capital requirements can be funded by draw downs upon the balance of both the Richland and Kwok facilities.
219 However, in order to be satisfied that GPEL is able to pay its debts as and when they fall due having regard to the commercial reality of the circumstances which have confronted GPEL for some time, it seems to me that it would be necessary to conclude that the two facilities are available, calls for draw downs upon the facilities will be satisfied and that GPEL is otherwise in a position to establish a basis upon which there is a serious prospect that it will establish operational cash flows to enable it repay debt and to service proposed infrastructure investment facilities sought by GPEL so as to establish an underlying commercial activity for the company. It seems to me it is artificial to perpetually or in an 'evergreen' way extend debt facilities (or continually convert existing and future debt to issued shares) in circumstances where a company which began its operations under the existing shareholder group on 15 April 2003 has failed to establish a single operating plant (other than a pilot plant exhibiting serious technical difficulties and negative cash flows) which is generating any cash flow derived from what is said to be core operations. GPEL is entirely dependent upon external related lenders.
220 Although it is important to have regard to the evidence of a commitment by Richland and Kwok to convert all of their debt to equity, GPEL's solvency should first be assessed on the present state of its financial capacity to pay debts as and when they fall due conditioned by its relationship with related or unrelated funders. Richland has not yet in fact converted any of its substantial debt to equity although questions of capital adequacy have been under discussion in the affairs of GPEL for a long time. Plainly enough, GPEL has been under‑capitalised in terms of its equity base and has only been able to sustain its operations by access to debt. On 6 July 2005, Alfred Wong regarded that debt as evergreen (ie. not, in his view at that time, the likely subject of equity conversion) [115]. On 4 April 2005, Alfred Wong said that GPEL should stand on its own feet and not keep relying on him for funding [148]. On 20 April 2005, directors of GPEL pressed Alfred Wong to refund the money paid to Richland from 19 November 2004 to 9 December 2004; and on 7 October 2005 when responding to BDO's proposed qualification of the accounts to 30 June 2005 on the topic of 'going concern', Alfred Wong, although confirming that funds of up to $5M were available to the company from Richland, noted that Richland had made 'no commitment that the loan would not be demanded for repayment within the next 12 months' [179]. Osmond Kwok in establishing his facility with GPEL did so on terms that the extension of the facility beyond 10 October 2006 was not automatic and Osmond Kwok expressly reserved a right to decline any extension of the facility. The amount due under these facilities on 30 September 2006 and 10 October 2006 will be at least $7,671,570.88 (subject to further interest).
221 Although the Board minutes evidence expressions of view by directors that the Richland debt ought to be converted to equity (or on one occasion a view that the debt should be restructured as long term debt) and the minutes reflect a statement of willingness on the part of Alfred Wong to convert Richland's debt to equity, no part of the debt has been converted to equity nor any step taken to implement that position. The sworn commitment or promise by Alfred Wong to now convert all of Richland's debt soon to be current (together with further draw downs postulated by Robert Elliott and other debts due outside the facilities to Richland such as rent) to equity arises only in the context of the ASIC proceedings. Similarly, Alfred Wong's brother‑in‑law, Osmond Kwok, has adopted a position that he too will convert debt owed to him (together with further draw downs under the facility) to equity, in the face of the ASIC proceedings. Robert Elliott has made assumptions that these events will occur and on the footing of those present assumptions, he concludes GPEL is solvent.
222 For my part, I am not prepared to rely upon these promises since Richland, in particular, has had many opportunities to convert debt payable to it both current and non‑current to equity in the context of lengthy discussions about solvency and capital adequacy over a long period of time. In considering whether GPEL has discharged the onus of demonstrating that it is not insolvent, it is important to have regard to all of the circumstances and in that context, it should be remembered that concerns have been expressed about the solvency of GPEL and whether it might properly be considered a 'going concern' almost from the very moment that the GPFG Group secured control of Envirostar.
223 In particular, this question has been alive to Alfred Wong and Richland from June 2003 and a question of real concern to the Board and GPEL's external auditors for some time. The issues of solvency, cash flow demands, the financial constraints confronting GPEL and conversion of Richland's debt to equity (against the background of the operational and financial problems associated with the pilot plant) were discussed at a directors meeting on 20 May 2004 [42]; a directors meeting on 21 July 2004 [43]; a directors meeting on 18 August 2004 (especially budget projections of expenditures and Richard Nott's concern over the company's liquidity) [44]; a meeting of the Board's Audit Committee on 20 September 2004 [46]; in BDO's report to the Board concerning the accounts to 30 June 2004 (observing 'the inherent uncertainty regarding continuation as a going concern') [47]-[49]; BDO's notes to the 30 June 2004 accounts and particularly Note 1 [50]; a directors meeting on 22 September 2004 addressing operating cash flows, the need for a definitive plan to resolve GPEL's capital issues and conversion of Richland debt to equity [51]-[54]; a directors meeting on 17 November 2004 (addressing financing options, the need to secure construction equity to attract the Investec funding and the need, in terms of debt relief, to convert the Richland debt to equity as GPEL 'does not have the finance to repay the loan' [58]-[60]; a directors meeting on 15 December 2004 involving an extensive discussion of all of these matters [62]‑[64]; the attraction of JFCP funds and immediate use of the subscription by Alfred Wong to retire debt to Richland, G P Energy and Austcorp [68]-[115]; the election by Alfred Wong in conjunction with Lielkajis to proceed with placing a GPEL/GPEC promissory note product in the market without Board approval [117]-[136]; the BDO (Ian Fergusson) advice to the Audit Committee on 23 February 2005 that the issue of 'going concern' for GPEL would need to be monitored 'very closely by management and the Board' [145]; the Expansion Capital Report directed expressly to the 'solvency concern' [145]; the directors meeting on 20 April 2005 concerning management's presentation with 'the main focus on stabilising the company's capital position and ensuring that it was a going concern' and issues concerning the Board's view that Richland should replace the loans [149]-[151]; Peter Gan's report of 6 June 2005 concerning strategic options arising out of the problems concerning the pilot plant [154]; the extensive exchanges between BDO and GPEL between 4 August 2005 and the ultimate qualification of the accounts for the financial year ending 30 June 2005 [160]‑[182]; the particular concerns expressed by BDO as to corporate governance and solvency [170]; and the failure to establish an operational power plant by meeting the construction equity arrangements and other conditions of the Investec offer which had been the subject of a statement to the Australian Stock Exchange.
224 As to the future prospects of operational revenue, the defendants rely upon the affidavits of William Keith Lamont, Eduard Avila Alcordo and Garry Paul Ridout filed on 20 July 2006, 19 July 2006 and 31 July 2006 respectively.
225 William Lamont is an Executive Director and Chief Operating Officer of GPEL. He is also an electrical engineer with considerable experience in power engineering and fluidised bed combustion systems ('FBCS technology'), boiler design and coal gasification. William Lamont has been employed by GPEL since May 2002 (then Envirostar) as the General Manager for Engineering and Construction. He remained the General Manager until 16 September 2005 and in that role he has been responsible for much of the technical work and particularly the installation and commissioning of the Stage 1 pilot power plant at Staplyton. William Lamont was appointed Chief Operating Officer in August 2005 and appointed a director of GPEL on 16 September 2005. William Lamont says that the purpose of constructing the pilot power plant at Staplyton was to test and prove the efficacy of fuel and ash handling systems in a plant utilising FBCS technology. William Lamont observes that the pilot plant was commissioned on 23 March 2004 and was 'not without its problems'. However, the primary purpose of the pilot plant was to test and perfect designs especially for fuel handling and ash handling. He observes that the small output capacity of the pilot plant made it sub‑economic because it suffered from adverse economies of scale and problems of access to quality waste.
226 William Lamont says that the Staplyton No. 2 project for a 13.5MW electrical power plant has been designed so as not to suffer from the same technical problems exhibited in the pilot plant and because the plant has much greater output of megawatt power as a function of its cost base, it enjoys greater economies of scale and greater efficiency. Moreover, an in‑principle agreement with BMI exists for waste collection of quality fuel. William Lamont says that the current ASIC investigation and these proceedings has meant that the project to develop the 13.5MW Stage 2 plant has been placed on hold. Further, William Lamont says that the proceedings have also, in his judgment, been responsible for GPEL being deprived of funding through an Australian Federal Government Scheme called the LETDF Scheme which is designed to promote clean coal technology. In addition, William Lamont says that GPEL was moving confidently towards involvement in the design and construction of a coal gasification plant at Dalian in China and that this project has been 'put on hold' because of the present ASIC investigations and proceedings.
227 The position, of course, is that the minutes of meetings of the Audit Committee, minutes of meetings of directors and exchanges between GPEL and Investec concerning the pilot plant and the terms and conditions upon which project funds might be made available taken in conjunction with the difficult capital raising issues confronting GPEL particularly having regard to the ongoing reservations on the part of BDO, has not meant that these projects have been put on hold or lost to GPEL because of ASIC's investigation or these proceedings. Rather, the systemic difficulties confronting GPEL in its capital funding (debt and equity), governance, management, preparation and implementation of budgets and operational plans, concerns regarding GPEL's capacity to provide proper audit information to its external chartered accountants to enable an informed opinion to be reached, the use of the JFCP subscription and other matters, have all been inherent in the inability of GPEL to establish an operational plant. Moreover, the problems confronting GPEL in establishing an operational pilot plant were sufficiently significant that the solutions canvassed by directors included closing the plant entirely, placing it on care and maintenance or, as ultimately occurred, selling the plant to a third party. Similarly, the material demonstrates that the Dalian project has not been pursued for reasons unrelated to these proceedings.
228 William Lamont says that the Staplyton No. 2 project is commercially and technically viable and he has prepared a report identifying the basis for that conclusion. The conclusion rests on these matters:
(a) the second hand power plant located at Altona (being the relevant plant to be deployed) is technically sound;
(b) the power plant is capable of being relocated and recommissioned at Staplyton at approximately $16M;
(c) 'with certain obstacles to be overcome, the power plant should be in commercial operation at Staplyton with positive income being generated for GPE within a period in the order of 12 to 14 months from relocation to Staplyton and first draw down of funding';
(d) GPEL will be able to establish an interconnection point with Energex for despatch of electricity, or alternatively, a temporary connection point might be made available;
(e) 'the clear profit from the project once installed and commissioned would be in the order of $1M to $1.5M annually'.
229 William Lamont says that as to the financial modelling, the overall cost of the project ($16M) includes purchase of the second hand power plant from Altona; dismantling and transportation of the plant to Staplyton; refurbishment of the major equipment; design and construction of new fuel handling components; ash handling components, boiler, fluidised combustion system, condensing system and installation and commissioning at Staplyton.
230 William Lamont's report contains a series of schedules including a forecast profit and loss statement for the years 2006 to 2020. If the plant operates for a full 12 months in the year 2007 the projected total revenue is $7.45M with total operating costs of $4.09M. The model assumes depreciation of $700,000.00, interest costs of $554,892.00, earnings before tax of $2.1M and earnings after tax of $1.47M based upon 85% availability of the plant and 100,521MW hours generated at $37.08. Of course, on William Lamont's evidence, such a plant would not begin generating revenue assuming all of the matters described in William Lamont's report and mentioned at [229] occurred without interruption.
231 Eduard Alcordo is an investment banker who has been involved in arranging finance for infrastructure projects, particularly power plant projects, in the Asia Pacific region including six power plant projects below 20MW capacity, four power plants over 20MW capacity and two coal fired steam turbine power plants. Eduard Alcordo is an Executive Director of FPC Funds Management Pty Ltd ('FPCFM') and an Executive Director of First Pacific Capital Underwriters Pty Ltd. Eduard Alcordo says this:
'6. The [FPCFM] companies are interested in this project [Staplyton No. 2] and is looking to provide financial backing for it. FPCU is involved in completing due diligence with respect to the projects.
7. FPCFM has sourced $3 million in indicative subscriptions to fund the first two "milestones" in respect of the project. For this purpose, the first milestone is the purchase of the turbine generator and the second milestone is the first part of construction of the power plant.
8. MPI Group, an Australian engineering company with extensive experience in commissioning small power plants, were appointed due diligence engineers by the FPC companies with respect to the project. Phase 1 of the due diligence has been completed and MPI Group has commenced Phase 2 of the due diligence. However, Phase 2 has been suspended awaiting the outcome of the present proceedings with ASIC.'
232 The due diligence process will resume subject to the resolution of these proceedings. The indicative Term Sheet is a three page indication of key terms. GPEL would be the EPC contractor and would be responsible for operation and maintenance of the proposed plant. The owner would be FPC Funds Management Pty Ltd or a company controlled by it subject to a facilities management agreement by which GPEL would lease the plant from the owner, secure all approvals, permits and licences, establish the relevant power purchase agreements, fuel supply agreements and other relevant contracts. The facility is for a total cost of A$22M amortised over 25 years together with a five year option with a payment in the first year estimated to be A$4,070,000 and in subsequent years a base amount of A$2,970,000 indexed every two years to inflation. The off‑take power purchase agreement is to be with Energy Australia for a term of 10 years under a take or pay arrangement. The Term Sheet is subject to the execution of proper documentation. The Term Sheet was signed by Alfred Wong on 12 March 2006. William Lamont's report dated 24 October 2005 does not take into account in the profit and loss projections, the lease costs set out in the Term Sheet of March 2006. The post tax earnings for the five years 2007 to 2011 are $1.4M, $1.7M, $1.8M, $1.8M, $1.9M. The lease costs are projected to be $4M in the first year and $2.9M for each year thereafter subject to adjustment for inflation every two years.
233 The final affidavit is that of Garry Ridout who is the sole Director and Company Secretary of Samvic Pty Ltd. That company provides mechanical, combustion and electrical engineering services specialising in combustion engineering technology. By an agreement dated 11 January 2006, GPEL Staplyton No. 2 Pty Ltd agreed to purchase a 16MW power plant located at Altona in Victoria for $1.875M plus GST. Garry Ridout says that after completion of the purchase, Samvic suggested to GPEL that it would be able to on‑sell the plant for $3.75M. The offer actually made to Samvic was $5M and Garry Ridout values the plant on a 'quick sale' basis at $2M. Garry Ridout says that equivalent new plant with the same generating output would be $20M.
234 It seems to me that all of this evidence simply means that GPEL has taken steps towards investigating in conjunction with engineers and an infrastructure financier the extent to which the present 'contingency' of establishing a 13.5MW power plant at Staplyton might be realised. It is no more than a contingency and is entirely dependent upon installation of the plant, testing, operational verification, consistency of operation (demonstrating the efficacy of the plant) and the extent to which successful deployment and commissioning of the Altona plant at the level required to sustain availability of the plant projected in the model (including despatch of electricity) thus assuring the revenue, can be achieved. Such a project could not contribute operational revenue until, at the earliest, January 2008.
235 A further proposition put by the plaintiff is that even though it is open to conclude that Richland, Kwok and ABCL are willing to continue to provide financial support to GPEL, the defendants have not established that those entities have the capacity to provide funds when called upon to do so.
236 The particular criticism is put in this way.
237 While Richland has made significant loans in the past to GPEL, that, of itself, does no more than give rise to a basis for inferring that it might do so in the future. The defendants tendered the financial accounts for the Richland Property Trust as evidence of the capacity of Richland to continue to provide financial support. Alfred Wong gave evidence that Edwin Yeung, GPEL's internal accountant, had prepared those accounts based upon information that: '… out of the system when we were requested by ASIC to get access to that information'. The accounts are not audited accounts. In cross examination by counsel for the plaintiff, Edwin Yeung said, having had the accounts for the Richland Property Trust put to him for examination, that he had not seen them before. When asked again about the accounts he further confirmed that he had not seen the accounts before.
238 The plaintiff says that the financial accounts for Richland in its trustee capacity fall well short of a persuasive demonstration of Richland's substance in that the accounts are unaudited; no explanation has been given by GPEL of the failure to produce audited accounts particularly in circumstances where Alfred Wong controls the trustee of the Richland Trust; and, finally, the balance sheet of 31 March 2006 for the trust cannot be regarded as a reliable or accurate statement of the assets and liabilities of the trust because:
(i) the balance sheet includes an asset at a value of $101,100.00 when the asset will not be available for realisation within 12 months;
(ii) the balance sheet includes a variety of negative assets and liabilities;
(iii) an item identified as 'trade creditors' of $666,000.00 described in the balance sheet as a current liability has not been updated since December 2005; and
(iv) the balance sheet includes as an asset, a loan of $3,653,359.89 payable to Richland by a company described as Richfield Development PL and that company was deregistered in January 2006.
239 Alfred Wong was asked why the balance sheet as at March 2006 incorporated an asset being a debt to Richland from a company deregistered in January 2006. Alfred Wong said that the obligation would be assumed by other entities.
240 At page 209 of the Transcript, Alfred Wong was asked a number of questions concerning the service upon him of a bankruptcy notice by Bridgecorp Finance Limited. Alfred Wong accepted that the debt to Bridgecorp was a judgment debt obtained in the Supreme Court in New South Wales in circumstances where the debt was not defended. When asked why the debt was not defended, Alfred Wong responded: 'When it's a genuine obligation, you do not defend. We - I mean, initially, we defend the apparent hearing obligation of myself, because we think that their interest, all the things, the calculations were wrong, grossly overstated. Later on they changed the claim to just on the principal, so, therefore we do not defend'. Alfred Wong agreed that the judgment debt was approximately $1.2M concerning an obligation under a guarantee.
241 Alfred Wong also agreed that he and Danny Au-Yeung are both defendants in a proceeding in the Equity Division of the New South Wales Supreme Court (No. 50023 of 2005) commenced by Greentown Bellambi Pty Ltd ('GBPL') and Greentown Real Estate Group Co. Ltd ('GREG') concerning claims made by the plaintiffs pursuant to guarantees signed by the defendants in the action. The claim is for an amount of Chinese RMB 50,059,946 against both defendants which Alfred Wong says is approximately A$8M. There is a separate claim against Alfred Wong for A$3,746,707M. Alfred Wong says that he is defending the proceedings and the question in issue is whether the guarantee is a valid guarantee or not.
242 As to the other financiers, the plaintiff says that Dr Osmond Kwok is Alfred Wong's brother‑in‑law and there is no reason to believe that Osmond Kwok's financial capacity could not have been demonstrated on the evidence with a statement of assets and liabilities. The accounts of the Richland Property Trust show an asset described as 'Loan - James Kwok $862,707.79'.
243 As to ABCL, that company is registered in the British Virgin Isles and is controlled by Nels Tong. Alfred Wong gave evidence that he has no interest in ABCL. Nels Tong was one of the original investors represented by the GPFG Group when arrangements were made with the administrators of Envirostar. The financial accounts for the Richland Property Trust show an asset described as 'Loan - Nels Tong Loan A/C - $986,822.82'. The basis upon which ABCL is said to have a demonstrated capacity to provide financial support of $3M to GPEL is that one of the company's subsidiaries, GPHI, is owed a debt of $7.3M on 30 September 2006. No financial accounts have been put in evidence concerning ABCL.
244 As to ABCL, I am not willing to rely upon the evidence of the loan facility with that company as a basis for concluding that ABCL is in a position to support an apparent commitment to provide loan funds of $3M. There is no credible evidence of that company's capacity to provide draw downs upon the facility. No accounts, either audited or unaudited, have been put in evidence. Moreover, having regard to the participation by Nels Tong in the GPFG syndicate and the apparent relationship between Richland and Nels Tong reflected in the loan facility in the accounts of the Richland Property Trust, I am not satisfied that there is a demonstrated basis for relying upon that facility in assessing the solvency of GPEL.
245 Moreover, I accept that having regard to the judgment debt obtained by Bridgecorp Finance Limited; the further claim reflected in the New South Wales Supreme Court proceedings; the circumstance that GPEL failed to comply with the statutory demand served upon it by TechComm; the acceptance by Alfred Wong that at the time that the JFCP funds were received, GPEL 'owed a considerable amount of money to numerous creditors' (82 in all - [84]); and the recognition that to the extent that creditors' payments have been delayed, the delay was not a function of an inability of Richland to provide funds but rather 'delayed payment of creditors' was a function of implementing 'tight cash flow policies' so as to reduce borrowings:- in other words, the policy of GPEL has been to delay paying debts as and when they are due as a cash flow management policy [89] - a serious question arises as to whether further funds will be available under the facilities.
246 I accept that Richland has demonstrated a willingness to advance funds to GPEL and historically has done so. However, once satisfied that there is a serious question of the capacity of Richland to provide the further advances, it seems to me that the onus has not been discharged by GPEL. However, even if it can do so, it seems to me that the fundamental question is whether the advances themselves can be repaid. Further, I examine the question of GPEL's solvency on the basis that I am not willing to infer or accept that all debt including future debt if advanced by Richland and Osmond Kwok will be converted to equity including the particular additional debts due to Richland such as rental payments [211]. In addition, the current proposal is that GPEL will enter into a new relationship with an infrastructure funder in respect of a $22M commitment in terms of a facilities management lease involving substantial future commitments to a third party. In the absence of a statement of assets and liabilities on the part of Osmond Kwok and audited accounts on behalf of the Richland Property Trust, I am not satisfied that there is a demonstrated capacity to provide the proposed advances to GPEL through access to these facilities and accordingly, I am not satisfied that at the date of the hearing looking forward but also having regard to the history of GPEL's financial condition, it can pay its debts as and when they fall due.
247 The circumstances surrounding the claim made by TechComm are also important. On 26 August 2005, TechComm served a statutory demand upon both GPEL and GPES No. 1 demanding payment from both entities of an amount of $960,857.57. On 15 September 2005, GPEL made an application to the Supreme Court of New South Wales under s 459G of the Act to set aside the statutory demand. On 29 May 2006, Associate Justice MacGready determined that application and ordered that the statutory demand be varied pursuant to s 459H(4) by reducing the amount of the demand to $881,817.34. His Honour also declared the demand to have had effect as varied, as from the date of service upon GPEL, namely, 26 August 2005. No order was made for an extension of time to comply with the varied statutory demand. On 29 May 2006, TechComm's lawyers wrote to GPEL's lawyers demanding payment of the varied amount by 10.00am on Wednesday, 7 June 2006. The date for compliance with the demand expired on 6 June 2006. By that date, TechComm had not received payment of the varied amount or any part of it (that is, the undisputed part).
248 On 13 June 2006, TechComm entered into a Deed of Assignment with Richland and GPEL by which TechComm assigned its right, title and interest in an Agreement which had given rise to the claim for the debt, and the debt itself, to Richland for the sum of $660,000.00 (including GST) in full and final settlement of all claims TechComm might have against either GPEL or GPES No. 1. On 19 June 2006, GPEL gave notice to the Australian Stock Exchange of the resolution of the matter; notice that Richland would release GPES No. 1 from any liability in respect of the assigned debt; Richland would fund the payment of the purchase price or assignment sum through an $1.2M loan facility granted to GPEL on 10 April 2006; and Richland would convert the amount equal to that purchase price into shares in GPEL at one cent per share, subject to shareholder approval. In an affidavit filed 26 June 2006, Germaine Mei Lin Kee deposes to a conversation with the Managing Director of TechComm, David Whan, on information and belief, that the compromise had been reached with TechComm and TechComm had accepted the assignment sum from a third party in satisfaction of GPEL's obligation. Alfred Wong in his further affidavit filed 31 July 2006 deposes to the circumstances surrounding discussions with David Whan to resolve the matter. Alfred Wong says that he was unaware that if the time for compliance with a statutory demand was to be extended, an application had to be filed under the Act pursuant to s 459F(2)(a)(i) as a result of which the time for compliance elapsed. In any event, Alfred Wong says that GPEL was investigating, with its lawyers, whether grounds of appeal existed in respect of his Honour's orders and whether an application for leave to appeal ought to be made.
249 Nevertheless, the position remains that a demand was made which resulted in a variation to the demand by application by GPEL and GPES No. 1 to the Supreme Court of New South Wales to reduce the demand to $881,817.34. Whatever the measure or extent of that further dispute GPEL might have had with the reduced amount, no part, even the undisputed part of the debt, was paid by GPEL or Richland consequent upon his Honour's variation until the total compromise amount was paid as part of an assignment of the debt. GPEL commercially held TechComm out of the undisputed part of the debt until TechComm comprised the entire claim.
250 One further matter should be mentioned in relation to the evidence relied upon by GPEL concerning the events generally. An affidavit by Danny Kam Yun Au‑Yeung who became a director of GPEL on 15 April 2003 was filed and relied upon. Danny Au‑Yeung deals with the topics which are addressed by Alfred Wong and adopts the position adopted by Alfred Wong. In cross examination, Danny Au‑Yeung accepted that he had had the benefit of reading Alfred Wong's affidavit material and throughout his affidavit he extensively refers to paragraphs of Alfred Wong's primary affidavit sworn 18 July 2006 and filed on 19 July 2006. Although it is understandable that Mr Au‑Yeung might have had regard to events and circumstances which would assist his independent recollection of events, I accept that Alfred Wong's affidavit and other material has very substantially influenced the formulation of Danny Au‑Yeung's views, his recollection of events and his evidence. Accordingly, I do not rely upon the affidavit as probative of any fact in issue. Mr Bain QC made it clear in his submissions that Danny Au‑Yeung's affidavit was prepared and read in the application simply so as to avoid any adverse Jones v Dunkel inference.
251 ASIC has applied pursuant to s 459P for an order that GPEL be wound up in insolvency pursuant to s 459A of the Act. GPEL seeks to rebut for the purposes of s 459C(3) the presumption arising pursuant to s 459C(2) by reason of GPEL's failure to comply with TechComm's statutory demand. Robert Elliott contends that GPEL is solvent because it can pay its debts as and when they fall due because it has access to unsecured funds from Richland, Kwok and ABCL. I propose to disregard recourse to funds promised by ABCL in determining whether GPEL is able to pay its debts as and when they fall due, for the reasons indicated at [244]. In addition, having regard to the matters mentioned at [223], I am not prepared to conclude that promises now made by Richland and Kwok that all funds payable to each of them will be converted to equity is a basis for a valid assumption made by Robert Elliott in determining whether GPEL is able to pay its debts as and when they fall due, looking forward. Substantial non-current debts will become current debts on 30 September 2006 and 10 October 2006 although it may be that those debts will be rendered non‑current by reason of an extension of the term of the facility on the assumption that the shareholders' resolution to convert the debt to equity is either not passed or not sought. It seems to me in those circumstances that GPEL is necessarily insolvent having regard to all the circumstances confronting GPEL reflected in these reasons including those matters identified at [223] and a demonstrated failure to establish a plant generating sustainable operational positive cash flows.
252 It is, of course, commercially realistic to have regard to access to funds from third parties or related parties and there is 'no compelling reason to exclude from consideration [such] funds' (Lewis v Doran 54 ACSR 410 at [109] per Giles JA with whom Hodgson and McColl JJA agreed). That observation, however, is conditioned by the qualification that 'provided of course that the borrowing is on deferred payment terms or otherwise such that the lender itself is not a creditor whose debt can not be repaid as and when it becomes due and payable' (Lewis v Doran at [109]) and further at [109]: 'It comes down to a question of fact, in which the key concept is ability to pay the company's debts as and when they become due and payable'.
253 Although in Sandell v Porter (1966) 115 CLR 666 at 670, Barwick CJ recognised that funds that could be gained from the use of the company's assets either by realisation by sale or by mortgage or pledge of those assets within a reasonably short period of time relative to the debts in question, represent resources available to the company which might be deployed in paying debts as and when they fell due (and thus a factual matter aiding in the determination of solvency), the circumstances confronting GPEL do not involve the realisation of assets within a short period of time as, apart from the uninstalled Altona plant, there are no realisable assets and no asset which might be the subject of a charge which might convert, subject to redemption, the asset into cash.
254 Putting to one side the conversion to equity contention, the debt facilities provided by (and proposed further facilities by Kwok and Richland) are substantial and relatively short term. If those debts are rendered non‑current at 30 September 2006 and 10 October 2006 by extension for another term they will, within a period of 12 months at the latest, fall due for repayment or further extension or conversion, in the ordinary course. The circumstances of GPEL do not fall into that class of case where a banker to the group might provide funds to meet a shortfall until, for example, completion of the sale of a major asset such as a 'shopping centre' (Re Adnot Pty Ltd (1982) 7 ACLR 212). The continued extension or suspension of the currency of accumulating debt which might in the immediacy of the date for payment be postponed to a later date does not suggest solvency if there are no actual operating revenues on the horizon or assets that might actually be realised to meet the automatic deferral. Such arrangements simply have the effect of postponing 'the evil day' for payment in an environment where there are no demonstrated revenues and no realisable assets.
255 On the question of the discharge of the evidential burden, the Court must be presented, unless otherwise explained, with the 'fullest and best' evidence of the financial position of the lenders: Commonwealth Bank of Australia v Begonia (1993) 11 ACSR 609. Clearly, 'unaudited accounts and unverified claims of ownership or valuation are not ordinarily probative of solvency. Nor are bald assertions of solvency arising from a general review of the accounts, even if made by qualified accountants who have detailed knowledge of how those accounts were prepared' (Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728 per Weinberg J relied upon by Santow JA in Expile v Jabbs Excavations (with whom Meagher and Handley JJA agreed) 45 ACSR 711 at 719.
256 If the solvency of GPEL ultimately relies upon access to financial facilities from Kwok and Richland (and ABCL), as Robert Elliott contends consistent with the views of Edwin Yeung, it is essential in the context of all of the circumstances GPEL has confronted and continues to confront described at [223] and in these reasons generally that persuasive and compelling evidence be adduced of the capacity of the lenders to provide continuing support. I am satisfied there is a serious question that the lenders do not have that capacity. In addition, the capacity of GPEL to retire that debt and future debt not only drawn down from those lenders but obligations established to meet new liabilities such as those arising under a facilities management infrastructure lease of the kind described by Eduard Alcordo, is not demonstrated.
257 In all the circumstances, I am not satisfied that GPEL has discharged the onus of proving that it is not insolvent. I propose to make an order pursuant to s 459A of the Act that GPEL be wound up in insolvency.
258 Five objections have been made to sentences contained in paragraphs 18, 24, 28, 31 and 39 of the affidavit of Heymala Eardley filed on 5 July 2006. The objection in each case is put on the basis that the relevant sentence is in the nature of a comment or a submission. I propose to admit each of those sentences under challenge and treat those matters as simply contextual comment.
259 Paragraph 16 of the affidavit of Pierre Rene Prentice filed 5 July 2006 is objected to in total on the ground that it represents inference or comment in the nature of a submission. I propose to admit paragraph 16 of the affidavit as relevant to a fact in issue namely, the character of the representation made to JFCP. The last sentence of paragraph 12 of the affidavit of Paul Willis filed 13 July 2006 is the subject of an objection on the ground that it is simply a matter of inference. The sentence deals with the reaction of Paul Willis to GPEL's press release to the Australian Stock Exchange on 26 November 2004. I propose to admit the statement as it goes to the question of the understanding Paul Willis gained in relation to the use GPEL would make of the JFCP funds.
I certify that the preceding two hundred and fifty nine (259) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.