Clifton v Kerry J Investment Pty Ltd trading as Clenergy

4 The Liquidators contend that SSA was insolvent at the time it made each of these payments. The Defendants dispute that contention in respect of all payments. 5 On 25 May 2016, a Judge ordered, in each of the three actions and pursuant to r 30.01 of the Federal Court Rules 2011 (Cth) (the FCR), that the question "did Solar Shop Australia Pty Ltd become insolvent within the meaning of s 95A of the Corporations Act and, if so, when?" be heard and determined as a separate question. The Judge further ordered that the hearing of the separate question in each action take place concurrently. This judgment concerns that question. 6 Although the Liquidators indicated in opening that they sought a finding that SSA had been insolvent from 20 October 2010, in their final submissions they sought instead a finding that SSA was insolvent by not later than 31 January 2011; in the alternative, by not later than 30 April 2011; and, in the further alternative, by not later than 22 May 2011. SMA contended that SSA had not become insolvent until 29 July 2011 and possibly not until 4 August 2011. Kerry J submitted that it had not become insolvent until 9-16 August 2011. By reason of the terms of the separate question, the Court is not confined to any of these dates. In particular, I do not accept the Defendants' submission that the Liquidators were confined only to 31 January, 30 April and 22 May 2011. 7 The evidence in the trial was wholly documentary. It comprised a tender book of eight volumes, one volume of creditor invoices and one volume of bank statements. The Liquidators had obtained a report from a forensic accountant (Mr Morris). Kerry J and SMA had also obtained reports from forensic accounts (Mr Williams and Mr Lombe respectively). There were numerous objections to the reports of the accountants, not least because they had in several instances purported to conclude the factual and legal issues involved. As the primary documents to which the experts had referred would be in evidence, the parties agreed that, instead of pursuing the objections with a view to determining the parts of their reports which may be admissible, the reports of the experts could have the status of an aide to the submissions of the party retaining them. This course is contemplated by r 5.04(3) Item 19 of the FCR and is consistent with the approach adopted by Gordon J in Noza Holdings Pty Ltd v Commissioner of Taxation [2010] FCA 990. 8 The Defendants had a substantial common interest. Each of SMA and Kerry J provided written submissions. At the hearing, counsel for Wuxi and Kerry J adopted the oral submissions of counsel for SMA. In these circumstances I will refer to the Defendants collectively, except when it is appropriate to distinguish between them. 9 These reasons begin with a description of the factual setting to the separate question and a statement of the principles relating to insolvency. The reasons then address two matters central to the Liquidators' case: (a) whether the Solarise Loan became due and payable at 22 May 2011; and (b) SSA's liability to the ATO. 10 Next, the reasons address SSA's solvency as at: (a) 31 January 2011; (b) 30 April 2011; (c) 22 May 2011 and 31 May 2011; and (d) 31 July 2011.

Factual setting 11 SSA's business commenced in 1999 when it was conducted by a partnership. SSA was incorporated on 20 April 2000. It supplied domestic solar energy systems and, until 2009, solar water heating systems. SSA experienced considerable growth until 2010. 12 In December 2009, SSA commenced an ambitious plan for growth which when fully implemented would have doubled its installations from 5,000 to 12,000 per annum and doubled its employees. 13 SSA had three wholly owned subsidiaries: Solar Hut Pty Ltd which, under the name "Sun Saver", engaged in online sales; Solar Financial Solutions Pty Ltd which, under the name "Sunworks", offered finance to purchasers of domestic solar systems; and SA Commercial Solar Pty Ltd which, under the name "CommSolar", promoted large-scale solar systems for commercial applications. In addition, SSA held a 50% interest in Sunray Tracker Pty Ltd which marketed and installed tracking devices for solar installations, and a 40% interest in Metropolis Metering Assets Pty Ltd, a company accredited to provide power meters and which installed and maintained smart meters.

Shareholding 14 SSA's shareholding changed on numerous occasions between 2000 and 2010 but it is sufficient to note only those which bear upon the determination of the preliminary question. 15 From April 2003 until about 12 February 2007, Adrian and Tanya Ferraretto were SSA's sole shareholders. They held shares in their own capacity and as trustees for the A and T Ferraretto Family Trust. 16 On or about 12 February 2007, Solarise Pty Ltd (Solarise), a company associated with a Mr Russell Mourney, acquired a substantial holding in SSA. In addition, members of SSA's management also acquired shares at or about this time. 17 On 6 May 2009, a private equity fund managed by Harbert Management Corporation (Harbert), being HMC Australian Private Equity Fund 1 GP, LP (HAPE 1), acquired shares in SSA for a consideration of $7 million. It did so by acquiring shares from the Ferrarettos, from Solarise Pty Ltd (in its capacity as trustee for the Mourney Family Trust), and from a Mr Stone and a Ms Morris (in their capacity as trustees of the Morristone Family Trust). 18 The shares which Solarise sold to HAPE1 comprised approximately 50% of its 24.1% shareholding in SSA. Solarise sold the balance of its shareholding (14,069 shares) back to SSA at a price of $5.2 million. 19 In October 2010, SSA bought back shares associated with the Ferrarettos (for $10 million). At the same time, the Ferrarettos sold shares to HAPE 1, to its CEO, Anthony Thornton, and to Solar Shop Australia Management Team Pty Ltd (SSAMT). 20 From and after 19 October 2010, SSA's shareholders comprised: (a) HAPE 1, which held 36,152 shares (50.2%); (b) Adrian and Tanya Ferraretto who held 20,849 shares (28.9%); (c) Anthony Thornton who held 11,112 shares (15.4%); (d) James Leggett who held 2,292 shares (3.2%); and (e) SSAMT which held 1.637 shares (2.3%).

Directorships 21 The directors of SSA at the times which are material presently were as follows: (a) Adrian Ferraretto who was appointed on 29 June 2001 and resigned on 21 July 2010; (b) Russell Mourney who was appointed on 12 February 2007 and resigned on 22 May 2009; (c) Anthony Thornton who was appointed on 4 February 2009; (d) Jeremy Steele who was appointed on 22 May 2009 as a representative of Harbert; and (e) Brendan Anderson who was appointed on 12 October 2010 as a representative of Harbert.

The Westpac Business Finance Agreement 22 Wespac was the banker to SSA. It had entered into Business Finance Agreements with SSA in May 2009 (the May 2009 BFA) and again in October 2009 (the October 2009 BFA). The latter provided, amongst other things, for an overdraft of $3 million which was to reduce to $2 million in December 2009 and to $1 million by March 2010. The overdraft limits were varied from time to time as SSA periodically requested "temporary" increases in the facility limit.

The Westpac 2010 Facility Agreement 23 On 20 October 2010, SSA entered into a further Facility Agreement with Westpac (the 2010 Facility Agreement) which superseded the October 2009 BFA. By the 2009 Facility Agreement, Westpac agreed to make available to SSA six different facilities referred to in the document as "tranches". The two tranches which are presently pertinent are Tranche A and Tranche F. Tranche A comprised an overdraft which had a limit of $3.5 million until 30 October 2010, a limit of $2.5 million in the period from 31 October to 29 November 2010 and a limit of $1.0 million from 30 November 2010. Tranche F was a bill acceptance discount facility subject to a limit of $10 million advanced predominantly for the purposes of the share buy-back from the Ferrarettos. Clause 8.2 of the 2010 Finance Agreement required SSA to make quarterly repayments (each of $500,000) of principal, with the first repayment to be made on 31 December 2010 and the last on 30 June 2012 (ie, a total of $3.5 million). The balance of Tranche F (and indeed the balance owing under any other Tranches) was to be paid on or before the termination date (ie, 19 October 2012).

The provision of vendor finance from Solarise 24 By a Loan Agreement dated 6 May 2009 between Solarise, Mr Mourney, SSA and HAPE 1, Solarise provided unsecured vendor finance (the Solarise Loan) in respect of the shares it had sold to SSA (the Solarise Loan Agreement). 25 Subject to some qualifications which are not presently relevant, cl 4.1 of the Solarise Loan Agreement required SSA to repay the principal sum ($5,178,682.13) to Solarise on "the Repayment Date" which was, relevantly, 22 May 2011. 26 The liability of SSA to Solarise and the question of whether that liability became due and payable on 22 May 2011 assumed considerable significance in the trial. I will return shortly to that question.

Renewable energy certificates 27 The customers purchasing solar systems from SSA were entitled, on the installation of the system, to renewable energy certificates (RECs). These were a form of incentive under a scheme established by the Renewable Energy (Electricity) Act 2000 (Cth) (the REE Act) and the Renewable Energy (Electricity) Regulations 2001 (Cth). From about January 2011, the RECs became known as "small-scale technology certificates". However, SSA continued to refer to them as RECs and it is convenient in these reasons to do likewise. 28 The quantity of RECs to which a consumer was entitled was proportional to the power-generation capacity of the solar system installed (the higher the capacity, the greater the entitlement). Once generated, RECs could be sold to a clearing house established under the REE Act (for which a fixed price was set pursuant to s 30LA of the REE Act) or sold privately to a purchaser located by a vendor at a negotiated price. 29 Like many retailers/installers of solar systems, SSA agreed with its customers at point of sale to purchase their RECs, in exchange for a reduction in the purchase price. Its practice was to sell the RECs later. Of course, it hoped to do so at a profit but it ran the risk that the clearing house or market price would decline in the period between the entry into the consumer contract and the time (usually several months later after installation had been completed) when the consumer became entitled to the RECs and could assign them to SSA. 30 The effect was that SSA had two income streams: the amounts paid by consumers for their solar systems and the amounts derived from the sale of RECs. The time at which SSA received this income was dependent on the time of installation as, apart from a deposit, consumers did not pay for their systems until installation had been completed. Likewise, the entitlement to RECs did not arise until installation had been completed. 31 The funds derived from the sale of RECs were an important source of income for SSA. 32 The risk of loss from a reduction in the price of RECs became a reality for SSA in late 2010 and in 2011. The market price for RECs reduced from approximately $40 in July 2010 to $35 in September 2010 and still further, to $30 in December 2010. In January to March 2011, the price of RECs recovered to approximately $40 but reduced to $25 in April 2011 and to $20 in June 2011.

SSA's financial statements 33 At the time SSA went into liquidation, its financial statements for the 2011 financial year had not been prepared. SSA's performance in the three preceding financial years can be summarised as follows: FY 08 $'000 FY09 $'000 FY10 $'000 Revenue 23,666 67,284 124,621 Sales 566 ----------- 24,232 4,165 ------------ 71,449 15,701 ------------ 140,322 Realised gain on sale of Renewable Energy Certificates COGS (15,528) (46,080) (93,363) Gross Profit 8,704 25,369 46,958 Total other income 303 (537) (854) Total expenses (4,735) -------------- (15,306) ------------- (30,599) ------------ Profit before income tax 4,272 9,526 15,506 Income tax expense (1,284) (2,854) (4,865) Profit for the year 2,988 6,672 10,641

34 These figures demonstrate the significant growth of SSA in the 2009 and 2010 years. This is reflected in both the sales and COGS figures. The table also indicates the importance to SSA of the "realised gain on sale of RECs". Had it not been for those gains, SSA would have had a much lower profit in the 2009 year and would have made a loss in the 2010 financial year.

Changes in the EBIDTA and NPAT forecasts 35 An indication of SSA's deteriorating financial performance during the 2011 financial year is seen in the repeated downward revisions of the forecast EBIDTA and NPAT in the management accounts presented to the SSA Board. At the commencement of the 2011 financial year, SSA forecast for the financial year an EBIDTA of $35.666 million and an NPAT of $23.215 million. The following table shows the substantial reduction in those forecast amounts as the financial year progressed. For the months of February through to June 2011, the table also shows the actual year to date figures (to the end of the preceding month) contained in the management accounts. EBIDTA NPAT $'000 $'000 September 2010 - Forecast 29,768 19,245 October 2010 - Forecast 19,247 11,505 November 2010 - Forecast 19,255 11,226 February 2011 11,007 5,583

• Forecast 152 (1,946)
• Actual YTD to 31 January March 2011 10,069 4,922
• Forecast 1,180 (1,184)
• Actual YTD to 28 February April 2011 7,185 2,808
• Forecast 1,545 (1,139)
• Actual YTD to 31 March May 2011 4,279 578
• Forecast 1,126 (1,980)
• Actual YTD to 30 April June 2011 4,090 948
• Forecast 3,225 534
• Actual YTD to 31 May

36 As can be seen, the table indicates that in June 2011, SSA's management was forecasting EBIDTA for the year of $4.09 million compared with the forecast at the commencement of the financial year of $35.66 million. Further, SSA's NPAT for the financial year to 30 May 2011 was only $534,000 compared with the original forecast of $23.215 million. 37 The results for the 2011 financial year included with a preliminary draft budget for the financial year ending on 30 June 2012 presented to SSA's Board at its meeting on 19 July 2011 indicated EBITDA of $4.974 million and NPAT of ($6.667) million. The corresponding figures for the month of June 2011 were $1.75 million and a negative $7.202 million. It is apparent that SSA was not generating the cash flows necessary to meet its ordinary trading obligations in addition to its liabilities to Westpac and the ATO. 38 There was also a corresponding decline in SSA's net equity position over the course of the 2011 financial year. At the beginning of that financial year, SSA forecast that it would have a net equity position of $23.636 million at year end. However, the financial statements presented to the SSA Board on 19 July 2011 indicated that SSA had, at 30 June 2011, negative net equity of $4.387 million. By far the biggest item in the balance sheet was the asset of $24.473 million in inventories. It is reasonable to infer (and I do) that this was a relatively illiquid form of asset. It is also pertinent that management was then forecasting a negative net equity figure of $377,000 at 30 June 2012. 39 SSA's difficult financial position was reflected in the request to Westpac which it made on 16 June 2011 for, amongst other things, an increase in the overdraft limit from $1 million to $3 million, an increase in the forex facility to $10 million, and postponement of four of the quarterly amortization payments (each of $500,000) due to Westpac under the 2010 Facility Agreement. At the same time, SSA was proposing a redeemable note issue to raise $5 million. Westpac declined the request for postponement of the amortisation payments and, subject to one qualification, deferred consideration of other aspects of the request until it received the Second Independent Business Review to which I will refer shortly (not received until 19 July 2011). Ultimately, Westpac did not accede to the request to increase the overdraft or to the postponement of the amortisation payments.

The first independent business review 40 On 12 January 2011, Westpac appointed Mr John Hart of Ferrier Hodgson to undertake a wide ranging independent review of the financial performance and status of SSA. The stated purpose of the review was to assist Westpac to assess and consider: the Company's immediate and medium term cash flow requirements; the Company's ability to continue to trade and to meet its obligations; the current strategies available to the Company to assist with a turnaround in its profitability and cash flow; the alternatives available to Westpac in the event that it needs to realise its security; Westpac's recourse to other Group entities and offshore operations. 41 Westpac was prompted to make the appointment because SSA had informed it on 9 December 2010 (less than two months after entering into the 2010 Facility Agreement) that its operating profit had declined significantly and that it was likely to be in breach, as at 31 December 2010, of covenants in the 2010 Facility Agreement when it reported in February 2011. Subsequently, by letter dated 15 February 2011, SSA confirmed the position which it had foreshadowed on 9 December 2010. It told Westpac that it was "not in compliance" with three of the four financial covenants set out in cl 12.12 of the 2010 Facility Agreement being, as I understand it, the Leverage Ratio, the Debt Service Cover Ratio and the Shareholder Funds to Asset Ratio. 42 Westpac then wrote to SSA on 17 February 2011, saying (relevantly): The Borrower is in breach of the Facility Agreement by reason of the fact that the Obligors are not in compliance with the financial covenants contained in clause 12.12 (Financial Covenants) of the Facility Agreement. As a consequence of a breach of clause 12.12 of the Facility Agreement, an Event of Default under clause 14.1(b) has occurred. The Financier acknowledges the occurrence of this Event of Default and reserves all of its rights arising out of it including, without limitation, its rights under clause 14.2(a). 43 Mr Hart reported to Westpac on 28 February 2011 (the First Business Review). Key aspects of the First Business Review were: (a) between 1 July 2011 and 31 December 2011, SSA's growth had slowed and it had incurred an operating loss after tax of $1 million; (b) SSA recognised revenue on completion of installations rather than on receipt of a confirmed order with deposit paid; (c) as at 31 December 2010, SSA had a backlog of over 3,600 installations representing future revenue of over $70 million; (d) in the six months to 31 December 2010, installations had averaged 676 per month against orders received of 879 per month. Had installations kept pace with the rate of sales, revenue may have been approximately $20 million higher and a net profit after tax of approximately $3 million achieved compared with the loss of $1 million. SSA had retained AT Kearney to provide recommendations for improving its monthly installation rate; (e) evidence of mismanagement and possibly fraud had begun to emerge in Sunsavers; (f) an internal review completed by SSA in February 2011 indicated that the estimated EBITDA have been overstated by approximately $3.2 million; (g) the decline in NPBT was mainly due to the following factors: the decline in revenue and gross margin percentage for Sunsavers; reduced gross margin percentage for Solar Shop offsetting revenue growth; increased costs in anticipation of growth not covered by growth in gross margins; (h) as at 31 December 2010, SSA had cash on hand of approximately $5.5 million which had been achieved, in part, by the liquidation of RECs and the deferment of approximately $3.2 million in creditor payments through arrangements with major suppliers and the Australian Taxation Officer (ATO). 44 The First Business Review contained a number of recommendations, including that Westpac: (a) give "strong consideration" to continuing to support SSA, at least in the short term, including by providing additional guarantee and forex requirements sought by SSA, subject, however, to it achieving satisfactory performance criteria (and, in particular, installations); (b) give consideration to continuing to reserve its rights in respect of the existing breaches of covenants; (c) monitor the performance of SSA on a monthly basis, including monitoring its achievement of the required rate of installations; (d) preclude SSA from making any repayment of the Solarise Loan without its approval; (e) assess, as at 30 April 2011 and 30 June 2011, the extent to which it should permit a part payment of the Solarise Loan; (f) make any repayment of the Solarise Loan subject to a reduction of Westpac's own debt to at least $3 million in order to improve Westpac's security position. 45 I accept the submission of the Liquidators that the First Business Review is not to be understood as an endorsement of SSA's solvency. Mr Hart was not asked to address that question and he did not express any view on it. The closest the Westpac brief came to that topic was the request that Mr Hart "assess [SSA's] ability to continue to trade and to meet its obligations". Mr Hart answered that question in a very conditional way by saying "[i]f SSA achieves its forecasts for CY11 it will generate sufficient cash to meet all obligations, including scheduled repayments to Westpac and the [Solarise Loan]". Furthermore, it is plain that Mr Hart was undertaking the review in Westpac's interest rather than addressing SSA's solvency more generally. Accordingly, I do not accept the Defendants' submission that the First Independent Business Review contains an opinion as to SSA's solvency.

The second independent business review 46 By letter dated 28 April 2011, SSA informed Westpac that it was "not in compliance" with the same three financial covenants set out in cl 12.12 of the Facility Agreement. 47 By letter dated 27 May 2011, Westpac confirmed the breaches of the covenants relating to the Leverage Ratio, the Debt Service Cover Ratio and the Shareholder Funds to Asset Ratio and that an event of default had thereby occurred. The Westpac letter continued: The Bank reserves its rights to take action in respect of the above financial undertaking breaches. Given SSA has been unable to remedy these breaches, based on assessment of [the] Compliance Certificate provided to the Bank for the Relevant Period ending 31 March 2011 and the Bank's analysis of Year to Date management accounts, the Bank hereby puts SSA on notice under the terms and conditions of the [facility agreement], that it is able to exercise its rights (including, but not limited to, enforcing its rights under its securities) at any point in time. The Bank does not waive these Events of Default. In consequence of these Events of Default all Facilities provided to SSA are on demand. … We reserve our right to take action/further action in reliance upon these Events of Default including, but not limited to, the right to require all Facilities be immediately repaid or appointment of an Investigating Account at your cost. 48 The statement that all of Westpac's facilities were "on demand" is to be noted. 49 On 19 July 2011, Mr Shady of Ferrier Hodgson provided, at Westpac's request, a second independent business review of SSA Group's performance in the period 1 January to 30 June 2011 (the Second Business Review). The key elements of Second Business Review included: (a) revenues were down $13.0 million or 15.6.% below the revised budget; (b) gross margin was 5.7% lower than the revised budget; (c) EBITDA was $7.0 million lower than the revised budget; (d) continual below budget performances as installation targets were not met for a variety of reasons some of which may recur; (e) recommendations provided by AT Kearney had not been implemented; (f) further inventory management issues had emerged highlighted by stock shrinkage of approximately $800,000 in the five months to 31 May 2011; (g) RECs were now being sold at a price less than the Group had paid for them. 50 Under the heading "Key issues and recommendations", the Second Business Review recommended: Subject to: • Harbert and/or other shareholders injecting $5.0 m into the business (immediately) • Substantial deferral [of] the current vendor loan repayment proposal agreement • Independent verification of current inventories held at all key locations • Imposition of • stringent covenants around reporting monthly results, which may include cumulative YTD sales and gross profit margin targets • appropriate covenants to ensure that any profits the Group obtains from its recent CBA agreement • To assist the customer, the Bank may consider granting the requested 12 month deferral of debt amortisation. The Bank should not in our view, increase the overdraft facility from $1.0 m to $3.0 m, the deferral of vendor loan payments will alleviate the requirement for this funding. 51 The Second Business Review contained some further recommendations which it is not necessary to record presently. It concluded, however, with the following caution: Please note that the above recommendations are not without risk, in particular the Bank should be aware: • Management controls are weak. • It is possible that the Group will continue to underperform and budget EBITDA targets will not be met. This could lead to the Group requiring additional working capital funding at which time the Bank may decide that it has no choice but to enforce its security. Depending on the timing and status of the business at the time of enforcement, it is possible that the Bank could be in a worse position than present conditions due to stock rundown strategies and further adverse movements in the value of STCs. • The Group's show term cash flow strategy is heavily reliant on a rundown of inventories (c. $5.3 in H1 FY 12) and sales and margin targets being met. These are key risks to the budget. • The Group will require continued monitoring as there is still a possibility of sustained underperformance in the short to medium term. (Emphasis in original) 52 Again, contrary to the Defendants' submissions, I do not consider that the Second Business Review can reasonably be understood as an endorsement of SSA's solvency. Mr Shady made no statement to that effect and, on the contrary, considered that SSA needed a substantial cash injection by Harbert and additional support from Westpac. He did not address the position if neither was forthcoming. Mr Shady also appears to have understood that Harbert was willing, without qualification, to inject another $5 million into SSA when, as will be seen, that was not the case. 53 As already noted, Westpac did not agree to increase the overdraft limit to $2 million, nor did it agree to waive payment of the amortisation payments of $500,000 per quarter in respect of the $10 million facility. The consequences of this for the investment by Harbert of further funds in SSA are discussed later.

Insolvency - relevant principles 54 Section 95A of the Corporations Act has the effect that a company is solvent if, and only if, it is able to pay all its debts as and when they become due and payable. Otherwise it is insolvent. Thus, s 95A enshrines the cash flow test of insolvency which, in contrast to a balance sheet test, focuses on liquidity and the viability of the business: Crema (Vic) Pty Ltd v Land Mark Property Developments (Vic) Pty Ltd [2006] VSC 338; (2006) 58 ACSR 631 at [141]. 55 In Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239; (2008) 39 WAR 1 at [1066], Owen J described the "cash flow" or "commercial insolvency" test as follows: The 'cash flow' or 'commercial insolvency' test is an assessment of solvency based on a company's ability to meet its debts (current liabilities), as and when they fall due. This test assesses the financial health of a company by reference to its capacity to finance its current operations. In other words, it looks at whether the company's business is viable and can continue to operate by meeting the present demands upon it. … [T]he essential features of the cash flow test include an assessment of the company's existing debts and debts that will arise in the near future, the date each debt is due for payment, the company's present and expected cash resources and the date each inflow item will be received … 56 The application of s 95A requires close consideration of when the company's debts became due and payable. That is to be determined by considering when the debts became legally due: Hussain v CSR Building Products Ltd [2016] FCA 392; (2016) 246 FCR 62 at [63] (Edelman J). 57 Some commercial creditors do not insist on strict compliance with their credit terms and instead allow debtors some leeway. The way in which account is to be taken of the circumstance that introduces some complexity into the resolution of the issues. Palmer J in Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation [2001] NSWSC 621; (2001) 53 NSWLR 213 summarised the applicable principles at [54]: i) whether or not a company is insolvent for the purposes of s 95A is a question of fact to be ascertained from a consideration of the company's financial position taken as a whole; ii) in considering the company's financial position as a whole, the Court must have regard to commercial realities. Those realities will be relevant in considering what resources are available to the company to meet its liabilities as they fall due, whether resources other than cash are realisable by sale or borrowing upon security, and when such realisations are achievable; iii) in assessing whether a company's position as a whole reveals surmountable temporary illiquidity or insurmountable endemic illiquidity resulting in insolvency, it is proper to have regard to the commercial reality that, in normal circumstances, creditors will not always insist on payment strictly in accordance with their terms of trade but that does not result in the company thereby having a cash or credit resource which can be taken into account in determining solvency; iv) the commercial reality that creditors will normally allow some latitude in time for payment of their debts does not, in itself, warrant a conclusion that the debts are not payable at the times contractually stipulated and have become debts payable only upon demand; v) in assessing solvency, the Court acts upon the basis that a contract debt is payable at the time stipulated for payment in the contract unless there is evidence, proving to the Court's satisfaction, that: • there has been an express or implied agreement between the company and the creditor for an extension of the time stipulated for payment; or • there is a course of conduct between the company and the creditor sufficient to give rise to an estoppel preventing the creditor from relying upon the stipulated time for payment; or • there has been a well-established and recognised course of conduct in the industry in which the company operates, or as between the company and its creditors as a body, whereby debts are payable at a time other than that stipulated in the creditors' terms of trade or are payable only on demand; vi) it is for the party asserting that a company's contract debts are not payable at the times contractually stipulated to make good that assertion by satisfactory evidence. (Citations omitted) 58 These principles have received frequent endorsement in the authorities: First Equilibrium Pty Ltd v Bluestone Property Services Pty Ltd (in liq) [2013] FCAFC 108, (2013) 95 ACSR 654 at [34]; Perrine v Carrelo [2017] WASCA 151 at [57]; Treloar Constructions Pty Ltd v McMillan [2017] NSWCA 72, (2017) 120 ACSR 130 at [80]-[83]. 59 The fifth of the principles accommodates the possibility that a course of conduct between the parties may reveal an implied waiver of the obligation to pay the debt when it falls dues: Hussain at [65]. Edelman J went on to say: … That waiver can be revoked if it has not been relied upon but otherwise it operates as a doctrine "introduced by the law to prevent a man in certain circumstances from taking up two inconsistent positions ... It looks, however, chiefly to the conduct and position of the person who is said to have waived, in order to see whether he has 'approbated' so as to prevent him from 'reprobating'" … (Citations omitted) 60 A company need not be able to pay its debts as and when they fall due from its own cash reserves. Regard may be had to the resources by which it may obtain funds within a relatively short time, including by borrowing, sale of assets, and capital raising. However, short term loans repayable on demand do not enhance solvency: Australian Securities and Investments Commission v Edwards [2005] NSWSC 831; (2005) 220 ALR 148 (ASIC v Edwards) at [99]. 61 The focus of the Court's determination must be on the company's ability to pay its debts as and when they fall due; not whether the company actually does so. Naturally, however, the latter may inform the former. The task of the Court is to decide whether the company is suffering from an endemic shortage of working capital as opposed to a temporary lack of liquidity: Sandell v Porter (1966) 115 CLR 666 at 670. 62 The Liquidators also referred to the 14 common features in insolvency situations identified by Mandie J in Australian Securities and Investments Commission v Plymin [2003] VSC 123; (2003) 175 FLR 124 at [386], namely, continuing losses; liquidity ratios below one; overdue Commonwealth and State taxes; poor relationship with the present bank, including inability to borrow further funds; no access to alternative finance; inability to raise further equity capital; suppliers placing company on cash on delivery or otherwise demanding special payments before resuming supplies; creditors unpaid outside trading terms; issuing of post-dated cheques; dishonoured cheques; special arrangements with selected creditors; solicitors' demands, summonses and the like; payments to creditors of rounded amounts not reconcilable to specific invoices; and inability to produce timely and accurate financial information to indicate trading performance and financial position, and to make reliable forecasts. 63 Mansfield J referred with approval to this list in Re Damilock Pty Ltd (in liq); Lewis & Carter as liquidators of Damilock Pty Ltd (in liq) v VI SA Australia Pty Ltd [2008] FCA 1801; (2008) 252 ALR 533 at [16] while at the same time noting that, in any particular case, one or more of those factors, or indeed other factors, may have particular significance and one or more of them may not exist. The absence of one or more of the factors does not, of itself, establish insolvency. See also Trinick (as liquidator of Forgione Family Group Pty Ltd (in liq) v Forgione [2015] FCA 642, (2015) 239 FCR 285 at [271]; Smith v Boné [2015] FCA 319; (2015) 104 ACSR 528 at [31]-[32]; and Rexel Electrical Supplies Pty Ltd v Morton (as liquidator of South East Queensland Machinery Manufacturing and Distribution (Mining No 1) (in liq) [2015] QCA 235, (2015) 110 ACSR 341 at [30]-[31]. 64 The Liquidators have the onus of establishing SSA's insolvency at the dates they allege: M & R Jones Shopfitting Co Pty Ltd (in liq) v The National Bank of Australasia Ltd (1983) 7 ACLR 445 at 449. But, as the last of the principles stated by Palmer J indicates, it is for the party who asserts that the company's contract debts are not payable at the times contractually stipulated to make good that proposition.

The Solarise Loan 65 A central contention in the Liquidators' case was that the Solarise Loan of $5,178,682.13 became due and payable on 22 May 2011. It was common ground that SSA had not repaid the Solarise Loan at that time, or thereafter. There is no evidence that Solarise agreed to any extension of time in which SSA could do so. The Liquidators also contended that SSA did not have the resources, nor any plan, at any time during 2011 to pay the Solarise Loan when it did become due and payable. 66 These contentions gave rise to a number of issues concerning the time at which the Solarise Loan became due and payable by SSA and, in turn, to the effect of agreements subordinating the Solarise Debt to SSA's liability to Westpac. As these issues affected each of the Liquidators' alternative claims as to the time of insolvency, it is convenient to address them now. It is necessary first to record some features of the Solarise Loan Agreement and of the subordination agreements. 67 As noted earlier, cl 4.1 of the Solarise Loan Agreement required SSA to repay the sum of $5,178,682.13 to Solarise on 22 May 2011. Clause 5 provided for interest to accrue on the principal sum. 68 Clause 6.1 of the Solarise Loan Agreement provided that the "Solarise Debt" was subordinated and postponed to, and ranked in priority after, "the Bank Debt". It also provided that SSA's liabilities in respect of the Solarise Debt were conditional on the "Subordination Period" ending. The "Solarise Debt" was defined in cl 1.1 to mean all money and amounts for which SSA was, or may become, liable at any time to Solarise. The "Bank Debt" was defined in cl 1.1 to mean all money which SSA was, or may become, liable at any time to Westpac pursuant to the "Bank Finance Documents", being the documents entered into between SSA and Westpac in relation to various facilities it made available to SSA from time to time. The term "Subordination Period" was defined in cl 1.1 to mean "the period from the date of this document until the second anniversary of the Buy-Back Date", namely, 22 May 2011. 69 On their face, the effect of these clauses in the Solarise Loan Agreement was to make the Solarise Loan subordinate to the Bank Debt during the two year period expiring on 22 May 2011. 70 However, cl 6 did contemplate that some payments, described as "Permitted Payments", could be made to Solarise during the Subordination Period: [6.2] Despite any agreement to the contrary, during the Subordination Period none of the Solarise Debt is payable or repayable except for the purpose of a Permitted Payment. … [6.4] If at any time all of the following conditions are satisfied: (a) no Bank Debt is due and unpaid; (b) no Subordination Debt subsists; (c) neither the Company nor Solarise is in breach of the provisions of this agreement; and (d) no Insolvency Event has occurred in respect of the Company or Solarise, the Company will pay, repay, satisfy or discharge, and Solarise may receive and retain payment of, the following amounts due at that time in respect of the Solarise Debt: (a) accrued interest in accordance with the terms of this agreement; and (b) payments of the Principal Sum in accordance with the terms of this Agreement; and (c) amounts notified by the Bank to the Company in writing as being permitted under this clause. 71 On 20 May 2009, Westpac, Solarise and SSA entered into a Deed of Subordination (the Subordination Deed) which provided for a different subordination regime. By cl 4.1, the parties agreed that the Solarise Debt was subordinated to the "Westpac Debt". Clause 4.2 provided more particularly that, until the Westpac Debt was paid or satisfied in full, or the Solarise Debt was repaid with the written consent of Westpac, payment by SSA to Solarise of the Solarise Debt, or any part of it, was postponed, despite any other arrangement or agreement to the contrary, except for the "Permitted Payments" and subject to the Subordination Deed itself. The term "Westpac Debt" was defined in cl 1 to mean: [T]he aggregate of all of the amounts owing from time to time on any account by the Borrower to Westpac pursuant to the Business Finance Agreement, or pursuant to the Westpac Securities, whether actual or contingent, present or future including, without limitation, all of the facilities under the Business Finance Agreement. 72 The term "Westpac Securities" was defined in cl 1 to mean "those securities listed as securit[ies] [of] the facilities provided by Westpac to the Borrower under the Business Finance Agreement". Clause 1 defined the term "Business Finance Agreement" to mean the Business Finance Agreement dated 4 May 2009 between Westpac and SSA. That Agreement referred to six different facilities provided by Westpac to SSA and the security for those facilities, namely: (a) Facility A: a $3 million overdraft; (b) Facility B: a $271,981 banker's undertaking for a specific project; (c) Facility C: a credit card with the limit of $100,000; (d) Facility D: an additional $2 million to an existing banker's undertaking for a specific project; (e) Facility E: a restatement of an existing $36,408 banker's undertaking; (f) Facility F: a $300,000 equipment finance loan. 73 By cl 5 of the Subordination Deed, SSA agreed, amongst other things that, without the prior written consent of Westpac and "for so long as any of the Westpac Debt remains outstanding", it would not make any payment in or towards satisfaction or discharge of any of the Solarise Debt, other than the "Permitted Payments". By cl 6, Solarise agreed that "so long as the Westpac Debt remains outstanding", it would not, without Westpac's consent, receive, or take action to enforce, repayment of any part of the Solarise Loan, other than a Permitted Payment. Clause 7 elaborated the restraint on Solarise by precluding it, "so long as any of the Westpac Debt remains outstanding" from assigning or encumbering the Solarise Debt. 74 Clause 8 provided for the Permitted Payments. First, it listed five conditions each of which had to be satisfied before a Permitted Payment could be made. These were similar to, but not identical with, the conditions contained in cl 6.4 of the Solarise Loan Agreement: (a) no Westpac Debt is due and unpaid; and (b) no default under the Business Finance Agreement subsists; and (c) neither Solarise or the Borrower were in breach of the provisions of this Deed; and (d) no Insolvency Event had occurred in respect of Solarise or [SSA]; and (e) no Subordination Default subsists. 75 Secondly, cl 8.1 provided that, on satisfaction of those conditions, SSA could pay, and Solarise could retain, the amounts specified in Sch 1 under the heading "Amortisation Schedule" as follows: SCHEDULE 1 - AMORTISATION SCHEDULE Date of Payment Interest Capital Total 14-July-2009 $ 60,157.84 $ 0.00 $ 60,167.84 114-October-2009 $ 104,424.93 $ 665,575.07 $ 770,000.00 14-January-2010 $ 91,004.02 $ 678,995.98 $ 770,000.00 14-April-2010 $ 75,631.78 $ 694,368.22 $ 770,000.00 14-July-2010 $ 62,622.82 $ 707,377.18 $ 770,000.00 14-October-2010 $ 49,047.15 $ 720,952.85 $ 770,000.00 14-January-2011 $ 34,509.58 $ 735,490.42 $ 770,000.00 14-April-2011 $ 19,251.07 $ 750,748.93 $ 770,000.00 20-May-2011 $ 1,776.71 $ 225,173.50 $ 226,950.21

76 The figures in the "Capital" column total $5,178,682.15, being the amount of the Solarise loan rounded up by $0.02. Thus, payment of the Permitted Payments would see the entire Solarise Loan repaid on 20 May 2011, two days before its due date of 22 May 2011. 77 The Amortisation Schedule included the following note: Note: The interest payments set out in the table above have been calculated on the basis that capital payments will be made on the Dates of Payment. [SSA] may, but is not obliged to, make the capital payments on the Dates of Payment. If [SSA] does not make any capital payments, or makes reduced capital payments, the interest payable on each Date of Payment will increase accordingly. In addition, if the amount of the interest payments are increased from time to time, as a result of the [non] payment of capital, the total amount payable by [SSA] to Solarise will increase over the term of the Loan such that the total amount permitted to be paid on 20 May 2011, when taken together with the total permitted payments on each of the other Dates of Payment, will need to increase to allow [SSA] to make a payment to Solarise of the total amount of capital due and payable under the Loan Agreement together with all interest accrued in accordance with the terms of the Loan Agreement, provided that the total capital payable will not exceed $5,178,682.13. 78 Clause 8.2 provided for the circumstance in which SSA did not make a Permitted Payment specified in the Amortisation Schedule: [8.2] To avoid doubt: … [8.2.2] if [SSA] does not made a capital payment ("Unpaid Capital Payment") on the date which that capital payment is permitted to be made in accordance with the Amortisation Schedule … [SSA] may make the Unpaid Capital Payment at any time following the Unpaid Capital Payment Date, provided: (a) the conditions set out in this clause 8 are satisfied; (b) the Borrower notifies Westpac in writing within 2 business days of the date when the Unpaid Capital Payment is actually made. 79 Any payments in reduction of the debt to Solarise other than the Permitted Payments could be made only with Westpac's prior written consent. This was the effect of cl 8.3 in the Subordination Deed: [8.3] Notwithstanding anything else in this Deed or the Loan Agreement, any payments by the Borrower in connection with the Solarise Debt (whether to Solarise, Harbert or anyone else) which are not Permitted Payments must not be made without Westpac's prior written consent (which will not be unreasonably withheld or delayed). 80 The Liquidators submitted that, as was the case with the Solarise Loan Agreement, the Permitted Payments under the Subordination Deed, if made, would have allowed the Solarise Debt to be repaid in full within two years. By reason of cl 8.2.2 and the second paragraph in the note to the Amortisation Schedule, those payments would have meant payment in full of the Solarise Debt on 20 May 2011. 81 Clause 16 of the Subordination Deed provided that, to the extent of any inconsistency, the terms of the Subordination Deed were to prevail over the Solarise Loan Agreement. 82 It was common ground at the trial that the question of whether the Solarise Loan became due and payable on 22 May 2011 turned principally on whether it remained subordinated after that date to the Westpac Debt. 83 The issues to which that question gave rise in the present proceedings are these: (a) did the Subordination Deed operate to make the Solarise Loan subordinate to the Westpac Debt only to 22 May 2011? (b) alternatively, did Westpac agree in May 2011 to SSA executing an agreement with Solarise which rendered the whole of the Solarise Debt then due and payable on demand? (c) alternatively, did the Subordination Deed, by reason of the principles of abandonment, cease to be "valid and efficacious" as and from the time of the tripartite negotiations involving Westpac, Solarise and SSA in October 2010 in relation to the negotiation of the new facility agreement? (d) alternatively, did an indemnity obligation in an agreement made between SSA and Solarise in May 2011 give rise to a new debt which was immediately due and payable on SSA's failure to pay the Solarise Debt on 22 May 2011? 84 The Liquidators also disputed, initially, that there was a "Westpac Debt" as defined in the superseded Business Finance Agreement as at 22 May 2011 on which the Subordination Deed could operate. However, they abandoned that contention during the hearing.

Was the Solarise Debt subordinated only until 22 May 2011? 85 The Liquidators' submission that the Solarise Loan was subordinated to the Westpac Debt only until 22 May 2011 rested on the provision for Permitted Payments in the Subordination Deed. 86 As noted, cl 8.1 permitted SSA, providing five conditions were satisfied, to make the payments set out in the Amortisation Schedule. The Liquidators noted that the total of the Permitted Payments would see the whole of the Solarise Debt repaid by 20 May 2011. They also noted that the second paragraph of the note indicated that, if one of the Permitted Payments had not been made, the amount which could be paid on 20 May 2011 should increase so that the total of the capital and interest then due to Solarise could be paid. The Liquidators submitted that the note contained an imperative quality, as indicated by the provision that the total amount permitted to be paid on 20 May 2011 "will need to increase". 87 The Liquidators sought to support the submission that the subordination of the Solarise Loan to the Westpac Debt continued only to 22 May 2011 by reference to the provisions in the Solarise Loan Agreement indicating that the subordination operated only during the "Subordination Period". That period was defined to conclude on 22 May 2011. In this regard, the Liquidators submitted that the Solarise Loan Agreement and the Subordination Deed "were part of a complementary suite of documents that should be read together and consistently". 88 It is established that in the objective determination of the rights and liabilities of parties under a contract by reference to its text, context and purpose, it is permissible to have regard to any contract, document or statutory provision referred to in a text of the contract: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 at [46]. This passage was approved by the High Court in Victoria v Tatts Group Ltd [2016] HCA 5; (2016) 328 ALR 564 at [51]. The Liquidators also referred to Chappuis v Filo (1990) 19 NSWLR 490 in which Priestley and Handley JJA said at 508: There can, in our opinion, be no objection to construing each contract in the light of the other. The purchasers retained the same solicitor, and each contract was a separate part of what was commercially, from the vendor's point of view, one entire transaction. Each form part of the background "matrix" of facts for the other … 89 The Liquidators submitted that this principle was applicable because Westpac had acknowledged in cl 15.2 of the Subordination Deed that it had received unsigned copies of the Solarise Loan Agreement and the Share Buy Back Agreement and that it consented to those arrangements. Furthermore, cl 16 of the Subordination Deed provided that, to the extent of any inconsistency, the terms of the Subordination Deed were to prevail over the loan agreement. 90 The Solarise Loan Agreement and the Subordination Deed are undoubtedly related to one another. The former provided the subject matter for the latter. There is therefore an extent to which they can be read together. However, there is no basis, in my opinion, for concluding that the Subordination Deed incorporates the two year Subordination Period contained in the Solarise Loan Agreement. On the contrary, a number of matters indicate that the subordination for which the Subordination Deed provided was more extensive than (and inconsistent with) that contained in the Solarise Loan Agreement. 91 First, the Subordination Deed provided expressly for the duration of the subordination for which it provided. Clause 4.2 stipulated that the subordination continued until the Westpac Debt had been paid in full or until the Solarise Debt had, with Westpac's written consent, been repaid in full. Clauses 5, 6 and 7 elaborated the subordination by precluding payment to, recovery by or assignment of the Solarise Debt by, Solarise "so long as any of the Westpac Debt remains outstanding". It is not easy to see how, despite those express words, the Subordination Deed intended to provide for the subordination to continue for only two years. 92 Secondly, cl 8 and the Amortisation Schedule to the Subordination Deed did not, by the provision for Permitted Payments, alter that position. Contrary to the Liquidators' submission, cl 8.1 authorised, but did not require, SSA to make the Permitted Payments. It used the permissive word "may". Clause 8.2.2 contemplated expressly that SSA may not make a Permitted Payment when it was authorised to do so, and permitted, but did not require, SSA to make a catch up payment. Given the use of the permissive "may" in cl 8.1 and cl 8.2.2, the words "will" in the first and second paragraphs of the note to the Amortisation Schedule cannot be reasonably be understood as imposing an imperative obligation, that is, of requiring SSA to make repayment of the Solarise Loan in full by 22 May 2011. It is not to be expected that an obligation of this kind would be imposed by a note to a schedule setting out permitted payments. 93 Further still, paragraph [1] of the note stated expressly that "[t]he Borrower may, but is not obliged to, make the capital payments on the Dates of Payment". The effect of the following portions of the note is to provide for a variation in the regime of Permitted Payments if SSA did not make a Permitted Payment, that is, by providing for an adjustment in the calculation of interest and for an adjustment of the final payment. 94 Thirdly, it is not readily to be supposed that when Westpac, was negotiating the May 2009 BFA, it sought subordination for a two year period only. It is more realistic to suppose that Westpac sought to have the subordination continue until its debt had been paid, save that the Permitted Payments could be made at times when the cl 8.1 conditions were satisfied. It is pertinent that Westpac was not a party to the Solarise Loan Agreement. It had never signified agreement to the two year Subordination Period to which the Solarise Loan Agreement referred. That was an arrangement between SSA, Solarise, Mr Mourney and Harbert only. The express mention of the two year Subordination Period in the Solarise Loan Agreement, and the absence of any reference to such a limitation period in the Subordination Deed, suggests, to my mind, that the parties to the latter were deliberately departing from such a limitation. 95 Finally, the parties to the Subordination Deed addressed the existence of inconsistency between it and the Solarise Loan Agreement and agreed, in cl 16, that, to the extent of any inconsistency, the Subordination Deed should prevail. There is an inconsistency between the indefinite period of subordination contemplated by cll 4, 5, 6 and 7 of the Subordination Deed, on the one hand, and the two year Subordination Period contemplated by the Solarise Loan Agreement, on the other. That being so, the former prevails. 96 I conclude that, while SSA had been authorised to make the Permitted Payments which would have had the effect of repayment of the Solarise Loan by 22 May 2011, it was not required to do so. The parties contemplated therefore that the Solarise Debt may continue past 22 May 2011. As SSA did not make the Permitted Payments to Solarise before 22 May 2011, it could thereafter make a repayment only with Westpac's prior written consent. That consent could not be unreasonably withheld or delayed (cl 8.3). 97 Accordingly, this basis for the claim that the Solarise Loan was due and payable on 22 May 2011 fails.

An agreement by Westpac in May 2011? 98 The Liquidators relied on the following events for their contention that Westpac had agreed, in accordance with cl 8.3 of the Subordination Deed, to SSA entering into a fresh agreement with Solarise which had the effect of making the Solarise Debt due and payable on demand. 99 During April and May 2011, SSA had engaged in discussions with Mr Mourney regarding extending the time for repayment of the Solarise Loan. It is not necessary presently to record those discussions, save only to note that Solarise was pressing for repayment on or shortly after 22 May 2011. 100 On 19 May 2011, Mr Mourney sent an "interim Solarise Agreement" to Mr Steele and Mr Thornton at SSA which he said would "allow us to continue past 22 May if required". The interim agreement, to which I will refer as the "2011 Solarise Agreement", had been prepared by Mr Mourney's solicitors. The Agreement contemplated four parties: Solarise, SSA, Mr Mourney and Harbert. It contained in cl 3 an acknowledgement of the Solarise Debt: [3] Acknowledgement of liability for Debt [3.1] SSA acknowledges and agrees that pursuant to the Loan Agreement, on and from 22 May 2011 SSA is liable to pay Solarise on demand the whole of the principal sum of A$5,178,682.13 (Debt), together with interest accrued to 22 May 2011 pursuant to the Loan Agreement of A$43,132.04, on 22 May 2011. [3.2] Nothing in this agreement shall be taken to limit or postpone SSA's liability or Solarise's rights pursuant to the Loan Agreement as acknowledged and agreed by the preceding subclause. 101 Clause 4.1 required SSA to pay monthly instalments of interest at a rate not less than 11.3%. 102 Clause 5 contained an undertaking concerning notification to Solarise: [5] SSA's undertaking to notify Solarise [5.1] SSA will give Solarise notice in accordance with the notice provisions of this agreement each calendar Monday after 22 May 2011: (a) whether and when SSA expects to be able to repay the balance of the Debt referred to in clause 3; (b) the basis for this expectation; and (c) the source of finance or prospective finance for that repayment. 103 Clause 9 contained an indemnity on which the Liquidators relied in connection with one of their alternative contentions. I will return to that clause later. 104 Mr Thornton provided Mr Tanner at Westpac with a copy of the 2011 Solarise Agreement later on 20 May 2011 and asked him to "advise if you/Westpac have any issues and are happy to support". 105 Mr Tanner's response on Monday, 23 May 2011 to that request was as follows: I confirm that Westpac is not a party to the attached proposed Agreement. Whether SSA decides to enter into this Agreement with Solarise Pty Ltd and Russell Mourney is a matter for the directors of SSA who must consider the ability of SSA to comply with any obligations under the Agreement. As you are aware, SSA's facilities with Westpac are currently under review and we reiterate that all requirements under [the] current Facility Agreement dated 19 October 2010 must continue to be met during this period of review. 106 It is not clear whether the 2011 Solarise Agreement was executed by all parties. However, I am satisfied that it had been executed by at least SSA and Harbert, and that Mr Mourney had been provided on 23 May 2011 with the agreement as executed by them. 107 On 24 May 2011, Mr Mourney foreshadowed to Mr Steele and Mr Thornton that he "was planning to" serve a statutory demand in respect of Solarise's outstanding debt. 108 Mr Mourney followed this up with an email to Mr Steele, Mr Thornton and Mr Anderson on 27 May 2011 saying: … I hope progress is being made in the meantime towards repaying my loan, though I have heard nothing since Wednesday. I have been advised by Tony Abbott that as a precursor to sending you the Statutory Demand, I should make it very clear to you that not only is the debt due and payable as of May 22, but also that I request repayment now. I attach unsigned copies of the documents that will be sent to your registered office Monday, assuming I haven't been satisfied with repayment arrangements made before then. I am sorry it has come to this, but it is clear to me that I have been compliant, and therefore the Solarise debt has been a low priority, for too long. Mr Mourney attached to his email an unsigned Creditor's Statutory Demand for payment of $5,178.682.13 and an unexecuted supporting affidavit. 109 Counsel for SMA submitted that Mr Mourney's correspondence of 27 May 2011 constituted only a request, and not a demand. I do not accept that submission. In my opinion, Mr Mourney was making a demand although expressing it in polite terms. 110 The Liquidators submitted that Mr Tanner's email of 23 May 2011 constituted for the purposes of cl 8.3 of the Subordination Deed a consent by Westpac to SSA entering into the 2011 Solarise Agreement, including its agreement to the terms providing for repayment of the Solarise Loan on and from 22 May 2011 upon demand. 111 I do not accept that submission. In the first place, the consent to which cl 8.3 refers relates to payments by SSA in connection with the Solarise Debt. It does not speak to a consent to SSA entering into an agreement containing a term that the Solarise Loan will be repayable on demand. Secondly, I do not consider that Mr Tanner's response can be regarded as a "consent" of the requisite kind. Mr Thornton's email to Mr Tanner of 20 May 2011 had not in terms sought Westpac's consent and Mr Tanner did not couch his response in such terms. Instead, he pointed out that the decision whether to enter into the agreement had to be made by SSA itself. In context, Mr Tanner appears to have been declining to proffer advice to SSA about the appropriateness of the 2011 Solarise Agreement. 112 Finally, there is nothing in the circumstances objectively considered which indicates that Mr Tanner was intending, by his response, to alter Westpac's position under the Subordination Deed. 113 For these reasons, the contention that Westpac had given a relevant consent pursuant to cl 8.3 of the Subordination Deed is rejected.

Abandonment of the Subordination Deed? 114 The Liquidators submitted in the further alternative that the evidence indicated that each of Westpac, SSA and Solarise were, from the time of entry into the 2010 Facility Agreement, proceeding on the basis that the Subordination Deed was no longer operative. This being so, they contended that, pursuant to principles of abandonment, the Subordination Deed was no longer "valid and efficacious" on and from the time of the negotiations for the Facility Agreement in October 2010. 115 In support of this contention, the Liquidators relied upon events within Westpac in October 2010 and July 2011 and upon the course of dealings between Westpac, SSA and Solarise from May 2011 onwards. 116 There are circumstances in which it can be inferred that the parties have agreed that their contracts should no longer be operative. Dixon CJ and Fullagar J referred to these circumstances in Fitzgerald v Masters (1956) 95 CLR 420 at 432: There can be no doubt that, where what has been called an "inordinate" length of time has been allowed to elapse, during which neither party has attempted to perform, or called upon the other to perform, a contract made between them, it may be inferred that the contract has been abandoned. … What is really inferred in such a case is that the contract has been discharged by agreement, each party being entitled to assume from a long-continued ignoring of the contract on both sides that … "the matter is off altogether". 117 The principles concerning inferred abandonment (or discharge by abrogation as it is sometimes called) were summarised by Kenneth Martin J in Porter v Sundance Resources Ltd (No 2) [2015] WASC 493 as follows (omitting his Honour's citations), at [166]: (a) the conduct of parties may amount to a mutual abandonment of their contract; (b) a contract on foot may be discharged by the inferred later agreement of the parties, such later agreement being inferred from their conduct; (c) discharge of a contract by abandonment is rare; (d) the abandonment may be either of unperformed obligations or of future performance and existing rights; (e) the key question is whether the parties have objectively manifested an implied intention to extinguish their contract; (f) abandonment requires that the inference is clear; (g) the subjective intention of the parties is not relevant; (h) the implied intentions may be manifested through silence and delay; (i) parties may be estopped from denying that a contract has been abandoned. Silence and delay may be relevant in showing such an estoppel. 118 In short, the question is whether there can be inferred, on an objective assessment, a later agreement by the parties to abandon or abrogate their contract. 119 The Liquidators referred first to an unsigned internal Westpac memorandum of 15 October 2010 in which the authors (identified only as "Relationship Manager", "Analyst" and "Portfolio Manager") sought approval for amendment to the conditions to the then proposed Facility Agreement on the basis that the Solarise Loan would no longer be subordinated to Westpac. The memorandum stated: Our current security includes a Deed of Subordination ("D o S") from [Solarise who sold its] shares to Harbert in May 2009. The balance of the vendor Loan as it stands today is $5 m and it is included in budgets provided to us and … is scheduled to be fully repaid by 30/10/11. We are aware of this repayment and have allowed for it as a "permitted repayment" in our Facility Agreement and in our credit papers. … Our D o S subordinates loan repayments to Solarise in the event of default of our facilities as they stood per the [BFA] dated May 2009. Our lawyers have assessed that as we are now changing these facilities we needed to get a new amendment to the D o S in order for it to be valid. However, we have been advised by the Borrower that Solarise is not prepared to sign any further documents that it perceives may weaken its position further (i.e. with SSA taking a further $10 m of debt at this time). 120 The memorandum included an extract from Westpac's legal department which indicated a belief that the Subordination Deed referred only to amounts owing under the May 2009 BFA and would not extend to amounts advanced under the 2010 Facility Agreement. The extract from the legal advice also set out three options: • have the subordination deeds revisited to capture the whole of the new facility arrangements; • amend it to capture those facilities which were under the BFA, but not the new facilities being contemplated now; or • do nothing. 121 The authors supported the "do nothing" option saying: So accepting that by not getting an updated D of S (which it appears we cannot get anyway) we are essentially accepting that the Solarise Loan of $5 m will no longer be subordinated formally to us (although remains an unsecured creditor), it now becomes a Credit and commercial risk decision for us. 122 There is no evidence that a copy of this internal memorandum was ever provided to SSA or Solarise and, given its nature, it seems unlikely that that would have occurred. Nor is there evidence of the response of Westpac management to the recommendation, let alone that it accepted the premise to the recommendation, that the Solarise Loan would not be subordinated to advances under the 2010 Facility Agreement. 123 The Liquidators noted, however, that a condition precedent to the Tranche F advance was that the terms of the Subordination Deed be satisfactory to Westpac, both in form and in substance. They submitted that as there had been no amendment to the Subordination Deed and no new Deed, Westpac must, at least impliedly, have waived compliance with this condition and that this was consistent with acceptance of the "do nothing" recommendation. 124 The Liquidators also noted Westpac's response when, on 26 July 2011, Mr Steele informed Mr Tanner that Mr Mourney considered that the Subordination Deed was no longer applicable. Westpac had not then challenged Mr Mourney's assertion. I infer that this was because Mr Tanner had called for and reviewed the internal memorandum of 15 October 2010. 125 The Liquidators relied upon a course of dealings in 2011 to demonstrate that Solarise, SSA and Westpac regarded the Subordination Deed as no longer operative. These included: (a) on 17 May 2011, Mr Tanner from Westpac sought information from SSA as to the "proposed re-negotiated vendor loan term"; (b) an internal Westpac memorandum of 20 May 2011 referred to the Solarise Loan repayment being "due" in late May; (c) Mr Tanner did not refer to the Subordination Deed at all when responding on 23 May 2011 to Mr Thornton's request concerning the 2011 Solarise Agreement; (d) the 2011 Solarise Agreement executed, at the least by SSA and Harbert, provided that the Solarise Debt was immediately due and payable; (e) SSA informed Mr Tanner on 25 May 2011 of the execution of the 2011 Solarise Agreement and that it was negotiating with Mr Mourney for him to purchase RECs in lieu of a payment of cash. Mr Tanner did not refer to the Subordination Deed at all in this context; (f) Westpac gave approval for the proposed transfer of RECs to Solarise in lieu of cash without making any reference to the Subordination Deed; (g) on 26 July 2011, Mr Tanner again enquired about the progress of SSA's discussions with Solarise, again without making any reference to the Subordination Deed. 126 The Liquidators submitted that in these circumstances, it should be inferred that Westpac, Solarise and SSA had manifested a common intention no longer to be bound by the Subordination Deed. 127 Counsel for SMA submitted that the Liquidators' contention with respect to abandonment was inconsistent with a plea they had made in other proceedings and that this, in some way, counted against the Liquidators' claim. SMA had not raised any plea of estoppel by conduct. It sought to adduce the evidence to support the submission only belatedly and in circumstances which would have prejudiced the trial. There were also doubts that the evidence, even if admitted, could have the effect asserted by SMA. For these reasons, I declined to receive the evidence. As there is no other evidence to support the submission, it is rejected. 128 The Defendants are correct in their submission that the subjective intention or understanding of the unidentified authors within Westpac of the memorandum of 15 October 2010 is not relevant. The matter is to be assessed objectively and, as noted, there is no express evidence that the views of the authors were ever adopted by Westpac management, let alone communicated to SSA or Solarise. 129 Moreover, I do not consider that any inference of a mutual intention that the Subordination Deed should no longer be operative can be drawn. Even if Westpac had that understanding, the corresponding understanding cannot be attributed to either SSA or Solarise. All that the unidentified authors reported was that Solarise was not prepared to sign any further documents which may weaken its position and that it was resistant to revisiting the Subordination Deed "to capture the whole of the new facility arrangements" or to amending it "to capture those facilities which were under the BFA but not the new facilities". 130 I accept, as the Liquidators submitted, that it can be inferred that Westpac must have waived the requirement for any amendment to the Subordination Deed. However, that does not of itself bespeak in an objective way a common contemplation that the Subordination Deed in unamended form should cease to be operative. The evidence that the parties conducted themselves on that basis is at best slight and, to the contrary, there is some objective evidence that SSA at least continued to regard the Subordination Deed as being applicable. It made payments of interest to Solarise on 13 January 2011, 14 April 2011 and 20 May 2011, these being at the intervals (and very close to the dates) specified in the Amortisation Schedule in the Subordination Deed. This suggests that SSA regarded the Subordination Deed as being in operation. 131 It is also evident that after the 22 May 2011, SSA sought Westpac's consent to it making payments to Solarise. This seems consistent with the understanding on its part that the Subordination Deed continued to be applicable, although I accept that that conduct may also be attributable to SSA's understanding of its obligations under the 2010 Facility Agreement. 132 As noted earlier, the circumstances in which a court will infer a later agreement by the parties to abandon a contract are likely to be rare. As Fitzgerald v Masters indicates, evidence of a "long-continued ignoring of the contact on both sides" is usually required. Evidence of that kind is presently lacking. Instead, I consider the evidence to be more consistent with the view at least by SSA, and probably Solarise and Westpac, that the Subordination Deed continued to be applicable to the extent to which it was capable of doing so. 133 Accordingly, I reject this submission of the Liquidators.

An indemnity obligation? 134 The Liquidators' last alternative submission turned on cl 9 of the 2011 Solarise Agreement. Clause 9 provided: [9] SSA must indemnify Solarise against all claims and all losses, costs, liabilities and expenses incurred by Solarise, arising wholly or in part from an act or omission of SSA or its employees, agents or contractors in relation to this agreement. 135 The Liquidators submitted that cl 9 created an obligation distinct and separate from SSA's debt obligation which was not subject to the Subordination Deed. They submitted that as soon as SSA failed to pay the Solarise Debt following Mr Mourney's demand for repayment on 27 May 2011, SSA's liability under the indemnity crystallised. 136 This contention must be rejected. On my findings, the Subordination Deed continued in force. Accordingly, Solarise remained bound by cl 6 of that Deed which precluded it from receiving payment in or towards satisfaction of the Solarise Debt and from demanding, suing for, exercising any remedy, or taking other action to cause or enforce payment of any of the Solarise Debt. Further, cl 6.7 of the Subordination Deed precluded Solarise from receiving any money from SSA "directly or indirectly". Accordingly, even if cl 9 did give rise to a separate obligation, it is not one which could, on my findings, have been enforced by Solarise.

Conclusion on Solarise Loan 137 My conclusion is that SSA's liability to Solarise remained subordinated to the amounts owing to Westpac. The Liquidators accepted that that being so, the Solarise Loan did not become due and payable while the indebtedness to Westpac remained outstanding. Accordingly, account cannot be taken of the existence of the Solarise Debt at any of the alternate dates of insolvency for which the Liquidators contended. Nor is it necessary to consider the Liquidators' submission that regard could be had as at 31 January 2011 (or as at 30 April 2011) to the imminent of the liability to Solarise which SSA had no prospect of meeting. 138 That being so, it is unnecessary to consider the question of whether there was any separate agreement between SSA and Solarise with respect to the deferment of payment of the debt.

SSA's liability to the ATO 139 Another matter raised by the Liquidators at each of the alternative dates for a finding of insolvency was SSA's liability to the ATO. 140 With the exception of the month of September 2010, SSA had significant outstanding taxation obligations to the ATO for each month from April 2010 until July 2011. These liabilities related to GST (payable monthly), PAYG and FBT instalments (payable quarterly) and PAYG withheld from employees' salaries and wages (payable monthly and later fortnightly). The liabilities and SSA's payments concerning them were recorded in the "Running Balance Account" (RBA) maintained by the ATO in respect of SSA. A liability for taxation obligations is not entered into RBA until the liability is due and payable. Accordingly, if taxation obligations are being met in the ordinary course, the balance outstanding on the RBA will generally be zero. 141 For present purposes, it is sufficient to make more detailed findings in respect of the period commencing in September 2010. By reason of payments totalling $3,913,587.33 in that month, SSA's integrated client account had a credit balance of $2,303.24 at 30 September 2010. However, SSA did not meet its taxation liabilities in the ensuing months as the RBA balances (rounded) at month end show: Date RBA Balance $'000 31 October 2010 1,646 30 November 2010 886 31 December 2010 1,510 31 January 2011 2,784 28 February 2011 3,122 31 March 2011 1,553 30 April 2011 813 31 May 2011 1,511 30 June 2011 1,607 31 July 2011 636 31 August 2011 - 30 September 2011 1,321

142 The following table shows the payments made by SSA to the ATO in respect of each of the forms of taxation liability: Period End GST $'000 PAYG Inst $'000 FBT $'000 Total $'000 Due on Paid/ Settled by Days Late 31-Oct-10 1,034 1,034 22-Nov-10 13-Jan-11 52 3-Nov-10 986 986 21-Dec-10 14-Mar-11 83 2-Dec-10 Amendments 239 31-Jan-11 42 31-Dec-10 BAS 1,220 585 44 1,849 21-Jan-11 29-Apr-11 98 31-Jan-11 762 762 21-Feb-11 13-Jun-11 112 28-Feb-11 1,347 1,347 21-Mar-11 21-Mar-11 - 31-Mar-11 BAS 1,146 44 1,190 21-Apr-11 21-Apr-11 - 30-Apr-11 1,187 1,187 23-May-11 8-Jun-11 16 31-May-11 1,603 1,603 21-Jun-11 22-Jul-11 31 30-Jun-11 BAS 1,317 34 1,351 21-Jul-11 11-Aug-11 21 31-Jul-11 462 462 22-Aug-11 22-Aug-11 - 31-Aug-11 1,166 1,166 21-Sep-11 Not paid

143 The contents of this table can be summarised as follows: (a) the amounts due for payment in the months of November 2010 through to February 2011 were paid between 52 and 112 days after the due date; (b) the amounts due for payment in March and April 2011 were paid on time; (c) the amounts due for payment in May, June and July 2011 were paid between 16 and 31 days late; (d) the amounts due for payment in August 2011 (which were significantly less than the amounts due in earlier months) were paid on time; (e) the amounts due for payment in September 2011 were never paid. 144 As can be seen, with the exception of three months, SSA was significantly late with all the payments of its taxation liabilities. 145 It is evident that the ATO was active in pursuing the payment of the outstanding liabilities as the following extracts from its file notes indicate: 25/11/10 Michael [of Solar Shop] stated that he was aware of the debt which was the unpaid October BAS. They cannot pay the debt in full because of cash flow difficulties. He explained that they were still waiting for payments from the government (Solar rebate) and they (the government) are always very slow in paying. He said that he would call me by COB 26/11/2010 with a payment proposal after doing a cash flow analysis. Legal warnings were given. 29/11/10 Michael [of Solar Shop] … stated that they had completed a preliminary cash flow analysis and would pay $150,000 during the week commencing 28/11/2010 & a similar amount the following week. … He explained that they usually shut down for the Christmas break but he was trying to minimise the shutdown because he was concerned about there being very little or no cash flow during this period. He was confident that they could make the 2 weekly $150,000 payments on 1/12/2012 & 8/12/2010 but needed more time to consider their options with regard to the balance of the debt. He agreed to contact me … with a payment proposal for the CAC debt. … Legal warnings were given. 14/12/10 Michael [of Solar Shop] … confirmed the payment of $150,000 made today. He stated that they would make another $150,000 next week but could not commit to a payment arrangement at this stage because of the fluctuations to their cash flow which could have an adverse effect on their ability to maintain any payment arrangement. I told him that the CAC still needed to be adequately addressed despite their circumstances and the ATO was waiting on his payment proposal. … He agreed to call back … with an update and a possible payment proposal. Legal warnings were given. 16/12/10 Michael [of Solar Shop] stated that he would pay $150,000 later this week and then $200,000 next week and $234,000 in the last week in December. He explained that there was a possibility that he could pay these amounts earlier and if his debtors pay as promised he would be able to do so. I told him that he should be aware that the November BAS would be due shortly and that he should take that into account in any payment proposal. … Legal warnings were given. 12/01/11 Michael [of Solar Shop] stated that they could not pay the CAC debt in full because of cash flow difficulties. He agreed to call back later today with a payment arrangement proposal. 13/01/11 Called Michael [of Solar Shop] … and confirmed receipt of payment proposal. … Legal warnings were given with regard to the payment proposal if it is granted. … Michael stated that they could not pay the CAC debt in full because of cash flow difficulties as they are owed around $18 million by the federal government for rebates on installations. … He requested a weekly payment arrangement from 14/01/2011 for the existing CAC debt … total debt is $2,789,303.64. They would pay $300,000 on 14/1/2011, $150,000 on 21/1/2011 and 28/1/2011, $250,000 on 4/02/2011, 11/02/2011, 18/02/2011, 25/02/2011 and 4/03/2011 and then $500,000 on 11/03/2011 and subsequent weeks. I support client's request because they have a very good compliance record and have always engaged with the ATO. … This [is] the most cost effective action the ATO could take at this stage. … 146 By a letter to SSA dated 14 January 2011, the ATO accepted the payment arrangement proposed by SSA the previous day for payment of a total of $2,824,447.40. The ATO's acceptance was made conditional on three matters: • Payments must be made as detailed in the schedule [outlined in the letter] • All future lodgment obligations must be met by the due dates • All future payment obligations must be made by the due dates. 147 The ATO also warned that failing to meet those conditions could result in the commencement of legal action without further notice. 148 SSA made the first three payments in compliance with the payment arrangement but did not comply with it thereafter. The instalments which it did pay after 28 January 2011 were generally $150,000 rather than the required $250,000. Further, SSA did not pay at all the instalment of $500,000 required on 11 March 2011. 149 On 1 February 2011, an ATO officer spoke to Michael Dillon at SSA. The officer warned Mr Dillon that the ATO would not keep on granting SSA payment arrangements and that it was required to clear its current debt while keeping up to date with its current obligations. 150 By letter dated 12 February 2011, the ATO accepted a further payment arrangement (subject to the same conditions as the first) which involved weekly instalments of $150,000 until 25 May 2011, then three instalments each of $200,000 and a final payment of $158,091.35. SSA did pay most of the contemplated instalments although few were paid by the due date and it did not make the final two. However, SSA did not comply with the third condition of the payment plan as it did not make the payment of GST of $762,230 which was due on 21 February 2011. 151 By letter dated 8 March 2011, the ATO accepted a further arrangement for payment by instalments. The arrangement was subject to the same three conditions contained in the earlier payment arrangements. The payment arrangement of 8 March 2011 required the payment of weekly instalments of $150,000 commencing on 9 March 2011 and continuing to 18 May 2011, and thereafter weekly instalments of $200,000 continuing to 29 June 2011, and a final payment of $196,058.30 on 6 July 2011. SSA complied generally with this payment arrangement until the end of May 2011. On 31 May 2011, the ATO wrote to SSA pointing out its failure to comply with all the conditions of the payment arrangement and that an amount of $1,512,885.19 remained outstanding. 152 By letter dated 30 June 2011, the ATO accepted a further payment arrangement which involved weekly instalments of $270,000 commencing on 8 July 2011 with a final payment of $271,097.74 on 12 August 2011. SSA complied with the terms of that payment arrangement. However, while doing so, it did not meet its other taxation liabilities. There are two exceptions to that as SSA did reduce the RBA balance to zero on 17 June 2011 and, in the period from 25 August 2011 to 1 September 2011, it had a small credit balance. 153 The ATO continued to monitor the position closely as the following file notes indicate: 01/03/11 Payment arrangement entered 11/02/11 for payment of $150,000 per week initially has defaulted due to Nov 10 BAS, due 21/02/11, being lodged but not paid - GST $762,230.00. Arrangement has defaulted due to Case Balance Failure as debt has increased. … 02/03/11 The previous arrangement, input 11/02/11, defaulted 27/02/11. The arrangement payments have been made, but currents are not being paid. The debt has increased as Jan 11 BAS due 21/02/11 was lodged but not paid. … Debt outstanding is $3,125,993.62. 7/03/11 Michael Dillon rang … re letter he received for Defaulted Arrangement. He explained he has been in a payment arrangement & has been making payments $150,000 pw & he states he makes the payments 6 days early. I checked the account & explained the arrangement defaulted due to Jan 11 BAS lodged 18/2/11 & due 21/2/11 not paid. Michael stated he sent a letter requesting payment arrangement dated 8/2/11 … I have entered the arrangement for total debt $2,980,946.51. 27/06/11 Rang and spoke to Michael Dillon who advised that the Coy cannot pay the debt in full at the moment due to cash flow problems and he will email me a payment plan to pay by instalment tomorrow … 154 It is apparent from the above that SSA was unable to comply with its taxation obligations, that it did not make payment arrangements with the ATO until the amounts owing were overdue, and that when it did make payment arrangements, it often defaulted, sometimes almost immediately. The exception is the payment arrangement made on 30 June 2011. Mr Dillon repeatedly attributed SSA's inability to meet its taxation liabilities to "cash flow difficulties". The ATO gave multiple "legal warnings" to SSA. 155 The Liquidators submitted that the sum of $2,784,112.47 was due and payable to the ATO at 31 January 2011 and that, in determining whether that was so, the payment arrangements which SSA had made with the ATO should be ignored. They submitted that this was the effect of s 255-15 of Sch 1 to the Taxation Administration Act 1953 (Cth) (the TA Act) and of the authorities. The Liquidators made the same submission with respect to the sum of $962,692.42 due at 30 April 2011 and the sum of $1,511,403.95 due at 31 May 2011 ($512,692.42 at 22 May 2011). 156 Part IIB of the TA Act provides for the establishment of a Running Balance Account (RBA) for a taxpayer. The combined effect of s 8AAZH(1) and the definition of "RBA deficit debt" in s 8AAZA of the TA Act is that the amount shown in an RBA at the end of the day is a debt due and payable to the Commonwealth at that time. 157 Section 255-15 of Sch 1 to the TA Act authorises the Commissioner to permit a taxpayer to pay an amount of a "tax-related liability" by instalments under an arrangement between the taxpayer and the Commissioner. A "tax-related liability" is defined in s 255-1(1) to be a "pecuniary liability to the Commonwealth arising directly under a taxation law (including a liability the amount of which is not yet due and payable)". Section 255-15(2) provides that a payment arrangement between a taxpayer and the Commissioner "does not vary the time at which the amount is due and payable". This contrasts with s 255-10 which authorises the Commissioner, in some circumstances, to defer the time at which an amount of a tax-related liability will become due and payable. 158 In Hall v Poolman [2007] NSWSC 1330; (2007) 65 ACSR 123, Palmer J considered a defendant's appeal to "commercial reality" in the context of an arrangement for payment of taxation liabilities. His Honour rejected the notion that "commercial reality" could alter the effect of the provisions in the TA Act: [91] However, the decisive answer to the Defendants' appeal to "commercial reality" in their submission that the Commissioner's debt was not payable during the Period is that the tax legislation clearly and unequivocally made that debt payable. If the legislature clearly says that a tax debt is payable at a certain time, neither the Court nor a company director can disregard that statutory imperative by an appeal to commercial reality. Absent an agreement by the Commissioner to defer payment, it is not commercial reality to treat a present liability, statutorily imposed, as if it does not exist. … [110] If the company obtains either an agreed deferment of payment under s.255-10 or a stay of enforcement proceedings from the Court, obviously a director of the company may take that fact into account as a commercial reality in ascertaining the company's present and projected cash flow position. But if the company obtains neither a deferment nor a stay, the director must take account of the fact that the debt, as a matter of law and commercial reality, is not a contingent liability and remains presently payable. 159 In Smith v Boné, Gleeson J referred at [41]-[42] to these passages in Hall v Poolman and concluded that none of the payment arrangements between the taxpayer and the ATO then under consideration caused a tax debt which was due and payable to cease to be due and payable. See also, albeit in a different context, Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2008) 237 CLR 473 at [53]-[57]. 160 The Defendants resisted on several alternative bases a conclusion that the balances of the RBA as at 31 January, 30 April and 22 May 2011 were debts due and payable to the ATO at those dates. 161 First, they submitted that the Liquidators' submission assumed that the ATO had made the payment arrangement with SSA pursuant to s 255-15 of Sch 1 to the TA Act when that was not necessarily so. In support of that submission, the Defendants referred to Commissioner of Taxation v Croft [2016] QSC 190; (2016) 312 FLR 216, which concerned the validity of a deed of guarantee provided by a third party as part of the consideration for the agreement of the Commissioner to refrain from taking further steps to recover the taxation liability of a taxpayer. Accordingly, it involved a different form of agreement from that presently under consideration. However, in determining that question, Jackson J considered the contract-making powers of the Commissioner in relation to the enforcement of taxation liabilities. His Honour concluded that a number of matters indicated that the Commissioner did have the power to contract with respect to the payment of taxation liabilities. These included: (a) s 3A of the TA Act provides for the Commissioner to have "the general administration" of the TA Act, at [45]; (b) the object of Pt IV-15 of Ch 4 in Sch 1 of the TA Act stated in s 250-25 that it is "to ensure that unpaid amounts of tax-related liabilities and other related amounts are collected or recovered in a timely manner"; (c) s 255-5(1) authorises a Commissioner, a Second Commissioner or a Deputy Commissioner to sue in a court of competent jurisdiction to recover an amount of a tax-related liability which remains unpaid after becoming due and payable; (d) the recognition of the Commissioner's power to contract contained in Precision Pools Pty Ltd v Commissioner of Taxation (1992) 37 FCR 554 at 566-7; Bilborough v Federal Commissioner of Taxation [2007] FCA 773, (2007) 162 FCR 160 at [19]; and Oswal v Commissioner of Taxation [2015] FCA 1439 at [63]; (e) the very terms of s 255-15 which vests power in the Commissioner to permit payment by instalments under an "arrangement". That term is defined in s 995-1(1) of the Income Tax Assessment Act 1997 (Cth) (the ITA Act) as including an agreement intended to be enforceable by legal proceedings, at [47]. 162 However, an acceptance that the Commissioner has a power to contract with respect to payment by instalments which is independent of s 255-15 does not avail the Defendants presently. There are no indications that the Commissioner was purporting to exercise such an independent power. On the contrary, the indications are that the payment arrangements with SSA were made pursuant to s 255-15. In the first place, each of the payment arrangements was made by a letter from the Commissioner to SSA accepting the arrangement proposed by SSA. They were not in the form of a formal contract executed by all parties which may have been indicative of the exercise of an independent contract-making power. Secondly, it is apparent that letters were issued by officers exercising delegations and were of a pro-forma kind. Apart from the details of the dates and payments of the instalments agreed upon, the letters were not otherwise adapted to SSA's individual circumstances. The features point to the payment arrangements being of the conventional kind made pursuant to s 255-15. Thirdly, given the express grant of power contained in s 255-15, an inference that it was that power which was being exercised may be readily drawn. If it were otherwise, one would expect to see some express indication to that effect, and none is apparent. 163 Counsel for Kerry J made an alternative submission to the effect that the payment arrangements were "tantamount to an agreed deferment" of the tax liability, of the kind contemplated by s 255-10 of the TA Act. The payment arrangements cannot reasonably be characterised in that way, and I reject that submission. 164 Accordingly, I am satisfied that the Liquidators have established that the payment arrangements were made pursuant to s 255-15, and I reject the Defendants' submission to the contrary. Section 255-15(2) was therefore applicable. 165 Next, the Defendants referred to the judgment of Edelman J in Hussain. They submitted that Edelman J appeared to have accepted that a payment arrangement under s 255-15 could "operate as a waiver of an obligation to pay a tax debt (such waiver being effective until such time as it is revoked)". I do not consider that this is a fair understanding of what Edelman J said in Hussain. His Honour was addressing a submission that a failure by the taxpayer to pay its PAYG liability on 21 November 2013 was not indicative of insolvency because the taxpayer may have had a reasonable expectation that it could reach a payment arrangement pursuant to s 255-15. In respect of that contention, Edelman J said: [119] FPJ Group might have had a reasonable expectation that it could reach a payment arrangement with the Australian Taxation Office. This expectation might have been based on the Practice Statement, but was more likely to be based on the conversations that Mr O'Toole had with the tax office. But a reasonable expectation is not a waiver of the obligation to pay the tax debt. Prior to, and on, 21 November 2013, FPJ Group's tax had been due and payable on 21 November 2013. 166 On my understanding, Edelman J was addressing only the submission that the defendant may have expected a payment arrangement to be made. His Honour did not have to consider the effect of such an arrangement had it been made. Edelman J did refer to Hall v Poolman and to Smith v Boné elsewhere in his reasons, at [227]-[231]. That being so, it is not readily to be accepted that his Honour would have intended to state or imply a principle different from that for which they stand without adverting to that fact. Accordingly, this contention of the Defendants fails. 167 The Defendants' third submission was that there is no reason to read the expression "due and payable" in s 255-15 of the TA Act as having the same meaning as the expression "due and payable" in s 95A of the Corporations Act. Counsel submitted that the term "due and payable" is used in s 255-15 in order to make it clear that interest continues to run on the unpaid amount. He referred in this respect to the note to s 255-15 which provides that, despite an arrangement under the section, any general interest charge or other relevant penalty begins to accrue when the liability is "due and payable" under the relevant taxation law or at that time as varied under s 255-10 or s 255-20. Counsel for Kerry J sought to support this submission by an argument that a payment to the ATO pursuant to a payment plan could constitute a preference. I do not regard that as a persuasive consideration. 168 I reject this submission of the Defendants. The term "due and payable" is well known. There is no reason to suppose that it is used in the TA Act with other than its usual meaning. The fact different legislation attaches particular consequences to a debt being due and payable does not warrant a conclusion that the term has a separate and distinct meaning in each piece of legislation. 169 Finally, the Defendants contended that it was "commercially unreal" when assessing insolvency to take into account a debt in respect of which there is a formal arrangement for payment by instalments. This submission requires a conclusion which is inconsistent with s 255-15 and seems to challenge the correctness of the view stated by Palmer J in Hall v Poolman. That statement is well accepted in the authorities. The Defendants did not develop any submission to the effect that Hall v Poolman was, in this respect, wrongly decided. I reject this submission. 170 Accordingly, I am satisfied that the Liquidators' inclusion at each of the alternative dates of insolvency of SSA's liability to the ATO was appropriate.

Overview of the Liquidators' claims of insolvency 171 The Liquidators sought to demonstrate SSA's insolvency by reference to its debt position at a succession of month ends. For this purpose, they provided, and relied upon, an analysis under the heading "Aide Memoire" of SSA's debt position at month end for the period January to August 2011. The debt position was the aggregate of SSA's overdraft balance, the amounts said to be overdue (that is outside the creditors' payment terms) to SSA's 14 principal trade creditors, the debt to the ATO and, in the period from 31 May to 31 August 2011, the amount of the Solarise Debt said then to be due and payable. 172 The results of the analysis are contained in the following table: Month End Date Overdraft Account (Actual) Less 14 Trade Creditors Overdue Less ATO Debt Due & Payable Less Solarise Debt Due & Payable Adjusted Overdraft Account Less Stated Debt 31/1/11 166,744.20 (1,237,539.41) (2,784,112.47) 0 (3,854,907.68) 28/2/11 9,317.99 (1,063,401.39) (3,121,879.27) 0 (4,175,962.67) 31/3/11 (278,430.66) (1,998,659.29) (1,553,156.71) 0 (3,830,246.66) 30/4/11 (511,566.14) (3,997,262.10) (962,692.42) 0 (5,471,520.66) 31/5/11 (718,909.98) (5,655,414.08) (1,511,403.95) (4,678,682.63) (12,564,410.64) 30/6/11 (896,966.75) (8,636,916.89) (1,607,137.59) (4,528,682.63) (15,669,703.86) 31/7/11 (510,762.69) (8,463,956.19) (365,887.02) (4,328,682.63) (13,669,288.53) 31/8/11 191,571.92 (6,940,126.72) 0.00 (4,328,682.63) (11,077,237.40)

173 Although SSA had hundreds of trade creditors, the Aide Memoire records SSA's indebtedness to only 14. The Liquidators selected these creditors as a matter of convenience because they considered SSA's own Aged Creditor Reports in respect of all the creditors to be unreliable. 174 The Liquidators relied on the figures in the column headed "Adjusted Overdraft Account Less Stated Debts" as indicating the debts due and payable at the various month ends which SSA was unable to pay. 175 The Respondents challenged the accuracy of a number of the figures in the Aide Memoire and pointed to other features not taken into account by the Liquidators. I will refer to them below. The Respondents accepted, however, the accuracy of the figures in the column headed "Overdraft Account (Actual)". Those figures are derived from the Westpac account statements. 176 In these reasons, I will adopt the framework set out in the Liquidators' Aide Memoire. It will be necessary in addition to have regard to the circumstances more generally concerning SSA's debts and the resources available to it, especially given that the Liquidators did not provide a cash flow analysis for SSA for any of the three dates by which they contended that it was insolvent.

SSA's solvency as at 31 January 2011 177 In pressing for the finding of insolvency by 31 January 2011, the Liquidators pointed to a number of indicia. These included the following: (a) SSA was in breach of its banking facilities, rendering its bank debt of approximately $17 million payable on demand; (b) more than $1.2 million of amounts due to the 14 significant trade creditors were outside terms and accordingly overdue (in addition to those which were current and not overdue); (c) SSA owed $2,784,112.47 to the ATO and was unable to pay that amount without a payment plan; (d) the combined effect of overdue creditors and the outstanding debt to the ATO was that SSA owed $3,854,907.68 which was outside terms, and $2,854,907.68 in excess of its overdraft limit; (e) SSA had sustained a trading loss of $1.946 million in January 2011 (although the evidence to which the Liquidators pointed to support this proposition was SSA's trading performance for the first seven months of the 2011 financial year); (f) the forecast profits from one arm of the business (Sunsavers) were overstated; (g) by 31 January 2011, it was apparent that SSA had no resources available to meet the repayment of the Solarise Loan of over $5.2 million which was to fall due on 22 May 2011; (h) by 31 January 2011, SSA's shortage of working capital was endemic and thereafter it was outside terms in paying its creditors and in paying the debt to the ATO. 178 The Liquidators did not provide any cash flow analysis of SSA's position as at 31 January 2011.

The banking facilities 179 As to the first of these matters, the Liquidators submitted that the Court should find that, as at 31 January 2011, SSA was in breach of the 2010 Facilities Agreement, with the effect that its indebtedness to Westpac of approximately $17 million was then payable on demand. They submitted further that the only support which Westpac was providing was of a negative kind, namely, its refraining until 7 September 2011 from appointing receivers and managers. 180 As noted earlier, Westpac and SSA had entered into the October 2009 BFA on or about 13 October 2009. However, for present purposes, it is sufficient to have regard to the 2010 Facility Agreement. Pursuant to that Agreement, Westpac made the following facilities available to SSA: (a) an amortising bill acceptance and discount facility of up to $10 million, which required seven quarterly principal repayments of $500,000 each, commencing on 31 December 2010; (b) an overdraft facility for an aggregate amount of: (i) $3.5 million to 30 October 2010; (ii) $2.5 million from 31 October 2010 to 29 November 2010; (iii) $1 million from 30 November 2010; (c) a financial guarantee facility in an aggregate amount equal to $4 million; (d) a financial guarantee facility in an aggregate amount equal to $700,000; (e) an equipment finance facility in an aggregate amount equal to $300,000; (f) an amortising equipment finance facility in an aggregate amount equal to $1.7 million. 181 The 2010 Facility Agreement contained financial covenants at cl 12.12. These required SSA to undertake that at all times: (a) the Leverage Ratio at each testing date would be less than 2.00:1; (b) the Debt Service Coverage Ratio at each testing date would be greater than 2.00; (c) the Shareholder Funds to Assets Ratio as at each testing date would be greater than 15% in the period from 1 October 2010 to 31 March 2011; greater than 20% in the period from 1 April 2011 to and including 30 June 2011; greater than 25% in the period from 1 July to 30 September 2011; and greater than 30% from 30 June 2011 to the termination of the facility; (d) capital expenditure would not, in any 12 month period, exceed 110% of any budgeted capital expenditure for that 12 month period. 182 An Event of Default was defined to include the failure to pay amounts due and owing under the Facility Agreement and breaches of the covenants just listed (cl 14.1). The 2010 Facility Agreement also set out consequences of an Event of Default, which included the ability of Westpac to cancel its commitment to provide the facility and to declare monies owing as immediately due and payable, and to enforce and exercise any of its rights under any security (cl 14.2). It is pertinent to note that the occurrence of an Event of Default did not have the effect of making immediately due and payable the amounts advanced under the 2010 Facility Agreement. I reject the submission of the Liquidators to the contrary. Instead, cl 14.2(a) stated that if an Event of Default occurred, Westpac would have the right to take any or all of the actions listed. 183 As noted earlier, on 9 December 2010, SSA notified Westpac that it would on 31 December 2010 be in breach of the Leverage Ratio, the Debt Service Cover Ratio and the Shareholder Funds to Assets Ratio. Westpac thereupon became entitled to exercise the rights just mentioned. This was only two months after SSA had entered into the 2010 Facility Agreement and had taken on an additional liability of $10 million. 184 However, as at 31 January 2011, Westpac had not exercised those rights. Each element of the facility remained available to SAA. Further, when Westpac did write to SSA on 17 February 2011 giving notice of the breaches of the Facility Agreement and that an Event of Default had occurred, it did not terminate the Facility, nor declare the monies advanced under the facility to be then due and payable. Instead, Westpac said only that it was reserving all of its rights arising out of various breaches, including the rights to cancel the facility and to enforce its rights under the securities. 185 Plainly, Westpac was concerned about SSA or at least about the reliability of the information which it was providing, evidenced by its appointment on 12 January 2011 of Mr Hart to undertake the independent review. However, Westpac continued to provide the facility pending the receipt of the First Business Review. 186 When Mr Hart provided that Review on 28 February 2011, he recommended that Westpac give "strong consideration to continuing to support SSA, at least in the short term, including the additional guarantee and forex requirements, subject to it achieving satisfactory performance criteria (particularly installations) based on its forecasts". 187 Westpac acted on that recommendation by continuing the facility, although its letter to SSA on 4 March 2011 did say that its support was contingent on SSA renegotiating the Solarise Loan. 188 In short, while SSA was in breach of covenants in its 2011 Facility Agreement at 31 January 2011, it continued to have access to the facilities provided by Westpac (and in fact continued to do so until September 2011). Westpac had not declared the monies advanced under the facility to be due and payable. That being so, while the breach of covenants put SSA into a position of vulnerability, I do not regard the position of SSA under its Facility Agreement with Westpac as being a significant indicia of insolvency as at 31 January 2011.

Amount overdue to the 14 trade creditors 189 The Aide Memoire indicated that $1,237,539.41 was overdue (outside terms) at 31 January 2011. Although this figure was stated with precision, the Aide Memoire showed that it was comprised of amounts rounded to the nearest $1,000. These were the amounts overdue to seven of the 14 major trade creditors, as follows: Creditor Amount Optimum Media $87,000 SMA $33,000 Fasteners Australia $130,000 Suntech Power $518,000 BlueScope Distribution $292,000 L&H $142,000 Matrin $36,000 Total $1,237,539.41

190 The Respondents accepted that the amounts shown were due to each of these creditors. However, they disputed that the amounts due were outside contract terms in relation to five creditors, namely, Optimum Media Direction Pty Ltd (Optimum Media), Fasteners Australia Pty Ltd (Fasteners), BlueScope Distribution Pty Ltd (BlueScope), Lawrence & Hanson Group (L&H) and Matrin Australia Pty Ltd (Matrin). 191 The terms of trade between SSA and these creditors must be identified to resolve the dispute. That task is to be carried out in the conventional way. It is not appropriate to have regard only to, or to give principal consideration to, the course of dealing when there were contractual documents in existence indicating the agreed terms of trade. This is an important issue because the Defendants' submissions assumed in several cases that the terms of trade were to be inferred from the course of payment by SSA of their invoices.

Optimum Media 192 Optimum Media provided media placement services to SSA. There is no direct evidence of the terms of its supply. Optimum Media issued statements to SSA at the end of each month. These statements summarised the invoices issued by Optimum Media which remained unpaid at the date of the statements. They show that nearly all the invoices were issued at the end of a month and have the feature that the invoice dates and the due dates were in each case the same. On one view, this could indicate that the invoiced amounts were due and payable immediately upon the issue of the invoice. However, the pattern of SSA's payments to Optimum Media, which was reasonably consistent from month to month, does not bear out such an arrangement. The aging of the unpaid Optimum Media invoices was as follows: Month Total Amount 0-30 days 31-60 days 61-90 days $ $ $ $ December 2010 255,728 54,467 201,261 - January 2011 86,923 19,449 54,467 13,007 February 2011 159,604 140,156 19,449 - March 2011 494,561 354,406 140,156 - April 2011 467,042 112,636 354,406 -

As can be seen, this table indicates that SSA regularly paid Optimum Media's invoices 31 to 60 days after their issue (although it does not indicate when in the 31 to 60 day period they were paid). 193 This regular pattern of payment suggests that SSA's contractual terms with Optimum Media may not have required payment on the issue of the invoice but instead payment within 31-60 days. There is no evidence that Optimum Media challenged SSA's pattern of payment or that it had asserted that SSA was non-compliant with agreed payment terms. 194 In these circumstances, I consider that the Liquidators have not proved SSA's trading terms with Optimum Media and therefore I cannot make a finding that SSA was outside agreed payment terms in relation to the $86,922.50 due to Optimum Media at 31 January 2011 or, for that matter, at either of the alternative dates for which the Liquidators contended.

Fasteners 195 Fasteners supplied nuts, bolts and other small items of hardware to SSA. It issued numerous invoices to SSA each month. 196 Fasteners also issued statements to SSA at the end of each month which, on my understanding, set out the unpaid invoices. The statements specified Fasteners' payment terms as "net 30 days". I infer that this meant 30 days from the date of invoice. 197 The amounts outstanding by SSA to Fasteners and the aging of those amounts are summarised in the table below: Month Total Amount 0-30 days 31-60 days 61-90 days +90 days $ $ $ $ $ November 172,188 97,534 74,654 December 196,511 100,530 97,534 - (1,553) January 171,286 41,543 100,530 30,766 (1,553) February 149,822 109,831 41,543 - (1,553) March 211,319 107,466 109,831 4,021 - April 215,538 110,452 105,376 - (290) May 254,802 146,730 110,452 - (2,380) June 325,676 177,688 146,730 6,107 (4,849) July 325,676 - 177,688 146,730 1,258 August 325,676 - - 177,688 147,988 September 325,676 - - - 325,676

198 As can be seen, the table indicates that from (at least) November 2010, SSA was not paying Fasteners within 30 days from the date of invoice. Instead, it regularly made the payments some 31-60 days from the date of invoice. The consistency of the pattern of payment within the band of 31-60 days until July 2011 allows the possibility for which the Defendants contended, namely, that SSA and Fasteners had a different arrangement or at least that, in accordance with "commercial realities", Fasteners had waived the "net 30 days" requirement. In support of that view, there is no evidence that Fasteners raised any objection to SSA's pattern of payment. On the other hand, there does not seem to have been regularity of payment of the kind which one would expect had SSA and Fasteners agreed, expressly or impliedly, on some other arrangement. For example, SSA made payments on 11, 16, 24 and 28 February 2011, 4 March 2011, and 6 and 13 May 2011. 199 I consider it more likely than not that Fasteners' terms were 30 days from invoice but that it tolerated departures from that in practice. However, I am not satisfied that the Defendants have shown circumstances of the kind indicated in the fifth principle stated by Palmer J in Southern Cross Interiors. The mere fact that SSA consistently made payments to Fasteners more than 30 days after invoice does not indicate such a position. 200 I conclude therefore that SSA was outside the agreed payment terms in respect of the $130,000 (rounded) due to Fasteners at 31 January 2011.

BlueScope 201 The end of month statements issued by BlueScope to SSA indicate that its payment terms were "30 days nett from EOM". I infer that this meant that invoices were due for payment 30 days from the end of the month in which they were issued. 202 SSA did not comply with those terms. The statement for 31 January 2011 indicates that SSA made a payment totalling $414,744.06 on 31 January 2011, this being the amount due in respect of invoices issued in November 2010. Had SSA complied with BlueScope's stated terms of payment, that payment should have been made by the end of December 2010. The statement for the period ending 31 January 2011 indicates that $8,140 was outstanding for 60 days, $283,807.46 for 30 days, while $354,353.54 was due in respect invoices issued in the month of January 2011. 203 The review by Mr Morris, which I adopt, of the monthly statements issued by BlueScope to SSA for the months of January to May 2011 and of the corresponding payments, indicates that SSA paid all invoices issued by BlueScope during: (a) January 2011 on 1 April 2011, being 60 days from the end of month and 32 days outside the stated trading terms; (b) February 2011 on 29 April 2011, almost 60 days from the end of month and almost 30 days outside the stated trading terms; (c) March 2011 on 31 May 2011, being 61 days from the end of month and 31 days outside the stated trading terms; (d) April 2011 on 30 June 2011, being 61 days from end of month and 31 days outside the stated trading terms. 204 In these circumstances I am satisfied that SSA was not complying with the stated terms of payment of BlueScope. Moreover, the consistency of the pattern of SSA's payments raises the possibility that BlueScope had a different arrangement, as the Defendants contended. 205 There is some evidence that BlueScope regarded the pattern of payment by SSA as within agreed terms. BlueScope confirmed that SSA was compliant with its trading terms in the response it gave on 28 March 2011 to a request from another company for a credit reference with respect to SSA: Length of association with this company? 2005 Terms of Account? As agreed Amount (Average) traded per month 300k Rating of Account? - Additional Comments? Pays to terms 206 I infer from the last of these statements that BlueScope had reached some agreement with which was reflected in SSA's pattern of payment to it. That being so, I am not willing to find that SSA was outside the agreed payment terms in relation to the $292,000 (rounded) due to BlueScope as at 31 January 2011 or for that matter at either of the alternative dates raised by the Liquidators.

Lawrence & Hanson Group (L&H) 207 L&H supplied electrical, lighting, heating, cooling and ventilation components to SSA and issued numerous invoices to SSA each month. L&H's monthly statements to SSA stated that its trading terms were "30 DAYS nett from the end of the month in which the goods were supplied". 208 The statement issued by L&H to SSA for the month of January 2011 showed that $836 had been owing and unpaid for more than 90 days, $6,100.39 for 60 days (30 days outside terms) and $135,040.28 in respect of goods supplied during December 2010. In total, $141,976.67 was then overdue. L&H received this amount in two tranches: $103,910.51 on 17 February 2011 and $37,978.04 on 24 February 2011. 209 The monthly statements also indicate that SSA generally paid the invoices of L&H about 45 days from the end of month (15 days outside trading terms). Exceptions occurred in February (with payments made on the 17th and 24th) and June (with payments made on the 16th and 28th). There was therefore a seeming pattern of payment outside the stated trading terms. L&H appears to have accepted this as there is no evidence of express objection by it. 210 However, I am not willing to find that the Defendants have shown some variation or waiver of the contract terms whether in accordance with "commercial realities" or otherwise. To my mind, it is significant that L&H reiterated prominently in the monthly statements its terms of trade, stated prominently the amount which was "Overdue and Payable Now" being the aggregate of the amounts outstanding for 30 days or more from months end, and drew SSA's attention to the age of the outstanding accounts. The fact that it tolerated in practice some departure from the stated terms does not warrant the conclusion that a circumstance existed of the kind stated in the fifth principle in Southern Cross Interiors. There is no evidence of the kind referred to in the case of BlueScope which provides a basis for inferring a different agreement. 211 My finding is that SSA was outside agreed payment terms in relation to the $141,976.67 due to L&H at 31 January 2011.

Matrin 212 Matrin was a supplier of mounting brackets to SSA from January 2008 to 30 September 2011. Matrin's invoices indicated that its terms of trade were "Net 14 Days From Delivery Date". 213 It is apparent that SSA did not comply with those terms of payment. Instead, in the period between 12 November 2010 and 28 April 2011 it paid Matrin's invoices between 36 and 88 days after delivery (on average 55 days), which equates to be between 22 and 74 days late (on average 40 days). 214 The following table indicates the position: Invoice date Amount Owed Delivery date Due date Payment date 12 November 2010 $16,940.00 11 November 2010 25 November 2010 31 December 2010 24 November 2010 $22,440.00 24 November 2010 8 December 2010 31 December 2010 3 December 2010 $4,950.00 3 December 2010 17 December 2010 10 February 2011 15 December 2010 $8,976.00 16 December 2010 30 December 2010 10 February 2011 13 January 2011 $21,934.00 14 January 2011 28 January 2011 4 March 2011 18 January 2011 $21,428.00 19 January 2011 2 February 2011 4 March 2011 25 January 2011 $22,440.00 27 January 2011 10 February 2011 4 March 2011 10 February 2011 $39,842.00 10 February 2011 24 February 2011 1 April 2011 11 February 2011 $10,120.00 21 February 2011 4 March 2011 1 April 2011 18 February 2011 $70,939.00 18 February 2011 4 March 2011 1 April 2011 11 March 2011 $11,088.00 14 March 2011 28 March 2011 17 May 2011 16 March 2011 $74,514.00 16 March 2011 30 March 2011 17 May 2011 25 March 2011 $82,071.00 25 March 2011 8 April 2011 17 May 2011 31 March 2011 $12,971.20 31 March 2011 14 April 2011 17 May 2011 6 April 2011 $48,004.00 7 April 2011 21 April 2011 4 July 2011 28 April 2011 $20,871.84 28 April 2011 12 May 2011 4 July 2011

215 It is apparent that Matrin acquiesced in SSA's pattern of payment. Its attitude is evident in the email which it sent to SSA on 9 May 2011: Solar Shop usually makes a monthly payment to Matrin around the end of the month. Last payment we received was 1 April, so I was sort of expecting something last week. Usually this is no problem and we keep pretty relaxed trading terms with Solar Shop, however I have some hefty payments due to the Tax Office this week, totalling just under $150K. The ATO is not currently giving out extensions, so can you please advise ASAP what payment you can make on invoices over 30 days. Sorry to be a pest, but earliest possible attention to this would be much appreciated. (Emphasis added) 216 One week later, Matrin wrote again to Solar Shop: Just following up from last week on outstanding accounts. I have attached an updated statement as of today. Can you please advise next payment date and $amount ASAP so I can make arrangements my end. As mentioned, normally we keep very flexible trade terms with Solar Shop, however I have some large payments now due so I need to call in overdue accounts. Even if you can clear the +60 day amounts immediately would be a great help. If there is some problem please let me know so we can sort it out. (Emphasis added) 217 Matrin's references to "pretty relaxed trading terms" and "very flexible trade terms" are to be noted. To my mind, those statements, together with SSA's pattern of payment suggests an implied agreement between SSA and Matrin for extensions of the time within which SSA was to pay Matrin's accounts. That being so, I am not satisfied that the sum of $35,860 (the aggregate of the amounts due at 31 January 2011) was due and payable to Matrin at that date.

Trade creditors - general 218 While the Liquidators selected 31 January for analysis, no doubt as a matter of convenience, regard should be had to events surrounding that date. On 28 January 2011, SSA had cleared its debt of $70,312.70 owing to another trade creditor Innodev Pty Ltd (Innodev) and, on 2 February 2011, it cleared the debts of $32,929.29 and $518,161.28 owing to SMA and to Wuxi respectively. Having regard to the trading relationship with Optimum Media, Fasteners, BlueScope and L&H described above, the effect then was that only two days after 31 January, the amounts overdue for payment by SSA (those due and payable) to the 14 major creditors were only $130,000 (rounded) to Fasteners and $141,976.67 to L&H. 219 I also note that in the First Business Review, Mr Hart reported: No creditors have stopped supply and the deferred trade creditors have since been repaid to within standard terms. Mr Hart did not identify what he meant by "the deferred trade creditors" and "standard terms", nor what he had done to verify that situation. However, his report seems generally consistent with the conclusions which I have reached above.

January 2011 trading loss 220 The next matter on which the Liquidators relied was the evidence indicating that SSA had sustained a trading loss of $1.946 million in the month of January 2011. This figure appears in a forecast profit and loss statement presented to SSA's Board at its meeting on 24 February 2011. It is not apparent how the loss of $1.946 million reconciles with the loss of $926,075 recorded for the month of January 2011 in another document presented to the same Board meeting. 221 However, it is not necessary to explore that question. The fact that a loss is incurred in one trading month is not of itself a strong indicator of insolvency. In the first place, the month of January is usually associated with holidays and it is to be expected that SSA's income would, by reason of that circumstance, be lower than in other months. SSA had described this as the "industry norm" in its letter to Westpac on 14 December 2010. That there was a slowdown in January 2011 is also confirmed by a comparison of SSA's income in the months preceding and following January 2011. 222 Further, the same forecast profit and loss statement upon which the Liquidators relied shows that SSA's net profit after tax for the 12 month period commencing February 2010 and concluding in January 2011 was $538,000. 223 Accordingly, I do not regard the trading loss for January 2011 as a significant factor.

The apparent fraud in the Sunsavers division 224 SSA was the victim of an apparent fraud by the general manager of its Sunsavers division (owned by its subsidiary Solar Hut) in the period between August 2009 and November 2010. It became aware of the apparent fraud during November 2010. The Liquidators submitted that the apparent fraud in the Sunsavers division had the consequence that by 31 January 2011 the future forecast profits from it were manifestly overstated. 225 I have used (and will use) the term "apparent fraud" because the allegations of fraudulent conduct by the general manager have not been the subject of adjudication by a court and the former general manager has not been heard in these proceedings. 226 At its meeting on 24 September 2010, the Board of SSA discussed its dissatisfaction with the financial position of Sunsavers division. It requested its finance general manager (Mr Whelan) to undertake a review of Sunsavers. Mr Whelan provided a written report on 7 April 2011 but it is apparent that he had also reported informally before that time. He concluded, amongst other things, that the former general manager had in the period between August 2009 and November 2010 overstated Sunsavers' performance by recording fictitious sales; that approximately $750,000 of Sunsavers' income had been paid into an account controlled by the former general manager; that a significant amount of Sunsavers' inventory had been stolen; and that the former general manager had sold a significant number of RECs owned by SSA. 227 The effect of the apparent fraud appears to have been significant although it is not easy to quantify it with precision. The Liquidators referred to a document entitled "Solar Hut Accounting Review" prepared in August 2011. The author of this document is not identified, but I am willing to find that it was prepared within SSA. It appears from this document that instead of the Sunsavers division contributing approximately $3.2 million to SSA's EBITDA in the financial year ending on 30 June 2010, it may in fact have made no contribution. The Accounting Review also suggests that the apparent fraud had the following effects: a reduction in trade receivables in relation to Government rebates of $2.168 million; a reduction in inventory of $853,000 as a result of the loss of inventory; an increase in the provision for doubtful debts of $435,000; an increase in the RECs receivable of $391,000 (apparently as a result of Sunsavers identifying RECs not previously recorded in its financial accounts); an increase in current liabilities of $250,000 in respect of a provision for remediation costs; an increase in the GST receivable of $141,000, being the GST effect of the transactions just outlined. There is, however, no other evidence upon which to base a finding that these were the effects. 228 The balance sheets in SSA's management accounts do indicate that retained earnings decreased by approximately $4.2 million between October 2010 and January 2011 with the after tax impact being $1.9 million. This reduction may well have been attributable to the ascertainment of the apparent fraud, but the evidence did not establish that that was so. 229 The evidence does not permit more definitive findings but I do accept that the apparent fraud in the Sunsavers division had a significant impact on SSA at a time when it was experiencing other cash flow difficulties. However, the Liquidators did not suggest that the effect of the apparent fraud required an adjustment to the figures in the Aide Memoire at any of the dates upon which they relied. Instead, it helps explain the financial position of SSA at the various dates under review.

The Solarise Loan 230 My earlier findings concerning the Solarise Loan indicate that it was not due and payable on 22 May 2011. In this circumstance, the position at 31 January 2011 with respect to the Solarise Loan does not have to be considered.

Consideration 231 The effect of these findings is that the "Adjusted Overdraft Account Less Stated Debts" figure in the Liquidators' Aide Memoire as at 31 January 2011 should be ($2,899,344.94). The Liquidators submitted that SSA had not been able to pay debts in that amount. 232 The Defendants submitted that the Liquidators' analysis failed to have regard to the resources available to SSA at 31 January 2011 to discharge its debts. Those resources included the full extent of the overdraft of $1 million and the assets available to SSA. With respect to the latter, the management balance sheet presented to the Board of SSA for its meeting on 24 February 2011 reported current assets of $37.3 million as at 31 January 2011 comprised as follows: Current Assets Amount ($'000) Cash and cash equivalents 2,108 Trade and other receivables 2,905 Provision for doubtful debts (688) Rebates receivable 1,094 Provision for rebates (600) RECs receivables 6,271 Provision for RECs (588) SFS trade debtors 2,643 Inventories 23,785 Other current assets (370)

233 The Defendants submitted that even if only the most liquid assets are considered (the cash and cash equivalents and trade and other receivables), they, in conjunction with the overdraft facility of $1 million meant that SSA had access to resources exceeding $5 million. This amount was more than sufficient to meet the figure of $2,889,368.47. 234 The amounts said to comprise "cash equivalents" are not altogether clear. It can be inferred that they do not include the RECs as "RECs receivable" are shown separately. I infer that the cash equivalents have the same meaning stated in SSA's financial statements for the financial year ending on 30 June 2010, namely: [C]ash and cash equivalents include cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. 235 The 30 June 2010 financial statements indicated that the trade receivables comprised "amounts receivable directly from customers and rebates receivable from the government". 236 At 31 January 2011, SSA had approximately $1.6 million in its bank accounts. That means that the cash equivalents were thought to comprise approximately $500,000 at 31 January 2011, but their composition is not known. No doubt, SSA required a significant proportion of the $1.6 million in order to fund its continued operations on a day-to-day basis. 237 As previously indicated, it is appropriate to have regard to all the resources available to a company by which it could meet its debts. Even if it could be said that the whole of the trade receivables and REC receivables were not immediately available to SSA to meet its debts, it seems probable that a sufficient amount could have been realised within a relatively short time so that SSA could meet the due debts of $2.9 million. Some of the cash and cash equivalents could also have been used for that purpose. 238 It is also appropriate to take into account that at 31 January 2011, Westpac was continuing to support SSA and that, in the First Business Review of 28 February 2011, Mr Hart recommended to Westpac that it continue to do so, albeit subject to conditions and to close supervision. 239 In these circumstances, I am not satisfied that the Liquidators have shown that SSA was insolvent in the defined sense at 31 January 2011.

SSA's solvency as at 30 April 2011 240 The Liquidators' first alternative to 31 January 2011 as the date by which SSA had become insolvent was 30 April 2011. 241 For convenience, I repeat the position shown in the Aide Memoire for 30 April 2011. Month End Date Overdraft Account (Actual) Less 14 Trade Creditors Overdue Less ATO Debt Due & Payable Less Solarise Debt Due & Payable Adjusted Overdraft Account Less Stated Debt 30/4/11 (511,566.14) (3,997,262.10) (962,692.42) 0 (5,471,520.66)

242 In addition to the matters on which the Liquidators relied for insolvency by 31 January 2011, they relied on the following: (a) by 30 April 2011, SSA's debt of $2.444 million to another supplier, Bosch Solar Energy AG (Bosch), had become overdue and was never brought back within terms; (b) the adjusted overdraft account less stated debts figure in the Aide Memoire was now $5,471,520.66; and (c) the spot price for RECs had fallen from approximately $38 to $25 during the first two weeks of April, with the effect that the Company's assets had declined materially, as had its proceeds from ongoing trading. 243 Again, the Liquidators did not provide any cash flow analysis of SSA's position at 30 April 2011.

The Bosch liability 244 Bosch is a German company which commenced supplying to SSA in January/February 2011. There are two principal issues bearing on whether there was a debt due and payable to Bosch at 30 April 2011. 245 The first concerns the identification of the relevant terms of payment. Bosch asserted in a letter to SSA of 8 July 2011 that the terms of the orders were governed by a "framework contract" dated 26 November 2010 to which SSA was a party, the general terms and conditions which were annexed to the framework contract, and in the first delivery contract for the supply of solar modules dated 26 November 2010. Those documents were not in evidence. However, several of the "down payment requests" and some of the invoices issued by Bosch to SSA indicate that its terms of trade were payment of a 10% deposit and the whole of the balance within 60 day of shipment. There is no indication that SSA had ever disputed those terms. 246 Despite that, the Defendants submitted that Bosch's terms required payment within 75 days of shipment. They relied upon two pieces of evidence for this contention. The first was a record of the report made by SSA's CEO to its Board on 28 October 2010. The report was to the effect that Bosch would commence shipping in January 2011 and that its terms were "75 days credit from shipping". The second was a handwritten note on an invoice issued by Bosch on 27 January 2011 stating "P040248 Payment due 8/4/11". As to the latter, the Defendants submitted that 8 April was 75 days after 27 January and, accordingly, that this confirmed the 75 day term. 247 I regard these two pieces of evidence as insufficient to displace the inference naturally arising from the documents issued by Bosch. In the first place, 8 April is not 75 days after 27 January, but 71. The author of the handwritten note on the 27 January invoice was not identified but I am satisfied that it must have been someone within SSA. That is to say, it cannot be regarded as reflecting an acknowledgement by Bosch that SSA had 75 days in which to pay. Instead, I consider that the sequence in relation to the order on which the Defendants relied to be this: Bosch issued a "down payment request" on 18 January 2011 for €43,261.31; SSA paid that amount on 20 January 2011; Bosch issued the invoice for the balance on 27 January 2011; and SSA made payment of that balance on 8 April 2011. 248 Bosch also issued "down payment requests" in relation to later orders and SSA complied with those requests by paying, in effect, a 10% deposit. That practice is inconsistent with the terms of trade being those described by the CEO to SSA's Board on 28 October 2010 which made no reference to the payment of deposits at all. Further, the identification of Bosch's terms of trade with SSA is to be determined objectively. SSA's own subjective understanding is not indicative of the position. Accordingly, I reject the submission of SMA that, because the Board on 28 October 2010 had understood that Bosch's invoices were payable within 75 days from the date of shipment, that was the contract position, with the effect that none of the amounts identified by the Liquidators as being outstanding during April and early May were in fact due for payment. 249 In short, I am satisfied that Bosch's terms required payment of a 10% deposit and payment in full of the balance within 60 days of shipment. 250 The second principal issue is to identify the various dates of shipment from which the 60 days commenced to run. There is no direct evidence of those dates. The Liquidators relied on an analysis made by Mr Morris which assumed that the Bosch invoices were issued on the dates of the respective shipments. On that basis, they submitted that SSA's payment history in relation to Bosch was as follows: Invoice Date Amount Due Date Payment Date(s) A$ 19 January 2011 57,975.49 20 March 2011 20 January 2011 27 January 2011 535,559.46 28 March 2011 8 April 2011 11 February 2011 117,605.87 12 April 2011 23 February 2011 11 February 2011 117,605.87 12 April 2011 23 February 2011 18 February 2011 193,770.96 18 April 2011 2 August 2011 24 August 2011 24 February 2011 354,940.27 25 April 2011 2 August 2011 24 August 2011 3 March 2011 196,812.27 25 April 2011 - (six invoices on this date) (six invoices in this amount totalling $1,180,927.62) 4 March 2011 714,570.74 26 April 2011 2 August 2011 24 August 2011

251 However, while the assumption that Bosch issued its invoices on the same day that it made the shipment seems plausible, it is undermined by Bosch's letter to SSA on 8 July 2011. In that letter, Bosch asserted that SSA's account of €1,557,406.92 was 53 days overdue. That implied that a payment had been due on 16 May 2011 but that date does not appear in the table. The discrepancy may be explained by the circumstance that invoices were issued before shipment occurred, but it is not possible to make a finding about that. 252 The uncertainty as to when the 60 day period commenced to run precludes satisfaction that the Bosch debt on which the Liquidators relied was due and payable on 30 April 2011 although it is probable that it had become due by at least 16 May. Accordingly, I do not consider that it should be taken into account in determining SSA's solvency as at the former date. 253 It is convenient to address at this stage two further matters upon which counsel for SMA relied. First, he contended that SSA's non-payment of the Bosch account should be attributed to a dispute which had arisen between SSA and Bosch concerning the supplied modules rather than to an inability of SSA to pay Bosch's accounts. For this contention, counsel relied on entries in SSA Board documents. The minutes of the 17 March Board meeting include: Panels - Bosch So far these panels are not being embraced by customers; there may be some gremlins in the pricing. We have committed to 2 impending orders, [we] will hold back on committing to a third until customer adoption can be confirmed. The report of the CEO (Mr Thornton) to the Board meeting on 30 May 2011 included the following: Bosch Fired. Stock not moving acceptably and consumers generally unenthused by the offering. Slow paying until the stock moves. 254 In my view, it is not possible to understand these entries as indicating a dispute between SSA and Bosch, as counsel for SMA submitted. Rather, it suggests that SSA's customers were resistant to paying the price of the Bosch modules. Because of that, SSA decided to discontinue purchasing from Bosch and to "slow" payment to Bosch until it was able to move the stock. SSA could adopt that course because it did not need to make timely payments to Bosch in order to ensure continuation of the supply. 255 The second contention of counsel for SMA was that SSA and Bosch had negotiated a payment plan in respect of the amounts outstanding to Bosch which involved payments of €350,000 on the 24th day of each month until the amount had been cleared, and that SSA had made payments in accordance with that plan on 2 August and 24 August 2011. For this contention, counsel relied on the letter from Bosch of 8 July 2011 to which I referred earlier. By that letter, Bosch confirmed to SSA that it was in default of its obligations and referred to its demands for payment. It then made an offer to resume possession of 840 of the panels which it had supplied and offered a payment plan in respect of the other goods which it could not retrieve. The payment plan involved essentially monthly payments of €350,000 until the outstanding debt had been repaid in full. The offer was expressed to be open until 13 July 2011 and indicated that, in the event that the offer was not accepted, Bosch would take enforcement action. The letter specified that SSA should indicate its acceptance of the offer by a signed acknowledgment. The evidence did not contain any such signed acknowledgement. 256 However, counsel for SMA submitted that SSA's acceptance could be inferred from the fact that it had later made two payments of €350,000 each. I consider this to be insufficient to warrant a finding that an agreement of the kind for which counsel contended had been made. However, even if it did justify such a finding, it would not alter the position that the debt to Bosch had become due and payable at the least by the third alternative date advanced by the Liquidators, namely, 22 May 2011. A number of matters support that inference. First, it is probable that the shipments to which the invoices issued by Bosch on 18 and 24 February and 3 and 4 March 2011 relate, had all been made relatively soon after those dates so that the 60 day period for payment had well and truly expired before 22 May 2011. Further, as already noted, the Bosch letter of 8 July 2011 asserted that SSA's account of €1,557,406.92 had been overdue for 53 days (ie, since 16 May 2011). The letter also referred to the demands which Bosch had made for payment of its outstanding accounts by letters dated 31 May and 27 June 2011 and in telephone discussions on 24 and 27 June 2011. The circumstance that SSA and Bosch may later (in August 2011) have entered into some payment arrangement does not alter the circumstance that the Bosch debt was due and payable by 22 May 2011. I reject the submission of SMA to the contrary.

Other trade creditors 257 The Defendants disputed that the amounts shown in the Aide Memoire as owing to Optimum Media, Fasteners, BlueScope, L&H and Matrin were due and payable at 30 April 2011. They relied on the same matters as they had in respect of the position at 31 January 2011. 258 For the reasons given earlier, I am not satisfied that the amounts of $467,000, $476,000 (all figures rounded to nearest one thousand) and $229,000 were due and payable to Optimum Media, BlueScope and Matrin respectively, but am satisfied that the amounts of $105,000 (rounded) and $276,000 (rounded) were due and payable to Fasteners and L&H respectively. 259 This means that the Trade Creditors Overdue figure for 30 April 2011 in the Aide Memoire should be adjusted to $2,825,155.59. The amount drawn down on the overdraft should also be excluded because it was not due and payable at 30 April 2011. This means that the Adjusted Overdraft Account Less Stated Debts figure should be adjusted to $3,787,848.01 (in round terms $3.8 million).

Consideration 260 The resources available to SSA at 30 April 2011 to meet debts of $3.8 million comprised cash at bank of a little over $800,000, the balance of the $1 million overdraft which had not been drawn (just under $490,000), the cash equivalents, the trade receivables and the RECs receivables. The other assets in SSA's balance sheet could not reasonably be regarded as readily realisable and SSA could not increase its borrowings. 261 The aggregate of the cash and cash equivalents at 30 April 2011 was $822,000 and, of that, a little over $800,000 was in cash. This suggests that the cash equivalents were negligible and can be ignored. 262 SSA's balance sheet in its management accounts showed that the RECs receivable amounted to $6.369 million. It appears that this figure was based on an average price for RECs of $36 whereas at the end of April, the spot price was $26. This suggests that the value of the RECs at the end of April 2011 was not $6.369 million but $4.6 million. It also meant that SSA could dispose of the RECs only by incurring a loss. 263 It is convenient to record here that the spot price of RECs continued to decline reaching a low of $19.75 on 21 June 2011 and did not return to $26 until 8 August 2011. 264 I will refer in relation to later months to some matters bearing upon the extent to which the RECs were readily saleable. For the present, it is sufficient to note that sale of the RECs held at 30 April 2011 would have been more than sufficient to meet the debts which were due and payable at that date. 265 At 30 April 2011, the trade receivables (the amounts payable by SSA's customers) comprised $3.586 million. Given SSA's liquidity difficulties, it is to be expected that it had been seeking payment by its customers as promptly as possible. I will refer to some evidence bearing on this shortly. It does not seem reasonable to infer that SSA would have been able to achieve payment from its customers any more quickly than it was in fact achieving. There was no suggestion that a factoring arrangement was possible. Such an arrangement would probably have contravened the Facility Agreement with Westpac in any event. Nevertheless, it is reasonable to assume that some of the trade receivables were available to meet the debts then due and payable. 266 I am not willing to accept that the whole of SSA's cash at bank and overdraft balance was available to meet the overdue debts at 30 April 2011. If they were, SSA would have then been deprived of that resource in continuing business. There is some evidence that its employment expenses alone exceeded $1 million each month. SSA did not have alternative sources of funding so that if it used its available cash to meet the debts due and payable on 30 April, it would have become insolvent in any event. To my mind, it is not realistic in these circumstances to assume that anything more than a modest proportion of the cash and remaining overdraft was available to meet the outstanding debts. 267 When account is taken of the trade receivables, RECs receivables and some of the cash resources, I do not consider that it can be concluded on the basis of the Liquidators' analysis that they have proven that SSA was insolvent as at 30 April 2011. On the Liquidators' case, it had to find $4.3 million in order to discharge the debts then due and payable. SSA's financial position was obviously tight, but I do not consider that it can be said that at that date it was unable to pay its debts as and when they fell due.

SSA's solvency as at 22 May 2011 268 On my understanding, the Liquidators selected the date 22 May 2011 only because that was the date on which, on their case, the Solarise Debt became due and payable. Their contention was that the addition of that liability made SSA's insolvency palpable. 269 I have found that the Solarise Loan was not due and payable on 22 May 2011 because it remained subordinated to the Westpac debt. The Liquidators did not provide any other analysis of the position at 22 May which would warrant a finding that SSA was otherwise insolvent as at that date. In saying that, I am not overlooking my finding that the Bosch debt had also become due and payable at 22 May. I will instead consider the position as at 31 May 2011 for which some analysis is possible because of the availability of financial evidence.

SSA's solvency as at 31 May 2011 270 For convenience, I will repeat the position shown in the Aide Memoire for 31 May 2011: Month End Date Overdraft Account (Actual) Less 14 Trade Creditors Overdue Less ATO Debt Due & Payable Less Solarise Debt Due & Payable Adjusted Overdraft Account Less Stated Debt 31/5/11 (718,909.98) (5,655,414.08) (1,511,403.95) (4,678,682.63) (12,564,410.64)

The trade creditors 271 The debt said to be overdue to the 14 trade creditors at 31 May 2011 was comprised as follows: Optimum Media (rounded) $467,000.00 Fasteners (rounded) $108,000.00 Wuxi (rounded) $1,199,000.00 BlueScope (rounded) $495,000.00 IPD Group (rounded) $263,000.00 L&H (rounded) $250,000.00 Matrin $68,875.84 Enerdrive $180,180.00 Clenergy $181,484.09 Bosch $2,444,155.59 Total $5,656,695.22

272 For the reasons previously given, I will exclude Optimum Media, BlueScope and Matrin from that list but will retain Fasteners and L&H. In respect of Bosch, I indicated earlier my acceptance that the debt of $2.444 million was due and payable at 22 May 2011 (and would also find that it was due on 31 May 2011). This means that the debts shown to be due to Wuxi, IPD Group, Enerdrive and Clenergy must be examined.

Wuxi 273 Wuxi was a Chinese manufacturer and exporter of solar panels and a substantial supplier to SSA. Its payment terms were "100% T/T net 90 days from B/L date" which I understand to mean the payment was required in full within 90 days of the bill of lading date. 274 Wuxi's invoices did not include the bill of lading date but did include an "ETD" date, which I understand to be an abbreviation for "estimated time of departure". 275 SSA had been generally compliant with Wuxi's terms of trade in late 2010 and early 2011, although its payment of USD511,784 due in respect of an invoice dated 14 October 2010 and due in January 2011 had been about 15 days late. 276 The invoice on which the Liquidators rely in their Aide Memoire was issued on 23 February 2011 for an amount of USD1,244,880. That invoice was due and payable on or about 26 May 2011 but SSA paid it in two equal instalments on 17 June and 24 June. 277 Counsel for SMA submitted that the payment of $1,199,000 should not be regarded as outside terms at 31 May 2011 because SSA had a payment arrangement in place with Wuxi. He referred in this respect to an email from Mr Thornton to Wuxi on 3 December 2010 in which, after referring to SSA's "near term cash constraints", Mr Thornton said: [W]e are forecasting a need to manage payments through this period and sincerely appreciate your support and assisting Solar Shop through this period. Below is the payment plan. Ms Lu from Wuxi responded on 7 December 2011: Thanks for your payment plan in advance. We would like to support Solar Shop on this matter. Please make the payments according to your below schedule … 278 The payment plan to which Mr Thornton referred was not proved in evidence. 279 I accept that this exchange evidences Wuxi's agreement to a payment plan in respect of an amount then due to it (and probably explains the late payment of the debt due in January to which I referred earlier). However, I do not consider that the exchange can reasonably be understood as evidencing an agreed departure from Wuxi's terms of trade in respect of its subsequent supplies. Mr Thornton's reference to "near term" cash restraints suggests that he was seeking only some short term relaxation of Wuxi's terms of trade, as do the reasons he gave for the request. I also note in this respect that SSA did not conduct itself as though it had a payment plan: on the contrary, it complied with Wuxi's usual terms of trade. 280 It is also pertinent to record that on 1 June 2011, Mr Thornton proposed to Wuxi that it accept the transfer of RECs "over the next 45 days at a risk adjusted discount cash flow" in exchange for a payment plan. Wuxi responded by asking for the proposed payment schedule. That exchange is inconsistent with there having been an existing payment plan. There is no evidence that SSA and Wuxi later agreed upon a payment plan, and I reject the submission of counsel for SMA to the contrary. The best I think that can be said is that given the history, SSA may have had some prospect of negotiating a payment plan with Wuxi, but that does not alter the circumstance that its debt to Wuxi was due and payable by on or about 26 May 2011. 281 Accordingly, I consider that SSA's debt of $1,199,000 was properly included in the analysis in the Liquidators' Aide Memoire at 31 May 2011.

IPD Group Ltd 282 IPD Group Ltd (IPD) supplied circuit breakers, distribution equipment and switchboard systems to SSA. 283 The analysis in the Aide Memoire showed that $263,000 was due to IPD at 31 May 2011. 284 However, the Liquidators did not adduce evidence of IPD's invoices nor a statement from IPD for the month of May 2011. The statements for the months either side of May 2011 indicated that "Standard IPD Group Conditions Apply", but the Liquidators did not adduce evidence of those standard conditions. In these circumstances, it is not possible to make findings as to the terms of IPD's supply, let alone as to whether SSA was non-compliant with those terms. 285 Accordingly, the debt of $263,000 to IPD at 31 May 2011 should be excluded from the analysis in the Aide Memoire for 31 May 2011.

Enerdrive Pty Ltd 286 Enerdrive Pty Ltd (Enerdrive) supplied a variety of the componentry used in SSA's solar systems. Enverdrive's invoices required payment to be made in full by the 30th day of the month following the date of invoice. 287 The Defendants did not dispute that $180,180 was outstanding to Enerdrive by 31 May 2011. They noted, however, that the late payments to Enerdrive appear to have coincided with the cessation in the trading relationship between SSA and Enerdrive. The reasons for that cessation of relationship are not known, although I note that SSA had previously been late in payment several of Enerdrive's invoices. 288 I accept that the sum of $180,180 due to Enerdrive is properly included in the Aide Memoire analysis.

Clenergy Australia 289 As noted earlier, the Defendant Kerry J Investment Pty Ltd traded as Clenergy Australia (Clenergy). It supplied energy solutions and calculations. 290 Clenergy's invoices stated its payment terms to be "Net 30". I infer that this meant 30 days from the date of invoice. 291 SSA did not comply with those terms. In respect of invoices issued during the month of April, it exceeded the 30 day requirement in one instance by up to 70 days and in two instances by 68 days. The pattern of SSA's payments does not indicate any agreement, tacit or express, entitling SSA to delay the payments. As a party to the litigation, Kerry J was in a position to adduce evidence of any such arrangement, and it did not do so. 292 I consider that the amount of $181,484.09 due to Clenergy at 31 May 2011 was properly included in the Aide Memoire analysis.

Summary of adjustments 293 When the amounts due to Optimum Media, BlueScope, Matrin and IPD are excluded from the figure for trade creditors at 31 May 2011, the figure for those whose payments were overdue is $4.375 million. 294 The Solarise debt is also to be removed from the aggregate figure of $12.564 million, as is the amount by which SSA had drawn down on the overdraft. Making these adjustments, the figure in the Adjusted Overdraft Account Less Stated Debts column should be $5,887,223.63 (in round terms $5.9 million). 295 The 31 May figure was potentially even higher by reason of Westpac having put its facilities "on demand". By letter dated 27 May 2011, Westpac confirmed SSA's breaches of covenant at 31 March 2011 and that an Event of Default had occurred under the 2010 Facility Agreement. Westpac gave notice to SSA that it did not waive the Event of Default and continued: In consequence of these Events of Default all facilities provided to SSA are on demand. … We reserve our right to take action/further action in reliance upon these Events of Default including, but not limited to, the right to require all Facilities be immediately repaid or appointment of an Investigating Accountant at your cost. (Emphasis added) 296 If account is taken of SSA's liability to Westpac, then plainly it was insolvent at 31 May 2011. However, Westpac had not in fact issued a demand and its facilities continued to be available to SSA.

Consideration 297 May 2011 was a relatively good trading month for SSA. The table set out earlier in these reasons indicated that it had increased its EBITDA for the year to date to 30 April 2011 from $1.126 million to $3.225 million and its NPAT from negative $1.98 million to $534,000. 298 The Defendants submitted that SSA had sufficient resources available at 31 May 2011 with which to meet the debts then due and payable. For this purpose they relied on the assets set out in the balance sheet in SSA's management accounts as at 31 May 2011. Current Assets May 2011 ($'000) Cash and cash equivalents 1,421 Trade and other receivables 6,499 Provision for doubtful debts (688) Rebates receivable (4) RECs receivables 12,704 Provision for RECs (851) SFS trade debtors 5,256 Inventories 26,591 Other current assets 1,569 Total current assets 52,497

299 The SFS trade debtors figure for 31 May can be ignored as these were amounts owing by customers who arranged finance for their installations through SSA's subsidiary Sunworks. The Defendants did not submit that the amount of inventories comprised a resource which was readily convertible to cash. It is in any event evident that SSA's management had been working diligently before 31 May to reduce and monetise the inventory where possible. 300 The cash and cash equivalents figure at 31 May 2011 was comprised almost wholly of cash held by SSA at bank. The balance of the overdraft available at 31 May 2011 was only $281,000 (rounded). 301 Again, the RECs receivable figure of $12.704 million was based on an average cost of about $36 per REC whereas the actual spot price at 31 May 2011 was $25.15. This figure should accordingly be adjusted to $8.875 million. The provision of $851,000 appeared to recognise the falling market price. 302 In respect of SSA's debtors' position at 30 April 2011, I referred to the difficulties in regarding significant amounts of the trade and other receivables as being readily available to meet SSA's debts which were then due and payable. That conclusion is confirmed by a report dated 31 May 2011 which stated: In FY11 YTD, and in particular over the last 60 days, management have done everything possible to improve the company's cash position - including significantly reducing debtors days, monetising and reducing inventory, and stretching out creditor payments where possible. Thus, the figure at 31 May can be taken to have reflected management's best efforts to secure payment from its debtors and to monetise inventory. 303 The RECs could be sold but it is apparent that SSA would have experienced difficulties in doing so quickly. So much is evident from the analysis which SSA had itself carried out in mid-May 2011. In that analysis, the author canvassed five options: sell the RECs in the spot market; sell the RECs to a "repo" program provided by the ANZ Bank; sell the RECs to Mr Ferraretto; sell the RECs to Mr Mourney or Solarise in partial reduction of the Solarise Debt; sell the RECs to the Harbert investors. 304 The author of the analysis noted difficulties with each of these alternatives. As to selling RECs in the spot market, the author noted doubts as to whether there was sufficient liquidity in that market to enable a sale to be made. As to sale to the ANZ Bank repo program, the author noted that it would take approximately two weeks to set up the facilities and would in any event require a "whole of business" credit review by ANZ. A sale to Mr Ferraretto, to Solarise or to Harbert investors would require negotiation. Further, in the case of Solarise, the sale would result only in a reduction of the Solarise Debt and would not provide SSA with additional funding. 305 The significance of realising assets within a particular time was addressed by Palmer J in Hall v Poolman at [187]: An asset cannot be taken into account in assessing solvency at a particular time without reference to the time it would realistically take to effect realisation and produce cash. It is no indication of solvency - indeed, it is the opposite - to point to property as available to meet debts falling due next month when, even with the utmost expedition, that property cannot be turned into cash for 6 months. Realisable property can only be taken into account in assessing solvency "if that property is in such a position as to title and otherwise that it could be realised in time to meet the indebtedness as the claims mature" … (Citations omitted) 306 In my view, this reasoning is apposite. In determining whether SSA was solvent, regard must be had to the time it would take to raise the capital required to meet liabilities. 307 Some conclusions as to the liquidity of the RECs can be drawn from the record of SSA's sales of them during 2011. The first sales of RECs by SSA in that year occurred on 31 March 2011. During April 2011, SSA made eight separate sales, all privately negotiated. This was at a time when the spot price of RECs was declining significantly. During May, SSA made three separate sales and, on 31 May, transferred 12,987 RECs to Solarise in reduction of its debt. On 6 June, SSA transferred 78,560 RECs to the Ferrarettos (thereby raising $2.8 million). They were a related party (being SSA's second largest shareholder) and the sales were on advantageous terms for SSA, perhaps because the Ferrarettos were seeking by this means to provide some support to SSA. Thereafter, SSA made only three further sales of RECs in June 2011. 308 A sale to the Commonwealth Bank of Australia (CBA) of 180,000 RECs on 30 June 2011 was by far and away the largest of these sales. However, it was part of a Put and Call arrangement for the sale of 480,000 RECs at a rate of $20.25 which was to be effected over a three month period, with the effect, as I understand it, that SSA was not to receive payment in full immediately. Further still, SSA could be required to buy back the RECs at the sale price plus 10%. This could have resulted in SSA incurring a further loss. 309 The sales of the RECs in April, May and June 2011 occurred at a time when SSA had a need for cash and was looking to raise it by the sales. However, the overarching problem for SSA was that there was an oversupply of RECs in the market. The fact that SSA was willing to sell such a large quantity of RECs to CBA at a significant loss is some measure of its financial difficulty at that time. 310 In my view, the sales history supports the view that the RECs were liquid to an extent but that there were limitations on SSA's ability to sell them quickly. Another indication that this was so is contained in the email of SSA's CEO (Mr Thornton) sent on 1 June 2011. Mr Thornton proposed that SSA transfer RECs to Wuxi "in exchange for supplier payments at a discounted cash flow". He explained to Wuxi: The high volume of systems being put in by June 30 especially in NSW was going to generate STC's at an astronomical rate especially given the rather low liability that had been set. Obviously, this reality is come to fruition as the market has become flooded at the moment and liquidity has correspondingly dropped. 311 The position at 31 May 2011 seems to have been that SSA had approximately $1.7 million in cash (the monies held in its account and the balance of the available overdraft) together with whatever amounts could be realised from the trade and other receivables, and the REC receivables with which to meet debts which were then due and payable amounting to $5.9 million. 312 It is to be remembered that the question is not just whether SSA was able to pay its debts but whether, ignoring temporary illiquidity, it was able to do so when they were due and payable. 313 The Defendants submitted that SSA's failure to pay its debts when due was not an indication of an inability to pay them. It may be accepted that there is a distinction between a failure to pay debts when due and an inability to pay them: Hussain at [116]; Hall v Poolman at [147]-[153]. However, in the present case, subject to one qualification, the distinction is not real. The submission of counsel for SMA effectively acknowledged as much when he said that SSA had "adopted a conscious approach of seeking to defer payments … where possible" in order to manage the identified cash hole. The evidence bears out that SSA was deferring payments because it could not meet them. Its approach to payment of the Bosch debt to which I referred earlier, is one instance of this. To use the language of Palmer J in Hall v Poolman, this is not a case of a company refusing to pay for fanciful or improper reasons, or because its officers were irresponsible. Nor was it a case of a company cynically exploiting the willingness of some creditors to allow some flexibility in their payment terms. The overall effect of the evidence is that SSA was willing to pay its debts if only it could. 314 I mentioned a qualification. It is evident that SSA was reluctant to sell the RECs when that would mean that it would incur a loss. That is understandable. I take into account therefore that its omission to sell all available RECs by 31 May should not be regarded as an inability to sell them, even if there were some limitations on their liquidity. 315 For the reasons given earlier, the cash and undrawn overdraft should not be taken into account. If SSA had used these funds to pay its outstanding debts, it would have become immediately insolvent in any event. Despite the limitations on the saleability of the RECs, SSA was able to make a sale to the Ferrarettos on 6 June 2011, thereby realising $2.8 million, and to CBA on 30 June 2011, thereby realising $3.645 million. SSA's other sales of RECs in June 2011 were modest (20,000 on 16 June and 4,300 on 20 June). 316 However, even taking into account the limitations on the saleability of the RECs, they were sufficient to meet the debts due and payable at 31 May 2011. It is understandable that SSA was reluctant to sell the RECs earlier but they remained an asset which could be sold to meet SSA's debts. That being so, I do not consider that the Liquidators have proven that SSA was insolvent at 31 May 2011.

SSA's solvency as at 31 July 2011 317 No party contended for a finding of insolvency as at 30 June 2011 so that the position at that date need not be considered. However, as noted at the commencement of these reasons, SMA contended, by reference to the report of Mr Lombe, that SSA had become insolvent by 29 July 2011 or 4 August 2011. It is therefore convenient to take 31 July 2011 as a reference point. 318 It also convenient to commence with the same methodology relied upon by the Liquidators as for the previous months. For convenience, I set out the analysis of the Liquidators in the Aide Memoire as at 31 July 2011. Month End Date Overdraft Account (Actual) Less 14 Trade Creditors Overdue Less ATO Debt Due & Payable Less Solarise Debt Due & Payable Adjusted Overdraft Account Less Stated Debt 31/7/11 (510,762.69) (8,463,956.19) (365,887.02) (4,328,682.63) (13,669,288.53)

319 The sum of $8,463,956.19 shown as overdue to the 14 major trade creditors was comprised as follows: Optimum Media (rounded) $154,000.00 Fasteners (rounded) $326,000.00 Wuxi $4,849,577.59 IPD Group (rounded) $311,000.00 Clenergy (rounded) $379,000.00 Bosch $2,444,155.59

320 For the reasons given earlier, I will exclude the debts to Optimum Media and IPD Group from this list of creditors. The overdrawn balance on the overdraft and the Solarise account should also be excluded. This means that the figure in the column headed Adjusted Overdraft Account Less Stated Debts should be $8,364,620.20 ($8.365 million). 321 The assets recorded in SSA's management accounts which were available to meet these debts were as follows: Current Assets July 2011 ($'000) Cash and cash equivalents 984 Trade and other receivables 2,864 Provision for doubtful debts (698) RECs receivables CBA 3,645 RECs receivables 10,131 Provision for RECs (887) Inventories 20,666 Other current assets 448 Total current assets 37,153

322 For the reasons given earlier, I will again exclude the cash and cash equivalents and inventories from consideration as a resource which was available to SSA to meet the debts then due and payable. 323 The price used for the RECs in the balance sheet is not clear. I have assumed again that it was based on an average price of $36 whereas the spot price of RECs at 31 July 2011 was $23. I have therefore reduced the RECs receivables figure to $6.47 million. 324 This means that the aggregate of the adjusted RECs receivables figure and RECs receivables CBA figure ($10.117 million) exceeds the Adjusted Overdraft Account Less Stated Debts figure. 325 This might suggest that, as SSA had the ability to have recourse to the RECs to meet the debts which were then due and payable, it was solvent. However, I consider that other factors should be taken into account. 326 I have already referred to evidence indicating some limitations on the liquidity of the RECs. 327 The management accounts for the month of July 2011 reported that the trade creditors of SSA totalled $20.17 million, a figure which was substantially more than the total for the 14 creditors selected by the Liquidators for analysis. It seems realistic to infer that several of those trade creditors were also outside terms. I will refer later to a statement to SSA's Board on 19 July 2011 which provides some confirmation of this. 328 The balance sheet in SSA's management accounts for the month of July 2011 shows that SSA had a negative net equity of $5.37 million. This was deterioration from the position at 31 May when SSA had net equity of $2.743 million and a further deterioration from the position at 30 June when its net equity was a negative $4.387 million was shown. 329 Furthermore, SSA's cash flow problems were becoming more evident, as SSA's own cash flow analysis confirmed. 330 The Board meeting on 30 May 2011 noted that there was a "projected cash gap of $7-8 m" in late July. The increasing shortfall was evident in management's 12 week cash flow forecast for the period from 27 May 2011 to 12 August 2011 (prepared on a weekly basis). Because of space considerations, I will set out that cash flow analysis on a fortnightly basis, commencing on 3 June 2011 and concluding on 12 August 2011. One consequence of proceeding in this way is that the figures in the "Total" column are not the sum of the figures for the particular six weeks shown. Week Ending $'000 3-Jun-11 17-Jun-11 3-July-11 15-Jul-11 29-Jul-11 12-Aug-11 Total Cash Receipts Received from Customers 2,750 2,750 2,750 2,750 2,750 2,750 16,500 Contracted REC Sales - 814 - 827 - - 1,641 RECs sold to Adrian Ferraretto - - - - - - - SFS Drawdowns - 500 - - - - 500 Total 2,750 4,064 2,750 3,577 2,750 2,750 18,641 Cash Outgoings Suppliers - Panels + Inventory (4,569) (5,271) (1,391) (2,768) (3,790) (732) (18,521) Wages/Other Employee (313) (170) (300) (272) (170) (240) (1,465) ATO - Tax Instalments - - - - - - - Suppliers - Others (1,823) (467) (2,010) (445) (1,230) (489) (6,464) Total (6,705) (5,908) (3,701) (3,485) (5,190) (1,461) (26,450) Net Weekly Cash In/Out (3,955) (1,844) (951) 92 (2,440) 1,289 (1,809) Cash Position (excluding RECS Sales) Cash at start of week (1,023) (4,215) (9,523) (11,117) (14,929) (16,710) Net weekly Cash In/Out (3,955) (1,844) (951) 92 (2,440) 1,289 Cash at end of week (4,978) (6,059) (10,474) (11,025) (17,369) (15,421) Additional Cashflows from REC Spot Sales RECS on hand (not contracted to sell) 150,950 113,428 205,995 296,341 397,991 464,987 RECS Spot Price $25.00 $25.00 $25.00 $25.00 $25.00 $25.00 Cash Value of RECS ('000) 3,774 2,836 5,150 7,409 9,950 11,625 Adjusted Cash at end of week (1,204) (3,223) (5,324) (3,616) (7,419) (3,796) (Assumes Additional RECS sold in Spot market)

331 The "cash gap" which the Board noted on 30 May was the negative figure of $7.419 million at 29 July 2011. The analysis projected that, by 29 July 2011, SSA would have a total of 397,991 RECs with a value of $25. In fact, the spot price for RECs at 31 July was $23 meaning that the cash which could be realised from that number of RECs at 31 July 2011 was $9.153 million. 332 It was not suggested that SSA's cash flow analysis was unsound. On my understanding, the position at 31 July was not as severe as the cash flow analysis predicted because, putting to one side the RECs transferred to Solarise in reduction of its debt, SSA had in fact sold 374,300 RECs in the period from 26 May to 31 July 2011 and still held a substantial number of RECs, as the figure in the balance sheet indicates. Even so, there remained a substantial cash flow deficiency as at 29 July 2011. In short, the cash flow analysis is evidence of SSA's developing cash shortfall, even taking account of the prospect of sales of RECs.

Harbert fundraising 333 At its meeting on 30 May, the Board had discussed potential financing options which included raising capital through Harbert. The options included: Mr Ferraretto's agreement to buy 80,000 RECs for $2.8 million (this transaction occurred on 6 June 2011); selling RECs in the spot market; entering into some sort of "Repo" program; temporary funding from Westpac; and/or obtaining new equity from Harbert and other shareholders. 334 The Board pursued nearly all these alternatives. 335 Mr Steele was the representative of Harbert on the SSA Board. He was also the Managing Director of Harbert Fund Advisors (Australia) Pty Ltd. It was common ground that Harbert is a substantial US based investment firm. Mr Steele approached Harbert seeking further investment. Harbert was willing and prepared a document entitled "Investment Committee Update - Solar Shop Cash Situation" dated 31 May 2011 for consideration by Harbert's Investment Committee in relation to an injection of capital. That update included the same cash flow forecast as had been presented to SSA's Board on 30 May. 336 The Investment Committee Update noted that: [T]he previously contemplated RECs Repo program will not be sufficient by itself to bridge the company's short-term funding requirements. (Emphasis in the original) And later: In FY11 YTD, and in particular over the last 60 days, management have done everything possible to improve the company's cash position - including significantly reducing debtors days, monetising and reducing inventory and stretching out creditor payments where possible. Given the need to formulate a solution with regards to the [Solarise Loan] and also secure support from Westpac for the initiatives outlined in this memo, shareholders now need to take some action and we recommend HAPE considers the ways in which it can invest between $2-4 m to support the business through this short term liquidity issue. … Weekly Cashflow Forecast to mid-August 2011 Table 3 below shows the 12-week cashflow forecast provided by [SSA] management. This forecast excludes any repayments of the [Solarise Loan] which was due to be repaid at the end of May 2011: discussions are continuing with a view to formulating a new repayment structure. This forecast includes the sale of 80,000 RECs to Adrian Ferraretto for $2.8 m - at an average price of $34.25, which compares favourably to the current spot price of $25.00 and demonstrates Adrian's continuing support for the business. Documentation is currently being prepared and this transaction is expected to be complete … next week. This transaction does not include the ability for Adrian to put these RECs back to [SSA]; he will only realise cash proceeds from on-selling the RECs. The forecast shows a $7.4 m cash hole in the last week of July assuming that the company's entire RECs holding is sold in the spot market (at a current spot market price of $25). No other cash preserving or cost-cutting initiatives are included in the forecast below. … (Emphasis added) 337 On 17 June 2011, Harbert prepared a memorandum for the HAPE1 investors in which it referred to SSA's "short-term liquidity issue"; to the fact that SSA could not afford to accumulate RECs on its balance sheet and not convert them into cash; and to its need for additional funding (which Harbert quantified at approximately $7 million by mid-July. The memorandum said: The Investment Team remains confident of the success of HAPE1's investment in [SSA] and therefore is committed to support the business with capital. 338 It noted that the Fund Rules limited further investment to an additional $600,000 and therefore sought "support from HAPE1 investors" to commit up to an additional $4.4 million in a separate vehicle. 339 Harbert indicated that it was prepared to underwrite any investment shortfall by the investors and said that it required a commitment to funding by 30 June, with the capital to be invested by 15 July. It also told investors that Westpac was willing to increase financial support for SSA, subject however to SSA's current shareholders also increasing their financial support. 340 The further support by Harbert was subject to an important condition, as the memorandum indicated: As part of this capital injection, we will also be stabilising the relationship with Westpac and Solarise to ensure the business has sufficient time to track through the current issues. This is a prerequisite to Harbert committing to this capital raising. (Emphasis added) 341 On 20 June 2011, Harbert's Investment Committee indicated that it was considering investing a further $5.05 million ($650,000 through HAPE1 and $4.4 million by another investment vehicle). However, these additional investments were contingent on satisfaction of a number of conditions, including a successful capital raising among Harbert's own investors; Westpac's agreement to increase the overdraft limit to $3 million; the sale of RECs to another entity, Diamond Energy (proposed for late June and mid-July); and the finalisation of a further investment by Mr Ferraretto. None of these conditions was ever satisfied (nor waived): Harbert's investors were prepared to subscribe only $3.013 million; Westpac did not increase the overdraft limit; the transfer to Diamond Energy did not proceed (although, as noted, a sale to CBA was achieved); and Mr Ferraretto did not proceed with a mooted additional investment. Mr Ferraretto had informed Mr Steele sometime before 27 June 2011 that he did not have capital available to invest and Diamond Energy indicated, at about the same time, that it would not be able to proceed with the transaction. 342 On 29 June 2011, Harbert prepared another memorandum for its investors explaining the need for additional capital for SSA. A rights issue was contemplated. Again, Harbert indicated that it would underwrite the capital raising. The revised cash forecast, indicated a negative net cash position in late August 2011 of $5.4 million (excluding REC sales). 343 On 30 June 2011, Mr Steele circulated to the existing SSA shareholders the proposal for additional investment by them. None agreed to participate and that position was known before 31 July 2011. 344 On 21 July 2011, Mr Steele wrote to Mr Mourney asking him to defer any contact with Westpac. He said: [S]hareholders are seeking to invest up to an additional $5 m to sure up the balance sheet. As I mentioned yesterday, this money will be ready to invest in the next 10 days. Documentation is being prepared on the s/h investment, once we meet with Westpac on its facilities, we will move to prepare the documentation for Solarise and the bank. As you are already aware, the current cash hole is driven by the sharp and unexpected move in the STC price, and therefore the majority of the dollars in is going to sure up the balance sheet in the short term. Mr Steele's references to the money being available in the next 10 days and to the "current cash hole" are to be noted. 345 Harbert's interest in providing a capital injection is confirmed by the fact that it obtained accounting and legal advice concerning the capital raising. It not necessary to summarise that advice beyond noting that Harbert was informed that its proposed warrant and redeemable note structure was not "a simple transaction" from an Australian income tax perspective. 346 It is evident that Harbert continued during July and August to pursue possible further investment, but it never eventuated. It is not necessary to make more detailed findings. It is sufficient to say that: (a) during June and July 2011, SSA had the prospect of additional funding from Harbert; and (b) Harbert was willing to be a participant in arrangements for additional funding; but (c) by 31 July (two months after the cash shortfall had been identified) Harbert's own conditions were still not satisfied, including the raising of funds from its own investors. In my opinion, it cannot be concluded in the circumstances that further investment by Harbert was, at 31 July 2011, sufficiently certain as a matter of commercial reality so as to constitute a resource properly to be considered in relation to SSA's solvency. 347 I accept that if, on a "realistic commercial assessment", SSA had a firm prospect of a capital injection through Harbert, that circumstance would be relevant to an assessment of its solvency: ASIC v Edwards at [99]. One may accept that Harbert is an institution of size and resources but it is evident that any investment by it was contingent on it raising funds from its own investors (as well as an increase in the Westpac facilities). In the events which happened, Harbert was only partially successful in the former. Critically for present purposes, there was no clarity about its ability to do so as at 31 July 2011. As Barrett J observed in ASIC v Edwards: [T]he capacity to raise funds from external sources must be judged in a practical and business like way by reference to the commercial realities of the case … Possibilities are not enough. Genuine and realistic availability, as a matter of commercial reality, must be seen. 348 The uncertainty of the position at 31 July 2011 is confirmed by the evidence of some events occurring shortly after that date. In an email to SSA's other shareholders on 8 August 2011, Mr Steele said that Harbert had been able to receive subscriptions from its own investors for only $3.013 million with the effect that there was a shortfall in its proposed funding of just under $2 million. He proposed to the existing shareholders terms pursuant to which Harbert's investors may be willing to fund that additional $2 million. The terms of his email indicated the contingent nature of Harbert's willingness to provide further funding. 349 Contrary to the submissions of the Defendants, I do not consider it appropriate to proceed on the basis that additional funding from Harbert should be regarded as having been a resource available to SSA and therefore indicative of solvency until such time as it became apparent that Harbert would not make the additional investment.

Other resources available to SSA 350 It is necessary to consider the other resources which may have been available to SSA. 351 Earlier in these reasons, I noted that SSA had written to Westpac on 16 June 2011 seeking, amongst other things, an increase in the overdraft limit to $3 million, an increase in the forex facility to $10 million, and postponement of its obligation with respect to four of the quarterly amortisation payments of $500,000. It described its proposal as being part of an "all in" deal with its shareholders and Solarise for its future funding. Apart from the increase in the forex facility, Westpac did not accede to these requests. 352 By an email dated 29 June 2011, Westpac informed SSA that it was not prepared to waive the amortisation payments until the Second Independent Business Review had been completed. Westpac did say, however, that if the payment of the $500,000 amortisation payment on 30 June would exceed the existing overdraft: We would be prepared to support SSA in the interim with temporary Overdraft assistance if this payment creates an excess pending receipt of normal collections and management [of] other working capital variables. 353 SSA then requested an increase in the overdraft limit to $1.5 million for 60 days. Westpac did not accede to that request but did indicate that it would "honour all supplier payments and managing the excess position on a daily basis". 354 I am satisfied that while Westpac was prepared to continue its facility pending receipt of the Second Independent Business Review, it was not prepared to provide additional facilities other than in the limited way mentioned. After the Second Independent Business Review was completed, Westpac continued to offer some limited support but SSA could not comply with its required covenants. 355 As noted earlier, the recommendation in Ferrier Hodgson's Second Business Review of 24 July 2011 was that Westpac's continued support be subject to Harbert and/or other shareholders injecting $5 million into the business immediately. It is very evident that Westpac's willingness to continue support was contingent upon the injection of new capital from Harbert which, although sought some two months earlier, had still not been provided. 356 Mr Lombe noted in his first report prepared at the request of SMA that the solvency and future trading of SSA was contingent on SSA containing the cash injection of $5 million from Harbert in July and on Westpac's ongoing financial support. He also noted that the absence of either would be fatal to the solvency of SSA. I agree with that assessment. SSA did not have the cash injection from Harbert at 31 July 2011 and, as indicated, the prospect of its receipt was a highly contingent. Westpac had not indicated its willingness to increase its facilities in the way Harbert had sought.

Other matters 357 By 31 July 2011, SSA was being harried by several of its creditors: the demands made by Bosch to which I referred earlier included demands made on 31 May 2011 and on 24 and 27 June; SMA had told SSA on 27 May 2011 that it required payment within 30 days of invoice in respect of an order then being placed. The reality of this requirement was made apparent on 14 July 2011 when SMA said that it would "stop shipment on all orders" if it did not receive payment on the following day; Mitsui told SSA on 11 May that it would require advance payments on the invoices currently due in June and, on the following day, told SSA that, because a payment due on 11 May had not been paid, it may delay future shipments "due to more serious deemed concerns of SSA cash flows"; the Board was informed at its meeting on 19 July 2011: Cash continues to be constrained. We have lots of unhappy suppliers as we are squeezing payments for as long as possible in order to keep some cash in the bank. 358 I have not overlooked the submission of Kerry J based on the report of Mr Williams to the effect that as at 29 July 2011, SSA had met approximately 96% of its trade creditor liabilities within commercial terms. That opinion appears to have been based on SSA's own "aged creditor payments" reports. Other evidence indicates that those reports were not reliable. It is in any event inconsistent with the contemporaneous advice to the Board on 19 July 2011 to which reference has just been made. 359 The Second Independent Business Review provided to Westpac on 19 July 2011, stated: The Group has experienced difficult trading conditions in the past 12 months. [A]s a result Management believes that the Group heads into FY 12 requiring an immediate working capital injection of at least $5.0 m, to bring creditors to within terms. 360 The Liquidators relied on a cash flow analysis prepared by Mr Morris which showed a cash shortfall at 1 August 2011 of $17.27 million. That analysis overstates the extent of the cash deficiency because, on my understanding, Mr Morris assumed that all the trade creditors were due and payable at the identified dates whereas I have found that some were not, and that, contrary to my findings, SSA was liable to make payments to Solarise. Nevertheless, Mr Morris' analysis is generally supportive of the difficult position indicated by SSA's own analysis. 361 The Defendants critiqued Mr Morris' analysis on the basis that it did not take account of the additional support provided by Westpac, the prospect of a capital injection, and the prospect of accommodation by SSA's trade creditors. To my mind, these matters do not undermine the overall effect of the analysis: the additional support of Westpac was quite limited; the prospect of a capital injection was highly contingent; and even if some creditors may have provided some accommodation, it is evident that several were becoming increasingly insistent upon payment by SSA. I do not regard the alternative cash flow analysis provided by Mr Lombe as indicative of a contrary position because, amongst other things, it appears to have assumed the receipt of Harbert's $5 million capital injection in July 2011. In any event, Mr Lombe considered that SSA was insolvent by 29 July 2011 or, at least by August 2011. 362 It is evident that SSA's position at 31 July 2011 was parlous. I note again that its own analysis was that by 29 July 2011, it would have a cash shortfall of $7.419 million, even after the sale of 397,991 RECs. It did in fact have more RECs than projected but even so, the amounts involved fell well short of making up the projected cash deficiency. 363 The difficulty of SSA's position was confirmed by Mr Steele in an email to others within Harbert on 17 August 2011 in which he said: With the 12 week forecast still showing us about $2.8 m short of cash (assuming the CBA deals are closed out and the $5m from Harbert goes in), this is not a supportable position. Management and Harbert are working on a number of options to rectify this through the 12 week period, but will need the support of suppliers to agree to the plan. If we can't get their support for this in in the next day or so, then it is our view that the business is not solvent and we couldn't recommend that Harbert invest the money. 364 On my understanding, the "CBA deals" were the remaining tranche or tranches of the sales of RECs to CBA. Although Mr Steele's email is dated 17 August 2011, it is not realistic to consider that the position which Mr Steele was describing had developed only within the previous few days. On the contrary, I am satisfied that it also reflected the position at 31 July, and reflected the uncertainty which existed not only with respect to the Harbert cash injection but also the position even if that cash injection was received. 365 All these matters indicate that SSA was insolvent as at 31 July 2011.

Conclusion 366 In summary, I have found that the Liquidators have not proven that: (a) SSA was insolvent as at 31 January 2011; (b) SSA was insolvent as at 30 April 2011; (c) SSA was insolvent as at 31 May 2011. 367 I would determine the separate question in each action by holding that SSA had become insolvent by 31 July 2011. I will hear from the parties with respect to the remaining matters in the proceedings. I certify that the preceding three hundred and sixty-seven (367) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice White.