CORPORATIONS - Insolvency - Statutory presumption of insolvency - Commercial realities - Related party funding - Where lending entity has same controlling mind as the company - Whether ongoing intention to fund all liabilities exists - Where loaned monies not subject to written contract with repayment terms - Whether loaned monies is characterised as a short or long‑term liability - Australian Securities and Investment Commission v Plymin

CORPORATIONS - Application to remove liquidator - Application to disallow liquidator from having remuneration and expenses incurred in this proceeding - Whether liquidator made allegations he knew to be incorrect - Whether liquidator continued to prosecute proceeding after changing his opinion on company's solvency - Court will not readily remove liquidator - Briginshaw standard applies - Re St Gregory's Armenian School (in liq) [2012] NSWSC 1215 - Gadsden v MacKinnon (Liquidator), in the matter of Allibi Pty Ltd (in liq) [2023] FCA 647 - Insolvency Practice Schedule (Corporations) s 90-15 - Grounds for removal established - Liquidator removed - Liquidator disallowed from having remuneration and expenses incurred in this proceeding.

Gemwood Interiors (Vic) Pty Ltd; Gemwood Installations (Vic) Pty Ltd; and Gemwood Administration (Vic) Pty Ltd

Corporations Act 2001 (Cth)

Second Defence to Amended Statement of Claim and Counterclaim (6 March 2025)

Deputy Commissioner of Taxation / Australian Taxation Office

Proof of Debt submitted by the Deputy Commissioner of Taxation in the Liquidation on 17 November 2021 in the amount of $447,995.81

Civil Procedure Act 2010

Emilios Georgiou and E&C Georgiou Nominees Pty Ltd as Trustee for the Emilios Georgiou Trust

Defendants' Written Closing Submissions (28 August 2025)

The Second Defendant, E&C Georgiou Nominees Pty Ltd as Trustee for the Emilios Georgiou Trust

Evidence Act 2008

The Attorney-General's Department (Fair Entitlements Guarantee Branch)

Fair Entitlements Guarantee Act 2012 (Cth)

$624,972.35 claimed in the liquidation by the Attorney-General's Department in a formal proof of debt dated 7 October 2020, to recover advances made up to 7 October 2020 for employee entitlements pursuant to s 28 of the FEG Act

Clay East Installations Pty Ltd (subsequently known as Clay East Admin Pty Ltd)

Insolvency Practice Schedule (Corporations) (being Schedule 2 of the Act)

Johnson Winter Slattery, solicitors for the Plaintiffs

Mr Michael Carrafa, in his capacity as liquidator of Gemwood Projects Pty Ltd as Trustee for the Gemwood Projects Discretionary Trust

Mr Michael Carrafa, in his capacity as liquidator of Gemwood Projects Pty Ltd as Trustee for the Gemwood Projects Discretionary Trust

Mr Michael Carrafa, in his capacity as liquidator of Gemwood Projects Pty Ltd as Trustee for the Gemwood Projects Discretionary Trust

Plaintiffs' Written Closing Submissions (28 August 2025)

Gemwood Administration (Vic) Pty Ltd (defined as Gemwood Administration (Vic));

Clay East Joinery Pty Ltd (defined as Gemwood Joinery);

Gemwood Installations (Aust) Pty Ltd (subsequently known as Clay East Admin Pty Ltd) (defined as Gemwood Installations (Aust))

46-50 Sarton Road, Clayton, owned by E&C Georgiou Nominees Pty Ltd

Resolution tabled at the 3 December 2021 creditors' meeting that the Liquidator be authorised to enter into a funding agreement on behalf of the Company with the Commonwealth of Australia (acting through the Attorney-General's Department)

Resolution tabled at the 3 December 2021 creditors' meeting that the Liquidator be authorised to enter into costs agreement, as he sees fit, with his preferred legal representatives, on the Company's behalf

Debts owed to the Company's trade creditors (set out in the Schedule to the Plaintiffs' Written Closing Submissions)

Debts owed to statutory authorities, being debts owed to the ATO and SRO (set out in the Schedule to the Plaintiffs' Written Closing Submissions)

Debts owed to employees, being those debts paid to the Company's employees by FEG (set out in the Schedule to the Plaintiffs' Written Closing Submissions)

Offer made by ATO to Liquidator to settle unfair preference claims pursuant to s 588FF of the Corporations Act on 24 June 2021

Offer made by ATO to Liquidator to settle unfair preference claims on 24 June 2021

16 monthly payments of $5,278.58, totalling $84,907.28, made by the Company to Westpac between 27 March 2018 and 24 June 2019

Proof of Debt submitted in the Liquidation by the Delegate of the Commissioner of State Revenue on 15 December 2020 in the amount of $188,592.88

Expert Report of Jason Stone dated 14 November 2023

Taxation Administration Act 1953 (Cth)

Tendency Notice filed by the Plaintiffs on 3 October 2024

Affidavit of Shaun Fernando dated 20 September 2024

Affidavit of Panyiotis Zambas dated 22 October 2024

Payment plans granted by the ATO in respect of BAS and superannuation guarantee charges on 19 April 2018

1 On 1 July 2022, Mr Michael Carrafa, in his capacity as liquidator of Gemwood Projects Pty Ltd as Trustee for the Gemwood Projects Discretionary Trust (the Liquidator or Plaintiffs or Mr Carrafa), commenced this proceeding. The Liquidator makes claims against the First Defendant, Emilios Georgiou (Emilios or Mr Georgiou), and the Second Defendant, E&C Georgiou Nominees Pty Ltd as Trustee for the Emilios Georgiou Trust (E&C) (collectively, the Defendants), regarding the solvency of Gemwood Projects Pty Ltd prior to entering external administration and various transactions entered into in the period prior to administration.

2 The Liquidator's position is that Gemwood Projects Pty Ltd (the Company or Gemwood Projects) was, within the meaning of s 95A of the Corporations Act 2001 (Cth) (the Act), insolvent since the Company's incorporation on 8 August 2016, or, in the alternative, from 30 May 2017 or 30 June 2018, and unable to pay all of its debts as and when they fell due.[1] The Defendants' position is that the burden of proof in establishing insolvency at the times alleged has not been met.[2] The Defendants submit that the Company always relied upon funds loaned from E&C as a 'line of credit' and therefore possessed sufficient cash resources to enable the Company to pay all its debts as and when they became due and payable.

3 The parties are in dispute about the characterisation of the funds advanced by E&C. The Defendants submit the evidence establishes 'as a matter of commercial reality' the Company was always able to pay its debts, as funds were advanced from E&C.[3] Whereas, the Liquidator submits the E&C line of credit was in the complete control of Emilios, and it was at his discretion when to advance and repay funds.[4] The Liquidator's position is that the Company never had the capacity to repay the funds loaned by E&C from its own monies and, while the balance fluctuated, it continued to increase over the course of the Company's trading existence.[5]

(a) a declaration that Emilios contravened s 588G(2) of the Act, as sole director of the Company, for failing to comply with his duty to prevent the Company from trading while insolvent;

(b) an order that Emilios pay the Plaintiffs the sum of $2,199,583.24 pursuant to s 588M of the Act, or, alternatively, pursuant to ss 588J or 1317H of the Act;

(c) in the alternative to (b), an order that Emilios pay the Plaintiffs the sum of $1,829,305.58 pursuant to s 588M, or, alternatively, ss 588J or 1317H of the Act;

(d) in the alternative to (c), an order that the Emilios pay the Plaintiffs the sum of $1,242,352.97 pursuant to s 588M, or, alternatively, ss 588J or 1317H of the Act;

(e) a declaration that payments made by the Company to Westpac credit card accounts in the name of Emilios were:

(i) unfair preferences pursuant to s 588FA of the Act;

(ii) insolvent transactions pursuant to s 588FC of the Act; and

(iii) voidable transactions pursuant to s 588FE of the Act;

(f) a declaration that payments made for the installation of solar panels at a premises leased by Gemwood Projects from E&C were:[7]

(i) uncommercial transactions pursuant to s 588FB of the Act;

(ii) insolvent transactions pursuant to s 588FC of the Act; and/or

(iii) unreasonable director-related transactions pursuant to s 588FDA of the Act;

(g) in respect of payments made by the Company to Emilios' Westpac credit card, an order pursuant to s 588FF(1) of the Act that Emilios pay the Plaintiffs the sum of $129,365;

(h) in respect of payments made by Gemwood Projects to E&C immediately prior to entering administration, an order pursuant to s 588FF(1) of the Act that E&C pay the Plaintiffs the sum of $391,701.60;

(i) in respect of payments made for the installation of solar panels, an order pursuant to s 588FF(1) of the Act that E&C pay the Plaintiffs the sum of $52,247; and

(j) interest and costs.

5 It should be noted that the quantum of the Plaintiffs' primary claim has been revised down,[8] and now totals $2,199,368.46, comprising:[9]

(a) trade debts of $899,417.48;[10]

(b) statutory debts of $626,067.20; and

(c) outstanding liabilities to the Company's employees (and the Attorney‑General's Department (Fair Entitlements Guarantee Branch) (FEG)) of $673,883.78.

6 The Plaintiffs submit the Company incurred taxation debts (which are unpaid) to:[11]

(a) the Deputy Commissioner of Taxation Office (ATO) in the amount of $346,354.53 between its incorporation and 4 July 2019;

(b) the ATO relating to superannuation guarantee charges of $91,119.79 between 1 January 2019 and 4 July 2019; and

(c) the Commissioner of State Revenue (SRO) for payroll tax, interest and penalties payable pursuant to the Payroll Tax Act 2007 and the Taxation Administration Act 1997 totalling $188,592.88.

7 The Plaintiffs further submit the Company incurred debts to its employees which remain unpaid in the amount of $673,883.78 (of which $624,972.35 comprises amounts paid to employees by FEG pursuant to s 28 of the Fair Entitlements Guarantee Act 2012 (Cth) (FEG Act)), comprising:[12]

(a) unpaid wages of each employee (including, in relation to employees subject to the enterprise agreement, wages for rostered days off);

(b) the value of each employee's annual leave entitlements not yet taken by that employee, including annual leave loading;

(c) the value of each employee's long service leave entitlements (where applicable);

(d) the value of each employee's entitlement to pay in lieu of notice; and

(e) the value of each employee's entitlement to redundancy payments.

8 By counterclaim, the Defendants seek:[13]

(a) pursuant to s 90‑15 of the Insolvency Practice Schedule (Corporations) (IPS), an order that the Liquidator cease to be the liquidator of the Company and another registered liquidator appointed;

(b) the Liquidator not recover any of his remuneration and expenses incurred in respect of the proceeding;

(c) a declaration that, in conducting the proceeding, the Liquidator failed to comply with ss 7, 17 and 18 of the Civil Procedure Act 2010 (CPA); and

(d) their costs of and incidental to the proceeding (including costs of the counterclaim) be paid on an indemnity basis.

9 The Defendants' position is that the Liquidator had actual or, alternatively, constructive knowledge that at all material times that he could not admit the ATO or the SRO as creditors in the liquidation, or for voting purposes at a creditors' meeting on 3 December 2021, and that he acted inconsistently with that knowledge.[14] The Defendants further contend that the actual amount outstanding to the ATO at 4 July 2019 was $41,604.53 and, as at 8 August 2019, the amount outstanding to the SRO was insignificant.[15] Further, the Defendants' position is that the Liquidator did not provide instructions for a tendency notice to be filed in the proceeding, which is discussed further in the reasons that follow.[16]

10 The trial in the proceeding was protracted, running over eight days in October 2024 and, on 21 November 2024, the Defendants were granted leave to re-open their case. On 6 December 2024, the Defendants made a further application to amend their pleading to include a counterclaim seeking orders for the removal of the Liquidator of the Company. The trial recommenced on 12 August 2025 for two days, and closing submissions were heard on 2 and 3 September 2025.

11 The parties agreed a list of issues in this proceeding. For reasons which will become clear, it is most convenient to address those issues with reference to events and legal consequences as set out in these reasons. 'Annexure A' has been provided, which provides answers to the 21 specific issues raised by the parties with reference to the relevant parts of these reasons.

12 In order to understand the claims in the proceeding, it is necessary to set out the history of the 'Gemwood business' and the structure of the various entities that operated it. The Gemwood business has been operated by various entities using the 'Gemwood' name since 1999.[17] The business manufactured and installed commercial cabinetry. Prior to external administration, and from its incorporation on 8 August 2016, the Company traded as Trustee of the Gemwood Projects Discretionary Trust (Trust). Emilios was the Company's sole director (save for a period of one day from 22 to 23 May 2019) and held 119 of the Company's 120 issued shares.[18] Alan Hocking holds the remaining share.[19] Emilios is the principal beneficiary of the Trust, but not the sole beneficiary.[20] From sometime in 2017, the Company's operations were conducted in conjunction with Gemwood Installations Pty Ltd.

13 The Gemwood business was, at various times, conducted by Emilios and his sons, John Georgiou, Angelo Georgiou, Michael Georgiou and Stephen Georgiou, and Panyiotis Zambas (Mr Zambas or Pany), and with the assistance of legal and accounting advisors. Emilios described the business as a family business.[21] Emilios' sons, John, Angelo, Michael and Stephen, worked and completed apprenticeships in the business.[22] In early 2012, Emilios stepped away from the operations of the business to retire, and Angelo, Michael and Stephen took over.[23]

14 As indicated above, it is important to set out the corporate history of the Gemwood business, particularly in circumstances where the Plaintiffs allege, by way of a Tendency Notice filed on 3 October 2024, that:[24]

(a) Emilios had a tendency to place companies operating the 'Gemwood Business' into external administration without causing the company or companies to discharge debts owed by it or them to statutory creditors in respect of taxation liabilities (including payroll tax and PAYG and GST) and superannuation guarantee charge prior to entering external administration;

(b) Emilios had a tendency to, and to cause E & C to, provide funding or financial accommodation to one or more entities conducting the 'Gemwood Business', but to limit such funding or financial accommodation in a manner that did not enable those entities to discharge their statutory liabilities (including payroll tax, PAYG, GST and superannuation guarantee charge), as they fell due for payment;

(c) E & C had a tendency to provide funding or financial accommodation to one or more entities conducting the 'Gemwood Business', but to limit such funding or financial accommodation in a manner that did not enable those entities to discharge their statutory liabilities (including payroll tax, PAYG, GST and superannuation guarantee charge), as they fell due for payment.

15 The Tendency Notice is subject to some scrutiny by reason that the Liquidator, during cross-examination, indicated he did not give instructions for the Tendency Notice to be filed. Counsel for the Plaintiffs assert the Liquidator did provide instructions for the preparation and issuance of the Tendency Notice, however, that the Liquidator was not involved in the drafting, nor did he review or sign off on the notice before it was served.[25]

16 The corporate structure of the business is complex and spans many years and different entities. Emilios' evidence is that he was advised early on in the life of the business to separate the business assets from trading operations to protect those assets if the business failed and was unable to pay creditors.[26]

17 On 20 January 1999, Gemwood Interiors Pty Ltd was incorporated and operated the business as Trustee of the Gemwood Interiors Unit Trust.[27] The directors were:[28]

(a) Michael, from 20 November 2006 - 8 May 2012; and

(b) Emilios, from 20 January 1999 - 20 November 2006 and 16 December 2010 - 24 February 2016.

18 From 2001, the business operated from 46-50 Sarton Road, Clayton (Premises).[30] E&C owned the Premises, which was leased to Gemwood Interiors from about May 2001 until March 2012.[31] From about 2008, E&C owned the plant, equipment and vehicles used by the business.

19 On 14 March 2002, Gemwood Interiors Aust. Pty Ltd (GIA) was incorporated.[32] The directors were:

(a) John, from 14 March 2002 - 12 September 2011; and

(b) Emilios, from 16 December 2010 - 19 April 2014.

John resigned from directorship in September 2011, following a management dispute and an alleged theft.[33] Opaltree Pty Ltd held 90 of the 100 issued shares, and John held the remaining 10.[34]

20 From incorporation, GIA operated the administrative and contracting side of the business, along with Gemwood Interiors.[35] From March 2002, GIA was the principal trading entity and engaged Gemwood Interiors as a contractor.[36] E&C provided funding to GIA from time to time when John requested funding.[37] Emilios' evidence is that the funding was effectively a line of credit used to pay creditors when GIA was otherwise unable to do so.[38] The evidence of Emilios is that the loan would be repaid when the 'business had sufficient free cash to do so'.[39]

21 Prior to March 2012, Emilios came to be aware that GIA incurred potential tax liabilities in the order of $100,000.[40] Emilios' evidence is that he considered those tax debts were John's responsibility, as they were 'incurred under his management and not [Emilios']'.[41]

22 Gemwood Installations Pty Ltd - which operated in conjunction with Gemwood Projects until entering into external administration - was incorporated on 30 June 2003. The directors of Gemwood Installations were:

(a) Angelo, from 30 June 2003 - 8 May 2012; and

(b) Emilios, from 16 December 2016 - 4 July 2019.

From November 2003, E&C held all of the issued shares in Gemwood Installations.[42] Gemwood Installations operated the installation aspect of the business, alongside Gemwood Interiors and GIA. Gemwood Installations was incorporated so that higher CFMEU award rates could be paid to installation employees, which were otherwise not available to manufacturing staff.[43]

23 On 3 June 2011, Clay East Joinery Pty Ltd (formerly Gemwood Joinery Pty Ltd) was incorporated. The directors were:

(a) John, from 3 June 2011 - 24 February 2015; and

(b) Angelo, from 24 February 2015 - 2 August 2017.

From 4 March 2015, Angelo held all 6 of the issued shares in Gemwood Joinery.[44]

24 On 27 March 2012, Emilios, by resolution of GIA, resolved to appoint voluntary administrators to GIA and, on 7 May 2012, those administrators were appointed liquidators.[45] At the time of entering liquidation, GIA's debts included, amongst others:

(a) a secured debt to E&C of approximately $320,000;[46]

(b) statutory debts of approximately $122,348.96, comprising $108,851 owing to the ATO and $13,497.96 in superannuation liabilities;[47] and

(c) approximately $25,000 to GIA's accountant.[48]

25 On 20 March 2012, the following entities were incorporated:[49]

(a) Gemwood Interiors (Vic) Pty Ltd;

(b) Gemwood Installations (Vic) Pty Ltd; and

(c) Gemwood Administration (Vic) Pty Ltd (later known as Clay East Admin Pty Ltd)

(collectively, the 2012 Purchasing Entities).

26 The directors of Gemwood Interiors (Vic) were:[50]

(a) Stephen, from 20 March 2012 - 2 August 2017;

(b) Angelo, from 20 March 2012 - 1 March 2013; and

(c) Michael, from 20 March 2012 - 1 March 2013.

Of the 120 issued shares, Stephen held 40, M G Enterprises Group Pty Ltd held 40 and Tangelo Nominees Pty Ltd held 40.[51]

27 The directors of Gemwood Installations (Vic) were:[52]

(a) Stephen, from 20 March 2012 - 16 July 2015;

(b) Angelo, from 20 March 2012 - 13 December 2013; and

(c) Michael, from 20 March 2012 - 13 December 2013.

Of the 120 issued shares, Stephen held 40, M G Enterprises Group Pty Ltd held 40 and Tangelo Nominees Pty Ltd held 40.[53]

28 The directors of Gemwood Administration (Vic) were:[54]

(a) Stephen, from 20 March 2012 - 2 August 2017;

(b) Angelo, from 20 March 2012 - 2 August 2017; and

(c) Michael, from 20 March 2012 - 30 April 2020.

Of the 120 issued shares, Stephen held 40, M G Enterprises Group Pty Ltd held 40 and Tangelo Nominees Pty Ltd held 40.[55]

29 The Gemwood business was sold to the 2012 Purchasing Entities in March 2012, documented by a sale of business agreement dated 23 March 2012 between GIA and Gemwood Administration (Vic).[56] Emilios' evidence is that there were further sale of business agreements between Gemwood Interiors and Gemwood Interiors (Vic), and Gemwood Interiors (Aust) and Gemwood Administration (Vic) dated 23 March 2012, however, he has been unable to locate copies.[57] Despite GIA entering external administration on 27 March 2012, Emilios gave instructions in the preparation of the sale of business agreement, which was executed by Emilios.[58] The consideration payable by Gemwood Administration (Vic) to GIA under the sale of business agreement was $2,009,146, being the value of liabilities that Gemwood Administration (Vic) would assume.[59] Those liabilities did not include the amount outstanding to the ATO.[60]

30 Upon entering the sale of business agreement, a letter was sent to the business' customers and suppliers stating:[61]

We are taking this opportunity to let you know that Emilios Georgiou has decided to semi retire and taking a well-deserved rest.

As a consequence, Emilios has handed the reins of the Gemwood Group to his three sons, Angelo, Michael and Stephen who have been working in the business now for several years.

The Gemwood Group will operate from today as Gemwood Administration (VIC) Pty Ltd with all three sons as directors. Therefore all invoices that are due need to be addressed to Gemwood Administration (VIC) Pty Ltd, or EFT* payments to BSB; 033 126 ACC: 449699.

Other than the formal handover to the sons, business is as usual and the contacts remain unchanged. We will shortly talk to each of you about updating your records with the correct ABNs and account details.

Emilios will continue to work with us as a team.

31 It is said by Emilios that, at the time of the sale of the business, GIA owed E&C approximately $700,000 in respect of the line of credit.[62] Emilios' evidence is that the 2012 Purchasing Entities had sufficient cash to repay the loaned funds in full, however, Emilios decided to leave those funds with the business, so that his sons could conduct the business and have 'plenty of working capital'.[63] Included in the sale was also 'work in progress' in respect of contracts held by GIA, in the amount of approximately $4.8 million, which Emilios understood to be 'contracts in respect of which there was future revenue of $4.8 million if the contracts were performed.'[64] This 'work in progress' was transferred to Gemwood Administration (Vic) for no consideration.[65]

32 From 26 March 2012 to August 2016, E&C leased the Premises to Gemwood Administration (Vic).[66] A formal lease agreement was entered into, which recorded rent payable in the amount of $200,000 plus GST per annum.[67] From around this time, E&C also leased the plant, equipment and vehicles to Gemwood Interiors (Vic) for approximately $10,000 per month.[68] Emilios' evidence is that Gemwood Administration (Vic) was frequently late in paying rent for the Premises and, by August 2014, $742,000 (plus GST) was owed to E&C in respect of rental arrears.[69]

External administration of Gemwood Installations (Vic) and incorporation of Gemwood Installations (Aust)

33 On 11 June 2014, the members of Gemwood Installations (Vic) resolved to wind up the company in insolvency.[70] On 26 June 2014, the ATO submitted a proof of debt in the liquidation in the amount of $241,819.40 for a 'running balance account deficit debt in respect of BAS amounts' as at 11 June 2014.[71]

34 On 13 June 2014, Clay East Installations Pty Ltd (previously Gemwood Installations (Aust)) was incorporated, with Angelo appointed as director.[72] Tangelo Nominees Pty Ltd held all 120 issued shares in Gemwood Installations (Aust).[73] Despite there being no evidence of a sale of business agreement, it is said that Gemwood Installations (Aust) took over the installations side of the business.[74]

External Administration of Gemwood Interiors (Vic)

35 On 22 April 2015, Gemwood Interiors (Vic) was wound up in insolvency in response to a statutory demand served by the ATO.[75] At the time of entering liquidation, Gemwood Interiors (Vic) had debts totalling $1,581,528.86, including statutory debts of $618,329.35.[76] The statutory debts comprised $530,486.26 owing to the ATO and $87,843.09 to the SRO.[77]

36 In mid-2015, Emilios was approached by Angelo, Michael, Stephen and Pany who requested financial assistance in the business, in the form of periodic cash injections of up to $200,000.[78] Emilios' evidence is that he decided to advance further funds, on the condition that he would come back to the business, in what he says was an attempt to assist with the business and to spend more time with his sons.[79] Emilios requested, and it was agreed, that he would come back to the business as a 'consultant' and be remunerated $1,000 per week for his services, which was paid by Gemwood Administration (Vic).[80] There was no written employment contract.[81]

37 From August 2015 to August 2016, E&C advanced Gemwood Administration (Vic) a total of $320,962, of which $302,514 was repaid.[82] These funds were advanced at the request of Pany and arranged by Emilios on behalf of E&C.[83] Emilios' evidence is that these loans were generally paid back within a week.[84]

38 In around November 2015, Colin Linke, of Knightstone, was formally engaged to act for the business in his capacity as a certified practising accountant.[85] Mr Linke was engaged around the time recovery proceedings were commenced by the ATO in the County Court of Victoria against Michael, Angelo and Stephen, as directors of Gemwood Administration (Vic), in respect of outstanding tax liabilities.[86] Following a meeting with Pany, Michael, Angelo and Stephen on 26 November 2015, Mr Linke provided Gemwood Administration (Vic) with a fee proposal recording the following 'needs' of the Gemwood group:[87]

• The ATO debt position of two of [the group's] entities.
• Taxation issues associated with the wider group and their dealings with each other.
• The restructure of the group to accommodate a greater level of effectiveness and asset protection.
• Long term profitability and cash flow requirements.
• Financial planning for the long term.
• Insurance and superannuation reviews.

In response to the needs of the business, Mr Linke's proposal recommended the following 'solution':[88]

Group Restructure - The current entities are to be managed towards closure with a new group established that will protect the assets of each entity and the shareholders

Annual Compliance Program for the entire group to meet its taxation and ASIC requirements.

The group restructure included '[establishing] a parallel group that can take over the operations, wind down the current entities of Gemwood Interiors (Vic) Pty Ltd and Gemwood Administration (Vic) Pty Ltd'.[89]

39 On 23 May 2016, Gemwood Installations (Aust) and Gemwood Administration (Vic) were both issued statutory demands by the SRO, each in the amount of $216,404.01 for unpaid payroll tax, plus penalty interest and interest due and payable.[90] By July 2016, the ATO obtained judgment against Gemwood Installations (Vic), Gemwood Interiors (Vic) and Gemwood Administration (Vic) totalling $447,774.54.[91] On 18 July 2016, the ATO emailed Mr Linke, setting out the amount outstanding to the ATO as at 18 July 2016 in respect of Gemwood Administration (Vic); Gemwood Installations (Aust); Gemwood Joinery; and the Trustee for Angelo Georgiou Family Trust, which totalled $1,760,387.88.[92] The ATO, in this email, requested a proposal to pay the outstanding amount, failing which the judgment debts would be referred for bankruptcy notices, together with further collection action against the entities.[93] By August 2016, rental and lease payments were also owing to E&C in the amount of $742,000 plus GST.[94]

Incorporation and transfer of business to Gemwood Projects

40 In around July to August 2016, Mr Linke met with Michael, Angelo, Stephen, Pany and Emilios to discuss the taxation issues.[95] Mr Linke's evidence is that this was the first time he met Emilios.[96] Following the meeting, on 1 August 2016, Mr Linke received correspondence from Pany instructing him to register Gemwood Projects with Emilios to be the sole director, and 25 shares issued to each of Emilios, Michael, Stephen and Angelo.[97] Gemwood Projects was registered on 8 August 2016. On 8 August 2016, the Trust was established, for which Gemwood Projects was the trustee. Emilios was the principal beneficiary of the Trust.[98] Emilios' evidence is that Gemwood Projects would take over the operations of the existing business, as conducted by Gemwood Administration (Vic), Gemwood Joinery and Gemwood Installations (Aust) (collectively Predecessor Entities).[99]

41 A further meeting was attended by Pany, Mr Afrasiabi of MA Legal, Emilios, Angelo, Michael, Stephen and Mr Linke around 12 September 2016 to discuss the restructure of the business.[100] Following this meeting, MA Legal began preparing a sale of business contract.[101] On 12 September 2016, Pany circulated the following email recording action items resulting from the meeting:[102]

Just to re-cap on last week's meeting the following matters still require to be closed out:

• Sale Agreement: Figures have been emailed to Colin. Rex & Colin to finalise the Agreement according to discussion.
• Binding Financial Agreements: between Michael and his partner Angelique. Angelo and his partner Tanya. Rex to request necessary information.
• Colin to set-up Trust for Emilios to register 2nd Mortgages over his personal properties.
• Loan Agreement with Emilios for $900k. Monthly payments of $xxxxx to be decided for a nominated duration.
• Agreement of % of residual Profit to pay down loan. Still requires further discussion and implementation.
• Market valuations required on Premises and machinery to determine rental.
• New machinery to be hire purchased through E & C Nominees. Upon Loan pay-out; ownership of the equipment become ownership of Gemwood Projects P/L.
• Change of current trading names.
• Current Roles: List required by Pany, Michael, Angelo & Steve

On the same day, Pany circulated a spreadsheet containing employee entitlements, long service leave accruals and assets, including work in progress of the Predecessor Entities.[103]

42 In response to Pany's email of 12 September 2016, Mr Linke replied on 15 September 2016 proposing the following in respect of the loan advanced from E&C:[104]

In terms of the loan agreements, may I suggest that we use an interest rate of 6.5% and a 10 year amortisation period. There are 2 loans:

• $700k, 10 years, 6.5%. Additional lump sum payments should be 25% of any declared profit each year. No penalties for early repayments.
• Line of credit - max 500k. [Emilios] should have discretion as to whether he advances the funds. Should be repayable over 10 years.

In this email, Mr Linke also suggested the business use Knightstone (his firm) as the finance department in the short term. However, the Company did not engage Knightstone in this respect, nor did E&C ultimately adopt the loan terms suggested above by Mr Linke.[105]

43 Gemwood Projects commenced trading from the date of its incorporation and opened a bank account on 15 August 2016, and took receipt of payments from existing jobs or partially completed jobs by Gemwood Administration (Vic).[106] There was no formal valuation of assets, stocktake or assignment of the contracts held by Gemwood Administration (Vic).[107] The employees remained the same, and continued their work, with no new employment contracts prepared or executed.[108] In this regard, it appears that the Predecessor Entities continued to employ staff up until those entities entered external administration, as Gemwood Project's records only commence the employment of staff from 24 May 2017.[109] No consideration was paid by Gemwood Projects to the Predecessor Entities.[110]

44 Emilios' evidence is that he received a proposed contract of sale of business in July 2017, however, he was not involved in preparing the draft.[111] The sale of business agreement was ultimately not signed, and Emilios' evidence is that he did not see any point in signing it in 2017 when the business had already been acquired by Gemwood Projects in 2016.[112] The draft sale of business agreement recorded the payment of the deposit and purchase price as follows:[113]

Payment of Deposit

The Purchaser must pay the Deposit to the Vendor as follows:

(a) $5,500.00 on or before 26 October 2016

(b) $6,900.00 on or before 1 December 2016; and

(c) $20,000.00 on or before 23 December 2016.

Manner of payment

The Purchaser must pay the Purchase Price to the Vendor in the following manner:

(d) the Deposit in accordance with clause 3.1;

(e) $20,000.00 at the direction of the Vendor;

(f) $69,000.00 at the direction of the Vendor;

(g) 55,000.00 at the direction of the Vendor.

The deposits were paid by Gemwood Projects to the Predecessor Entities.[114]

45 The draft sale of business agreement recorded the 'assumed liabilities' and 'excluded liabilities' as:[115]

'Assumed Liabilities' means the liabilities of the Vendor incurred in the ordinary and proper course of conducting the Business as at the close of business on the date Completion is effected, and includes:

(a) each of the Material Contracts; and

(b) accrued entitlements of the Transferring Employees (but only to the extent provided for in this Agreement), but excludes any Excluded Liabilities.

'Excluded Liabilities' means any liabilities of the Vendor which do not relate to the ordinary operation of the Business and, without limitation, includes (whether arising before or after Completion):

(a) any taxes, charges or duties imposed on the Vendor or charged against the Business or the Assets by reason of the Vendor carrying on the Business or the sale of the Assets;

(b) any costs and expenses incurred by the Vendor in relation to this Agreement including the performance of its obligations under this Agreement;

(c) all fines, penalties, damages or compensation payable by the Vendor or claimed against the Vendor in connection with the Business or the Assets including, but not limited to, any actions, claims, demands or suits for compensation or damages due to any breach, contravention, default, negligence or recklessness on the part of the Vendor; and

(d) any other liabilities that, under the terms of this Agreement, the Purchaser does not agree to assume.

46 The draft of the agreement also included a schedule of employees to be retained.[116]

47 In 2017, Emilios and Pany (who was acting in the position of the Company's General Manager) decided to bring Gemwood Installations back into the business to employ union affiliated workers who were, at that time, employed by Gemwood Projects.[117] Gemwood Projects was, however, responsible for meeting the cost of employing the union affiliated workers once they were retained by Gemwood Installations.[118]

External administration of the Predecessor Entities

48 On 23 May 2017, following resolutions of the members, the Predecessor Entities were wound up in insolvency.[119] At the time of entering liquidation, Gemwood Administration (Vic) owed $3,782,223.81 to creditors, comprising:[120]

(a) $807 owing to ASIC;

(b) $987,469.45 owing to the ATO;

(c) $2,652,369.12 owing to E&C;

(d) $41,352.36 owing to Knightstone;

(e) $48,549.49 owing to the SRO;

(f) $39,806.39 owing to SV Partners Pty Ltd; and

(g) $11,880 owing to Who Group Pty Ltd.

49 Gemwood Installations (Aust) owed $1,320,419.04 to creditors, comprising:[121]

(a) $1,213,561.24 owing to the ATO; and

(b) $106,857.80 owing to the SRO.

50 Gemwood Joinery owed $368,388.58 to creditors, comprising:[122]

(a) $312,582.13 owing to the ATO;

(b) $43,823.42 owing to the SRO; and

(c) $1 owing to each Hafele Australia Pty. Ltd., Laminex Group Pty Limited and Lincoln Sentry Group Pty Ltd.

51 On 7 September 2016, Mr Linke received an email from Pany, who provided a copy of his cash flow spreadsheet regarding the ATO liabilities of the Predecessor Entities which stated that:[123]

You will also notice that I have still allowed for payments to the ATO (Line 208-211) amounting to $978,400. Under the current circumstances this amount won't be paid and and [sic] moving forward be used for obligations relating to Gemwood Projects and the annulment of the Directors.

Mr Linke's evidence is that Emilios was not copied to this email, however, Emilios had indicated to him that, if he was funding the establishment of Gemwood Projects, those funds were not to be used to pay the debts of the Predecessor Entities.[124]

52 On 15 June 2017, Mr Linke emailed Emilios, Pany and Emilios' sons, notifying them that the ATO's High Risk Taxpayer Debt Team attended the creditors' meeting for the Predecessor Entities on 14 June 2017.[125] The email stated 'be stressed gents as this indicates that there is a significant level of attention on your operations.'[126]

53 E&C began lending money to Gemwood Projects from its incorporation.[127] Emilios' evidence is that this was done on the same terms as the funding previously provided by E&C to the business, being, when the business needed money, E&C would provide funds.[128] Emilios' evidence is that the E&C funding was, effectively, a line of credit. Emilios had complete control over the funds advanced, as the sole director of E&C and the sole director of Gemwood Projects.[129] There were no written terms of the agreement. E&C loaned Gemwood Projects, from 9 August 2016 to 15 June 2019, approximately $7,089,352, of which approximately $5,776,423 was repaid.[130] Funding requests were made by Pany during weekly meetings with Emilios, and, when requested, Emilios would cause E&C to provide the funding. These payments were recorded in a spreadsheet kept by Emilios.[131]

54 Emilios' evidence is that while funding from E&C was always available when it was needed, it was his preference, where possible, for the business to 'stand on its two feet' and to limit E&C's exposure.[132] Emilios says to do this, he had to 'crack the whip' with his sons and Pany, demanding they work harder and stop relying on the funding so much.[133] These attempts to motivate Emilios' sons and Pany sometimes came from Mr Linke, at the direction of Emilios.[134] Despite Emilios' evidence that the loan would only be repayable if the business had sufficient free cash available to do so, the loan was paid down at various times, at times in circumstances where it is said by the Plaintiffs that the business did not have sufficient free cash available.[135]

55 On 15 July 2017, Mr Linke sent an email to Pany, Angelo, Emilios and Mr Afrasiabi, which stated 'you have 6 months to get it right and no more money is available from Emilios.'[136] Emilios confirmed in cross-examination that he wanted the loan from E&C paid down as soon as possible.[137] Between 2017 and 2019, Mr Linke and Emilios had various conversations about the loan,[138] and, between 10 September 2018 and May 2019, Emilios sent at least 18 emails to Mr Linke and others seeking updates on the loan balance.[139] The spreadsheet maintained by Emilios recording the transactions on the loan, which were attached to these emails, recorded a maximum loan balance of $500,000, and when this amount was surpassed, it recorded the loan as 'overdrawn'.[140] Emilios' evidence is that this information in the spreadsheets was a reminder to him and his sons that he had gone beyond what he promised them in funding.[141]

Management of the business by Gemwood Projects

56 In May 2017, the Company moved from QuickBooks accounting software to Xero, following a request from Mr Linke for better live financial data and a job management system.[142] Instead of engaging Knightstone to assist with bookkeeping, the Company engaged Kat Trace as bookkeeper. In the course of setting up Xero, Mr Linke expressed concern to Pany, Angelo and Emilios regarding the financial status of the Company and, on 15 June 2017, sent an email stating:[143]

We have been setting up Xero for you, and as such have been working through various aspects of the business. To say that I am concerned is an understatement. The issues that we need to address are very simply these:

• Cash flow - and the fact that missing builder's deadlines for invoicing is creating a massive headache for you.

• Revenue - which appears to be significantly lower than verbal statements made. My understanding is that in the last 3 months revenue is $400, $450 and $800k. However, I was told that it was circa $800k in each of those months.

• Efficiency of production - and I raise the example again of my small $4k job which is still incomplete. If you don't deliver then you don't get repeat work - at some point.

The business cannot operate if it can't survive. You have 6 months to get it right and no more money is available from Emilios. My value comes from strategy and deployment and I can't do that without the correct systems and you can't deliver if you don't have the information. You have something that few others have and this is turnover and this goes a long way but we do need to get things in order quickly.

57 As at 14 March 2018, the Company owed the ATO $458,818.33 pursuant to its business activity statement (BAS) and instalment activity statement (IAS).[144] On 19 April 2018, the Company entered two separate payment plans with the ATO, which required the payment of $20,000 each month in respect of outstanding BAS and $1,000 per month in respect of outstanding superannuation guarantee charges (19 April 2018 Payment Plan).[145] The 19 April 2018 Payment Plan included conditions that all payments and lodgements were to be made on time.[146]

58 On 19 March 2018, the Company was notified by the SRO that it had outstanding payroll tax for January 2018, to which interest was accruing.[147] On 18 June 2018, the SRO threatened legal action in respect of the outstanding payroll tax in the amount of $114,973.42.[148] On 19 June 2018, Emilios and Mr Linke attended a meeting to discuss the company's financial performance.[149] On 29 June 2018, the Company was further informed that it owed additional payroll tax for Gemwood Projects and Gemwood Installations totalling $121,131.94.[150]

59 In June 2018, the Company defaulted on the 19 April 2018 Payment Plan by lodging and paying its BAS for April and May 2018 late.[151] On 18 July 2025, the ATO reinstated the 19 April Payment Plan for the total amount outstanding of $463,458.95.[152]

60 On 6 August 2018, the Company entered a payment plan with the SRO for overdue payroll tax for the year ending 30 June 2018 in the amount of $121,135.[153] Before 9 October 2018, the Company failed to lodge its payroll tax returns for the year ending 30 June 2018. By 9 October 2018, the Company lodged its overdue payroll tax returns for the year ending 2018, which resulted in an outstanding amount of $128,540.66.[154] On 12 October 2018, the SRO issued a Notice of Reassessment of Payroll Tax for the financial year ending 2018 in the amount of $161,158.68, inclusive of $32,135.17 penalty tax, payable on 26 October 2018.[155]

61 On 31 October 2018, a spreadsheet recording rent and lease payments made by the Company to E&C was shared, indicating the Company failed to pay rent from around August 2018.[156]

62 At the end of November 2018, the Company defaulted on its payment plans with the ATO.[157] By 10 December 2018, the Company had three separate payment plans with the SRO.[158] On 15 January 2019, the ATO issued a statutory demand in respect of a running balance account deficit in the amount of $381,298.84.[159] On 6 February 2019, a payment plan was negotiated in respect of the amount owing pursuant to the statutory demand, with the amount of $20,000 to be paid per month.[160]

63 On 15 March 2019, Emilios issued an updated version of his spreadsheet recording the E&C loan.[161] Emilios' evidence is that he was concerned he was being asked to loan money more frequently and in higher amounts.[162] In April 2019, Mr Linke advised Emilios that, due to the Company's poor performance, it would be unlikely that E&C will recover its loan.[163]

64 By 22 May 2019, E&C was owed approximately $3.6 million (including funds advanced to the earlier entities).[164] Around this time, Emilios, Michael, Stephen and Mr Linke (but not Angelo, who had purportedly resigned) discussed a proposal suggested by Mr Linke to establish a new company to conduct the business, which would be a smaller portion of the Gemwood business and without Pany's involvement.[165]

65 On 29 May 2019, Emilios wrote to Pany, Michael, Stephen and Mr Linke stating, in relation to the E&C loan, 'THERE'S NO MORE I'M BROKE'.[166] In early June 2019, Emilios met with the Liquidator to discuss the options available to him regarding the Company, including the appointment of an external administrator.[167] Later in June 2019, Emilios sought advice from a new accountant, Robert Hadded, who told Emilios that the Company was 'haemorrhaging bad' and that the haemorrhaging had to stop, or E&C would need to loan another $1 million to keep the business going.

66 On 1 July 2019, Emilios decided he would appoint the Liquidator as voluntary administrator and, on 4 July 2019, Emilios resolved to appoint the Liquidator as voluntary administrator.[168] On 4 July 2019, the Liquidator was also appointed liquidator of Gemwood Installations.[169]

67 On each of 1 and 2 July 2019, Emilios transferred $61,080.80 from the Company to E&C.[170] On 3 July 2019, Emilios transferred the further sum of $168,640 from the Company to E&C.[171] Those transfers were described as rent payments to E&C. Following those payments, $9.58 remained in the Company's bank account.[172]

68 On 15 July 2019, Emilios submitted a Report on the Company's Activities and Property (ROCAP),[173] which listed unsecured creditors of the Company totalling $3,190,952.95, including $41,604.53 owing to the ATO and $3,877 owing to the SRO. The ROCAP listed secured creditors totalling $630,444.44.

69 At the second meeting of creditors held on 8 August 2019, it was resolved by the Company's creditors that the Company be wound up in insolvency and that Mr Carrafa be appointed liquidator.

70 On 8 July 2019, the ATO submitted a formal proof of debt in the liquidation for $41,604.53, which included an itemised running balance account statement.[174]

71 On 14 May 2020, the Liquidator issued a demand to the ATO to recover the sum of $432,731 as an unfair preference.[175] The letter sent by the Liquidator to the ATO alleged the Company was insolvent during the six month period prior to 4 July 2019. Between 20 November 2020 to 24 June 2021, the Liquidator and the ATO engaged in correspondence regarding the claim, throughout which the Liquidator retained the same solicitors acting in this proceeding from about November 2020.[176] The ATO made various settlement offers, however, ultimately, a settlement for $310,000 was agreed, representing approximately 72% of the claim.[177]

72 On 28 May 2020, the Liquidator issued a separate demand to the SRO to recover the amount of $102,948.44 as an unfair preference.[178] In this demand, the Liquidator alleged the Company was insolvent from 1 July 2018, and during the six month period prior to 4 July 2019.[179] On 3 June 2020, the SRO submitted its first proof of debt in the liquidation for $75,512.09.[180] From around September 2020, the Liquidator retained the same solicitors acting in this proceeding to assist with his negotiations with the SRO.[181] On 3 December 2020, the claim was settled for $72,000, representing approximately 70% of the claim.[182] A further claim in the liquidation of Gemwood Installations, in which $51,131.93 was claimed, was settled with the SRO on 7 August 2020 in the amount of $25,000.[183]

73 On 15 December 2020, the SRO issued an amended proof of debt claiming $188,592.88 (SRO Post Settlement Proof of Debt).[184]

74 On 28 October 2021, the Liquidator communicated to the Company's creditors, which included the Defendants, that these alleged unfair preferences had been settled out of court.[185]

75 On 3 December 2021, a creditors' meeting was held. Alex Nicol, solicitor of Aitken Partners, the solicitors acting for the Defendants in this proceeding, attended as proxy for the Defendants at the creditors' meeting.[186] Ahead of the meeting, on 17 November 2021, the ATO submitted a post-settlement proof of debt for $447,995.81 (which included a 'Running Balance Account deficit debt in respect of BAS amounts as at 4 July 2019' for $351,604.53) (ATO Post Settlement Proof of Debt).[187] Both the ATO Post Settlement Proof of Debt and SRO Post Settlement Proof of Debt were admitted in full.[188] Resolutions authorising the Liquidator to enter into a funding agreement with the Commonwealth, costs agreements with his solicitors and approving his remuneration were passed.[189] The Defendants did not challenge the admission of the ATO and SRO proofs of debt at the creditors' meeting.[190]

76 The ATO Post Settlement Proof of Debt, submitted prior to the creditors' meeting, was for the amount of $447,995.81 and included a running balance account statement containing entries reversing payments made by the Company to the ATO between January and June 2019 in the sum of $310,000.[191]

77 On 29 November 2023, the ATO submitted a further proof of debt, in place of an earlier version submitted on 5 November 2019, in the same amount as the ATO Post Settlement Proof of Debt, being $447,995.81.[192]

78 Separately, regarding the Plaintiffs' claim that the installation of and payment for the solar panels are uncommercial transactions, insolvent transactions, or unreasonable director‑related transactions, it is necessary to set out the background regarding the solar panels.

79 In November 2016, E&C entered into a Commercial Loan Agreement with Westpac for the purchase of 762 solar panels and an inverter installed at the Premises. Between 27 March 2018 and 24 June 2019, the Company made 16 monthly payments to Westpac of $5,278.58, totalling $84,907.28 (Solar Panel Payments), representing monthly instalments owed by E&C to Westpac.[193] Those payments were in addition to the rent payable by the Company to E&C for the Premises. E&C owns the beneficial and legal interest in the Solar Panels.

80 The Plaintiffs submit that the Solar Panel Payments are uncommercial transactions and/or unreasonable director-related transactions.[194] Whereas, the Defendants' position is that the installation of the solar panels was a mutually beneficial arrangement because the Company's electricity bills were reduced from approximately $33,000 per month to approximately $3,000 to $4,000 per month, such that, in the period from November 2016 to June 2019, the installation of the solar panels at the Premises saved the Company approximately $900,000 on its electricity bills (i.e., $30,000 per month for 30 months).[195]

81 It is further alleged that payments made by the Company to a credit card in Emilios' personal name are uncommercial transactions, insolvent transactions, or unreasonable director-related transactions.

82 Between 8 August 2016 and 4 July 2019, Emilios used his own personal credit card to pay for what he says were business expenses of the Company. It is said, by the Defendants, that this arrangement was put in place because the Company required credit cards to operate its business; however, it could not obtain its own credit card.[196] It is said that, as a result, between 7 June and 4 July 2019, the Company made payments to Emilios' Westpac account totalling $129,365.00.[197]

83 The parties are further in dispute regarding the characterisation of a trade creditor claim by J Hutchinson Pty Ltd in the amount of $330,499.09 as 'liquidated damages'. The Liquidator considers this claim is not relevant to solvency, as it is disputed.[198] The amount claimed by Hutchinson was not recorded as a liability in the Company's books and records, and the Defendants say the documents produced do not prove the existence of any debt.[199]

84 The relief sought by the Plaintiffs, set out above,[200] in relation to each of the insolvent trading claims against Emilios, the two unfair preference claims in relation to the Westpac credit card payments and the E&C loan repayments, and the uncommercial transaction claim in relation to the Solar Panel Payments, require a finding that the Company was insolvent at the relevant times.

85 This is because, insofar as it relates to the insolvent trading claim, s 588G of the Act - dealing with a director's duty to prevent insolvent trading (and therefore the corresponding recovery power in s 588M[201]) - is only enlivened where the Company is insolvent, or becomes insolvent, at the time the relevant debt/s are incurred.

86 While, in relation to the unfair preference claims and the uncommercial transaction claim, the Plaintiffs seek orders for payment under s 588FF(1) - dealing with the Court's power to make orders about voidable transactions - on the basis that the relevant transactions were voidable transactions[202] because they were insolvent transactions,[203] which necessarily requires that the Company was insolvent, or became insolvent, at the time the relevant transactions were entered into.

87 It is only the unreasonable director-related transaction claim, made in the alternative in respect of the Solar Panel Payments, which does not require a finding that the Company was insolvent.[204]

88 The solvency of the Company is therefore the central issue in dispute between the parties. In this regard, the Plaintiffs plead that at all material times from the Company's incorporation on 8 August 2016 until it entered voluntary administration on 4 July 2019, the Company was insolvent within the meaning of s 95A of the Act as it was unable to pay all of its debts as and when they fell due. In the alternative, the Plaintiffs plead the Company was insolvent from either 30 May 2017 or 30 June 2018.[205]

89 The particulars to paragraph [5] of the Amended Statement of Claim set out the factors the Plaintiffs assert indicate the Company's insolvency for each of the periods 8 August 2016 to 30 May 2017 and 30 May 2017 to 20 June 2018. By way of summary only, and without differentiating which factors are said to apply for each period or setting out the quantum of specific liabilities said to be owed, the factors relied on are:

(a) the conclusions reached by expert witness, Shane Deane;

(b) that the Company failed to keep or maintain standard financial records as required by s 286 of the Act;

(c) that, from as early as September 2016, creditors were paid outside of their trading terms and that, from as early as 31 December 2018, debts were recovered outside of the Company's payment terms;

(d) that the Company 'owed substantial Commonwealth and State tax liabilities which were overdue' and, particularly, in relation to the statutory debts:

(i) that the Company failed to make any lodgements with the ATO for pay‑as‑you‑go (PAYG) liabilities during the 8 August 2016 to 30 May 2017 period, and only made its first payment in respect of the period 30 May 2017 to 9 May 2018 on 11 May 2018 despite having incurred significant PAYG liabilities;

(ii) correspondence from the ATO to the Company between August and October 2017 regarding concerns that the Company may not have met its superannuation obligations between 1 October 2016 and 31 March 2017 and an ensuing audit of the Company;

(iii) that the Company did not make GST payments to the ATO until 13 August 2018, following a letter of demand from the ATO dated 23 March 2018 in relation to significant outstanding GST liabilities; and

(iv) the Company entered into various payment plans with the ATO (and with the SRO) which expressly stated that interest continued to be charged on the outstanding balance notwithstanding the payment plans, and that the Company ultimately breached one of the ATO payment plans;

(e) that outstanding accounts receivable by Gemwood Administration and Gemwood Joinery should not be treated as being transferred to the Company because there was no documented sale of business between those entities and the Company;

(f) that the Company assumed liability for employee entitlements when the Gemwood Administration and Gemwood Joinery employees were transferred to the Company in around May 2017;

(g) for the financial years ending 30 June 2018 and 30 June 2019, the Company incurred continuing trading losses, had net asset deficiencies, and operated with working capital ratio deficiencies;

(h) that the Company did not have capacity to meet its liabilities without relying on the E&C loan facility, meaning the Company was reliant on funding from E&C; and

(i) that the Court 'should infer that as a matter of commercial reality' the Company was unable to access financing from E&C to pay all of its debts as and when they fell due or payment when taking into account that:

(i) in March 2012, as sole director of that company, Emilios caused the sale of the assets of GIA on terms which left it unable to pay its creditors (including the ATO) and then placed that company into external administration without discharging those liabilities;

(ii) between 2010 and 2016, E&C provided funding or financial accommodation to GIA, Gemwood Installations (Vic), Gemwood Administration (Vic), and Gemwood Installations (Aust), but in a way which did not enable those entities to discharge their statutory liabilities as they fell due for payment;

(iii) between August 2016 and 4 July 2019, E&C provided funding or financial accommodation to the Company but in a way which did not enable the Company to discharge its statutory liabilities as they fell due for payment. Counsel for the Plaintiffs submit that this last factor, as pleaded, captures the Tendency Notice described above; and

(iv) the funds periodically received from E&C constituted a short-term ad hoc overdraft facility which was repayable on demand and therefore was not an asset relevant to assessing the Company's solvency.

90 The Defendants deny the allegations regarding the insolvency of the Company, stating that their expert evidence would provide further and better particulars in this regard. That expert evidence is considered in detail in the reasons which follow. The Amended Defence and Counterclaim also disputes particular matters pleaded by the Plaintiffs concerning the quantum of the ATO and SRO debts alleged, the terms of the sale of GIA, and states that Emilios was never a director of the Predecessor Entities and had no part in the conduct of those companies.[206]

91 It is unnecessary to set out the Plaintiffs' Reply, as it pertains to the solvency of the Company, in any detail other than to note that they continue to press the thrust of the allegations made in the Amended Statement of Claim.

92 In the event that I find the Company was insolvent at the relevant times, in respect to the insolvent trading claim, the Plaintiffs rely on their pleadings regarding insolvency and further plead that:[207]

(a) between 8 August 2016 and 4 July 2019 (and in the alternative in the period 30 May 2017 and 4 July 2019 or, in the further alternative, in the period 30 June 2018 and 4 July 2019) the Company incurred particular debts itemised, respectively, at Annexure A, B and C of the Amended Statement of Claim;

(b) the Company was insolvent (or became insolvent) when these debts were incurred;

(c) there were reasonable grounds for suspecting the Company was, or would become, through these debts, insolvent;

(d) Emilios knew there were reasonable grounds for suspecting the Company was, or would become, through these debts, insolvent;

(e) a reasonable person in Emilios' position in the Company would have been aware of reasonable grounds for suspecting the Company was, or would become, through the debts, insolvent;

(f) each of the relevant creditors to the debts suffered loss and damage because of the Company's insolvency, and each of the debts were unsecured;

(g) consequently, Emilios breached his duty under s 588G to prevent insolvent trading by the Company; and

(h) pursuant to s 588M, by virtue of the breach of s 588G, the Plaintiffs are entitled to seek an order that Emilios pay, as a debt due to the Company, an amount equal to the relevant debts (or, alternatively, orders for compensation under ss 588J or 1317H).

93 Relevantly to the central factual matters in dispute, the particulars state that the specific date each debt in Annexure A, B and C was incurred was particularised in five letters sent by solicitors for the Plaintiffs to solicitors for the Defendants between September and December 2024.[208]

94 Further, the particulars state that each debt remains unpaid but clarifies, in relation to the statutory debts, that the quantum of those debts includes amounts which had been paid by the Company to the ATO and SRO but which were disgorged by the statutory entities to the Liquidator in the course of settling unfair preference claims made against them by the Liquidator.[209]

95 In particularising the allegations that there were reasonable grounds for suspecting the Company was insolvent and that Emilios knew there were grounds for so suspecting or, alternatively, that a reasonable person in his position would have been so aware, the particulars also state that Emilios (as sole director of the Company and the 'governing mind and will' of E&C) had ongoing executive level control of the Company in the relevant periods. Specifically, it is said he exercised sole control of payments to the Company's creditors, conducted regular reviews of the Company's financial position, and knew of the non-compliance with the payment plans.[210]

96 Subject to admitting that any liabilities incurred by the Company post-date the commencement of the Act, the Defendants otherwise deny all allegations in the Amended Statement of Claim relating to the insolvent trading claim.[211]

97 Critically, with respect to the allegation that all creditors in Annexures A to C suffered loss and damage as a result of the Company's insolvency, the Defendants plead in terms of the statutory debts:

(a) that the Liquidator knew prior to commencing this proceeding that the Company had made payments to the statutory entities in the six months prior to 4 July 2019;

(b) that the Liquidator settled the alleged unfair preference claims with the ATO and SRO on the basis there would be no order, declaration or determination that the payments made to those entities by the Company constituted unfair preference payments within the meaning of s 588FA of the Act;

(c) that, as such, the Liquidator knew he could not admit the ATO and SRO as creditors in the liquidation of the Company at the meeting on 3 December 2021 for the amounts paid by the ATO and SRO in settling the claims against them;

(d) that, notwithstanding this knowledge, the Liquidator admitted the ATO and SRO to the meeting for the purpose of the settlement amounts; that the Liquidator acted beyond his power and wrongly admitted the ATO and SRO to vote at the creditor meeting for the purpose of the settlement amounts; and

(e) that, but for these matters, the funding agreement to pursue this proceeding would not have passed the vote and would not have been entered into with the Commonwealth of Australia.[212]

98 On this point the Defendants plead, in the alternative: that the ATO and SRO elected to make the settlement payments; that they did so on the basis they were not liable to make the payments (to which the Liquidator agreed); that in these circumstances the ATO and SRO are not permitted by s 533 of the Act to prove the settlement amounts in the administration of the Company; and that therefore neither the ATO or SRO suffered loss in the form of the settlement amounts 'in relation to a debt because of the Company's insolvency' for s 588M of the Act.[213]

99 Further, the Defendants plead that the payments made by the Commonwealth under the FEG Act to the Company's former employees do not constitute loss and damage suffered by a creditor in relation to a debt because of the Company's insolvency for the purposes of s 588M of the Act.[214]

100 Insofar as the relevant knowledge, reasonable suspicions, and conduct of Emilios, the Defendants plead that he acted honestly in the performance of his duties as director. However, if the Court finds he contravened his duties under s 588G or 588M of the Act (which they deny), the Defendants say Emilios should be relieved from liability for those contraventions pursuant to ss 1317(2)(b) and/or 1316(1) of the Act.[215]

101 On this final point, in its Reply, the Plaintiffs say inter alia that, in determining whether Emilios is entitled to relief from liability (which they deny), the relevant circumstances of the case include the matters forming the Tendency Notice, his experience as a businessman, his stated motivation for returning to the Gemwood business, his failure get the Company to change how the Gemwood business was operating, his conduct in relation to the outstanding creditors, and his conduct in relation to the E&C loan.[216]

102 In relation to the unfair preference claim concerning payments made to the Westpac credit card, the Plaintiffs plead that between 7 June and 4 July 2019, payments in the amount of $129,365 were made to a Westpac credit card in Emilios' name.[217]

103 Further, they plead that Emilios was an unsecured creditor of the Company; that the payments to the Westpac credit card were each a 'transaction' within the meaning of that term in s 9 and pt 5.7B of the Act; that the payments to the Westpac credit card reduced the assets available for distribution to unsecured creditors of the Company; that the payments all occurred within the four years ending on the Relation‑Back Day; that as a result of the payments Emilios was paid more than he would have been paid if the payments were set aside and he was required to prove for his unsecured debt in the winding up of the Company; and, as a result of these matters, the payments were unfair preferences, and therefore insolvent transactions, and thus voidable transactions for the purpose of ss 588FA, 588FC and 588FE in the Act.[218]

104 In particularising these allegations, the Second Plaintiff estimates the likely return to unsecured creditors of the Company in the Liquidation as zero cents in the dollar and that, if the Westpac credit card payments were set aside, Emilios would receive a dividend of zero cents in the dollar.[219]

105 The Defendants deny the allegations in relation to the Westpac credit card payments. They say that Emilios, as agent of the Trust, used his personal credit card to pay business expenses of that Trust. As such, according to the Defendants, he was entitled to be indemnified from the assets of the Trust in the amount of those payments. They then say that, in the relevant period, the Company, as trustee of the Trust, made repayments to Westpac to discharge the obligation of the Trust to indemnify Emilios, as director.[220] The Defendants plead that, in those circumstances, the assets of the Trust that were used to make the payments to Westpac were at all times subject to an equitable lien or charge in favour of Emilios. And the Company was not a party to the payments made to Westpac other than as trustee of the Trust and therefore made the repayments in performance of the Trust's obligations to indemnify Emilios.[221]

106 In the alternative, the Defendants say the payments, first made by Emilios using his credit card, and then the repayments made to Westpac, were for commercial purposes that were an integral part of the continuing business relationship (as a running account) between the Trust and Emilios, as director.[222]

107 Further, the Defendants plead that, as the payments were made by the Company as trustee to cause the assets of the Trust to discharge its obligation to indemnify Emilios as director, none of the payments were 'transactions' within the meaning of s 9 or pt 5.7B of the Act;[223] that the payments to the Westpac credit card reduced the liability to indemnify Emilios and did not reduce the assets available to be distributed to unsecured creditors of the Company;[224] and that at no time was the liability of the Trust to indemnify Emilios, as director, for the payments made by the Westpac credit card a debt payable by the Company other than in the performance of its duty as trustee, and therefore the liability of the Trust to indemnify Emilios, as director, was not a debt payable by the Company within s 553 and/or a unsecured debt payable by the Company within s 558FA of the Act.[225]

108 The Defendants say the consequence of these matters is that s 588FA (dealing with unfair preferences) cannot, and does not, apply to the Westpac transactions.[226]

Unfair preference claim - repayments of the E&C loan

109 The Plaintiffs separately plead an unfair preference claim in respect of repayments made to the E&C loan in the period between 14 June and 4 July 2019, in the amount of $391,701.60.[227]

110 Specifically, they plead that the loan repayments were each a 'transaction' within the meaning of s 9 and pt 5.7B of the Act; that the debt to which the loan repayments related was unsecured; that each of the loan repayments reduced the assets available for redistribution to unsecured creditors; that each of the loan repayments occurred within four years ending on the Relation-Back Day; that, as a result of the loan repayments, E&C was paid more than it would receive if the repayments were set aside and E&C had to prove its debt in the winding up of the Company; and that, as a result of these matters, the loan repayments were unfair preferences, and therefore insolvent transactions, and thus voidable transactions for the purpose of ss 588FA, 588FC and 588FE of the Act.[228]

111 To the extent it does not repeat matters already dealt with, the particulars state that the loan arrangement between the Company and E&C was an unwritten (being either wholly oral or alternately implied from the conduct of the Company, Emilios and E&C), informal short-term facility provided by E&C to the Company on an ad hoc basis and was repayable on demand.[229] Further, there is no written security agreement between the Company and E&C, which could give rise to the security interest registered by E&C against the Company on the Personal Property Securities Register on 29 April 2019.[230]

112 Broadly speaking, subject to several limited admissions, such as in relation to the Relation-Back Day and the unwritten nature of the loan agreement, the Defendants deny the allegations made as part of the unfair preferences claim relating to the E&C loan. The Defendants instead plead various matters pertaining to the nature and quantum of the E&C loan at relevant times, which they say establish that the E&C loan repayments were not an unfair preference given by the Company to E&C as a creditor of the Company.[231]

Uncommercial transaction claim - Solar Panel Payments

113 The Plaintiffs' final claim concerns a loan entered into by E&C for the purchase of solar panels at the Premises, in circumstances where the monthly loan repayments were made by the Company and not E&C. This claim is made on two alternative basis.

114 The Plaintiffs plead that in around November 2016, E&C entered into a loan with Westpac for the sum of $283,800 for the solar panels and that, between 22 March 2018 and 24 June 2019, the Company made the Solar Panel Payments (each being a transaction for the purposes of s 9 and pt 5.7B of the Act). These payments were made by the Company notwithstanding that the debt was owed by E&C. Moreover, the Plaintiffs plead that ownership of the solar panels remained with E&C, and E&C did not grant any beneficial interest in the solar panels to the Company.[232]

115 Having regard to the above matters as well as the absence of a benefit to the Company in making the payments (as the Company already paid rent for the Premises), the Plaintiffs plead that the detriment to the Company in the form of the cost of the payments, and the benefit to E&C in the form of a reduction of its debt to Westpac, a reasonable person in the Company's position would not have made the Solar Panel Payments.[233] As such, the Plaintiffs say the Solar Panel Payments were uncommercial transactions, and thus insolvent transactions, and duly voidable transactions for the purposes of ss 588FB, 588FC and 588FE of the Act.[234]

(a) the existence of the loan between E&C and Westpac;

(b) that the Company made the Solar Panel Payments between March and June 2019 in payment of the debt owed by E&C; and

(c) that E&C owns the legal and beneficial interest in the solar panels.

117 However, they deny the substance of the uncommercial transaction claim. The Defendants plead, in very summary form, that it was a term of the lease agreement that the Company (through the Trust) would pay the electricity bills at the Premises, that the Company (through the Trust) and E&C agreed in around November 2016 that it would be mutually beneficial to install solar panels to reduce electricity bills at the Premises, and that following the installation of the solar panels the electricity bills reduced from approximately $33,000 per month to between $3,000-$4,000 per month meaning a saving of approximately $900,000 in electricity bills.[236] The Defendants say, therefore, that the benefit to the Company (and the Trust) through the reduced electricity bills from November 2016 to the Relation-Back Day 'significantly outweighed' the detriment it suffered in the form of the Solar Panel Payments. As such, by reason of these matters, a reasonable person in the position of the Company as trustee of the Trust would have made the Solar Panel Payments.[237] On this basis, the Defendants deny that the Solar Panel Payments were uncommercial transactions within the meaning of that term in the Act (nor were they insolvent transactions or voidable transactions).[238]

118 In very general terms, in their Reply, the Plaintiffs contest the amount the Defendants say was saved in reduced electricity bills by the installation of the solar panels, and the benefit the Company received as a result. The Plaintiffs also say E&C benefitted through the solar panels in the form of tax credits, and generally improved value of the Premises.[239]

Unreasonable director-related transaction - Solar Panel Payments

119 Further, or in the alternative, to its uncommercial transaction claim, the Plaintiffs also plead, on the basis of the matters set out above, that the Solar Panel Payments constitute payments by the Company (or disposition of property by the Company) on behalf of or for the benefit of a director or close associate of a director of the Company within s 588FDA(1) of the Act. The Plaintiffs say that the Solar Panel Payments are therefore unreasonable director-related transactions for the purposes of s 588FDA(1) and voidable transactions pursuant to s 588DE(6A).[240]

120 The Defendants admit that Solar Panel Payments were payments by the Company (or disposition of property by the Company) on behalf of or for the benefit of a director or close associate of a director of the Company[241] but deny, relying and repeating their pleadings in relation to the uncommercial transaction claim, that the payments were unreasonable director-related transactions or voidable transactions.[242]

121 As already noted, this claim does not require a finding that the Company was insolvent, and requires resolution regardless of whether I find the Company was insolvent.

122 By Counterclaim, the Defendants seek the orders set out above.[243]

123 The Defendants say the basis for these orders lies in the fact that from 3 October 2024 (being the date of the Tendency Notice), the Liquidator has conducted this proceeding in breach of his obligations in breach of ss 7(1), 17 and 18 of the CPA as he was required not to make the allegation he did at paragraph [42] of the Tendency Notice - which particularised the quantum of the statutory debts owing on 4 July 2019 - and, further, that the CPA makes clear that, contrary to paragraph [42] of the Tendency Notice, the Company was not indebted to the ATO or SRO in the amounts alleged, but the Liquidator refused or failed to make this clear until 10 December 2024.[244]

124 In making the Counterclaim, the Defendants also rely on paragraphs of their Amended Defence to the primary claims pertaining to their allegation that the Liquidator was not permitted to admit the ATO and SRO to vote at the creditors' meeting on 3 December 2021 for the amounts they disgorged to the Liquidator and that, but for that conduct, the Liquidator would not have entered into a funding agreement with the Commonwealth or commenced this proceeding.[245]

125 The Plaintiffs broadly deny the allegations in the Counterclaim. Specifically, they deny that paragraph [42] of the Tendency Notice constitutes an allegation made by the Liquidator in this proceeding, saying that, to the extent any allegations were made by the Liquidator, the allegations are limited to paragraph [45] of the Tendency Notice, and that paragraph [42] inter alia provided a summary of the evidence the Liquidator intended to adduce to establish the alleged tendency, and that the Liquidator had a proper basis for making the tendency allegation.[246]

126 Further, the Plaintiffs say that if the Liquidator did not have a proper basis to make the claim (which they deny) then the Tendency Notice was prepared by his solicitors and counsel instructed on the primary claims, that he was not involved in the drafting of the Tendency Notice and was not required (and did not) sign off on the Tendency Notice prior to it being filed, that he first saw the Tendency Notice on or around 3 October 2024 (after it had been filed), and that he was entitled to rely (and did rely) on the forensic decisions of his legal representatives.[247] The Plaintiffs also specifically deny, for the purposes of s 17 of the CPA, that the Liquidator acted dishonestly and deny, for the purposes of s 18 of the CPA, that paragraph [42] of the Tendency Notice constitutes a claim made in this proceeding.[248]

127 Insofar as the Defendants' allegations relating to the Liquidator admitting the ATO and SRO to the creditors' meeting on 3 December 2021 and the consequences of that conduct, the Plaintiffs broadly deny the allegations.[249] In particular, the Plaintiffs deny that the amounts disgorged by the ATO and SRO were not admissible at the creditors' meeting for voting purposes, and further say that if the disgorged amounts were not admissible (which is denied) then the vote authorising the funding agreement would have still passed by the Liquidator exercising his casting vote (or the Liquidator would have sought a grant of leave to enter the funding agreement from the Court pursuant to s 477(2B) of the Act).[250]

128 The starting point for any assessment of an alleged insolvency is s 95A of the Act. That section provides:

(1) A person is solvent if, and only if, the person is able to pay all the person's debts, as and when they become due and payable.

(2) A person who is not solvent is insolvent.

That definition is, however, unhelpfully circular. Thus, any court's determination of whether a company is 'able to pay all the debts, as and when they become due and payable', and is accordingly, 'solvent', must be made having regard to the extensive precedents which have been established over the last few decades.

129 Without intending to reproduce all of the authorities involving the interpretation of s 95A and other insolvency provisions of the Act, it is, in my view, helpful to set out the key principles and factors which I regard as necessary to inform my assessment and determination of the parties' dispute.

130 The appropriate starting point is, in my view, the six propositions with respect to insolvency set out by Palmer J in Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (Southern Cross Interiors).[251] Although that decision was the subject of an appeal to the New South Wales Court of Appeal in Deputy Federal Commissioner of Taxation v Clark,[252] that appeal was on a particular issue which did not affect these propositions, which continue to be applied. Turning to the six propositions:[253]

(i) whether or not a company is insolvent for the purposes of the Corporations Act (Cth), ss 95A, 459B, 588FC or 588G(1)(b), 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. Commercial 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.

131 Indeed, those propositions found favour with Mandie J in Australian Securities and Investments Commission v Plymin (No 1) (Plymin).[254] His Honour, having referred to and applied the propositions in Southern Cross Interiors, also referred to the decision of Young CJ in Eq in Manpac Industries Pty Ltd v Ceccanttini (Manpac Industries),[255] emphasising the importance of assessing the company's ability to pay its debtors having regard to the commercial realities it faces. That is, a company's solvency must be assessed having regard to the resources of the company, including means other than simply drawing on cash resources to achieve satisfaction of its debts. Thus, in Manpac Industries, Young CJ in Eq said:[256]

Solvency and insolvency are defined in s 95A of the Corporations Act as meaning a company which is unable to pay all its debts as and when they become due and payable. This, as Lindgren J pointed out in Melbase Corporation Pty Ltd v Segenhoe Ltd, requires a cashflow test rather than a balance sheet test. Again, as his Honour said in that case, when one is applying the cash flow test, it is relevant to take into consideration the relationships between creditor and debtor, any agreement and the course of conduct. In Hamilton v BHP Steel, I indicated that that course of conduct may mean that despite what is written on the invoices etc as to time for payment, industry practice or dealings between the parties demonstrate that everyone accepts that debtors will often not pay creditors within normal trading terms. In business circumstances sometimes it is quite necessary in an industry which is experiencing recession because otherwise creditors may not be able to sell their product at all. Even though they would prefer people to stick to their 30-day terms it is better to have recalcitrant debtors than sell no product at all.

What I said in Hamilton seems to have been developed into a much stronger statement by counsel in Emwest Products Pty Ltd v Olifent and in Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation. However, if what is said in Hamilton is properly examined, it will be seen that the proposition expounded is not only quite in accordance with authority, but is also good commercial and legal commonsense.

132 It must, however, be said that, on a proper reading of Plymin, his Honour did not take the view that an analysis of the commercial realities facing the company meant that the court ought to completely disregard the legally enforceable debts owed by the company. His Honour made reference to Lee Kong v Pilkington (Australia) Ltd (Pilkington),[257] a decision by the Full Court of the Supreme Court of Western Australia, wherein Owen J held, having regard to existing line of authorities, that:[258]

The question is whether or not a particular debt has fallen 'due'. The commercial likelihood of the enforcement of the company's debts cannot override the issue of substance that is involved in the determination of that question.

The Court's role, therefore, is to consider the legally enforceable debts owed by the company, having regard to the commercial realities which the company finds itself in, and assess whether the resources available to it enables the company to discharge its liabilities as they fall due.

133 Recognising that the Court must examine the company's position in light of the surrounding commercial realities, consideration must be given to what it means to be 'able' to pay debts as they become due and payable, both generally and in the context of the commercial realities for the particular company.

134 In the early case of Re Sarina, ex parte Wollondilly Shire Council (Re Sarina),[259] a Full Court of the Federal Court of Australia decision which concerned the definition of 'able' for the purposes to s 52(2)(a) of the Bankruptcy Act 1866 (Cth), the Full Court concluded that the words 'able to pay his debts' does not require the debtor to be 'willing and able' to do so. Drawing upon Canadian precedent, their Honours, Bowen CJ, Sweeney and Lockhart JJ, held that:[260]

If a debtor, although having quite sufficient liquid funds to do so, is not willing to pay his creditors but has not committed any act of bankruptcy, he can be sued in the civil courts by everyone of his creditors and thus each claim can be paid in full out of the debtor's property which is their common pledge. There is no need for a trustee to be appointed to the estate of such a wealthy but unwilling debtor. All of the creditors will ultimately be paid in such case by the ordinary exercise of their civil rights under the Code of Civil Procedure.

...

These considerations negate the existence of any policy underlying the Act that a debtor should be made bankrupt if he is able to pay his debts but is unwilling to do so. If a debtor is able to pay his debts but is recalcitrant, his creditors may resort to the remedies otherwise afforded by the law such as execution against his property and garnishee proceedings. The words 'able to pay his debts' in s. 52 (2) of the Act do not mean 'willing and able' to do so.

135 It is clear that the Court's assessment of solvency must be made having regard to the 'commercial realities' of the company. It follows that the question of what forms part of a particular company's 'commercial realities' arises and must also be answered.

136 The authorities indicate that the relevant factors to which a court may have regard to necessarily extends beyond a company's legal rights and obligations. Rather, that assessment also involves consideration as to the likelihood that a company will have funds from sources which are not governed by a formalised agreement or understanding. Those funds may include lending arrangements from related companies or its directors.[261] This is particularly relevant to this proceeding, having regard to the funding arrangements available from E&C.

137 However, the specificities of those lending arrangements must be carefully scrutinised by a court before determining those arrangements form part of the company's commercial realities. Indeed, it has been said, and follows necessarily, that the substitution of one debt for another may not increase or enhance the solvency of a company. Rather, in considering whether lending arrangements affect the assessment of solvency, regard must be had to the nature of any such lending arrangements.

138 At this juncture, it is useful to refer to the decision of White J in Coates Hire Operations Pty Ltd v D‑Link Homes Pty Ltd (Coates Hire Operations),[262] where his Honour helpfully summarised a number of cases in which it was determined that, although a debt payable to a related party was payable on demand, as a consequence of no demand having been made, the relevant companies were not found to be insolvent:

In Re Kerisbeck Pty Ltd,[263] the company did not dispute that it was unable to pay a substantial debt owed to its director. The director gave evidence that was accepted that he would not in the immediate future ask for the debt to be discharged. Harper J held that there was no good reason why the director should seek to be repaid and good reasons why he should not. His Honour concluded that it followed that as the company was not obliged to repay the debt then or in the immediate future and could pay its other debts, it was not insolvent.

In Brooks v Heritage Hotel Adelaide Pty Ltd,[264] Olsson J held that where a debt was payable only on demand, it did not become legally due and payable until demand was made. In that case the company owed its most substantial debt to another company controlled by its director. The director deposed that the debt was payable on demand and no demand had been made, and there was no present intention to do so. Olsson J held that whilst the company would be precipitated into a condition of insolvency if the related party debt were called up, as that debt was only payable on demand and no demand had been made, and as there was no intention to make a demand for the debt such that it would become due and payable in the near future, and as the other obligations of the company were being met, the company was not insolvent.

...

Similarly in Lewis v Doran,[265] Palmer J at first instance held that the company was not insolvent where it was able to pay its debts at the relevant date and for some years thereafter from moneys made available by other companies in the group. The availability of funds from other companies in the group was a resource available to the company as a matter of commercial reality. This decision was upheld on appeal.

139 In contrast, but really emphasising the same point as made in the cases referenced in Coates Hire Operations, Barrett J said, in Australian Securities and Investments Commission (ASIC) v Edwards:[266]

I accept that funds which, on a realistic commercial assessment, are capable of being raised from outside sources are relevant to the question whether a company is solvent. But the availability of such funds in the form of a loan will not enhance solvency (or have the potential to avoid a finding of insolvency) unless the loan terms are such as to exclude the loan liability from consideration in its own right as part of the debts due or near due. In other words, availability of loan funds for a very short term or payable on demand, as a source from which debts overdue may be paid, does not enhance solvency: it merely substitutes one form of immediate (or near immediate) obligation for another.

140 In summary, the authorities indicate that the availability of loan funds to a company is highly relevant to the question of its solvency in circumstances where those funds are loaned on a 'long term' basis, or otherwise in circumstances where those funds are repayable on demand, but evidence has been led demonstrating an absence of intention, in the immediate future, to call on the loan. However, where funds are loaned on a short‑term basis, or otherwise repayable on demand, and the evidence indicates an intention for those funds to be called upon, that loaned amount will not be relevant to the consideration of the company's solvency. Accordingly, the intention of the lending party is highly relevant to the assessment of solvency.

141 It must, however, be said that the assessment of intention lies not only in the evidence adduced from the lending party, which, in many circumstances, may be self‑serving. In Re LJAC Energy Pty Ltd (in Liq),[267] Lindsay J said:

It is not enough that such a party state an intention to support the company financially, or logistically, in the future or, even to provide an assurance that such support will be forthcoming. Particularly is it not enough when a company's benefactor is under no contractual obligation to provide support or, for whatever reason, has failed in the past to provide timely support.

142 Rather, it is important to examine the documentary evidence and the lending party's history of financial assistance to the company in assessing the likelihood that the loaned funds would be repayable on short notice.

143 Indeed, in International Cat Manufacturing Pty Ltd (in liq) v Rodrick (International Cat Manufacturing),[268] a Queensland Court of Appeal case concerning loans provided by a related party and shareholder of the company, in circumstances where the company otherwise would not have been able to continue trading without the loaned funds, Morrison JA (with whom Holmes and Gotterson JJA agreed) concluded that the funds were loaned on the basis that they would not be called upon imminently.

144 In reaching that conclusion, his Honour had regard to the lender's historical willingness to advance funds to the company and the circumstances in which those loaned monies were provided:[269]

The debt created by the finance arrangement was not one where repayment was likely to be demanded ahead of the sale of C3506. Mr Rodrick's evidence was that he was of the view that ICM was profitable, and he continued to be of that view for a substantial time after the charge was granted. He was quite clear that he would not have made an immediate demand for repayment, even if that was legally possible. It is not surprising that he said so, given that he regarded himself as a half owner of the business, and wanted to participate in the growth of the business into the future.

...

Mr Rodrick's history of interest in ICM, his willingness to provide funding to it from as early as February or March 2003, his desire to become a part owner, and his firm view that it was a profitable business, all provide a solid foundation for concluding that he was committed to the continuation of financial support. On his own evidence, at the time of the charge, he was convinced the company was profitable, and that it continued to be profitable thereafter. Further, his evidence contained repeated references to the fact that he saw ICM as a new company starting up, operated by relatively young and inexperienced directors who needed assistance, and having a product (the C35 catamaran) which was very desirable. None of that suggests that the Nu‑Log/Rodrick interests were otherwise than committed financiers once the decision had been made to give finance in exchange for the charge.

145 Relevant also to his Honour's assessment was the Queensland Court of Appeal decision in Williams (as liquidator of Scholz Motor Group Pty Ltd) (in liq) v Scholz,[270] where Muir JA postulated that:

Where the Court has the benefit of assessing insolvency with the advantage of hindsight, as is the case here, it will tend to be in a better position to evaluate the true bearing of unsecured borrowings on the Company's ability to meet its financial obligations. There is some authority for the proposition that unsecured loans by directors cannot be taken into account. There should, however, be no objection in principle to regarding such financial support as relevant where the evidence establishes that the directors are likely to continue it. Loans by related corporations have been regarded as relevant to the determination of solvency. And there is no reason in principle why a loan from directors should be treated any differently to loans from companies controlled by directors. The most important consideration is the degree of commitment to the continuation of financial support.

146 In the present context, the authorities establish that, in order for the E&C loan facility to affect the Company's solvency, that loan arrangement must either be regarded as a long‑term loan, or a loan which, though capable of being described as payable 'on demand', is one which the controlling mind, Mr Georgiou, had no intention of calling on, at least in the immediate or relevant future. That question, being one of Mr Georgiou's intention, cannot be answered solely by his affidavit and oral evidence, but rather, needs to be examined in the context of the evidence of E&C's historical willingness and capacity to fund the Company. This evidence of historical willingness necessarily informs its ongoing commitment to continue providing financial support and provides an objective basis in this respect, beyond what might be seen as more self-serving and subjective evidence of intent.

147 Finally, in having regard to the Company's commercial realities, the Court must assess when the Company's incurred debts become 'due' and 'payable'. The legislature's intent, in requiring this two-pronged requirement to be met, evidently demonstrates that it is not sufficient that a debt is only 'due' but not 'payable', or vice versa. Whilst that language, 'due' and 'payable', may, in the ordinary sense, be thought to refer to the same requirement, the authorities indicate that these are separate, disparate matters, each of which must be considered in assessing a company's solvency.

148 This definition is perhaps best explained by Palmer J in Southern Cross Interiors:[271]

The proposition that a contract debt may 'become due' on the date stipulated for payment in the contract but not 'become payable' on that date may seem a surprising one. In ordinary usage, 'due' and 'payable' are often synonymous. According to the Shorter Oxford English Dictionary, the primary definition of 'due' is 'owing or payable as an obligation or debt' and the primary definition of 'payable' is 'falling due (usu[ally] at or on a specified date)'.

It has long been recognised in the authorities that, depending on the context, 'due' may mean 'owing' rather than 'payable'. If one assigns 'all debts due to me' one does not assign only those debts payable at the time of assignment, one assigns all debts presently outstanding including those payable at a future time. The distinction is articulated in the Latin phrase 'debitum in praesenti solvendum in futuro' and has been noted in many cases concerned with the interpretation of the test of insolvency in earlier bankruptcy legislation.

...

Unfortunately, the use of the two words 'due' and 'payable' when one would have sufficed has made room for the argument that if two separate words are used in the definition of insolvency then each word must have different work to do.

149 His Honour went on, helpfully, to examine the three contrasting authorities defining when a debt became 'due' and 'payable': Calzaturificio Zenith Pty Ltd (in Liq) v NSW Leather and Trading Co Pty Ltd (Calzaturificio);[272] Pioneer Concrete Pty Ltd v Ellston (Pioneer Concrete);[273] and 3M Australia Pty Ltd v Kemish (3M Australia).[274]

150 In Calzaturificio, Menhennitt J determined that, in considering whether a debt was 'due' and 'payable', it was necessary to examine the terms of credit available to the debtor. His Honour said:[275]

It would be necessary to make an appropriate calculation to decide when the creditors had to be paid and when the debts were likely to be received in order to decide whether at any particular moment of time the company was or was not able to pay its debts as they fell due.

It is said by Palmer J, in Southern Cross Interiors,[276] that this view should be confined narrowly to the facts of that case, in circumstances where Calzaturificio necessarily involved 'unusual' facts.

151 In Pioneer Concrete, Carruthers J took a narrower view, determining it unnecessary to consider any commercial arrangements for the payment of an existing debt. Rather, his Honour took the view that the Court's consideration ought to be limited to the contractual agreement and its terms as agreed by the parties:[277]

[T]he question whether a debt has or has not become due is to be determined by reference to the legal agreement between the parties. Hesitation on the part of a creditor (probably for commercial reasons) to take immediate steps to enforce its rights against a customer can have no bearing upon this question.

152 Lastly, in 3M Australia, Foster J took an expansive view, finding that non‑contractual arrangements which extended the time for payment of debts were squarely relevant to the Court's determination of solvency. This observation, it must be said, was made in the context of his Honour's consideration of a director's 'reasonable expectations' in an insolvent trading case. His Honour reasoned:[278]

I am satisfied that a debt does not necessarily become 'Due', within the meaning of the section, upon the date originally stipulated for its payment. I consider that it is proper to take into account arrangements made by the company with the creditor for extended time for payment, even where such arrangements would not be contractually binding upon the creditor. Even where there is no express arrangement for extension of credit beyond the time originally stipulated, I think it appropriate to take into account in determining whether the section has been satisfied, whether a course of dealing between the company and a particular creditor would reasonably lead to an expectation on the part of the defendant that some reasonable extension of a period of credit would be allowed by the creditor as a matter of grace. Clearly, nice questions of fact must be involved in such considerations and the question of whether the 'Due' date for payment of a company's debt has been extended, will depend upon the precise circumstances relating to the individual debt, and the particular creditor.

153 This position found support with Young J in Hamilton v BHP Steel (JLA) Ltd (Hamilton).[279] Expanding the decision of Foster J in 3M Australia, his Honour determined that the Court ought to consider the 'prevailing business practices' available to the company in determining the question of solvency. Indeed, his Honour reasoned that many businesses at that time endeavoured to delay payments to their creditors and establish a strategy whereby a creditor would have to determine whether to continue trading with an 'endemically slow payer' or lose that business altogether. His Honour went on to say:[280]

I believe that when one is working out questions of insolvency in the 1990s, one needs to take into account that such happenings are common in the commercial community because this is part of the commercial reality with which the Court has to deal.

I also consider that ... the court can take into account such practices as a matter of its own knowledge from commercial activities that come before the court.

154 Having assessed the different prevailing views, Palmer J, in Southern Cross Interiors, took a 'middle ground' view, concluding that, whilst it was not appropriate for the Court to examine the 'common business practice' of debtors, the ordinary position which ought to be adopted is a consideration of the agreed upon contractual terms:[281]

I cannot find any support in the authorities for the proposition that the Court ought to take cognisance of what is said to be a common business practice of debtors delaying payment to creditors for as long as possible and of creditors accepting that practice as a fact of commercial life, with the result that no contract debt can be regarded as payable for the purposes of ascertaining a company's solvency unless there is evidence that the creditor has actively pursued payment to the point of a statutory demand ...

If such a proposition were accepted by the law, the consequences in the commercial community would be chaotic. Debtors would know that contractually stipulated times for payment of their debts are virtually meaningless and that they have the luxury of delaying payment until the creditor commences legal process against them. Many creditors would not, or could not, go to that expense in order to recover comparatively modest sums. The law of contract would be held up to ridicule.

155 Thus, his Honour concluded that the burden of proof lay with the party seeking to establish that the Court should adopt a more expansive view than the contractual terms alone. That party is to adduce evidence demonstrating that there was an agreement, or otherwise recognised course of conduct, for the extension of the time stipulated for payment before the Court is capable of departing from the assessment of solvency entirely on the basis of the debtor and creditor's contract. That basis, forming his Honour's 'fifth proposition of insolvency', referred to above, states:[282]

[I]n 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.

156 As the authorities indicate, at least in general terms, the test to be adopted in answering the question of solvency principally involves an examination of the Company's cash flows, rather than simply its balance sheet. Whilst it may be relevant to consider the extent to which the Company's assets exceed its liabilities, or vice versa, the ability of a company to pay its debts out of its assets is not what has been focused on by the legislature. Rather, a company's ability to pay out its debts necessarily involves consideration of the funds the Company has on hand, as well as that which it can readily obtain.[283]

157 In Re Tweed Garages Ltd,[284] Plowman J recognised that a company may very well be wealthy but insolvent. Its wealth, stored in investments, which are not readily realisable, would, absent more liquid assets, render it incapable of discharging its existing debts as they became due and payable. Thus, the assessment of a company's balance sheet would do little to satisfy a court of its solvency.

158 In Plymin, Mandie J made reference to scholarship and stated:[285]

The cash flow test provides that a company is insolvent when it is unable to pay its debts as they fall due. It is of no consequence, under this test, that assets exceed liabilities. The important point is: can the company pay its way in carrying on its business? The court, in examining whether a company is suffering cash flow insolvency, will consider whether the company is actually paying its debtors.

159 In Sandell v Porter (Sandell),[286] a High Court decision considering the definition of insolvency under the earlier Bankruptcy Act 1924 (Cth), Barwick CJ noted the importance of the cash flow test, and sought to draw a distinction between a temporary lack of liquidity and insolvency. His Honour said:[287]

Insolvency is expressed in s 95 ... as an inability to pay debts as they fall due out of the debtor's own money. But the debtor's own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realisation by sale or by mortgage or pledge of his assets within a relatively short time - relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. The conclusion of insolvency ought to be clear from a consideration of the debtor's financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor's inability, utilising such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency.

160 However, that is not to say that consideration of the Company's balance sheet is entirely irrelevant. In Pilkington,[288] Owen J (with whom Franklyn and Murray JJ agreed) said:

A comparison of a corporation's current assets and current liabilities may provide a useful guide to the overall ability of the company to pay its debts

...

The comparison between current assets and liabilities, either in absolute form, or as a working capital ratio, can reveal whether a company will have sufficient funds on hand to pay the debts that will soon fall due. But it will depend on the circumstances.

An excess of current assets over current liabilities will not necessarily indicate ability to meet debts. It depends on the nature of the assets.

161 Perhaps the most succinct articulation of the test prescribed by s 95A is derived from Crema (Vic) Pty Ltd v Land Mark Property Developments (Vic) Pty Ltd,[289] a decision of Dodds‑Streeton J in this Court concerning whether a statutory demand rendered a company insolvent. Her Honour held:

Section 95A of the Act enshrines the cash flow test of insolvency which, in contrast to a balance sheet test, focuses on liquidity and the viability of the business. While an excess of assets over liabilities will satisfy a balance sheet test, if the assets are not readily realisable so as to permit the payment of all debts as they fall due, the company will not be solvent. Conversely, it may be able to pay its debts as they fall due, despite a deficiency of assets.

162 In summary, as the authorities indicate, the cash flow test is the starting point for the assessment of insolvency, which may, in the particular circumstances, be supplemented by consideration of the Company's balance sheet and its current assets against its current liabilities.

When did the Company's statutory debts become due and payable?

163 Substantial dispute between the parties arose as to the operation of the ATO payment plans and the effect, if any, these payment plans had on when the Company's statutory debts became 'due' and 'payable'.

164 The starting point of this assessment is the competing provisions of Schedule 1 of the Taxation Administration Act 1953 (Cth) (TAA).

165 The Plaintiffs sought to rely on s 255-15 of the TAA, which stipulates that the ATO's decision to enter into a payment plan would not vary the time for which the accrued debt became due and payable. Section 255-15 of the TAA relevantly states:

(1) The Commissioner may, having regard to the circumstances of your particular case, permit you to pay an amount of a *tax-related liability by instalments under an *arrangement between you and the Commissioner (whether or not the liability has already arisen).

(2) The *arrangement does not vary the time at which the amount is due and payable.

Note: Despite an arrangement under this section, any general interest charge or other relevant penalty, if applicable for any unpaid amount of the liability, begins to accrue when the liability is due and payable under the relevant taxation law, or at that time as varied under section 255‑10 or 255‑20.

166 The Defendants, however, take a different view, and argue that the competing provision, s 255-10, applied to the Company, so as to defer the time for which the accrued debt became due and payable. Section 255-10 states:

(1) The Commissioner may, having regard to the circumstances of your particular case, defer the time at which an amount of a *tax-related liability is, or would become, due and payable by you (whether or not the liability has already arisen). If the Commissioner does so, that time is varied accordingly.

Note: General interest charge or any other relevant penalty, if applicable for any unpaid amount of the liability, will begin to accrue from the time as varied. See, for example, paragraph 5‑15(a) of the Income Tax Assessment Act 1997.

(2) The Commissioner must do so by written notice given to you.

167 It is, however, said, and appears to be common ground between the parties, that the ATO payment plans did not specify whether they were entered into under s 255‑10 or 255‑15. Accordingly, it remains an evidentiary issue whether the Company's payment plans with the ATO deferred when those debts became due and payable pursuant to s 255‑10, or were due and payable as they accrued pursuant to s 255‑15.

168 On the basis of my finding that E&C was always ready and willing to fund the Company's debts as and when they became due and payable, the matter of when the ATO debt became due and payable is not strictly necessary to determine in this proceeding. For the sake of completeness, however, I am of the view that the Plaintiffs' position is correct, and the inference from the evidence available indicates that the Commissioner did not intend to extend the period in which the liability became due and payable by entering into a payment plan with the Company.[290] That position, however, has no practical implication on the Company's solvency, having regard to my finding that E&C was at all times willing to fund the Company's debts.[291]

169 Whilst the determination of whether a particular company is insolvent turns on its unique facts and circumstances, it is useful to examine the common 'indicia' which have, historically, featured in companies that have been found to be insolvent.

170 The starting point for that assessment is, of course, the six propositions of insolvency articulated by Palmer J in Southern Cross Interiors.[292] Those propositions, having been further discussed and developed by Mandie J in Plymin,[293] form much of the foundation upon which courts today assess a company's solvency.

171 It must, however, be emphasised that the propositions of insolvency stated in Southern Cross Interiors do not contemplate third-party funding, a factor particularly relevant to the circumstances of this proceeding. Whilst the Southern Cross Interiors principles are undoubtedly comprehensive,[294] they are mainly directed to the determination of when debts are due and payable, rather than the ability of the company to make payments to meet those debts.

172 In Plymin, Mandie J also helpfully distilled an extensive list of 'features' which are commonly present in insolvent companies. That list is as follows:[295]

1. Continuing losses.
2. Liquidity ratios below 1.
3. Overdue Commonwealth and State taxes.
4. Poor relationship with present bank, including inability to borrow further funds.
5. No access to alternative finance.
6. Inability to raise further equity capital.
7. Suppliers placing [company] on COD, or otherwise demanding special payments before resuming supply.
8. Creditors unpaid outside trading terms.
9. Issuing of post-dated cheques.
10. Dishonoured cheques.
11. Special arrangements with selected creditors.
12. Solicitors' letters, summons[es], judgments or warrants issued against the company.
13. Payments to creditors of rounded sums which are not reconcilable to specific invoices.
14. Inability to produce timely and accurate financial information to display the company's trading performance and financial position, and make reliable forecasts.

173 It need not be said that these Plymin 'features' should not be slavishly followed. Rather, the position of each company is to be considered in light of its particular circumstances and the factual surroundings in which it finds itself. Whilst these features may inform part of the court's assessment, they do not operate as a 'checklist' for the court to mechanistically 'check off' and sum the balance of those features which are present in determining whether to find a company as solvent or insolvent.

174 It must also be recognised that the assessment of a company's solvency is not a 'point in time' exercise, but rather, is dynamic and to be determined over a period of time. Thus, a temporary lack of liquidity may be insufficient of itself to establish insolvency. In Sandell, Barwick CJ said:[296]

The conclusion of insolvency ought to be clear from a consideration of the debtor's position in its entirety and generally speaking ought not be drawn simply from evidence of a temporary lack of liquidity. It is the debtor's inability, utilising such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency.

175 This decision in Sandell was embraced by the Western Australia Court of Appeal in Barboutis v The Kart Centre Pty Ltd (No 2),[297] where Vaughan JA (with whom Buss P and Mitchell JA agreed) said:

In considering solvency the question is not whether a company would be able, if time were allowed, to pay its debts out of available assets; it is whether the company is presently able to do so out of its realisable assets. Consideration must be given to the future: the s 95A definition talks of ability to pay debts as and when they become due and payable. Accordingly, the company's position must be considered dynamically over a period rather than an instant of time.

176 Finally, whilst the non-payment of particular debts, especially those which are significant in magnitude, may be an indicia of insolvency,[298] a singular non‑payment of a debt in most circumstances will not alone be sufficient to justify a finding of insolvency.[299]

Assets available to the company (third parties / loans)

177 Having considered the authorities indicating what a court ought to weigh in determining the question of solvency, it is prudent now to turn to the existence and treatment of related party loans - a matter of particular relevance to the Company in this proceeding.

178 The authorities indicate that the relevance of third-party or related party loans to a company will only affect a court's consideration in circumstances where those resources are readily available and accessible to the company.[300] As has been discussed, short-term loans or loans payable on demand, where the evidence indicates that this on demand loan will be called upon in the short term, are not relevant to the court's consideration of solvency, whether that loan be from an arms' length third‑party, or a related party. Contrastingly, where the loan is long term in nature, or otherwise payable on demand, but the court is satisfied the lending party has no intention of making any such demand in the immediate future, the court is readily able to characterise this lending arrangement as a resource or asset rather than a merely substituted liability in its determination of solvency.[301]

179 The position regarding these loans is perhaps most clearly articulated in the Federal Court decision of Canstruct Pty Ltd v Project Sea Dragon Pty Ltd (Subject to a Deed of Co Arrangement) (No 4) (Project Sea Dragon).[302] Whilst it is not necessary to recite the full details of that case, it is perhaps useful to recognise that it involved circumstances not dissimilar from those in this proceeding. The defendant company, Project Sea Dragon Pty Ltd, was incorporated to establish and operate a large-scale prawn aquaculture project, amongst other things, on a site known as the 'Legune Station'. Since its incorporation, it had been reliant on funding on an ad hoc basis from its parent company, Seafarms Group Ltd. Accordingly, the company accrued significant liabilities to Seafarms Group Ltd and the other related companies in its corporate group. The proceeding concerned an allegation of insolvent trading brought by one of Project Sea Dragon's substantial contractor creditors, Canstruct Pty Ltd, which had debts owing for its work in constructing the Legune Station.

180 Whilst the decision in Project Sea Dragon concerned the interpretation of a number of provisions in the Act not relevant to this dispute, Derrington J set out a series of helpful propositions on how a court ought to treat third‑party funding. Having referred to a number of principles distilled from prior authorities, her Honour said:[303]

[W]hilst it is appropriate to take into account the company's ability to raise funds in the form of unsecured loans as part of assessing its ability to pay its debts as and when they become due, the availability of such loans needs to be appropriately considered. In this context, there is a real difference between the ability to borrow from an arm's-length commercial credit provider and the mere ability to borrow from related entities. That is particularly so when the question is concerned with prospective solvency.

When assessing solvency, there is nothing inherently objectionable about taking into account loans from related parties, such as directors or parent companies, where the evidence discloses that, as a matter of commercial reality, the related parties are likely to continue to provide finance ...

As the inquiry is concerned with commercial realities, the funds that are said to be sufficient to maintain solvency must be genuinely and realistically available, when judged in a practical and businesslike way.

181 Her Honour then proceeded to apply the principles articulated to the facts at hand, ultimately concluding that Project Sea Dragon Pty Ltd had failed to establish evidentially that its parent company, Seafarms Group Ltd, was willing to continue providing financial assistance to the company. Thus, her Honour found:[304]

In the present case, there was limited evidence from the directors of Seafarms Group Limited that the company was committed to providing the financial support for Project Sea Dragon into the future, and that it would not demand immediate repayment of a debt. Clearly, no director was able to give such evidence in the circumstances that prevailed as at the time of the hearing, when Seafarms Group Limited had ceased providing financial support and had submitted a proof of debt to the administrators ...

The natural question to be asked is whether the funding was ever truly assured, and whether Project Sea Dragon was ever truly solvent, in circumstances where the state of affairs between it and its parent company could (and did) change instantly at the parent's whim. Though it is true that, in the past, Project Sea Dragon had been able to meet its debts consistently with funds from Seafarms Group Limited, which might have seemed to have little incentive to call upon the growing debt that was owed to it, one is left to wonder whether that situation existed only by coincidence and as a matter of convenience. If, hypothetically, an intolerable debt had been incurred much earlier, and Seafarms Group Limited had proceeded to withdraw funding in the same way that it did in response to the adjudication debt, then it would have no scope to say that it had historically provided funding on a number of occasions to meet the liabilities of its subsidiaries. Would it still try to maintain that Project Sea Dragon was solvent if it had only provided funding to it on a few occasions before it resolved to cease doing so? What if it had only provided funding once? Asking whether a history of funding is sufficiently lengthy as to demonstrate solvency in circumstances where there only exists a 'history' to speak of because, by chance, the problem that ultimately arose did not arise sooner, seems rather unsatisfying.

182 Her Honour concluded by considering that the provision of funds by Seafarms Group Ltd should be characterised as no more than the 'swap' of one debt for another and, as such, could not militate against a finding of insolvency. Her Honour reasoned:[305]

[B]y substituting its creditors' debts with other debt, Project Sea Dragon remained in a position where it was unable to pay its debts as they fell due within the meaning of s 95A of the Corporations Act. As such, the availability of funds from Seafarms Group Limited does not avoid a finding that Project Sea Dragon was insolvent from at least the time when it commenced accruing liability to Seafarms Group Limited.

Even if it were assumed that the obtaining of financial support from Seafarms Group Limited did not fail to avoid a conclusion of insolvency, the circumstances of the present case also falter on the issue of whether there existed a sufficient assuredness of support from Seafarms Group Limited by the provision of further funds. Here, the question is whether it could be said that Project Sea Dragon was able to pay its debts because, as a matter of commercial reality, the required funds were, at the relevant times, genuinely and realistically available from Seafarms Group Limited.

... The difficulty here is that the events proved that any such commitment by Seafarms Group Limited was illusory. Though it funded Project Sea Dragon for a period, when Project Sea Dragon incurred a debt for which it did not wish to assist Project Sea Dragon to discharge, it simply ceased providing funds. In that way, it only provided funding to the extent to which it thought, from time to time, that doing so was in the group's interests.

...

Therefore, in both a financial and corporate manner, Project Sea Dragon was capable of being easily untethered from the corporate group, and that reflects an absence of any real commitment to it by the Seafarms Group.

183 For reasons which are discussed below,[306] the circumstances surrounding E&C's funding of the Company and, in particular, Mr Georgiou being the lone controlling mind of both entities, is reason, in my view, to distinguish the factual outcome of Project Sea Dragon. It is evident, on the documentary and oral evidence considered below,[307] that E&C was, at all relevant times, able and willing to, and did, fund the Company until its voluntary administration.

184 In the present circumstances, there are said to be instances when debts were not paid on time or disputed, that much having been admitted by the Defendants themselves. The Plaintiffs say that this is indicative of the E&C funding not being assured, hence indicative of the Company not being able to pay debts as they fall due. Apart from the fact that at times debts were not paid when due, this does not necessarily mean that the Company was not able to pay. This position would otherwise result in many obviously solvent companies being found to be insolvent due to such delayed payment. Furthermore, as has been widely discussed in these reasons, the directing mind of E&C and the Company was the same person at all times. Accordingly, difficulties arise in establishing that funding was not at all times assured by E&C to the Company because the same directing mind decided to delay or dispute payment of a debt. Having decided to do so from the Company's perspective, it follows that E&C would not fund payment - but it does not follow that the Company was not able to pay the debt - rather, funds were available commercially and it was able to do so, but it decided not to.

185 A separate, discrete aspect of the Plaintiffs' claim is based on the Company's alleged failure to keep financial records between its inception, in August 2016, until 31 May 2017.

186 This claim is premised on the statutory requirement pursuant to s 286(1) of the Act that a company keep adequate financial records which properly and accurately details its true financial position. That section provides:

(1) A company ... must keep written financial records that:

(a) correctly record and explain its transactions and financial position and performance; and

(b) would enable true and fair financial statements to be prepared and audited.

187 The definition of what constitutes a 'financial record' is helpfully set out in s 9 of the Act, which provides:

(a) invoices, receipts, orders for the payment of money, bills of exchange, cheques, promissory notes and vouchers; and

(b) documents of prime entry; and

(c) working papers and other documents needed to explain:

(i) the methods by which financial statements are made up; and

(ii) adjustments to be made in preparing financial statements.

188 A failure to comply with s 286 will enliven the statutory presumption of insolvency under s 588E(4), which stipulates:

(4) Subject to subsections (5) to (7), if it is proved that the company:

(a) has failed to keep financial records in relation to a period as required by subsection 286(1); or

(b) has failed to retain financial records in relation to a period for the 7 years required by subsection 286(2);

the company is to be presumed to have been insolvent throughout the period.

(5) Paragraphs (4)(a) and (4A)(a) do not apply in relation to a contravention of subsection 286(1) that is only minor or technical.

(6) A presumption under subsection (4) or (4A) of this section, applying because of a contravention of subsection 286(2), does not have effect so far as it would prejudice a right or interest of a person, if it is proved that:

(a) the contravention was due solely to someone destroying, concealing or removing financial records of the company; and

(b) none of those financial records was destroyed, concealed or removed by the first‑mentioned person; and

(c) the person was not in any way, by act or omission, directly or indirectly, knowingly or recklessly, concerned in, or party to, destroying, concealing or removing any of those financial records.

(7) If the recovery proceeding is an application under section 588FF, subsection (4) of this section does not have effect for the purposes of proving, for the purposes of the application, that an unfair preference given by the company to a creditor of the company is an insolvent transaction, unless it is proved, for the purposes of the application, that a related entity of the company was a party to the unfair preference.

189 Thus, a claim predicated on the Company's failure to keep financial records requires the satisfaction of a two-pronged test. First, it must be shown that, as a matter of fact, the Company failed to keep financial records which 'correctly record and explain its transactions and financial position and performance' and 'would enable true and fair financial statements to be prepared and audited'. Second, if this threshold is met and the Court is satisfied that the Company has failed to keep financial records, the presumption of insolvency under s 588E(4) has not been rebutted by the Company.

190 It is important to note that the presumption of insolvency is capable of rebuttal on the evidence adduced by the Company on the civil standard, being the balance of probabilities.[308] This may, for instance, be demonstrated by evidence indicating positive cash flow, positive bank balance, and its ongoing payment of creditors.[309]

191 Accordingly, many of the matters which otherwise would be considered as part of the 'calculus' as to whether the Company is solvent will also necessarily be the same evidence which is used to attempt to rebut this statutory presumption. The benefit of the presumption, therefore, is the reversal of the onus onto the Defendants to positively demonstrate that the Company was solvent within the period in which it has allegedly failed to keep the relevant financial records.

192 On the basis of my findings below,[310] that the Company was solvent at all relevant times, I am satisfied that the Defendants have discharged their burden to establish that, even if the presumption of insolvency does apply, the Company was at all times solvent between its inception, in August 2016, and 31 May 2017, being the period which it is alleged that the Company failed to keep financial records.

193 Therefore, in my view, it is not necessary to delve into consideration of whether the Company's record keeping systems were deficient of the standard prescribed by s 286 as, even if the presumption did apply, on the evidence adduced, the Defendants have met their burden of rebutting the presumption.

194 It is relevant, at this juncture, to set out some of the other insolvency provisions in the Act which form part of the Plaintiffs' pleaded case, and their operation in this proceeding. The Plaintiffs' insolvent trading claim required it to establish the following:

(a) the company was insolvent pursuant to s 95A;

(b) Emilios has breached his director's duty to prevent insolvent trading by the Company under s 588G; and

(c) the Liquidator is entitled to recovery of compensation for loss resulting from insolvent trading against Emilios under s 588M.

195 First is the obligation imposed by s 588G on directors to prevent insolvent trading. That section relevantly states:

588G Director's duty to prevent insolvent trading by company

(1) This section applies if:

(a) a person is a director of a company at the time when the company incurs a debt; and

(b) the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and

(c) at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and

(d) that time is at or after the commencement of this Act

(2) By failing to prevent the company from incurring the debt, the person contravenes this section if:

(a) the person is aware at that time that there are such grounds for so suspecting; or

(b) a reasonable person in a like position in a company in the company's circumstances would be so aware.

196 In Plymin, Mandie J set out the former provision, which was superseded by s 588G, and the considerations which the Court must apply in determining whether a director is in breach of the provision. Those remarks are worth setting out in its entirety:[311]

Under earlier corporations legislation, it was a defence for a director to prove that a debt was incurred without the director's express or implied authority or consent but it was insufficient for this purpose to establish that the director was but one of a number of directors and had no power to prevent the debt from being incurred. If the director knew or suspected that a debt might be incurred, and took no step to prevent the incurring of the debt, at least by trying to prevent this (for example, by persuasion or by calling a meeting), the director would have failed to show that the debt was incurred without his authority or consent ...

On the other hand, the provisions applicable in this proceeding do not provide for a defence that the debt was incurred without the director's authority or consent. Rather, it is an element of the contravention described in s 588G(2) that the director has failed to prevent the company from incurring the debt. The section is somewhat curiously worded in that the opening words are: 'By failing to prevent the company from incurring the debt, the person contravenes this section if [etc].'

...

I do not think that the requirement that a director must have failed to prevent the company from incurring the debt means that it must be shown that the individual director had the power by himself to prevent either the incurring of each debt or, more realistically in the present context, to prevent Water Wheel's continuing to trade. By analogy with the previous law and the reasoning referred to above, inactivity or the failure to attempt to prevent the company from trading or incurring the debt will be sufficient to constitute a failure to prevent the company from incurring the debt within the meaning of s 588G(2). This analysis is in my view supported by the existence of the particular defences expressly provided for by s 588H(4) and (5). Section 588H(4) provides that it is a defence if it is proved that 'because of illness or for some other good reason', the director did not take part at the relevant time in the management of the company. Section 588H(5) provides that it is a defence, if it is proved that the director 'took all reasonable steps to prevent the company from incurring the debt'. In that regard I note that s 588H(6) provides that the matters to which regard is to be had in determining whether the director took all reasonable steps are to include any action a director took with a view to appointing an administrator of the company, when that action was taken and the results of that action. This latter provision suggests what the legislature had in mind in relation to the kind of steps which an individual director might take in any attempt to prevent a company from incurring a debt or debts. The constructional effect of providing for these defences is, it seems to me, that the legislation, read as a whole, treats a director, or at least an inactive or acquiescent director, as having failed to prevent the incurring of a debt unless the director satisfies the onus of proving one or more of the matters referred to in those sections. Put another way, the language in which these defences is couched depicts the obverse of a failure to prevent the company from incurring a debt.

197 The positive duty to prevent insolvent trading by a company carries a 'reasonableness' test. That necessarily dictates that it need not be proved that the particular director had actual or constructive knowledge of grounds upon which they suspected the company was insolvent. Rather, an assessment is drawn as to whether a director of reasonable competence and diligence, seeking properly to perform their duties as imposed by the law, and capable of reaching a reasonably informed opinion as to the company's financial capacity, had grounds to suspect that the company is or would become insolvent.[312] The test, therefore, is one of fact, having regard to the surrounding circumstances and the commercial realities which the company faces.

198 Second, is the s 588M requirements which must be established prior to recovery against Emilios being made available. Section 588M of the Act states:

588M Recovery of compensation for loss resulting from insolvent trading

(1) This section applies where:

(a) a person (in this section called the director) has contravened subsection 588G(2) or (3) in relation to the incurring of a debt by a company; and

(b) the person (in this section called the creditor) to whom the debt is owed has suffered loss or damage in relation to the debt because of the company's insolvency; and

(c) the debt was wholly or partly unsecured when the loss or damage was suffered; and

(d) the company is being wound up;

whether or not:

(e) the director has been convicted of an offence in relation to the contravention; or

(f) a civil penalty order has been made against the director in relation to the contravention.

(2) The company's liquidator may recover from the director, as a debt due to the company, an amount equal to the amount of the loss or damage.

199 This section provides requirements capable of being satisfied by documentary evidence concerning the debts incurred and loss suffered. Broadly speaking, the Plaintiffs sought to recover three 'forms' of debts:

(a) debts owed to the Company's trade creditors (Schedule B Debts);

(b) debts owed to statutory authorities, being debts owed to the ATO and SRO (Schedule C Debts); and

(c) debts owed to employees, being those debts paid to the Company's employees by FEG (Schedule D Debts).

200 It is said, and I accept, that the Liquidator has provided sufficient documentation by way of proofs of debt submitted by the Company's creditors which establish that each of the debts pursued are unsecured. The Company's Schedule C Debts and Schedule D Debts are each unsecured by nature, and no effort was made by the Defendants to demonstrate how the debts were otherwise secured. Each of these debts accordingly satisfy the requirement in s 588(1)(c).

201 Considerable dispute arose as to the 'loss and damage' requirement pursuant to s 588(1)(b), and whether the pursued debts, in particular, the Schedule C Debts and Schedule D Debts, could be said to be incurred by persons who had suffered 'loss and damage' as a consequence of the Company's insolvency.

202 Having regard to my finding that the Company was not insolvent pursuant to s 95A, it is not presently necessary to determine whether the requirements under s 588M(1)(b) were met by each and every person to whom the debt is owed. Naturally, as a consequence of my finding that the Company was not insolvent at any point prior to entering into voluntary administration on 4 July 2019, the ancillary matters which arise out of ss 588G and 588M, and which must be established by the Plaintiffs, fall away.

Entitlement of statutory authorities to prove for disgorged amounts in liquidation

203 The parties are further in dispute concerning the decision made by the Liquidator to allow the ATO and SRO to prove for the amount it had disgorged under the unfair preference claims. The Plaintiffs say that this conduct is expressly permitted by s 588FI of the Act, which states:

588FI Creditor who gives up benefit of unfair preference may prove for preferred debt

(1) This section applies where:

(a) a transaction is an unfair preference given by a company to a creditor of the company after 23 June 1993; and

(b) at the request of the company's liquidator, because of an order under section 588FF or 588FGAA, or for any other reason, the creditor has put the company in the same position as if the transaction had not been entered into.

(2) A court must not make under section 588FF, on an application relating to the transaction, an order prejudicing a right or interest of the creditor.

...

(3) The creditor may prove in the winding up as if the transaction had not been entered into.

204 Having regard to the findings made above regarding the Company's solvency,[313] this issue does not require determination in this proceeding. As the Company was not insolvent at the time the payments were made by the Company to the ATO and SRO, those payments were not unfair preferences. It follows, in my view, that the settlement sums ought to be repaid respectively to the ATO and SRO.

The Court's power to make orders against the Liquidator

205 A matter ancillary to but not wholly independent of the question of solvency is the court's power to remove a liquidator. As a consequence of what the Defendants characterise as the Liquidator's improper conduct during this proceeding, by making allegations in the Tendency Notice which the Defendants say Mr Carrafa knew to be false, they seek orders under s 90‑15 of the IPS for, inter alia, the removal of the Liquidator and the disgorgement of his fees.[314]

206 The Court's discretionary powers to make orders in relation to a liquidator are contained within s 90‑15 of the IPS, which relevantly states:

90-15 Court may make orders in relation to external administration

Court may make orders

(1) The Court may make such orders as it thinks fit in relation to the external administration of a company.

...

Examples of orders that may be made

(3) Without limiting subsection (1), those orders may include any one or more of the following:

(a) an order determining any question arising in the external administration of the company;

(b) an order that a person cease to be the external administrator of the company;

(c) an order that another registered liquidator be appointed as the external administrator of the company;

(d) an order in relation to the costs of an action (including court action) taken by the external administrator of the company or another person in relation to the external administration of the company;

(e) an order in relation to any loss that the company has sustained because of a breach of duty by the external administrator;

(f) an order in relation to remuneration, including an order requiring a person to repay to a company, or the creditors of a company, remuneration paid to the person as external administrator of the company.

207 Section 90-15 of the IPS also details matters which courts may have regard to in determining whether to make orders in relation to a liquidator:

(4) Without limiting the matters which the Court may take into account when making orders, the Court may take into account:

(a) whether the liquidator has faithfully performed, or is faithfully performing, the liquidator's duties; and

(b) whether an action or failure to act by the liquidator is in compliance with this Act and the Insolvency Practice Rules; and

(c) whether an action or failure to act by the liquidator is in compliance with an order of the Court; and

(d) whether the company or any other person has suffered, or is likely to suffer, loss or damage because of an action or failure to act by the liquidator; and

(e) the seriousness of the consequences of any action or failure to act by the liquidator, including the effect of that action or failure to act on public confidence in registered liquidators as a group.

208 The authorities indicate that courts infrequently exercise the discretionary powers to make orders against a liquidator, particularly in relation to the removal of a liquidator. This basis, unsurprisingly, is predicated on the oftentimes laborious and prolonged period of work which the liquidator has been engaged in, frequently spanning a duration of many years before proceedings are instituted. In these circumstances, having regard to both the financial and time costs involved in removing the existing liquidator and appointing a new one, courts are generally unwilling to engage in the removal of a liquidator. This, however, is not to say that an appointed liquidator is free to engage in conduct which is otherwise detrimental or injurious to the company's creditors, or otherwise act in breach of its obligations to the Court, without consequence. Thus, s 90‑15 of the IPS acts as a discretionary instrument available to the court to scrutinise and, if so appropriate, address the liquidator's improper conduct.

209 It is important, at the outset, to recognise that the primary consideration for the Court, in determining whether it is appropriate to remove a liquidator, is the interests of those who would benefit from the liquidation.[315] The party seeking the removal of the liquidator must positively demonstrate that it would be 'for the better conduct of the liquidation or to the general advantage of persons interested in the winding up or in the best interests of the liquidation'.[316] Loss of confidence in the liquidator based on reasonable grounds may also form a basis for the liquidator's removal.[317] That is, in simple terms, a requirement for the applicant party to show 'cause' before the Court will entertain an order for removal. In Re St Gregory's Armenian School (in liq), Brereton J discussed the standard of 'cause' which must be shown:[318]

The relevant 'cause' to be shown is to be measured by reference to the 'real, substantial, honest interest of the liquidation, and to the purpose for which the liquidator is appointed ... the measure of due cause is the substantial and real interest of the liquidation' ... 'cause shown' is a broad concept concerned not so much with a search for particular instances of wrong or inappropriate conduct (although a particular event of that kind may suffice), but a more general inquiry into what is for the benefit of the administration and the body of persons interested in it, as well as the maintenance of confidence in the integrity, objectivity and impartiality of that administration, so that removal is warranted if, taken as a whole, the conduct of the liquidator can be seen to be such as to ground in the mind of a reasonable observer a perception of lack of impartiality as among the interests he is committed to serve and lack of objectivity in serving those interests. Before removing a liquidator from office, the court will normally need to be satisfied of 'cause shown' going beyond a particular instance.

210 In Australian Securities and Investments Commission v Franklin,[319] White J (with whom Jessup and Robertson JJ agreed) considered the 'cause' required to be shown in the context of the former s 503 of the Act, a provision for the removal of a liquidator for 'cause shown'. His Honour said:[320]

The words 'cause shown' are not to be construed narrowly. An applicant for removal may rely on any conduct or inactivity by a liquidator ranging from moral turpitude to bias, lack of independence, incompetence or other unfitness for office. The overall considerations are the interests of the liquidation and the purpose for which the liquidator was appointed.

211 It is perhaps obvious then, that it is not sufficient for the party seeking removal to merely demonstrate hostility or rancour between themself and the liquidator. In Multi-Core Aerators Pty Ltd v Dye,[321] Warren J held:

However, in my view it is not sufficient that a court remove a liquidator merely because of levels of feeling and rancour between parties especially where the hostility has at all times emanated from the party seeking the removal of the liquidator. To do so would provide a creditor with an opportunity to manipulate the liquidation of the company. In my view to accede to the application of the applicant in the present matter would be to disregard the principle that the onus of proof borne by an applicant will not be easily discharged if the liquidator has become well acquainted with the business and affairs of the company and/or the process of winding up has almost reached completion.

212 In Gadsden v MacKinnon (Liquidator), Allibi Pty Ltd (In Liq) (Gadsden),[322] O'Callaghan J referred to and endorsed the English case of AMP Music Box Enterprises Ltd v Hoffman (Hoffman),[323] where Neuberger J laid out a number of considerations which the English courts ought to have regard to in determining whether to order a removal. Whilst Hoffman involved the interpretation of a different English statute, which prescribes different considerations for the English courts, his Honour's reasons are helpful to provide context to what is a significant decision which has serious implications on the liquidator. His Honour held:[324]

As a matter of ordinary principle and statutory interpretation, that seems to me to suggest as follows:

a) the court has a discretion whether or not to remove and replace the liquidator,

b) it will do so on good grounds,

c) it is up to the person seeking the order to establish those grounds,

d) whether good grounds are established will depend on the particular facts of a particular case,

e) in general it is inappropriate to lay down what facts will and what facts will not constitute sufficient grounds.

...

[I]f a liquidator has been generally effective and honest, the court must think carefully before deciding to remove him and replace him. It should not be seen to be easy to remove a liquidator merely because it can be shown that in one, or possibly more than one, respect his conduct has fallen short of ideal. So to hold would encourage applications ... by creditors who have not had their preferred liquidator appointed, or who are for some other reason disgruntled. Once a liquidation has been conducted for a time, no doubt there can almost always be criticism of the conduct, in the sense that one can identify things that could have been done better, or things that could have been done earlier. It is all too easy for an insolvency practitioner, who has not been involved in a particular liquidation, to say, with the benefit of the wisdom of hindsight, how he could have done better. It would plainly be undesirable to encourage an application to remove a liquidator on such grounds. It would mean that any liquidator who was appointed, in circumstances where there was support for another possible liquidator, would spend much of his time looking over his shoulder, and there would be a risk of the court being flooded with applications of this sort. Further, the court has to bear in mind that in almost any case where it orders a liquidator to stand down, and replaces him with another liquidator, there will be undesirable consequences in terms of costs and in terms of delay.

His Honour's observations have found approval in a number of Australian cases, and are, with respect, an accurate description of the considerations this Court must embark on.

213 Thus, in my view, the following principles can be distilled from the authorities at hand:

(a) the Court will not readily entertain an application for the removal of a liquidator;

(b) an order for the removal of a liquidator must be premised on 'cause' established by the applicant party;

(c) the spectrum of 'cause' which may give rise to the removal of a liquidator is wide-ranging, and not limited only to moral turpitude or incompetence;

(d) the Court's power should not be exercised to forensically 'comb over' every decision made by the liquidator which, with the benefit of hindsight, should have been performed differently; and

(e) the paramount concern of the Court in exercising this power is the interest of the liquidation and those who may reasonably benefit from it - a removal order will only be made if the Court is satisfied that doing so is in the best interests of the liquidation.

214 It is an incontrovertible fact that civil cases are to be determined according to the civil standard, on the balance of probabilities. However, that standard is necessarily shaped by the seriousness of the allegations being made against a party. This 'heightened' standard is derived from the High Court decision in Briginshaw v Briginshaw (Briginshaw),[325] often referred to today as the 'Briginshaw standard'.

215 In Briginshaw, Latham CJ said:[326]

There is no mathematical scale according to which degrees of certainty of intellectual conviction can be computed or valued. But there are differences in degree of certainty, which are real, and which can be intelligently stated, although it is impossible to draw precise lines, as upon a diagram, and to assign each case to a particular subdivision of certainty. No court should act upon mere suspicion, surmise or guesswork in any case. In a civil case, fair inference may justify a finding upon the basis of preponderance of probability. The standard of proof required by a cautious and responsible tribunal will naturally vary in accordance with the seriousness or importance of the issue.

216 In a similar vein, Dixon J held:[327]

The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters 'reasonable satisfaction' should not be produced by inexact proofs, indefinite testimony, or indirect inferences.

217 Therefore, in matters concerning serious allegations, evidence capable of causing a 'real degree of persuasion' must be adduced by the party making those claims. Absent that party's ability to do so, the Court cannot be satisfied that the allegations are established and, accordingly, must dismiss the claim.

218 The Briginshaw standard has since been enshrined, at least partially, by s 140 of the Evidence Act 2008 (Evidence Act). That provision states:

(1) In a civil proceeding, the court must find the case of a party proved if it is satisfied that the case has been proved on the balance of probabilities.

(2) Without limiting the matters that the court may take into account in deciding whether it is so satisfied, it is to take into account -

(a) the nature of the cause of action or defence; and

(b) the nature of the subject-matter of the proceeding; and

(c) the gravity of the matters alleged.

219 Both parties have made detailed submissions on the operation of the Briginshaw standard in this proceeding. The Plaintiffs contend that the Briginshaw standard should apply to the Defendants' Counterclaim against the Liquidator, wherein serious allegations as to the Liquidator's conduct in carrying out his duties are alleged, and for which the Defendants seek to remove the Liquidator. No serious opposition was made by the Defendants to the Briginshaw standard applying to its Counterclaim.

220 The Defendants say that this standard should also apply to the Plaintiffs' claims at large, as the crux of the case is a serious allegation of insolvent trading against Emilios. The Plaintiffs say in response, however, that the relevant standard of proof is only the balance of probabilities, pursuant to s 1332 of the Act. This section provides no reference to the matters contained within s 140(2) of the Evidence Act and, accordingly, operates in practice as a lower evidentiary standard for proof. Section 1332 of the Act provides that:

Standard of proof

Where, in proceedings other than proceedings for an offence, it is necessary to establish, or for the Court to be satisfied, for any purpose relating to a matter arising under this Act, that:

(a) a person has contravened a provision of this Act; or

(b) default has been made in complying with a provision of this Act; or

(c) an act or omission was unlawful by virtue of a provision of this Act; or

(d) a person has been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to a contravention, or a default in complying with, a provision of this Act;

it is sufficient if the matter referred to in paragraph (a), (b), (c) or (d) is established, or the Court is so satisfied, as the case may be, on the balance of probabilities.

221 The Plaintiffs contend that, on the face of the provision itself, there is nothing within s 588G(2) which would require matters to be established according to the Briginshaw standard. They say further that a distinction ought to be drawn between civil penalty proceedings commenced under that provision by ASIC and a proceeding commenced by a liquidator or creditor seeking remedies under s 588M(2) or (3) respectively. In the first case, the Plaintiffs submit that, owing to the more serious nature of a civil penalty, the Briginshaw standard would apply, whereas recovery of damages by a liquidator or creditor against the director would not carry that same level of seriousness to engage the Briginshaw standard.

222 The Plaintiffs did, however, concede that the question of whether the Briginshaw standard applies to an insolvent trading claim remains a live dispute, with no authorities, on its search, having yielded any conclusive results.

223 In Quin (in his capacity as liquidator of Roderick Group Pty Ltd (In Liq)) v Vlahos,[328] the Court of Appeal determined to apply the Briginshaw standard without deciding whether the standard did apply. No cases since have determined this question and I am content, having regard to the authorities, that this issue very much remains a live one.

224 On the basis of the authorities which indicate that a court will not readily exercise its power to remove a liquidator, and having regard to the implications of such an order, I am satisfied that the Briginshaw standard should apply to the removal of a liquidator. Accordingly, the Defendants bear the onus in establishing a 'real degree of persuasion' to warrant a removal of the Liquidator and the disgorgement of his fees under s 90‑15 of the IPS.

225 I do not, however, determine it necessary in this proceeding to determine whether the Briginshaw principle applies more generally to the Plaintiffs' claims at large. As I have indicated above, the Plaintiffs have failed to establish that the Company was ever insolvent and, accordingly, its insolvent trading claims fail. As the Plaintiffs have not met the ordinary standard of proof in civil proceedings, being the balance of probabilities, in prosecuting its case, it is not presently necessary to determine whether it needed to meet the higher Briginshaw standard.

226 The disputed issues in this proceeding are voluminous in nature and, consequently, subject to extensive written and oral evidence given by a number of lay and expert witnesses. As a consequence of my pre-trial orders,[329] much of the evidence in chief of each witness was given by way of affidavit material and tendered without objection. Some affidavit evidence was objected to, and those affidavit materials were tendered with amendments to reflect my rulings on those objections. Accordingly, the oral evidence adduced during trial comprised predominantly of each witness' cross‑examination and, in some cases, re‑examination.

227 The Plaintiffs called three lay witnesses. They were:

(a) The Liquidator, Mr Michael Carrafa;

(b) Mr Shaun Fernando; and

(c) Mr Colin Linke.

228 The Defendants also called three lay witnesses. They were:

(a) Mr Emilios Georgiou;

(b) Mr Robert Hadded; and

(c) Mr Panyiotis Zambas.

229 The Liquidator was the first witness called by the Plaintiffs. As the individual commencing this proceeding, in his capacity as the liquidator of the Company, his evidence is naturally crucial to the determination of the issues in dispute. The Plaintiffs relied on two affidavits filed on behalf of the Liquidator, and he gave oral evidence over the span of five days during the trial. The affidavits tendered as the Liquidator's evidence in chief were:

(a) the first affidavit of the Liquidator dated 1 July 2022 (First Liquidator Affidavit); and

(b) the second affidavit of the Liquidator dated 21 May 2025 (Second Liquidator Affidavit).

230 It is presently helpful, for reasons which are discussed below, to detail Mr Carrafa's vast experience and expertise in acting as a liquidator. He has over 30 years' experience in the insolvency industry and has, for the last 15 years, worked as a Registered Liquidator and Registered Trustee in Bankruptcy. Mr Carrafa deposed that since he was first registered as a liquidator in 2009, he has acted as liquidator in more than 1,500 external administrations, spanning a number of different industries.[330]

231 Mr Carrafa was appointed voluntary administrator over the Company on 4 July 2019, and Liquidator following a creditors' meeting on 8 August 2019. On 1 July 2022, some three years after he was appointed Liquidator, Mr Carrafa caused proceedings to be commenced against Mr Georgiou and E&C, alleging that the Company was trading whilst insolvent.

232 In order to properly examine the work undertaken by the Liquidator, it is relevant to note that he was assisted by a number of individuals employed by his firm, SV Partners:

(a) Mr Fernando, a Registered Trustee in Bankruptcy and an Associate Director, who had carriage of the collation of the Company's records and preparation of financial analysis;

(b) Mr Bui, a Senior Accountant, who assisted Mr Fernando until he ceased employment with SV Partners on 4 September 2020; and

(c) Ms Patching, a Manager, who assisted Mr Fernando from September 2021.

Basis of Mr Carrafa's assessment of insolvency

233 The first component of Mr Carrafa's evidence related to the basis upon which he reached the view that the Company was insolvent from its inception. As the Liquidator, Mr Carrafa's evidence as to the factors which he believed indicated that the Company was insolvent are, accordingly, highly relevant. It is therefore unsurprising that many factors which the Defendants say indicate that the Company was solvent, were put to Mr Carrafa. Ultimately, Mr Carrafa resiled from his view that the Company was insolvent from its inception, and deposed that, with the benefit of hindsight, he would not have maintained those claims. However, before discussing this change in position by Mr Carrafa, it is appropriate to set out what the Defendants say are the relevant 'solvency factors', which were put to Mr Carrafa, and his responses.

234 The basis in which these factors were put to Mr Carrafa were, at times, 'random' for lack of a better explanation, and did not follow a logical or chronological order. This observation, however, is not intended as criticism of the manner in which Mr Carrafa's cross‑examination took place and, instead, is to be viewed as a natural consequence of Mr Carrafa's evidence having been divided over five days, which occurred between 7-‍8 October 2024, 10 October 2024, and finally on 12-‍13 August 2025. Nonetheless, it is appropriate, in my view, to detail the propositions put to Mr Carrafa in a chronological manner as they were put, rather than according to the events as they occurred. This approach provides a better understanding of why Mr Carrafa ultimately determined to resile from the claims of insolvency as made against the Defendants.

235 The first proposition put to Mr Carrafa concerned the basis upon which the Company's total liabilities had increased by a significant margin in FY19. It was suggested to Mr Carrafa that the explanation for the significant increase in total liabilities was a consequence of the Company's increased production activities and, accordingly, this was desirable for the Company. Mr Carrafa accepted that this increase 'can be' beneficial to the Company but, equally, was capable of causing the Company to 'lose a lot more money'.[331]

236 The second proposition put to Mr Carrafa concerned the accrual of the Company's employee liabilities and, thus, when those liabilities were determined to be 'due and payable'. With respect to the employees' ordinary salary payments, Mr Carrafa agreed that those payments could, at most, only have fallen due one to two weeks before the Company entered into voluntary administration.[332] Similarly, Mr Carrafa accepted that the annual leave amounts accrued by employees only became payable on 4 July 2019, when he determined to dismiss the employees of the Company.[333] That same position, Mr Carrafa accepted, also applied to the redundancy payments and payments in lieu of notice provided to the employees.[334] It was Mr Carrafa's evidence that, whilst those employees remained employed by the Company, no payments were due and payable on an ongoing basis, except their ordinary wages.[335]

237 The third proposition put to Mr Carrafa concerned the general profitability of the Company and the Liquidator's failure to have prepared profit and loss statements in making the assessment of insolvency. Mr Carrafa's evidence was that, whilst his role as Liquidator certainly involved the review of particular transactions, it is not generally a function of a liquidator to prepare profit and loss statements for a company, as it is ultimately only one of many factors to be considered in determining solvency. It was put to Mr Carrafa, and he accepted, that, but for the management fees imposed on the Company, it would have returned a profit in both FY18 and FY19.[336] That 'management fee', Mr Carrafa said during cross-examination, related to payments made to Gemwood Installations for union rates paid to its employees.[337]

238 Mr Carrafa was also extensively cross-examined on 'errors' made by Mr Fernando, an employee of the Liquidator, in a cash flow analysis, which, when rectified, Mr Carrafa accepted that the analysis indicated the Company had a running profit over its entire lifetime save for 3 months.[338] That is, over the Company's 35 months of operation between September 2016 until July 2019, it operated on a running profit in every month except for three. Those 3 months being:

(a) January 2018, when the Company had a running loss of $325.73;

(b) March 2019, when the Company had a running loss of $3,223.24; and

(c) July 2019, when the Company had a running loss of $324.72.

239 Accordingly, Mr Carrafa conceded that the corrected figures did not suggest that the Company was insolvent:[339]

And in considering these types of indicia in assessing solvency, it's the case, isn't it, that we just looked at those three months and those negative figures were in the context of this spreadsheet, something in order of $500,000 in each of those months, then you would say to me that militates against the finding of, or, a conclusion of solvency?---Yes, based on this schedule, yes.

Whereas figures of this magnitude don't really suggest insolvency, do you agree?---Yes.

240 The fourth proposition put to Mr Carrafa concerned Mr Georgiou's reliance on spreadsheets prepared by Mr Zambas and the reasonableness of that reliance. It is Mr Carrafa's evidence that, without assessing the credibility or accuracy of those spreadsheets, it was common for information presented in those spreadsheets, which attempted to provide a comprehensive, high-level view of the Company's finances, to be prepared for a company's directors. Mr Carrafa also accepted that it would ordinarily be reasonable for a director to rely on those documents and its projections unless other information had been brought to their attention challenging the accuracy of those projections.[340] He said further, during cross-examination, that it was a director's duty to 'test' those projections in order to rely on them, but conceded that Mr Georgiou had in fact commenced 'testing' Mr Zambas' projections having sought advice from both Mr Carrafa and Mr Hadded in June 2019.[341]

241 The fifth proposition put to Mr Carrafa concerned his reliance on the Company's ATO debts and its payment plans as a factor demonstrating that the Company had been insolvent. It was put to Mr Carrafa, and he agreed, that the Company had made considerable payments to reduce its statutory debts to the ATO between April 2018 and 4 July 2019. Over that time, Mr Carrafa agreed that the documentary evidence indicated that the Company had paid approximately $590,000 to the ATO, reducing its outstanding balance to $41,604.[342] Mr Carrafa also accepted that the ATO's apparent refusal to enter into a further payment plan with the Company, as recorded in a letter from the ATO dated 4 October 2018, could not be construed as establishing that the ATO was not prepared to enter a further payment plan on the basis that it was aware of the Company's cash flow problems. At its highest, which Mr Carrafa agreed, that letter could only establish that the ATO knew that the Company had failed to comply with its previous payment plan.[343]

242 The sixth proposition put to Mr Carrafa concerned the Company's debts in the months prior to entering into voluntary administration. Mr Carrafa accepted that prior to March 2019 there were 'marginal unpaid debts' owed by the Company to its trade creditors. That level of unpaid debts grew by approximately $96,000 in April 2019, and by $133,000 in May 2019. In June 2019, that figure ballooned to over $256,000.[344] However, it was put to Mr Carrafa, and he accepted, that the Hutchinson debt, which was comprised of approximately $330,000, and which was a disputed claim and therefore not in the Company's records of outstanding debts as of June 2019, was not something that he would have taken into account in determining the question of solvency. It was then suggested that there was no basis for Mr Carrafa to have made the claim that the Company was insolvent from the period of January to June 2019, to which Mr Carrafa broadly refused to provide an answer:[345]

I'm putting to you that there was no basis for Mr Fernando to report to you that the company was trading whilst insolvent in the period 20 January 19 to June 19, when you look at these unpaid trade creditors?---Yes.

HIS HONOUR: Does that mean you agree?---Well - - -

Well I just want you to just answer the question?---Yes. Again, it, it really depends on how the ATO and SRO and J Hutchinson are dealt with as part of the - ah whether they're provable claims under 553.

...

And what I'm putting to you is that no person, no qualified liquidator, such as yourself, looking at these figures and understanding that 750,000 had been paid to the statutory authorities, and understanding Mr Georgiou was controlling E & C and could have it produce money as required, could have formed the view the company was trading whilst insolvent in that six‑month period?---Yes.

...

And you'd agree with me that with hindsight there wasn't a proper basis to make that demand?---Well, I don't believe that's the case.

243 In light of each and every one of these propositions, it was put to Mr Carrafa, at the end of his cross-examination, that the Company was not insolvent as alleged in this proceeding. Mr Carrafa agreed with this statement:[346]

Thank you. And so there's just no basis for this - this whole shibboleth in this case that Mr Georgiou was trading, should have suspected the company was insolvent because he was trading it in circumstances, or allowing it to trade in circumstances where he was not going to put up enough money to pay the ATO or the SRO is just false, isn't it?---(No audible response).

It's false?---Based on the level of debts, yes.

HIS HONOUR: So the answer's yes?---Yes.

Unfair preference demands against statutory authorities

244 A significant proportion of Mr Carrafa's affidavit and oral evidence then turned to the demands made for payment of unfair preferences to the ATO and SRO, and the subsequent settlement of those claims.

245 Mr Carrafa deposed that his function as a liquidator involves determining voidable transaction and insolvent trading claims. Those claims, collectively referred to as 'unfair preference claims', are often made by the relevant company to a revenue authority, such as the ATO and SRO. It is, however, the basis on which Mr Carrafa made those demands and subsequently settled those claims with the ATO and SRO, having regard to what the Defendants say his state of mind was at that time, which the Defendants argue should be impugned. Accordingly, it is helpful to detail the timeline of the Liquidator's claims against each of the ATO and SRO, and the settlement offers and process in each, before examining Mr Carrafa's state of mind.

246 It is Mr Carrafa's evidence that he investigated a series of unfair preference claims between his appointment as Liquidator on 4 July 2019 and the creditors' meeting on 1 August 2019. During this time, Mr Carrafa deposed that he came to the conclusion that the following amounts paid to statutory authorities were potentially voidable unfair preferences:

(a) $432,731 to the ATO; and

(b) $120,622 to the SRO.

247 Mr Carrafa further deposed that, in his experience, both the ATO and SRO tended to resolve unfair preference demands in a relatively prompt manner, and often attempted to settle those claims. It was, therefore, his practice to resolve claims in a short time frame, without having to institute formal legal proceedings, for a settlement sum which he believed would be in the creditors' interests to accept.[347] Mr Carrafa also said, and I accept, that the costs and delays involved in litigation were of primary concern in his determination to settle those claims.

248 On 8 November 2019, Mr Carrafa informed the Company's creditors that he would pursue the recovery of unfair preferences against both the ATO and SRO.

249 On 14 May 2020, Mr Carrafa caused SV Partners to make an unfair preference claim against the ATO in respect of payments totalling $432,731.00. Notwithstanding Mr Carrafa's knowledge that it was the ATO's standard practice to refer all claims over $100,000 to its legal team, that claim demanded that the full amount be remitted within 21 days. The claim further provided that 'should no response be received, [the Liquidator] will have no alternative but to institute legal proceedings against you without any further notice'. Mr Carrafa's evidence is that such 'threats' were made to 'put a timeframe for a response - whether that's reasonable enough'.[348]

250 Nine days later, on 23 May 2020, SV Partners received an email from a representative of the ATO, which stated, amongst other things, that:[349]

The Commissioner is able to settle your claim without a court order provided we have met our statutory obligations and your claim has merit.

251 Negotiations were subsequently entered into between Mr Carrafa's staff and the ATO and, in November 2020, Johnson Winter Slattery (JWS) were engaged to assist with the further negotiations. In total, eight substantive pieces of correspondence were exchanged between the ATO and Mr Carrafa's office, including correspondence where JWS acted on Mr Carrafa's behalf.

252 On 12 November 2020, the ATO made an offer to settle the claim for $200,000 on the basis that the settlement would constitute a full and final satisfaction of the demand. In that letter, the ATO expressed the view that the Company's compliance with its obligations to pay its statutory debts had improved in the six months leading up to 4 July 2019.[350] Whilst it is Mr Carrafa's evidence that he agreed with the ATO's view,[351] the offer was rejected and further information, by way of a profit and loss and cash flow statements, was provided to the ATO.

253 On 7 April 2021, the ATO increased its offer on the same terms to $275,000, and again, that settlement offer was rejected.[352]

254 On 24 June 2021, the ATO made two alternative offers to settle the claim, which were contained in one letter sent to the Liquidator (the s 588FF Offer and the Settlement Offer). It is appropriate to detail some of the terms of those offers in order to examine Mr Carrafa's decision to ultimately accept the lesser Settlement Offer.

255 The s 588FF Offer proposed that the claim be settled on the following terms:[353]

a) the Liquidator and the Company would bring proceedings against the Commissioner ('the Proceeding');

b) the Liquidator, the Company, and the Commissioner will agree to execute consent orders in the Proceeding ('the Consent Orders') pursuant to which the Liquidator will accept the amount of $350,000.00 in full and final satisfaction of the Commissioner's liability under the section 588FF orders, and in full and final satisfaction of all claims that the Liquidator and Company may have against the Commissioner under Part 5.7B of the Act;

c) within 7 days of acceptance of the section 588FF Offer, the Liquidator is to give written notice to the Director (in a form acceptable to the Commissioner) stating that after 21 days from the date that notice is given to him, the Consent Orders will be sought in the Proceeding and that upon that judgment being given, the Commissioner will have rights of indemnity against him pursuant to section 588FGA of the Act;

d) the Liquidators [sic] agree to file the Consent Orders within 7 days after expiration of the 21 day notice period referred to in paragraph 7c) above, together with an Affidavit establishing that notice has been given to the Director as required herein. In the event that the Director takes any action in the Proceeding that may create an impediment to the Consent Orders being entered by the Court, the Commissioner will not take any active part in any controversy involving the Director, save unless such controversy is inconsistent with the Consent Orders or as required by an order of the Court, or otherwise prejudicial to the Commissioner's interests.

256 The Settlement Offer was proposed as an alternative, and on the following terms:[354]

a) the Commissioner will pay the sum of $275,000.00 (inclusive of costs and interest) ('the Settlement Sum') within 35 days from written acceptance of this offer;

b) the payment of the Settlement Sum will be in full and final settlement of all claims against the Commissioner under Part 5.7B of the Act in respect of the Company; and

c) the Commissioner will agree to forgo his entitlement to seek indemnity from the Director.

257 On 29 June 2021, Mr Carrafa instructed JWS to further negotiate the Settlement Offer. That day, JWS received a letter from the ATO offering to settle the claims for $310,000, being approximately 72% of the face value of the claim. The terms of the further offer received from the ATO offer were:[355]

The Commissioner of Taxation ('the Commissioner') offers to settle this matter on the following terms:

a) The Commissioner will pay you $310,000.00 ('the Settlement Sum') within 35 days of the Company's liquidator ('the Liquidator') accepting this offer in writing;

b) The payment of the Settlement Sum will be in full and final satisfaction of the demand;

c) The Commissioner will forego his rights to seek the indemnity; and

d) The Liquidator will release the Commissioner from all claims in relation to the Company and Part 5.7B of Corporations Act 2001 ('the Act').

258 On 30 June 2021, one day after receiving the further settlement offer from the ATO, Mr Carrafa instructed JWS to accept the ATO offer on those terms. JWS communicated acceptance of this offer and, soon after, the ATO paid the settlement sum in accordance with the terms.

259 On 17 November 2021, the ATO submitted the Post Settlement Proof of Debt in the amount of $447,995.81. This proof of debt increased the amount claimed in the ATO's original proof of debt (which sought payment of $41,604.53) by the amount disgorged by the ATO in response to the preference demand and pursuant to the settlement correspondence, as well as an amount to reflect the superannuation guarantee charge owed to the Company's employees.[356]

260 Mr Carrafa's evidence is that he accepted the further offer from the ATO having regard to the following considerations:[357]

(a) the likely costs and delay that would be incurred in conducting formal legal proceedings;

(b) the settlement ensuring that the claim would be resolved without the costs, uncertainty and delay of legal proceedings; and

(c) the quantum of the settlement being significant having regard to the face value of the claim (approximately 72%).

261 Mr Carrafa's decision not to engage with the s 588FF Offer, which was $75,000 more than the initial Settlement Offer, and $40,000 more than the offer ultimately agreed upon, was subject to considerable scrutiny during cross-examination. It was put to Mr Carrafa, and he agreed, that the reason he did so was to ensure that Mr Georgiou was not given notification of the claims against the ATO, out of concern that Mr Georgiou may raise the question of whether the Company was actually insolvent. His evidence was:

And the reason you did that was because in 6C, the commissioner required notification to be given to the director - that's to Mr Georgiou, isn't it?---Yes.

Of that proceeding?---That's correct.

And you didn't want Mr Georgiou given notice of that proceeding because he might raise the question of whether there was - the company was insolvent at that point in time? ---Well, that's his - that - that would've been his right, yes.

Yes. And so, rather than have that question determined by a court, you refused the offer of the commissioner to consent to a finding that the commissioner had received a preference. That's correct?---Yes.[358]

...

And you thought that that - is it your evidence that your recollection is that you thought if you had to give notice to Mr Georgiou, that you would be involved in costs that you couldn't fund?---Well, it was part of the consideration, yes.

And that's because Mr Georgiou might challenge the fact, if I can put it that way - or the alleged fact of insolvency during this period?---Well, that - again, that's his - that would've been his right.

But you consider that on or about 24 June 2021?---I would've openly have called Mr Georgiou and advised him if that was the path I - I elected to take.

No, no, I understand that. And you knew if you took that path then it was likely that in the proceeding that was commenced for the purposes of accepting his offer that the question of solvency would be brought before the court?---Yes, there was a consideration. Yes.[359]

262 On 20 January 2020, Mr Carrafa caused SV Partners to make an unfair preference claim against the SRO in respect of payments made by Gemwood Installations to the SRO. That claim was settled on 7 August 2020, and provided for the SRO to pay Gemwood Installations $25,000 in satisfaction of any liability in respect of this demand.

263 On 28 May 2020, Mr Carrafa caused SV Partners to make an unfair preference claim against the SRO in respect of payments made by the Company to the SRO totalling $102,948.44. JWS was once again engaged to assist with negotiations regarding that claim. In total, six substantive pieces of correspondence were exchanged between the SRO and Mr Carrafa's office, including correspondence where JWS acted on Mr Carrafa's behalf.

264 On 3 December 2020, following a series of negotiations, Mr Carrafa executed a deed of settlement, which settled the claim for $72,000 in satisfaction of the SRO's liability relating to this demand. That settlement sum represented approximately 70% of the face value of the claim. The relevant provisions of the settlement deed provided that:[360]

1. In order to avoid additional expense and inconvenience, and without any admission of liability, the Commissioner will pay the Settlement Sum to the Company in full and final settlement of all monies that were paid by the Company to the Commissioner during the relation back period from 5 January 2019 to 4 July 2019.

...

1. Upon payment of the Settlement Sum, the Claim as it relates to any payments made by the Company to the Commissioner during the relation back period will be considered settled, and the Liquidator and the Commissioner respectively fully release each other from any further claim, indemnity, demands, proceedings, liabilities in relation to this matter.
2. The Liquidator and the Company acknowledge and agree that the Commissioner is entitled to lodge a proof of debt as an unsecured creditor for dividend purposes in the liquidation of the Company and that such proof will be admitted by the Liquidator at his discretion.

265 Mr Carrafa deposed that he accepted this offer having regard to the same considerations above.[361]

266 On 15 December 2020, the SRO submitted the SRO Post Settlement Proof of Debt in the amount of $188,592.88, which claimed, inter alia, the amounts disgorged by the SRO in resolution of the unfair preference claims.[362]

267 It was put to Mr Carrafa, on several occasions, that in dealing with the ATO and SRO with respect to these unfair preference claims, he engaged in misleading or deceptive conduct, whether that conduct was intentional or otherwise. This conduct, the Defendants say, is justification for Mr Carrafa's removal as liquidator of the Company.

268 Most relevantly, perhaps, is Mr Carrafa's failure to inform both the ATO and SRO of particular circumstances surrounding the Company, notwithstanding his evidence that he knew of such circumstances at the time those unfair preference claims were made.

269 In Mr Carrafa's 28 May 2020 letter to the SRO, he informed the SRO that the ATO had made a statutory demand against the Company for $381,298.84, despite knowing that, during that period, $433,000 had been paid by the Company to the ATO.[363] Although the letter then specified that the Company was currently indebted to the ATO for a sum of $41,604.53, Mr Carrafa never specifically informed the SRO that the Company had paid down a significant portion of its debts owing to the ATO.

270 Furthermore, despite his knowledge of the E&C loan facility, and the circumstances in which Mr Georgiou had continued to cause E&C to provide loans to the Company until June 2019, Mr Carrafa's letter to the SRO failed to inform it of any of these circumstances.[364] Mr Carrafa also failed to inform the ATO or SRO that Mr Georgiou disputed that the Company was insolvent during the period of the alleged unfair preference claim.[365]

271 In the absence of what the Defendants say are critical pieces of information which were kept from the SRO, and may otherwise have influenced its consideration as to whether to settle the unfair preference demand, Mr Carrafa's letter stated that there was 'irrefutable evidence' that the Commissioner was aware that the Company was insolvent. It is said that Mr Carrafa knew that the evidence was not 'irrefutable' and knowingly failed to provide that information to the SRO in breach of his obligations as the appointed Liquidator.

272 By 3 December 2020, the SRO and the Liquidator had agreed to settle the claim for $72,000, which, Mr Carrafa deposed, could not be viewed as an admission that he was resiling from his position that the evidence of insolvency was 'irrefutable'.[366] The basis in which the Liquidator ultimately determined to accept the settlement claim, he deposed, was a consequence of Mr Fernando's recommendation to him, having agreed to the terms himself and receiving legal advice required to settle the claim.[367]

273 Mr Carrafa did accept that the Commissioner entered into the settlement deed not having a complete understanding about the E&C facility or how it operated. It was put to Mr Carrafa, and he accepted, that he knew that silence could constitute misleading and deceptive conduct.

274 Mr Carrafa did, however, relate information concerning E&C's role in funding the Company to the ATO. By a response letter from the ATO on 7 April 2021, the Commissioner acknowledged his understanding that the Company had received funding from E&C over the 'disputed period', and stated:[368]

The company appears to have received significant funding from both its director and from E&C Nominees during the relevant period.

...

The level of funding provided to the company is unclear nor is it clear on the basis of the information provided to the commissioner if these deposits relate to any of the loan accounts in the company's balance sheets.

275 Further correspondence was provided to the ATO on 10 May 2021, which sought to clarify the ATO's queries regarding the E&C funding:[369]

In relation to the funding received by the company based on our client's review of the company's available books and records, our client has determined that the payments made were payments made by E&C Nominees.

It was however put to Mr Carrafa, and he accepted, that neither the 10 May 2021 letter, nor any other correspondence, actually explained to the ATO that Mr Georgiou was causing E&C to fund the Company as and when it required funds.[370]

276 It was ultimately Mr Carrafa's evidence that, whilst he believed that the demands made against the ATO and SRO had a proper foundation at that time, he had now resiled from that view:

And the demands that you made on the SRO and the ATO had no proper foundation, did they?---At the time I believe they did.

But looking back now, you agree with me that they did not? ---That was relatively early on in the administration, liquidation. Um it's very difficult to, ah question to answer.

It's not really, Mr Carrafa. You can disagree with me and I'll make submissions about that, or you can agree with me? ---Yes, in hindsight I may have, may have done things a little differently at the time.

HIS HONOUR: So the answer's yes?---Yes.[371]

277 The Company's creditors' meeting on 3 December 2021 is also the subject of considerable controversy, and forms much of the basis upon which the Defendants say Mr Carrafa should be removed as the liquidator. In order, however, to understand Mr Carrafa's conduct at this creditors' meeting, it is useful to detail the relevant decisions he made prior to that meeting.

278 At the commencement of that meeting, Mr Carrafa tabled the October 2021 Creditors Report, which set out his decisions to either admit or reject proofs of debt which had been submitted to the Company. Those relevant decisions are reproduced as follows:

(a) the SRO for $188,592.88, admitted in full for voting purposes;

(b) the ATO for $447,995.81, admitted in full for voting purposes;

(c) the Attorney-General's Department in relation to the Fair Entitlements Guarantee Scheme for $624,972.35, admitted in full for voting purposes;

(d) Mr Georgiou for $293,853.00, admitted only in part for voting purposes; and

(e) E&C for $1,586,716.00, admitted only in part for voting purposes.

279 The basis on which Mr Carrafa determined to partially accept and partially reject Mr Georgiou and E&C's proofs of debt is recorded in the minutes of the creditors' meeting of 3 December 2021, and is as follows:[372]

• An amount of $68,201 was claimed relating to business purchases made on credit card which has been rejected in full as there is insufficient evidence to demonstrate that Mr Georgiou incurred the relevant expenditure for the benefit of the Company.
• An amount of $2,064 was claimed relating to monies loaned to the Company which has been rejected in full as there is insufficient evidence to demonstrate that Mr Georgiou advanced the relevant funds to the Company.
• An amount of $223,588 was claimed relating to personal guarantees paid to creditors on behalf of the Company. The Presiding Person noted that he has been provided with documents that support payments of $228,495.64 made by Mr Georgiou and will admit his Proof of Debt for this amount.
• An amount of $1,204,000 was claimed relating to funds loaned to the Company over a period of time. The Presiding Person noted he had conducted a reconciliation of the funds advanced to the Company and funds that had been transferred from the Company to E&C. As a result of the said reconciliation and other relevant claims against E & C, the Presiding Person noted that he will admit an amount of $520,855.49 of the E & C's Proof of Debt amount.
• An amount of $306,310 was claimed relating to outstanding monthly premises rent and equipment rent payments. The Presiding Person noted he held sufficient documentation to admit this portion of the Proof of Debt in full.
• An amount of $76,406 was claimed relating to 'Make Good' expenses incurred relating to the premises. The Presiding Person noted he held sufficient documentation to admit this portion of the Proof of Debt in full. The Presiding Person noted that he will also be contributing to these payments as he also occupied the Company's business premises and he will discuss same with Mr Georgiou's solicitor after the meeting.

280 At that creditors' meeting, Mr Carrafa tabled two resolutions for poll, being:

(a) that the Liquidator be authorised to enter into a funding agreement on behalf of the Company with the Commonwealth of Australia (acting through the Attorney‑General's Department) (Resolution One);

(b) that the Liquidator be authorised to enter into a costs agreement, as he sees fit, with his preferred legal representatives, on the Company's behalf (Resolution Two).

281 For each resolution to succeed, it needed to achieve a majority of votes in both the number of creditors present and value of their claim (being the quantum of the admitted proof of debt). Both resolutions passed in majority of value and number of creditors present and voting, carried by six votes to two, with Mr Georgiou and E&C's proxy voting against the resolutions.

282 Mr Carrafa deposed that he determined to admit both the ATO Post Settlement Proof of Debt and the SRO Post Settlement Proof of Debt in full, which included the amounts which the ATO and SRO paid in settlement of the unfair preference claims, on the basis that this was his longstanding 'standard practice'. The basis of that practice, he deposed, is derived from the following reasons:[373]

[A]s a statutory officer, I am aware that I am subject to an obligation to only issue demands against creditors in respect of an unfair preference claim where I have a proper basis to do so (which necessarily includes my having a belief as to the existence of an unfair preference payment);

... prior to issuing a demand for an unfair preference claim I undertake investigations (including through my staff) to satisfy myself to a reasonable degree that the elements required to establish that claim exist;

in respect of unfair preference claims resolved by negotiation between solicitors (including solicitors engaged on my behalf, where applicable), which include a condition that the creditor is entitled to prove in the liquidation in respect of the payments disgorged in whole or in part, I rely on the experience of the relevant solicitors to the effect that such a condition is permissible at law;

I cannot recall any occasion, in any liquidation in which I have been appointed, or worked for another appointee, where another creditor or interested party has objected to the admission of a proof of debt submitted by a creditor, where that creditor has settled a demand for an unfair preference claim for an agreed payment of less than the demanded amount, without a Court order, and then seeks to prove for that sum; and

in fact, prior to the issue being raised by the defendants/counterclaimants in this proceeding, I have never heard any other insolvency practitioner, creditor, solicitor or professional body in the insolvency industry suggest that section 588FI of the Corporations Act operates to the effect that a creditor who settles a demand for an unfair preference claim by a liquidator on the basis of an agreed payment less than the sum demanded, without any Court order being made, is not permitted to prove as a creditor for the agreed amount paid.

That decision, the Defendants say in their closing submissions, was exercised incorrectly and erroneously, and indeed, it was Mr Carrafa's own evidence that he had never obtained legal advice to substantiate this 'longstanding practice'. Mr Carrafa's evidence, however, is that this decision would not have made any difference to the events which caused this proceeding to be instituted.

283 Had Mr Carrafa determined not to admit the full ATO Post Settlement Proof of Debt and SRO Post Settlement Proof of Debt, and instead deducted each settlement amount from the respective proof of debts, he surmised that each resolution would have been in 'deadlock', with a majority of creditors in number supporting the resolution, but not a majority in value.[374] Where such deadlock arises, the Liquidator has an obligation pursuant to s 75‑115(3) of the Insolvency Practice Rules (Corporations) 2016 (Cth) to determine whether he should exercise a casting vote to resolve the deadlock.

284 Mr Carrafa's evidence, which I accept, is that he would have resolved both deadlocks by exercising his casting vote. The basis upon which he would resolve to do so, he deposed, is set out as follows:[375]

(a) the general principle under the Australian Restructuring Insolvency and Turnaround Association's Code of Professional Practice requires the chairperson to exercise a casting vote to resolve a deadlock unless there is a good reason to refrain from doing so;

(b) it was Mr Carrafa's opinion, at that time, that a funding agreement was necessary to generate the best possible returns to the creditors, owing to the limited funds available to commence legal proceedings;

(c) the majority of creditors in number supporting the resolution was significant (six to two), whereas the majority of value opposing the resolution was not significant ($1,062,805.27 for, and $1,132,067.13 against);

(d) the creditors opposing the resolutions were Mr Georgiou and E&C, being related party creditors, who, Mr Carrafa inferred, would have likely been motivated by a self-interest in avoiding investigation and risk of a proceeding being commenced against them;

(e) Mr Carrafa's investigations up until that point had indicated that the Company was likely to have claims against Mr Georgiou and E&C and, accordingly, it was in the creditors' interest for those claims to be investigated fully; and

(f) there were no other significant factors to justify Mr Carrafa from refraining to exercise a casting vote.

Accordingly, Mr Carrafa deposed that, in this counterfactual scenario, the resolutions would have passed even if he had resolved not to admit the full ATO and SRO debts.

285 It is also Mr Carrafa's evidence that, had the resolutions not been passed, he would have made an application to this Court or the Federal Court of Australia for orders authorising his entry into the Commonwealth funding agreement and solicitor's retainer.[376] The basis upon which he would have made this decision, he says, are the same as described above.[377]

286 The final component of Mr Carrafa's affidavit evidence comprises of his knowledge and instructions in relation to the Tendency Notice, which alleges, amongst other things, that Mr Georgiou and E&C had a tendency to limit funding in a manner which did not allow the various Gemwood entities to discharge their statutory liabilities.

287 Mr Carrafa deposed in his second affidavit that, having been informed by JWS that the Tendency Notice was a requirement under the Evidence Act to adduce tendency evidence, he provided instructions on or around 25 September 2024 to JWS to prepare that notice.[378] He was, however, not personally involved in the drafting of the notice, and considered that he was not required to formally sign off on it before it was issued. Following the issue of the Tendency Notice, it is Mr Carrafa's evidence that he did not peruse it in any significant detail, which led to his failure to detect a series of errors in paragraph [42] of that notice.

288 For the sake of clarity, it is desirable that paragraph [42] be reproduced, and each error described:

1. At the time of entering liquidation, Gemwood Projects had statutory debts totalling $1,277,763.31 comprising debts owed to the:

(a) ATO (unsecured): $351,604.53;

(b) SRO: $188,592.88;

(c) Commonwealth Department of Employment and Workplace Relations through the Fair Entitlements Guarantee Scheme: $624,972.35; and

(d) ATO (secured): $112,593.55

289 Each of (a) and (b) contained facts which were incorrect, and Mr Carrafa deposed that he did not intend, at any time, to adduce evidence to prove those incorrect facts in this proceeding. Those errors being:

(a) paragraph [42(a)] erroneously describes the debt payable to the ATO at 4 July 2019 as including the $310,000 paid by the ATO in settlement of the ATO unfair preference claim which was not a debt that remained unpaid on 4 July 2019; and

(b) paragraph [42(b)] erroneously describes the debt payable to the SRO at 4 July 2019 as including the $97,000 paid by the SRO in settlement of the SRO unfair preference claim which was not a debt that remained unpaid on 4 July 2019.

Mr Carrafa's evidence, therefore, is that he did not know about those errors when the Tendency Notice was prepared, and that had he interrogated the notice more closely, he would have informed the Court of those errors. It was not, however, until shortly before 10 December 2024 when Mr Carrafa alerted the Court, through his solicitors, to those errors, some two months after the notice had been filed. Accordingly, it is Mr Carrafa's evidence that, in the course of his activities as the Company's Liquidator, he has never engaged in dishonest conduct in relation to the preparation of the Tendency Notice.

290 Mr Carrafa was also questioned over his instructions regarding the Tendency Notice. He initially maintained, during cross-examination, that he recalled giving instructions for the Tendency Notice to be issued, and it was his view that a tendency case could be made against Mr Georgiou out of three alleged 'instances' - being the alleged tendency of Mr Georgiou in relation to Gemwood Installations, Gemwood Projects and the Predecessor Entities.[379]

291 Mr Carrafa also gave evidence initially that his instructions to pursue the tendency case was not discussed with FEG nor the Attorney‑General's department, who are the litigation funders for this proceeding.[380] Two days later, however, when Mr Carrafa was recalled, and a file note produced recording a meeting which occurred on 25 September 2024, Mr Carrafa resiled from his previous statement and conceded that Ms Dixon, an employee of FEG, was present at the meeting on 25 September 2024 where the tendency allegation was discussed, and assented to the decision to issue the Tendency Notice.[381] That mistaken testimony Mr Carrafa originally gave, he surmised, was due to him being 'a little confused' during cross‑examination.[382]

292 Mr Carrafa was recalled for further cross-examination on 12-‍13 August 2025. His evidence regarding his instructions to pursue the tendency allegation changed significantly during this further cross-examination, some eight months after he had been first questioned about the tendency case. It is Mr Carrafa's evidence that he did not provide the instructions to pursue the tendency case. Submissions were subsequently made by both the Plaintiffs' and Defendants' counsel during closing submissions as to the weight I should place on Mr Carrafa's evidence, given that he had appeared 'confused' and had previously maintained that the tendency allegations were made on his instructions. Those issues are discussed below.[383] For the purpose of detailing Mr Carrafa's evidence, and given the considerable disagreement between the parties as to what was actually said or conceded, it is appropriate for some portions of the transcript concerning the questions put to Mr Carrafa and his answers to be reproduced in its entirety.

293 Mr Carrafa was questioned about the 25 September 2024 meeting, days prior to the Tendency Notice having been issued, which was attended by Mr Carrafa, members of his team, solicitors from JWS, his barristers and Ms Dixon of FEG. That meeting, Mr Carrafa said, was for the purpose of trial preparation, being just two weeks before the trial was due to begin on 7 October 2024. Mr Carrafa's evidence, when asked, was that he could not and did not provide instructions for the issuance of the Tendency Notice. That evidence was, specifically, that:[384]

[A]t that meeting, you knew that Mr Georgiou had caused E & C to fund payments of statutory debts of close to $750,000 within the last 15, within the last 15 months of the life of projects, didn't you?---Yes.

That's not a tendency to avoid paying the Tax Office, is it? ---No.

No. So you couldn't give an instruction that he had a tendency to cause E & C to fund in a manner where the Tax Office wasn't paid, could you?---No.

And you didn't give that instruction?---No.

An objection to a subsequent question was made, and the questioning continued:[385]

Mr Carrafa, you know that after that meeting a tendency notice was issued eventually?---Yes.

It took about a week or so?---3 October, yes.

You didn't have anything to do with the drafting of it?---No.

And presumably Mr Fernando did have something to do with the drafting of it?---No.

No? He didn't report to you that he was involved?---Not that I'm aware of.

But didn't he give - who gave the instructions then? Not you? ---I think it's set out in my, in my affidavit.

Don't worry about your affidavit, I'm asking you a question now. Who gave the instructions for the contents of the tendency notice?---It would've been me, but not exactly knowing um the instructions I was given.

So you were - what do you mean by that?---Look, I was probably, I was probably a little confused at the time.

Questioning continued, and Mr Carrafa made a series of concessions as to his state of mind at the time the meeting occurred:[386]

Now, you knew on 25 September 2024 that Mr Georgiou had not been involved in running the companies that were the companies of his sons, do you understand what - - - ?---Yes.

- - - I'm saying? And you knew when you were in that meeting on 25 September that you didn't know whether the boys would do what Mr Georgiou said, whether they would ignore him, how they ran the companies, didn't you?---That's right.

And you knew on 25 September when you were in that meeting that whilst those companies had debts to the ATO, you didn't know why they had debts to the ATO or why they hadn't paid them?---That's correct.

And you certainly were not in a position to blame the indebtedness to the ATO on the manner in which Mr Georgiou had provided funds to his sons in those companies?---That's correct.

294 In the ensuing questioning, Mr Carrafa repeatedly answered that he did not have a clear recollection of what had been discussed. I indicated to Mr Carrafa that I found his inability to recollect some of the matters having been raised in that meeting surprising, and instructed that he ought to attempt more seriously to answer the questions being put to him.[387] It must be said, accordingly, that self‑serving answers provided by Mr Carrafa regarding his knowledge of this meeting, particularly in circumstances where minutes of that meeting were in his possession and would, presumably, have been reviewed extensively by him in anticipation of cross‑examination, have to be treated with a degree of caution.

295 Mr Carrafa was further questioned about his belief regarding the Company's solvency over the period in which he was appointed Administrator, and then Liquidator. Those questions, and Mr Carrafa's corresponding answers, are as follows:[388]

[W]hen you became the liquidator and you looked at the trade creditors, I think you said to me earlier today there'd been an increase in trade creditors in FY19. That's correct?---Yes.

So you had no reasonable basis to allege that the manner of funding caused by E & C was insufficient to discharge the company's debts as and when they fell due for payment for the whole three year?---Yes.

Thank you and Mr Evans then said, 'Those liabilities which were not the subject of advances in order to enable them to be discharged included statement liabilities of the complainant with respect to tax debts and payroll liabilities'. Now, you knew when Mr Evans said that, that as at 4 July 2019 the ATO was satisfied that it was only owed 41,000. That's correct?---Correct.

And you knew that the liabilities to the SRO were not significant when you became the liquidator on 8 August? ---Correct.

And you knew that E & C had been funding Projects throughout that period?---Yes.

So when you heard Mr Evans say, 'those liabilities which were not the subject of advances in order to enable them to be discharged included statutory liabilities', you knew that wasn't quite correct?---Yes. There were still liabilities to statutory authorities on the date of - - -

Yes but 41,000 doesn't suggest that E & C was deliberately funding to make sure it wasn't paid?---Yes.

You agree with me?---Yes.

296 Questioning on this premise concluded with Mr Carrafa conceding that he did not provide instructions to pursue the tendency case:[389]

So can you tell His Honour, what case did you instruct be run against Mr Georgiou?---Ah the, the case that's set out in our 31 January 2025 amended statement of claim.

Well that doesn't include any tendency allegations, does it? ---No.

No. So is it your evidence that you did not instruct a tendency case be run?---As I, as I said earlier on, um yeah, that, that tendency was not understood by me at the time.

HIS HONOUR: So you didn't give those instructions to - - - ? ---No.

- - - pursue a tendency case?---No, that's, that's correct.

297 As discussed above, during closing submissions, the Plaintiffs' counsel made a series of submissions arguing that Mr Carrafa's 'admission' in response to this question could not be given any weight, as the question put to him was misleading. That matter is more appropriately dealt with below.[390]

298 Mr Carrafa was however, provided an opportunity, on the very next day, to address the evidence he had given regarding the tendency case. He maintained that the evidence he had given, being that he had not provided instructions to pursue the tendency case, was his 'best evidence':

And can His Honour take it that the evidence you gave yesterday about the 25 September meeting and what instructions you gave after that is your best evidence?---Yes. There was a brief mention of a - a - I've actually got my employee's file note and the reference to a tendency noted which, again, I - I don't believe I understand. I've got written here is a coincidence notice, so it didn't fully - - -

HIS HONOUR: Yes. It's correct your evidence yesterday is the best evidence?---Yes.

That's right, isn't it? That's correct, isn't it, Mr Carrafa? ---Yes.

It is therefore, in my view, highly persuasive that Mr Carrafa, having had the opportunity to review the file note, decided not to resile from his earlier statement that he had not given instructions to pursue the tendency case. That evidence, accordingly, is to hold a degree of significance.

299 Finally, Mr Carrafa also conceded that there was no basis to have alleged that Mr Georgiou's sons' failure to pay tax debts was a product of Mr Georgiou's funding decisions:[391]

And I think you agreed with me yesterday that you don't know of any facts which would support the allegation commencing in the fourth last line, 'But limited such funding or financial accommodation in a manner that did not enable those entities to discharge their statutory liabilities, including payroll tax, PAYG, GST and superannuation guarantee charges they fell due for payment'?---Sorry Mr Wyles, can you say that, ask that - - -

...

we discussed yesterday that you don't know any facts as to how the sons ran those companies and why the tax debts were not paid, do you recall that - - - ?---Yes.

- - - discussion we had yesterday?---That's right.

And you'd agree with me that you don't know any facts which could support that allegation in the last four lines? ---Other than what we've - these are the Clay East liquidation

...

But there's no basis to say that that was because of the way Mr Georgiou limited funding or financial accommodation? ---That's correct.

300 Accordingly, during cross-examination, Mr Carrafa conceded the following:

(a) he would not have chosen to make the unfair preference claims against the ATO and SRO knowing what he now knows;

(b) he did not provide instructions for the issuance of the Tendency Notice; and

(c) his professional view, knowing what he now knows, is that the Company was not insolvent in the periods as alleged in this proceeding.

These admissions are, viewed fairly, severely damning towards the Plaintiffs' tendency case and accordingly, the obligations which Mr Carrafa owes to the Court. I do not accept the Plaintiffs' submission that Mr Carrafa was confused when he conceded that he did not provide instructions for the Tendency Notice. Mr Carrafa's evidence must be considered in light of the fact that he is an experienced liquidator who has been professionally advised by his legal team during the course of this trial. It is, in my opinion, beyond logic that Mr Carrafa could be confused about whether the Tendency Notice was issued under his instructions, especially in circumstances where those allegations form a major aspect of the case which the Plaintiffs sought to prosecute.

301 Mr Shaun Fernando, a Certified Practising Accountant, who was formerly in the employ of the Liquidator, was called next. As an employee with carriage of the day‑to‑day conduct of the administration and liquidation of the Company, Mr Fernando's evidence primarily centred on the collation of records and preparation of financial analysis regarding the Company's position. The Plaintiffs relied on three affidavits which were tendered as Mr Fernando's evidence in chief. These were:

(a) the first affidavit of Mr Fernando dated 22 July 2024 (First Fernando Affidavit);

(b) the second affidavit of Mr Fernando dated 9 August 2024 (Second Fernando Affidavit); and

(c) the third affidavit of Mr Fernando dated 20 September 2024 (Third Fernando Affidavit).

302 Much of Mr Fernando's evidence related to the collation and storage of the Company's records and is intended to provide a fulsome documentation of the Liquidator's process in arriving at his conclusion that the Company was trading whilst insolvent. The contents of such procedure is not subject to any substantial claim of defectiveness or inadequacy by the Defendants and, as such, a complete exploration of each and every step undertaken by Mr Fernando and the employees he instructed is not required. The only matter which, in my view, requires a comprehensive investigation of relates to the Liquidator's assessment of the quantum of its insolvent trading claim. That issue is appropriately discussed below.

303 Mr Fernando's affidavit evidence concerning the methodology the Liquidator used to collect, store, and ultimately use, the records of the Company is extensive, and it is suffice to say that I am satisfied the Liquidator engaged in comprehensive steps to consider the available relevant material in relation to the Company.

304 It is appropriate to specify a number of determinations made by Mr Fernando which have a practical bearing on the proceeding:

(a) first, the transfer of $290,800 from the Company to E&C for purported 'rent' payments between 1 and 3 July 2019 were classified as a reduction of the E&C loan, as those payments 'did not reflect the ordinary rental payments made to E&C';[392] and

(b) second, the Hutchinson Debt of $330,499.09 was added to the Company's total outstanding debt, as it was a contingent liability arising from the Company's pre‑liquidation agreement with Hutchinson.[393]

305 In accordance with the Liquidator having revised some of the figures relating to minor errors or receipt of further information, the quantum of the Liquidator's claim is adjusted as follows:

(a) In the first case, if the Company is insolvent from inception (being 8 August 2016) until 4 July 2019, it is alleged the Company incurred debts of $2,253,712.53. This is reduced by $289,264.22 from the original amount of $2,542,976.75 alleged in the Statement of Claim.

(b) In the second case, if the Company is insolvent from 30 May 2017 until 4 July 2019, it is alleged the Company incurred debts of $1,880,217.37. This is reduced by $612,703.10 from the original amount of $2,492,920.47 alleged in the Statement of Claim.

(c) In the third case, if the Company is insolvent from 30 June 2018 until 4 July 2019, it is alleged the Company incurred debts of $1,291,469.46. This is reduced by $893,966.17 from the original amount of $2,185,435.63 alleged in the Statement of Claim.

306 Mr Colin Linke was called as the Plaintiffs' last witness. Mr Linke was an external accountant originally engaged by Mr Zambas and Mr Georgiou's sons to provide accounting and financial advice to the Predecessor Entities and later retained to provide that same advice to the Company. Mr Linke gave evidence about the loans provided by E&C to the Company; Mr Georgiou's concerns regarding the Company's financial performance; and the advice he gave the Company regarding its statutory liabilities. The Plaintiffs relied on two affidavits which were tendered as Mr Linke's evidence in chief, subject to my rulings that certain sentences of the first affidavit be removed pursuant to objections made by the defendant's counsel.[394] These were:

(a) the first affidavit of Mr Linke dated 22 July 2024 (First Linke Affidavit); and

(b) the second affidavit of Mr Linke dated 12 August 2024 (Second Linke Affidavit).

307 From the outset, it is desirable that I express my view that Mr Linke was a very experienced and well‑intentioned advisor to the Company. It is evident that Mr Linke has, over the course of his professional career, wielded a high degree of managerial and executive power in his various employment roles. His previous roles include a number of in‑house accounting positions, a c‑suite executive role, and as a principal of various accounting advisory firms.[395] It follows, therefore, that Mr Linke has a unique ability to speak to the adequacy and competency of a company's financial recording system by virtue of this expertise. Accordingly, any shortcomings from Mr Linke's evidence or inconsistencies with evidence given by other witnesses, where the evidence of another witness is preferred, should not be taken as a criticism of Mr Linke's credibility or his expertise. Rather, these shortcomings or inconsistencies are, in my view, a product of the many years that have lapsed since particular events had occurred and the very fact that Mr Linke's role involved providing financial and accounting advice to many different clients, of which Mr Georgiou and the Company were only one. Whilst the lapse in time is certainly not unique only to Mr Linke, the proximity of Mr Georgiou and Mr Zambas to the Company's day‑to‑day operations and the extent of their time spent on the Company, renders it less likely that this secondary reason would also apply to them, to the same extent.

308 It should also be recognised that, during the time where Mr Linke's services were provided to the Company, he was a principal and employee of various different accounting practices. Between 2015-2017, Mr Linke was the principal of Knightstone Accountants and Business Advisors. Knightstone merged with The Practice in January 2017, and Mr Linke was principal of that firm until April 2018, when he departed to establish a new firm, Ignitus Accounting and Advisory. During the course of this time, Mr Linke continued to provide accounting and financial advice to the Company notwithstanding which accounting practice he was part of. Thus, except where relevant, I make no distinction between Knightstone, The Practice or Ignitus, and simply refer to Mr Linke as the provider of these services.

Advice regarding Predecessor Entities and establishing the Company

309 Mr Linke deposed that he was first introduced to Mr Zambas and Mr Georgiou's sons, Angelo, Stephen and Michael, in February 2015. Mr Linke was referred to the family by Mr Afrasiabi of MA Legal, and his services were sought to provide a second opinion regarding the taxation issues which the Predecessor Entities were facing. It is Mr Linke's evidence that he was first engaged to act for the Predecessor Entities in November 2015, and his advice pertained mostly to the director penalty notices issued against Michael, Angelo and Stephen by the ATO.

310 Mr Linke was also engaged to provide advice about the restructure of the group which would achieve 'a greater level of effectiveness and asset protection'.[396] A fee proposal prepared by Mr Linke for Stephen Georgiou on 30 November 2015 stated:

Establish a parallel group that can take over the operations, wind down the current entities of Gemwood Interiors (Vic) Pty Ltd and Gemwood Administration (Vic) Pty Ltd.

Considerations:

• Retention.
• Debtors.
• WIP.

It was Mr Linke's view that the existing corporate structure of the Predecessor Entities failed to adequately protect its directors from personal liability. Accordingly, he deposed that he advised Mr Zambas, Michael, Angelo and Stephen that a group structure should be implemented to protect each director's personal assets. Mr Linke deposed that he believed it unlikely Mr Georgiou was at this meeting, as his first recollection of meeting Mr Georgiou did not occur until July or August of the next year. A calendar appointment provided by Mr Linke indicates that this first meeting occurred on 25 July 2016.[397]

311 Between early to mid-2016, Mr Linke also advised the Predecessor Entities on the various creditors' statutory demands made against it. Whilst Mr Linke was at all relevant times 'in the loop', it was his employee, Mr Arthur Koloziejzcuk, who primarily assisted the Predecessor Entities in relation to these demands. During this time, it was Mr Linke's evidence that he had formed a professional opinion that Mr Zambas, Angelo, Michael and Stephen Georgiou did not have the necessary financial and administrative skills to ensure the continued success of the Predecessor Entities.[398]

312 As a consequence of the ATO having obtained judgment against the Predecessor Entities in around July 2016, it is Mr Linke's evidence that he was introduced to and met with Mr Georgiou to discuss Mr Georgiou's re‑entry into the business. This meeting took place with Mr Linke, Mr Afrasiabi, Mr Georgiou, and his sons, Michael, Angelo and Stephen, in attendance. Due to the lapse in time, Mr Linke conceded that he could not recall the specific content of the meeting and his conversation with Mr Georgiou, save as to what was generally discussed, being:[399]

(a) Mr Zambas provided information of the Predecessor's Entities' established relationship with builders, in order to determine whether the business could continue to be successful;

(b) Mr Georgiou was concerned about rent arrears owed by the Predecessor Entities to E&C and sought reassurances from his sons, Michael, Angelo and Stephen, that this debt would be repaid from any potential new entity; and

(c) this arrangement was resisted by Michael, Angelo and Stephen.

A further discussion took place between Mr Linke, Mr Afrasiabi and Mr Georgiou at the conclusion of the meeting, where Mr Linke recalled Mr Afrasiabi querying why Mr Georgiou wanted to 'bail out' his sons. It is Mr Linke's evidence that he remembered Mr Georgiou stating words to the effect that his motivation for doing so was to 'buy his son's love'.[400]

313 Mr Linke deposed that, after this meeting, Mr Georgiou informed him that he would become the director of a new entity or entities in order to continue operating the business.

314 On or about 1 August 2016, Mr Linke was tasked with registering the Company as a single entity. Mr Georgiou was to be listed as the sole director, and the shareholding of the Company was split equally amongst Mr Georgiou, and his sons, Michael, Stephen and Angelo. Mr Linke's evidence is that a single company was registered, notwithstanding his advice, because Mr Georgiou did not want to incur fees and meet the compliance responsibilities associated with establishing more than one company.[401] It is, however, Mr Georgiou's evidence that he does not recall Mr Linke ever advising him that more than one company should be registered.[402]

315 The Company was registered on 8 August 2016, and was set up as a trustee for a discretionary trust to avoid potential bankruptcy risk to the individual shareholders.[403]

316 A business sale agreement was drawn up by Mr Afrasiabi, and on 12 September 2016, minutes of a meeting were circulated, via email from Mr Zambas, stating the following:

• Sale Agreement: Figures have been emailed to Colin. Rex & Colin to finalise the Agreement according to discussion.
• Binding Financial Agreements: between Michael and his partner Angelique. Angelo and his partner Tanya. Rex to request necessary information.
• Colin to set-up Trust for Emilios to register 2nd Mortgages over his personal properties.
• Loan Agreement with Emilios for $900k Monthly payments of $xxxxx to be decided for a nominated duration. Agreement of % of residual Profit to pay down loan. Still requires further discussion and implementation.
• Market valuations required on Premises and machinery to determine rental.
• New machinery to be hire purchased through E & C Nominees. Upon Loan pay-out, ownership of the equipment become ownership of Gemwood Projects P/L.
• Change of current trading names.
• Current Roles: List required by Pany, Michael, Angelo & Steve.

Mr Linke deposed that the $900,000 loan agreement with Mr Georgiou referred to the value which Mr Georgiou had already loaned to the Predecessor Entities, and he required that amount be paid out of the profit of the Company over time. Contrary to Mr Georgiou's evidence that he would only require the loan to be repaid if the Company had cash to pay it, Mr Linke deposed that, in the numerous conversations he had with Mr Georgiou, Mr Georgiou had indicated that he expected to be paid prior to all other creditors, even if the Company did not have sufficient cash to do so.[404]

317 At a further meeting between Mr Linke and Mr Georgiou which occurred around 10 September 2016, Mr Linke deposed that Mr Georgiou produced various handwritten notes and spreadsheets to evidence the $900,000 loan he had made. It is Mr Linke's evidence that Mr Georgiou stated to him that he would revise the amounts to be repaid down to $700,000, and to be repaid over 10 years. It was at this meeting, Mr Linke deposed, that Mr Georgiou instructed him that E&C would provide a line of credit to the Company to allow the Company to commence its operations. The E&C line of credit was based on a further line of credit which E&C had with a bank, though Mr Linke was not able to recall the specific bank, or whether Mr Georgiou had ever informed him of this. It is Mr Linke's evidence that Mr Georgiou also expressed that the E&C loan would be drawn down at Mr Georgiou's discretion, and that he 'wanted complete control over whether further funds would be advanced to the Company'.[405]

318 Following this meeting, Mr Linke made a series of proposals by way of reply email to Mr Zambas on 15 September 2016. Amongst those proposals was a plan of how the existing E&C loan and further line of credit should be managed. In relation to the existing loan, Mr Linke proposed that:[406]

(a) the interest rate be set at 6.5% with a 10 year amortisation period;

(b) additional lump sum payments be made at 25% of the Company's declared profit (if any) each year; and

(c) the Company would not pay any penalties for early repayment of the loan.

In relation to the further line of credit, the following proposal was made:[407]

(d) the line of credit would be capped at $500,000;

(e) Mr Georgiou would have discretion as to whether the funds were advanced; and

(f) it be repayable over 10 years.

Mr Georgiou's evidence was that both the interest charge and limit on the E&C loan were Mr Linke's suggestions, which were never imposed. Whilst Mr Georgiou gave evidence that he initially agreed to the cap of $500,000,[408] this cap quickly fell away once the business began operation. This is consistent with the Company's records of the E&C loan balance, and the fact that, in the course of the Company's life, Mr Georgiou caused E&C to fund more than $7 million in loans.

319 This email also recorded Mr Linke's suggestion that he set up the accounting software, Xero, for the Company, which would allow for the suitable management and costing of jobs. For reasons which are described below, Mr Linke's proposal from 15 September 2016 regarding the Company's accounting systems was not put into place until much later.

320 Mr Linke gave evidence next about the discussions he had with Mr Georgiou about the status of the E&C loans. He deposed that, between 2017 to 2019, he had frequent discussions with Mr Georgiou about the E&C loan, many of which were not scheduled meetings, but occurred as impromptu conversations in person or over the phone. Accordingly, it is Mr Linke's evidence that he could not recall, in detail, what was said at each meeting. Mr Linke was, however, able to provide 26 calendar appointments recording scheduled meetings which took place between himself and Mr Georgiou between 2016 to 2019.[409] It is clear, therefore, that Mr Linke and Mr Georgiou engaged in active, regular discussions about the conduct of the Company and the status of the E&C loan.

321 In the course of these conversations, Mr Linke's evidence is that he formed the following views about Mr Georgiou:[410]

(a) Mr Georgiou had a close understanding of the balance of the E&C loan, as demonstrated by his ability to quote specific figures;

(b) from late 2017, Mr Georgiou wished to exit the Company and minimise his personal exposure to the debts owed;

(c) Mr Georgiou was keenly aware that he would be personally liable for the Company's PAYG and superannuation; and

(d) Mr Georgiou frequently expressed 'what will it cost me' to exit the business.

322 It was through these conversations, and Mr Linke's provision of advice to the Company, that he became aware of how Mr Georgiou would cause E&C to fund the Company. Mr Linke deposed that the loans were made at Mr Georgiou's absolute discretion, and often when the Company was lacking working capital and a recurring liability was likely to arise. It is his recollection that Mr Georgiou often injected funds immediately prior to payroll due dates to ensure the Company's employees would be paid on time.[411]

323 Similarly, where Mr Georgiou determined that there was sufficient or excess cash funds in the Company's accounts, Mr Linke deposed that Mr Georgiou would cause the Company to repay E&C. According to Mr Linke's recollection, this led to more than 20 complaints over the course of the Company's life from Mr Zambas, Angelo, Michael and Stephen that Mr Georgiou was unilaterally withdrawing money from the Company's accounts.[412] On a number of occasions where Mr Linke viewed this withdrawal as having an adverse effect on the Company's operations, he advised Mr Georgiou not to withdraw those funds and request that the funds be returned to the Company.

324 Mr Linke's evidence is that Mr Georgiou usually refused these requests, notwithstanding his advice to Mr Georgiou that these withdrawals were more than what he was entitled to having regard to the Company's financial situation. The specifics of such advice was not the subject of Mr Linke's affidavit evidence, however, when cross-examined on this matter, Mr Linke described what he often discussed with Mr Georgiou in these situations:[413]

[H]e never took out more than he had advanced to the company, did he?---He took out more than he was entitled to, given that there was no security and there were other creditors that needed to be paid, and my discussions with him and advice was that he should not be doing that, he should ensure that it stays within the business so that it can operate and provide the business with comfort that they could meet their obligations as they were moving forward, particularly in the regards to purchasing stock and paying supplies and employees.

325 Whilst many such requests were made verbally, either in person or over the phone, and as such, not recorded by any documentary evidence, one such request was communicated via email. On 2 May 2019, an email from Mr Linke to Mr Georgiou recorded:[414]

I stated and you confirmed you understood:

...

1. The 400k that you took out yesterday will most likely be required to be put back to allow the business to operate.
2. I have stated I will get it back for you before your exit.

326 Contrastingly, it is Mr Georgiou's position that he never refused any requests from Mr Linke to return cash to the Company.[415] Indeed, it is accurate to say that Mr Linke's 2 May 2019 email did not request that the $400,000 withdrawn by Mr Georgiou be repaid, but rather, specified that it was 'most likely' it would need to be 'put back'. In any case, the E&C bank statements show that Mr Georgiou caused E&C to provide a further $646,900 to the Company between 3 May and 30 May 2019, indicating that, notwithstanding these withdrawals, he maintained a consistent willingness to inject further funds.[416]

327 It is also Mr Linke's evidence that Mr Georgiou had expressed to him that he was prepared to continue funding the Company to ensure the existing debt owed to E&C was repaid. Whilst Mr Georgiou had told Mr Linke that he believed E&C would be able to fully recover the money owed by the Company, he deposed that Mr Georgiou's view changed around March to May 2018, when Mr Georgiou began expressing doubts about the viability of the business. One communication from Mr Georgiou expressing this doubt was recorded by email on 2 October 2018, and stated:[417]

Hi Colin

Hope your [sic] having a great holiday. Sorry to send you this email when your [sic] on holidays. Just an up date on the loan. Am getting concern no money has dropped yet. I don't know when all [Mr Zambas] keeps tell everyone its coming. I've asked [Mr Zambas] how much money is due this month up to total of $500k. I don't know if money will be in before the next pay. Suppliers have not been paid.

328 By April-May 2019, Mr Linke recalls Mr Georgiou having instructed him that he recognised that the money E&C had loaned would no longer be recoverable and decided then and there to cease funding the Company. Mr Linke deposed that, in response to Mr Georgiou's remarks, he agreed with Mr Georgiou that it was unlikely he would be able to recover the funds E&C had provided. This evidence must, however, be considered in light of the fact that Mr Georgiou did continue to advance funding to the Company until June 2019.

329 Consequently, on 9 April 2019, Mr Linke sent an email to Mr Zambas, Michael, Stephen and Mr Georgiou, which said:[418]

Hi Everyone.

I feel that we do need to review the viability of where this is all going and the sooner the better. I understand the urgency in making this happen, so in regards to the below I think we also need to address the following:

• Cash flow - this appears to be a never-ending problem. We ned [sic] to get on top of this asap.

• Contracts to complete: We need a summary of the contracts we have started, the status, the issues and the basis that we will eventually get paid. THIS IS CRITICAL, AS I HAVE INSTRUCTED [Mr Georgiou] TO RESTRICT ANY FURTHER CASH FLOW INJECTIONS UNTIL WE UNDERSTAND WHERE THIS IS AT.

...

[Mr Zambas], I appreciate that you are under immense pressure but we do need to get this information and you are the person in control of t [sic], so I do need you to get this together for us as a matter of urgency.

Mr Georgiou provided a response to that email on the same day stating: 'Yes, I agree'.

330 On 29 May 2019, Mr Georgiou sent an email to Mr Zambas, Michael, Stephen and Mr Linke recording the balance of the E&C loan being $2,227,242.40. The text accompanying that email stated: 'THERE'S NO MORE. I'M BROKE'.[419]

331 Mr Linke's evidence is that the correspondence in April-May 2019 did not represent the first time that Mr Georgiou threatened to cause E&C to stop providing funds to the Company. In what Mr Linke deposed are the approximately 40 conversations he had with Mr Georgiou on this topic between 2016-2019, he gave evidence that Mr Georgiou stated that he would not provide a further loan to pay a particular liability or would cease funding altogether.[420] It should be noted, however, that notwithstanding these 'threats', the Company's financial records indicate that Mr Georgiou continued to provide such further loans to the Company until June 2019.

332 It must also be recognised that Mr Georgiou's evidence on this matter is that such 'threats' were made to push Mr Zambas and his sons into recognising the Company's cash flow conditions, and cannot be viewed as an unwillingness to continue funding the Company. Such explanation is, in my view, consistent with the reality wherein Mr Georgiou continued to cause E&C to advance considerable sums to the Company.

333 It must also be said that this explanation is consistent with Mr Linke's own evidence during cross-examination. For instance, notwithstanding Mr Linke threatening Mr Zambas, Michael, Stephen and Angelo that Mr Georgiou would withhold funding from the Company as early as September 2017, he conceded that Mr Georgiou was always prepared to fund the Company's debts at that time. Whilst Mr Georgiou did not want to provide more funds than he was required to, Mr Linke gave evidence that these threats were inherently 'empty' in nature and only intended to pressure his children into getting the Company's operations in order:[421]

And in September 2017, did you have any perception that he would just cease to provide that revolving line of credit?---Um the discussion - the discussions we had at the time was that he was reaching the - the ah end of his tether. But, obviously - well, no. He - he was not going to stop. His - his - his position was more that he was trying to pressure them to get the business operated correctly.

Yes?---But that it would continue until such point as he was comfortable that he was going to get a return for what he put into the business and it was actually able to be trading profitably.

...

But insofar as he had already - he made the decision back in August 2016 to provide the revolving line of credit, as we get to September 2017, there was nothing that he said to you that indicated that time he was just going to stop at, say, in October 2017?---No.

He deposed further that his role in communicating to Mr Zambas, Michael, Stephen and Angelo that Mr Georgiou would cease further funding of the business was part of his approach of 'playing bad cop'.[422] This was, Mr Linke said, necessarily a byproduct of him acting as the Company's external accountant, where he could act as an intermediary between Mr Georgiou, and Mr Zambas, Michael, Stephen and Angelo.

334 A further substantial aspect of Mr Linke's evidence comprised of what he perceived were the shortcomings of the Company's accounting records and, in particular, the absence of appropriate skills possessed by Mr Zambas to manage the Company's forecasting and budgeting. Mr Linke deposed that this professional opinion was formed on the basis of what he described as the 'frequent mistakes' within the spreadsheets Mr Zambas had created. He also deposed that the spreadsheets were often not prepared using data from invoices actually issued, but were prepared as a forecast of cash flow based on the Company's executed contracts.

335 His view was that Mr Zambas' methodology of keeping Company records was performed in a manner which would protect 'his place in the world'. That being, that keeping the Company's records in such a manner enabled Mr Zambas to control the invoices and management of the Company.[423]

336 Many of the forecasted cash flow statements created by Mr Zambas over the years never eventuated and often overstated the Company's actual cash flow. Additionally, errors frequently occurred as a consequence of their manual preparation.

337 Mr Linke's evidence is that Mr Georgiou shared these concerns from as early as mid‑2017, when he recalled Mr Georgiou stating that he 'did not trust [Mr Zambas] because [Mr Zambas] had previously been bankrupt and had lost a lot of money that [he] had loaned to him as part of that bankruptcy'.[424] This, however, is denied by Mr Georgiou.[425]

338 On 6 March 2017, Mr Linke recommended that the Company switch its accounting platform to Xero in order to capture the Company's live data. This recommendation, however, must be viewed in the context of Mr Linke's having made a similar prior recommendation some six months earlier to implement the Xero software.[426] This 6 March 2017 email stated:[427]

Hi Guys.

I want to organise a meeting between us please this week.

I have been reviewing the financials and your performance appears to be way off track. Emilios tells me that his funding has been utilised and it is obvious that you are not hitting your performance benchmarks.

...

Financials - I need live data. Quickbooks needs to go asap. Xero is a better alternative, cheaper and gets us the same data ...

Mr Zambas subsequently agreed with this proposal, and between April to June 2017, the Company gradually transitioned from QuickBooks to Xero.

339 On 15 June 2017, Mr Linke sent an email to Mr Zambas and Angelo, with Mr Georgiou copied. Mr Linke sought to address some of his concerns regarding the Company's record keeping systems and threatened that, if no action was taken to rectify these issues, no further loans would be provided by Mr Georgiou. This email read:[428]

Guys,

A few matters.

...

Additionally, a concerning development was that the creditors meeting was attended by High Risk Taxpayer Debt team. Be stressed gents as this indicates that there is a significant level of attention on your operations.

Second matter - which is more of an issue.

We have been setting up Xero for you, and as such have been working through various aspects of the business. To say that I am concerned is an understatement. The issues that we need to address are very simply these:

• Cash flow - and the fact that missing builder's deadlines for invoicing is creating a massive headache for you.

• Revenue - which appears to be significantly lower than verbal statements made. My understanding is that in the last 3 months revenue is $400, $450 and $800k. However, I was told that it was circa $800k in each of those months.

• Efficiency of production - and I raise the example again of my small $4k job which is still incomplete. If you don't deliver then you don't get repeat work - at some point.

The business cannot operate if it can't survive. You have 6 months to get it right and no more money is available from [Mr Georgiou] ...

340 A further email was sent by Mr Linke to only Angelo and Mr Zambas that day, stating:[429]

Guys.

There are issues here that we need to address as [Mr Georgiou] is having kittens at the moment and all of you are not ion [sic] board. The viability of the company now has to be public information. No more spreadsheets. Either the data is in XERO or its not considered relevant. This is how businesses operate and I need to be able to advise [Mr Georgiou] of his liability position.

Please get on the same page so I can manage things through.

341 The Company's financial recording situation did not improve and by 13 September 2017, Mr Linke engaged via email with Mr Zambas, Mr Georgiou, Angelo, Stephen and Michael, highlighting the deficiencies in the Company's systems. This email stated:[430]

Gents.

As we progress through to reality and accountability, I provide you with the P&L for the last 4 months as they are at the moment. Whilst I know we have replaced Kat, the work is terrible and we need to get everything up to date asap. This is not an easy fix.

• Some issues that we need to address:

• Materials are all over the place.

• Invoicing is NOT in the system.

We have no clarity on anything financial in the business at all. The fact that Pany does and your accountant doesn't is a problem.

Bottom line, is that we can run like this anymore. The wages that we need to discuss for you all are irrelevant if there is no ability to pay them and I cannot provide that advice at the moment as there is not financial management.

I can't allow [Mr Georgiou] to be exposed to a never‑ending level of funding, so we need to get this sorted asap and work through the issues.

342 Mr Zambas provided a response that day, stating:[431]

Colin,

In the past invoices were issued as a Percentage of job completion including retention amounts. This was inaccurate and created several issues with invoices being short paid, incorrect BAS lodgements and inaccurate reconciliation of jobs and job tracking in dollar terms.

The new format of Progress Claims has been a request and requirement by the Builders that provides transparency and clear breakdown of items claimed and to be claimed.

Now, once our Progress Claims (spreadsheets) are presented to the Builders at months end, they then provide us with a Payment Schedule/ RCTI in accordance to the Sub-contract and Payments Act. Then these Payment Schedules are entered into XERO as invoices. This ensures accurate invoicing and payments once made.

I am aware that some of these claims are yet to be entered and or reconciled against payments in XERO.

This will be Farhan's focus tomorrow and on Friday will be to reconcile the company's Aged Payables.

343 Unsatisfied with Mr Zambas' response, Mr Linke sent a further email to Mr Zambas, with Mr Georgiou, Angelo, Stephen and Michael copied on 14 September 2017, which said:[432]

Hi [Mr Zambas].

...

Regardless, we cannot manage financial performance if we are not seeing numbers, and [Mr Zambas] WE CAN'T SEE ANYTHING! We moved to Xero and you need to adapt please.

In short, you don't get to choose when the GST is applicable and therefore trying to run an invoicing system outside of the accounting system is both prone to error and at the extreme something that the ATO will deem to be a deliberate act to avoid GST. Given I am trying to represent the Directors of the company and minimise their liability, this needs to stop.

...

[Mr Zambas], I understand that there are client management issues here, but to be very clear spreadsheets are never a solution to operating a business. You need to be clear here, I have forgotten more about excel than you will ever know, given that for 32 years I have been a master of spreadsheets - every day. These are my bread and butter and I make mistakes, so I guarantee you, that if I audited your spreadsheets there will be issues. So please stop. There are so many alternatives to using these now, and I understand that you are smashed with everything that you are doing and can't locate these, but my job is to make all of your lives easier from a financial management perspective and I can and will do that, but you need to work with me.

What we need to see, is the revenue that we have coming in (i.e. cash) so that we can plan. We can create a method that tracks in the system but only converts it to revenue when accepted. We can use job costing to track the progress claims or we can use a specialised system to do that and link to Xero.

Guys, I am stopping [Mr Georgiou] from putting his hand in his pocket - very soon. I have other financial matters that I need to assist him with and I can't do that because he is forever providing funding. [Mr Zambas], you stated in our meeting in May in my Board room that he would be repaid by Sept. Well that is clearly not the case. I need to get this company viable or shut down. Monday this start.

Mr Linke's evidence is that he had formed the view that this 'add‑on' for Xero would provide for more accurate, automated reporting. The add‑on allowed employees to record the amount of time spent performing work against specific contracts, thereby allowing the Company to record expenses to particular projects. It also provided the ability to directly allocate additional materials to a contract, which would allow himself and other users to directly compare actual performance against estimates contained in tenders and contract variations.[433]

344 That same day, Mr Linke received a response from Mr Zambas, which stated:[434]

Hi Colin,

...

Let's make it clear that I am not trying to run an invoicing system outside of the accounting system.

Once Progress Claims are approved then invoices are always required to be raised in XERO. The fact that Kat did or didn't follow this procedure will no longer continue. I will work with Farhan in resolving this matter.

...

Also, Yes I had stated in May that by September I expected to have paid down the debt to Emilios. The fact that one of our major projects had been delayed for close to 2 months had not helped. We have presently manufactured $963k of joinery for this job. There are 9 apartments remaining presently being manufactured for the balance of our contracted works of $1.1mil. To date we have been paid $202k.

I have raised the issue on several occasions that July clams will not be sufficient and made it very clear that funds will be required to manage our cash-flow for September.

345 Mr Linke deposed that it was around this time and following this exchange that he determined that the spreadsheets prepared by Mr Zambas were wholly unreliable, and consequently, the forecasts as to the profitability of the Company prepared on those spreadsheets were equally unreliable. Whilst Mr Linke stopped short of characterising spreadsheet numbers as 'false', it is his evidence that the numbers were frequently overly optimistic. It is Mr Linke's evidence that this view was communicated with Mr Georgiou on a number of occasions.[435] That, however, is denied by Mr Georgiou.[436]

346 On 28 March 2019, in response to the Company's growing financial stress as a consequence of the projected cash inflow not having been received on time, and growing debts being owed to its creditors, Mr Linke sent an email to Mr Zambas, Mr Georgiou, Angelo, Michael and Stephen requesting urgent action to turnaround the Company. This email said:[437]

Pany reporting that cash flow is screwed is not reflective of the fact that as a management team too much is piled on the man. I have said before that he is being asked to do too much and the fact that jobs are seeing time overruns and budget overruns, reflects that there are issues that are not being adequately addressed by ALL of you. He does an amazing job in getting payments out of builders that are traditionally very late payers but all he is doing is putting his finger in the dyke.

I shot the messenger, and that was completely unjustified, but if each of you do not start to get every critical issue proactively answered and decided addressed then this business will fail.

...

I need you to all come together and work out the radical things that MUST be done for the business to move forward without relying upon the wealth of Emilios to continuously bail out the operations. This is not a solution because it will vaporise sooner rather than later. You need to all step up as senior executives and get this company self-sufficient where too much work is a good problem to have; rather than work that is unprofitable, unreliable or undeliverable within the constraints of the resources that you have.

The bottom line guys, is that what you are doing is NOPT [sic] WORKING. So something has to change.

Lets [sic] work that out on Monday.

Mr Linke's evidence was that this email was sent as a consequence of what he believed was a failure on the part of Mr Zambas, Angelo, Michael and Stephen to deliver in accordance with the financial estimates that had been provided from Mr Zambas, and as a result, a risk that Mr Georgiou would have to provide further loans in order to keep the business afloat.

347 The last 'component' of Mr Linke's evidence relates to the Company's statutory liabilities to the ATO and SRO. As the Company's external accountant, Mr Linke was, at all relevant times, abreast of the statutory debts being pursued against the Company.[438] It is also Mr Linke's evidence that Mr Georgiou was himself aware of the Company's statutory liabilities, as he was also copied in on email communications relating to this matter.[439] Whilst the passage of time has undoubtedly affected Mr Linke's ability to recall specific events, he deposed that he believed the first overdue payment occurred in early 2017, and one of his employees assisted in negotiating a payment plan for this liability.[440]

348 Mr Linke was able to produce more than 10 emails from February 2018 to June 2019 recording discussions he had with Mr Georgiou about the Company's statutory liabilities.[441] It is his evidence, and I accept, that the number of conversations which actually took place is likely to have far exceeded the 10 or so recorded emails, given the nature of his relationship with Mr Georgiou meant that much of their conversations occurred via impromptu calls or in person meetings.

349 Whilst, for the purpose of determining the issues in this proceeding, it is not necessary to detail every documented conversation, it is desirable that I make reference to a number of those 'critical' conversations.

350 On 14 March 2018, Mr Georgiou was informed by Mr Nasir, an employee of The Practice, that the Company presently owed the ATO $458,818.33. In a reply email, Mr Zambas proposed, with Mr Georgiou copied, that Mr Linke negotiate a payment plan with the ATO on the following terms:[442]

• Initial Payment of $58,818.33. To be paid 01/4/2018
• 12 Monthly Payments of $33,333,33. Commencing 01/5/2018

Mr Georgiou and Mr Zambas are advised, on 19 April 2018, that a payment plan with the ATO had been entered into, and that, 'if in any circumstances a payment is missed, the whole debt is due on the next date'.[443]

351 On 9 October 2018, Mr Georgiou is informed by Mr Daud, an employee of Mr Linke, now operating his accounting practice at Ignitus, that the Company presently owed the ATO $128,540.66 for the previous financial year. On 10 October 2018, Mr Linke provides further context to Mr Daud's email, and states:[444]

Hi [Mr Georgiou].

As discussed, [Mr Daud] will look into a payment plan for this. It will be tough. He has already completed a massive job in getting the payment plan in place of the ATO. So that you are aware, he got that after a seriously long negotiation. You won't get another opportunity to put this back in place so please make sure that it is in order and paid on time.

...

In terms of the SRO, I am going to need to get a payment plan in place and this will require some upfront cash. Can I get 28,6540.66 upfront and then a payment plan of 10k per month thereafter?

352 On 27 November 2018, as a consequence of the Company having defaulted on its payment plan with the ATO, Mr Linke sent an email to Mr Georgiou, Mr Zambas, Angelo, Stephen and Michael, stating:[445]

Gents.

Despite many emails and discussions the payment plans for the above with the ATO have defaulted and the SRO, we understand, will not be met.

These were extremely difficult to put in place and I am not sure that they will be reinstated. It was critical that the IAS for October was lodged AND paid Your accounts are with VERY senior managers at the ATO given the history and defaults will be dealt with very quickly.

As it stands I expect the ATO to demand full payment by Christmas and I expect garnishee notices to be issued.

Please provide us with instructions as to how you would like us to progress ...

353 On 15 January 2019, the ATO issued a statutory demand against the Company in the amount of $381,298.84. This statutory demand was sent by Mr Daud to Mr Georgiou on 24 January 2019.

354 Mr Daud was able to successfully negotiate a second payment plan with the ATO, and on 6 February 2019, he sent an email explaining this to Mr Georgiou and Mr Zambas. This email stated:[446]

Hi All,

Yes, I have been on the phone with ATO for a good 1.5 hour and finally managed to convince them for another payment plan.

As the payment plan arrangement has been approved, we are now complied with Statutory demand letter issued on the 15th Jan. 2019.

So, This our very last payment plan arrangement with ATO and they has advised me its [sic] very unlikely that they will consider us for a payment plan arrangement in the future.

A direct debit arrangement has been established for an amount of $ 20,000 per month that will be deducted on 12th of each month.

I cannot stress enough on how important this payment plan arrangement is.

Pany, you're well aware of the fact that all our future obligation needs to be met on time on top of this payment plan.

355 As a consequence of what he says was the Company's dire financial situation, Mr Linke deposed that by 22 May 2019, he had formulated a plan with Mr Georgiou, Michael and Stephen to establish a new company, Gemwood Joinery, to conduct the business. This email stated:[447]

Gents,

Thanks for tonight, it was good to catch up and speak freely.

So the action plan from here is:

• SG and MG to review the employee list so that we can work out who to move into the ne[w] company.

• An organisational chart to be developed to deter=mine [sic] skill set shortages.

• I have established the new company which is:

• Triple Three 7 Pty Ltd Trading as Gem Wood Joinery

• You need to decide on the new name or whether to retain Gemwood

...

• A new Director will be required for Triple Three & at some stage before Gemwood Projects goes down.

...

• [Mr Georgiou] will exit strategically within 9 months, but seed funding will be provided and repaid over 36 months once the new business is in operation.

It is Mr Linke's evidence, consistent with the last dot point of the email, that Mr Georgiou would continue to provide funds to Michael and Stephen for this new Company as required.[448] Mr Linke accordingly appropriately conceded that he believed, as of May 2019, that Mr Georgiou would continue funding the liabilities of the Company:[449]

Well, you weren't going to put your brother-in-law into a company that would be insolvent, were you?---No.

All right. So the predicate for this was that Mr Emilios Georgiou would continue to fund the liabilities of Gemwood Projects, that's correct?---Yes.

356 That discussion would be one of Mr Linke's last with Mr Georgiou and the Company, as, in early June 2019, Mr Georgiou ceased all communications with Mr Linke. Mr Linke deposed that he never found out the reason why Mr Georgiou ceased communications with him so abruptly. It is, however, Mr Georgiou's evidence that this occurred as a result of him 'losing faith' in Mr Linke's services.

357 Mr Emilios Georgiou was called as the Defendants' first witness. As a named defendant in this proceeding, his evidence is naturally important in addressing many of the issues in dispute. His evidence is also particularly important in providing the background and context to both E&C and the Gemwood business. Mr Georgiou's evidence revolved around the formation, history and day‑to‑day operation of the Gemwood business, including the operation of the Company. Central to this dispute is Mr Georgiou's evidence regarding the funding arrangement and decision made by E&C, and its ongoing 'willingness' to fund the Company's debts as these debts became due and payable. The Defendants relied on three affidavits which were tendered as Mr Georgiou's evidence in chief. These were:

(a) the first affidavit of Mr Georgiou dated 22 July 2024 (First Georgiou Affidavit);

(b) the second affidavit of Mr Georgiou dated 9 August 2024 (Second Georgiou Affidavit); and

(c) the third affidavit of Mr Georgiou dated 1 October 2024 (Third Georgiou Affidavit).

358 For all intents and purposes, Mr Georgiou is and was an experienced and shrewd businessman with a lifetime of knowledge in the cabinetry manufacturing industry. From what can only be described as modest beginnings, Mr Georgiou was able to establish a cabinetry empire which employed over 100 employees and undertook large scale commercial work with large national clients, a feat not often achievable in this industry. His apparent desire to have his sons inherit his life's work led to financial strain and ultimately the liquidation of the Predecessor Entities and, the subject of this proceeding, claims amounting to $2,199,583.24 against him personally.

359 A significant component of Mr Georgiou's evidence in chief comprised of a 'background' to the Gemwood business, the establishment of E&C and his succession plan for the Predecessor Entities. This evidence provides a helpful lens to understand how certain decisions in the Company were made according to Mr Georgiou's experience and is worth setting out briefly.

360 Mr Georgiou has spent a lifetime involved in the business of commercial cabinetry manufacturing. Prior to establishing the Gemwood business, Mr Georgiou was an employee of two cabinetry businesses, Peter F. Danby and All Good Interiors, starting his career as a 'cabinet maker' before rising through the ranks to become an Operations Manager. Through this employment, Mr Georgiou met a coworker named Stephen Woodrow, a project manager, who would later become a business partner and a cofounder of the Gemwood business.

361 The first Gemwood business, Gemwood Interiors, was establishing in January 1999. Mr Georgiou and Mr Woodrow held 6 and 4 of the 10 issued shares respectively, and Mr Georgiou was to be the 'owner' whilst Mr Woodrow undertook the role as Mr Georgiou's 'right hand man'. The Gemwood Interiors Unit Trust was established that same day, with Gemwood Interiors trading exclusively in its capacity as trustee of the Gemwood Interiors Unit Trust.

362 It is useful at this juncture to note two other entities which were established during this time, and which later played a significant role in the operation of the Gemwood business.

(a) On 14 August 2016, E&C was incorporated, and Mr Georgiou and Mr Woodrow were appointed directors and shareholders. Since 2003, Mr Georgiou has been the sole director and shareholder of E&C. It is apt to describe E&C as a financial vehicle which owned real property leased for use to the Gemwood business and provided loans, akin to a line of credit, as and when the business required cash flow injections.

(b) On 5 July 2000, Opaltree was incorporated, and Mr Georgiou and Mr Woodrow appointed directors and shareholders. Opaltree existed as a distinct entity and held plant, equipment and machinery loaned for use by the Gemwood business.

This business structure, Mr Georgiou deposed, was established on advice that, if the Gemwood business failed and was unable to pay its creditors, the creditors would not be able to pursue the assets held by E&C or Opaltree for payment.

363 Gemwood Interiors grew from a two man operation to employing over 100 employees within two years. During this period, which Mr Georgiou deposed as being highly successful and profitable, the profits from the company were distributed to its shareholders each year.[450]

364 Mr Georgiou was, by all accounts, clearly well-regarded and respected by his peers - many of the Gemwood business' employees were employees and subordinates Mr Georgiou had worked with at Peter F. Danby and All Good Interiors. This would be a common thread within the two decades of the Gemwood business' operations, with many employees continuing their employment across different Gemwood entities. This loyalty between Mr Georgiou and his employees also, in my view, gives credibility to his evidence that he determined to 'bail out' the Predecessor Entities to ensure that his staff, many of whom he regarded as longstanding friends, did not become unemployed.[451]

365 In order to fulfil his dream that his sons one day inherit the Gemwood business, Mr Georgiou devised a plan which would allow his two elder sons, John and Angelo, to become directors of their own companies which would then take over specific aspects of Gemwood Interiors, and a similar plan for his younger sons, Michael and Stephen, once they were older and more experienced. To give effect to Mr Georgiou's plan:[452]

(a) On 14 March 2002, GIA was incorporated and John appointed its sole director. John held 10% of the issued shares, and the remaining 90% was held by Opaltree.

(b) On 30 June 2003, Gemwood Installations was incorporated and Angelo appointed its sole director and shareholder.

(c) In 2006, Mr Georgiou arranged for Michael to be appointed as director of Gemwood Interiors in his place.

(d) In February 2008, Mr Georgiou bought out Mr Woodrow's share of Gemwood Interiors and Opaltree, and Mr Woodrow resigned as a director. Mr Georgiou also arranged for E&C to acquire the plant, equipment and machinery held by Opaltree, and lease arrangements between E&C and Gemwood Interiors were made.

(e) In 2009, Mr Georgiou formulated a plan with John, Angelo, Michael and Stephen whereby they would each receive a percentage interest in the profits of the business. This interest was calculated on the years of each son's service, and would incrementally increase until Mr Georgiou's retirement.

366 Although Michael had no formal qualifications or tertiary education in business management, Mr Georgiou's evidence is that Michael had a number of years to 'learn the trade' under his supervision prior to Michael's appointment as director.[453] In any case, Mr Georgiou deposed that he continued to undertake a supervisory role over the Gemwood business for another four years until late 2010.

367 In June 2011, John resigned as a director of GIA as a consequence of Mr Georgiou discovering that he had misappropriated approximately $144,000 of company funds. Legal proceedings for the recovery of these funds were issued against John and subsequently settled.[454]

368 It is said against Mr Georgiou that, as director of GIA, he should have known about, and stopped, John's misappropriation of the company's funds. Indeed, during cross‑examination, Mr Georgiou recognised that, as director, he had 'a lot of responsibilities', which included 'ensuring the company was trading well, looking after its employees, paying off its debts, and managing it as efficiently as possible'.[455] Mr Georgiou also accepted that his responsibilities included considering the interests of the business' creditors when the company might not be in a position to pay them.

369 It is Mr Georgiou's evidence that, having been reappointed director of GIA in December 2010, his relationship with John quickly soured, with John informing Mr Georgiou that he was not to 'interfere' with the business. Fearing that, if he pushed this boundary any further, he would lose his relationship with his son, Mr Georgiou deposed that whilst he made several attempts to be involved in the management of GIA's operations, he played no active role in the company until discovering the stolen funds.

370 Accordingly, that discovery was not made until August or September 2011, when the company's then bookkeeper, Mr Ting, alerted Mr Georgiou to an overdue invoice, which the pair subsequently learnt was paid to an account owned by John.

371 On account of this discovery, and John's subsequent resignation, Mr Georgiou became the sole director of GIA, and caused an investigation into the company's financial records to be made. During these investigations, Mr Georgiou learnt that GIA owed approximately $100,000 in taxation liabilities. Mr Georgiou deposed that, it was his view at the time, the liabilities were John's responsibility and, accordingly, should be paid with the money he had misappropriated from GIA. That ultimately, however, never occurred, as the legal proceeding against John remained contested. Mr Georgiou, accordingly, conceded that he made an active decision not to cause E&C to provide a further advance to satisfy these outstanding debts.[456] Following the transfer of the Gemwood business to the Predecessor Entities, Mr Georgiou's evidence is that he was advised by his accountant to place GIA into voluntary administration, in order to 'sort out' the remaining debts owed by the company. Mr Kokkinos and Mr Jess were appointed administrators of GIA on 27 March 2012 and, on 7 May 2012, were appointed liquidators.[457]

372 It was put to Mr Georgiou, during cross-examination, that in order to have caused GIA to be placed into external administration, he was required to have formed a view that the company was insolvent or would become insolvent at a future time. Mr Georgiou's response, however, was one that, viewed fairly, did not engage with the question. It is his evidence that, on account of Mr Georgiou not 'thinking too well', he left the entire decision making process to his advisers. He readily accepted that he was 'not capable of making some of [the] decisions' concerning the winding up of the GIA.[458] It was then suggested to Mr Georgiou that, as a consequence of his mental health condition at the time, he should have appointed someone else as director of GIA and, again, Mr Georgiou did not engage appropriately with the line of questioning. Mr Georgiou's concession was:[459]

As I said, at the time I wasn't thinking the best, I wasn't handling life too well, and I relied on professional people to guide me and to point me in the right direction. Now, how all these figures calculated, I got no idea I'll be honest with ya. All right, maybe I should, but at that time, I couldn't even - I - I wasn't too stable, I wasn't well. And it's hard to understand when you're not thinking well that you rely on other people.

373 Mr Georgiou deposed that, on account of this discovery, and the fall out of his relationship with John, he 'felt strongly' that he could not allow his business interests to become intertwined with his relationship with his children.[460] Accordingly, following a number of discussions between Mr Georgiou, Angelo, Michael and Stephen, on 20 March 2012, Mr Georgiou arranged for his accountant and solicitors to establish three new entities, being the 2012 Purchasing Entities (comprising Gemwood Interiors (Vic); Gemwood Installations (Vic); and Gemwood Administration (Vic)). Each of Angelo, Michael and Stephen were appointed directors and obtained an equal 33% shareholding in the 2012 Purchasing Entities.

374 A sale of business agreement was entered into on 23 March 2012, whereby GIA sold the whole of the business as a going concern to Gemwood Administration (Vic). The business was sold for $2.009 million on an assumption of liabilities only basis. That, however, did not include the assumption of liability over GIA's statutory debts to the taxation authorities, and the only liabilities which were carried across were those owed to the company's suppliers.[461]

375 Similar sale of business agreements were entered into between Gemwood Interiors and Gemwood Interiors (Vic), and between Gemwood Installations and Gemwood Installations (Vic).

376 Three days later, a new lease between E&C as landlord and Gemwood Administration (Vic) over the Sarton Road property was entered into.[462] The lease agreement set rent payable at $200,000 (plus GST) per annum. An equipment lease for plant, equipment and machinery was also entered into between E&C and Gemwood Interiors (Vic), with lease payments of approximately $10,000 payable monthly. Shortly after, Mr Zambas was appointed as General Manager of the business.

377 Following the sale, GIA, Gemwood Interiors and Gemwood Installations each ceased trading. GIA was placed into external administration on 27 March 2012, and subsequently deregistered on 9 April 2014.

378 Mr Georgiou's evidence is that, following the transfer of the Gemwood business to his three sons, he was effectively pushed out of the day-to-day running of the business. He deposed that his sons viewed him as 'old fashioned', and determined that they run the business 'their own way'. Accordingly, it is his evidence that from 2012 to 2016, he had no involvement in the decision making of the Gemwood business. Mr Georgiou deposed that his only involvement and discussions with Angelo, Michael, Stephen or Mr Zambas related to:[463]

(a) the unpaid rent and lease fees owing to E&C; and

(b) financing provided by E&C to the Gemwood business in 2015 and 2016.

While Mr Georgiou was engaged by the Gemwood business as a consultant to assist with estimating and checking of rates in the business' quotes and tenders, he deposed that he was never invited nor attended any directors' meetings, nor did he contact any suppliers or customers. This evidence, which was not conceded during cross‑examination nor subject to any opposing contra‑evidence, is particularly critical to the Tendency Notice issued by the Plaintiffs, which I discuss below.

379 Mr Georgiou also gave evidence regarding the frequent late payments of rent to E&C. It is Mr Georgiou's evidence that, notwithstanding understanding that he could enforce his legal rights as lessor against Gemwood Administration (Vic) and Gemwood Interiors (Vic), to which E&C leased the premises and equipment to respectively, he refrained from doing so for fear that this would destroy his relationship with his sons.[464] By August 2014, the Gemwood business owed overdue rental payments exceeding $742,000 to E&C. Frustrated with these overdue rental payments and having found out that two of his sons had purchased lavish cars while the business was apparently languishing, Mr Georgiou sent an email to his sons, which stated:[465]

Again no payment this week for me

in 9 weeks you have only paid $1,818.20 plus GST

Am always the one at the end of the payment list

This is a business not a charity

you don't pay rent anymore but the outgoing are still not paid

They are coming in my name which have not been paid

This is giving me a bad credit rating which means I can not borrow anymore

If you can not run this business profitably then I think you should pull the pin ASAP

to stop people getting hurt

Its [sic] been two and half years now you have been trying to run this business

Not only you have used up all the monies, stock, and work in hand that was left from my old companies to help

you run your new companies.

No forgetting the $700k Loan which I took out in my name to help you run your new companies

I can see this is all gone. now I left with the loans, leases to pay off and any other suppliers that have not been

changed to your new companies.

The overdue rents for the factory and the Equipment are getting more and more behind.

The total overdue rents are over $742k + GST total amount owning $816k

You never let me help you run your business you did it your ways.

and look at it now

I cant take this anymore.

This email, it is said in the Plaintiffs' closing submissions, is inconsistent with an absence of knowledge regarding the business' affairs. In particular, the Plaintiffs say that this substantiates Mr Georgiou's knowledge that the Company was being run poorly, with serious cash flow problems. Contrastingly, it is Mr Georgiou's evidence that, whilst he recognised that the business 'did not appear to be performing sufficiently well' to pay its rent as and when it fell due, he was not aware that the business was performing poorly at that time:[466]

Now, by August 2014, I want to suggest to you had at least some awareness of the fact that the business was performing poorly; do you accept that?---Sorry, which year are you saying?

August 2014?---No. All I knew that they weren't paying the rent or the equipment, that's all I knew.

380 When cross-examined on his statement that 'not only you have used up all the monies, stock, and work in hand that was left from my old companies to help', Mr Georgiou's evidence was that he did not actually know the truth of this statement, and was instead attempting to obtain information from his sons about the financial state of the business. Mr Georgiou's evidence is that it was his view that by making a series of serious allegations against his sons, they would recognise that he was 'serious' about ensuring the business was being run responsibly.

381 In response to his concerns, Mr Georgiou was told by his sons to 'mind [his] own business'. His further efforts to offer his services to the company were rebuked, and the business continued to accrue further unpaid rent and lease payments. As at August 2016, when Gemwood Administrations (Vic) ceased trading, it owed E&C over $1.4 million in unpaid rent and equipment lease payments.

382 A further significant aspect of this proceeding is the operation of the E&C loan facility, and the terms on which E&C would call on the Company to repay the loan. As the controlling mind of E&C, Mr Georgiou gave evidence regarding the 'terms' of the E&C loan, the reason why the Company did not itself obtain lending arrangements from a bank, and when and how he determined to provide loan monies to the Company.

383 Mr Georgiou deposed that it was his experience that the cabinetry manufacturing business is capital intensive in nature and often requires substantial upfront expenditure in materials and labour, which is only recouped gradually from periodic payments when installation milestones are met. Accordingly, where cash is needed to support the business through large cash outflow periods and before the business had been paid for its services, Mr Georgiou would cause E&C to provide the additional cash as and when required. Mr Georgiou gave further evidence that:[467]

(a) there was no formal loan documentation, but the general agreement was that monies loaned by E&C would be repaid as and when the business had sufficient free cash to do so;

(b) the E&C loans were unsecured; and

(c) E&C never made any demands for repayment during the course of the Gemwood business' lifetime.

In most circumstances, the E&C loan would be repaid shortly after the loaned funds were received by the relevant Gemwood business, as the loaned amounts were required only to cover a several week shortfall until payments were received by the business. This, however, Mr Georgiou deposed, was not because the funding provided was made on a short‑term basis, and the business was free to keep the funds for as long as it needed and obtain further funding if it so required. Indeed, this is consistent with the Company's own financial records, wherein the Company often received further loans prior to E&C being repaid.[468]

384 It is Mr Georgiou's evidence that E&C was engaged to provide funding as a consequence of the major banks' unwillingness to lend any significant amounts to the Gemwood business. This was, Mr Georgiou deposed, due to the Gemwood business holding few substantial assets other than its contracts and accounts receivable - the business' equipment, plant, machinery and premises being owned by E&C and leased to the business. Accordingly, E&C obtained loan facilities with Westpac, and on‑lent those funds to the Gemwood business.[469]

385 When Mr Georgiou exited the business in 2012, E&C was owed $700,000. Mr Georgiou deposed that he elected not to cause the Gemwood business to repay this loan in order to ensure that his sons were left with ample working capital to run the business as they saw fit. Between 2012 to 2016, that amount was never repaid and, consistent with Mr Georgiou's evidence, he took no steps to compel the repayment of that loan.

386 In around mid-2015, Mr Georgiou received a request from his sons to advance a further $200,000 to the Gemwood business. This further loan was provided notwithstanding advice from Mr Georgiou's longtime accountant and friend, Mr Sam Pavano, not to advance any further money to the business. Mr Georgiou conceded that his hubris and his strong desire to see his sons succeed caused him to act against Mr Pavano's advice.[470]

387 Mr Georgiou further deposed that, prior to that loan being made, he met with Mr Afrasiabi and Mr Linke, the latter having been engaged by the Gemwood business at that point and who advised Mr Georgiou that the $200,000 loan was required to fix the business' short‑term cash flow issues, and that the loan would be repaid from the payments received by customers. It should be noted, and as discussed above, Mr Linke disputes ever having attended this meeting with Mr Georgiou or providing any advice to this effect.[471] It is Mr Linke's evidence that he did not meet Mr Georgiou until some 12 months later, in mid-2016.

388 As part of this agreement, Mr Georgiou was employed by the business as a consultant and paid $1,000 per week for estimating and checking the rates on quotes and tenders. He deposed that he continued to be 'in the dark' about the business' management or financial affairs as his role as a consultant was strictly confined.

389 The first $10,000 tranche of the further loan was provided in August 2015, and repaid one week later. In the following 11 months, Mr Georgiou caused E&C to advance Gemwood Administration (Vic) $320,962, of which $302,514 was repaid, leaving a shortfall of $18,448.[472]

Statutory debts and liquidation of the Predecessor Entities

390 A substantial matter of dispute in this proceeding relates to Mr Georgiou's knowledge that the Predecessor Entities had incurred large statutory debts which were owing and left unpaid - that allegation forming part of the Plaintiffs' claims under the Tendency Notice.

391 Mr Georgiou's evidence on this matter is that he was not informed of the business' significant unpaid statutory debts until a meeting with Mr Zambas and Mr Linke, which took place in late June 2016. Whilst he was well aware that the business needed cash injections from time to time, as evident from the request that E&C provide further loans to the business, Mr Georgiou deposed that he was wholly unaware of the business' tax liabilities. Indeed, Mr Georgiou maintained that he had no knowledge of the taxation liabilities even in the wake of County Court proceedings having been commenced against Angelo, Michael and Stephen in December 2015. That is despite the fact that Mr Afrasiabi of MA Legal, who was one of Mr Georgiou's personal lawyers at the time, was engaged to act on his sons' behalf. Mr Georgiou's evidence, which was not refuted, was that he had no role in Mr Afrasiabi's engagement.[473]

392 A request was made in June 2016 for Mr Georgiou, through E&C, to inject a further $2 million in order to pay off the business' tax debts, but he refused on the basis, he deposed, that this was a 'mess' of his sons' 'own creation'. Mr Georgiou deposed that the conversation then turned to options to salvage the business and protect its employees. His evidence is that Mr Linke advised him that a new entity could be established and the business sold into that new entity. The tax debts would remain unpaid and the Predecessor Entities would each be wound up, with Mr Georgiou's sons entering bankruptcy. The new entity would take on all the business' existing employees and their entitlements, and Mr Georgiou would be appointed as the director for a period of 6 to 12 months. Over the next few weeks, Mr Georgiou had various meetings and discussions with Angelo, Michael, Stephen, Mr Linke and Mr Zambas. Whilst the particular date of these meetings and the content of their discussions were not recorded, Mr Georgiou deposed that, in general terms, Mr Linke said that:[474]

(a) a new entity would be established with Mr Georgiou to be director temporarily, until Mr Linke 'got [his] sons out of bankruptcy';

(b) the Predecessor Entities' ongoing projects would be transferred to the new company, which would allow it to benefit from all the work in progress but would require additional payments to be paid to suppliers;

(c) the employees would all move over to the new company, ensuring that, in essence, nothing would change for them;

(d) a new lease for the premises, plant, equipment and machinery would be entered into between E&C and the new company;

(e) the existing tax debts would stay with the Predecessor Entities, and a bankruptcy plan would be composed by Mr Linke for the three sons; and

(f) when Angelo, Michael and Stephen's bankruptcies ended, they would replace Mr Georgiou as director.

Contrastingly, it was Mr Linke's evidence that this was not his 'plan', but rather, one of many proposals or 'ideas' which were put to Mr Georgiou. This evidence, however, is not inconsistent with the position that the incorporation of the Company and its financial structure was suggested by Mr Linke and ultimately agreed to by Mr Georgiou.

393 It is a consequence of this proposal and Mr Georgiou's own personal reasons that, he deposed, he 'reluctantly' agreed to establish the new entity. It is Mr Georgiou's evidence that his decision to establish the new company was not based on financial motivation. Mr Georgiou deposed that it would have been more financially prudent for him to have leased or sold the Sarton Road property, the going market rate capable of netting him approximately $220,000 per annum. Indeed, the Sarton Road property was leased out in 2020 for $250,000 plus GST, and subsequently sold for close to $5 million in 2021. Further, Mr Georgiou gave evidence as to the significant portfolio of residential and commercial properties held both personally and through E&C, demonstrating that he was not dependent on the Gemwood business for financial stability.[475]

394 Instead, it is Mr Georgiou's evidence, and I accept, that his decision was based on the following personal motivations:[476]

(a) his concern that if he did not establish the new entity, all of the Gemwood business' approximately 50 employees would be out of a job, many of whom had worked for Mr Georgiou for a number of years and who were around 60 years of age;

(b) the Gemwood business represented his life's work and legacy, and he did not wish for it to disappear; and

(c) his fear that his sons, who would become bankrupt as a result of the Predecessor Entities' liquidation, would be destitute and jobless, and despise him for not agreeing with this plan.

395 Accordingly, in late July 2016, Mr Georgiou agreed to this 'plan', and, on 1 August 2016, Mr Linke was instructed to establish the Company. On 8 August 2016, the Company was incorporated, with Mr Georgiou as its sole director and shareholder. The Trust was also established that day, with the Company trading as its trustee.[477]

396 Mr Georgiou was examined extensively on the basis and nature of the E&C loans provided to the Company. As the question of whether the E&C loan amounted to a current or non‑current liability was a central matter of dispute, Mr Georgiou's evidence, as the controlling mind of E&C, is accordingly highly relevant to the determination of this issue.

397 It is Mr Georgiou's evidence that the 'terms' of the E&C loan to the Company were identical to the loans provided in the past to the Predecessor Entities, being that:[478]

(a) the loaned monies were repayable if, and only if, the Company had sufficient free cash available to do so;

(b) the Company was at liberty to keep to the funds for as long as it needed and seek further funding if so required;

(c) the amount and timing of the loans and repayments were dictated exclusively by the funding requirements of the Company, and not by E&C; and

(d) E&C would not, and in fact did not, make a demand for the repayment of the loan account.

398 Mr Georgiou's evidence is that he answered each and every call from the Company to provide additional funds as requested.[479] Mr Georgiou was, unsurprisingly, cross‑examined extensively on his willingness to cause E&C to fund the Company's debts and when he required the Company to repay the E&C loan, two evidentiary matters which weigh significantly on the Plaintiffs' case. Whilst I am conscious not to excessively reproduce large portions of the transcript, it is desirable in my view to set out aspects of the questions put to Mr Georgiou and his answers in order to fairly examine his evidence.

399 Questioning regarding the E&C loan occurred chronologically, and Mr Georgiou was first asked about the initial loan limit he agreed upon. Mr Georgiou's evidence was that, through the course of the Company's life, he determined to loan more than the $500,000 balance he initially agreed to. When questioned about why his internal records, which were periodically sent to Mr Zambas and his sons, continued to specify that the 'max loan' was $500,000, Mr Georgiou indicated that this was to 'remind' his sons that he had provided more than he had promised:[480]

You see at line 110 on this version of the spreadsheet, the status - the statement max loan, $500,000?---Yeah, that again I left it there to show them that I've gone beyond what I promised them, what I kept.

Who were you looking to show that you had gone beyond what you had promised?---I think it was mainly for me to remind myself, and um everybody else that the money was loaned to them. So I just kept the sheet running that - from previous.

...

My suggestion is it also to intended to show by you a general reluctance on your part to put in more than $500,000 unless it was absolutely necessary. What do you say?---I don't agree.

400 In response to questioning regarding E&C's funding of the Company in late 2018, Mr Georgiou gave the following evidence:[481]

Mr Georgiou, this is an email from Mr Linke sent to Pany Zambas, yourself and Angelo on 19 September 2018. So this is I think less than a month since the email about the boat that I took you to earlier, and in this email Mr Linke is saying to all of you that he has reviewed everything and he is very worried that you are in a position that is quickly becoming untenable. Did you read that email?---Yes, I have. We've seen it before.

Did you read it at the time?---Yes.

I'll suggest to you that this email was consistent with the proposition that you were reluctant to put further money into Gemwood Projects Pty Ltd via E & C at this point? ---Disagree.

Sorry?---I disagree.

...

My proposition for you is that you were reluctant, I'm not suggesting you weren't willing to lend some moneys, but you were reluctant to lend substantial further funds to Gemwood Projects at this point because of the concerns which Mr Linke was expressing to you?---No, I wasn't. I was always careful not to just throw money at the business and for my staff or sons to look at it and oh, we've got a big - a large account, a large amount of money in the account. Um so I kept that to the minimum. I only put the money for E & C when I was asked or when it was necessary.

When you say it was necessary, it was necessary because there were pressing claims by creditors that needed to be satisfied?---As I said, if that was the case I was advised by my team and my - to do so.

401 This position remained consistent in early 2019, notwithstanding Mr Georgiou's numerous emails to Mr Zambas, Mr Linke, Angelo, Michael and Stephen, regarding his displeasure about the level of funds having been advanced to the Company by E&C:[482]

There was another payment of $63,000 on 20 March 2019 ... this is another copy of your loan spreadsheet ... [I]n this you express the view, 'Loan update to Gemwood Projects, not happy, has to stop', and you're sending that to Pany, Angelo, Michael, [Stephen], Mr Linke and Mr Hussain, that's right?---Yes, I was trying to get their attention.

And when you say you were trying to get their attention, what were you trying to get their attention in respect of? ---Well, to keep the loan to a minimum. To get them, you know, to work harder.

Yes. Your goal was to keep the loan to a minimum, wasn't it? ---Yes.

At this stage certainly only to provide such funds as were necessary to keep the business in a position where it was able to trade at least pending further receipts?---Yes.

402 On the basis that this evidence is consistent with the Company's internal records which evidenced the transactions made by E&C, and the Plaintiffs not having led any contra‑evidence that these transactions were not in fact made, or were made in amounts less than what was recorded, I accept Mr Georgiou's evidence that he would cause E&C to provide loan monies as and when called upon by the Company to do so, and maintained this position until he determined to appoint Mr Carrafa in late June 2019.

403 During the Company's lifetime, an 'E&C Transactions Ledger' prepared by the Defendants and the E&C Westpac bank statements indicate that E&C provided loans to the value of $7,089,352. At the time of entering voluntary administration, on 4 July 2019, the Company had repaid $5,776,432, leaving a balance outstanding of $1,312,929.[483]

404 A significant portion of Mr Georgiou's affidavit in reply deposed of his ability to cause E&C to provide further funding to the Company. It is Mr Georgiou's evidence that he never instructed Mr Linke that he did not have sufficient funds to continue funding the Company, and in any case, as his personal accountant, Mr Linke knew that proposition to be false. Mr Georgiou deposed that Mr Linke was well aware of his financial position, as Mr Linke's role as his personal accountant necessarily meant that the two often discussed Mr Georgiou's personal financial affairs.

405 Indeed, the E&C loan balance increased by more than $600,000 between 1 April 2019 and 31 May 2019, and the Company continued to receive loans from E&C until 12 June 2019.[484] This funding is inconsistent with any finding that Mr Georgiou was financially unable to cause E&C to continue funding the Company.

406 As is discussed above,[485] and as I have accepted, any threats to cease funding the Company were made to 'push' Mr Georgiou's sons and Mr Zambas to 'work harder', and in fact, these threats were never carried out until shortly before Mr Georgiou had resolved to appoint Mr Carrafa.

407 Mr Georgiou deposed, and provided documentary evidence, of what can only be appropriately described as his significant wealth between 2017 and 2018.[486] This significant wealth comprised of properties owned either by Mr Georgiou personally, or through E&C.

408 The properties owned by E&C comprised of:[487]

(a) 16 unencumbered residential and commercial properties, collectively worth several million dollars; and

(b) 2 residential properties subject to mortgages.

409 The properties owned by Mr Georgiou directly comprised of:[488]

(a) 2 unencumbered commercial properties, collectively worth in excess of a million dollars;

(b) 5 residential properties subject to mortgages; and

(c) a $1.4 million dollar loan facility which was separate to the Westpac loan facility, and was, at that time, wholly undrawn.

It follows, evidently, that Mr Georgiou did not have any inability to cause E&C to continue funding the Company.

410 It is Mr Georgiou's evidence that, following the incorporation of the Company, business ran as usual:[489]

(a) employees continued to perform their functions, but were instead being paid by the Company, and no new employment contracts were prepared;

(b) existing customers were provided with updated bank details but not notified that the Company was completing their projects instead of the Predecessor Entities;

(c) new jobs were undertaken in the Company's name; and

(d) some but not all of the invoices issued to the Predecessor Entities were paid by the Company.

Mr Georgiou's evidence in chief is that debts which related to the Company's ability to obtain materials and supplies as needed to complete the contracted projects were paid, whilst other creditors were 'left out to dry', to make their claims against the Predecessor Entities.[490]

411 With respect to the existing non-statutory debts, the Company:

(a) never made any arrangements with existing creditors to assume or accept responsibility for the outstanding liabilities of the Predecessor Entities;

(b) never provided any guarantee or indemnity over those debts; and

(c) those liabilities were never assigned to the Company.

412 In relation to the Predecessor Entities' tax debts, Mr Georgiou deposed that he viewed himself as having no obligation to pay those debts, which, in his view, were the product of his sons' problems and should be resolved in accordance with the bankruptcy process.

413 In running the Company, Mr Georgiou relied on Mr Zambas and his sons, Angelo, Michael and Stephen, whom he deposed each had the following day‑to‑day functions:[491]

(a) Mr Zambas was the General Manager of the business, in charge of the Company's financial records, including preparing budgets and cash flow forecasts, preparing progress claims and liaising with the Company's external accountant, Mr Linke;

(b) Angelo was in charge of installations, and oversaw the project managers to ensure customer satisfaction;

(c) Michael was the purchasing manager, and was responsible for dealing with the Company's suppliers; and

(d) Stephen was the project and IT manager, and was responsible for liaising with project managers and customers.

Whilst each of Angelo, Michael and Stephen reported to Mr Zambas as General Manager, Mr Georgiou would speak regularly with each of them to determine how the Company was performing on its jobs, whether any staffing issues existed, and ensuring that the Company had sufficient materials to complete its engagements. Mr Georgiou indicated that his conversations with Mr Zambas about the Company's financial health were generally positive, with Mr Zambas' spreadsheets indicating that the Company had a substantial pipeline of work and positive cash flow positions within a six month future estimate.

414 As the Company's sole director, Mr Georgiou had sole custody and authority over the Company's payments. Payments would be prepared by either Mr Zambas, or the Company's bookkeepers, who were, across the life of the Company, Ms Trace, Mr Hussain and Mr Daud. Mr Georgiou deposed that his practice was not to question who the payments were going to nor why they were being made, and that he authorised every requested payment.

415 Mr Georgiou's affidavit evidence then turned to the important issue of the Company's financial health. It is Mr Georgiou's evidence that, prior to 15 January 2019, he had little reason to question or otherwise doubt the financial modelling provided by Mr Zambas. This view, he deposed, was predicated on a twofold understanding:[492]

(a) first, Mr Zambas' spreadsheets always appeared detailed, and the figures he provided appeared reasonable; and

(b) second, he was reassured in knowing that Mr Linke was also overseeing the financial operations as the Company's external accountant, and trusted Mr Linke's expertise that any problems would be reported to him.

416 This, however, is despite the fact that the Company ceased to pay E&C its monthly rent in or around August 2018. Mr Georgiou's evidence in this regard is that he determined not to pay E&C its overdue rental payments and, instead, ensure that the Company's other debtors were paid first. The Company's financial records would indicate that, absent a further loan from E&C, which in effect would have been a circular transaction, it would not have been able to pay its rent from its cash inflows.

417 Mr Georgiou deposed that, whilst Mr Linke had discussed certain shortcomings of Mr Zambas' spreadsheets, these conversations were limited to the manual mode in which the spreadsheets were created and, accordingly, the increased risk of human error. It is Mr Georgiou's evidence that Mr Linke did not inform him that Mr Zambas' forecasts were inaccurate or should not be relied upon until 15 January 2019.[493]

418 This evidence is, however, diametrically opposed to Mr Linke's evidence, who deposed that he had, on numerous occasions between 2017-2019, informed Mr Georgiou about what he viewed as the gross deficiencies in Mr Zambas' financial forecasts. Mr Linke's evidence does appear consistent with the documentary trial of email correspondence between himself and Mr Zambas, with Mr Georgiou copied, which took place in September 2017, and is detailed above.[494]

419 It should, however, be noted that none of those emails relied upon specifically indicate a view that Mr Zambas' spreadsheets were inaccurate or should not be relied upon, and Mr Georgiou deposed that, whilst he did not understand the details of what was discussed in those emails, he 'took comfort' in knowing Mr Linke was keeping abreast of Mr Zambas' financial record keeping system.

420 Mr Georgiou's evidence is that, had he been instructed by Mr Linke that Mr Zambas' forecasts were defective or unreliable, he would have required Mr Linke to undertake a review of the spreadsheets or sought alternative independent external advice. Accordingly, in the absence of what he says is any advice that the Company's financial forecasts were unreliable, until March 2019, he relied on and believed that Mr Zambas' spreadsheets accurately stated the Company's financial position, being one of sufficient positive financial health.[495]

421 On Mr Georgiou's evidence, it was not until around March 2019 that he began to be notified of the consistent delays in the Company's cash inflows and the budget overruns. Whilst this is some two months after, on Mr Georgiou's own evidence, Mr Linke notified him of the inaccuracies of Mr Zambas' financial forecasts, I accept that this is passage of time reflects Mr Georgiou's consideration of Mr Linke's opinion and his realisation of that same conclusion. This is particularly so given that Mr Zambas continued to maintain that his financial forecasts remained accurate, and that the delays were once‑off rather than systemic. In my view, it is therefore entirely plausible that Mr Georgiou would want to examine whether these delays were in fact isolated or systemic. It is important also to recognise that Mr Georgiou deposed, and I accept, that he did not have the capacity to interrogate the Company's Xero systems without reports having been provided to him.[496] He was therefore wholly reliant on the advice being provided by Mr Zambas and Mr Linke.

422 Mr Georgiou did, however, concede that he was well‑aware that Mr Zambas continued to separately maintain cash flow forecast statements outside Xero, by way of his spreadsheets, and that Mr Linke had frequently expressed frustrations with this approach. His evidence is that he repeatedly instructed Mr Zambas to work with Mr Linke to place that information onto Xero, and held a belief that once claims were made against clients, the Company's receivables were entered into Xero.[497] Mr Georgiou also drew significant attention to his hiring of Mr Daud following advice from Mr Linke that the Company's accounting systems required further scrutiny. He says this is evidence of and consistent with his instruction to Mr Zambas to follow Mr Linke's request and ensure that the Company's accounting was correctly being reflected on Xero.

423 On Mr Georgiou's account, he could not have been made aware of the deficiencies in Mr Zambas' spreadsheet until January 2019, when, as a consequence of his frustration with the Company constantly having to 'play catch up', he requested Mr Linke examine Mr Zambas' financial forecasts. It is Mr Georgiou's evidence that he wanted Mr Linke to reassure him that Mr Zambas' projections were still reasonable and the business was performing well.

424 Mr Linke's response on 15 January 2019, however, was far from the reassurance that Mr Georgiou was hoping to receive. That email stated:[498]

Happy New Year Everyone.

Hope you all had a good break.

Emilios requested that I look at the cash flow of the business to determine how comfortable I am with the numbers coming through. So we implemented a model that we use with our clients to forecast out where the pain points are so that we can manage through. Attached is the result based upon what we know from the data entered into the system.

You will note the following:

• The business will require another $200k between now and the end of Feb.

• But the position dramatically improves after that with the finalisation of some large projects.

However I have some concerns because of the following:

1. Pany, you have forecast works to be completed and invoiced in Feb, March and April @ $3.2m. This seems optimistic. We believe the number to be closer to 2.5, which puts a massive hole in the cash flow.

2. We do not know what materials will be required to deliver the works that you have forecast.

3. We question the ability to deliver the works with the labour that you have.

4. I have not allowed for some cash payments required for 2017 taxes that I am working through as discussed with Emilios. (circa 65k)

Pany, could you please review and highlight the necessary changes so that we can sit down and work through the cash flow and timing issues. Could we then schedule a meeting at 3pm Monday to go through this and work out how the place survives.

Speak soon.

425 Mr Georgiou's evidence is that whilst Mr Linke's forecast established some concerns with respect to Mr Zambas' projections, particularly in relation to Mr Zambas' optimistic cash inflow forecasts and his failure to account for a number of expenses and cash outflows, he believed that the Company appeared financially 'healthy' even on Mr Linke's more conservative estimates.

426 It should be said that Mr Linke's covering email and spreadsheet detailing the Company's finances could appear to a lay person to be somewhat internally conflicting. Some aspects of the email paint a bleak financial position, including:

(a) Mr Linke's advice that a further $200,000 was required by way of loan from E&C;

(b) his estimates that the invoices in February, March and April 2019 would lead to a 'massive hole in the cash flow';

(c) his queries with respect to whether Mr Zambas' forecasts had adequately accounted for the expenses and cash outflows required to perform the current works and receive the projected cash inflows; and

(d) his request that a meeting be scheduled to 'work out how the place survives'.

427 In contrast, some of Mr Linke's numbers appear to depict a positive financial position. Mr Linke's spreadsheet provided that, from the start of March 2019, cash inflows which total approximately $1.1 million would be received and the business would operate with sufficient surplus cash flow following that period. Indeed, Mr Linke's own forecasts also indicated that whilst the Company's cash on hand would remain negative for the next month, it was forecasted to remain positive from the end of February through to the end of April 2019.[499]

428 Accordingly, it is Mr Georgiou's evidence, and I accept, he took comfort that Mr Linke's forecast suggested that the Company would be financially healthy in the near future.[500] Whilst it may be appropriate to scrutinise Mr Georgiou's failure to properly examine or place the necessary weight upon the 'red flags' in Mr Linke's forecast, it must also be recognised that Mr Linke's email and accompanying spreadsheet did not portray an outwardly bleak financial picture of the Company which ought to have made Mr Georgiou aware that the Company was facing substantial financial strife. In my view, it is reasonable for Mr Georgiou to have adopted his position that the Company's finances, whilst under some degree of pressure, was not, at least in the short term, operationally unhealthy. It cannot be said that, at this point, Mr Linke's 15 January 2019 email alone made or should have made Mr Georgiou or a reasonable director in his shoes suspect that the Company was insolvent. That analysis however, must be examined in light of all the circumstances which Mr Georgiou was or should have been aware of at this time.[501]

429 Nonetheless, that requested loan, and further amounts, were advanced by E&C to the Company during February and March 2019. During this period, Mr Georgiou caused E&C to loan the Company a total of $446,500,[502] which, it must be said, is significantly more than the amount forecasted by Mr Linke. Mr Georgiou deposed that this further loan was required due to the Company's creditors failing to pay their outstanding payments on time. On one view, this perhaps should have suggested to Mr Georgiou that the Company's financial health was worse than he had been made to believe. On another, it indicates that Mr Georgiou continued to remain willing and able to fund the Company, consistent with his evidence on this matter.

430 Perhaps unsurprisingly, given the status of the dispute between the parties, the Company's financial situation did not eventuate according to either of Mr Linke or Mr Zambas' forecasts. By April and May 2019, many of the cash inflows the Company was due to receive were still owing, and Mr Zambas began requesting larger and more frequent loans from E&C. Over this two month period, the E&C loan account ballooned by $729,400 to a total value of $1,437,829.[503] Mr Georgiou was expectedly unpleased with this development, and in May 2019, began engaging in extensive discussions with Mr Linke about exiting the business and handing it over to his sons. One such email recording the parties' conversation was sent by Mr Linke to Mr Georgiou on 22 May 2019, and is set out above.[504] It is desirable to, again, set out the contents of that communication here:[505]

Gents,

Thanks for tonight, it was good to catch up and speak freely.

So the action plan from here is:

• SG and MG to review the employee list so that we can work out who to move into the ne[w] company.

• An organisational chart to be developed to deter=mine [sic] skill set shortages.

• I have established the new company which is:

• Triple Three 7 Pty Ltd Trading as Gem Wood Joinery

• You need to decide on the new name or whether to retain Gemwood

...

• A new Director will be required for Triple Three & at some stage before Gemwood Projects goes down.

...

• [Mr Georgiou] will exit strategically within 9 months, but seed funding will be provided and repaid over 36 months once the new business is in operation.

431 Mr Georgiou's evidence of what occurred next is subject to considerable dispute. He deposed that, contrary to Mr Linke's evidence, he was not satisfied with any of the proposed 'solutions'. His evidence is that this was because Mr Linke's solutions were, in effect, the same as what was proposed in August 2016, when the Company was incorporated to 'bail out' the Predecessor Entities, and he was not in favour of continuing to open and close down companies.[506]

432 Notwithstanding this, Mr Linke established the new company, Triple Three 7 Pty Ltd, and a record on 22 May 2019 indicates that the shares in that company were transferred to E&C. A notification of change of company details was lodged on 27 May 2019, and a registration of general security interest over the Trust as security for the E&C loan was also lodged shortly after.[507] It is Mr Georgiou's evidence, however, that he never instructed Mr Linke to carry out any of these actions.[508]

433 Mr Georgiou's dissatisfaction with the proposed 'solutions', he says, was communicated to Michael and Stephen, and he informed them that he would obtain independent advice. Shortly after, he engaged Mr Hadded, a Principal of Mr Linke's former accounting firm, The Practice, to consider the Company's financial health. A duration of time elapsed between Mr Hadded's engagement and the provision of his advice, as access had to be arranged to the Company's accounting system, and a considerable amount of time and resources were invested into the detailed 'pulling apart' of the Company's financial records.[509]

434 Whilst Mr Hadded was investigating the Company's financial health, Mr Georgiou arranged, through Mr Afrasiabi and Mr Hadded, to meet Mr Carrafa. The first meeting between the two took place in early June 2019, and Mr Georgiou deposed that he was advised of the various options available to the Company, and, if so required, Mr Carrafa would be on standby to be appointed as external administrator. His evidence, which was consistent with Mr Carrafa's evidence, was that he was advised to wait until Mr Hadded had completed his investigations before making a determination as to the next steps to be undertaken. According to Mr Carrafa, it was his advice to Mr Georgiou that a 'leap into insolvency' should not be taken if it could at all be avoided.[510]

435 By mid-late June 2019, Mr Hadded had completed his investigations into the Company's financial records, and Mr Georgiou, his sons, and Mr Zambas attended a meeting to discuss Mr Hadded's findings. Mr Georgiou's evidence, consistent with Mr Hadded's evidence,[511] is that Mr Hadded informed the meeting attendees that the Company was 'haemorrhaging' and would require E&C to provide a further $1 million in order to stay operational. On Mr Zambas' insistence, Mr Georgiou determined publicly to hold off on making a decision until 1 July 2019, when Mr Zambas indicated the Company would receive $1.4 million in cash inflows. It is, however, Mr Georgiou's evidence that he had determined to appoint Mr Carrafa as administrator at the conclusion of this meeting, but wished to have the substantial cash flows injected into the Company before it was entered into voluntary administration.[512]

436 When those anticipated funds were not received, Mr Georgiou executed, on 3 July 2019, the relevant documents appointing Mr Carrafa as voluntary administrator of the Company. Mr Carrafa's appointment was made effective on 4 July 2019.

437 Between 1 and 3 July 2019, notwithstanding having determined to appoint Mr Carrafa as external administrator, Mr Georgiou transferred all but $9.58 of the Company's remaining funds to E&C. This conduct, he says, was performed under advice from Mr Hadded, who instructed him that this amount could be withdrawn as payment of the outstanding rent due to E&C.[513] In the Company's final days, Mr Georgiou transferred $290,800 to E&C, which comprised of:

(a) $61,080 on 1 July 2019;

(b) $61,080 on 2 July 2019; and

(c) $168,640 on 3 July 2019.

Mr Georgiou's evidence is that he notified Mr Carrafa of this withdrawal, to which, he says, Mr Carrafa told him that he would have 'done the same thing'.[514]

438 As a consequence of his decision to place the Company into voluntary administration, Mr Georgiou deposed that his sons, Angelo, Michael and Stephen, and Mr Zambas, each ceased communications with him.[515]

439 The Company had, in its lifetime, fallen behind in payment of a number of statutory debts.

440 In or around April 2018, the Company owed the ATO $500,000 and subsequently entered into a payment plan to repay the balance of this debt. Mr Georgiou deposed that, had the Company required funds to repay the entire debt immediately, he would have caused E&C to do so. This evidence was maintained notwithstanding numerous propositions put towards Mr Georgiou during cross‑examination that he would not have advanced further E&C funds to cover the Company's statutory debts past this point. It was, however, his preference that the debt be repaid via a payment plan using the Company's cash reserves.[516] This preference, he deposed, was supported by Mr Linke, who informed Mr Georgiou that he was confident that a payment plan could be reached and no penalties imposed for the late payment:[517]

[Y]ou give evidence of a conversation you say you had with Pany in relation to I'll suggest this tax liability, where Pany said that tax liability could be paid all at once or a payment plan could be organised with the ATO. You then say your position at the time was that if E & C needed to provide funding to pay the whole debt at once, it would do so, but your preference was that it be paid over time and preferably from Gemwood Projects' own cash reserves. Do you see that?---Yes, correct.

441 In or around June 2018, the Company owed to the SRO $150,000 in relation to outstanding payroll tax. A similar discussion took place, and Mr Linke again supported a payment plan being entered into. The Company entered into a payment plan for this outstanding debt around October 2018.[518]

442 It is Mr Georgiou's evidence that he believed that these payment plans were interest free, and accordingly, it made financial sense to spread the overdue payments out via instalments than to pay it off by a single lump sum payment.[519] This however, was not the case, and the Company paid a 'general interest charge' on each of the instalments under its payment plans. Mr Georgiou was repeatedly questioned on his actual belief that the payment plans were interest free, including by reference to an email by Mr Nazir to Mr Zambas and Mr Georgiou which stated 'I have discussed with ATO in detail in relation to remitting the general interest charges mounting'. It was therefore put to Mr Georgiou that he knew that the ATO and SRO's ordinary practice was to charge interest on its instalment plans, but this knowledge was repeatedly denied by Mr Georgiou.[520]

443 It was also put to Mr Georgiou that his decision to cause the Company to enter into payment plans instead of having E&C pay the outstanding statutory debts as a lump sum was a method of 'hedging' against the risk of the Company failing to return to profit, a proposition which was denied by Mr Georgiou:[521]

Yes, in April 2018 you were aware that the business was continuing to underperform or make losses, do you agree?---No, I don't agree.

I want to suggest to you that you were effectively hedging your bets regarding the question of whether the business would return profit - to profit, and therefore sought to enter into payment plans in respect of tax debts rather than to pay them in full through lending money via E & C?---No, I don't agree.

...

I suggest to you, Mr Georgiou, that that evidence is false and that you knew that in the event that tax debts were not paid and instalment arrangements were entered into in respect of payroll tax that interest would run at a rate of about 10 per cent on the debt until such time as it was paid in full?---Like I said, that was not my understanding.

All right. I want to suggest to you that you were aware of that but nonetheless you were electing not to cause E & C Georgiou to provide funds to Gemwood Projects to enable it to pay that debt because you were effectively hedging your bets in respect of the company's potential failure and leaving the tax debts unpaid at that time, what do you say?---Disagree.

444 Mr Georgiou deposed that he first became aware that the Company had failed to comply with its payment plans on 27 November 2018, when he was copied into an email from Mr Linke informing him that the Company had defaulted on its plan with the ATO. His recollection is that upon raising this issue with Mr Linke, he was advised that Mr Linke would resolve the matter, and subsequently was not provided with any further updates. Accordingly, he deposed that it was his belief that the issue had been resolved.[522]

445 Despite this, the Company was issued a creditor's statutory demand from the ATO on 15 January 2019, and a further payment plan was entered into the following month.

446 Mr Georgiou also gave evidence regarding Michael's misappropriation of the Company's funds. He deposed that he first became aware of this misappropriation during the public examinations which took place in May 2022. Whilst Michael's misappropriation of funds from the Company does not form part of the pleaded case against Mr Georgiou or E&C, it was put to Mr Georgiou that he knew of and resolved to do nothing about this misappropriation. Presumably, this was done to impugn Mr Georgiou's directorship of the Company, or otherwise raise issues of credibility with his evidence.

447 On 6 September 2018, Mr Linke discovered what he believed was Michael's misappropriation of Company funds, and sent Mr Zambas an email with the subject line: 'I am so sorry for this email'. That email states:[523]

Hi Pany.

As discussed this was the email that I was going to Emilios, Angelo and yourself. I can give you a few hours but after 2pm I will need to have a discussion with at least Angelo and yourself and preferably [Mr Georgiou].

Gents.

Attached you will find 2 pages.

1. An invoice for the job for Crown Dental Group.

2. A screenshot of Michael's bank account details in the payroll system i.e. Xero.

The client is financing the work and contacted Farhan to have the details amended to allow the finance to be paid. He could not find the invoice in XERO and upon investigation he found that the bank account details on the invoice sent tohi m were the same as Michael's.

We need to address this as a matter of urgency.

Mr Georgiou deposed that, notwithstanding this email clearly demonstrating that Mr Zambas and Mr Linke were both aware of Michael's misappropriation of Company funds, he was never made aware of that fact by either of those men.[524] Indeed, there is no documentary evidence which indicates that Mr Georgiou was ever informed of this misappropriation prior to the public examination which took place in May 2022.

448 In total, Michael misappropriated at least $30,591 from the Company by replacing the Company's bank account details on at least two invoices with his own. The full amount of Michael's misappropriation was never determined. Nevertheless, these events do not impinge upon the findings set out in these reasons.

449 A further subject of dispute in this proceeding relates to the Company's decision to pay for the installation of solar panels on the Sarton Road property. Contrary to the Plaintiffs' allegation that this was an 'uncommercial transaction', Mr Georgiou deposed that this decision was made to reduce the expensive electricity bills which the Company was paying for. Under the lease 'agreement' with E&C over the Sarton Road property, the Company was required to pay all outgoings, including its electricity usage. These costs were typically substantial, owing to the Company's considerable usage of electrical appliances in its day‑to‑day operations as a cabinetry manufacturing business.[525]

450 Accordingly, it is Mr Georgiou's evidence that he viewed it beneficial for both the Company and E&C if large commercial solar panels were installed at the property. In August 2017, Mr Georgiou received a proposal from SSE Australia which estimated that its solar system, which would cost $283,000, was capable of generating $52,995 to $56,215 worth of solar electricity each year.[526]

451 Having determined the financial benefit of this proposal, Mr Georgiou organised a commercial loan between E&C and Westpac for the sum of $283,000. The terms of that loan required monthly instalment repayments of $5,278.58, to be paid by the Company, over a period of 60 months.[527] The solar panels would be property of E&C, not the Company. It should, however, be noted that Mr Georgiou's evidence is that, once the loan had been paid off, he would have transferred ownership of the solar panels to the Company. The reason the solar panels were not the Company's property, he deposed, was because the bank would not provide a loan to the Company to secure the solar panels. This arrangement, he said, is accordingly a 'technicality'.[528]

452 In total, the Company made 16 monthly repayments of $5,278.58 to Westpac between 27 March 2018 and 24 June 2019, amounting to a total of $84,907.28.[529] It did, however, benefit from a reduction of electricity outgoings over that period, and it is said that this benefit would have continued, had the Company not been placed into voluntary administration.

453 The last component of Mr Georgiou's evidence relates to the dispute concerning the 'credit card payments' made by Mr Georgiou on behalf of the Company.

454 Mr Georgiou's evidence is that the Company required access to a credit card to pay its business expenses as a few of its suppliers did not accept other modes of payment. In 2016, Mr Georgiou attended a Westpac branch to enquire about whether a corporate credit card facility could be established for the Company, but was informed that Westpac was not willing to provide a credit card to a newly formed company, and instead, he or someone else would have to be responsible for the card.[530]

455 Accordingly, throughout the Company's lifetime, Mr Georgiou arranged for the following:

(a) between August 2016 and 12 January 2017, he used his existing personal credit card, and was reimbursed by the Company for the business expenses incurred; and

(b) between 13 January 2017 and 14 June 2019, he used a new credit card he had obtained for the business.

The credit card was registered under Mr Georgiou's name, but used exclusively for the Company's expenses. At the end of each month, Mr Zambas and the Company's bookkeeper would arrange for the balance of the credit card to be paid from the Company's bank accounts. Mr Georgiou would then authorise the payment.[531]

456 Mr Robert Hadded was called next. Mr Hadded is a qualified accountant who was engaged by the Company in June 2019 for the purpose of obtaining a second independent opinion of the Company's financial health prior to the Company ultimately entering into voluntary administration in July 2019. Mr Hadded gave evidence of the Company's financial position; its bookkeeping; and the status of its cash flow. The Defendants relied on two affidavits which were tendered as Mr Hadded's evidence in chief. These were:

(a) the first affidavit of Robert Hadded dated 2 August 2024 (First Hadded Affidavit); and

(b) the second affidavit of Robert Hadded dated 11 October 2024 (Second Hadded Affidavit).

457 Since 1997, Mr Hadded has been the Chief Executive Officer and Director of The Practice, the firm which had previously provided accounting services to the Gemwood business.[532] He first came to know Mr Georgiou in 2018, when, as a consequence of Mr Linke resigning from The Practice, Mr Hadded sought unsuccessfully to retain the Company as a client.

458 Mr Hadded was first engaged by Mr Georgiou, via his lawyer, Mr Afrasiabi of MA Legal, in June 2019 to conduct an independent analysis of the Company's accounts and financial forecasts. Mr Hadded deposed that this occurred as a result of Mr Georgiou becoming concerned about the financial state of the Company after Mr Zambas repeatedly requested he cause E&C to provide further loans.[533]

459 The first meeting between Mr Hadded, Mr Georgiou and Mr Zambas took place on 14 June 2019, where Mr Hadded was provided with physical hardcopy spreadsheets prepared on behalf of the Company. Mr Hadded formed the view that the spreadsheets were manually prepared on Excel, rather than via the accounting software, Xero, and determined that he could not properly assess the Company's financial position without having reviewed its Xero accounts. It is also Mr Hadded's evidence that Mr Zambas was the driving force during the meeting, with Mr Georgiou frequently deferring questions being asked of him to Mr Zambas.[534]

460 Mr Hadded subsequently met with Mr Georgiou and Mr Zambas on four separate occasions (on 18, 21, 24, and 26 June 2019), though Mr Georgiou and Mr Zambas were not always both present in each of these meetings. Mr Hadded deposed that whilst he viewed the Xero accounts as potentially understating the Company's profits as no value was attributed to work in progress, he had significant concerns as to the Company's financial health. He gave further evidence that the significant increase in funding sought from Mr Georgiou was inconsistent with Mr Zambas' insistence that the Company was in a strong financial position, and formed the view that the accounts could be misleading as they failed to properly consider the risk that the Company's receivables would remain unrecovered.[535]

461 In light of this view, Mr Hadded communicated these concerns with Mr Georgiou in a private meeting on 24 June 2019, where Mr Zambas was not in attendance. Mr Hadded deposed that he communicated the following concerns to Mr Georgiou:[536]

(a) that Mr Georgiou was putting money into the business based on misleading or inaccurate information, and was being taken advantage of;

(b) that Mr Georgiou should not rely on what Mr Zambas was telling him;

(c) that the Company was capable of becoming successful again, but would require substantial further funding in the vicinity of $1 million from Mr Georgiou; and

(d) that he did not recommend Mr Georgiou to provide this further funding in light of what E&C was already owed.

462 In response to this, Mr Hadded deposed that Mr Georgiou said to him that:[537]

(a) he had been injecting money into the business because of what Mr Zambas and Mr Linke had told him;

(b) he no longer wished to continue funding the Company and would appoint Mr Carrafa as administrator; and

(c) he wanted Mr Hadded, as an independent third party, to communicate this news to his sons and Mr Zambas.

463 On 26 June 2019, at a meeting where Mr Georgiou, one of his sons, and Mr Zambas were in attendance, Mr Hadded informed them that, on his advice, Mr Georgiou would no longer continue to fund the Company, and had made the decision to place the Company into external administration. It is his recollection that Mr Zambas expressed significant dissatisfaction with this decision.[538]

464 Mr Hadded also gave evidence regarding his work pertaining to Mr Georgiou's personal tax affairs. As a consequence of Mr Georgiou having been issued a director penalty notice by the Deputy Commissioner of Taxation in relation to the Company's unpaid PAYG withholding and superannuation guarantee charge, Mr Hadded arranged for him to enter into a payment plan on 29 July 2024. Mr Hadded also arranged for Mr Georgiou to enter into a payment plans in 2023 with the Deputy Commissioner of Taxation regarding PAYG debts owed by the Company, which has since been paid in full.[539] During cross‑examination, it was put to Mr Hadded that the payment plan was instead for a director's penalty notice relating to Gemwood Installations, and an ATO record was adduced to that effect. Mr Hadded accordingly conceded that he could not be certain that the PAYG payment plan related to the Company instead of Gemwood Installations.[540]

465 A substantive aspect of Mr Hadded's cross-examination revolved around the accuracy of the hardcopy spreadsheets he received, and whether they correctly recorded all of the Company's creditors. Mr Hadded readily conceded that he could not be certain that the spreadsheets were a complete or fulsome account of the Company's creditors.[541] It was also put to Mr Hadded, and he accepted, that it was good business practice to maintain a company's budgeting software through Xero, and that the Company's aged payables record on Xero was 'relatively incomplete'.[542]

466 Mr Hadded also explained that the hardcopy spreadsheets he reviewed calculated the cash inflow as revenue that would be received at particular times, which he viewed as being 'aggressive' towards the timing of expected payment given historical late payments from the Company's clients. It was Mr Hadded's view that the spreadsheets did not account for any delays in the receipt of payments; the risk of non‑payment; nor the prospect of delay claims being made against the Company for work not completed on time.[543] This view is consistent with Mr Zambas' evidence.[544]

467 Mr Zambas was the final witness called by the defendants. Mr Zambas was the Operations and Production Manager for the Company from its incorporation in 2016 until it entered into voluntary administration, and was previously employed by the Gemwood business from March 2012. As an individual uniquely acquainted to the Company's dealings, Mr Zambas gave evidence about his role in the business and, in particular, his management of the Company's financial performance and records. The Defendants relied on an affidavit dated 22 October 2024 which was tendered as Mr Zambas' evidence in chief (Zambas Affidavit), subject to my rulings that certain sentences of the affidavit be removed pursuant to objections made by the Plaintiffs' counsel.[545]

468 By any account, Mr Zambas' role in the Company was an important one which carried with it substantial responsibilities. Mr Zambas deposed that, as Operations and Production Manager, his role involved:[546]

(a) managing the manufacturing and production components of the business;

(b) keeping track of the financial performance of the projects;

(c) preparing budgets and cash flow forecasts;

(d) preparing and submitting progress claims;

(e) managing staffing and resourcing;

(f) overseeing project-specific financials; and

(g) liaising with Mr Georgiou, his sons, and the Company's external accountant, Mr Linke.

It is clear, therefore, that Mr Zambas exercised significant control over the day‑to‑day running of the Company and, accordingly, is in an apt position to depose about the Company's operations, cash inflows and outflows, and general financial health across its lifetime.

469 Mr Zambas gave evidence regarding his process of preparing Excel spreadsheets which detailed the Company's cash flow. In order to properly characterise anticipated revenues and expenses, Mr Zambas engaged in a 'colour‑coding system' - for example, an expense cell would be highlighted green where it had been paid by the Company and yellow where it had been incurred or claimed as against the Company but not yet paid. He deposed that it was necessary to prepare these spreadsheets as the accounting systems being used by the Company, QuickBooks and Xero, did not have the adequate functionality to track individual projects nor undertake contract accounting.[547]

470 During cross-examination, Mr Zambas was asked a variety of questions regarding the deficiencies of the financial spreadsheets. These questions, and Mr Zambas' responses, painted what can only be described as a deficient and incomplete record of the Company's finances. In two examples which Mr Zambas was brought to, the Evergreen Project and Trentwood Apartments Project, he conceded that the spreadsheet did not accurately reflect what had been claimed or received by the Company.[548] It is Mr Zambas' evidence that, in respect of certain claims, one could not readily ascertain from the spreadsheet what was claimed with regard to a particular contract and how much had been paid under that contract.[549] Notwithstanding the clear flaws of the spreadsheet, which should have been made apparent to Mr Zambas as the author of the document, it was used to inform and justify the future cash flow of the business in discussions with Mr Georgiou and Mr Linke.

471 Mr Zambas' rationale behind the calculation of anticipated receivable dates was also, in my view, highly flawed. He readily conceded, during cross-examination, that the spreadsheets provided no allowance for the risk that payments owed to the Company could be delayed or not received entirely.[550] It was Mr Zambas' evidence that, when money was not received as per the specified contractual date, he would insert a new 'anticipated received date' for that amount.[551] This was the case which took place for each and every payment which was not received within terms. No rational explanation was provided regarding how this further 'anticipated received date' was ascertained by Mr Zambas.

472 Further, whilst Mr Zambas deposed that both QuickBooks and Xero did not have the functionality to track individual projects, it was made apparent, on his own evidence, that the spreadsheets failed to adhere to the very standards Mr Zambas had imposed for avoiding the use of those accounting software. Mr Zambas gave evidence during cross-examination that, although the spreadsheet did identify the specific contract value for a job including variations, it did not identify individual costs and attribute those costs to individual jobs.[552] That is, whilst revenues and cash inflows were recorded against specific contracts or jobs, expenses and cash outflows were not. In my view, that appears to be an imperfect approach, which serves only to highlight what, viewed fairly, is a shortcoming with the Company's financial record keeping systems.

473 This is particularly so where Mr Zambas, along with Mr Georgiou, were requested by the Company's external accountant, Mr Linke, to purchase additional software on Xero which would have allowed the Company to track individual job costings. Mr Linke's request was recorded in an email dated 22 September 2017, sent to Mr Daud and copied to Mr Zambas. This email read:[553]

Hi [Mr Daud].

With this mate we need to - at some stage - set up a job costing process whereby we track what the business is doing by job. I want to start seeing some profitatbility [sic] reports to see where we can improve.

As you have some real passion for technology, could you also please keep in mind that some xero addins will be relevant to assist in tracking performance. Don't go off and implement, please recommend first.

When this was put to Mr Zambas, and the source email shown to him, Mr Zambas stated that he could not recall that request having been made by Mr Linke.[554] Whilst a significant passage of time has occurred between that email and Mr Zambas' cross‑examination, I do find it difficult to reconcile Mr Zambas' evidence of his failure to recollect against Mr Linke's evidence that the Company's deficient financial record keeping system and his advice that the Company fully migrate its systems to Xero was the topic of numerous conversations with both Mr Zambas and Mr Georgiou. In my view, to the extent that there are inconsistencies between the evidence of Mr Zambas and Mr Linke on the issue of the migration to Xero predicated on the basis it was more appropriate for tracking project costing, the evidence of Mr Linke ought to be preferred.

474 That is not, however, to say that the shortcomings of Mr Zambas' financial record keeping system rose to the threshold of s 286 of the Act. That finding, as discussed above, is not one which needs to be made in this proceeding on the basis of my view that the Defendants are capable of discharging the reverse onus enlivened by s 588E of establishing that the Company was, at all relevant times prior to its voluntary administration, solvent.[555]

475 Mr Zambas also deposed as to what he believed was the reason behind the Company's constant liquidity issues. It is his evidence that the significant upfront costs relating to materials and labour which the Company would incur at the outset of each project and the substantial lag, often between 45 to 60 days before the Company began receiving payments for the work performed, that necessitated the injection of funds from E&C. Mr Georgiou would be called upon to cause E&C to provide loan monies to cover the Company's creditors until the receivables were collected. Mr Zambas further deposed that he would undertake a reconciliation of the Company's records weekly and discuss this with Mr Georgiou, who was aware of the operational and financial happenings of the Company's projects.[556]

476 Following the Company's financial difficulties in late 2018, Mr Zambas received a three‑month cash flow projection prepared by Mr Linke in early January 2019. Whilst Mr Zambas viewed Mr Linke's cash flow projection as being more conservative than his own, both projected the Company to require a further cash injection from E&C in February 2019 before it could return to a 'significantly positive cash position' from March 2019. Mr Zambas' evidence is that these projections were ultimately never realised as the approximately $1.5 million in receivables due and collectable by the Company in February and March 2019 were never received. It is Mr Zambas' experience, he deposes, that it was common for the Company's debtors to withhold or delay payment of their invoices. Whilst the Company was usually paid in full, its debtors often failed to pay their invoices within terms, and slight discounts to the full invoice were sometimes offered due to issues with defects relating to the Company's works.[557]

477 It is peculiar therefore, given Mr Zambas' evidence that the Company's debtors frequently paid the Company late, that the very spreadsheets he created sought not to make any provision for the regular occurrence of late payments. As a matter of commercial reality for businesses operating in the construction industry, there necessarily exists a degree of risk regarding late payments of invoices. Such risk is clearly exacerbated in circumstances where Mr Zambas knew that clients commonly either withheld or delayed the payment of their invoices. It is my view, therefore, that in light of Mr Zambas' own evidence, the Company's failure to internally ascertain and provide for the risk of late payment is yet another deficiency in its financial accounts keeping process.

478 By early April 2019, whilst many of the delayed payments had been made, further delays in payments meant the Company was owed receivables of approximately $1.4 million. Mr Zambas deposed that, despite reasons being provided by the debtors, his opinion was that those 'excuses' were not genuine and made to 'string [the Company] out as was done previously'.[558] As a result of this delay in cash inflow, a larger cash injection was required by E&C from February 2019, which Mr Zambas deposed cause Mr Georgiou to express concern about the growing value of the E&C loan balance with the Company.

479 One such delayed payment in April 2019 was the approximately $500,000 payment withheld by Hutchinson. Mr Zambas' view, he deposed, was that this payment was withheld as a consequence of an alleged defect relating to incorrect panelling, worth approximately $40,000. He further deposed that, notwithstanding the Company having completed the project works and approximately 98 percent of the rectification works, the Company was never paid the contract sum prior to entering into voluntary administration.[559]

480 It was not the subject of his affidavit evidence that Hutchinson alleged that the withheld payment was a consequence of its claim against the Company for liquidated damages as a consequence of the Company failing to complete the necessary works by the contractual due date; that liquidated damages claim being in the order of $200,000 to $300,000. When taken to this allegation during cross‑examination, Mr Zambas stated that he was aware of the claim but maintained a view that the failure to reach completion by the contractual due date was not the fault of the Company but due to delays caused by other builders. Mr Zambas gave evidence, during re‑examination, that he communicated this view and prepared a document outlining the basis upon which he believed the claim was illegitimate to the Liquidator shortly after the Company entered into administration.[560]

481 At its most simple, the Liquidator relies inter alia on the evidence given by its expert, Shane Deane, to contend that Gemwood Projects was insolvent from its inception on 8 August 2016 until it went into voluntary administration on 4 July 2019.[561] In contrast, the Defendants submit that the expert evidence has been 'overtaken' by the evidence of Mr Carrafa but that, if I determine that the expert evidence remains relevant, the differences in that evidence should be resolved in favour of its expert, Jason Stone.[562]

482 Mr Deane is a chartered accountant and registered liquidator with over 23 years' experience in the external administration of corporate entities. Mr Deane prepared three expert reports. The first dated 6 October 2023 (First Deane Report), the second dated 1 December 2023 (Second Deane Report), and the third dated 17 March 2025 (Third Deane Report). The Liquidator also relies on a letter of Mr Deane dated 7 October 2023.

483 Mr Stone is a chartered accountant and registered liquidator with over 20 years' experience in insolvency. Mr Stone prepared one report dated 14 November 2023 (Stone Report). The Defendants also rely on three letters of Mr Stone dated 7, 22 and 24 October 2024.

484 Mr Deane was instructed to provide an independent solvency review of Gemwood Projects and to answer the following questions (as summarised):

(a) Was the Company insolvent at any time on or after 8 August 2016?

(b) If yes, what was the approximate date on which the Company first became insolvent?

(c) If yes, did the Company remain insolvent from that date until 4 July 2019 and, if no, why not?

485 For the purposes of the insolvent trading claim, and having regard to the answers to the questions above, Mr Deane was also asked to identify for each debt incurred by the Company after the date of insolvency: the creditor; the date the debt was incurred; the quantum of the debt; the goods, services or other matter the debt was incurred in respect of; and the running total of the debt incurred for that creditor.

486 Crucially, Mr Deane was instructed to adopt the following assumptions in his analysis:[563]

(a) E&C was not formally obliged to advance money to the Company, in that the loan was in the nature of an ad hoc overdraft facility payable on demand;

(b) Emilios did not formally issue demands, but simply wanted E&C to be repaid quickly;

(c) E&C (at least from December 2018 to May 2019) did not lend money to the Company for any more than a matter of days, or weeks, so as to reduce E&C's interest payments;

(d) as the monthly debits and credits in respect of the loan payments were nearly equal from December 2018, the funding was short-term in nature only; and

(e) Emilios, in his capacity as the director of the funding party, was also responsible for directing which creditors the Company would repay and was selective in doing so.

487 Mr Deane explained that his approach had been to assess solvency using both the balance sheet test and the cash flow test, using the records of Gemwood Projects and the other material provided to him by the Liquidator.[564]

488 In the First Deane Report, he accepted it was usually 'prudent' to consider the cash flow test before the balance sheet test, but formed the view that it was necessary in this case to assess the balance sheet test of solvency first due to an 'absence of a proper accounting of the transactions contained in the Company's management accounts', and because there were no externally prepared financial statements of position and performance.[565] In this regard, Mr Deane confirmed that, in relying on the documents provided to him and making observations as to their adequacy, he had not 'audited, reviewed, or otherwise attempted to verify the accuracy or completeness of these documents' in a manner compliant with relevant assurance standards.[566]

489 In determining a date of insolvency, Mr Deane also had regard to the Act, relevant case law, regulatory guidance, and the 'usual indicators of insolvency' being, in particular, whether the company demonstrated any of the 14 Plymin indicators.[567]

490 Turning to Mr Stone, he was asked by the Defendants to:[568]

(a) provide an opinion on whether the company was ever insolvent and, if so, when;

(b) consider Mr Deane's report and explain whether (and why) he agreed or disagreed with the opinions expressed in that report; and

(c) provide reasons for all conclusions he reached and the materials and assumptions relied on.

491 It is to be noted that, unlike Mr Deane, Mr Stone was not asked to provide an opinion on which particular debts would fall within the insolvent trading claim.

492 Following receipt of the First Deane Report, Mr Stone was instructed to assume for the purposes of his report that the loan agreement between E&C and Gemwood Projects was a non-current liability on the basis that:[569]

(a) no demands for repayment were made;

(b) Emilios was the sole director and secretary of both E&C and Gemwood Projects; and

(c) it was Emilios' intention in his dual role as director that E&C would only call for repayment if and when Gemwood Projects had the funds available such that it would not cause the Company to become insolvent.

Further, Mr Stone was expressly instructed not to make the assumptions that Mr Deane adopted, as set out at paragraph [486] above.

493 As will become apparent, differences in the assumptions necessarily adopted by the experts were critical to the ultimate opinions reached by each. The correctness of various assumptions were the focus of extensive cross‑examination of the expert witnesses and central to the parties' closing submissions.

494 Mr Stone relied on the documents annexed to the First Deane Report as well as additional documents listed in Appendix 3 of his report, being a series of emails and Excel spreadsheets. In this regard, Mr Stone noted that he had received additional instructions and documentation relating to Gemwood Projects' WIP and the financial position of E&C. Like Mr Deane, Mr Stone confirmed he had not audited the financial accounts or accounting records of the Company, or the calculations in the First Deane Report, and had assumed they were accurate.[570]

495 Mr Stone broadly agreed with the approach taken by Mr Deane, although he reached different conclusions in several key respects discussed below. Specifically, Mr Stone stated that Mr Deane's adopted methodology for determining insolvency was consistent with generally accepted principles and that he agreed generally with the solvency tests and legal principles used by Mr Deane, including the methodology taken with respect to the balance sheet test and with the 'other indicia' of insolvency in the First Deane Report.[571] However, Mr Stone maintained that the cash flow test should be afforded primacy in the analysis over the balance sheet test.[572]

496 It should also be noted that, although the experts did not comment on this difference of approach, they differed insofar as where they included their analysis of the Company's current ratio and debt to asset ratio. While Mr Deane incorporated this analysis into his balance sheet test, Mr Stone included it in his cash flow analysis. This assumes significance for reasons made plain later.

Key conclusions in the expert reports and letters

497 The First Deane Report reached the following key conclusions:

(a) applying the balance sheet test of insolvency, Gemwood Projects was insolvent from its inception on 8 August 2016;[573]

(b) applying the cash flow test of solvency, Gemwood Projects was insolvent from at least 30 June 2018 and likely some months prior to that;[574]

(c) having regard to both tests, Gemwood Projects remained insolvent from 8 August 2016 until the appointment of the administrator;[575] and

(d) issues with the records and accounting maintained by Gemwood Projects, as well as 'what appears to be a systematic process of creating and winding up companies within the Gemwood Group of Companies' to avoid paying statutory debts, were such that the presumption of insolvency in s 588E of the Act - relating to the failure to maintain adequate financial records - was enlivened from 8 August 2016.[576]

498 The Second Deane Report responded to the Stone Report and reaffirmed the position that Gemwood Projects was insolvent from 8 August 2016, 'both on a financial analysis and presumptive basis'.[577]

499 The Third Deane Report concerned Mr Deane's knowledge of the payments made by Gemwood Projects under payment plans to the ATO and SRO in the six month period before it was placed into external administration. In that report, Mr Deane confirmed he had known of the payments when he prepared the First Deane Report and Second Deane Report, that he had taken the payments into account in preparing those reports, and that his opinion on the solvency of the Company was not altered by the fact of those payments.[578]

(a) having regard to the language of s 95A of the Act, '[p]rimary importance' should be placed on the cash flow test;[579]

(b) it was 'difficult to understand' how Mr Deane concluded that external funding from related parties was not forthcoming;[580]

(c) based on the additional information available to Mr Stone, particularly WIP reports and E&C financials, it was 'clear that the Company could not have been insolvent from at least 30 June 2017 and all material times thereafter' and that the 'likely date' of insolvency was closer to the date of liquidation and was at the date the last external funding was provided on 12 June 2019;[581]

(d) while there were 'some indicia of insolvency apparent', the First Deane Report did not 'definitively prove the Company was insolvent from the period 30 June 2017 and at all material times thereafter';[582] and

(e) the presumption of insolvency was not 'highly relevant'[583] and that Gemwood Projects' records were sufficient to meet the definition in s 286 of the Act[584] such that Mr Stone did not accept Mr Deane's reasoning with respect to s 588E(4) of the Act.[585]

501 Mr Stone's letter dated 7 October 2024 addressed matters raised in paragraphs [133]-‍[135] of the First Deane Report concerning continuing losses of the Company and concluded that he did not agree that the Company had 'never been materially profitable' and that '[i]t appears that the Company had the ability to be profitable throughout the majority of its existence up until 28th February 2019'.[586]