Expile Pty Ltd v Jabb's Excavations Pty Ltd

22 The defendant put into evidence the valuation of plant and equipment made by Mr Arthy. That attributes a combined value of $1,206,200 to the items set out in it. Mr Kairouz testified that certain of the items listed in the valuation are no longer owned by the defendant. These account for a total of $125,000, with the result that the valuation is put forward only in relation to the remaining items representing a combined value of $1,081,200. The valuation may be accepted as suitable evidence of the existence of the items with which it deals and of the unencumbered value of those items. But the plaintiff points to two pertinent factors calling in question the proposition that the defendant has the full financial benefit inherent in the remaining items in the valuation: first, questions as to the ownership of some such items; and second questions as to the value of the defendant's interest in light of financing arrangements. 23 Before the hearing began, the plaintiff served on the defendant a notice to produce (which became Exhibit A) requiring, in respect of each item in Mr Arthy's valuation shown at $5,000 or more, the defendant's records showing its acquisition of and title to the item. This was covered by paragraph 8 of the notice to produce. The hearing occupied 20 September, 18 November and 19 November 2002. On the first of those days, Mr Kairouz was extensively cross-examined about the circumstances of the defendant's acquisition of various items in Mr Arthy's valuation. He had a good recollection of having been involved in the various acquisitions, although his recollection of details was not good, particularly when it came to original financing arrangements and subsequent pay-outs. He nevertheless gave on 20 September 2002 prompt and confident answers in relation to whether the various items were owned or leased by the defendant. He did so by reference to the inventory attached to Mr Arthy's valuation. The items Mr Kairouz identified as leased accounted for $444,000 on the valuation. Those he identified as owned accounted for $637,200, including various items of office furniture and equipment. Owned items valued at $637,200 are sufficient, except for $12,800, to play the $650,000 role envisaged for them by Mr Billingham's calculation of 18 November 2002, assuming the assertion of ownership is made out. 24 As to documentary proof of ownership, the plaintiff failed to produce anything but Roads and Traffic Authority certificates of registration in a number of cases. It may readily be acknowledged that such a certificate does not establish ownership by the party registered. For example, a leased vehicle (that is, one owned by a finance company and held by the defendant under a chattel lease) would quite properly be registered by the Roads and Traffic Authority in the name of the defendant. But the fact remains that Mr Kairouz was precise and definite in his evidence as to which items were owned, as distinct from leased. He recalled, for all, the circumstances of acquisition. Added to this is the fact that Mr Michael, the external accountant retained by the defendant, testified to the procedures he has adopted over the years in relation to the treatment of plant and equipment in the accounts. After reference had been made to Mr Arthy's valuation, the cross-examination of Mr Michael continued as follows: "Q. Apart from the valuation what, if any, information is available to you relating to the figures shown in the statements for plant and equipment? A. Sorry? Q. Is there any information that you have been given, apart from the valuation, casting light on the balance sheet figures for plant and equipment? A. Plant and equipment is just - under the history costs system, you record it at cost. That is just the accumulation of ten, fifteen years of equipment. The problem is, over the time, a lot of that would have been depreciated. The asset value still exists. The only way you can really judge the accuracy of that is to do an independent valuation. Q. But are there records you have about costs, records you have seen about costs of the plant and equipment? A. I would have; there will be over the years, yes. Q. What are those? A. Sorry? Q. What are those records? A. Just payment the company makes towards purchase of them. Q. As recorded in the cheque butts and then written into the bank statements; is that the procedure? A. That's right, yes. I understand up to a few years ago, all these were done on a yearly basis. It is only when GST came in that these computer systems were in place with quarterly reports and such things." 25 This must be understood in the light of an earlier passage in the cross-examination: "Q. I am suggesting when you prepare financial statements for Jabb's Excavations you perform no verification or validation procedures? A. Well, I do, actually, yes. Q. What are those? A. What are those? Q. Yes? A. Okay. The way the company's records are kept by a young girl in the office - she is very good with her computer system - I go along, go through and I will check the balances of bank reconciliations. If I know they are correct, I know all the deposits and expenses have been accounted for, I will go through and check her records, deposits and payments. Now what I don't check is the invoice that matches the payment, if that is what you are talking about, but I will check every three months, on a quarterly basis, we do the Business Activity Statement, I check - that is basically what I check. Q. No more than that? A. If needs be. If I need to go to the invoice and see if there is any GST on the invoice, I will ask. Q. When would you be likely to do that? A. On a quarterly basis, I do that. Q. Check the invoices for GST? A. No, sir. I said if there is an invoice I need to check for GST I will ask Bernadette to get the invoice out to see if there is any GST on the invoice." 26 This evidence is, to my mind, enough to counter the suggestion that ownership of items of plant and equipment in cases where only a Roads and Traffic Authority registration certificate has been produced rests on no more than the say-so of Mr Kairouz. The defendant's book-keeping system, although not sophisticated, has, on Mr Michael's evidence, a methodical quality in which a key part is played by an employee described by the external accountant as "very good with her computer system". That accountant himself plays a part by way of his quarterly questioning and, as necessary checking for the purpose of preparing GST business activity statements. 27 I also refer, on the question of ownership of plant and equipment, to the evidence of Mr Billingham. He devoted some effort to obtaining details of the lease commitments, although it must be said that such information as was given to him as having been obtained specially from the leasing companies came via Mr Kairouz who said he had obtained it from those sources. Nevertheless, I regard it as sufficiently reliable to confirm the split between leased equipment and owned equipment. And that, in turn, is sufficient to dispel the possibility that a mere certificate of registration in respect of a particular vehicle not placed by Mr Kairouz within the leased category relates to a leased vehicle rather than a vehicle that is owned. 28 These conclusions in relation to plant and equipment are sufficient to confirm, on the balance of probabilities, the viability of the financing program envisaged by Mr Billingham in his affidavit of 18 November 2002 and that, in turn, is sufficient to warrant a conclusion by the court that the defendant is able to pay its debts as and when they become due and payable, that being, in any event, the opinion expressed by Mr Billingham, an experienced accountant who was retained to examine the defendant's financial position. 29 When I say "is able" I am, of necessity, referring to a position shown as at a past date by reference to evidence of matters as they existed in the past. In this particular case, the proceedings were protracted. By the time the substantive hearing commenced before me on 20 September 2002, the proceedings had been on foot for just over six months. It become clear on 20 September 2002 that the one day allocated would not be enough and that two further days would be needed. Because of other cases that had been scheduled, I could not accommodate the need for those two further days until 18 and 19 November 2002. On that occasion, however, further evidence was given by Mr Kairouz, and the whole of the oral evidence of both Mr Billingham and Mr Michael was given. In addition, Mr Billingham's further affidavit (the affidavit of 18 November 2002) which has played a central part in my assessment provided refreshed information, as did up-dated financial statements as at 30 September 2002. I am satisfied that the evidence remains a reliable basis for the assessment of solvency called for in this case. 30 The result of the proceedings is that the presumption of insolvency created by s.459C(2)(a) is displaced by evidence sufficient to prove that the defendant is able to pay its debts "as and when they become due and payable" (s.95A), so that the defendant is not "and insolvent company" as referred to in s.459A and an order that it be wound up in insolvency may not be made. 31 The originating process filed on 14 March 2002 is therefore dismissed. I will hear the parties on costs at a time to be fixed. **********

At a glance

Court

Decision date

Before

Source

Judgment (8 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (7)

Cited By (2)