First Equilibrium Pty Limited v Bluestone Property Services Pty Limited

AND: BLUESTONE PROPERTY SERVICES PTY LIMITED (IN LIQUIDATION)

JUDGES: GORDON, GRIFFITHS AND FARRELL JJ DATE OF ORDER: 18 SEPTEMBER 2013 WHERE MADE: SYDNEY

1. Paragraph 1 of the Orders made in NSD 542 of 2013 on 6 September 2013 be set aside.
2. The appeal is dismissed.
3. The appellant pay the respondent's costs of the appeal, to be taxed in default of agreement and to be paid out of the assets of the appellant. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth).

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1819 of 2013

AND: BLUESTONE PROPERTY SERVICES PTY LIMITED (IN LIQUIDATION)

JUDGES: GORDON, GRIFFITHS AND FARRELL JJ DATE: 18 SEPTEMBER 2013 PLACE: SYDNEY

INTRODUCTION 1 The respondent (Bluestone) applied under ss 459A and 459P of the Corporations Act 2001 (Cth) (the Act) for the appellant (Equilibrium) to be wound up in insolvency. The primary judge found that Equilibrium was insolvent at the time of the filing of the application (27 March 2013) and at the hearing (26 August 2013) (collectively the Relevant Dates). On 2 September 2013, pursuant to ss 459A and 459P of the Act, his Honour ordered that Equilibrium be wound up on the grounds of insolvency (the Winding-up Order). The Winding-up Order was stayed by the primary judge until further order. 2 Equilibrium appealed the Winding-up Order on three grounds. First, that Bluestone did not have standing to bring the application because it was not a "creditor" of Equilibrium for the purposes of s 459P(1)(b) of the Act. Second, that Bluestone had not discharged the onus of establishing that Equilibrium was insolvent on each of the Relevant Dates and, third, that there were mutual credits and dealings between Equilibrium and Bluestone which enlivened the operation of s 553C(1) of the Act. 3 For the reasons that follow, the appeal fails. These reasons for judgment will first consider the facts and then address each of the grounds in turn.

FACTS 4 Equilibrium was incorporated on 30 June 1992. Mr Justin Brown is the sole director and shareholder of Equilibrium. Bluestone was incorporated on 18 November 1999. Mr Lance Hodgkinson is the sole director and is also a shareholder of Bluestone. 5 Mr Brown (through Equilibrium - then known as Abadeen Group Pty Limited) and Mr Hodgkinson (through Bluestone) were property developers. They were involved in a number of substantial property developments including what were known as the Oxford Street Development, the Chevron Development and the Cammeray Development: see Abadeen Group Pty Ltd v Bluestone Property Services Pty Ltd [2011] NSWSC 137 at [4]. 6 In late 2005, Mr Brown wanted to sell out of the Cammeray Development. There was a meeting held at the Lord Dudley Hotel in Paddington. Mr Brown, Mr Hodgkinson and a third man, Mr Daniel Hausman (who had an interest in the development), attended. Mr Brown wrote on a single sheet of paper what was proposed and each signed it. Mr Brown claimed the document gave rise to, or evidenced, an enforceable agreement. Some of the payments contemplated by the document (totalling $600,000) were made. Other aspects of the transactions recorded on the document were not implemented. Mr Brown commenced proceedings in the Supreme Court of New South Wales against Mr Hodgkinson, Mr Hausman and their companies to enforce the terms of the document. Bluestone served a cross-claim seeking to recover the $600,000. The trial judge concluded that there was no enforceable agreement and that Equilibrium was liable to repay the $600,000 to Bluestone as money had and received: Brown & Ors v Hodgkinson & Ors [2009] NSWSC 262 at [88]-[89]. Bluestone obtained judgment in the Supreme Court of New South Wales in April 2009 for $600,000 to which interest and costs have been added (the Judgment Debt). An appeal was dismissed by the Court of Appeal: Abadeen Group Pty Ltd v Bluestone Property Services Pty Ltd [2009] NSWCA 386. 7 Equilibrium has paid Bluestone approximately $294,000 in partial satisfaction of the Judgment Debt but it has not sought or obtained an order setting aside the balance of the Judgment Debt. Nor has it sought a stay of the judgment. 8 Bluestone served three statutory demands on Equilibrium. In each statutory demand, the debt was the amount of the Judgment Debt then outstanding. 9 The first statutory demand was served by Bluestone on Equilibrium (then known as Abadeen) on 23 September 2010. It claimed the whole of the Judgment Debt. Equilibrium's application to set it aside was dismissed by Ball J in February 2011: see Abadeen. His Honour found that the offsetting claims asserted by Equilibrium were not genuine claims which attracted the operation of s 495H of the Act. 10 In the course of those reasons for judgment, Ball J was required to consider three "offsetting claims" asserted by Equilibrium. The third claim considered by his Honour was "said to arise in relation to the Oxford Street Development": see Abadeen at [44]. In general terms, the claim concerned a Unit Sales Agreement dated 15 August 2006 between Sharlotte Pty Limited (Sharlotte) and Bluestone under which Sharlotte agreed to sell and Bluestone agreed to purchase Sharlotte's units in the 282 Oxford Street Unit Trust for $450,000. Sharlotte was another company entity owned by Mr Brown. The sum of $450,000 has not been paid but by a Deed of Assignment dated 1 October 2010, Sharlotte allegedly assigned to Equilibrium its right, title and interest in the debt due by Bluestone. The consideration for the assignment was expressed to be $1. 11 The relevant clauses of the Unit Sales Agreement included: 2 SALE AND TRANSFER OF UNITS 2.1 In consideration of the agreement by Bluestone to pay the sum of $450,000.00 contained in this deed, Sharlotte agrees to sell all its interest in the Sale Units in the Trust to Bluestone and to transfer to Bluestone those 50 units (free of Encumbrances and other third party rights and interests). 2.2 Bluestone shall pay the total consideration payable to Sharlotte in the following manner: 2.2.1 As to the sum of $400,000.00 by cheque or cheques drawn as directed by Sharlotte on 15 November 2006. 2.1.2 As to the sum of $50,000.00 by cheque or cheques drawn as directed by the Sellers on 31 March 2007. 2.1.3 If the sums referred to in 2.2.1 and 2.2.2 are not paid by their respective dates for payment, Bluestone shall pay interest on the sum which remains unpaid from the due date for payment until the date of payment of the sum at the rate of fifteen per centum (15%) per annum. 2.1.4 If the sums referred to in 2.2.1 and 2.2.2 together with any interest due are not paid within six (6) weeks of their respective due dates for payment, Sharlotte may by notice in writing to Bluestone terminate this Deed. … 3 TRANSFER FORMS 3.1 On the date of this Deed, Sharlotte shall deliver to Bluestone a duly executed transfer of Sale Units sold to Bluestone to be held in escrow by Bluestone until completion. 3.2 Sharlotte shall comply with the requirements of clause 12 of the Trust Deed in relation to the transfer of the Sale Units. … 6 BENEFICIAL INTEREST IN SALE UNITS 6.1 Sharlotte and Bluestone agree that the beneficial interest in the Sale Units shall be transferred to Bluestone as at the date of this deed. …. (Emphasis added.) "Completion" was defined in cl 1.2 to mean "in respect of the Sale Units, the transfer from Sharlotte to Bluestone of title to the Sale Units". Completion has not occurred. 12 The hearing before Ball J was held on 11 February 2011. On 17 February 2011, an administrator was appointed to Bluestone. 13 Ball J handed down his reasons for judgment on 23 February 2011. Ball J described the "offsetting claim" (at [27]-[30]) as follows: It appears that that development was owned by a company known as 282 Oxford Street Pty Limited which held the development as trustee of a unit trust. Fifty units in that unit trust were held by Bluestone and fifty units were held by Sharlotte. Mr Brown says that Sharlotte entered into an agreement to sell its units to Bluestone for $450,000 and that Sharlotte then assigned that debt to Abadeen and Mr Brown. A signed version of the unit sales agreement is exhibited to Mr Brown's affidavit. Clause 2.1 of that agreement provides: In consideration of the agreement by Bluestone to pay the sum of $450,000.00 contained in this deed, Sharlotte agrees to sell all its interest in the Sale Units in the Trust to Bluestone and to transfer to Bluestone those 50 units (free of Encumbrances and other third party rights and interests). Clause 2.2 sets out a payment schedule. The first payment of $400,000 was due on 15 November 2006. The balance was payable on 31 March 2007. Mr Brown exhibited to his affidavit a deed of assignment dated 1 October 2010 by which Sharlotte purported to assign to Mr Brown and Abadeen for the consideration of $1 "all of its right, title and interest in and pertaining to the Debt and all other rights and claims of the Assignor to the Debt". "Debt" is defined in cl 2.1 to mean: all moneys owed by the Debtor to the Assignor as referred to in the Loan Agreement and secured by the Securities. However, "Loan Agreement" and "Securities" are not defined, although the expression "Unit Sales Agreement" is defined to mean: the unit sales agreement dated 15 August 2006 between Bluestone Property Services Pty Limited, the Assignor and Lance Vincent Hodgkinson. The deed of assignment exhibited to Mr Brown's affidavit has only been signed by Mr Brown. His signature has not been witnessed. 14 Justice Ball then proceeded to consider that offsetting claim and concluded that the claim was not genuine for two reasons (at [45]-[46]): First, there is no evidence that Sharlotte has ever been in a position to transfer its units to Bluestone free of any encumbrances and other third party rights and interests, let alone that it has done so. What evidence there is suggests that Sharlotte has not transferred the units to Bluestone and has not been in a position to do so. Bluestone was due to pay the first instalment of the purchase price on 15 November 2006. Despite that, and despite the fact that companies associated with Mr Brown are facing financial difficulties, there is no evidence that Sharlotte has done anything to recover the amount due to it. Instead, it simply assigned its rights to Abadeen on 1 October 2010 for $1. In the absence of any other evidence, the inference is that Sharlotte did not seek to recover the money under the agreement because it had not and could not transfer its units to Bluestone. Secondly, there is no evidence of a valid assignment to Abadeen of Sharlotte's rights. In particular, the assignment relied on by Mr Brown is not signed by Sharlotte and there is no evidence that Sharlotte has signed that document. 15 Bluestone did not make an application to wind up Equilibrium notwithstanding Equilibrium's failure to satisfy the first statutory demand. On 23 March 2011, a notice of demand attaching a further Notice of Assignment in relation to the Unit Sales Agreement was sent to Bluestone. On 24 March 2011, Bluestone was placed into liquidation and Mr Ozem Kassem was appointed liquidator. 16 On 18 September 2012, Bluestone served a second statutory demand on Equilibrium. It claimed the whole of the Judgment Debt. Equilibrium applied in the Supreme Court of New South Wales to set it aside under s 459G of the Act. The matter came before Brereton J on 10 December 2012. In the course of argument about an adjournment of the application, his Honour indicated that Equilibrium could not seriously contend that its offsetting claim was greater than the amount of the demand. His Honour said that "on any view" of the offsetting claims asserted by Equilibrium, there was a "substantiated" debt due to Bluestone of at least $294,689.67: see In the Matter of First Equilibrium Pty Ltd [2012] NSWSC 1625 at [3]. Justice Brereton offered Bluestone an election of adjourning the hearing for some months for a final hearing on all issues or immediately varying the demand to the sum of $294,689.67 in accordance with s 459H of the Act. Justice Brereton indicated that if Bluestone elected to vary the demand this would not preclude it from arguing at a future time that there was no genuine dispute or offsetting claim in respect of the balance of the Judgment Debt, or from issuing a further statutory demand for the balance. Bluestone elected to vary the demand to the lower sum and, on 17 January 2013, Equilibrium paid Bluestone approximately $294,000 in payment of the varied statutory demand. 17 On 21 January 2013, Bluestone served a third statutory demand on Equilibrium for the balance of the Judgment Debt which then stood at approximately $588,000. Equilibrium applied in the Supreme Court of New South Wales to set the demand aside. On 14 March 2013, consent orders were made, without admissions, setting aside the third statutory demand. 18 Nearly two weeks later, on 27 March 2013, Bluestone filed its originating process in this Court making an application for a winding up order on the ground of Equilibrium's insolvency. That is, Bluestone sought to prove, as a question of fact, that Equilibrium was insolvent. Bluestone did not file expert evidence seeking to establish Equilibrium's insolvency. Instead, Bluestone relied upon three groups of matters. First, the "commercial realities" of the matter including, in particular, that the Judgment Debt has been outstanding for over four years and that Equilibrium has taken no steps to establish its asserted counter-claim, other than to put the claim forward in proceedings of an interlocutory nature where the only issue was as to the arguability of the asserted offsetting claim. Second, Bluestone asked for inferences to be drawn from the fact that the sole director of Equilibrium has sworn affidavits in this proceeding which do not disclose the existence of any assets available to meet the Judgment Debt other than the asserted counter-claim. Finally, Bluestone relied on inferences of insolvency to be drawn from a form of balance sheet belatedly introduced into evidence by Equilibrium. The balance sheet was unsigned but purported to describe the financial position of Equilibrium for the financial year ended 30 June 2011. 19 Against that background, we turn to consider each of the three issues raised on the appeal.

BLUESTONE HAS STANDING AS A CREDITOR? 20 Bluestone applied to the Court, as a creditor, for an order that Equilibrium be wound up in insolvency: s 459P(1)(b) of the Act. On appeal, Equilibrium submitted that the primary judge erred in finding that Bluestone was a creditor. Equilibrium's complaint was that the primary judge erred in finding that Equilibrium did not have a counter-claim equal to or exceeding the Judgment Debt and, therefore, erred in failing to find that the Judgment Debt was disputed on substantial grounds so as to defeat Bluestone's standing as a creditor. 21 Before turning to consider the "counter-claim" relied upon by Equilibrium, it is important to understand the context in which that "counter-claim" is to be considered. Mere assertion of a claim or counter-claim is not sufficient. The claim or counter-claim must raise a bona fide or genuine dispute on substantial grounds as to the whole of the judgment debt: Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) [2004] NSWSC 527 at [72] and CVC Investments Pty Ltd v P & T Aviation Pty Ltd (1989) 18 NSWLR 205 at 301-302. That enquiry is not inconsistent with the statutory question posed by s 459H of the Act which, in the context of statutory demands, defines an "offsetting claim" to mean "a genuine claim that the company [Equilibrium] has against the respondent [Bluestone] by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances …)": s 495H(5) of the Act. The applicable principles in relation to s 495H of the Act are instructive and may be summarised as follows: 1. The phrase "a genuine dispute" uses ordinary English words and its meaning in any particular set of circumstances must be a question of fact: Troutfarms Australia Pty Ltd v Perpetual Nominees Ltd [2013] VSCA 176 at [5]. 2. There must be some evidence to support the factual allegations that go to make up the claim: Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 at [18]. 3. It is insufficient for the facts to be asserted in the supporting affidavit or by annexing a copy of the statement of claim: Endeavour Film Management Pty Ltd v Fox Studios Australia Pty Ltd [2003] NSWSC 831 at [13]. 4. The relevant evidence does not need to be admissible at a final hearing on the merits of the case (Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 at 460) but the evidence needs to be sufficient to satisfy the Court that the claim has a proper factual basis: John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250 at 253. 5. For there to be a genuine dispute, there must be a "plausible contention requiring investigation". It raises the same sort of considerations as the "serious question to be tried" criterion applicable to interlocutory injunctions. At this stage, the Court is not called on to determine the merits of or to resolve the dispute: Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787. 6. The threshold is not high or demanding: Kirrak Pty Ltd v Compass Scaffolding & Plant Hire Pty Ltd [2007] NSWSC 1002 at [3]; Roadships Logistics Ltd v Tree (as trustee for the Tree Superannuation Fund) (2007) 64 ACSR 671 at [24]. However, the claim must have some merit and be genuine. That requirement has been described variously as the claim must be "real and not spurious", the claim must have a "real chance of success", there must be a serious question to be tried and, in some cases, it has been said that there is a requirement of good faith: see Abadeen at [33]. 7. A useful analogy to the burden on the party asserting the claim is that of an alleged debtor resisting an application for summary judgment. If the Court sees any factor that, on rational grounds, indicates an arguable case, it must find that a genuine dispute exists even where any case apparently available to be advanced to the contrary seems stronger: see Product People (International) Pty Ltd v Box Seat Company Pty Ltd (in liquidation) [2013] FCA 277 at [25]. 22 What then is the counter-claim relied upon by Equilibrium? The counter-claim was said to arise from Equilibrium's assertion that Bluestone was, and remains, in breach of its obligation to pay the instalments set out in cl 2.2 of the Unit Sales Agreement: see [11] above. Equilibrium submitted that the primary judge misconstrued the relevant provisions of the Unit Sales Agreement. In particular, Equilibrium submitted that the obligations to pay the consideration of $450,000 specified in the agreement were absolute and were not conditional on completion having occurred. 23 The terms of the Unit Sales Agreement and, in particular, cl 2.1 are important: see [11] above. As Equilibrium submitted, it is an agreement to sell and transfer the Sale Units. The consideration was Bluestone's agreement to pay $450,000. However, contrary to Equilibrium's submissions, Bluestone's obligation to pay the $450,000 was not an obligation at large. It was an obligation expressly predicated upon Sharlotte's agreement "to sell all its interest in the Sale Units in the [282 Oxford Street Unit] Trust to Bluestone and to transfer to Bluestone those 50 units (free of Encumbrances and other third party rights and interests)". Clause 6.1 provided that Sharlotte's beneficial interest in the Sale Units was to be transferred at the date of the agreement: see [11] above. Two further clauses should be noted. Although on the date of the Deed, Sharlotte was required to deliver a duly executed transfer of the Sale Units to Bluestone, that transfer was held in escrow (see cl 3.1) and Sharlotte was required to comply with the requirements of the Trust Deed in relation to the transfer of the Sale Units: see cl 3.2. Accordingly, although on its face, it appeared as though Equilibrium may have had a right to claim $450,000 under the Unit Sales Agreement the question which immediately arose before the primary judge, and on appeal, was whether Sharlotte had the ability to transfer the Sale Units in the Trust? 24 That question was and remains critical because of the requirement for the counter-claim to be a bona fide or genuine dispute on substantial grounds as to the whole of the judgment debt: see [21] above. 25 The primary judge concluded that Equilibrium did not have a genuine offsetting claim against Bluestone. Putting to one side the language adopted by the primary judge, we agree that Equilibrium has not established that it has a bona fide or genuine dispute on substantial grounds as to the balance of the Judgment Debt. It is not sufficient for Equilibrium to simply point to the Unit Sales Agreement and assert an absolute obligation by reference to cl 2 of the Unit Sales Agreement. At all relevant times, Equilibrium has borne the onus of satisfying the Court that its alleged "counter-claim" is a bona fide or genuine dispute on substantial grounds as to the balance of the Judgment Debt. How it discharged that onus was a matter for it. 26 Since no later than February 2011 when Ball J delivered judgment in Abadeen, Equilibrium has been on notice that it was required to do more than simply refer to the Unit Sales Agreement. Two judges in two separate proceedings, more than twelve months apart, have stated that the more could have included "evidence directed to the question of Sharlotte's ability to transfer the units in the … Trust to Bluestone free of encumbrance of other third party rights or interests". As Ball J said in Abadeen (at [45]): [T]here is no evidence that Sharlotte has ever been in a position to transfer its units to Bluestone free of any encumbrances and other third party rights and interests, let alone that it has done so. What evidence there is suggested that Sharlotte has not transferred the units to Bluestone and has not been in a position to do so. Bluestone was due to pay the first instalment of the purchase price on 15 November 2006. Despite that, and despite the fact that companies associated with Mr Brown are facing financial difficulties, there is no evidence that Sharlotte has done anything to recover the amount due to it. Instead, it has simply assigned its rights to [Equilibrium] on 1 October 2010 for $1. In the absence of other evidence, the inference is that Sharlotte did not seek to recover the money under the agreement because it had not and could not transfer the units to Bluestone. (Emphasis added.) 27 Equilibrium failed to adduce any evidence to demonstrate that its counter-claim was a bona fide or genuine dispute on substantial grounds as to the balance of the Judgment Debt. The material Equilibrium adduced in support of its asserted counter-claim raises more questions than it answers. Why has completion not taken place? Why is there no evidence of steps taken by Sharlotte to seek to enforce the terms before Bluestone was subject to external administration? Why has Equilibrium failed to adduce evidence that Sharlotte is ready, willing and able to complete the transfer of the Sale Units? No answers, let alone satisfactory answers, to any of those questions have been provided by Equilibrium. 28 Put simply, as Bluestone submitted, there was no evidence that Equilibrium had ever procured compliance with the Trust Deed for the transfer of the Sale Units and completion of the assurance of unencumbered title to Bluestone. And that evidence was necessary. It was necessary because Equilibrium could not recover the amounts allegedly owed under the Unit Sales Agreement without first establishing that its assignor (Sharlotte) had in fact conveyed clear title to the Sale Units. 29 Finally, reference should be made to the Deed of Assignment dated 1 October 2010 between Mr Brown, Equilibrium and Sharlotte. A copy of the Deed, signed by Mr Brown, was in evidence. Equilibrium submitted that the primary judge's finding that there was no evidence that Sharlotte had signed the purported assignment was an error because - (1) the primary judge failed to have regard to the fact that Mr Brown was at all relevant times the sole director of both Equilibrium and Sharlotte; (2) Mr Brown had provided sworn unchallenged evidence to the primary judge that the Deed was executed on 1 October 2010 by all parties including Sharlotte; and (3) the primary judge failed to have regard to the acknowledgments contained in a Deed of Confirmation dated 13 August 2013. Although we accept that the primary judge's finding that there was no evidence that Sharlotte had signed the purported assignment executed on 1 October 2010 was an error, that error does not overcome the critical gaps earlier identified (see [27] above) and the following additional matters. 30 There was evidence of express written notice of the assignment having been given to Bluestone in accordance with s 12 of the Conveyancing Act 1919 (NSW) and cl 6.1 of the Deed. However, there is no evidence before the Court that the remaining terms of the Deed are capable of being satisfied and further or alternatively, have been satisfied. It is only possible to assign that which is in existence and which you have: see, for example, Mac-Jordan Construction Ltd v Brookmount Erostin Ltd (in receivership) [1992] BCLC 350. As with the Unit Sales Agreement, mere reference to the Deed of Assignment is not sufficient: see [26] above. 31 In all the circumstances, the primary judge was correct to conclude that Equilibrium does not have a bona fide or genuine dispute on substantial grounds as to the balance of the Judgment Debt. Equilibrium has failed to discharge the onus it bore. Bluestone was a creditor with standing to bring the application under s 459P(1)(b) of the Act.

INSOLVENCY? 32 Bluestone bore the onus of establishing that Equilibrium was insolvent on each of the Relevant Dates. The primary judge posed the correct question - whether Bluestone had adduced evidence which established that Equilibrium was unable to pay its debts as and when they fell due (see s 95A of the Act)? 33 The primary judge correctly stated the applicable principles, namely that "the question of whether a company is solvent is a question of fact to be ascertained from a consideration of the company's financial position taken as a whole": see Bluestone Property Services Pty Ltd (in liq) v First Equilibrium Pty Ltd [2013] FCA 876 at [42], citing Australian Securities and Investments Commission v Plymin (2003) 46 ACSR 126 at [368]-[380] and Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 53 NSWLR 213 at [54]. 34 The principles summarised by Palmer J in Southern Cross Interiors (at [54]) repay restating, namely: (i) whether or not a company is insolvent for the purposes of the [Act], 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 [C]ourt acts upon the basis that a contract debt is payable at the time stipulated for payment in the contract unless there is evidence, proving to the Court's satisfaction, that: • there has been an express or implied agreement between the company and the creditor for an extension of the time stipulated for payment; or • there is a course of conduct between the company and the creditor sufficient to give rise to an estoppel preventing the creditor from relying upon the stipulated time for payment; or • there has been a well established and recognised course of conduct in the industry in which the company operates, or as between the company and its creditors as a body, whereby debts are payable at a time other than that stipulated in the creditors' terms of trade or are payable only on demand: … (vi) it is for the party asserting that a company's contract debts are not payable at the times contractually stipulated to make good that assertion by satisfactory evidence: …. (Citations omitted.) 35 Applying these principles, the primary judge found that Equilibrium was insolvent on each of the Relevant Dates. Equilibrium submitted that none of the matters relied upon by the primary judge justified that finding. We disagree. 36 What then was Equilibrium's financial position taken as a whole? 37 First, the Judgment Debt. As the primary judge stated, the "inescapable fact is that Equilibrium has failed to pay a Judgment Debt obtained by Bluestone [for] more than four years". Unsurprisingly, Equilibrium did not assert that the Judgement Debt was not due and payable. It was due and payable on each of the Relevant Dates. 38 Equilibrium's answer to the Judgment Debt was the counter-claim. However, the assertion that it had a "counter-claim", on at least two previous occasions, has been found to be not genuine and in circumstances where Equilibrium has taken no step to seek to remedy that situation by establishing, for example, that Sharlotte is ready, willing and able to complete the Unit Sales Agreement: see [27] above. The continued failure of Equilibrium to remedy that situation is telling. The fact that Bluestone has been subject to external administration since 17 February 2011 does not detract from those facts. Equilibrium has not litigated its claim. Equilibrium has not sought leave to commence proceedings against Bluestone and did not lead any evidence of any intention to do so. 39 Second, the Court cannot disregard the evidence adduced by Equilibrium. Equilibrium elected to adduce evidence directed to the question of its solvency in the form of a Financial Report for the year ended 30 June 2011. That was its choice: cf Re Kolback Group Ltd (1991) 4 ACSR 165 at 176. Having made that choice, it cannot complain when the Court identifies fundamental deficiencies in that evidence. And the Financial Report adduced by Equilibrium was deficient. It was unsigned. It was stale (being the Financial Report for the year ended 30 June 2011). The Balance Sheet included in the Financial Report incorrectly classified the Judgment Debt as a contingent liability and included as an asset the counter-claim that has been determined not to be a genuine or bona fide counter-claim. If the Balance Sheet was corrected to rectify those two errors, there was a deficiency of assets over liabilities of in excess of at least $600,000. Thus, Equilibrium was insolvent as at 30 June 2011. Equilibrium did not adduce any later evidence. In addition, although Mr Brown, the sole director of Equilibrium, provided sworn affidavit evidence, none of that evidence was directed to the question of solvency of the company. In those circumstances, the Court is entitled to draw the inference that Mr Brown's evidence (as well as the later financial reports) would not have assisted Equilibrium: Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418. 40 Therefore, taking Equilibrium's financial position as a whole including the commercial realities and the evidence adduced to the Court, the primary judge was correct to conclude that Equilibrium was insolvent on each of the Relevant Dates.

SECTION 553C(1) 41 Section 553C of the Act provides: (1) Subject to subsection (2), where there have been mutual credits, mutual debts or other mutual dealings between an insolvent company that is being wound up and a person who wants to have a debt or claim admitted against the company: (a) an account is to be taken of what is due from the one party to the other in respect of those mutual dealings; and (b) the sum due from the one party is to be set off against any sum due from the other party; and (c) only the balance of the account is admissible to proof against the company, or is payable to the company, as the case may be. (2) A person is not entitled under this section to claim the benefit of a set-off if, at the time of giving credit to the company, or at the time of receiving credit from the company, the person had notice of the fact that the company was insolvent. (Emphasis added.) 42 The primary judge found that there were no mutual credits or mutual dealings and that the issue of set-off under s 553C(1) did not arise. Equilibrium submitted that the primary judge erred in that finding. We disagree. 43 First, the text of s 553C(1). It applies when a person wants to have a debt or claim admitted against an insolvent company that is being wound up. That is not the subject of the present appeal: see further Gye v McIntyre (1991) 171 CLR 609 at 618-619. That is a complete answer to the contentions of Equilibrium. 44 Secondly, and in any event, for the reasons already given the offsetting claim is not a genuine claim that could be taken into account in considering dealings between those parties.

CONCLUSION 45 For those reasons, paragraph 1 of the Orders made in NSD 542 of 2013 on 6 September 2013 will be set aside, the appeal will be dismissed and the appellant will be ordered to pay the respondent's costs of the appeal, to be taxed in default of agreement and to be paid out of the assets of the appellant. I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Gordon, Griffiths and Farrell.