First Plaintiff v Second Defendant

1 Rococo Group Pty Ltd (In Liquidation) ('the Company') was incorporated on 5 December 2017 and conducted a consulting business, including in respect of information technology support and maintenance. Between 1 August 2019 and 16 August 2019 ('the relevant period'), its director, Mr David Walls, made 21 cash withdrawals from the Company's bank account totalling $100,000 ('the cash withdrawals'). Not long after, on 13 November 2019, the Company was wound up by this Court on application by Belectric Australia Pty Ltd ('Belectric') as a judgment creditor and Mr Ben te Wierik was appointed as the Company's liquidator ('the liquidator'). By originating process filed on 15 June 2020, the liquidator and the Company (together, 'the plaintiffs') sought, among other things, declarations and orders that the cash withdrawals constituted uncommercial transactions within the meaning of s 588FB of the Corporations Act 2001 (Cth) ('the Corporations Act'), insolvent transactions for the purpose of s 588FC, unreasonable director-related transactions pursuant to s 588FDA, and were made by Mr Walls in breach of his statutory duties as director. An order is sought pursuant to s 588FF(1)(a) of the Corporations Act for Mr Walls to pay to the Company an amount equal to the value of the cash withdrawals. Mr Walls has sought to defend these claims on the basis that the cash withdrawals were for legitimate business expenses and reasonable director drawings, and that the Company was solvent at the time the cash withdrawals were made.

2 The proceedings were initially more extensive in their scope. The liquidator had also brought claims against Mr Walls and another defendant, Loft Developments (Vic) Pty Ltd ('Loft'), concerning Loft's receipt of funds from the Company which were applied towards the purchase of a property in Edithvale, Victoria. The defences raised in respect of these additional claims were factually complex. Various procedural orders have been made, including for the filing of pleadings, the referral of the matter to mediation, the filing of affidavit material and for the discovery of specific documents concerning the transactions the subject of the proceedings.[1]

3 Although Mr Walls was initially legally represented in the proceedings, on 9 September 2020 his lawyers filed a notice of ceasing to act. He has been unrepresented since that time.

4 The matter was set down for trial and fixed for hearing on 16 June 2021 on an estimate of three days. Shortly prior to the trial, the plaintiffs settled their claims against Loft. As a consequence, the plaintiffs no longer sought relief against Mr Walls at trial in relation to the payments made by the Company to Loft.[2] In making closing submissions at trial, the plaintiffs' counsel also confirmed that the plaintiffs did not press the claims made against Mr Walls for breach of directors' duties. Accordingly, it is unnecessary for me to consider these aspects of the case any further.

5 However, the plaintiffs maintained their uncommercial transaction and director‑related transaction claims against Mr Walls in relation to the cash withdrawals (although, strictly speaking, it is the liquidator who applies for relief under s 588FF of the Corporations Act on the basis that the relevant transactions are voidable). To that end, the plaintiffs filed new evidence just prior to the trial and outside the timeframe for affidavit material. The new evidence was primarily directed to the question of whether the Company was insolvent at the time the cash withdrawals were made. It also dealt with aspects of Mr Walls' defence concerning the legitimacy of the cash withdrawals. Around the same time, Mr Walls filed and served submissions which were also in the nature of new evidence. The introduction of this new material by the parties at such a late stage of the proceeding jeopardised the ability of the trial to proceed as scheduled.

6 To overcome this difficulty, I proposed to the parties a process whereby Mr Walls would be provided with an opportunity to verify the contents of his submissions under oath in order to rely on those matters as evidence. I also suggested that he be provided some time to review, and then give oral evidence in response to, the new evidence introduced by the plaintiffs. I considered that such an approach was consistent with the overarching purpose in the Civil Procedure Act 2010 (Vic) to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute in the case. The parties agreed with this proposed course of action and the trial proceeded on that basis.

7 Given Mr Walls' status as a self-represented litigant throughout the proceeding and at trial, it is appropriate to briefly explain the Court's approach when a party is not represented by a lawyer. In Daher v Bell,[3] Derham AsJ set out the following governing principles, which I adopt:

It is the duty of the Court in relation to represented and unrepresented litigants alike to ensure that a hearing or trial is conducted fairly and in accordance with law. Procedural fairness is 'an essential attribute of a court's procedure'. What a judge must do to assist a litigant in person depends on the litigant, the nature of the case, and the litigant's intelligence and understanding of the case. The judge cannot be the advocate of the self-represented litigant, for the role of the judge is fundamentally different to that of an advocate. The judge must maintain the reality and appearance of judicial neutrality at all times and to all parties. The assistance must be proportionate in the circumstances - it must ensure a fair trial and not afford an advantage to the self-represented litigant.

In the decision of the Court of Appeal in Roberts v Harkness [(2018) 57 VR 334 ('Roberts')], which was applied in Doughty-Cowell v Kyriazis [[2018] VSCA 216 [63]-[64]], the Court made it clear that a litigant must have a reasonable opportunity of presenting his case. What amounts to a reasonable opportunity of presenting a case depends on the circumstances of the case, including the nature of the decision to be made, the nature and complexity of the issues in dispute, the nature and complexity of the submissions which the party wishes to advance, the significance to that party of an adverse decision ('what is at stake') and the competing demands on the time and resources of the court or tribunal [Roberts [2018] VSCA 215; (2018) 57 VR 334, 337-55 [8]-[49]].[4]

8 I have endeavoured to apply these principles in this case. At the trial, I sought to ensure that Mr Walls understood the elements of the statutory provisions relied upon by the liquidator and the case he had to meet. As already noted, I afforded Mr Walls an opportunity to verify the contents of his submissions which contained new evidence. Mr Walls made oral submissions at the trial and articulately addressed the legal and factual issues in the case.

9 Following the trial on 16 June 2021, and during the course of preparing these reasons, I identified certain matters which were not fully addressed at trial but which were critical to assessing the solvency of the Company during the relevant period. In particular, a question arose as to whether tax liabilities of the Company were due and payable at the time each of the cash withdrawals took place. My chambers sent an email to the parties on 11 November 2021 outlining the matters in respect of which I required supplementary submissions. On 16 November 2021, I made orders requiring the plaintiffs to file and serve their supplementary submissions by 2 December 2021 and for Mr Walls to file and serve any supplementary submissions in reply by 23 December 2021. The date for Mr Walls to finalise his submissions was subsequently extended to 31 January 2022 to allow him time to seek legal assistance in relation to their preparation. Additional time was then sought by Mr Walls and orders were made further extending the time for him to file and serve his supplementary submissions to 8 March 2022. His supplementary submissions were filed and served on that day.

10 In support of their claims, the plaintiffs principally rely upon the statement of claim dated 31 July 2020, the affidavits of Ben te Wierik sworn on 15 June 2020, 9 April 2021 and 11 June 2021, and their accompanying exhibits ('the first te Wierik affidavit', 'the second te Wierik affidavit' and 'the third te Wierik affidavit', respectively), together with written submissions dated 1 June 2021 and supplementary submissions dated 3 December 2021.

11 In opposition to the plaintiffs' claims, Mr Walls relies upon his defence dated 30 September 2020, his unsworn affidavits dated 29 October 2020, 19 November 2020 and 1 December 2020 ('the first Walls affidavit', 'the second Walls affidavit' and 'the third Walls affidavit', respectively), together with his written submissions filed on 6 June 2021 (the contents of which were verified by Mr Walls under oath) and his supplementary submissions dated 8 March 2022.

12 Turning to the legislative provisions that are relied upon in this case, s 588FB(1) of the Corporations Act relevantly states:

A transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to:

(a) the benefits (if any) to the company of entering into the transaction; and

(b) the detriment to the company of entering into the transaction; and

(c) the respective benefits to other parties to the transaction of entering into it; and

13 The term 'transaction' is afforded a broad, non-exhaustive, definition in s 9 of the Corporations Act, so as to include a conveyance, transfer, security interest, payment, loan, or obligation which is incurred, given, made or received by a company.

14 Section 588FC of the Corporations Act essentially provides that a transaction is an insolvent transaction if it is an uncommercial transaction or an unfair preference (the latter not being relevant to this case) and: (a) it was entered into, or an act was done or an omission made for the purpose of giving effect to the transaction, at a time when the company was insolvent; or (b) if it became insolvent as a consequence of entering into the transaction, or a person doing an act or making an omission. An uncommercial transaction of a company which is also an insolvent transaction may be voidable for the purpose of s 588FE(3) of the legislation (see further below).

15 Section 588E of the Corporations Act sets out a number of statutory presumptions of insolvency arising in 'recovery proceedings', a term defined in s 588E(1) to include applications brought under s 588FF by a company's liquidator in respect of a voidable transaction, such as an uncommercial transaction claim.

16 Section 588E(3) creates the following presumption of insolvency:

(a) the company is being wound up; and

(b) it is proved, or because of subsection (4) or (8) it must be presumed, that the company was insolvent at a particular time during the 12 months ending on the relation-back day;

it must be presumed that the company was insolvent throughout the period beginning at that time and ending on that day.

17 Section 588E(4)(a) states:

(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);

...

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

18 Section 286(1) of the Corporations Act is in these terms:

(1) A company, registered scheme or disclosing entity 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.

The obligation to keep financial records of transactions extends to transactions undertaken as trustee.

19 Section 9, in turn, defines 'financial records' to include the following:

(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.

20 Section 588E(5) of the Corporations Act provides that the presumption in s 588E(4)(a) does not apply in relation to a contravention of s 286(1) that is only minor or technical in nature. Section 588E(6) is directed to situations where the contravention was due solely to someone destroying, concealing or removing financial records, and where the person was not in any way, by act or omission, directly or indirectly or knowingly or recklessly, concerned in, or party to, destroying, concealing or removing those financial records.

21 Section 588E(3) of the Corporations Act relevantly provides that where a company is being wound up and it is proved, or because of s 588E(4) must be presumed, that the company was insolvent at a particular time during the 12 months ending on the relation-back day, then it must be presumed that the company was insolvent throughout the period beginning at that time and ending on that day.

22 Section 588E(9) makes clear that the statutory presumptions of insolvency created by s 588E are rebuttable. In other words, it operates unless the contrary is proved.

23 Unreasonable director-related transactions are dealt with in s 588FDA of the Corporations Act. The section relevantly provides:

(1) A transaction of a company is an unreasonable director-related transaction of the company if, and only if:

(i) a payment made by the company; or

(ii) a conveyance, transfer or other disposition by the company of property of the company

... and

(b) the payment, disposition ... is, or is to be, made to:

(i) a director of the company; or

(ii) a close associate of a director of the company; or

(iii) a person on behalf of, or for the benefit of, a person mentioned in subparagraph (i) or (ii); and

(c) it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to:

(i) the benefits (if any) to the company of entering into the transaction; and

(ii) the detriment to the company of entering into the transaction; and

(iii) the respective benefits to other parties to the transaction of entering into it; and

(iv) any other relevant matter.

24 Unlike an uncommercial transaction under s 588FB of the Corporations Act, it is not necessary for an unreasonable director-related transaction to also be an insolvent transaction under s 588FC in order to be voidable pursuant to s 588FE.

25 A transaction is voidable in the following relevant circumstances identified in s 588FE:

(3) ...

(a) it is an insolvent transaction, and also an uncommercial transaction, of the company; and

(b) it was entered into, or an act was done for the purpose of giving effect to it, during the 2 years ending on the relation-back day.

(4) ...

(a) it is an insolvent transaction of the company; and

(b) a related entity of the company is a party to it; and

(c) it was entered into, or an act was done for the purpose of giving effect to it, during the 4 years ending on the relation-back day.

...

(6A) ...

(a) it is an unreasonable director-related transaction of the company; and

(b) it was entered into, or an act was done for the purposes of giving effect to it:

(i) during the 4 years ending on the relation-back day; or

(ii) after that day but on or before the day when the winding up began.

26 The term 'related entity' is given broad definition by s 9 of the legislation to include certain persons and entities regarded as being related to a company, such as a promoter, director or member, relative of a director or member, a related corporation and a director of a related corporation.

27 Where, on the application of a company's liquidator, a court is satisfied that a transaction of the company is voidable because of s 588FE of the Corporations Act, the court may make one or more of the orders specified in s 588FF(1). Those orders include an order directing a person to pay to the company an amount of money; an order directing a person to transfer company property to the company; and an order declaring agreements constituting, forming part of, or relating to, a voidable transaction to be void or unenforceable. However, it is clear that s 588FF(1) affords a court with sufficient flexibility to tailor relief to the circumstances of the case. Section 588FF(2) also provides that nothing in s 588FF(1) of the legislation limits the generality of anything else in it.

28 The right to apply for an order under s 588FF(1) of the Corporations Act is a statutory right conferred on a liquidator (as opposed to a proprietary right of the company itself) and the liquidator holds any funds recovered for the benefit of the company's creditors and contributories.[5]

29 An application for an order under s 588FF(1) can only be made by a liquidator within a specific time period which commences at a specific time prior to the appointment of the liquidator. In this regard, s 588FF(3) states:

(3) An application under subsection (1) may only be made:

(a) during the period beginning on the relation-back day and ending:

(i) 3 years after the relation-back day; or

(ii) 12 months after the first appointment of a liquidator in relation to the winding up of the company;

whichever is the later; or

(b) within such longer period as the Court orders on an application under this paragraph made by the liquidator during the paragraph (a) period.

30 Lastly, and for the sake of completeness, I note that a statutory defence to a voidable transaction claim can be found in s 588FG(2) of the Corporations Act where a transaction is entered into for valuable consideration in good faith without grounds for suspecting insolvency. The provision provides:

(2) A court is not to make under section 588FF an order materially prejudicing a right or interest of a person if the transaction is not an unfair loan to the company, or an unreasonable director-related transaction of the company, and it is proved that:

(a) the person became a party to the transaction in good faith; and

(b) at the time when the person became such a party:

(i) the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in paragraph 588FC(b); and

(ii) a reasonable person in the person's circumstances would have had no such grounds for so suspecting; and

(c) the person has provided valuable consideration under the transaction or has changed his, her or its position in reliance on the transaction.

31 As is apparent, the defence specifically does not apply in relation to unreasonable director-related transaction claims. Section 588FG(2) is also a highly technical and onerous provision requiring proof by a defendant of a number of cumulative elements. However, the provision has not been relied upon by Mr Walls in opposition to the uncommercial transaction claim. Instead, Mr Walls has specifically sought to defend the uncommercial transaction claim on the basis that the cash withdrawals did not have an uncommercial character and because the Company was solvent during the relevant period. Further, on a generous reading of Mr Walls' defence and material in opposition to the claim, the elements of s 588FG(2) are not readily identifiable. It is therefore unnecessary to consider the operation of s 588FG(2) any further.

32 As previously noted, the Company was placed into liquidation by order of the Court on 13 November 2019 following the filing of an application to wind up the Company in insolvency by Belectric on 14 October 2019. Pursuant to ss 9 and 91 of the Corporations Act, the relation-back day in relation to the winding up of the Company for the purpose of Division 2 of Part 5.7B of the Corporations Act is 14 October 2019 ('the relation-back day'). The relation-back day marks the last date of the applicable period in which certain transactions may be challenged by a liquidator.

33 The period in which a transaction may be impugned as an uncommercial transaction is two years ending on the relation-back day, or four years ending on the relation-back day where the transaction occurs with a related entity.[6] A liquidator may also challenge an unreasonable director-related transaction entered into during the period of four years ending on the relation-back day.[7]

34 It is not in dispute that the cash withdrawals occurred within two years of the relation‑back day. Nor is it contentious that the liquidator has commenced these proceedings within the time permitted by s 588FF(3) of the Corporations Act.

35 In considering the application of the relevant statutory provisions to the facts of this case, it is convenient to first deal with the uncommercial transaction claim brought against Mr Walls in relation to the cash withdrawals.

36 The relevant principles relating to uncommercial transactions were summarised by Gordon J (as her Honour then was) in the Full Court of the Federal Court decision of Capital Finance Australia Ltd v Tolcher[8] as follows:

...

(1) as the express words of s 588FB make clear, it is an objective standard to determine if a transaction is uncommercial: see also Lewis (as liquidator of Doran Constructions Pty Ltd (in liq)) v Doran [2005] NSWCA 243; (2005) 219 ALR 555 at [156] and Tosich Construction Pty Ltd (in liq) v Tosich [1997] FCA 979; (1997) 78 FCR 363 at 366-367;

(2) four criteria are to be considered - the benefits enjoyed by the company (s 588FB(1)(a)), the detriment to the company (s 588FB(1)(b)), the respective benefits others received (s 588FB(1)(c)) and any other relevant matters (s 588FB(1)(d));

(3) the objective criteria are not considered in some vacuum but by reference to "the company's circumstances" which must include the state of knowledge of those who were the directing mind of the company, such as its controlling director or directors: Tosich Construction ... at 367; and

(4) for a transaction to be 'uncommercial' it must result in 'the recipient receiving a gift or obtaining a bargain of such magnitude that it [cannot] be explained by normal commercial practice' or where 'the consideration ... lacks a "commercial quality"': see Peter Pan Management Pty Ltd (in liq) v Capital Finance Corporation (Australia) Pty Ltd [2001] NSWCA 15; (2001) 19 ACLC 1,392 at [43]; Lewis v Cook [2000] NSWSC 191; (2000) 18 ACLC 490 at [45]-[46] and Demondrille Nominees Pty Ltd v Shirlaw [1997] FCA 1220; (1997) 25 ACSR 535 at 548 and the Explanatory Memorandum, Corporate Law Reform Bill 1992 (Cth) at [1044].

37 In addition to the above matters, the following further principles are also relevant:

(a) the 'value' of a transaction will often be an important consideration in assessing whether it is 'uncommercial' for the purposes of the provision, although it will not always prove decisive.[9] Rather, the court must consider all benefits and detriments which bear upon a party's decision to enter into a transaction, including those that cannot be measured in monetary terms;[10]

(b) in determining whether a transaction is for the benefit or detriment of a company, the interests of the company's unsecured creditors are necessarily relevant;[11]

(c) in comparing the value given by the company against the value received, the court does not require exact equivalence but only a fair equivalence;[12]

(d) a transaction which involves family members or related entities will attract a greater level of scrutiny by the court;[13] and

(e) in assessing whether a reasonable person in the company's circumstances would not have entered into the transaction, it is not necessary for a liquidator to demonstrate that the transaction was so unreasonable that no reasonable person would enter into it.[14] Normal commercial practice will be a relevant consideration.[15]

38 As a rule, the liquidator bears the onus of proof under s 588FB of the Corporations Act.[16] However, as Rees J recently observed Re Western Port Holdings Pty Ltd (recs and mgrs apptd) (in liq):[17]

[41] ... Although the onus of proof is on the liquidator, it will commonly be the case that proof is not a straightforward exercise. The directors of the company may be unwilling to give evidence in support of the liquidator's claim. The books and records of the company may be sub-standard or incomplete. Transactions may have been entered into at a time of financial distress when proper documentation was overlooked. The company may have been poorly managed such that transactions were ill-considered or unconventional.

[42] These difficulties do not shift the onus of proof. But, where there is a paucity of evidence, the Court may draw inferences in order to determine whether the transaction falls within s 588FA(1)(b). As Gleeson J explained in BCI Finances Pty Ltd (In Liq) v Binetter (in his capacity as the legal personal representative of the late Binetter) (No 4) (2016) 348 ALR 227; 117 ACSR 18; [2016] FCA 1351 at [125]:

All evidence 'is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted': Coshott v Prentice (in his capacity as trustee of the property of Coshott, a bankrupt) (2014) 221 FCR 450; 311 ALR 428; 100 ACSR 418; [2014] FCAFC 88 at [80], quoting Blatch v Archer [1774] EngR 2; (1774) 1 Cowp 63 at 65; [1774] EngR 2; 98 ER 969 at 970. This maxim also bears upon the appropriateness of deciding whether a fact has been proved when only limited evidence is available. In Ho v Powell (2001) 51 NSWLR 572; [2001] NSWCA 168 at [14], [15], Hodgson JA (with whom Beazley JA agreed) said:

[I]n deciding facts according to the civil standard of proof, the court is dealing with two questions: not just what are the probabilities on the limited material which the court has, but also whether that limited material is an appropriate basis on which to reach a reasonable decision ...

In considering the second question, it is important to have regard to the ability of parties, particularly parties bearing the onus of proof, to lead evidence on a particular matter, and the extent to which they have in fact done so ...

Gleeson J's judgment was relevantly affirmed on appeal in BCI Finances Pty Ltd (in liq) v Binetter (2018) 362 ALR 597; 132 ACSR 1; [2018] FCAFC 189.

39 In Universal Financial Group v Mortgage Elimination Services,[18] particular transactions were deemed to be uncommercial on the basis of inference. Justice Austin found on the available evidence that the primary purpose of certain directions for payment was to deprive the company of its assets at a time it faced litigation.[19] On the basis of that inference, his Honour concluded that the payment directions lacked any 'proper commercial justification' and that 'no adequate rationale' had been advanced to explain them.[20]

General position of parties on uncommercial transaction claim

40 It is the plaintiffs' case that the cash withdrawals are uncommercial transactions within the meaning of s 588FB of the Corporations Act because a reasonable company in the position of the Company would not have entered into them.

41 In his defence, Mr Walls accepts that each of the cash withdrawals constitutes a transaction for the purpose of s 9 of the Corporations Act but contends that the cash withdrawals comprised 'a combination of business expenses such as legal fees and tender support as well as director drawings'. He alleges that the 'business expenses were incurred in the normal operation of the business, such as tender support, in an effort to win business which would benefit the Company'. He further submits that a reasonable person in the Company's circumstances would have entered into the same transactions because of the resulting benefit obtained by the Company. In support of these contentions, Mr Walls has produced a number of tax invoices and other documents as part of the discovery process. In the first Walls affidavit, Mr Walls also sought to correlate particular cash withdrawals to certain expenses. Further explanation and context for the cash withdrawals was given by Mr Walls in his written submissions, which were verified under oath.

42 The plaintiffs submit there is no evidence before the Court that the cash withdrawals were applied in satisfaction of any of the invoices produced by Mr Walls. They maintain that in the event there is a connection between the cash withdrawals and certain expenses identified by Mr Walls, it is unclear how the services provided were of benefit to the Company.

43 In their written submissions, the plaintiffs produced the following table which itemises each of the cash withdrawals and includes reference to the relevant information and documents provided by Mr Walls in relation to those transactions:

Transaction Description in Company's Bank account

ATM WITHDRAWAL - 01AUG 10:42 IVANHOE BRANCH IVANHOE

ATM WITHDRAWAL - WBC 02AUG 19:36 CBA ATM KEW VIC314201

ATM WITHDRAWAL - 06AUG 13:13 GLENFERRIE BRANCH #2 HAWTHORN

ATM WITHDRAWAL - WBC 08AUG 11:43 CBA ATM BOX HILL C VIC310904

ATM WITHDRAWAL - 15AUG 11:40 GLENFERRIE BRANCH #2 HAWTHORN

44 I turn then to the characterisation of the cash withdrawals as identified in the plaintiffs' summary table.

45 The first two items can be dealt with together. Item 1 concerns a cash withdrawal from the Company's bank account on 1 August 2019 for the sum of $1,000. Mr Walls has given evidence that this transaction related to the acquisition of a multifunction printer and replacement toner for use in the Company's business. He has produced an invoice generated by Harvey Norman showing the acquisition of those products for the amount of $986 on 1 August 2019. Item 2 relates to a cash withdrawal of $2,000 on 2 August 2019 for which Mr Walls has produced a tax invoice dated 2 August 2019 from Treasure Online Pty Ltd in respect of the purchase of an Asus laptop in the sum of $2,200. Having regard to the dates of the relevant invoices, there is a prima facie correlation between each of the first two cash withdrawals and the specific expenditure identified by Mr Walls.

46 However, I accept the plaintiffs' submission that the acquisition of the printer and laptop are unlikely to be business expenses because Mr Walls did not treat the hardware as assets of the Company. In his statutory report to creditors dated 12 February 2020, the liquidator explains that although he had not yet received a Report on Company Activities and Property ('ROCAP') from Mr Walls, he noted that in his initial conversation with Mr Walls he was advised that the Company did not have any assets. The ROCAP was ultimately provided by Mr Walls on 12 June 2020 but signed by him on 27 April 2020. At the time he signed the document, he declared that the Company did not own any plant and equipment or other assets. In an accompanying questionnaire also signed by Mr Walls on 27 April 2020, he stated that he did not have any property of the Company.

47 Neither the printer nor the laptop were delivered to the liquidator. Mr Walls gave evidence that he could not deliver up the laptop because it had experienced an unrecoverable hard drive failure in April 2020 and was disposed of in late August 2020. Whilst this may be true, it does not explain why he did not provide the laptop to the liquidator prior to April 2020. As regards the printer, Mr Walls says he never received a request from the liquidator to provide it. That is unsurprising given Mr Walls had not previously disclosed its existence to the liquidator.

48 In the circumstances, I conclude that the Company did not receive any benefit from the cash withdrawals on 1 August and 2 August 2019. Whilst these cash withdrawals have likely been applied towards the purchase of the laptop and printer, those items were ostensibly not treated as assets of the Company. Rather, they appeared to have been treated as personal assets of Mr Walls and retained by him after the Company's liquidation. Accordingly, Mr Walls received the benefit of these particular cash withdrawals which were made to the detriment of the Company. A reasonable person in the Company's circumstances would not have entered into these two transactions.

49 There are seven cash withdrawals for $2,000 each ($14,000 in total) which Mr Walls has variously identified in his defence and written submissions as 'director drawings' and in the first Walls affidavit as 'owners drawing[s]'. They occurred on 3, 8, 12, 13, 14, 15 and 16 August 2019 and are located at items 3, 8, 12, 14, 15, 18 and 20 of the plaintiffs' summary table. Mr Walls submits that he received minimal compensation for his work for the Company. He says that for an entire year of work, drawings of $14,000 are not unreasonable in the circumstances.

50 Mr Walls also gave evidence on this issue at trial. He said that he did not regularly take drawings from the Company but only did so when he had personal bills to pay.[21] He said that whilst he had taken drawings from the Company at various points of time they were 'significantly highlighted' during the relevant period. He stated that he made the withdrawals in cash as he preferred that form of currency.

51 Given Mr Walls is the director of the Company, and therefore a related entity of the Company,[22] it is necessary to consider these particular transactions with an appropriate degree of scrutiny. Whilst Mr Walls accepts he received a benefit in respect of these drawings, the relative benefit received by the Company is less apparent. That is because there is no evidence of how much work was performed by Mr Walls for the Company on account of these drawings. Nor is there evidence of the total extent of Mr Walls' historical drawings from the Company (whether characterised as owner's drawings, director drawings or other remuneration) prior to the relevant period against which these more recent personal drawings can be compared. As the Company's director, this evidence was within Mr Walls' ability to provide. I also note that in the questionnaire accompanying the ROCAP, Mr Walls did not disclose what remuneration (including director's fees) he had derived from the Company during the four years prior to the appointment of the liquidator.

52 In the first Walls affidavit, Mr Walls says that director drawings are detailed in the Company's financial records as raw data as well as in the management accounts for the 2018, 2019 and 2020 financial years, however, with the exception of an extract from the Company's QuickBooks accounting software produced by the liquidator for the period 30 June 2019 to 4 November 2019,[23] none of this information is before the Court by way of evidence. To the extent such information is contained within the Company's QuickBooks accounting software, the information is unlikely to be admissible in evidence as a book kept by the Company or prima facie evidence of any matter for the purpose of s 1305(1) of the Corporations Act.[24] As is discussed later in these reasons, the Company's QuickBooks account was created by Mr Walls in September 2020 and populated by Mr Walls throughout September and October 2020; well after the Company went into liquidation. It was not used to record transactions at the time they occurred. Further, it is the liquidator's evidence that Mr Walls did not provide him with any balance sheets, profit and loss statements, cash flow statements or general ledgers which were maintained by the Company prior to it entering into liquidation. For these reasons, even if the information put into the QuickBooks account by Mr Walls is admissible, I am not satisfied that it is reliable in any event and I do not give it any weight.

53 There are no other contemporaneous records relied upon by Mr Walls to support his characterisation of these withdrawals as relating to owner's drawings, director drawings or remuneration. For example, there is no contract between Mr Walls and the Company concerning what payment he would receive for services to the Company, nor any invoices generated by Mr Walls for the services he rendered or any tax returns submitted by Mr Walls which recorded his earnings from the Company.

54 At the same time, there is other evidence which suggests Mr Walls routinely used the Company bank account to pay for personal expenses. For example, over $4,000 was transferred to the City of Boroondara, in three separate payments, from the Company's account on 2 August 2019. Mr Walls was unable to explain the nature of the first of these payments under cross-examination (although he was not specifically asked about the second and third payments). Given the Company did not own any real property, it is unlikely that these payments are Company expenses. On the same day, the Company also paid approximately $261 to Yarra Valley Water which does not appear to have benefited the Company. Under cross-examination, Mr Walls confirmed that the Company rented premises at 19 Ledbury Crescent, Bundoora, Victoria ('the Bundoora address').[25] I note that this is the same residential address given by Mr Walls in his various affidavits. Throughout July 2019, payments were made from the Company account to Netflix, Foxtel, Google Music, Costco and Woolworths, which do not appear to be business-related expenses. The drawings taken by Mr Walls during the relevant period and the resulting benefit accorded to him should be considered in the context of his overall use of the Company account for personal expenses.

55 Whilst I accept that Mr Walls was entitled to fair compensation for the labour he provided to the Company to assist it in generating income, drawings of $14,000 in the space of approximately two weeks are excessive given the lack of supporting detail, the modest income apparently earned by the Company throughout the month of August 2019 (as disclosed in its bank statements), and Mr Walls' other personal expenses paid with Company funds around this time. I will proceed on the basis that personal drawings of $4,000 during the relevant period would have been more consistent with commercial practice and represented a comparable benefit to both the Company and Mr Walls. But for the reasons set out above, I regard the balance of these personal drawings as being uncommercial transactions.

56 Item 4 of the plaintiffs' summary table refers to a $2,000 cash withdrawal from the Company's bank account on 5 August 2019 which Mr Walls says relates to legal fees. At the trial, Mr Walls gave evidence that on 6 August 2019 he paid the sum in cash to a firm called Removify to assist him in removing poor Google reviews (presumably in relation to the Company). However, he was unable to locate an invoice in respect of these fees. Nor did he produce any receipt for payment or any written agreement between the Company and the provider of these services. It is unclear whether the services apparently rendered by Removify were for legal work or something else (perhaps in the nature of public relations or reputation management services). Further, Mr Walls did not provide sufficient evidence to explain why those services were required by the Company in the first place and what benefit the Company obtained as a result of the provision of those services. I regard this transaction as being uncommercial in nature.

57 Items 5 and 7 of the plaintiffs' summary table record two cash withdrawals of $8,000 each on 5 and 6 August 2019, which Mr Walls explains relate to a conference attendance. Mr Walls submits that conference attendances are imperative to building professional networks and to further knowledge and learning. At trial, he gave evidence that he attended the 'Future of Mining' conference on 4 and 5 September 2019 on behalf of the Company to learn about technology trends specific to the mining sector across Europe, the Middle East and Africa in order to assist the Company to grow and secure future work. Mr Walls said he engaged the travel agency Travel Planner International in July 2019 to book his travel and attendance at this conference. After making the two $8,000 cash withdrawals, Mr Walls said he deposited the amounts of $5,453.74, $5,436.05 and $5,061.00 into 'the agent's trust account' on 5 August 2019, 8 August 2019 and on 22 or 26 August 2019, respectively. Mr Walls discovered an invoice from Travel Planners International Pty Ltd ('Travel Planners') dated 15 July 2019 for the sum of $15,950.79 in respect of flights ($10,514.74) and the conference attendance ($5,436.05).

58 There are a number of deficiencies in Mr Walls' evidence. Firstly, whilst the Travel Planners invoice purports to provide an itinerary, it does not disclose what flights were undertaken by Mr Walls or where and when the conference was held. Nor does it refer to the conference by name. Secondly, the invoice also records an amount of $5,453.74 was received on or before the date of the invoice (15 July 2019). This is at odds with Mr Walls' evidence that this sum was deposited into the 'agent's trust account' on 5 August 2019. Thirdly, there have also been no cash receipts produced by Mr Walls for the payments he allegedly made to Travel Planners. I cannot be satisfied the particular cash withdrawals were actually applied towards the costs associated with Mr Walls' attendance at the 'Future of Mining' conference. In those circumstances, the Court must infer that the relevant cash withdrawals were for the benefit of Mr Walls and to the detriment of the Company.

59 However, even if the evidence was sufficient to demonstrate a nexus between the cash withdrawals on 5 and 6 August 2019 and the costs of this conference, I regard the transactions as being uncommercial for the further reasons detailed below.

60 The plaintiffs tendered at trial a number of records from the Australian Securities and Investments Commission ('ASIC').[26] Having regard to those records and the evidence given by Mr Walls under cross-examination, it is apparent that:

(a) the director of Travel Planners is Ms Stephanie Doyle;

(b) Ms Doyle and Mr Jason Walls (Mr Walls' brother) are the current directors for Koala Coffee (although I note Mr Walls gave evidence that Ms Doyle resigned as a director in February 2021);

(c) Ms Doyle and her company Doyle Dawg Pty Ltd ('Doyle Dawg') are former shareholders of Koala Coffee;

(d) the current shareholder of Koala Coffee is Dihab Pty Ltd ('Dihab'). Dihab is the sole shareholder of the Company and Mr Walls is its director;

(e) the current registered office and principal place of business of both Koala Coffee and Dihab is the Bundoora address. Until its liquidation, the registered office and principal place of business of the Company was also the Bundoora address. The Bundoora address is also the address given for Ms Doyle in her capacity as a director (or former director) of Koala Coffee (although under cross‑examination Mr Walls said this information is out of date and Ms Doyle does not reside with him at the Bundoora address);

(f) Mr Walls is the former director of Birdies Mini Golf Pty Ltd and Birdies Mgba Pty Ltd and Dihab is a former shareholder of those entities. Ms Doyle is now the current director of those entities and her company Doyle Dawg is the ultimate shareholder; and

(g) Ms Doyle is also the director and shareholder of Strategic Conferences Pty Ltd ('Strategic Conferences') which trades under the business names 'the Conference Planners' and 'Strategic Fluency'. The same ABN is utilised by these businesses and Strategic Conferences. As discussed further below, Mr Walls also alleges that certain other cash withdrawals were applied towards paying the Conference Planners and Strategic Fluency in respect of other expenses of the Company.

61 Because of the obvious connection between Ms Doyle and Mr Walls, any payments to Travel Planners were not transactions conducted at arm's-length and should be closely scrutinised. In circumstances where there are already deficiencies in Mr Walls' evidence concerning these cash withdrawals, there is real doubt about whether these expenses were legitimate business expenses of the Company and whether the Company, as opposed to an associate of Mr Walls, has received the benefit of payments on account of those expenses. For these reasons, I am satisfied that a reasonable person in the Company's circumstances would not have entered into these transactions.

62 Items 17 and 19 of the plaintiffs' summary table record two $9,000 cash withdrawals on 15 August 2019 ($18,000 in total) which Mr Walls says were applied towards sponsorship of a conference. Mr Walls gave evidence at trial that he agreed to participate in a conference titled 'Doing Schools Differently' which focused on the education sector, a market he hoped the Company could expand into. He said on 18 April 2019 he signed up to four speaking opportunities, all with a technology or engineering focus. He regarded the sponsorship and speaking slots as business development and marketing opportunities for the Company. Mr Walls explained that he paid for the sponsorship in cash on 16 August 2019 using the two $9,000 withdrawals from the day prior. Mr Walls relies upon an invoice provided by the Conference Planners to substantiate the application of these funds towards sponsorship of the 'Doing Schools Differently' conference. The invoice states that the conference was held on 29 August and 30 August 2019.

63 I am unpersuaded by this evidence and I consider that the cash withdrawals allegedly paid by Mr Walls towards the 'Doing Schools Differently' conference were uncommercial transactions with no resulting benefit to the Company. I hold those views for the following reasons:

(a) Mr Walls has not produced any receipt for payment to the Conference Planners on 16 August 2019. Nor has he produced any evidence of any communications with the Conference Planners or any other organisers of the conference concerning the nature of the sponsorship or the speaking opportunities at the conference;

(b) in the third te Wierik affidavit, the liquidator confirms that on the basis of his investigations, the 'Doing Schools Differently' conference occurs every two years and was held in 2016 and 2018. The conference was apparently scheduled to take place in June 2020 but was postponed due to the COVID-19 pandemic (a matter also confirmed by Mr Walls in his evidence at trial). The conference is next scheduled to occur in 2022. Significantly, the liquidator deposes that on the basis of his searches, the 'Doing Schools Differently' did not take place in 2019 at all;

(c) this immediately calls into question the accuracy and legitimacy of the Conference Planners invoice which records the conference as being held on 29 August and 30 August 2019. Whilst Mr Walls said that the Conference Planners made an error on the invoice in respect of the conference dates, I find this explanation unconvincing. The invoice was also apparently generated on 18 April 2019 with a due date of 18 August 2019 and records the amount of $18,000 as having been both paid and owing as an overdue amount as at the date of the invoice. The information contained within the invoice is therefore internally inconsistent and contradicted by other evidence obtained by the liquidator. I do not regard the invoice to constitute reliable evidence of how Company funds were expended; and

(d) as already noted, the Conference Planners is a business controlled by Ms Stephanie Doyle, who is an associate of Mr Walls. Even if the payments were made to the Conference Planners, the transactions did not occur at arm's‑length and the resulting benefit of the payments was likely conferred on Ms Doyle or her business. Given the conference did not actually take place, the Company certainly did not receive any benefit from the transactions. I infer that it was either Mr Walls or his associate, Ms Doyle, and her business who received the benefit.

64 Mr Walls has identified certain cash withdrawals as relating to payments made by the Company for tender support. These relevant cash withdrawals for the total sum of $27,000 were made on 8 August 2019, 9 August 2019 (two withdrawals) and 16 August 2019, respectively, and are found at items 9, 10, 11 and 21 of the plaintiffs' summary table. Mr Walls gave evidence that the Company participated in tenders to grow the Company's business and worked with an agency called Strategic Fluency to draft the tender responses. He discovered two invoices from Strategic Fluency dated 3 June 2019 and 1 July 2019 for the amounts of $11,500 and $15,500, respectively ($27,000 in total). He said the work performed by the agency related to the preparation of policies and documentation for a large tender for the New South Wales Government concerning appointment to a services panel. He considers that the cost of the tender support is reasonable given that a single contract might be worth up to $400,000. Mr Walls says that with the relevant cash withdrawals, he made deposits into the supplier's account on 8 August 2019, 9 August 2019 and 16 August 2019 for the sums of $5,500, $8,250 and $13,250, respectively.

65 As with other cash withdrawals, Mr Walls has not produced any documentary evidence to substantiate the making of deposits into the account of the supplier, despite it being within his power to do so. Nor has he produced copies of the documentation that was ultimately prepared by the Company as part of the tender or any communications with Strategic Fluency in relation to the tender. The invoices from Strategic Fluency are themselves scant on detail in terms of the work performed and the person or persons who performed it. In the absence of such information, it is difficult for the Court to accept that there was commercial justification in the making of the relevant cash withdrawals. Further, the transactions did not occur at arm's‑length and the resulting benefit of the payments was likely conferred on Ms Doyle or her business, but not upon the Company itself.

66 Items 6 and 13 of the plaintiffs' summary table concern cash withdrawals of $2,000 and $9,000 on 6 August and 12 August 2019, respectively, which are said to relate to subscriptions taken out by the Company. Mr Walls said in his submissions (which he adopted as evidence) that subscriptions facilitate networking opportunities, new business development and business intelligence. At the trial, Mr Walls explained that on 5 August 2019 he purchased a networking subscription worth $2,000 from the organisation formally known as the Association of Professional Engineers, Scientists and Managers Australia ('APESMA'). He said he paid cash but was unable to locate the relevant invoice. Mr Walls did tender an invoice from IBISWorld dated 10 August 2019 for the sum of $9,000[27] which he said concerned an annual subscription to assist the Company in targeting business more effectively by providing it with business records, contact information and other business intelligence. He said he paid this invoice with cash on 12 August 2019.

67 In the absence of any documentary evidence concerning the APESMA subscription, I am unable to accept that the company received a benefit in respect of the relevant cash withdrawal on 6 August 2019. However, there is a prima face correlation between the $9,000 cash withdrawal on 12 August 2019 and the IBISWorld invoice. Mr Walls was not cross-examined in relation to the evidence he gave about the benefits associated with the IBISWorld subscription and the manner in which he paid for it. On balance, I accept his evidence on this point, despite an absence of any payment receipt.

68 The last cash withdrawal to be considered was undertaken by Mr Walls on 14 August 2019 in the sum of $9,000 and is said by Mr Walls to relate to a payment to Travel Planners for long-stay accommodation in Canberra necessary to support client work the Company benefited from. Mr Walls discovered an invoice from Travel Planners dated 3 January 2018 for the total sum of $14,100, of which $9,000 remained unpaid at the date of the invoice. The invoice records the booking of accommodation in Canberra for the period January to June 2018. At the trial, Mr Walls says he overlooked payment of the balance of the invoice and received a reminder call from Travel Planners in August 2019. He says he promptly paid the balance of $9,000 directly to the agent in cash on 15 August 2019.

69 Notwithstanding Mr Walls' explanation for the delay in payment, it is inherently implausible that the cash withdrawal on 14 August 2019 was applied towards a Company expense incurred 18 months earlier and in respect of accommodation provided more than 12 months prior. Even if there is a sufficient link between the cash withdrawal and the earlier invoice, there is no payment receipt to substantiate the payment on 15 August 2019. Further, any payment to Travel Planners on this date was not at arm's‑length because of the association between Mr Walls and Ms Doyle. On balance, I do not accept that the Company received any benefit for this transaction or that the transaction was commercially justified.

70 There are a number of other arguments and considerations in relation to the cash withdrawals which I will deal with briefly.

71 Mr Walls argues some of the expenses he says were paid for by the relevant cash withdrawals were deductible for tax purposes. Even assuming that is the case, it does not necessarily mean that the transactions were commercially justified having regard to their attendant benefits and detriments. I remain satisfied that most (but not all) of the transactions were not commercially justified in the circumstances, including for lack of evidence of benefit to the Company, an absence of proof of payment, and/or because they were not conducted by independent parties at arm's‑length.

72 Mr Walls maintains that if there are deficiencies in his evidence about how the cash withdrawals were applied towards the expenses he alleges, the plaintiffs ought to have verified the payment of those expenses by contacting or subpoenaing the relevant suppliers. Whilst it is true that the plaintiffs have the onus of demonstrating the cash withdrawals were uncommercial because a reasonable person in the Company's circumstances would not have entered into the transaction, it is apparent that none of the 21 cash withdrawals bear any connection, on their face, to any legitimate business expense of the Company or suggest any obvious benefit to the Company. It was Mr Walls who pleaded (without particulars) in his defence of 30 September 2020 that the cash withdrawals were applied towards business expenses and director drawings.

73 The evidence Mr Walls ultimately relied upon in support of the matters pleaded in his defence was provided in his affidavit material, his discovered documents and his oral testimony at trial. His evidence must be weighed according to the proof which was within the power of Mr Walls to have produced and the plaintiffs to have contradicted. In circumstances where Mr Walls alleges that he paid $86,000 to suppliers of the Company in cash or by bank deposit, it is remarkable that Mr Walls has simply been unable to produce a single receipt for payment. The Court can infer that no such evidence exists. Mr Walls' evidence in relation to the cash withdrawals is deficient and unreliable and it is not for the plaintiffs to obtain additional evidence in order to verify it. It is also striking that, on Mr Walls' own evidence, $70,000 in cash withdrawals were directed to companies and businesses owned and operated by his associate, Ms Doyle, with whom he shares, or has shared, a number of business interests and a residential address (according to ASIC records). It is appropriate to infer that any such transactions were not conducted at arm's‑length by independent parties and that the Company did not receive a corresponding benefit.

74 I should also note that the explanation for the cash withdrawals set out in Mr Walls' defence and evidence is inconsistent with an earlier explanation proffered by Mr Walls in email correspondence sent by him to the plaintiffs' lawyers on 10 April 2020 in response to a letter of demand dated 9 April 2020.[28] In that email, Mr Walls asserted that the cash withdrawals were not his monies but were withdrawn by his brother, Mr Jason Walls, on account of funds owing to Mr Jason Walls pursuant to a Memorandum of Understanding between Mr Jason Walls, Mr Walls and the Company dated 3 January 2018.[29] The inconsistency between the two explanations for the cash withdrawals warrants the close examination now directed to Mr Walls' evidence. I also note in passing that in the same email, Mr Walls said he 'had a gambling addiction for many years' and that a 'significant portion of his [share of] funds held in the [Company] bank account were [sic] used for gambling purposes'. Whilst this statement may be an admission[30] by Mr Walls against his interest, its implications (if any) for present purposes are unclear. However, the plaintiffs did not seek to cross‑examine Mr Walls in relation to it and I do not make any finding about it.

75 In closing submissions, counsel for the plaintiffs observed that the cash withdrawals were for round sums made systematically over a slightly more than two-week period. I was urged to draw the inference that Mr Walls must have realised the Company was likely to go into liquidation and that the cash withdrawals represent an attempt by Mr Walls to drain the Company's account in order to pay money to himself rather than to the Company's creditors. Given the conclusions I have already reached in relation to the uncommercial nature of the cash withdrawals, it is unnecessary for me to make such an inference.

76 For the reasons set out above, I am satisfied that the plaintiffs have discharged their evidentiary onus by establishing that the majority of the cash withdrawals were uncommercial transactions within the meaning of s 588FB of the Corporations Act. The Company did not receive any benefit from those transactions and was deprived of monies belonging to it. I do not consider that a reasonable person in the Company's circumstances would have entered into those transactions.

77 The cash withdrawals that I do not regard as uncommercial are $4,000 worth of cash withdrawals referrable to personal drawings by Mr Walls in lieu of remuneration and $9,000 in cash withdrawals applied towards the IBISWorld subscription. It follows that cash withdrawals taken out over the relevant period for the total sum of $87,000 are uncommercial transactions for the purpose of s 588FB of the Corporations Act.

78 As previously explained, to succeed in the uncommercial transaction claim, the liquidator is required to establish that the Company was insolvent at the time the cash withdrawals were made or that it became insolvent as a result of the cash withdrawals occurring. By contrast, the unreasonable director-related claim does not depend on such a finding.

79 The test for solvency found in s 95A(1) of the Corporations Act is whether a company 'is able to pay all [its] debts as and when they become due and payable'. Section 95A(2), in turn, provides that a company which is not solvent is insolvent.

80 In Crema Pty Ltd v Land Mark Property Developments Pty Ltd,[31] Dodds-Streeton J (as her Honour then was) cited with approval the decision of Weinberg J (as his Honour then was) in Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd,[32] and confirmed that s 95A of the Corporations Act enshrines the cash flow test of insolvency. In contrast to a balance sheet test, the cash flow test focuses on liquidity and the viability of the business.[33] Her Honour elaborated further, stating:

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.[34]

81 As Barwick CJ explained in Sandell v Porter,[35] the conclusion that a debtor is insolvent is ascertained 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'.[36]

82 As the Court of Appeal explained in Queensland Phosphate Pty Ltd v Korda [No 2][37]:

[w]hether a company is insolvent for the purposes of s 95A of the Corporations Act is a 'question of fact to be ascertained from a consideration of the company's financial position taken as a whole.'[38] In considering the company's financial position as a whole, the court must have regard to commercial realities, which will be relevant in considering the resources available to the company to meet its liabilities as and when they fall due.[39] Commercial realities include the nature of the company's business, the character of the debt and all of the circumstances present at the relevant time.[40]

83 Although s 95A of the Corporations Act adopts a cash flow test of insolvency as opposed to a balance sheet test, a deficiency of assets over liabilities in a company's balance sheet may nevertheless be used as a non-conclusive indicator of insolvency.[41]

84 In Re Overgold Pty Ltd,[42] Gardiner AsJ observed that the cash flow test requires the Court to ascertain:

(a) the company's existing debts and the company's debts within the near future;

(b) the date each debt will fall due for payment; and

(c) the company's present and expected cash resources and the date each item will be received.[43]

85 Section 459D(1) of the Corporations Act specifically contemplates that contingent or prospective liabilities may be taken into account in assessing solvency in an application to wind up a company if the application is of a kind referred to in s 459C(1) (including on the grounds of oppression or insolvency). The weight of authority supports the view that contingent and prospective liabilities can also be taken into account when determining solvency under s 95A, including for the purpose of voidable transaction claims under Division 2 of Part 5.7B of the legislation.[44] A contingent debt exists where a debtor has a legal obligation to pay a sum of money in the future that is contingent on certain events occurring (that may or may not occur),[45] whereas a prospective debt is not immediately payable but will become due on a future date which is presently determined or will be determined by reference to future events.[46]

86 The words, 'as and when they become due and payable' in s 95A suggest that 'while insolvency must be determined as at a particular time the determination calls for a degree of forward looking.'[47] In considering the relevance of contingent or prospective debts to a company's solvency, there must be an appropriate degree of certainty as to whether they will become due and payable within the immediate future and, if so, when.[48]

87 In Australian Securities and Investments Commission v Plymin ('Plymin'),[49] Mandie J identified a number of factors which may be indicative of insolvency. The indicia include: overdue Commonwealth and State taxes; liquidity ratios below 1; creditors unpaid outside trading terms; special arrangements with selected creditors; a lack of access to finance; and solicitors' letters, summonses, judgments or warrants issued against the company; and an inability to produce timely and accurate financial information to display the company's trading performance and financial position, and make reliable forecasts.[50]

88 The factors referred to in Plymin have been described as representing common sense indicators of insolvency.[51] As Mansfield J observed in Lewis, Re Damilock Pty Ltd (in liq) v VI SA Australia Pty Ltd, one or more of these indicia may have particular significance in a matter, but the absence of one or more of them does not, of itself, establish solvency.[52]

89 The question of whether a company is able to pay its debts as and when they fall due is a question of fact[53] and the liquidator bears the onus of establishing on the balance of probabilities that the company was insolvent at all relevant times.[54]

90 In addition, if it is established that a company has failed to keep financial records in relation to a period as required by s 286(1) of the Corporations Act, then the company is presumed to have been insolvent throughout the period under s 588E(4)(a) of the legislation. Pursuant to s 286(1) of the Corporations Act, a company must keep written financial records that correctly record and explain its transactions and financial position and performance, and which would enable true and fair financial statements to be prepared and audited.

91 In Re Lawrence Waterhouse Pty Ltd (in liq),[55] Ward J considered the types of documents which are necessary to achieve compliance with s 286(1) of the Corporations Act. Her Honour stated:

[235] It has been held that the records required to be kept under s 286 include a balance sheet, profit and loss statement and a cash flow statement (Australian Securities and Investments Commission v ABC Fund Managers Ltd [2001] VSC 383; (2001) 39 ACSR 443 at [44].)

[236] Austin & Black[56] note that the keeping of a general ledger appears to be one of the 'minimum requirements' of this section (referring to Van Reesema v Flavel (1992) 7 ACSR 225; 10 ACLC 291 at [295]; Love v ASC [2000] WASCA 404; (2000) 36 ACSR 363 at [59]) and that this requirement is not met by keeping the source material from which a set of books may be written up (again citing Van Reesema v Flavel and ABC Fund Managers Ltd). They note:

It appears that monthly management accounts of a company are not accounting records required to be kept under this section or its predecessors: Duke Group Pty Ltd (in liq) v Pilmer (1994) 63 SASR 364; 123 FLR 210; 15 ACSR 255; BC9400878 at 263. On the other hand, books, wage records and other documents prepared by an accountant were held to be accounting records required to be kept under a predecessor of this section in Caratti v R (2000) 22 WAR 527; 45 ATR 305; [2000] WASCA 279; BC200005748; see also Linfox Transport (Aust) Pty Ltd v Arthur Yates & Co Ltd (2003) 47 ACSR 261; [2003] NSWSC 876; BC200305676; Australian Securities and Investments Commission v Rich (2005) 216 ALR 320; 53 ACSR 752; [2005] NSWSC 417; BC200502844 at [284]...The concept of 'financial records' does not extend to underlying contracts and transaction documentation, although the effect of those contracts and transactions should be reflected in company's financial records so that they are appropriately accounted for: Boulos v Carter, Re Tarbs World TV Australia Pty Ltd (2005) 220 ALR 572; 54 ACSR 827; [2005] NSWSC 891; BC200506576.

[237] In Van Reesema v Flavel, where the company in question did not keep any accounting records until after commencement of its winding up, the court rejected the argument that it was unnecessary to keep a general ledger or journal because of the limited number of transactions entered into by the company (and that it was sufficient to keep the source materials which evidenced the transactions) holding that 'accounting records' include books of prime entry such as the cash book and journal, ledgers and also a range of source materials.

[238] Similarly, in Love v ASC failure to keep any adequate general journal was relevant to deciding whether a company has satisfied the relevant statutory requirement. There the court held that it was strongly arguable that failure to record loan transactions and to carry out proper account reconciliations provided, of themselves, sufficient evidence to establish contravention.[57]

92 Re Melbournehomes.com was an insolvent trading case brought under s 588G of the Corporations Act in which the presumption of insolvency arose by virtue of ss 588E(4) and 286(1). In that case, I observed that:

it is difficult to see how, in the absence of a general ledger, wage records, bank statements, and a complete set of balance sheets and profit and loss statements, it would have been possible to prepare true and fair financial statements for [the company in question] or to clearly and correctly represent its transactions, financial position, and performance.[58]

93 In Adelaide Brighton Cement Ltd, in the matter of Concrete Supply Pty Ltd v Concrete Supply Pty Ltd (Subject to Deed of Company Arrangement) (No 4),[59] Besanko J held that for a contravention of s 286(1) of the Corporations Act to take place, it was not necessary that there be a 'severe absence of records' and that a failure to record a major liability of a company would constitute a contravention of the provision.[60]

94 The plaintiffs rely upon the statutory presumption of insolvency under ss 588E(4)(a) and 286(1) of the Corporations Act to establish that the Company was insolvent from its incorporation and as at the date of each of the cash withdrawals. In the alternative, they also contend that pursuant to s 95A of the Corporations Act, the Company was insolvent as a matter of fact since its inception and throughout the relevant period. I will first determine whether the statutory presumption of insolvency is available before considering whether the evidence establishes, on the balance of probabilities, that the Company was actually insolvent in accordance with s 95A.

Statutory presumption of insolvency under ss 588E(4)(a) and 286(1) of the Corporations Act

95 The liquidator has given evidence that on 14 November 2019 he requested Mr Walls to deliver up all of the books and records of the Company, together with the completed ROCAP. Because Mr Walls failed to comply with this request, the liquidator wrote to ASIC requesting its assistance in obtaining the necessary books and information from Mr Walls. It appears that ASIC subsequently wrote to Mr Walls in relation to his statutory obligations to provide the relevant documents and warning him of criminal sanctions if he failed to comply. On 9 April 2020, the liquidator made a further demand for books and records of the Company relating to the cash withdrawals. However, it was not until 12 June 2020 that the liquidator received any documents from Mr Walls. The documents provided comprised:

(a) a basic information sheet for the Company;

(b) a checklist of books, documents, and other possessions of a company which must be delivered or otherwise put under the control of its duly appointed liquidator;

(c) the ROCAP; and

(d) an accompanying questionnaire for directors and officers of the Company.

96 The responses provided by Mr Walls to the checklist of books, documents, and other possessions of a company suggest that the Company did not maintain the following books, documents and records: minutes of meetings; accounting software package; general ledgers; copies of tax returns; copies of Business Activity Statements; copies of annual accounts; reconciled cash books; purchase journals and supplier invoices; wages book and employee records; or internet banking records. In signing this document on 27 April 2020, Mr Walls declared that the books, documents and other records detailed in the document were all of the books, documents and other records of the Company.

97 In the questionnaire accompanying the ROCAP, Mr Walls relevantly stated that:

(a) the only steps taken to ensure the Company kept financial records which correctly recorded and explained its transactions and financial position and performance which would enable true and fair financial statements to be prepared and audited were that 'invoices were raised and issued to supplier entities';

(b) he knew of the Company's financial position and performance by referencing the value of invoices and the Company's bank balance; and

(c) he did not have in his possession any books and records of the Company which were not already in the liquidator's possession.

98 Further, the liquidator deposes that Mr Walls did not provide him with any balance sheets, profit and loss statements, cash flow statements or general ledgers which were maintained by the Company prior to it entering into liquidation.

99 Mr Walls denies the Company failed to keep financial records in accordance with s 286(1) of the Corporations Act and alleges the Company kept simple financial records in an Excel spreadsheet and also within a QuickBooks software account which has since been deactivated. As far as I can ascertain, the Excel spreadsheet referred to by Mr Walls is not in evidence. In the first Walls affidavit, Mr Walls says the liquidator assumed ownership of the QuickBooks account and therefore had access to the Company's financial records 'as [m]anagement [a]ccounts for FY18, FY19 and FY20 and raw data'. However, at the trial Mr Walls conceded that no balance sheets or profit and loss statements were maintained by the Company throughout its life.[61] He said that all he had in his possession after the Company went into liquidation were Company-issued invoices, invoices for major expenses incurred by the Company and some bank statements.[62]

100 The liquidator deposes in the third te Wierik affidavit that the Company's QuickBooks account was actually created by Mr Walls in September 2020. The account was then populated by Mr Walls in September and October 2020. This was approximately 10 months after the Company went into liquidation and around the time Mr Walls was preparing his defence. Mr Walls conceded this under cross-examination but stated that he made entries in the QuickBooks account at that time to assist the liquidator.[63] It is clear that the QuickBooks account was not used to record transactions at the time they occurred but is a recent reconstruction. It follows that it could not be used to correctly record and explain the Company's transactions, financial position and performance or enable true and fair financial statements to be prepared and audited for the relevant period in question. I accept the plaintiffs' submission that because the QuickBooks account was created after the Company went into liquidation, it is simply not relevant to the statutory presumption arising under ss 588E(4)(a) and 286(1) of the Corporations Act. I also accept the liquidator's evidence and the submission that the QuickBooks account is deficient in any event because it fails to make any provision for liabilities to the Australian Taxation Office ('ATO') or to Belectric in respect of its judgment entered on 6 August 2019 (both liabilities to which I will return).

101 There is simply no evidence that the Company maintained any of the usual records a company would ordinarily maintain in order to comply with s 286(1) of the Corporations Act. Critically, the Company did not maintain: a general ledger; a debtor's ledger; a creditor's ledger; income tax returns; purchase journals; cash receipts; working papers and a complete set of financial statements, including balance sheets; profit and loss statements; and cash flow statements.

102 The evidence suggests that from the date of its incorporation on 5 December 2017 until the commencement of the winding up on 13 November 2019, the Company did not maintain written financial records that correctly recorded and explained its transactions, financial position and performance, and that would have enabled true and fair financial statements to be prepared and audited. What little documentation was apparently retained by the Company was plainly deficient for the purpose of compliance with s 286(1) of the Corporations Act. Additionally, I do not believe that the failure to keep records in accordance with s 286(1) of the Corporations Act can be described as minor or technical for the purposes of s 588E(5).

103 Therefore, pursuant to s 588E(4)(a) of the Corporations Act, the Company is presumed to have been insolvent from its incorporation on 5 December 2017 until it was wound up on 13 November 2019. This includes the relevant period in which the cash withdrawals occurred. The question then arises as to whether Mr Walls is able to rebut the s 588E(4)(a) presumption of insolvency.

Whether presumption of insolvency under ss 588E(4)(a) and 286(1) of the Corporations Act can be rebutted

104 Mr Walls has advanced a number of overlapping contentions concerning both the statutory presumption of insolvency found in s 588E(4)(a) and insolvency for the purpose of s 95A of the Corporations Act. The arguments made by Mr Walls which are most relevant to the question of whether he can rebut the statutory presumption of insolvency are dealt with below.

105 Mr Walls contends that for the financial year ending 30 June 2019, the Company had net earnings of $205,389.05, total current assets of $215,473.97 and total current liabilities of $33,950.96.

106 The plaintiffs note that the figures for the 2019 financial year relied on by Mr Walls were apparently taken from a draft management report of the Company, which was not actually discovered by Mr Walls but was in fact discovered by Loft. The liquidator gave evidence in the third te Wierik affidavit that the draft management report had itself been produced from the Company's QuickBooks account. This was confirmed by Mr Walls in his oral submissions.[64] Whilst the figures in the draft management report were referred to by Mr Walls in his defence and written submissions, the document itself was not before the Court by way of evidence. However, even if the draft management account had been tendered, I would regard it as unreliable in any event because it has been extracted from the Company's QuickBooks account. As previously explained, the QuickBooks account was not maintained by the Company at any point prior to its liquidation. It was created by Mr Walls in September 2020; approximately 10 months after the appointment of the liquidator to the Company. It was not used to record transactions at the time they occurred but represents a reconstruction of events.

107 Mr Walls says that all income and expenses of the Company invoices were reflected in the Company bank account statements. In the absence of proper financial records of the Company, this is impossible to verify. In any event, the bank statements only record payments in and payments out of the Company bank account for a specified period of time. They do not record and explain the extent of the Company's transactions, financial position and performance over a more extensive period. For example, they do not show any cash payments to suppliers, assets other than cash (such as debtors) or liabilities to creditors. The bank statements do not operate as a general ledger. On their own, the bank statements would not have enabled true and fair financial statements to be prepared and audited.

108 Similarly, Mr Walls argues that at all relevant times, the Company had a positive bank balance. He notes the judgment in favour of Belectric was not entered until 6 August 2019 and at that time the Company had a bank balance of $169,900.02. On my reading of the bank statements, there was actually $89,859.72 in the account as at the date of the Belectric judgment. In any event, the fact that there was a positive balance at the date of each of the cash withdrawals misrepresents the actual state of the Company's bank account around that time. Following the cash withdrawals, on 16 August 2019, the Company only had $10,336.03 in its bank account and just over $3.00 by the end of August 2019, with very little income being deposited into the account from that time. There were clearly insufficient funds to meet the judgment debt owed to Belectric in the sum of $24,000 as at 16 August 2019. Regardless of the positive bank balance which existed at the time of each of the cash withdrawals, it appears the Company became insolvent as a consequence of the cash withdrawals.

109 Mr Walls also explains that the debt to Belectric was not paid because the Company had its own claim against Belectric for $99,000. He says this claim is relevant to assessing the Company's solvency but that the liquidator has repeatedly ignored this debt owed to the Company. The claim arises under an Incorporated Contractor Service Agreement between the Company and Belectric dated 1 August 2018 ('the Services Agreement') by which the Company was to provide services to Belectric. Under cl 15.1, either party was entitled to terminate the Services Agreement at any time by providing 90 days' written notice to the other party. Clause 15.3(a) allowed Belectric to immediately terminate the Services Agreement if the Company failed to carry out the agreed services according to the terms of the Services Agreement.

110 Belectric ultimately terminated the Services Agreement on 18 March 2019, pursuant to cl 15.3(a). On 27 June 2019, Mr Walls, on behalf of the Company, sent Belectric a letter of demand claiming the sum of $99,000 including goods and services tax ('GST'), purportedly on the basis that Belectric owes the Company $1,000 per day in accordance with the 90-day notice period set by cl 15.1, plus GST. Belectric did not pay the amount sought under the letter of demand and instead commenced litigation in this Court on 8 July 2019 against the Company and Mr Walls seeking, among other things, a restraint on each of those parties from using confidential information ('the Belectric litigation'). The Belectric litigation was prompted by a number of emails from Mr Walls dated 2 July 2019 in which he apparently stated that confidential information belonging to Belectric had been disclosed to all of its Australian competitors and invited Belectric to seek injunctive relief.

111 The orders given by the Court in favour of Belectric on 6 August 2019 included a permanent restraint against the Company and Mr Walls from using Belectric's confidential information, together with an order for costs, fixed in the sum of $24,000. They also record that there was no appearance for the Company or Mr Walls. Mr Walls explained that he did not attend the hearing at which the relevant orders were made because of health issues. He also complained that Belectric failed to adhere to a dispute resolution process in cl 17 of the Services Agreement prior to bringing its claim. Nevertheless, the orders of 6 August 2019 in the Belectric litigation do not deal with any counterclaim by the Company against Belectric in respect of the 90-day notice period under cl 15.1 of the Services Agreement and I infer that no such counterclaim was raised in that proceeding. Further, the liquidator deposes to having determined that there is no amount owing by Belectric to the Company under the Services Agreement because the agreement was terminated pursuant to cl 15.3(a) which did not require notice. I agree with that assessment. I also note the operation of cl 15.4 of the Services Agreement which provided that upon termination, Belectric would only be liable to pay that part of the agreed fee relating to services provided up to the date of termination.

112 Even assuming the Company has a viable claim against Belectric, which it is not now prevented from raising in any new proceeding,[65] I do not accept that such a claim has any bearing on the question of the Company's solvency. Litigation is an inherently uncertain exercise and there is no guarantee the Company would succeed in such a claim. Further, as a right of action, the claim is not a readily realisable asset of the Company. Even if the claim was ultimately successful, the time from initiation to recovery of any judgment would not necessarily be short.

113 At the trial Mr Walls explained that around the time Belectric obtained judgment against the Company in August 2019, it also pressed criminal blackmail charges against him. The resulting criminal proceeding was ultimately finalised in May 2020. Mr Walls said this was a significant source of distraction for him and impacted adversely on his mental health and his ability to maintain financial records of the Company. I do not doubt that is the case. However, this explanation does not serve to rebut the presumption of insolvency or change the fact that the Company failed to maintain financial records since its incorporation.

114 It follows that Mr Walls has failed to rebut the statutory presumption of insolvency which arises under ss 588E(4)(a) and 286(1) of the Corporations Act.

Insolvency of the Company under s 95A of the Corporations Act

115 As an alternative to invoking the statutory presumption of insolvency under ss 588E(4)(a) and 286(1) of the Corporations Act, the plaintiffs also allege that pursuant to s 95A of the Corporations Act, the Company was actually insolvent since its inception and throughout the relevant period having regard to the following matters:

(a) the Company owes Belectric the judgment debt of $24,000, in addition to a further $6,811.70 on account of Belectric's costs of the subsequent winding up proceeding brought against the Company. On 20 December 2019, Belectric lodged a proof of debt in the liquidation of the Company for the total sum of $30,811.70;

(b) the Company has not lodged income tax returns for the years ended 30 June 2018, 30 June 2019 and 30 June 2020 or Business Activity Statements for the periods of 1 July 2017 to 30 June 2018, 1 July 2018 to 30 June 2019 and 1 July 2019 to 30 June 2020. The plaintiffs say this is an indicator of the Company's insolvency;

(c) the ATO is a creditor in the liquidation of the Company in respect of unremitted income tax and running balance account deficit debts for the financial years ending 30 June 2018, 30 June 2019 and 30 June 2020. On 2 June 2021, the ATO submitted a proof of debt in the liquidation for $166,167.25 in respect of income tax owing for the financial years ending 30 June 2018 and 30 June 2019 and $60,424.45 for running balance account deficit debts in respect of GST for the same period (the total sum being $226,591.70) ('the ATO proof of debt'). The figures set out in the ATO proof of debt are based on the income reported by Mr Walls in his email to the liquidator dated 10 April 2020 which has been reconciled against the Company's bank statements and then relayed to the ATO by the liquidator in a letter dated 1 June 2021;

(d) the Court should accept that the amount set out in the ATO proof of debt is the amount that was owing by the Company to the ATO. At trial, the plaintiffs submitted that the entire amount in the ATO proof of debt was owing by the Company as at 30 June 2019.[66] However, in their supplementary submissions, the plaintiffs asserted that the running balance account deficit component of the ATO proof of debt was due and owing at this time, but conceded that the income tax debts were not due and payable in circumstances where the Company has not lodged any returns and the ATO has not issued any default assessment. The plaintiffs further contended that the income tax amounts in the ATO proof of debt should nevertheless be regarded as prospective liabilities in assessing the Company's solvency during the relevant period; and

(e) although the Company had a bank account balance of $117,568.90 on 1 August 2019 (the start of the relevant period), when the $226,591.70 liability to the ATO is taken into consideration, the Company in fact had a net asset deficiency of approximately -$109,000 at that time.

116 In contesting the insolvency of the Company during the relevant period, Mr Walls contends that:

(a) the Company had its own claim against Belectric for $99,000 which has not been pursued by the liquidator. (I have already explained why I do not regard this as being relevant to the question of the Company's solvency);

(b) the Company was not required to have filed income tax returns in respect of the 2019 and 2020 financial year as at the date of the cash withdrawals. The tax return for the 2019 financial year was not due until May 2020 and the 2020 financial year tax return was not due until May 2021. These dates fell after the liquidator was appointed to the Company. Further, in his supplementary submissions, Mr Walls contended that the date for lodgement of the Company's tax return for the 2018 financial year was 31 May 2019 (because the Company utilised a tax agent) but this was further deferred until early September 2019 because the Company had contacted the ATO in late May or early June 2019 and requested an extension of time, which was verbally granted over the telephone;

(c) the Company came under the control of the liquidator in September 2019 and Mr Walls could not lodge any tax returns on the Company's behalf. The income taxation debts were not due and payable given the Company had not lodged returns and the Commissioner had not assessed any returns or issued any default assessments;

(d) in any event, the ATO proof of debt is grossly inflated because it is based on the Company's income only and does not allow for legitimate business expenses and input tax credits, which would have lowered any taxation liability for income tax and GST significantly;

(e) whether or not taxation debts can be regarded as prospective liabilities is irrelevant given that no such taxation debt existed in relation to the Company; and

(f) the Company could otherwise pay its bills as and when they fell due.

117 As regards the Belectric proof of debt, whilst it is clearly the case that the Company owed Belectric the amount of $24,000 as at the date of the judgment on 6 August 2019, I cannot accept that Belectric's costs of the winding up application were due and payable throughout the relevant period when the cash withdrawals occurred. The relevant costs order was made on 13 November 2019 at the same time the Company was placed into liquidation and not at any time prior.

118 I also observe that although outstanding taxes are a key indicator of insolvency, they are not conclusive proof of insolvency. Specific regard should also be had to whether particular taxation liabilities are due and payable during the period in which a company's solvency is being assessed.

119 In Walsh Engineering Services Pty Ltd (in liq) v Walsh Group (Aust) Pty Ltd,[67] I observed:

The applicable case law makes clear that taxation liabilities are considered debts for the purpose of s 588G of the Corporations Act [the insolvent trading provision].[68] Even if there has not been a formal determination or assessment, a debt may arise where the taxpayer has performed transactions to generate a tax liability and when the tax in question is capable of calculation.[69] Further, taxation liabilities are incurred on the date on which they arose by operation of the relevant taxation legislation.[70]

120 It is clear that the Company's liabilities to the ATO in respect of income tax were incurred when the Company as taxpayer performed the relevant transactions giving rise to those liabilities. Specifically, the Company incurred each taxation debt at the end of the relevant tax period (annually for income tax liabilities and quarterly for running balance account deficit debts) because that was the time at which the amount of tax to be paid could be calculated.[71] Alternatively, the taxation debts were incurred when the Company was required to remit payment.[72]

121 For the reasons set out below, in assessing the Company's solvency under s 95A of the Corporations Act it is appropriate to treat the Company's taxation liabilities as either being due and payable during the relevant period (in the case of the running balance account deficit) or as prospective liabilities (in the case of the outstanding income tax) which would have become due and payable on future dates within a short time after the relevant period.

122 Firstly, I accept the plaintiffs' contention that pursuant to s 161 of the Income Tax Assessment Act 1936 (Cth) ('ITAA 1936') and the legislative instrument issued on behalf of the Commissioner of Taxation titled 'Notice of Requirement to Lodge a Return for the Year of Income Ended 30 June 2018',[73] the Company was required to lodge a tax return for the financial year ending 30 June 2018 by 31 October 2018. Following lodgement of the return, the Commissioner was then required to assess the amount of the Company's taxable income in accordance with s 166 of the ITAA 1936. Even if the time for the Company to lodge a tax return for the 2018 financial year was in fact May 2019 because it used a tax agent, this was well prior to the relevant period in which the cash withdrawals were made. Alternatively, assuming the requirement to lodge the 2018 financial year income tax return was deferred until September 2019 (despite there being no evidence of this), this was only shortly after the relevant period. Further, to the extent it is relevant, the liquidator was only appointed on 13 November 2019 and not in September 2019, as suggested by Mr Walls.

123 Secondly, although Mr Walls is correct that the Company's income tax amounts were not due and payable during the relevant period in circumstances where the Company has not lodged any returns and the ATO has not issued any default assessment, they are plainly prospective liabilities which would have become due and payable shortly after the relevant period. Importantly, the due dates for payment of the taxation liabilities are unaffected by the timing of when a company actually lodges its tax returns. Once a company lodges its tax returns, or the ATO issues a default assessment under s 167 of the ITAA 1936, its taxation liabilities will become due and payable from the dates set by the relevant legislation.

124 Here, the Company's income tax liability for the 2018 financial year (which was $79,723.75 based on the income estimates relied upon by the ATO)[74] would have ordinarily been due and payable in accordance with s 5.5(4) of the Income Tax Assessment Act 1997 (Cth) six months after the end of the income year, namely, 1 December 2018. Even if the time for lodgement of the Company's outstanding 2018 tax return had been extended, its obligation to make payment in respect of the 2018 income tax liability would have arisen almost immediately upon lodgement of the return and subsequent assessment by the ATO. In the case of income tax for the 2019 financial year (calculated at $86,443.50 according to the income estimates relied upon by the ATO),[75] this would have been due and payable as early as 31 October 2019[76] and as late as May 2020 (according to Mr Walls). There is an appropriate degree of certainty that the Company had a substantial liability for income tax in respect of the 2018 and 2019 financial years that would have become due and owing at a future point in time relatively proximate to the relevant period. This is especially so in relation to the 2018 financial year.

125 Thirdly, regardless of the precise timing of the Company's income tax liability, it is clear that the Company's running balance account deficit debts were due and owing throughout the relevant period. It is not in dispute that the Company is an entity that: was required to be registered for GST; issued tax invoices to customers for amounts inclusive of GST; and was required to lodge quarterly activity statements and make quarterly payments of its GST liabilities to the ATO. Section 8AAZH(1) of the Taxation Administration Act 1953 (Cth) ('TAA') essentially provides that if there is a running balance account deficit debt on a running balance account at the end of a day, the tax debtor is liable to pay to the ATO the amount of the debt which is due and payable at the end of that day. Having regard to the ATO proof of debt, I am satisfied the ATO had established a running balance account in respect of the GST amounts owed by the Company.

126 Immediately prior to the first of the cash withdrawals in the relevant period, the Company had unpaid quarterly GST liabilities for the entire 2018 year and the first two quarters of the 2019 year amounting to $60,424.45. The Company's GST liability for the first quarter of 2018 was due as early as 28 April 2018 and outstanding for 15 months at the commencement of the relevant period. The entirety of the Company's running balance account deficit debt (including the second quarter of 2019) was due and payable by no later than 28 July 2019.[77] There is nothing to suggest the Company had made any provision or evinced any capacity to pay it.

127 Fourthly, the Company's taxation liabilities are clearly relevant to an assessment of its solvency as a matter of commercial reality. It would be nonsensical to ignore a company's significant taxation liabilities because it had failed to lodge tax returns and Business Activity Statements and thereby not disclosed its income and activities to the ATO.

128 In Yeo v Sklenovski,[78] an insolvent trading case brought under s 588G of the Corporations Act, the liquidators contended, and the Court accepted, that taxation liabilities were debts even if the taxpayer had not yet disclosed income to the ATO and been assessed for that income.[79] Justice Anderson ultimately took into account the company's unpaid tax liabilities, as set out in a proof of debt submitted by the ATO, in determining that the relevant company was insolvent at the applicable time.[80] Similarly, in Ashala Model Agency Pty Ltd (in liq) v Featherstone,[81] a voidable transaction case brought under Division 2 of Part 5.7B of the Corporations Act, the relevant company had not at any point attended to its taxation affairs or paid its tax liabilities. It was common ground that the company's financial position should be assessed by having regard to its unmet tax liabilities.[82] To this end, the liquidator prepared reconstructed statements of profit and loss on a cash accounting basis to estimate the income tax and GST payable in respect of the relevant periods. On the basis of those reconstructions, Jackson J concluded that the company was insolvent at the relevant time.[83] His Honour's solvency analysis was undisturbed on appeal.[84]

129 Lastly, despite Mr Walls complaining that the ATO proof of debt is excessive because it does not include expenses and input tax credits which would have reduced the tax payable, save for the invoices Mr Walls relied upon in seeking to explain the cash withdrawals, he has not provided any detail of or evidence to demonstrate what expenses and input tax credits ought to have been taken into account in determining the Company's tax liability. I have already explained why Mr Walls' evidence in relation to the cash withdrawals is largely deficient and unreliable.

130 In summary, although the Company had a bank account balance of $117,568.90 on 1 August 2019 (the start of the relevant period), at the same time it was liable to the ATO in the amount of $60,424.45 in respect of running balance account deficit debts. Further, significant income tax liabilities of $166,167.25 were payable either imminently or within several months after the relevant period. In addition, as at 6 August 2019, the Company owed Belectric a judgment debt in the sum of $24,000. As already observed, following the cash withdrawals, the Company only had $10,336.03 in its bank account and just over $3.00 by the end of August 2019, with minimal income being deposited into the account after that time. The Company had insufficient assets and income with which to pay those debts. There is therefore a solid evidentiary foundation for the Court to conclude that the Company was insolvent at the time each of the cash withdrawals occurred. Alternatively, the making of the cash withdrawals rendered the Company insolvent.

131 In the result, the plaintiffs have successfully invoked the statutory presumption of insolvency under ss 588E(4)(a) and 286(1) of the Corporations Act and Mr Walls has been unable to rebut that presumption. They have also established on the balance of probabilities that the Company was actually insolvent pursuant to s 95A of the Corporations Act at the time each of the transactions comprising the cash withdrawals were entered into. Alternatively, the Company became insolvent because it entered into each of those transactions. To the extent necessary, the statutory presumption set out in s 588E(3) also arises and the Company is presumed to be insolvent during the 12 months ending on the relation-back day, or at least during the relevant period. It follows that the cash withdrawals are insolvent transactions for the purpose of s 588FC of the Corporations Act.

132 In addition to bringing the uncommercial transaction claim against Mr Walls, the plaintiffs also allege that the cash withdrawals constitute unreasonable director‑related transactions for the purpose of s 588FDA of the Corporations Act.

133 Whilst s 588FDA is drafted in very similar terms to the uncommercial transaction provision in s 588FB of the Corporations Act, it employs a narrower definition of 'transaction' than the meaning found in s 9 of the legislation. However, unlike the uncommercial transaction provision in s 588FB, the insolvency of the Company at the time of the cash withdrawals is not a relevant consideration in determining whether they are voidable for being unreasonable director-related transactions. Section 588FDA operates to catch director-related transactions not otherwise liable to be challenged under the other voidable transaction provisions in Division 2 of Part 5.7B of the legislation.[85] The provision has been described as an anti-avoidance provision aimed at preventing directors from stripping benefits out of companies to their own advantage.[86]

134 For a transaction to constitute an unreasonable director-related transaction, the following essential elements must be satisfied:

(a) there is a transaction of a company of the type mentioned in s 588FDA(1)(a) (including a payment, transfer or disposition) which is 'by the company';

(b) the benefit of the transaction is 'to' the director of the company, a close associate of the director, or a person on behalf of, or for the benefit of, the director or associate (s 588FDA(1)(b)); and

(c) it might be expected that a reasonable person in the company's circumstances would not have entered into the transaction having regard to its respective benefits and detriments (including any benefit or detriment to the company) and any other relevant matter (s 588FDA(1)(c)).

135 It is clear that each of the cash withdrawals was a transaction for the purpose of s 588FDA(1)(a) of the Corporations Act. I am also satisfied that each of the transactions were to Mr Walls as director of the Company because he made the cash withdrawals. According to Mr Walls, $70,000 in cash withdrawals were directed to companies and businesses owned and operated by Ms Doyle, with whom he shares, or has shared, a number of business interests and a residential address (according to ASIC records). I consider Ms Doyle to be a close associate of Mr Walls. Any cash withdrawals directed to companies associated with Ms Doyle were made to those companies on behalf of, or for the benefit of, Ms Doyle as a close associate of Mr Walls.

136 I am satisfied that most (but not all) of the transactions were unreasonable in the circumstances, including for lack of evidence of benefit to the Company, an absence of proof of payment to the suppliers Mr Walls alleges ultimately received the cash withdrawals, and/or because they were not conducted by independent parties at arm's‑length. In finding that a reasonable person in the Company's circumstances would not have entered into the transactions, I adopt my analysis and reasoning in relation to the uncommercial transaction claim set out above.

137 The cash withdrawals I do not regard as unreasonable are $4,000 in cash withdrawals relating to personal drawings by Mr Walls and $9,000 in cash withdrawals directed towards the IBISWorld subscription. Accordingly, cash withdrawals taken out over the relevant period for the total sum of $87,000 are unreasonable director-related transactions for the purpose of s 588FDA of the Corporations Act.

138 As a consequence of the foregoing matters, I am satisfied that the cash withdrawals are voidable transactions pursuant to s 588FE(3) of the Corporations Act because they are insolvent transactions under s 588FC and also uncommercial transactions of the Company pursuant to s 588FB(1) entered into during the two years ending on the relation-back day. Alternatively, the cash withdrawals are unreasonable director‑related transactions within the meaning of s 588FDA of the legislation and voidable under s 588FE(6A) as they were entered into during the four years ending on the relation-back day.

139 There will be judgment against Mr Walls in the sum of $87,000 pursuant to s 588FF(1)(a) of the Corporations Act, together with interest. I will hear the parties on the precise formulation of the necessary orders and on the question of costs.

BEN ROBERT TE WIERIK AS LIQUIDATOR OF ROCOCO GROUP PTY LTD (ACN 623 241 154)

[1] In addition, on 17 June 2020, Sifris J (as his Honour then was) made an order referring the matter to an Associate Judge for hearing and determination pursuant to r 77.05 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) and r 16.1(3) of the Supreme Court (Corporations) Rules 2013 (Vic).

[2] By orders dated 15 June 2021, the claims against Loft were struck out with a right of reinstatement.

[3] [2020] VSC 346.

[5] Re Harris Scarfe Ltd (in liq) [2006] SASC 277; (2006) 203 FLR 46, 54-6 [26]-[29] (Debelle J) (affirmed on appeal in Gazal Apparel Pty Ltd v Davies & Ors [2007] SASC 91).

[6] See ss 588FE(3) and (4) of the Corporations Act.

[7] See s 588FE(6A) of the Corporations Act.

[8] [2007] FCAFC 185; (2007) 164 FCR 83, 109 [129] (Heerey J agreeing).

[9] Shot One Pty Ltd (in liq) v Day [2017] VSC 741, [221] (Sloss J), noting the Full Court of the Federal Court decision of Demondrille Nominees Pty Ltd v Shirlaw [1997] FCA 1220; (1997) 25 ACSR 535, 548 (Foster, Lindgren and Madgwick JJ) ('Demondrille Nominees'), which considered that the purpose or object of the relevant provision is to prevent a depletion of the assets of a company which is being wound up by, relevantly, 'transactions at an under-value' entered into within a specified limited time prior to the commencement of the winding up.

[10] Shot One Pty Ltd (in liq) v Day [2017] VSC 741, [221] (Sloss J).

[11] 640 Elizabeth Street Pty Ltd (in liq) v Maxcon Pty Ltd [2015] VSC 22, [37] (Sifris J, as his Honour then was), citing Demondrille Nominees.

[12] Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2011] NSWCA 109; (2011) 81 NSWLR 47, 60 (Young JA). See also Re Employ (No 96) Pty Ltd (in liq) [2013] NSWSC 61; (2013) 93 ACSR 48, 66-7(Black J).

[13] McDonald v Hanselmann [1998] NSWSC 171; (1998) 144 FLR 463, 470 (Young J); Welcome Homes Real Estate Pty Ltd v Ziade Investments Pty Ltd [2007] NSWCA 167, [56] (Hodgson JA, with Spigelman CJ and Santow JA agreeing) ('Welcome Homes'); Old Kiama Wharf Co Pty Ltd (in liq) v Betohuwisa Investments Pty Ltd [2011] NSWSC 823; (2011) 85 ACSR 87.

[14] Welcome Homes [54] (Hodgson JA, with Spigelman and Santow agreeing).

[16] Mulherin v Bank of Western Australia Ltd [2006] QCA 175, [25], [27] (Jerrard JA).

[17] [2021] NSWSC 232; (2021) 150 ACSR 274, 285-6 (Rees J). See also Farid Assaf, Brett Shields and Hilary Kincaid, Voidable Transactions in Company Insolvency (LexisNexis Butterworths, 2015) ('Assaf, Shields, and Kincaid') [5.16].

[18] [2006] NSWSC 1132; (2006) 205 FLR 186.

[21] Transcript of Proceedings, Re Rococo Group Pty Ltd (in liq) (Supreme Court of Victoria, S ECI 2020 02551, Hetyey AsJ, 16 June 2021) ('Transcript') 49.

[22] See the definition of 'related entity' in s 9 of the Corporations Act.

[23] See the third te Wierik affidavit [19] and exhibit BTW-3 to the third te Wierik affidavit, 26-7.

[24] As explained by Austin J in Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; (2009) 236 FLR 1, 82 [400], s 1305(1) of the Corporations Act allows a company's books to be admitted into evidence without any 'authenticating' evidence by a witness, and allows the books to be relied on to prove transactions recorded in them, however, 'it does not elevate matters contained in the books to a plane of probative value that requires the court to disregard the context in which the matters relied on appear in the tendered document'. For example, if there is doubt as to whether a particular transaction is recorded in the book because of uncertainty about the status of the document or ambiguity about what it contains, s 1305(1) does not overcome that problem.

[26] Exhibits MFI-1 and MFI-2, tendered at Trial of Proceedings, Re Rococo Group Pty Ltd (in liq) (Supreme Court of Victoria, S ECI 2020 02551, Hetyey AsJ, 16 June 202: ASIC company current organisation extract for Koala Coffee Australia Pty Ltd and ASIC personal name extract for Stephanie Doyle and David Walls.

[27] Exhibit MFI-3, tendered at Trial of Proceedings, Re Rococo Group Pty Ltd (in liq) (Supreme Court of Victoria, S ECI 2020 02551, Hetyey AsJ, 16 June 2021).

[28] See exhibit BTW-12 to the first te Wierik affidavit.

[29] The Memorandum of Understanding contemplated, among other things, that Mr Walls and Mr Jason Walls were responsible for making their own deposits of income into the Company's account and responsible for any withdrawal and disbursement of 'their own funds'.

[30] An admission is an exception to the rule against hearsay: see the Evidence Act 2008 (Vic) s 81(1) and the statutory definition of an admission contained in the dictionary to that legislation.

[31] [2006] VSC 338; (2006) 58 ACSR 631, 651-2 [140] ('Crema v Land Mark Property').

[32] [1999] FCA 728.

[33] Crema v Land Mark Property [2006] VSC 338; (2006) 58 ACSR 631, 652 [141].

[35] (1966) 115 CLR 666, 670.

[36] Ibid 670. See also Crema v Land Mark Property [142] (Dodds-Streeton J); Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) and (No 10) (2008) 39 WAR 1, 145 [1090] (Owen J); Jetaway Logistics Pty Ltd v Deputy Commissioner of Taxation [2009] VSCA 319; (2009) 26 VR 657, 659 [12] (Maxwell P, Byrne and Williams AJJA).

[37] [2019] VSCA 215 [99] (Kyrou, McLeish and Niall JJA) [('Queensland Phosphate').

[38] Quoting Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation [2001] NSWSC 621; (2001) 53 NSWLR 213, 224 [54] ('Southern Cross') quoted in Wimpole Properties Pty Ltd v Beloti Pty Ltd [No 3] [2012] VSC 219 [40].

[39] Citing Southern Cross, 224-5 [54]; Lewis v Doran [2004] NSWSC 608; (2004) 208 ALR 385, 408 [106]; Evans & Tate Premium Wines Pty Ltd v Australian Beverage Distributors Pty Ltd [2005] NSWSC 186 [11]; Jetaway Logistics Pty Ltd v Deputy Commissioner of Taxation [2009] VSCA 319; (2009) 26 VR 657, 660 [13] ('Jetaway').

[40] Citing Jetaway, 660 [14]-[15].

[41] Quick v Stoland Pty Ltd [1998] FCA 1200; (1998) 87 FCR 371, 380; Quin v Vlahos [2021] VSCA 205 [45] (Kyrou, Kennedy and Walker JJA) ('Quin v Vlahos').

[42] [2019] VSC 624 ('Re Overgold').

[43] Ibid [26], citing the guidance given by the authors in Assaf, Shields, and Kincaid [2.16].

[44] Edwards v Attorney General [2004] NSWCA 272; (2004) 60 NSWLR 667, 679 ('Edwards v Attorney General') [60]; New Cap Reinsurance Corporation Ltd (in liq) v A E Grant (2008) ACSR 176, 194 [75] (White J); Fitzgerald v CBL Insurance Ltd [2014] VSC 493 [100] (Sloss J); Re Legend International Holdings Inc (in liq) [2018] VSC 789 [142] (Randall AsJ). See also Expo International Pty Ltd (in liq) v Chant [1979] 2 NSWLR 820 at 839 (Needham J).

[45] Michael Murray and Jason Harris, Keay's Insolvency: Personal and Corporate Law and Practice (Thomson Reuters, 10th ed, 2018) 14 [1.165]. See also Community Development Pty Ltd v Engwirda Construction Co [1969] HCA 47; (1969) 120 CLR 455, 459 (Kitto J, with whom Barwick CJ and Windeyer J agreed); Re Melbournehomes.com Pty Ltd (in liq) (2020) 356 FLR 390 ('Re Melbournehomes.com'), 413 [83] (Hetyey AsJ).

[46] Assaf, Shields, and Kincaid [2.20] citing Edwards v Attorney General 679 [59]. See also Stonegate Securities Ltd v Gregory [1980] Ch 576; [1980] 1 All ER 241; Re Simionato Holdings Pty Ltd; Commissioner of Taxation v Simionato Holdings Pty Ltd [1997] FCA 125; (1997) 15 ACLC 477.

[47] Barboutis v The Kart Centre Pty Ltd (No 2) [2020] WASCA 41 [123] (Buss P, Mitchell and Vaughan JJA) ('Barboutis v Kart Centre'), citing Melbase Corporation Pty Ltd v Segenhoe Ltd [1995] FCA 1225; (1995) 17 ACSR 187, 198.

[48] Barboutis v Kart Centre [124].

[49] [2003] VSC 123; (2003) 175 FLR 124.

[51] See decision of Perram J in Morris v Danoz Directions Pty Ltd (in liq) (No 2) [2010] FCA 836.

[52] [2008] FCA 1801; (2008) 68 ACSR 493 [16].

[53] Lewis v Doran [2004] NSWSC 608; (2004) 208 ALR 385, 408-9 [106]-[108] (Palmer J), approved by the New South Wales Court of Appeal in Lewis v Doran [2005] NSWCA 243; (2005) 219 ALR 555. See also Stone v Melrose Cranes & Rigging Pty Ltd (No 2) [2018] FCA 530; (2018) 125 ACSR 406, [146] (Markovic J).

[54] See Assaf, Shields, and Kincaid [2.44], citing M & R Jones Shopfitting Co Pty Ltd v National Bank of Australasia Ltd (1983) 7 ACLR 445, 451 (Wootten J); Welcome Homes [2007] NSWCA 167, [40] (Hodgson JA, with whom Spigelman CJ and Santow JA agreed, adopting the approach of the primary Judge). See also Coates Hire Operations Pty Ltd v D-Link Homes Pty Ltd [2011] NSWSC 1279, [66] (White J); Shaw v KPR Recruitment Australia Pty Ltd [2017] NSWSC 539, [36] (Gleeson JA); Calvisi v Commissioner of Taxation [2018] VSC 122; (2018) 125 ACSR 79, 88 (Efthim AsJ), Treloar Constructions Pty Ltd v McMillan [2017] NSWCA 72; (2017) 318 FLR 58, 86 [142]; [2017] NSWCA 72; Quin v Vlahos [42].

[55] [2011] NSWSC 964.

[56] Robert Austin and Ashley Black, Austin & Black's Annotations to the Corporations Act, (LexisNexis, 2010), [2M.286].

[57] Re Lawrence Waterhouse Pty Ltd (in liq) [2011] NSWSC 964, [235]-[238].

[58] Re Melbournehomes.com 420, [113] (Hetyey AsJ).

[59] [2019] FCA 1846.

[65] Anshun estoppel prevents the bringing of a cause of action or the raising of a defence in a new proceeding if the matter is so relevant to the subject matter of an earlier proceeding that it would have been unreasonable not to rely upon it in the earlier proceeding: see Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589, 602-3 (Gibbs CJ, Mason and Aickin JJ).

[67] [2021] VSC 206, [38] (Hetyey AsJ).

[68] See Commissioner of State Taxation (WA) v Pollock (1993) 12 ACSR 217, 229-30 (Ipp J with Pidgeon and Wallwork JJ agreeing) ('Pollock'); Sutherland v Liquor Administration Board (1997) 24 ACSR 176; Sands & McDougall Wholesale Pty Ltd (In liq) v Commissioner of Taxation (Cth) [1998] VSCA 76; (1999) 1 VR 489, 504 [36] (Charles JA with Brooking and Kenny JJA agreeing) ('Sands & McDougall Wholesale v Commissioner of Taxation (Cth)'); Powell v Fryer [2001] SASC 59; (2001) 159 FLR 433, 443 [64]-[66] (Olsson J) ('Powell v Fryer').

[69] Pollock 224 (Ipp J); Re Overgold [12]-[16] (Gardiner AsJ).

[70] See Powell v Fryer 443-4 [64]-[73] (Olsson J, Duggan and Williams JJ agreeing); Sands & McDougall Wholesale v Commissioner of Taxation (Cth) 504-5 [36]-[37] (Charles JA, Brooking and Kenny JJA agreeing); Rambaldi v Rice Bar Restaurant Pty Ltd [2018] VSC 218 [32]-[33] (Gardiner AsJ); Hall v Poolman [2007] NSWSC 1330; (2007) 215 FLR 243.

[73] See at https://jade.io/article/584353.

[74] See the liquidator's letter to the ATO dated 1 June 2021 at exhibit BTW-3 to the third te Wierik affidavit.

[76] See legislative instrument titled 'LODGE 2019/1' at https://www.ato.gov.au/law/view/view.htm?docid=%22OPS%2FLODGE20191%2F00001%22.

[77] See s 8AAZH(1) of the TAA and https://www.ato.gov.au/business/business-activity-statements-(bas)/due-dates-for-lodging-and-paying-your-bas/.

[78] [2020] FCA 1540.

[79] Ibid [26] (Anderson J) citing Pollock and Re Overgold [12]-[16].

[81] [2016] QSC 121; [2017] 2 Qd R 1.

[84] Featherstone v Ashala Model Agency Pty Ltd (in liq) [2017] QCA 260, 6 [21] (Sofronoff P), 24 [114] (Morrison JA), 42 [200] (McMurdo JA).

[85] Vasudevan v Becon Constructions (Aust) Pty Ltd [2014] VSCA 14; (2014) 41 VR 445, 453 [28] (Nettle JA, Beach JA and McMillan AJA agreeing) ('Wulguru Retail Investments v Becon Constructions').

[86] See Assaf, Shields, and Kincaid [7.1], citing Wulguru Retail Investments v Becon Constructions [2014] VSCA 14; (2014) 41 VR 445, 451 [19] (Nettle JA, Beach JA and McMillan AJA agreeing).