The company's balance sheet as at 28 February 1998 is set out in Mr Withers first affidavit. The figures there need to be corrected by some information in his second affidavit. The corrected figures are:

This gives a surplus of assets over liabilities of $120,857.

On the basis of these figures on a balance sheet test, the company is solvent. But that is not the appropriate test in a winding up application. The appropriate test is commercial solvency or cashflow solvency. By s95A of the Corporations Law the test is: Is this company able to pay all its debts as and when they become due and payable. I examine the figures again from this perspective. I propose to ignore the $82,000 goodwill as that is only available on a total sale of the business. Likewise, I propose to ignore the $2,000 for office equipment.

In his first affidavit Mr Withers says the company has "debtors $63,900 plus $46,000 write off". I take that to mean that the company has $63,900 current debtors and has written off another $46,000 in bad debts. He gave details of three debts only within the $63,900 which he expects to be paid in the near future and he gives dates for that:

In his second affidavit he says the debtors figure of $46,000 in his first affidavit is now $44,572.63 because two of the debts have been paid. He attaches a list of those debtors. There are thirteen of them and their debts total $44,572.63. In the first affidavit he said those debts were "write-off" which I take to mean "written-off". In the second he says:

"I am hopeful for these debtors being paid in the next few months but they may well require recovery action as they are doubtful."

The affidavits are contradictory. He could have debtors of $63,900 plus $44,572. Or, he could have much less than that. Of the $63,900 debtors he has only itemised three amounts totalling $19,900. Doing the best I can with this contradictory material I consider he has three debtors whom he expects to pay:

With one exception he has not given the age of any of the debts. If the "write-off debts" are truly that, then he has $19,900 of recoverable debts. He has since paid off $7,043 to the applicant. If that has come from recovered debts as anticipated his outstanding recoverable debts are now about $12,000.

Is the company able to pay all its debts as and when they fall due? It has an average trading profit of $3,263 per month based on the last eight months of trading. Some or all of that could be used to pay off bad debts over a period of time. It may be able to recover some of its outstanding debts if it sues for them over a period of time. But that is not really good enough. The test of insolvency is to examine his financial position now. These old debts are legally due now. Is the company able to pay them off now? The answer is no. Maybe the company can over a period of time.

This company, in my view, is commercially insolvent now and that is so whether Garreffa's debt is now nil or $11,000. I therefore propose to refuse leave under s459S because this debt is not critical to its solvency. But because the company is trading with some success and has made an effort to pay off part of the applicant's debt, namely $7,043.37 in recent days, and, on the authority of Re Presha Engineering (Aust) Pty Ltd (1983) 1 ACLC 677 a decision of Murphy J of the Victorian Supreme Court, I propose to adjourn this case for six months to see if the company can pay out the applicant debt. I will review its solvency then. I quote from para 1 of the headnote of that case which is, I think applicable to the facts of this case.

"1. As a general rule a petitioner is entitled to a winding up order where the company has failed to comply with a statutory notice of demand. However, the court has a discretion whether to make an order and in exceptional circumstances it may be better for the creditors as a whole to allow the company to trade on rather than have the company wound up. The court may adjourn the petition to enable time to elapse for the court to see whether or not the aspirations of the company or its directors will be realised."

I refuse leave to the respondent under s459S and I will adjourn the winding up application for further hearing on 18 November 1998. Pursuant to s459R(2) I extend the time within which the application must be determined to 18 November 1998. I will hear the parties on costs.