10 Mr Ibrahim says that Note 4 is inaccurate in the sense that the amount of the sale price applied to one of the related companies, BBLCBE should be $253,658 instead of $116,636. That balances the sum for which the business was sold with the amount applied in related party loans.
11 Pulse sold the business in February 2018 for $625,919.43. As a result, Mr Ibrahim received $289,218 of which $264,000 was passed on to BBLCBE. BBLCBE then paid $145,000 into the Company's solicitor's account which was used to pay the Company's debt to the ATO of $139,936.54 in full. The amount of $145,000 can therefore be applied in reduction of BBLCBE's debt to the Company. The Company's accountant has confirmed that all of its business activity statements and tax returns have been lodged. Mr Scott confirmed that the debt to the ATO has been paid.
12 By their directors, the related companies have given evidence that they have received copies of the originating process and related materials, that they approve the way the sale of the business to Pulse was accounted for, that they recognise that they are no longer creditors of the Company and that they consent to the Court making the orders sought. They have also undertaken to assist the Company financially in the future should it be required. The related companies executed a deed of subordination as evidence of their forbearance to sue if the Company remains indebted to them. Counsel for Mr Ibrahim accepted that the deed might be of no effect since Mr Ibrahim had no authority to sign it on behalf of the Company in March 2018, however, I accept that in light of the evidence given by Mr Ibrahim and Aziz and Romany Ibrahim, that is not material in the context.
13 Following 28 February 2017, the Company acted as a consultant for the construction phase of establishing radiology practices. Mr Ibrahim says that he uses the Company as a vehicle through which his specialised skills are provided. The Company operates without employing staff or incurring overheads such as rent. He says that the Company is often between jobs, and its last job was completed in May 2017. He says that on 10 January 2018, the Company entered into a contract to provide consulting services for the establishment of a radiology practice in Loganholme, Queensland, for a fee of $61,000 plus GST and construction was due to commence on 19 March 2018. He says that the Company was in the process of negotiating other consulting jobs at the time it was wound up and Mr Ibrahim is confident that the Company will secure another identified consulting contract if the project progresses past the planning stage and the winding up is terminated. Ending the winding up will allow the Company to perform its commitment in relation to the radiology practice in Loganholme.
14 The executive summary (at 1.7) and conclusion (at 4.1) to Mr Barden's report dated 20 March 2018 are to substantially the same effect as follows (as written):
1.7.1 I have concluded that the Company is solvent as at 31 January 2018 and in the event that the winding up of the Company is terminated, it will be in a position to operate in a financially sound and responsible way moving forward, and to service unforeseen indebtedness.
1.7.2 The primary reasons for my opinion are set out below.
a. The Company has access to significant alternative sources of funds from the sole director and other related parties and accordingly, on a cashflow test, the Company is solvent and appears to have access to funds to meet future expenses;
b. The Company has a net asset surplus as at 30 June 2017 and 31 January 2018 and accordingly, on a balance sheet test, the Company is solvent.
c. Apart from the debt due to Australian Taxation Office, the Company does not display the usual Indicia of Insolvency as setout in ASIC v Plymin (2003) 46 ACSR 126.
1.7.3 In addition, my conclusion is also based upon the following:
a. The only known unrelated creditor of the Company as at the date of liquidation was the Australian Taxation Office, whose debt was paid in full plus costs, by funds advanced by a related entity, on 2 March 2018, following the Company and the director/member becoming aware of the recovery action commenced by the Australian Taxation Office.
b. The Company was not made aware of the recovery action that had been commenced by the Australian Taxation Office due to its former external accountant, Chruton Kelly, not updating the address of the Registered Office of the Company with ASIC when it moved;
c. The related party creditors of the Company have entered into a Deed of Subordination with the Company in respect to amounts due to them by the Company.
d. The Cashflow Forecast of the Company reveals that if the winding up order is terminated, it is likely to trade as a significant cash profit over the next 12 months.
e. The Company traded profitably for the year ended 30 June 2017. The Company has not actively traded following the sale of its radiology business in February 2017.
15 Mr Scott's affidavit includes a report to the Court dated 26 March 2018. It disclosed that the Company had net current assets of $38,959, a related party loan account of $173,109, and an overdrawn balance owed to St George Bank of $84.70. He is not aware of any other non-related party creditors other than the ATO. Mr Scott notes irregularities in the way the sale of the Company's business and repayment of related party loans has been accounted for. He notes that Mr Ibrahim had arranged for the debt to the ATO to be paid. Having read Mr Barden's report, and despite constraints of time, Mr Scott accepts that the Company was likely solvent on 31 January 2018 but in the absence of all books and records, he is not in a position to confirm that. He does not disagree that the Company is likely to be solvent going forward if it is able to continue to trade and has the support of related parties. Subject to the small debt to St George being paid and his costs and expenses, Mr Scott neither opposes not supports the orders proposed being made.
16 In response to Mr Scott's report, Mr Ibrahim has caused the debt to St George to be paid, confirmed that Mr Scott's fees will be paid in full by the time the application is heard, confirmed that all of the Company's books and records in his possession have been provided to Mr Scott and provided evidence (in the form of affidavits) that he and those that control related companies are willing to provide support to the Company if it is required moving forward. The related parties have agreed to give effect to the transactions recorded in the Company's accounts in relation to intercompany balances.
17 Further, Mr Ibrahim says that if orders terminating the winding up of the Company are made he will change the Company's registered address to his residential address. The circumstances which led to the Company being wound up were inadvertent, but if the winding up is terminated, he will, by changing the registered office, ensure that they will not be repeated. He says that this experience has made him appreciate the importance of accurate record keeping and he will work closely with his accountant to ensure that the Company's records are always kept accurately in the future.
18 I note that the Australian Securities and Investments Commission has been served with the originating process but has not responded with advice as to whether it opposes the application and it did not appear at the hearing.
19 I accept that the principles to be applied on an application of this kind are those summarised by Edelman J in Doolan, in the matter of MIH Company Pty Ltd (in liq) v MIH Company Pty Ltd (in liq) [2015] FCA 1130 at [9]-[11]. I also accept that in assessing solvency, the Company's position as a whole, having regard to its commercial realities, must be taken into account: see Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213; NSWSC 621 at [54]. Having regard to those principles and in light of the evidence I made the orders sought on 3 April 2018.
I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell.