Inner West Demolition (NSW) Pty Limited v Silk

District Court of NSW|2017-10-09

Man Pty Ltd v Carroll [2009] FCA 1415; (2009) 76 ACSR 67 Newell v De Costi [2018] NSWCA 49 Payne v Parker [1976] 1 NSWLR 191 Powell v Fryer [2000] SASC 97; (2000) 18 ACLC 480 Powell v Fryer [2001] SASC 59; (2001) 37 ACSR 589 Re Glass Recycling Pty Ltd [2014] NSWSC 439 Re Kukulovski [2015] NSWSC 2040 Re Swan Services Pty Ltd (in liquidation) [2016] NSWSC 1724 RHG Mortgage Corporation Ltd v Ianni [2016] NSWCA 270 Sandell v Porter (1966) 115 CLR 666 Southern Cross Interiors Pty Ltd (in liquidation) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213 The matter of Golden Plantation Pty Ltd [2011] NSWSC 1610 Tourprint International Pty Ltd v Bott [1999] NSWSC 581 Treloar Constructions Pty Ltd v McMillan [2017] NSWCA 72 Williams Group Australia Pty Ltd v Crocker [2016] NSWCA 265 Zappia v Grant Baines Transport Pty Ltd [2010] NSWSC 98 Texts Cited: Corporations and Associations Law: Principles and Issues, sixth edition, Lexis Nexis, Gooley et al Category: Principal judgment Parties: Inner West Demolition (NSW) Pty Limited (Plaintiff) Thomas John Silk (Defendant) Representation: Counsel: A Gerard (Plaintiff) H W Somerville (Defendant)

Solicitors: Wyndham Lawyers (Plaintiff) Bridges Lawyers (Defendant) File Number(s): 2014/00331146

JUDGMENT PARAGRAPH THE PLEADINGS The Amended Statement of Claim 5 Defence 8 ISSUES TO BE DETERMINED 10 THE RELEVANT PROVISIONS OF THE ACT 12 THE ELEMENTS WHICH MUST BE ESTABLISHED BY A PLAINTIFF TO PROVE AN INSOLVENT TRADING CAUSE OF ACTION AGAINST A DIRECTOR 19 THE PLAINTIFF'S EVIDENCE Evidence of Mr Frank Kontrafouris 21 Evidence of Mr G Nardone 41 Evidence of Ms C Marshall and Mr H Billitzer 48 Evidence of Mr N Chase Berry 54 Evidence of Ms M Cailao 64 Evidence of Mr D Hurst 67 Evidence of Mr P Hosking 69 Evidence of Mr S Ghedia 70 Evidence of Mr Anton Petrov 77 THE DEFENDANT'S EVIDENCE Evidence of Mr T Silk 82 THE EXPERT EVIDENCE 146 The evidence of Mr A Barnden 147 The evidence of Mr S McMahon 208 SUBMISSIONS OF THE PARTIES 232 FACTUAL FINDINGS AND OTHER ISSUES Knowledge and belief of Mr Silk 235 STANDARD OF PROOF 241 MR LUNNEY - CONSEQUENCES OF HIM NOT BEING CALLED AS A WITNESS 243 THE DEFENDANT'S SUBMISSIONS AS TO THE ABSENCE OF COMPLETE FINANCIAL RECORDS 250 CONSIDERATION 261 CONSENT TO THE COMMENCEMENT OF THE PROCEEDINGS FROM THE LIQUIDATORS OF ONE BUILD 262 THE TERMS OF THE AGREEMENT BETWEEN THE PARTIES 282 MATTERS NOT IN ISSUE OR CLEAR ON THE EVIDENCE 301 WHETHER ONE BUILD INCURRED DEBTS TO THE PLAINTIFF AND AT WHAT TIMES 302 INSOLVENCY OF ONE BUILD 306 ARE THERE REASONABLE GROUNDS FOR SUSPECTING THAT THE COMPANY WAS INSOLVENT OR WOULD BECOME INSOLVENT AS A RESULT OF THE RELEVANT TRANSACTION? 350 DID MR SILK HAVE REASONABLE GROUNDS FOR SUSPECTING THAT ONE BUILD WAS INSOLVENT OR WOULD BECOME INSOLVENT IF IT INCURRED THE RELEVANT DEBT? 353 WHETHER ANY OF THE DEFENCES HAVE BEEN ESTABLISHED BY MR SILK 361 LOSS OR DAMAGE SUFFERED BY THE PLAINTIFF 372 DETERMINATION 374

Judgment

These proceedings are brought by the plaintiff, Inner West Demolition (NSW) Pty Ltd ("IW") against the defendant, Mr Thomas Silk, for compensation under s 588M of the Corporations Act 2001 (Cth) ("the Act") for loss or damage said to have been suffered by IW due to the alleged insolvent trading of a company of which Mr Silk was a director.
Mr Silk was, at all relevant times, a director of One Build Pty Ltd (in liquidation) ("One Build"). The plaintiff IW alleges that on 30 August 2013 the plaintiff and One Build entered into an agreement whereby the plaintiff agreed as a subcontractor to provide demolition services at Suncorp Place at 259 George Street Sydney to One Build for a fixed lump sum price of $345,000. The plaintiff alleges that on and from 30 August 2013 and at all relevant times, One Build was insolvent or became insolvent by entering into the 30 August 2013 agreement ("the Agreement") or by incurring the debts under the progress payments to be made to IW under the Agreement. The plaintiff alleges that when the debts under the 30 August 2013 Agreement were incurred by One Build, there were reasonable grounds for suspecting that One Build was insolvent or that One Build would become insolvent by incurring each debt under the Agreement. It is also alleged that the defendant knew and had reasonable grounds to suspect that One Build was insolvent or would become insolvent by incurring each debt under the Agreement and that a reasonable person in the like position of Mr Silk would have been aware of those matters.
The plaintiff claims an entitlement to sue Mr Silk for the amount of its loss.
Mr Silk disputes the allegations and also claims that he has statutory defences available to him under s 588H of the Act.

The Amended Statement of Claim

The plaintiff relies on an Amended Statement of Claim filed on 9 June 2017 ("Statement of Claim"). In the Statement of Claim, the plaintiff relevantly pleads: 1. One Build is a corporation pursuant to the Act; 2. Since 17 September 1999, Mr Silk has been a director of One Build within the meaning of the Act; 3. On 30 August 2013, the plaintiff and One Build entered into the Agreement where amongst other things the plaintiff agreed to provide demolition services at 259 George Street Sydney for a fixed lump sum price of $345,000; 4. Under Clause 5.4 of the Agreement, One Build would pay the plaintiff's progress claim under the Agreement "on the Friday after the expiration of 30 calendar days from the last day of the month in which such progress claim was submitted"; 5. In performance of the Agreement, the plaintiff provided demolition services to One Build at Suncorp Place between 3 September 2013 and on or around 17 November 2013; 6. In accordance with the Agreement, the plaintiff made progress claims to One Build being tax invoices dated 24 September 2013, 24 October 2013 and 20 November 2013; 7. As at 26 November 2013, One Build had incurred debts to the plaintiff totalling $327,332.50; 8. On 26 November 2013, One Build was placed into voluntary liquidation and Mr Hill was appointed liquidator of One Build; 9. On 13 December 2013, the creditors resolved to appoint Mr Philip Hosking and Mr David Hurst as liquidators of One Build in the place of Mr Hill; and 10. One Build is being wound up.
The plaintiff makes a number of allegations in relation to the debts allegedly incurred pursuant to the Agreement as follows: 1. One Build incurred the total debt to the plaintiff on or about 30 August 2013 by entering into the Agreement with the plaintiff. This pleading was not pressed at the final hearing. Alternatively, it is pleaded that One Build incurred the total debt to the plaintiff by the issue of the various tax invoices. In the further alternative, it is pleaded that One Build incurred debts to the plaintiff being the total debt each day between 3 September 2013 and 17 November 2013 when the plaintiff provided demolition services at Suncorp Place. This last claim also was not pressed at the final hearing; 2. The plaintiff pleads that on and from 30 August 2013 and at all times relevant, One Build was insolvent or alternatively it became insolvent by entering into the Agreement or by incurring the various debts in the three tax invoices issued as they occurred.
In relation to the insolvency issues, the plaintiff pleads as follows: 1. When each debt forming part of the total debt was incurred, there were reasonable grounds for suspecting that One Build was insolvent or would become insolvent by incurring each debt or any one of them; 2. When each debt was incurred, Mr Silk knew and had reasonable grounds to suspect that One Build was insolvent or would become insolvent by incurring each debt or any one of them; 3. When each debt was incurred, a reasonable person in the like position to that of Mr Silk would have been aware that there were reasonable grounds for suspecting that One Build was insolvent or would become insolvent by incurring each debt or any one of them; 4. Mr Silk failed to prevent One Build from incurring the total of the debts and each debt under each claim; 5. Mr Silk thereby contravened s 588G(2) of the Act; 6. Due to Mr Silk's contravention of s 588G of the Act, the plaintiff has suffered loss and damage in the amount of $327,332.50. This is based on the fact that in the winding up there are insufficient funds to pay any distribution in respect of ordinary unsecured debts which include those of the plaintiff and, as a result, the plaintiff has lost the entirety of its amount claimed under the Agreement; 7. It is pleaded that on 22 September 2014 the plaintiff received written consent from the liquidators of One Build to commence these proceedings against Mr Silk. This issue of consent became a significant issue in the proceedings; 8. It is pleaded that having regard to the matters set out above, the plaintiff was entitled to recover from Mr Silk as a debt due to the plaintiff an amount equal to the total loss or damage allegedly suffered by the plaintiff together with interest under s 588M(3) of the Act.

Defence

A Defence was filed by Mr Silk on 24 April 2015.
The Defence, in summary: 1. Admits that One Build is a corporation under the Act; 2. Admits that Mr Silk has been a director of One Build since 17 September 1999; 3. Admits that the plaintiff and One Build entered into an agreement by which the plaintiff agreed to provide demolition services at Suncorp Place to One Build (paragraph 4); 4. Admits that the plaintiff provided demolition services at Suncorp Place; 5. Admits that the plaintiff made progress claims to One Build; 6. Does not admit that One Build incurred debts to the plaintiff totalling $327,332.50 (paragraph 8); 7. Admits that One Build was placed into voluntary liquidation on 26 November 2013; 8. Admits that the creditors resolved to appoint Messrs Hosking and Hurst as liquidators of One Build on 13 December 2013; 9. Admits that One Build is being wound up; 10. Does not admit that One Build incurred the various debts pleaded by the plaintiff (paragraphs 12-14); 11. Denies that One Build was insolvent on and from 30 August 2013 (paragraph 15); 12. Denies that One Build became insolvent by entering into the Agreement and by incurring the debts in the various progress claims (paragraph 16); 13. Denies that there were reasonable grounds for suspecting that One Build was insolvent when each debt was incurred (paragraph 17); 14. Denies that Mr Silk knew and had reasonable grounds for suspecting that One Build was insolvent when the debts were incurred (paragraph 18); 15. Denies that a reasonable person in the like position of Mr Silk would have been aware that there were reasonable grounds for suspecting that One Build was insolvent (paragraph 19); 16. Denies that Mr Silk failed to prevent One Build from incurring the debt and also denies any breach of ss 588G and 588M of the Act (paragraphs 20 and 25); 17. Says that at the time the debt, if any, was incurred, One Build and Mr Silk had reasonable grounds to expect and did expect, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at the time. 18. Pleads that One Build and Mr Silk had a defence under the Act in relation to information provided by a competent and reliable person as to solvency: see s 588H(3) of the Act.

Issues to be determined

The issues to be determined by the court, as identified by the defendant in his schedule of issues and damages, were said to be as follows: 1. Whether the plaintiff has obtained the consent of the liquidators of One Build as required by s 588R of the Act; 2. Whether the plaintiff and One Build entered into an agreement dated 30 August 2013 by which One Build agreed to engage the plaintiff to carry out demolition works at Suncorp Place for the sum of $345,000; 3. Whether One Build incurred debts to the plaintiff totalling $327,332.50 or any part of that sum; 4. If One Build incurred debts to the plaintiff whether: 1. One Build was insolvent at the time of incurring that debt; or 2. One Build became insolvent as a result of incurring that debt; 1. Whether Mr Silk had reasonable grounds to expect that One Build was solvent or would remain solvent if it incurred the relevant debt; 2. Whether Mr Silk had reasonable grounds to believe and did believe: 1. That a competent and reliable person ("the other person") was responsible for providing to Mr Silk adequate information about whether One Build was solvent; 2. Whether the other person was fulfilling that responsibility; and 3. Mr Silk expected, on the basis of information provided to Mr Silk, by the other person, that One Build was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time; 1. Whether the plaintiff was entitled to the amount as claimed of $327,332.50 plus interest or any part of that sum.
In substance, similar issues for determination were raised by the plaintiff. However, in relation to issue (5) above, the plaintiff submitted that Section 588G (1)(c) of the Act required that at the time of the incurring of the relevant debts there were reasonable grounds for suspecting that the company was insolvent which was to be determined objectively: Submissions dated 16 February 2018 paragraph 23.

The relevant provisions of the Act

An issue was raised by the defendant in relation to whether the plaintiff had the appropriate consent from the liquidators of One Build to commence these proceedings.
Section 588R of the Act provides as follows: 588R Creditor may sue for compensation with liquidator's consent (1) A creditor of a company that is being wound up may, with the written consent of the company's liquidator, begin proceedings under section 588M in relation to the incurring by the company of a debt that is owed to the creditor. (2) Subsection (1) has effect despite section 588T, but subject to section 588U.
There is no evidence that any of the circumstances in s 588U of the Act applied.
There was also no evidence that the plaintiff had given the liquidators notice of their intention to sue within s 588S of the Act. Accordingly, s 588R(1) is the relevant section to this case.
Section 588M of the Act provides as follows: 588M Recovery of compensation for loss resulting from insolvent trading (1) This section applies where: (a) a person (in this section called the director) has contravened subsection 588G(2) or (3) in relation to the incurring of a debt by a company; and (b) the person (in this section called the creditor) to whom the debt is owed has suffered loss or damage in relation to the debt because of the company's insolvency; and (c) the debt was wholly or partly unsecured when the loss or damage was suffered; and (d) the company is being wound up; whether or not: (e) the director has been convicted of an offence in relation to the contravention; or (f) a civil penalty order has been made against the director in relation to the contravention. (2) The company's liquidator may recover from the director, as a debt due to the company, an amount equal to the amount of the loss or damage. (3) The creditor may, as provided in Subdivision B but not otherwise, recover from the director, as a debt due to the creditor, an amount equal to the amount of the loss or damage. (4) Proceedings under this section may only be begun within 6 years after the beginning of the winding up.
The issue therefore arises whether Mr Silk, as a Director of One Build, has breached s 588G(2) of the Act in relation to the incurring of a debt by One Build to allow recovery by IW under s 588M(3) of the Act. Sections 588G(1)-(2) of the Act provide as follows 588G Director's duty to prevent insolvent trading by company (1) This section applies if: (a) a person is a director of a company at the time when the company incurs a debt; and (b) the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and (c) at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and (d) that time is at or after the commencement of this Act. (1A) For the purposes of this section, if a company takes action set out in column 2 of the following table, it incurs a debt at the time set out in column 3. When debts are incurred [operative table] Action of company When debt is incurred 1 paying a dividend when the dividend is paid or, if the company has a constitution that provides for the declaration of dividends, when the dividend is declared 2 making a reduction of share capital to which Division 1 of Part 2J.1 applies (other than a reduction that consists only of the cancellation of a share or shares for no consideration) when the reduction takes effect 3 buying back shares (even if the consideration is not a sum certain in money) when the buy‑back agreement is entered into 4 redeeming redeemable preference shares that are redeemable at its option when the company exercises the option 5 issuing redeemable preference shares that are redeemable otherwise than at its option when the shares are issued 6 financially assisting a person to acquire shares (or units of shares) in itself or a holding company when the agreement to provide the assistance is entered into or, if there is no agreement, when the assistance is provided 7 entering into an uncommercial transaction (within the meaning of section 588FB) other than one that a court orders, or a prescribed agency directs, the company to enter into when the transaction is entered into

(2) By failing to prevent the company from incurring the debt, the person contravenes this section if: (a) the person is aware at that time that there are such grounds for so suspecting; or (b) a reasonable person in a like position in a company in the company's circumstances would be so aware. Note: This subsection is a civil penalty provision (see subsection 1317E(1)).

Defences are available to a director in relation to insolvent trading under s 588H of the Act which provides as follows: 588H Defences about reasonable grounds, illness or reasonable steps (1) This section has effect for the purposes of proceedings for a contravention of subsection 588G(2) in relation to the incurring of a debt (including proceedings under section 588M in relation to the incurring of the debt). (2) It is a defence if it is proved that, at the time when the debt was incurred, the person had reasonable grounds to expect, and did expect, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time. (3) Without limiting the generality of subsection (2), it is a defence if it is proved that, at the time when the debt was incurred, the person: (a) had reasonable grounds to believe, and did believe: (i) that a competent and reliable person (the other person) was responsible for providing to the first‑mentioned person adequate information about whether the company was solvent; and (ii) that the other person was fulfilling that responsibility; and (b) expected, on the basis of information provided to the first‑mentioned person by the other person, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time. (4) If the person was a director of the company at the time when the debt was incurred, it is a defence if it is proved that, because of illness or for some other good reason, he or she did not take part at that time in the management of the company. (5) It is a defence if it is proved that the person took all reasonable steps to prevent the company from incurring the debt. (6) In determining whether a defence under subsection (5) has been proved, the matters to which regard is to be had include, but are not limited to: (a) any action the person took with a view to appointing an administrator of the company; and (b) when that action was taken; and (c) the results of that action.

The elements which must be established by a plaintiff to prove an insolvent trading cause of action against a director

In my view, the relevant elements which have to be established by the plaintiff in the proceedings are accurately summarised in Corporations and Associations Law: Principles and Issues, sixth edition, Lexis Nexis by Gooley et al in Chapter 21. The elements to establish a cause of action under s 588G are therefore as follows: 1. Was the defendant a director at the time when a company incurs a debt; 2. Did the relevant company incur the debt; 3. Was the company "insolvent" at the time of incurring the debt or became insolvent by incurring the debt or by incurring at that time debts including the particular debt; 4. Are there reasonable grounds for suspecting that the company was insolvent or would become insolvent as a result of the relevant transaction; 5. Are any of the statutory defences available to the director? In particular: 1. Has the director proved that at the time when a particular debt was incurred, the director had reasonable grounds to expect, and did expect, that the company was solvent at that time and would remain solvent notwithstanding that it had incurred that debt and any other debts that it may have incurred: s 588H(2); 2. Did the director expect that the company was solvent at the time the debt was incurred as a result of relying on information provided by a competent and reliable person who was responsible for providing information relating to the solvency of the company, s 588H(3); 3. Did the director, at the time the debt was incurred, not take part in management and that this lack of participation by the director was due to illness or was for some other good reason: s 588H(4); 4. Has it been shown that the director has taken all reasonable steps so as to prevent the company incurring the debt: s 588H(5)?
If s 588G has been satisfied and none of the defences in s 588H apply: 1. Is the debt wholly or partly unsecured; and 2. Has the person to whom the debt is owed suffered loss or damage in relation to the debt because of the company's insolvency?

Evidence of Mr Frank Kontrafouris

The plaintiff read two affidavits of Mr Fotis (Frank) Kontrafouris sworn 2 October 2015 and 5 October 2017.
Much of the affidavit evidence of Mr Kontrafouris was not disputed.
In his main affidavit sworn 2 October 2015, Mr Kontrafouris: 1. States that he is the General Manager of the plaintiff IW and that IW is involved in the business of providing demolition services to various sectors of the construction industry. Mr Kontrafouris says that as the General Manager of IW his role generally involves undertaking quoting and submitting tenders for contracts, developing methodologies and work processes for completing demolition work, liaising with clients as well as general administrative duties and dealing with clients regarding payment. Mr Kontrafouris also states that his role as General Manager involves him attending sites to supervise works when required; 2. Gives evidence that IW had dealt with One Build on approximately four occasions in small contracts in 2002 and 2004; 3. States that on 29 May 2013 IW received an invitation to tender from One Build in relation to demolition works concerning the refurbishment of the lobby area of the building at 259 George Street in Sydney. Mr Kontrafouris gives evidence that in early June 2013 he was contacted by One Build's project manager, John Nardone, asking him to tender for the work; 4. Gives the history of various tenders submitted by IW to One Build in the period June to August 2013 after attending the demolition site and conducting an assessment; 5. Gives evidence of lowering the tender price at the request of Mr Nardone and Mr Hadjakis from One Build; 6. Gives evidence that he submitted a final tender price of $355,000 plus GST which was submitted to One Build on 14 August 2013 (paragraph 35); 7. Gives evidence of attending a meeting with representatives of One Build on 22 August 2013 at One Build's head office in Surrey Hills in which, in substance, he made clear that 40-60 day payment terms from end of month invoices were unacceptable to IW and the plaintiff required better payment terms; 8. Gives evidence that on 22 August 2013, IW received an email from Mr Troy Collins of One Build attaching a revised scope of works for the demolition works and stating: "Final Price as discussed is $345,000 + GST with 30 Day Payment terms and Full retention release on completion of works … Please return this credit and cost break up as soon as possible so that I can commence all our paperwork for senior management sign offs and approvals" (paragraph 42 and Exhibit at Tab 13); 9. Gives evidence that on 23 August 2013 he provided a basic cost breakup of the costs in the various stages of the demolition works, added some changes, gave credit for some works and returned a signed scope of works document (paragraph 43 and Tab 14); 10. Gives evidence that by an email dated 30 August 2013, Mr Collins, who was a One Build Contract Administrator, indicated that IW had been successful in its tender. The email stated: "We are pleased to advise that we intend on entering into a Trade Contract Agreement with Inner West Demolition (NSW) Pty Ltd for the Demolition Works for the above project for the total lump sum of three hundred and forty five thousand dollars ($345,000) plus GST at Suncorp Place - 259 George Street, Sydney" (paragraphs 44-45 and Tab 15); 11. Gives evidence that on 30 August 2013 he received an email from Mr Tony Hadjakis, Project Manager from One Build, requiring IW to commence work on the site on 3 September 2013 (paragraph 52 and Tab 17); 12. Gives evidence that on 3 September 2013 IW commenced demolition works at the site (paragraph 54); 13. Gives a detailed history of the demolition works undertaken and the stages of those works in the affidavit. This included works up to 17 November 2013 which gave rise to the third progress claim (paragraphs 108, 116-120 and 126); 14. Gives evidence of three progress claims submitted by IW. These were submitted on 24 September 2013 (paragraph 70), 25 October 2013 (paragraph 105) and 20 November 2013 (paragraph 125). A payment schedule was received from One Build in relation to the first progress claim but no correspondence was received in relation to the second or third progress claims; 15. The payment schedule in relation to the first progress claim had reduced the first progress claim from $188,370 plus GST to a total of $100,210.64 plus GST (paragraph 89) being $110,231.70; 16. Gives evidence that on following up non-payment of the first progress claim, Mr Nardone had informed him that the cheque for payment was ready but was being withheld until the contract for the job was signed and returned. Mr Kontrafouris states that he told Mr Nardone that IW had not received any contract (paragraph 111). A contract was received by IW by email from Mr Collins on 12 November 2013 which had a date of commencement of 30 August 2013, was promptly signed by Mr Kontrafouris on behalf IW and was returned on 12 November 2013 by email to One Build (paragraphs 112-115); 17. Gives evidence in relation to attempts by Mr Kontrafouris to chase up payment from One Build and the eventual collapse of One Build and the appointment of liquidators to it (paragraphs 128-133); 18. Gives evidence that IW has never received any payment from One Build in relation to any of the three progress claims or for the work IW completed at the site (paragraph 134).
The second affidavit of Mr Kontrafouris sworn 5 October 2017 is brief and confirms that IW has still not received any payment for the demolition work completed for One Build (paragraph 5).
As set out above, on 12 November 2013 Mr Troy Collins from One Build forwarded a subcontract agreement for the demolition works to Mr Kontrafouris: see email dated 12 November 2013. The evidence shows that this was signed by Mr Kontrafouris on behalf of IW on 12 November 2013 and returned by way of email to Mr Collins on 12 November 2013. Despite the date of the return and execution, the subcontract works agreement is dated 28 October 2013.
It is important to set out the relevant terms of the subcontract works agreement. It indicates that it is in relation to the project at 259 George Street. The parties to it were One Build and IW. The contract makes clear that the Agreement is in relation to the demolition works at 259 George Street Sydney (Clause 1) and that the fixed lump sum price for the contract, subject to the completion of the works, was $345,000 plus GST or such amount as determined by the schedule of rates under the contract which was not applicable (Clause 2). Clause 3 refers to the documents evidencing the subcontract which include the subcontract works agreement, the subcontract particulars on page 2 of the document and the conditions of the subcontract at pages 3-11 of the document. Other documents are referred to including in Clause 3(d), the Contract Documents as listed in Schedule 1 to the document which refer essentially to architectural and related drawings.
It is noted that the subcontract works agreement in evidence was not signed by One Build. However, there is no suggestion that the parties proceeded from the date of execution by IW on the basis of anything other than the subcontract works agreement.
The subcontract particulars included the following: "Clause 2.1 Date for Commencement 30th August, 2013 … Clause 4.4 Schedule of Rates (to be completed if Subcontract Sum is based on Schedule of Rates) N/A Clause 5.2 Day of month 24th day of each month Clause 5.4 Period of progress claim 30 days Clause 5.4 Rate / Limit of retention is 10% to a maximum of 10%, 100% of retention is to be released at the completion of the Demolition Works …"
Significant clauses are in the conditions of subcontract at pages 3-11 of the document. Relevant provisions in the definition clause are as follows: 1. Definitions and Interpretation 1.1 In this Subcontract: … "Claimed Amount" The amount claimed by the Subcontractor in a Payment Claim. … "Contract Documents" All the documents listed or refereed [sic] to in Schedule 1. … "Contract Sum" the amount stated as such in the contract particulars, subject to any adjustment in accordance with the Contract. … "Date of Contract" the date of the Letter of Intent or if no Letter of Intent is issued by OBC to the Subcontractor, the date the Subcontract Agreement is signed by OBC after the Subcontractor has signed it. ..."
Significant clauses include the following: 2. Commencement and Completion 2 1 The Subcontractor shall commence the Works on the date stated in the Subcontract Particulars or such other date as OBC may notify. 2 2 The Subcontractor shall execute the Works regularly and diligently to the Practical Completion Date stated in the Subcontract Particulars. 2 3 Prior to the Works reaching Practical Completion the Subcontractor must provide OBC with the following (and in the case of subparagraphs (i) to (v), at least 15 days earlier) (1) any written warranties / guarantees as required; (2) all Consultant approved final services and operational manuals; (3) all approvals or certificates from relevant authorities applicable to the Works; (4) all Completion/Operation manuals and the like; (5) three sets of Consultant "as-built" drawings in a form and containing such details as detailed in the Project Scope Documents; (6) all relevant certificates required by the Subcontract and evidence of all applicable approvals, consents and permissions from all relevant Authorities; OBC may withhold payment until the Subcontractor complies fully with his obligations under this clause. … 4. Subcontract Sum 4.1 The Subcontract Sum is not subject to adjustment for rise and fall. The Subcontract Sum includes fluctuations in the Exchange Rate, transport, freight and delivery charges. 4.2 The Subcontractor will be paid either on a lump sum basis or schedule of rates basis, as stated in the Subcontract and inclusive of all site and any other allowances payable to the Subcontractor's employees at any time during the Subcontract Works. The Subcontract Sum will not be adjusted if there is any change to any allowances payable to the Subcontractor's employees. 4.3 If payment is to be made on a lump sum basis, the Contract Sum is the lump sum stated in the Subcontract, adjusted by any additions or deductions in accordance with the Subcontract. 4.4 If payment is to be made on a schedule of rates basis, the Subcontract Sum is the value of the measured quantity of work actually carried out (measured net of the drawings) at the rate stated in the Schedule or Rates referred to in the Subcontract Particulars, adjusted by any additions or deductions in accordance with the Subcontract. 4.5 Quantities in the schedule of rates are estimates only. No increase or decrease in quantities will result in a variation or adjustment of the rate unless deemed otherwise by OBC. 4.6 Measurement for the purpose of clause 4.4 must be carried out jointly by representatives of OBC and the Subcontractor and set out in a certificate, in duplicate, signed by them. No payment will be made to the Subcontractor without a certificate. Any dispute as to measurement must be determined in accordance with clause 24. 4.7 The Subcontract Sum includes the net cost of the all nominated Provisional Sums and includes all costs associated with overheads, administration and profit required to undertake the described works. 5. Payment 5.1 Progress payment claims / tax invoices submitted by facsimile and/or email will not be accepted. OBC may withhold payment until the Subcontractor properly executes the Subcontract and returns it to OBC. 5.2 On the day of the month stated in the Subcontract Particulars the Subcontractor may submit to OBC an original progress claim (tax invoice showing the value of work carried out since the date of the last progress claim and other amounts to which the Subcontractor is entitled under the Subcontract 5.3 Every progress payment claim / tax invoice must be accompanied by the following documents completed by an authorised representative of the Subcontractor: (1) a written statement that : (i) all remuneration and other entitlements payable to or on behalf of the Subcontractor's employees for work under the Subcontract during the period up to submission of the progress claim has been paid (Attachment B); and (ii) all amounts payable to subcontractors and suppliers in respect of the work under the Subcontract have been paid; (2) written evidence that the Subcontractor has paid all relevant taxes, duties, statutory fees and charges' (Subcontractor's Statement); (3) copies of current certificates of currency for public liability, workers compensation and other insurances (where applicable); (4) all relevant calculations; (5) Conformance records showing conformance with particular requirements of the Contract, as provided in the Contract, and the Certificates in the form of Attachment C (Compliance Certificate), signed by the Subcontractor and also by any consultants involved in the works (where applicable), verifying that all work that has been done including design and construction with materials that have been supplied are in accordance with the Contract; and Any other information specified in the Contract. 5.4 OBC will process a payment to the Subcontractor, (provided it has satisfied clause 5.1 and 5.3, the amount properly claimable under clause 5.2 less retention at the rate to the limit referred to in the Subcontract Particulars and any other amounts owing to OBC), on the Friday following the number of days stated in the payment terms in the Subcontract Particulars (counted from the last day of the month in which claims are received by OBC). Payment will be made by cheque and sent to the Subcontractor's address within the following week. 5.5 The Subcontractor will be entitled to claim for the initial portion of the retention monies (following the submission of a notification for the release of the initial retention monies and a tax invoice for the nominated amount) upon the date that is the later of: (1) Three (3) calendar months after the date of the Completion of the Works; and (2) The date of rectification of all defects notified to One Build by the Client under Clause 19 on or before the date which is Two (2) calendar months after the Completion of the Works. Payment of the initial retention monies will be accordance with Clause 5.4. 5.6 The Subcontractor will be entitled to claim for the remaining portion of the retention monies (following the submission of a notification for the release of the remaining retention monies and a tax invoice for the nominated amount) within the date that is the later of three (3) months following the end of the Defects Liability Period or the completion of identified defects. Notification and/or receipt of a tax invoice for the release of the remaining retention monies beyond three (3) months following the end of the Defects Liability Period will be time barred and no longer payable. Payment of the remaining retention monies will be accordance with Clause 5.4. 5.7 In lieu of the retention referred to in clause 5.4 the Subcontractor may provide two unconditional and irrevocable banker's undertakings in form and substance acceptable to OBC provided by a bank or financial institution acceptable to OBC for equal amounts totalling the limit of retention stated in the Subcontract Particulars. Except to the extent that OBC has made a demand under the undertakings, OBC must return one of the undertakings on the Completion of the Head Contract Works and the other undertaking on satisfaction of the obligations under the Defects Liability Period. 5.8 OBC may make any payments on behalf of the Subcontractor directly to the Subcontractor's subcontractor or supplier, but is not under any obligation to do so. The amount will be deemed to be a payment in respect of the Subcontract Sum. 5.9 Late progress claims will be treated as having been made in the following month.
As will be seen, the subcontract works agreement in the conditions of subcontract contemplates progress claims to be made by IW on a monthly basis in relation to the work to be completed by the plaintiff under the Agreement. This appears to reflect what had occurred between the parties prior to the execution by Mr Kontrafouris of the subcontract works agreement on behalf of IW on 12 November 2013.
Mr Kontrafouris was cross-examined in relation to the conversation in paragraph 41 of his 2 October 2015 affidavit. He confirmed that payment 45-60 days from the end of month invoices was unacceptable to IW and that IW had a 14 to 30 day payment policy. Mr Kontrafouris confirmed that Mr Collins had said that he would have to speak to the Director for approval for 30 day payment terms with a $10,000 discount to be applied to the proposed contract sum. It was put to him that he had not received any approval or acceptance of those terms. Mr Kontrafouris disagreed and said that he regarded IW as having secured 30 day payment terms for a $10,000 discount.
Mr Kontrafouris was taken to paragraph 5.4 of the conditions of subcontract. It was put to him that under Clause 5.4, payment could be received up to 42 days after the invoice. Mr Kontrafouris said that he understood the Agreement between the parties was that an invoice was to be paid 30 days from the end of the month in which the invoice was received. He said that he understood that One Build wanted invoices by the 24th day of the month and those invoices would be paid at 30 days from the end of that month. Mr Kontrafouris said it was standard in the industry that invoices would be paid 30 days from the end of the month in which the invoice had been sent.
When questioned further, he agreed that if an invoice had been forwarded on 24th of the month that it would be paid by the 30th of the next month.
Mr Kontrafouris accepted that in the industry some companies were good payers and some were late payers.
Mr Kontrafouris agreed that the subcontract works agreement had been received late but that work had been completed since September 2013 on the terms previously agreed. He denied that the terms of Clause 5.4 of the subcontract conditions had previously been agreed between the parties. Mr Kontrafouris gave evidence that the terms previously agreed were 30 day payment terms and a full retention release on completion of the works. This evidence in substance reflected the email from Mr Collins dated 22 August 2013 which is at page 68 of the exhibits to Mr Kontrafouris' 2 October 2015 affidavit.
While Mr Kontrafouris accepted that there were varying standards of payment in the industry and it was common for payment to be outside the payment terms agreed, that did not mean that it was accepted by all parties.
Mr Kontrafouris confirmed the contents of paragraph 111 of his 2 October 2015 affidavit being that Mr Nardone required the signed contract to be returned before the cheque for payment of the first progress claim was released.
In relation to his second affidavit sworn 5 October 2017 paragraph 5, Mr Kontrafouris confirmed that IW had not received any payment from Memocorp Australia Pty Ltd which was the client for whom One Build was doing the construction work at the site.
Mr Kontrafouris impressed me as a witness of truth. He gave his evidence in a straightforward and direct fashion and made concessions where appropriate. I accept his evidence.

Evidence of Mr G Nardone

The plaintiff read the affidavit of Mr Gianfranco Nardone sworn 1 October 2015.
Mr Nardone is an experienced building Project Manager. He was employed as a Project Manager for One Build for about 3½ years from September 2010. In his role as Project Manager, one of his tasks was to consult with a subcontractor at various stages of the project to discuss particular progress claims and to evaluate and assess progress claims as they were submitted by subcontractors. An assessment was made by Mr Nardone of what work in progress had been done and what was the appropriate figure for a progress claim. Mr Nardone also checked the documents that were forwarded with a claim to ensure that the relevant documents were received. Mr Nardone gave evidence about the procedure within One Build for pursuing payments. Initially payments would be pursued with the accounts clerk, Ms Wang. If the subcontractor had still not received payment, then on occasions the subcontractor would contact Mr Nardone who referred them to Mr John Lunney of One Build (Mr Lunney was the One Build Financial Controller). Mr Nardone gave evidence that he understood that Mr Lunney had the authority within One Build to decide who and how much a subcontractor would be paid (paragraphs 7).
Mr Nardone gives evidence in his affidavit that he was the Project Manager for the project at 259 George Street Sydney where the plaintiff was undertaking the demolition works. Mr Nardone was not working on other projects for One Build at the same time (paragraph 9). Mr Nardone gives evidence in his affidavit that IW performed their demolition work in a proper and workmanlike fashion with no issues as to the scope, quality or performance of their work. He also gives evidence that work was to his understanding, completed in accordance with the contract and that each of IW's progress claims was evaluated and assessed in the ordinary course of business (paragraph 10).
Mr Nardone gives evidence that in the last 6 to 8 months of One Build's business before it went into liquidation he was spending more time than previously dealing with subcontractors chasing payment and that in the last six months he recalls many subcontractors on the Suncorp project chasing payments of progress claim (paragraphs 8 and 11). In each case he referred them to Mr Lunney who he told the subcontractor representative in question had the authority to decide whether a payment was to be made or not. Mr Lunney in such cases would say that he would look into the matter.
In cross-examination, Mr Nardone confirmed that he was only responsible for dealing with payment claims from sites where he was the Project Manager. He confirmed that One Build had many other project managers who dealt with other sites.
Mr Nardone confirmed that sometimes there were issues in relation to receiving the correct paperwork for a claim which needed to be checked. He said that his job was to ensure that the contract was signed, that the insurance for the subcontractor was issued and that all necessary documents were attached to the claim. He confirmed that no payment would be made by One Build until the necessary documents were attached.
Mr Nardone impressed me as an honest and forthright witness and I accept his evidence.

Evidence of Ms C Marshall and Mr H Billitzer

The plaintiff read affidavits from Christina Marshall sworn 5 October 2017 and Hugh Billitzer sworn 5 October 2017. These affidavits were part of the plaintiff's evidence showing the trail of the financial documents relied on by the plaintiff and particularly the plaintiff's expert, Mr Barnden.
Ms Marshall and Mr Billitzer were employees of CSSP Pty Ltd ("CSSP"). CSSP was the owner/operator/administrator of the Cheops software system which is an integrated civil and building construction software package designed specifically for businesses operating in the building and construction industry. It was used by One Build in 2012-13.
Mr Billitzer gives evidence that he received from the Managing Director of CSSP, Mr Hemmett, on 16 August 2016 a four terabyte "Seagate" drive, the data on which he uploaded onto the CSSP server together with the Cheops software package. He forwarded to Ms Marshall the login details for a remote desktop login with the necessary password.
Ms Marshall gives evidence in her affidavit that she accessed the CSSP server address using the remote desktop login and she ran the Cheops program against the data in the file to produce the reports requested in a subpoena to produce issued by the plaintiff to Mr Hurst, one of the liquidators of One Build. She then saved each report as a PDF document to a location on the CSSP server and notified Mr Billitzer.
Mr Billitzer indicates that the next day, 17 August 2016, he copied the PDF reports as produced by Ms Marshall onto a newly purchased gigabyte computer drive which he provided to Mr Hemmett.
There was no cross-examination of Ms Marshall or Mr Billitzer.

Evidence of Mr N Chase Berry

The plaintiff read an affidavit from Mr Nicholas Chase Berry sworn 4 October 2017. Mr Chase Berry was an employed solicitor working for the solicitors for the plaintiff between February 2015 and 8 December 2016 and had the day-to-day carriage of these proceedings for the solicitors for the plaintiff in that period subject to the direction and control of the solicitor for the plaintiff Mr Ghedia.
Mr Chase Berry gives evidence that in about November 2016 he provided a four terabyte "Seagate" hard drive contained in subpoena packet 12 to Mr Petrov and asked Mr Petrov to copy all financial documents in a readable format from the hard drive to a separate USB drive.
Mr Chase Berry gives evidence that Mr Petrov returned the hard drive and a separate one terabyte USB drive containing files and documents to him a few days later.
Mr Chase Berry gives evidence that he prepared and sent to Mr Barnden, the plaintiff's expert, a letter dated 29 November 2016 which he attaches to his affidavit and a brief of the documents contained on a USB stick. Mr Chase Berry gives evidence that the documents in certain paragraphs of the letter to Mr Barnden were on the USB stick when provided by him to Mr Barnden. These included financial statements, financial reports (including balance sheets, profit and loss statements, trial balance ledgers, general ledgers, debtor balance summaries, age creditor listings, age creditor balance summaries and creditor ledgers with reconciliation reports for various periods) as well as financial reports, bank statements and other documents.
Mr Chase Berry was cross-examined by counsel for the defendant. Mr Chase Berry in his cross-examination confirmed that he had given instructions to Mr Petrov to retrieve financial documents from the hard drive which he had provided to Mr Petrov. He confirmed that he had obtained the hard drive from subpoena packet number 12 which was produced by the liquidators. Mr Chase Berry stated that as far as he could recall he gave only one hard drive to Mr Petrov and not a collection of hard drives. This was different to Mr Petrov's evidence but nothing appears to turn on this difference.
Mr Chase Berry confirmed that he left it to Mr Petrov to comply with his instruction to retrieve financial documents and also left it to Mr Petrov to use his judgment as to what were financial documents on the hard drives. Mr Chase Berry said he may have elaborated as to what he meant by financial documents at the time and expressed the belief that he gave Mr Petrov examples to assist him. However, he confirmed that he did not give the definition of financial documents in the Corporations Act to Mr Petrov and left it to Mr Petrov to exercise his judgment as to what was a financial document.
Mr Chase Berry was asked whether Mr Petrov came back to him with a list of documents (which was Mr Petrov's evidence) and he said he may have but he could not recall. Mr Chase Berry confirmed that after Mr Petrov did his task he himself did not review the hard drive as it was not readable. He took the documents which had been extracted by Mr Petrov and reviewed them. Mr Chase Berry confirmed that he then exercised his judgment in relation to the documents which he sent to Mr Barnden, the expert. He gave evidence that some of the documents included by Mr Petrov were not relevant but he only excluded non-financial documents.
Mr Chase Berry confirmed that Mr Barnden did not get a full set of the documents on the terabyte USB stick produced in answer to the subpoena. He confirmed that Mr Barnden had no role in extracting the documents that were sent to him. He also said that he did not recall Mr Barnden asking for more documents but he may have. Mr Chase Berry confirmed that he did not exclude from what he sent to Mr Barnden any financial type documents which were on the disc provided to him by Mr Petrov
In re-examination, Mr Chase Berry gave evidence that subpoena packet 12 was produced by the liquidators of One Build and that the defendant had first access to the subpoenaed documents. Mr Chase Berry also confirmed that he left soon after his briefing letter to Mr Barnden was sent and did not recall having any discussions with Mr Barnden in the short period between forwarding the briefing letter and leaving the plaintiff's firm of solicitors.
Mr Chase Berry gave his evidence in a forthright and direct fashion making concessions where appropriate and I accept his evidence.

Evidence of Ms M Cailao

The plaintiff read the affidavit of Ms Ma Cailao sworn 26 July 2017. Ms Cailao gives evidence in her affidavit that she is employed by IW as its office manager and has held that role since 2010.
Ms Cailao gives evidence that on 20 November 2013 under instructions from Mr Kontrafouris, she posted IW's third progress claim to One Build by mailing it in an envelope addressed to One Build. Ms Cailao annexes the documents which she forwarded in the envelope on 20 November 2013.
Ms Cailao was not required for cross-examination.

Evidence of Mr D Hurst

The plaintiff read an affidavit of David Anthony Hurst sworn 10 October 2017. Mr Hurst is a chartered accountant by profession and is one of the joint liquidators of One Build. Mr Hurst confirmed receiving emails from the plaintiff's solicitors dated 24 May 2014 and 18 September 2014. Mr Hurst gives evidence that after receiving the email dated 18 September 2014 he recalled having a conversation with Mr Hosking, the other joint liquidator of One Build, sometime between 18 September 2014 and 22 September 2014 in which it was agreed that Mr Hosking and he would provide the necessary consent to the plaintiff pursuant to s 588R of the Corporations Act to pursue a claim against One Build's director. Mr Hurst referred to a copy of an email dated 22 September 2014 from Mr Hosking to the solicitors for the plaintiff and noted that he was copied into that email. Mr Hurst expressed the opinion that Mr Hosking's email dated 22 September 2014 constituted his personal consent in writing to the plaintiff pursuant to s 588R of the Corporations Act to pursue a claim against One Build's director (paragraph 5).
In cross-examination Mr Hurst agreed that he was appointed as a joint liquidator of One Build as opposed to a joint and several liquidator. He also agreed that he did not provide in writing anything under his hand amounting to a consent to the plaintiff to sue One Build's director.

Evidence of Mr P Hosking

The plaintiff read an affidavit of the other joint liquidator of One Build, Mr Philip Hosking. Mr Hosking agreed that the resolution of creditors appointed Mr Hurst and himself as joint liquidators of One Build. He also confirmed that Mr Hurst never provided anything under his hand in writing granting consent to the plaintiff to sue a director of One Build and that the only document provided was his 22 September 2014 email.

Evidence of Mr S Ghedia

The plaintiff read an affidavit of the plaintiff's solicitor Mr Sundip Premji Ghedia sworn 25 July 2017. Mr Ghedia gave similar evidence in his affidavit in relation to the correspondence sent and received as in the affidavits of Mr Hurst and Mr Hosking.
Mr Ghedia was subject to cross-examination by counsel for the defendant. Much of that cross-examination was directed at the fact that Mr Ghedia shared premises on Level 2 of 230 Clarence Street Sydney which was a building apparently owned by a self-managed super fund associated with the directors of the accounting firm Rodgers Reidy of which Mr Barnden, the plaintiff's accounting expert, was a director. Mr Ghedia confirmed that he did not have a formal lease. He gave evidence that Level 2 was an open plan area and he had two desks on the floor. He also stated that on Level 1 Rodgers Reidy had their office. On Level 2 was the reception for Rodgers Reidy and there was an arrangement that reception services were provided also to Mr Ghedia by Rodgers Reidy's receptionist. For that service, Mr Ghedia gave evidence that he paid Rodgers Reidy $1,100 per desk per month. He said this amount was transferred electronically to Rodgers Reidy. He confirmed that he referred work to Rogers Reidy and they referred work to him. This case, according to Mr Ghedia, was not a case which had been referred by Rodgers Reidy to Mr Ghedia.
Mr Ghedia confirmed that prior to Mr Chase Berry's departure from his firm that he left matters relating to the briefing of Mr Barnden to Mr Chase Berry. He then took over the matter from Mr Chase Berry and dealt with Mr Barnden and his assistant Mr Griffiths. Mr Ghedia confirmed that his firm provided Mr Barnden with documents on a USB drive. No additional documents, other than were on the USB drive, were provided to Mr Barnden for his first report but a report of the former liquidator of One Build, Mr Hill, was provided to Mr Barnden for the purposes of his second report.
A document was tendered which became Exhibit 1 which was an email from Mr Ghedia to Mr Griffiths and Mr Barnden dated 31 January 2017 in which Mr Ghedia provided comments in relation to the first insolvency report prepared in draft by Mr Barnden. Mr Ghedia said that although Mr Barnden's first report was described in the report as "preliminary", he did not regard that as suggesting that Mr Barnden had no concluded views as the report did express the views of Mr Barnden. Mr Ghedia said he was not concerned by the use of the word "preliminary" and did not recall any response from Mr Barnden to his 31 January 2017 email. Mr Ghedia noted that most insolvency reports received by him had the word "preliminary" on the report. Mr Ghedia confirmed that he sent the expert witness code of conduct to Mr Barnden but was not aware that the code which he had sent was outdated.
In re-examination, Mr Ghedia expressed the view that the date of the email, 31 January 2017, was the date he believed the plaintiff's evidence in chief was due. He also confirmed that the email dated 31 January 2017 was prepared by counsel who he had briefed on behalf of the plaintiff.
Although Mr Ghedia did not appear to be impressed in having been cross-examined on various matters by counsel for the defendant, I accept his evidence.
A further detailed affidavit of Mr Ghedia sworn 12 October 2017 was read. This established the link between the documents provided to Mr Barnden on a USB drive and those in the plaintiff's bundle of documents which was tendered and became Exhibit D.

Evidence of Mr Anton Petrov

The plaintiff relied on an affidavit from Mr Anton Petrov sworn 3 October 2017.
In his evidence Mr Petrov states: 1. That he is in information technology specialist; 2. In about November 2016 and at the request of Mr Berry from the plaintiff's lawyers he undertook a computer task relating to the proceedings; 3. Mr Berry gave him a package which contained a four terabyte computer hard drive. He was asked to copy and download the files contained on the hard drive onto a set separate USB drive; 4. Mr Petrov states that he performed a search on the hard drive, copied from the hard drive onto a separate USB the files and documents located on the hard drive and then gave the hard drive and the USB drive back to Mr Berry.
Mr Petrov was cross-examined by counsel for the defendant. In his oral evidence, Mr Petrov stated that he was an IT engineer and worked with hardware and software. He confirmed that he had neither accounting nor legal qualifications.
Mr Petrov confirmed that he had received instructions from Mr Berry to extract data. Mr Petrov said the request from Mr Berry was to copy documents related to finance or which had "finance" in the title to a file. Mr Petrov said that he determined which documents on the hard drives which he had been provided by Mr Berry, fell within the category of financial documents and sent a sample of them to Mr Berry to confirm that this was the type of documents that he was looking for. Mr Petrov confirmed that in undertaking this task he formed a view as to what were financial documents. Mr Petrov later expanded this to say that he sent Mr Berry a screenshot of the names of files or folders which he proposed to copy and that Mr Berry told him which of the files to copy or save. He gave evidence that Mr Berry was satisfied with the files and folders which he had located on the 4 hard drives, only one of which was readable. Mr Petrov said he then place those folders and files on a 2.5 inch USB drive and gave it to Mr Berry, together with the hard drives that he had been provided.
Mr Petrov confirmed that he had extracted a selection of financial documents onto a USB drive based on a selection made by him.

Evidence of Mr T Silk

The defendant Mr Silk relied on and read in the proceedings an affidavit of his sworn 13 September 2017.
In the affidavit, Mr Silk: 1. Provides background evidence in relation to his position in One Build; 2. Provides evidence in relation to the practices and procedures adopted in One Build in relation to construction contracts to which it was a party; 3. Provides evidence in relation to a Mr John Lunney, the Financial Controller of One Build, who Mr Silk said he relied upon in relation to financial matters in the relevant period; 4. Refers to the responsibilities of Mr Lunney and an employed accountant who worked with Mr Lunney; 5. Provides evidence in relation to a contract between One Build and Alstom Grid Australia Ltd ("Alstom") which caused, according to Mr Silk, financial problems for One Build in the latter part of 2013 and which led to the appointment of a liquidator to One Build on 26 November 2013; 6. Comments on the contract with IW; 7. Comments on aspects of the report of the plaintiff's expert Mr Barnden in relation to the solvency of One Build.
The affidavit was relevant both to the solvency of One Build and to the defences asserted by Mr Silk under s 588H of the Act.
In relation to Mr Silk's role in One Build, Mr Silk exhibits to his affidavit a company search of One Build. Mr Silk accepts that the company search shows: 1. One Build was incorporated in June 1999; 2. Mr Silk was appointed a director of One Build on 17 September 1999 and during the period 6 July 2007 to date was the sole director and secretary of One Build; 3. On 26 November 2013 Mr Grahame Hill was appointed liquidator of One Build; 4. On 13 December 2013 Mr Hurst and Mr Hosking replaced Mr Hill as liquidator of One Build.
Mr Silk gives evidence in his affidavit that from September 1999 to 26 November 2013 One Build operated a building and construction business undertaking medium to large commercial building projects usually being between $1 million and $10 million in value. The exception was the Alstom contract which was initially valued at $19,550,000.
In relation to Mr Lunney, Mr Silk gives evidence that from 2006 One Build employed Mr Lunney as its Financial Controller. As Mr Silk understood it, as at 2012 Mr Lunney was a tertiary qualified certified practising accountant with over 30 years' experience as a financial controller. As stated above, a further certified practising accountant worked with Mr Lunney (paragraph 6). Mr Silk gives evidence that the responsibilities of Mr Lunney and his assistant included all accounting, budgeting and forecasting, credit control, reporting including advising on One Build's financial position and solvency, taxation and treasury and finance/office administration (paragraph 7). Mr Silk makes the point that he does not have any formal accounting qualifications and relied upon Mr Lunney and his team to handle all accounting and financial matters relating to One Build (paragraph 8). In paragraph 9 of his affidavit, Mr Silk states that Mr Lunney was in a position to disclose the financial position of One Build and that at no time prior to 19 November 2013 did Mr Lunney or his "team" advise Mr Silk that One Build was insolvent and also no reports provided to Mr Silk by Mr Lunney or his team indicated to Mr Silk that One Build was insolvent or likely to become insolvent.
Mr Silk gives evidence in relation to One Build's practice systems. One procedure that was in force was that no subcontractor was entitled to be paid until a subcontract, as provided to the subcontractor by One Build, was returned unchanged and executed by the subcontractor. Mr Silk gives evidence that the failure to obtain a signed contract would prevent a payment being processed in the cheque run for One Build (paragraph 12). Approval procedures within One Build are referred to. Mr Silk gives evidence that he was not requested by anybody to approve an authority to let subcontract with respect to IW and that it was One Build's procedure that all returned contracts would be accompanied by the approved authority to let subcontract (paragraph 14).
Mr Silk also gives evidence that to the best of his knowledge, the subcontract signed by Mr Kontrafouris was never provided to him for execution by One Build (paragraph 16). Mr Silk noted that the CHEOPS software system used by One Build prevented a payment being made to a subcontractor where the subcontract agreement had not been returned unamended and signed by the subcontractor and then subsequently signed by Mr Silk as director (paragraph 16).
Mr Silk gave detailed evidence in relation to the Alstom contract and the difficulties One Build had in obtaining payment. The contract was entered into on 21 September 2012 (paragraph 23). After completing very substantial work on the contract, Mr Silk indicates that One Build ceased working on the project on 14 November 2013 because of outstanding payments said to be due to One Build of about $11 million. On 24 November 2013, Mr Silk said that negotiations broke down between One Build and Alstom and, as a result, due to advice from Mr Lunney that One Build was likely to become insolvent at some future time, Mr Silk voluntarily appointed Mr Hill as liquidator of One Build on 26 November 2013.
In relation to IW, Mr Silk asserts that it was standard One Build procedure at relevant site visits for potential tenderers to be advised that they can only be paid if they have entered into a One Build subcontract (paragraph 36). Mr Silk does not state in his affidavit that anyone from IW was told this but appears to rely on the standard practice within One Build. This evidence accordingly must be treated with some caution.
In relation to the solvency of One Build, in his affidavit Mr Silk seeks to address aspects of One Build's financial position that Mr Barnden, the expert for the plaintiff, states as indicating insolvency at the relevant time in One Build. These factors included there being $3,100,000 of unpresented cheques drawn by One Build as at June 2013, the extent of proofs of debt in the insolvency of One Build and the fact that a significant creditor, Hanson Precast, was owed money for eight to nine months.
Mr Silk also gave evidence about One Build's procedures in relation to the payment of trade suppliers' terms and why the matters relied upon by Mr Barnden did not, in his view, indicate insolvency in One Build.
Mr Silk in relation to the question of whether One Build was an ongoing concern, gave evidence in relation to the significant tender opportunities connected to One Build as at 30 June 2013 including upcoming tenders over the next 24 month period of $368.8 million (paragraph 63).
Mr Silk ultimately expresses the opinion that One Build had every belief that but for the issues with Alstom in November 2013, it was an ongoing concern and would be able to meet its financial obligations into the future (paragraph 64).
Mr Silk was subjected to a detailed and lengthy cross-examination including detailed cross-examination in relation to financial records which were part of the plaintiff's tender bundle, Exhibit D.
Mr Silk confirmed in cross-examination that he had been a director of One Build Holdings Pty Ltd since 2002 which was a company which was now deregistered and had been the holding company of One Build. Mr Silk also confirmed that he had been a trustee in 2012-2013 of the Valley View Investment Trust. Mr Silk gave evidence that he was a beneficiary including in the 2013 financial year of the Valley View Investment Trust which owned as at 2013, One Build's business premises in Foveaux Street Surry Hills.
Mr Silk confirmed that all of One Build's income came from construction activities in the 2011-2013 financial years up to 26 November 2013.
Mr Silk was asked questions about a questionnaire which he completed as a director on 2 December 2013, after Mr Hill was appointed as liquidator (Exhibit D, 3/965. Hereafter, reference will only be made to the volume and page number). He could not recall whether he completed it at the request of Mr Hill. The questionnaire, which was signed by Mr Silk, included the following relevant questions: "2. What were your duties? Management of the company … 4. Who was responsible for the day-to-day management of the company? Tom Silk … 12. When did the company cease business (if appropriate)? 22 November 2013 … 36. What books and financial records were kept by the company? Description Last date posted Held by Standard books of account & general ledger Nov. '13 37. By whom were the books and records kept? (indicate name, period maintained and whether or not the person was an employee) John Lunney 2006-2013 Employee 38. What steps did you take to ensure that the books and records were properly kept? Monthly review … 42. How often were balance sheets and profit and loss accounts prepared for the company? Monthly 43. Who compiled them? John Lunney … 45. What steps did you take to satisfy yourself that the balance sheets and profit and loss accounts were correct? Full review with John Lunney … 49. What figures were compiled by you or presented to you (weekly, monthly or other period) to show the financial position of the company? Monthly - P&L, Balance sheet, KPI's … 51. Who prepared income tax returns for the company? What tax returns are outstanding? John Lunney - internal. Edney Ryan checked & submitted. 2013 outstanding. .… 57. When did you first become aware of the company's financial difficulties? 21 November 2013 … 60. When did creditors start to press the company for payments? During the week beginning 18/11/13. 61. What steps did you take to satisfy these creditors? We advised creditors that we had not been paid by Alstom and would pay them once we had been paid."
The document included as an annexure an answer to question 58 in the following terms: "58. What caused you to realise that the Company had financial difficulties? One Build had a major dispute with Alstom Grid regarding the cash flow and revised contract value on the Holroyd and Rookwood sites. When we decided that we had no reasonable expectation to resolve this dispute we decided that we could not continue to trade."
The document also included the following: "On Thursday 21st November 2013 we decided that the dispute was irreconcilable and that there was now no reasonable expectation that we could resolve it and as a consequence of this we could not pay our subcontractors and suppliers. We sought external advice and had no other option than to cease trading."
There was also included as a schedule an answer to question 70 in the following terms: "Q 70. What do you consider were the reasons for the failure of the Company or the reasons for the appointment of the external insolvency Administrator? Please also refer to Q 58. The non-residential construction industry has been suffering for some years now, which has led to heavy competition, minimal margins and significant acceptance of contractual risk. One Build has been exposed to this market resulting in a dwindling of cash reserves. In normal circumstances we believe that we could have traded through this market and continued into the future. However the losses that we now forecasted for the Alstom contract, being $4 million, were insurmountable. Once we made the decision that there was no reasonable expectation to resolve the financial problems with Alstom on these projects we decided to appoint an Administrator."
Mr Silk also agreed that he had signed a Report as to Affairs on 20 January 2014 in his capacity as director (3/988). This revealed that as at 26 November 2013 One Build had $14,513,117 of assets with creditors of $17,423,463 (3/984). Mr Silk in his evidence claimed that he did not complete the document but agreed that his signature was an indication that he had read it. Mr Silk stated that he could not have known that the amount for unsecured creditors was 100% correct.
Mr Silk confirmed that his role in the 2013 financial year was the Managing Director of One Build with responsibility for overall management of the company which he fulfilled by putting in place a team to manage different areas of the company.
In relation to Mr John Lunney, Mr Silk confirmed that he was the Financial Controller of One Build and had been at all times Financial Controller of One Build since 2006. Mr Silk confirmed that Mr Lunney prepared monthly balance sheets and profit and loss accounts for One Build and did so in the period July to November 2013.
Despite what appears at questions 42-45 of the questionnaire completed by Mr Silk (3/969), Mr Silk said he did not undertake a full review of monthly balance sheets and profit and loss accounts with Mr Lunney on a monthly basis but only on an annual basis. Also, despite the answer to question 49 in the questionnaire (3/970) about monthly profit and loss accounts and balance sheets being "presented" to Mr Silk monthly, Mr Silk gave evidence that they were reviewed monthly by Mr Lunney but Mr Silk himself only reviewed with Mr Lunney key performance indicators which were presented to him in a document. Mr Silk confirmed that balance sheets and profit and loss accounts were prepared at the end of each month for One Build. Mr Silk denied that at the monthly reviews with Mr Lunney that Mr Lunney provided a cash flow document to him. He agreed that Mr Lunney usually gave him an indication of monthly cash flows at the meeting. Mr Silk gave evidence that Mr Lunney kept the cash flow statements to himself and did not present them to him at the monthly meetings.
Mr Silk agreed that One Build utilised a computer software program called Cheops which was a software used in the building and construction industry. He agreed that the Cheops system included: 1. A general ledger which was maintained; 2. A ledger of creditors; 3. A document showing aging of creditors being an aged creditors listing.
Mr Silk said that he was never given a creditors balance summary for One Build in the form at 4/1338. However, Mr Silk gave evidence that he was aware that One Build maintained a creditors ledger in the Cheops system which recorded moneys owed by One Build to persons. This recorded creditors based on the date of the invoice but Mr Silk said it was standard in the building construction industry that persons were paid at the end of the month following the month in which the invoice was received as opposed to the date of the invoice.
Mr Silk was asked questions about the first sentence of paragraph 61 of his affidavit in which he states that a progress claim/status report was developed by the Financial Controller, Mr Lunney, to monitor the status of progress claims across projects and to assist in his overall management of cash flow. Mr Silk agreed that it was in a spreadsheet form which anticipated the progress claims which would be made on each project. He confirmed that the document at 2/628 was an example of a progress claims status report referred to in paragraph 61 of his affidavit. Mr Silk said that Mr Lunney did not provide him with copies of the progress claim status reports for each month. Mr Silk said that they were internal documents for Mr Lunney's use but he was aware of their existence. He agreed that he was aware of their existence in 2013 but never asked to see them and generally did not make himself aware of them.
In relation to annual balance sheets and profit and loss accounts, Mr Silk agreed that these were prepared annually for One Build and were reviewed by him but not in a detailed fashion. Mr Silk said that he had enormous trust in the numbers supplied to him by Mr Lunney. This evidence appeared to be contrary to Mr Silk's evidence about question 45 of the questionnaire in relation to which he had indicated that he conducted a "full" annual review of profit and loss statements and balance sheets with Mr Lunney (3/969, answer to question 45). Mr Silk also gave evidence that he did not review an annual cash flow statement. To his answer in the questionnaire at 3/969 that he took a "monthly review" to ensure that the books and records of the company were properly kept, Mr Silk said that he delegated that task to Mr Lunney. This seems to be inconsistent with the answer to question 38 in the questionnaire. Again, despite the answer to question 48 that monthly profit and loss statements and balance sheets were "presented" to Mr Silk, he gave evidence that they were in the system and he could have accessed them but they were not physically presented to him and he looked at the key performance indicators which were recorded on a piece of paper which Mr Lunney gave to him. Mr Silk agreed that he was aware of the existence of the monthly balance sheets and profit and loss statements prepared by Mr Lunney and could access them but he generally did not do so.
Mr Silk was asked questions in relation to the involvement of Mr Hill in August 2012 to advise Mr Silk and One Build. Mr Silk gave evidence that he did not recall if Mr Hill had been paid or whether he had been engaged by One Build: however, paragraph 21 of his affidavit clearly states that Mr Hill was engaged to provide advice to One Build in respect of One Build's proposed contract with Alstom and it is likely, in those circumstances, Mr Hill being a professional, that he was paid. Mr Silk gave evidence that he was not aware when Mr Hill gave advice that he was a liquidator and only found out about that matter later. Mr Silk stated that Mr Hill was used to provide corporate advice. Despite Mr Hill being used by Mr Silk and the matters contained in paragraphs 22 and 40 of Mr Silk's affidavit, Mr Silk denied that he sought advice from Mr Hill because he had concerns in relation to One Build remaining solvent in the future. Mr Silk said he was concerned about One Build's cash reserves and cash flow. Mr Silk conceded in the light of the email at 3/996 dated 7 August 2012 from Mr Ryan of Edney Ryan that he met with Mr Hill twice in August 2012 in relation to the financial position of One Build. He gave evidence that he did not recall the second meeting.
There was detailed cross-examination about a meeting between Mr Hill, Mr Ryan and Mr Silk relating to accounting procedures and entries that may be appropriate to register the amount that One Build theoretically owed Mr Silk due to him not receiving a commercial salary: see 17 August 2012 email from Mr Ryan at 3/1001. Mr Silk was taken to changes to One Build's accounts in which in draft accounts, One Build had as an asset a receivable from a related party in the sum of $1,681,691 (3/1062, 3/169) whereas in later accounts this showed a debt of $1.5 million from One Build to related parties. Mr Silk agreed that there was a reduction in One Build's assets at the time by $1.5 million and that the Valley View Investment Trust became a creditor of One Build for that amount (3/1045). Mr Silk had denied initially that the trustees of the Valley View Investment Trust had originally owed the $1,681,691 to One Build (cf the emails at 3/1047-9 particularly point three in Mr Ryan's email of 22 August 2012). Despite Mr Silk's initial evidence that he did not recall this, the documents, particularly Mr Ryan's email at 3/1045, appears to establish it in the light of the accounts. Later, Mr Silk accepted that One Build had implemented the recommendations of Mr Ryan in relation to the Valley View Investment Trust being credited $1.5 million because of Mr Silk's previous services. Mr Silk conceded that he was aware that these accounting entries were to be made but denied that he implemented them (compare the accounts at 1/36-55 to the accounts at 3/1060 in relation to trade and other receivables:1/38, 1/45 cf 3/1069). Mr Silk accepted that these entries resulted in a reduction in One Build's assets by $1.5 million. Mr Silk could not recall discussing the $1.5 million journal entry with Mr Hill in August 2012. Mr Silk asserted that Mr Ryan was giving advice to the Valley View Investment Trust not One Build in relation to this matter. He did not recall why Mr Hill was copied into the email dated 23 August 2012 discussing the journal entry at 3/1045.
Mr Silk confirmed in his evidence that monthly balance sheets and profit and loss accounts for One Build were available to be reviewed by him but were rarely reviewed by him. He gave evidence that he relied on key performance indicators which were provided to him monthly. Mr Silk gave evidence that he did not discuss with Mr Lunney end of month figures for assets and liabilities for One Build. These were not discussed until financial statements were obtained at the end of financial year. Mr Silk could not recall the detail of the discussions which he had with Mr Lunney at the end of financial year in relation to the financial statements when an overview, according to his evidence, was provided by Mr Lunney. Mr Silk also noted that work in progress was not included in Mr Lunney's accounts to the best of his knowledge.
Mr Silk was taken to various profit and loss statements for monthly periods in 2012 and 2013 which were in Volume 2 of the plaintiff's tender bundle (Exhibit D) and agreed these were the type of monthly profit and loss statements which Mr Lunney prepared and were available to him but which he usually did not review.
Mr Silk was asked some further questions in relation to the financial statements for One Build for the year ended 30 June 2013 which are at Exhibit D 1/56. Mr Silk conceded that the statements showed that the current assets of One Build were less than the current liabilities as at 30 June 2013 (1/58). He also conceded that the net cash flow from operating activities for the year ended 30 June 2013 was negative $4,249,726 whereas the net cash flow had been positive $1,963,708 for the financial year ended 30 June 2012. He also agreed that the cash at the end of the year 2013 as disclosed in the cash flow statement was negative $1,301,192. He was not aware whether the financial statements cross-examined on accurately reported the cash flow of One Build as at 30 June 2013. Mr Silk gave evidence that he did not know the cash flow from operating activities had decreased by over $4 million for the year ending 30 June 2013 (1/60).
Mr Silk was asked about One Build's bank overdraft for the year ended 30 June 2013 having regard to the notes at 1/65 which indicated that there was a negative bank overdraft of $2,909,409. Mr Silk gave evidence that he was aware that One Build had an overdraft but did not know the amount of it at the relevant time.
Mr Silk was then asked some questions in relation to One Build drawing and retaining unpresented cheques. Mr Silk agreed that it was a practice of One Build to have cheques drawn but not presented to the intended recipient of the cheque. Mr Silk could not confirm that as at 30 September 2013 One Build had nearly $4.3 million in unpresented cheques. Mr Silk could also not assist as to whether the figure for total cash for One Build as at 30 November 2013 in the bank reconciliation statement (at 2/483) in the sum of $2,234,350.06 was accurate.
Mr Silk was taken to paragraph 61 of his affidavit where he states that a progress claim/status report was developed by the Financial Controller Mr Lunney to monitor the status of progress claims across projects and to assist in his overall management of cash flow. Mr Silk was then taken to the document at plaintiff's tender bundle 2/639 entitled "progress claims status as at 30 June 2013". This should be compared to the figure at plaintiff's tender bundle 1/65 for trade receivables of $7,686,996. Mr Silk agreed that based on the document at 2/639, the figure of $7,686,950 was the amount which One Build expected to receive on its projects for progress claims. Mr Silk was then asked many questions in relation to the progress claims for the Alstom contracts referred to at 2/639. Eventually, Mr Silk agreed that Alstom had issued payment schedules in relation to a number of significant progress claims issued by One Build on the Alstom projects with the result the amount paid by Alstom to One Build was heavily reduced.
Mr Silk was then asked a number of questions in relation to One Build's business activity statement returns ("BAS returns") which were forwarded to the Australian Taxation Office by One Build on a monthly basis. Mr Silk agreed that the BAS returns of One Build were on an accruals basis and that the total BAS year income figures were based on construction revenue: T185.23. He also agreed that as Managing Director, he approved the lodgment of monthly BAS returns which involved him consulting with Mr Lunney: T185.38-.47. Mr Silk gave evidence that he did not discuss the total sales figures in the BAS monthly returns with Mr Lunney or check the figures for total sales and purchases. Mr Silk said that the numbers on the BAS returns lodged monthly "didn't mean anything to me": T186.16. He agreed that he did not look at the information in the BAS monthly returns which were not presented to him in a formal lodgement format (such as 3/951) but in a spreadsheet format: T187.19. Mr Silk gave evidence that he merely accepted what Mr Lunney had included in the spreadsheet relating to the proposed monthly BAS: T187.13. Mr Silk said he asked Mr Lunney a series of questions primarily directed as to whether the figures were accurate: T187.33.
Mr Silk was asked a number of questions by counsel for the plaintiff in relation to the monthly business activity statement returns lodged in the period 2012-2013 which showed that total sales as disclosed for One Build generally were significantly less than non-capital purchases (for example 3/942-51, 3/939, 3/937, cf 3/940-1). Mr Silk was not aware whether for the 2013 financial year the BAS returns forwarded by One Build to the ATO showed overall that sales were less than non-capital purchases. Mr Silk denied that he compared the total sales on documents lodged with the Australian Taxation Office with the figures shown for revenue in the One Build accounts. Mr Silk was then taken to the Cheops One Build creditors' ledger in relation to the Australian Taxation Office which showed that One Build owed $751,348 to the Australian Taxation Office as at 30 June 2013 (1/312). Mr Silk did not know whether that figure was accurate: T194.11.
Mr Silk was then asked questions about paragraph 42 of his affidavit in which he commented on the report of the plaintiff's expert Mr Barnden, where Mr Barnden relied on there being $3,100,000 of unpresented cheques in One Build as at 30 June 2013 as being an indicium of insolvency of One Build. In that paragraph Mr Silk sets out his explanations as to why there were unpresented cheques. In relation to paragraph 42(a) of the affidavit, where Mr Silk states that for efficiency reasons One Build printed cheques once per month, Mr Silk agreed that the bulk of the cheques had the same date and were printed for most suppliers and subcontractors. Mr Silk agreed this was a common feature of the operation of One Build in the financial years ending 2011-2013. Mr Silk gave evidence that there were more unpresented cheques in the financial year ending 30 June 2013 compared to 2012 because One Build was involved in a larger project being the Alstom project where there were more subcontractors. Mr Silk said he did not know how the unpresented cheques were represented in the creditor's ledger or Cheops as he left it to Mr Lunney as the Financial Controller of One Build.
Mr Silk was then asked a number of questions about paragraphs 47-52 of his affidavit which relate to Hanson Precast, a subcontractor of One Build on the Alstom project. Mr Barnden in his report, had relied upon Hanson Precast being owed money for eight-nine months by One Build as being an indicium of insolvency. Mr Silk agreed that Hanson Precast supplied One Build with Precast wall panels. Mr Silk accepted that the document at 4/1103 appeared to be a statement of account from Hanson Precast but stated that it was not a document which was given to him. This showed that Hanson Precast's claim against One Build was for a total amount payable of $1,358,926.81. Mr Silk said it would be unusual for a statement from a supplier to be provided to him. Mr Silk was taken to paragraphs 12 and 16 of his affidavit which state that in relation to a subcontractor a payment was not made within One Build's policies until a signed contract had been received. Even though Hanson Precast was a supplier Mr Silk confirmed that it was treated no differently. However, a contractor with whom One Build had many prior contracts would have a cheque printed in the cheque run in readiness to send to the contractor such as Hanson Precast immediately once a signed subcontractor agreement was received: paragraph 48 of Mr Silk's affidavit.
After considerable cross-examination Mr Silk accepted in the end that the evidence in the plaintiff's tender bundle established that cheques were forwarded to Hanson Precast in payment even though it never returned a signed unaltered contract for the Alstom project to One Build: 4/1103, 4/1107, 4/1149, 4/1105, 742 cf paragraph 52 of Mr Silk's affidavit.
Mr Silk said that he did not review Hanson Precast's progress claims and was not aware whether One Build provided payment schedules in relation to those claims but said that it was One Build's policy to send payment schedules including for the retention amount and that generally there was some problem with documents lodged by subcontractors/suppliers. He agreed an example was at 4/1120.
Mr Silk confirmed that the payments to Hanson were at odds with the general concept in One Build's IMS system as payments had been made to Hanson Precast when it had not returned an executed unamended contract.
In relation to the Alstom contracts, Mr Silk accepted that One Build had only received a portion of the payment claims number 10 for the two Alstom contracts following Alstom serving a payment schedule: 2/640, 2/758 (receipt of $1,396,600.92). The evidence showed that in relation to the Alstom Holroyd Project, One Build's payment claim number 10 dated 28 June 2013 in the amount of $2,009,959.66 was disallowed by Alstom as to $1,548,920.16 with the result that only $461,039.50 was allowed. In relation to One Build's Alstom Rookwood Project progress claim number 10 dated 28 June 2013 in the amount of $2,283,266.27, this was disallowed by Alstom as to $1,347,704.85 with only $935,561.42 being allowed. The two allowed amounts were paid into One Build's bank account on 12 August 2013. Although Mr Silk gave evidence that he could not confirm that, it appeared to be the effect of the documents, including the NAB bank statements, which were in evidence.
Mr Silk was then asked questions in relation to bank guarantees which had been provided by One Build as at 30 June 2013. He gave evidence that guarantees had been given for $500,000 in relation to the Alstom project and $200,000 for the One Build Ausgrid Kuring-gai project. He could not recall what other projects at 2/639 required guarantees but believed that the Distribution Place project required a bank guarantee of 2.5% of the contract price.
Mr Silk made clear that it was the policy of One Build to send out a payment schedule in response to a payment claim even in circumstances where they thought it was a proper claim. At T206.23 the following evidence was given: Q. To your knowledge was One Build sending payment schedules in response to these payment claims made by Hanson on the Rookwood project? A. It was out [our] policy to send the payment schedule. (T206.23-.25)
Mr Silk expanded his evidence at T206.48 as follows: Q. You would only send a payment schedule in response to a payment claim if there was a proper reason to do so? A. No generally we just - we always send a payment schedule Q. Even if you agreed with the amount in the claim? A. Yeah, because the payment schedule is also - it's not only the amount of the claim it's also their insurances, there - you know things like their SWMS their statement decs, a whole range - they're - the unsigned contract so we'd send the payment schedule back saying all these things are outstanding. (T206.48-T207.6).
Mr Silk expanded his evidence in relation to the contract with Alstom at T221-T222 where he said: HIS HONOUR Q. Just so I understand that, let's assume One Builder [One Build] put a claim in and the recipient Alstom had formed the view that the claim was inflated because the work had not been done and therefore they rejected it, the answer you gave suggests that when the work was done if that was correct, it would be in the next claim? A. Yes. Q. If the payment claim was put in and part of it was rejected not because the work done but because of some issue as to the work, and therefore Alstom had paid a lesser sum, Alstom as I understand it was the subsidiary of a major French company? A. Yes. Q. In those circumstances unless negotiation could be reached by which you've persuaded Alstom to pay the sum for the alleged deficient work I'll use that term without being pejorative, you would have to commence proceedings against them would you not? To get it? A. No, because - generally there'd be a bunch of variations that have been put in and they would be potentially disputed or they haven't been assessed by them. So instead of assessing them at the time they will just reject them and assess them into the future. However, the expenditure from our side has already happened because we've done the work. So as far as I know with accounting you're trying to match revenue with expenditure. Q. But ultimately at the end of the day unless there was an arbitral mechanism or proceedings were commenced or unless you could persuade Alstom that they were wrong, whether you got the money ultimately depended on at the end of the day if necessary, you taking some sort of mechanism to get it back from them? A. Well generally there is a period of assessment, negotiation, we go back and forth, we prove our - why something costs this amount of money or why there was a delay on which you'd be getting delay costs for it. There is contractual back - argy bargy, and generally you either come to an agreement at the end of that, or you don't. And then if you don't and you believe you're entitled to it then obviously there's other - there's legal roads you can go down. Q. It's obviously difficult in a contract where it's for a substantial sum of money with ongoing work to be done? A. Well it is, and the problem is - I mean take for example the Security Of Payments Act if you want to go down the track of withholding payment to the principal which would be TransGrid you end up exacerbating the whole dispute into something that just becomes out of control. Q. So as I understand your affidavit, you thought that there would be some negotiation phase with disallowed amounts and that you would get a substantial amount of money but at the end of the day, that hope didn't eventuate and that was the reason the company was put in liquidation is that in essence it? A. That's - generally yes. (T221.35-T222.35).
Mr Silk was cross-examined in relation to his evidence about One Build having tender opportunities as at 30 June 2013 as referred to in paragraph 63 of his affidavit. Mr Silk's evidence about his source for that information at T223-T224 was not convincing. Despite preparing his affidavit dated 13 September 2017 only a relatively short period before the final hearing, Mr Silk's evidence about the document relied upon, its date and the information in it was vague. The document Mr Silk said he relied upon was not annexed or exhibited to his affidavit.
Mr Silk was cross-examined about paragraph 37 of his affidavit where he says that on 22 August 2013 representatives of IW attended a meeting with representatives of One Build at One Build's office in Surry Hills. Mr Silk states in his affidavit that a meeting with a subcontractor was part of One Build's standard procedure in relation to the engagement of subcontractors. Mr Silk also gives evidence that it was One Build's standard practice to advise the subcontractor of One Build's terms and conditions of engagement. There is no evidence that Mr Silk himself was at the meeting he refers to. Accordingly, it is difficult to accept that this evidence should be given substantial weight.
Mr Silk was then taken to paragraph 60 of his affidavit where he states that the majority of One Build's subcontractors had agreed payment terms of either 45 or 60 days from the end of month invoice. He was taken to the subcontract works agreement with Hanson Precast which was behind Tab 6 of the exhibit to his affidavit where, in the subcontractor particulars, the period of progress claim was stipulated as 60 days and this had been amended by hand by a representative of Hanson Precast to 45 days.
The Hanson Precast contract should be contrasted with the subcontract works agreement proposed for IW which provides in the subcontract particulars that the period of progress claim was 30 days not 45 or 60 days (see Exhibit A). This is the same document as that at Tab 26 of Mr Kontrafouris' affidavit in which Mr Kontrafouris states it was received by him from Mr Collins at One Build on 12 November 2013 (paragraph 112). It was also the same version as signed by Mr Kontrafouris on that date and returned to One Build (see Tab 27 of Mr Kontrafouris' first affidavit). This shows that the standard payment terms and conditions as stated by Mr Silk were amended in the case of IW. Mr Silk confirmed that Mr Troy Collins was employed by One Build as a Contract Administrator. It is noted that the payment schedule in relation to the first progress claim in the IW contract was signed by Troy Collins and forwarded by him to Mr Kontrafouris on 11 October 2013 (Tab 21 of the exhibit to Mr Kontrafouris' first affidavit). Mr Silk confirmed that the payment schedule showed the amount of the contract works, the amount of the first payment claim and the amount of the scheduled payment allowed by One Build: see T227-T228, especially at T228.43.
Mr Silk was taken to paragraph 14 of his affidavit where he states that he was not requested by anyone to approve an ATLS with respect to IW. He confirmed in cross-examination that he was not suggesting by paragraph 14 of his affidavit that One Build did not have a contract with IW: T229.12. This is relevant because of the fact that no subcontract was ultimately signed by One Build and indeed the subcontract that was signed by IW was only signed on 12 November 2013, well after a significant amount of work had been completed by IW at the site.
At paragraph 18 of his affidavit, Mr Silk pointed out that in the case of subcontractors with which One Build had been working for a considerable period of time, it was not uncommon to override the contract return date in the Cheops software system so that the payment cheque would be printed for this subcontractor in the cheque run in readiness to send to them immediately upon receipt of the signed subcontractor agreement or other outstanding documents. Mr Silk emphasised that that was not the case with IW as it was not a company familiar to One Build and had commenced work without signing a One Build contract: T229. Contrary to this evidence, Mr Silk confirmed that at 4/1192 of the plaintiff's tender bundle was a cheque drawn to IW in the sum of $110,231.16 which was the same amount as in the payment schedule issued by One Build to IW. This establishes that the evidence in paragraph 18 of Mr Silk's affidavit was at least partly incorrect.
Mr Silk was then asked questions about the Alstom contract and his assertion in paragraphs 25 to 26 of his affidavit that the contract price under the Alstom contract had increased and that moneys were outstanding to One Build from Alstom. It was put to Mr Silk that no One Build payment claim had remained unpaid which was subject to an Alstom payment schedule. Mr Silk disagreed and said that $3 million was due to One Build. After being taken to the relevant documents (plaintiff's tender bundle 2/645), Mr Silk accepted that no payment claims from One Build to Alstom remained outstanding which were subject to a payment schedule from Alstom as at 6 November 2013: T237.37.
Mr Silk was then taken to the One Build profit and loss statement for the month ended 31 July 2013 at the plaintiff's tender bundle 2/586. He confirmed that this was a monthly financial statement that Mr Lunney prepared and which was available to him. He confirmed that also in relation to the documents at 2/294 and 2/599. All documents showed a significant net loss to One Build with a projected net loss before tax of $612,000 over the 12 month forecast for 2013-14 with a net loss of $428,000 after income tax expense for the same period.
Mr Silk gave significant evidence at the end of his cross-examination to the following effect: Q. When the business activity statements were lodged for each month of 2013, you were aware, were you, of the sales figures that were included in those statements? A. I, I should have been aware, yes. Q. Should you have been aware of the sale of the non-capital purchases figures included in those business activity statements for the financial year of 2013? A. Yes. Q. Should you have been aware of the pay as you go withholding liability of One Build in respect of each month in 2013 financial year? A. Yes. Q. Were you aware of the sales figures nominated in One Build's business activity statements for the months of July, August, September 2013? A. I don't recall. Q. What about the figures of One Build's total non-capital purchases for the business activity statements lodged for the months of July, August and September of 2013? A. I don't recall that. Q. Do you agree he should have been aware? A. Yes. Q. Were you aware as at 30 June 2013 that One Build had a deficiency of current assets over current liabilities? A. Yes. Q. Were you aware that at all points after 30 June 2013 One Build had a deficiency of current assets over current liabilities? A. Yes. Q. Were you aware as at 30 June 2013 that One Build had drawn cheques that were not presented in the amount of approximately $3.190 million? A. No. Q. If that was the case that One Build had drawn cheques in that amount, do you agree that you should have been aware? A. No, not necessarily. (T 240.11-T241.1)
Later, further significant evidence was given by Mr Silk as follows: HIS HONOUR Q. Was Alstom your biggest contract by a long distance? A. Yes. Q. You would have been very concerned with how the contract was travelling? A. By September-October, yes. Q. You would have been paying very careful attention to what amounts of money were received in relation to the Alstom contract, wouldn't you? A. What I was paying close attention to was how the variations and extensions of time were being administered. Q. But surely, you would have been particularly interested in relation to your biggest contract, exactly how it was going and what amounts were being received and not received in relation to progress claims? A. Yeah, definitely. GERARD Q. That would apply too to any adjustment that was made to One Build's progress claim for June 2013 in respect of Alstom Rookwood contract, wouldn't it? A. I'm, sort of - just not quite sure what you mean by this "adjustment". Q. I'll come at it this way. Do you see P225-10 under Alstom TransGrid Rookwood? A. Yeah. Q. If you come across to the opening balance, do you see the figure $2,283,266.27? A. Yeah. Q. Do you see that? A. Yeah. Q. Do you see in the Claims column next to it, the figure in brackets $1,347,704.85? A. Yep. Q. Now, this may be my terminology, but I'll ask it this way: if Alstom, via a payment schedule, disallowed $1,347,704.85 out of One Build's June payment claim, you would have been aware of that in some point in July 2013, wouldn't you? A. Yeah. Yeah, I would have. (T241.39-T242.33).
In re-examination, Mr Silk made the point that in 2012 there was a large amount of start-up costs for One Build in relation to the Alstom projects. That was why he sought advice from Mr Hill in August 2012. He said that the BAS returns lodged by One Build showed the amount of the start-up costs and the fact that more was being paid out in non-capital purchases than received in sales. He expected these figures to change as the contract proceeded: T247.14-.35.
Mr Silk struck me as a careful and intelligent man and this was generally reflected in the answers which he gave in his evidence. I conclude from this that it is likely that he would have applied those abilities and characteristics to his running and management of One Build at the relevant time as the only director.
Although in substance, Mr Silk's evidence was that he relied on key performance indicators supplied to him rather than a review of One Build's monthly balance sheets and profit and loss statements (which were available but which he seldom reviewed except annually) and he placed complete reliance on Mr Lunney, One Build's Financial Controller, I find this difficult to accept completely. The Alstom contract which was said to be the cause of the appointment of Mr Hill as liquidator to One Build, was the largest contract by far which One Build had at the relevant time in June-August 2013. The expenses in relation to that contract and the claims made by One Build and allowed by Alstom, were crucial matters to the financial well-being of One Build at the time. I find it likely that Mr Silk was carefully reviewing these matters on a regular basis in 2012-13 because of their potential effect on One Build's financial position. See also T242.43.
There were also occasions where Mr Silk's affidavit was clearly wrong: 1. About no payments being made to a company that had not returned a signed and unamended One Build contract whereas it was clear that payments were made to Hanson Precast which had not done this on the Alstom contract; 2. That One Build's payment terms were 45 or 60 days yet payment terms of 30 days were given to IW; 3. That no cheques were drawn for companies with which One Build was not familiar yet a cheque was drawn for the first progress claim as scheduled for IW.
In the light of these matters, I believe that some caution should be applied in accepting Mr Silk's evidence on all matters. His recollection of matters did not appear to me to be strong in many cases and in my view clear preference should be given to contemporaneous documents as evidencing the financial position of One Build and the likely knowledge of Mr Silk at the relevant time.

The Expert Evidence

Both parties relied on expert evidence in relation to the insolvency of One Build. Insolvency is an element in the cause of action pleaded by the plaintiff against Mr Silk.

The evidence of Mr A Barnden

The plaintiff read two affidavits of its expert Andrew Barnden sworn 2 February 2017 and 6 October 2017. Each affidavit attached an expert report. The latter affidavit was in reply to the affidavit of the defendant's expert Mr McMahon.
Annexure C to Mr Barnden's first report is an abridged curriculum vitae. This shows Mr Barnden to be a very experienced chartered accountant with over 20 years' experience. Mr Barnden is also a Registered Liquidator, an Official Liquidator of the Supreme Court and the Federal Court since 2007 and a Registered Trustee in Bankruptcy since 2008. The curriculum vitae clearly establishes Mr Barnden's expertise for the purposes of his opinions.
For the purposes of his opinions, Mr Barnden was briefed with a very substantial amount of documentation relating to One Build which is set out in the letter from the solicitors who briefed him dated 29 November 2016 which is Annexure A to his first report.
Mr Barnden's report is detailed. He examines the accounts of One Build and also considers other matters such as its tax payments' position, its aged creditor listing and the status of its largest creditor at the relevant time, Hanson. The report considers only the insolvency of One Build and does not consider whether there are any potential defences available to the defendant. Mr Barnden sets out the background to One Build including the appointment of a liquidator by resolution of the company's members on 26 November 2013: paragraph 1.6.4. He refers to a report by the replacement liquidators to creditors dated 13 December 2013 expressing their views of the reasons for the failure of One Build: paragraph 1.6.7. Mr Barnden concludes that One Build was insolvent as at 30 June 2013 and remained insolvent past this date until the date of liquidation, 26 November 2013: paragraph 1.7.1.
Mr Barnden states that his conclusion as to the insolvency of One Build was based upon 11 indicators of insolvency: 1. The company has had a current ratio of less than 1.0 since at least 30 June 2010, with a ratio of 0.78 as at 30 June 2013; 2. The company has had a quick ratio of less than 1.0 since at least 30 June 2010, with a ratio of 0.78 as at 30 June 2013; 3. The company has had a debt asset ratio of more than 1.0 since at least 30 June 2010, with an amount of 1.21 as at 30 June 2013; 4. Since at least 30 June 2010, the company had net liabilities in excess of $2 million, which as at 30 June 2013 were $2,270,947; 5. One Build's external accountants sought professional insolvency advice in August 2012; 6. One Build had unpresented cheques totalling over $3.1 million in June 2013 increasing to $4.1 million in October 2013, the effect of which was a reduction of the aged creditor balances. If these cheques had been presented the company would have breached its overdraft limit with a likely effect that the cheques would have been dishonoured; 7. The proofs of debt lodged by creditors in the liquidation are about $1.8 million in total higher than the total of the balances shown as owing to them on the aged creditor listing dated 30 November 2013; 8. The liability to the ATO as per the company's management accounts was significantly higher than that reported in the Business Activity Statements ("BAS") returns for the 12 month period ending 30 June 2013. If the management accounts were more accurate of the actual amounts owed to the ATO then the company would have had additional liabilities of about $700,000 placing a strain on its cash flow; 9. The company's payroll tax liability was being underpaid by approximately $3,000 per month for a 12 month period ended from November 2012 to October 2013; 10. The largest creditor by value as at the date of liquidation, Hanson Precast Pty Ltd, has had amounts owing to it as far back as eight to nine months on trading terms of 30 days. One particular invoice was dated 24 January 2013 and remained unpaid by both its due date as well as at 30 August 2013; 11. Over 60% of One Build's trade suppliers by value were paid outside the required trading terms since at least 30 June 2013.
Mr Barnden considers the definition of solvency in his report including the cash flow and balance sheet tests of solvency. He states that the cash flow test is the dominant test when determining the solvency of the company as it is directed towards the liquidity and viability of a company: paragraph 2.1.4. Mr Barnden expresses the opinion that the cash flow test "best fits" with the statutory definition of insolvency set out in s 95A of the Act.
Section 95A of the Act provides as follows: "95A Solvency and insolvency (1) A person is solvent if, and only if, the person is able to pay all the person's debts, as and when they become due and payable. (2) A person who is not solvent is insolvent."
Mr Barnden states that while the cash flow test is of primary importance in determining solvency the balance sheet test is also relevant and must be considered together with any other indicia of insolvency. Mr Barnden states that the cash flow test requires the examination of the company's ability to pay present debts and debts due in a reasonably near future: paragraph 2.2.1. Cash resources extend beyond cash at bank to include credit/overdraft facilities and available financial support from related entities: paragraph 2.2.2. He notes that insolvency is more than a temporary lack of liquidity: paragraph 2.2.3. He states that the balance sheet test requires the examination of a company's assets and liabilities, including the nature of each asset and liability. Under the balance sheet test a company will be insolvent if its assets are insufficient to cover its liabilities: paragraphs 2.3.1-.2.
Mr Barnden states that from his experience insolvent companies routinely exhibit some or all of the indicators of insolvency which he sets out. Many of these are the ones which he finds as indicators of insolvency of One Build in the present case. He notes that a company can be insolvent without displaying all the indicia of insolvency and that their presence may be from reasons other than insolvency: paragraph 2.4.2. He notes the presumption of insolvency in s 588E(3) of the Act which assists in showing continued insolvency until the appointment of the liquidator, if insolvency of One Build as at 30 June 2013 is established.
In paragraph 2.6, Mr Barnden sets out the methodology he adopted including the documents of One Build which he considered. The adequacy of these documents became a significant issue in final submissions.
Mr Barnden considered the reliability of the evidence before him including the financial and accounting reports obtained from the accounting software package used by One Build. He noted differences between the company's ledger and its BAS returns. He concluded that the GST payable by One Build was understated on the BAS returns when compared to the ledger: paragraph 3.1.10.
Mr Barnden then notes that he reviewed the consolidated financial statements of One Build Holdings Pty Ltd for the years ended 30 June 2011 to 30 June 2013 which included the accounts of One Build itself.
Mr Barnden then considered the different indicia of insolvency which he sets out in his report in paragraph 2.4.1. In particular, Mr Barnden considered the company's profit and loss statements in some detail which disclosed a profit for each of the financial years from 30 June 2011 to 30 June 2013. Having ascertained this, he then reviewed the company's progress claim status reports and considered the impact of the timing of debits against these claims around the year end of the financial year ended 30 June 2013. This is significant in a construction company of the nature of One Build. He notes that if the results of the project claims for two of the company's significant projects had been recorded in June 2013 to include adjustments in July 2013 and August 2013, the sales for the financial year ended 30 June 2013 would have been reduced with a resulting substantial net loss before income tax. It was clear from the evidence that One Build accounted on an accruals basis. This evidence became very significant in the plaintiff's submissions as to insolvency.
Mr Barnden also noted that the expenses in the annual and management accounts did not reconcile with the amounts shown in the BAS returns. He concludes that the GST payable was understated on the BAS returns when compared to the company's general ledger in the financial year ended 30 June 2013. He concludes this would either mean One Build was receiving refunds to which it was not entitled and/or was reducing its reported liability owing to the ATO for GST: paragraph 3.2.10.
As stated, Mr Barnden then considered the different indicia of insolvency in the context of his analysis of One Build's records, and comes to the conclusion that One Build was insolvent as at 30 June 2013.
Mr Barnden noted in paragraph 3.8.1 of his report that he had seen insufficient evidence to form a view on whether related entities had adequate resources to financially support One Build.
Mr Barnden's first report was considered by the defendant's expert Mr McMahon. I set out an analysis of Mr McMahon's evidence below.
Mr Barnden, as indicated above, prepared a reply affidavit which annexed a further report from him dated 5 October 2017. In his responsive report, Mr Barnden notes that Mr McMahon does not provide an alternative date of insolvency. Mr Barnden states that his opinion in his first report had not changed and he was still of the opinion that the company One Build was insolvent as at 30 June 2013 and remained insolvent past this date until the date it was placed into liquidation in November 2013: paragraph 2.1.1. In particular, Mr Barnden noted there was nothing in Mr McMahon's report to influence his view that the date of insolvency should differ to his original view of no later than 30 June 2013 for the following reasons which he sets out in paragraph 2.1.11 of his report: 1. One Build's ratios are adverse for each date reviewed in the period 30 June 2010 to 30 June 2013; 2. There was an understated and unpaid ATO liability of approximately $700,000 since at least 1 January 2013; 3. A cash flow statement for the financial year ended 30 June 2013 showed a net cash decrease of $4,256,756 predominantly made up of unpresented cheques totalling $3,190,720; 4. Amounts totalling $1,269,570 to Hanson were overdue and unpaid after 30 days; 5. A trading loss of over $2 million for the financial year ended 30 June 2013 after adjustment of debit notes; 6. Approximately 60% of the total aged creditors were unpaid after 30 days; 7. No financial support was provided by related parties after 30 June 2013.
In paragraph 3.1.4 of his second report, Mr Barnden noted that Mr McMahon acknowledged that the various indicators set out in his first report were indicative of insolvency. He stated that it was not necessary for all indicators to be present to prove insolvency of a company and when there are a number of indicators of insolvency present, this was demonstrative of insolvency: paragraph 3.1.4.
In paragraph 4.5.3 Mr Barnden noted that there was no actual financial support provided by two named related parties in the six months prior to 30 June 2013 and ongoing.
In paragraph 5.5.1 of the second report, Mr Barnden noted in relation to the ATO liability that the discrepancy in the data lodged with the ATO and the data in the company's management accounts highlighted either that the company had overstated its sales by approximately $7 million, the reversal of which would have created a significant loss, or that the company had understated its tax liabilities to the ATO, the reversal of which would have created a significant tax liability. Mr Barnden expresses his opinion that the liability declared to the ATO was understated by about $700,000 which was in line with the company's creditor ledger and the RATA lodged by the director: paragraph 5.5.4.
In relation to the amounts owing to Hanson, the McMahon report stated that the company requested a payment arrangement with Hanson. Mr Barnden expressed the opinion that this was an indicator of insolvency in itself: paragraph 5.7.3. This was particularly relevant as Hanson was the largest creditor by value with long outstanding claims: paragraph 5.7.4.
As to forward cash flow projections, Mr Barnden expressed the opinion that an analysis of the cash flow forecasts past the date of insolvency was irrelevant as One Build went into liquidation and was undoubtedly insolvent on this date: paragraph 6.2.1.
Mr Barnden was subject to a detailed cross-examination extending over almost one hearing day. Mr Barnden was examined about his description of his two reports as "preliminary" reports. He denied the suggestion put to him that this indicated that he had not formed a concluded opinion in relation to the matters in his reports. He said the reports were described as "preliminary" in case additional documents came to light which he had to consider. It was then put to him that he did not have sufficient documents to form a concluded opinion. He also disagreed with that. The defendant raises this issue in his submissions as indicating that in reality no concluded opinion had been formed by Mr Barnden: written submissions paragraphs 123-129. I reject that submission. In my view it was clear both from the two Barnden reports and the extensive cross-examination, that the views of Mr Barnden were concluded views and not merely preliminary views. They were carefully reasoned in his reports and extensive detail was provided. I accept his evidence on this issue.
Mr Barnden was then cross-examined in relation to the documents with which he was provided, in particular any documents provided to him between his first and second reports. He said that there may have been a few additional documents provided to those annexed in his second report. He could not be entirely sure but there may have been some additional documents. He said that the further documents looked at were reviewed for additional analysis mainly responding to Mr McMahon's report. He accepted that there was a possibility that he had looked at additional documents not disclosed in his second report.
Mr Barnden was then subject to detailed cross-examination in relation to a draft of his first report which had been produced on subpoena and which became Exhibit 5 in the proceedings. The cross-examination centred on matters that were in the draft report but were not repeated in the final report. Mr Barnden provided his explanations for the various changes from the draft to his final first report. In the course of this evidence, Mr Barnden stated that he looked at the proofs of debt lodged in the liquidation of One Build and any supporting documents but did not look at the underlying agreements between One Build and the relevant creditors. In relation to paragraph 3.4 of the draft report and his first report concerning payroll tax, Mr Barnden accepted that the late payment of payroll tax by a maximum of five business days was not a strong indicator of insolvency: see paragraph 3.4.5 of Mr Barnden's first report. He stated that it still indicated a breach of statutory obligations and was an indicator of insolvency, but not as strong as other indicators. In my view, the late payment of payroll tax, particularly having regard to the concession in the second report of Mr Barnden that the amount of payroll tax in issue was not significant and that the explanation provided by Mr McMahon which seemed to be reasonable (see paragraph 5.6.1), is not a significant indicator of insolvency. Little weight should be given to it. See also paragraph 182 b) of the defendant's written submissions.
In relation to tax returns, Mr Barnden conceded that paragraph 3.4.4 in the draft report stated that the company statement of account for income tax showed a nil balance up to 30 June 2012. However, as at the date of liquidation, One Build had yet to lodge its return for the year ended 30 June 2013 and there was a discrepancy between the amount showing in the management accounts and other tax returns. Further, Mr Barnden said that where there were carried forward losses, a nil balance was not relevant to cash flows of a company. Mr Barnden said a nil balance for income tax was an indicator to the contrary of insolvency but often companies traded at a loss and therefore had a nil tax balance. Mr Barnden conceded that the accounts showed that One Build had made a profit for the relevant three financial years ending 30 June 2013. In the course of his evidence, Mr Barnden denied that he was "cherry picking" to find insolvency and said he was providing an independent opinion of the solvency of One Build.
Mr Barnden was asked questions about whether in fact he had had regard to all of the books and records of the company. This became a significant issue raised in the defendant's written submissions. He was referred in particular to the list of books and records held by the liquidator which is at Volume 3/1091 of Exhibit D. Mr Barnden said he had the USB stick of documents which was provided to him and further documents which he obtained in relation to the position of the Hanson creditor, but if the liquidators did not have relevant documents to hand over and they were not provided to him he did not review them.
Mr Barnden was asked questions about the deletion of paragraph 3.6.2 in his draft report in which he said "… but [I] have found little, if any, evidence of suppliers placing the company on cash-on-delivery terms, or otherwise demanding special payments before resuming supply." Mr Barnden said that the further information provided to him showed that the credit by Hanson Precast was put on special terms. He accepted that special arrangements were one indicator of insolvency. Mr Barnden agreed that he found no evidence of suppliers requiring payment of cash on delivery or of Hanson itself stopping the supply of goods. Mr Barnden said he could not speculate as to the reason for Hanson continuing to supply goods even though there was a breach of their normal payment terms. He agreed that he did not cite suppliers putting One Build on cash terms or requiring special payments except in the case of Hanson.
Mr Barnden conceded that different matters would either suggest solvency or suggest insolvency. In his report, he referred to the indicia of insolvency. He accepted that if a matter was not mentioned as an indicium of insolvency it either was a contraindication of insolvency or was equivocal in relation to insolvency. See also paragraph 182 of the defendant's written submissions.
An attack was made by the defendant in submissions in relation to the deletion of positive items from the draft of Mr Barnden's report compared to the final report. While I consider reference should also have been made to factors indicating solvency, in the end Mr Barnden was focussing on indicia of insolvency. In my view, for that reason the changes from the draft report did not significantly affect my view of the weight to be given to Mr Barnden's opinions. However, in my assessment of the evidence, all factors relating to the financial position of One Build at the relevant times were taken into account.
In relation to the deletion of paragraph 3.6.5 of the draft report relating to letters from solicitors, summonses, judgments or warrants against One Build, Mr Barnden accepted that the historical company search with which he was provided indicated that there were no summonses, judgments or warrants against One Build. Mr Barnden did not agree that the absence of relevant judgments and other legal orders was a factor indicating an absence of insolvency but he agreed that it was a relevant factor to take into account in relation to the company. He said he considered this matter.
Mr Barnden was taken to paragraph 1.4.4 of his first report where he stated: "I have not reviewed in detail each page that I was provided with as there were over 4,000 pages. I have not conducted an audit of any of the documents or information referred to. I do not warrant the accuracy or reliability of any of the information supplied to me."
Mr Barnden gave evidence that he went through the entirety of the documentation on the USB stick provided to him but he did not review each page on the USB stick in detail.
Mr Barnden was then asked questions about his first report. In relation to the methodology he adopted in reviewing the documents, he agreed that he was not provided with an electronic copy from One Build's accounting software package but only extracts as scanned and placed on the USB stick. Mr Barnden said he also undertook a review of what he was provided on the USB stick compared to the liquidators' listing at Exhibit D 3/1091. He agreed that he understood that the USB stick material was not a complete copy of all books and records of the company available to the liquidators. Mr Barnden was then asked whether he was satisfied that the materials that he was provided, particularly the financial records, were the only relevant versions of those records. He said he had not determined this and was not requested to do so. He noted that in most liquidations, even a voluntary winding up, it was rare for a liquidator to get all the books and records of the company.
Mr Barnden was then asked questions by the court as to whether the records which he had been provided and which he reviewed, appeared to be complete and in particular whether anything significant was missing. Mr Barnden said that the records did not appear to be fully complete although the major financial records were there. He said that he did not have any concerns as there were the balance sheets, profit and loss accounts, bank reconciliation documents, general ledgers and aged creditors listings for the relevant dates. He noted that missing documents included a few missing bank statements, supporting documents for bank reconciliations, cheque butts and the unpresented cheques register for the relevant period including supporting documentation. Mr Barnden agreed that he had the bank statements for One Build's NAB account as referred to in the box listing of the liquidators (on the assumption that it was the same account referred to that he had seen the bank statements for).
Mr Barnden was then asked questions about the involvement of the IT specialist Mr Petrov who had earlier given evidence in the proceedings and whose evidence is discussed above.
Counsel for the defendant put to Mr Barnden a summary of Mr Petrov's evidence including that he was an IT expert, that he had no qualifications in accounting or law, that he had been given no definition of the books and records of the company including that under the Corporations Act, that he was involved in reviewing the books and records of One Build as stored on hard disks provided by the liquidators, that he had been given instructions by Mr Chase Berry who previously worked for the plaintiff's solicitors including that he should extract what he considered to be financial records, that he extracted the financial records he considered to be financial records and sent examples to Mr Chase Berry who gave him further instructions and that he had exercised his forensic judgment in selecting the relevant documents. It was further put that the evidence of Mr Chase Berry was that he made a further selection of the documents to be included from those provided by Mr Petrov and that he then placed the reduced documentation on the USB stick which had been provided to Mr Barnden.
Mr Barnden said he did not have concerns in providing his opinion in those circumstances as the primary financial documents from his review were included in the information provided to him. He said he proceeded on the assumption that nobody altered the company's records before they were provided to him. He said he considered that the documents he was provided were sufficient for him to be able to give his opinion. He also stated that in his experience the annual statements of the company were usually more reliable than other records although he noted differences which he considered relevant between the accounting and tax records of One Build in the present case.
Mr Barnden was asked whether the differences between the accounting and tax records could be explained by him not having access to all records. Mr Barnden disagreed with that suggestion and noted some differences between the annual accounts and management accounts. When asked whether he saw any working papers, he said he did see monthly key performance indicator documents which were apparently provided to the director. He said he did not refer to these in his report as he provided his opinion on the most important financial documents and the key performance indicator documents appeared from his review to merely provide a summary of the management accounts. He said he decided to rely on the underlying source documents for his reports in providing his opinions and not the financial "snapshot" that was provided by the key performance indicator documents. He said he did review them for any differences and decided to rely on the source documents as being reliable. He agreed that he could not say that the key performance indicator documents reconciled with the management accounts in their entirety.
In answer to the repeated suggestion that without access to all of the documents of the company including all of the documents held by the liquidators, he could not satisfy himself as to whether he had all versions of the documents, Mr Barnden said he proceeded to give his opinion on what he had been provided on the understanding that those documents came from the hard drives which constituted One Build's documents as extracted from its accounting software package.
When taken to other parts of the books and records listing of the liquidators (Exhibit D 3/1091), Mr Barnden said that documents he regarded as relevant appeared to be on the USB stick which had been provided to him but he could not ascertain whether he had all the supporting documents referred to in the liquidators' listing. He agreed that he had not made a physical inspection of certain boxes.
Mr Barnden was then cross-examined about the need to consider the "commercial reality" of the financial circumstances and trading of a company in determining whether it was insolvent. He agreed it was appropriate to look at the reality of the industry in which the particular company was operating subject to the relevant terms and conditions in which trading occurred. However, he stated that just because a general practice was adopted in an industry did not impact upon the contractual terms between the parties. Mr Barnden said that the issue ultimately was whether payment was due and payable.
Mr Barnden was taken to paragraph 3.6.5 of his first report in which he states that he reviewed, in relation to One Build's trading terms with its suppliers, documentation from 78 suppliers with details of their terms of trade, which on average were 30 days, as shown in the schedule at Annexure H to his report. These were creditors who had lodged proofs of debt with the liquidators. He agreed that he did not consider the position of other creditors who had not lodged a proof of debt. When asked by the court whether this documentation established the terms as at 30 June 2013, Mr Barnden agreed that it did not but he assumed that the same terms of credit which were disclosed from the proofs of debt for the suppliers existed for the same creditors as at 30 June 2013. He said he also compared the listing to the creditors' listing for One Build as at 30 June 2013 and believed that it was understated. Mr Barnden denied that the cash flow test which he performed was flawed but accepted that it was performed on incomplete records.
Mr Barnden said that he had access to an aged creditors listing which he believed was understated as it did not disclose all cheques which had been drawn and which were unpresented. Accordingly, the listing only provided creditors where a cheque had not been drawn. As a result he did not have a full list as he did not have the names of the creditors on the unpresented cheques listing.
Mr Barnden was then asked about his assumption in paragraph 3.6.5 of his first report that the terms of trade were on average 30 days. He was asked whether he had considered Mr Silk's affidavit and he said he had. He was referred to that part of Mr Silk's affidavit which indicated that the terms of One Build were that One Build had 30 days to pay from the end of the month in which the invoice was dated. Mr Barnden said that unless such terms were agreed with particular creditors, the usual terms of trade of those creditors still applied. Even considering One Build's preferred terms, Mr Barnden said it did not change his analysis, as it depended on whether a particular supplier had accepted One Build's terms. Mr Barnden said even without this factor the other factors indicating insolvency still were present and he maintained his opinion.
Mr Barnden was then asked questions about the indicator of insolvency in his first report relating to liabilities to the ATO and his view that One Build's tax liabilities were understated. Mr Barnden referred to there being a significant discrepancy in the company's revenue between what was recorded in its management accounts and in the BAS returns of about $7 million: see paragraph 3.1.7 of Mr Barnden's first report. There was a difference between the revenue recorded in the annual accounts for the year ended 30 June 2013 of $30,879,045 and the reported sales in the company BAS returns for the same period of $23,486,714. When asked by the court whether the revenue for GST purposes was the same as the operating revenue, Mr Barnden confirmed that the revenue was but the expenses for BAS purposes were different. Mr Barnden stated that if the annual accounts figures were overstated then the ratios of assets to liabilities would change considerably. However, if the BAS returns were understated by the amounts recorded in the general ledger, then the net GST payable by One Build would be about $700,000 more.
Mr Barnden conceded that he never sighted any demands from the ATO, any proceedings initiated by the ATO or any default notices from the ATO. When asked whether that indicated One Build was meeting its taxation requirements, Mr Barnden said that it did assuming that One Build was reporting correctly particularly in its BAS returns which he had analysed. However, he accepted that the lack of demands or proceedings from the ATO was indicative of solvency. See also paragraph 182 of the defendant's written submissions.
Mr Barnden was then asked questions about the bank term deposit held by One Build. He agreed that the documents showed that One Build had a term deposit amounting to $1 million with NAB as security for bank guarantees which had been provided by NAB. He also agreed that bank guarantees were used by the company from time to time and that parts of the term deposit were released. It was put to Mr Barnden that he was not aware whether One Build could use the moneys in the term deposit for creditors. Mr Barnden said that usually a term deposit is retained by the bank to support guarantees and often banks will not release it if any guarantees are outstanding. Mr Barnden also noted that the term deposit was still there supporting guarantees at the date of liquidation. Mr Barnden also stated that $1 million was noted as a term deposit supporting bank guarantees in the annual accounts for the year ending 30 June 2013: see paragraph 3.3.17 of his first report and Table 15. Mr Barnden stated that he relied on Mr Hill's report, which had confirmed the term deposit amount of $1 million: see Exhibit D 3/761, particularly at 763 and 770. This indicated that Mr Hill had received correspondence from the bank which confirmed in his view the term deposit figure.
Mr Barnden was also taken to Annexure D to his second report and paragraph 4.3.3 of that report where he stated that the deposit appeared to be a non- current asset. This was relevant to be taken into account on the issue of solvency when viewed in terms of AASB 107 (Exhibit C in the proceedings).
It was put to Mr Barnden that there were exceptions which meant that a term deposit could be treated as a current asset. Mr Barnden said that he was not aware of any exceptions. It was put to Mr Barnden that a term deposit can be accessed subject to the customer paying a penalty, which was the written opinion of Mr McMahon and which he confirmed in his oral evidence. Mr Barnden said that was not his experience because with a bank guarantee you also needed the approval of the third party for whom the bank guarantee was given for it to be released as they had an interest in the deposit securing their guarantee. Mr Barnden accepted that the third party may release the guarantee but said a term deposit is either securing a guarantee or it is not. When Mr Barnden was taken to the annual One Build accounts which referred to a $1 million term deposit whereas Annexure D to his report reflected a $500,000 deposit only, Mr Barnden stated that he assumed there must have been another term deposit for $500,000. He noted that Mr Hill's report referred to $1 million in term deposits: see paragraph 3.3.17 of his first report and paragraphs 4.3.3 and 4.3.4 of his second report. Mr Barnden agreed that a company approaching insolvency does not usually have $500,000 invested as a term deposit as it usually seeks to obtain access to any money it can. Mr Barnden accepted that it was an indicator of solvency but said it did not change the relevant ratios.
Mr Barnden was then asked questions about One Build's relationship with its banker, NAB. He agreed that there were no dishonoured payments apparent or indications of a bad relationship between NAB and One Build. He said, however, that this was not necessarily an indicator of solvency.
Mr Barnden was then asked questions about paragraph 42 on pages 10 to 12 of Mr Silk's affidavit in which Mr Silk provided an explanation for the level of unpresented cheques. Mr Barnden agreed that he had read Mr Silk's affidavit prior to preparing his second report. He also agreed that he did not deal in his second report with what Mr Silk said in his affidavit.
Mr Barnden said that the level of unpresented cheques of One Build was of concern to him as referred to in his reports. He stated that a substantial amount of unpresented cheques caused a change in the aged creditors' listings. He regarded it as strange to adopt the practice that Mr Silk refers to in his affidavit of printing cheques and holding them particularly for retention amounts and where it was not known where there would be disputed defects. He stated that retentions may be held by a construction company for more than 12 months which meant that cheques would no longer be valid. He saw it as creating an administrative nightmare for a company to cancel the cheques in those circumstances and it increased the possibility of error. Where defects were involved, the quantum of the debt would not be known and disputes would cause an alteration in the quantum of the cheques.
Mr Barnden said that he looked at the analysis in the McMahon report and in particular the analysis for those cheques which were marked as "for retention". He said that even deleting these cheques, there was still a significant amount of unpresented cheques involved. He denied that he failed to consider the matters in Mr Silk's affidavit. He said the concern he had was that when a cheque was drawn, the amount was taken off the creditors' ledger and deemed in accounting terms to have been paid. However, Mr Silk's affidavit shows that the cheques were not sent to the creditor and thus were not paid in fact. Mr Barnden also noted that the value of unpresented cheques was increasing throughout the relevant period to the date of liquidation. Mr Barnden accepted that he did not have complete documentation in relation to the unpresented cheques. However, he denied that he needed to see all the underlying detail of the unpresented cheques in order to give his opinion. That was because he was aware of the amount of the unpresented cheques and the retentions which allowed him to calculate the remaining creditors. Mr Barnden said drawing cheques but not presenting them reduced the number of creditors in the company's accounts and made a company's position look better than it in fact was. In his view, the cheques should have remained in the aged creditors listing as the accounts were prepared on an accruals basis and the inclusion of the unpresented but held cheques was necessary to reflect the true position in the accounts.
Mr Barnden said he attempted to undertake a reconciliation of One Build's books and records on this issue but he did not have access to all of the books and records to do so. He denied, however, that his opinion was unreliable as the analysis he had undertaken suggested that the list of creditors in the aged creditors listing was understated.
Mr Barnden was then asked a number of questions in relation to the potential availability of additional funding from a related party. Mr Barnden agreed that the availability of additional funding from related parties was relevant to the consideration of solvency under the cash flow test. Mr Barnden referred to paragraph 3.8.1 of his first report in which he stated that he had seen insufficient evidence to form a view on whether the two related entities had adequate resources to financially support One Build. He also referred to paragraph 6.1 in his second report. In paragraph 6.1.1 Mr Barnden stated that the two related entities "were either unwilling or unable to provide financial support to the Company".
It was put to Mr Barnden that there was no evidence before him as to whether the related entities had adequate resources. Mr Barnden said that they had not provided financial support to One Build in the six months prior to 30 June 2013. It was then put to Mr Barnden that it was relevant for him to ascertain the willingness of the related companies to provide financial support. Mr Barnden said he could not ascertain this, particularly as a relevant person involved in the related entities was the defendant Mr Silk himself. Mr Barnden was asked why he used the period of six months prior to 30 June 2013 and not earlier periods. He said the most recent six month period was more relevant as it was more recent. It was put to Mr Barnden that a 12 month period was more reasonable and he disagreed. He said that an assessment needed to be made of what had actually happened and his analysis at paragraph 6.1.1 showed that the related company Metroplex Investments was actually owed money by One Build. Mr Barnden also referred to the fact that the Valley View Investments Trust was repaid money by One Build in the relevant period. Mr Barnden did not consider that there was evidence showing it was conceivable that the related parties would advance money as at 30 June 2013. He agreed that there was no evidence of a lack of capacity in the related parties to assist One Build. He also agreed that he was not provided with relevant documents on the capacity of the related parties. It is noted that there is nothing in Mr Silk's affidavit sworn 13 September 2017 in which he states that there was a willingness to provide financial support by him or his wife to One Build.
In relation to Mr Silk seeking professional insolvency advice, Mr Barnden described that as an anecdotal indication of insolvency not a formal indication of insolvency. However, it was a matter to be taken into account as a whole. He referred to the Declaration of Independence, Relevant Relationships and Indemnities by Mr Hill which is Annexure E to his second report which showed that Mr Hill had five meetings with Mr Silk in 2012 and 2013 including one on 26 July 2013 for the purpose of providing information to Mr Hill to enable him to advise Mr Silk on the solvency of One Build. Mr Barnden said that he regarded the meetings as a strong indication of insolvency although he accepted that he had no detailed knowledge of the advice given. He did not agree that it was not an indication of insolvency.
In re-examination, Mr Barnden was taken to One Build's income tax liability as at 30 June 2012 in the light of the profit it made. He said having regard to One Build's carried forward losses it would not pay any tax.
Mr Barnden was taken to the term "prepayment date" in the NAB term deposit document which is Annexure D to his second report. He was then asked to look at the same amount for the Alstom contract in Exhibit D 3/771. Mr Barnden said that the prepayment amount could relate to the Alstom bank guarantee.

The evidence of Mr S McMahon

The defendant read an affidavit of Stephen Patrick McMahon sworn 13 September 2017. Attached to Mr McMahon's affidavit was a report from him in relation to the solvency of One Build. The report is effectively a critical commentary on Mr Barnden's report and does not propose itself a date when One Build became insolvent. Mr McMahon is critical of Mr Barnden's analysis and disputes his finding that One Build was insolvent as at 30 June 2013. Mr McMahon is a chartered accountant with extensive experience and is clearly an expert.
Mr McMahon makes clear that the documents that he had reviewed and relied upon for the purposes of preparing his report were the same as those used by Mr Barnden in his first report: paragraph 1.4.1. The assumptions which Mr McMahon was instructed to make include: 1. That the advice sought by Mr Silk from Mr Hill, chartered accountant, in or about August 2012 in relation to the proposed construction contract with Alstom valued at approximately $19 million and which was the largest ever taken on by One Build, was advice not sought as a result of any concern about the then solvency of One Build; 2. That One Build employed a qualified accountant as Financial Controller being Mr John Lunney who prepared all accounts, tax lodgments and FBT returns on behalf of One Build. Whilst One Build also had an external accountant which lodged its tax returns, all its affairs were handled by Mr Lunney; and 3. It was not uncommon for One Build to have a large number of unpresented cheques at any one time for various reasons which Mr McMahon sets out: 1.7.2-1.7.4.
Mr McMahon stated that the test for solvency was objective and commercial. He agreed with Mr Barnden that the cash flow test is the primary test to be applied and the current and quick asset ratios are only indicative of insolvency and not considered determinative. Mr McMahon was of the view that Mr Barnden failed to apply the relevant test required under s 95A of the Corporations Act. Mr McMahon expressed the opinion that Mr Barnden had relied on financial information which appeared to be unreliable with a number of discrepancies, and accordingly, a number of the matters relied upon by Mr Barnden would also be unreliable. Mr McMahon expressed the opinion that a conclusion as to insolvency as at 30 June 2013 could not be reached if the opinion is based on unreliable financial information.
Mr McMahon noted that much of the analysis undertaken and tests carried out by Mr Barnden were in relation to indicators of insolvency only and were not demonstrative of insolvency. One Build's bank's apparent well-established relationship with and ongoing support for One Build beyond 30 June 2013 was noted and was said to be inconsistent with Mr Barnden's conclusion that the company was insolvent as at 30 June 2013.
Mr McMahon expressed the opinion that the Barnden report's analysis of unpresented cheques was flawed in that it failed to consider retention payments and the company's apparently well-established relationship with NAB. In relation to the reliance by Mr Barnden on accounts prepared by external accountants, Mr McMahon noted that his instructions were that the company did not have external accountants and that Mr Lunney prepared all necessary accounts.
Mr McMahon then reviewed Mr Barnden's "11 indicators of insolvency" and stated that his opinion was that in many instances it appears that the matters were indicative but not determinative of insolvency. In particular, whilst Mr Barnden's report rightly identifies the critical importance of the cash flow test, Mr McMahon said he does not appear to offer sufficient or adequate analysis of the company's cash flow forecasts on or about 30 June 2013.
Mr McMahon criticises the Barnden report for not offering a cash flow statement or projection. Mr McMahon noted that while the test for insolvency was primarily a cash flow test, it also required a consideration of One Build's financial condition at the relevant date in its entirety, including its business operations, assets, liabilities, facilities available and its ability to borrow funds and raise capital. The test of insolvency was regarded by Mr McMahon as one of "commercial reality and totality": paragraph 4.2.5. Mr McMahon stated that to determine insolvency, an identification of all of the company's debts which are due and payable at the relevant time frame was necessary.
In relation to points raised by Mr Barnden in his report, Mr McMahon expressed the following opinions: 1. Whilst a consideration of a company's balance sheet at the relevant time is one factor to be taken into account in assessing solvency, the real question was whether the company was able to continue to trade and meet its commitments. A deficiency of total assets to total liabilities was not conclusive as to insolvency; 2. All of the company's assets should be taken into account in determining what funds may be realised from those assets within a reasonable period of time to pay its debts as they fall due. Consideration needs to be given as to whether assets have been properly classified as between current and non-current assets in the company's balance sheet including the term deposit held by One Build; 3. All of the company's liabilities must be ascertained. It must be determined as to whether they have been properly classified. Similarly, the company's debts at the relevant time must be considered to determine whether they are due and payable; 4. In addition to cash flow generated from trading activities, the introduction of further capital or loans can provide the cash flow needed to satisfy debts including alternative funding from other sources such as related entities including Mr and Mrs Silk. Mr McMahon said the possibility of alternative funding should have been investigated by Mr Barnden before he formed objective opinions and drew conclusions; 5. Mr McMahon then set out his indicators of insolvency and said that Mr Barnden had attempted to address some but not all of them: paragraph 4.9; 6. The current ratio of less than 1.0 for assets over liabilities was merely indicative and not determinative. The Barnden report must consider the company in its entirety; 7. Mr Barnden had not taken into account the improving trend of assets compared to liabilities. In any case, the test was merely indicative but not determinative of the question of solvency; 8. Mr Barnden had incorrectly concluded that the company's external accountants sought professional insolvency advice in relation to One Build in August 2012; 9. There was a proper explanation for the level of unpresented cheques which Mr Barnden had not taken into account; 10. Mr McMahon expressed the opinion that the reliance upon the existence and magnitude of alleged unpresented cheques as a demonstrator of insolvency was flawed: paragraph 5.6.6; 11. Mr Barnden assumed that the creditors' proofs of debt upon insolvency were correct and the aged creditors listing was incorrect but provided no support or analysis for the assumption. In any case, it could only be regarded as an indicator of insolvency. Mr Barnden's report was criticised for not attempting to reconcile the proofs of debt with the company's creditor records; 12. Mr Barnden's reliance on inconsistencies between the liability to the ATO in the company's management accounts compared to the BAS returns was referred to. It was said that many of the differences could be explained by timing and/or accounting differences; 13. There was no evidence of any winding up or recovery action instigated by the ATO; 14. There could be explanations for the apparent underpaying of payroll tax liability. In any case, it was not significant and was unlikely to be determinative of insolvency; 15. There were explanations in relation to the alleged debt to Hanson Precast Pty Ltd, One Build's largest creditor. There was a real issue whether the payments to Hanson were outside its terms of trade; 16. Mr Barnden's conclusion that 60% of trade creditors were paid outside of terms from 30 June 2013 ignored the fact that 96% of trade creditors were less than 60 days. It was noted that it would appear that the deterioration of the company's contract with Alstom ultimately led to the appointment of a liquidator.
Overall, in Mr McMahon's opinion the evidence was not sufficient to establish insolvency. In particular, Mr Barnden had ignored forward cash flow projections for One Build which were positive.
The essential conclusion of Mr McMahon was that the matters relied upon by Mr Barnden were indicative but did not establish the insolvency of One Build as at 30 June 2013.
In cross-examination, Mr McMahon stated that his instructions were to respond to Mr Barnden's first report and to give his opinion on it.
Mr McMahon was asked questions about cash inflows and outflows and their relevance to the cash profit or loss of a company. He was then taken to documents which set out the net cash provided by operating activities for One Build for the 2011-2013 financial years which showed: 1. A $540,997 net cash position by operating activities for the year ended 30 June 2011 with a net increase in cash held of $390,954 (cash flow statement - CB 1/19); 2. A cash flow statement for the financial year ending 30 June 2012 showing net cash provided by operating activities of $1,963,708 with a net increase in cash held of $1,888,259 (CB 1/40) with cash held at the end of the year of $2,955,564; 3. These should be compared to the position in the cash flow statement for One Build for the year ended 30 June 2013 which showed net cash provided by operating activities of ($4,249,726) with a net decrease in cash held of ($4,256,756) with cash at the end of the year of ($1,301,192).
In paragraph 2.2.3 of his report, Mr McMahon stated that "the definitive test of solvency or insolvency is regarded as being a cash flow test, both objective and commercial". Mr McMahon accepted that the difference in cash held at the beginning of the 2013 financial year compared to the end of the year, was the difference between $2,955,564 and ($1,301,192). When it was put to Mr McMahon that this was an extremely poor result for the company, he described it as a "decline" and "not as good" as the previous year. In answer to a question from the court, he agreed that it was a very substantial turnaround.
Mr McMahon was then taken to paragraph 5.5.4 of his report in which he states as follows: "It is the role and duty of a director to monitor and prudently manage the financial position of a company and seek relevant expert advice (both external or internal) as and when appropriate". He agreed that this was particularly the case with a sole director. Later, Mr McMahon said that it was the role of the company's accountant to monitor the financial position and to inform the director as and when required. He agreed that it was reasonable for a director to rely on the accountant to inform him of important financial matters.
In relation to the cash flow statement for the year ended 30 June 2013 for One Build, Mr McMahon made the point that the document would have been prepared well after 30 June 2013 and there would be an issue as to the knowledge of a director as at 30 June 2013. Mr McMahon made the distinction between such a document which was prepared on an accruals basis and accounts which showed the position of the company as shown in management accounts. He referred to the "delicate" cash flow management task that was required to manage companies' cash flow in the construction industry. He was also not aware of the practice of when Mr Lunney brought financial matters to the attention of Mr Silk. However, he agreed that management cash flow statements should be prepared in accordance with proper accounting principles and one should assume that they were reasonably and properly prepared in accordance with the judgment of the accountant.
Mr McMahon was taken to paragraph 2.2.1(e) of his report where he notes Mr Barnden's reference to the differences between the company's annual accounts and management accounts. He accepted that he understood that both were prepared by the company's accountant, Mr John Lunney: see also paragraph 3.1.4 of Mr McMahon's report.
Mr McMahon was also asked a number of questions about a bank reconciliation statement for One Build as at 30 June 2013: CB 2/478. This document showed a balance as per the bank statement of ($281,311.18), to which if unpresented cheques were added showed a balance of ($2,909,409.07). Mr McMahon said the difference was caused by the deduction of unpresented cheques being cheques which had been drawn but had not yet been sent out and presented. In relation to cheques drawn for retention payments, Mr McMahon indicated that it showed that cheques were drawn even before defects in the construction work were known. He said that some businesses did that in his experience. He said his only knowledge in relation to One Build on this issue was as set out in paragraph 1.7.4 of his report, which was his instruction for the report.
Mr McMahon was then taken to the bank reconciliation statements for 31 August 2013 and 31 October 2013. These showed that One Build had unpresented cheques increasing by about $1 million from 30 June 2013 to 31 October 2013. Mr McMahon agreed that substantial unpresented cheques in a company were an indicator of insolvency subject to them being in relation to current debts: see paragraph 5.6.13 of Mr McMahon's report. Mr McMahon accepted that the position set out as at 30 June 2013 in the bank reconciliation statement coincided with the current liabilities in the accounts of One Build for bank overdraft as at 30 June 2013. Mr McMahon agreed that he had no instructions that the company had a bank overdraft available to it of $2.9 million at the time. He understood the bank overdraft was only $1 million. Mr McMahon said he assumed that Mr Lunney's practise was to draw cheques but for them not to be sent to creditors until necessary. They would be retained until any defects or retentions were established. He agreed that the unpresented cheques for One Build were not, as far as he was aware, limited to those categories. It was noted that the figure for the bank overdraft for the year ending 30 June 2012 was ($721,909) being a difference of about $2.2 million from the position as at 30 June 2013. Mr McMahon said that he could not determine why there was such a substantial difference and stated that he would need to look at the bank reconciliation statement for the year ending 30 June 2012 (see CB 1/45). The figure for the year ending 30 June 2011 for bank overdraft was nil. He could not state that this suggested a different practise in relation to unpresented cheques between 2011 and 2013.
Mr McMahon was then asked questions about the profit and loss statements for One Build for the financial year ending 30 June 2013 which showed negative earnings before interest and tax at an increasing rate (see CB 2/504, 2/512, 2/517 and 2/525). It was put to Mr McMahon that continued loss making activities were an indicator of insolvency. Mr McMahon said that the annual accounts for One Build showed a profit for each of the relevant three financial years from 2011 to 2013. He agreed that the annual accounts for One Build were prepared on an accruals as opposed to a cash basis. This became significant in relation to the Alstom contracts and payments made under them.
Mr McMahon was then asked questions about One Build's progress claims status reports: see CB 2/628-645. The substantial difference between claims made by One Build and receipts from clients in relation to those claims was noted. Mr McMahon agreed that this difference should be reflected in the company's accounts unless there was an adjustment or there was a settlement in relation to a dispute.
There was pointed out to Mr McMahon the similarity between the trade receivables and accruals in the accounts for One Build as at 30 June 2013 of $7,686,996 (CB 1/58 and 1/65) compared to the closing balance for unpaid progress claims as at 30 June 2013 in the progress claims status reports of $7,686,950.59. Mr McMahon agreed that the closing balance for the Alstom Transgrid Holroyd project of $2,009,959.66 would be part of the overall closing balance as would be the amount of the closing balance for the Alstom Transgrid Rookwood project. Further, the progress claims status report as at 31 July 2013 showed that substantial parts of the claims made by One Build relating to the Alstom Transgrid Holroyd and Alstom Transgrid Rookwood projects were not paid by Alstom leaving, in the case of the Alstom Transgrid Holroyd project, an amount of $1,548,920.16 unpaid. Mr McMahon agreed in those circumstances that an adjustment should be made to the revenue of One Build for that month in relation to the 28 June 2013 One Build claim, as the accounts were prepared on an accruals basis. This raises real doubts about the accuracy of the amount for trade receivables and accruals in the One Build financial statements as at 30 June 2013 at CB 1/65.
Mr McMahon was asked questions about the availability of One Build's term deposit invested with NAB of $500,000 which had been invested for six months: Mr Barnden's second report Annexure D. It was put to Mr McMahon that as the investment was for a period of six months, it was a non-current asset. He did not accept this even in the light of AASB Standard 107 of August 2015 where it states: "Therefore, an investment normally qualifies as a cash equivalent only when it has a short maturity of, say, three months or less from the date of acquisition". Mr McMahon said term deposits can be accessed with a penalty and in those circumstances it would be a short term asset.
Mr McMahon was then cross examined in relation to Mr Barnden's indicators of insolvency: 1. He agreed that One Build had a current ratio (being of current assets over current liabilities) of less than 1.0 since at least 30 June 2010 with a ratio of 0.78 as at 30 June 2013. He agreed that if current assets were adjusted down the ratio would also go down; 2. In relation to the "quick ratio", it was also less than one. Mr McMahon agreed that was indicative of insolvency and no more. He agreed that both ratios were less than one for all of the 2013 financial year but appeared to be improving; 3. Mr Barnden noted that One Build had net liabilities in excess of $2 million which as at 30 June 2013 were $2,270,947. Initially, Mr McMahon said that this was not a positive indicator of insolvency but corrected his evidence in the light of his statement in paragraph 5.4.4 of his report; 4. Mr McMahon was then asked numerous questions about the BAS returns of One Build: see CB 3/940-951. Mr McMahon agreed that he did not recall seeing any errors in the table which was Annexure E to Mr Barnden's first report in relation to BAS returns for the period November 2011 to October 2013. It was put to Mr McMahon that the revenue as indicated in the BAS returns was substantially different to the income from which GST was calculated in the company's general ledgers. In particular, it was pointed out to Mr McMahon that the revenue in the BAS returns for the financial year ending 30 June 2013 was substantially different to the construction revenue from operating activities set out in the financial statements for One Build (CB 1/64). Mr McMahon sought to explain this through timing differences; 5. Mr McMahon said the figures were affected by whether One Build prepared its BAS returns on the accrual/non-cash or cash basis. Mr McMahon accepted that in relation to paragraph 5.8.2 of his report, that the reference to $10 million was in error as the relevant figure was only $2 million as at 2013. He said he did not know whether One Build asked the ATO to be allowed to account for GST on a cash basis. It was noted that there was about a $7 million difference between the operating revenue set out in the financial statements for One Build for the year ended 30 June 2013 compared to the operating revenue for the same period stated in the BAS statements. Mr McMahon said that this could be explained by "timing differences". Although Mr McMahon claimed that the timing differences could also be relevant if the BAS returns were prepared on an accruals basis (pointing to Tables 7 and 8 in Mr Barnden's report), this did not appear to explain the apparent $7 million difference. However, if the BAS returns were prepared on an accruals basis as were the accounts, then the alleged difference raised by Mr McMahon is not convincing. He agreed that applying proper accounting principles on an accruals basis, an invoice raised in June but not paid until July should still be reflected in the accounts as at 30 June of a year; 1. Whilst Mr McMahon agreed that a deterioration in the payment of a company's creditors could be an indicator of insolvency, it was not uncommon for a company to pay creditors outside its terms. He said it was a poor indicator of insolvency in the present case particularly as his assessment was that 96% of creditors were paid within 60 days. This suggested that One Build did not have an insolvency issue; 2. In relation to the question of potential related party assistance, Mr McMahon referred to this in paragraph 6.2.3 of his report as being a "key matter" to be considered. He noted that a related company Metroplex Pty Ltd had advanced funds to One Build at the end of 2012 which was not mentioned by Mr Barnden. While he accepted that this advance reduced Metroplex's indebtedness to One Build, Metroplex could still be a source of further funding.
In re-examination, Mr McMahon agreed that he did not see anything in the preparation of his report which suggested that his instructions in relation to the unpresented cheques were incorrect.

Submissions of the Parties

The parties presented detailed written and oral submissions. The written submissions in particular were complex and sophisticated. It is unnecessary to set out the detail of them in these reasons. I will only provide brief summaries of the submissions made except where a submission needs to be examined more closely.
The submissions made on behalf of the plaintiff were, in summary, as follows: 1. The plaintiff agreed to provide demolition services to One Build pursuant to a contract entered into on 30 August 2013. The terms and conditions in the written contract subsequently executed by Inner West were discussed and, subject to 30 days payment terms, were agreed by the parties and acted upon. The demolition services were provided by Inner West between 3 September 2013 and 17 November 2013 and progress claims were served on One Build. A payment schedule was only served by One Build in relation to the first progress claim. The claim was made by the plaintiff in these proceedings on three alternate bases of agreement or arrangement: 1. a contract on the terms set out in the final written document executed by IW on 12 November 2013; 2. a contract on terms which included the main terms of IW providing to One Build demolition services at the site as agreed for $345,000 plus GST with 30 days payment terms; 3. at the least, a "construction contract" within the definition in s 4 of the Building and Construction Industry Security of Payment Act 1999 (NSW) being "a contract or other arrangement under which one party undertakes to carry out construction work" which is applied in s 8 and the later sections of that Act; 1. Debts were incurred by One Build in relation to each progress claim prior to the appointment of a liquidator as a matter of substance and commercial reality. This includes the third progress claim where One Build allowed the services to be provided by Inner West and exposed itself to the ascertained or ascertainable liability to Inner West even though the claim was not strictly due and payable until later; 2. One Build was insolvent as at 30 June 2013 for various detailed reasons. The expert evidence of Mr Barnden should be preferred to that of Mr McMahon particularly in the light of the status of the Alstom contract and the payment schedules served by Alstom on One Build; 3. There were various clear indicia of insolvency which established One Build was insolvent as at 30 June 2013; 4. Mr Barnden had all the relevant documents of One Build necessary to provide his opinion. His opinion should be preferred to that of Mr McMahon; 5. A Jones v Dunkel inference should be made as a result of Mr Silk failing to call Mr John Lunney as a witness including in relation to the s 588H defence; 6. The various elements of the claim under s 588G(2) and s 588M of the Act have been established. In particular, at the time the debts were incurred by One Build to the plaintiff there were reasonable grounds for suspecting that One Build was insolvent; 7. Mr Silk failed to prevent One Build incurring the relevant debts to Inner West; 8. The defences under s 588H have not been established by Mr Silk on the evidence; 9. Inner West's claim against One Build is unsecured and Inner West will not receive any dividend in relation to its claim in the liquidation of One Build; 10. Accordingly, Inner West is entitled to recover its loss (which is the equivalent to the amount of its claim against One Build) from Mr Silk, the sole director at the relevant time of One Build. That loss was incurred as a result of the insolvency of One Build; 11. Consent was given by both liquidators, alternatively one liquidator (as only was needed), to the plaintiff to commence the present proceedings. At the least, when Mr Hosking sent his email providing consent that consent was provided on behalf of himself and as agent for Mr Hurst: submissions dated 16 February 2018 paragraph 130; reply submissions dated 15 March 2018 paragraphs 25-35. Therefore, the proceedings were validly commenced by IW.
The submissions made on behalf of the defendant were, in summary, as follows: 1. Written consent for the proceedings was required from both liquidators as they were joint liquidators. This was not obtained. Accordingly, the proceedings are incompetent and should be declared a nullity. If the proceedings are not a nullity, they have been commenced irregularly. The resolution appointed the liquidators as joint liquidators and this amounted to a departure from the default position under s 530 (a) of the Act. The ability of one liquidator to bind the other has been expressly removed by the terms of the resolution giving rise to the appointment: paragraphs 2 and 38-72 of the written submissions; 2. The argument of the plaintiff relating to the authority of Mr Hosking as agent to give written consent on behalf of Mr Hurst as principal should be rejected as being inconsistent with s 588R where it requires "the written consent of the company's liquidator"; 3. Mr Silk should be accepted as a reliable witness; 4. There was no concluded agreement reached between the parties at the 22 August 2013 meeting in respect of the proposed demolition works as alleged by the plaintiff. At the commencement of the works there was no signed subcontractor agreement. One Build did not enter any concluded agreement as alleged by the plaintiff. As at 26 November 2013, One Build had no contractual obligation to make payment to the plaintiff and thus could not have incurred a debt as is required by s 588G of the Act: written submissions paragraph 37. No claim for a quantum meruit is made; 5. In the alternative, if there was an agreement (see paragraph 4a) of the Defence), it was unclear what the terms of that agreement were, for example what was meant by "30 days payment terms." In the further alternative, a claim relying on the Building and Construction Industry Security of Payment Act was not available. First, it was not pleaded. Secondly, paragraph 4 of the Amended Statement of Claim pleaded an agreement (really a contract) not "an arrangement" under that Act; 6. The court should not be satisfied in relation to the sufficiency, completeness and accuracy of the documents provided to and considered by the plaintiff's expert Mr Barnden. There was a "piecemeal analysis of extracts of certain books and records of [One Build]." This undermines the expert evidence of Mr Barnden to such an extent that it should be given no weight. Mr Barnden made repeated concessions in relation to the insufficiency of the documents which he had. The chain of custody affidavit evidence was most unsatisfactory and showed a selection of documents by Mr Petrov (an IT expert, not a solicitor or accountant) and Mr Chase-Berry rather than all potentially relevant documents. Mr Barnden was not properly involved in the document selection. His cross-examination showed the inadequacy of consideration of the documents and uncertainty in relation to the completeness of the documents considered: written submissions paragraphs 73-107; 7. The failure by the plaintiff to call Mr Lunney established the difficulties in the documentary case relied on by it: He could have explained the documents and established the relevance of the documents relied on: written submissions paragraphs 108-113. Further, a Jones v Dunkel inference should be drawn against the plaintiff by its failure to call Mr Lunney as a witness in its case; 8. Liability of a director for insolvent trading of a company is a serious allegation and the Briginshaw standard must be applied; written submissions paragraphs 115-117; 9. Mr Barnden's reports expressing the opinion that One Build was insolvent as at 30 June 2013 should be rejected (submissions paragraphs 114-183): Mr Barnden's opinion cannot be accepted owing "primarily to the insufficiency, incompleteness and unreliability of the documents utilised to form the basis for his opinion" (submissions paragraph 121); Mr Barden's report was only preliminary in nature (submissions paragraphs 123-129); Mr Barnden's reports only considered the negative matters and not the many positive matters which indicated solvency as opposed to insolvency (submissions paragraphs 130-136; 182-3). This shows Mr Barnden's opinions were not measured and balanced. All factors should be considered not merely negative ones. Many factors suggested solvency; Mr Barnden's indicators of insolvency were not persuasive as they were based on One Build accounts which were not accurate or were incomplete. Further, One Build seeking professional insolvency advice was properly explained by Mr Silk who gave a logical and cogent answer for it which should be accepted (submissions paragraphs 146-151). The unpresented cheques practice was properly explained and the impact of them could not be clearly ascertained (submissions paragraphs 152). The trade suppliers' indicator was flawed (submissions paragraphs 160-165). The ATO GST return indicator was not persuasive as any alleged tax liability was unknown. Mr Lunney could have readily explained the financials (submissions paragraphs 166-172). Mr Barnden conceded that he could not properly undertake a sufficient analysis of the cash flow test (submissions paragraphs 173-180). 10. A defence of Mr Silk under s 588H of the Act was established. Mr Silk's evidence was that he relied on Mr Lunney and Mr Hill, especially the former, as to whether One Build was solvent. Mr Lunney was clearly experienced and qualified as well as competent and reliable. Mr Lunney provided Mr Silk with a key performance indicators report as well as other financial reports from time to time. Mr Silk's belief as to solvency was objectively reasonable: written submissions paragraphs 184-191.

Knowledge and belief of Mr Silk

A matter to be determined in these proceedings is the knowledge and belief of Mr Silk at all relevant times from 30 June 2013. However, it should be noted that the plaintiff based its case on the objective test in s 588G(2)(b) of the Act.
The knowledge and belief of Mr Silk in this period at relevant dates must be determined in the light of the following matters: 1. My assessment of Mr Silk, as set out above, whilst observing him throughout a lengthy cross-examination, was that he is a careful and intelligent man who was cautious and perceptive in the answers he gave. As I have stated above, I conclude that it was likely that he would have applied his abilities and characteristics to his running and management of One Build at the relevant time; 2. At all relevant times Mr Silk was the only director of One Build. He was also its secretary: Exhibit D, CB 1/3; 3. In or about August 2012, One Build entered into negotiations with Alstom in relation to One Build constructing two electricity sub-stations which I have described above. The value of the proposed contract between One Build and Alstom was $19,550,000 at that stage, which represented, according to Mr Silk, "a significantly large project compared to the Projects One Build had previously been undertaking": affidavit paragraph 20. As at 31 July 2013, the contract price under the Alstom contract had apparently risen from $19,550,000 to $24,960,000: Silk affidavit paragraph 25. As he was the only director, it is inconceivable in my view that Mr Silk would not have been aware of these significant matters due to the importance of the Alstom contract to One Build. His affidavit supports that: see paragraphs 19 and following; 4. The Alstom contract was so significant that One Build engaged Mr Hill to advise it in respect of One Build's proposed contract. The advice given included advice in relation to the solvency of One Build: paragraphs 21-22 of Mr Silk's affidavit; 5. As at 2012, Mr Lunney, the Financial Controller of One Build, was an experienced certified practising accountant. In addition, One Build employed another certified practising accountant who worked for Mr Lunney. Mr Silk says that as he does not have any formal accounting qualifications, he relied upon Mr Lunney "and his team" to handle all accounting and financial matters relating to One Build: Silk affidavit paragraphs 6 and 9; 6. As at 2012-13, the Alstom contract was One Build's largest contract by a large margin. I find that it is highly likely that Mr Silk was aware of that; 7. Mr Silk was particularly interested in relation to the Alstom contract including as to how it was going and what amounts were being received and not received by One Build from Alstom in relation to progress payments. Mr Silk was aware as to whether Alstom, via a payment schedule, had disallowed any large amount of One Build's claim including its June 2013 claim. This knowledge was held by Mr Silk at some point in July 2013: T241.39-T242.3; 8. The expenses in relation to the Alstom contracts and the claims made by One Build and allowed or disallowed by Alstom, were crucial matters relevant to the financial well-being of One Build as at June/July 2013; 9. Mr Silk's evidence was that he relied on key performance indicators supplied to him by Mr Lunney rather than a review of monthly balance sheets and profit and loss statements (which were available but which he says he seldom reviewed). There is no evidence that Mr Silk worked at the particular contract sites or was absent overseas at the relevant time. His role was therefore the administration and management of One Build. I think it likely that he was familiar therefore in relation to the general financial position of One Build even with the involvement of Mr Lunney. However, this finding is not necessary in relation to the s 588G(2)(b) and s 588M claim where an objective standard is applied; 10. Mr Silk also gave evidence that he was not familiar in detail with the BAS returns lodged by One Build: see T240.11-T242.1. However, the returns were discussed with Mr Silk to some degree. They were important in relation to One Build's cash flow and potential tax obligations; 11. Mr Silk also had some knowledge of the annual accounts for 30 June 2013. If Mr Lunney was competent and efficient, as Mr Silk indicates, he would have likely prepared the annual accounts promptly and provided them to Mr Silk; 12. In relation to the practices concerning drawing cheques and the retention of a large number of cheques before forwarding them to payees, Mr Silk gives evidence of this in paragraph 42 of his affidavit. There is no suggestion that Mr Silk was not familiar at all relevant times with the various matters he states in paragraph 42 of his affidavit. The complex arrangements set out in that paragraph appear surprising and practically inconvenient unless other reasons existed for undertaking that course. This possibly included reducing One Build's aged creditors.
The contemporaneous documents, in my view, are to a degree contrary to Mr Silk's oral evidence and suggest a review of One Build's company financial information on a regular basis by Mr Silk.
The questionnaire which Mr Silk completed as a director on 2 December 2013, after Mr Hill was appointed as liquidator (Exhibit D, 3/965), is evidence for the following matters: 1. Mr Silk was responsible for the day-to-day management of One Build; 2. Mr Silk undertook a monthly review of the books and records of One Build; 3. Mr Silk undertook a "full review" of the monthly balance sheets and profit and loss accounts maintained by Mr Lunney for One Build; 4. Mr Silk undertook a review of monthly profit and loss figures and the balance sheet as well as key performance indicators; 5. Mr Silk in cross-examination sought to qualify a number of the answers given by him in the questionnaire by saying that he did not undertake a full review of monthly balance sheets and profit and loss accounts but only reviewed them on an annual basis. He said he relied on Mr Lunney. In my view, the contemporaneous document signed by Mr Silk on 2 December 2013 is more likely to be accurate than oral evidence given years later as it was prepared at the time. I accept it on its face as being more reliable.
The evidence establishes that a progress claims status report was developed by Mr Lunney as the Financial Controller of One Build to monitor the status of progress claims across projects and to assist in his overall management of cash flow. As that document was a summary document of the position of all claims of One Build for various contracts, I think it likely and I find that Mr Silk was familiar with that document or at least the relevant content of it at all relevant times, as he would wish to monitor the payment of the progress claims under the various contracts. See Silk affidavit paragraph 61; cf T135.47.
Mr Silk says he never asked to see the progress claims documents but was aware of their existence: T135.44. However, his cross-examination shows he appeared to be familiar with them in general terms: T131.17-135. I consider and find he was mistaken as to not seeing these documents in 2013. If I am wrong in that finding, I find that Mr Silk knew the progress claims reports existed and he could have obtained access to them.

Standard of proof

The defendant submits that while the civil standard of proof applies to the claim, the balance of probabilities test is to be applied consistently with the Briginshaw test, due to the seriousness of the claim. Reliance is placed for this submission on ASIC v Plymin [2003] VSC 123: written submissions paragraph 117. See at [367] of Plymin. The plaintiff seems to have accepted this position in its counsel's oral submissions.
I note that Plymin was a civil penalties case brought by ASIC rather than a simple claim under s 588G and s 588M by a creditor of an alleged insolvent company. However, I accept that an insolvent trading allegation against a director is a serious allegation and I approach the case taking into account the Briginshaw test and s 140 of the Evidence Act 1995 (NSW).

Mr Lunney - consequences of him not being called as a witness

The defendant makes various submissions in relation to the desirability of the plaintiff calling Mr Lunney concerning the financial records of One Build: submissions paragraphs 77, 104, 108-113, 155 and 170. It is said that the plaintiff asks the court to draw inferences where really the relevant witnesses such as Mr Lunney (and the employed accountant) should have been called by the plaintiff to explain and confirm the financial documents provided to Mr Barnden: ASIC v Rich [2009] NSWSC 1229 at [372]. The defendant also asks for a formal Jones v Dunkel inference to be drawn against the plaintiff in relation to at least Mr Lunney, as was submitted in relation to the failure of ASIC to call witnesses in ASIC v Rich. There was no evidence before the court as to the current position or availability of Mr Lunney.
Clearly the absence of the company's accountants makes the task of the court somewhat more difficult and this has to be taken into account in assessing the weight and cogency of the evidence. In relation to the comments of Austin J in ASIC v Rich [2009] NSWSC 1229 at [372], his Honour's full comments at [336]-[374] should be reviewed. Some of his Honour's comments were addressed to reports and other documents whose origin and finality were doubtful or at least uncertain. With some documents, witnesses had expressly raised doubts that management accounts relied upon were final: at [344]. There was no such evidence here. His Honour also recognised the point that documents may be more valuable than oral recollections provided some years later where the documents are "clear documentary evidence of complex financial facts in the financial records of the company": at [369]. In the end, the reliability of a document depends on its nature. "Traditional business records" like board papers or ledgers have a more reliable status according to Justice Austen: at [342]. It is noted that Mr Silk was also able to assist in cross-examination as to some documents. Alstom payments made in August 2013 could also be cross-referenced between the payments schedules and One BuiId's NAB account statements which assisted in relation to their reliability. I also note that many documents relied upon came from documents produced by the liquidators of One Build. There did not appear to be numerous competing and doubtful versions of the usual financial statements.
However, I accept the point made by counsel for the defendant that the court must exercise some caution in relation to documents where there is some doubt about them, particularly if they are not traditional business records and Mr Silk has provided no assistance in relation to the document. Mere admissibility under the business records provisions of the Evidence Act does not necessarily mean that a document is relevant to a final issue or is reliable: see ASIC v Rich at [338]. I take these matters into account in assessing the evidence.
The plaintiff submits that no Jones v Dunkel (1959) 101 CLR 298 inference should be drawn against it through its failure to call Mr Lunney or the employed accountant as witnesses. I agree with this submission. The plaintiff takes this up in its reply submissions at paragraphs 10-13. I accept the plaintiff's submissions that the criteria for the application of the principle in Jones v Dunkel in Payne v Parker [1976] 1 NSWLR 191 at 201-2 do not apply here. It would not be expected or natural that IW would call Mr Lunney rather than Mr Silk. Mr Lunney would not be regarded as being in IW's camp. Also I do not conclude that IW failed to call Mr Lunney as it feared to do so because of his likely evidence: Fabre v Arenales (1992) 27 NSWLR 437 at 449-50. There is no inference able to be drawn as to what Mr Lunney may say. See also Manly Council v Byrne [2004] NSWCA 123 at [51]-[53] and Newell v De Costi [2018] NSWCA 49 at [78]-[80].
The plaintiff has made a submission that a Jones v Dunkel inference should be drawn against the defendant in relation to his failure to call Mr Lunney and his own failure to give certain evidence. It was submitted that this should be in three areas: i) the general s 588G case; ii) in relation to the defence under s 588H concerning the financial information allegedly provided to Mr Silk by Mr Lunney; iii) in relation to the willingness of Valley View and Metroplex Pty Limited to come to the financial assistance of One Build if requested - evidence from Mr Silk. See the submissions dated 16 February 2018 of the plaintiff at paragraphs 32 and 90-91. In my view, that submission should be accepted in relation to areas ii) and iii) for the reasons given by the plaintiff. Mr Silk was connected to Valley View and Metroplex and would be expected to give evidence on this issue. In relation to the s 588H defence, Mr Silk says he relied heavily on information given to him by Mr Lunney: affidavit paragraphs 8-9; written submissions paragraphs 185-188. Mr Silk would be expected to call him on this issue where he carries the onus.
Accordingly, if appropriate, I may draw the inference that the evidence of Mr Silk and Mr Lunney on these issues would not have assisted the defendant: Newell v De Costi [2018] NSWCA 49 at [78]-[80]. In my view, I should draw that inference in the context of the alleged central role which Mr Lunney played in One Build in relation to informing Mr Silk of One Build's financial position and Mr Silk's very likely knowledge in relation to Valley View and Metroplex.
If I am wrong on this issue, I note that my conclusions as to Valley View/Metroplex and the s 588H defences would not have altered even if no Jones v Dunkel inference had been drawn by me.

The defendant's submissions as to the absence of complete financial records

The defendant, as stated above, made a detailed submission that the plaintiff's case should fail as: 1. It was not clear Mr Barnden was given all the relevant financial records; 2. It was not clear that the records reviewed by Mr Barnden were the only or final versions of relevant documents; 3. Mr Barnden conceded that some documents were not available which he wished to review, although he said their absence did not affect his ability to reach an opinion as to insolvency; 4. A selection of documents was made by Mr Petrov who was an IT expert not a lawyer or accountant. Relevant documents may not have been identified by Mr Petrov; 5. Mr Chase Berry also made a selection and his affidavit did not explain his knowledge or approach adequately for the court to be satisfied in relation to his selection; 6. The documents before Mr Barnden could not be relied upon in the absence of witnesses such as Mr Lunney to explain or confirm the documents - the ASIC v Rich point.
I have summarised the defendant's submissions also in the part above where I attempt to summarise the submissions made on behalf of each of the parties: see paragraph 234.
The Plaintiff contests these submissions and submits as follows: 1. Despite the absence of some records, Mr Barnden gave evidence that this did not impact on his ability to provide a reliable opinion in relation to the insolvency of One Build at the relevant time. This evidence of Mr Barnden should be accepted; 2. The documents Mr Barnden could not locate were not central to his opinion; 3. The important financial documents in exhibits D (five volumes), E and F formed part of the books and records of One Build as produced by the liquidators and other relevant third parties and were admitted as such as business records: reply submissions paragraph 8; 4. As to the five volume Exhibit D: behind volume 1 tab 1 is a search of One Build; behind volume 1 tab 2 are the financial statements for One Build for the years 2011-2013 as produced by the liquidators. There is only one version of each so there is no issue about copies/other versions. Behind volumes 1 and 2 tabs 3-1-3.12 are the financial reports, aged creditor listings, aged creditor balance summaries, creditor ledger, register of unpresented cheques and bank reconciliation reports extracted from the Cheops accounting software records used by One Build in the hands of the liquidators. These were simply located and copied independently by experts in relation to the information stored on the Cheops accounting software: see the affidavits of Hugh Billitzer sworn 5 October 2017 and Christina Marshall sworn 5 October 2017 (who were not required for cross-examination). Their authenticity was not in issue and their reliability could not be in issue. Behind tab 4 are the documents identified by Mr Petrov and placed on a computer drive. The One Build progress claim status reports at volume 2 tab 4.5 (C) were used in the cross-examination of Mr Silk and identified by him in general terms: T135.26-.47. Behind volumes 2 tab 5 are One Build's NAB bank statements. Their reliability cannot be in issue. Behind volume 3 tab 6 are signed liquidator reports. Behind tab 7 are One Build's tax file documents which are clearly authentic. Behind tab 10 are various documents which are clearly authentic. Volume 4 contains Hanson documents and ledgers which are authentic. Volume 5 contains proofs of debt; 5. Accordingly, the most important documents relied upon by Mr Barnden are clearly authentic, reliable and could not be in dispute. Documents involving Mr Petrov are very limited. Some of these were identified by Mr Silk. Month end accounts exist for the relevant years and are in tab 4 of exhibit D. Therefore, the criticism of Exhibit D by the defendant is misplaced. It is a reliable exhibit and contains all the traditional financial documents of a company. The facts are therefore very different to ASIC v Rich; 6. There was no issue about the authorship of the financial documents. Mr Lunney was the Financial Controller of One Build at all relevant times and only had one accountant assisting him: Silk affidavit paragraphs 6-9 and 12. Mr Silk gave evidence that the monthly management accounts were prepared by Mr Lunney accordingly there is no issue about the authorship, seniority or role of the author, some of the main concerns in ASIC v Rich: T121.5-.27. See reply submissions paragraphs 8-9.
I have carefully reviewed the submissions of the parties on this point, the evidence including the reports/cross-examination of Mr Barnden and of Mr Petrov and Mr Chase Berry, the documents in Exhibit D (in particular) and the comments of Austin J in ASIC v Rich.
The defendant also relied on the decision of Barrett J in The matter of Golden Plantation Pty Ltd [2011] NSWSC 1610 at [5], [11]-[12]and [20] and of the Court of Appeal in Expile Pty Ltd v Jabb's Excavations Pty Ltd [2003] NSWCA 163; (2003) 45 ACSR 711 at [22]-[23] and [30].
In my view, I should accept the plaintiff's submissions on this point, primarily for the reasons put forward by counsel for the plaintiff. I accept Mr Barnden's evidence that he was of the view that he had the necessary material before him to express the opinions which he did. His evidence was reasoned on this point. I also accept that there was a proper basis for him expressing that opinion.
Secondly, I am satisfied of the authorship, seniority and role of Mr Lunney in preparing the relevant financial documents particularly the main financial documents such as financial statements, ledgers, and BAS returns. Mr Lunney was established to be the person in charge of financial matters within One Build and I accept that he took a central role.
Thirdly, I am satisfied of the authenticity (if it is in issue) of the documents in Exhibit D from the chain of custody evidence before the court. I am satisfied that the bulk of Exhibit D came from reliable sources such as the liquidators or the One Build Cheops system (from which the documents were extracted by independent experts). The tax documents came from a reliable source as did the NAB statements.
Fourthly, the documents which Mr Barnden could not locate did not appear to me to be crucial to his opinion as to insolvency. I have considered the defendant's submissions on this point and reject them. Whilst it would have been preferable for Mr Barnden to have access to all relevant documents, the documents not available did not appear to be the company's main financial documents.
Fifthly, in the light of the material before the court, in my view the case can be distinguished from the comments of Barrett J in The Matter of Golden Plantation Pty Ltd, above, and Expile. Those cases considered the issue of solvency. The company had to rebut the presumption of insolvency which had arisen from a statutory demand. The case does not suggest a detailed review of all relevant material by the expert in Golden Plantation. The material reviewed and relied on by Mr Barnden in the present case was very detailed and extensive indeed. Clearly not every financial document has to be reviewed by the expert to express an opinion in an insolvent trading case. I am not aware of any appellate authority which suggests that. In a case where the company has to rebut a presumption of insolvency, the company is the person interested in the issue and the prime moving party. It has not yet been wound up and it has full access to its records and its employees, unlike, as in the present case, a third party in an insolvent trading situation several years after the resolution/order is made. The positions are relevantly different. I note that Barrett J made no mention of such a strict requirement in ASIC v Edwards [2005] NSWSC 831, an insolvent trading case. The requirement has also been qualified in some cases where insolvency needed to be established: In the matter of Universal Consultants Group Pty Ltd [2016] NSWSC 1508 at [13]; Re Glass Recycling Pty Ltd [2014] NSWSC 439 at [22].
In my view, the opinion expressed by Mr Barnden is therefore based on sufficient documentation and can be considered by the court. Whether it is to be preferred will be considered below.

Consideration

I will now proceed to consider each of the remaining issues which require to be determined in the proceedings.

Consent to the commencement of the proceedings from the liquidators of One Build

An issue was raised by the defendant in relation to the consent obtained by the plaintiff to commence these proceedings. In substance, the defendant submitted that consent was not obtained by the plaintiff from the liquidators as provided for in the Corporations Act prior to the proceedings being commenced: written submissions paragraphs 38-72. The plaintiff submits that the relevant consent was obtained: written submissions dated 16 February 2018 paragraphs 105-130; reply submissions paragraphs 19-35.
At the commencement of the final hearing, the defendant sought to have the issue of consent determined first. Leave was granted to the defendant to file in court on 9 October 2017 a Notice of Motion of that date seeking orders: 1. That the proceedings be declared incompetent and a nullity; and 2. In the alternative, the proceedings be dismissed on the basis that the plaintiff commenced the proceedings pursuant to s 588M of the Act without either obtaining the written consent of both joint liquidators in accordance with s 588R of the Act or the leave of the court pursuant to s 588T of the Act.
After some consideration, I decided that this issue would be determined as part of the other issues in the proceedings.
I have set out s 588R of the Act above. I repeat it here for convenience: 588R Creditor may sue for compensation with liquidator's consent (1) A creditor of a company that is being wound up may, with the written consent of the company's liquidator, begin proceedings under section 588M in relation to the incurring by the company of a debt that is owed to the creditor. (2) Subsection (1) has effect despite section 588T, but subject to section 588U.
Section 9 of the Act states that unless the contrary intention appears, the term "liquidator" has the following meaning: Liquidator: (a) has a meaning affected by paragraph 530(b) (which deals with 2 or more persons appointed as liquidators); and (b) in Chapter 7, includes a provisional liquidator.
Section 530 of the Act provides as follows: 530 Appointment of 2 or more liquidators of a company If 2 or more persons have been appointed as liquidators of a company: (a) a function or power of a liquidator of the company may be performed or exercised by any one of them, or by any 2 or more of them together, except so far as the order or resolution appointing them otherwise provides; and (b) a reference in this Act to a liquidator, or to the liquidator, of a company is, in the case of the first‑mentioned company, a reference to whichever one or more of those liquidators the case requires.
The evidence in relation to the provision of consent to the plaintiff in the present case was as follows: 1. Mr Hill was appointed the liquidator of One Build pursuant to a creditor's voluntary winding up on 26 November 2013. He was removed by creditors on 13 December 2013; 2. Messrs Hosking and Hurst were appointed as liquidators of One Build on 13 December 2013. Exhibit 4, which is the copy of the minutes of meeting of creditors of 13 December 2013, establishes not only the appointment of Messrs Hurst and Hosking but that the resolution passed at the meeting of creditors was to the following effect: "That the incumbent Liquidator, Mr Grahame Hill, be removed from office and Mr David Anthony Hurst and Mr Philip Raymond Hosking be appointed as Joint Liquidators of the Company." 1. By letter dated 26 May 2014 (and it seems by letter dated 18 September 2014), the solicitors for the plaintiff sought, on behalf of IW, the consent of the liquidators pursuant to s 588R of the Act to commence a claim for insolvent trading against the director; 2. The only director at the relevant time of One Build was the defendant, Mr Silk; 3. In the period between 18 September 2014 and 22 September 2014, Mr Hurst and Mr Hosking had a conversation. In the course of the conversation it was agreed between Mr Hosking and Mr Hurst that they would provide the necessary consent to the plaintiff pursuant to s 588R of the Act to pursue the claim against One Build's director; 4. On 22 September 2014, Mr Hosking forwarded an email from his email account to the solicitor for the plaintiff which was copied to Mr Hurst with the heading "One Build Pty Ltd (in liquidation)" to the following effect: "We refer to your emails dated 18 September 2014 and 26 May 2014. We advise that we have no objections to you commencing proceedings under Section 588 M of the Corporations Act 2001 to recover your client's debt from the Company's director. Regards Philip Hosking Director Hosking and Hurst Pty Ltd."
The oral evidence of Mr Hurst and Mr Hosking was that no written consent was given under the hand of Mr Hurst providing his consent to the proceedings.
In the light of the evidence, the defendant made, in summary, the following submissions: 1. The plaintiff has failed to obtain the written consent of the liquidators as required under the Act. Accordingly, the plaintiff is precluded from maintaining the proceedings and the claim ought to be dismissed; 2. Although Mr Hosking provided his written consent by his email dated 22 September 2014, there was no evidence of any written response by the other joint liquidator, Mr David Hurst; 3. In circumstances where no grant of leave was sought or obtained, the validity or otherwise of the commencement of the current proceedings by the plaintiff is predicated entirely upon the provisions of s 588R of the Act; 4. Messrs Hurst and Hosking were appointed as joint liquidators by resolution of the creditors of the company not as joint and several liquidators; 5. Section 530 of the Act recognises this by the phrase in paragraph (a) of the section "except so far as the order or resolution appointing them otherwise provides"; 6. The net effect of s 530(a) of the Act is that liquidators are taken to perform their function jointly and severally absent a specific provision in the resolution or order appointing them: see also Condon v Watson (2009) 174 FCR 314 at [75]; 7. The history of s 530 of the Act shows that a clearly articulated distinction was previously drawn between joint versus joint and several liquidators. An appointment of a joint liquidator as in the present case requires the taking of an overt and deliberate step which is not caught by the default s 530 position; 8. The previous approach prior to the introduction of s 530 is confirmed by the decision of Perry J in Harvey v Burfield (2002) 84 SASR 11; [2002] SASC 314. At [58]-[60] Perry J stated: [58] The presence of s506(4) in the Act necessarily presupposes that absent the provisions to be found in the section, any power given by the Act to liquidators would necessarily have to be exercised by all of the liquidators jointly. That view is consistent with cases such as Re Eastern Properties Pty Ltd (supra) in which the court was dealing with a situation in which two liquidators were appointed. [59] That the matter should be approached in that way seems to me to be consistent with basic legal theory. If by analogy one has regard to a cause of action which in law is vested jointly in two or more people, all must sue to enforce it, unless, if it is capable of being assigned, one or more have assigned the cause of action to others. The parties entitled to the cause of action cannot between them, absent any statutory authority enabling them to do so, authorise one or more of their number to exercise the right to sue on the cause of action. [60] That, I apprehend, is analogous to the situation where more than one liquidator has been appointed jointly. Absent any express statutory warrant authorising such a course, any power conferred on the liquidators by the Act must be exercised by all of them. 1. Section 530 of the Act deals with the exercise of a function or power. Accordingly, if consent is given to a creditor under s 588R of the Act it must be proffered by both liquidators which has not occurred in the present case; 2. The consent provided was only sent from Mr Hosking's email address and bears his email signature. It is not signed off by both liquidators digitally or otherwise. The fact that Mr Hurst was copied into the email could not possibly amount to the giving of written consent. Similarly the use of the word "we" by Mr Hosking does not advance the plaintiff's position. Silence and/or acquiescence is not written consent; 3. Mr Hurst could not give authority to Mr Hosking as his agent to give his consent on his behalf under the Act; 4. As written consent of both liquidators was not obtained, the plaintiff was not entitled to commence the proceedings and it is incompetent and a nullity. The test as to whether proceedings are a nullity was set out by the Court of Appeal Deveigne v Askar [2007] NSWCA 45. The test to be applied was whether the other party can waive the defect complained of: at [1]-[2] and [82]-[96]. The statutory requirement in s 588R meant that the defendant could not waive the defect complained of; 5. Accordingly, the proceedings were a nullity and should be dismissed because of lack of written consent from the joint liquidators.
The plaintiff submitted, in summary, as follows: 1. It accepted that the liquidators were appointed as joint liquidators of One Build on 13 December 2013. However, the Act and in particular Section 530 of the Act, does not explicitly recognise a distinction between joint and joint and several liquidators; 2. The definition of "liquidator" in the Act also refers to s 530(b) and suggests that a function can be performed by any one of the liquidators. This is confirmed by s 530(a) of the Act; 3. The words "except so far as the order or resolution appointing them otherwise provides" in s 530(a) of the Act, do not encompass the words of the appointment of Messrs Hurst and Hosking in the present case. The proper construction of those words in the section as a whole is that a liquidator, where two or more liquidators are appointed whether jointly or jointly and severally, may exercise a power except where the order of the court or the resolution expressly states that certain functions or powers may only be exercised by two or more of the liquidators or all of the liquidators. The present resolution of creditors did not state this but only stated that the liquidators were appointed jointly. There were no words of restriction. The qualification in s 530(a) of the Act is aimed at an express limitation as to the exercise of certain functions or powers to the default position that a function or power of the liquidator may be performed or exercised by any one liquidator when two or more are appointed to a company; 4. The history of the Act prior to the introduction of the present s 530 does not alter this position. Similarly, the comments by Lindgren J in Condon v Watson, above, at [75] were dicta only and did not consider the current type of situation. See also [94] of Condon v Watson where this is made clear by Lindgren J. If the comments of Lindgren J are read as supporting the defendant's submissions, they are inconsistent with later authority; 5. The evidence and the terms of the 22 September 2014 email (by the use of the pronoun "we"), show that consent was given by the two liquidators. In the alternative, consent from Mr Hosking alone was sufficient. Further, the evidence shows that he discussed it with Mr Hurst and the terms of the consent using the word "we" showed clearly that it was on behalf of both of the joint liquidators; 6. Consent was also given by Mr Hurst through his agent Mr Hosking. This is not prevented under the Act; 7. Accordingly, consent had been provided within s 588R of the Act.
In Condon v Watson, above, Lindgren J considered the position where one of two liquidators resigned. Although there are some indications in the judgment that Lindgren J saw the two liquidators in that case as joint liquidators, he described them in other places as co-liquidators: see [31] and [60]. Lindgren J noted that "in seven cases the two liquidators in question were appointed as joint and several liquidators. In another case the resolution simply referred to their appointment as liquidator to act for the purposes of winding up the company". After considering the relevant authorities, Lindgren J stated at [74]-[75] as follows: [74] I was minded to follow the course established by Aplin and Vouris of removing the continuing liquidator, Mr Condon, and appointing him as sole liquidator. However, the position must now be considered in the light of the recent amendments made by the Corporations Amendment (Insolvency) Act 2007 (referred to at [61] above). Consistently with the new s 530 (set out at [61] above), s 506(4) of the Corporations Act was repealed by that amending Act (see s 3, Sch 1, Pt 3, Item 113.) [75] As I noted at [62] above, by the operation of s 530, it is clear that following a resignation of one co-liquidator, just as prior to such a resignation, the other liquidator can perform the functions and exercise the powers of "the liquidators" except so far as the resolution appointing them otherwise provides. Although s 530 does not do so in terms, its effect seems to be to make the appointments of multiple liquidators joint and several appointments. I do not regard the terms of the appointment of Messrs Condon and Watson in the case of PLM Distributors Pty Ltd (see [65] above) as providing otherwise.
I note the submission on behalf of the defendant that Lindgren J's comments in [75] appear to focus on whether liquidators were appointed jointly and severally or otherwise: see written submissions paragraph 68. However, his Honour's comments at [94] in the case should be noted.
In Re Kukulovski [2015] NSWSC 2040, Black J stated as follows at [6]: [6] Mr Hegarty in turn notes that the application is not pursued in respect of a number of entities, to which reference is made in the exhibit to his affidavit, either because those engagements will be shortly completed, or because there is a joint appointee in place who can continue those administrations without Mr Kukulovski's involvement. I should note at that point that, where two persons are jointly appointed as liquidators of a company, then, by reason of s 530 of the Corporations Act, a function or power of a liquidator may be performed or exercised by any one of them. That position continues to have effect, even if one of those persons retires or resigns as liquidator, such as to permit the continuing liquidator to exercise his or her powers, as he could have done, without reference to the other liquidator, after his or her retirement or resignation: Condon v Watson [2009] FCA 11 ; (2009) 69 ACSR 350 at [75]; Re Nixon [2015] FCA 976 at [28]ff. So far as the relevant appointments are court appointments, and it is relevant for the Court to know of Mr Kukulovski's resignation from those appointments, then both this application and the filing of a memorandum of resignation in the Registry in due course will discharge any obligation of Mr Kukulovski in this respect. (emphasis added)
Black J's comments appear to be inconsistent with the defendant's submissions in the present case as his Honour seems to indicate that where two persons are appointed jointly as liquidators then by reason of s 530 of the Act, a function or power of the liquidator may be performed or exercised by any one of them.
In my view, neither Lindgren J nor Black J was focusing on a position similar to the present case.
In Zappia v Grant Baines Transport Pty Ltd [2010] NSWSC 98 Hall J expressly considered the issue of consent. In that case counsel for the plaintiff submitted that consent was a substantive requirement for the maintenance of proceedings: at [42]. There the liquidators' consent was only provided after the proceedings were commenced. The plaintiff then filed an Amended Statement of Claim adding a further cause of action under s 588M of the Act.
Hall J pointed to the purpose and object of s 588R as being, with stated exceptions, that a creditor should not take proceedings against a director of a company in liquidation to recover a debt owed by the company, unless the liquidator consents. His Honour found that consent could be given after proceedings were commenced where a new cause of action was introduced by amendment and the liquidator could have commenced separate proceedings: [52]-[56]. That also is different to the current position.
In my view, having considered the various submissions made, consent was provided properly to the plaintiff within s 588R of the Act in the present case by the liquidators for the following reasons: 1. Section 588R of the Act requires the "written consent of the company's liquidator" to begin proceedings under s 588M; 2. Section 530 of the Act indicates that a function or power of a liquidator of the company may be performed or exercised by any one or more of liquidators where two or more are appointed "except so far as the order or resolution appointing them otherwise provides"; 3. These words in my view do not merely refer to the appointment of two or more liquidators as "joint liquidators" in the order or resolution. If that was intended it could have been readily stated; 4. What is required to fall within these words is for there to be something express or by necessary implication in the order or resolution appointing two or more liquidators to the effect that a function or power can only be exercised by either two or more liquidators or all liquidators appointed. The mere fact of appointment of liquidators as joint liquidators does not, in my view, fall within these words. What is required is an express, or by necessary implication, reference to a particular function or power as only being capable of being exercised by two or more liquidators. That is not present in the resolution in this case; 5. The evidence shows in the present case and I find that Mr Hurst and Mr Hosking discussed the consent issue and agreed on consent being provided to the plaintiff to commence proceedings; 6. The 22 September 2014 email from Mr Hosking refers to "we" which is clearly intended, in my view, to be a reference to the consent of Mr Hurst also; 7. Although it is from Mr Hosking's email address and does not expressly refer to Mr Hurst, in my view that is beside the point. The consent of Mr Hosking alone brings the matter within s 530 and does not satisfy, by the terms of appointment as "joint liquidators", the words "except so far as the order or resolution appointing them otherwise provides"; 8. Although respect must be given to the comments of Lindgren J in Condon, above at [75], I do not think his Honour was giving consideration to a case like the current one. See at [94]; 9. To find otherwise, would be to impose a significant limitation on the power of liquidators where two or more persons were appointed as joint liquidators: see the comments of Brereton J in FAI Traders Insurance Co Pty Ltd v FAI (CTP) Pty Ltd [2015] NSWSC 2137 at [11] and the cases referred to in paragraphs 122-123 of the plaintiff's 16 February 2018 written submissions. The purpose and object of the section is satisfied where, as in the current case, one liquidator provides the written consent or one liquidator discusses the matter with the other joint liquidator and they agree on providing consent and then one of the liquidators notifies that written consent to the proposed plaintiff; 10. I also accept the plaintiff's submissions on the agency issue: submissions dated 16 February 2018 paragraph 130; reply submissions paragraphs 29-35. I do not read s 588R as suggested by the defendant as necessitating the written consent to be under the hands of both liquidators where the evidence establishes a discussion between the liquidators on the issue and authority being given to one liquidator to convey the consent for the other. The words of s 588R do not specify personal written consent such that a personal signature is indispensable. Proof of authority can be readily established by evidence as occurred in the present case; 11. Accordingly, in my view, written consent was provided within s 588R of the Act in the present case.
If I am wrong in this conclusion, I accept, based on Deveigne v Askar [2007] NSWCA 45, that the proceedings would have been a nullity because it would not have been within the power of the defendant to waive the breach. That reasoning is, in my view, consistent with the approach taken by Fagan J in Campbell v Brazel [2016] NSWSC 198 at [21]-[22].
For these reasons the challenge by the defendant to the consent given must fail. It also follows that the defendant's Notice of Motion filed 10 October 2017 should be dismissed.

The terms of the Agreement between the parties

An issue in the proceedings for the court to determine is what was the contractual arrangement, if any, agreed between One Build and IW. As stated above, the plaintiff alleges that on and from 30 July 2013 and at all relevant times, One Build was insolvent or became insolvent by entering into the 30 August 2013 Agreement or by incurring the debts under the progress payments to be made to IW under the Agreement. I have set out above, in my consideration of Mr Kontrafouris' evidence, a background of the work completed by IW at the 259 George Street site and the terms of the 12 November 2013 Subcontract Agreement which was signed by Mr Kontrafouris on behalf of IW on 12 November 2013 and returned by way of email by him to Mr Collins of One Build also on 12 November 2013. It remains to be determined what was the contractual arrangement between the parties at the various relevant times in the light of this evidence.
Clearly the Subcontract Works Agreement was only signed on 12 November 2013 by Mr Kontrafouris. Despite the Subcontract Works Agreement being dated 28 October 2013, it was only returned to One Build on 12 November 2013. It stated its date of commencement as 30 August 2013: clause 2.1 and the contract particulars.
In paragraph 4 of the Defence filed 24 April 2015, the defendant (in paragraph 4(a)) admits that the plaintiff and One Build entered into "an agreement" by which the plaintiff agreed to provide demolition services at Suncorp Place. It is accordingly necessary to determine when that agreement was entered into which is admitted and what were the terms of the agreement. Mr Silk was the only director of One Build at all relevant times. There is no evidence that anyone else had a formal delegation from the company to sign or enter into agreements on its behalf.
The plaintiff submits: i) that the agreement entered into included the terms of that later signed in writing by IW with 30 day payment terms and that this was entered into on 30 August 2013. It is submitted that: "The written P231.310.1M Subcontract Works Agreement was a manifestation of the agreement reached between the Plaintiff and One Build on 30 August 2013": plaintiff's written submissions dated 16 February 2018 at paragraphs 4-7 especially paragraph 7; see also paragraphs 34-38. It is also said that the term "30 day payment terms" means 30 days from the end of the month in accordance with the practice in the construction industry: T47.28-.50; ii) in the alternative, the contract entered into was entered into on 30 August 2013 for the plaintiff to do the agreed demolition works at the site for One Build for the sum of $345,000 plus GST with 30 day payment terms with the intention that this contract with these basic terms would later be reduced to writing in greater detail in the terms of the Subcontract Works Agreement and thus fell within the first category of Masters v Cameron (1954) 91 CLR 353 at 360 or alternatively, the now accepted fourth category stated in GR Securities v Baulkham Hills Private Hospital (1986) 40 NSWLR 361 at 634-635 being an informal agreement on the main matters but expecting to make a further contract which, by consent, might contain additional terms; iii) in the further alternative, that the agreement was a "contract or other arrangement" within the definition of "construction contract" in s 4 of the Building and Construction Industry Security of Payment Act 1999 (NSW) and was thus binding.
The defendant submits: i) there was no binding contract. No one had the authority to enter into any binding contract except Mr Silk on behalf of the company; ii) the Subcontract Works Agreement was never executed by One Build; iii) there is no pleaded claim for a quantum meruit; iv) any cause of action under the Building and Construction Industry Security of Payment Act 1999 (NSW) needed to be pleaded. On this last point, the plaintiff said it was a legal matter and need not be pleaded. No authority was provided to me by either party on this point.
There is no evidence that any of the persons with whom Mr Kontrafouris on behalf of IW dealt, particularly at the meeting referred to in paragraphs 39-41 of his affidavit, had actual authority to enter into a contract on behalf of One Build with IW. However, what is clear, is that the various persons with whom Mr Kontrafouris dealt from One Build, including Messrs Griffiths, Collins and Hadjakis, had senior positions within the company and effectively managed its construction works in relation to the Suncorp site. The evidence attached to Mr Kontrafouris' affidavit in the relevant emails shows that Mr Hadjakis was a Project Manager and Mr Collins was a Contract Administrator. There is no suggestion that they had not been properly appointed to these positions by One Build or that they were acting outside their authority in their dealings with IW.
In the absence of evidence of actual authority, the question therefore arises whether those two gentlemen, or at least one of them, had apparent or ostensible authority to act for One Build in relation to its dealings with the plaintiff. The plaintiff relies on them having apparent or ostensible authority to enter into the contract with the plaintiff. For these men to have had apparent or ostensible authority to deal with IW, there must have been a representation from One Build that they had that authority. In Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd [1975] HCA 49; (1975) 133 CLR 72 the High Court stated as follows at page 80: "A person with no actual, but only ostensible, authority to do an act or to make a representation cannot make a representation which may be relied on as giving a further agent an ostensible authority. Hence the stress by Diplock LJ on the need that the person or persons making the representation must have actual authority to make the representation."
In Williams Group Australia Pty Ltd v Crocker [2016] NSWCA 265, Ward JA (with whom Simpson and Payne JJA agreed) stated as follows at paragraph [64]-[65]: "[64] In BNP Paribas, Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ said at [36] and [38] (footnotes omitted): … It is not enough that the representation should come from the officer alone. Whether the representation is general, or related specifically to the particular transaction, it must come from the principal, the company. That does not mean that the conduct of the officer is irrelevant to the representation, but the company's conduct must be the source of the representation. In many cases the representational conduct commonly takes the form of the setting up of an organisational structure consistent with the company's constitution. That structure presents to outsiders a complex of appearances as to authority. The assurance with which outsiders deal with a company is more often than not based, not upon inquiry, or positive statement, but upon an assumption that company officers have the authority that people in their respective positions would ordinarily be expected to have. In the ordinary case, however, it is necessary, in order to decide whether there has been a holding out by a principal, to consider the principal's conduct as a whole. … A kind of representation that often arises in business dealings is one which flows from equipping an officer of a company with a certain title, status and facilities. In Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd, for example, the court spoke of the representation that might flow from supplying a particular person with 'a blank order form, thus arming him with a document which, when he signed it, would bear the hallmark of authenticity' ((1975) 133 CLR 72 at 80; 7 ALR 527 at 533). The reference to corporate administrative procedures under which an officer is armed with a document to which he or she can, by signature, impart an appearance of authenticity is a reminder of the wider principle of estoppel which may be relevant to a question of ostensible authority (Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 at 200 ; 93 ALR 385 at 422 ;2 ACSR 161 at 198 per Dawson J, CLR 212; ALR 430-1; ACSR 206-7 per Gaudron J). The holding out might result from permitting a person to act in a certain manner without taking proper safeguards against misrepresentation. [65] That passage makes it clear that, for there to be a finding of ostensible authority in the present case, it would be necessary for the putative principal (Mr Crocker) in some fashion to have held out to Williams that whoever placed his electronic signature on the relevant documents (and forwarded them to Williams) was authorised by him to do so. The representation need not have been communicated by Mr Crocker to Williams directly (and there is force in the submission that a direct communication would have established actual authority). It could, in an appropriate case, arise out of some omission on his part. However, there needs to have been a representation of authority by Mr Crocker (not the agent who applied the electronic signature), on which Williams relied when supplying goods to IDH on credit, for Mr Crocker to be bound by the guarantee."
The appointment of Mr Hadjakis and Mr Collins to their respective positions could only have been with the approval of the defendant Mr Silk as the only director of the company and as the person ultimately responsible for its management. Accordingly, in my view there was a holding out by One Build of the two men, alternatively Mr Collins, as having the authority on behalf of One Build to deal with contractors and contractually agree in relation to works to be performed and the terms and conditions of that work. There is nothing in the evidence to suggest any indication to IW that they did not have full authority to deal with Mr Kontrafouris and IW and contractually agree on relevant terms. An organisational structure had been set up at One Build involving these two men with Mr Collins being given the title of Contract Administrator.
I have set out above an examination of Mr Kontrafouris' first affidavit. That affidavit records the dealings in detail between IW and One Build. In particular, the affidavit shows: 1. The receipt of an email from Troy Collins of One Build on 21 August 2013 arranging a meeting at One Build's head office: paragraph 37; 2. Correspondence relating to the proposed demolition works: paragraph 38; 3. A meeting to discuss the project on 22 August 2013: paragraph 39; 4. A discussion about the contractual terms: paragraphs 40-41; 5. A follow-up email from Mr Collins copied to Mr Hadjakis and Mr Griffiths on 22 August 2013. This attached a scope of works and included a request to sign the document with the following: "Final Price as discussed is $345,000 + GST with 30 Day Payment terms and Full retention release on completion of works": paragraph 42. The scope of works was signed by Mr Kontrafouris on 23 August 2013 with some additional comments and exclusions: paragraph 43. These were not queried; 6. On 30 August 2013, Mr Kontrafouris received an email from Mr Collins indicating that One Build intended on entering into a contract with IW for the demolition works for $345,000 plus GST: paragraph 44; 7. On 30 August 2013, Mr Hadjakis requested IW to commence work at the site on 3 September 2013: paragraph 51; 8. On 3 September 2013 the demolition works commenced: paragraph 54; 9. Mr Nardone from One Build was present at the site: paragraph 59. IW continued to receive instructions from One Build officers in relation to the demolition works. The demolition works continued from 3 September 2013. The work continued until November 2013: see paragraphs 116-120 and 126; 10. Mr Nardone gives evidence that the work completed by IW was completed in accordance with the contract and in a good and workmanlike manner: paragraph 10(b) of his affidavit.
In the light of the above evidence, it appears to me, and I find, that a contract was entered into between IW and One Build at the latest by 30 August 2013: 1. For a price of $345,000 plus GST with 30 day payment terms and a full retention release on completion of works: see 22 August 2013 Collins email; 2. For the demolition works to be completed as set out in Mr Kontrafouris' email dated 23 August 2013, the signed scope of works document and the reply email of Mr Collins: see 23 August 2013 and 30 August 2013 emails. See also the Hadjakis' 30 August 2013 email.
These contractual terms continued in my view until 12 November 2013 when Mr Kontrafouris on behalf of IW signed the Subcontract Works Agreement. This was sent to One Build by email and although there is no evidence that it was signed on behalf of One Build, it appears that the parties proceeded in accordance with this document thereafter. This is relevant to the third claim by IW which was sent after the Subcontract Works Agreement was executed. If I am wrong on this conclusion, then the contract continued on the existing agreed terms.
Based on the above analysis: 1. In relation to the first claim sent on 24 September 2013, the amount owing in the claim of $207,207 was payable by One Build by 31 October 2013. The amount to be paid was reduced by the issue of a payment schedule by One Build under the Building and Construction Industry Security of Payment Act 1999 (NSW) ("SOP Act"). The amount to be paid was then $110,231.70 and was a debt due: Section 14(4) of the SOP Act; 2. The amount sought to be paid by IW of $126,026.29 under the second claim dated 24 October 2013 (sent by email on 25 October 2013), was owing as at 30 November 2013. No payment schedule was issued in relation to this amount by One Build: see Section 15 of the SOP Act; and 3. The third progress claim forwarded on 20 November 2013 in the sum of $91,074.50 was payable pursuant to the Subcontract Agreement at some date in late December 2013 after the liquidators were appointed: see Clauses 5.2 and 5.4 of the Subcontract Agreement. It would seem to me that the third claim was not due and payable under the Subcontract Agreement before the appointment of Mr Hill as liquidator of One Build. The issue is whether nevertheless, the third progress claim was a debt incurred at an earlier time as claimed by the plaintiff.
In my view, therefore, the first contract argument advanced by IW should be rejected. I do not consider that the evidence disclosed in Mr Kontrafouris' affidavit establishes a contract entered into by IW and One Build on 30 August 2013 in the terms of the Subcontract Works Agreement.
In my view, the second argument of IW should be accepted. There was a binding agreement on the above evidence entered into on 30 August 2013 between IW and One Build through the apparent or ostensible authority of Mr Hadjakis and Mr Collins, alternatively Mr Collins, on behalf of One Build for IW to undertake the demolition works contained in the correspondence at the site, for the sum of $345,000 plus GST, with 30 day payment terms (30 days from the end of the month of invoice) and a full retention release on completion of works. This conclusion is supported by: the correspondence between the parties set out above; Mr Kontrafouris' first affidavit; the reference to 30 August 2013 in clause 2.1 and the contract particulars of the Subcontract Works Agreement forwarded by One Build and executed by IW; the conduct of the parties from 30 August 2013 in completing the demolition works, giving IW access to the site and One Build sending the payment schedule in relation to the first claim. This contract fell within either the first or fourth categories of Masters v Cameron.
I also accept the agreement argument based on the SOP Act, raised by IW. I agree that reliance on the SOP Act in this matter is a legal matter which need not be pleaded. All relevant factual matters were pleaded by IW to establish the SOP Act claim. However, I note as the defendant submits, that IW pleaded an agreement in the Amended Statement of Claim not merely an "arrangement": Amended Statement of Claim paragraph 4. If I am wrong on this issue, IW retains the other contractual basis in its second alternative argument which I have also accepted.
Therefore, the amount prima facie owing by One Build to IW pursuant to the 30 day payment terms as at the date of liquidation was as follows: Claim number one: $207,207.00
On 11 October 2013, One Build issued a payment schedule in relation to the first claim approving $100,210.64 plus GST. Taking the payment schedule into account the moneys owed by One Build to IW were as follows: Pursuant to claim one and the payment schedule $110,231.70 (including GST)
This amount plus the second claim amount of $126,026.29 (including GST) (totalling $236,257.99) is the amount sought by the plaintiff in the alternative to what is described as the Total Debt: see paragraphs 8 and 10B of the Amended Statement of Claim. No payment schedule under the SOP Act was issued by One Build in relation to the second claim. Accordingly, the second claim was payable on 25 November 2013: ss 11 and 14 of the SOP Act. However, the plaintiff asserts that the third progress claim (and no doubt the second claim to the extent the SOP Act does not apply) was also "ascertainable" by its date, and that One Build, "in substance and commercial reality, had become exposed to a liability to pay the plaintiff" an ascertained or ascertainable amount of $91,074.50 in relation to the third progress claim (and the amount under the second claim) leading to a total claimed amount against the defendant of $327,332.50.

Matters not in issue or clear on the evidence

A number of elements of the plaintiff's claim were not in issue or were clear on the evidence: 1. It was clear that Mr Silk was the director of One Build at all relevant times; 2. One Build is in liquidation; and 3. IW's claim is wholly unsecured. The report to creditors of the liquidators dated 24 February 2017 states in paragraph 3: "There is insufficient funds in the Liquidation to enable us to declare a dividend to unsecured creditors".

Whether One Build incurred debts to the plaintiff and at what times

Having regard to the above analysis in relation to the terms of the contractual arrangements between the parties, the amount of $236,257.99 was owed by One Build to IW no later than 25 November 2013. This is prior to One Build being placed into liquidation pursuant to a voluntary winding up.
Did One Build incur a debt in relation to the last progress claim (or alternatively the last two claims if the SOP Act did not apply)? The plaintiff submits that it did, as the amount was ascertainable as at the date of the third progress claim and One Build had become exposed under the agreement entered into to a liability to pay the plaintiff in substance and commercial reality. Accordingly, it is submitted the debt was incurred for the purposes of ss 588G(1) and 588M of the Act when at the latest the progress payment claim was issued and the amount was ascertainable not when it may have been due and payable by One Build under the Subcontract Agreement: written submissions dated 16 February 2018 paragraphs 14-19 and 44 and the cases there referred to. This submission appears to have been accepted by the defendant.
In any case, there appears to be substance in this argument on behalf of the plaintiff. The courts appear to make a distinction between when a debt is "incurred", being the undertaking of an engagement to pay a sum of money at a future time, and when a debt may be due and payable. It seems clear the relevant work was completed by IW by 17 November 2013. The words in s 588G are to be applied "in a practical and commonsense fashion": Hawkins v Bank of China (1992) 26 NSWLR 562 at 572C-G (Gleeson CJ) and 576E-577D (Kirby P) and 578 (Sheller JA). Kirby P stated at 576: "The act of "incurring" happens when the corporation so acts as to expose itself contractually to an obligation to make a future payment of a sum of money as a debt. The mere fact that such sum of money will only be paid upon a future contingency does not make the assumption of the obligation any less "incurring" a "debt"". See also FAI Traders Insurance Co Ltd v Ferrara (1996) 41 NSWLR 91 at 97-98 (Handley JA) and 99 (Sheller JA); Harrison v Lewis [2001] VSC 27 at [27]-[28] and Geeveekay v Director of Consumer Affairs (2008) 19 VR 512 at [59]-[66].
This means that at the latest One Build incurred the debt when the work was done by IW under the contract on the site with the permission of One Build relating to the second and third progress claims. That was before a liquidator was appointed to One Build even if the progress claims may have been due and payable later. I accept the plaintiff's submissions on this point which are consistent with binding authority.

Insolvency of One Build

Section 588G of the Act only applies in relation to a person who is a director of a company if the company is insolvent at the time the company incurs a debt, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt: s 588G(1)(b).
The plaintiff's claim is that One Build was insolvent as at 30 June 2013 and remained insolvent up until the date a resolution was passed for the appointment of a liquidator, being 26 November 2013: written submissions dated 16 February 2013 paragraphs 20-22 and 45-93.
I have considered the issue of when debts were incurred by One Build above.
Was One Build insolvent as at 30 June 2013 (or at any later date before 26 November 2013) and did this state of insolvency continue until 26 November 2013?
Liability is not triggered against a director under the insolvent trading provisions of the Act unless the corporation in question is insolvent at the time the particular debt or debts were incurred.
I have set out s 95A of the Act above. I set it out again here for convenience: "95A Solvency and insolvency (1) A person is solvent if, and only if, the person is able to pay all the person's debts, as and when they become due and payable. (2) A person who is not solvent is insolvent."
Accordingly, the question in relation to One Build is whether as at 30 June 2013 and thereafter, One Build was able to pay all its debts, as and when they became due and payable.
Even if One Build was insolvent as at 30 June 2013, the question arises whether this state of insolvency continued until 26 November 2013.
Section 588E of the Act gives rise to various presumptions in recovery proceedings, including proceedings against a director for a contravention of s 588G(2) in relation to the incurring of a debt by the company. The effect of a complex series of sections is that under the presumption in s 588E(3) of the Act, where it is proved by a party that a company which is being wound up (including wound up voluntarily) was insolvent on a particular date during the 12 months prior to the relation-back day, it is presumed that the company in question was insolvent from that day until the relation-back day. Section 588E(3) of the Act provides as follows "588E Presumptions to be made in recovery proceedings (3) If: (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."
See also: s 588E(9); s 9 of the Act in its definition of "relation-back day"; and s 513B of the Act; see also Exhibit 4.
What approach does s 95A of the Act require the court to take in relation to the question of insolvency? The applicable authorities have decided that the definition in s 95A of the Act adopts a "cash flow test" of insolvency which is aimed at looking to income sources which are available to the particular company and the expenditure which it must meet, rather than a "balance sheet" test which looks at the question of a balance of assets and liabilities as reflected in the books of the particular company. However, it is clear that the application of the balance sheet test can be of assistance in determining the question of insolvency: Powell v Fryer (2000) 18 ACLC 480 at 482; Lewis v Doran (2004) 50 ACSR 175; ASIC v Plymin (2003) 46 ACSR 126 at [209]; Hall v Poolman (2007) 65 ACSR 123; Campbell Street Theatre Pty Ltd (Receivers and Managers Appointed) (In liquidation) v Commercial Mortgage Trade Pty Ltd [2012] NSWSC 669 at [23].
The issue whether a company is able to pay all its debts as and when they become due and payable is a question of fact to be determined in all the circumstances of the case, including the company's assets and liabilities and its business activities. In answering this question, the court will have regard to commercial realities which include the availability of borrowing, the extension of credit or support from related parties: Sandell v Porter (1966) 115 CLR 666 at 670-671 per Barwick CJ.
In Southern Cross Interiors Pty Ltd (in liquidation) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213 at [54], Palmer J stated the following summary: "[54] In my opinion, the following propositions may now be drawn from the authorities: (i) whether or not a company is insolvent for the purposes of the Corporations Act (Cth), ss 95A, 459B, 588FC or 588G(1)(b), is a question of fact to be ascertained from a consideration of the company's financial position taken as a whole: Sandell v Porter, Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651; 15 ACLC 1,293 and Fryer v Powell; (ii) in considering the company's financial position as a whole, the Court must have regard to commercial realities. Commercial realities will be relevant in considering what resources are available to the company to meet its liabilities as they fall due, whether resources other than cash are realisable by sale or borrowing upon security, and when such realisations are achievable: Sandell v Porter, Taylor v Australia and New Zealand Banking, Re Newark and Sheahan v Hertz. (iii) in assessing whether a company's position as a whole reveals surmountable temporary illiquidity or insurmountable endemic illiquidity resulting in insolvency, it is proper to have regard to the commercial reality that, in normal circumstances, creditors will not always insist on payment strictly in accordance with their terms of trade but that does not result in the company thereby having a cash or credit resource which can be taken into account in determining solvency: Bank of Australasia v Hall (1907) 4 CLR 1,514 at 1,528; Re Norfolk Plumbing (at 615; 169); Taylor v Australia and New Zealand Banking (at 784; 811); Guthrie (as liq of ULT Ltd (rec apptd) (in liq)) v Radio Frequency Systems Pty Ltd (2000) 34 ACSR 572 at 575; (iv) the commercial reality that creditors will normally allow some latitude in time for payment of their debts does not, in itself, warrant a conclusion that the debts are not payable at the times contractually stipulated and have become debts payable only upon demand: Standard Chartered Bank v Antico (at 331); Hall v Press Plumbing; Melbase (at 199; 832-833); Carrier (at 253; 777-778); Cuthbertson v Thomas (at 320); Lee Kong (at 112; 1,568); (v) in assessing solvency, the court acts upon the basis that a contract debt is payable at the time stipulated for payment in the contract unless there is evidence, proving to the court's satisfaction, that: • there has been an express or implied agreement between the company and the creditor for an extension of the time stipulated for payment; or • there is a course of conduct between the company and the creditor sufficient to give rise to an estoppel preventing the creditor from relying upon the stipulated time for payment; or • there has been a well established and recognised course of conduct in the industry in which the company operates, or as between the company and its creditors as a body, whereby debts are payable at a time other than that stipulated in the creditors' terms of trade or are payable only on demand: Re Newark (at 414-415); Standard Chartered Bank v Antico (at 331); Melbase; Cuthbertson v Thomas; Fryer v Powell (at 444-445); (vi) it is for the party asserting that a company's contract debts are not payable at the times contractually stipulated to make good that assertion by satisfactory evidence: Fryer v Powell (at 444-445); Melbase; Cuthbertson v Thomas."
The principles stated by Palmer J, particularly the need to focus on "commercial realities", have been approved in later cases: Lewis v Doran (2004) 50 ACSR 175 at 198-9; McLellan v Carroll [2009] FCA 1415 at [124]; Treloar Constructions Pty Ltd v McMillan [2017] NSWCA 72.
In Treloar, the Court of Appeal stated as follows at [76]-[83]: "[76] The Corporations Act, s 95A provides: (1) A person is solvent if, and only if, the person is able to pay all the person's debts, as and when they become due and payable. (2) A person who is not solvent is insolvent. [77] The current version of s 95A was introduced into the Corporations Act in 2002. Previously, the section had referred to payment out of a debtor's "own monies". The significance of the omission of those words in the new s 95A was considered in Lewis v Doran (2004) 50 ACSR 175 ; [2004] NSWSC 608 where Palmer J said, at [111]-[113]: 111 … The omission leaves the Court free to determine insolvency, whether retrospective or prospective, as a question of commercial reality having regard to the particular facts of the case. 112 So, where retrospective insolvency is in issue, the Court can take into account that as at and after the alleged date of insolvency the company actually paid all its debts as they fell due because a third party made funds available to it without security. The Court can look at the arrangements which were actually made rather than artificially excluding them from consideration because the arrangements did not fall within the definition of payments from the debtor's 'own monies'. To look at what actually happened avoids the possibility that the Court is forced to conclude that, as a matter of law, a company could not pay all its relevant debts when, as a matter of fact, the company clearly did pay those debts. 113 On the other hand, where prospective insolvency is in issue the Court, as a general rule, would be sceptical of an assertion that a third party is willing to advance funds unsecured on such terms as would not, in any event, bring about insolvency. Such willingness on the part of a third party would have to be cogently demonstrated, if not as a matter of legal obligation, then as a matter of commercial reality. [78] This analysis was accepted as correct by Barrett J in Australian Securities and Investments Commission v Edwards (2005) 220 ALR 148 ; [2005] NSWSC 831 at [99], namely, that where on a "realistic commercial assessment" funds were capable of being raised from an outside source, that source of funds was relevant to the question of whether a company was solvent. His Honour added, however: … availability of loan funds for a very short term or payable on demand, as a source from which debts overdue may be paid, does not enhance solvency: it merely substitutes one form of immediate (or near immediate) obligation for another. There is also the point (emphasised by the Court of Appeal in Expile Pty Ltd v Jabb's Excavations Pty Ltd (2003) 45 ACSR 711) that the capacity to raise funds from external sources must be judged in a practical and businesslike way by reference to the commercial realities of the case, not by way of some theoretical textbook exercise. Possibilities are not enough. Genuine and realistic availability, as a matter of commercial reality, must be seen. [79] Barrett J's observation that funds available only for a very short term or repayable on demand did not enhance solvency was accepted and applied by this Court on the appeal from his Honour's decision: Edwards v Australian Securities and Investments Commission at [163] per Macfarlan JA (Spigelman CJ and Campbell JA agreeing). [80] The test stated by Barrett J had been stated earlier in Southern Cross Interiors Pty Ltd (in liq) v Deputy CMr of Taxation (2001) 53 NSWLR 213 ; [2001] NSWSC 621 at [54], where Palmer J had stated that insolvency: i) … is a question of fact to be ascertained from a consideration of the company's financial position taken as a whole … ii) in considering the company's financial position as a whole, the Court must have regard to commercial realities. Commercial realities will be relevant in considering what resources are available to the company to meet its liabilities as they fall due, whether resources other than cash are realisable by sale or borrowing upon security, and when such realisations are achievable … [81] That statement was approved by the Court of Appeal in Lewis v Doran (2005) 54 ACSR 410; [2005] NSWCA 243. In that case Giles JA stated, at [103]: Section 95A speaks of objective ability to pay debts as and when they become due and payable, but ability must be determined in the circumstances as they were known or ought to have been known at the relevant time, without intrusion of hindsight. There must of course be 'consideration … given to the immediate future' (Bank of Australasia v Hall(1907) 4 CLR 1514 at 1528 per Griffith CJ), and how far into the future will depend on the circumstances including the nature of the company's business and, if it is known, of the future liabilities. [82] Giles JA, in his observation at [109] , which is of particular relevance in the present case, stated: Particularly when the limiting words [out of the company's own funds] are no longer part of the test, there is no compelling reason to exclude from consideration funds which can be gained from borrowings secured on assets of third parties, or even unsecured borrowings. If the company can borrow without security, it will have funds to pay its debts as they fall due and will be solvent, provided of course that the borrowing is on deferred payment terms or otherwise such that the lender itself is not a creditor whose debt can not be repaid as and when it becomes due and payable. It comes down to a question of fact, in which the key concept is ability to pay the company's debts as and when they become due and payable." (original emphasis) [83] In Chan v First Strategic Development Corporation Ltd (in liq) [2015] QCA 28, Morrison JA, having referred, at [42], to Giles JA's observation that "the key concept is ability to pay the company's debts as and when they become due", stated, at [44]: … in my view there is no benefit in attempting to achieve some precise formula as to likelihood, by reference to which the financial support qualifies or does not. To say that the likelihood of it being provided is 'probable' or 'improbable' adds no more to what has been said in the authorities to which I have referred. Given that the resolution of this issue will almost always depend upon an assessment of facts, in my view it is better to proceed on the basis that, where the financial support is being provided by a director or related entity, and in circumstances where there is no formalised agreement or understanding, what is required is cogent evidence which enables the court to conclude that there is such a degree of commitment on the part of the provider of the financial support to continue it, such that it can be said that at any point of time it was likely to be continued, with the result that, at any of those times, the company was able to pay its debts as and when they fell due." (emphasis added)."
Accordingly, the test for insolvency in s 95A of the Act as it applies to a cause of action under s 588G of the Act, is focused upon determining whether a company is insolvent at the time it incurs a particular debt after taking into account the "commercial realities" of the company which includes the financial resources available to the company to meet its liabilities as and when they fall due including through the sale or charging of assets, through borrowings or through support from related persons or entities.
The courts have on occasion identified matters as being indicators of insolvency. Some of these were identified by the experts who prepared reports in these proceedings.
In ASIC v Plymin [2003] VSC 123, (2003) 46 ACSR 126 at [386] Mandie J referred to very similar indicators of insolvency.
In Re Swan Services Pty Ltd (in liquidation) [2016] NSWSC 1724 Black J stated as follows at [137]: "[137] Matters which may support a finding of insolvency include those referred to in Australian Securities and Investments Commission v Plymin (No 1) above at [386], where Mandie J identified several indicia of insolvency including: continuing losses; liquidity ratios below one; overdue Commonwealth and State taxes; a poor relationship with the lenders, including any inability to borrow further funds; no access to alternative finance; inability to raise further equity capital; suppliers placing a company on cash on delivery arrangements or otherwise demanding special payments before resuming supply; creditors unpaid outside trading terms; the issuing of postdated cheques; dishonoured cheques; special arrangements with selected creditors; solicitors' letters, summonses, judgments or warrants issued against a company; payments to creditors of rounded sums not reconcilable to specific invoices; and inability to produce timely and accurate financial information to display a company's trading performance and financial position, and make reliable forecasts. In Lewis, Re Damilock Pty Ltd (in liq) v VI SA Australia Pty Ltd [2008] FCA 1801; (2008) 68 ACSR 493, Mansfield J observed (at [16]) that: In any particular case, one or more of those factors, or other factors, may have particular significance and one or more of them may not exist. The absence of one or more of those factors does not, of itself, establish solvency. In Morris v Danoz Directions Pty Ltd (in liq) (No 2) [2010] FCA 836 at [13], Perram J described those indicia as 'common sense indicators' of a company's inability to pay its debts as and when they fall due."
In the present case, the parties relied on the reports of their accounting experts in relation to insolvency being the reports of Mr Barnden and Mr McMahon. I have set out their evidence above in some detail. I will shortly consider the indicators of insolvency which Mr Barnden raised and which Mr McMahon also commented on. The plaintiff submitted that the factors relied upon by Mr Barnden clearly established the insolvency of One Build from at the latest 30 June 2013: submissions dated 16 February 2018 paragraphs 45-93.
I have dealt above with the defendant's arguments as to the completeness and adequacy of the materials which were provided to Mr Barnden by the solicitor for the plaintiff for the purposes of his opinions.
As found above, I do not think that the matters relied on by the defendant impact on the potential value and reliability of the documents considered by Mr Barnden and his opinions. I note the following matters: 1. Mr Petrov appears to have been involved in the selection of limited documents set out in Exhibit D and not the documents behind tabs 1, 2, 3, 5, 6, 7 and 10 of that exhibit; 2. Mr Petrov appeared to be an intelligent witness. In my view, his evidence established that he approached his task of extracting potentially relevant financial documents carefully and, it seems, thoroughly. Mr Petrov is an information technology engineer and he has no accounting qualifications or legal qualifications: T15.30-.50. Mr Petrov copied all documents related to finance or which had the word "finance" in the title. He also sent examples to Mr Chase Berry to check that they were the proper files with the proper information that he was looking for: T16.25-.39. Mr Chase Berry also provided instructions to Mr Petrov as to the names of the files to save onto a USB hard drive: T17.18. In the end, Mr Petrov agreed that what he gave to Mr Chase Berry was a selection of documents based on the choices that he had made consistent with his instructions. I was satisfied, having seen Mr Petrov give evidence that he would have approached his task cautiously and diligently and forwarded anything to Mr Chase Berry that had a financial flavour relating to One Build; 3. Mr Chase Berry also struck me as a careful and able person. Mr Chase Berry confirmed that he provided Mr Petrov with instructions to exercise his judgment in retrieving what he considered to be financial documents from the hard-drives produced by the liquidators: T62.14-.22. He also stated that he may have "elaborated on that": T62.27. Mr Chase Berry said that he believed he would have given Mr Petrov examples as to what constituted a financial document: T62.34-.44. Mr Chase Berry agreed that he left Mr Petrov to exercise his forensic judgment as to what he believed constituted a financial document upon his instructions: T62.49. Mr Chase Berry then reduced the documents provided to him by Mr Petrov by removing non-relevant documents being non-financial documents: T64.13-.33. In doing that, Mr Chase Berry must have had in mind the issues in the present case and that it was an insolvent trading case. It also tends to establish that Mr Petrov was careful in his selection of documents, as some were regarded by Mr Chase Berry as being irrelevant; 4. The defendant had first access to the financial material produced by the liquidators on subpoena. He has not sought to add any further relevant documents of any substance to those put before the court by the plaintiff as Exhibit D: T66.31-.43. In saying that I am not stating that any legal onus rests on the defendant in relation to s588G of the Act; 5. The documents identified by Mr Barnden in the liquidators' list of documents that he believed he may not have seen, did not appear to me to be significant. Also, I would assume that Mr Barnden, as the expert, would have requested access to those documents if he regarded them as potentially significant to his opinion; 6. While Mr Barnden identified some documents as missing from the company's records, he said that he had the basic important information available to him on the briefed materials to express his opinion: see T413.31-T414.13; T416.30-T417.46; 7. When presented with the evidence given by Mr Petrov by counsel for the defendant, Mr Barnden said he did not have any concerns, as the information he was provided "appeared to be the prime financial, or the majority of the prime financial records of the company… But the prime records that you would normally need to form an insolvency report from the accounting package is, were, the majority were there": T422.33; 8. Although Mr Barnden conceded that he did not know whether there were other versions of the more significant financial documents, there was no indication that there were other versions of any significance. Further, the defendant did not tender himself any other versions of the relevant documents.
The involvement of Mr Petrov, even with guidance and examples from Mr Chase Berry, was not ideal and leaves some residual concerns. However, on all of the evidence (particularly the evidence of Mr Barnden as to the documents supplied to him), I consider the material before Mr Barnden allowed him to form a proper opinion in relation to the solvency question. As Mr Barnden said in his evidence, in nearly all matters including even in the case of the appointment of a voluntary liquidator, the liquidator does not always get all the books and records of a company: T413.32.
I now turn to consider the expert opinions and the insolvency evidence and my findings in relation to it.
In paragraph 2.4.1 of his first report, Mr Barnden refers to ASIC v Plymin, above. He states that from his experience, insolvent companies routinely exhibit some or all of 14 indicators of insolvency which he sets out.
In his executive summary of his first report, Mr Barnden concludes that One Build was insolvent as at 30 June 2013 and remained insolvent past this date until the date of liquidation being 26 November 2013. Mr Barnden, as set out above, based his conclusion on 11 indicators of insolvency which he considered were relevant. He sets these out in his report and explains them in more detail in paragraph 4.1 of his first report. These 11 indicators became the battleground of the dispute between the two experts and the subject of extensive cross-examination. Mr Barnden concluded that One Build was insolvent at the relevant date he indicated by reference to the cash flow test, the balance sheet test and the indicia of insolvency.
The 11 indicia of insolvency in relation to One Build relied on by Mr Barnden were as follows: 1. One Build has had a current ratio of current assets over current liabilities of less than 1.0 since at least 30 June 2010, with a ratio of 0.78 as at 30 June 2013; 2. One Build has had a quick ratio (current assets of a company that can be easily converted into cash divided by current liabilities) of less than 1.0 since at least 30 June 2010, with a ratio of 0.78 as at 30 June 2013; 3. One Build has had a debt to asset ratio (total liabilities of a company divided by its total assets) of more than 1.0 since at least 30 June 2010, with a ratio of 1.21 as at 30 June 2013; 4. Since at least 30 June 2010, One Build had net liabilities in excess of $2 million which as at 30 June 2013 were over $2.2 million; 5. The company's external accountants sought professional insolvency advice in August 2012; 6. One Build had unpresented cheques totalling over $3.1 million in June 2013 increasing to $4.1 million in October 2013, the effect of which was a reduction of the aged creditor balances. If these cheques had been presented, the company would have breached its overdraft limit and the company's bank may have dishonoured the unpresented cheques; 7. The proofs of debt lodged by creditors in the liquidation of One Build were about $1.8 million in total higher than the total of the balances shown as owing to them on the age creditor listings dated 30 November 2013; 8. The liability of One Build to the ATO in accordance with the company's management accounts was significantly higher than that reported in the BAS returns of the company for the 12 months period ended 30 June 2013. If the amounts in the management accounts were more representative of the actual amounts owed to the ATO than those reported on the BAS returns, which Mr Barnden thought they were, One Build would have had additional GST liabilities of about $700,000 placing significant additional strain on its cash flow; 9. One Build's payroll tax liability was being underpaid by about $3,000 per month for a 12 months period from November 2012 to October 2013 which would have placed further strain on the cash flow; 10. The largest creditor of One Build, Hanson, had had amounts owing to it by One Build for eight to nine months on trading terms of 30 days; and 11. Over 60% of the company's trade suppliers (by value) were paid outside of the required trading terms since at least 30 June 2013.
These indicia of insolvency were considered by Mr McMahon in detail as I have set out above.
It is noted from the cross-examination of Mr Barnden that Mr Barnden only referred to indicators of insolvency in his report. There were other indicators which suggested that One Build was solvent at the relevant dates. These included: 1. No outstanding judgments or other unresolved legal entitlements against it; 2. No existing proceedings against it by the ATO; 3. An apparent good relationship with its bank; 4. One Build had moneys on term deposit with the NAB which were apparently used to secure guarantees. Companies at or approaching insolvency do not usually have moneys on fixed deposit; 5. Substantial operating revenues; and 6. Apparent considerable work from which income could be and was being derived. See also paragraph 182 of the defendant's written submissions.
Of the 11 indicia of insolvency referred to by Mr Barnden, the whole of the evidence, including the evidence of Mr McMahon and the cross-examination of Mr Barnden, indicated that several of the indicia in my view should be given either little or no weight on the question of insolvency. Those indicia in my view were as follows: 1. As to indicator five, One Build's external accountants seeking professional insolvency advice in August 2012, this did not appear to me to be relevant as Mr Silk's evidence was that this was seeking advice from Mr Hill before One Build entered into the contracts with Alstom, particularly on the question whether One Build had the financial capacity for the financial transactions proposed. Mr McMahon rejected this as a factor. In cross-examination, Mr Barnden maintained its relevance largely because of the meeting dated 26 July 2013 revealed in the Declaration of Independence, Relevant Relationships and Indemnities prepared by Mr Hill dated 5 December 2013 which is Annexure E to Mr Barnden's second report. Although this document suggests that the advice was sought on the solvency of One Build, in my view this is not a sufficient matter to give this indicator any weight in the absence of further evidence. I accept the defendant's submissions on this issue: see written submissions paragraphs 146-151; 2. As to indicator nine, concerning the under payment of payroll tax, in his report Mr McMahon gave examples of exemptions to payroll tax which could exist in the case of One Build. In his second report, Mr Barnden appeared to accept this reasoning. In any case, the amount did not appear to me to be material; 3. As to indicator seven, the proofs of debt lodged by creditors in the liquidation, these claims were never determined by the liquidators and it may be that they were overstated. In my view, this is not a persuasive indication of insolvency; 4. As to indicator 11, being that the trade suppliers (by value) were being paid outside of the required trading terms, this is a factor to take into account. However, the "commercial realities" test which is relevant to insolvency must be considered here. It appeared to me that some flexibility was given in the construction industry by trade suppliers. It also appears on the evidence as presented in the experts' reports, particularly Mr McMahon's report, that the vast majority of trade suppliers were paid within 60 days of their trade terms. While non-payment within trade terms is a factor, in my view it is not a significant factor in the present case in the light of Mr McMahon's comments.
In relation to the first four indicators relied on by Mr Barnden (see paragraph 332 above), these are clearly relevant as Mr McMahon conceded. Even without that concession, I would have accepted Mr Barnden's opinion that these are all relevant indicators of insolvency. See the plaintiff's submissions dated 16 February 2018 at paragraphs 47-49. However, while they are indicators, they do not determine the question of insolvency. Rich companies can be insolvent within the definition and companies with a substantial amount of liabilities over assets can be solvent on the cash flow test. Nevertheless, they are factors to be taken into account. I reject paragraph 144 of the defendant's submissions to the extent they attack the ratios' relevance.
Relevant also to the question of the insolvency of One Build, was its cash flows for the years immediately preceding 1 July 2013. At T313-T318 Mr McMahon was cross-examined in relation to the cash flows and net cash position of One Build over the financial years ending 30 June 2011-30 June 2013. The cross-examination established, on the assumption that the documents used were accurate, that over those financial years there was a reduction in One Build's cashflow in a very substantial amount. As at 30 June 2011, there had been an increase in the net cash position of One Build of $390,954: T314.45. By 30 June 2013, there had been a net decrease in the cash position of One Build of $4,256,756 which indicated that at the end of the financial year ending 30 June 2013, One Build had a negative cash position of about $1.3 million. Although Mr McMahon appeared reluctant to describe this as "an extremely poor result" and preferred to call it "a decline" (T318.6), he conceded in answer to a question from the court that in terms of the size of One Build from its receipts and payments that was a very substantial turnaround: T318.26. This, in my opinion, is an important matter to be taken into account. In general terms I accept paragraph 80 of the plaintiff's written submissions dated 16 February 2018.
Taking into account all of the expert evidence in the two reports of Mr Barnden and the report of Mr McMahon, the cross-examination of the expert witnesses, the documents relied upon in the expert reports and in the cross-examination and the submissions made on behalf of the parties, I find that One Build was insolvent within the meaning of s 95A of the Corporations Act, as at 30 June 2013. I prefer the opinion of Mr Barnden on this issue for the following reasons: 1. I do not agree that Mr Barnden was an advocate as opposed to an independent expert. Whilst expressing firm opinions, Mr Barnden readily made some concessions; 2. The large deterioration in the cash position of One Build between 30 June 2011 and 30 June 2013 which I have discussed above; 3. The first four indicators referred to by Mr Barnden in paragraph 1.7.2 of his report qualified by the comments which I have made above. Mr McMahon gave evidence that these ratios had been improving. That is clearly a matter to be taken into account but I look at the position as at 30 June 2013 which was focused on by the experts. I also take into account the position in relation to the Alstom contract claims and the ATO GST issue. On an accruals basis, the non-payment of One Build's payment claims by Alstom in August 2013 would have affected One Build's ratios as at 30 June 2013: paragraph 49 of IW's submissions dated 16 February 2018; 4. The large number of unpresented cheques as at June 2013 referred to by Mr Barnden. I take into account Mr Silk's explanation for the number and amount of these unpresented cheques and the analysis by Mr McMahon in his report in relation to them. I take into account the fact that Mr Barnden subtracted from them cheques in relation to retentions. In my view, it was commercially strange that One Build would be preparing cheques for amounts potentially owed to subcontractors or for retentions well before such amounts were potentially due or calculated. Although I take into account the explanations provided by Mr Silk, the preparation of cheques in that way would have been a potential significant administrative difficulty for One Build with One Build potentially having to cancel cheques (if the cheques were more than one year old) or to cancel and prepare new cheques if there were disputes in relation to the quality of work including defects. The cheques would have had to have been stored in a way which allowed the proper supervision of them having regard to all of the work being done and the contractual arrangements with creditors. I consider it far more likely, and I find, that a principal reason behind preparing such a vast number of cheques which were unpresented was to reduce the amount of aged creditors in One Build's accounts. I note that according to Mr Barnden in paragraph 5.3.2 of his second report, over $1,450,000 of unpresented cheques were not accounted for by retention creditors. I accept Mr Barnden's evidence in the light of Mr Silk's explanation and Mr McMahon's opinions, that the level of unpresented cheques as at 30 June 2013 excluding for retention creditors is a matter to be taken into account. See the plaintiff's submissions dated 16 February 2018 paragraphs 81 and 83; 1. Another point is the significant discrepancy between the liability to the ATO of One Build as set out in the company's management accounts compared to that reported in the BAS returns submitted by One Build to the ATO for the 12 months period ending 30 June 2013. See the plaintiff's submissions dated 16 February 2016 paragraphs 64-69. This issue has been discussed in relation to the expert evidence in detail above. The defendant points to the fact that there is no evidence of the ATO taking any action against One Build. The historical company search and the creditor information in relation to One Build support that. See also paragraphs 166-172 of the defendant's written submissions. However, if the amounts in the company management accounts are a more accurate representation of the actual amounts owed to the ATO than those recorded in the BAS returns, which I find they probably are, One Build would have had additional due GST liabilities of around $700,000 to pay to the ATO. That is a significant amount. In my view, it is appropriate to assume that the company's management accounts as maintained by its internal accounting team particularly Mr Lunney are likely to be more accurate than the BAS returns lodged with the ATO. Further, there is no evidence where the $700,000 additional GST tax would have come from to pay any liability to the ATO. There is some suggestion that a party could apply to lodge BAS returns on a cash basis as opposed to an accruals basis. This was not the usual position for a company of the status of One Build as at that time. There is also no evidence before me that such a request was made or as to the likelihood of the ATO granting that request if it was made. The evidence establishes that One Build's annual tax returns and BAS returns were prepared on an accruals basis: T185.11-.23. If the management accounts were inaccurate, which I find is less likely, then One Build's operating revenue would have been about $7 million less. This would have had significant implications for its financial position and would have represented a very poor outcome for the financial year ended 30 June 2013. Accordingly, either possibility is negative to One Build; 1. The issue of the ATO tax liability is a significant one and is an important indicator in my view of insolvency. The two alternatives discussed above are both indicators in my view of insolvency. I accept Mr Barnden's evidence and the submissions of the plaintiff on this issue; 2. A significant creditor of One Build at all relevant times was Hanson Precast Pty Ltd. The evidence suggests that One Build requested a payment arrangement with Hanson which was agreed which Mr Barnden said was an indicator of insolvency in itself: paragraph 5.7.3 of his second report. Various invoices issued by Hanson were unpaid. Mr McMahon addresses this in paragraph 5.10 of his report where he states that Mr Barnden has not addressed a significant portion of the indebtedness to Hanson. Mr Silk in his evidence initially asserted that Hanson was not paid money because it had not returned a signed contract in the usual terms requested by One Build. However, the evidence appeared to establish that despite this, One Build still made payments in order to ensure that further supplies were provided to it by Hanson. Accordingly, contrary to Mr Silk's assertions, One Build was not rigid in its insistence on the return of a signed contract. In addition, in the absence of a signed contract, any goods or services would need to have been paid for within a reasonable time. It seems from Mr Barnden's report that this did not occur. This, having regard to the status of Hanson as the major creditor by value of One Build, is in my view a relevant indicator of insolvency. I have taken into account the defendant's submissions on this point in relation to practices in the construction industry: see the defendant's oral submissions and the reliance placed on ASIC v Plymin, above, at [387] in which Mandie J referred to the fourth point of Palmer J in Southern Cross Interiors Pty Ltd v DCT (2001) 53 NSWLR 213 at [54]. However, in the present case One Build had issued payment schedules and a payment plan had been agreed. Further, the submission based on the SOP Act by the plaintiff seems to have force: plaintiff's submissions dated 16 February 2018 paragraph 77. Under the SOP Act, the amounts scheduled by One Build in relation to the Hanson payment claims were owed by it to Hanson in accordance with the SOP Act: see 4/1120-3; 4/1143-8; 4/1157-62; s 16 of the SOP Act. 1. Aged creditor analysis - Mr Barnden makes the point that the average terms on which One Build traded with its suppliers were 30 days and a large proportion of total aged creditors were older than 30 days with the amount owing being over $3 million. Mr McMahon states that it is common practice particularly in the construction industry for debts to trade creditors to be paid outside of the normal trading terms. Mr Barnden says in his second report that whatever the normal practice is, is irrelevant, as such debts are still due and payable in accordance with the normal trading terms. In cross-examination of both Mr McMahon and Mr Barnden, issues were raised in relation to time being granted being potentially a variation of trading terms and the need as a matter of commercial reality to look at the particular industry and in particular Mr Silk's evidence that normal construction terms were 30 days after the end of the month in which the invoice was received. Mr McMahon makes the point that as at 30 June 2013, 96% of aged creditors were less than 60 days and 98% of aged creditors were under 90 days: paragraph 5.11.4. Even if Mr Silk's evidence was accepted on this issue, it is unlikely that all creditors' invoices would have been received at the beginning of a month such that effectively One Build had close to 60 days to pay. It is also unlikely that the conduct of the parties as to the non-enforcement of usual terms would in all cases or even perhaps a majority of cases have amounted to conduct constituting a variation in contractual terms. Mr McMahon states in paragraph 5.11.7 of his report that the state of ageing of trade creditors may be a poor indicator of insolvency. In my view this is not a strong indicator of insolvency. I accept the defendant's submissions on this issue.
Mr McMahon also raises the question of potential support from related entities and forward cash flow projections.
In relation to the question of potential support from related entities, Mr McMahon gave evidence that some support was provided to One Build towards the end of the calendar year 2012. In paragraph 6.2.1 of his report, Mr McMahon states that the assessment of the ability of related entities to provide financial support is a key issue in a company's solvency. This is clearly correct. He notes that the willingness and capacity of Mr Silk to provide additional funding and/or financial support to One Build does not appear to have been investigated or addressed in the Barnden report: paragraph 6.2.4.
In my view, this is not a significant matter. As Mr Barnden notes in his second report in paragraph 6.1.2, related parties did not provide any financial support to One Build in the six months up to the date of insolvency. It is also noted that the director did not have a loan account with the company at the relevant time to clear the account to nil. I do not see it as a problem with the Barnden reports that enquiries were not made in relation to the support by related parties. If those entities were going to provide support it is likely that they would have done so. See paragraphs 90-91 (first sentence) of the plaintiff's written submissions dated 16 February 2018.
I accept the submission that a Jones v Dunkel inference can and should be drawn in relation to the failure by the defendant to call evidence from the trustees of the Valley View Investment Trust and from Metroplex Pty Ltd in relation to the willingness of those persons to provide financial assistance to One Build: Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418; RHG Mortgage Corporation Ltd v Ianni [2016] NSWCA 270 at [160]-[165]. Both entities were within the defendant's camp. The trustees of Valley View were Mr Silk and his wife. It was to be expected that Mr Silk and/or his wife and or a director of Metroplex would be called to give the evidence if such support would have been forthcoming. This failure to call evidence was unexplained by the defendant. However, I note that I would have arrived at the same conclusion even without this Jones v Dunkel inference.
Mr McMahon also raises the point that forward cash flow projections should have been taken into account. He refers to spreadsheets which appear to project the cash flow of the company from October 2013 and November 2013 through to 30 June 2014, which indicate substantial positive net cash flows: paragraph 6.3.3-4. Mr Barnden states that an analysis of the cash flow forecast past the date of insolvency is irrelevant as the company went into liquidation and was undoubtedly insolvent on that date.
In my view, Mr Barnden's opinion is substantially correct, unless it could be shown that very substantial cash flows were almost certain to have been obtained in very close proximity to the insolvency date. The real issue is whether the company can pay its debts as and when they fall due on a particular date.
Two other matters should be noted which are of some relevance to this issue. The first involves a questionnaire completed by Mr Silk on 2 December 2013 (Exhibit D, 3/965) in which he noted in answer to question 70 that the non-residential construction industry "has been suffering for some years now, which has led to heavy competition, minimal margins and significant acceptance of contractual risk. One Build has been exposed to this market resulting in a dwindling of cash reserves" (emphasis added). The second matter is that Mr Silk gave evidence in cross-examination that it was the policy of One Build to send out a payment schedule in response to a payment claim even in circumstances where One Build thought it was a proper claim: T206.23-.48. This does not appear to represent a builder having the capacity to pay its debts as and when they fell due.
A further matter which in my view is very relevant is the treatment of the claims made by One Build under the Alstom contracts: see the evidence in paragraph 126 above. This seems to establish that two very substantial amounts claimed by One Build on its major contract were disallowed by Alstom on or before 12 August 2013.
Mr Barnden gave evidence that on an accruals basis this should have been reflected in the accounts as at 30 June 2013 as the payment claims of One Build were dated 28 June 2013 before the end of the financial year. The evidence establishes that One Build's accounts were prepared on an accruals basis.
The response of Alstom was, in my view, having regard to the importance of the contracts with it, a very significant matter also going to the insolvency of One Build if not as at 28 June 2013 then certainly as at 12 August 2013. On an accruals basis, the scheduling of One Build's two claims by Alstom should have been reflected in One Build's accounts as at 30 June 2013. See the plaintiff's submissions dated 16 February 2018 at paragraphs 49 and 52-61 on this point. Mr Silk conceded he would have been aware of this very significant matter some time in July 2013. This matter goes directly to the issue of the insolvency of One Build as at 30 June 2013, alternatively 12 August 2013. See paragraph 60 of the plaintiff's 16 February 2018 submissions.
For all of the above reasons, I find that One Build was insolvent as at 30 June 2013 and was presumed to have remained insolvent thereafter. I note that I would have reached the same conclusion even absent the unpresented cheques indicator which had considerably less influence to me in my conclusion.

Are there reasonable grounds for suspecting that the company was insolvent or would become insolvent as a result of the relevant transaction?

This issue requires the court to consider the position of One Build as at August to November 2013. The plaintiff submits that One Build was insolvent on and from 30 June 2013.
This element is determined objectively. It states the standard of reasonableness of a director of reasonable competence and diligence not the standard attributable to the particular director in question: Plymin (No 1) above at [423]; Swan Services above per Black J at [178]-[180]. It assumes a director who reached a reasonably informed view as to the financial capacity of the company in question. See paragraphs 23-4 of the plaintiff's 16 February 2016 submissions.
In my view, there were reasonable grounds for suspecting that One Build was insolvent or would become insolvent as a result of the relevant transaction with IW, for the following reasons: 1. As stated, this aspect of the section requires an objective assessment to be made. The particular knowledge of a director and any assessment which he or she may have made as to the financial position of the company is not relevant. It is sufficient if a reasonable person in a like position as a director in the company's circumstances would be aware having regard to the facts and circumstances that the director knew or ought to have known: Powell v Fryer [2001] SASC 59; (2001) 37 ACSR 589 at [76]-[77]; Hall v Poolman [2007] NSWSC 1330; 2. There must be at the time the debt is incurred, reasonable grounds for a person in the position of the director suspecting that the company was insolvent or would become insolvent as result of the transaction. In Hall v Poolman [2007] NSWSC 1330 Palmer J stated at [234]: "[234] Suspicion of insolvency falls somewhere between a belief that insolvency exists, on the one hand, and a mere wondering whether it exists, on the other. Suspicion is a positive feeling of apprehension, an admittedly tentative belief, without sufficient evidence to form a concluded and supportable opinion: see, for example, Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 at 303 ; [1966] ALR 855 at 892-3;" 1. I have found above that One Build was insolvent from 30 June 2013, alternatively from the end of July 2013 when a large portion of the claims made by One Build in relation to the Alstom contracts were not paid: see CB 2/640-642; 2. In my view, any director undertaking the management of One Build at the time the debts to IW, which I have identified above, were incurred, would have had reasonable grounds for suspecting that One Build was insolvent, quite apart from the transactions with IW. In my view, any reasonable director of One Build, would have been exercising reasonable care to review the financial position of One Build, particularly in relation to the various matters which constitute the indicators of insolvency which I have found established. That director should reasonably have been very apprehensive of One Build's solvency on the evidence; 3. The matters I have indicated above as being relevant on the insolvency issue are relevant to this element. In particular, the director should reasonably have been aware of: 1. The status of the claims under the Alstom contracts; 2. The decreasing cash position of One Build; 3. The ratios discussed above; 4. The understated BAS returns in relation to GST or the error in the sales recorded in One Build's management accounts if the BAS returns were accurate; 5. The position relating to Hanson's claims. (See Mr Silk's evidence at T240.11-242). Accordingly, in my view a reasonable director with knowledge of One Build's circumstances would have been aware, or very apprehensive, that it was insolvent in the period from 30 June 2013, alternatively from 30 August 2013-November 2013 and prior to 26 November 2013.

Did Mr Silk have reasonable grounds for suspecting that One Build was insolvent or would become insolvent if it incurred the relevant debt?

Mr Silk will be liable under the next element if, at the time the debt was incurred, he was aware that there were grounds for suspecting that One Build was insolvent (s 588G(2)(a)) or a reasonable person in his position in One Build in the company circumstances would have been so aware (s 588G(2)(b)).
There are thus two alternative ways in which the director can be found to have had the required suspicion of insolvency being either actual awareness or that a reasonable person in a like position in a company in the company's circumstances would have been so aware. The test in s 588G(2)(a) is a subjective test whereas the test set out in s 588G(2)(b) is an objective test. The objective standard is to be determined by the standard of a director of ordinary competence: McLellan, in the matter of The Stake Man Pty Ltd v Carroll [2009] FCA 1415; (2009) 76 ACSR 67; In the matter of Re Swan Services Pty Ltd (in liquidation) [2016] NSWSC 1724 at [182]. As stated by Black J in the Swan case, this requirement may be satisfied either by proof that a director had a subjective awareness of grounds that constitute reasonable grounds for suspecting insolvency, or that a reasonable person in the position of the director would have been aware of the existence of such grounds: at [182] following ASIC v Plymin (No 1) (2003) 46 ACSR 126 at [426]; Powell v Fryer (2001) 37 ACSR 589 at [77].
In my view, it is not necessary for me to determine whether Mr Silk had actual knowledge of grounds for suspecting that One Build was insolvent if the objective test is satisfied. I am comfortably satisfied, and I find, on all the evidence that a reasonable person in the position of Mr Silk as a director of One Build would have been aware of grounds that constitute reasonable grounds for suspecting insolvency of One Build at the relevant times.
A reasonable person in the position of Mr Silk in One Build at the time, being the sole director, should have been well aware of the company's financial position in the period from 30 June 2013 to 25 November 2013. I have already analysed above Mr Silk's actual knowledge. See also his cross-examination at T240.11-242.33. However, a reasonable person in the position of Mr Silk would have had regular meetings with Mr Lunney (and thus could ask him questions on financial issues) and had access to the company's management accounts. A reasonable person in the position of Mr Silk would also have been aware of the various indicators of insolvency which I have found. In my view, a reasonable director would have been aware of these matters as a sole director would have been ultimately responsible for the management of the company and should have regularly reviewed the financial position of the company as part of that management with the financial controller, Mr Lunney. A reasonable director in Mr Silk's position in particular would have been aware of the amounts in the BAS returns compared to the management and annual accounts, the company's deteriorating cash position as part of its cash flow and the payment position under the Alstom contracts. As to the latter, see T242.33 which reflects the knowledge a reasonable director would have had at the time.
In my view, the requirements of s 588G(2)(b) of the Act are satisfied.
Mr Silk also failed to prevent One Build from incurring the debts with IW.
Under s 588G(2), it must be established that the defendant failed to prevent the company from incurring the debt.
The evidence establishes that Mr Silk took no action to cause One Build to have a liquidator appointed to it until his attempts to resolve his disputes with Alstom in relation to the September 2013 claims in November 2013 failed. He must have been aware that One Build had numerous other contracts to perform other construction work. If I am correct that One Build was insolvent as at 30 June 2013 or certainly by the end of July 2013 or August 2013 when substantial portions of claims made in relation to the two Alstom contracts were not allowed, then Mr Silk should have caused a liquidator to be appointed to One Build at those times. Instead, One Build continued to trade until the end of November 2013. Accordingly, Mr Silk failed to take all reasonable steps within his power to prevent the company from incurring the debts in question here and any other debts from at the latest late August 2013: see ASIC v Plymin (No 1) (2003) 46 ACSR 126 at [3]-[5]; Elliott v ASIC [2004] VSCA 54 at [116]-[117].

Whether any of the defences have been established by Mr Silk

Under s 588H of the Corporations Act there are four defences potentially available to a director who is alleged to have committed insolvent trading. They are as follows: 1. At the time when the debt was incurred, the director had reasonable grounds to expect, and did expect, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time: s 588H(2); 2. The director believed on reasonable grounds that a competent and reliable person was monitoring the insolvency of the relevant company and the director was provided by that person with adequate information about whether the company was solvent: s 588H(3); 3. The director did not take part in management at the time the debt was incurred because of illness or some other good reason: s 588H(4); and 4. Where a director takes all reasonable steps to prevent the company incurring the debt: s 588H(5).
The defence under s 588H(4) is not relied upon by Mr Silk.
In accordance with the Defence filed 24 April 2015, Mr Silk appears to be relying on the defences under s 588H(2) and s 588H(3) of the Act.
The onus in relation to these defences rests upon Mr Silk. In the case Re Swan Services Pty Ltd (in liquidation) [2016] NSWSC 1724, Black J stated as follows at [220]-[221] and [230]: [220] A defence to a claim under s 588G of the Corporations Act is available under s 588H(2) of the Corporations Act where, at the time a debt was incurred, a person has reasonable grounds to expect and does expect that the company was solvent at that time and would remain so even if it incurred the debt. In order to establish an expectation that the company is solvent for the purposes of s 588H(2), a director must establish a measure of confidence or actual expectation that the company is solvent, and more than a mere hope or possibility of solvency; the grounds on which the director forms the view as to the company's solvency must be reasonable when considered objectively in the light of the relevant circumstances; and the director must have a reasonable basis for an expectation that the debts will be paid as they fall due for payment, not merely at some future time: Metropolitan Fire Systems Pty Ltd v Miller & Ewins (1997) 23 ACSR 699 at 711; Tourprint International Pty Ltd (in liq) v Bott above at 215; Hall v Poolman above at [265]; Smith v Bone above at [375]. That defence will not be established if a director did not take reasonable steps to perform his or her duties, including obtaining relevant information from the company's management: Deputy CMr of Taxation v Clark [2003] NSWCA 91; (2003) 57 NSWLR 113 at 131-134; Australian Securities and Investments Commission v Plymin (No 1) above. [221] I have addressed many of the issues relevant to this defence in addressing the question whether there were reasonable grounds to suspect insolvency above. In this case, as in many cases, the matters that establish that a director knew, or a reasonable person in his or her position would know, that there were reasonable grounds to suspect that the relevant company was insolvent, to which I have referred above, undermine any conclusion that the director had reasonable grounds to expect, that the company was solvent at the relevant time and would remain so after incurring the relevant debts. [230] A defence is available under s 588H(3) of the Corporations Act if a director had reasonable grounds to believe, and did believe, that a competent and reliable person was responsible for providing adequate information about whether the company was solvent and that the other person was fulfilling that responsibility, and expected, on the basis of information provided by that other person, that the company was solvent and would remain solvent even if it incurred the relevant debts. That defence requires that the other person is in fact responsible for providing adequate information to the director whether the company is solvent: Australian Securities and Investments Commission v Plymin (No 1) above at [559]-[560]; aff'd Elliott v Australian Securities and Investments Commission above; McLellan (in his capacity as liquidator of Stake Man Pty Ltd) v Carroll [2009] FCA 1415; (2009) 76 ACSR 67 at [184]-[185]. That defence will not be established if a director was put on inquiry to the reliability of information provided by management and did not make the necessary inquiry: Australian Securities and Investments Commission v Plymin (No 1) above at [559]; aff'd Elliott v Australian Securities and Investments Commission above.
As Black J said in the Swan case, the matters that establish that a director knew, or a reasonable person in his or her position would know, that there were reasonable grounds to suspect that the relevant company was insolvent, generally undermine any conclusion that the director had reasonable grounds to suspect that the company was solvent at the relevant time and would remain so after incurring the debts.
In my view, the defence under s 588H(2) of the Corporations Act is not established in the present case by Mr Silk for the following reasons: 1. The defence in s 588H(2) requires an objective standard to be applied in relation to the facts known to the director at the relevant time or times. However, a director cannot rely on ignorance of or neglect of his or her directors' duties: Tourprint International Pty Ltd v Bott [1999] NSWSC 581; 2. Mr Silk did not make clear what beliefs he had as at 30 August 2013 as to One Build's solvency and more importantly that any belief as to solvency was reasonably based following having made reasonable inquiries. He seemed to rely entirely on Mr Lunney; 3. Mr Silk did not have reasonable grounds to expect that the company was solvent as at August-November 2013 even if it incurred the relevant debts to IW; 4. As is shown in relation to the insolvency issue, One Build had a substantially worsening cash flow; 5. Its BAS returns to the ATO were probably substantially understated as to GST; 6. By the time IW started its demolition work at the site, Alstom had not approved a substantial portion of the claims made by One Build in the two Alstom contracts in June 2013; 7. A reasonable person in Mr Silk's position would have been aware that One Build had substantially more current liabilities compared to current assets; 8. One Build was being selective in the enforcement and management of its trading terms having regard to the special arrangement with Hanson; 9. There was no evidence that Alstom's attitude to the claims made in June 2013 by One Build would change in the foreseeable future; 10. What is required to establish the defence is an "expectation" of solvency which is a higher degree of certainty to a "mere hope or possibility" or "suspecting". The defence requires the director to have an actual expectation that the company in question was and would continue to be solvent and to show that the grounds for that belief were reasonable: Tourprint International Pty Ltd v Bott [1999] NSWSC 581 at [67]. 11. Mr Silk claims that he left matters essentially to his Financial Controller, Mr Lunney. However, a defence under s 588H(2) will not, as Black J emphasises, be established if a director did not take reasonable steps to perform his or her duties including obtaining relevant information from the company's employees: Deputy Commissioner of Taxation v Clark [2003] NSWCA 91; (2003) 57 NSWLR 113 at 131-134; 12. I refer to my findings above in relation to the matters of which a reasonable director should have been aware. In the light of those findings, in my view Mr Silk would not have had reasonable grounds to expect that the company was solvent at the relevant time and would remain so even if it incurred that debt.
The defence under s 588H(2) of the Act therefore fails.
In relation to the defence under s 588H(3) of the Act, no evidence was before the court from Mr Lunney. However, based on Mr Silk's affidavit, I find that Mr Silk had reasonable grounds to believe, and did believe, that Mr Lunney was both competent and reliable and was a professional accountant. I also find first, that Mr Lunney had another accountant to assist him and secondly, Mr Lunney was responsible for providing to Mr Silk financial information about One Build.
However, based on the whole of the evidence, I do not accept that at the time the debts were incurred to IW that Mr Silk expected, on the basis of adequate information provided to him by Mr Lunney, that the company was solvent at that time and would remain solvent even if it incurred the IW debts and any other debts that it incurred at that time. In particular, the following matters appear to me to be relevant: 1. Any competent Financial Controller in the position of Mr Lunney would have likely been astute to keep Mr Silk aware of the financial position of the company; 2. Mr Silk, as the only director, and the person responsible for the management of the company, would have wanted to be kept informed on a regular basis of the important aspects of the financial position of One Build, including in relation to its main debtors, particularly in relation to payments under the Alstom contract which was One Build's biggest contract; 3. However, there is no detailed or sufficient evidence as to what information Mr Lunney was "responsible" for providing to Mr Silk or that the information he did provide could be regarded as adequate information as to solvency within the section: cf paragraphs 7-9 of Mr Silk's affidavit especially paragraph 7(e) which in my view is not sufficient. There was no detailed evidence as to what was in the key performance indicators document which Mr Silk said he was regularly provided by Mr Lunney. Therefore, there cannot be an assessment that that information from Mr Lunney allowed a reasonable belief as to solvency to be held by Mr Silk. See Swan Services above at [233]; In the matter of Matlic Pty Ltd (in liquidation) [2014] NSWSC 1342 at [68]; 4. Mr Silk conceded that he would have been aware some time in July 2013 that Alstom via a payment schedule had disallowed over $1.3m of One Build's June payment claim: T242.33. This knowledge probably came from Mr Lunney. It seems One Build's June 2013 claims to Alstom were reduced by a combined total of about $2.6m excluding GST: plaintiff's submissions at paragraphs 52-62. That was a very substantial reduction in One Build's expected cash flow and current assets not recorded in One Build's 30 June 2013 accounts. Mr Silk conceded that the only claims not paid by Alstom as at 6 (or 11) November 2013 which had been scheduled by Alstom were the September 2013 One Build claims: plaintiff's submissions paragraph 92; T237.38 cf T237.17; 5. This goes directly to the reasonableness of any belief of Mr Silk; 6. Mr Silk knew that he could have accessed One Build's monthly management accounts from Mr Lunney including reviewing accounts from previous months. If he had not been provided with monthly progress claims reports he also knew he could access these: T135.44.
Based on my findings as to the lack of specificity in the evidence of the responsibility of Mr Lunney in providing adequate information as to solvency and what information was actually provided to Mr Silk and the whole of the evidence, I consider this defence has not been established by Mr Silk.
It seems that no defence is relied on under s 588H(5). However, based on all the evidence, Mr Silk has not established that he took all reasonable steps to prevent One Build from incurring the debt with IW.

Loss or damage suffered by the plaintiff

IW's claim against One Build is wholly unsecured. As stated above, the liquidators in their report to creditors dated 24 February 2017 have stated that there are insufficient funds in the liquidation of One Build to enable the liquidators to declare a dividend to unsecured creditors. Accordingly, IW has suffered loss or damage as a result of the insolvency of One Build being the inability to recover the amount which I have found was incurred to IW at the time of the appointment of Mr Hill as liquidator. That amount is the amount sought by the plaintiff in these proceedings of $327,332.50.
I have found that the elements of the plaintiff's claim have been established. In considering each of the elements in s 588G, I have applied the Briginshaw standard. I am comfortably satisfied on the balance of probabilities that the elements have been established. I also consider that no defence under s 588H has been established by Mr Silk.

Determination

For the above reasons, I make the following orders: 1. Judgment for the plaintiff; 2. The defendant is to pay the plaintiff's costs of the proceedings as agreed or assessed; 3. The parties are to bring in agreed Short Minutes of Order giving effect to these reasons including the amount found and any interest claimed on it, within seven days; 4. Liberty to the parties to apply in relation to the costs order made in (2) above; 5. Exhibits to be returned after 28 days.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 01 June 2018

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