Plaintiff v Defendant

59 Futistasera relies upon Clarke & Walker Pty Ltd v Thew[77] and St George Bank v Active Property Investment Pty Ltd[78] for the proposition that 'proceedings' does not extend to service of a written demand for payment.[79]

60 Futistasera submits that the orders of Justice Davies permitted the institution of the debt recovery proceeding, but not the institution of the winding up proceeding. In this regard, Futistasera submits that there is a profound difference between a proceeding for the recovery of debt or damages and a proceeding seeking to wind up a company; as the former is a process for enforcing debts and the latter is not. Further, Futistasera submits that this distinction is recognised by the Court as it does not allow a civil proceeding for the recovery of debt to be brought in the same proceeding as a winding up order.

61 Alternatively, Futistasera submits that if the winding up proceeding was permitted by the orders of Justice Davies, the statutory demand could not be relied upon as an evidentiary integer in the winding up proceeding.[80]

62 Futistasera submits that as Fanniesab did not have standing to serve the statutory demand or to issue the winding up proceeding, either the winding up proceeding is a nullity (as it was issued without the proper authority of Fanniesab), or the statutory demand was ineffective to give rise to the presumption of insolvency.

63 Fanniesab accepts that the issuing of a statutory demand is not a 'proceeding'.[81] However, Fanniesab submits that the allegation that the statutory demand is a nullity is a matter that ought to have been, and can only be, raised at first instance.[82]

64 In Crema Pty Ltd v Land Mark Property Developments Pty Ltd,[83] Justice Dodds-Streeton considered whether a company could fail to apply to set aside a statutory demand under s 459G, and then on appeal circumvent the restrictions imposed by s 459S simply by contending that the statutory demand is a nullity on the basis that the specified debt is not due and payable.[84] Fanniesab relies on the following reasoning from her Honour:

Such an outcome would be contrary to the pre-eminent objective of Pt 5.4 of "quick resolution of the issue of solvency and the determination of whether the company should be wound up without the interposition of disputes about debts, unless they are raised promptly". It would subvert the intended operation of Pt 5.4 expressed in the explanatory memorandum as follows:

Paragraph 669:

This proposed Division, together with proposed Division 4 [22459P - 459T], also provides a means of dealing with statutory demand disputes in such a way that an alleged defect in the statutory demand does not have the effect of prolonging proceedings leading to the commencement of a winding up, by requiring debtor companies to raise genuine disputes (about, for example, whether a debt is owed) at an early stage, rather than after winding up proceedings have commenced.

In my opinion, whatever the status of a statutory demand upon proof of an allegation that the specified debt is not due and owing, such an allegation constitutes a ground which may be relied upon in an application to set aside the statutory demand and, if no such application is made, s 459S will apply. Before any argument based on the status of the statutory demand could be made, leave would have to be granted on proper material, and the allegation proved.

The fallacy in the appellants' submission on nullity in the present case is that it assumes that they have succeeded in the arguments which they require leave to raise.

The appellants do not seek leave pursuant to s 459S and as (for reasons set out below) the relevant complaints do not appear material to proving solvency, leave could not be granted.

It follows that, in the absence of leave, the appellants were not entitled to oppose the application for winding up on the basis of their complaints in relation to the statutory demand.[85]

65 Fanniesab submits that the general rule is that a party cannot on an appeal raise a question of fact which was not litigated below,[86] and further submits, as a rule, a party who has conceded or abandoned an argument or ground of objection at trial will not be allowed to make the validity of what was conceded or abandoned the basis for overturning the result of the trial.[87]

66 Fanniesab submits that the conduct of Futistasera militates against these new points being raised for the first time on appeal. Fanniesab contends that it was a tactical decision by Futistasera not to raise any issue other than solvency before the Associate Judge, and to rely upon the preliminary report of Ms Anderson to seek an adjournment despite previous adjournments and warnings, and to proffer no excuse for the delay. Fanniesab submits that the orders of Justice Davies refer to proceedings in the plural, and should not be read down to a specific single proceeding or a proceeding which then ceases at the time judgment is obtained.[88]

67 Fanniesab observes that Futistasera is not able to point to any authority for the proposition that a director/shareholder cannot issue a statutory demand on behalf of a company.[89] Further, Fanniesab submits that Futistasera's failure to oppose the statutory demand on this basis at an earlier stage shows that it was implicit that there was implied authority to so act.[90]

68 Futistasera also seeks to distinguish Crema on the grounds that it was concerned with flaws within the statutory demand itself, as opposed to the statutory demand being issued in the name of Fanniesab where there was no authority to issue such a demand.[91]

69 Futistasera submits that there is no evidence that Ms Maddalena is the Managing Director of Fanniesab and, as such, is entitled to issue the statutory demand or issue the winding up proceeding.[92]

70 Futistasera further submits that, having conceded the issuing of a statutory demand is not a proceeding, it is difficult to see how it can be said that the statutory demand served here was validly served.[93]

71 In my view Futistasera is not now able to impugn the orders of 21 May 2015 because of its inaction in the period provided by s 459G of the Corporations Act, including its failure to:

(a) apply in a timely manner to set aside Fanniesab's statutory demand on the basis of what it now contends for, namely a lack of standing on the part of the plaintiff to issue that demand;[94] and

(b) appropriately raise and pursue those same matters concerning standing at the time the matter was before the Associate Judge on, and after, 4 May 2015.

72 In my view, Futistasera must obtain leave to raise the standing related points it now seeks to pursue for the first time. I also consider that such leave should be refused because that application, which was not made by Futistasera until it argued this appeal on 9 October 2015, was made too late, and well after the hearing the subject of this appeal by the Associate Judge. I consider that leave should be refused on the basis of this dilatory conduct and further because the standing arguments are not themselves material to proving that Futistasera is solvent.

73 Futistasera has not sought to justify leave pursuant to s 459S of the Corporations Act, or explain why there was no timely application to set aside the statutory demand. Neither has Futistasera satisfied me that the technical and procedural issues it raises about the underlying debt and the statutory winding up process are material to proving its solvency.

74 Given Futistasera has not been granted leave, it cannot resist the winding up on the basis of the standing related arguments it now seeks to raise because those issues seek to impugn the statutory demand[95] and should have been raised at that stage of the winding up proceedings.[96] .

75 Further, leave, even were it to be granted, would in any event not itself result in setting aside the statutory demand, or to the displacement of the existing presumption of insolvency under section 459C of the Corporations Act because, as Fanniesab submits in relation to Futistasera's argument based on setting aside the defendant's judgment in the other proceeding, doing so results in no more than the emergence of a 'disputed' debt.

76 Finally, I observe that s 459S of the Corporations Act is designed to minimise delay in the winding up process and were Futistasera at this very late stage able to call that section in aid, the opposite effect would be achieved. This in my view, together with the scheme of Part 5.4 of the Corporations Act, which is intended to achieve expedition, is a further reason to refuse leave.[97]

77 Futistasera submits that as a matter of law, or as a matter of discretion, the Associate Justice should not have made the winding up order in circumstances where the only unpaid debt of Futistasera, of which there was either evidence or an assertion, was the judgment debt upon which the statutory demand was founded and which was now disputed.

78 Further, Futistasera submits that by virtue of the default judgment which underpinned the statutory demand having been set aside, Fanniesab was now in the position of being an alleged creditor whose debt was genuinely disputed, and that the maintenance by it of the winding up proceeding after that point constituted an abuse of process.

79 It is to be noted that Futistasera does not submit that by issuing its statutory demand, Fanniesab committed an abuse of process (putting to one side the question of authority to issue the statutory demand), rather Futistasera submits that the maintenance of the winding up application in circumstances where the debt underlying the statutory demand was now disputed was an abuse of process.[98]

80 Futistasera relies upon Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq), where White J stated:[99]

The preponderance of authority is that a company may not be wound up on the application of a person claiming to be a creditor whose debt is disputed unless that dispute is resolved. Otherwise the applicant will not establish its standing to apply for the company's winding up. Because the winding up jurisdiction should not be used to resolve disputed questions of debt, it may be an abuse of process for an alleged creditor, whose debt is disputed, to apply to wind up the company.

81 Futistasera submits that it could not earlier rely upon s 459G of the Corporations Act as it was not open to Futistasera to challenge the debt on the basis of genuine dispute until the debt was set aside, and this situation did not arise until after the time for compliance with the demand had expired.

82 Further, Futistasera submits that because it could not rely upon s 459G of the Corporations Act to have the statutory demand set aside, it is not bound by s 459S and therefore leave is not required to raise the issue of disputed debt.[100] However, if leave is required under s 459S, Futistasera seeks that leave.[101]

83 Futistasera submits that his Honour did not refer to these issues concerning s 459S when giving his reasons, although it was raised in the amended Notice of Appearance filed in the proceeding and by Futistasera briefly during the hearing of the proceeding.

84 Fanniesab however submits that unless leave is given under s 459S of the Corporations Act, a company cannot resist a winding up order on the basis that the applicant does not have standing as a creditor because of an issue relating to the demand, such as a disputed debt.

85 Further, Fanniesab contends that the issue concerning s 459S was raised by the Associate Justice at the hearing on 4 May 2015, but nothing was done by Futistasera in that regard between 4 May 2015 and 21 May 2015 including issuing and bringing any such application for leave or otherwise.

86 Fanniesab submits that the course which should have been taken by Futistasera was to bring an application under s 459G within the 21 day time limit.[102] At the same time, Futistasera could have moved to set aside the default judgment and it could have sought to defer the hearing of the s 459G application until after the resolution of the application to set aside default judgment.[103]

87 Fanniesab submits that its issue of its statutory demand was a legitimate process in the circumstances.[104] Fanniesab relies upon Meehan v Glazier Holdings Pty Ltd[105] for the proposition that while a winding up application should not be used for the improper purpose of compelling a solvent company to pay a disputed debt, it does not preclude the use of statutory demands to enforce a debt in circumstances where there were ongoing disputes between the parties.

88 In my view the grounds argued by Futistasera in Ground C of its Amended Notice of Appeal should also not be available to it to impugn the judgment and orders of the Associate Judge made on 21 May 2015 for the same reasons I have outlined above for rejecting Ground B of the appeal.

89 I also reject Futistasera's argument that the Associate Judge failed to refer to or provide reasons in relation to s 459S of the Corporations Act on either 4 May 2015 or 21 May 2015, in circumstances where Futistasera submits that its Notice of Appearance raised this issue.

90 I note that Futistasera's Amended Notice of Appearance dated 25 February 2015, opposes winding up on the grounds that 'there is a genuine dispute about the existence of the amount of debt under the Statutory Demand' and 'the defendant is solvent'.

91 In my view, Futistasera did not formally or effectively, by the documents it filed with the Court, including its Notice of Appearance in this proceeding, or its submissions, raise an application under s 459S of the Corporations Act before the Associate Judge.

92 Futistasera relies upon the following passages from Deputy Commissioner of Taxation v De Simone Consulting Pty Ltd,[106] where Finkelstein J considered what evidence was required to prove solvency on the balance of probabilities:

The question whether a company is solvent involves both a question of law and a question of fact. The legal question, or what may be partly a legal question, is what is meant by the word "insolvent" in s 459A for the purpose of determining what is meant by the opposite. The judge will provide that meaning. He or she may say that the word has a technical meaning and state what that meaning is. Or he or she may say that the word is used in its ordinary sense and go to a dictionary to discover that meaning.

A company that wishes to establish the fact of solvency in accordance with the meaning laid down by the judge must tender evidence for that purpose. Then the following steps will occur. First, the judge will decide whether the evidence is relevant. The judge will then determine whether the evidence is admissible, for not all relevant evidence finds its way into court. Next, the judge will assess the probative value of the evidence. That assessment is inductive. Finally the judge will decide whether the claimed solvency is probable or more probable than not.

It is contrary to basic rules of evidence to assert there is only one method of proving solvency, namely the production of audited accounts. I can explain why by way of a simple, but not wholly fanciful, example. Assume that a company secretary gives the following uncontradicted evidence. "My company is listed on the ASX. At present it has a market capitalisation of around $2.5 billion. I am familiar with the company's records and am able to say that that the company's assets (excluding intangible assets, for their valuation is unreliable) exceeds its liabilities by about $1.5 billion. Among those assets are cash and securities that can be converted to cash in seven days that are amounts in aggregate $500 million. I apologise for not producing the last audited accounts. I left them back in the office." a judge would fall into legal error if on this evidence he did not find the company to be solvent.

The explanation to be given to the cases to which Weinberg J referred is this. There are many shaky companies in the marketplace. Applications are made to wind up some of them. Applications are also made to wind up solvent companies. In each case a representative can come along attempting to prove solvency to avoid a winding up. Judges will look with care at the evidence especially if the judge suspects the company is or may be in a weak financial position. Dependent upon the degree of doubt justified by the facts, a judge may say that the only evidence he will treat as probative is "the fullest and best" evidence available - the kind that in Commonwealth Bank of Australia v Begonia (1983) 11 ACSR 609 Hayne J said was often necessary although interesting enough, not in that case. In some instances this may be the company's audited accounts together with verified proof of both the ownership and value of the company's assets. On the other hand there will be many instances where proof of that sort is not required. In such cases there is no good reason to put the company to the time, trouble and expense of producing audited accounts. In the end it will all depend upon each particular fact of a case.

93 Futistasera also seeks to rely upon Re Cube Footwear Pty Ltd[107] as establishing that the test for solvency in a winding up application requires a consideration of cash flow insolvency, not balance sheet insolvency.[108]

94 Further, Futistasera relies upon Crema, in which Justice Dodds-Streeton stated that s 95A of the Corporations Act enshrines the cash flow test of insolvency, in contrast to the balance sheet test.[109]

95 Futistasera also submits that the relevant date at which it is required to establish solvency is 9 October 2015, the date of the hearing of this appeal.[110]

96 Futistasera submits that the Anderson Report establishes that Futistasera was profitable in the financial years ended June 2013 and June 2014, and was also profitable for the financial year up to April 2015. Accordingly, Futistasera submits, it is reasonable to infer that the company has continued to trade profitably during the subsequent period, and using the cash flow test of solvency, the Court can be satisfied that the company is solvent.[111]

97 Futistasera also submits that despite the purported errors identified in the Profit and Loss Statement by the CFAS Advisory Report[112] at Item 10, this does not alter the fact that the company has traded profitably since at least 1 July 2012.[113] Futistasera also points out that even if rent was payable in the sum claimed by Fanniesab, Futistasera could reverse out the management fees which it paid and still be operating profitably over the period July 2012 to April 2015.[114]

98 Futistasera submits that on a simple asset/liability ratio Futistasera has a 1:1 ratio, which is typical of a profitable trading unit trust which distributes out all profits each year.[115] Futistasera disputes the manner in which the liquidity ratio table and quick asset ratio table in the CFAS Advisory Report were calculated.[116]

99 Fanniesab submits that the relevant date at which solvency is to be assessed is 21 May 2015, the day the Associate Judge made orders winding up Futistasera.[117]

100 Fanniesab submits that Futistasera has outstanding tax payments to the Australian Taxation Office (ATO) and those tax payments have been outstanding for a considerable period of time.[118] Further, the repayments that have been made were in small, round amounts of $100, $200, $300, which is an indicia of insolvency.[119]

101 Fanniesab submits that the accounts prepared were unaudited and while this is not fatal to Futistasera establishing solvency, generally speaking audited accounts are prepared and further it was indicated to the Associate Judge at the hearing on 4 May 2015 that if a further adjournment was granted audited accounts would be provided.[120]

102 Fanniesab relies on the principles distilled by Justice Weinberg in Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd[121] as to what is required to rebut the presumption of insolvency:

In order to discharge that onus the Court should ordinarily be presented with the "fullest and best" evidence of the financial position of the respondent: Commonwealth Bank of Australia v Begonia (1993) 11 ACLC 1075 at 1081 per Hayne J.

Unaudited accounts and unverified claims of ownership or valuation are not ordinarily probative of solvency. Nor are bald assertions of solvency arising from a general review of the accounts, even if made by qualified accountants who have detailed knowledge of how those accounts were prepared: Simionato Holdings Pty Ltd (supra); Re Citic Commodity Trading Pty Ltd v JBL Enterprises (WA) Pty Ltd [1998] FCA 232 per Heerey J; Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459 at 463 per Sackville J.

There is a distinction between solvency and a surplus of assets. A company may be at the same time insolvent and wealthy. The nature of a company's assets, and its ability to convert those assets into cash within a relatively short time, at least to the extent of meeting all its debts as and when they fall due, must be considered in determining solvency: Rees v Bank of New South Wales [1964] HCA 47; (1964) 111 CLR 210; Re Tweeds Garages Ltd [1962] Ch 406 at 410 per Plowman J; Simionato Holdings Pty Ltd (supra); Melbase Corporation Pty Ltd v Segenhoe Ltd [1995] FCA 1225; (1995) 13 ACLC 823 at 832 per Lindgren J; Leslie v Howship Holdings Pty Ltd (supra) at 465-466.

The adoption of a cash flow test for solvency does not mean that the extent of the company's assets is irrelevant to the inquiry. The credit resources available to the company must also be taken into account: Sandell v Porter [1966] HCA 28; (1966) 115 CLR 666 at 671 per Barwick CJ (with whom McTiernan and Windeyer JJ agreed); Leslie v Howship Holdings Pty Ltd (supra) at 466; Taylor v ANZ Banking Group Ltd (1988) 6 ACLC 808 at 812 per McGarvie J.

The question of solvency must be assessed at the date of the hearing. However, this does not mean that future events are to be ignored: Leslie v Howship Holdings Pty Ltd (supra) at 466-467.

It is no abuse of process for an applicant to seek to wind up a company presumed to be insolvent by reason of its failure to comply with a statutory demand merely because that company contends that it is solvent, or because there may be alternative means available to the applicant to vindicate its rights: Elite Motor Campers Australia v Leisureport Pty Ltd (supra).

103 Fanniesab disputes the liquidity ratio contained in the Anderson Report of 1:1, as it relies on goodwill being valued at $165,000, for the following reasons:

(a) the size of the goodwill figure relative to the total assets of $212,098 as of April 2015;

(b) the goodwill value of $165,000 is purported to be a 'conservative value' because a proposed contract of sale in August 2011 valued goodwill at $324,000, in circumstances where:

(i) the proposed contract was nearly three and a half years old by the time of the hearing before the Associate Judge;

(ii) the contract is only signed by the vendors and not the purchasers and Fanniesab has no knowledge of the surrounding circumstances;

(iii) the offer appears to have been made by the vendor, as opposed to a purchaser;

(iv) the proposed contract was conditional upon security of tenure in the premises which Futistasera no longer has as a result of the dispute between Fanniesab and Futistasera; and

(v) the prostitution service provider's licence is specific to the address of the brothel at 32 Dunlop Road, Hoppers Crossing.

104 I note however that Futistasera objects to Fanniesab's claim that it has no security of tenure because Fanniesab is a company that is effectively deadlocked with two opposing directors and cannot terminate the business relationship between itself and Futistasera without the concordance of Ms Inturrisi.[122]

105 Fanniesab submits that its expert report from CFAS Advisory of 2 October 2015 ('CFAS Report') shows that once adjustments have been made removing goodwill as an asset, in April 2015 the liquidity ratio is 0.43 and the quick asset ratio is 0.19.

106 The affidavit of Ms Anderson, sworn 21 August 2015, states that she:

(a) was formally retained by Futistasera on 14 May 2015;

(b) had conducted a preliminary review of the financial statements of Futistasera for the year ending 30 June 2014 by 20 May 2015, and by that date had been unable to identify any indicators of insolvency of Futistasera, including in relation to any deficiency of assets or material trading losses;

(c) required additional materials to finalise her evaluations as at 20 May 2015;

(d) intended to have her final insolvency report prepared prior to 21 May 2015, however was unable to do so because certain documents she required were not provided to her within the time she required, largely because Futistasera's accountant had been overseas over a period leading up to 21 May 2015. Ms Anderson also noted that on 27 May 2015 she had personally specified to Futistasera's accountant those accounting materials she required to complete her solvency report.

(a) Ms Anderson's opinion that Futistasera was solvent as at 30 April 2015, and in the period between 30 June 2013 and 30 June 2014;[124]

(b) that an examination of Futistasera's invoices and banking records disclose that it was paying its debts as and when they fell due;

(c) the financial statements relied on by Ms Anderson disclose that Futistasera is operating a profit making business;

(d) that she has considered Futistasera's financial position, including by reference to a cash flow test and also a balance sheet test, and concluded that Futistasera has sufficient total assets with which to discharge its total liabilities;

(e) Futistasera's Profit and Loss Statements, for the financial years ending 30 June 2013 and 2014 and to 30 April 2015, disclose that Futistasera's business operations were profitable during those periods;[125] and

(f) that a liquidity ratio analysis demonstrates that Futistasera's total assets are sufficient to discharge its total liabilities and on this basis Futistasera is technically solvent.[126]

108 Fanniesab submits that the Anderson Report is based on a long series of facts and documents, none of which has been proven and in respect of which leave has not been sought. Further, there is an absence of evidence of matters relied on in the Anderson Report.[127]

109 Fanniesab also makes extensive submissions as to the extent to which the Anderson Report 'involves' hearsay evidence.

110 Fanniesab also submits that even accepting that the reference to certain facts in that report are in the nature of references to facts which have been assumed, and could be admissible under s 60 of the Evidence Act 2008 (Vic) ('Evidence Act'), the use to which the hearsay evidence may be put should be limited pursuant to s 136 of the Evidence Act. That is, limited to establishing the factual basis upon which the expert holds her opinion, and not to proving the facts which are assumed.[128]

111 Fanniesab submits that hearsay evidence in the Anderson Report should not be relied on by Futistasera, or the Court, to foreclose the dispute between the parties in relation to a number of items which Fanniesab asserts would materially alter Ms Anderson's key conclusions, including the disputed items: liability for rent; current liability to the ATO; contractual liability for management fees; and the true value of goodwill.

112 Fanniesab also submits that no weight should be given to the Anderson Report because the hearsay material it relies upon is unreliable, including in respect of tax records[129] which are out of date given that no Business Activity Statements for 2015 have been considered. Therefore, the Anderson Report's opinions as to Futistasera's company position; value of goodwill; rental liability; and liability for management fees are not the subject of reliable opinion by Ms Anderson. Fanniesab also notes that those opinions have been contradicted by Mr Smith in the CFAS Report referred to above.

113 I consider however, that Fanniesab's application to have me reject parts of and/or limit the use to be made of the evidence referred to above should be rejected for reasons I shall come to shortly. I do not consider that Ms Anderson's expert evidence is unfairly prejudicial or misleading or confusing and consider that it should be admitted, together with all Annexures for the reasons I mention below.

(a) the evaluation in the Anderson Report, if accepted, is, in the present context, relevant to the likely solvency of Futistasera on a prima facie basis;

(b) the company records and financial statements upon which Ms Anderson relies to form her opinions as to Futistasera's solvency are prima facie evidence of what they record pursuant to s 1305 of the Corporations Act, although they are subject to rebuttal and challenge; and

(c) there is no evidence to establish the existence of any specific dispute as to Futistasera's currently liability to the ATO.

115 The Anderson Report asserts that on a cash flow basis[130] and on a balance sheet basis, Futistasera was solvent between 30 June 2013 and 30 June 2014, and arguably solvent on Ms Anderson's extrapolation and assertion as at 30 April 2015.

116 For reasons I have explained below I am however not satisfied that Futistasera was solvent, at the date of the hearing of 21 May 2015 before the Associate Judge, or at the hearing of the appeal on 9 October 2015 or at any other time during the period opined on by Ms Anderson.

117 I do not consider that it is reasonable to infer from Ms Anderson's analysis that Futistasera traded profitably in the financial years 2013 and 2014 and then also to 30 April 2015, nor that on a projected and hypothetical basis Futistasera is likely to have continued to trade profitably for the remainder of the 2015 financial year.

118 The relevant creditor's statutory demand on Futistasera for payment of $651,489.33 was served on 10 November 2014; the time within which Futistasera was required to apply to set aside the creditor's statutory demand was by 1 December 2014.

119 On 21 May 2015 Associate Justice Efthim ordered Futistasera be wound up.

120 I do not accept Fanniesab's assertion that the Futistasera accounts should be adjusted to allow for a rental liability to Fanniesab, notwithstanding that liability is disputed by Futistasera. I consider that given the controversy about the existence of the asserted lease and the removal of the default judgment, the sum of rental said by Fanniesab to be owed by Futistasera to it should be regarded as a neutral item for the purposes of evaluating the Anderson Report. However, these same issues are, as I explain below, relevant to the Futistasera assertion that it owns considerable goodwill.

121 Fanniesab points out that the leave obtained by Futistasera to rely upon the Anderson Report does not extend to any other evidence not before the Associate Judge on 21 May 2015, nor to the evidence, such as annexures and returns upon which the Anderson Report is based.

122 More specifically, Fanniesab submits that the leave to admit the Anderson Report does not extend to receiving affidavits sworn subsequent to 21 May 2015, which it submits should not be permitted to supplant the absence of evidence of matters relied upon in that expert report.

123 Fanniesab also disputes the substance and accuracy of the Anderson Report in the following specific ways:[131]

(a) the goodwill figure of $165,000 is not maintainable in circumstances where there is no presently existing lease and accordingly there is a significant asset deficiency evidencing insolvency;

(b) the contract of sale referred to above cannot be relied upon as it did not proceed, was only signed by the vendors, and was conditional upon the landlord granting a variation of the existing lease with a term of five years and options of four terms of five years each;

(c) the accounts relied upon in the Anderson Report were not audited;

(d) no cash flow statements from Futistasera as proprietor were provided;

(e) no unit trust deed has been tendered, despite the assertion that Futistasera is a trustee of a unit trust, and the terms and obligations of the 'beneficiary loan' are unknown;

(f) profit remains subject to the payment of management fees, however the terms and obligations relating to the payment of management fees are not known;

(g) the material relied upon in respect of the debt to the ATO evidences an inability to meet debts as and when they fall due;

(h) it is unclear whether the Anderson Report is concerned with solvency as at the date of the report (August 2015), 30 April 2015, or 21 May 2015, including because the Anderson Report relies upon the accounts up to 30 April 2015 and a tax portal as at July 2015; and

(i) the Anderson Report is replete with hearsay, argument and submission, and is confusing and contains inconsistencies.

Fanniesab's further written submissions of 13 October 2015 as to the admissibility and weight to be given to the Anderson Report

124 Fanniesab submits that the Anderson Report contains a great deal of hearsay evidence.[132]

125 Fanniesab submits that the limitation under s 136 of the Evidence Act ought to be invoked so as to limit the use to which the hearsay evidence may be put, by reason of the following:

(a) there is a genuine dispute concerning the liability for rent; the current liability to the ATO; the contractual liability for management fees; and the true value of goodwill;

(b) the assertions of fact are in the nature of assumptions; and

126 Further, Fanniesab submits that little or no weight should be attached to the hearsay evidence it identifies in respect of the Anderson report and therefore to the opinions expressed as to:

(a) the company's tax position as at 21 May 2015, 6 August 2015 or 9 October 2015;

particularly having regard to the observations in the CFAS Report. Fanniesab also submits that the Anderson Report relies upon hearsay material which is controversial and is unreliable. Further, Fanniesab submits that the tax records relied upon by Futistasera[133] are hopelessly out of date in that no Business Activity Statements for 2015 have been considered.

Futistasera's further written submissions of 22 October 2015 concerning the admissibility and weight to be given to the Anderson Report

127 Futistasera notes that Fanniesab's submission accepts that the entire Anderson Report has gone into evidence, and absent an order under section 136 of the Evidence Act, may be relied upon by the Court on this appeal.

128 Futistasera submits that Fanniesab's application for an order under section 136 should be refused for the following reasons:

(a) the time for making such an application was when the evidence was admitted (on 16 September 2015), or at the hearing of the appeal on 9 October 2015;

(b) as the appeal is being heard by judge alone, and the Court is in a position to give the documents such weight as he considers appropriate, there is no reason for the Court to conclude that the use of the allegedly hearsay evidence as truth of its contents would be unfairly prejudicial to any party;

(c) the policy of sections 60 and 77 of the Evidence Act is that hearsay evidence which is admitted for a non-hearsay purpose is admitted for all purposes, and that policy should not be undercut by the making of orders under section 136 of the Evidence Act as a matter of course;[134]

(d) despite the assertion by Fanniesab that there are disputes regarding the liability of Futistasera to the ATO, there was no evidence adduced by it on this issue;

(e) despite the assertion by Fanniesab that 'the hearsay material is unreliable', there is no evidentiary basis for that allegation. The company's financial statements are prima facie evidence of their contents (see section 1305 of the Corporations Act).

Interlocutory background to the Anderson report

129 By Ruling made on 16 September 2015 I granted leave for Futistasera to file and serve the Anderson Report.

130 I consider that, subject to the specific findings I make herein as to the probity and or weight to be ascribed to parts of the Anderson Report, the whole of that Report, together with all its annexures, should be received into evidence.

131 This is because to the extent that this expert report references information and materials produced by others, such material is acceptable, and indeed common place, in expert reports. Ultimately however, referenced or incorporated materials of this type must be the subject of acceptable independent proof before the facts or matters asserted in such materials can form the sub-strata of the expert report which is to some degree built upon such materials. Reference by an expert to facts which the expert does not prove is permissible to explain the factual basis upon which the expert holds his or her opinion, but does not prove the facts assumed. Fanniesab contends that in the circumstances I should invoke s 136 of the Evidence Act to limit the use to which identifiable "hearsay" in the Anderson Report can be put, particularly in relation to the factually contentious items referred to by Ms Anderson in her report. Those contentious items deal with Futistasera's liability for rent, its current liability to the Australian Taxation Office, its contractual liability for management fees and the value of goodwill.

132 Futistasera argues that because the Anderson Report, and its Annexures, have "gone into evidence", absent an order under s 136 of the Evidence Act, that Report be relied upon in the appeal. Futistasera also submits that Fanniesab's application to limit the use of the Anderson Report comes too late. Futistasera acknowledges however that in this appeal the court can ascribe the weight it considers appropriate to Ms Anderson's evidence.

133 Futistasera also submits that hearsay evidence which is admitted for "non-hearsay" purposes is nevertheless admitted for all purposes and that at all events Fanniesab has not sought to call evidence on the disputed items referred to above by Fanniesab. Futistasera also submits that the financial statements referred to by Ms Anderson are prima facie evidence pursuant to s 1305 of the Corporations Act.

134 In my view, I should give little weight to the views which are put forward in Ms Anderson's report on a number of the key items which are heavily in dispute, and the validity of which (from an accounting point of view) will depend on the ultimate outcome of the factual and legal dispute between the parties in relation to those items. These contentious items, include Futistasera's true tax position as at November 2014, 21 May 2015, 6 August 2015 and 9 October 2015, (indeed over the period referred to by Ms Anderson), the value of the asserted goodwill of Futistasera, Futistasera's position as tenant in the premises from which it operates and Futistasera's liability to pay management fees, which Futistasera claims largely absorbs its profits from year to year.

135 I am not persuaded that the Anderson Report appropriately deals with these key items, including because Ms Anderson assumes a favourable outcome for her client on each of the underlying disputes, concerning goodwill, rental security and management fees. Ms Anderson also appears to take into account Futistasera's assumed tax position, even though the most current Business Activity Statement for Futistasera is for the period ending December 2014[135] and it would appear that no Business Activity Statements are available for Futistasera during 2015.

136 Further, Ms Anderson has accepted $165,000 as the value of goodwill of Futistasera at April 2015[136] even though Futistasera does not have a lease of the premises from which it operates.[137]

137 Furthermore, although unsubstantiated by the documentation and terms of such an arrangement, Ms Anderson accepts that Futistasera's profits have been 'distributed to the Godfathers Settlement as managements fees' in the years 2013 and 2014.[138]

138 I consider the above matters to be sufficient to support my conclusion that the Anderson Report can be given very little weight and does not establish the solvency of Futistasera over any of the periods addressed by Ms Anderson, including 21 May 2015 and 9 October 2015.

Recent correspondence received from the plaintiff

139 I note that on 10 June 2016, the Court received from the solicitor for Fanniesab an email attaching an affidavit of Anna Maddalena sworn 9 June 2016. In that email Fanniesab sought, pursuant to liberty to apply in order 7 of the Orders of Justice Robson dated 28 May 2015, to have the Court urgently reconsider Justice Robson's decision to continue a stay of the liquidation of Futistasera.

140 On 14 June 2016, my Associate responded to the 10 June 2016 email informing the parties that I anticipated handing down judgment in this matter within a week and in the circumstances I was not disposed to deal with the issues raised in Fanniesab's email and attached affidavit before handing down judgment on the Appeal. The 14 June 2016 email also informed the parties that if they objected to this course being taken they were at liberty to bring an application in that regard.

141 For the reasons I have outlined above, I am not satisfied that Futistasera has rebutted the presumption of insolvency created by operation of section 459C(2)(a) of the Corporations Act in late 2014.

142 Further, for the reasons set out above, I dismiss Futistasera's Appeal from the orders of the Associate Judge made 21 May 2015.

143 Accordingly, the stay of the Associate Judge's order of 21 May 2016, ordered by Justice Robson on 10 June 2016, is from 24 June 2016 (the date of this determination) at an end.

144 I shall hear the parties as to any other necessary orders and as to costs.

[1] Under Reg 16.5 of the Supreme Court (Corporations) Rules 2013 an appeal from the order or judgment of an Associate Judge in any application under s 459G of the Corporations Act lies to the Court of Appeal. No such application under s 459G of the Corporations Act was made in this proceeding.

[27] Leave to amend its Notice of Appeal and rely on an Amended Notice of Appeal dated 24 August 2015 was granted on 16 September 2015 [T50].

[28] Amended Notice of Appeal [AB032].

[29] [2015] VSCA 57, [44].

[32] (1998) 197 CLR 172, 197-198 [96]-[97].

[33] [1965] HCA 45; (1965) 113 CLR 529 ('McDonald').

[34] [1955] HCA 16; (1955) 93 CLR 435 ('Wollongong Corporation').

[35] [1954] HCA 70; (1954) 93 CLR 418.

[36] CDJ v VAJ (1998) 197 CLR 172, 199 [102].

[40] (2007) 62 ACSR 576, [59] ('Foody').

[41] See paragraphs [21]-[23] above.

[46] Futistasera's Outline of Submissions on the Appeal dated 3 September 2015, [13].

[51] [2009] HCA 27; (2009) 239 CLR 175.

[53] ASIC v Lanepoint Enterprises Pty Ltd [2011] HCA 18; (2011) 244 CLR 1, 13-14 [27].

[54] (2013) 42 VR 635.

[57] Eaton v ISS Catering Services Pty Ltd (2013) 42 VR 635,644 [38].

[62] As of 21 May 2015 Anderson appears to have only considered 2014 financial year accounts (see preliminary report at AB171-174).

[71] T30.9-14; 24-31; T31.2-6; T32.8-9.

[76] Section 459G of the Corporations Act.

[77] [1967] HCA 28; (1967) 116 CLR 465.

[78] [2010] NSWSC 736; (2010) 77 NSWLR 148.

[79] The Federal Court Orders of 20 May 2014 are broad enough to authorise the intuition of more than one proceeding or Court process and for such proceedings or Court process, amongst other things, to be in respect of the plaintiff's claims, including winding up proceedings in respect of the plaintiff's claim to recover the relevant debts and any statutory demand in relation thereto.

[83] [2006] VSC 338; (2006) 58 ACSR 631 ('Crema').

[85] Ibid 648 [114]-[118] (citations omitted).

[86] Metwally v University of Wollongong (No 2) [1985] HCA 28; (1985) 60 ALR 68, 71.

[87] Paule v Far Horizons Pty Ltd (1998) Aust Torts Reports 81-486.

[94] Amended Notice of Appeal B(1)-(3), AB030-31.

[95] Radiancy (Sales) Pty Ltd v Bimat Pty Ltd (2007) 25 ACLC 1216.

[96] Futistasera also failed to formally raise and prosecute before the Associate Judge its arguments based on the setting aside of the default judgement in SCI 2014 05450. Nor did Futistasera seek to defer the hearing of the s 459G application until after its application to set aside the default judgment against it.

[97] Crema [2006] VSC 338; (2006) 58 ACSR 631.

[99] [2004] NSWSC 527; (2004) 185 FLR 130, 147 [72].

[105] [2005] NSWCA 24; (2005) 53 ACSR 229, 238 [46]-[47].

[106] [2007] FCA 548, [11]-[14].

[107] [2012] QSC 398; [2013] 2 Qd R 501.

[119] ASIC v Plymin [2003] VSC 123; (2003) 175 FLR 124, 213-214 [386]; T106.16-23.

[121] [1999] FCA 728, [44].

[127] Fanniesab applied, by Submissions including those dated 13 October 2015, to exclude and/or limit the weight of the Anderson Report by excluding and/or limiting the weight to be given to certain statements in the Annexure of the Report. Futistasera, by Submissions dated 22 October 2015, opposed Fanniesab's evidentiary submission concerning the Anderson Report. I have admitted all of the Anderson Report including Annexures for the reasons stated elsewhere in these Reasons.

[128] Fanniesab's Written Submissions dated 13 October 2016, [2].

[130] Re Cube Footwear Pty Ltd [2012] QSC 398; [2013] 2 Qd R 501.

[131] Fanniesab's Amended Outline of Submission 7 October 2015, [34].

[132] The hearsay is said by Fanniesab to be the factual assertions in paragraph [6.3] (AB420); the factual assertions in paragraph [6.6] (AB420); the factual assertions in paragraph [7.4.10]-[7.4.12]; the factual assertions in paragraph [7.4]-[7.4.4]; the factual assertion that rent is not presently due and payable (paragraph [9.5] (AB429); the assertion of fact constituted by Annexure 7 (AB448-AB449); the assertion of fact constituted by Annexure 8 (AB450-AB512); the assertion of fact constituted by Annexure 10 (AB518-AB519) and Annexures 3 and 5 (AB440-AB442; AB446), which are unaudited accounts.

[134] Seven Network Ltd v News Ltd (No 8) [2005] FCA 1348; (2005) 224 ALR 317, 322 [21] (Sackville J).