Position as at 30 June 2009
170 For the year ended 30 June 2009, Petrolink reported a net trading loss of $610,472.
171 Based on Petrolink's balance sheet as at 30 June 2009, as the liquidator determined, the company's assets totalled $983,266.91 and liabilities totalled $1,563,374 producing a net asset deficiency of $580,107. Petrolink's balance sheet recorded current assets of $758,989 current liabilities of $1,143,404.95 including trade creditors of $360,771.90, producing a net deficiency of current assets to current liabilities as at 30 June 2009 of $384,416.
172 Mr Boné exhibited to his December 2013 affidavit a spreadsheet which he described as "Petrolink's balance sheet from the MYOB system". That document shows a liability of $356,254.15 for "ATO integrated client account" for the month of July 2009. The ATO portal itemised account shows, as at 30 June 2009, a balance of the same amount.
173 Based on these two documents tendered by the defendants, I am satisfied that, as at 30 June 2009, Petrolink's liability to the Commissioner of Taxation was $356,254.15. This liability was a debt due and payable notwithstanding the fourth payment arrangement.
174 As at 30 June 2009, Petrolink was in default of the fourth payment arrangement with the ATO. Further, by 30 June 2009, Petrolink had twice received payment arrangements from the ATO which required the discharge of Petrolink's outstanding liability by March 2010. In my opinion, it is relevant to take into account, in assessing the solvency of Petrolink as at 30 June 2009, that it was in default of the fourth payment arrangement, and that it had successfully negotiated several payment arrangements but also that the arrangements were increasingly onerous and there was no reason to suppose that they would become less so. Thus, in my opinion, based on Petrolink's experience up until that point, the commercial reality as at 30 June 2009 was that Petrolink could probably expect to negotiate a further payment arrangement with the ATO but that it could not expect to negotiate an arrangement extending beyond about March 2010. It follows that, even if Petrolink's outstanding tax liabilities were not due and payable, they should be taken into account in the overall assessment of Petrolink's solvency as at 30 June 2009 as future liabilities.
175 The liquidator calculated that, as at 30 June 2009, Petrolink had a shortfall of liquid assets on its immediate obligations as at of $145,341. This figure is calculated as follows:
Debts due and payable $699,843
Less liquid assets $554,502
$145,341
176 The figure of $699,843 is the sum of trade creditors of $343,589 and a tax debt of $356,254. The trade creditors figure is less that the figure disclosed in the financial statements because the liquidator did not include trade creditors less than 30 days old. For the reasons explained earlier, I consider it appropriate to include all trade creditors as at 30 June 2009 in this calculation. Based on my conclusion that the tax debt of $356,254.15 was due and payable, , I accept the liquidator's contention that the tax debt should be included in the figure for debts due and payable. Accordingly, I find that Petrolink's debts due and payable as at 30 June 2009 totalled $717,026 (ie $360,772 + $356,254).
177 The liquid assets figure comprises cash, debtors over 30 days, stock and related party loans. In his expert report, Mr Needham expressed the opinion that additional current assets, comprising debtors within 30 day terms and totalling $304,487, should be added to the cash flow calculation. For the reasons explained earlier, I accept this submission.
178 On these figures, I do not find that, as at 30 June 2009, the cash flow test produces a shortfall of liquid assets. My calculation is as follows:
Liquid assets $858,989
Less debts due and payable $717,026
$141,963
179 However, a payables reconciliation summary for 30 June 2009, dated 21 April 2010, shows that 73.9% of Petrolink's trade creditors were over 90 days old. In cross-examination, Mr Boné gave the following evidence:
And if the company had had the ability from its ordinary trading activities to pay those accruing tax debts during the first half of 2009, it would have done so, wouldn't it, sir?---It - it would have.
Right. I mean, there was no deliberate strategy on your behalf not to pay accruing tax debt, was there?---That's correct.
So the only explanation, if the facts be established that accruing tax debt was not paid, was that Petrolink did not have the capacity to pay it. That's the case, isn't it, sir?---No. I've said before that Petrolink was managing its cash flow very - very strongly.
But, sir, if Petrolink - you understood as a director of the company that it was an important matter for Petrolink to meet its ongoing tax liabilities as they accrued, didn't you, sir?---That's correct.
That, indeed, would have been a very high priority in your mind in terms of the management of Petrolink's affairs. Isn't that right, sir?---Which is why my communications with the Taxation Department were - were numerous.
And if you had the money available to you - or, rather, if Petrolink had the money available to it during those six months to July 2009 to meet not the accrued debt but just the accruing, that is, the new debt between those periods, then Petrolink would have paid those debts. Isn't that, sir - isn't that so, sir?---The - the Taxation Department is not a secured creditor when there were other companies that we were dealing with that also needed to be paid. So it was a question of trying to pay everybody as much as possible from the funds that we had available.
And the unfortunate position of the company during those six months is that it just did not have the funds available to pay everybody the amounts then due to them, didn't it, sir?---In lump sums, that's correct. That's why we had the instalment plans.
And that remained the position affecting this company's business right until December 2011, didn't it, sir?---That's correct.
180 On the other hand, a receivables reconciliation summary for 30 June 2009, also dated 21 April 2010, shows that 48.1% of receivables were owing for more than 60 days.
181 Finally, I note that the liquidator accepted during cross-examination that he had not seen any statutory demands or dishonoured cheques for the year ended 30 June 2009.
182 This evidence reveals that, as at 30 June 2009, Petrolink was experiencing at least two of the common features of insolvency identified by Mandie J in Plymin (No 1), namely overdue taxes and special arrangements with a selected creditor (the Commissioner of Taxation). There is also some evidence that its trading losses were an ongoing, rather than an isolated, issue in that there were substantial trading losses as at January 2009 and in about January 2009, Mr Boné met with staff to discuss, a need to reduce staff or staff hours.