Star Recruitment Service Pty Ltd v Smith [2025] QSC 334

CORPORATIONS - MANAGEMENT AND ADMINISTRATION - DUTIES AND LIABILITIES OF OFFICERS OF CORPORATION - OFFICERS OF INSOLVENT CORPORATIONS - DUTY TO PREVENT INSOLVENT TRADING - REASONABLE GROUNDS TO SUSPECT COMPANY IS OR WOULD BECOME INSOLVENT - where the plaintiff is a licensed labour hire company - where the defendant is the sole director of GG Group (QLD) Pty Ltd (the Company) - where the Company operated a strawberry farm from a leased property near the Glasshouse Mountains - where the plaintiff and the Company entered into a written Services Agreement for the plaintiff to supply the company with workers to pick and pack strawberries - where the Company incurred debts to the plaintiff in the sum of $1,632,162.07 between 28 August 2020 and 3 November 2021 - where the Company was placed into liquidation on 1 December 2021 - where the plaintiff claims that the defendant breached his duty to prevent insolvent trading by the Company in breach of s 588G(2) of the Corporations Act (2001) (Cth) (Corporations Act) - where the plaintiff claims damages under s 588M(3) of the Corporations Act - where the defendant disputes both liability and quantum - where s 588GAAA ("Safe harbour - temporary relief in response to the coronavirus") was inserted into the Corporations Act on 25 March 2020 - where s 588GAAA(1) provides that s 588G(2) does not apply in relation to debts incurred by a company if the debt is incurred in the ordinary course of the company's business, during a regulated period, and "before any appointment during that period of an administrator, restructuring practitioner or liquidator of the company" - whether s 588GAAA applies in circumstances where the liquidator was not appointed until after the safe harbour period had expired

CORPORATIONS - MANAGEMENT AND ADMINISTRATION - DUTIES AND LIABILITIES OF OFFICERS OF CORPORATION - OFFICERS OF INSOLVENT CORPORATIONS - DUTY TO PREVENT INSOLVENT TRADING - REASONABLE GROUNDS TO SUSPECT COMPANY IS OR WOULD BECOME INSOLVENT - whether the plaintiff has discharged its onus of establishing that the defendant contravened s 588G in causing the Company to incur debts to the plaintiff at the relevant times - whether there were reasonable grounds for the defendant to suspect that the Company was insolvent or would become insolvent

CORPORATIONS - MANAGEMENT AND ADMINISTRATION - DUTIES AND LIABILITIES OF OFFICERS OF CORPORATION - OFFICERS OF INSOLVENT CORPORATIONS - DUTY TO PREVENT INSOLVENT TRADING - DEFENCES - NO REASONABLE CAUSE TO SUSPECT - whether the defendant has established he had reasonable grounds to expect, and did expect, that the Company was solvent and would remain solvent at the relevant times

CORPORATIONS - MANAGEMENT AND ADMINISTRATION - DUTIES AND LIABILITIES OF OFFICERS OF CORPORATION - OFFICERS OF INSOLVENT CORPORATIONS - DUTY TO PREVENT INSOLVENT TRADING - CONSEQUENCES OF BREACH - COMPENSATION AND REPARATION ORDERS - where the defendant gave evidence that a series of "knockouts" of its strawberry consignments by end distributors were caused by workers supplied by the plaintiff - where the defendant alleges that any damage suffered by the plaintiff in relation to the debts incurred by the Company were not caused by the Company's insolvency, but by the knockouts - whether the damage suffered by the plaintiff was caused by the Company's insolvency

Acts Interpretation Act 1901 (Cth) s 15AA

Coronavirus Economic Response Package Omnibus Act 2020 (Cth) sch 12, s 31

Corporations Act 2001 (Cth) s 95A, s 553C, s 588G, s 588GAAA, s 588E, s 588H, s 588M, s 1317E, s 1317F, s 1332

Corporations Regulations 2001 (Cth) reg 5.7B.01

Australian Securities and Investments Commission v Edwards [2005] NSWSC 831; (2005) 220 ALR 148, applied

Australian Securities & Investment Commission v Plymin [2003] VSC 123; (2003) 175 FLR 124, considered

Australian Securities & Investments Commission v Rich [2005] NSWSC 417; (2005) 216 ALR 320, considered

Bank of Australasia v Hall [1907] HCA 78; (1907) 4 CLR 1514, followed

Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336, applied

Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation [1981] HCA 26; (1981) 147 CLR 297, considered

Emanuel Management Pty Ltd (in liq) v Foster's Brewing Group Ltd [2003] QSC 205; (2003) 178 FLR 1, considered

Hall v Poolman [2007] NSWSC 1330; (2007) 215 FLR 243, considered

In the matter of Cullen Group Australia Pty Ltd (in liq) [2020] QSC 367, considered

Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298, cited

Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran [2005] NSWCA 243; (2005) 219 ALR 555, considered

Preiner v Shin [2025] NSWDC 341, distinguished

Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355, followed

Queensland Phosphate Pty Ltd v Korda (No 2) (2019) 14 ARLR 1, cited

Quick v Stoland Pty Ltd [1998] FCA 1200; (1998) 87 FCR 371, considered

Quin v Vlahos [2021] VSCA 205; (2021) 64 VR 319, applied

Re Custom Bus Australia Pty Ltd (in liq) [2021] NSWSC 1036, applied

Re Shire Lind Developments (NSW) Pty Ltd (in liq) [2024] NSWSC 1454, considered

R v CDV [2025] QCA 163, considered

Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634, followed

Shaoxing Newtex Imp & Exp Co Ltd, in the matter of Mosaic Brands Limited (in liq) v Strawbridge [2025] FCA 1479, considered

Sunstate Land Pty Ltd v Hiview Design & Construction Pty Ltd [2020] QSC 181, distinguished

Tourprint International Pty Ltd (in liq) v Bott [1999] NSWSC 581; (1999) 32 ACSR 201, applied

Treloar Constructions Pty Ltd v McMillan [2017] NSWCA 72; (2017) 318 FLR 58, considered

Xu v Megaward Pty Ltd [2018] NSWCA 232; (2018) 130 ACSR 412, considered

• [1] The plaintiff is a licensed labour hire company who entered into a written Services Agreement with GG Group (QLD) Pty Ltd (the Company) on 15 February 2020. Pursuant to the Services Agreement, the plaintiff supplied the Company with workers to pick and pack strawberries on a farm the Company operated from a leased Property near the Glasshouse Mountains, north of Brisbane. The defendant is the sole director of the Company.
• [2] The Company was placed into liquidation by a resolution of its controlling shareholder, Gowinta Properties (a family company of which the defendant is the sole director and shareholder) on 1 December 2021. At this time, the Company owed the plaintiff the sum of $1,632,162.07 in Outstanding Invoices rendered between 28 August 2020 and 3 November 2021.
• [3] This proceeding concerns a claim for damages by the plaintiff under s 588M(3) of the Corporations Act 2001 (Cth) (Corporations Act) to recover the amount of the Outstanding Invoices. The plaintiff's case is that at the time the services the subject of those invoices were incurred, the Company was trading insolvently in contravention of s 588G.
• [4] The defendant disputes both liability and quantum on a myriad of bases.

• [5] The resolution of the plaintiff's claim turns on:

(a) the proper construction of s 588GAAA(1) of the Corporations Act;

(b) whether the plaintiff has met the standard of proof on the balance of probabilities (applying the Briginshaw approach to that standard) that the Company was trading insolvently as and from 1 January 2021;

(c) whether the defendant has proved that he had reasonable grounds to expect, and did expect, that as and from 1 January 2021, the Company was solvent and would remain solvent; and

(d) whether the defendant has proved that certain "knockouts" of strawberries by end distributors were caused by the plaintiff's breach of the Service Agreement.

• [6] The resolution of these issues is informed by an understanding of the nature and operations of the business of the Company leading up to the appointment of the liquidator.

• [7] From about 2017 until the liquidator was appointed on 1 December 2021, the Company was in the business of growing and supplying strawberries. The defendant had been personally involved in the strawberry farming industry for approximately 35 years. The Company owned no real property. It operated its business by acquiring strawberry runners, which it planted, nurtured, picked and packed at the Property which was (and continues to be) owned by SS Group Pty Ltd as trustee of the Glassy Group Unit Trust (SS Group). The Company leased the Property from SS Group, of which the defendant is the sole director. The defendant is the sole director of SS Group. The sole shareholder of SS Group is Morrison Holdings Qld Pty Ltd, a company of which the defendant is also the sole director and shareholder.
• [8] To effectively operate the business, the Company needed to:

(a) lease various plant and equipment, predominantly vehicles;

(b) purchase trucks, trailers, motor vehicles, office furniture and equipment, irrigation equipment, commercial process packing room plant and equipment, and an assortment of other plant and equipment; and

(c) enter into various contra style agreements with Ceravolo Orchids Pty Ltd (Ceravolo) to finance the purchase of strawberry runners and other products necessary for the operation of the farm.

• [9] The purchase of the strawberry runners was a necessary and expensive operational cost. About two thirds of the runners required by the Company were funded through Ceravolo. Ceravolo is a South Australian company, itself a grower and supplier of strawberries to various supermarkets around Australia.
• [10] The most recent agreement between the Company and Ceravolo is titled "Second Share Farming Deed" and dated 20 January 2020.[1] In short, the arrangement under the Second Share Farming Deed involved Ceravolo providing finance either directly to the Company or to a supplier of the Company on the Company's behalf, in advance of the next strawberry season. The Second Share Farming Deed provided for:

(a) the Company to acquire strawberry runners, fumigation gas, irrigation, mulch, chemicals and fertilisers;

(b) working capital; and

(c) the provision of tractor, plant and equipment.

• [11] In return for this finance, the Company was required to:

(a) tend and care for its crop;

(b) harvest the crop as soon as it was ready "with reasonable speed";[2]

(c) undertake quality and hygiene testing of the crop after harvesting;

(d) package the harvested crop into packaging provided by Ceravolo, labelled as provided by Ceravolo, and otherwise required by Ceravolo; and

(e) load the packaged crop onto vehicles as directed by Ceravolo for transport to purchasers organised by Ceravolo.

(a) market and sell the Company's crop to purchasers;

(b) organise transportation of the crop to purchasers as determined by Ceravolo;

(c) receipt proceeds from the sale of the crop from relevant purchasers; and

(d) account to the Company for the proceeds within 30 days after the end of the term of the agreement (which was at the end of the calendar year).

• [13] Ceravolo was entitled to deduct and retain from the proceeds received for the sale of the Company's crop:

(a) a maximum of 45% of the proceeds (until the entire amount of Ceravolo's expenditure had been recovered);

(b) a further 12% of those proceeds (for commissions due to Ceravolo); and

(c) any further amount of actual interest incurred.

• [14] The balance of the proceeds were then required to be paid by Ceravolo to the Company within 30 days receipt of each instalment of the proceeds.
• [15] The Company acquired most of its chemicals, fertiliser, fumigation and pre-planting materials from Nutrien AG Solutions Ltd (Nutrien). From about December 2019, Nutrien held a seasonal crop finance facility secured over the assets of the Company and SS Group, with a limit of $1.295 million.

Picking, packing and delivery of strawberries to purchasers

• [16] Under the terms of the Second Share Farming Deed, the Company was required to mainly deliver fruit to purchasers organised by Ceravolo. Throughout 2020 and 2021, Ceravolo mostly directed the Company to transport strawberries to Coles supermarkets. On a few occasions, the Company was also directed to transport strawberries to other markets, including to Ceravolo in Adelaide.
• [17] Ceravolo would direct the Company about the specific requirements of the end purchaser. Those requirements included the size, shape, colour and condition of the strawberries. Coles had very specific requirements as to the characteristics of strawberries to be supplied to them. These specifications were provided to the Company and were otherwise well known in the industry.
• [18] Ceravolo financing was not the only source of funding used by the Company to acquire strawberry runners. It also engaged other marketing groups to sell strawberries. One such group was Globe Connect, who facilitated the Company selling strawberries into markets and supermarkets other than those connected with Ceravolo, including Woolworths. Woolworths also had specifications for the supply of strawberries to it.
• [19] The harvest season in south-east Queensland extends from approximately May to November each year. All picking and packing of strawberries is done by hand, with the picking of strawberries being quite labour-intensive. A large workforce of people is required to undertake the harvest of a strawberry crop.
• [20] The defendant's evidence, which I accept, is that it is difficult to hire workers directly to pick and pack a strawberry crop across the season. For this reason, the Company engaged contractors to provide its picking and packing workforce. The plaintiff was the only supplier of picking and packing workers to the Company in 2020 and 2021.

• [21] The defendant first became aware of the plaintiff through his dealings on behalf of the Company with a Mr Peter Lee. Peter Lee was originally the manager and owner of Roanjena, a company that had previously supplied workers to the Company. The defendant thought highly of Peter Lee, describing him as "an 'old hand' in the industry [who] had a lot of experience in picking and packing fruit."[3] The defendant went on:[4]

"[Peter Lee] was very good to work with. He knew the requirements of the supermarkets from his experience in the industry and so he understood what I required from the workers and why."

• [22] In late 2019, Peter Lee introduced the defendant to a Mr Jeon, the sole director of the plaintiff. The defendant understood that from 2020, Peter Lee intended to work for the plaintiff. The defendant decided that the Company should follow, resulting in the Company executing the Services Agreement on 15 February 2020.
• [23] The defendant continued to enjoy a good working relationship with Peter Lee. This entailed almost daily communication, either in person or through text messages, about the rates and number of workers required at the time. Peter Lee was not called to give evidence at trial.
• [24] Mr Sungbin Lee, a South Korean national who lived in Australia from December 2016 until 12 March 2024, was called as a witness by the plaintiff. Sungbin Lee can communicate in English and provided his evidence in chief by way of affidavit with the assistance of Korean speaking lawyers employed by the plaintiff's solicitors. Sungbin Lee was assisted in court by an interpreter.
• [25] Sungbin Lee was involved with the Company between 11 November 2019 and 9 August 2020, when he worked as a part-time farm hand at the strawberry farm. His main duty during this time was to oversee the packing shed operations and assist the Company with quality checks and controls on strawberries during the packing process, before shipment and consignment. Sungbin Lee was responsible for rejecting defective strawberries and managing staff including packers and checkers. His interaction with pickers of the strawberries was limited. Sungbin Lee left his employment in early August 2020 because the Company was "messing around with [his] wages".[5]
• [26] The defendant had many dealings with Mr Jeon, in person at the packing shed, in the defendant's office at the farm, and via text messages and phone calls. As discussed later in these reasons, most of the dealings between Mr Jeon and the defendant appear to have been more about payment of the Outstanding Invoices, although there were also conversations on the issue of "knockouts" as discussed below.
• [27] The defendant and Mr Jeon spoke with each other in English, although Mr Jeon gave his evidence at trial with the aid of an interpreter. Mr Jeon has only a limited grasp of the English language, which is hardly surprising given he is a Korean national and English is his second language. I do not consider that the fact that Mr Jeon and Sungbin Lee required an interpreter in court whilst they were cross-examined on their affidavit evidence in chief reflects adversely on the reliability and credibility of their evidence, nor of course does that fact bolster their evidence in any way.

The process of picking and packing strawberries

• [28] The picking process was described by the defendant in some detail in his evidence in chief as follows:[6]

(a) A picker is supplied with a trolley, and green trays for good fruit or waste or rejected fruit;

(b) The picker sits on the trolley, which is placed between two rows of the crop to be harvested;

(c) Supervisors are stationed at the end of the rows of the crop;

(d) Each picker is provided with an ID card, which is scanned by the supervisors;

(e) The picker looks at the rows on the picker's left and right to the half-way point of each row;

(f) The picker picks all the strawberries in each of the rows on the left and right, except for fruit that is green and immature;

(g) The picker picks the strawberries in a "roll pick" manner by twisting the strawberry upwards 90 degrees until it comes away from the rest of the plant.[7] This technique ensures that the stems attaching the strawberries to the plant are not cut or severed;

(h) The picker removes all ripe strawberries regardless of quality or size;

(i) Fruit that has 70 to 80% colour from "tip to top", with white colour around the calyx (the leaves at the top of the strawberry) is placed onto one of the green trays regardless of size;[8]

(j) Fruit that is damaged or blistered is placed onto the other tray which is marked with paint to differentiate it;

(k) The supervisors record the number of trays each picker has picked, both of good and bad fruit, and inspect the quality of the sorting of fruit to ensure good fruit is not being discarded and bad fruit is not being collected;

(l) The trays of good strawberries are then transferred into cages, with each cage holding 144 trays;

(m) The pickers are then given more empty trays, and continue picking in the next available row of strawberries;

(n) When the cages of good fruit are full of trays, they are driven into the packing shed for packing by a driver; and

(o) Bad fruit is discarded.

• [29] The packing process was also described by the defendant in his evidence in chief in the following way:[9]

(a) After the cages of good strawberries (which should weigh around 288 kilograms) are transported to the packing shed, they are labelled and weighed, with each individual tray required to weigh approximately two kilograms;

(b) the cages are then placed in a cold room to cool the strawberries down below ten degrees Celsius (which is the ideal packing temperature);

(c) When cool enough for packing, the green trays from each cage are unloaded and the strawberries are emptied onto one of four roller conveyors, each of which form a packing line;

(d) Between 60 to 100 trays are positioned across the four packing lines;

(e) The packers sit at various positions along the packing lines and pack the strawberries into punnets by size;

(f) The packed strawberries must meet predetermined characteristics for size, colour, shape and ripeness, which are specified by the ultimate customer;

(g) Each punnet must also be packed in a way that will not damage the strawberries;

(h) Any strawberries that do not meet size, colour, shape or ripeness requirements are discarded by the packers into a waste bucket;

(i) At the end of each packing line is a "checker" whose task is to ensure that the punnets are being packed correctly, and that the strawberries contained in the punnets meet the customer's stipulated characteristics;[10]

(j) If the checkers determine that a punnet complies with the customer's packing and characteristic requirements, the punnet is automatically weighed and proceeds to a "zig zag" table;[11]

(k) If the checkers determine that a punnet does not comply with the customer's packing and characteristic requirements, the punnet is rejected and must be repacked correctly by a packer;

(l) At the end of the zig zag table, the punnets are packed into boxes by "boxers".[12] A standard sized box contains 18 punnets, configured as nine punnets double-stacked;

(m) Each box contains only one type of strawberry variety, so there are different boxes for different sized strawberries;

(n) Each box passes through a metal detector to ensure no metal objects are in the strawberries;

• [30] Sungbin Lee gave unchallenged evidence about the distinction between the position of manager and supervisor in the context of the Company's farm work. I accept that:[13]

(a) a "manager" refers to the Company's representatives, such as the defendant and Sungbin Lee who were directly employed by the Company;

(b) a "supervisor" was a high-performing worker supplied by the plaintiff but appointed by one of the Company's representatives (presumably a manager) based on performance;

(c) managers were Company employees with authority over quality control including visual inspection, rejection of defective strawberries, adjustment of "performance points" and managing the workers supplied by the plaintiff; and

(d) managers, not supervisors, had the final say over the rejection of strawberries.

• [31] Most of the pickers, packers, supervisors and drivers were supplied by contractors. But as discussed under the heading "knockouts" below, the Company retained ultimate control over quality decisions, including rejecting or accepting fruit.

Events leading up to the appointment of a liquidator

• [32] In November 2021, the plaintiff issued a demand for payment to the Company in relation to several outstanding invoices as follows:

Services provided to the company on 31 Aug-6 Sep 2020

Services provided to the company on 14,20, 31 Aug and 2, 4 Sep 2020

Services provided to the company on 9,12,13 Sep 2020

Services provided to the company on 14, 15, 17, 18, 19, 20 Sep 2020

Services provided to the company on 21, 23, 24 Sep 2020

Services provided to the company on 28-30 Sep and 1-4 Oct 2020

Services provided to the company on 29, 30 Sep and 2 Oct 2020

Services provided to the company on 12, 18 Oct 2020

Services provided to the company on 19, 20, 22, 23 Oct 2020

Services provided to the company on 27-30 Sep and 1-3 Oct 2021

• [33] The defendant concedes that the Company incurred debts to the plaintiff in the amounts and on the dates on which each of the Outstanding Invoices were issued, as set out in the above table.
• [34] Consistent with the lack of dispute about the Outstanding Invoices, the Company did not apply to set aside the statutory demand nor make any off-setting claim. Rather, prior to its expiration, Mr Morton was appointed as the liquidator of the Company on 1 December 2021. This appointment was made on the instructions of the defendant as the sole director, company secretary and shareholder of Gowinta, with that entity being the sole shareholder of the Company.
• [35] Prior to the appointment of the liquidator, presumably in his capacity as sole director, the defendant had sought professional advice in relation to preserving the assets of the Company (and related entities) to best deal with the company's creditors. These creditors included secured and unsecured lenders, some of whom had been provided with personal guarantees from the defendant.
• [36] The reasons for the failure of the Company were stated by the defendant in an email to the liquidator on 2 December 2021 to include:[14]

(a) COVID-19 significantly increasing the cost of labour;

(b) The Company's funding facility being insufficient; and

(c) Poor quality runners not being received on the desired dates.

• [37] It is instructive to note that at this point, the defendant made no mention to the liquidator of there being any issue with the workers supplied by the plaintiff, or that the knockouts had any real bearing on the Company's position with respect to solvency.
• [38] The liquidator's preliminary view (which was largely consistent with the defendant's initial explanation for the Company's demise at the time of the appointment) was that the failure of the Company could be attributed to three factors:

(a) First: continuing losses. This was based on the unaudited accounts of the Company which revealed that the Company traded at a loss in the financial year ending 30 June 2020, and for the period from July 2021 to 1 December 2021. The bottom line was that the business was not generating sufficient income to meet trading expenses;

(b) Second: under capitalisation, inadequate cash flow or high cash use. This was based on the Company having a net asset deficiency and a ratio below one, from at least the financial year ending 30 June 2020. The liquidator was of the view that the Company had insufficient cash flow to meet its obligations as they fell due, and needed to rely on funding facilities to meet trading costs. Trade liabilities were in excess of $3 million as at the date of the liquidator's appointment; and

(c) Third, other matters related to COVID-19. The business was negatively impacted by the social and lockdown restrictions imposed by the Queensland Government in 2020, with border closures and restrictions resulting in labour shortage, and high labour and freight costs.

• [39] From his preliminary investigations, the liquidator concluded that it "appears that the Company was insolvent from at least July 2020 to 1 December 2021".[15]
• [40] With this factual background in mind, it is convenient to set out the legislative regime under which the plaintiff's claim is made.

• [41] The proceeding falls to be determined under Part 5.7B of the Corporations Act - "Recovering property or compensation for the benefit of creditors of insolvent company".
• [42] Division 3, subdivision A is titled "Director's duty to prevent insolvent trading", and contains s 588G:

"588G Director's duty to prevent insolvent trading by company

(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.

(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 section 1317E).

(a) a company incurs a debt at a particular time; and

(aa) at that time, a person is a director of the company; 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) the person suspected at the time when the company incurred the debt that the company was insolvent or would become insolvent as a result of incurring that debt or other debts (as in paragraph (1)(b)); and

(d) the person's failure to prevent the company incurring the debt was dishonest" (emphasis added).

• [43] Section 588M(1) provides for the recovery of compensation for loss resulting from insolvent trading as follows:

"588M Recovery of compensation for loss resulting from insolvent trading

(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

(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."

• [44] Section 588H sets out the relevant defences as follows:

"588H Defences about reasonable grounds, illness or reasonable steps

(a) proceedings for a contravention of subsection 588G(2) relating to the incurring of a debt at a time (the key time); and

(b) proceedings for a contravention of subsection 588GAB(2) or 588GAC(2) relating to the disposition of a company's property at a time (the key time); and

(c) proceedings under section 588M relating to the incurring of the debt or the disposition of the property.

(2) It is a defence if it is proved that, at the key time, the person had reasonable grounds to expect, and did expect, that the company was solvent at that time and would remain solvent despite all its debts incurred, and dispositions of its property made, at that time.

(3) Without limiting the generality of subsection (2), it is a defence if it is proved that, at the key time, 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 despite all its debts incurred, and dispositions of its property made, at that time.

• [45] Section 553C provides for mutual credit and set-off as follows:

"553C Insolvent companies - mutual credit and set‑off

(1) Subject to subsection (2), where there have been mutual credits, mutual debts or other mutual dealings between an insolvent company that is being wound up and a person who wants to have a debt or claim admitted against the company:

(a) an account is to be taken of what is due from the one party to the other in respect of those mutual dealings; and

(b) the sum due from the one party is to be set off against any sum due from the other party; and

(c) only the balance of the account is admissible to proof against the company, or is payable to the company, as the case may be.

(2) A person is not entitled under this section to claim the benefit of a set‑off if, at the time of giving credit to the company, or at the time of receiving credit from the company, the person had notice of the fact that the company was insolvent."

• [46] During the trial, the Court raised the issue of whether s 588GAAA "Safe harbour-temporary relief in response to the coronavirus" applies to the facts of this case. Subsequently, the defendant amended his defence to say that it does.[16]
• [47] By this amendment, the defendant's case is that by operation of s 588GAAA, he cannot be found to have traded whilst insolvent during the regulated safe harbour period. The plaintiff's primary position is that s 588GAAA does not apply because the liquidator was not appointed during that safe harbour period. The resolution of this issue turns on the proper construction of s 588GAAA.

The s 588GAAA dilemma

• [48] Section 588GAAA was inserted into the Corporations Act on 25 March 2020 and states as follows:

"588GAAA Safe harbour--temporary relief in response to the coronavirus

(1) Subsection 588G(2) does not apply in relation to a person and a debt incurred by a company if the debt is incurred:

(a) in the ordinary course of the company's business; and

(i) the 6-month period starting on the day this section commences; or

(ii) any longer period that starts on the day this section commences and that is prescribed by the regulations for the purposes of this subparagraph; and

(c) before any appointment during that period of an administrator, restructuring practitioner or liquidator of the company.[17]

(2) A person who wishes to rely on subsection (1) in a proceeding for, or relating to, a contravention of subsection 588G(2) bears an evidential burden in relation to that matter.

(3) Subsection (1) is taken never to have applied in relation to a person and a debt in the circumstances prescribed by the regulations for the purposes of this subsection.[18]

evidential burden, in relation to a matter, means the burden of adducing or pointing to evidence that suggests a reasonable possibility that the matter exists or does not exist."

• [49] The Corporations Regulations 2001 (Cth) prescribes the safe harbour period for the purposes of s 588GAAA(1)(b)(ii) as commencing on 25 March 2020 and ending on 31 December 2020.[19]
• [50] On a plain reading of the section, there are three matters or pre-conditions that need to be satisfied for s 588GAAA(1) to apply. The first two are relatively straightforward, being that the debt must have been incurred:

(a) in the ordinary course of the company's business; and

(b) during the safe harbour period.

• [51] The parties submit, however, for opposing constructions as to the meaning and effect of s 588GAAA(1)(c).
• [52] The plaintiff submits that an ordinary reading of s 588GAAA(1)(c) requires the Company to have been placed into liquidation before 31 December 2020 (that is, before the end of the safe harbour period). But the defendant submits that s 588GAAA(1)(c) does not mandate that an appointment must occur during the safe harbour period - rather, it contemplates that one might occur.
• [53] These competing interpretations emerge mainly from Parliament's use of the expression "any appointment during that period" in s 588GAAA(1)(c).
• [54] I accept that there is ambiguity in the language of s 588GAAA(1)(c) leading to uncertainty about the correct construction of s 588GAAA(1) as a whole. That much is apparent from the parties' submissions on this issue. The ambiguity also emerges in the broader debate about the proper construction of this provision which has been simmering for some time in the commentary of experienced insolvency practitioners. These commentators tend to prefer the view agitated by the plaintiff in the present case.[20]
• [55] The starting point in construing the meaning of s 588GAAA(1) is to determine and give effect to the intention of Parliament as disclosed by the language used in the section.[21] The intention of Parliament is ascertained by determining the meaning of the section having regard to the applicable common law and statutory rules of construction.[22] In particular, the words of the section:

(a) should, prima facie, be given their "natural and ordinary meaning";[23]

(b) must be considered in their context, which includes legislative history and extrinsic materials;[24] and

(c) must be construed in a way that would best achieve the purpose or object of the Corporations Act and the section itself, with that purpose being identified objectively.[25]

• [56] Section 588GAAA was inserted into the Corporations Act by the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (CERPO Act).[26] The stated purpose of the CERPO Act was "to provide an economic response, and deal with other matters, relating to the coronavirus, and for related purposes."[27]
• [57] The context in which the CERPO Act was legislated is set out in detail in the Explanatory Memorandum to the Coronavirus Economic Response Package Omnibus Bill 2020 (Cth) (CERPO Bill) under the heading "Economic Response to the Coronavirus".[28] In his Second Reading Speech to Parliament concerning the CERPO Bill, the then Treasurer stated:[29]

"The measures in these bills represent a decisive and unprecedented response to the economic challenges posed by the coronavirus. The global and domestic economic environment has deteriorated. We now expect the economic shock from the coronavirus to be deeper, to be wider and to be longer...

The Coronavirus Economic Response Package Omnibus Bill 2020 is designed to keep Australians in jobs and businesses in business, and build a bridge to the recovery. These measures are consistent with our principles. They are targeted, they are temporary, they are scalable and they are based on our existing tax and transfer system. The measures contained in this package of bills are designed to bolster domestic confidence and household consumption, reduce cashflow pressures for businesses and support investment to lift productivity and to keep people in jobs.

cashflow assistance to help small and medium size businesses to stay in business, keep their employees and retain apprentices and trainees.

We're providing additional assistance to business to trade through the crisis. The government will also provide a safety net for businesses to allow them to get through a temporary period of insolvency and recover when economic growth picks up. To do this, we are amending the Corporations Act to temporarily increase the threshold for a creditor to initiate bankruptcy proceedings, to increase the time period for debtors to respond to a bankruptcy notice and to extend the period of protection a debtor receives after making a declaration or intention to present a debtor's petition. There will also be temporary relief for directors from any personal liability for trading while insolvent. For owners or directors of a business that are currently struggling due to the coronavirus, the Australian Taxation Office will tailor solutions for their circumstances, including temporary reduction of payments or deferrals or withholding enforcement actions, including director penalty notices and wind-ups. This will provide directors with additional confidence to continue to trade through this difficult period..." (emphasis added).

• [58] Schedule 12 of the CERPO Act is titled "Temporary relief for financially distressed individuals and businesses" and is divided into the following three parts:

(a) Part 1: "Amendments relating to individuals in financial distress";

(b) Part 2: "Amendments relating to businesses in financial distress"; and

(c) Part 3: "Temporary relief for directors from duty to prevent insolvent trading".

• [59] The context to the amendments made by sch 12 is stated in the Explanatory Memorandum as follows:[30]

"The economic impacts of the Coronavirus could see numerous individuals at risk of bankruptcy and Australian businesses at risk of insolvency. To avoid unnecessary bankruptcies and insolvencies, Schedule 12 to this Bill provides:

• a safety net to help businesses to continue to operate during a temporary period of illiquidity, rather than enter voluntary administration or liquidation; and
• a safety net to individuals to assist them with managing debt and avoiding bankruptcy" (emphasis added).

• [60] With specific reference to s 588GAAA, the Explanatory Memorandum states:[31]

"Temporary relief for directors from duty to prevent insolvent trading

There is a new temporary, six-month period in which a new safe harbour from the directors' duty to prevent insolvent trading applies. The new safe harbour provides temporary relief from personal liability for insolvent trading where it applies.

A director may rely on the new temporary safe harbour in relation to a debt incurred by the company if:

• the debt is incurred in the ordinary course of the company's business;
• the debt is incurred during the six month period starting on the day the new law commences, or a longer period as prescribed by the regulations; and
• the debt is incurred before any appointment of an administrator or liquidator of the company during the temporary safe harbour application period.

A director is taken to incur a debt in the ordinary course of business if it is necessary to facilitate the continuation of the business during the six month period that begins on commencement of the subparagraph. This could include, for example, a director taking out a loan to move some business operations online. It could also include debts incurred through continuing to pay employees during the Coronavirus pandemic.

The regulations may prescribe circumstances in which the temporary safe harbour is taken never to have applied in relation to a person and a debt.

A person wishing to rely on the new temporary' safe harbour in a proceeding in which unlawful insolvent trading is alleged bears an evidential burden in relation to that matter. A new definition of evidential burden applies in relation to the temporary safe harbour. Evidential burden means the burden of adducing or pointing to evidence that suggests a reasonable possibility that the matter exists or does not exist..." (emphasis in original).

• [61] There is limited authoritative judicial determination of the meaning of s 588GAAA(1)(c). There are three reported decisions where s 588GAAA has been more broadly considered, but none of these cases are directly on point.[32] Although it is instructive that in Preiner v Shin [2025] NSWDC 341, the trial judge appears to have proceeded on the basis that it was not necessary for an administrator, restructuring practitioner or liquidator to have been appointed during the safe harbour period for s 588GAAA to apply. Similarly, in a decision handed down in the Federal Court shortly before I delivered these reasons, Moore J (in discussing the dates in which the safe harbour applied) stated that the effect of the provision is to make directors "only potentially liable under the insolvent trading provisions for debts incurred prior to 25 March 2020 or after 31 December 2020."[33]

1. The court must strive to give meaning to every word and provision of an Act,[34] and is to prefer the interpretation that will best achieve the purpose of the Act.[35]

• [63] The starting point therefore is that the words of s 588GAAA(1)(c) should be given their natural and ordinary meaning.
• [64] Adopting this conventional approach, the phrase "any appointment during that period" plainly contemplates the possibility that an appointment of an administrator, restructuring practitioner or liquidator may occur during the safe harbour period. But it does not mandate that this must happen during the safe harbour period. For example, it does use the prefix "an" or "the".
• [65] If Parliament had intended that s 588GAAA only operate as a conditional protection to directors of insolvent companies, it would have explicitly said so. Such clarity is particularly critical with legislative provisions which expose directors who knowingly continue to trade while a company is insolvent to serious civil penalties.[36]
• [66] Whilst it is unfortunate that clearer language was not used, it would be surprising if Parliament required an appointment to take place within the safe harbour period for the protection in s 588GAAA to apply. To do so would have defeated the purpose of the emergency provisions being enacted in the first place: to help businesses continue to operate rather than enter voluntary administration or liquidation, and to protect individuals from incurring debts, including on a company's behalf. [37]
• [67] Even if the construction task is difficult, courts must persevere and wrestle with difficult language to find legislative meaning.[38] In doing so, it is the duty of the court to give the words "the construction that produces the greatest harmony and the least inconsistency".[39] Where there are two provisions in an Act which appear to be in conflict, since it is:[40]

"...improbable that the framers of legislation could have intended to insert a provision which has virtually no practical effect, one should look to see whether any other meaning produces a more reasonable result."

• [68] The plaintiff's interpretation of s 588GAAA(1) leads to an immediate internal inconsistency within the provision. That inconsistency arises because on the one hand, s 588GAAA(1)(b) specifies a safe harbour period in which directors of companies trading insolvently are relieved of their duty not to do so, but on the other hand, that time frame would be reduced if an appointment of an administrator or liquidator had to be made during that period to obtain the benefit of some part of the safe harbour period. The express intention of Parliament was to allow directors a specific period of time in which to be protected from personal liability for insolvent trading - not a period less than that explicitly provided for in the provision.
• [69] One of the arguments raised in the ongoing debate about the construction of s 588GAAA is that if there is no requirement for an appointment of an administrator or liquidator, then s 588GAAA(1)(c) has no work to do. On this argument, there would have been no need for the words "during that period" in s 588GAAA(1)(c), or reference to the appointment of an administrator or liquidator at all.[41] There is some force to this contention. However, as recently affirmed in R v CDV [2025] QCA 163:[42]

"In striving to give meaning to every word of a provision (and every provision of an Act), certain terms must not be cherry-picked but rather read in their entirety."

• [70] In the present case, s 588GAAA(1)(c) should not be considered in isolation but rather in the context of the overall suite of emergency provisions enacted in response to the COVID-19 pandemic. In that context, I am satisfied that the words of s 588GAAA(1)(c) have some work (although perhaps not difficult work) to do. For instance, subsection (1)(c) provides certainty that:

(a) the safe harbour provisions do not exclude the possibility of appointments being made during the statutory period;

(b) if any such appointment is made during the safe harbour period, the shelter from liability for insolvent trading remains in place for debts incurred by the director, from the commencement of the safe harbour period to the date of that appointment; and

(c) the shield for directors is available, whether an appointment is made or not.

• [71] The plaintiff submits that adopting the defendant's construction of s 588GAAA(1)(c) "would permit directors to continue trading indefinitely without consequence".[43] I do not accept this submission. First, it is inconsistent with there being a stipulated, limited time for the safe harbour period. Second, it overlooks that the insolvency of the Company during the safe harbour period remains relevant to any later assessment of insolvency outside of that period, as discussed below.
• [72] The plaintiff also argues that its construction of s 588GAAA(1)(c) is supported by "policy rationales encouraging directors to promptly wind-up companies that are in distress"[44] and that it:[45]

"...aligns with the architecture of the permanent safe harbour regime in s 588GA, which provides that the protection ceases upon the actual appointment of a liquidator or administrator (see s 588GA(1)(b)(iv)). In both ss. 588GA and 588GAAA, the appointment of an administrator or liquidator is treated as a bright-line event marking a legal threshold" (emphasis in original).

• [73] The plaintiff develops this argument by reference to s 588G of the Corporations Act imposing a positive duty on directors "to respond to financial distress by placing their companies into liquidation where insolvency is suspected," and to do so promptly.[46] That, of course, is correct. But the plaintiff's submissions overlook the entire point of the safe harbour provision of s 588GAAA. The legislative purpose was not aimed to only protect directors who took timely action to appoint an external administrator during the pandemic. Rather, in the context of the extreme economic consequences of COVID-19, the emergency provisions:

(a) were designed to "keep Australians in jobs and businesses in business" by reducing cashflow pressures for businesses, introducing "a safety net for businesses to allow them to get through a temporary period of insolvency and recover when economic growth picks up," and providing "temporary relief for directors from any personal liability for trading while insolvent";[47] and

(b) were introduced to avoid unnecessary bankruptcies and insolvencies, provide a safety net to help businesses continue to operate rather than enter voluntary administration or liquidation, and protect individuals from incurring debts.

• [74] In undertaking the construction task, the following observations of Mason J (as his Honour then was) and Wilson J in Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation [1981] HCA 26; (1981) 147 CLR 297 are most apposite:[48]

"The fundamental object of statutory construction in every case is to ascertain the legislative intention by reference to the language of the instrument viewed as a whole. But in performing that task the courts look to the operation of the statute according to its terms and to legitimate aids to construction.

The rules [of construction], as D C Pearce says in his Statutory Interpretation, p 14, are no more than rules of common sense, designed to achieve this object. They are not rules of law. If the judge applies the literal rule it is because it gives emphasis to the factor which in the particular case he [or she] thinks is decisive. When he considers that the statute admits of no reasonable alternative construction it is because (a) the language is intractable or (b) although the language is not intractable, the operation of the statute, read literally, is not such as to indicate that it could not have been intended by the legislature.

On the other hand, when the judge labels the operation of the statute as 'absurd', 'extraordinary', 'capricious', 'irrational' or 'obscure' he assigns a ground for concluding that the legislature could not have intended such an operation and that an alternative interpretation must be preferred. But the propriety of departing from the literal interpretation is not confined to situations described by these labels. It extends to any situation in which for good reason the operation of the statute on a literal reading does not conform to the legislative intent as ascertained from the provisions of the statute, including the policy which may be discerned from those provisions.

Quite obviously questions of degree arise. If the choice is between two strongly competing interpretations, as we have said, the advantage may lie with that which produces the fairer and more convenient operation so long as it conforms to the legislative intention. If, however, one interpretation has a powerful advantage in ordinary meaning and grammatical sense, it will only be displaced if its operation is perceived to be unintended" (emphasis added).

• [75] I am satisfied that the proper construction of s 588GAAA(1)(c) is that it does not impose a requirement for an administrator, insolvency practitioner or liquidator to be appointed during the safe harbour period for the protection to apply. Such a construction:

(a) is consistent with the natural and ordinary meaning of the subsection;

(b) is consistent with the purpose of s 588GAAA being to support businesses to not go into administration or liquidation during the safe harbour period;

(c) aligns with the true purpose of the CERPO Act, which introduced a special, emergency measure to prevent companies from entering administration or liquidation despite the extreme economic pressures posed by COVID-19, and accordingly, for those companies to keep trading in their ordinary way; and

(d) avoids an unintended outcome completely at odds with the purpose of the provision being enacted in the first place.

Does s 588GAAA apply to exclude the operation of s 588G(2)?

• [76] The evidential burden is on the defendant to establish that there is a reasonable possibility that each of the preconditions in s 588GAAA(1) have been met.[49]
• [77] Each of these preconditions are considered below.

Was the debt incurred in the ordinary course of the Company's business?

• [78] The defendant relies on evidence that some of the debts (which are the subject of the Outstanding Invoices) were incurred by the plaintiff's supply of workers to the Company pursuant to the Services Agreement throughout the safe harbour period. The plaintiff submits that the evidential burden for s 588GAAA(1)(a) has not been met because the Company was clearly already insolvent at the time the relevant debts were incurred, and that therefore it was not permissible nor "commercially rational" for the Company to have continued to incur liabilities.[50]
• [79] I do not accept the plaintiff's submission. To suggest that debts could not have been incurred in the ordinary course of the company's business if the company was insolvent misses the point of s 588GAAA. The plaintiff's pleaded case is that the Company was insolvent from at least 1 July 2020, a date that falls squarely within the safe harbour period. Section 588GAAA was enacted with the express purpose of protecting a company director and facilitating the continuation of a company's business for a fixed period, even if the company may have been trading insolvently.
• [80] The engagement of the plaintiff to supply workers was clearly necessary for the Company's business to continue to operate during the safe harbour period. Of course, it would be entirely different if the Company was incurring debts as part of an extraordinary response to COVID-19, or in a way that was not related to the usual operations of the business.[51] It is not suggested by the plaintiff that this is such a case.
• [81] I am therefore satisfied that the debt to the plaintiff was incurred by the Company in the ordinary course of its business.

Was the debt incurred during the safe harbour period?

• [82] The plaintiff concedes that s 588GAAA(1)(b) is satisfied in this case. I accept this concession is consistent with the facts. The evidence is that invoices totalling $523,720.36 were issued by the plaintiff to the Company between 28 August 2020 and 31 October 2020.
• [83] I am therefore satisfied that the Company incurred a debt to the plaintiff during the safe harbour period.

Was the debt incurred before any appointment during that period of an administrator, restructuring practitioner or liquidator?

• [84] There was no administrator, restructuring practitioner or liquidator appointed to the Company during the safe harbour period. It follows from my construction of s 588GAAA(1)(c) that I am satisfied that the third precondition is met.

• [85] I am therefore satisfied that the debts totalling $523,720.36 incurred in the safe harbour period must be excluded from the plaintiff's claim against the defendant for contravention of s 588G(2). This, of course, is not the end of the matter as the remaining Outstanding Invoices (totalling $1,108,441.71) were incurred outside the safe harbour period.
• [86] Before considering the balance of the s 588G(2) claim and the defence that has been raised, it is necessary to set out matters relating to the onus and standard of proof.

• [87] The onus of establishing a contravention of s 588G and the entitlement to compensation under s 588M(3) rests with the plaintiff, with the applicable standard of proof being the civil standard on the balance of probabilities.[52]
• [88] The onus of establishing the defence raised under s 588H(2) and the availability of the set-off provisions in s 553C rests with the defendant.[53] An analysis of the applicability of these provisions to the present facts is contained later in these reasons.
• [89] There is, however, some controversy between the parties as to whether the stricter Briginshaw standard of proof is to be applied in determining whether the elements of a contravention of s 588G are established.[54] The plaintiff submits that this standard should not apply, and the defendant submits that it should.
• [90] In support of its argument, the plaintiff relies on the "applicable statutory standard" set out in s 1332 of the Corporations Act as follows:[55]

Where, in proceedings other than proceedings for an offence, it is necessary to establish, or for the Court to be satisfied, for any purpose relating to a matter arising under this Act, that:

(a) a person has contravened a provision of this Act; or

(b) default has been made in complying with a provision of this Act; or

(c) an act or omission was unlawful by virtue of a provision of this Act; or

(d) a person has been in any way, by act or omission, directly or indirectly, knowingly concerned in or party to a contravention, or a default in complying with, a provision of this Act;

it is sufficient if the matter referred to in paragraph (a), (b), (c) or (d) is established, or the Court is so satisfied, as the case may be, on the balance of probabilities" (emphasis added).

• [91] The plaintiff also submits that the applicability of the Briginshaw approach must be "treated with caution" in this case because the plaintiff does not claim civil penalties or allege dishonesty.[56] I accept that the plaintiff's pleaded case does not maintain allegations of fraud and dishonesty against the defendant, but I otherwise reject the plaintiff's submission about the applicability of the Briginshaw approach because it overlooks that:

(a) a contravention of s 588G potentially has both civil and criminal consequences for directors;[57]

(b) by s 1317E, s 588G is deemed to be a civil penalty provision; and

(c) by the operation of ss 588E(1)(e), 588E(8)(d), 1317E(2) and 1317F, a finding about the defendant engaging in insolvent trading is a serious one, and may be used as proof in other recovery proceedings, with the consequence that civil penalties might follow.

• [92] The plaintiff's written submissions seek to distinguish authorities which took the Briginshaw approach, such as Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170 and Australian Securities & Investments Commission v Plymin (No 1) [2003] VSC 123; (2003) 175 FLR 124 (Plymin), on the basis that those cases relied on s 140 of the Uniform Evidence Acts, with the Evidence Act 1977 (Qld) containing no such equivalent.
• [93] I am not satisfied this distinction makes any difference in this case. A standard of proof that takes into account the nature and consequences of the facts to be proved is expressly contemplated by s 1332 of the Corporations Act, which allows for the Court to be satisfied on the balance of probabilities "as the case may be".
• [94] In the present case, in order to obtain a claim for compensation under s 588M, the plaintiff must establish that the defendant contravened s 588G. Whilst I accept that the civil standard of proof on the balance of probabilities applies, I am also satisfied that the plaintiff is required to meet the approach to the proof of its case, with the strength of the evidence necessarily varying according to the nature and consequences of what is sought to be proved. Practically speaking, this means the standard applies to proving insolvency of the Company at the relevant times.

• [95] Each of the elements the plaintiff is required to satisfy in order to prove its insolvent trading claim under s 588G is considered below.

Was the defendant a director of the Company when the Company incurred a debt to the plaintiff?

• [96] The expression "debt" is not defined in the Corporations Act, but its natural and ordinary meaning is "a liability or obligation to pay or render something; that which one person is bound to pay to perform for another," with the obligation being "present and absolute, or contingent".[59]
• [97] The plaintiff does not expressly plead that the Company incurred a debt to it, but the defendant sensibly concedes (and I accept) that nothing turns on this. The defendant also concedes that:

(a) there is no dispute on the pleadings that the plaintiff and the Company executed the Services Agreement, and that the services the subject of the remaining Outstanding Invoices were incurred pursuant to that agreement;

(b) the Company did not pay for all of the plaintiff's services to the extent of $1,108,441.71 - being the amount of the remaining Outstanding Invoices in light of the operation of s 588GAAA;

(c) the evidence on the issue of knockouts is insufficient to support a finding that the relevant services of the plaintiff were "unsatisfactory" to such an extent that the Company had not "incurred" a "debt" to the plaintiff;[60] and

(d) the relevant debts were incurred in October and November 2021, at which time the defendant was a director of the Company.

• [98] I am therefore satisfied that s 588G(1)(a) is established.

Was the Company insolvent at each of the times the debts were incurred, or did it become insolvent by incurring the debt/s?

• [99] The plaintiff's pleaded case is that the Company was insolvent from at least 1 July 2020 (until the liquidator was appointed on 1 December 2021).[61] At trial, the plaintiff also maintained that:

(a) the Company was otherwise insolvent from 28 August 2020, when the first unpaid invoice fell due and payable, because that debt remained unpaid at the time of the voluntary liquidation; and

(b) the financial position of the Company continued to deteriorate "in virtually all respects" until the liquidation.[62]

• [100] By the operation of s 588GAAA as I have found it to be, the defendant cannot have contravened s 588G by incurring debts to the plaintiff between 25 March 2020 and 31 December 2020.
• [101] In terms of the parties' submissions regarding any finding that the safe harbour provision applies:

(a) the defendant maintains (although, without any particular reasoning) that the only relevant time at which an assessment of the solvency of the Company needs to be considered is the date of issue of the remaining Outstanding Invoices - that is, between 1 October 2021 and 3 November 2021; and

(b) the plaintiff maintains that the provision's "application is limited to the assessment of quantum," so the solvency of the Company in July 2020 remains relevant.[63]

• [102] I do not accept either of these submissions. In my view, there are four reasons why the appropriate date to commence the assessment of whether the Company was insolvent for the purpose of s 588G is 1 January 2021.
• [103] First, there is no utility in assessing the insolvency of the Company as at July 2020 (as the plaintiff submits) because by the operation of s 588GAAA, the defendant is protected from an insolvent trading claim under s 588G for debts incurred by the Company at that time until 31 December 2020.
• [104] Second, the protection of the defendant for debts incurred by the Company during the safe harbour period does not mean that those debts are irrelevant, or that they do not remain due and payable in the ordinary course of the terms of credit with the creditor.
• [105] Third, the existence and non-payment of debts incurred in the ordinary course of business during the safe harbour period are obviously relevant to the ongoing obligations of a Company, and of its directors, not to trade whilst insolvent after the end of the safe harbour period.
• [106] Fourth, on the facts of this case:

(a) the Company accumulated a debt of over $500,000 to the plaintiff during the safe harbour period;

(b) that debt was not paid after the safe harbour period ended, and remained unpaid as at the time of the appointment of the liquidator on 1 December 2021; and

(c) the Company continued to incur debts to the plaintiff after the safe harbour period ended, although some of the later debts were paid.

• [107] It is therefore relevant to consider the insolvency position of the Company after the safe harbour period ended in order to determine if the Company was insolvent at the time the debts the subject of the remaining Outstanding Invoices were incurred.

The respective positions on the issue of insolvency

• [108] My finding that the date for commencing the assessment of whether the plaintiff has proven that the Company was insolvent as and from 1 January 2021 does not fall outside the plaintiff's pleaded case. That case is that the Company was insolvent from at least 1 July 2020 through to its liquidation on 1 December 2021. It follows that the evidence relied upon by the plaintiff remains relevant to the determination of the issue of insolvency as and from 1 January 2021.
• [109] The plaintiff relies upon the three sources of evidence to prove the insolvency of the Company as at 20 July 2020:

(a) First, the Statutory Report to Creditors prepared by the liquidator, Mr Gavin Morton, dated 1 March 2022 (Liquidator's Report);

(b) Second, an Expert Report prepared by Mr Travis Pullen (Expert Report), a registered liquidator who was engaged by the plaintiff for the purpose of giving opinion evidence about the issue of insolvency in the proceeding; and

(c) Third, the lay evidence of Mr Jeon.

• [110] The defendant's case is that the plaintiff has fallen well short of satisfying the onus on it to prove the Company was insolvent at the relevant time, whenever that may be.

• [111] The plaintiff submits that because the defendant did not call his own expert on the critical issue of insolvency, an inference that such evidence would not have assisted the defendant ought to be drawn, consistent with the principle in Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298. I do not accept this submission for two reasons.
• [112] First, the onus of proving that the Company was insolvent rests with the plaintiff. It is not incumbent on the defendant to provide what the plaintiff describes as "the missing evidence".[64] It is entirely proper and orthodox that the defendant put the plaintiff to proof.
• [113] Second, the question of insolvency is ultimately a question of fact for the court to determine objectively.[65] While expert opinion may be of assistance in analysing the relevant evidence, it is not conclusive, and the weight it ought to be afforded remains a matter for the court to determine.[66]
• [114] The question of proving the insolvency of a Company at a specified date is a difficult one, requiring careful consideration of a large volume of material.[67] Before turning to the evidence in this case, it is instructive to set out the relevant legal principles that inform and guide the determination of the issue of insolvency.

• [115] The starting point for an insolvency analysis is s 95A of the Corporations Act which states:

(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.

Note: A company is taken to be insolvent if the company proposes a restructuring plan to creditors (see subsection 455A(2))."

• [116] This definition adopts what is often described as a "cash flow test" of insolvency.[68] That test focuses on income sources that are available to the company and expenditure obligations it has to meet, rather than a "balance sheet test".[69] The latter test focuses on the value of a company's assets and liabilities as reflected in the books and records of the company. Under the cash flow test, it does not matter that a balance sheet may reveal that a company's assets exceed its liabilities. That does not mean that a balance sheet test is irrelevant. For instance, it can provide context for the application of the cash flow test.[70] The critical question is whether the company can pay its way in carrying on its business.[71]
• [117] Considerations relevant to whether a company is insolvent under the cash flow test include:

(a) whether the company is actually paying its debtors;[72]

(b) whether the debtor is able to pay debts with money actually available, not whether, if given time, the debtor could pay out of its assets;[73]

(c) whether the company was presently able to pay its debts out of "realisable assets".[74] The realisation must be in time to meet the indebtedness as the claims mature;[75] and

(d) whether there is sufficient cogent evidence establishing a degree of commitment from an entity willing to offer financial support for the company whose solvency is in contention.[76]

• [118] The objective determination of insolvency as a question of fact must be made without hindsight in all the circumstances of the case.[77] These circumstances include the nature of the company's business and its assets, its financial resources, the dates that liabilities will likely fall due, and the availability of any unsecured borrowings or voluntary extension of credit by third parties.[78] A company's ability to obtain unsecured loan funds from external sources needs to be determined "in a practical and businesslike way by reference to the commercial realities of the case".[79]
• [119] The concept of "commercial reality" when assessing insolvency was described by Chesterman J in Emanuel Management Pty Ltd (in liq) v Foster's Brewing Group Ltd [2003] QSC 205; (2003) 178 FLR 1 as being:[80]

"...designed to prevent over-hasty adjudications of insolvency in the case of companies suffering a temporary shortage of cash. It was not meant, in my view, to allow companies in a chronic state of illiquidity who evade, by one means or another, determined actioned by a creditor to wind them up, by that evasion, to be deemed solvent."

• [120] The decision of Martin J (as his Honour then was) in In the matter of Cullen Group Australia Pty Ltd (in liq) [2020] QSC 367 contains a succinct summary of the assessment to be undertaken:[81]

"Whether or not a company is insolvent at a particular time is a question of fact. That involves a proper consideration of its financial position based on commercial reality. It is not merely an arithmetical exercise made with reference to the balance sheet, the profit and loss account, or both. Necessary enquiries might extend to matters such as whether or not the company had access to funds from directors, related companies or others."

• [121] Both parties (and, as discussed below, Mr Pullen) referred to the 14 common symptoms of financial stress said to be found in insolvent companies, as identified by Mandie J in Plymin. These are:[82]

(a) Continuing losses;

(b) Liquidity ratios below one;

(c) Overdue Commonwealth and State taxes;

(d) Poor relationship with present bank, including inability to borrow further funds;

(e) No access to alternative finance;

(f) Inability to raise further equity capital;

(g) Suppliers placing a company on cash on delivery arrangements, or otherwise demanding special payments before resuming supply;

(h) Creditors unpaid outside trading terms;

(i) Issuing of post-dated cheques;

(j) Dishonoured cheques;

(k) Special arrangements with selected creditors.

(l) Solicitors' letters, summonses, judgments or warrants issued against the company;

(m) Payments to creditors of rounded sums which are not reconcilable to specific invoices; and

(n) Inability to produce timely and accurate financial information to display the company's trading performance and financial position, and make reliable forecasts.

• [122] The observations of Martin J (as his Honour then was) in In the matter of Cullen Group Australia Pty Ltd (in liq) [2020] QSC 367 provide the following qualification to the use to be made of these factors:[83]

"The list set out by Mandie J... is not a complete set of indicia of insolvency. Rather, his Honour noted that the expert accountant who had been called for one of the defendants accepted that the list "brought to mind very common features in insolvency situations". The list, which is a useful aide memoire, is just that. It is not a proxy for the test of insolvency expressed in s 95A of the Corporations Act" (emphasis added, citations omitted).

• [123] As Barwick CJ stated in Sandell v Porter (1996) 115 CLR 666:[84]

"It is the debtor's inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency. Whether that state of his affairs has arrived is a question for the Court and not one as to which expert evidence may be given in terms though no doubt experts may speak as to the likelihood of any of the debtor's assets or capacities yielding ready cash in sufficient time to meet the debts as they fall due" (emphasis added).

• [124] With these principles in mind, I now turn to consider the evidence of insolvency of the Company as and from 1 January 2021.

• [125] The liquidator was not called as a witness for the plaintiff in the trial. Rather, his Liquidator's Report is annexure "B" to the Expert Report. The Liquidator's Report was prepared three months after Mr Morton was appointed as liquidator, and was made pursuant to s 70-40 of the Insolvency Practice Rules (Corporations) 2016 (Cth).
• [126] The opinion in the Liquidator's Report is that the Company was insolvent from at least July 2020. This conclusion is said to be underpinned by the following factors:[85]

(a) Significant trading losses in the financial year ending 30 June 2020, and for the period from 1 July 2021 until the appointment;

(b) A net asset deficiency based on realisable values of assets compared to liabilities due and owing by the Company for the periods between 30 June 2020 and 30 June 2021, and for the period between 1 July 2021 to the appointment;

(c) A ratio below one for the three periods listed above;

(d) A lack of available funds to cover trading losses and working capital for the Company moving forward;

(e) Legal action being taken by at least one creditor for the recovery of unpaid debts;

(f) Unsecured loans to fund ongoing trading of the business; and

(g) At least 60% of liabilities were more than 90 days overdue.

• [127] The defendant submits that the Liquidator's Report should be afforded limited weight because:

(a) the liquidator was not called as a witness and therefore not exposed to cross-examination;

(b) the statement of financial position and estimated return to creditors were only estimates based on the information available at the time of the Liquidator's Report; and

(c) of the various disclaimers made by the liquidator, including that the Liquidator's Report was not to be used other than to assist creditors in evaluating their positions.

• [128] The Liquidator's Report was tendered by the plaintiff without objection from the defendant under s 1305(1) of the Corporations Act. This subsection relevantly states that:

(1) A book kept by a body corporate under a requirement of this Act is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book."

• [129] Any opinion in the Liquidator's Report is therefore admissible as opinion evidence. Although, the weight of that evidence remains a matter for this Court to assess.[86]
• [130] I do not accept that the fact that the liquidator was not called at trial automatically diminishes the weight of his report. But I do accept that there are obvious qualifications to the views expressed by the liquidator. This early report needs to be read in the context that it was not intended to provide an extensive analysis of the affairs of the Company. Rather, it is what it purports to be: a preliminary assessment (after three months of investigation) of the Company's financial state leading up to the appointment.

Financial information from the Liquidator's Report

• [131] The liquidator was appointed at the end of the 2021 strawberry season at which time the Company was not in a position to trade into the future due to cash flow constraints and significant levels of debt. One of those debts was to the plaintiff. The liquidator's appointment coincided with the expiration of the plaintiff's demand for payment of this debt.
• [132] At the time of the liquidator's appointment, the Company's liabilities totalled over $5.9 million, consisting of debts owing to secured creditors of $2,322,206.72, priority unsecured creditors of $235,532.98, non-priority unsecured creditors of $2,933,558.05, and related party creditors of $418,184.00. In addition to this, the Company had provided security for funds loaned to the entity that owns the Property by way of security interests registered over the Company. At the time of his appointment, the liquidator estimated that the Company's liabilities exceeded its assets by approximately $5.5 million.
• [133] A summary of the financial performance and position of the Company based on the externally prepared financial statements for the financial years 2020 and 2021, and management accounts from MYOB software for the period 1 July 2021 to 1 December 2021, is set out in a table in the Liquidator's Report as follows:[87]

• [134] The liquidator did not undertake any audit or verification in relation to the accuracy of the financial statements. Based on the unaudited accounts, the liquidator's preliminary opinion was that the Company traded at a loss in financial year ending 30 June 2020, and that for the period between 1 July 2021 and 1 December 2021, the business was not generating sufficient income to meet trading expenses.
• [135] The following table summarises the liquidator's assessment of the financial position of the Company as at the appointment date from the information obtained from the Company's records and the liquidator's investigations:[88]

• [136] The plant and equipment used by the Company comprised both financed and non-financed equipment. After the appointment of the liquidator, a registered valuer was engaged to undertake a formal listing and valuation of all the equipment. The valuation showed that:

(a) the financed equipment forced liquidation value was $685,500; and

(b) the non-financed (company-owned) assets' forced liquidation value was $298,515.

• [137] A search of the relevant security register at the time of the liquidation disclosed over 25 secured creditors. The most relevant ones are set out below.

• [138] As stated earlier, Nutrien supplied fertiliser products to the Company and held a security interest over its assets. At the time of the liquidation, Nutrien was a major creditor of the Company, being owed $1,361,053.10 (over $66,000 more than its security limit of $1.295 million). It was not suggested that the Company's books and records wrongly recorded this debt.
• [139] Prior to the appointment of the liquidator, however, the Company had negotiated with and settled its debt with Nutrien. The Company and Nutrien agreed on a payment of $950,000 in full and final settlement of the debt in return for a release of the security interest. A formal deed of settlement was subsequently executed with funds to be made available on 23 February 2022. Those funds were to be paid from borrowings against the Property which were yet to be finalised. The defendant explained how the Company's liability pursuant to this settlement was satisfied by the grant of a mortgage by SS Group over the farmland after the liquidation of the Company.

• [140] This security interest related to a factoring facility agreement up to a limit of

$2.9 million, supported by guarantees and indemnity deeds by related entities (Gowinta, SS Group and the defendant). This facility was never advanced.

• [141] Similarly, this security interest related to a factoring facility agreement up to a limit of $400,000 supported by guarantees and indemnity deeds by related entities (Gowinta, SS Group and the defendant). Again, this facility was never advanced.

• [142] This security interest related to commercial loan contracts for equipment totalling $248,013.61. At the time of the appointment, the defendant was negotiating with John Deere for the refinancing of the contracts, and the rental payments were approximately two months in arrears.

• [143] The Company's major trade creditors (with claims over $100,000) as at the liquidation were as follows:

(a) The plaintiff for labour hire services ($1,632,162);

(b) Queensland Freight Distribution Services Pty Ltd for freight services ($407,262);

(c) QFDS trading as Queensland Freight lines for freight ($389,396);

(d) AZAC Packaging Pty Ltd for packing supplies ($208,652); and

(e) R and R Fumigation Services for fumigation ($100,000).

• [144] As can be seen, the Company's debt to the plaintiff made it the Company's largest unsecured creditor.
• [145] The liquidator's view about the Company being insolvent from at least July 2020 was fairly and properly stated to have been made subject to "whether debts due to related parties were due and payable" and "whether funds held by the director or third parties were available to meet debts due and payable".[89]
• [146] The Liquidator's Report is somewhat qualified by relevant and important matters on the question of insolvency, and I have accordingly afforded little weight to the ultimate conclusion made regarding the date of insolvency.
• [147] In addition, the opinion of the liquidator did not consider the impact, if any, of s 588GAAA. This is by no means a criticism, as I appreciate there has been the considerable uncertainty around the operation of this provision since its enactment.

• [148] Mr Pullen conducted a "general examination" of the financial affairs of the Company from the "limited information" provided to him.[90] That information was identified in the Expert Report as follows:

(a) The Company's Financial Statements for the years ending 30 June 2018 (with 30 June 2017 comparatives) to 30 June 2021;

(b) The Company's internally prepared management accounts from 20 October 2019 to 1 December 2021;

(c) The Company's Income Tax Returns lodged for the financial years ending 30 June 2018, 2019, 2020, and draft externally prepared estimates for the 2021 financial year and the period between 1 July 2021 and 30 November 2021;

(d) The Company's Bank Statements for the period between 17 November 2020 and 1 December 2021;

(e) Correspondence from the Australian Taxation Office (ATO) Freedom of Information Unit as follows:

• Running balance account statement of account for the period between 5 December 2019 and 1 December 2021;
• ATO correspondence and client notes;

(f) Creditor lists from the Company's internally kept aged payables; and

(g) Creditor claims as set out in Formal Proof of Debt forms received to date.

• [149] Mr Pullen acknowledges that he had not been provided externally prepared financial statements for the period between 1 July 2021 to 1 December 2021. He also accepts that he did not compare the transactions in the Company's financial information against the primary source documents. From his review of the management accounts of the Company, Mr Pullen observes that:

(a) the accounts were prepared on an accrual basis;

(b) bank reconciliations were undertaken regularly; and

(c) the management accounts were reasonably reliable.

• [150] The approach adopted by Mr Pullen in determining the question of insolvency is to assess the affairs of the Company against the insolvency indicators identified by Mandie J in Plymin. In doing so, he considers that the following seven indicators were present in the affairs of the Company from June 2018 onwards:[91]

(a) Poor cash flow or no cash flow forecasts;

(b) Continuing losses;

(c) Liquidity ratio below one;

(d) Accumulating debts and excess of liabilities over assets;

(e) Significant unpaid tax and superannuation liabilities;

(f) Payments to creditors of rounded sums which were not reconcilable to specific invoices; and

(g) Outstanding Creditors.

• [151] On this analysis, Mr Pullen's opinion is that the Company was insolvent from 30 June 2018.

• [152] The defendant submits that Mr Pullen was an honest and genuine witness, but is otherwise highly critical of nearly every aspect of his evidence.
• [153] The first aspersion cast on Mr Pullen is that he was effectively a belligerent witness, intent on defending his opinion that the Company was insolvent "at all costs" because he was unwilling to make "appropriate and sensible concessions" about the limitations of the opinions he expressed in the Expert Report.[92]
• [154] I accept that Mr Pullen was an honest and genuine witness. He has accepted many insolvency appointments to companies, large and small, across a wide range of industries for over 25 years. I find that his evidence was given through his expertise as a registered liquidator with many years' experience working in the accounting and finance industry.
• [155] I do not accept the defendant's submission that Mr Pullen was not prepared to make reasonable concessions. He candidly did so both in his Expert Report and under robust cross-examination. For example, Mr Pullen expressly identifies and recognises at the outset of his Expert Report that he had:

(a) placed "significant reliance" on financial information provided to him, and the Company's internally prepared management accounts;[93]

(b) not conducted an audit of the financial information provided or compared transactions to primary source documents because "such analysis extend[ed] beyond the scope of this engagement, and may require significant time, costs and further information to be provided to me";[94]

(c) on occasions, made assumptions on limited information;

(d) undertaken a "general examination of the financial affairs of the Company";[95]

(e) been provided with "limited information" in terms of the financial records of the Company.[96]

• [156] Under cross-examination, Mr Pullen also accepted that:

(a) an ASIC Publication setting out "key indicators of insolvency" referred to in his Expert Report had since been superseded.[97] Incidentally, I am not satisfied that anything turns on this concession - there is no suggestion by the defendant that there is a discernible difference between the two publications;

(b) the cashflow test is the predominant test;[98] and

(c) the cases he had set out in his Expert Report had been selected as "probably the best one or the most relevant ones"[99] but some were plainly not relevant. A number of the cases provide a useful guide to the court's determination of the relevant issue, being the plaintiff's proof of insolvency.[100] Although, for reasons that were not explained, a number of the decisions cited set out the common law principles in circumstances where the onus is on the Company to prove solvency.[101] This is obviously not such a case.

• [157] The next aspersion cast on Mr Pullen by the defendant is that he did not conduct a cash flow analysis. Again, I do not accept that submission. Mr Pullen assessed the Company's finances as they were recorded - on an accrual basis. He explained that "to go from accrual to account to cash basis would require a full construction of all the...financials" and he did not think that was necessary in this case.[102]
• [158] The defendant questions the reliability of an analysis on the accrual basis when the Court's task is to assess, at a given time, when a debt is incurred by a company. In support of this submission, the defendant refers to the following observations of the New South Wales Court of Appeal in Xu v Megaward Pty Ltd [2018] NSWCA 232; (2018) 130 ACSR 412 (Xu):[103]

"A recurring difficulty in an analysis of solvency based on financial statements prepared on an accruals basis is deriving reliable information about the company's cashflow" (emphasis added).

• [159] But as the plaintiff correctly points out, these observations need to be considered in the full context in which they were made. As the following passage reveals, the Court in Xu was prepared to find in favour of the party relying on the accrual-based accounting methods by drawing inferences as follows:[104]

"A recurring difficulty in an analysis of solvency based on financial statements prepared on an accruals basis is deriving reliable information about the company's cashflow. However_,_ focussing upon the most relevant period, the three months from July to September 2017, the financial statements disclosed that there were sales of $1,164,419 (94% representing commission accrued or earned, but not necessarily received, by the company) but that the company's debtors at the beginning of that period were $2,123,349, while debtors at the end of the period were $2,280,870. Although those numbers of themselves say nothing about the extent to which the company's debtor profile continued to be more or less aged, the inference can be drawn that of the sales of $1,164,419 (essentially commission accrued), some $1,006,897 (being opening debtors plus sales less closing debtors) represented receivables (in the form of rights to commissions) which had been paid and received. That amount in turn reflected an average monthly conversion of receivables into receipts of some $335,632, which exceeds the average monthly receipt on which the primary judge's six week analysis proceeded" (emphasis added).

• [160] I accept the plaintiff's submission that the fact that Mr Pullen did not adopt a cash-based accounting method does not mean he failed to conduct a cash flow analysis. It is apparent that he undertook a detailed analysis of the Company's cash position over time by reviewing contemporaneous bank statements and MYOB transaction records. Mr Pullen's evidence is that accrual and cash-based records provide effectively the same outcome, because over a short period of time, the trends under both approaches largely converge. I accept that evidence given Mr Pullen's expertise, and also as a matter of common sense.
• [161] It is relevant to note too that the Company did not prepare accounts on a cash basis. I am therefore satisfied that it is not necessary to reconstruct an alternative set of financials in this case. The documents in existence at the relevant times are in evidence and those records are internally consistent with MYOB data and bank statements. As discussed in more detail below, the accuracy of these records is not seriously challenged by the defendant.
• [162] There are, however, some identifiable concerns that diminish the reliability of Mr Pullen's broad view on the issue of insolvency, and therefore the weight to be afforded to the Expert Report on the issue of the insolvency of the Company. For a start, like the liquidator, Mr Pullen did not consider the impact (if any) of s 588GAAA. Again, as with the liquidator, this is not a criticism of Mr Pullen for the reasons discussed above.

The disconnect between the premise of the Expert Report and the pleadings

• [163] My first concern is that there is an unexplained disconnect between the instructions to Mr Pullen and the premise of his Expert Report.
• [164] In the letter of instruction from the plaintiff's solicitors to Mr Pullen dated 7 November 2023, he is requested to prepare an expert report setting out his opinion as to "the date of insolvency" of the Company.[105] On the same day, a brief to Mr Pullen attached and referred to the Liquidator's Report and its conclusion that the Company was insolvent from at least 1 July 2020. This brief also went on to say:[106]

"We think that at the time each of the Debts was incurred, [the Company] was insolvent or became insolvent as a consequence of incurring such debt. The Report to Creditors, together with [the Company's] tax returns and financial reports, illustrate that [the Company] has never been solvent from financial year ended 2020."

• [165] Against the backdrop of these instructions, it is curious that Mr Pullen articulates the premise of the Expert Report as to assess "the solvency of the Company as at 30 June 2018."[107] It is difficult to reconcile this premise not only with the instructions given to Mr Pullen, but also with the plaintiff's pleaded case that the Company was insolvent from at least 1 July 2020.

• [166] Another concern about the Expert Report is Mr Pullen's reliance on documents that were not disclosed. For example:

(a) As part of the documentation Mr Pullen relies upon there is reference to a running balance statement of account of the Company from the ATO for the period between 5 December 2019 and l December 2021, together with correspondence from the ATO including client notes. This documentation was apparently obtained by Mr Pullen through the liquidator, but was not attached to the Expert Report, disclosed by the plaintiff, or admitted into evidence;

(b) Mr Pullen refers to and relies on the Company's aged payables, but apart from an aged analysis dated 1 December 2021, no other documents containing an aged analysis of the trade creditors of the Company are attached to the Expert Report or otherwise admitted in evidence; and

(c) Mr Pullen expressly acknowledges that he did not have or request to have the complete facility documentation between Ceravolo and the Company, nor did he have any explanation of the various journal entries from the defendant or Ceravolo.

• [167] Mr Pullen's conclusion about the insolvency of the Company is underpinned by his assessment of the relevant Plymin factors. As indicated above, these factors can be a useful aid but are not a substitute for the test of insolvency as expressed in s 95A of the Corporations Act.[108] The reliability of Mr Pullen's conclusion as to the Company's insolvency is diminished to some extent by the following matters:

(a) He does not attempt to assess the solvency of the Company at any particular points in time, rather, he conducts his assessment across the entire period from 30 June 2018 to 1 December 2021. Such a broad-brush approach is of little assistance to the court in determining whether the Company was insolvent from July 2020 onwards and, most relevantly, from 1 January 2021 onwards;

(b) He does not assess in any meaningful way one of the matters he himself identifies as relevant to the task of examining the solvency of the Company, most particularly:[109]

"Arrangements between the Company and prospective lenders, such as its bankers and shareholders, in order to determine whether any shortfall in liquid and realisable assets and cash flow could be made up by borrowings which would be repayable at a time later than the debts";

(c) He makes no investigations into the arrangements upon which Ceravolo was providing funding to the Company. Mr Pullen's analysis of the apparent inadequacy of funding to the Company is based more generally on unsubstantiated assumptions made in the Liquidator's Report. The evidence from the defendant about these arrangements is discussed in more detail below;

(d) He does not undertake any investigation as to when individual creditors of the Company had amounts that became due and payable to the Company;

(e) He does not undertake any investigation as to what payment terms existed or were agreed between any creditors and the Company (except to note that most of the payables were more than 90 days at any given time);

(f) He concludes that the Company was unable to pay superannuation since 30 June 2018. Mr Pullen accepts that an increase in superannuation liability is consistent with an increase in the number of employees retained by a company, but maintains that the issue is one of outstanding liability. He does, however, accept that the fact that the financial accounts of the Company showed an amount unpaid in superannuation at the end of a financial year does not mean that the Company was, at 30 June, liable to pay that amount of superannuation. Mr Pullen considers that the "cumulative liability" analysis contained in his Expert Report did not "add a lot".[110] It does, however, show that despite a steady increase in the Company's liability for superannuation over the years, the Company was paying superannuation. This is highlighted by the drop in the alleged amount of unpaid super at 30 June for the financial year ending 30 June 2021, and in the substantial drop in alleged unpaid super;

(g) He forms a view about there being unpaid tax and superannuation liabilities based on documentation which was not proved. The plaintiff points to a proof of debt from the ATO dated 1 February 2023, which is attached to the Expert Report, as supporting Mr Pullen's assessment of the Company's tax and superannuation position. But that proof of debt does not deal with the company's full tax position - it is an assessment by the Commissioner of Taxation as to the unpaid superannuation guarantee charges at the time of the liquidation. This proof of debt claims that the Company "was on 1 December 2021" indebted to the ATO for a superannuation guarantee charge, with the particulars being "the period from 1 July 2020 to 31 December 2021". This document is not the running account balance, nor the file note referred to in the Expert Report. The defendant accepts there were such unpaid charges at this time. But his evidence is that prior to the liquidation, the Company did not owe any outstanding tax to the ATO and had no outstanding Notice of Assessment in respect of any taxation liability. There is no evidence to contradict this. It follows that I am not satisfied that there is a basis for Mr Pullen's opinion that the indicia of significant unpaid tax and superannuation liabilities was present from 2018 or indeed at any time leading up to the appointment of the liquidator;

"...cover the business of [the Company] and have been prepared to meet the needs of stakeholders and to assist in the preparation of the tax return."

The statements are also described as "special purpose financial statements" which "do not comply with any Australian Accounting Standards unless otherwise stated."[113]

(i) He relies solely on figures stated in the financial statements of the Company in valuing non-current assets (property, plant, and equipment). The financial statements themselves provide that "each class of property, plant and equipment is carried at cost less, where applicable, any accumulated depreciation and impairment."[114] Mr Pullen does not analyse the extent to which these assets were secured, and if so, the equity position of those assets. The factual basis, therefore, from which Mr Pullen forms the opinion that from 30 June 2017 to 1 December 2021 the Company sought to expand its business despite being insolvent from June 2018, is based on speculation drawn from the face of the financial reports from one year to the next.

• [168] Adopting the Briginshaw approach to the standard of proof in this case, I am not satisfied that Mr Pullen's conclusion as to the Company's insolvency is sufficient in itself to support a finding that the Company was insolvent as at 1 January 2021, or at the time the remaining Outstanding Invoices were incurred in October and November 2021.
• [169] It does not necessarily follow from this finding that the plaintiff's claim must fail. It is the court's task to assess whether the plaintiff has satisfied the onus of proving the insolvency of the Company on an assessment of all the evidence before it.[115] The question for this Court is not whether the defendant has proved that the Company was solvent, but whether the plaintiff has proved the Company was insolvent at the relevant time.

• [170] The three core sources of financial data about the Company in this case are the:

(a) Company's Financial Statements;

(b) MYOB Bank Account Transaction Listing and ANZ Bank Statements; and

(c) Company Income Tax Returns.

• [171] The defendant challenges the Company's financial records generally on the basis that the accounts are unaudited and there was no comparison of transactions with the primary source documents.
• [172] I am, however, satisfied that there is no real basis to doubt the accuracy and authenticity of the Company's own financial information. Leaving aside the general criticism by the defendant, there was no real cogent challenge to the source data. This is hardly surprising given that:

(a) the defendant, as the director of the Company, is and has been a director of many companies over the years. He is obviously an experienced businessman, having operated in the strawberry farming industry for over 35 years. The defendant swore a lengthy affidavit in this proceeding and did not raise any particular concerns about the accuracy of the books and records of the Company. Rather, the defendant accepted under cross examination that he had a solid understanding of the Company's financials, he reviewed cash and creditor figures, attended to the Business Activity Statement on a monthly basis, received quarterly reports from his bookkeeper and the Company accountant, and clearly understood cashflow as he "knew what money was coming in" and "who was owed what";[116]

(b) the Company maintained its financial records in a MYOB database. The data was entered into that database daily by the Company's bookkeeper and administration manager. The data was then revised by the Company's accountants, SDE Accountants (who now trade as Findex);

(c) the documents relied upon were prepared by the Company in the ordinary course of its business;

(d) the financial statements and management accounts were drawn directly from the Company's own records;

(e) the MYOB bank transactions and income tax returns provide independent corroboration of the figures reported in the financial statements and management accounts;

(f) there is no suggestion that the Company failed to comply with its obligations under s 286 of the Corporations Act to keep financial records that correctly record and explain its transactions, financial position and performance to enable true and fair financial statements to be prepared and audited; and

(g) these source materials were not created for the purpose of litigation.

• [173] I am therefore satisfied that the sources of financial data collectively form a reasonably consistent and reliable evidentiary foundation upon which the court can assess (along with the other evidence referred to below) the insolvency position of the Company as and from 1 January 2021.
• [174] Another issue that emerged during the trial concerned the accuracy of the creditors recorded in the internal management accounts as at 1 December 2021. The defendant was also critical of the financial records, on the basis that there had been no consideration of the extent to which the creditors' debts:[117]

"...were due and owing and unpaid, the terms on which such creditors were required to be paid, the length of time the creditors had been unpaid, or the terms on which such creditors were in fact being paid."

• [175] I accept that information more broadly is not in evidence, with one exception. That is, there is ample evidence about the debts due, owing and unpaid to the plaintiff, and the terms of those debts. This evidence is instructive and persuasive given the plaintiff was the largest unsecured creditor of the Company at the time of the liquidation.

• [176] Mr Jeon, the sole director of the plaintiff, gave evidence that the plaintiff is a licensed labour hire service provider who employs about 70 people, mainly young tourists on working holiday visas from diverse international backgrounds.
• [177] In his affidavit evidence, Mr Jeon explains the steps he undertook to follow up the defendant about late payment of invoices, and the fact that the Outstanding Invoices were unpaid. It is apparent that as well as meeting in person with the defendant, Mr Jeon received numerous text messages and promises to pay from the defendant between 20 September 2021 and 2 November 2021. These messages reveal Mr Jeon's understandable frustration in needing money to pay his workers. It is also clear that the defendant was desperately trying to raise funds to pay the plaintiff and the Company's other creditors.
• [178] There is some confusion in the evidence as to how various payments made by the defendant were allocated to the Outstanding Invoices. But the dates of the various invoices are not in issue on the pleadings, and it is not suggested that the plaintiff had been attributing payments received to incorrect invoices. The facts are that the defendant was paying what amounts it could when it could, and these amounts were being applied by Mr Jeon to "any outstanding invoices".[118]
• [179] What emerges from Mr Jeon's evidence, and that of the defendant, is that the Company had:

(a) paid all invoices issued by the plaintiff to the Company for the 2021 calendar year, up to the invoice issued on 1 October 2021; and

(b) made payments to the plaintiff which the plaintiff attributed to invoices it had issued prior to 2021**.**

• [180] The evidence also shows that between 1 July 2021 and 1 November 2021, the Company paid the plaintiff a total sum of $3,506,572.30 as follows:

(a) in July 2021 - $724,690.81;

(b) in August 2021 - $1,030,189.22;

(c) in September 2021 - $1,127,180.10; and

(d) in October 2021 - $624,512.17.

• [181] Under the Services Agreement, the plaintiff's invoices were due four weeks after receipt of an invoice, or earlier as agreed. The defendant submits that it follows that:

(a) the invoice dated 1 October 2021 was not payable by the Company before 29 October 2021 at the earliest;

(b) the invoice dated 7 October 2021 was not payable by the Company before 4 November 2021 at the earliest;

(c) the invoice dated 14 October 2021 was not payable by the Company before 11 November 2021 at the earliest;

(d) the invoice dated 21 October 2021 was not payable by the Company before 18 November 2021 at the earliest;

(e) the invoice dated 28 October 2021 was not payable by the Company before 25 November 2021 at the earliest; and

(f) the invoice dated 3 November 2021 was not payable by the Company before 1 December 2021 at the earliest.

• [182] The defendant relies on this evidence as demonstrating that:

(a) the only invoice that was issued by the plaintiff at a time when there was an outstanding 2021 invoice due, payable and unpaid was the final invoice the subject of the plaintiff's claim (being the invoice dated 3 November 2021);

(b) the face of the 3 November 2021 invoice claims work performed by the plaintiff between 25 October and 30 October 2021; and

(c) accordingly, at best, the plaintiff only performed services for the Company for one day when the Company had an outstanding 2021 invoice due and payable.

• [183] Strictly speaking, the defendant's analysis of the 2021 invoices is correct. But it is otherwise of no assistance in considering the issue of the insolvency of the Company as at the time the 2021 invoices were incurred. For reasons that are not explained, the defendant does not factor in the 19 invoices totaling $523,720.36 (included in the Outstanding Invoices) which remained outstanding from 2020. Whilst I have found that the moratorium on insolvent trading applies in this case, it does not extinguish the debts incurred during the safe harbour period for the purposes of determining the question of insolvency under s 95A.
• [184] The discharge of some of the 2021 invoices does not change the obvious fact that the defendant could not afford to pay the Company's debts to the plaintiff when the debts became due and payable. I accept the plaintiff's submission that "the defendant cannot rely on selective satisfaction of later invoices to obscure the continuous pattern of non-payment from 2020."[119]

• [185] The Company was placed into liquidation on 1 December 2021, so there are no full year financial statements for the financial year 2022. The July to November 2021 internal accounts are therefore the only available data covering the months immediately preceding the liquidation. I accept the plaintiff's submission that the Company's seasonal trading profile does not excuse its failure to pay debts as and when they fell due during the relevant period. Section 95A, when read in conjunction with s 588G, imposes a continuous obligation not to trade while insolvent. That obligation is not suspended merely because a business expects stronger performance in certain parts of the year.
• [186] In his Expert Report, Mr Pullen uses the management accounting data for the period 1 July 2021 to 1 December 2021 to summarise the financial performance of the Company as reported in its financial statements for the years ending 30 June 2017 through to 2021. Mr Pullen created a table showing the various sales and expenses of the Company between June 2020 and December 2021, part of which is extracted below:[120]

• [187] The records show that the Company achieved its highest revenue and highest gross profit in the 2020 and 2021 financial years. It is also apparent that the Company made an overall net profit in 2021. This profit included insurance recoveries, a COVID-19 Cashflow Boost, and JobKeeper income amounts totalling $244,113.88. Given the extraordinary nature of these payments, I am not prepared to accept that this amount should be included as having been received in the ordinary course of the Company's business. Relevantly, but for these funds, the Company would have made an overall net loss in the 2021 financial year, despite the records showing its highest level of sales that year.
• [188] Another table in the Expert Report is similarly underpinned by the Company's financial statements as at 30 June 2020 and 2021, and from the management accounts as at 1 December 2021. The Expert Report shows the current assets, liabilities and equity and ratio position of the Company at those times as follows:[121]

• [189] What emerges from the financial records is that the Company was consistently seeking to expand its business from the outset, including the period during the COVID-19 pandemic. During this time, there was an increase in labour and freight costs, which put a considerable strain on the business.
• [190] The financial records show that the trade creditor amounts increased year on year (with an insignificant decrease between 30 June 2019 and 30 June 2020) as follows:[122]

• [191] The starting point of the insolvency analysis is an assessment of the Company's cash flow. In this respect, the evidence as summarised in the above tables is that:

(a) cash on hand and cash at bank were consistently minimal in all relevant financial years, with the highest figure being approximately $130,000 in the financial year ending 2021; and

(b) debts to trade creditors exceeded $3.34 million at the financial year ending 2021, and $4.04 million by December 2021.

Conducting a similar exercise from the 2020 financial year, at no point did the Company hold sufficient cash to discharge its debts as they became due and payable.

• [192] Over the years, the Company's significant trade creditor debt had grown. Despite the fact there is no evidence of the trade terms and relationships between the Company and each of the other various creditors, it is reasonable to assume that these debts were overdue, because:

(a) the plaintiff's invoices were due 30 days after they were issued, and the defendant's evidence is that other creditors generally provided a payment window of 28 days;

(b) at least 60% of the Company's liabilities were more than 90 days overdue;

(c) the consistent growth of debts since the financial year ending 2020 indicates that earlier debts remained unpaid and were rolled forward rather than discharged;

(d) the defendant concedes that by the 2021 calendar year, the Company routinely could not pay creditors in full but rather made small payments (usually weekly) as funds became available.

• [193] The Company's cash flow was further compromised by its debt arrangement with Ceravolo. This liability was classified as non-current, even though repayments were made continuously from trading proceeds and were short-term in nature. Under the relevant financing arrangement, Ceravolo was entitled to claim up to 57% of the Company's sale proceeds, leaving it with only a fraction of each dollar to meet other creditor obligations. The defendant points to the fact that at the conclusion of the 2021 season of planting and harvesting strawberries, the balance debt owed to Ceravolo was "a mere $5,944.30."[123] If anything, this highlights the Company's lack of cash flow at that time.
• [194] Accordingly, the issue remains as to whether the Company had sufficient liquid resources during the trading period to pay its debts to other creditors as they fell due.
• [195] The defendant points to the fact that the strawberry harvest season in south-east Queensland runs from May to November, and submits that that strengthens the evidential value of the available financial records for the end of 2021. The defendant submits that those records represent the Company's peak operating season, and its period of maximum revenue opportunity. But this submission overlooks that the Company was unable to reduce its liabilities, and allowed its trade creditors to expand beyond $4 million. It follows that there is a compelling inference of cash flow insolvency.
• [196] The defendant's contention that the 2021 figures support solvency also overlooks that despite the injection of funds during COVID-19 which left the overall profit for that year looking healthier than usual, the fact is that the Company remained unable to, and in fact failed to, pay its debts, both to the plaintiff and other creditors as and from January 2021.

• [197] The defendant attempts to distract from the obvious inability of the Company to pay its debts as and when they became due and payable in 2021 (as reflected in the books and records of the Company) by focusing on available resources from related and non-related third parties.
• [198] In particular, the defendant relies on three sources of external funding to avoid a finding of insolvency, including:

(a) support from SS Group, comprising of a facility offered by Semper Asset Management Pty Ltd (Semper) and the "willingness and ability of SS Group to utilise the equity in the farmland to satisfy liabilities of [the Company]";[124]

(b) an offer of funding from THN Capital Solutions (THN), signed on 11 September 2021; and

(c) a valuation of the Company's assets by Global Business Auctioneers & Valuers Pty Ltd (Global).

• [199] As discussed above, the capacity to raise funds from external sources must be judged in a practical and businesslike way by reference to commercial realities.[125] This is not a theoretical exercise, and the mere possibility of raising such funds is not sufficient.[126] Rather, the funds must be genuinely and realistically available as a matter of commercial reality.[127]
• [200] Turning then to each of the alleged external funding sources that the defendant relies upon.
• [201] First, both offers from Semper and THN were expressly subject to conditions and due diligence. They were, in substance, indicative rather than binding, rendering the prospect of either converting to cash highly uncertain. This uncertainty was borne out by the offer from THN, which never came to fruition.
• [202] Second, even if either of these offers had progressed, I am not satisfied that they would have crystallised in time to satisfy the Company's outstanding debts. The defendant concedes that a refinance option such as the offer from THN would likely take weeks, if not months, to complete. A hypothetical asset, no matter how valuable, must be capable of timely realisation if it is to be included in the pool of funds realistically available to pay creditors.[128] By the time of the offers, the Company's debts to the plaintiff had already been overdue by over a year. Assessing the Company's debtors on a macro level, its debts to other creditors were older still.
• [203] Third, the offer from Semper was restricted in purpose because it expressly stated that the loan funds were to be used solely to "settle an existing mortgage and acquire [a portion of the farmland] and provide additional cashflow for the acquisition of picker accommodation."[129] The effect of the offer was that the funds were not available for or to be used to pay the Company's creditors. It follows that these funds were not part of the cash flow of the Company available to pay debts as and when they became due and payable. The defendant accepted this under cross-examination.
• [204] Fourth, the defendant places considerable emphasis on the failure of the plaintiff's case to take into account the value of the farmland owned by SS Group, which in 2021 was actually being made available to the Company and utilised by the Company as a valuable "land bank" against which the Company could both satisfy its existing creditors and raise additional capital.

• [210] Some of the Plymin factors ordinarily present in insolvent companies are not present in this case. For example:

(a) none of the securities registered over the Company's plant and equipment had matured or were in default on 1 January 2021;[136] and

(b) the Company owed no outstanding tax, had no outstanding Notices of Assessment, and had no outstanding income tax returns or Business Activity Statement.[137]

• [211] But the evidence also reveals that several of the Plymin factors are present.
• [212] The defendant concedes that at all relevant times the Company had an excess of liabilities over assets, and accordingly a liquidity ratio below one.[138] I accept that the Company's liquidity ratio was consistently below "one" from the 2018 financial year onwards, falling to 0.41 in the 2021 financial year, and getting as low as 0.11 at the time of the liquidation. In practical terms, this implies that the Company would have needed to realise between about two and a half and nine times its assets respectively just to meet its short-term obligations.
• [213] This negative ratio is an indicium of insolvency, but it is only one factor, and it must be considered in the context that it is a cash flow test, not a balance sheet test, that determines insolvency.
• [214] The defendant submits that evidence of the SS Group granting a mortgage over the Property to Nutrien demonstrates the willingness and ability of SS Group to utilise the equity in the farmland to satisfy liabilities of the Company in a relatively short time frame. I do not accept this submission. The evidence is to the contrary, in that it reveals that as at 1 December 2021, the Company was $66,000 beyond the contractual facility limit with Nutrien of $1.295 million. That position had persisted since at least 31 October 2020. This shows, as the plaintiff submits, that the Company had exhausted supplier credit more than a year prior to its liquidation, and was trading on grace rather than agreed terms.[139]
• [215] As discussed earlier, after the appointment of the liquidator, the Company formally settled its debt with Nutrien for less than was owed. Those settlement funds were released on 23 February 2022, which was over two and a half months after the liquidation. It is reasonable to infer that Nutrien's willingness to accept a 30% discount was reached because of concerns about making a full recovery of the debt.[140] Regardless, this post-liquidation settlement clearly does not reduce the insolvency position as and from 1 January 2021, or at the time the remaining Outstanding Invoices were incurred. Nor can it be said that the two and a half months it took for payment to be made reveals an ability to access third party funds in a timely way.

(a) a lack of available funds to cover the Company's trading losses and working capital for the Company moving forward;[142]

(b) unsecured loans to fund the ongoing trading of the business;[143]

(c) at least 60% of liabilities being more than 90 days overdue;[144] and

(d) payments being made by the Company in rounded figures, which were not necessarily reconcilable to specific invoices.[145]

• [217] The above analysis plainly reveals that, as a matter of commercial reality, the Company was unable to pay its debts as and when they became due and payable from 1 January 2021. I have reached this conclusion bearing in mind the stricter approach to the standard of proof applicable in this case. But even if I am wrong about the date of insolvency, I am satisfied that at the time the remaining Outstanding Invoices were incurred in October and November 2021, the plaintiff was obviously unable to pay its debts as and when they became due and payable.
• [218] I am therefore satisfied that the plaintiff has proved that the Company was insolvent at the dates of issue of the remaining Outstanding Invoices in 2021, that is, between 1 October 2021 and 3 November 2021.
• [219] The next issue is whether, at each of these times, there were reasonable grounds for suspecting that the company was insolvent or would become insolvent.[146]

Were there reasonable grounds for suspecting the Company was insolvent?

• [220] Whether s 588G(1)(c) is met requires an inquiry into the objectively formed state of mind of a person of ordinary competence.[147] The state of knowledge of a particular director, and any assessment which he or she may have made as to the ability of the Company to pay its debts, is not relevant at this stage of the inquiry.[148]
• [221] The defendant concedes that if the insolvency of the Company has been proved, then it must follow from this finding (being based almost entirely on the Company's own books and records) that there exist reasonable grounds for suspecting that the Company was insolvent at the time the remaining Outstanding Invoices were incurred. This is a reasonable concession, which I accept.
• [222] I am satisfied that a reasonable person of ordinary competence in the defendant's position would have been able to draw a connection between the non-payment of debt and the company's insolvency. I therefore find that s 588G(1)(c) is satisfied.

Were the debts incurred after the commencement of the Corporations Act?

• [223] The relevant Outstanding Invoices were incurred in October and November 2021, well after the commencement of the Corporations Act. The defendant correctly concedes and I find that s 588G(1)(d) is satisfied.

Was the defendant aware at the time the debts were incurred that there were grounds for suspecting the Company was insolvent?

• [224] The first limb of s 588G(2) (comprised in subsection (a)) focuses on the subjective knowledge of the person concerned. It does not require proof of an actual suspicion, rather, it requires proof that the person was aware of the facts and matters that can be objectively characterised as reasonable grounds for suspecting insolvency.[149]
• [225] The defendant is an experienced company director who was heavily involved in the day-to-day operations of the Company, with ready access to the Company's financial position through the Company's books and records.
• [226] By the beginning of 2021, the Company had accrued significant trading losses, had a sub-one liquidity ratio, and significant outstanding trade creditors. At that time, more than 60% of liabilities were overdue by over 90 days, and the Company needed to access unsecured loans to fund ongoing trade. These matters were matters of Company record and were known, or easily known, by the defendant.
• [227] The text messages between Mr Jeon and the defendant across 2021 demonstrate that the defendant was acutely aware of the Company's deteriorating financial position and its ongoing inability to pay debts as and when they fell due. In numerous messages, the defendant acknowledged his failure to pay the plaintiff on time, admitted to being unable to confirm when funds would be available, and provided only piecemeal payments while making repeated assurances that he was "working on" resolving the issues.[150]
• [228] During cross-examination, the defendant conceded that:

(a) by August 2021, the Company was experiencing cashflow difficulties;

(b) he understood the meaning of a liquidity ratio in the context of current assets and liabilities, and that the Company's ratios were 0.39 in the 2020 financial year and 0.41 in the 2021 financial year, meaning the company held only 39 to 41 cents in liquid assets for every dollar of liabilities;

(c) he understood that if the Company liquidated all of its assets immediately, it still could not pay all of its liabilities;

(d) Ceravolo could withhold up to 57% of proceeds and that creditors were paid only after the financier;

(e) adding depreciation does not give the Company extra cash or help the Company pay its debts; and

(f) THN made no written commitment to loan the Company the money. There was no loan agreement and no funds were advanced pre-liquidation. On this basis, the defendant also conceded that his expectation of funding was "hopeful".[151]

Would a reasonable person in a like position have been aware that there were grounds for suspecting insolvency at the time the debts were incurred?

• [229] The second limb of s 588G(2) (comprised in subsection (b)) calls for an objective analysis.[152] Whilst it is only necessary for the court to be satisfied of one of these limbs, the defendant concedes that upon any finding that the Company was insolvent at the time of the remaining Outstanding Invoices, it is open to find both limbs are satisfied in this case.[153] I accept that this concession is reasonable and supported by the evidence.
• [230] The defendant, as the sole director and secretary of the Company, with day-to-day access to the Company's financial position, must have been aware, and certainly would have suspected, that the Company was insolvent. That awareness or suspicion would have formed by January 2021, or by October 2021 at the latest.
• [231] The books and records of the Company that underpin the court's finding as to the insolvency of the Company were available to the defendant at the time the Company incurred the debts the subject of the remaining Outstanding Invoices.[154]
• [232] I therefore find that:

(a) the defendant was aware of the facts and matters objectively characterised as reasonable grounds for suspecting insolvency; and

(b) a reasonable person in the position of the defendant as a director of the Company would have been aware of the facts and matters objectively characterised as reasonable grounds for suspecting insolvency.

• [233] I find, on the above analysis, that the defendant has contravened s 588G.

Defence under s 588H(2)

• [234] The defendant purports to rely on the defence provided by s 588H(2) of the Corporations Act.
• [235] There are two elements to be proved before this defence can be relied upon:

(a) First, that the defendant had reasonable grounds to expect that, at the relevant times, the Company was solvent, and would remain solvent; and

(b) Second, the defendant's actual expectation as to those matters.

• [236] Notwithstanding that the defendant must, by s 588G(2)(a), have objectively been aware of the facts and matters objectively characterised as reasonable grounds for suspecting insolvency, s 588H(2) is focused on his subjective expectation based upon reasonable grounds that the Company was solvent at the relevant time and would remain so despite the debts incurred.
• [237] The first requirement of this defence was relevantly discussed by Austin J in Tourprint International Pty Ltd (in liq) v Bott [1999] NSWSC 581; (1999) 32 ACSR 201 as follows:[155]

"'Expectation', as required by s 588H(2), means a higher degree of certainty than 'mere hope or possibility' or 'suspecting'. The defence requires an actual expectation that the company was and would continue to be solvent, and that the grounds for so expecting are reasonable. A director cannot rely on a complete ignorance of or neglect of duty and cannot hide behind ignorance of the company's affairs which is of their own making or, if not entirely of their own making, has been contributed to by their own failure to make further necessary inquiries" (emphasis added, citations omitted).

• [238] The threshold for establishing "expectation" pursuant to s 588H(2) is higher than that of "suspicion" under ss 588G(1)(c) and 588G(2)(a).
• [239] In assessing the second element of the defence, it is necessary to not only consider whether the evidence establishes that the defendant had an actual expectation that the Company was and would remain solvent, but also whether the defendant had reasonable grounds for that expectation.[156] In Hall v Poolman [2007] NSWSC 1330; (2007) 215 FLR 243, Palmer J made the following observations about what is required for this element to be satisfied:[157]

"... there must be an expectation, held on reasonable grounds, that recourse to assets will enable debts to be paid, not at some indefinite time in the future, but so as to keep the companies solvent according to the definition in the [Corporations Act], s 95A, namely, as the debts fall due for payment. It is not appropriate to base an expectation of solvency:

'... upon the prospect that [a company] might trade profitably in the future thereby restoring its financial position ... The question is whether the company at the relevant time is able to pay its debts as they become due not whether it might be able to do so in the future if given time to trade profitably...'" (emphasis added).

• [240] I am satisfied that the defendant was well aware of the Company's financial position at all times, and certainly from 1 January 2021 onwards. The defendant confirmed under cross-examination that he has extensive knowledge of the industry and how to run a company. The defendant also revealed a solid understanding of the Company's financial records, including the debts and creditors of the Company.
• [241] The defendant refers to "detailed reasons given for his subjective expectation that the Company was solvent prior to 30 October 2021".[158] These reasons were summarised in the defendant's written submissions as follows:[159]

(a) the defendant's understanding as to the value of the Company's plant and equipment;

(b) the terms and state of the Company's various leasing and financing arrangements;

(c) the terms and state of the Company's arrangements with Ceravolo;

(d) the terms and state of the Company's arrangements with Nutrien;

(e) the terms of the Company's arrangements with the plaintiff;

(f) the Company's relationship with SS Group, and the defendant's understanding of the value of the farmland;

(g) the defendant's belief as to the Company's liabilities to secured creditors; and

(h) the defendant's knowledge of the Company's taxation affairs.

• [242] I accept that the defendant's knowledge of the Company's taxation affairs were held on reasonable grounds. But I consider the defendant's affidavit and oral evidence about his "actual expectation" that the Company was and remained solvent during 2021, at the time the remaining Outstanding Invoices were incurred, most unconvincing. I also found the defendant's evidence that it was not until August 2021 that he first knew the Company was in financial difficulties disingenuous and not underpinned by any reasonable basis.
• [243] First, given what I accept was the defendant's experience and knowledge of the Company's affairs and operations, it is inherently unlikely that he could have genuinely held any expectation that the Company was solvent at the beginning of 2021, and certainly by the time the remaining Outstanding Invoices were incurred.
• [244] Second, the defendant's understanding as to the value of the Company's plant and equipment, and its availability to sell to pay creditors, was obviously misconceived. The defendant well knew that such equipment was necessary to keep the farm operating.
• [245] Third, the defendant conceded that during 2021, debts were being paid after the due date and often in rounded payments. He also knew at this point that there were substantial debts still outstanding from 2020.
• [246] Fourth, the defendant admitted he understood that arranging finance or refinancing typically takes weeks or months to complete. Despite knowing that the availability of funds to meet liabilities was only a possibility, the defendant continued to trade the Company on uncertain and uncommitted funding, again even though substantial debts to creditors had been outstanding since August 2020.
• [247] Fifth, the suggestion or expectation that SS Group was a "land bank" available to assist the Company pay its debts as and when they became due and payable was a mere assertion without any probable or realistic basis.
• [248] Sixth, the defendant conceded under cross-examination that the offer from THN was merely "hopeful".[160]
• [249] Even if I am wrong about the defendant's actual expectation of solvency at the relevant time, I am not satisfied that any such expectation would have been held on reasonable grounds because:

(a) the financial records of the Company known to the defendant do not underpin any such finding and, as already discussed, reveal to the contrary;

(b) the third-party funding arrangements, including with Ceravolo, were not sustainable or realistic; and

(c) any alleged subjective belief of solvency on the defendant's part could only have been formed by the defendant completely disregarding the Company's actual financial position or by the defendant putting his head in the sand. Either way, this view would have been formed in ignorance of the Company's actual financial position. Such ignorance cannot underpin a reasonably held, actual expectation.

• [250] I therefore find that the defendant has not proved that a defence under s 588H(2) is available to him in the circumstances of this case.

• [251] Having established that the defendant has contravened s 588G and has not proved his defence under s 588H(2), the next issue is whether the plaintiff it entitled to compensation under s 588M.
• [252] Section 588M(3) permits the plaintiff to recover moneys from the defendant, as a debt due to the plaintiff, if the four requirements under s 588M(1) are met:

(a) First, the defendant has contravened s 588G in relation to the incurring of a debt by the Company;[161]

(b) Second, the plaintiff has suffered loss or damage in relation to the debt by reason of the Company's insolvency;[162]

(c) Third, the debt was wholly or partly unsecured when the loss or damage was suffered;[163] and

(d) Fourth, the Company is being wound up.[164]

• [253] The only issue in this case is whether the plaintiff has suffered loss or damage in relation to the debt because of the Company's insolvency (that is, the second requirement).
• [254] The onus is on the plaintiff to prove the quantum of the loss or damage suffered. In most but not all cases, the usual starting point is that the loss or damage is equivalent to the amount of the debt incurred after the date the company became insolvent.[165] In this case, the sum of the remaining Outstanding Invoices is $1,108,441.71.
• [255] The defendant submits, however, that the required causal link between the amount of the debt and the Company's insolvency was broken by the plaintiff's failure to comply with its obligations under the Services Agreement. Those obligations are contained in clauses 5 and 3, which require the plaintiff to provide services to the reasonable satisfaction of the Company prior to the liquidation. The defendant submits that the plaintiff's loss was not caused by the defendant's contravention of s 588G (that is, by the insolvency of the Company) but rather by the plaintiff's own conduct in causing knockouts in breach of the Services Agreement.
• [256] Alternatively, the defendant maintains that by operation of s 553C of the Corporations Act, the plaintiff's debt must be set off against the value of the knockouts pursuant to the indemnity provided by clause 11 of the Services Agreement. The plaintiff submits that the defendant does not have standing to rely on this section because he is not a party to the contractual indemnity and the requirements of mutuality are not satisfied. It is unnecessary for me to consider these matters and the applicability of s 553C given that, as my analysis below reveals, I am not satisfied that the defendant has overcome his onus concerning the knockouts.

• [257] The onus is on the defendant to prove both the value of the knockouts and that the plaintiff was the cause of the knockouts.
• [258] Knockouts are essentially strawberries that have been rejected by an end distributer, such as Coles or Woolworths, because they do not meet the required specifications as to size, colour, shape, and ripeness. Depending on the extent of the non-compliance, either part or all of the consignment of strawberries may be rejected. In practical terms, this means that the supermarket will not pay any amount for the "knocked-out" part of the consignment.
• [259] The alternative argument maintained by the defendant is underpinned by the same notion, that is, that the plaintiff's workers failed to comply with the requirements, instruction and directions of the Company. This in turn is said to have caused many consignments of strawberries to Coles and Globe Connect between August 2020 and October 2021 to be classified as knockouts. The total quantum of the knockouts claimed by the defendant is $522,975.50, which is broken down as follows:[166]

(a) on or about 30 August 2020 and 26 October 2020, 5129 trays of strawberries sold by the Company to Coles on consignment were the subject of a knockout by Coles to the total value of $186,591.12;

(b) on about 27 May 2021 and 1 November 2021, 6018 trays of strawberries sold by the Company to Coles on consignment were the subject of a knockout by Coles to the total value of $139,995.74; and

(c) on or about 28 June 2021 and 24 October 2021, 13,352 trays of strawberries sold by the Company to Globe Connect on consignment were the subject of a knockout by Globe Connect to the total value of $196,388.64.

• [260] The quantum of the knockouts is not in dispute. The critical issue is whether the defendant has proved that the plaintiff was the cause of these knockouts.

• [261] The defendant's evidence is that at the end of August 2020, the Company started to be notified by Coles of knockouts on some of its consignments. The reasons for the various knockouts claimed included rot, mould, wet bruising, white shoulder, pest damage, improper packing, or being under or oversized.
• [262] The defendant says that he promptly told Peter Lee about the knockouts and that the problem was with "his packers".[167] According to the defendant, Peter Lee assured him he would fix the problem and make sure all the workers were "doing a good job".[168]
• [263] When the same problem arose again in the 2021 season, the defendant says he again raised the issue with Peter Lee who assured him he would fix the problem.

• [264] It is necessary to address my concerns about the defendant's evidence as it concerns the issue of knockouts. Overall, I found it unconvincing and contrived for several reasons.
• [265] For a start, the defendant provided the liquidator with various reasons for the financial woes of the Company at the time of the liquidation in December 2021, but made no mention of any knockouts at that time. It was only later, after the plaintiff commenced these proceedings, that the defendant attributed part of the Company's cash flow difficulties to the effect of knockouts, and then apportioned all of the blame for those knockouts on the plaintiff.
• [266] Second, the defendant's case is that the first knockout occurred around 30 August 2020. If the Company genuinely regarded the plaintiff to be in breach of the Services Agreement, and intended to rely on the right of indemnity, it was open to the Company at that point to terminate the Services Agreement or withhold further engagement. Instead, the Company elected to continue ordering labour services, and allowed performance to continue for more than a year.
• [267] Third, there is no contemporaneous assertion or reservation of rights in relation to the alleged knockouts. As the following extract of the cross-examination of the defendant reveals, the defendant never raised the issue of the plaintiff being the cause of the knockouts and the cause of any loss to the Company at the time:[169]

"Did you issue a notice of suspension on termination of the agreement? - I don't believe I have.

Did you seek to enforce the indemnity clause that you now rely on before liquidation? - I can't recall.

Did you write to my client saying you intended to withhold payment? - I don't believe I did.

You never once said that you'd stop paying or cancel the contract because of the knockouts, did you?_ - _No.

So in other words, despite the multiple knockouts that you allege are my client's responsibility, you never once thought it was serious enough to put down a complaint on paper; is that correct?_ - _Correct.

On the contrary, you reassured my client on multiple occasions that payment was forthcoming, didn't you?_ - _Yes."

• [268] Fourth, whilst the defendant occasionally raised the issue of knockouts with Mr Jeon and Peter Lee, he never asserted any contractual right on the Company's part to withhold payment. Rather, his text and telephone conversations with Mr Jeon contained continued promises to pay the plaintiff to ensure a steady supply of workers for the benefit of the Company.
• [269] A party faced with two inconsistent rights, such as the right to affirm or terminate a contract, must elect between them. Once that election is made, the law prevents that party from later asserting the other, inconsistent right. As Mason J, as his Honour then was, observed in Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634, "the person electing should not have the opportunity of changing his [or her] election and subjecting his [or her] adversary to different obligations."[170] The rationale behind this principle is that the intimation of a choice in relation to alternative rights makes it inevitable or necessary in the interests of justice that the choice, once made, is irrevocable.[171]

• [270] Causation requires a "but-for" nexus, in that the impugned act must be a necessary condition of the loss. It is not enough for the conduct to merely form part of the surrounding circumstances.[172]
• [271] I am not satisfied that the defendant has established any causal connection between the plaintiff's conduct and the alleged knockouts for the following reasons.
• [272] First, the defendant's evidence about the workers supplied by the plaintiff causing the knockouts is undermined by his lack of transparency about the issue of knockouts having been a problem prior to his engagement with the plaintiff. The evidence of Sungbin Lee, which I accept, is that during his employment with the Company, the Company was experiencing multiple knockouts. In cross-examination the defendant accepted that "knockouts happen all the time".[173]
• [273] Second, the plaintiff's involvement with knockouts was limited to the provision of workers, who the defendant conceded as "the boss" he had the final say to remove.[174] I therefore find that the plaintiff's involvement is, at most, a background factor of the loss suffered because of the knockouts, and is therefore insufficient to discharge the onus on the defendant.
• [274] Third, the defendant has not excluded alternative explanations for the knockouts, such as adverse weather, planting strategy, or poor refrigeration. Mr Jeon's evidence, which I accept as a matter of common sense, is that knockouts are a common and accepted risk in the farming industry, often arising from variable conditions beyond the control of workers. The defendant accepts that strawberries are susceptible to rot and mould in humid conditions, during rain events, or when they have not been sprayed on time.
• [275] Fourth, the evidence of both Mr Jeon and Mr Sungbin Lee, which I accept, is that the Company had ultimate discretion over which strawberries to reject and which to approve. The defendant's evidence is that after the issue of the knockouts was raised in 2020, the Company increased its monitoring of the packers. I am satisfied that the management and oversight afforded by the Company is itself sufficient to sever any causal link between the defendant's broadly asserted claim that the plaintiff failed to comply with the requirements, instructions and directions of the Company when picking and packing the strawberries for consignment.

• [278] As the analysis in these reasons demonstrate, I am satisfied that s 588G has been contravened by the defendant; that no defence under s 588H is available; and that the defendant has not proved that there should be any reduction in the loss and damage claimed by the plaintiff due to the knockouts.
• [279] I find that the plaintiff has proved that it has suffered loss and damage under s 588M(3) for the full amount of the debt the subject of the remaining Outstanding Invoices, being the sum of $1,108,441.71.
• [280] I order:

(a) Judgment for the plaintiff in the amount $1,108, 441.71 plus pre-judgment interest pursuant to section 58 of the Civil Proceedings Act 2011 (Qld) from 15 October 2021 until today fixed in the amount of $321,422.28;

(b) The Defendant pay the Plaintiff's costs of the proceeding on the standard basis.

[1] No new agreement was entered into between the Company and Ceravolo at the beginning of 2021. Rather, the existing agreement was extended for another 12 months (that is, for the calendar year of 2021).

[2] Affidavit of Leonard Brian Smith filed 20 February 2025 (CFI 28) at Ex LBS-1 p 78, clause 8.1(vii).

[3] Affidavit of Leonard Brian Smith filed 20 February 2025 (CFI 28) at [61].

[5] Affidavit of Sungbin Lee filed 28 February 2025 (CFI 32) at [78].

[6] See affidavit of Leonard Brian Smith filed 20 February 2025 (CFI 28) at [43].

[13] Affidavit of Sungbin Lee filed 28 February 2025 (CFI 32) at [29]-[31].

[14] See affidavit of Travis Jay Pullen file 15 January 2025 (CFI 20) at Ex TJP-01 p 17.

[16] See further amended defence of the defendant filed 27 May 2025 (CFI 39) at [14B]. The plaintiff did not oppose the amendment nor file a reply to this amended pleading. Rather, the plaintiff dealt with the issue of the application of s 588GAAA via submissions.

[17] I note that this subsection was amended to insert the words "restructuring practitioner" from 1 January 2021: see Corporations Amendment (Corporate Insolvency Reforms) Act 2020 (Cth) s 3, sch 1, item 64. That is the only amendment that s 588GAAA has undergone since its enactment.

[18] No relevant circumstances are prescribed by the regulation.

[19] See Corporations Regulations 2001 (Cth) reg 5.7B.01, which extended the six month safe harbour until 31 December 2020: see also Shaoxing Newtex Imp & Exp Co Ltd (in liq) v Strawbridge [2025] FCA 1479 at [198] (Moore J); Corporations and Bankruptcy Legislation Amendment (Extending Temporary Relief for Financially Distressed Businesses and Individuals) Regulations 2020 (Cth) s 4, sch 1, item 4.

[20] See, eg, Stephen Mullette, 'Don't Go Chasing Waterfalls - Unfortunately, s 588GAAA was just not Safe' (2021) 21(1& 2) Insolvency Law Bulletin 27; Stephen Mullette, 'When your Safe Harbour Leads to a Waterfall' (2020) 20(9) Insolvency Law Bulletin 180; LexisNexis Practical Guidance - AU Corporations, Guidance Note: Director's statutory duties (LexisNexis, Australia).

[21] Dixon v Todd [1904] HCA 52; (1904) 1 CLR 320 at 326-7 (Griffith CJ).

[22] Lacey v Attorney-General (Qld) [2011] HCA 10; (2011) 242 CLR 573 at 592 [43]- [44] (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ).

[23] Masson v Parsons [2019] HCA 21; (2019) 266 CLR 554 at 572 [26] (Kiefel CJ, Bell, Gageler, Keane, Nettle and Gordon JJ).

[24] Federal Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55; (2012) 250 CLR 503 at 519 [39] (French CJ, Hayne, Crennan, Bell and Gageler JJ).

[25] ADCO Constructions Pty Ltd v Goudappel (2014) 254 CLR 1 at 15 [29] (French CJ, Crennan, Kiefel and Keane JJ); Thiess v Collector of Customs [2014] HCA 12; (2014) 250 CLR 664 at 672 [23] (French CJ, Hayne, Kiefel, Gageler and Keane JJ), see also Acts Interpretation Act 1901 (Cth) s 15AA.

[26] See Coronavirus Economic Response Package Omnibus Act 2020 (Cth) sch 12, s 31.

[28] Explanatory Memorandum, Coronavirus Economic Response Package Omnibus Bill 2020 (Cth) at pp 23-6.

[29] Commonwealth, Parliamentary Debates, House of Representatives, 23 March 2020 at pp 2777, 2779 (Josh Frydenberg).

[30] Explanatory Memorandum, Coronavirus Economic Response Package Omnibus Bill 2020 (Cth) at p 135 [12.2].

[31] Ibid at pp 138-9 [12.16]-[12.20].

[32] Sunstate Land Pty Ltd v Hiview Design & Construction Pty Ltd [2020] QSC 181; Preiner v Shin [2025] NSWDC 341; Shaoxing Newtex Imp & Exp Co Ltd, in the matter of Mosaic Brands Limited (in liq) v Strawbridge [2025] FCA 1479.

[33] Shaoxing Newtex Imp & Exp Co Ltd, in the matter of Mosaic Brands Limited (in liq) v Strawbridge [2025] FCA 1479 at [200].

1. [34] Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 382 [71] (McHugh, Gummow, Kirby and Hayne JJ); The Commonwealth v Baume [1905] HCA 11; (1905) 2 CLR 405 at 414-5 (Griffith CJ), 419 (O'Connor J).

[35] Chakka v Queensland Police Service [2024] QCA 213 at [70] (Brown J, as her Honour then was).

[36] See, eg, Adler & anor v Australian Securities and Investments Commission [2003] NSWCA 131; (2003) 179 FLR 1 where Giles JA (Mason P and Beazley JA agreeing) described such penalties as "punitive": at 147 [658].

[37] See Explanatory Memorandum, Coronavirus Economic Response Package Omnibus Bill 2020 (Cth) at p 135 [12.2].

[38] Re Holmes; Ex p Altona Petrochemical Co Ltd [1972] HCA 20; (1972) 126 CLR 529 at 562 (Windeyer J).

[39] Australian Alliance Assurance Co Ltd v Attorney-General (Qld) [1916] St R Qd 135 at 161 (Cooper CJ); Truman & Truman [2008] FamCAFC 4; (2008) 216 FLR 365 at 394 [82] (Bryant CJ, Kay and Thackray JJ).

[40] Minister for Resources v Dover Fisheries Pty Ltd [1993] FCA 366; (1993) 43 FCR 565 at 574 (Gummow J), quoting AMP Inc v Utilux Pty Ltd [1972] RPC 103 at 109 (Lord Reid).

[41] See, eg, Stephen Mullette, 'Don't Go Chasing Waterfalls - Unfortunately, s 588GAAA was just not Safe' (2021) 21(1& 2) Insolvency Law Bulletin 27.

[42] At [79] (Muir J, Bond and Boddice JJA agreeing).

[43] Plaintiff's outline of submissions filed 30 June 2025 (CFI 43) at [151].

[45] Plaintiff's outline of submissions filed 30 June 2025 (CFI 43) at [142].

[47] Commonwealth, Parliamentary Debates, House of Representatives, 23 March 2020, pp 2777, 2779 (Josh Frydenberg).

[48] At 320-21, quoted in R v CDV [2025] QCA 163 at [72] (Muir J, Bond and Boddice JJA agreeing).

[49] Corporations Act 2001 (Cth) s 588GAAA(4), cf Preiner v Shin [2025] NSWDC 341 at [73].

[50] Plaintiff's outline of submissions filed 30 June 2025 (CFI 43) at [139].

[51] See further Jenny Buchan and Rob Nicholls, 'The Challenges of Navigating the COVID-19 Pandemic for Australia's Franchise Sector' (2020) 48(2) Australian Business Law Review 126 at pp 134-5.

[52] Smith (in his capacity as liquidator of ACN 002 864 002 Pty Ltd (in liq) (formerly known as Petrolink Pty Ltd)) v Boné [2015] FCA 319; (2015) 104 ACSR 528 at 533 [23] (Gleeson J).

[53] See, eg, Treloar Constructions Pty Ltd v McMillan [2017] NSWCA 72; (2017) 318 FLR 58 at 95 [175] (Beazley P, Gleeson JA, as her Honour then was, Emmett AJA); Re Force Corp Pty Ltd (in liq) (2020) 149 ASCR 451 at 476 [105] (Gleeson J), citing Jetaway Logistics Pty Ltd v Deputy Commissioner of Taxation [2009] VSCA 319; (2009) 26 VR 657 at [21] (Maxwell P, Byrne and Williams AJJA).

[54] See generally Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 at 361-2 (Dixon J).

[55] See plaintiff's outline of submissions filed 30 June 2025 (CFI 43) at [13], citing Re Wild K9 Pty Ltd (in liq) [2025] VSC 178 at [45] (Heytey AsJ).

[56] Plaintiff's outline of submissions filed 30 June 2025 (CFI 43) at [12], cf Tru Floor Service Pty Ltd & ors v Jenkins & anor (No 2) [2006] FCA 632; (2006) 232 ALR 532 at 546-7 [50] (Sundberg J).

[57] See, eg, R v Young [2020] QCA 3 at [186] (Gotterson and McMurdo JJA and Mullins AJA, as her Honour then was).

[58] See further Playspace Playground Pty Ltd v Osborn [2009] FCA 1486 at [43] (Reeves J); Smith (in his

capacity as liquidator of ACN 002 864 002 Pty Ltd (in liq) (formerly known as Petrolink Pty Ltd)) v

Boné [2015] FCA 319; (2015) 104 ACSR 528 at 533 [23] (Gleeson J); Re Swan Services Pty Ltd (in liq) [2016] NSWSC 1724; (2016) 12 BFRA 224 at 234 [25] (Black J), see also Quin v Vlahos [2021] VSCA 205; (2021) 64 VR 319 in which Kyrou, Kennedy and Walker JJA proceeded on the basis that the Briginshaw standard applies to insolvent trading claims without deciding the point: at 376 [221].

[59] See Treloar Constructions Pty Ltd v McMillan [2017] NSWCA 72; (2017) 318 FLR 58 at 67-8 [43]- [45] (Beazley P, Gleeson JA and Emmett AJA).

[60] Submissions of the defendant filed 12 June 2025 (CFI 37) at [24].

[61] Amended statement of claim filed 27 May 2025 (CFI 40) at [9].

[62] Plaintiff's outline of submissions filed 30 June 2025 at [28].

[64] Plaintiff's outline of submissions filed 30 June 2025 (CFI 43) at [47].

[65] See, eg, Re Shire Lind Developments (NSW) Pty Ltd (in liq) [2024] NSWSC 1454 at [256] (Nixon J).

[66] See, eg, Sandell v Porter (1966) 115 CLR 666 at 670-671 (Barwick CJ, McTiernan and Windeyer JJ agreeing); Australian Securities & Investment Commission v Plymin [2003] VSC 123; (2003) 175 FLR 124 at 216 [402] (Mandie J).

[67] In the matter of RHD Power Services Pty Ltd (in liq) [1990] QSC 94 at p 2 (Dowsett J).

[68] Australian Securities & Investment Commission v Plymin [2003] VSC 123; (2003) 175 FLR 124 at 207-208 [370] (Mandie J).

[69] Re Custom Bus Australia Pty Ltd (in liq) [2021] NSWSC 1036 at [33] (Black J).

[71] Australian Securities & Investment Commission v Plymin [2003] VSC 123; (2003) 175 FLR 124 at 207-208 [370] (Mandie J), quoting AR Keay, 'The Insolvency Factor in the Avoidance of Antecedent Transactions in Corporate Liquidations' [1995] MonashULawRw 12; (1995) 21 Monash University Law Review 305 at p 307.

[72] Australian Securities & Investment Commission v Plymin [2003] VSC 123; (2003) 175 FLR 124 at 207-208 [370] (Mandie J), quoting AR Keay, 'The Insolvency Factor in the Avoidance of Antecedent Transactions in Corporate Liquidations' [1995] MonashULawRw 12; (1995) 21 Monash University Law Review 305 at p 307.

[73] Bank of Australasia v Hall [1907] HCA 78; (1907) 4 CLR 1514 at 1528 (Griffith CJ).

[74] Barboutis v Kart Centre Pty Ltd (No 2) [2020] WASCA 41 at [119] (Buss P, Mitchell and Vaughan JJA).

[75] Bank of Australasia v Hall [1907] HCA 78; (1907) 4 CLR 1514 at 1543 (Griffith CJ).

[76] Treloar Constructions Pty Ltd v McMillan [2017] NSWCA 72; (2017) 318 FLR 58 at 76 [83], 86 [142] (Beazley P, Gleeson JA and Emmett AJA), citing Chan v First Strategic Development Corporation Ltd (in liq) [2015] QCA 28 at [44] (Morrison JA, Gotterson JA and Boddice J, as his Honour then was, agreeing).

[77] Sandell v Porter (1996) 115 CLR 666 at 670 (Barwick CJ, McTiernan and Windeyer JJ agreeing); Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran [2005] NSWCA 243; (2005) 219 ALR 555 at 578 [103], 590 [159] (Giles JA, Hodgson and McColl JJA agreeing); Re Newark Pty Ltd (in liq) [1993] 1 Qd R 409 at 415-6 (Thomas J, Derrington and Moynihan JJ agreeing), see also the recent summary of the relevant principles in Re Shire Lind Developments (NSW) Pty Ltd (in liq) [2024] NSWSC 1454 at [254]- [265] (Nixon J).

[78] Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran [2005] NSWCA 243; (2005) 219 ALR 555 at 578 [103] (Giles JA, Hodgson and McColl JJA agreeing); Mulherin v Bank of Western Australia Ltd [2006] QCA 175 at [112]- [114] (Muir J); Barboutis v Kart Centre Pty Ltd (No 2) [2020] WASCA 41 at [141] (Buss P, Mitchell and Vaughan JJA).

[79] Barboutis v Kart Centre Pty Ltd (No 2) [2020] WASCA 41 at [141] (Buss P, Mitchell and Vaughan JJA); Re Custom Bus Australia Pty Ltd (in liq) [2021] NSWSC 1036 at [34] (Black J).

[81] At [11], citing Williams (as liquidator of Scholz Motor Group P/L (in liq)) v Scholz & Anor [2008] QCA 94.

[82] Australian Securities & Investment Commission v Plymin [2003] VSC 123; (2003) 175 FLR 124 at 213-4 [386] (Mandie J), see also Re Plexbuild Pty Ltd [2025] VSC 158 at [254] (Gardiner AJ); WAM Active Limited v Keybridge Capital Limited (No 2) [2024] NSWSC 1496 at [149] (Nixon J); Re Custom Bus Australia Pty Ltd (in liq) [2021] NSWSC 1036 at [33] (Black J).

[84] At 670-71 (McTiernan and Windeyer JJ agreeing).

[85] Affidavit of Travis Jay Pullen filed 15 January 2025 (CFI 20) at Ex TJP-01 p 27.

[86] Australian Securities & Investments Commission v Rich [2005] NSWSC 417; (2005) 216 ALR 320 at 370 [222], 371 [227], 393 [339], 402 [379] (Austin J).

[87] Affidavit of Travis Jay Pullen filed 15 January 2025 (CFI 20) at Ex TJP-01 p 16.

[89] Affidavit of Travis Jay Pullen filed 15 January 2025 (CFI 20) at Ex TJP-01 p 27.

[90] Ibid at TJP-03 p 172 [5.1(iii)], p 177 [7.1].

[92] Submissions of the defendant filed 12 June 2025 (CFI 37) at [39].

[93] Affidavit of Travis Jay Pullen filed 15 January 2025 (CFI 20) at Ex TJP-02 p 170 [1.4].

[97] See ibid at p 176 [6.4.1]; T2-31, lines 6-36.

[99] See T2-29, line 41 to T2-30, line 13.

[100] See, eg, Affidavit of Travis Jay Pullen filed 15 January 2025 (CFI 21) at Ex TJP-03 p 173 [6.3.2], citing Quick v Stoland Pty Ltd [1998] FCA 1200; (1998) 87 FCR 371 at 379 (Emmett J).

[101] See, eg, Affidavit of Travis Jay Pullen filed 15 January 2025 (CFI 21) at Ex TJP-03 p 174 [6.3.4], p 175 [6.3.8], citing Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd (1999) FCA 728; Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239; (2008) 39 WAR 1.

[103] At 424 [52] (McColl, Meagher and Leeming JJA).

[104] Xu v Megaward Pty Ltd [2018] NSWCA 232; (2018) 130 ACSR 412 at 424 [52] (McColl, Meagher and Leeming JJA) .

[105] Affidavit of Travis Jay Pullen filed 15 January 2025 (CFI 20) at Ex TJP-02 p 166.

[107] Ibid at Ex TJP-03 p 169 [1.1].

[108] In the matter of Cullen Group Australia Pty Ltd (in liq) [2020] QSC 367 at [15] (Martin J, as his Honour then was).

[109] Affidavit of Travis Jay Pullen filed 15 January 2025 (CFI 21) at Ex TJP-03 p 174 [6.3.2(iv)], quoting Quick v Stoland Pty Ltd [1998] FCA 1200; (1998) 87 FCR 371 at 379 (Emmett J).

[111] Affidavit of Travis Jay Pullen filed 15 January 2025 (CFI 21) at Ex TJP-03 p 617.

[115] See Treloar Constructions Pty Ltd v McMillan [2017] NSWCA 72; (2017) 318 FLR 58 at 59-60 [6], 70-71 [64], 72 [69] (Beazley P, Gleeson JA and Emmett AJA).

[117] Submissions of the defendant filed 12 June 2025 (CFI 37) at [51(c)].

[119] Plaintiff's outline of submissions filed 30 June 2025 (CFI 43) at [74(b)].

[120] Affidavit of Travis Jay Pullen filed 15 January 2025 (CFI 21) at Ex TJP-03 p 178-9 [7.4].

[123] Submissions of the defendant filed 12 June 2025 (CFI 37) at [68].

[125] See Barboutis v Kart Centre Pty Ltd (No 2) [2020] WASCA 41 at [141] (Buss P, Mitchell and Vaughan JJA); Re Custom Bus Australia Pty Ltd (in liq) [2021] NSWSC 1036 at [34] (Black J).

[126] Australian Securities and Investments Commission v Edwards [2005] NSWSC 831; (2005) 220 ALR 148 at 176 [99] (Barrett J).

[128] See Hall v Poolman [2007] NSWSC 1330; (2007) 215 FLR 243 at 286-7 [187] (Palmer J).

[129] Affidavit of Leonard Brian Smith filed 20 February 2025 (CFI 30) at Ex LBS-1 p 485.

[130] Submissions of the defendant filed 12 June 2025 (CFI 37) at [72(a)].

[131] Plaintiff's outline of submissions filed 30 June 2025 (CFI 43) at [56].

[132] See further Lewis v Doran [2004] NSWSC 608; (2004) 208 ALR 385 at 409 [113] (Palmer J), quoted in Australian Securities and Investment Commission v Edwards [2005] NSWSC 831; (2005) 220 ALR 148 at 176 [98] (Barrett J).

[133] See, eg, Queensland Phosphate Pty Ltd v Korda (No 2) (2019) 14 ARLR 1 at 23 [101] (Kyrou, McLeish and Niall JJA).

[135] Affidavit of Leonard Brian Smith filed 20 February 2025 (CFI 28) at Ex LBS-1 p 56.

[136] See Australian Securities & Investment Commission v Plymin [2003] VSC 123; (2003) 175 FLR 124 at 214 [386(12)] (Mandie J).

[142] See ibid at 213-4 [386(1), (8)].

[146] See Corporations Act 2001 (Cth) s 588G(1)(c).

[147] Quin v Vlahos [2021] VSCA 205; (2021) 64 VR 319 at 375 [216(a)] (Kyrou, Kennedy and Walker JJA).

[149] See ibid at 375-6 [218]-[220].

[150] See affidavit of Seong-Taek Jeon filed 15 January 2025 (CFI 23) at [36].

[152] Quin v Vlahos [2021] VSCA 205; (2021) 64 VR 319 at 376 [219(a)] (Kyrou, Kennedy and Walker JJA).

[154] See further ibid at [375 [216(c)], see also Stoland Pty Ltd v Thurn (1997) 29 ACSR 280 at 287 (Lehane J).

[155] At 215 [67], cited with approval in Hall v Poolman [2007] NSWSC 1330; (2007) 65 ACSR 123 at 304 [262] (Palmer J); McLellan v Carroll [2009] FCA 1415; (2009) 76 ACSR 67 (Goldberg J).

[156] See Re Shire Lind Developments (NSW) Pty Ltd (in liq) [2024] NSWSC 1454 at [363] (Nixon J).

[157] At 304-305 [265], quoting Sheahan v Hertz Australia Pty Ltd (1995) ASCR 765 at 769 (King CJ, Matheson and Millhouse JJ agreeing). I note that the decision of Hall v Poolman [2007] NSWSC 1330; (2007) 215 FLR 243 has since been disapproved by the High Court but on an unrelated point: see Metal Manufactures Pty Ltd v Morton [2023] HCA 1; (2023) 275 CLR 100 at 123 [56] (Kiefel CJ, Gordon, Edelman and Steward JJ).

[158] See submissions of the defendant filed 12 June 2025 (CFI 37) at [94], citing affidavit of Leonard Brian Smith filed 20 February 2025 (CFI 28) at [103].

[159] See submissions of the defendant filed 12 June 2025 (CFI 37) at [94].

[161] See Corporations Act 2001 (Cth) s 588M(1)(a).

[162] Ibid s 588M(1)(b).

[163] Ibid s 588M(1)(c).

[164] Ibid s 588M(1)(d).

[165] Quin v Vlahos [2021] VSCA 205; (2021) 64 VR 319 at 387 [266] (Kyrou, Kennedy and Walker JJA), quoting Edenden v Bignell [2007] NSWSC 1122 at [30] (Barrett J).

[166] See further amended defence of the defendant filed 27 May 2025 (CFI 39) at [5(c)(iii)].

[167] Affidavit of Leonard Brian Smith filed 20 February 2025 (CFI 28) at [76].

[171] Allianz Australia Insurance Ltd v Delor Vue Apartments CTS 39788 [2022] HCA 38; (2022) 277 CLR 445 at 475-6 [51] (Kiefel CJ, Edelman, Steward and Gleeson JJ).

[172] See, eg, the obiter of Gleeson JA, as her Honour then was, in Re Force Corp Pty Ltd (in liq) [2018] NSWSC 896 at [29].

[175] Affidavit of Leonard Brian Smith filed 20 February 2025 (CFI 28) at Ex LBS-01 p 181.