In the matter of Australian Worldwide Pty Ltd

[2017] NSWSC 1641

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Australian Worldwide Pty Ltd [2017] NSWSC 1641
Hearing dates:	31 July 2017
Date of orders:	31 July 2017
Decision date:	31 July 2017
Jurisdiction:	Equity - Corporations List
Before:	Brereton J
Decision:	Question whether company insolvent from 14 August 2013 answered in the affirmative
Catchwords:	CORPORATIONS – winding up – unfair preferences – determination of separate question of insolvency – where no opposition from active defendants – where expert concludes that company is insolvent – where conclusion is amply justified by the evidence – held, the question whether the company was insolvent from relevant date is answered in the affirmative.
Legislation Cited:	(CTH) Corporations Act 2001, s 588FA (NSW) Uniform Civil Procedure Rules 2005, r 28.2
Category:	Procedural and other rulings
Parties:	Christopher John Palmer (liquidator) (first plaintiff) Australian Worldwide Pty Ltd (second plaintiff) Radiance International Pty Ltd (first defendant) Gadens Melbourne (tenth defendant) Heard Marketing Pty Ltd (eleventh defendant) Kemp Strang Lawyers Pty Ltd (twelfth defendant) The Loft Group Pty Ltd (thirteenth defendant) Stafford Lardiner Holdings Pty Ltd (fourteenth defendant) Logistics Managers Pty Ltd (sixteenth defendant)
Representation:	Counsel: M Pesman SC (plaintiffs)   Solicitors: ERA Legal (plaintiffs) Dormer Stanhope (first defendant) Gadens (tenth defendant) Reuben George Lawyers (eleventh defendant) Kemp Strang Lawyers (twelfth defendant) Nicholas Weston (thirteenth defendant)
File Number(s):	2017/18006

Judgment (EX TEMPORE)

1. On 18 January 2017, the plaintiff Christopher John Palmer in his capacity as liquidator of the second plaintiff Australia Worldwide Pty Ltd (which went into voluntary administration on 22 January 2014 and then into liquidation) filed an originating process claiming relief against eighteen defendants in respect of alleged voidable transactions, being unfair preferences under (CTH) Corporations Act 2001, s 588FA, and related relief. An order was made for those proceedings to continue on pleadings, and a statement of claim was filed on 21 April 2017. One issue raised by the statement of claim (in paragraph 51) is the allegation that from 14 August 2013 the company was insolvent within the meaning of the Act.

2. On 26 June 2016, I ordered pursuant to (NSW) Uniform Civil Procedure Rules 2005, r 28.2, that the issue raised by paragraph 51 of the statement of claim – whether from August 2014 the company was insolvent – be determined separately and before the other issues in the proceedings, and I adjourned the proceedings to today for the hearing of that separate question. A direction was made that any defendant wishing to adduce evidence on the separate question not be entitled to do so unless the same is served by 21 February 2017, and none has done so.

3. The proceedings have been resolved with a number of the defendants. The second defendant has not yet been served, and in the event that it is ultimately sought to proceed against the second defendant would not inevitably be bound by the determination of the present application. The proceedings have been discontinued against the third defendant, and dismissed as against the fourth defendant. They are to be discontinued as against the fifth, sixth and seventh defendants, have been dismissed against the eighth defendant, and discontinued against the ninth defendant. The fourteenth defendant has not appeared, but has been served and is a continuing party. The fifteenth defendant has been served but has not appeared. It is an overseas entity and leave to proceed against it has not yet been granted. The sixteenth defendant has been served and has not appeared. Proceedings have been discontinued against the seventeenth defendant, and dismissed as against the eighteenth defendant.

4. Of the active defendants, then, the first defendant Radiance International does not admit the allegation of insolvency, but has indicated that it will not be in attendance on the separate question and does not wish to participate. The tenth defendant Gadens Melbourne admits insolvency as alleged. The eleventh defendant has not filed a defence within time, and is therefore deemed to have admitted insolvency. The twelfth defendant admits insolvency from 25 November 2013, a later date than that alleged in the statement of claim, but has indicated that it will not be in attendance and does not wish to participate. The thirteenth defendant Loft Group does not admit insolvency, but has indicated that it will not be in attendance and does not wish to participate. As I have indicated, the fourteenth defendant has not appeared, and is therefore deemed to have admitted insolvency. Likewise, the sixteenth defendant has not appeared and is deemed to have admitted insolvency. That concludes the remaining relevant defendants.

5. The evidence on the question of insolvency is contained in a report of Andrew Barden dated 19 July 2016. In the conclusion to his report, he draws attention to a number of matters:

1. First, the balance sheets extracted from the company's MYOB accounting package reveal that the current ratio was significantly below 1.0 as at the end of each of the quarters during the period from 30 September 2012 to 30 June 2013, ranging from 0.297 down to 0.131, and monthly from July 2013 to 31 December 2013 and as at 22 January 2014. Despite an improvement in July 2013 to 0.532, that was still well below a current ratio of one, and by 14 August 2013 the current ratio was 0.6, deteriorating to 0.25 by January 2014.

2. Secondly, as to the quick ratio, it too was significantly below 1.0 at the end of each of the quarters to 30 June 2013, ranging from 0.713 down to 0.060 and monthly from July 2013 through to January 2014. As at 14 August 2013, the quick ratio was 0.138.

3. Thirdly, there were outstanding employee entitlements in the form of compulsory superannuation contributions which had remained outstanding since 28 October 2012.

4. Fourthly, debts to significant creditors Active Fork Lifts and Show Time Attractions became due and payable in July 2013, whilst that to Addeco became due and payable on 14 August 2013, and all remained unpaid until the company went into voluntary administration on 22 January 2014.

5. Fifthly, there were dishonoured payments on 14 August 2013. On 13 August 2013, the company received a letter of demand from a creditor following non-payment of which a statement of claim was filed on 26 August 2013, and ultimately the debt was paid as a result of garnishee proceedings on 14 October 2013.

6. Sixthly, the company entered into repayment arrangements with long outstanding creditors during the period March 2013 to July 2013, with which it did not comply. On 11 June 2013, following a statutory demand for payment issued in May 2013, the company executed a deed of guarantee with Rohlig providing for repayment by 14 August 2013, but it failed to make that repayment.

7. Finally, trade creditors increased significantly in August 2013, and continued to rise until the administrator was appointed, aging over the same period. A revolving loan facility ceased to be an available source of funding for the company in August 2013. Taxation lodgements were not completed and paid in a timely manner from August 2013 onwards.

6. Mr Barden formed the opinion based on those and other matters that the company was insolvent by no later than 14 August 2013, by reference to the cash flow test, the balance sheet test, and the indicia of insolvency. That conclusion appears to me amply justified on the material in evidence.

7. The Court orders that the question whether from 14 August 2013 the company was insolvent be answered in the affirmative. The costs of the separate question will be the plaintiff's costs in the proceedings.

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Decision last updated: 29 November 2017