Re Plexbuild Pty Ltd
[2025] VSC 158
•31 March 2025
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2024 00648
IN THE MATTER of PLEXBUILD PTY LTD (ACN 640 362 027)
BETWEEN:
| MILESTONE TRADING SOLUTION PTY LTD (ACN 621 559 813) | Plaintiff |
| v | |
| PLEXBUILD PTY LTD (ACN 640 362 027) | Defendant |
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JUDGE: | Gardiner AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 16 October 2024, 5 March 2025, 20 March 2025 |
DATE OF JUDGMENT: | 31 March 2025 |
CASE MAY BE CITED AS: | Re Plexbuild Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2025] VSC 158 |
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CORPORATIONS — Part 5.4 of Corporations Act 2001 (Cth) — Insolvency — s 459P of Corporations Act 2001 (Cth) — Application for winding up in insolvency relying on presumption of insolvency arising from non-compliance with a statutory demand — Defendant contended that it was solvent and relied upon unaudited and unverified accounts and report of an accountant to rebut that presumption — Accountant relied on instructions from defendant as to its financial position which were not independently verified — Whether audited accounts are required in circumstances to demonstrate solvency of the defendant — Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728 — Expile Pty Ltd v Jabb’s Excavations Pty Ltd (2003) 45 ACSR 711 — Defendant contended that it had valuable claims the subject of litigation in the Supreme Court of New South Wales which had substantial prospects of success and would result in the defendant being in a position to satisfy the claims of creditors — Defendant made application to reopen case to present evidence that the claims in the New South Wales proceeding would imminently be the subject of either summary judgment or default judgment in its favour — Application to reopen refused — Finding that defendant had not established on balance of probabilities that it was solvent — Order made for the winding up of the defendant.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A Marcou, of Counsel | Devonish Harris & Henderson |
| For the Defendant | Mr J Young, of Counsel | G & S Law Group |
| For the supporting creditors Suzannah Kolovos, Saad Consulting Pty Ltd, Stan Projects Pty Ltd, and Mosca Pserras Architects Pty Ltd | Mr J Tomaras, solicitor 16 October 2024 Mr Kolovos, solicitor , 5 March 2025 , 20 March 2025 | JLK Law Group |
TABLE OF CONTENTS
Introduction
Supporting creditors
Procedural History
Parties at hearing
The evidence
Blue Ridge’s evidence
Plexbuild’s evidence
Mr Moshy’s 14 May 2024 Affidavit
Mr Moshy’s 11 June affidavit
Mr Moshy’s 12 June affidavit
Bishay Affidavit
Mr Moshy’s 23 July affidavit
Mr Bishay’s Solvency Report
Ratio of assets to liabilities
Debt ratio
Current ratio
Working capital
Quick ratio
Creditors unpaid outside trading terms
Mr Bishay’s Executive Summary
Affidavit of Elee Georges, sworn 14 August 2024
The Units Contract
The Duplex Contract
Plexbuild’s application to reopen the case
Milestone’s evidence
Ms Harris’ evidence
Mr Wu’s evidence
Supporting creditors’ evidence
Ms Kolovos’ evidence
25 June Affidavit
30 July Affidavit
Mosca Pserras’ evidence
Saad’s evidence
Stan’s evidence
Parties’ submissions
Milestone’s submissions
I – Asset Ratio
II – Debt Ratio
III – Current Ratio
A – Asset Ratio
B – Debt Ratio
C – Current Ratio
The supporting creditors’ submissions
Plexbuild’s submissions
Legal principles
Consideration
HIS HONOUR:
Introduction
On 15 February 2024, Blue Ridge Framing Pty Ltd (ACN 143 265 794) trading as Endeavour Cranes (‘Blue Ridge’) filed an originating process (‘Application’) seeking an order under s 459P of the Corporations Act 2001 (Cth) (‘Act’) for the winding up in insolvency of the defendant, Plexbuild Pty Ltd (ACN 640 362 027) (‘Plexbuild’).[1]
[1]Because of the events which are described in these reasons, the time required to deal with the proceeding became protracted and it was necessary to extend the time within which the application was to be concluded pursuant to s459R of the Act on several occasions, culminating in an order made on 5 March 2025 extending the time to 24 April 2025.
The Application was grounded on the presumption of insolvency arising from Plexbuild’s failure to comply with a statutory demand dated 18 January 2024 which claimed that Plexbuild was indebted to Blue Ridge for $6,875.09 for debts incurred in the period between 15 August 2023 to 9 November 2023 (‘Demand’).
The Demand was served on Plexbuild on 18 January 2024. No application was made to set aside the Demand under s 459G of the Act within the statutory period which, pursuant to s 459F(2)(b), expired on 8 February 2024, giving rise to a presumption under s 459C(2)(a) that Plexbuild was insolvent.
The Application was filed on 15 February 2024, within the three month period during which such presumption subsisted. On 16 February 2024, Blue Ridge served the Application on Plexbuild and lodged notice of the Application with the Australian Securities and Investments Commission (‘ASIC’). Blue Ridge also filed evidence that notice of the Application had been published on the ASIC website. A nomination and consent of liquidator has also been filed.
I am satisfied that the Application complies with the formal requirements of the Act and the Supreme Court (Corporations) Rules 2023 (Vic) (‘Corporations Rules’) applying to applications for a winding up order and that the evidence demonstrated the existence of a presumption that Plexbuild was insolvent arising from non-compliance with the Demand.
As a consequence of this, Plexbuild now bears the onus of discharging the presumption of insolvency by reason of its failure to comply with Blue Ridge’s Demand. That presumption is available as a ground to other creditors of Plexbuild who have standing to seek to be substituted as plaintiff in the Application upon the withdrawal of Blue Ridge (or upon the withdrawal of a creditor subsequently substituted as plaintiff). It will be seen that since its commencement, several creditors were substituted as plaintiff in the Application upon the withdrawal of other creditors.
Supporting creditors
Notices of appearances were filed by the following supporting creditors on the dates appearing below:
(a)Hanson Construction Materials Pty Ltd (‘Hanson’) on 19 March 2024;
(b)Holcim (Australia) Pty Ltd (‘Holcim’) on 9 April 2024;
(c)Milestone Trading Solution Pty Ltd (‘Milestone’ or ‘Plaintiff’) on 18 April 2024;
(d)Tradelink Pty Ltd (‘Tradelink’) on 30 May 2024;
(e)Edmondson Grange Pty Ltd (‘Edmondson’) on 13 June 2024;
(f)JC Geotechnics Pty Ltd (‘JC Geotechnics’) on 25 June 2024;
(g)Mosca Pserras Architects Pty Ltd (‘Mosca Pserras’) on 25 June 2024;
(h)Saad Consulting Engineers Pty Ltd (‘Saad’) on 25 June 2024;
(i)Stan Projects Pty Ltd (‘Stan’) on 25 June 2024;
(j)Infrabuild Construction Solutions Pty Ltd (‘Infrabuild’) on 26 June 2024; and
(k)Suzannah Kolovos, formerly known as Suzannah Kiceec (‘Ms Kolovos’) on 23 July 2024.
Procedural History
This Application has had a protracted history. There were nine adjournments of the application before the Judicial Registrar.[2] It will be seen that the predominant purposes for such adjournments were first, to provide several opportunities to Plexbuild to put on evidence as to its solvency so as to discharge the onus it bears by reason of the presumption and secondly, to enable applications to be made by a succession of supporting creditors for their substitution as plaintiff in the Application.
[2]The Application was returnable on 12 occasions at which directions were made.
On the return of the Application before me on 16 October 2024, counsel for Plexbuild made application for a further adjournment by reason of the indisposition of its director which was refused. The reasons for that ruling were transcribed and have been placed on the court file.
Over the period of the adjournments before Woronczak JR, a series of orders for substitution of supporting creditors as plaintiff were made pursuant to s 465B of the Act, followed by subsequent withdrawals by those creditors (and other supporting creditors) after they had apparently negotiated a resolution with Plexbuild.
The first return of the Application took place before Woronczak JR on 20 March 2024. Only the then plaintiff, Blue Ridge, and a supporting creditor, Hanson appeared. There was no appearance by Plexbuild. The Court was informed that the matter had resolved between Blue Ridge and Plexbuild and directions were made for Hanson to file any interlocutory process for substitution by 3 April 2024. Blue Ridge was excused by the Court from further attendance in the proceeding. The Application was adjourned to 10 April 2024.
On 10 April 2024, the matter returned to court and orders were made substituting Hanson as plaintiff. Again, there was no appearance by Plexbuild. Holcim appeared as a supporting creditor. The Application was adjourned until 1 May 2024.
On 1 May 2024, Woronczak JR ordered the Application be adjourned to 15 May 2024.
On 15 May 2024, the matter returned to court. Plexbuild appeared for the first time. In addition to Hanson and Holcim, a new supporting creditor, Milestone, appeared and supported the Application. In her orders made on 15 May 2024, Woronczak JR noted in her remarks that Plexbuild sought to oppose the application on the basis that it was solvent and sought an adjournment for four weeks ‘to enable it to file its evidence to oppose the application on that basis or otherwise to enable payment to be made to [Hanson] and supporting creditors’.
The Judicial Registrar directed Plexbuild to file any further affidavit on which it intended to rely in opposition to the Application including its evidence as to solvency by 4:00pm on 11 June 2024.
On 12 June 2024, the fifth return of the Application, two additional supporting creditors, Tradelink and Edmondson, appeared. Plexbuild made application for and was granted a further adjournment of four weeks. Woronczak JR noted in her remarks in the ‘other matters’ segment of the order that the adjournment was ‘to enable the evidence to be provided of [Plexbuild’s] solvency and [to] make arrangements to pay the debts claimed by [Hanson] and the supporting creditors’.[3] Woronczak JR further noted Plexbuild’s non-compliance with her orders in respect of the filing of its evidence as to solvency by 11 June 2024.[4]
[3]See paragraph D of the ‘Other Matters’ segment of the orders of Woronczak JR of 11 June 2024.
[4]The full text of Woronczak JR’s observations in her order of 12 June are set out in paragraph 55 below.
The time by which Plexbuild was to file and serve any further affidavit on which it intended to rely in opposition to the Application, including as to its solvency, was extended to 24 June 2024 and the Application was adjourned to 26 June 2024.
On 26 June 2024, the matter returned to Court. As well as the supporting creditors who had previously appeared, several additional supporting creditors attended the hearing. Mr J Tomaras, the solicitor for Edmondson, also made appearances on behalf of JC Geotechnics Pty Ltd, Mosca Pserras, Saad and Stan.
By that point, an affidavit of Ashraf Bishay (‘Mr Bishay’) sworn 24 June 2024 had been filed. Mr Bishay is an accountant appointed by Plexbuild. Mr Bishay stated that he had been engaged to prepare a ‘solvency expert report’ and this would require an adjournment of an additional four weeks.
Hanson and the other supporting creditors opposed the adjournment and sought to proceed with the Application to wind up Plexbuild, however, Woronczak JR acceded to Plexbuild’s request for a further adjournment. Directions were made which included that Plexbuild file and serve any expert report as to its solvency by 17 July 2024. The Application was adjourned to 24 July 2024.
On 24 July 2024, the Court was informed that the issues between Hanson and Plexbuild had resolved. Hanson sought to withdraw and was excused from further attendance in the proceeding. On the same day, the Court made orders substituting Holcim as plaintiff and adjourned the Application to 31 July 2024.
On 31 July 2024, the Court was informed that the matter between Holcim and Plexbuild had resolved. Holcim made application to withdraw and was excused from further attendance in the proceeding. Shortly prior to that hearing, on 29 July 2024, Infrabuild had filed an interlocutory process seeking to be substituted as plaintiff and the Court made directions concerning that application. Infrabuild’s application was adjourned to 7 August 2024.
On 7 August 2024, the interlocutory process filed by Infrabuild to be substituted as plaintiff was dismissed because Infrabuild had apparently reached an agreement with Plexbuild. Woronczak JR made directions in respect of an interlocutory process filed by Milestone on 5 August 2024 to be substituted as plaintiff. The Judicial Registrar also made orders pursuant to s 459R of the Act extending the period within which the application for winding up was to be determined to 14 February 2025.
On 14 August 2024, Woronczak JR made orders substituting the current plaintiff, Milestone, as the plaintiff in the Application. It appears that Plexbuild did not oppose that application. Woronczak JR gave leave to Plexbuild to file a further affidavit of Mr Bishay exhibiting an updated report as to Plexbuild’s solvency produced by Mr Bishay. The Judicial Registrar fixed the Application for hearing on 16 October 2024.
Parties at hearing
At the time of the final hearing of the Application on 16 October 2024, the remaining parties in the proceeding were:
(a)Milestone, the current plaintiff;
(b)Plexbuild, the defendant;
(c)Mosca Pserras, a supporting creditor;
(d)Saad, a supporting creditor;
(e)Stan, a supporting creditor; and
(f)Ms Kolovos, a supporting creditor.
Despite previously filing a notice of appearance in support of the Application and being involved at the hearings before the Judicial Registrar, Edmondson did not appear at the final hearing.
The evidence
In support of the Application, Milestone, in addition to relying upon the evidence filed by Blue Ridge when initiating the Application, relies upon the affidavits of:
(a)Briana Harris affirmed 30 July 2024; and
(b)Youlin Wu affirmed 5 August 2024.
In opposition to the Application, Plexbuild relies upon the affidavits of:
(a)Sargon Moshy (‘Mr Moshy’) sworn 14 May 2024 (‘Mr Moshy’s Affidavit of 14 May 2024’);
(b)Mr Moshy sworn 11 June 2024 (’Mr Moshy’s Affidavit of 11 June 2024’)
(c)a second affidavit of Mr Moshy sworn 11 June 2024, outlining known debtors;[5]
(d)Mr Bishay sworn 24 June 2024 (‘Bishay Affidavit’);
(e)Mr Moshy sworn 23 July 2024 (‘Mr Moshy’s Affidavit of 23 July 2024’);
(f)Elee Georges (‘Mr Georges’) sworn 14 August 2024 (‘Georges Affidavit’)[6] (Mr Georges is Plexbuild’s solicitor);[7]
(g)Mr Moshy sworn 4 March 2025. This affidavit was sworn in support of an application by Plexbuild on 5 March 2025 to reopen its case which is discussed below.
(h)Mr Georges also filed an affidavit on 14 March 2025 describing events which took place on 7 March 2025 but which was purportedly sworn on 15 October 2024.[8]
(i)Mr Bishay also composed a document titled “Solvency Report” dated 30 July 2024 which was filed with the Court on the same day, although this document was not exhibited to an affidavit. An updated version of the report was exhibited to Mr Moshy’s 23 July Affidavit but curiously is post-dated 14 August 2024 (‘Solvency Report’).
[5]This affidavit, which was purportedly sworn on 11 June 2024, deposes to actions taken on 12 June 2024.
[6]This affidavit was purportedly sworn on 14 August 2024, but curiously the Court seal records it as having been filed on 31 July 2024. The heading to the document notes the date of the document as 23 July 2024.
[7]A further affidavit was sworn by Mr Georges on 15 October 2024 in support of an application for adjournment of the final hearing on 16 October 2024.
[8]This affidavit was re sworn and filed on 20 March 2025 in the same form.
In support of the Application, the supporting creditors who appeared at the final hearing relied upon the affidavits of:
(a)Sam Al Maraee (‘Mr Al Maraee’) sworn 24 June 2024 on behalf of Saad;
(b)Steve Pserras (‘Mr Pserras’) sworn 24 June 2024 on behalf of Mosca Pserras;
(c)Anthony Tia (‘Mr Tia’) sworn 25 June 2024 on behalf of Stan; and
(d)Ms Kolovos sworn 25 June 2024 and 30 July 2024.
There were numerous other affidavits filed in the Application which are not relevant for the purpose of my reasons that follow.[9]
[9]A total of 36 affidavits were filed, 28 of them substantive.
None of the deponents were cross-examined on their affidavits.
For the reasons that follow, I do not consider that Plexbuild has discharged the onus it bears of rebutting the statutory presumption which arises by operation of s 459C(2)(a) of the Act by establishing, on the balance of probabilities, that it is solvent within the meaning of s 95A of the Act. Further, there are no features of the matter which warrant the exercise of the residual discretion under s 467(1) of the Act not to make a winding up order.
In the circumstances, a winding up order should be made against Plexbuild.
Blue Ridge’s evidence
The evidence filed by the original plaintiff, Blue Ridge, was principally directed to demonstrate that there had been compliance with the formal requirements of the Act and the Rules in respect of applications for winding up in insolvency. As I have indicated above, I consider those requirements have been complied with.
Plexbuild’s evidence
Resolution of the Application ultimately involved a consideration of Plexbuild’s material as to its solvency, in particular Mr Bishay’s initial solvency report dated 30 July 2024, together with the subsequent and updated Solvency Report, and whether that material was sufficient to discharge the presumption of insolvency. Plexbuild’s case was predominately based on and underpinned by a contention that it had substantial claims against Edmondson, Ms Kolovos and her sister which, when realised, were sufficient to discharge the claims of its creditors. Those claims are the subject of a proceeding brought by N.A.S. Timber Supplies Pty Ltd (‘N.A.S.’), a related company of Plexbuild, and Plexbuild, as the second plaintiff, in the New South Wales Supreme Court (‘the NSWSC Summons’). The Solvency Report and the claim made in the NSWSC Summons were the major focus of the parties’ submissions and will be the subject of analysis and discussion in these reasons.
In requesting Mr Bishay to provide an opinion as to Plexbuild’s solvency, Mr Bishay was instructed to assume that the claims made in the NSWSC Summons were payable and recoverable and much of the analysis in these reasons is directed to whether there was foundation for that assumption.
Mr Moshy’s 14 May 2024 Affidavit
In this affidavit, Mr Moshy stated Plexbuild was not served with the Demand as alleged by Blue Ridge however, rather than disputing service of the Demand, Plexbuild paid the amounts claimed by Blue Ridge including costs without obtaining any legal advice.
Mr Moshy deposed that as at 14 May 2024, there were three creditors[10] who were potential candidates to be substituted as plaintiff who claimed approximately $544,000 plus costs and interest against Plexbuild for works carried out by them at a construction site at Edmondson in NSW (‘Edmondson Project’). Mr Moshy deposed at the time of his affidavit all other creditors were on payment plans.[11]
[10]Holcim, Infrabuild and Milestone.
[11]It will be seen below from the evidence of Milestone in the Harris Affidavit that it was contended that there was never any payment plan entered into with Plexbuild. This was not subsequently contradicted by Plexbuild.
Mr Moshy deposed that as at the date of his affidavit, based on his review of the books and records of Plexbuild, Plexbuild was owed the sum of $975,000 in progress claims by Edmondson, the developer of the Edmondson Project, for building works pursuant to the Building and Construction Industry Security of Payment Act 1999 (NSW) (‘Security of Payment Act’’). Mr Moshy stated as at 14 July 2024, Plexbuild was also owed $639,000 in retention money in respect of that project and, if Plexbuild terminated the contract with Edmondson, the retention money would be due and payable to Plexbuild. Mr Moshy stated that he was informed and believed that Plexbuild had a legal right to terminate the contract with Edmondson by reason of non-payment.
Mr Moshy stated that it was his belief, based on his discussions with Edmondson’s director, that Edmondson has withheld payments due to Plexbuild since becoming aware of these proceedings.
Mr Moshy stated that the superintendent appointed[12] to the Edmondson Project (‘SDSS’) indicated that there was no dispute that $590,667.98 of GST, together with a progress claim of $122,882.66 (a total of $713,550.64) was due and payable by Edmondson to Plexbuild.
[12]i.e. the person responsible for assessing payment claims under the Security of Payment Act.
Mr Moshy stated ‘[Plexbuild’s] claim will be $975,000 including other payments withheld by [Edmondson] by adjudication a process which takes 20 working days.’
Mr Moshy stated that ‘if the defendant (sic)[13] and the other supporting creditors allow Plexbuild to pursue this adjudication, we expect an outcome within 20 business days by operation of the [Security of Payment Act].’
[13]From the context, clearly intended to be a reference to the plaintiff.
An examination of the documentation exhibited to Mr Moshy’s affidavit in respect of the claim for the Edmondson Project reveals that the party who contracted with Edmondson for the Edmondson Project and made the progress claims was not Plexbuild but its related entity, N.A.S. The significance of this will be discussed below.
Mr Moshy deposed that he was in the process of selling an investment property which was to be sold at auction on 1 June 2024, or earlier by private treaty. Mr Moshy stated that he expected the surplus from the sale of the property would be $440,000, which he was willing to lend to Plexbuild to pay the defendant (sic) and the other supporting creditors who have caveats on the property to secure their debts.
Mr Moshy concluded his affidavit by requesting an adjournment for four weeks in order to produce evidence of solvency and to make arrangements to pay the debts claimed.
Mr Moshy’s 11 June affidavit
In this affidavit, Mr Moshy repeated verbatim the evidence he gave in his 14 May affidavit as to the amounts he alleged were owing to Plexbuild by Edmondson and the assertion in respect of Edmondson’s failure to remit such sums upon its director becoming aware of this proceeding.
Mr Moshy stated that on 12 June 2024, Plexbuild would lodge an adjudication application claim under the Security of Payment Act for works it had performed. The adjudication application form which is exhibited indicates the respondents to the application are Suzannah and Gabriella Kiceec (‘Kiceecs’)[14] and contended that $404,000 was payable by them to Plexbuild. Mr Moshy stated that the adjudication process usually took 10 working days.
[14]Gabriella Kiceec and Suzannah Kiceec (later respectively known as Gabriella Maharaj and Suzannah Kolovos, and in parts of the evidence referred to as ‘Ms Maharaj’ and ‘Ms Kolovos’) will be referred to together in these reasons as the ‘Kiceecs’. They are the daughters of the director of Edmondson, Mr Stoyan Kiceec (‘Mr Kiceec’). In various parts of the evidence, Suzannah Kiceec is referred to as Suzannah Kolovos (‘Ms Kolovos’).
Mr Moshy stated, if the defendant (sic) and the other supporting creditors allowed Plexbuild to pursue this adjudication, Plexbuild expected an outcome within ten business days.
Mr Moshy stated he had sold a property (presumably the same property referred to in his 14 May affidavit) and the surplus from that sale would be $280,000 (rather than $440,000 as stated in his 14 May affidavit) which he said he is willing to lend to Plexbuild to discharge the debts to the creditors who have caveats on the investment property to secure their debts.
Mr Moshy repeated the request made in his 14 May affidavit for the Court to adjourn the application for four weeks so that he could provide the plaintiff (at that time, Hanson) and the supporting creditors with evidence of the Plexbuild’s solvency and make arrangements to pay the debts claimed.
Mr Moshy stated Plexbuild expected to obtain a refund of $150,000 from its June 2024 BAS as it had made payments and was entitled to input tax credits but had not yet received payment. Mr Moshy stated that as Plexbuild ‘is on the cash system of account[,] it is entitled to a GST credit even though it is owed money as it has not received it.’
Mr Moshy’s 12 June affidavit
In his 12 June affidavit, Mr Moshy deposed that Plexbuild had lodged an application for adjudication under the Security of Payment Act with Adjudicate Today Pty Ltd on 12 June 2024.[15] The adjudication application appears to relate to claims by sub-contractors at 201 Hoffman Road, Edmondson Park (‘Hoffman Road Project’) involving the Kiceecs. The claims include Milestone, now the plaintiff in the Application, and several of the supporting creditors in this Application.[16]
[15]As noted above, Mr Moshy’s 12 June affidavit is purportedly sworn 11 June 2024, but is dated 12 June 2024 and refers to actions taken by Plexbuild on 12 June 2024.
[16]Hanson, Milestone, Holcim and Infrabuild.
Mr Moshy deposed that the known debtors[17] (sic) of Plexbuild are:
(a)Hanson for $180,128.91;
(b)Tamaya Pty Ltd for $18,610.04;
(c)Reece Australia Pty Ltd for $16,792.64;
(d)Monaco Global for $250,380.22;
(e)Milestone for $150,559.23;
(f)Holcim for $226,953.01; and
(g)Infrabuild for $152,272.93.
These creditors are said to be owed a total of $995,696.98.
[17]It will be seen that the entities listed include several of the supporting creditors (Hanson, Milestone, Holcim and Infrabuild) whose claims were not disputed and it seems clear from the context that the description of these parties as debtors is an error and was intended to be a reference to creditors. Hanson, Holcim and Infrabuild’s claims were the subject of agreements with Plexbuild and have been satisfied after they became involved in the application. Milestone’s application for substitution was not resisted.
Mr Moshy concluded his affidavit by stating that:
As set out in previous affidavits the Company is expected to recover or raise about $1,800,000 in the next four weeks to pay creditors. The company has a building licence and I am the nominated supervisor. If a Liquidator is appointed to the Company it will affect my personal Building licence as well.
In her orders of 12 June 2024, Woronczak JR adjourned the proceeding to 26 June 2024 and again made orders requiring Plexbuild to file evidence as to its solvency and to make arrangements to pay the debts claimed by [Hanson] and the supporting creditors by 24 June 2024. The Judicial Registrar observed:
On 15 May 2024 orders were made for [Plexbuild] to file its evidence to oppose the application on the grounds set out in its notice of appearance that being that it [is] solvent by 11 June 2024. Instead, supported by the affidavits of its director Sargon Moshy sworn 11 June 2024 and 12 June 2024 application is made for an adjournment for 4 weeks to enable the evidence to be provided of [Plexbuild’s] solvency and make arrangements to pay the debts claimed by [Hanson] and supporting creditors. The contents of the 11 June 2024 affidavit extends upon the evidence set out in the affidavit of Mr Moshy sworn 14 June 2024 in support of an adjournment sought then for the same reasons and same period. No evidence is provided regarding steps that [Plexbuild] has taken to engage an expert to provide evidence as to the [Plexbuild’s] solvency or the time required for that evidence. The evidence rather goes to assertions about funds owed to [Plexbuild] or which could be raised by it to put towards the claims of its creditors including those creditors in this proceeding.
[Hanson] and supporting creditors neither consent to nor oppose the adjournment sought. This is the same position that they have taken on each of [Plexbuild’s] adjournment applications made on 1 May 2024 and 15 May 2024 in so far as they appeared on those dates. [Hanson] which appears for the first time today says that it should be for a shorter period than is proposed by [Plexbuild].
This is already the fifth return of the application, which was filed on 15 February 2024 some 4 months ago. There was no appearance for [Plexbuild] on the first two occasions the matter was before the Court. On the third Mr Moshy appeared for [Plexbuild] and sought and obtained an adjournment to engage solicitors and seek to resolve the matter and on the forth [Plexbuild] was represented for the first time and orders made as already indicated for the filing of the [Plexbuild’s] evidence to oppose the application. There is no evidence of any progress that has been made towards the preparation of the [Plexbuild’s] evidence. Another two supporting creditors now support the application. The evidence that [Plexbuild] has filed to date in insufficient to rebut the presumption of [in]solvency that has arisen by virtue of the [Plexbuild’s] failure to comply with the statutory demand upon which the application relies. [Plexbuild’s] evidence in support the adjournment application is lacking in the clarity and specificity that would be expected upon an adjournment application at this point in the proceeding. Had it not been for [Hanson] inter alia neither consenting to nor opposing the adjournment application, it is unlikely that a further adjournment would have been granted on the evidence before the Court. The evidence provides no clarity about the complete financial position of [Plexbuild] and how it is proposed that all of its creditors will be paid.
Bishay Affidavit
Mr Bishay deposed that he is a Certified Practicing Accountant employed by MYB Partners Pty Ltd (‘MYB’), a chartered accounting firm which has been retained by Plexbuild since June 2024 to review Plexbuild’s accounts and report to the Court as to its solvency.
Mr Bishay stated he has been an accountant since 1983, that he has prepared reports for the New South Wales Supreme Court and been involved in the preparation of financial statements for corporate business clients for over 40 years.
Mr Bishay summarised his instructions as to the known creditors and debtors of Plexbuild. Mr Bishay stated he is instructed that the creditors total $1,153,696 and lists the same creditors as those identified by Mr Moshy in his 12 June Affidavit and in the same amounts. He is instructed that its debtors consist of Edmondson and the Kiceecs which total $3,913,732.42.
He observed that Plexbuild has a building license which, if a liquidator was appointed, would affect the building licence of its director.
Mr Bishay stated Plexbuild is on a cash system for GST, and that the BAS for 30 June 2023 will be lodged on or before 28 July 2024.
Mr Bishay stated, based on the information provided and his experience and training, he was of the opinion that:
(a)Plexbuild is ‘solvent as [its] assets exceed its debt’ and ‘should be able to pay its debts as they fall due if [Plexbuild’s] outstanding debts are collected’ (emphasis added);
(b)the director, Mr Moshy, is able to lend Plexbuild funds upon the sale of his property, which he has already outlined in his evidence to the Court; and
(c)Mr Bishay required four weeks to complete a more detailed financial report, including the tax returns and the final BAS for 30 June 2024. This would enable Mr Bishay to verify the figures provided by Plexbuild, the basis for the above assumption that Plexbuild is solvent, are accurate.
Mr Moshy’s 23 July affidavit
In this affidavit, Mr Moshy deposed he sold the investment property on 12 July 2024 and ‘caused creditors to be paid including creditors of Plexbuild’. Mr Moshy stated that the then plaintiff, Hanson, demanded more than what was expected and required payment of $236,897.22 including about $62,000 in legal fees. Mr Moshy stated ‘the legal fees were not expected to be this high and other creditors were not paid as a result, but settlement was allowed to proceed in the best interest of all creditors’. Mr Moshy stated that the details of the unexpected amount claimed for legal fees had been provided to Mr Bishay in order for him to produce the updated Solvency Report.
Mr Moshy stated that the solicitors for Hanson informed the other creditors on 15 July 2024 that it would be seeking to withdraw from the proceeding.
Mr Moshy stated there was a delay in receiving a refund of GST from the ATO. He stated he was informed that the lodgement of the 30 June 2024 BAS was delayed until 19 July 2024 and he expected the refund to be received within 7 to 10 days. Mr Moshy stated he was advised that Mr Bishay needed to be informed of the outcome of the refund application to finalise his updated Solvency Report.
Mr Moshy stated he undertook ‘to apply the GST refund to the creditors in the order of their preference’; he does not elaborate what he meant by this. Mr Moshy stated that in the initial solvency report, Mr Bishay estimated the GST refund would be $150,000 rather than $258,000 which was now the expected refund and the Solvency Report would require revision in that regard.
Mr Moshy stated the adjudicator appointed for the Hoffman Road Project, Adjudicate Today, advised on 19 July 2024 that the result of Plexbuild’s application for a $404,000 payment claim against the Kiceecs would be ‘released shortly’. Mr Moshy stated at the time of his affidavit the adjudication decision had not been released and he was informed that the amount of the adjudication award was required for Mr Bishay to produce the updated Solvency Report. Mr Moshy confirmed in the 23 July Moshy Affidavit that the amount of the adjudication award would be applied to Plexbuild’s creditors and that Plexbuild had paid all of the adjudication fees.
I consider Mr Moshy’s evidence concerning the publishing of the adjudication certificate in respect of Plexbuild’s claim against the Kiceecs for the works at the Hofmann Road Project is, at best, lacking in candour. It will be seen below in her affidavit of 30 July 2024, Ms Kolovos details the attempts made by her representatives to obtain the adjudication certificate from the adjudicator.[18] Despite the opportunity, Ms Kolovos’ evidence concerning this is not contradicted by Mr Moshy or Plexbuild. On the evidence, it seems clear that Mr Moshy was complicit in delaying the release of the certificate (which determined the Kiceecs’ liability to Plexbuild was ‘$nil’ rather than over $400,000 as claimed) until after the next hearing of the matter which was scheduled for 24 July 2024. I infer the most probable reason for this was for the purposes of creating a pretext for obtaining a further adjournment by a proffering of an excuse that the adjudication certificate was not yet available.
[18]See paragraphs 183 to 191 below.
Mr Moshy concluded the affidavit by stating that Plexbuild has provided evidence of Mr Bishay stating his opinion that it is solvent and that Plexbuild wished to update this evidence. Plexbuild sought another adjournment for two weeks to be able to file and serve that evidence.[19]
[19]The application was adjourned to 31 July 2024.
Mr Bishay’s Solvency Report
In the Solvency Report dated 30 July 2024, Mr Bishay repeated the details of his curriculum vitae and his professional background and experience which appeared in his affidavit of 24 June 2024.
At the outset, I regard it as a matter of major significance in the current context that in compiling the Solvency Report, Mr Bishay did not rely upon independently audited and verified accounts, nor did he conduct any examination in the nature of an audit of the material with which he was provided. Certainly, the orders of Woronczak JR referred to above contemplated this and Plexbuild was afforded more than adequate time to commission such an audit. Rather, he was directed to assume that such material was accurate and, in particular, that the debts said to be owing by Edmondson and the Kiceecs were owing and recoverable.
Although there are exceptions, the weight of the authority considering the question of the level of evidence required to satisfy a court that a company is solvent require opinions expressed in that regard to be based on the ‘fullest and best evidence‘ and such evidence most often takes the form of independently audited accounts.[20] I will discuss these authorities below. Instead, Mr Bishay states that, in assessing the financial status of Plexbuild, he has assumed that those accounts are accurate and that in coming to his opinion in the Solvency Report, he has relied upon the instructions that he has received from Plexbuild’s solicitors.[21] In particular, Mr Bishay has been directed to make certain specified assumptions regarding the indebtedness of Edmondson and the Kiceecs to Plexbuild as follows:[22]
(a)The Kiceecs should be assumed to owe Plexbuild $404,000 including GST in respect of the Hoffman Road Project.
(b)Edmondson was a debtor in respect of works completed by Plexbuild at the Edmondson Project pursuant to a contract for $26,658,000, for which Plexbuild is a subcontractor and is owed $2,918,000. This is to be contrasted with Mr Bishay’s instructions that the statutory debt under the Security of Payment Act was $3,913,732.42.[23]
[20]See for example, Ace Contractors and Staff v Westgarth Development Pty Ltd [1999] FCA 728 (Weinberg J).
[21]Solvency Report of Ashraf Bishay dated 14 August 2024, paras 1.1.6 -7,1.4.3 (‘Solvency Report’).
[22]Ibid, para 1.3.2
[23]Bishay affidavit 24 June 2024, [8].
There is a wide disparity within sections of the Solvency Report as to the amounts that Plexbuild is said to be owed. In the section in which Mr Bishay provides his executive summary, Mr Bishay states than on a review of Plexbuild’s business records, Edmondson and the Kiceecs owe Plexbuild $6,293,492.[24] In another part of the Insolvency Report[25] in which Mr Bishay states his conclusion as to solvency, he states than on a review of Plexbuild’s business records and of proceedings commenced in the New South Wales Supreme Court, Plexbuild is owed $6,478,848 from customers who are not identified but this statement appears in a section of the report in which Mr Bishay describes Edmondson Grange and the Kiceecs as Plexbuild’s’ ‘main debtors’ [26] and the ‘liquidity issue’ that Plexbuild faces ‘is due to the money withheld’ by them.
[24]Solvency Report (n 21), para 2.2.3
[25]Ibid, para 6.1.4.
[26]Ibid, para 6
Mr Bishay identified the documents provided by Plexbuild and relied upon by him when compiling the Solvency Report.[27] These included:
[27]Ibid, Appendix B, letter of instruction dated 10 June 2024 and 25 July 2024, Appendix D.
(a)bank statements from 1 July 2022 to 30 April 2024;
(b)BAS for 1 July 2022 to 30 April 2024;
(c)tax returns for 1 July 2002 to 30 June 2021;
(d)invoices from 1 July 2022 to 30 April 2024;
(e)contracts and agreements for the period between 1 July 2022 to 30 April 2024;
(f)a current list of assets/debtor’s ledger;
(g)a current list of liabilities/accounts payable ledger;
(h)extracts from the ATO portal;
(i)financial statements; and
(j)the evidence and submissions filed in this proceeding.
Mr Bishay stated that his associates have reviewed the Xero financial reports for the financial years ended 30 June 2021, 2022, 2023 and 2024 as well as the management reports for the year ended 30 June 2024 and reconciliations of the bank accounts, receivables and payables that have been completed.
Mr Bishay asserted ’[Plexbuild] has kept up to date fair and reasonable records and reporting’[28] but does not detail how he reached this view. He states ‘we have performed review procedures to be able to give an opinion of the true and fair value of the financial statements to date’[29] but he does not elaborate as to the process undertaken to come to that opinion.
[28]Solvency Report (n 21) para 4.5.1.
[29]Ibid, para 4.6.1.
Mr Bishay observed that ‘whilst he has been [told to] assume that the claims have reasonable prospects of success in court’ he has ‘also reviewed the invoices issued to [Plexbuild] and paid by [Plexbuild] in respect of [the Edmondson Project and the Hoffman Road Project]’. He stated ‘that the money received [in respect of those debtors] is less than the [amount invoiced by Plexbuild] and [that he has] verified [that information based on the records provided to him].’[30]
[30]Ibid, para 1.3.2.
Mr Bishay contended that Plexbuild ‘is in a growth industry, the construction industry, especially in the state of NSW’. While this may be so, in this Application the Court is of course required to determine whether Plexbuild has established that it is solvent within the meaning of s 95A of the Act; generic observations as to the overall state that the construction industry is said to be in are of no weight in determining that issue.
Mr Bishay’s opinion expressed in the Executive Summary[31] of his report is that Plexbuild is solvent based on:
(a)a balance sheet with a net asset position of $865,904 as at 30 June 2023;
(b)supporting evidence of having positive ratios; and
(c)Plexbuild’s ‘ability to keep fair and reasonable books and records up to date’.
[31]Solvency Report (n 21), paras 2.2.3- 2.2.5.
As to Plexbuild’s solvency as at 30 July 2024, Mr Bishay states that the results for the 2024 Financial Year show a profit before tax of $1,677,420.75 and net assets totalling $865,904.[32] That latter figure is based on the value said to be attributed to Plexbuild’s debtors.
[32]Ibid, para 2.2.5.
Mr Bishay’s Solvency Report cited several accounting principles in respect of specified types of financial ratios which he contended are relevant when assessing the solvency of a company. He then went on to express opinions as to Plexbuild’s position on an application of those principles which in turn underpin his opinion that the company is solvent. His analysis and calculation of ratios and working capital which are summarised below relies entirely on what he has been directed to assume in respect of Plexbuild’s financial position, in particular the value to be attributed to its debtors. As I have already observed, that information has not been independently verified or audited.
Ratio of assets to liabilities
Mr Bishay stated that a deficiency of total assets to total liabilities may indicate that a company is insolvent. Mr Bishay stated that the asset ratio was also used by insolvency practitioners to test a company’s liquidity and involves dividing the total value of the company’s assets by the total value of the company’s liabilities.
Mr Bishay stated that an asset ratio less than 1 indicated that a company has a deficiency of assets and was technically unable to meet repayment of all its liabilities. However, he stated, it may not be conclusive of insolvency because, for example, the company may have a very strong profit making business and be in a position to pay all its current debts as and when they fall due and then generate sufficient current assets to be able to pay its long term debts when they become due and payable.
Mr Bishay stated that, relying on the data from the Plexbuild management accounts for the period 1 June 2022 to 30 June 2024, he categorised this data into current assets, current liabilities, non-current assets and non-current liabilities. Relying on data from Plexbuild’s management accounts, Mr Bishay calculates Plexbuild’s asset ratio by dividing its total assets ($7,285,286.62) by its total liabilities ($6,419,382.64) resulting in a ratio of 1.13. He stated that this supports a conclusion of solvency. Mr Bishay did not detail how the figures used for assets and liabilities were respectively comprised.
Debt ratio
Mr Bishay observed that the debt ratio compares a company’s total debt to its total assets and is commonly used by insolvency practitioners to gain a general understanding of the amount of leverage being used by a company, i.e. money borrowed from other entities. It is calculated by dividing a company’s liabilities by its assets. A low percentage means that the company is less dependent on leverage. The lower the percentage, the less a company is leveraging its debt and the stronger its equity position. Mr Bishay stated that in general, the higher the debt ratio, the more risk a company is considered to have taken on.
Mr Bishay stated that a debt ratio of more than 1 indicated that a company has a deficiency of assets and may be unable to meet repayment of all its liabilities from its own resources. However, as with asset ratios, if the debt ratio is more than 1, it may not be conclusive of insolvency as the proportion of non-current liabilities to total liabilities may be more than, for example, the proportion of non-current assets to total assets. Mr Bishay stated that even if a company has a debt ratio of more than 1, it may still have sufficient cash flow from current assets to meet current liabilities.
Relying on data from Plexbuild’s management accounts, Mr Bishay calculated the debt ratio of Plexbuild for the period 30 June 2024 as being Plexbuild’s total liabilities ($6,419,382.64) divided by Plexbuild’s total assets ($7,285,286.62), arriving at a ratio of 0.88. Being less than 1, Mr Bishay states that this supported a conclusion of solvency. Again, as with the asset liability ratio, Mr Bishay did not detail how the figures used for assets and liabilities in the calculation of this ratio are respectively comprised.
Current ratio
My Bishay stated that in assessing the liquidity of a business and its ability to pay its liabilities over the coming year, the current ratio test provided an indicator of the debtor’s ability to meet creditor demands. Mr Bishay stated that acceptable current ratios vary by industry, however for a business to be readily able to meet its creditors’ demands without issue, the generally accepted range is somewhere between 1.5 and 3. In Mr Bishay’s experience, values of less than one are likely to indicate that, without other means to repay those liabilities, the business may have difficulty meeting creditor demands.
Mr Bishay stated that liquidity ratios measure a company's ability to pay off short-term debt obligations. This is done by comparing a company's most liquid assets, i.e. those that can be easily converted to cash, against its short-term liabilities.
Mr Bishay stated the current ratio is used by insolvency practitioners to test a company's liquidity (also referred to as its current or working capital position) by identifying the proportion of current assets available to cover current liabilities.
Mr Bishay stated the concept behind the current ratio is to ascertain whether a company’s short-term assets (cash, cash equivalents, marketable securities, receivables and inventory) are readily available to pay off its short-term liabilities (notes payable, current portion of term debt, payables, accrued expenses and taxes). The higher the current ratio, the more likely the company is able to pay its debts as and when they fall due. Mr Bishay stated a low current ratio indicates that a company may be unable to pay its debts as and when they fall due.
Using data from Plexbuild’s management accounts, Mr Bishay stated that he applied the formula noted above to calculate the current ratio of Plexbuild, and that the current ratio was calculated as Plexbuild’s current assets ($7,130,468.00) divided by Plexbuild’s current liabilities ($2,819,657.34), 2.53 at 30 June 2024. Mr Bishay stated that this supports a view of solvency. Again, Mr Bishay did not detail how the figures used for current assets and current liabilities are respectively comprised.
Working capital
Mr Bishay described working capital is the difference between a company’s current assets, such as cash, accounts receivable and inventories of raw materials and finished goods, and its current liabilities, such as accounts payable.
Mr Bishay stated a working capital analysis represents a company’s ability to pay its current liabilities with its current assets and that working capital is an important measure of financial health since creditors can measure a company's ability to pay off its debts within a year.
Using data from Plexbuild’s management accounts, Mr Bishay reported Plexbuild’s working capital at 30 June 2024 as consisting of Plexbuild’s current assets and inventories ($7,130,468.00 plus $34,908.18) minus Plexbuild’s current liabilities ($2,819,657.34), arriving at $4,345,713.84. Mr Bishay stated that this supported a view as to Plexbuild’s solvency.
Quick ratio
Mr Bishay stated that the quick ratio shows the extent of cash and other current assets that are readily convertible into cash in comparison to the short-term obligations of an organisation. Mr Bishay stated a high quick ratio demonstrates that a company is better able to meet its current obligations using liquid assets. He stated the quick ratio is commonly used by insolvency practitioners to gain a general understanding of a company’s short term liquidity position.
Mr Bishay stated that a company with a quick ratio of less than 1 indicates that it cannot in the short term pay back all its current liabilities. Mr Bishay states a low quick ratio is an indicator of cash flow insolvency by reason that there are inadequate current assets, without inventory, to cover near-term debt and that it also ‘indicates that a company may rely heavily on efficient inventory turnover to remain afloat in the short-term’.
Using data from Plexbuild’s management accounts, Mr Bishay reported that he applied this formula to calculate the current quick ratio of Plexbuild for the period 30 June 2024, calculated by Plexbuild’s current assets minus inventory minus prepayments ($7,130,468.00) divided by Plexbuild’s current liabilities ($2,819,657.34) which resulted in a quick ratio 2.53 and which Mr Bishay states supported the view that the company is solvent. No further calculation was provided by Mr Bishay with respect to this ratio.
Creditors unpaid outside trading terms
Mr Bishay noted that the trade creditors ledger as at 30 June 2024 totalled $2,442,843.
Mr Bishay noted that Mr Moshy had lent Plexbuild $165,000.00 as at 30 June 2024 together with an additional sum of $310,000.00, totalling $475,000.00 and has provided Plexbuild with time to repay it. Mr Bishay does not indicate when that loan was repayable. In the event that no formal agreement is in place in that regard, the loan would be a current liability and payable on demand.[33]
[33]See Ogilvie v Adams [1981] VR 1041 (Fullagar J).
Mr Bishay reported that there were no overdue Commonwealth taxes or superannuation.
Mr Bishay noted that Mr Moshy loaned Plexbuild $280,000 on 12 July 2024 to pay a creditor of Plexbuild and that he has been informed that many of Plexbuild’s creditors have entered into payment agreements or been paid in full since the winding up proceedings began. He did not detail these payment agreements. It will be seen that in respect of Milestone’s debt, there is very specific evidence from Milestone, which is not contradicted, to the effect that no payment agreement had ever been reached.
Mr Bishay stated that this demonstrates Plexbuild was trading without incurring further debt and is solvent.
Mr Bishay reported that in his opinion, Plexbuild is solvent as at the date of his Solvency Report, which is dated 14 August 2024.[34] Mr Bishay stated Plexbuild has liquidity issues by reason that the main debtors, Edmondson and the Kiceecs, have not paid it, which Mr Bishay states Plexbuild is addressing through legal proceedings. Mr Bishay stated that assuming Plexbuild has reasonable prospects of success at recovering the money owed to it, Plexbuild will be able to pay its debts within the next three to twelve months. Mr Bishay reported that on his review of the business records of Plexbuild and the proceedings, Plexbuild is owed $6,478,847.75 from customers, and after repayments to its creditors, surplus funds of $865,903.98 are expected.
Mr Bishay’s Executive Summary
[34]As mentioned above, the updated Solvency Report of 14 August 2024 exhibited to the Georges Affidavit was filed on 31 July 2024.
In the part of his report entitled ‘Executive Summary,’ Mr Bishay’s stated his opinion that Plexbuild is both profitable and solvent.[35] He stated the:
… only issues as to solvency is (sic) the two debtors [Edmondson] and [the Kiceecs] and on the basis of the business records provided to me and my review of them those Debtors owe [Plexbuild] $6,293,492. [Plexbuild] is in a growth industry being the contraction (sic) industry, especially in NSW.[36] …I am of the opinion that [Plexbuild] is solvent based on its ability to keep fair and reasonable books and records up to date.[37]
[35]Solvency Report (n 21), para 2.2.
[36]Ibid, para 2.2.3.
[37]Ibid, para 2.2.4.
Mr Bishay stated that ‘in my opinion, [Plexbuild] is solvent given the supporting evidence of the positive ratios in Section 5 of my report. The Balance Sheet shows a net asset position of $865,904 as at 30 June 2024. The major hindrance to cash flows and liquidity of [Plexbuild] is the major debtor, [Edmondson] which is withholding payment to [Plexbuild] for building works completed. [Plexbuild] has been supported by its sole director/member and [N.A.S.] (a related entity of [Plexbuild]).’
The updated version of the Solvency Report dated 14 August 2024 made no substantial changes to the earlier report. It asserted that the Kiceecs were indebted to Plexbuild for $478,062, an increase from the $404,000 reported in the earlier document. It is to be noted that by the time that the revised report was prepared, the adjudicator had published an adjudication certificate reducing the debt owed by the Kiceecs to nil[38] but Mr Bishay made no reference to this.
[38]See Ms Kolovos’ affidavit sworn on 30 July 2024.
Affidavit of Elee Georges, sworn 14 August 2024
In this affidavit, in addition to exhibiting the revised version of the Solvency Report, Mr Georges, the solicitor for Plexbuild, exhibits a copy of a summons issued out of the Supreme Court of New South Wales in the Technology and Construction List of the Equity Division (which is referred to in these reasons as ‘the NSWSC Summons’) on 14 August 2024. I understood the purpose of Plexbuild putting that document into evidence was to support the contention that Plexbuild had valuable claims against Edmondson and the Kiceecs. As has been seen, it is these claims which underpin Plexbuild’s case that it is solvent.
The NSWSC Summons identifies N.A.S. and Plexbuild respectively as the first and second plaintiff. The defendants are identified as Mr Kiceec (the first defendant), Edmondson (the second defendant),[39] Suzannah Kiceec (the third defendant), Gabriella Kiceec (the fourth defendant), Mosca Pserras (the fifth defendant), Saad (the sixth defendant) and Stan (the seventh defendant). In the section of the document describing the relief claimed it states:
[39]Its name is misspelt as ‘Edmonson’ in the document.
Relief Claimed
1. Damages for [N.A.S.] against [Edmondson].
2.Further or in the alternative, a declaration that [Edmondson] holds on trust the sum of at least $879,153 to be paid for the benefit of [N.A.S.] and [Plexbuild] or for subcontractors of [Edmondson and Mr Kiceec] including:
(a)Mosca Pserras Architects Pty Ltd, the Fifth Defendant; and
(b)Saad Consulting Engineers Pty Ltd, the Sixth Defendant: and
(c) Stand (sic) Projects Pty Ltd, the Seventh Defendant.
3.Further or in the alternative damages and/or compensation for [N.A.S. and Plexbuild] against the First and Second Cross Defendants and under the Australian Consumer Law.
4.An order that [Edmondson and Mr Kiceec] pay [N.A.S. and Plexbuild] a fair and reasonable sum for work done and materials provided at their request, on a quantum meruit basis.
5.Damages for [Plexbuild] against [the Kiceecs].
6.Further or in the alternative damages and/ or compensation for [N.A.S. and Plexbuild] against [Edmondson and the Kiceecs] under the Australian Consumer Law.
7.An order that [Edmondson and the Kiceecs] pay a fair and reasonable sum as restitution for work done at their request on a quantum meruit basis.
8. Any further or other order that the Court deems just.
9. Interest.
10. Costs.
It will be seen that the claim for relief is not a straightforward one. The primary claim is by N.A.S. against Edmondson, with an alternative claim by N.A.S. and Plexbuild for a declaration as to the existence of a trust, with Edmondson as trustee for either N.A.S. and Edmondson or for subcontractors including Mosca Pserras, Saad or Stan, who are supporting creditors in this Application. Despite Mosca Pserras, Saad and Stan being named as defendants, the claim does not seek any relief against them. The first and second cross-defendants referred to in paragraph 4 are not identified but from the context would appear to be a reference to Edmondson and the Kiceecs.
Under the heading ‘Nature of Substantive Dispute’, claims are pleaded in respect of the Units Contract (in relation to the works at the Edmondson Project) and the Duplex Contract (for works at the Hoffman Road Project for the Kiceecs).
The Units Contract
As to the Units Contract, it is contended[40] that on 1 July 2023, N.A.S. entered into a written contract with Edmondson for N.A.S. to construct 92 units with a two-level basement and plan strata subdivision at the unit property. This is referred to throughout these reasons as the Edmondson Project. It is alleged[41] that N.A.S. was entitled to monthly progress claims for the works and performed work totalling $7,167,826 in the period July 2023 and June 2024. It is contended[42] that ‘[N.A.S.] retained Plexbuild and other subcontractors as its Subcontractors to assist in completing the Units Contract Works’ (emphasis added). As such, Plexbuild’s role is pleaded as being one of subcontractor to N.A.S. not as principal, with no claim being made of any contractual privity of Plexbuild with Edmondson.
[40]NSWSC Summons, exhibit B to Georges Affidavit, 8[2] (‘NSWSC Summons’).
[41]Ibid, 9 [4].
[42]Ibid, 9 [5]
It is claimed that on or about 1 July 2023, N.A.S. and Plexbuild entered into a tripartite deed with the funders of Mr Kiceec, which made provision for the funding arrangements of Edmondson for the Units Contract i.e. the Edmondson Project.
The claim states[43] that as part of the Units Contract and with the knowledge of Mr Kiceec and Edmondson and their funders, N.A.S. appointed Plexbuild as its agent and project manager for the Units Contract (emphasis added).
[43]Ibid, 9 [7]
The claim stated[44] that as part of the Units Contract [Mr Kiceec and Edmondson] agreed to withhold funds and demanded that N.A.S. refund to Edmondson (or to its related entitles) certain sums on terms that Mr Kiceec and Edmondson as the developer of the Unit Property hold those funds on trust for N.A.S. in order that [Mr Kiceec and Edmondson] control the funds and ensure the proper payment of subcontractors of N.A.S. for the Unit Works (defined in NSWSC Summons as ‘the Subcontractor Funding Agreement’).
[44]Ibid, 9 [9]
It is contended that Edmondson made payments or caused payments to be made to N.A.S. or to the subcontractors of N.A.S. in accordance with the Units Contract and the Subcontractor Funding Agreement totalling $4,751,380.
The claim contends[45] that on 5 July 2024, N.A.S. issued a notice to show cause pursuant to the Units Contract, seeking payment of unpaid progress claims totalling $2,918,035.
[45]NSWSC Summons (n 40), 9 [11].
On 5 August 2024, N.A.S. issued a termination notice stating that it would terminate the contract unless outstanding sums were paid.[46]
[46]Ibid, 9 [12].
On 6 August 2024, N.A.S. demanded the sum of $1,641,864 as damages for breach of contract for amounts owing under the progress claims.[47]
[47]Ibid, 9 [12].
The claim asserts[48] that on 6 August 2024, Mr Kiceec purported to terminate the contract. It states that on the same day, the first defendant (sic)[49] accepted the termination by Mr Kiceec as repudiation of the contract and terminated the contract.[50]
[48]Ibid, 9 [13].
[49]The first defendant is Mr Kiceec and from the context this would appear to be intended to be a reference to the first plaintiff, N.A.S..
[50]NSWSC Summons (n 40), 9 [14].
The claim[51] states that ‘[f]urther, part of the damages claim being the sum of $879,153 is held by [Mr Kiceec] and/or [Edmondson] as part of the Retained Contractor Agreement in order for [Mr Kiceec] and [Edmondson] to pay creditors of [N.A.S.] and [Plexbuild] for the Units Contract and the Duplex Contract’. ‘Retained Contractor Agreement’ is not defined in the NSWSC Summons and this reference may have been intended to be in respect of the Subcontractor Funding Agreement.
[51]Ibid, 10 [16].
The claim[52] states that the defendants to the NSWSC Summons[53] are all claiming to be supporting creditors in this winding up application. It states that Mosca Pserras, Saad and Stan have been paid or ought to have been paid by Mr Kiceec and Edmondson from the funds they hold pursuant to the Subcontractor Funding Agreement.
[52]Ibid, 10 [17].
[53]The defendants named in the NSWSC Summons are Mr Kiceec, Edmondson, the Kiceecs, Mosca Pserras, Saad and Stan.
The pleading in respect of the Units Contract in the NSWSC summons concludes by stating that ‘[t]he total claimed by all creditors in the Winding Up Proceedings is less than the amount of $879,153 held by [Mr Kiceec] and [Edmondson] under the Subcontractor Funding Agreement’.
In the present context, the most obvious observation to be made in respect of the Units Contract claim is that it is pleaded primarily as a contractual claim arising from a contract of 1 July 2023 between N.A.S. and Edmondson to which Plexbuild is not privy; as such it describes a chose in action owned by N.A.S., not Plexbuild.
While Plexbuild is mentioned in the narrative, its claim is not developed beyond assertion. In the narrative of the claim, Plexbuild is at the periphery of the transaction as an agent and project manager of N.A.S., not as a principal. Plexbuild says as much in its written submissions.[54] As such, I do not consider that the Units Contract claim in the NSWSC Summons supports Plexbuild’s contention that it has a chose in action consisting of a claim against Edmondson of the character and quantum contended for by Mr Moshy and in respect of which Mr Bishay was directed to assume existed and was recoverable. In addition, it will be seen below that in his submissions, counsel for the plaintiff, Milestone, Mr Marcoupointed to large discrepancies in the amounts said to be owing to Plexbuild.
The Duplex Contract
[54]See Plexbuild’s submissions filed 2 October 2024, para 13. There is a first plaintiff N.A.S. Timber Supplies Pty Ltd who is the head contractor for the Edmondson Grange Project and in a contractual relationship with [Plexbuild].
The NSWSC Summons then moves on to make allegations and claims in respect of what is described as the Duplex Contract. That contract is between Plexbuild and the Kiceecs in respect of the Hoffman Road Project. The pleading describes the falling out between the parties to the Duplex Contract. It states that on 20 May 2024, Plexbuild issued a progress claim for the works performed up to the date of suspension of work for $404,000.
It seems clear that this progress claim is identical to that the subject of the adjudication notice which has been referred to above.[55] The progress claim makes a claim for the same sum referred to in the evidence which was the subject of the adjudication determination certificate which reduced the claim of Plexbuild against the Kiceecs to ‘$nil’ in July 2024, a month before the NSWSC Summons was issued. While this claim may ultimately be the source of some successful claim after the NSWSC Summons has been determined , it has been valued by an independent adjudicator of recent times as being of no value.
[55]See paragraphs 48, 53, 67 above and paragraphs 183 to 191 below.
It will be seen below that Plexbuild’s applications to move for summary judgment and default judgment on 7 March 2025 were dismissed. The proceeding, which has all the hallmarks of a complex construction case, is in its relative infancy; even if its claims are ultimately successful and recoveries are made, that will be some considerable time off.
Plexbuild’s application to reopen the case
On 4 March 2025, Plexbuild’s solicitor, Mr Georges, sent an email to my associate stating that Plexbuild sought to reopen its case. The email stated:
The Defendant seeks to re-open its case noting that new evidence has come to light as at 21 February 2025. We have served the evidence on the other parties and the plaintiff opposes the filing of the evidence. The nature of the evidence is that the plaintiff i.e. Plexbuild has a listing of its claim for default in summary judgment in the New South Wales Supreme Court proceedings listed on 7 March 2025.
In his email, Mr Georges requested an urgent listing ‘to decide on the application to reopen to file further evidence that the Defendant claims further supports its claim of solvency, that by its nature, the evidence was not available during the hearing in October 2024 and only became available on 21 February 2025’.
Plexbuild’s application to reopen relied on an affidavit of Mr Moshy, sworn 4 March 2025. In this affidavit, Mr Moshy stated that the NSWSC summons was listed for Motion on 7 March 2025 and Plexbuild would be seeking summary judgment and default judgment at that hearing. He stated that if the matter was heard and was successful, the amount of the judgment will be considerably in excess of monies owed or alleged to be owed to other creditors. He stated that the first to fourth defendants (Mr Kiceec, Edmondson and the Kiceecs) have considerable and sufficient assets to meet any judgment. Mr Moshy asserted that Edmondson was holding $639,000 in trust in an account controlled by its funder for the Edmondson site. He stated that Plexbuild and N.A.S. would seek to access those funds to satisfy the judgment.
Mr Moshy exhibited a notice of listing from the New South Wales Supreme Court advising that the matter was listed for motion in the Technology and Construction List on 7 March 2025. The notice of motion seeks orders as follows:
1.default judgment be entered in favour of the plaintiffs against the first to fourth defendants;
2.further, or in the alternative, summary judgment be entered in favour of the plaintiffs against the first to fourth defendants;
3.list the matter for an assessment of damages;
4.defendants to pay the plaintiff’s costs of the motion;
The motion in the New South Wales proceeding was supported by an affidavit of Mr Moshy sworn 20 February 2024. That affidavit refers to a previous affidavit of 26 November 2024 but that affidavit was not in evidence in the application to reopen. Mr Brown, of counsel, who appeared on behalf of Plexbuild, stated that it was a substantial affidavit of over 1000 pages, exhibiting contracts and other documentation. The affidavit referred to the Hoffman Road project contract, and deposes as to several events, which had occurred in respect of that project. The affidavit then stated:
Plexbuild has not been paid for the duplex works in the sum of $404,000, being the deposit of $90,000 not paid, the Slab Progress claim of $90,000 not paid, and the works up to termination not being paid by the third and fourth defendants.
Mr Moshy’s affidavit then deposed as to why the listing of the motion was urgent, refers to the Kiceecs involvement in this application and asserted that they are delaying the hearing of the claims in the NSWSC summons ‘so that the winding up proceeding will cause Plexbuild not to be able to continue the NSWSC summons’. He then deposed that the defendants to the NSWSC summons are in default of orders previously made by the New South Wales Supreme Court. Mr Moshy sought an order that the Court enter default judgment against the defendants for failure to comply with the orders of the Court to file and serve a list response.
I had substantially completed the composition of my reasons for judgment in this matter and was to publish those reasons at midday on 7 March 2025, and had directed my associate to inform the parties of this but Plexbuild’s approach to the Court intervened before this could be done.
I heard the application to reopen late in the afternoon of 5 March 2025. Mr Brown informed me that the matter was proceeding on 7 March 2025 and that he would be appearing and moving for default judgment. He indicated that if the outcome was as expected, Plexbuild’s position would be that it would have access to funds to satisfy the claims of the creditors. That application would principally rely on the failure by the first to fourth defendants in the NSWSC summons to comply with Court orders in respect of the filing of documents.
I observed to Mr Brown that on the material before me, without presuming what view the judge hearing the application would take, it was completely unlikely that summary judgment would be awarded in favour of N.A.S. and Plexbuild. I did not understand him to dissent from that observation.
Because of the proximity of the hearing in the New South Wales Supreme Court on 7 March, with considerable reluctance I decided to delay the handing down of my judgment until the outcome of that application in the New South Wales Supreme Court was known. In my brief reasons for deciding to do so, I said that this was most regrettable, having regard to the extraordinarily protracted history of this proceeding which has been detailed. I adjourned Plexbuild’s application to reopen until 20 March 2025 and made directions in respect of the filing of affidavit evidence directed to reporting as to the outcome of the hearing on 7 March 2025.
On 14 March 2025, Plexbuild filed an affidavit of Mr Georges, reporting as to the outcome of the hearing in the New South Wales Supreme Court on 7 March 2025. That affidavit, despite reporting events which took place on 7 March 2025, was purportedly sworn on 15 October 2024.
In this affidavit, Mr Georges states that on 6 March 2025, the first to fourth defendants in the New South Wales proceeding, being Mr Kiceec, Edmondson Grange and the Kiceecs filed a document in the New South Wales Supreme Court described as a List Response, setting out their defences. The hearing before Stevenson J then became one confined to directions and a costs argument. Stevenson J dismissed the application by N.A.H. and Plexbuild for default judgment. There was no discussion in the brief hearing which ensued in respect of the summary judgment application, other than a passing mention of the issue of what order as to costs should be made in respect of it.
After hearing submissions in respect of the time required for the first to fourth defendants to file and serve any cross-claim, his Honour ordered that any such cross-claim be filed by 28 March 2025, and stood the matter over to 5 April 2025 for further directions before the Technology and Construction List Judge. The orders noted that the first to fourth defendants indicated that they would require eight weeks to file their lay and expert evidence in connection with the defects alleged in their cross-claim. It was indicated by Mr Young,of counsel, for N.A.H. and Plexbuild that they would not be filing expert evidence in chief, but may need to respond to the defendants evidence in respect of the allegations as to defects.
It seems clear that there is no prospect of the New South Wales proceedings being concluded in favour of N.A.H. and Plexbuild in the near future. The defendants will be required to file their evidence in support of their cross-claim two months after the filing of their cross-claim i.e., the end of May 2025, whereupon N.A.H. and Plexbuild will be filing their evidence in response. One could assume that after this, that there will be a process of discovery and perhaps other interlocutory steps.
There is no indication as to when, even if all parties abide with the directions that the Court makes in the New South Wales summons, the proceeding will be heard.
In my view, the hearing in the New South Wales Supreme Court on 7 March 2025 did nothing to advance Plexbuild’s position; the primary purpose for the granting of an adjournment of the application to reopen, to enable proper evidence to be put, on came to nought.
Milestone’s evidence
Ms Harris’ evidence
Ms Briana Harris, an employee solicitor in the firm of Milestone’s solicitors (‘DHH’) deposed that on 30 July 2024, her firm was served with an unsealed copy of the Solvency Report prepared by Mr Bishay in relation to Plexbuild.
Ms Harris referred to paras 5.7.8 and 5.7.15 of the Solvency Report which state that ’a payment arrangement has been put in place for Milestone funded by the director of [Plexbuild]’ and ‘Milestone Trading Solution Pty Ltd (ACN 621 559 813) has filed an appearance in these proceedings and are entering into a payment arrangement’.
Ms Harris noted that the source of these assertions appear to be a letter of instruction dated 25 July 2024 from G & S Law Group, the solicitors for Plexbuild (‘G & S’) to Mr Bishay, where it stated that a ‘payment arrangement has been put in place for Milestone funded by the director of [Plexbuild]’.
Ms Harris stated that on 22 July 2024, she received a telephone call from the director of Plexbuild, Mr Moshy, in which Mr Moshy asked if Plexbuild could enter into a payment plan. Ms Harris states that she directed Mr Moshy to have his solicitors contact her as Plexbuild was represented by solicitors in these proceedings.
Ms Harris stated that she is instructed by Miles Wu (‘Mr Wu’) of Milestone that:
(a)on or about 22 July 2024 and 24 July 2024, Mr Moshy contacted Milestone by telephone and requested if he could enter into a payment plan; and
(b)Mr Wu reiterated that Milestone required payment in full.
Ms Harris deposed that on 30 July 2024, she received an email from Mr Georges, of G & S stating ‘we propose to enter into a payment arrangement with your client. Can you advise if this is agreed and that you will be providing an agreement?’ Ms Harris responded that Mr Georges’ email did not set out any terms capable of acceptance and requested that she be provided with the terms of what was proposed so that she could seek instructions.
Ms Harris deposed this email was the first correspondence DHH had received from G & S with respect to payment of Milestone's debt and that shortly afterwards, she received a further email from Mr Georges with a payment proposal. It stated ‘[o]ur client proposed (sic) to pay $10,000 per month and its director Sargon Moshy who we act for guarantees these repayments’. Ms Harris states that no response was provided by her to this email from Mr Georges.
Ms Harris stated that neither Milestone, nor her firm DHH, had given any basis for Plexbuild or its legal representatives to represent to Mr Bishay that Milestone had a repayment arrangement with Plexbuild.
Plexbuild did not file any evidence contradicting Ms Harris’ account of the communications she refers to in respect of Plexbuild’s approaches to enter into a payment proposal. I am quite satisfied no agreement was reached in that regard.
Mr Wu’s evidence
Milestone’s application for substitution was supported by an affidavit of Mr Wu, the sole director of Milestone, affirmed 5 August 2024.
Mr Wu deposed that Milestone is a creditor of Plexbuild in the sum of $162,203.52 (‘Current Debt’).
Mr Wu affirmed that on or about 17 August 2023, Plexbuild entered into a written agreement with Milestone, whereby Milestone agreed to supply Plexbuild with construction timber pursuant to Milestone's terms and conditions (‘Agreement’).
Mr Wu deposed that clauses 2 and 3 of the terms and conditions attached to the Agreement provide, among other things that:
(a)in the event that Plexbuild did not make payment in accordance with clause 2, Milestone may claim interest equal to 2% per month on any amount outstanding for 60 days or more, from the date of the statement on which the debt was originally recorded; and
(b)Plexbuild is liable for all costs incurred in recovering all amounts owing at any time.
Mr Wu deposed that between 26 October 2023 and 24 January 2024, Milestone supplied goods to Plexbuild and rendered invoices totalling $130,854.90 (‘Original Debt’).
Mr Wu affirmed that as of 24 April 2024, the Original Debt remained unpaid, and he instructed DHH to issue proceedings in the District Court of NSW for the Original Debt, plus costs and interest for a total of $150,559.23 (‘Claim Amount’).
Mr Wu deposes that the proceeding was filed on 24 April 2024 and served on Plexbuild on 29 April 2024.
Mr Wu stated that additional costs have been incurred by Milestone in pursuing the recovery of the Claim Amount, including in relation to supporting the wind-up proceedings issued against Plexbuild, in the sum of $7,440.00 (‘Costs’) and further interest has accrued to date in the sum of $8,564.29 (‘Interest’), noting that the Costs and Interest are recoverable pursuant to clause 2 and 3 of the terms and conditions of the Agreement.
Mr Wu deposed that on or about 24 July 2024, Milestone received a part payment in the sum of $4,400.00 but that no further payments had been made by Plexbuild to Milestone at the time of his affidavit affirmed 5 August 2024.
Mr Wu stated that at the time of his affidavit affirmed 5 August 2024, and in light of the payment of $4400, the amount currently owing, being the balance owing in respect of the Claim Amount, plus the Costs and Interest which are recoverable from Plexbuild, was $162,203.52 (‘the Current Debt’).
Mr Wu deposed that at the date of his affidavit affirmed 5 August 2024, Plexbuild remained indebted to Milestone for the Current Debt, that Plexbuild had failed to pay the Current Debt or secure or compound for it to the reasonable satisfaction of Milestone.
Plexbuild did not file any evidence in opposition to Milestone’s application for substitution or seek to contradict the position deposed to by Mr Wu. As has been noted, on 14 August 2024 Woronczak JR made orders substituting Milestone as the plaintiff in the proceeding.
Supporting creditors’ evidence
Ms Kolovos’ evidence
25 June Affidavit
Ms Kolovos deposed in her affidavit sworn 25 June 2024 that she instructed her solicitor to file an appearance as a supporting creditor in these winding up proceedings.
Ms Kolovos stated that she, together with her sister, Gabriella Maharaj (previously Gabriella Kiceec), purchased land in Hoffman Road, Edmondson Park NSW in 2022.
Ms Kolovos deposed that on or about 22 April 2022, the Kiceecs executed a building contract with Plexbuild for the construction of a two-storey residential duplex dwelling which was to be constructed by Plexbuild on the land. This has been described as the Hoffman Road Project in these reasons.
Legal principles
Although the relevant principles are well settled, it is appropriate to restate the fundamental elements of what an applicant for winding up in insolvency is required to establish to obtain an order for winding up under Part 5.4A of the Act. AnIt is also useful to restate what a defendant confronting a presumption that it is insolvent is required to establish in order to discharge the onus that it bears that it is solvent.
At the outset, an applicant must demonstrate that it has standing and grounds to make the application.
Milestone’s standing is confirmed by the order for its substitution as plaintiff made in its favour by Woronczak JR on 14 August 2024. Its claim to be a creditor is not controversial and the application for substitution was not opposed by Plexbuild.
As to grounds, Milestone relies on the presumption of insolvency arising from Plexbuild’s failure to comply with the Demand served by Blue Ridge dated 18 January 2024 by 8 February 2024.
Section 459C of the Act relevantly provides as follows:
Presumptions to be made in certain proceedings
(1) This section has effect for the purposes of:
(a)an application under section 234, 459P, 462 or 464; or
(b)an application for leave to make an application under section 459P.
(2)The Court must presume that the company is insolvent if, during or after the 3 months ending on the day when the application was made:
(a)the company failed (as defined by section 459F) to comply with a statutory demand; or
…
(3)A presumption for which this section provides operates except so far as the contrary is proved for the purposes of the application.
Plexbuild now bears the onus of discharging the presumption of insolvency by establishing, on the balance of probabilities, that it is solvent.[94]
[94]Bibby Financial Services Australia Pty Ltd v Wolf Industries Australia Pty Ltd (2004) 49 ACSR 45, [21] (Austin J); Farid Assaf, Assaf’s Winding Up in Insolvency (LexisNexis, 3rd ed, 2021) [2.6], [11.5] (‘Assaf’); Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd (recs and mgrs apptd) (2011) 244 CLR 1 (French CJ, Gummow, Heydon, Crennan, Kiefel and Bell JJ).
The question of solvency is to be determined by reference to s 95A(1) of the Act. Section 95A(1) provides:
Meaning of solvent and insolvent
(1)A person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable.
(2)A person who is not solvent is insolvent.
Note: A company is taken to be insolvent if the company proposes a restructuring plan to creditors (see subsection 455A(2)).
Section 95A(2) of the Act has the effect that a person who is not solvent is insolvent. That definition adopts a ‘cashflow test’ of insolvency, which turns upon the income sources available to the company, and the expenditure obligations that it has to meet, although a balance sheet test can provide a context for the application of the ‘cash flow test’.[95] The nature of a company’s assets and its ability to convert those assts into cash within a relatively short time, at least to the extent of meeting all its debts as and when they fall due, must be considered in determining solvency.[96] The key indication of insolvency is the inability of a company to meet debts as they fall due utilising such resources as are available through the use of assets or which may otherwise realistically be raised.[97] There is a distinction between solvency and a surplus of assets. A company may be at the same time insolvent and wealthy. The nature of a company’s assets, and its ability to convert those assets into cash within a relatively short time, at least to the extent of meeting all its debts as and when they fall due, must be considered in determining solvency.
[95]Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213 (Palmer J); Australian Securities and Investments Commission v Plymin (No 1) (2003) 175 FLR 124 (Mandie J).
[96]See Assaf (n 94) [11.14], citing Ace Contractors and Staff Pty Ltd v Westgarth Developments Pty Ltd [1999] FCA 728, [44] (Weinberg J).
[97]Ibid, citing Deputy Commissioner for Corporate Affairs v Caratti (1980) 5 ACLR 119 (Lavan ACJ).
In Quick v Stoland Pty Ltd,[98] Emmett J summarised the applicable principles as follows:
In order to determine whether the Company was solvent at a given time, it would be relevant to consider the following matters:
·All of the Company’s debts as at that time in order to determine when those debts were due and payable.
·All of the assets of the Company as at that time in order to determine the extent to which those assets were liquid or were realisable within a timeframe that would allow each of the debts to be paid as and when it became payable.
·The Company’s business as at that time in order to determine its expected net cash flow from the business by deducting from projected future sales the cash expenses which would be necessary to generate those sales.
·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.[99]
[98][1998] 29 ACSR 130.
[99]Ibid 138 (Emmett J).
In Commonwealth Bank of Australia v Begonia,[100] Hayne J expressed the view that when going about establishing that it is solvent, the company must put forward the ‘fullest and best’ evidence as to its financial position.[101] That expression was also adopted by the Court of Appeal in New South Wales in Expile Pty Ltd v Jabb’s Excavation.[102] In Xu v Megaward,[103] the New South Wales Court of Appeal observed that in many (and probably most) such applications, the company would be well advised to adduce the fullest and best evidence. In this regard, Spigelman CJ observed in the case of Switz Pty Ltd v Glowbind Pty Ltd.[104]
The process of proving solvency is not some kind of forensic game. Solvency is a matter peculiarly within the knowledge of the company. The primary source of information on the solvency of the company must be the company itself.[105]
[100][1993] 11 ACLC 1075.
[101]Ibid 1091(Hayne J).
[102](2003) 45 ACSR 711, [6] (Meagher, Handley and Santow JJA) (‘Expile v Jabbs’).
[103](2018) 130 ACSR 412, 418 [32] (McColl, Meagher and Leeming JJA).
[104](2000) 48 NSWLR 661.
[105]Ibid 674 [55] (Spigelman CJ).
In Expile v Jabbs, Santow JA stated the following principles to be applied in the exercise of assessing whether there has been a rebuttal of the presumption of insolvency:
However, it must be emphasised that proper verification of assets and liabilities is critical to rebut the presumption of insolvency. What occurred fell well short of that, as I explain. The relevant principles requiring proper verification are not in question. The trial judge expressly adopted the statement of these from the judgment of Weinberg J in Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728, which I repeat below. The first three propositions are of cardinal importance for the present case:
“The authorities which govern the operation of s 459G of the Corporations Law seem to me to establish the following propositions:
The respondent is presumed to be insolvent and as such bears the onus of proving its solvency: s 459C(2) and (3); Elite Motor Campers Australia v Leisureport Pty Ltd (1996) 22 ACSR 235 per Spender J; Commissioner of Taxation v Simionato Holdings Pty Ltd. (1997) 15 ACLC 477 per Mansfield J.
In order to discharge that onus the Court should ordinarily be presented with the ‘fullest and best’ evidence of the financial position of the respondent: Commonwealth Bank of Australia v Begonia (1993) 11 ACLC 1075 at 1081 per Hayne J.
Unaudited accounts and unverified claims of ownership or valuation are not ordinarily probative of solvency. Nor are bald assertions of solvency arising from a general review of the accounts, even if made by qualified accountants who have detailed knowledge of how those accounts were prepared: Simionato Holdings Pty Ltd (supra); Re Citic Commodity Trading Pty Ltd v JBL Enterprises (WA) Pty Ltd [1998] FCA 232 per Heerey J; Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459 at 463 per Sackville J.[106]
…
[106]Expile v Jabbs (n 102) 718-19 [16].
Assaf observes[107] that what will constitute the fullest and best evidence will vary from case to case and what will be sufficient in one case will not necessarily be sufficient in another. The author observes that by way of example that it is unlikely that a court would insist upon audited accounts for a publicly listed company where the secretary of that company deposes that they are familiar with the books and records of the company , gives details of the net asset position , the company’s market capitalisation and readily liquid assets. On the other hand, there will be cases where properly verified accounts are required. As Finklestein J observed in Deputy Commissioner of Taxation v De Simone Consulting Pty Ltd.[108]
There are many shaky companies in the marketplace. Applications are made to wind up some of them. Applications are also made to wind up solvent companies. In each case a representative can come along attempting to prove solvency to avoid a winding up. Judges will look with care at the evidence especially if the judge suspects the company is or may be in a weak financial position. Dependant upon the degree of doubt justified by the facts, a judge may say that the only evidence he will treat as probative is “the fullest and best” evidence available - the kind that in Commonwealth Bank of Australia v Begonia (1983) 11 ACSR 609 Hayne J said was often necessary although interesting enough, not in that case. In some instances this may be the company’s audited accounts together with verified proof of both the ownership and value of the company’s assets. On the other hand there will be many instances where proof of that sort is not required. In such cases there is no good reason to put the company to the time, trouble and expense of producing audited accounts. In the end it will all depend upon each particular fact of a case.
[107]Assaf (n 94) [11.15].
[108][2007] FCA 548 (‘De Simone’)
Consideration
This application, which was commenced over a year ago, was the subject of numerous adjournments. Together with allowing Plexbuild the opportunity to put on evidence as to its solvency, a predominant purpose of those adjournments was to enable creditors to be substituted as plaintiff in the application by reason of the withdrawal of the incumbent plaintiff upon its claim being satisfied. Plexbuild set about dealing with its numerous creditors who appeared in the application in a serial way, by reaching an accommodation with the creditor who had been substituted as plaintiff in the Application, whereupon the process would be repeated with the next creditor substituted as plaintiff. This process occurred a number of times over several months until Milestone, the current plaintiff, was substituted. In my opinion, this is not the conduct of a solvent company as a solvent company is required to pay all its debts as and when they fall due.
I infer that Plexbuild adopted the strategy of reaching a compromise with each of the previous parties who had been substituted as applicant in turn, by reason that it was unable to deal with them collectively because it did not have the means to do so.
The debt owed to Milestone was not contested and it was substituted as plaintiff. It prosecuted the application supported by several other unpaid creditors to the final hearing. Aside from an unjustified description of Mosca Pserras, Saad and Stan as being included amongst ‘Withholding Debtors’, their claims were not confronted and I accept that they are unpaid creditors of Plexbuild for the purposes of having standing to support this application.
The debts of Milestone and those supporting creditors are due to be paid and have been for some considerable time. The question is whether on the evidence Plexbuild has demonstrated on the balance of probabilities that it has the ability to pay those debts.
I put to one side the claims of the Kiceecs which are in the present context controversial. Edmondson, despite contending that it was a creditor at various junctures, did not appear in the final hearing.
Adopting the phraseology of Finklestein J in De Simone, I would characterise Plexbuild as clearly falling within the description of a ‘shaky’ company and at the other end of the spectrum to the circumstances of the public company described by Assaf.[109] As such, in going about the rebuttal of the presumption of insolvency for which it bears the onus, I consider that it was required to produce independently verified evidence of the ‘fullest and best’ kind available in the form of audited accounts. Judicial Registrar Woronczak provided a number of opportunities to Plexbuild to obtain audited accounts to demonstrate its solvency and, as has been seen, made pointed criticism of its failure to do so.
[109]Assaf (n 94) [11.15].
Rather than put on evidence of the optimum quality to rebut the presumption of insolvency, Plexbuild placed reliance on the Solvency Report composed by Mr Bishay, which was underpinned by the contention that it had valuable claims against Edmondson and the Kiceecs which were close to realisation, and the proceeds of which would be applied to pay its creditors. In Mr Bishay’s affidavit of 24 June 2024, his opinion as to Plexbuild’s solvency is conditioned by the observation that it ‘ should be able to pay its debts as they fall due if [Plexbuilds’s] outstanding debts are collected[110]
[110]See paragraph 62 above.
In my view, the Solvency Report does not even approach what could be regarded as the ‘fullest and best evidence’ of the financial position of Plexbuild of the kind a company in its circumstances was required to produce. The accounts and other financial information are unaudited and not independently verified. The report relies completely on instructions to Mr Bishay by Plexbuild’s solicitors which Mr Bishay was directed to assume were correct when he went about its preparation. Mr Bishay’s does not seek to question or independently verify the assumptions that he has been directed to accept.
In my review of the Solvency Report, I have made reference to its various shortcomings[111]. The report is the subject of detailed criticism in Milestone’s submissions which are detailed above. I consider those criticisms have much force and they were not successfully addressed by Plexbuild.
[111]See for example paragraphs 70, 71, 72, 75, 77 above.
Mr Bishay has not detailed what, if any examination he and his staff conducted of the books and records of Plexbuild, and merely asserts that the company has kept up to date, fair and reasonable records and reporting. Despite stating that he and his staff had performed review procedures to be able to give an opinion of the true and fair value of the financial statements, he does not describe the process undertaken to come to that opinion. He states that while he has been told to assume that the claims against Edmondson and the Kiceecs ‘have reasonable prospects in court’, he has also reviewed the invoices issued to Plexbuild and Plexbuild in respect of the Edmonson project and the Hoffman Road project, and makes the generic, rudimentary assertion that the money received in respect of those debtors ‘is less than the amount invoiced by Plexbuild’ in support of a contention that the claims are valuable and are likely to succeed.
Mr Bishay’s report referred to a contention that the creditors of the Company have all reached accommodations with Plexbuild, and agreed to instalment plans for satisfaction of their claims. The evidence would indicate that there is no foundation for such a contention and in the case of Milestone, the evidence is clear that there was absolutely no basis for an arrangement of that type to be contended to be in place.
Mr Bishay expressed the opinion that ‘Plexbuild is solvent based on its ability to keep fair and reasonable books and records up to date’.[112] I have indicated above that I do not consider that submission to have any substance. Compliance with s 286 of the Act in respect of the maintenance of proper accounting records is not an indicia of solvency and an opinion that that a company is solvent because ‘it is able to this point to keep fair and reasonable books and records to date’ is not tenable.
[112]Solvency Report (n 23), Executive Summary, para 2.24.
As I have remarked, I do not consider that a generic observation by Mr Bishay as to the state of the construction industry in New South Wales is of any weight in determining the issue of Plexbuild’s solvency.
The Solvency Report contends that the various ratios which are traditionally employed by insolvency practitioners in going about an assessment of an entity’s solvency all point to Plexbuild being solvent. The computations of the various ratios by Mr Bishay all assume that there is a solid foundation to the value of the claims that Plexbuild is said to have against Edmondson and the Kiceecs and that those claims will be realisable in the short term and the proceeds will be available to meet the claims of creditors.
I accept the analysis of Milestone’s counsel of the scenarios if, as I consider they should, the claims against Edmondson and the Kiceecs are deducted from the assets used to compute the ratios by Mr Bishay. The revised calculations all point to Plexbuild being insolvent.
If the claims against Edmonson and the Kiceecs are discounted as Milestone contends they should be, the financial position of Plexbuild is shown to be parlous.
Plexbuild’s written submissions filed in response to the aide memoire prepared by Milestone’s advisors provided no substantial response to what was a rather straightforward arithmetic computation of Mr Bishay’s opinion in respect of the ratio analysis. I do not regard the submissions as making any inroads into the underlying rationale of Milestone’s aide memoire.
As to Mr Moshy’s evidence , I consider that there are numerous features of it which are unsatisfactory. As has been seen, there is a wide variation in the amount which he contends is owing to Plexbuild by Edmondson. Moreover, the evidence is clear that the relevant contract for the construction of the Edmondson project did not identify Plexbuild as the principal to that contract with Edmondson, but rather a related entity N.A.S. As such, whatever be the amount which might ultimately be recoverable, if anything, against Edmondson, the proceeds of such recovery will flow to N.A.S., not Plexbuild. In final submissions, I pressed Plexbuild’s counsel, Mr Young for the particulars of the contract whereby Plexbuild would become entitled to participate in any payments made to N.A.S. but his responses were most vague and unsatisfactory.
Plexbuild contends that the asset in the form of the claim by Plexbuild against Edmondson is the most prominent in terms of its assets and underpins Mr Bishay’s opinion that Plexbuild is solvent. In my view, there is no evidence of a level which would support the assertion that such claim should be brought to account as part of Plexbuild’s current assets which are available to satisfy its current liabilities.
Similarly, in the same context of placing a value on it as a current asset to be applied towards satisfaction of Plexbuild’s debts which are presently due to be paid, the claim against the Kiceecs is also questionable and I would discount any value to that claim in reckoning the value of Plexbuild’s current assets. The claim against the Kiceecs was the subject of adjudication and, has been seen, the claim, said to be of the order of $400,000, has been reduced to nil by the superintendent who assessed the claim. Despite being aware of the outcome of the adjudication claim, as has been detailed above, I am satisfied that Mr Moshy and those associated with his interests acted to prevent the Kiceecs being informed of the outcome of that adjudication. Further, in addition to the rejection of the adjudication certificate, the Kiceecs have foreshadowed a substantial claim against Plexbuild in respect of the Hoffman Road project.
In my view, the claims made in the NSWSC Summons do not assist Plexbuild in establishing that it is solvent. The primary claim made in the proceeding is made by N.A.S. against Edmondson as may be expected by reason it is those parties who are privy to the contract in question. There is a claim made in the alternative for a declaration, in respect of which Plexbuild is claimed to be entitled to participate but, in my view, that claim is never satisfactorily developed or pleaded elsewhere in the document. Plexbuild’s status is identified as a subcontractor.[113] In other parts of the claim,[114] N.A.S. is described as having appointed Plexbuild as its agent and project manager i.e. not as a principal.
[113]See paragraph 112.
[114]See paragraph 114, footnote 44.
The elements of the NSWSC Summons in respect of the Hoffman Road project contend that the relevant contract was between Plexbuild and the Kiceecs. It seems clear that the claim described in the NSWSC Summons is one and the same as that the subject of the adjudication certificate reducing it to $nil. It may be that that claim may bear fruit in the future but I would not characterise it as a readily realisable asset available to be deployed to satisfy the claims of Plexbuild’s creditors who are due to be paid. If the claims subject to the NSWSC Summons are ultimately made good and judgment can be satisfied, application could no doubt be made by the contributories of Plexbuild to terminate the liquidation pursuant to s 482 of the Act.
Sections 459A and 467(1)(a) of the Act give the Court a discretion to decline to make a winding up order, even where the requirements of the statute are met, as they have been here. Of course, that discretion is to be exercised judicially and for the proper objects and purposes in the Act for which the discretionary power resides. There are no features of this matter which would warrant the exercise of the discretion not to make a winding up order.
In IOC Australia Pty Ltd v Mobil Oil Australia Ltd [115] stating:
The authorities show that as a general rule a creditor who cannot obtain payment is, as between himself and the company that owes the debt, entitled to a winding-up order as a matter of right …[116]
[115](1975) 11 ALR 417 (Gibbs J, Stephens and Jacobs JJ agreeing).
[116]Ibid 427.
As I have observed at the outset, I consider Milestone has established it has standing grounds to make this application and there has been compliance with the Act and the Corporations rules, and its debt has not been paid. I see no basis for exercising a discretion not make a winding up order.
I will order as follows:
(i)Plexbuild Pty Ltd (ACN 640 362 027) be wound up in insolvency under the provisions of the Corporations Act 2001 (Cth)
(ii)Thomas Stuart Otway and Hugh Armenis of SV Partners are appointed as liquidators in the winding up;
(iii)Milestone Trading Solution Pty Ltd’s costs as substituted plaintiff, including any reserved costs, be costs in the winding up; and
(iv)The costs of the supporting creditors Mosca Pserras, Saad Consulting Pty Ltd and Stan Projects Pty Ltd, including reserved costs, be costs in the winding up.
SCHEDULE OF PARTIES
| S ECI 2024 00648 | |
| BETWEEN: | |
| MILESTONE TRADING SOLUTION PTY LTD (ACN 621 559 813) | Plaintiff |
| - v - | |
| PLEXBUILD PTY LTD (ACN 640 362 027) | Defendant |
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