Re SSKT Pty Ltd

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST

S ECI 2023 02883

IN THE MATTER of SSKT PTY LTD (ACN 642 363 988)

BETWEEN:

BULLSEYE GROUP PTY LTD (ACN 633 847 533)	Plaintiff
v
SSKT PTY LTD (ACN 642 363 988)	Defendant

---

JUDGE:	Gardiner AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	23 November 2023
DATE OF JUDGMENT:	9 April 2024
CASE MAY BE CITED AS:	Re SSKT Pty Ltd
MEDIUM NEUTRAL CITATION:	[2024] VSC 147

---

CORPORATIONS — Part 5.4 of Corporations Act 2001 (Cth) — Insolvency — s 459P — Application for winding up in insolvency relying on presumption of insolvency arising from non-compliance with a statutory demand — Defendant abandoned application for leave under s 459S of the Corporations Act 2001 (Cth) for leave to dispute debt subject of the statutory demand— Defendant trustee of unit trust with several unitholders — Defendant contended that it was solvent and relied upon unaudited accounts and report of insolvency practitioner — Evidence that unitholders supported the defendant, had advanced funds to defendant, undertook not to call for repayment of such loans for three years and to ‘quarantine’ funds sufficient to meet any judgment in respect of the plaintiff’s claim until the expiry occurring on the earliest of 3 specified events — Whether audited accounts are required in circumstances to demonstrate solvency of the defendant — Finding that defendant had established on balance of probabilities that it was solvent – Application for winding up order dismissed – International Cat Manufacturing & Anor v Rodrick & Ors (2013) 97 ACSR 200; Re Aquaqueen International Pty Ltd [2014] NSWSC 1645 applied.

---

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr N Paterson, of counsel	Capree Lawyers
For the Defendant	Ms K Wangmann, of counsel	Macpherson Kelley

TABLE OF CONTENTS

Factual background........................................................................................................................... 4

Bulleye’s evidence......................................................................................................................... 4
SSKT’s evidence............................................................................................................................. 4
Mr Fettes‘ Solvency Report.......................................................................................................... 9
Bullseye’s submissions............................................................................................................... 20
SSKT’s submissions.................................................................................................................... 23

Legal principles................................................................................................................................ 32

Consideration.................................................................................................................................... 38

HIS HONOUR:

On 29 June 2023, the plaintiff, Bullseye Group Pty Ltd (ACN 633 847 533) (‘Bullseye’), filed an originating process in this Court seeking an order under s 459P of the Corporations Act 2001 (Cth) (‘the Act’) for the winding up in insolvency of the defendant, SSKT Pty Ltd (ACN 642 363 988) (‘SSKT’).[1]
[1]On 2 November 2023 I ordered pursuant to s 459R(2) of the Corporations Act 2001 (Cth) (‘the Act’) that the time for the determination of the application be extended to 30 April 2024.

As its ground for the application, Bullseye relied on the presumption of insolvency arising from SSKT’s failure to comply with a statutory demand for the payment of debt dated 19 May 2023 which claimed that SSKT was indebted to Bullseye for $55,000 (‘the demand’).

The demand was served on SSKT on 23 May 2023. 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 13 June 2023, giving rise to a presumption of insolvency under s 459C(2)(a). The originating process was filed within the three month period for which such presumption subsisted.

There is evidence the application has been served on SSKT and notice of the application has been lodged with the Australian Securities and Investments Commission (‘ASIC’). Notice of the application has been published on the ASIC website and a nomination and consent of liquidator to act has been filed.

I am satisfied that Bullseye’s application is in compliance with the requirements of the Act and the Supreme Court (Corporations) Rules 2013 (Vic) (‘the Rules’) (which then applied) in relation to the application for a winding up order.

On 29 August 2023, SSKT filed an interlocutory application which sought to oppose Bullseye’s application on the following grounds:

(a) SSKT contended that it is solvent and could displace the statutory presumption of insolvency; and

(b) SSKT should be given leave pursuant to s 459S of the Act to oppose the winding up application on a ground it could have relied on for the purpose of an application to set the demand aside.

In support of its application Bullseye relies upon the affidavits of:

(a) Gaurav Gaur sworn 30 June 2023;

(b) Gaurav Gaur sworn 28 July 2023;

(c) Gaurav Gaur sworn 1 August 2023;

(d) Vivek Anand sworn 9 August 2023; and

(e) Vivek Anand sworn 18 October 2023.

In opposition to Bulleye’s application and in support of its interlocutory application, SSKT relies upon the affidavits of:

(a) Sarmuhabat Singh affirmed 29 August 2023 (‘29 August affidavit’);

(b) Sarmuhabat Singh affirmed 14 September 2023 (‘14 September affidavit’);

(c) Harjot Kaur affirmed 20 October 2023;

(d) Kulwinder Singh affirmed 30 October 2023;

(e) Tushar Khanna affirmed 30 October 2023;

(f) Baljinder Singh Sangha affirmed 8 November 2023;

(g) Jagpal Kaur affirmed 20 November 2023; and

(h) Harjot Kaur affirmed 20 November 2023.

Counsel for SSKT, Ms Wangmann, sought leave to rely on the affidavits listed from sub-paras 8(c) to (h) notwithstanding that they were not filed in compliance with the orders of Woronczak JR made 27 September 2023. Counsel for Bullseye, Mr Paterson, initially opposed the reception of these affidavits but ultimately this was not pressed.

The deponents were not cross examined on their affidavits.

At the hearing of this matter Ms Wangmann expressly abandoned the application for leave under s 459S.[2] As Bullseye’s evidence complied with the Rules and established a presumption that SSKT was insolvent, SSKT bore the onus of displacing the presumption of insolvency[3] and the hearing of this matter was directed to that issue.
[2]Transcript of Proceedings, Re SSKT Pty Ltd (ACN 642 363 988) (Supreme Court of Victoria, S ECI 2023 02883, Gardiner AsJ, 28 November 2023), 11.
[3]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, 3^rd ed, 2021) [2.6], [11.5]; 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).

No other party appeared to support or oppose Bullseye’s application.

Because SSKT is no longer seeking leave to contest the debt the subject of the demand, in discharging the onus which it bears, it must be assumed that the debt is presently due and payable and be taken to be a current liability in the assessment of whether or not it is solvent.

Resolution of the application involved a determination of whether:

(a) SSKT’s evidence in respect of its solvency provided by an insolvency practitioner; and

(b) undertakings given by representatives of the unitholders that they would support SSKT, not call on loans made to it by the unitholders for a minimum period of 3 years and agree to the quarantining of a sum sufficient to discharge any judgment obtained by Bullseye in respect of the debt claimed in the demand,

were sufficient to discharge that onus.

For the reasons which follow, I consider that SSKT has discharged the onus it bears by establishing on the balance of probabilities that it is solvent. In the circumstances, the application should be dismissed.

Factual background
Bulleye’s evidence

The evidence filed by Bullseye was principally directed to proving compliance with the requirements of the Act and the Rules which apply to applications for winding up in insolvency.

As I have said, I am of the opinion that such requirements have been satisfied. In particular, I am satisfied that SSKT is presumed to be insolvent by reason of non-compliance with the demand which occurred 21 days after its service on 23 May 2023, i.e. on 13 June 2023.

Bullseye’s evidence also described the circumstances and communications with SSKT leading up to the generation of the invoice the subject of the demand and the service of the documents it relies upon in this application. Consequent on SSKT’s abandonment of its application for leave under s 459S, aside from being proof of the formal requirements, much of that evidence is of limited significance in the determination of this application. The thrust of Bullseye’s submissions was to support the presumption of SSKT’s insolvency by confronting SSKT’s evidence and submissions in that regard.

SSKT’s evidence

In his 29 August affidavit, Mr Singh deposes that SSKT was incorporated in July 2020 and that he is its sole director and secretary. SSKT is the trustee of the SSKT Unit Trust (ABN 56 481 416 643) (‘SSKT Trust’) and in that capacity, owns and operates a gym from leased premises in Clyde North in Victoria (‘premises’). SSKT began trading from the premises in or around late March 2023. SSKT also owns and operates a gym in Shepparton.[4]
[4]Clause 85 of the deed dated 15 July 2020 titled ‘Unit Trust – Fixed Deed’, which constitutes the SSKT Trust, contains provisions for the termination of the appointment as trustee upon certain events but there is no provision of the type commonly seen in discretionary and unit trust deeds which ipso facto terminates the appointment as trustee upon the filing of a winding up application.

The unitholders in the SSKT Trust are:

(a) Sarmuhabat Pty Ltd (ACN 159 334 031) as trustee for Sarmuhabat Family Trust (of which Mr Singh is the director);

(b) Mata Sahib Kaur Ji Pty Ltd (ACN 146 445 409) as trustee for Cheema Family Trust (‘MSKJ’);

(c) Harjot Pty Ltd (ACN 159 334 013) as trustee for Harjot Family Trust; and

(d) United Partners Enterprises Pty Ltd (ACN 634 324 379) as trustee for Khanna Family Trust.

The investors in SSKT are:

(a) Sangha Brothers (ACN 139 888 323);

(b) SJ Family Trust, of which SJ Investments Detailing Pty Ltd (ACN 643 051 478) is the trustee; and

(c) SH Family Trust, of which SH Investments Detailing Pty Ltd (ACN 643 051 683) is the trustee.

Mr Singh deposes that on 4 August 2023, SSKT instructed its solicitors to arrange for the preparation of a report regarding its financial position in the context of the ‘cashflow’ and ‘balance sheet’ tests of solvency (‘Solvency Report’).[5] Mr Fettes, an insolvency practitioner of the firm of Rodgers Reidy, was engaged to provide the Solvency Report.
[5]Exhibit SS-2 to affidavit of Sarmuhabat Singh, affirmed 14 September 2023, 6-90 (‘Solvency Report’).

In this regard, SSKT’s accountant was directed to provide Mr Fettes with access to SSKT’s accounting records which are maintained on Xero, a cloud-based system. Mr Singh states he has reviewed SSKT’s Xero account and believes it to demonstrate a true and accurate reflection of SSKT’s financial position.

x I note that the accounts to which Mr Fettes was provided access were not audited.

Mr Singh states that on 23 August 2023, he and the other unitholders in the SSKT Trust transferred $86,000 into SSKT’s bank account held with the Commonwealth Bank of Australia (‘CBA Account’).

Mr Singh deposes that on 24 August 2023, in his capacity as director of SSKT, he undertook to Mr Fettes that SSKT would ‘quarantine’ $100,000 in the CBA Account to meet any adverse judgment and costs in relation to the debt the subject of the demand. I understand that to mean that such funds would be earmarked and not applied to discharge SSKT’s other current financial obligations. The undertaking given to Mr Fettes was not limited as to time or by reference to specified events.

On that same day, the SSKT Trust unitholders undertook to Mr Fettes that they would not call on loans advanced by them to SSKT in the ‘immediate term’, indicating that the loans had been advanced on what was described as a ‘long-term investment basis’ for a period of three to five years.

Mr Singh deposes as to the background to the demand. He states that the claim arose as a result of an agreement between himself and Gaurav Gaur (‘Mr Gaur’), Bullseye’s director. Mr Singh states that building plans relating to the premises needed to be reviewed and signed off, and Mr Singh engaged Mr Gaur to complete this work. Mr Singh contends that Mr Gaur stated he would not charge Mr Singh for the work, as they were both from the same Indian community. Mr Singh claims that during a site inspection on 7 March 2023, Mr Gaur reiterated that Bullseye would not charge a fee for the services provided. Mr Singh deposes Mr Gaur never provided him with a written quote, but on 23 March 2023, Mr Gaur gave him an invoice of $55,000 (GST inclusive) relating to what was described as a ‘Project Management Fee’ (‘invoice’). The invoice included provision for signatures of both Bullseye and SSKT but was not signed by either party. Mr Singh states he did not believe this sum to be owing, but as Mr Gaur refused to sign off on the fitness of the premises unless payment was received, Mr Singh negotiated the amount to be paid to $15,000 in cash. Mr Singh deposes this was paid on 23 March 2023, and that there is no further money owing as a result. Mr Singh states that on 23 March 2023, the building surveyor completed the final inspection of the premises.

As to the payment of the $15,000, Mr Singh states he instructed his associate Sukhdeep Singh to deliver the amount of $15,000 in cash to Bullseye’s offices. The 29 August affidavit exhibits bank statements evidencing the withdrawal of $15,000 from SSKT’s bank account with National Australia Bank. At the time of delivering the cash, Mr Singh contends Mr Gaur informed him Bullseye would require ‘a couple of thousand more’ to be paid in future as the final payment of the invoice. Mr Singh states that as SSKT still required Bullseye to review and sign off the building plans, SSKT did not dispute the further payment request at that time.

Mr Singh states that while retained by SSKT, Bullseye reviewed building plans and collected compliance certificates. He alleges that Bullseye did not:

(a) provide any project management for the fit out;

(b) arrange for any other tradespeople to complete works at the premises; or

(c) provide any other services during the fit out of the premises.

Mr Singh deposes that on 30 March 2023, 21 April 2023 and 30 April 2023, Mr Gaur sent him a series of mobile text messages requesting further payments from SSKT to clear what was described as the ‘outstanding balance’.

The balance of Mr Singh’s 29 August affidavit relates to the service of the demand and why SSKT did not make application to set it aside. Again, as SSKT abandoned its application for leave under s 459S, much of that evidence is now of peripheral significance and what follows is no more than a superficial summary of the evidence in respect of that aspect of the matter, so as to provide context as to why no application was made to set aside the demand.

Mr Singh states he did not make an application to set the demand aside because he believed Bullseye was aware that the debt was disputed, and refers specifically to a text message exchange of 30 April 2023 outlined in his 27 August affidavit. Mr Singh states it was his belief that SSKT was not required to make an application to set aside the demand when it had previously notified Bullseye that there was a genuine dispute about the debt. Mr Singh states he did not seek legal or accounting advice until July 2023, when SSKT engaged solicitors.

Mr Singh states that on 10 July 2023, SSKT’s solicitors informed Bullseye’s solicitors by way of email that SSKT was solvent and that the debt was genuinely disputed. That email states:

…Notwithstanding the expire (sic) of the statutory demand, we are instructed that the alleged debt is completely disputed. Furthermore our client is a solvent company.
Accordingly any application to wind up our client will be strongly opposed…

Mr Paterson, counsel for Bullseye, in that part of his written submissions[6] which addressed SSKT’s application for leave under s 459S, acknowledged that given the low threshold which applied, for the purposes of that application only, SSKT’s evidence, if accepted, disclosed a serious question to be tried in respect of the debt the subject of the demand.
[6]Bullseye Group Pty Ltd (ACN 633 847 533), ‘Plaintiff’s Outline of Submissions,’ Submission in In the matter of SSKT Pty Ltd (ACN 642 363 988), S ECI 2023 02883, 9 November 2023, [19].

Mr Singh states that on 11 July 2023, Bullseye purported to serve copies of the originating process, supporting affidavit and liquidator’s consent by email on SSKT’s solicitors. The originating process had been filed on 29 June 2023, almost two weeks prior to its service.

Mr Singh deposes that on 26 July 2023, he instructed SSKT’s solicitors to provide Bullseye’s solicitors with an email containing preliminary details as to SSKT’s financial position and the dispute concerning the invoice. Mr Singh states this letter included an open offer for SSKT to pay Bullseye’s costs thrown away, on the basis that Bullseye withdraw the winding up proceeding.

Mr Singh concludes by contending that the affidavit in support of the application filed on 29 June 2023 does not comply with r 5.4(4) of the Rules, which requires the supporting affidavit to be made seven days before the originating process is filed, in circumstances where the affidavit was sworn on 30 June 2023. Mr Singh states that Bullseye has not provided any explanation as to how the affidavit could have been filed the day before it was sworn.[7]
[7]In his affidavit sworn 18 October 2023, Mr Anand provides an explanation for the filing date being recorded as 29 June 2023 despite the originating process being sworn on 30 June 2023. Mr Anand deposes that he was informed by the Supreme Court Registry that his initial attempt at filing the originating process and affidavit in support had been unsuccessful, as, among other things, the demand was required to be ‘at the back of the originating process’. After amending the originating process and refiling it on 3 July 2023, the originating process received a stamp with the date 29 June 2023, the original date of filing. This issue was not pressed at trial.

In his 14 September affidavit, Mr Singh exhibits the Solvency Report prepared by Mr Fettes which I now turn to. It was presented as evidence to support SSKT’s contention that it is cash flow and balance sheet solvent.

Mr Fettes‘ Solvency Report

In the Solvency Report, Mr Fettes provides his curriculum vitae and details his professional background and experience. He states that he has had in excess of 35 years’ experience in insolvency, including ten years with the former corporate regulator in Victoria, Corporate Affairs Victoria, and 25 years in private practice. He states he has had significant involvement in some of Australia’s largest corporate failures. As a registered liquidator, he has undertaken many court and voluntary liquidations and several liquidations by appointment of the Registrar of Cooperatives. He details his experience as a forensic and investigative accountant extending back over some thirty years, all of which appears to relate to insolvency administrations. He has prepared expert witness statements for use in the Magistrates’ Court, County Court, Supreme Court of Victoria, the Federal Court of Australia, the Federal Circuit and Family Court of Australia and VCAT. He is a registered liquidator and member of the Australian Restructuring, Insolvency and Turnaround Association.

I accept that Mr Fettes is an experienced insolvency practitioner and I did not understand Mr Paterson to contend otherwise.

In the Solvency Report, Mr Fettes states that he was provided with access to SSKT’s Xero account where its accounting records are maintained. In assessing the financial status of SSKT he has assumed that those accounts are accurate and states at several points that he has relied upon the instructions that he has received.[8] Mr Fettes observes that the Xero accounts ‘appear to be materially up to date’ and that no audit or other verification of the accounts has been carried out.[9] Mr Fettes’ opinion is that SSKT is both cash flow and balance sheet solvent.[10]
[8]Solvency Report (n 5) [6]-[7], [11], [20]-[22], [31].
[9]Solvency Report (n 5) [100].
[10]Solvency Report (n 5) [24(c)], [96].

In preparing the Solvency Report, Mr Fettes relied upon the:

(a) letter of instruction from SSKT’s solicitors dated 4 August 2023;

(b) loan agreement between SSKT and Fitness Equipment Finance;

(c) loan agreement between SSKT and Pepper Equipment Finance;

(d) extracts from SSKT’s ATO portal;

(e) ASIC Regulatory Guide 217: Duty to prevent insolvent trading, a guide for directors;

(f) extracts from the Act;

(g) ASIC Company Search; and

(h) Personal Property Security Register (‘PPSR’) search.

In his executive summary, Mr Fettes summarises his analysis as to how he has come to the opinion that SSKT satisfies what he describes as both the ‘technical’ test, being the balance sheet test of solvency, and the ‘commercial’ solvency test, i.e. the cashflow test.

As to the balance sheet test, Mr Fettes reports that SSKT had an adjusted net asset deficiency as at 31 July 2023 and 29 August 2023 of $266,488 and $243,032 respectively. He states the reason for this negative asset position is that the unitholders’ equity investments are recorded as loans rather than equity. He states he is advised by SSKT’s external accountant, Mr Khanna, who is an investor and a former director, that there is presently no investor pressure for the repayment of these loans.

Mr Fettes notes his instructions from SSKT’s lawyers in respect of the investors’ and shareholders’ undertakings that they will not call on the related party loan funds for at least the next three to five years, and that those funds are being applied for long term investment purposes. He was instructed by SSKT’s solicitors that the intention is that those funds will only be recovered upon the successful sale of the business.

Mr Fettes’ analysis is, if the investor loans are excluded from a balance sheet assessment of solvency, SSKT has an adjusted net asset surplus of $1,006,467 as at 31 July 2023 and $1,152,988 as at 29 August 2023. The balance sheet shows SSKT has a current asset ratio of greater than 1.00:1.00 at both 31 July 2023 and 29 August 2023. It has a Quick Asset Ratio and Cash to Current Liabilities Ratio of greater than 1.00:1.00 as at 29 August 2023.

He states that as a result of this analysis of SSKT’s records and the instructions provided to him, SSKT appears technically, i.e. balance sheet, solvent as at 29 August 2023.

Mr Fettes’ executive summary then moves to his assessment of whether SSKT is cash-flow solvent. He notes a number of indicia of cashflow insolvency, extracted from the ASIC Regulatory Guide ‘Duty to prevent insolvent trading: Guide for directors’. He identifies the following factors that might apply to SSKT’s circumstances:

a) the company has a history of continuing trading losses;
b) the company is experiencing cash flow difficulties;
c)legal action is being threatened, or has commenced against the company, judgments are entered against the company in relation to outstanding debts; and

d) creditors are not being paid on agreed trading terms.

As to SSKT’s trading losses, Mr Fettes reports that it appears SSKT’s business operations significantly changed following the opening of the Clyde North gym in March 2023. As a consequence of this, his analysis of commercial solvency substantially concerns the period after the opening of the Clyde North gym during March 2023.

He states that since the opening of the Clyde North gym, SSKT has recorded trading losses of $369 between April 2023 (the first full month of trading post opening) and July 2023. This equates to approximately $92 per month.

Mr Fettes states that between 1 August and 29 August 2023, SSKT has recorded a trading profit of $23,457.

Mr Fettes’ analysis of SSKT’s cashflows reveals that as a number of leases entered into by SSKT are capitalised in the accounts, the cash effect of these leases is not apparent in SSKT’s profit and loss accounts. Two of these leases relate to gym equipment and the third relates to a motor vehicle.

Because of the characterisation of these leases in the accounts, SSKT’s monthly cash outflows are $14,986 higher than the expenses recorded in SSKT’S profit and loss account. Accordingly, in the period April to July 2023, SSKT experienced a cashflow of negative $60,313. Mr Fettes states that between 1 August and 29 August, SSKT has had cashflow surplus of $8,471.

Mr Fettes states that notwithstanding the trading losses and negative operational cash flow, SSKT appears to have been meeting its debts as and when they fall due as a consequence of the contributions by investors and shareholders, with investor loans having increased by approximately $210,000 since 31 March 2023.

The Clyde North gym had never previously traded when it opened in March 2023, and therefore had no members. The gym required what was described by Mr Fettes as ‘a critical mass of members’ in order to break even, and it is to be expected that a business of this nature would initially make losses during the membership growth stage. Mr Fettes states he is instructed by Mr Khanna that the Clyde North gym had approximately 1,500 members as at 28 August 2023 and that membership was expected to increase by approximately 1,000 members over the next four months.

In respect of legal actions against SSKT, Mr Fettes relays his instructions in respect of the claim by Bullseye which, he is told, has not been paid by reason of a dispute over the debt rather than SSKT’s inability to pay it. He states that on 24 August 2023, shortly before the date provided on the second set of financial statements, 29 August 2023, the investors and shareholders undertook to pay $86,000 into the CBA Account. He states he is instructed by SSKT’s solicitors that these funds were paid to increase the balance of the CBA Account to over $100,000, and that $100,000 of the funds held in the CBA Account are being ‘quarantined’.

As to the creditors not being paid on agreed terms, Mr Fettes has identified two direct debit payments made to Fitness Equipment Finance and dishonoured by SSKT’s bank. In both cases the payment was processed shortly after the payment was dishonoured and Mr Fettes states it does not appear that the dishonoured payments resulted in a default notice being issued against SSKT.

In respect of the various indicia of cashflow solvency, Mr Fettes states a review of SSKT’s Xero file as at 31 July 2023 and 29 August 2023 shows no overdue trade creditors.

Mr Fettes states that typical tests for cashflow solvency include the Current Ratio and the Quick Asset Ratio. Typically, a business measures a healthy working capital as a Current Ratio of 1.00. The Current Ratio is calculated as current assets divided by current liabilities, and if the ratio is less than 1.00 it suggests a business may struggle to pay its debts going forward.

Mr Fettes states that as at 31 July 2023, SSKT had current assets of $77,690 and current liabilities of $9,205 giving a current asset surplus of $68,485 and a Current Ratio of 8.44:1.00; that is, SSKT had the equivalent of $8.44 of current assets for every $1.00 of current liabilities. I note that these accounts predate the cash injection of $84,000 on 24 August 2023 and further, that the figure for current liabilities does not include the debt claimed in the demand, $55,000, which cannot be disputed and must be assumed to be owing in this context in the circumstances of the application under s 459S not being pressed.

Mr Fettes states that another measure of cash flow is the Quick Asset Ratio, which is calculated as current assets less stock, divided by current liabilities. He states this measure is sometimes used, as a company struggling with cash flow may also be struggling to sell its stock, therefore the stock might be considered less liquid than the other current assets.

He states that SSKT holds stock of $72,730, which he is advised is made up of products such as supplements and other products that might be regularly sold to gym members. He states that if the stock is deducted from the current assets of $77,690, SSKT has current assets in the amount of $4,960.

Mr Fettes also sets out his instructions in respect of the advances made to SSKT and the quarantining of $100,000 of its funds to meet any adverse judgment and costs in relation to the claim by Bullseye. That undertaking, given to Mr Fettes for the purposes of the Solvency Report, is unlimited as to time, as distinct from the more limited undertakings given by the deponents to SSKT’s affidavits[11] which provide for the expiry of the undertaking on the occurrence of the earliest of three events, the most likely of which will be four weeks after the dismissal of this application.
[11]See para 76 below

Mr Fettes states that a review of SSKT’s balance sheet in the Xero accounts as at 29 August 2023, which again appears to exclude the Bullseye debt, shows that:

(a) the Current Asset Ratio is 61.12:1.00;

(b) the Current Asset Surplus is $184,402;

(c) the Quick Asset Ratio is 37.39:1.00; and

(d) the Quick Asset Surplus is $111,472.

Mr Fettes states that as at 29 August 2023, SSKT held $106,512 more in cash than it has in current liabilities. The disputed debt to Bullseye (which is not included in the balance sheet) is $55,000, therefore SSKT has sufficient funds to pay the disputed debt. Mr Fettes states that SSKT recorded sales of $98,018 in August 2023 with a net profit of $23,876 and an expected operating cashflow surplus of $8,890.

As to the analysis in the Solvency Report concerning the payment of creditors on agreed trading terms, Mr Fettes reports there is no evidence of creditors being paid out of terms, aside from the two dishonoured cheques to which reference has already been made. He states that based on a review of the balance sheets as at 31 July 2023 and 29 August 2023, the total accounts payable are less than $1,100. In addition to this, there is no net debt to the ATO and an ATO Client Activity Statement for SSKT shows no debt outstanding as at 10 August 2023.

Mr Fettes states there are no invoices listed as over one month old in the Xero aged payables report as at 31 July 2023 or 29 August 2023.

As to legal actions against SSKT, aside from the disputed debt said to be owing to Bullseye, Mr Fettes states he is not aware of any other legal actions over outstanding debts against SSKT.

As to the ability of SSKT to obtain funding, Mr Fettes states SSKT obtained finance from Pepper Equipment Finance in May 2023 by borrowing against gym equipment.

He reports that one or more of the investors and shareholders in SSKT advanced $30,000 to it on 21 August 2023, followed by an additional $86,000 on 24 August 2023. In total, investor and shareholder loans have increased by approximately $210,000 since March 2023.

Mr Fettes states that accordingly, SSKT has demonstrated the ability to raise additional funding from financiers since the dispute arose with Bullseye.

Mr Fettes observed that SSKT had an adjusted net asset deficiency of $243,032 as at 29 August, however, the negative asset position is a result of the owner’s equity investments being recorded as loans, rather than as equity.[12] If the investor loans are excluded from the balance sheet assessment of solvency, SSKT has an adjusted net asset surplus of over $1 million.[13]
[12]Solvency Report (n 5) [6].
[13]Solvency Report (n 5) [8], [93].

SSKT indicates that while it has recorded trading losses associated with the opening of the Clyde North gym, it has also recorded sales of $98,018 in August 2023 with a net profit of $23,876.[14] Mr Fettes observes that while SSKT was recording losses in its start-up phase, the Clyde North gym appears to be continuing to increase its membership and SSKT has started to generate profit.[15] SSKT’s trading performance between July 2022 and August 2023 was illustrated by Mr Fettes in the graph below:[16]

[14]Solvency Report (n 5) [14]-[15], [61].

[15]Solvency Report (n 5) [48].

[16]Solvency Report (n 5) [45].

Mr Fettes concludes by stating:

On the basis that:
(a)Investors / shareholders will continue to financially support the Company;
(b)Sufficient funds have been deposited, and quarantined, in the Company’s bank account to meet any adverse judgement and any costs associated with the Bullseye alleged debt; and
(c)There appears to be no other indicators of insolvency, other than those listed above.

I am of the opinion that, based on [SSKT’s] records and the instructions provided to me, [SSKT] was commercially solvent as at 29 August 2023.

In his 14 September affidavit, Mr Singh undertakes to the Court to maintain a balance of at least $100,000 in SSKT’s CBA Account until the earliest of the following:

a)an order of a Court of a competent jurisdiction in respect of the funds held in [SSKT’s] bank account, the [CBA Account], or in respect of the alleged debt claimed by [Bullseye];

b) [an] agreement between [Bullseye] and [SSKT]; or
c)the expiry of four weeks from the date of dismissal of Supreme Court Proceeding No. S ECI 2023 02883 (being this winding up proceeding).

X I observe that the undertaking in respect of the retention of $100,000 is not open ended and expires on the occurrence of the earliest of the stipulated events. I surmise that it is formulated to support the contention that SSKT is solvent in the period extending from the date of the hearing of the application until four weeks after its determination; the events described in para 76(a) and (b) are not likely to occur before 76(c). The authorities[17] indicate that solvency is to be assessed as at the date of the hearing of the application (with consideration also being given to what is in prospect).
[17]Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459 AT 466-7; Barboutis v Kart centre Pty Ltd [no 2] [2020] WASCA41 at 129.

Mr Singh states he is capable of and willing to provide financial support to meet any of SSKT’s current and future debts, including the alleged debt owed to Bullseye under the invoice.

Mr Singh states the unitholders of the SSKT Trust have consistently provided financial support to SSKT and have loaned it almost $1.4 million. Mr Singh states that Sarmuhabat Pty Ltd, which is the trustee of his family trust and of which he is the sole director, has a loan balance owing to it by SSKT of $262,530. Another unitholder of the SSKT Trust, Sangha Brothers, has loaned funds to SSKT by way of transferring funds to SSKT’s CBA Account.

Mr Singh states he has guaranteed SSKT’s debts under a lease agreement SSKT has with Fitness Equipment Finance for gymnasium equipment and a loan agreement with Pepper Equipment Finance.[18]
[18]See para 88 below.

Mr Singh undertakes to the Court not to call on or cause the Sarmuhabat Family Trust to call on SSKT for repayment of loans it has made to SSKT for a period of at least three years.

In her affidavit affirmed 20 October 2023, Harjot Kaur deposes that she is the sole director of Harjot Pty Ltd, which is the trustee of Harjot Family Trust, one of the unitholders in the SSKT Trust. She states the unitholders of the SSKT Trust have consistently provided financial support to SSKT. Ms Kaur states that as at 31 July 2023, the Harjot Family Trust had a loan of $244,830 owing to it by SSKT. She undertakes not to call on such loans for at least three years. She also undertakes to the Court not to call on or cause to call on the $100,000 held in SSKT’s CBA Account until one of the conditions outlined in para 76 are met.

In his affidavit affirmed 20 October 2023 Kulwinder Singh deposes that Mata Sahib Kaur Ji Pty Ltd (‘MSKJ’) as trustee for the Cheema Family Trust has a loan owing to it by SSKT of $251,997 as at 31 July 2023. Mr Singh undertakes to the Court not to call on or cause to call on the $100,000 held in SSKT’s CBA Account until one of the conditions outlined in para 76 are met.

Both Ms Kaur and Mr Kulwinder Singh depose they are both willing to and can provide financial support to meet any current and future debts owing by SSKT, including the debt the subject of the demand.

Tushar Khanna, in his affidavit affirmed on 30 October 2023, gives very similar evidence to Ms Kaur and Mr Kulwinder Singh. Mr Khanna is the sole director and secretary of United Partners Enterprises Pty Ltd, the trustee of the Khanna Family Trust. He states that the Khanna Family Trust has, as at 31 July 2023, a loan owing to it by SSKT of $252,768. He gives similar undertakings as Ms Kaur and Mr Kulwinder Singh in paras 84 above and states that he can and is willing to provide financial support to meet any of SSKT’s current and future debts, including the alleged debt owed to Bullseye.

Baljinder Singh Sangha, in his affidavit affirmed 8 November 2023, states that he is the sole director and secretary of Sangha Brothers. He deposes that Sangha Brothers has loaned SSKT $257,851 as at 31 July 2023. Unlike MSKJ and United Partners Enterprises Pty Ltd, Sangha Brothers is not a unitholder of the SSKT Trust but Mr Sangha gives the same undertakings as the representatives of the unitholders which are described above.

Mr Jagpal Kaur deposes in his affidavit affirmed 20 November 2023 that he is the sole director, secretary and shareholder of SJ Investments Detailing Pty Ltd which is trustee of the SJ Family Trust. He states that an amount of $93,000 has been jointly loaned by the SJ Family Trust (also referred to in the accounts as ‘SSR’) and the SH Family Trust (‘Mitha’) in equal shares. Mr Kaur states that as at 31 July 2023, SJ Family Trust has loaned $46,500 to SSKT, and gives similar undertakings to those given by SSKT’s unitholders and lenders.

In her second affidavit affirmed 20 November 2023, Ms Kaur refers to the Balance Sheet for SSKT dated 14 September 2023, and more particularly to an entry describing the loan ‘Funds Introduced – SSR/Mitha’, made to SSKT in the amount of $93,000. Ms Kaur states her belief that ‘Mitha’ refers to the SH Family Trust, as her family uses these names interchangeably. In regard to SH Family Trust/Mitha, Ms Kaur gives similar undertakings to the Court as those given by the parties whose evidence is referred to above. She confirms that the SH Family Trust/Mitha has loaned $46,500 to SSKT.

Bullseye’s submissions

At the outset of his submissions, Mr Paterson contends SSKT should not have leave to rely on affidavits filed on its behalf on and after 30 October 2023 on the basis that they were not permitted by the orders made by this Court on 2 August 2023 and 30 August 2023. As I have mentioned, that submission was ultimately not pressed.

Bullseye submits that SSKT has not established its solvency on the balance of probabilities and that it should be wound up in insolvency.

It was submitted, which is not controversial, that SSKT, having failed to set aside or satisfy a statutory demand within the prescribed time, is presumed to be insolvent,[19] and that if it seeks to resist being wound up on the basis it is solvent, it bears the onus of proving such a claim.[20] Bullseye further contends that while it is accepted that the question of solvency is one to be determined at the date of the hearing, future events may also be relevant to the finding.[21]
[19]Corporations Act 2001 (Cth) s 459C(2).
[20]Elite Motor Campers Australia v Leisureport Pty Ltd (1996) 22 ACSR 235 (Spender J); Commissioner of Taxation v Simionato Holdings Pty Ltd [1997] FCA 125 (Mansfield J).
[21]Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459, 466-7 (Sackville J).

In his oral submissions, Mr Paterson critiqued aspects of the Solvency Report. He emphasised that no audit has been conducted in respect of SSKT’s financial records and Mr Fettes accepted their veracity on their face when preparing the Solvency Report. As to the undertaking given by the unitholders and lenders that they would not call on the loan sums for the next three to five years by reason of the funds being for long-term investment purposes, Mr Paterson contended the undertakings are given by the present directors of the corporate trustees of the unitholders in the SSKT Trust. The identity of both the directors and of the trustees can change and there is nothing binding the beneficiaries of the trusts; it only binds the trustees.

In this regard, Mr Paterson observed that there are no undertakings by those controlling the trusts from retaining or appointing new trustees or causing a trustee to do certain things.

As to SSKT’s taxation position, Mr Paterson observed that SSKT claimed a refund of $40,201 in GST for the March 2023 quarter, which he submitted indicates it has paid at least $400,000 in expenses for which GST was payable. Mr Paterson referred to the profit and loss statement for January to March 2023 and pointed to membership fees which comprise a disclosure of $56,212.57 in income, alongside diminished closing stock. Mr Paterson contended that when added to the gym supplies and opening stock, that amount totals approximately $92,500. Expenses for that same period (that being, the disclosure added to the gym supplies and opening stock) are calculated as being about $148,712.57. Mr Paterson submitted that, when including the operating expenses for those three months (an approximate figure of $100,000), the total is therefore calculated as being $198,000, as opposed to the $402,000 claimed. Mr Paterson contended that this undermines the credibility of the Solvency Report.

Mr Paterson observed that if the quarantined $100,000 was to be excluded from the amount in the CBA Account, all that would remain is accounts receivable of just under $5,000. As to the balance of the CBA Account not subject to the undertaking, Mr Paterson contended it would approximate $9,000. Additionally, Mr Paterson pointed to stock in hand being valued at $72,730, but there is no evidence as to what that stock is or the basis of its valuation. For this reason, Mr Paterson submitted there is not a ‘sufficiency of assets’ verified. He concluded his oral submissions with the observation that the only verification of the Xero accounts provided is that Mr Singh deposes that they are true and accurate.

In his written submissions, Mr Paterson points to the authorities which indicate the Court should be presented with the ‘fullest and best’ evidence of Bullseye’s financial position,[22] and that unaudited accounts and unverified claims of ownership or valuation are not sufficiently probative of solvency; nor are bald assertions of solvency arising from a general review of the accounts, even if those assertions are made by a qualified accountant with detailed knowledge of how those accounts were prepared.[23]
[22]Commonwealth Bank of Australia v Begonia (1993) 11 ACLC 1075, 1081 (Hayne J); Ace Contractors [1999] FCA 728 [44] (Weinberg J).
[23]Commissioner of Taxation v Simionato Holdings Pty Ltd [1997] FCA 125 (Mansfield J); Re Citic Commodity Trading Pty Ltd v JBL Enterprises (WA) [1998] FCA 232 (Heerey J); Leslie v Howship Holdings Pty Ltd (1997) 15 ACLC 459, 463 (Sackville J).

Mr Paterson accepts however that the provision of audited accounts is not an ‘inflexible rule’, but points to Xu v Megaward Pty Ltd (‘Xu v Megaward’),[24] where the Court observed, regarding the provision of audited accounts, that:

True it is that in some cases – especially if the company is in a weak financial position – a court may take the view that only such evidence would suffice to displace a presumption of insolvency.[25]

[24]Xu v Megaward Pty Ltd (2018) NSWCA 232 (McColl, Meagher and Leeming JJA) (‘Xu v Megaward’).

[25]Ibid, [30].

Mr Paterson observes that in Xu v Megaward, the primary judge had access to bank accounts and could therefore form a view as to the accuracy of the company accounts by reference to independent and reliable records of the same transactions with a reasonable level of confidence.[26]
[26]Ibid, [44]–[45].

Mr Paterson contends that commercial realities can be considered by the Court when assessing the resources available to a company, including the notion that creditors do not always insist on strict payment. However, Bullseye submits that this does not result in a company thereby having cash or credit resources that can be taken into account when determining solvency: mere latitude given by creditors does not warrant a conclusion that the debts are not due and payable when they are legally due.

SSKT’s submissions

In her written submissions Ms Wangmann begins with reference to the statutory scheme concerning the assessment of whether an entity is solvent.

Ms Wangmann refers first to s 459C(2)(a) of the Act, which provides that a company is presumed to be insolvent if, during or after the period of three months ending on the day when an application for winding up was made, the company failed to comply with a statutory demand. Section 459C(3) provides that presumption operates unless the contrary is proved for the purposes of the application, in which case the jurisdiction of the Court is not enlivened to make a winding up order under s 459A of the Act.

The statutory test for solvency is provided by s 95A(1) of the Act, which states that a company is solvent if it can pay its debts as and when they become due and payable. Section 95A(2) provides that a company which is not solvent is insolvent.

Ms Wangmann then refers to the principles governing the assessment of the solvency of a debtor company which were the subject of consideration by Weinberg J sitting as a judge of the Federal Court in Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd, which are as follows:

a)the respondent is presumed to be insolvent and as such bears the onus of proving its solvency;
b)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;
c)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;
d)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;
e)the adoption of a cash flow test for solvency does not mean that the extent of the company’s assets is irrelevant to the inquiry. The credit resources available to the company must also be taken into account;
f)the question of solvency must be assessed at the date of the hearing. However, this does not mean that future events are to be ignored; [and]
g)it is no abuse of process for an applicant to seek to wind up a company presumed to be insolvent by reason of its failure to comply with a statutory demand merely because that company contends that it is solvent, or because there may be alternative means available to the applicant to vindicate its rights.[27]
[Citations omitted].

[27][1999] FCA 728 [44].

SSKT contends, by reference to authority, that the question of whether a company is able to pay its debts as and when they fall due is a question of fact.[28] SSKT accepts that the onus of displacing the statutory presumption of insolvency lies with the debtor company and is determined on the balance of probabilities.[29]
[28]Lewis v Doran (2004) 208 ALR 385, 408-9 [106]-[108] (Palmer J), approved in Lewis (as liq of Doran Constructions Pty Ltd (in liq)) v Doran (2005) 219 ALR 555 by the New South Wales Court of Appeal; Stone v Melrose Cranes & Rigging Pty Ltd, Re Cardinal Project Services Pty Ltd (in liq) (No 2) [2018] FCA 530 [146] (Markovic J).
[29]Farid Assaf, Assaf’s Winding Up in Insolvency (LexisNexis, 3^rd ed, 2021) [11.13].

Ms Wangmann refers to the statement of Barwick CJ in Sandell v Porter,[30] in which it was explained that insolvency is determined after consideration of the debtor’s complete financial position and ‘ought not to be drawn simply from evidence of a temporary lack of liquidity’.[31] His Honour further stated that while:

[i]nsolvency is expressed…as an inability to pay debts as they fall due out of the debtor’s own money…the debtor’s own moneys are not limited to his cash resources immediately available [and]…extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time…[32]

[30](1966) 115 CLR 666 (Barwick CJ, McTiernan and Windeyer JJ).

[31]Ibid, [15].

[32]Ibid.

SSKT submits that commercial realities are relevant to the exercise of assessing what resources are available to a company in sourcing the necessary income to meet its liabilities.[33] SSKT contends that an undertaking by a director of a third party to provide financial support may support a company’s solvency, although the Court should critically examine such undertakings.[34] In this respect, reference is made to the observation of Morrison JA of the Queensland Court of Appeal in International Cat Manufacturing Pty Ltd (in liquidation) & Anor v Rodrick (‘International Cat’)[35] that ‘regard can be had to such financial support where the evidence establishes that the directors are likely to continue it.’[36]
[33]Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 188 ALR 114 [29] and [51] (Palmer J); Australian Beverage Distributors v The Redrock Co (2008) 26 ACLC 74 [146] (Austin J).
[34]Re LJAC Energy Pty Ltd (in liq) [2013] NSWSC 1231 [33]-[35] (Lindsay J).
[35][2013] QCA 372 (Holmes, Gotterson and Morrison JJA) (‘International Cat’)
[36]Ibid, [105]. See also Featherstone v Ashala Model Agency Pty Ltd (in liq) [2017] QCA 260; Quin v Vlahos [2021] VSCA 205; Lewis v Doran [2005] NSWCA 243 [110]-[113]; Cribb v Kingsbury (No 2) [2021] FCA 1397 [186]-[187] (McKerracher J); Coates Hire Operations Pty Limited v D-Link Homes Pty Ltd [2011] NSWSC 1279; Westgem Investments Pty Ltd v Commonwealth Bank of Australia Ltd [2022] WASCA 132 [562]-[565] (Murphy JA).

In this context, reference is also made to a number of what are contended to be settled principles. In Chan v First Strategic Development Corporations Ltd (in liq)[37], the Court considered that the provision of funds does not need to be free of uncertainty or contingency to contribute to a company’s solvency.[38]
[37][2015] QCA 028 (Gotterson and Morrison JJA).
[38]Ibid, [42]-[44].

In Deputy Commissioner of Taxation v De Simone Consulting Pty Ltd,[39] Finkelstein J observed that the onus of establishing solvency does not necessarily require the company to adduce audited accounts,[40] and that, in appropriate cases where there is verified proof of ownership and value of assets, ‘there is no good reason to put the company to the time, trouble and expense of producing audited accounts.’[41]
[39][2007] FCA 548 (Finkelstein J).
[40]Ibid, [10]; Deputy Commissioner of Taxation v Tank Sales Sydney Pty Ltd [2018] FCA 449 [12] (Farrell J); Deputy Commissioner of Taxation v Fyna Constructions (Hire and Sales) Pty Ltd [2019] FCA 578 [17] (Griffiths J); Coates Hire Operations Pty Ltd v D-Link Homes Pty Ltd [2011] NSWSC 1279 [60]-[61] (White J); Deputy Commissioner of Taxation v Bayconnection Property Developments Pty Ltd [2012] FCA 363 [60]-[61] (Robertson J).
[41][2007] FCA 548 [14] (‘De Simone Consulting’).

Ms Wangmann also refers to Xu v Megaward in which the New South Wales Court of Appeal observed that there was no ‘inflexible rule’ dictating that solvency can only be proved one way, that being by way of producing audited accounts.[42]
[42]Xu v Megaward (n 22) [30], [43]-[45], [54].

Ms Wangmann’s submissions then address these principles in the context of the Solvency Report and the other evidence relied upon by SSKT.

SSKT relies on two balance sheets, the first dated 31 July 2023 and the second dated 29 August 2023. The latter is exhibited to the Solvency Report and notes the following loans, amongst other liabilities:

Funds Introduced      Sangha Brothers                   $257,851
Funds Introduced      Cheema FT  $251,977
Funds Introduced      Harjot Family Trust              $244,830
Funds Introduced      Khanna FT  $282,768
Funds Introduced      Sarmuhabat Family Trust     $262,530
Funds Introduced      SSR/Mitha   $93,000

While SSKT acknowledges these accounts are unaudited, it submits it has exhibited source documents which show that the accounts are accurate and reliable. Those documents include:

(a) SSKT’s bank statements, which evidence cash at bank as at 23 August 2023, payments of $86,000 and other loans from unitholders to SSKT;

(b) SSKT’s bank statements evidencing loans from unitholders to SSKT;

(c) loan agreements between SSKT and both Fitness Equipment Finance and Pepper Equipment Finance; and

(d) extracts from SSKT’s ATO portal.

SSKT submits that, as it is a small company and it has adduced evidence regarding its assets and liabilities, there is no good reason to put it to the trouble and expense of producing audited accounts.

SSKT’s further submissions of 20 November 2023 go to the issue of whether SSKT should be granted leave to rely on its affidavit material filed after 30 October 2023. That issue has fallen away and leave has been granted. The further submissions also seek to address the accuracy of the Xero accounts relied on by Mr Fettes and the sufficiency of undertakings and assurances provided by the unitholders and investors in SSKT.

As to the accuracy of its accounts, SSKT raises four arguments as to the lack of good reason to put it to the time, trouble and expense of auditing its accounts.

The first relied upon a reference to De Simone Consulting,[43] in which case the defendant had verified the proof of ownership and value of assets. In this regard, SSKT notes it exhibited bank statements evidencing cash at bank in the amount of $100,375.66 as at 23 August 2023, and other loans from both unitholders and investors.
[43]De Simone Consulting (n 40).

The second submission is in regard to Mr Fettes’ opinion that SSKT’s Xero file is materially up to date. SSKT contends the Xero records that Mr Fettes relied upon in formulating that opinion have been extracted from SSKT’s banking records.

SSKT submits in the third instance that the Court has before it extracts from SSKT’s ATO portal, which corroborate the accuracy of its banking records, and these can be relied upon by the Court.

As to its fourth submission, SSKT contends that even if the Court were to consider that SSKT’s accounts require some caution, SSKT’s solvency turns upon the Court’s acceptance of the evidence of the unitholders and investors that they will not call upon their loans and that they will provide financial support to SSKT on an ongoing basis.

As to Bullseye’s complaint that the terms of the undertakings given by SSKT’s unitholders and investors are insufficient for Bullseye to pursue and resolve a claim for its alleged debt, SSKT contends this submission misapprehends the relevant test, that being whether the company is able to pay its debts when they become due and payable. SSKT emphasises that the question of solvency is assessed at the date of the hearing and does not involve an inquiry into Bullseye’s ability to pursue and resolve a claim for its alleged debt.

SSKT refers to a number of authorities where there was consideration of a company’s solvency in the context of evidence demonstrating that those associated with the company would continue to financially support it.

SSKT submits that the current matter is analogous to the decision of the Queensland Court of Appeal in International Cat,[44] as the evidence before the Court indicates that the investors and shareholders are likely to continue providing financial support to SSKT. I will return to a consideration of International Cat and the authorities considered by it later in these reasons.
[44][2013] QCA 372 [105].

SSKT refers to the Queensland Court of Appeal’s observation in Chan v First Strategic Development Corporations Ltd (in liq)[45] that the provision of funds does not need to be free of uncertainty or contingency to be able to contribute to the company’s solvency. SSKT also refers to the finding of Murphy JA of the Court of Appeal of Western Australia in Westgem Investments Pty Ltd v Commonwealth Bank of Australia Ltd that:

…the capacity to raise funds from external sources must be judged in a practical and businesslike way by reference to the commercial realities of the case, not by way of some theoretical textbook exercise. Where a contractual debt is payable on demand, in assessing solvency, consideration has been given to whether, as a matter of commercial reality, the creditor intended or would likely make a demand for payment [footnotes omitted].[46]

[45][2015] QCA 28 [42]-[44].

[46][2022] WASCA 132 [565] (Murphy, Mitchell JJA and Fraser AJA). See also Re Balmz Pty Ltd (in liq) [2020] VSC 652 [94] (Randall AsJ); Re Custom Bus Australia Limited (in liquidation) [2021] NSWSC 1036 [35] (Black J); International Cat Manufacturing (in liq) v Rodrick [2013] QCA 372 (Holmes, Gotterson and Morrison JJA) where Morrison JA (Holmes & Gotterson JJA agreeing) referred at [97] to the fact that whilst the relevant debt ‘might have been repayable on demand, demand was not likely to have been made’; Re Cube Footwear Pty Ltd [2012] QSC 398 [57]-[63] (Jackson J); Lewis v Doran [2005] NSWCA 243 [112] (Giles JA) – where the absence of the intended demand was said to indicate that the debt was not ‘due and payable’.

SSKT also refers to Cribb v Kingsbury (No 2), in which McKerracher J observed that:

With regard to the reasoning in Chan and the decisions in Westgem and Mulherin cited by the defendants, the plaintiffs misapprehend the test to the extent they suggest that the company must have a legal right to funds from a third party or that those funds be ‘under its control’ or ‘at its command’. All that is required is a necessary degree of assuredness that funding support will be provided. That standard is highly fact dependent and requires careful consideration of the commercial realities of the case.[47]
[citations omitted]

[47][2021] FCA 1397 [186].

In Coates Hire Operations Pty Limited v D-Link Homes Pty Limited, White J accepted evidence that the director had no intention of requiring the company to repay loans amounting to $458,621.[48] SSKT draws particular reference to the notion that the defendant in that matter was found to be solvent, even if the debt was payable on demand.
[48][2011] NSWSC 1279 [80].

SSKT submits the Court should find that the financial records produced by SSKT are substantially accurate and, in any case, SSKT is solvent by reason of the financial support extended by its unitholders and investors. In those circumstances, SSKT submits that the Court should find on the balance of probabilities that SSKT is solvent.

In oral submissions, Ms Wangmann contended the undertakings provided by the unitholders and investors are designed to demonstrate that the investors are capable of paying the debt the subject of the demand if so required. Ms Wangmann further submitted that the money contained in SSKT’s bank account constitutes real, cogent and credible evidence that it could pay the debt. Ms Wangmann emphasised that simply because SSKT has elected not to pay this debt, does not mean that SSKT is insolvent, i.e. it is because the debt is disputed that it has not been paid.

Ms Wangmann contended the Court should, even without a formal agreement, accept evidence put on by the directors of the unitholders that a loan will not be called upon, so long as the Court is satisfied that the evidence demonstrates a sufficient commitment.

Ms Wangmann further submitted that the tax invoice relied upon by Bullseye has not been signed by either party, and consequently has never been accepted.

Ms Wangmann emphasised there was no quote provided, and that Bullseye effectively held SSKT ‘hostage’ in refusing to sign off on the building plans until it was paid. Ms Wangmann contended that to resolve the deadlock, SSKT paid Bullseye $15,000. Ms Wangmann submitted that the payment of $15,000 constituted an agreement, and that Bullseye has not challenged this evidence.

Ms Wangmann referred to the CBA Account bank statement exhibited to Mr Singh’s 14 September affidavit which recorded a number of cash injections:

(a) $20,000 on 7 July 2022;

(b) $20,000 on 8 July 2022;

(c) $26,000 and $20,000 on 9 July 2022; and

(d) $10,000 on 13 July 2022.[49]

[49]The CBA Account bank statement exhibited to the 14 September affidavit also shows payments of $20,000 from Sangha Brothers on 25 August 2022, $40,000 from Mr Khanna on 27 August 2022 and $40,000 from ‘Kuli’ on 7 September 2022.

Ms Wangmann made reference to the purchase of gym equipment as a result of finance obtained from both Pepper Equipment Finance and Fitness Equipment Finance. As to the loan agreement with Fitness Equipment Finance, it was entered into, in the view of Mr Fettes, in March or April 2023. This entailed a deposit of $124,682.71 which was due ‘on return of contract’, payments of $14,682.71 across a period of 47 months, and a total commitment of $829,452.79, all inclusive of GST. SSKT entered into the loan agreement with Pepper Equipment Finance in May 2023 for the amount of $48,422.40, to purchase gym equipment valued at $37,177.80. The loan was to be repayable in 48 monthly instalments of $1,008.80. Ms Wangmann noted that Mr Singh is a guarantor under the loan agreements, which both involve substantial liabilities, to support a submission that Mr Singh has a strong interest and incentive in supporting SSKT and in its continued trading.

Ms Wangmann then referred to the balance sheet for SSKT dated 29 August 2023, and in particular, to the loan accounts as at that date. Ms Wangmann outlined the following loan account amounts:

(a) $262,530 from the Sarmuhabat Family Trust (associated with Mr Singh);

(b) $251,977 from the Cheema Family Trust (associated with Messrs Singh and Kulwinder Singh);

(c) $244,830 from the Harjot Family Trust (associated with Ms Kaur);

(d) $282,768 from the Khanna Family Trust (associated with Mr Khanna). Ms Wangmann responded to an issue raised by Mr Paterson, that in his affidavit, Mr Khanna has instead referred to a loan account balance of $252,768. Ms Wangmann submitted that the loan account balance was $252,768 as at July 2023 before that amount was increased by $30,000. Ms Wangmann further contended that Mr Khanna did not specifically refer in his affidavit to the August balance, but still undertakes not to call on the loan, including the $30,000;

(e) $257,851 from Sangha Brothers (associated with Mr Sangha); and

(f) $93,000 from SSR/Mitha (with 50% of that amount contributed by Ms Kaur from the SH Family Trust, and the remaining 50% contributed by Mr Kaur from the SJ Family Trust).

Ms Wangmann then referred to para 66 of the Solvency Report, where Mr Fettes makes reference to two direct debit dishonours in June and July 2023. In the following paragraph of the Solvency Report, Mr Fettes states that ‘the payment[s] [were] processed shortly after the dishonoured payment[s] [were] processed’ and that no ‘default notice [was] [issued] against the Company’.

Legal principles

In International Cat,[50] the Court considered circumstances whereby it had been contended that the relevant company was insolvent at the time it granted a charge and therefore the charge should be set aside as void under s 267 of the Act. The appeal involved consideration of whether the primary judge had erred in finding that an arrangement whereby support was provided to the company was sufficiently certain to result in a finding of solvency. In its reasons, the Court of Appeal considered a number of authorities on the issue of whether provision of financial support from those associated with a company could constitute a basis for a contention that the company was solvent.
[50]International Cat (n 35).

The Court of Appeal found that there was a solid foundation for concluding that the person said to be supporting the company in that instance was committed to the continuation of financial support. The passage which follows is a quite lengthy but is a very useful collection of the relevant authorities and principles. At para 100 and following, the Court of Appeal stated:[51]
[51]Ibid, [100]-[112].

In Lewis v Doran Palmer J had this to say as to the assessment of a corporation’s solvency or insolvency:
In my opinion, s 95A requires the Court to decide whether the company is able, as at the alleged date of insolvency, to pay all its debts as they become payable by reference to the commercial realities. If the Court is satisfied that as a matter of commercial reality the company has a resource available to pay all its debts as they become payable then it will not matter that the resource is an unsecured borrowing or a voluntary extension of credit by another party.

That decision was upheld on appeal where the Court of Appeal had this to say:
[109]Particularly when the limiting words are no longer part of the test, there is no compelling reason to exclude from consideration funds which can be gained from borrowings secured on assets of third parties, or even unsecured borrowings. If the company can borrow without security, it will have funds to pay its debts as they fall due and will be solvent, provided of course that the borrowing is on deferred payment terms or otherwise such that the lender itself is not a creditor whose debt can not be repaid as and when it becomes due and payable. It comes down to a question of fact, in which the key concept is ability to pay the company’s debts as and when they become due and payable.
[110]Even before the wording of s 95A, in Re RHD Power Services Pty Ltd McPherson SPJ was prepared to pay regard to ability to borrow without security. Kearney J in Re Adnot Pty Ltd took into account that the company “instead of having to resort to some outside lender, is in the fortunate position of having its fellow member of the group of companies to which it belongs, available in effect as banker to provide funds required to meet any shortfall” (at 311; the shortfall was until completion and sale of a shopping centre). In Re a Company Nourse J declined to find that a company was unable to pay its debts as they fell due although it was being “propped up by loans made to it by associated companies and possibly by others” (at 262; his Lordship noted at 263 that he had evidence from a director to the effect that there was no question of the loans being withdrawn, the loans not being repayable for some eighteen months).

In Mulherin v Bank of Western Australia Ltd; McCann & Ors v Bank of Western Australia Ltd the court held that whether a company has the ability to pay debts as and when they become due and payable, or lacks that ability, is to be determined by considering its financial position as a whole, with reference not merely to its strict legal rights and obligations under agreements with creditors and debtors, but by taking into account “commercial realities”. The court went on to say:
[114]The availability of unsecured borrowings is also relevant where, for example, they are capable of providing temporary liquidity pending the realisation of assets or the obtaining of secured loans.
[115]There is some authority for the proposition that unsecured loans by directors cannot be taken into account. But where it can be shown that directors are likely to continue to support the company, whether by unsecured loans or otherwise, there is no reason in principle why such support should be regarded as irrelevant. The likely existence of continued support of directors and/or shareholders may be a significant consideration in assessing the solvency of a development project vehicle such as UTC. Its only capacity to pay its debts on or before the conclusion of the development was dependent on the sale of the developed real property for a price higher than the outgoings of the development. In such circumstances, there will tend to be an expectation, once the development is embarked upon financed by loans secured and otherwise, that as long as loan conditions are observed the loans will be extended until the conclusion of the project through sale of the developed lots. That assumes, of course, that lenders continue to have a reasonable expectation that the borrower will have a continued ability to perform its obligations under its loan agreements. And the continued existence of confidence on the part of lenders will depend largely on their assessment of whether the development is likely to result in a net profit or loss.”

In Williams v Scholz the statement in Lewis v Doran, namely that “the key concept is ability to pay the company’s debts as and when they fall due” was accepted. The Court of Appeal went on to state:
[109]It is well established that in considering a company’s financial position as a whole, reference may be had, not merely to strict legal rights and obligations under agreements with creditors and debtors, but to “commercial realities”. A significant consideration on any such determination is often the ability of the Company to borrow on the security of its own assets and the willingness of its secured creditors to continue lending despite temporary financial difficulties.
[110]Unsecured borrowings are also relevant, provided they do not give rise to obligations which the company is unable to meet. Where the Court has the benefit of assessing insolvency with the advantage of hindsight, as is the case here, it will tend to be in a better position to evaluate the true bearing of unsecured borrowings on the Company’s ability to meet its financial obligations. There is some authority for the proposition that unsecured loans by directors cannot be taken into account. There should, however, be no objection in principle to regarding such financial support as relevant where the evidence establishes that the directors are likely to continue. Loans by related corporations have been regarded as relevant to the determination of solvency. And there is no reason in principle why a loan from directors should be treated any differently to loans from companies controlled by directors. The most important consideration is the degree of commitment to the continuation of financial support.”

The appellant sought to utilise the decision in Scholz, to contend that in a case such as this there must be evidence that the funders were able and willing to provide sufficient funds from their own resources, to enable ICM to discharge its debts. Scholz is not authority for that proposition. In that case there was no financial arrangement in place. Absent such an arrangement the contention was that consideration should have been given “to the prospect of the Sholzes providing long term loans to the company (or share capital) in lieu of bank debt”. There was no evidence at all that the Scholzs’ were able or willing to provide sufficient funds and the only evidence given was of a hearsay nature, where one witness spoke only of the “possibility” that the Scholzs could have borrowed and on-lent. In those circumstances it is not surprising to find a conclusion that in the absence of such evidence solvency could not be established on that ground, but the decision extends no further on that point.
The loans provided by the Nu-Log/Rodrick interests were secured by the charge, but were loans from, effectively, a director or related company. As Scholz shows, regard can be had to such financial support where the evidence establishes that the directors are likely to continue it. That is the case here. There was ample foundation for his Honour’s finding that finance was assured in the sense that it was provided at least until the sale of C3506. Mr Rodrick’s own evidence that he regarded ICM as being profitable and conducting a worthwhile business in which he was part owner, provide ample support for a conclusion that Mr Rodrick was likely to continue the financial support.
Similarly, if one has regard to the statement in Scholz that “the most important consideration is the degree of commitment to the continuation of financial support”, the same conclusion as to assured finance can be drawn. Mr Rodrick was a committed financial supporter.
If one has regard to the “commercial realities”, the findings open to his Honour were all one way. Mr Rodrick had committed himself to financing ICM to one degree or other from as early as February or March 2003. His belief in the quality of the product ICM produced, and its likely success, led him not only to provide finance to it but to commit as a part owner of the company. Further, his own catamaran, C3505, was partly under construction at the time when he had to consider whether he could continue financing in exchange for the charge. On his own evidence he was a willing and committed financier. The commercial realities are that the provision of that finance meant that as at the date of the charge ICM was able to pay its debts as and when they fell payable.
In my respectful opinion, the fact that the loans may have been technically repayable on demand, does not avoid the commercial reality that Mr Rodrick had no intention of making a demand earlier than the sale of C3506. Thus, the incurring of the loan debt by ICM did not give rise to the substitution of one debt for another, as the appellant contends. It did give rise to an obligation which ICM was likely to meet on the sale of C3506.
In that respect this case is similar to that considered in Re Kerisbeck Pty Ltd where Harper J refused to make a finding of insolvency where there was a debt repayable on demand to a director, but the director gave evidence, which was accepted, that he did not intend to demand repayment of the debt in the immediate future. Similarly, in re a Company Norse J declined to find insolvency where the company was propped up by loans made by associated companies, but there was evidence from a director to the effect that there was no question of the loans being withdrawn, and they were not repayable for some 18 months.
Both of those decisions were referred to with apparent approval in Lewis v Doran where the court said:
In the present case, there was ample support for Palmer J’s regard to availability of funds from other companies in the group, relevantly Holdings, additional to the $1.189 million balance of Holdings’ debt and Dyspan’s $1.21 million, sufficient to establish Constructions’ ability to pay its debts as and when they fell due. Importantly, I do not think it was suggested that the funds made available, apparently repayable on demand, were to be regarded as immediately repayable so that Holdings itself was a creditor whose debt could not be repaid as and when it was due and payable.

To the same effect is the decision in Coates Hire Operations Pty Ltd v D-Link Homes Pty Ltd. There the company owed a debt by way of a loan advanced to it by Hoang. The debt was treated by the company as a loan payable on demand, but no demand had been made, and none was contemplated. Justice White found that if a demand was made the company would not be able to pay it, but Hoang had no intention of making that demand. His Honour referred to the decision of Barrett J in ASIC v Edwards in which the well-known statement was made that replacing one debt with another by way of loan funds payable on demand was to substitute one form of immediate or near immediate obligation for another. Justice White went on:
[76]I do not understand his Honour to be saying that it is always necessary to treat a loan payable on demand as a debt that is due or near due and to be taken into account on a determination of solvency. It depends on whether the court is satisfied that demand will not be made within the reasonably immediate future.
[77]I accept Mr Hoang’s evidence that he has no present intention of requiring the company to repay what he calls the loans amounting to $458,621.

…
[79]As a matter of “commercial reality” it makes no difference whether the debt owed by the company to Mr Hoang is payable on demand or without demand. Section 95A has been construed as if it provided that a company is solvent if it is able to pay all its debts as and when they become due and payable as a matter of commercial reality.
[80]Although the defendant has not established that the debt owed to Mr Hoang is only payable on demand, as a matter of “commercial reality” the position is the same as if the debt were payable only on demand. Applying s 95A in the sense referred to above, the defendant is solvent.”

In my respectful opinion the learned primary judge’s conclusion that as at 25 November 2003 (the date on which the charge was given) ICM was solvent, was plainly correct.
[emphasis added in italics, citations omitted]

In the matter of ReAquaqueen International Pty Ltd,[52] Black J observed:
[52][2014] NSWSC 1645 (Black J).

In some circumstances, an undertaking by a director or third party to provide financial support to a company may support its solvency, even if it is not legally enforceable, and possibly even if that support is informal in character, provided the prospect of receipt of those funds is in fact sufficient to allow the company to meet its debts: Williams v Scholz; International Cat Manufacturing Pty Ltd (in liq) v Rodrica; First Strategic Development Corporation Ltd (in liq) v Chen & Ors. On the other hand, in Re LJAC Energy Pty Ltd (in liq), in the context of an application for termination of a winding up, Lindsay J noted at [34]-[35]) that:
It is not enough that such a party state an intention to support the company financially, or logistically, in the future or, even to provide an assurance that such support will be forthcoming. Particularly it is not enough when a company's benefactor is not under a contractual obligation to provide support or, for whatever reason, has failed in the past to provide timely support.
The Court generally needs to be satisfied that the Company's ability to pay its debts as and when they fall due is grounded upon a foundation in net assets and a cash flow not contingent upon a promoter's discretion.

For present purposes, the latter observations by Lindsay J are of particular significance. The fact that the Judgment Debt and other costs orders against the Company have remained unpaid throughout the relevant period demonstrates that Ms Penson is unlikely to utilise personal funds to repay debts of the Company generally, but only such debts as she chooses to pay. A director's advancing personal funds to pay some, but not other, debts of a company does not establish its solvency.[53]
[emphasis added, citations omitted]

[53]Ibid, [29].

In another decision of the Queensland Court of Appeal, Williams (as liquidator of Scholz Motor Group P/L (in liq)) v Scholz & Anor,[54] the Court of Appeal stated:

Unsecured borrowings are also relevant, provided that they do not give rise to obligations which the company is unable to meet. Where the Court has the benefit of assessing insolvency with the advantage of hindsight, as is the case here, it will tend to be in a better position to evaluate the true bearing of unsecured borrowings on the Company’s ability to meet its financial obligations. There is some authority for the proposition that unsecured loans by directors cannot be taken into account. There should, however, be no objection in principle to regarding such financial support as relevant where the evidence establishes that the directors are likely to continue it. Loans by related corporations have been regarded as relevant to the determination of solvency. And there is no reason in principle why a loan from directors should be treated any differently to loans from companies controlled by directors. The most important consideration is the degree of commitment to the continuation of financial support.[55]

[emphasis added]

[54][2008] QCA 94 (Keane, Muir JJA and Mackenzie AJA).

[55]Ibid, [110].

In the decision of the Queensland Court of Appeal in Chan & Ors v First Strategic Development Corporation (in liq) & Anor[56] Morrison JA referred to Scholz, International Cat and the leading case of Lewis v Doran, and said:

I agree respectfully with those observations. They reflect the need, in cases where the financial support is from a source which cannot be compelled by legal arrangement, for there to be a degree of assuredness that the financial support will be forthcoming and at such a level that one could say the company was able to pay its debts as and when they fall due, rather than being possibly able to do so. Just as a conclusion that the relevant financial support does not have to be absolutely certain in order to be sufficient to meet the test in Lewis v Doran, Scholz and International Cat, equally the financial support does not have to be absolutely uncertain in order to be insufficient to qualify. Between the two extremes the factual circumstances of each case will provide a variety of points at which one might conclude that the financial support was of such a degree of commitment that it was likely to continue, and with the result that the company was able to pay its debts, and therefore that it has sufficient financial support to draw the conclusion of solvency.”[57]
[emphasis in original]
[56][2015] QCA 28 (Gotterson and Morrison JJA).
[57]Ibid, [43] (Morrison JA).

Consideration

SSKT bears the onus of establishing that it is solvent. In these circumstances, rather than produce audited accounts to establish this, it relies on the Solvency Report which states that SSKT is cash flow solvent, coupled with the contention that there is evidence that those standing behind SSKT have demonstrated they have and will continue to support it by the injection of loans, and underpinning this by undertaking that they will not call on those loans to be repaid for an extended period.

It has been said that the Court will adopt a critical view of the material presented before it in assessing whether a company is solvent[58] but, at the end of the day, the process is one which involves a company demonstrating its ability to pay its debts as and when they fall due. Despite the principle that the company must put forward the fullest and best evidence as to its financial position, the authorities indicate that this does not mean that there is what has been described as an ‘inflexible rule’ as to how solvency is to be established, such as there always being a need for audited accounts in respect of the company’s current financial position.
[58]See Re LJAC Energy Pty Ltd (in liq) [2013] NSWSC 1231, [34]-[35] (Lindsay J).

The nature of a company’s assets, and its ability to convert those assets into cash within a relatively short time to meet all its debts as and when they fall due at the date of the application is the paramount consideration. This is essentially a question of fact coupled with an application of the relevant legal principles. While expert evidence such as that the subject of the Solvency Report is of assistance in garnering and analysing the relevant evidence, this is not considered to be conclusive.

Here the nature of the assets said to demonstrate SSKT’s ability to pay its debts at the date of the hearing of the application is cash in SSKT’s bank account, which is the subject of undertakings not to be dispersed until at least four weeks after the determination of the application. Mr Paterson submitted that if the earmarked $100,000 was to be excluded from the amount in the CBA Account, all that would remain is accounts receivable of just under $5,000. There is no reason in my view to exclude these funds from consideration; the funds are presently in the CBA Account and are available to meet the claims of creditors as at the date of the application and demonstrate SSKT’s ability to do so.

In respect of its liabilities, the loans of the unitholders and lenders are the subject of undertakings to the Court which effectively render those liabilities non-current liabilities. On 9 April 2024, on the occasion of the handing down of these reasons, the solicitor appearing for the defendant, after obtaining instructions, confirmed on behalf of those persons the undertakings given in their respective affidavits. There is no reason to suppose that those undertakings will not be honoured. This is coupled with the fact that there is no evidence of the loans being withdrawn, rather that they will remain in place for a period of three to five years. While, as Mr Paterson speculates, it is possible that the directorship of the unitholders may change, the present directors give the undertakings on behalf of the unitholders and as such a change in directorship would not on my understanding discharge the undertakings given. An approach to the Court would be required to do that. Further, I do not consider that there is any reason to suppose or speculate that there might be a change of trusteeship of the unitholders with a view of going down the path of avoiding the consequences of the undertakings which have been given.

SSKT’s affairs are not particularly complex. Mr Fettes does not express any misgivings about his instructions. Bullseye did not seek to cross-examine Mr Fettes, an experienced insolvency practitioner, on the contents of the Solvency Report and, to my mind, there is no aspect of it which ought not to be accepted by reason of it being unsupported or being implausible. The Solvency Report provides more elaborate and substantial material than what has been described in the authorities as ‘bald assertions of solvency’ which are sometimes put up by defendant companies in insolvency proceedings. I am not persuaded that Mr Paterson’s critique of the Solvency Report in his submissions undermines its basic conclusion.

Mr Fettes reports that SSKT has no debts outstanding to creditors beyond normal terms. It does not have any liability to the ATO for unpaid remittances of GST or other Business Activity Statement liability, a very common indicator that a company is insolvent. There are no significant other current liabilities in prospect identified. As I observed earlier, no other parties have appeared to support Bullseye’s application. I consider SSKT’s reason for not paying the debt claimed by Bullseye in the demand to be plausible and it was accepted by Bullseye’s counsel as giving rise to a serious issue to be tried (but only in the context of SSKT’s abandoned application for leave under s 459S).

The deponents to the affidavits relied upon by SSKT represent entities which have made loans of significant sums to SSKT and all indicate that they will continue to support it. They were not challenged on their evidence by cross examination, the position that they adopt is plausible from a commercial perspective and I accept that the unitholders are committed to continue to financially support SSKT. Unlike some authorities to which reference is made on this issue, the unitholders‘ support is in place and does not just take the form of an expression of intention. There is a ‘commercial reality’ underlying the reason for the unitholders’ support; they have invested considerable funds, they have much to lose if SSKT fails and on the evidence, and I find that it is more than probable that they are likely to continue to support the company and are unlikely to desert it. This is not an instance of there being a possibility of support; it is the reality.

I find on the balance of probabilities that SSKT has ‘proved the contrary’ that it is presumed to be insolvent[59] by discharging the onus it bears that it is able to pay its debts as and when they fall due. The application should be dismissed. The normal order is that costs follow the event but if necessary I will hear the parties as to whether there are reasons of which I am unaware as to whether that principle should be departed from in this instance.

[59] See s 459C(3)of the Act.

SCHEDULE OF PARTIES

S ECI 2023 02883
BETWEEN:
BULLSEYE GROUP PTY LTD (ACN 633 847 533)	Plaintiff
- v -
SSKT PTY LTD (ACN 642 363 988)	Defendant

[2024] VSC 147

9 April 2024