Case: Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation [2001] NSWSC 621 ; (2001) 53 NSWLR 213
Outcome: cited
The relevant principles were distilled by Palmer J in Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation [2001] NSWSC 621 ; (2001) 53 NSWLR 213 at 224-225 ( 'Southern Cross Interiors' ): 'In my opinion, the following propositions may now be drawn from the authorities: (i) whether or not a company is insolvent for the purposes of the Corporations Act (Cth), ss 95A , 459B , 588FC or 588G (1)(b), is a question of fact to be ascertained from a consideration of the company's financial position taken as a whole: Sandell v Porter, Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651; 15 ACLC 1,293 and Fryer v Powell ; (ii) in considering the company's financial position as a whole, the Court must have regard to commercial realities. Commercial realities will be relevant in considering what resources are available to the company to meet its liabilities as they fall due, whether resources other than cash are realisable by sale or borrowing upon security, and when such realisations are achievable: Sandell v Porter , Taylor v Australia and New Zealand Banking , Re Newark and Sheahan v Hertz ; (iii) in assessing whether a company's position as a whole reveals surmountable temporary illiquidity or insurmountable endemic illiquidity resulting in insolvency, it is proper to have regard to the commercial reality that, in normal circumstances, creditors will not always insist on payment strictly in accordance with their terms of trade but that does not result in the company thereby having a cash or credit resource which can be taken into account in determining solvency: Bank of Australasia v Hall [1906] HCA 54 ; (1907) 4 CLR 1,514 at 1,528; Re Norfolk Plumbing (at 615; 169); Taylor v Australia and New Zealand Banking (at 784; 811); Guthrie (as liq of ULT Ltd (rec apptd) (in liq)) v Radio Frequency Systems Pty Ltd (2000) 34 ACSR 572 at 575; (iv) the commercial reality that creditors will normally allow some latitude in time for payment of their debts does not, in itself, warrant a conclusion that the debts are not payable at the times contractually stipulated and have become debts payable only upon demand: Standard Chartered Bank v Antico (at 331); Hall v Press Plumbing ; Melbase (at 199; 832-3); Carrier (at 253; 777-778); Cuthbertson v Thomas (at 320); Lee Kong (at 112; 1,568); (v) in assessing solvency, the court acts upon the basis that a contract debt is payable at the time stipulated for payment in the contract unless there is evidence, proving to the court's satisfaction, that: &#8226; there has been an express or implied agreement between the company and the creditor for an extension of the time stipulated for payment; or &#8226; there is a course of conduct between the company and the creditor sufficient to give rise to an estoppel preventing the creditor from relying upon the stipulated time for payment; or &#8226; there has been a well established and recognised course of conduct in the industry in which the company operates, or as between the company and its creditors as a body, whereby debts are payable at a time other than that stipulated in the creditors' terms of trade or are payable only on demand: Newark (at 414-415); Standard Chartered Bank v Antico (at 331); Melbase ; Cuthbertson v Thomas ; Fryer v Powell (at 444-445); (vi) it is for the party asserting that a company's contract debts are not payable at the times contractually stipulated to make good that assertion by satisfactory evidence: Fryer v Powell (at 444-445); Melbase ; Cuthbertson v Thomas .' 39 In the end, it is a question of fact to be ascertained from a consideration of a company's financial position taken as a whole whether a voluntary arrangement with a third party for the provision of funds amounts to a sufficient basis for concluding that the company is able to meet its liabilities as they fall due: see Southern Cross Interiors at 224; Lewis at 572 [79] and Tru Floor at [44]. In Tru Floor at [44], Sundberg J said, correctly in my view, that it must also be borne in mind that the plain words of s 95A ('as and when they become due') require anticipated debts to be taken, to some extent, into account in determining solvency.