Case: Australian Securities and Investments Commission v Plymin [2003] VSC 123 ; (2003) 46 ACSR 126
Outcome: followed
matters need to be established affirmatively by the plaintiffs in order to make out their cause of action. In determining whether the plaintiffs have proven each element of their cause of action I have applied the civil standard of proof, namely the balance of probabilities but I have done so consistently with, and bearing in mind, the "Briginshaw" approach. This was the standard of proof applied by Mandie J in Australian Securities and Investments Commission v Plymin [2003] VSC 123 ; (2003) 46 ACSR 126 at 208, after his Honour exhaustively considered and analysed relevant and applicable statutes and authorities. I do not consider that this approach is inconsistent with the observation of Foster J in 3M Australia Pty Ltd v Kemish (1986) 10 ACLR 371 at 376 where his Honour said, in relation to previous insolvent trading provisions in the Corporations Act : "Where the section is used to establish a head of civil liability, that liability must be established to the extent that its proof be 'Clear and cogent such as to induce, on a balance of probabilities, an actual persuasion of the mind as to the existence of (the liability)'". What is made clear in Sandell v Porter and restated in subsequent cases is that a temporary lack of liquidity does not mean that there is insolvency. As Mandie J pointed out in Australian Securities and Investments Commission v Plymin (supra) at 209, s 95A of the Act provides a "cashflow test" of insolvency which Mandie J described as follows: "The cashflow test provides that a company is insolvent when it is unable to pay its debts as they fall due. It is of no consequence, under this test, that assets exceed liability. The important point is: can the company pay its way in carrying on its business? The court, in examining whether a company is suffering cashflow insolvency, will consider whether the Company is actually paying its debtors". The authorities in relation to determining whether a person or a company is insolvent were exhaustively analysed by Mandie J in Australian Securities and Investments Commission v Plymin (supra) particularly at pars [370]-[380]. I do not propose to rehearse those authorities but would adopt, with respect, the analysis by Austin J in Re United Medical Protection Ltd (prov liq appt) [2003] NSWSC 1031 ; (2003) 47 ACSR 705 at 718 where his Honour said the following points emerge from Mandie J's review of the authorities: "whether or not a company is insolvent ... is a question of fact to be ascertained from a consideration of the company's financial position taken as a whole", and is a question to which '[c]ommercial realities will be relevant": Southern Cross Interiors Pty Ltd (in liq) v DCT [2001] NSWSC 621 ; (2001) 53 NSWLR 213 at 224; [2001] NSWSC 621 ; 188 ALR 114 at 124-5; [2001] NSWSC 621 ; 39 ACSR 305 at 316-17 per Palmer J; "it is useless to say that if its assets are realised there will be ample to pay 20 shillings in the pound: this is not the test. A company may be at the same time insolvent and wealthy": Re Tweed Garages Ltd [1962] Ch 406 at 410 per Plowman J; "it is thus of no consequence, of itself, that assets exceed liabilities, the important point being whether the company can pay its way in carrying on its business": see A R Keay, "The insolvency factor in the avoidance of antecedent transactions in corporate liquidations" (1995) 21 Monash Univ LR 305 at 307); "the question is not whether the debtor would be able, if time were given to him, to pay his debts out of his assets, but whether he is presently able to do so with moneys actually available": Bank of Australasia v Hall [1907] HCA 78 ; (1907) 4 CLR 1514 at 1528 per Griffith CJ; "It is the debtor's inability, utilising such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency": Sandell v Porter [1966] HCA 28 ; (1966) 115 CLR 666 at 670 per Barwick CJ; "If, as a matter of substance, the company is not able to pay its debts as they become due, the circumstance that the relevant creditors may give the company some time before they actually seek to enforce their remedies, and the company may well be able to pay them out given that time, will not negative the application of the section": Standard Chartered Bank of Australia Ltd v Antico (Nos 1 &amp; 2) [1995] NSWSC 31 ; (1995) 38 NSWLR 290 at 331 per Hodgson J; "for the purpose of assessing insolvency, a contractual debt is taken to be payable at the time stipulated for payment in the contract, unless there is evidence of an express or implied agreement between the company and creditor for extension of time, or a course of conduct sufficient to give rise to an estoppel against the creditor, or an established practice in the industry or between the company and its creditors whereby debts are taken to be payable at some other time than provided for in the contract: Southern Cross Interiors at NSWLR 225; ALR 125 ; ACSR 317." It should also be noted that at this point of time, 31 December 2005, there were outstanding debts which had not been paid: see par [70] above. As Mandie J pointed out in Australian Securities and Investments Commission v Plymin (supra) at 370 the mere fact of non-payment of debts is a relevant factor to be taken into account in determining whether a company is insolvent. As I pointed out earlier, and as the authorities confirm, the determination of solvency is not done on a balance sheet basis but rather on a cashflow basis. This gives rise to the question what other sources of cash were available to the Company as at 31 December 2005 and thereafter to enable it to pay debts then due and payable? Mr Carroll and Mr Cameron had ceased to advance money to the Company and the moneys which they had earlier advanced had been exhausted and used up. Mr Carroll submitted that the reason why the Company was not paying its debts as and when they became due and payable on and after 31 December 2005 was not an inability to raise cash with which to pay its debtors, but "an apparent unwillingness (not inability)" on his part to raise cash to pay the debts. It was submitted that Mr Carroll was unwilling to borrow money against the security of the Company's assets, was unwilling to inject fresh capital into the Company and was unwilling to sell down its timber stock on hand for anything less than its full perceived value. There is no evidence to support this submission. There were no assets of the Company which could be provided as security to support the borrowing of sufficient money to provide sufficient cash to discharge all the Company's debts then due and payable. None were identified.