ACN 097 011 188 Pty Ltd & Ors v Alphapharm Pty Ltd [2024] QDC 74

DISTRICT COURT OF QUEENSLAND CITATION: ACN 097 011 188 Pty Ltd & Ors v Alphapharm Pty Ltd [2024] QDC 74 PARTIES: ACN 097 011 188 PTY LTD (First Plaintiff) DARRYL EDWARD KIRK AND BRUNO ROBERT ANTHONY SECATORE IN THEIR CAPACITY AS LIQUIDATORS OF ACN 097 011 188 PTY LTD (IN LIQUIDATION) (FORMERLY MEDICATION PACKAGING SYSTEMS (AUSTRALIA) PTY LTD) (Second Plaintiff) v ALPHAPHARM PTY LTD ACN 002 359 739 (First Defendant) FILE NO: 638/23 DIVISION: Civil PROCEEDING: Claim ORIGINATING COURT: District Court DELIVERED ON: 26 April 2024 (ex tempore) DELIVERED AT: Brisbane HEARING DATE: 22 and 24 April 2024 JUDGE: Porter KC DCJ ORDER: 1. The first defendant pay to the second plaintiff: (a) The $620,892.24; and (b) Interest from 12 March 2021 in the sum of $112,165.13. 2. The first defendant pay the plaintiffs’ costs of the proceeding to the extent that those costs were incurred in this proceeding as against the first defendant: (a) On the standard basis up to and including -- 1 of 26 -- 2 16 September 2021; and (b) On the indemnity basis from 17 September 2021. CATCHWORDS: CORPORATIONS – Winding up – Winding up in insolvency – Effect of winding up on other transactions – Preferences and voidable transactions – Unfair preferences – where the second plaintiffs are liquidators of the Company – where the defendant was a supplier to the Company – where the Company owed the first defendant $820,000 and paid the defendant $620,892.24 on 29 September 2017 – where plaintiff sues to recover that payment as an unfair preference – where the payment was made immediately preceding settlement of a sale of the Company’s assets on 3 October 2017 – where the defendant defends on the sole basis that the Company was not insolvent when the Payment was made – whether the Company was insolvent when the Payment was made where, at settlement of a sale of its operating assets on 3 October 2017, the Company would cease to have any assets to carry on previous business – whether the Company was able to meet its debts as and when they fell due, including debts payable in the near future, as at 29 September 2017 CASES: Anchorage Capital Master Offshore Ltd v Sparkes [2023] NSWCA 88 Bank of Australasia v Hall (1907) 4 CLR 1514 COUNSEL: L Copley for the Plaintiffs M Jones KC for the Defendant SOLICITORS: Stratos Legal for the Plaintiffs Mills Oakley Lawyers for the Defendant -- 2 of 26 -- 3 Contents Summary............................................................................................................................. 3 The facts .............................................................................................................................. 3 The Liquidators’ case on insolvency .............................................................................. 13 Alphapharm’s case........................................................................................................... 16 Relevant principles........................................................................................................... 17 The first argument: the Standstill Deed......................................................................... 21 The company’s position post settlement ....................................................................... 23 The second argument: cashflow position ....................................................................... 24 Conclusion ........................................................................................................................ 26 Summary [1] The plaintiffs are liquidators of ACN 097 011 188 Pty Ltd, formerly MPS Pty Ltd (the Company). They sue the defendant (Alphapharm) to recover $620,892.24 paid on 29 September 2017 (the Payment) as an unfair preference. Alphapharm defends on one basis only: that the Company was not insolvent when the Payment was made. For the reasons that follow, I find that the Company was insolvent at the time the Payment was made, and that judgment should be entered for the plaintiffs. The facts [2] The Company was part of a group of companies called the Think Group. In broad terms, that business of that Group involved retail pharmacies, the repackaging and on-selling of pharmaceutical (and other) products, usually arranged for particular patients according to their daily dosage, and a pharmaceutical dispensing machine supply business. The Company’s business was the repackaging and on-sale aspect of that range of activities. Despite the Company’s ultimate insolvency, the underlying business of the Company had substantial value, as it was sold to a related entity of one of its two secured Creditors, Sigma, for $18 million in circumstances I will later describe. [3] Sigma was also a supplier of pharmaceutical (and other) products to the Company, and other companies in the Think Group. The dispensing machine business was operated by a company known as “Dose”. The pharmacies appear to have been owned and operated by the principals of the Think Group, Mr Castrisos and Mr Allen, either directly or through the companies, and both of whom were pharmacists, as I understand it. There was a third human principal, but his involvement was marginal. [4] One notable aspect of the overall business is that the Company did not have the necessary legal authority to acquire the prescription pharmaceutical products that it repackaged and supplied. Rather, the retail pharmacies in the Group acquired those products and on-supplied them to the Company. [5] The Think Group was not a corporate group in the strict legal sense, but operated in a complementary manner, as described. -- 3 of 26 -- 4 [6] The Company and the Think Group faced financial challenges, seemingly, from at least about 2014. Those problems appear to have become more acute in early 2017. Those concerns extended to the exposure of Think Group’s two principal secured creditors: the NAB and Sigma. [7] In February 2017, a so-called Standstill Deed was prepared and executed by the principals and the Company, along with some other Group companies. The document before the Court is not executed by the NAB or Sigma. Both parties conducted the case on the basis that the Standstill Deed was binding on the NAB and Sigma, along with the Company, the principals, and the others who did execute the document. [8] The Standstill Deed relevantly provided as follows: (a) By Background: Background A NAB and the Borrowing Entities have entered into the NAB Facility Agreements. B The Nab Securities secure the Borrowing Entities’ obligations under the NAB Facility Agreements. C Sigma and the Principals have entered into the Supply Agreements. D The Sigma Securities secure the Principals’ obligations under the Supply Agreements. E The parties to this deed have agreed to manage the commercial relationship as between them on the terms set out in this deed. (b) By defined terms: Defined terms […] Borrowing Entities means the MPS Borrowing Entities and the Pharmancy Borrowing Entities. […] MPS Borrowing Entities means each of the following in their capacity as borrowers pursuant to the MPS Facility Agreements: (a) MPS; and (b) Dose. […] Pharmacy Borrowing Entities means each of the following in their capacity as borrowers pursuant to the Pharmacy Facility Agreements: (a) Castrisos; (b) Maroochydore Discount Drug Store; (c) PharmaSave Acacia Ridge Pharmacy; -- 4 of 26 -- 5 (d) Souzani Adasan; (e) Think Pharmacy Aspley; (f) Think Pharmacy Chermside; (g) Think Pharmacy Kippa Ring; (h) TPAS. […] Principals means (subject to clause 3.1 Allen, Castrisos and Souzani, whether in their individual capacity or in partnership with one or more of them, or others. […] Standstill End Date means 31 March 2017 or such later date to which the Lenders agree in writing in their absolute discretion. Standstill Period means the Effective Date to the Standstill End Date, unless the Standstill Period is terminated at an earlier date in accordance with Clause 9 of this deed. […] Think Pharmacy Group means the Principals (in their own capacities and trading as the Think Pharmacies), Dose, Dose Holdings, MPS, MPS No. 2, MPS No. 3, Souzani Pty Ltd and TPAS. (c) By clause 4.1, sub-clauses (d), (e) and (h): 4.1 Borrowers Each of the Borrowing Entities acknowledge, warrant and agree that: […] (d) the Borrowing Entities are in default of the NAB Facility Agreements and the NAB Securities to which they are parties; (e) NAB expressly reserves its rights in respect of the previous and subsisting defaults under the NAB Facility Agreements and the NAB Securities, which defaults are not waived in any manner by the execution or performance of this deed; […] (h) this deed in no way commits NAB to provide any additional funding and no reliance may be placed by the Borrowing Entities on any additional funding being made available by NAB at any time. (d) By clause 4.3: 4.3 Cross-collateralisation Subject to clause 4.4, each of the Borrowing Entities and each of the Guarantors jointly and severally covenant and agree with NAB that each of the NAB Securities to which they are parties secures the Amount Owing and any other liabilities, obligations and covenants of each of the Borrowing Entities under: (a) all of the NAB Facilities; -- 5 of 26 -- 6 (b) all other facilities that NAB may provide from time to time to any Borrowing Entity or Guarantor, either alone or with others; and (c) this deed. (e) By clause 4.5: 4.5 Cross-collateralisation Each of the Borrowing Entities and each of the Guarantors jointly and severally acknowledge and agree that: (a) an event of default or breach of the terms and conditions of any NAB Facility Agreement or any NAB Security will constitute an event of default under all of the NAB Facility Agreements and all of the NAB Securities; (b) an event of default or breach of the terms and conditions of any Supply Agreement will constitute an event of default under all of the NAB Facility Agreements and all of the NAB Securities; (c) subject to clause 9.1 of this deed, upon default pursuant to any of the NAB Facility Agreements or the NAB Securities, notwithstanding any other provision of the NAB Facility Agreements or the NAB Securities: (i) all moneys owing pursuant to the NAB Facility Agreements, or under the NAB Securities, shall be immediately payable to NAB; and (ii) NAB may recover all such monies by exercising its rights under all or any one or more of the NAB Securities; and (iii) NAB will be entitled to enforce any of the NAB Securities without reference to the others and without first having resort to its rights under any of the other NAB Securities. (f) By clause 5.1, sub-clause (a): 5.1 Sigma Debt owing (a) The Principals (other than Souzani and Souzani Pty Ltd) acknowledge and agree that: (i) they are indebted to Sigma for the whole of the Sigma Debt, free of any set off, cross claim or deduction; and (ii) as at 17 February 2017, the Sigma Debt totals $14,167,259.69, with interest and costs continuing to accrue. (g) By clause 6.3: 6.3 Restructure Plans (a) The Principals have submitted an asset realisation plan for the Retail Pharmacies (Retail Pharmacies Sale). (b) By no later than 28 February 2017, the Principals must submit a draft Restructure Plan to NAB, setting out a detailed proposal for the sale and/or restructure of the assets of the MPS Businesses, Dose and Dose Holdings, including timelines and proposed marketing strategies (MPS ARP). (c) The Think Pharmacy Group must not enter into any contract or option for the sale of any of the assets of the Think Pharmacy Group without the prior written consent of NAB. -- 6 of 26 -- 7 (d) The Think Pharmacy Group will: (i) provide any information reasonably requested by NAB as to the status of the Restructure Plans, or answer any questions NAB may have, from time to time in relation to the Restructure Plans; and (ii) provide any information reasonably requested by Sigma as to the status of the Retail Pharmacies Sale, or answer any questions Sigma may have in relation to the status of the Retail Pharmacies Sale, from time to time. (e) The Think Pharmacy Group will send to NAB any offers it receives in respect of any one or more of its businesses including any of the Retail Pharmacies. (f) The Think Pharmacy Group must take all reasonable steps to ensure that the value of their assets is preserved and otherwise maximised throughout the Standstill Period. (g) The Think Pharmacy Group must ensure that: (i) the business and financial records of the MPS Businesses, Dose and Dose Holdings are complete and accurate in all material respects and available for inspection at reasonable times by NAB, its advisors and any purchaser/s; and (ii) the business and financial records of the Think Pharmacies are complete and accurate and available for inspection at reasonable times by the Lenders, their advisors and any purchaser/s. (h) The Principals must not reject any offer made to them in relation to any one or more of the Retail Pharmacies without first consulting with NAB. (h) By clause 7, sub-clause (a): 7. Restructure Plans (a) Castrisos, Allen, Dose, Dose Holdings, MPS, MPS No 2 and MPS No 3 undertake to execute a general security agreement over all of their assets and undertaking in favour of Sigma (New Sigma Security 1), to secure the obligations of the Principals pursuant to the Supply Agreements. (i) By clauses 8.1 and 8.2: 8.1 NAB Standstill (a) Subject always to clause 9 below, NAB agrees: (i) not to make any demand for payment or exercise any of its Enforcement Rights during the Standstill Period; and (ii) not to charge interest during the Standstill Period other than at the Uniform Rate. (b) The parties agree that no further amounts will be drawn or made available pursuant to the existing NAB Facilities, or any new facility, unless required for working capital purposes. (c) NAB will notify Sigma of any further amounts drawn or made available pursuant to the existing NAB Facilities, or any new facility, where the amount drawn or made available exceeds $50,000. -- 7 of 26 -- 8 (d) Any amounts drawn or advanced by NAB pursuant to subclause (b) after the date of this deed above will be subject to the priority regime set out in the Deed of Priority. 8.2 Sigma Standstill (a) Subject always to clauses 8.2(c) and 9 below and the Principals continuing compliance with the terms of this deed, Sigma agrees that during the Standstill Period it will not make any demand for payment or retake possession of any pharmacy stock from any member of the Think Pharmacy Group, or otherwise exercise any of its Enforcement Rights (Sigma Standstill). (b) Nothing in this deed entitles a Think Pharmacy to a settlement credit or discount (however described) unless it pays an invoice within terms. (c) The Sigma Standstill does not apply in relation to the Principals or any one or more of them trading either as sole trader or in partnership as any pharmacy other than the Think Pharmacies. (j) By clause 9: 9. Termination of Standstill Period (a) Unless a Trigger Event occurs, the Standstill Period terminates on the Standstill End Date. (b) A Trigger Event occurs if any of the following events occur: … (c) If the Lenders (or any one of them), acting in their sole discretion, determine that a Trigger Event has occurred, then: (i) they must give notice to the other parties' to this deed, in accordance with clause 16 below; and (ii) upon the expiry of 24 hours from the time of giving the notice, a Trigger Event will be deemed to have occurred. (d) The Think Pharmacy Group agrees that if the Standstill Period ends (either due to a Trigger Event or upon expiration of the Standstill Period): (i) the Lenders may immediately and without notice to the Think Pharmacy Group exercise any of their Enforcement Rights; (ii) the Think Pharmacy Group will co-operate with the exercise of such Enforcement Rights; (iii) the Amount Owing will become immediately due and payable and NAB may rely on this deed as conclusive evidence of the Think Pharmacy Group's consent to judgment being entered against them for the balance of the Amount Owing then outstanding; and (iv) the Sigma Debt will become immediately due and payable and Sigma may rely on this deed as conclusive evidence of the Think Pharmacy Group's consent to judgment being entered against them for the balance of the Sigma Debt then outstanding. [9] The Standstill Deed’s principal terms provided, as can be seen, in broad terms, for the secured lenders not to take action to enforce their debts, notwithstanding the acknowledged breach of the facilities, in return for the Company and the various -- 8 of 26 -- 9 other entities cross-collateralising their liabilities to both lenders and cooperating with them in various respects. This had the effect, inter alia, of making the Company liable for a secured debt to Sigma of some $14 million. It appears that there was also some debt directly owed by the Company to Sigma prior to this, but nowhere near that magnitude. It also exposed the Company to the secured debts of other members of the Group to the NAB. While it is not possible to be precise (because figures changed over time), at the time of entry into Standstill Deed, the Company owed the NAB about $14 million on its own facilities. It also appears that other entities in the Group owed the NAB approximately $14 million or so more. [10] The term of the Standstill Deed was specified as being until 31 March 2017, unless extended in writing by both secured creditors. There was no evidence of any such writing, despite a subpoena being directed to the NAB seeking that it produce any such document. Despite the references in the material tendered to the Standstill Deed, and some of its obligations after 31 March 2017, there is no evidence of any binding extension by the NAB nor by Sigma, much less both, in the extensive materials before me, that post-date entry into the Standstill Deed. I find that no such extension occurred. [11] Whether and to what extent that Standstill Deed regulated, as a matter of law or commercial reality, the rights of the secured lenders, is a principal issue in this case which I will deal with later. However, from at least the entry into the Standstill Deed until October 2017, the Company willingly provided detailed information to the NAB about its activities and financial operations (and perhaps to Sigma, too). The focus of the trial was on the NAB. The Company was reliant on the NAB to give limited extensions to its overdraft to meet daily cashflow to keep the Company operating. Albeit the NAB was not obligated to provide such support under the Standstill Deed. [12] It was evident from the provisions of the Standstill Deed and the correspondence in evidence that the secured creditors and the Company and, indeed, its principals, were working towards a sale of the Company’s assets from early 2017. A sale contract was entered into on or about 1 September 2017 with a company related to the secured creditor, Sigma (called “MPS New” in the correspondence). That sale contract provided for sale, in effect, of the whole of the Company’s undertaking, leaving it with its creditors and its book debts. [13] It is unclear what else of its assets it retained, but having looked at the balance sheets for 30 September 2017, it does not appear that there was much of any realisable value in the other assets identified. Further, the effect of the Sale Agreement was that the Company would no longer be able to carry on its business, the valuable parts of which were sold to the Sigma entity for, as I said, a sum of approximately $18 million. [14] It is in the shadow of the settlement of the sale that Alphapharm enters the narrative. Prior to that time, Alphapharm was another supplier to the Company. As at 29 September 2017, the Company owed Alphapharm some $820,000. It was expected, at least by the NAB, that the sale would settle on that day. It is not -- 9 of 26 -- 10 entirely clear that Alphapharm knew that, although the inference would not be hard to draw. In any event, on 29 September, Alphapharm insisted on being paid its outstanding debt by the Company. On that day, the Company paid Alphapharm $620,892.24 (the Payment) on account of its indebtedness to Alphapharm. Alphapharm appeared to be satisfied with that. There was no evidence Alphapharm was a secured lender. Notably, the Company was well outside its trading terms with Alphapharm on a relatively large trading debt. Alphapharm did not advance a good faith defence. [15] The sale did not settle on 29 September 2017. While there is some ambiguity in the evidence, I am persuaded the Sale Agreement settled on 3 October, or perhaps 3 and 4 October. So much is clear from the ongoing correspondence between the parties involved in finalising the Sale Agreement, by which the settlement statement did not appear to have been finalised until the afternoon of 3 October 2017. [16] There are a couple of points to note about the settlement statement and the payment of the proceeds of the sale: (a) First, the secured creditors were to be paid, and were paid, the whole of the proceeds of sale, with some minor exceptions. (b) Second, Sigma and the NAB had executed a priority deed prior to the Standstill Deed. It is unnecessary to go into the details of that, as they are not contentious. It is sufficient to note that it provided for various smaller sums to be paid first to the secured lenders, and for specific advances to facilitate settlement (for example, the NAB had priority for further advances made during 2017 to meet the minimum cashflow needs of the Company); (c) Third, the NAB was to be paid most of the net proceeds on account of secured lending to the Company pursuant to the priority deed. The NAB received somewhere between $13 million and $14 million, and Sigma somewhere between $2.5 million and $3 million. [17] As at 3 October 2017 (that is, after completion), the Company did not have any cash at all. At best, it had about $350,000 available to draw on its $2 million overdraft with the NAB (though whether it could draw on that is unclear, as there is some indication in the documents that the Bank may have refused access to that facility after settlement), nor did it appear to have any asset which could be converted within a reasonable time into cash to pay the sum it owed its current creditors, however that sum is calculated, to which I will return. Apart from its book debts of course. They were excluded from the sale to the Sigma entity. The Company’s accounts as at 30 September 2017 showed book debts from third parties at about $4.8 million.1 1 See Insolvency Report, p 232. -- 10 of 26 -- 11 [18] As to its liabilities, there was considerable debate between the parties as to points of detail. However, the evidence persuades me that the position was broadly as follows: (a) First, the proceeds received by the NAB from the sale more or less met the direct debt owed by the Company to the NAB. There is a suggestion that that was so in the evidence, and the amount received by the NAB broadly corresponds with the amount showing as owing to the Bank in the Company’s management balance sheets, as at 30 September 2017. To the extent it matters, it might not be the case that the net proceeds discharged the whole of the NAB debt.2 It appears that the direct Company debt to the NAB on 30 September stood at $14.1 million. I had thought at first there was no final settlement statement identifying the sum received by the NAB, though the last draft which I could identify in the documents suggested a sum of about $13 million being paid.3 The draft which proposed a sum of $14 million was seemingly overtaken by the further negotiations, though a signed settlement statement attached to the second insolvency report seems to suggest that it was the original $14 million amount received. I am not sure much turns on this, in any event; (b) Second, there remained a very large debt due to the NAB from the Company pursuant to the cross-collateralisation of debts of other companies in the Think Group affected by the Standstill Deed. The extent of that debt as at 30 September 2017 can be reasonably inferred, at least as to its order of magnitude, from the NAB’s proof, lodged in the voluntary administration on about 20 March 2018. It claims a debt of $17.6 million; and (c) Third, the Company was indebted to Sigma in the amount of some $14 million, again under the cross-collateralisation aspect of the Standstill Deed, and possibly some direct liability, though it appears that was modest. [19] The NAB proof I refer to is compelling evidence of the minimum amount of the NAB debt of the Company pursuant to the cross-collateralisation in the Standstill Deed because, by the time that that was lodged, the major assets available to meet those liabilities appear to have been realised. In particular, a number of pharmacies available to meet the liabilities had been sold. The amount of cross-collateralised debt as at 29 September 2017 would have been higher than the $17 million claimed in that proof. Perhaps much higher. The documents show that several of the pharmacies in the group were in the process of sale as at October 2017. There is no Company debt shown in the NAB’s table of liabilities, attached to the proof. However, as will be seen, any residual Company debt after settlement was met by collection of the Company receivables, to which I now turn. 2 Objections Bundle, p 973. 3 See Objections Bundle, p 917. -- 11 of 26 -- 12 [20] The NAB appointed receivers to the Company with notice to Sigma on 10 November 2017, some five weeks after completion of the Sale Agreement. There was some suggestion by Alphapharm that this showed, perhaps, that it was open to the Court to infer ongoing restraint by the NAB, consistent with the Standstill Deed, after the settlement of the sale, in respect of the Company, while the NAB considered whether it would cease its compliance with the Standstill Deed. [21] The explanation for the delay (if five weeks to appoint a receiver over a company with no assets except book debts can be called a delay) is given by the NAB officer principally responsible for the Bank’s recoveries, Ms Harbour, in her email to a more senior manager dated 28 September 2017. It is to be noted that there was some expectation that settlement might occur on 29 September, so it is not surprising the Bank was looking to the post-settlement position on 28 September. [22] She wrote:4 Geoff, There have been various discussions between NAB, BDO, Sigma and MPS regarding the management of debtors and creditors post settlement of MPS. The best option, both from a cost perspective and access to info/experience, appears to be to accept an offer from Sigma that one of the transferred staff send out the invoices (which takes two weeks) and either they continue to manage the collection of debtors, or we appoint some sort of collection agency at that point. I can’t locate the email right now (Guy do you have it?), but Sigma would do this at a cost of $5k per month [/fortnight?]. MPS New Co would like a few weeks grace period before we make an appointment so they have time to contact their customers and advise of the change in ownership, so they don’t get confused about which entity is insolvent. This arrangement would also allow this to happen, although George is quite concerned about managing creditors himself, so he might make an appointment himself. I have told George that he can also put a request us to make an appointment. BDO have made the following suggestions, all of which would cost more and have other undesirable elements: 1. The OldCo Company’s directors could manage the ongoing works. They would continue to be signatories to the bank account and would require funding for wages (including their salaries) and outlays. There may be potential issues in relation to these parties having access to the premises and records of the business post completion. 2. The bank appoints a receiver to manage the process. It is the CEO’s strong preference that no external administrators be appointed to the business for at least a week post completion to allow for ‘NewCo’ to control the message to the market. 3. The Bank funds a contractor (e.g. KPMG or BDO) to oversee the collection of the debtors with the direct engagement of necessary MPS staff. If you are OK with the above, we will pursue the Sigma/NewCo option. Regards – Isabella 4 Admissions Bundle, p 1517. -- 12 of 26 -- 13 [23] Her supervisor agreed with the proposal and, in fact, receivers were appointed consistently with Sigma’s request for a few weeks grace, referred to in Ms Harbour’s email. [24] That email is consistent with all the Bank’s other conduct after the completion of the Company sale. That conduct was consistent with the Bank ceasing any support of any kind to the Company and planning immediately for the realisation of its remaining asset to feed the Bank’s security (and Sigma’s), consistent with the priority deed, as soon as reasonably possible. [25] Once the receivers were appointed, they exercised control over the Company’s assets, including its bank accounts. [26] Alphapharm suggested there may be an inference of continuing forbearance after the appointment of the receivers by the Bank, arising from the fact that there were funds accumulating in the bank account of the Company until late February 2018. Respectfully, no such suggestion can be sustained on the evidence. [27] First, it plainly took time for funds to come into the bank account from collection of receivables. [28] Second, it is also evident from the email exchange5 that once those funds were in hand, the NAB and Sigma had to agree on how they would divide it up according to the Priority Deed, and agreement took some time. And, of course, from the moment the receivers were appointed, they were entitled to apply the proceeds as they came into the bank account to the secured debt in any event. [29] Voluntary administrators were appointed on 13 March 2018, and the Company was wound up on 27 April 2018. [30] The Liquidator contends that the payment to Alphapharm on 29 September 2017 was an unfair preference, and an insolvent transaction, and sought judgment for the amount of that payment. As I have said, Alphapharm resists that order on one basis only, that the Company was not insolvent when the payment was made. The Liquidators’ case on insolvency [31] The Liquidators produced two insolvency reports which were tendered in evidence, along with a witness statement, also tendered as evidence in chief. [32] The gravamen of both reports appears in the summary of opinion in each report. [33] The first report is dated 30 April 2019 and was prepared long before these proceedings were commenced. The report summarised its opinion and the basis of that opinion as follows: (a) Opinion It is my opinion, based upon my investigations into A.C.N. 097 011 188 Pty Ltd (Receivers & Managers Appointed) (In Liquidation) ACN 097 011 188 (The Company) 5 Objections Bundle, p. 1206. -- 13 of 26 -- 14 that from at least 30 June 2014 and at all material times thereafter until the date of the Appointment of Administrators, the Company was insolvent. (b) Basis of Opinion I have formed my opinion because: (a) From at least 30 June 2014, the Company was insolvent under both the cash flow test of solvency and the balance sheet test of solvency. (b) The Company incurred significant trading losses for the period from 1 July 2013 to 30 June 2015 and the period from 1 July 2016 to 30 June 2017. A small profit of $7,542 was achieved for the 2016 financial year. (c) The Company’s creditors at 30 September, 2017 were outside trading terms where 53.43% of total creditors were aged greater than 60 days. (d) Of the net asset deficiency of the Company from 30 June 2014 to the date of appointment of Administrators. (e) The Company had both a current ratio and quick ratio of less than 1 from 30 June 2014 to the date of appointment of Administrators. (f) The Company entered into 17 payment arrangements with the ATO from 2012 and defaulted on 11 of these arrangements. (g) In February 2017, the Company guaranteed and provided security for a debt owed by related parties to Sigma Company Limited, On 17 February 2017, the amount owing to Sigma Company Limited was $14,167.260. (h) In 2015 special purpose financial report the auditor highlights the material uncertainty regarding the continuation of the Company as a going concern. The auditor also notes the Company may be unable to meet its assets and discharge its liabilities in the normal course of business and at the amounts stated in the financial report. The ability of the Company to continue as a going concern was dependent on the support of its bank despite the Company breaching financial reporting covenants and also on the Company obtaining confirmation that the related parties will not call unsecured loans disclosed as current liabilities. (i) In the 2016 special purpose financial report the auditor again highlights the material uncertainty that casts significant doubt as to the company’s ability to continue as a going concern. The auditor highlights the company is dependent upon it successfully finalising an agreement for the sale of the business. The going concern notes to the accounts, to which the auditor specifically refers, indicate the viability of the Company was dependent upon it finalising agreement for the sale of the business assets, which will provide the Group with enough funds to discharge all of its liabilities with he exception of shareholder loans. The sale agreement was expected to be finalised by the end of October 2016 and completed during November 2016. A sale agreement did not complete during this period. (j) In September 2017, the Company entered into a business sale arrangement covering principally all the assets of the Company. Funds from the sale of the assets were insufficient to meet the liabilities of the Company. At the date of the Administrator’s appointment the Company had residual creditors of $38,481,144 (including related party creditors of $6,064,776) and held negligible assets. (k) The related party entities were unable to support the Company further. The other trading entity within the Group, Dose Innovations Pty Ltd (In Liquidation) was insolvent from at least April 2017 and possibly as early as 2014. -- 14 of 26 -- 15 [34] The factual matters relied on in the above quotations are in my view supported by the detailed financial documents, and other documents in evidence detailed in the first report. [35] That is not to say that criticisms might not be made of the sources of information relied upon, or of the failure to consider other evidence or that the opinion might not be able to be challenged in respect of various points in time. Alphapharm makes just such criticisms and challenges, which I will deal with presently. [36] The second report is dated 13 August 2021, and it is supplementary to the earlier report. The purpose of the report is stated as follows: 1.1 Purpose of the supplementary report Since finalising my Solvency report dated 30 April 2019, substantive information and material has been provided through a public examination process which has given me cause to prepare a supplementary report on the Company’s solvency. In addition to my Solvency Report, this supplementary report further assesses three key positions, which related to the Company’s solvency being: 1. An updated cashflow and working capital assessment 2. The Company’s relationship with secured creditors 3. The capacity of other entities in the corporate group to support and provide financial assistance to the Company. This supplementary report should be read in conjunction with my Solvency Report dated 30 April 2019. [37] Paragraph 1.2 outlines, again, the basis of the opinion and the further findings. The findings in 1.2(a) to (i) in the second report repeat those in the equivalent paragraphs in the first report. In the second report, paragraphs 1.2(j) and following vary from the first report, as underlined: (j) In September 217, the Company entered a business sale arrangement covering principally all the assets of the Company. Funds of $17,192,180.49 from the sale of the assets were insufficient to meet the liabilities of the Company. (Appendix 1.2.1) At the date of the Administrators’ appointment, the company had residual creditors of $38,481.144 (including related party creditors of $6,064,776) and held negligible assets. (k) The related party entities were unable to support the Company. The other trading entities within the Group could not support the Company as Dose Innovations Pty Ltd (In Liquidation) was insolvent from at least April 2017 and possibly as early as June 2016, and the Think Pharmacy Group was insolvent from at least 30 June 2016. (l) The support from the Company’s creditors did not extend to any forgiveness of debt, rather the support was temporary and sporadic and for the purposes of helping it sure up supply and ‘tread water’, while it was prepared for sale and sold. (m) The advisor, Mr. Fielding of BDO, noted in an internal email dated 21 November 2016 tht based “on sale at $18m the company will be solvent” (Appendix 1.2.2). [underlining added] [38] The observations in 1.2(j) to (m) have particular relevance to Alphapharm’s case. -- 15 of 26 -- 16 [39] As will be seen, Alphapharm advances no positive case that the Company was solvent when the Payment was made. Rather, Mr Jones KC, who appeared for Alphapharm, made clear the case advanced was that the Court could not be satisfied the plaintiffs had discharged their onus to establish that the Company was insolvent as at the date of the Payment. [40] That submission was based on critiques of the reports and accompanied by a submission that the plaintiff was limited to the case disclosed in those reports. I think, strictly speaking, that is not correct. The Liquidator’s reports are expert opinion evidence on the question of solvency within the scope of the issues raised in the pleading. In that regard, several matters are alleged in the Statement of Claim which support the allegation of insolvency.6 Those allegations are broad and, within the scope of that pleading, I may consider all or any of the evidence tendered without objection in reaching a conclusion on solvency. In any event, I consider the Liquidator’s reports do sufficiently raise the principal matters which I rely on in concluding that the Company was insolvent as at 29 September, as will be seen. Alphapharm’s case [41] As I have said, Alphapharm specifically disavowed a positive case to prove insolvency on 29 September 2017. Rather, it contended that the Liquidator had not discharged his onus to make out that proposition. The submission had two principal arguments. [42] The first principal argument can be summarised as follows: (a) The Standstill Deed had the effect during its currency that none of the secured debts of the Company, whether direct or cross-collateralised, were due or owing; (b) The Liquidator neither established that either the Standstill Deed had not been extended, nor that its terms were not being respected as a matter of commercial reality by the secured lenders after its formal date; (c) The Liquidator had not established that formal or informal extensions continued after the Sale Agreement settled, right up to February 2018, when the cash was still sitting in the Company’s bank account; and (d) The Liquidator had, therefore, not established that the Company’s secured debts were due and owing until, at worst for Alphapharm, well after September 2017, and perhaps as late as February 2018. [43] On the assumption that the Liquidator had not persuaded the Court that the secured debts were due and owing until well after 29 September 2017, Alphapharm’s second principal argument concerned the Company’s position as to its other unsecured creditors. The argument was articulated as follows: 6 See Statement of Claim, paragraph 8. -- 16 of 26 -- 17 (a) The Liquidator’s opinion that the Company could not meet its unsecured current liabilities from its current assets was unreliable as it was based on figures for unsecured current liabilities which were, themselves, questionable in the light of evidence not dealt with by the Liquidator, as to the extent and currency of such debts; and (b) Other sources ignored by the Liquidator shows current liabilities to be well able to be met from the cashflow of the Company as at 29 September 2017, assuming recoverability of its receivables, which assumption, of course, proved to be broadly made out. [44] Taken together, these two arguments, it is said, demonstrate the Liquidator had not established that the Company was insolvent as at 29 September 2017. Relevant principles [45] The broad principles applicable to determining whether a company is insolvent on a particular date have developed a certain coherence. I reviewed those principles in Tremco Pty Ltd v Thomson [2018] QDC 101 and consider that review still conveniently states the principles applicable. In that case, I observed at [221]: Tremco in its opening summarised the general principles in a manner which I accept as providing a correct starting point for analysis of this issue. It stated the principles as follows. (a) Ordinarily the burden of proof of showing the insolvency of a company falls upon the liquidator. (b) Section 95A(1) of the Act provides that a company is solvent if it is able to pay all of its debts as and when they become due and payable. A company who is not solvent is insolvent. (c) The effect of this section was described by Dodds-Streeton J in Crema Pty Ltd v Land Mark Property Development Pty Ltd: Section 95A of the Act enshrines the cash flow test of insolvency which, in contrast to a balance sheet test, focuses on liquidity and the viability of the business. While an excess of assets over liabilities will satisfy a balance sheet test, if the assets are not readily realizable so as to permit the payment of all debts as they fall due, the company will not be solvent. Conversely, it may be able to pay its debts as they fall due, despite a deficiency of assets. (d) Whether 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. (e) A state of solvency requires that the cash and other liquid assets of the company be sufficient to cover the debts due and payable and to become due and payable in the immediate future. (f) An inquiry into whether insolvency existed at a particular time is generally assisted by investigating the ‘usual indicia of insolvency’ which include: (i) continuing losses; (ii) liquidity ratios below 1; (iii) overdue Commonwealth and State taxes; (iv) poor relationship with present Bank, including inability to borrow further funds; (v) no access to alternative finance; (vi) inability to raise further equity capital; -- 17 of 26 -- 18 (vii) suppliers placing [company] on COD, or otherwise demanding special payments before resuming supply; (viii) creditors unpaid outside trading terms; (ix) issuing of post-dated cheques; (x) dishonoured cheques; (xi) special arrangements with selected creditors; (xii) solicitors’ letters, summons[es], judgements or warrants issued against the company; (xiii) payments to creditors of rounded sums which are not reconcilable to specific invoices; and (xiv) inability to produce timely and accurate financial information to display the company’s trading performance and financial position, and make reliable forecasts. [footnotes omitted.] [46] Of relevance to determining insolvency in this case, is the question of timing. Whether a company can meet its debts as and when they fall due is not a question that can be answered by reference just to the day on which an impugned payment is made. The test is directed to a present inability to pay all debts as and when they become due and payable, including debts that will be payable in the future. How far into the future one looks is another matter. The authorities were recently reviewed by the New South Wales Court of Appeal in Anchorage Capital Master Offshore Ltd v Sparkes [2023] NSWCA 88. That judgment cited the common starting point for any consideration of this issue, which is the Bank of Australasia v Hall (1907) 4 CLR 1514: 234 In Bank of Australasia v Hall, Griffith CJ (with whom Barton, O’Connor and Isaacs JJ agreed, and Higgins J in dissent expressed a similar view on this point) said (emphasis added): “The words “as they become due” require, as already pointed out, that some consideration shall be given to the immediate future; and, if it appears that the debtor will not be able to pay a debt which will certainly become due in, say, a month (such as the wages payable by Robertson for the month of July) by reason of an obligation already existing, and which may before that day exhaust all his available resources, how can it be said that he is able to pay his debts "as they become due," out of his own moneys? It was suggested, but the argument was not pressed, that the debtor's affairs should be regarded from the point of view of a balance sheet of assets and liabilities. This is not what the Statute says. It has always been interpreted in Queensland to mean what it says, and the only English reported case on the point-Re Washington Diamond Mining Co, (1893) 3 Ch 95, is to the same effect. The question is not whether the debtor would be able, if time were given him, to pay his debts out of his assets, but whether he is presently able to do so with moneys actually available. The most favourable construction that can be put on the words “his own moneys” is that they include any moneys of which the debtor can obtain immediate command by sale or pledge of his assets.” [47] The judgment continues: -- 18 of 26 -- 19 235 This supports the view that the test is directed to a present inability to pay all debts as and when they become due and payable, including debts that will become payable in the immediate future. 236 The existence of a liability, which will not fall due until some time in the future, but which the debtor could not have any expectation of paying when it ultimately does fall due, may found a conclusion of present insolvency. In Byblos Bank SAL v Al- Khudhairy, Nicholls LJ (with whom Slade LJ and Neill LJ agreed) said: “If a debt presently payable is not paid because of lack of means, that will normally suffice to prove that the company is unable to pay its debts. That will be so even if, on an assessment of all the assets and liabilities of the company, there is a surplus of assets over liabilities. That is trite law. It is equally trite to observe that the fact that a company can meet all its presently payable debts is not necessarily the end of the matter, because para (d) requires account to be taken of contingent and prospective liabilities. Take the simple, if extreme, case of a company whose liabilities consist of an obligation to repay a loan of £100,000 one year hence, and whose only assets are worth £10,000. It is obvious that, taking into account its future liabilities, such a company does not have the present capacity to pay its debts and as such it ‘is’ unable to pay its debts. Even if all its assets were realised it would still be unable to pay its debts, viz, in this example, to meet its liabilities when they became due. It might be that, if the company continued to trade, during the year it would acquire the means to discharge its liabilities before they became presently payable at the end of the year. But in my view para (d) is focusing attention on the present position of a company. I can see no justification for importing into the paragraph, from the requirement to take into account prospective and future liabilities, any obligation or entitlement to treat the assets of the company as being, at the material date, other than they truly are.” 237 The example given by his Lordship is the antithesis of the present case, where the company had assets which very substantially exceeded its liabilities and, as the primary judge observed, would ordinarily be expected to be able to realise them or secure borrowings against them sufficient to repay its long term debts. 238 In Lewis v Doran, Palmer J observed that when the question of insolvency arises prospectively (emphasis added): “the company’s ability to pay its debts must be determined not only by reference to debts payable as at the date of trial but also by reference to its ability to pay debts which will fall for payment some time in the near future.” 239 His Honour’s reference to the “near future” is redolent of Griffith CJ’s reference to the “immediate future”. On appeal, in Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran), Giles JA said: “… Solvency or insolvency is a state on which directors and others act in current conduct, for example if the issue is trading while insolvent. Section 95A speaks of objective ability to pay debts as and when they become due and payable, but ability must be determined in the circumstances as they were known or ought to have been known at the relevant time, without intrusion of hindsight. There must of course be “consideration … given to the immediate future” (Bank of Australasia v Hall (1907) 4 CLR 1514 at 1528 per Griffith CJ), and how far into the future will depend on the circumstances including the nature of the company’s business and, if it is known, of the future liabilities.” -- 19 of 26 -- 20 240 Again, the reference to the “immediate future” is notable. In Re Cheyne Finance plc, Briggs J (as Lord Briggs JSC then was) observed that that passage provided “a helpful explanation of the question how far into the future the inquiry as to present insolvency may go” and that “in short it is a factsensitive question depending upon the nature of the company’s business and, if known, of its future liabilities”. Re Cheyne concerned the effect of alterations to the insolvency test in English law, which introduced a “more flexible and fact-sensitive requirement encapsulated in the new phrase ‘as they fall due’”, corresponding with the long-standing Australian test. After extensive reference to Australian authority, Briggs J concluded that the extent to which future debts will be relevant to a company’s solvency will be heavily dependent on the particular facts; and that where the company is still trading, so that the profile of the future cashflow is very uncertain, regard to future debts may make little difference, whereas where its business is in run-off, and its future cashflow known, future debts may be of critical relevance. [emphasis included, footnotes omitted] [48] The judgment then articulates a statement of principles based on those, and other authorities examined, as follows: 243 It is notable that in all the cases to which reference has been made, insofar as timeframes are suggested, they are in terms of months rather than years. While this is by no means determinative, such an approach accords with accounting practice in treating as “current” assets and liabilities, those which are realisable or payable within 12 months. 244 The test is concerned with present inability to pay all debts, as and when they become due and payable. A company is insolvent only when it is unable to pay its debts as and when they fall due. His Honour rightly recorded that it was uncontroversial that the test of insolvency is prospective, so the question is not simply whether the company can pay debts falling due at or around the date the question arises, but whether, as at that date, it can pay debts falling due in the future;196 that how far into the future the Court should look is a question to be answered having regard to the particular facts of the case; and that normally, a court will not look far into the future because there are so many unknowns and contingencies, though sometimes it may be appropriate to do so. 245 The primary judge rightly recognised a distinction between proof of the relevant fact – present insolvency – and prediction of the prospect of inability to pay a future debt when it becomes payable. The relevant question is not whether, at the date of alleged insolvency, it is more probable than not that the company will be unable to repay all its debts when they become due at some long distant date; as the primary judge put it, that is only to say that the company is likely to become insolvent at some time in the future. The distinction between a company that is insolvent, and one that is likely to become insolvent in the future, is enshrined in legislation. The correct question is whether, at the date of alleged insolvency, it can be said that the company is already in a state of inability to pay those debts when they fall due. 246 The cases to which reference has been made illustrate that it will usually be more difficult to infer insolvency on the basis of liabilities that will not be payable for years than from debts payable within months – which supports the view that a higher degree of certainty is required to support such an inference in those circumstances. As Giles JA said, the time frame is influenced by the circumstances, including the nature of the company’s business and, if known, of the future liabilities. As Briggs J said, the significance of future debts will be influenced by the particular facts, and where the company is still trading and the profile of future cashflow is very uncertain, regard to future debts may make little difference, whereas where its business is in run-off, and its future cashflow known, it may be -- 20 of 26 -- 21 determinative. Generally speaking, the longer the period to elapse before a debt becomes due, and the greater the potential for intervening events to impact the company’s ability to pay it, the less sound a basis it will provide for a conclusion of present insolvency. [emphasis in original, footnotes omitted] [49] It seems to me that that is an authoritative and clear articulation of the approach that should be adopted, and it is the approach that I adopt. The first argument: the Standstill Deed [50] The starting point in assessing Alphapharm’s argument on the secured debts is my finding, already made, that the Standstill Deed expired, according to its terms, on 31 March 2017. I am satisfied that neither the NAB nor Sigma were legally bound by the terms of the Standstill Deed after that time, at least based on the terms of the Standstill Deed. By the Standstill Deed, the Company acknowledges it was in breach of the NAB facilities and securities to which it was a party, as does all the other Think Group borrowing entities. No evidence was led to the contrary. I am satisfied that that was so, at least in respect of the Company. I have also found that the secured liability to the NAB of the Company was in the order of $14 million at September 2017, that is, the direct liability. There is no doubt, given its trading history from February 2017, that its liabilities to the NAB were of that order, from at least February 2017. [51] So as of February 2017, the Company was in default in respect of secured lending of approximately $14 million. If that sum was not formally due and owing at that time because some step was required to accelerate the liability for the secured sum, or for the Bank to exercise its Enforcement Rights as defined in the Standstill Deed, it was certainly the case that it could become so liable at any time of the Bank’s choosing. [52] Did the Standstill Deed have the effect that those secured debts, both for the Bank and, indeed, for Sigma, were not due and payable during the currency of the Standstill Deed? Given my finding that it was only legally binding up until 31 March 2017, the point is probably moot. And, indeed, it is a difficult point to assess in the abstract. Bearing in mind the analysis summarised in Anchorage, it might well be that those secured debts should be considered for the purposes of assessing insolvency at some point during the currency of the Deed. [53] However, let it be assumed in favour of Alphapharm that the Standstill Deed, while binding on the NAB and Sigma, did have the effect that the secured debts of the Company, both direct and cross-collateralised, were not legally due and owing. I do not think that assumption assists Alphapharm. [54] That is because we are assessing the position of the Company as at 29 September 2017, a point in time at which many matters, which would have a decisive effect on the operations of the Company in the very near future, were virtually certain. [55] Before I come to that, however, I should deal with the status of the obligations under the Standstill Deed up to 29 September 2017, given that it was not formally -- 21 of 26 -- 22 binding. Alphapharm submitted there were numerous acts and omissions of the Bank consistent with the continued operation of the Standstill Deed. While there was no binding extension of the obligations, there is no doubt that the NAB continued to respect some of its key terms. In particular, from April to September 2017, the Bank: (a) Appears to have applied the non-default interest rate as provided for in the Deed; (b) Did not take any enforcement action against the Company (nor, it seems, any of the other Think Group entities); and (c) Advanced capital to the Company based on its cashflow requirements on a temporary basis so as to enable it to meet its necessary payments to third party creditors. [56] Alphapharm’s final submissions contained a list of references, exhaustively prepared, to documents in the Court bundles which make good that the Bank was acting as stated above. It clearly was. However, those documents do not, in my opinion, provide any basis to conclude the Standstill Deed was, in fact, legally binding. Rather, the consistent tenor of the documents is that the Bank has continued to hold its hand on enforcement, and to advance capital, solely for the purpose of nursing the Company to the sale of its principal assets. [57] This latter finding is very important. As of 29 September 2017, the date of the Payment, the Bank was, as we had observed, already planning its action to secure, under its facilities, all the cash which might come to the Company, as explained above. Alphapharm relied on the Bank’s approval of finance in mid-September for temporary extension to the end of October 2017 as, perhaps, indicating an intention of the Bank, which the Liquidator had not excluded, to keep supporting the Company past settlement and, indeed, into the future.7 However, that document proves the contrary. It provides for the advance only if the sale contract does not settle by 5 October 2017. I do not think the NAB’s conduct caused it to be bound by the terms of the Standstill Deed after its expiry, according to its terms in March 2017. Rather, the Bank was acting on the basis of the obligations therein and entirely in its own interest to cause a sale of the Company to Sigma’s related entity to meet the secured debts as soon as possible. [58] It is moot whether acting consistent with the terms of the Deed had the effect, as a matter of law, of making the secured debt to the NAB not due and owing up to the date of settlement. It is entirely possible, of course, that when considering whether a company is insolvent, the commercial reality of support for a bank can, in appropriate circumstances, be sufficient. As I have said, however, it is moot, because it was clear that the NAB’s support would end on settlement, and that the secured debt would become due and owing at that point, if it was not in fact due and owing at earlier points. 7 See exhibit 2, divider 6. -- 22 of 26 -- 23 [59] The Payment was made on 29 September 2017. For the Company to be solvent in the above circumstances, it needed to be able to pay its current trade creditors and its secured debt, post-settlement, for it to be able to pay its debts as and when they fell due, given that it was virtually certain that it would be in the position that it was immediately following settlement of the sale, looking from the perspective of 29 September 2017. [60] It is plain, as of 29 September, that the Company would not be able to meet its obligations on 3 October, and it was certain that it would be insolvent within four days. The company’s position post settlement [61] The last proposition is so plain it does not really require too much explanation, but it is sufficient to note the following: (a) At settlement on 3 October 2017, the Company ceased to have any assets to carry on its previous business, and this was inevitable from entry into the Sale Agreement. It therefore had no prospect of trading so as to meet its debts; (b) At settlement, the Bank cut off any further support for the Company, (as it had plainly planned to do all along, and had made clear to the Company), so the Company had no support from its Bank that it could expect after settlement; (c) At settlement, the Company owed very large sums to the NAB for cross- collateralised debt of the order of $13 million or more, and possibly a sum of up to $1 million on its own facilities, as well as liabilities to Sigma of over $14 million, as was an inevitable situation from entry into the Standstill Deed in February 2017; and (d) At settlement on 29 September, the NAB intended to, and communicated its intention to, apply all recovery of receivables to its facilities or to share them with Sigma in accordance with the deed of priority. [62] One did not have to look far into the future from 29 September 2017 to see this disastrous and virtually certain financial position for the Company. All of the above was virtually certain on the date of the payment and, indeed, came to pass within days and weeks of the payment. Bearing in mind the principles articulated in Anchorage, the Company was hopelessly unable to pay its debts as and when they fell due on 29 September 2017. [63] For the sake of completeness, I note there was no argument advanced at trial that the resources of the other Think Group companies were likely to meet the collateralised debt undertaken by the Company, and subsequent events demonstrated that they were not. [64] I consider that these findings are consistent with the principal propositions relied upon by the Liquidator in the insolvency reports and the case put in the pleading. -- 23 of 26 -- 24 The second argument: cashflow position [65] For these reasons, the claim succeeds whether or not a close analysis of current creditors and debtors, undertaken as at 29 September 2017, fails itself to establish insolvency. However, I will deal with that argument. The gravamen of that argument was articulated clearly, I say with respect, in paragraph 42 of Alphapharm’s trial submissions, as follows: Unsecured creditors 42. As to the identification of unsecured creditors, Mr Kirk adopted the 30 September 2017 creditor listing at Tab 11 of his first report, and relied heavily on line-items marked “DO NOT USE”, and adopted those at face value without verifying any of the information stated there. He paid no attention to documents which indicated contrary positions, such as: (a) the new page 303A to the first report, showing that by January 2019, only $1,436,143.77 in proofs of debt had been lodged – this was a document that caused him no concern on the question of the disparity between the value of the proofs of debt and the Tab 11 creditor listing, despite Mr Kirk insisting at trial it be added to his report; and (b) the thorough and careful forecast at Tab 7 of Ex 2, which showed detailed “actuals” data produced by MPS over a number of months. That document fits with the communication protocol at Annexure A to the Standstill Deed, taking as it does the form of a rolling cashflow forecast. [66] Alphapharm also sought to establish that the assessment of unsecured creditors was unreliable by reason of the lack of any verification of trading terms to determine if overdue amounts were, in fact, outside contractual trading terms. [67] On the debtor’s side, Alphapharm criticised the Liquidator for failing to take into account that, by February 2018, the Company had some $4.9 million cash at the Bank, which demonstrated the debt, as shown of 29 September 2017, had been collected. [68] I am not persuaded the Liquidator’s analysis of the unsecured creditors shows any lack of diligence or competence on his behalf. Mr Kirk was able to explain his reasoning in relying on Tab 11 rather than the document showing proofs received at page 303A of the first report, or the cash flow document at Tab 7 of Exhibit 2. (a) As to the former, he said in his opinion the records of the Company were a more reliable indicator of unsecured creditors than proofs provided later. Frankly, not only is this a reasonable position, but it seems to me, prima facie, the correct one, as a matter of commercial reality. While one can imagine circumstances where the mismatch between proofs and company records might suggest the records are mistaken, whether negligently or otherwise, there is nothing to suggest in this case the Company records were substantially mistaken. In circumstances where, as here, the secured creditors overwhelm the position of the unsecured creditors, it is not the least bit surprising that unsecured creditors do not take steps to participate in the proof process. -- 24 of 26 -- 25 (b) As to the latter, there is nothing about a secondary cashflow projection which suggests it is going to be a more accurate statement than the current liabilities of the Company. A fortiori, where it is produced for a particular purpose, that purpose being to identify the debts which had to be paid for the Company to be able to continue as a going concern and to thereby provide a bsis for further temporary cash flow support from the NAB. [69] I do not think either document required Mr Kirk to explain his non-reliance on it for his analysis on the basis of the Company’s records to be a reasonable analysis, (and indeed the preferable analysis in my view). [70] Alphapharm also criticised Mr Kirk for including unsecured creditors’ debts due to related parties, marked in the Company accounts as “Do not use”. Mr Kirk also explained his understanding of those particular creditors and why they were marked as they were. He said that they were debts due to related entities which supplied products for repackaging and on-supply by the Company, and that those amounts were accounts which were stopped when the NAB began providing capital support. That answer seemed consistent with the other evidence about the operations of the Company and was not challenged as wrong. Notably, there was no suggestion that the debts were not real, nor that they were not due and payable. [71] The only suggestion was that, as a matter of commercial reality, the related entities would not press for payment from the Company while it was in financial difficulty. That is a matter which could well be reasonably considered in a fine granular analysis of whether the Company was unable to meet its creditors from current cash. However, it does not seem to impugn the suggestion that the Company was unable to meet unsecured debts as they fell due. The debts involved related to purchases of stock to be used in the Company’s core business, which the Company evidently had been unable to pay for, for some considerable time. They were debts properly considered in a solvency analysis. [72] Despite Alphapharm’s contentions, in all the circumstances in this particular case, I thought Mr Kirk’s approach was a reasonable one. I say that conscious that it is a matter for me to decide these matters, and for the reasons I have given, but on balance, I accept Mr Kirk’s approach to those matters. [73] All these fine points fall away, however, when attention is given to the other side of the current assets and liabilities’ ledger, so to speak. Alphapharm criticised Mr Kirk for not taking into account the receivables amount as at the date of sale, and the cash acquired from realisation of that asset by February 2018. It is fair to say Mr Kirk was dismissive of that line of cross-examination. He said words to the effect, “Well, the cash was taken by secured creditors.” [74] I think his approach to that matter was justified. The cash was taken by the secured creditors, and was always going to be taken, as the email of 28 September makes clear, and subsequent events confirmed. Whether current creditors then were owed $2 million, $4 million, or $8 million was moot because, after settlement of the sale, as at 29 September 2018, it was inevitable that nothing would be available to meet any of those unsecured claims. -- 25 of 26 -- 26 [75] There is, of course, other evidence relied upon by the Liquidator that supports his view that the Company was insolvent during 2017, not least being the utter inability of the Company to pay its tax debts, except by instalments, with the capital sum ultimately due to the Commissioner being pushed out to the never- never, pending the sale of the business of the Company. Conclusion [76] The Company was probably insolvent through the whole of 2017. However, I do not have to decide that. What I have to decide is if the Company was insolvent as at 29 September 2017, when the Payment was made. I find it was hopelessly insolvent (if that is something different from insolvent) on that date and, accordingly, the plaintiffs are entitled to the judgment they seek. -- 26 of 26 --