Burlock v Keytan Pty Ltd [2007] QSC 347

1 [2007] QSC 347 SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION LYONS J No 8577 of 2007 ALAN BURLOCK Applicant and KEYTAN PTY LTD Respondent BRISBANE ..DATE 31/10/2007 JUDGMENT -- 1 of 7 -- 2 JUDGMENT 1 10 20 30 40 50 60 HER HONOUR: This is an application for the winding up of Keytan Pty Ltd due to a failure to comply with a statutory demand. There is, therefore, presumed insolvency. The applicant is Mr Alan Burlock, on 27th of July 2007 he served the respondent with a statutory demand and supporting affidavit. The respondent failed to file an application to set aside the statutory demand. There is, therefore, presumed insolvency pursuant to section 459C(2) of the Corporations Act and the sole question to be determined in this application is whether the statutory presumption of insolvency has been rebutted by the company. It is clear that the relevant principles have been set out in a series of decisions, and in particular the judgment of Justice Weinberg in Ace Contractors and Staff v Westgarth Development Pty Ltd sets out the relevant principles. The authorities which govern the operation of section 459G of the Corporations Law establish the following propositions: that the respondent is presumed to be insolvent and as such bears the onus of proving its solvency. In order to discharge that onus the Court should be presented with the fullest and best evidence of the financial position of the respondent. 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 -- 2 of 7 -- 3 JUDGMENT 1 10 20 30 40 50 60 accountants who have detailed knowledge of how those accounts were prepared. There is also a principle that clearly establishes there is a distinction between solvency and a surplus of assets. A company may be insolvent and yet have considerable wealth. 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, is the question to be considered in determining solvency. In coming to a determination on this matter I have considered the affidavit material together with the oral evidence given here today. Mr Gerry Collins gave evidence in the hearing today and relied on a balance sheet as at the 23rd of October and a profit and loss statement from 1 July 2007 until 23 October 2007. In his affidavit Mr Collins stated that the property at Clayton Road, Yeppoon, was purchased on finance provided by La Trobe Capital and Mortgage Corporation Ltd. Both La Trobe and Mortgage Corporation are joint first mortgagees. The second mortgagee is Wickham Securities Ltd. Mr Collins swears to the adopted market valuation of $3 million. He also swears to the fact that he is not aware of any other debts other than in the balance sheet. Mr Collins -- 3 of 7 -- 4 JUDGMENT 1 10 20 30 40 50 60 further swears that he believes the company would have the ability to pay the sum owing. In his oral evidence he referred to the basis upon which the balance sheet was prepared and indicated it was standard accounting practice for a development company to have the balance sheet prepared in this way. In his opinion the company was solvent. The report of Mr Collins indicates that the loan made by the first mortgagees was $2.1 million and that the loan made by the second mortgage is $225,000. He relies on the valuation of $3 million and indicates that the valuation is made on the conceptual plan for 99 residential lots and that the development application is for 81 lots. Mr Collins, in his affidavit, indicates that the rates have been paid and the evidence indicates that in fact the rates have been paid and were paid on the 19th of October 2007. In his affidavit material, and in his evidence today, he states that the balance sheet has a net asset surplus of $157,422 and he has set out the basis of this calculation. In relation to the valuation, as I have indicated, he has relied on the valuation and it is clear that that valuation is subject to a written flood search to verify the flooding details, particularly due to the flood-prone nature of the area. -- 4 of 7 -- 5 JUDGMENT 1 10 20 30 40 50 60 It is also clear that no approvals have been obtained for the subject land but there is evidence which has been given at the hearing today by Mr Dooney in relation to the steps that have been taken and I accept his evidence in relation to the progress of this application and the current stage of the approval process. I also accept that the rates notice is in evidence today and that rates notice gives a Valuer-General's unimproved value of 3.5 million dollars. The affidavit of Simon Wilkins is also in evidence and Mr Wilkins gave oral evidence today. He states that the respondent has cash holdings of $244,769. The affidavit attaches a bank statement that shows that the money was placed in the account seven days ago. Accordingly, before me today I have had the evidence of two chartered accountants which indicates the company is solvent and they have given evidence that this opinion is based on standard accounting practice. In particular, the affidavit of Simon Wilkins and the oral evidence here today indicates that Mr Wilkins is responsible for the bookkeeping and financial affairs of the company. As I have indicated, he has set out the cash holdings. He also has given evidence that a bank account exists confirming that amount and that he is not aware of any debt to any other -- 5 of 7 -- 6 JUDGMENT 1 10 20 30 40 50 60 person other than the development loan facilities to La Trobe and Wickham Securities, which have both been pre-paid to April 2008. In particular I have relied on the affidavit and the oral evidence of Mr Collins. He is an insolvency practitioner who specialises in asset tracing. He has conducted an analysis of the material and he has given his opinion that Keytan is solvent. He relies on an opinion which is annexed to his affidavit which identifies the following matters: that he has adopted the $3 million valuation; that he has looked at the balance sheet and profit and loss statement; he has seen an e-mail from Balmain Commercial advising of the debt outstanding to the first mortgage and the second mortgage and indicates that there is a net equity, given the value of the property, at $675,000. He has also seen facility letters from GPS Managed Investments and Wickham Securities in respect of the loans and confirms that there will be no acceleration of those loans. The affidavit material indicates that there is no liability of land tax to 30th of June 2008 and that there has been payment of rates to the 31st of December 2007. In all of the circumstances, even if the Court were to conclude that the claim by the applicant was successful, then the combined balance sheet and the valuation indicates a net asset pool of $1.1 million, with the major assets being the -- 6 of 7 -- 7 JUDGMENT 1 10 20 30 40 50 60 land and the capitalised cost of purchasing and the development approval. In particular I take into account the opinion that whilst net assets are an indication of solvency the test is the ability to meet assets as and when they fall due. In particular Mr Collins has undertaken a cash flow solvency test and he has concluded that Keytan is solvent and he has based this determination upon the company's ability to pay all of its debts as and when it falls due. In all of the circumstances then I am satisfied that Keytan has discharged its onus in satisfying that Keytan is solvent. Accordingly I would dismiss the application for summary winding up. ... HER HONOUR: In the circumstances I think the appropriate order is no order as to costs, given the history and also the indulgences today. ----- -- 7 of 7 --