LCM RECOVERIES PTY LTD (ACN 636 546 999) -v- COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA [2026] WASC 327

[2026] WASC 327 Page 1 JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA IN CIVIL CITATION : LCM RECOVERIES PTY LTD (ACN 636 546 999) - v- COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA [No 2] [2026] WASC 327 CORAM : COBBY J HEARD : 4 AUGUST 2026 DELIVERED : 7 AUGUST 2026 FILE NO/S : COR 153 of 2017 BETWEEN : LCM RECOVERIES PTY LTD (ACN 636 546 999) Plaintiff AND COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Defendant Catchwords: Corporations - Liquidation - Whether company insolvent - Voidable transactions - Unfair preferences - Whether payment to creditor made by related company of debtor an unfair preference - Whether payment to creditor by related company a payment 'from' the debtor company - Defence of good faith - Whether court has discretion not to grant relief in respect of preferential payments Legislation: Corporations Act 2001(Cth) s 95A, s 588FA, s 588FC, s 588FE, s 588FF(1)(a), -- 1 of 118 -- [2026] WASC 327 Page 2 s 588FG(2) Evidence Act 1906 (WA) s 79C(2a) Tax Administration Act 1953 (Cth) s 16 - 96 Sch 1 Tax Assessment Act 1997 (Cth) s 955.1 Result: Application dismissed Category: B Representation: Counsel: Plaintiff : J K Taylor SC and W C J Zappia Defendant : S Rosewarne SC and J M Healy Solicitors: Plaintiff : HWL Ebsworth Lawyers Defendant : K&L Gates Case(s) referred to in decision(s): Apex People Pty Limited (In Liquidation) The Commissioner of Taxation [2006] NSWSC 133 Assafiri v Horne [2004] WASCA 40 Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345 Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126; [2003] VSC 123 Australian Securities and Investments Commission v Plymin (No 1) (2003) VSC 123; (2003) 46 ACSR 126 Badenoch Integrated Logging Pty Ltd v Bryant [2021] FCAFC 64; (2021) 284 FCR 590 Bank of Australasia v Hall (1907) 4 CLR 1514 Barboutis v The Kart Centre Pty Ltd (No 2) [2020] WASCA 41 Bentley Smythe Pty Ltd v Anton Fabrications (NSW) Pty Ltd (2011) 248 FLR 384; [2011] NSWSC 186 Brooks v Heritage Hotel Adelaide Pty Ltd (1996) 20 ACSR 61 -- 2 of 118 -- [2026] WASC 327 Page 3 Bryant (in their capacities as joint and several liquidators of Gunns Ltd (in liq) (recs and mgrs. apptd) v Edenborn Pty Ltd [2020] FCA 715; (2020) 381 ALR 190 Cant v Mad Brothers Earth Moving Pty Ltd [2020] VSC 198; (2020) 63 VR 222 Cargill Australia Ltd v Viterra Malt Pty Ltd (No 28) [2022] VSC 13 Carrello as Liquidator of Perrinepod Pty Ltd (In Liq) v Perrine Architecture Pty Ltd [2016] WASC 145, (2016) 112 ACSR 448 CDJ v VAJ (No 1) [1998] HCA 67; (1998) 197 CLR 172 Clifton (Liquidator) v Kerry J Investment Pty Ltd trading as Clenergy [2020] FCAFC 5 Clifton v Kerry J Investment Pty Ltd t/as Clenergy [2017] FCA 1379 Community Development Pty Ltd v Engwirda Construction Co (1969) 120 CLR 455 Cook's Construction Pty Ltd v Brown [2004] NSWCA 105; (2004) 49 ACSR 62 Cribb v Kingsbury (No 2) [2021] FCA 1397 Dean-Willcocks v Commissioner of Taxation (Cth) [2004] NSWSC 1058; (2004) 51 ACSR 353 Dean-Willcocks v Commissioner of Taxation [2004] NSWSC 1058; (2004) 51 ACSR 353 Dean-Willcocks v Commissioner of Taxation [2008] NSWSC 1113; (2008) 73 ATR 801 Downey v Aira Pty Ltd (1996) 14 ACLC 1068 Edwards v Attorney General [2004] NSWCA 272; (2004) 60 NSWLR 667 Elliott v Australian Securities and Investments Commission (2004) 10 VR 369; [2004] VSCA 54 Expo International Pty Ltd v Chant [1979] 2 NSWLR 820 Fitz Jersey Pty Ltd v Atlas Construction Group Pty Ltd (In Liq) [2021] NSWSC 1692 Fitzgerald v CBL Insurance Ltd [2014] VSC 493 Fitzroy River Ltd Liability Company v Tucker (as joint and several administrators of Yeeda Pastoral Co Pty Ltd) (Subject to Deed of Co Arrangement) [2025] WASCA 118 Great Investments Ltd v Warner [2016] FCAFC 85; (2016) 243 FCR 516 Hall v Poolman [2009] NSWCA 64; (2009) 71 ACSR 139 International Cat (2013) 97 ACSR 200 Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran [2005] NSWCA 243; (2005) 54 ACSR 410 Lewis v Doran (2004) 50 ACSR 175 Lewis v Doran [2004] NSWSC 608; (2004) 208 ALR 385 Melbase Corporation Pty Ltd v Segenhoe Ltd (1995) 17 ACSR 187 Morris v Danoz Directions Pty Ltd (in liq) (No 2) [2010] FCA 836 -- 3 of 118 -- [2026] WASC 327 Page 4 Motorola Solutions Inc v Hytera Communications Corporation Ltd [2020] FCA 1469 New Cap Reinsurance Corporation Ltd (in liq) & Anor V A E Grant & Ors, Lloyd’s Syndicate No. 991 (supra) at 194 New Cap Reinsurance Corporation Ltd (in liq) & Anor V A E Grant & Ors, Lloyd’s Syndicate No. 991 [2008] NSWSC 1015 New Cap Reinsurance Ltd (in liq) v Grant [2008] NSWSC 1015; (2008) 221 FLR 164 Oldfield Knott Architects Pty Ltd v Ortiz Investments Pty Ltd [2000] WASCA 255 Playspace Playground Pty Ltd v Osborn [2009] FCA 1486 Queensland Bacon Propriety Limited v Rees [1966] HCA 21; (1966) 115 CLR 266 Queensland Phosphate v Korda [No 2] [2019] VSCA 215 Quick v Stoland Pty Ltd (1998) 87 FCR 371 Quin (in his capacity as liquidator of Roderick Group Pty Ltd (In Liq)) v Vlahos [2021] VSCA 20 [2013] QCA 372 Re Cube Footwear Pty Ltd [2012] QSC 39; [2013] 2 Qd R 501 Re Eliana Construction and Developing Group Pty Ltd (No 2) [2019] VSC 546 Re Evolvebuilt Pty Ltd [2017] NSWSC 901 Re International Harvester Australia (1983) 1 ACLC 700 Re Kolback Group Ltd (1991) 4 ACSR 165 Re Melbournehomes.com Pty Ltd (in liq) (2020) 356 FLR 390 Re Sarina; Ex parte Wollondilly Shire Council (1980) 32 ALR 596 Re Simionato Holdings Pty Ltd; Commissioner of Taxation v Simionato Holdings Pty Ltd (1997) 15 ACLC 477 Re Swan Services Pty Limited (in liq) [2016] NSWSC 1724 Re Western Port Holdings Pty Ltd (recs and mgrs apptd) [2021] NSWSC 232 RHG Mortgage Ltd v Ianni [2015] NSWCA 56 Sandell v Porter (1966) 115 CLR 666 Seltsam Pty Ltd v McGuiness [2000] NSWCA 29; (2000) 49 NSWLR 262 Sheahan v Carrier Air Conditioning Pty Ltd (in liq) [1997] HCA 37; (1997) 189 CLR 407 Sims v Celcast Pty Ltd (1998) 71 SASR 142 Smith v Bone [2015] FCA 319; (2015) 104 ACSR 528 Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213; [2001] NSWSC 621 Stonegate Securities Ltd v Gregory [1980] Ch 576 Sutherland t/as Southern Livestock Nutrition v Lofthouse [2007] VSCA 197; (2007) 214 FLR 157 Westgem Investments Pty Ltd v Commonwealth Bank of Australia Ltd (No 6) [2020] WASC 302 -- 4 of 118 -- [2026] WASC 327 Page 5 Westgem Investments Pty Ltd v Commonwealth Bank of Australia Ltd [2022] WASCA 132 White Constructions (ACT) Pty Ltd (in liq) v White (2004) 49 ACSR 220 White Constructions (ACT) Pty Ltd (in liq) v White [2004] NSWSC 71; [2004] 49 ACSR 220 White v ACN 153 152 731 Pty Ltd (in liq) [2018] WASCA 119; (2018) 53 WAR 234 -- 5 of 118 -- [2026] WASC 327 COBBY J Page 6 COBBY J: 1 In these proceedings the plaintiff (LCM) sought orders pursuant to s 588FF(1)(a) of the Corporations Act 2001 (Cth) (the Act) that the defendant (the Commissioner) pay to Construction Industries Australia Ltd (ACN 137 079 095) (in liquidation) (CIA) the amounts received by the Commissioner in respect of 86 transactions over the period 24 December 2012 to 6 June 2013 to which CIA was said to have been a party. 2 It is common ground that the relation back day was 21 June 2013, and that the relevant period in which payments might be avoided was therefore 21 December 2012 to 21 June 2013. 3 LCM alleged that each of the 86 transactions reduced CIA’s tax liabilities to the Commissioner, and therefore constituted unfair preferences as defined in s 588FA1 and insolvent transactions as defined in s 588FC. It was said that each transaction was therefore a voidable transaction within the meaning of s 588FE(2). 4 The total paid to the Commissioner by way of the 86 impugned transactions was $7,005,329.27. 5 LCM contends that CIA was insolvent as at 12 October 2012, and relies upon the presumption of insolvency in s 588E(3) to establish that CIA was insolvent during the relevant period. It contends in the alternative that CIA was in fact insolvent at all material times after that date. 6 The Commissioner denies that CIA was insolvent at any material time, but contends that if any of the 86 payments are held to be unfair preferences it has made out the defence of good faith without grounds for suspecting insolvency provided by s 588FG(2). The Commissioner contends that at the time he received each of the payments he did not have reasonable grounds for suspecting CIA was insolvent or would become insolvent, nor that a reasonable person in the Commissioner's circumstances would have grounds for holding that suspicion. 7 Although the proceedings involved the retrospective determination of whether CIA was insolvent and at what times, the resolution of those issues was complicated by the inadequate state of CIA's books and records by the time of trial, and the approaches taken by the parties to the 1 References to legislative provisions are to the provisions of the Corporations Act 2001 (Cth) unless otherwise stated. -- 6 of 118 -- [2026] WASC 327 COBBY J Page 7 question whether CIA's trade creditors were paid as and when their respective debts fell due. 8 A further issue was that the proceedings were instituted by CIA's liquidators, David Hurt and Kimberley Strickland (the liquidators), who were appointed to CIA on 21 June 2013. 9 On 17 January 2022, the liquidators assigned their right to sue the Commissioner under s 588FF (amongst other rights) to LCM. The court's approval of the assignment was obtained ex parte on 28 February 2022. An order was subsequently made substituting LCM as plaintiff in these proceedings. 10 At trial, the Commissioner sought to contend both that the court had a discretion to refuse relief pursuant to s 588FF(1) and that it should do so in the circumstances of this case in the event that LCM otherwise made out its claims. Summary of Conclusions 11 By way of summary, for the reasons which follow I have determined that: (a) I am not satisfied on the balance of probabilities that CIA was insolvent as at 12 October 2012; (b) I am not satisfied on the balance of probabilities that CIA was insolvent during the relevant period; (c) if I am wrong in failing to find that CIA was insolvent either as at 12 October 2012 or during the relevant period: (i) I am not satisfied that CIA's assets were diminished as a result of the payments made by Arccon to the Commissioner in reduction of CIA's tax liabilities; (ii) that at the time each of the impugned payments made to the Commissioner prior to 13 May 2013, the Commissioner did not have reasonable grounds for suspecting that CIA was insolvent and would become insolvent through the making of those payments, and a reasonable person in the Commissioner's circumstances would not have grounds for suspecting CIA to be insolvent; -- 7 of 118 -- [2026] WASC 327 COBBY J Page 8 (iii) the Commissioner failed to make out the defence pursuant to s 588FG(2) in respect of each of the impugned payments made after 13 May 2013; and (iv) I would not have exercised any discretion pursuant to s588FF(1) to deny LCM relief if it had otherwise made out all or part of its claim. CIA and the Allmine Group 12 CIA was incorporated in May 2009. The company provided construction, contracting and engineering services to the commercial building, mining and mineral processing industries, primarily in Western Australia. 13 Prior to 30 June 2011, Arccon (WA) Pty Ltd owned 50% of the issued shares in CIA. On that date, Arccon acquired the balance of the shares in CIA. 14 At all material times, Arccon was a wholly owned subsidiary of Allmine Group Limited, a company listed on the Australian Stock Exchange. 15 Allmine was the ultimate holding company of a number of subsidiaries, (together the Allmine Group), divided into the Engineering and Construction Division and the Maintenance Division. Arccon and CIA comprised part of the Engineering and Construction Division. 16 As at 30 June 2012, the directors of CIA comprised the managing director, Troy Millen, Michael Franklin (who was also the Chief Financial Officer of the company) and Scott Walkem. 17 Messrs Franklin and Walkem were also directors of Arccon. 18 CIA traded profitably in the financial years 2011 and 2012, recording net profits after tax of $10.383 million and $6.658 million respectively, on gross income of $51.893 million and $97,432 million. 19 CIA became a large withholder of pay as you go tax (PAYGW) within the meaning of s 16-95 of schedule 1 of the Tax Administration Act 1953 (Cth) as from 1 July 2012, the effect of which was that CIA was obliged to pay PAYGW to the Commissioner weekly. As CIA was a self-assessment entity within the meaning of s 995.1 of the Income Tax -- 8 of 118 -- [2026] WASC 327 COBBY J Page 9 Assessment Act 1997 (Cth) (ITAA), CIA became liable to pay income tax upon lodging its income tax return.2 20 In September 2012 Arccon's chief financial officer reported that CIA had generated income of $24.2 million for the first quarter of the 2013 financial year, for a gross margin loss of $1.3 million, and a loss before interest and tax of $3 million.3 He further stated that the outlook for CIA was concerning, having been recently advised by its principal customer, MCC, that its work on one project would not be continued beyond December 2012, and that, while CIA had been winning additional work at another site, those projects were not of sufficient value to replace the MCC work. 21 His November 2012 report4 was in substantially similar terms, although he stated that CIA's work for MCC was likely to continue into 2013, but at reduced levels, and recorded that CIA faced a significant bad debt risk with Fuel System Australia Pty Ltd in an amount of approximately $800,000. 22 The proceedings concerned the financial position of CIA, not the Allmine Group. The relevance of the financial position of the Allmine Group was limited to the ability of the members of the group to provide financial assistance to CIA, and the extent of CIA's contingent liability to Westpac Banking Corporation under a guarantee provided by CIA in respect of banking facility agreements between Allmine and Westpac referred to in greater detail below. 23 In that regard, it was common ground that the other members of the Allmine Group were not in a position to provide financial assistance to CIA during the relevant period. The witnesses 24 The parties' evidence in chief was given on affidavit, with the deponents being made available for cross-examination. 25 LCM adduced evidence from: (a) Justin William Ward, a portfolio manager employed by LCM; (b) Mr Hurt; 2 By operation of s 5-55 ITAA read with s 166A, Income Tax Assessment Act 1936 (Cth). 3 Ex 317. 4 Ex 424. -- 9 of 118 -- [2026] WASC 327 COBBY J Page 10 (c) Peter Anthony Brown, an accountant employed by the liquidators who had day to day carriage of the liquidation of CIA from around 2016, and (d) Nimrod Amanuel, a solicitor for LCM. 26 Mr Amanuel was not required for cross-examination. 27 The Commissioner adduced evidence from employees of the Australian Taxation Office (ATO) in support of his 588FG(2) defences, being: (a) Vu Thong To; (b) Eddie Egbert Michaud; (c) Ian Charles Dean; (d) Martyn William Boyd; (e) Mary Francis; (f) Umberto Tropea; (g) Patricia Ann Love; (h) Julian John Wilson; (i) Sian Katherine Hendy; (j) Ian Cornell; (k) Shane Leonard Bazin; (l) Louis Teycheney; and (m) Ian Campbell. 28 In addition, LCM relied upon the expert evidence of Vaughan Neil Strawbridge, a chartered accountant and registered liquidator, who had prepared reports as to CIA's solvency dated 20 March 2023 (the first Strawbridge report) and 10 October 2023 (the second Strawbridge report), while the Commissioner called Michael John Hill, also a chartered accountant and registered liquidator, who had prepared a report dated 8 August 2023 on the same topic (the Hill report). -- 10 of 118 -- [2026] WASC 327 COBBY J Page 11 29 Both Mr Strawbridge and Mr Hill were eminently qualified to give opinion evidence as to the solvency of CIA. Both men gave evidence concurrently. 30 I find that all the witnesses sought to give honest and truthful evidence, to the best of their respective recollections. In particular, the lay witnesses called by the Commissioner suffered from the significant disadvantage of having to give evidence of events which occurred in the ordinary course of their employment more than 11 years in the past. Understandably, none of those witnesses had an independent recollection of the relevant events, and relied upon their recollection of their practices at the time and what I find to have been the near contemporaneous notes each made using the ATO's computerised record systems. Objections to Evidence 31 Due in part to a failure on the part of the parties to comply with pre-trial directions regarding objections to evidence and in part due to the manner in which the trial was conducted, a large number of objections to evidence arose immediately prior to the commencement of closing addresses, and further objections were taken to the use of material identified for the first time in the course of those addresses. 32 In those circumstances, the parties agreed that I would determine the objections in the course of delivering my reasons for decision. My reasons in relation to the objections are accordingly set out in attachment A. Factual findings 33 The ATO used two computerised client relationship management systems during the period relevant to these proceedings. 34 The older system, RMS, was a legacy case management system, previously used by the ATO to enable the monitoring of tax-related liabilities and allowed for the entering of notes in relation to actions taken and correspondence and conversations between ATO staff members and taxpayers and their representatives. RMS dated and timestamped all notes entered on the system at the time of entry and recorded details of the ATO staff member who entered the note. 35 RMS was progressively being decommissioned by the ATO, but some of its functions remained in use during the time relevant to these proceedings. -- 11 of 118 -- [2026] WASC 327 COBBY J Page 12 36 The second was the Siebel client relationship management system, which operated as an electronic case and work management system. Amongst other things, Siebel stored correspondence and records interactions with taxpayers and their representatives in relation to their taxation affairs. The system also included a note recording function which enabled ATO officers to enter and keep notes on interactions and matters relevant to a taxpayers' affairs. 37 When a note was recorded in Siebel, the note was permanently associated with the ATO officer who input it by reference to that person's user identification. 38 Inbound telephone calls to the ATO were automatically classified and routed to an appropriately-skilled staff member. Before an inbound call was delivered to an ATO officer, a Siebel activity was automatically generated and recorded on the taxpayer's record in Siebel. The officer would then deal with the call, record details of the interaction within the activity and then finalise that activity. If the officer could not deal with the matter raised, they might refer the call to the appropriate area or staff member. 39 Evidence was led by the Commissioner as to the difficulties involved in amending any RMS or Siebel record. 40 LCM pleads that CIA's outstanding integrated client account debt was $4,271,907.36 as at 13 December 2011,5 and that on the same date the Commissioner issued a letter warning of intended recovery action in respect of that amount. LCM characterised the debt in its pleading as relating to income tax.6 41 I find that on 13 December 2011 the Commissioner issued a notice of intended legal action (NILA) to CIA, which on a fair reading required either payment be made in full or CIA contact the ATO to discuss payment by 22 December 2011. 42 On 15 December 2011 CIA paid $594,270 to the Commissioner in respect of its 30 October 2011 PAYG liability, reducing the balance to $3,677,637.36. CIA contacted the ATO that day and advised, in effect, that objections would be lodged to notices of assessment issued to CIA on 7 December 2011 following a GST credit audit. In response, CIA was told that no further action would occur in relation to the debt until a decision was made on the objections. 5 [67(a)], Further Amended Statement of Claim [FASOC]. 6 [68], FASOC. -- 12 of 118 -- [2026] WASC 327 COBBY J Page 13 43 Of the $4,271,907.36 said to have been due, $3,489,505 (together with the general interest charge thereon) arose from the GST audit. On 17 February 2012 CIA's objections to those assessments were allowed in full, and $3,489,505 credited to CIA's CAC account, CIA's request for remission of the general interest charge of $24,712.72 having been previously approved on 23 January 2012. 44 I find that CIA's Integrated Client Account was accordingly overstated by at least $3,489,505 during the period 2 December 2011 to 17 February 2012, and that the NILA issued on 13 December 2011 to CIA overstated the debt by the same amount. 45 LCM's pleaded case was that the lodgement of CIA's income tax return for the 2011 financial year on 28 February 2012 gave rise to an immediately due and payable debt of $4,328,598.90. However, the plea fails to take into account that CIA had paid $2,164,300 in advance against that debt prior to lodging the return, so that the amount of the debt which arose on 28 February 2012 was reduced by that amount. 46 On 2 March 2012, the ATO issued a letter to CIA noting that its tax return for the 2011 financial year was lodged after the due date, and advised that the Commissioner had decided not to impose a penalty for the late lodgement. That decision is explained by a note in Siebel which records that CIA's tax agent had thought that the lodgement date was 28 February 2012 (the date the return was actually lodged) instead of 31 October 2011. 47 On 14 March 2012 CIA agreed to pay the balance of the 2011 income tax debt by 7 June 2012, and paid $500,000 in reduction of that debt on each of 10 and 14 May 2012. 48 Also on 14 May 2012, CIA agreed to pay the balance of $1,183,882.14 by 7 June 2012. 49 I find that an income tax withholding debt due by CIA in respect of April 2012 in the amount of $1,011,374.69 was due and payable upon the lodgement of CIA's business activity statement on 21 May 2012, and was paid 22 days late on 22 June 2012. 50 In April 2012, Umberto Tropea was a Debt Collection Team Leader APS6 in the Debt Business Service Line at the ATO. He gave evidence as to the circumstances in which he approved a payment arrangement in respect of CIA on 16 April 2012. -- 13 of 118 -- [2026] WASC 327 COBBY J Page 14 51 At that time, Mr Tropea had approximately 10 to 15 debt officers working under his supervision. His responsibilities included approving or rejecting payment arrangement requests made by taxpayers where the referring debt officer did not have the relevant authority to approve the arrangement and the request was referred to him. 52 He reviewed hundreds of payment arrangements for approval each year. 53 CIA's request to enter into the payment arrangement was referred to him for approval by ATO officer Vicki Hammerton (APS Level 3), who did not have authority to cause the Commissioner to enter into a payment arrangement in the amount being requested by CIA. 54 Ms Hammerton's entries in Siebel on 16 April 2012 were (relevantly) as follows: 'TFN: [redacted] Name: CONSTRUCTION INDUSTRIES AUSTRALIA LTD Main Activity: COMMERCIAL / INFRASTRUCTURE CONSTRUCTION CAC account $76,292.79 CR IT7 debt $2,173,730.85 IT debt is the result of 2011 ITR8 lodged 28/02/2012. The total assessment was $4,328,598.90. The client paid half of the debt in January, before lodgement. GIC9 remission of $126,148.00 was granted on 05/04/2012. Client's TAG10 has been contacted and has now confirmed the client will be paying the balance of the debt in full on 30/03/2012. Client has a very good compliance history before this lodgement, and this is shown through the up to date lodgement and payment of CAC account. The DEC BAS alone, lodged on time in Feb12 was over $2M and PIF,11 with Jan &Feb12 Activity Statements of over $1.3M also PIF. CAC account is now in credit of $76,292. Arrangement has been entered into ICP for PIF due 04/05/2012. This action is outside my delegation, and is forwarded for approval. Financial information has not been requested on this occasion, as the client will pay the debt in full within 2 weeks. Risk rating would be considered low as no current CAC debt. Previous GST audit raised debt in Dec 2011, was disputed and decision resulted mostly in the clients favour. Client has since paid the balance of these assessments. The risk rating was at the time 0.3, which DRN matrix guidelines 50% lump sum plus Capacity Conversation and PA. Continued............ 7 Income tax. 8 Income tax return. 9 General interest charge. 10 Tax agent. 11 Payment in full. -- 14 of 118 -- [2026] WASC 327 COBBY J Page 15 I recommend we accept this offer as the client is engaged with ATO, they paid 50% of the original debt in Jan12, before they lodged the return, which is basically what our matrix advises. Legal warnings were given to TAG today during our conversation. I advised ATO will not contact if debt remains unpaid, we would proceed with next action. … Vicki Hammerton APS3 Firmer Action - High Value Debt #37251'. 55 Mr Tropea's evidence of his practice in 2012 was to the effect that, having read that note, he would have considered the information contained in it, including the information about the amounts paid by CIA and the remission of general interest charges recorded in Siebel on 3 and 5 April 2012, which would have required the ATO team member to have determined that CIA was a compliant taxpayer. 56 He would then have checked whether CIA's total tax debt was increasing; whether it had been complying with its obligations to lodge tax returns and other lodgements on time; whether tax was being paid on time; whether any earlier payment arrangements entered into had been complied with; and whether the ATO had taken any enforcement action against CIA. 57 On 16 April 2012, Mr Tropea made a note in the Siebel system, of which he had no independent recollection, as follows: Payment arrangement approval : I have considered the circumstances outlined by the case officer for approval of this payment arrangement. In this instance I believe that the arrangement is the most cost effective action to recover the debt. Arrangement approved in accordance with the Tax Office Receivables Policy, the company's compliance history has been taken into consideration, and they appear to have the ability to pay the debt by instalments. This is within my delegation as an APS6. 58 His evidence was that the reference in his note to 'appear[s] to have the ability to pay the debt by instalments', was shorthand for saying that, because CIA had recently made a large up-front payment towards the debt of more than $2m and would pay the balance within a short period of time, it 'appear[red] to have the ability to pay the debt by instalments'. 59 LCM pleads that on 6 June 2012 an authorised office of the Commissioner queried CIA's representative whether the 2011 income tax liability would be paid by 7 June 2012 and recommended that garnishee and directors penalty notices be issued. 60 I find that on 6 June 2012 an ATO case officer, Brad Jones, spoke to CIA's tax agent, and informed her that CIA's outstanding CAC debt stood at $1,011,374.69 for income tax withholding from April 2012, and was -- 15 of 118 -- [2026] WASC 327 COBBY J Page 16 told that CIA had a payment arrangement to repay that debt the next day, and that it shouldn't be a problem.12 61 Mr Jones then informed the tax agent that the payment arrangement related to the outstanding 2011 income tax debt, and that the entire outstanding balance of $1,198,780 outstanding was also due the next day. He asked whether that amount would also be paid and was told that the tax agent believed so, but would contact CIA regarding that debt. 62 Mr Jones' RMS note continues: Advised of the PSS discrepancies for the 2010/2011 f/y : $147,363. Advised that the client needs to resolve this discrepancy or the ATO may issue estimates to the client. Advised that once estimates issued, the client has an opportunity to lodge amendments or make payment. If no payment received, then further DPN's may be issued to the client. Advised that DPN's made the director personally liable for ITW debts. T/a advised that this was not possible as the client was a LTD company. Explained the DPNs in relation to limited liability and advised where the t/a could locate the applicable legislation. Advised t/a of the oustanding Mar(q) BAS. Advised that the client must lodge this BAS immediately or an estimate may be issued. Advised that once lodged, payment would be due immediately. T/a [tax agent] advised she would speak to the client re this lodgement. Advised that the client has 48 hours to contact the client and then contact the ATO with further information re the above. T/a advised she would contact the client today. Issued legal warnings. If no contact by Monday 11Jun12, recommend estimates be issued for the outstanding period and the PSS discrepancy. Recommend garnishees be issued and then DPNs be issued for outstanding ITW amounts. 63 CIA paid the balance outstanding in relation to the 2011 PAYG debt on 12 June 2012, including the general interest charge on that amount. 64 CIA lodged its June 2012 quarterly business activity statement on the due date, being 27 August 2012, but it was not processed by the Commissioner until 27 September 2012. Once processed, CIA owed $1,370,857 in respect of PAYGW and a further $1,350,664.14 in respect of other taxes. 12 Ex A6. -- 16 of 118 -- [2026] WASC 327 COBBY J Page 17 65 On 21 September 2012 (that is, before the ATO had processed the June 2012 business activity statement), CIA paid the whole of the PAYGW component of the debt, leaving a CAC account balance of $1,350,664.14. 66 CIA thereafter failed to pay PAYGW from 20 September 2012 to 29 October 2012, a period of 40 days. 67 Outside of those dates, CIA largely complied with its PAYGW payment obligations, failing to pay on time on one occasion on 27 August 2012. 68 On 5 October 2012 Oscar Zylbersztajn, a debt collection officer with the ATO, made the following note in the Siebel system: I received a call from Trevor Youngberg Internal accountant. … Trevor advised he was retuning a call. I advised the nature of the call was that the CAC account has a debt of $1,374,715.48 and requested PIF. Trevor advised unable to PIF. He advised that they have been made Large withholders as at 01/07/2012 and have been playing 'catch up', the entity is in construction and they are waiting on variations and general debtors to pay. Trevor advised that he will talk to the directors and call back with a PA proposal and a cash flow. I advised that he should call back no later than COB 09/10/2012 69 I infer from the signature clause of the note that Mr Zylbersztajn was an APS3 working in the Debt Large and Consolidated business line of the ATO as at 5 October 2012. LCM is critical of the Commissioner's failure to call him as a witness, which I address below. 70 LCM submits that Mr Zylbersztajn's note evidences that Mr Zylbersztajn requested or required that CIA submit a cash flow to the ATO. 71 I do not accept that submission. On a fair reading, the note records a conversation in which Mr Zylbersztajn requested that CIA's CAC debt be paid in full, in response to which he was told by Mr Youngberg that CIA had been playing 'catch up' and that Mr Youngberg would submit a payment arrangement proposal and cash flow. There is no basis for reading into the note, as LCM submits should be done, that Mr Zylbersztajn required that a cash flow be submitted to the ATO. 72 CIA did not submit a payment proposal by 9 October 2012. -- 17 of 118 -- [2026] WASC 327 COBBY J Page 18 73 On 10 October 2012 a different ATO officer, Ian Cornell, determined to issue a NILA to CIA's directors. Mr Cornell was employed as a member of the ATO's Debt Collection Team in 2007, and (I infer) remained in that role in 2012. 74 His role was to determine the next action in any particular case assigned to him. That might involve the entry into a payment arrangement, the issue of a director penalty notice, garnishee notice, payment reminder, firmer action letter or a letter warning of further recovery action (for example, the issue of a NILA), or the issue of a statutory demand. 75 Mr Cornell's note of 10 October 2012 states: NILA issued today for the outstanding CAC debt of $1,376,711.10 As per previous notes the client had a deadline to contact the ATO was the 09/10/2012 to provide a payment a proposal and supporting documentation. The client was required to provide cash flow projections (for the term of the payment arrangement). As of this morning there have been no inbound interactions from the client. I have issued a NILA to inform the client that is our intention to commence legal proceedings for recovery of the outstanding amount. I have issued copies of the NILA to the current Directors… The compliance date for the NILA is 17/10/2012. 76 There is no evidence of Mr Cornell having had any contact with Mr Youngberg or CIA more generally, nor with Mr Zylbersztajn. Other than Mr Zylbersztajn's 5 October 2012 note, there is no reference to a cash flow in the ATO's Siebel and RMS systems. 77 Unsurprisingly, Mr Cornell did not have any independent recollection of the matters recorded in his note. His evidence, which I accept, was to the effect that he would review the taxpayer's past compliance history and consider any recent interactions the taxpayer had had with the ATO in determining what action to take when a case was assigned to him. 78 I am not satisfied that any officer of the ATO required CIA to submit a cash flow prior to 10 October 2012. I find that it is more likely than not that Mr Cornell's reference to CIA having been required to provide one was based upon a mistaken understanding of Mr Zylbersztajn's note. 79 Although LCM pleads that the NILA issued by Mr Cornell demanded payment of the CAC debt in full, on a fair reading the -- 18 of 118 -- [2026] WASC 327 COBBY J Page 19 document required either payment be made in full or that CIA contact the ATO to discuss payment by 17 October 2012. 80 On 12 October 2012 Allmine accepted an offer from Export Finance and Insurance Corporation (EFIC) for EFIC to supply an uncommitted bonding line facility, whereby EFIC would issue bonds on behalf of Allmine in support of CIA in respect of CIA’s obligations to MCC Mining (Western Australia) Pty Limited.13 81 On 15 October 2012 Mr Youngberg circulated a copy of what the parties referred to as the 12 October 2012 headroom report to Messrs Franklin, Millen and Walkem, being the directors of CIA, and Andrew Bath, the chief financial officer of Arccon. 82 Later that day, Mr Franklin sent an email14 to, amongst others, Messrs Millen, Walkem, Bath and Youngberg saying that: … the attached short term cash-flow forecast circulated by Trevor today shows CIA has $3.9 million dollars in overdue debtors and not enough cash to pay mid month creditors or this week's payroll if it doesn't come in (let alone the tax man) unless Arccon receives some payments early and given it has already sent down $450k over the past few days it will most likely need to keep what it collects over the next two weeks to meet its month end creditor and payroll commitments. Are we all sure all is being done that can be done to collect these debtors. I understand Allmine does not have any funds to lend CIA in the short term if these debtors are not collected so the cash needs to come from the collection of these overdue debtors. 83 As will be seen, an additional $2.2 million in creditors was included in the 12 October 2012 headroom report for an unknown reason. It would seem from Mr Franklin's reference to $3.9 million dollars in overdue debtors he took the information in the document at face value. 84 On 17 October 2012, Mr Zylbersztajn recorded having received a telephone call from Mr Youngberg in the following terms: Received call from ABR contact Mr Trevor Youngberg who advised that he was responding to a NILA with due date today 17/10/2012. Current balance outstanding: $1,379,509.84. Mr 16utstandi asked if ATO could hold any action until 25/10/2012 to enable a firm proposal to be provided. There are 2 available options: 1. A payment proposal to be finalised 2. Entity's parent entity will have funds becoming, 13 Ex 413. 14 Ex 303. -- 19 of 118 -- [2026] WASC 327 COBBY J Page 20 Please refer to ASX Company news relating to Construction Industries Austyralia 'Allmine Group Limited (AZG) is pleased to announce that its wholly owned design, engineering, procurement and construction subsidiary Arccon (WA) Pty Limited has entered into an agreement to acquire 50% of Construction Industries Australia Limited (CIA). CIA is the construction division of Arccon. Arccon currently own 50% of CIA and has agreed to acquire the remaining 50% shareholding.' Trevor will e- mail more details. In view of 16utstan circumstances I agreed to set the review date to 25/10/2012 when negotiations to address current debt will be finalised. 85 The next day Mr Youngberg sent an email to the ATO in the following terms: As requested, please find following confirm of the details per our telephone discussion this afternoon. As we discussed, Construction Industries Australia (CIA) requests additional time to respond to the ATO notice dated 10 October 2012. We are requesting this extension of time to respond to the 25th October 2012. Our parent company Allmine Group (ASX code AZG) has on Monday 15th October 2012 received approval for a new Bonding Facility through the Australian Government Export Finance and Insurance Corporation (EFIC). This will be utilised by CIA to release cash retentions currently held by our client into the working capital cashflow. We are currently working closely with EIFC to facilitate the change over and we should have a better idea of the timeframe of the cash receipts over the next couple of days. With additional details of the timing of the cash inflow resulting from this facility, we will have a greater understanding of our cash position and if required, we will likely formalise a request for a payment arrangement around these details. We thank you for your verbal acceptance of the request for extension of time. Are you able to confirm this also via email? Thank you for your assistance. Kind regards Trevor Youngberg Financial Controller 86 A note in Siebel records that 'based on client's compliance history which is fairly new (no previous defaults and no outstanding 16ustandin)', an ATO officer agreed to extend the time for CIA to respond to the NILA until 31 October 2012. 87 On 26 October 2012 CIA's external accountants, Nexia Pty Ltd (Nexia), wrote to the ATO to request a payment arrangement in respect of the outstanding balance on CIA's integrated client account, with -- 20 of 118 -- [2026] WASC 327 COBBY J Page 21 repayment amounts of $500,000 by 9 November 2012, a further $500,000 by 9 December 2012 and the balance by 9 January 2013.15 88 In that letter, Nexia stated: CIA's cashflow for the next three months shows an overall improvement in the working capital position of the business as it is expecting to receive over this period approximately $2.6 million in retention payments as they have several major projects at or nearing completion. In addition to the retention returns, their parent company Allmine Group (ASX code AZG) on Monday 15th October 2012 received approval for a new Bonding Facility through the Australian Government Export Finance and Insurance Corporation (EFIC). This will be utilised by CIA to release cash retentions currently held by it's client into the working capital cashflow. However, at this time the exact date for release of the EFIC facility is not known, but we anticipate in the next 6-8 weeks. 89 Although Nexia's letter referred to a cashflow for CIA for the next three months, there was no evidence that such a document was provided to the ATO, nor that any ATO officer requested a copy of it. 90 Two three-month cashflows were prepared by an unknown person for CIA for the period 27 October 2012 to 26 January 2013. Both assumed 25% of creditors would be paid mid-month and 75% at the end of the month. 91 One of those documents, which assumed a weekly $150,000 payment to the ATO in respect of the outstanding PAYGW, showed CIA being cashflow positive throughout that period with the exception of the weeks ending 3 and 10 November 2012. 92 On 29 October 2012 a payment arrangement request was received by the ATO from Nexia on behalf of CIA. The ATO officer who received it noted that CIA's CAC debt was $1,384,320.92, there had been no payments made in October 2012 and that CIA had become 'a large withholder on 01/07/2012'. 93 On 30 October 2012 an email was sent to Nexia by an ATO officer requesting CIA lodge its outstanding PAYGW for October 2012. 94 On 2 November 2012 an ATO officer, whom I find to have been Roymayne Jesuarajah, recorded the following note in the Siebel system: CAC debt - $3,335,135.84 15 Ex 313. -- 21 of 118 -- [2026] WASC 327 COBBY J Page 22 PAYGW liability updated as per the attachment in Siebel 1-4CAJCWB The client was made a large withholder as of 01/07/2012 The entity is having cash flow issues due to the entity being in construction and they are waiting on variations and general debtors to pay. The TAG has also advised the cash flow for the next three months shows an overall improvement in the working capital position of the business as it is expecting to receive over this period approximately $2.6 million in retention payments as they have several major projects at or nearing completion. T/P is complying with the Tax Office and has shown a willingness to pay off the liabilities. Therefore, on fair and reasonable grounds as well as the community first approach has been considered, I have accepted the payment arrangement for the debt as this is the most cost effective method of recovering the debt. The client's compliance history was taken into consideration prior to entering this arrangement and they are aware of the conditions associated with the granting of an arrangement. Payments details- Weekly payment of $150,000.00 1st payment on 09/11/2012 of $650.000.00 Total amount $3,335,135.84 As this arrangement is beyond my delegation I have sent an email to APS6 seeking approval. 95 Ms Jesuarajah did not give evidence. As with Mr Zylbersztajn, LCM was critical of the Commissioner for failing to call her as a witness, which I address below. 96 Ms Jesuarajah's recommendation was considered by Mary Francis, who was an APS6 Level Team Leader in the 'Debt Large and Consolidated' team in the Debt Business Service Line of the ATO in 2012, having been employed by the ATO since February 2008. 97 Ms Francis managed approximately 15 debt officers at that time. Her evidence was that members of her team in 2012 would receive, relevantly, requests from taxpayers to enter into payment arrangements to pay outstanding tax debts, and refer those requests to her for approval when the value of the request was outside that person's delegation, which I infer meant delegated authority. 98 Ms Francis's evidence was that she would review those recommendations and then decide whether to approve or deny the request. She approved many recommendations each year. -- 22 of 118 -- [2026] WASC 327 COBBY J Page 23 99 Her practice in 2012 upon receiving a payment arrangement recommendation was to consider the taxpayer's payment history. If a particular taxpayer had been identified as a large withholder, she would check to see if the taxpayer had been making weekly remittances. 100 Ms Francis would also consider whether the taxpayer had complied with any previous payment arrangement, and if not, the reasons given for the default. 101 Ms Francis would then consider the length of time requested to pay under the payment arrangement and assess the risk to revenue for the ATO. 102 Once she had completed her assessment, Ms Francis would type her decision into the RMS system and post it. Her note would then be visible to any other ATO employee with access to the RMS system. 103 Ms Francis' evidence is that when she read Ms Jesuarajah's note she would have accepted what was recorded as having been said concerning the taxpayer's reasons for requesting the payment arrangement and cross- checked its contents against the ATO's records. 104 Her further evidence is that she would have seen the note made on 29 October 2012 regarding CIA's PAYGW obligations for October 2012 not having been met, but that CIA's PAYGW liability had been brought up to date by 2 November 2012. 105 Ms Francis approved the payment arrangement in accordance with Ms Jesuarajah's recommendation on 2 November 2012. That payment arrangement involved payment by instalments of all of CIA's outstanding taxation liabilities as at that date. Ms Francis recorded her decision as follows: I have considered the arrangement recommended by Romayne, the client maintained a good compliance history prior to the ITW16 for Jun 12 which client was unable to pay in full due to temporary cash flow limitations. The client was changed to a Large Withholder 1/7/12 and at the time the first proposal was submitted to cover the ITW 1.3M debt it was identified that there were further missing payments. This information was requested from the client and a further proposal incorporating the entire debt with PAYGW liabilities up-to-date was requested. 16 Income Tax Withholding. -- 23 of 118 -- [2026] WASC 327 COBBY J Page 24 The client submitted the PAWGW data and the debt has increased to $3.4m and the client has proposed to pay the entire debt by Feb 13 with weekly payments of $150,000/- apart from the date 9/11/12 and 9/12/12 where the payment will be $650,000/-. The client has maintained a good compliance history with no previous arrangements or defaults, the proposal is towards the PAYGW liability since the client has moved to a large withholder and now has understands his responsibility as a large withholder and will incorporate this into his cash flow. The client is committed to paying the debt in full in a short timeframe and considering the history and the situation of this debt, I am agreeing with Romayne's recommendation to approve the payment proposal for the client to repay the debt in instalments. The Client is aware of their responsibilities to pay all their future liabilities on time. The Payment arrangement is therefore approved and is within my delegation. 106 Ms Francis' evidence is that her practice in November 2012 was to check if the taxpayer's withholding compliance was up to date, because under the ATO's receivables policy that applied at the time, it was not possible for her to approve a payment arrangement until all of a taxpayer's lodgements had been brought up to date. 107 Accordingly, on 3 November 2012 the ATO entered into a payment arrangement with CIA in respect of a debt totalling $3,381,992.89 (the first payment arrangement). 108 I therefore find that, contrary to LCM's pleaded allegation, CIA did not fail to comply with the NILA dated 10 October 2012. Instead, CIA contacted the ATO by the time specified in the document, arranged an extension of time in which to submit a payment arrangement, and eventually entered into a payment arrangement on terms acceptable to the ATO. 109 CIA thereafter made payments in accordance with that payment arrangement. 110 Scott Walkem resigned as a director of CIA on 5 November 2012. 111 On 20 November 2012 Ms Francis recorded a note on the Siebel system relating to the first payment arrangement as follows: -- 24 of 118 -- [2026] WASC 327 COBBY J Page 25 I have considered the arrangement recommended by Sian, the arrangement defaulted however as highlighted by Sian the default is not a true default. As per the previous approval and arrangement, the total amount was not reflected on the schedule which required the future liabilities to be incorporated, hence when the liability came due the arrangement defaulted due to the mismatch of balance. The client has maintained a good compliance history with no previous arrangements or defaults. The client is committed to paying the debt in full in a short timeframe and considering the history and the situation of this debt, I am agreeing with Sian recommendation and inline with my previous approval I approve the payment proposal for the client to repay the debt in instalments. The Client is aware of their responsibilities to pay all their future liabilities on time. The Payment arrangement is therefore approved and is within my delegation. 112 Ms Francis' evidence is that she made that note after reading a recommendation for approval from Sian Allder (now Mrs Sian Hendy). Ms Allder's note dated 20 November 2012 stated that CIA had made the first two payments on 9 November and 16 November 2012, but was recorded as having defaulted because the balance payable under the approved payment arrangement was incorrectly input in the ATO's systems. 113 Mrs Hendy's evidence was that she would not have contacted CIA regarding the matter. 114 Ms Francis explained that having determined that the reason for the recorded default was a human error on the part of the ATO, she approved CIA's requested payment arrangement again (the second payment arrangement), less the amount which had already been received by the ATO. 115 CIA lodged its September 2012 quarterly business activity statement on 26 November 2012, which resulted in a net amount of $1,450,104 being immediately due and payable to the Commissioner. 116 On 30 November 2012 CIA's external accountants Nexia contacted the ATO seeking a new payment arrangement. -- 25 of 118 -- [2026] WASC 327 COBBY J Page 26 117 Between 30 November and 4 December 2012, CIA paid $150,000 under the existing payment arrangement and CIA's PAYGW liability for the period 28 to 30 November 2012. 118 On 5 December 2012, Louis Teycheney of the ATO spoke to Jocelyn Powell of Nexia and informed her that if he did not receive the new proposal by email that afternoon Ms Powell would have to submit the proposal by the tax agent's portal. 119 At that time, Mr Teycheney was an APS level 3 in the Debt Large and Consolidated Service Line at the ATO, having commenced employment with the ATO in 2004. One of the tasks for which he was responsible was considering whether to approve payment arrangements, with authority to approve arrangements to a specified amount. Where he considered it appropriate, Mr Teycheney would recommend arrangements above that amount to his team leader for consideration. 120 CIA had not submitted a new proposal by 11 December 2012, and on that date, there having been no further communication from CIA, Mr Teycheney issued a NILA for the outstanding CAC debt of $3,890,817.44. As with the NILA issued on 10 October 2012, that document required either payment of that amount or that CIA contact the ATO to discuss payment by 19 December 2012. 121 On 12 December 2012, Mr Teycheney received an email from Ms Powell, by which CIA proposed a new payment arrangement. 122 Mr Teycheney's evidence was that his practice in 2012 when reviewing a payment arrangement request was to consider: (a) the amount of the taxpayer's liabilities owed to the ATO and check whether the taxpayer had been making payments in respect of its tax liabilities; (b) whether there were any suppressions, or accounting treatments and periods under review; (c) whether there were any outstanding tax lodgements; (d) whether the taxpayer had any past payment arrangements, and whether those payment arrangements had been completed, defaulted or cancelled; (e) whether the taxpayer had outstanding PAYGW payable; (f) the reasons why the payment arrangement was being requested; -- 26 of 118 -- [2026] WASC 327 COBBY J Page 27 (g) the time period and amount at which the debt was proposed to be paid under the requested payment arrangement; (h) whether the taxpayer was being proactive in communicating with the ATO in respect of its tax liabilities; and (i) whether the proposed payment arrangement was consistent with any ATO policies and procedures that existed at that time. 123 I find that after receiving that email, Mr Teycheney spoke to Ms Powell on 13 December 2012 and asked her to justify why a new payment arrangement should be agreed when there had been a default under the existing arrangement, and was told that he would receive an email that afternoon with the reasons why the default had happened. 124 Later that day, Mr Teycheney received two further emails from Ms Powell, the first of which was to the effect that all payments had been made on time as agreed under the existing arrangement, but that the client was requesting a new arrangement because some debtors had not been received in the expected timeframe. 125 I find that Ms Powell also told Mr Teycheney on 13 or 14 December 2012 that a director of CIA had thought that CIA's September 2012 BAS payment had been included in the existing payment arrangement. 126 On 14 December 2012 Mr Teycheney made a note in the RMS system as follows: CONSTRUCTION INDUSTRIES AUSTRALIA LTD - ABN [redacted] Main Activity: Commercial/Infrastructure Construction Debts: CAC 1: $3,243,448.01 - IT: $0.00, FBT: N/A and SUPER: NVATD Indicators: Suppressions, Accounting Treatments and Periods under Review: None AWA: None - AQS: None Lodgments: ITR: No O/S & BAS: No O/S Roles: CAC 1 GSTP - Quarterly - Active, ITIP - Quarterly - Active and ITW - Large - Active. -- 27 of 118 -- [2026] WASC 327 COBBY J Page 28 Payment Arrangements: Defaulted (2) Payment Plans: for IT - Completed (1) and Cancelled (1) PAYGW: Weekly remitter - no outstanding remittance ATOMS: 2012 - $317.00 Inbound emails from Jocelyn Powell (POI satisfied) of Nexia Perth Pty Ltd, tax agents for Construction Industries Australia Ltd with regards to her new payment arrangement proposal. Jocelyn has sent in the new proposal (see attached emails) in SIEBEL Act Ref #1-4FGCID4. I have been able to persuade Jocelyn to have her client increase the repayment from $150,000.00 to $200,000.00 with a view of the new payment arrangement (subject to approval) to match the schedule time line of the previous defaulted payment arrangement. The previous payment arrangement defaulted because there was a misunderstanding on the part of the director who thought that the 2012 Sep Bas would have been included in the PA. I am granting a payment arrangement (subject to approval) to this entity on the grounds that the new PA will be paid off by the same deadline as the previous PA. There are no other outstanding tax obligations lodgments or payments. I told Jocelyn that the payment arrangement is solely for the debt at the time when the payment arrangement is agreed upon. I told her that her client must adhere to the payment arrangement's terms and conditions. I warned her that all the entity's future tax obligations must be lodged and paid separately to this payment arrangement, before or on the due date. I warned her that if the payment arrangement is defaulted then ATO will take legal action against the entity without further notice. Jocelyn acknowledged these facts. Standard Payment Arrangement is as follows; CAC 1 debt is at today: $3,243,448.01 + GIC $37,915.05 Starts on 17/12/2012 with a payment of $150,000.00 (being made today 14/12/2012) Followed by seven weekly payments of $200,000.00 starting on 21/12/2012 And also two weekly payments of $650,000.00 on 11/01/2013 & 08/02/2013 Ends on 22/02/2013 with a payment of $431,363.06 -- 28 of 118 -- [2026] WASC 327 COBBY J Page 29 127 Mr Teycheney's evidence, which I accept, was that the explanation as to why CIA had defaulted under the existing agreement, namely that a director of CIA had believed that the September 2012 BAS payment was included in the existing arrangement, was given to him orally by Ms Powell, since it was not stated in her emails to him. That explanation is consistent with the references to a telephone conversation between the two in Ms Powell's two emails dated 13 December 2012, and Mr Teycheney's notes of the explanation and warnings regarding the operation of a payment arrangement he recorded having given her in his 14 December 2012 note. 128 Mr Teycheney's recommendation regarding the new payment arrangement was considered by Eddie Michaud on 14 December 2012. 129 Mr Michaud was an APS 6 and a Team Leader in the 'Debt Large and Consolidated' team in the Debt Business Service Line of the ATO. At the time of trial, he remained in that role, although the Business Service Line has been renamed 'Lodge and Pay'. 130 Mr Michaud commenced employment with the ATO on 21 November 1988. 131 Mr Michaud's evidence was to the effect that in 2012 it was a requirement within the 'Debt Large and Consolidated' team in the Debt Business Service Line that any telephone calls between a taxpayer or their tax agent and the 'Debt Large and Consolidated' team be logged into the Siebel record for that taxpayer. 132 On his evidence, which I accept, in 2012 the team members in the 'Debt Large and Consolidated' taxpayers call centre would answer the next telephone call in line. The team member would attempt to address the query raised during the telephone call, or would continue to manage that particular query until completion. Team members within the call centre did not manage particular taxpayers or tax agents. 133 Mr Michaud's role in 2012 was to deal with queries raised by team members within his team, whether informally or by the team member creating an activity for authorisation within Siebel. 134 His practice in 2012 where an activity was raised regarding authorisation of a payment arrangement, was to: (a) review the Siebel note from the referring team member which prompted the activity in his inbox; -- 29 of 118 -- [2026] WASC 327 COBBY J Page 30 (b) if the information was unclear or he felt he needed some further background information, he would raise that with the referring team member and seek clarification or further information; (c) look at the information regarding the taxpayer recorded in Siebel and RMS which he considered would be relevant to the activity; (d) look at the amount of the tax debt the subject of the proposed payment arrangement and the time period over which it was proposed to be repaid; (e) look at the reason why the payment arrangement was being requested; (f) look at the taxpayer's history and pattern of compliance with their tax payment obligations, including whether there was a history of non-lodgement of returns or non-payment or reluctance to comply with their tax obligations. In 2012, information about when a taxpayers' lodgements were due, whether the lodgement had been made on time, and details regarding upcoming lodgement dates were recorded in other ATO computer systems; (g) look at whether there was a history of entry into payment arrangements and whether they had been complied with. In that context, he would look for whether the taxpayer was being proactive and seeking those payment arrangements in advance of going into any default and the explanations given for entering into the payment arrangement; (h) consider whether there were any outstanding lodgements. 135 Mr Michaud approved the new payment arrangement for CIA on 14 December 2012 (the third payment arrangement). He recorded his decision as follows: Payment arrangement Under 1.8.5 of the Taxation Authorisation Guidelines I approve the payment arrangement. Risk to revenue as per PS LA 2011/16 has been considered. The client is engaging with the ATO. PS LA 2011/14 conditions met and understood. 136 Mr Michaud's evidence is that he had no independent recollection of CIA, the payment arrangement he authorised on 14 December 2012 or his note. -- 30 of 118 -- [2026] WASC 327 COBBY J Page 31 137 Although he had no independent recollection of his note, Mr Michaud's evidence was that the reference to PS LA 2011/16 in the note was an error. 138 Mr Michaud's evidence was that in 2012 he regularly referred to Policy Statements LA 2011/6 and LA 2011/14 when determining whether to authorise a payment arrangement. Policy Statement LA 2011/6 was entitled 'Risk and risk management in the ATO', the stated purpose of the policy being '[t]o provide guidelines to staff on risk management in the context of dealing with outstanding taxation debts'. 139 Policy Statement LA 2011/14 was entitled 'General debt collection powers and principles', and its stated purpose included setting out the broad principles underlying the ATO's approach to the collection of tax debts and the circumstances in which the Commissioner would permit the payment of tax liabilities by instalments. 140 Policy Statement LA 2011/16, however, was entitled 'Insolvency - collection, recovery and enforcement issues for entities under external administration', and the stated purposes of the policy included '[t]o provide guidelines to staff to follow in relation to the factors to consider in determining whether to initiate bankruptcy or liquidation action', voting on proposals regarding alternatives to bankruptcy and liquidation, and other matters in relation to insolvency proceedings. 141 Mr Michaud's evidence is that he immediately recognised the reference to PS LA 2011/16 in his note to be an error when he was shown it, because he did not refer to PS LA 2011/16 in 2012 in the course of his duties, and he could not recall ever having relied upon that policy. Further, Mr Michaud stated that, having read the ATO's notes regarding CIA for 2012, there is nothing in the notes which he considers would have caused him to refer to PS LA 2011/16 in determining whether to approve CIA's request for a payment arrangement. 142 I accept Mr Michaud's evidence that he intended to refer to Policy Statement LA 2011/6, rather than 2011/16, in his note recording his decision to approve the payment arrangement recommended by Mr Teycheney. The reference to 'risk to revenue' having been considered is consistent with the contents and purpose of LA 2011/6. Further, Mr Michaud's reference to Policy Statement LA 2011/14 in the note is consistent with an intention to have regard to LA 2011/6, rather than LA 2011/16, because in 2012 [54] of LA 2011/14 expressly required decisions to accept a payment arrangement to be made by reference to the risk management guidelines contained in LA 2011/6. -- 31 of 118 -- [2026] WASC 327 COBBY J Page 32 143 For the same reasons, I find that the reference to LA 2011/16 in Mr Michaud's note dated 14 December 2012 was a typographical error, and does not demonstrate any knowledge or suspicion on his part that CIA was insolvent. 144 On 15 December 2012 the Company entered into a payment arrangement with the ATO for a debt totalling $3,281,363.06, replacing the previous arrangements. 145 Thereafter, CIA complied with that third payment arrangement, although two payments were a few days late, with the final amount due under the arrangement being paid on 25 February 2013. 146 On 18 December 2012 Mr Bath issued a summary report for the Arccon Group for the month ended 30 November 2012, in which he reported CIA had made a net profit after tax of $325,000 for the month, and said: Construction Industries Australia (CIA] has experienced a difficult FY13 YTD. The depressed earnings are principally the result of approximately $4.5m in losses booked against Sino project 5130. This significant turnaround in forecast margin on 5130 (from $3.lm forecast profit margin at Jun-12 to $2.2m forecast loss at Nov-12] is attributable principally to deterioration in the completion date for the project by at least 2 months. Work on the reimbursable project 5107 for MCC is likely to be continued into 2013 but at reduced level. For FYTD13, project 5107 has been the biggest profit contributor (monthly average GP of approximately $600k) and has provided a buffer against the project 5130 losses. CIA has been winning some additional work at the FMG Solomon site but not yet at a sufficient enough scale to replace the MCC Sino work which underpinned prior period profits in FY11 and FY12. … The slight silver lining to the above challenges is that the end of MCC work should result in a release of working capital through January and February, which will temporarily ease the cash flow pressures under which CIA has been operating. Cash flows will be further assisted by the drawdown on the EFIC facility of approximately $3m, provided MCC release the cash retentions they are holding in exchange for bank guarantees. … For the full year FY13, the updated 5+7 forecast (FS) for CIA is as follows: -- 32 of 118 -- [2026] WASC 327 COBBY J Page 33 Note: square bracketed number is the FY13 original budget. 147 An aged creditor report as at 31 December 201217 records CIA's creditors as totalling $1,471,919.91, of which $59,909.87 was over 90 days and $551,478.94 over 120 days. 148 I find that as at 31 December 2012 CIA had paid a total of $1.9 million to the ATO under the payment arrangements, leaving a balance of $2,731,363.06 due to the ATO under the most recent arrangement as at that date. CIA’s cash at bank as at that date was $3,335,722. 149 CIA's income tax return for the year ending 30 June 2012 was required to be lodged on 15 January 2013. I find that CIA would have been liable to pay income tax in the amount of $1,264,087 upon lodging its income tax return. 150 CIA did not lodge the return. There is no evidence that any employee of the ATO knew that CIA's 2012 income tax return had not been lodged before 13 May 2013, which is addressed further below. 151 On 1 February 2013 Troy Millen resigned his position as a director of CIA, and Michael Franklin resigned as director and company secretary on 18 March 2013. 152 According to the Australian Securities and Investments Commission's records, CIA had no directors following Mr Franklin's resignation. How CIA continued its operations after 18 March 2013 was not addressed in the evidence. 153 In 2012 and 2013, Ian Campbell worked in the Operations Production Management area of the ATO. His evidence was that area was responsible for the identification of batches of taxpayers, which were then allocated to the different areas of the ATO to be followed up. 154 The process for follow up included, for example, sending a letter to a batch of taxpayers by way of automated bulk process. 17 Ex 1173. Income $116.2mk [$133.lm]. Gross profit 8.6% 16.7% Total Overheads $5.0m [$7.4m]. EBIT $4.9m [$14.7m] NPAT $3.3m [$10.3m]. -- 33 of 118 -- [2026] WASC 327 COBBY J Page 34 155 At that time, Mr Campbell was aware that an area of the ATO referred to as Operational Analytics would run data analytics in respect of taxpayer information. The process involved identifying taxpayers for follow up by either the debt management division of the ATO or the separate non-lodgement division of the ATO. 156 In 2012 and 2013, Operational Analytics used computer algorithms created to automatically risk assess taxpayers. This did not involve a forensic examination of the individual entities. Instead, the system-driven algorithms gave risk ratings to taxpayers 'en masse'. 157 Mr Campbell's evidence was that the general types of factors which the computer algorithms identified included whether a taxpayer was a 'large taxpayer' in terms of the amount it had paid in prior years and also whether that taxpayer had an outstanding lodgement; and the computer algorithms used were backward looking in terms of whether there had been a non-lodgement and the quantum of any past tax return that had been lodged. 158 Depending on the weighting used, a batch of taxpayers would be flagged as 'high risk', which operated as a screening criteria to ensure that ATO case officers would only manually follow up taxpayers who had been pre-identified as potentially having a lodgement issue. 159 The work flow batch comprising 'high risk' taxpayers was then allocated to a non-lodgement team within the ATO for follow up by team members. Those team members would then work through that batch of taxpayers and make their own assessment based on the ATO policies that applied at the time about what further action should be taken. Generally, the options were to take no action; impose a penalty or commence the firmer action process to refer the taxpayer for prosecution within a different area of the ATO. 160 In May 2013, Martyn William Boyd was a Lodgement Officer APS Level 3 in the Tax Practitioner and Lodgement Strategy Business Service Line at the ATO. He had worked for the ATO since June 2006. 161 Mr Boyd's evidence was that he would be assigned case files by another department within the ATO. His responsibility was, broadly, to locate and engage with taxpayers in respect of outstanding income tax returns and business activity statements. Where appropriate, he would impose penalties, issue a formal notice requiring lodgment of the return or refer the taxpayer for prosecution by another business service line within the ATO. -- 34 of 118 -- [2026] WASC 327 COBBY J Page 35 162 He was assigned the CIA case file. On 13 May 2013 he recorded that the aim 'was to seek all outstanding obligations as found on [the ATO's computer systems] and seek lodgement via [business as usual processes] … or refer the client to [ATO Prosecutions] for further action.' 163 Mr Boyd recorded the same day that he spoke to Brendon Lawrence at (I infer) Nexia. Mr Boyd told him, in effect, that he was seeking CIA's outstanding 2012 income tax return. He recorded being told that 'the client is in process of consolidation', which was not expected to be completed for a while, to which Mr Boyd said that he would have to issue a final notice that day for the outstanding year. 164 Mr Boyd recorded that the tax agent was fully aware of the obligation to file the return and that Mr Boyd had, in effect, urged him to address the matter as urgent, as it could be referred to the ATO's prosecution team. 165 His evidence is that he did not understand what a 'consolidation' was at the time, and recorded the term because that was what he had been told. 166 Mr Boyd then took steps that day to issue a final notice to CIA requiring that CIA lodge its 2012 income tax return by 4 June 2013. The issue of the notice was approved for release by his supervising officer, Patricia Love. 167 CIA did not lodge the return, and on 19 June 2013 Mr Boyd caused a letter to be sent to CIA stating that the failure to lodge the return would be referred for prosecution without further warning if the return was not lodged and any overdue amount paid immediately. 168 The same day, Mr Boyd made a note recording that a decision had been made not to refer CIA to the ATO's prosecution team and to issue a failure to lodge penalty instead, as follows: 19/06/2013 - Case to be closed [No Further Action] - Decision not to pursue. Decision based upon the following factors; - 2012 ITR Outstanding. - Client had only a single year outstanding and given a risk assessment they are considered a low enough risk not to proceed to [ATO Prosecutions] at this stage. Client has a credit balance on the CAC and apart from [Failure to Lodge], no IT debt. As a result they are low risk to revenue and reputation. - [Failure to Lodge] has been applied as per FTL Guidelines and PS LA 2011/19 - I have discussed this case with my TA (Julian Wilson) and it is agreed that the case is to be closed NFA. - As client is in high risk category, they will be picked up by [Operational -- 35 of 118 -- [2026] WASC 327 COBBY J Page 36 Analytics] in the future when new contact information may come to light and AP action can continue. - Decision also in line with PS LA 2011/15' 169 Mr Boyd's evidence was that Operational Analytics was a division of the ATO that compiled and processed taxpayer data. Mr Boyd said that when he referred to CIA as being in a 'high risk category', he did not make that assessment, the practice at the time being that another division of the ATO would make that assessment (using processes with which he was not familiar) in order to compile a pool of taxpayers to be followed up in respect of outstanding lodgements. 170 Patricia Love's evidence was that she commenced employment with the ATO in January 2011 and in June 2013, was acting as a Compliance Officer Acting APS Level 4 officer in the Tax Practitioner and Lodgement Strategy Business Service Line at the ATO. 171 Ms Love's team of approximately 12 APS3 compliance officers was engaged in locating and engaging with taxpayers regarding outstanding income tax and business activity statements, which involved issuing formal notices requiring the lodgement of outstanding returns. Her team was not involved in debt or debt related matters. 172 Her evidence is that she reviewed Mr Boyd's decision to issue a final notice because he did not have authority to do so at that time. As the APS4 approving officer, she had authority to issue a final notice and was responsible for printing and posting the letter. 173 Julian John Wilson gave evidence that in June 2013, he was an Acting Technical Officer APS5 officer in the Tax Practitioner and Lodgement Strategy Business Service Line at the ATO, having commenced employment with the ATO in 2011. He had approximately 10 ATO officers working under his supervision whilst he was acting in that role. 174 As with Ms Love, the work of his team was to locate and engage with taxpayers regarding outstanding income tax and business activity statements lodgements. That work involved, as appropriate, the imposition of penalties, the issue of formal notices requiring lodgement of returns, or the referral of the taxpayer for prosecution by another business service line within the ATO. It did not involve debt or debt related matters. 175 Mr Wilson was responsible for reviewing and approving the closure of cases which members of his team had worked on, because APS3 case officers did not have authority to close cases which they had worked on. -- 36 of 118 -- [2026] WASC 327 COBBY J Page 37 He would review approximately 5 to 10 such requests from case officers a day. 176 He would type his comments into the Siebel system when he had completed his review. Having reviewed Mr Boyd's notes of 19 June 2013, Mr Wilson's evidence is that the categorisation of 'high risk' had been made by the Operational Analytics team within the ATO, and then sent to his team as part of a batch of taxpayers for follow up by the officers in his team. 177 Mr Wilson did not know the process by which the Operational Analytics team classified or categorised a taxpayer as 'high risk' or what such a categorisation meant. 178 On 19 June 2013 Mr Wilson made a note in the Siebel system to the effect that Mr Boyd had acted and recorded his decisions appropriately. Having read his and Mr Boyd's notes, and having regard to his practice at the time, Mr Wilson's evidence is that the matters which would have been important when considering whether to approve the decision to not pursue CIA in respect of its non-lodgement were: (a) that CIA's contact details had been updated, and the taxpayer had engaged with ATO about the outstanding lodgement; (b) that only a single lodgement was outstanding; (c) that a failure to lodge penalty had been imposed; and (d) that CIA would be picked up by ATO systems in the future if the lodgement remained outstanding and further action could be taken at that time if required. 179 On 21 June 2013 Arccon resolved in general meeting that CIA be wound up voluntarily and to appoint David Hurt and Kim Strickland as joint and several liquidators of CIA (the liquidators). 180 On the same day, Westpac made demand under the guarantee granted by CIA and Clifford Rocke and Scott Langdon were appointed to CIA as receivers and managers (the receivers) by Westpac. 181 CIA did not lodge its 2012 income tax return prior to the appointment of the liquidators and receivers. Issues for determination 182 The issues raised in the proceedings were: -- 37 of 118 -- [2026] WASC 327 COBBY J Page 38 (a) whether some or all of the alleged transactions were unfair preferences within the meaning of s 588FA of the Act; (b) if any of the alleged transactions were unfair preferences, whether those transactions were also insolvent transactions within the meaning of s 588FC - that is, was CIA insolvent as at the date of the transaction or did it become insolvent because of the giving of that preference; (c) if any of the alleged transactions were both unfair preferences and insolvent transactions, whether those transactions comprised voidable transactions within the meaning of s 588FE; (d) if any of the alleged transactions are voidable transactions, whether the Commissioner has a defence under s 588FG(2) in respect of any of those transactions; and (e) if there are any voidable transactions to which the Commissioner does not have a valid defence under s 588FG(2), the amount that the court should order the Commissioner to pay to the company under s 588FF. Solvency 183 Section 95A provides that: (1) a person is solvent if and only if the person is able to pay all the person's debts as and when they become due and payable; (2) a person who is not solvent is insolvent. 184 The case law and general principles in relation to the determination of insolvency were not in dispute. Those principles were set out in Appendix A to the updated joint expert report, the parties having instructed their respective expert witnesses to have regard to them in forming their opinions. 185 Having reviewed that summary, a copy of which is attached as attachment B to these reasons, I accept it as correctly stating the law. I have accordingly only referred to the authorities where necessary to make these reasons understandable in their own right. 186 LCM alleged that CIA was insolvent as at 12 October 2012 and therefore was to be presumed to be insolvent during the relevant period. -- 38 of 118 -- [2026] WASC 327 COBBY J Page 39 However, LCM pleaded in the alternative that CIA was actually insolvent as at that date and at all material times thereafter.18 187 Those alternative allegations bear upon which party bears the onus of proof on the issue whether CIA was insolvent during the relevant period. 188 To the extent that LCM relies upon the statutory presumption in s 588E(3), LCM bears the onus of establishing that CIA was insolvent as at 12 October 2012. If that contention is made out, the effect of s 588E(3) is that it is to be presumed that CIA was insolvent for the whole of the relevant period unless the Commissioner proves, on the balance of probabilities, that CIA was solvent for some or the whole of that period. 189 However, on its alternative case LCM bears the onus of proving facts which establish that CIA was insolvent throughout the relevant period, without reference to the statutory presumption.19 190 In Westgem Investments Pty Ltd v Commonwealth Bank of Australia Ltd20 the Court of Appeal explained some of the factors relevant to the assessment of insolvency as follows: In Box Valley Pty Ltd v Kidd , Basten JA observed: Although s 95A uses the present tense, namely that the person 'is' able to pay its debts, it refers to an ability or capacity, not a fixed state of affairs at a point in time. That is reflected in the use of the words 'able to pay', rather than has paid or is paying, and the reference to being able to pay debts 'as and when' they become due and payable. Accordingly, the statutory definition in s 95A does not affect the well-established principle that a temporary lack of liquidity does not constitute insolvency: Sandell v Porter (1966) 115 CLR 666 at 670 (Barwick CJ). Similarly, in Box Valley, Bryson JA observed that '[i]nsolvency is a state of affairs, not an event at a single point of time, and the question of solvency cannot be addressed in a narrow timeframe'. The company's position must be considered 'dynamically over a period rather than an instant of time'. The words 'as and when they become due and payable' make it clear that the determination calls for a degree of 'forward looking'. How far into the future the 'forward looking' assessment will go will depend upon all the 18 [50], Further Amended Statement of Claim. 19 See Playspace Playground Pty Ltd v Osborn [2009] FCA 1486 [43]; Carrello as Liquidator of Perrinepod Pty Ltd (In Liq) v Perrine Architecture Pty Ltd [2016] WASC 145, (2016) 112 ACSR 448 [25]. 20 Westgem Investments Pty Ltd v Commonwealth Bank of Australia Ltd [2022] WASCA 132 [555] - [560]. -- 39 of 118 -- [2026] WASC 327 COBBY J Page 40 circumstances, including the nature of the company's business and, if known, its future liabilities. The ability to pay debts as and when they become due is a question of fact, to be decided as a matter of commercial reality in light of all the circumstances taken as a whole. It is necessary to consider the company's financial position in its entirety, including its activities, assets, liabilities, cash and money which it could procure by sale or on the security of its assets, and its ability to obtain financial assistance by way of loan or subscription for share capital. A court, in determining the question of solvency, may take into account facts available in hindsight, ie, after the determinative date for solvency, if the facts shed light on the state of affairs at the time, and on what was, or ought to have been, known or knowable about the state of affairs. A temporary lack of liquidity must be distinguished from an endemic shortage of working capital. Palmer J referred to this distinction in Hall v Poolman and said: The first is an embarrassment, the second is a disaster. It is easy enough to tell the difference in hindsight, when the company has either weathered the storm or foundered with all hands; sometimes it is not so easy when the company is still contending with the waves. Lack of liquidity is not conclusive of insolvency, neither is availability of assets conclusive of solvency[.] In Sutherland v Hanson, Barrett J, after referring to Palmer J's observations above, continued: The emphasis must be upon the extent of cash and other liquid assets compared with the quantum of debts due and payable and to become due and payable in the immediate future. Insufficiency of cash or liquid resources to pay those debts is indicative of insolvency. The insufficiency becomes determinative if it is shown that it is more than a temporary lack of liquidity. In essence, there is a question whether the inability to pay is purely temporary. In order to see whether a temporary lack of liquidity can be overcome, one cannot overlook debts which will become payable during the period in which the lack of liquidity has been cured. (citations omitted) 191 Whether a company is able to pay its debts as and when they fall due and payable is a question of fact to be determined objectively and without hindsight in all the circumstances, including the nature of its assets and business, and the court is to have regard to commercial realities in that regard: White Constructions (ACT) Pty Ltd (in liq) v White [2004] NSWSC 71; [2004] 49 ACSR 220 [289]. -- 40 of 118 -- [2026] WASC 327 COBBY J Page 41 192 Although each case is to be decided on its own facts, insolvent companies tend to share common symptoms of financial stress, which include those identified by Mandie J in Australian Securities and Investments Commission v Plymin (No 1) (2003) VSC 123; (2003) 46 ACSR 126 [386]. 193 There are a number of subsidiary issues which are relevant to the determination of CIA's solvency at any point in time, being: (a) the period over which CIA's solvency should be assessed; (b) whether regard should be had to a contingent debt of approximately $11 million due by CIA to Westpac pursuant to a guarantee in determining CIA's solvency; (c) whether claims made by Concreting Australia Pty Ltd against CIA should be taken into account in the course of that exercise; (d) whether an income tax liability for the 2012 financial year of $1,264,087 which would have become due and payable at the time CIA lodged its income tax return for that year (the 2012 income tax debt) impacts on CIA's solvency at any point in time; and (e) the extent to which reliance can be placed on the information contained in: a. what the parties referred to as 'headroom reports'; and b. an analysis of the invoices received by CIA and their payment carried out by the liquidators' staff for the period 1 July 2012 to 30 April 2013 (the liquidators' trade creditors analysis). The effect of the payment arrangements 194 It was admitted on the pleadings that CIA entered into the three payment arrangements with the Commissioner. 195 It was also common ground that CIA's entry into payment agreements with the Commissioner did not defer CIA's liability to pay the debts the subject of those agreements. Each debt remained due and payable in full. 196 The weight of authority supports the proposition that the entry into a payment arrangement with the Commissioner does not affect the time at which the liability the subject of the arrangement is due and payable, -- 41 of 118 -- [2026] WASC 327 COBBY J Page 42 unless the Commissioner agrees that payment of that liability is to be deferred pursuant to s 255-10 or s 255-20 of Schedule 1 to the Taxation Administration Act: see Clifton v Kerry J Investment Pty Ltd [2020] FCAFC 5; (2020) 379 ALR 593 [504]-[507]; Stone (liquidator) Ironbark Blacksmithing Pty Ltd v Mizzi [2024] FCA 696 [332]-[335] . 197 The whole of the debts the subject of each payment arrangement between CIA and the Commissioner therefore remained due and payable as from the date each debt arose until that debt was paid, notwithstanding that it was agreed between CIA and the Commissioner that the Commissioner would only require payment by instalments over time. 198 Any assessment of CIA's solvency during the relevant period must therefore take into account any outstanding balance of the debts the subject of the third payment arrangement from time to time. The appropriate period of assessment 199 The words 'as and when they become due and payable' in s 95A(1) require looking into the future beyond the particular day on which the question of insolvency is to be determined. 200 How far into the future that assessment should be undertaken will depend on all the circumstances, the nature of the company's business and, if known, its future liabilities: Lewis (as liquidator of Doran Constructions Pty Ltd (in liq)) v Doran21; Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9).22 201 That usually involves looking only to the reasonably immediate future,23 but as identified by Jackson J in Re Cube Footwear Pty Ltd [2012] QSC 398, there is no magic formula, the relevant period having been found to be as short as one month and as long as two and a half years.24 202 There are two periods to be considered in the present case. The first is the date relied upon by LCM, being 12 October 2012. The second is the relevant period. 21 Lewis (as liquidator of Doran Constructions Pty Ltd (in liq)) v Doran21 [2005] NSWCA 243; (2005) 219 ALR 555 [103]. 22 Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9)22 [2008] WASC 239; (2008) 225 FLR 1 [1124] - [1129]. 23 Bank of Australasia v Hall [1907] HCA 78; (1907) 4 CLR 1514, 1527; Lewis (as liquidator of Doran Constructions Pty Ltd (in liq)) v Doran [2005] NSWCA 243, (2005) 219 ALR 555, [103]; Brooks v Heritage Hotel Adelaide Pty Ltd (1996) 20 ACSR 61, 65; Re Kolback Group Ltd (1991) 4 ACSR 165, 169. 24 Re Cube Footwear Pty Ltd [2012] QSC 39; [2013] 2 Qd R 501 n. 7. -- 42 of 118 -- [2026] WASC 327 COBBY J Page 43 203 Although Mr Strawbridge did not say so expressly, it appears that he considered CIA's position to 31 December 2012 in determining whether CIA was insolvent as at 12 October 2012. 204 Mr Hill's evidence concerned whether CIA was insolvent at any point throughout the relevant period. He did not directly consider whether CIA was insolvent as at 12 October 2012, but in his view, if it had been, CIA was solvent throughout the relevant period. 205 As at 12 October 2012, CIA had been a large withholder for three and a half months, the consequence of which was that CIA was required to pay PAYGW weekly, rather than monthly. CIA's trading terms appear to have been 45 to 60 days, while its trade creditors appear to have been generally payable on 30 days or 30 days from the end of month terms. 206 Of relevance is that CIA was required to lodge its 2012 income tax return on 15 January 2013. 207 In my opinion, it is appropriate to consider CIA's financial position over the period 12 October 2012 to 31 January 2013 in considering whether CIA was insolvent as at 12 October 2012, in order to assess whether CIA was experiencing a temporary lack of liquidity as at 12 October 2012, or an endemic shortage of working capital. An assessment over that period allows consideration of CIA's trading over, in effect, six months from the date the company became a large PAYGW withholder, so that any cashflow difficulties experienced by CIA arising from the more frequent obligation to pay tax is assessed on the basis that the company had had some time to address those difficulties. 208 Moreover, it allows for CIA's prospective income tax debt for the 2012 financial year, which should be regarded as being due and payable as from 15 January 2013 and is referred to in greater detail below, to be taken into account. The Westpac Guarantee 209 On 7 February 2012 Allmine entered into a banking facility agreement with Westpac (the 2012 BFA), whereby Westpac agreed to provide an overdraft facility of up to $11 million to Allmine. 210 The 2012 BFA provided, in effect, that Westpac could review the facility quarterly, annually, or at any other time after giving reasonable notice to Allmine. Further, if Westpac formed the view that there had been a material adverse effect, in the absence of agreement between Westpac and Allmine regarding the maintenance of the restructuring of -- 43 of 118 -- [2026] WASC 327 COBBY J Page 44 the facility within 30 days, Westpac was entitled to vary the terms on which the facility was provided or terminate it. 211 On 13 March 2012 CIA executed a guarantee in favour of Westpac in respect of money now or in the future owed to Westpac by companies within the Allmine Group25 including Allmine, CIA and Arccon. 212 Clause B5 of the guarantee provided that amounts payable under the guarantee were payable upon demand or when Westpac debited an amount to a guarantor's account. 213 There is no evidence that CIA was directly indebted to Westpac at any relevant time. 214 CIA therefore had a contingent liability to Westpac, contingent upon Westpac making demand for payment or debiting an amount against the company's account. 215 LCM did not plead that either contingency occurred. Instead, LCM opened its case on the basis that: (a) Allmine was in breach of certain covenants or that certain matters existed which constituted a Review Event as that term was defined in the guarantee, or that the company was insolvent from an unspecified date; (b) Allmine withheld information from Westpac about its financial position, breaches of covenants and matters constituting Review Events; and (c) if Allmine had not withheld that information from Westpac, the bank would have acted. It was not clear whether the plaintiff sought to argue that Westpac would have called on the Company's guarantee or whether it would have triggered the procedure available under the guarantee to vary the terms of or terminate the facility. 216 On 15 January 2013 Westpac issued a letter of offer dated 15 January 2013 to Allmine for the refinance of Allmine's banking facilities, on essentially the same terms as the 2012 BFA. Allmine and Westpac entered into a new business finance agreement on 4 February 2023 (the 2013 BFA). 25 Ex 70. -- 44 of 118 -- [2026] WASC 327 COBBY J Page 45 217 LCM alleged that the existence of the third payment agreement, made between CIA and the ATO on 15 December 2012, was not disclosed to Westpac at the time Westpac offered into the 2013 BFA. 218 On the evidence adduced, I find that was the case, but consider the failure to be of little significance. 219 That is because on 11 December 2012 Mr Franklin advised Darryl Chatt of Westpac by email26 that: As discussed last week and in response to your request for clarification, up until fairly recently, CIA was on a quarterly payment cycle for BAS and a monthly payment cycle for employee withholding taxes with the ATO. With the rapid growth of their workforce and the size of the payroll PAYG obligation, the ATO very quickly moved CIA to a weekly PAYG withholding tax payment cycle from the monthly cycle which would have resulted in a dramatic increase in the level of working capital investment given CIA's debtor payment terms remained the same at 45 - 60 days after these payments to the staff and the ATO were made. CIA was able to successfully negotiate with the ATO an alternative payment arrangement encompassing the June BAS obligation which was otherwise payable in late August, and the accelerated PAYG obligations that would have otherwise been due during late September and October, to the schedule included in the attached letter, so that the move from monthly PAYG remittances to weekly could effectively be phased in more gradually. This was done because we were aware that a large number of projects were being completed in October and November which will result in the return of a significant level of Practical Completion security bonds in December that were retained in the form of 5% cash retentions that would enable us to fund this increased level of working capital investment. Let me know if you have any further questions in this regard. 220 The letter said to have been attached to that email was not identified in the evidence. It is noteworthy that the email states it was written in response to a request by Mr Chatt for clarification, and that the timing of the email suggests that the payment arrangement identified in the email was likely the second payment arrangement made on 21 November 2012 between CIA and the Commissioner. 221 Accordingly, the salient facts regarding CIA's position - that CIA had not paid the BAS payment due in August 2012 and the PAYGW payments which were due in September and October 2012, and had made 26 Ex 1188. -- 45 of 118 -- [2026] WASC 327 COBBY J Page 46 an arrangement with the ATO about payment of those amounts - were disclosed to Mr Chatt and thereby Westpac by means of that email. 222 What was not disclosed in that email was that CIA had sought to enter into a further payment arrangement as of 11 December 2012. 223 Although the evidence adduced does not permit an assessment of the extent of the information provided to Westpac by Allmine or the Allmine Group, a letter from Allmine to Mr Chatt dated 5 March 2013,27 apparently for the purposes of a quarterly review under the 2013 BFA, was said to include copies of, amongst other things, a working asset statement, a forecast and cash flow report, a quarterly cash flow, and 'audited accounts for 31 December 2012'. 224 The working asset statement was in evidence.28 A question in the working asset statement as to whether Allmine's group taxes, GST, employee entitlements and other statutory taxes were not paid up to date and were not subject to a payment arrangement was answered in the negative. Allmine did not, however, provide the details requested in the statement where a negative answer was provided, but instead referred to copies of 'tax portals' which were said to be attached. Those attachments were not in evidence. 225 Although Allmine's answer left the extent of the failure to pay tax on time uncertain, the working asset statement disclosed to Westpac in March 2013 that, as at 31 December 2012, at least some of the Allmine Group's tax liabilities had not been paid, consistent with Mr Franklin's December 2012 email. 226 Further, by letter to the directors of Allmine dated 10 April 201329 Mr Chatt advised that Westpac had become aware: • That the market capitalisation of Allmine Group Limited is currently less than $28,000,000. Specifically, if we assess today there are 311,728,246 shares at a closing price as listed on the ASX at close of business 9 April 2013 of 0,056c giving a market capitalisation of $17,456,781. • That Mike Franklin has left the employ of Allmine Group Limited, and • That Ellerston Capital Limited lodged on 5th April 2013 with the ASX notice that they are ceasing to be a substantial shareholder. 27 Ex 504. 28 Ex 504. 29 Ex 538. -- 46 of 118 -- [2026] WASC 327 COBBY J Page 47 227 Mr Chatt went on to state that Westpac considered each of those events a Review Event and required Allmine to provide details surrounding those events to allow Westpac to review its funding commitment in terms of the 2013 BFA. 228 There was no evidence as to what, if any, information was provided to Westpac in response to that letter. 229 In addition, on 23 May 2013 Allmine requested that its shares be suspended from trading on the Australian Stock Exchange until mid to late June 2013, pending an announcement of the outcome of 'a strategic and financial review' into Allmine's financial position and performance against its earnings guidance.30 230 By letter dated 24 May 2013 to Allmine,31 Mr Chatt confirmed that Westpac was aware that 'a financial covenant breach (minimum market capitalisation) [had] occurred in relation to the banking facilities' held with Westpac, and advised that Westpac was in the process of investigating the situation and determining its position. He advised that Westpac was likely to be in a position to advise its position by 30 June 2013. 231 Aside from those documents, LCM did not adduce evidence from any officer of Westpac as to what information had been provided to Westpac at any point, what view Westpac took of that information, or what Westpac would likely have done in response to the provision of the information LCM pleaded was not disclosed to Westpac. 232 Although LCM submits that it should be inferred that Westpac would have acted to enforce its rights under the 2012 or 2013 BFAs had the matters it pleaded been disclosed to Westpac, the evidence is that Westpac knew that the Company had not paid its tax liabilities on time prior to its entry into the 2013 BFA and knew of the existence of at least a further three Review Events as at 10 April 2013. 233 In those circumstances, Westpac was entitled to exercise such rights as it may have had under the 2012 and 2013 BFAs and the guarantee as a consequence of CIA entering into the third payment arrangement and the Review Events of which it was aware in April 2013. 234 There was, however, no evidence of Westpac taking any step to exercise those rights prior to 21 June 2013, when it made demand on CIA 30 Ex 575. 31 Ex 579. -- 47 of 118 -- [2026] WASC 327 COBBY J Page 48 under the guarantee. Its correspondence in April and May 2013 indicated no more than that Westpac was considering its position. 235 In those circumstances, I am not satisfied that it should be inferred that Westpac would have acted other than it did had Westpac become aware of the existence of some other Review Event at some point in time after 11 December 2012. 236 Where a debt is payable only upon demand, it does not become legally due and payable until demand is made.32 I find that the debt to Westpac pursuant to the guarantee was not due and payable by CIA prior to 21 June 2013. 237 Further, although CIA therefore owed a contingent debt to Westpac under the guarantee throughout the relevant period and would have become insolvent if Westpac made demand thereunder, in the absence of evidence as to how Westpac viewed the Allmine Group's financial position and Westpac's willingness or otherwise to continue to support the Group, I am not satisfied that contingent debt should be taken into account in assessing CIA's solvency prior to 21 June 2013. 238 I note that White J reached a similar conclusion in Clifton v Kerry J Investment Pty Ltd t/as Clenergy,33 where his Honour considered a similar situation, it having been established that the company SSA was in breach of a number of covenants under a business facility agreement with Westpac, entitling Westpac to exercise various rights it enjoyed under the agreement. Relevantly, his Honour said:34 In short, while SSA was in breach of covenants in its 2011 Facility Agreement at 31 January 2011, it continued to have access to the facilities provided by Westpac (and in fact continued to do so until September 2011). Westpac had not declared the monies advanced under the facility to be due and payable. That being so, while the breach of covenants put SSA into a position of vulnerability, I do not regard the position of SSA under its Facility Agreement with Westpac as being a significant indicia of insolvency as at 31 January 2011. 239 I find that the existence of the Westpac guarantee and CIA's contingent liability to Westpac under it is not, to adopt the words of White J, 'a significant indicator of' the insolvency of CIA at any time prior to 21 June 2013. 32 Brooks v Heritage Hotel Adelaide Pty Ltd (1996) 20 ACSR 61, 64 - 65. 33 Clifton v Kerry J Investment Pty Ltd t/as Clenergy [2017] FCA 1379 (Clifton). 34 Clifton [188]. -- 48 of 118 -- [2026] WASC 327 COBBY J Page 49 240 It follows that I find that LCM has not made out its plea that the contingent debt due to Westpac by CIA was, by no later than 31 January 2013, reasonably likely to fall due and payable in the immediate future. 241 I note for the sake of completeness that, to the extent that Mr Strawbridge's opinion on this issue might be said to be admissible or relevant, Mr Strawbridge was not satisfied that Westpac would have called on the Westpac guarantee prior to 21 June 2013,35 and that he did not consider that any amount due by CIA to Westpac pursuant to that guarantee constituted a contingent liability of CIA during the relevant period.36 The Claims by Concreting Australia 242 Concreting Australia supplied plant and equipment to CIA for use on projects. It appears to have been a key supplier to CIA. 243 On 9 January 2013 Concreting Australia issued a letter of demand to CIA, which included an explanation of outstanding debts, but did not include a tax invoice for payment. 244 On 16 January 2013 Concreting Australia offered to accept $1,225,000 in settlement of the dispute, and on 21 January 2013 CIA paid $1,200,000 in settlement of the dispute, there being a $25,000 discount for early payment. It appears that the parties then entered into a settlement deed in relation to the dispute and that payment, but it was not adduced in evidence. 245 Concreting Australia subsequently engaged in further correspondence with CIA, asserting that there had been a lack of communication on the part of CIA regarding allegations of outstanding, damaged and non-returned equipment. It is not possible to assess whether those claims were the subject of the settlement in the absence of the settlement deed. 246 Concreting Australia subsequently lodged two proofs of debt in the liquidation of CIA, an undated informal proof of debt for $205,037.27 relating to operational costs, and a formal proof of debt dated 24 April 2017 for approximately $10 million. The formal proof of debt related to equipment which it was claimed had not been returned to Concreting Australia as at the appointment of the liquidators and operational costs. 35 Ex 20 [2.2.36]. 36 Ex 20 [2.2.38]. -- 49 of 118 -- [2026] WASC 327 COBBY J Page 50 247 Mr Strawbridge and Mr Hill agree that there is insufficient information available in relation to the Concreting Australia claims to regard those amounts as due and payable at any time during the relevant period. I am satisfied that is the position on the evidence adduced. 248 I have accordingly disregarded Concreting Australia's claims in assessing CIA's financial position during the relevant period. The 2012 Income Tax Debt 249 LCM pleaded that CIA did not lodge its income tax return for the 2012 financial year when due on 15 January 2013. 250 I find that, had it done so, CIA would have been liable to pay income tax of approximately $1,264,087 (the 2012 income tax debt). 251 The weight of authority supports the view that prospective liabilities37 - that is, a debt which is not immediately payable but will become due on a future date which is presently determined or will be determined by reference to future events38 - can be taken into account when determining solvency under s 95A, including for the purpose of voidable transaction claims under Division 2 of Part 5.7B of the legislation. 252 As the 2012 income tax debt would have become due and payable upon the lodgement of CIA's income tax return, and CIA was obligated by statute to lodge that return, the 2012 income tax debt is properly characterised as a prospective, rather than a contingent, debt. 253 The 2012 income tax debt should therefore be regarded as being, in effect, due and payable as from 15 January 2013 in assessing CIA's solvency. 254 Both Messrs Strawbridge and Hill agreed that their respective opinions as to CIA's solvency were unaffected whether or not the 2012 income tax debt was taken into account. That is of lesser significance in relation to Mr Strawbridge's evidence, given his opinion that CIA remained insolvent from 12 October 2012, but requires further consideration in the context of Mr Hill's opinion that the company could pay its debts and when they fell due in the relevant period. 37Edwards v Attorney General [2004] NSWCA 272; (2004) 60 NSWLR 667 [60]; New Cap Reinsurance Ltd (in liq) v Grant [2008] NSWSC 1015; (2008) 221 FLR 164 [75]; Fitzgerald v CBL Insurance Ltd [2014] VSC 493 [100]; Fitz Jersey Pty Ltd v Atlas Construction Group Pty Ltd (In Liq) [2021] NSWSC 1692 [1164]; 38 Edwards v Attorney General [59]. -- 50 of 118 -- [2026] WASC 327 COBBY J Page 51 255 There was no direct evidence as to why CIA did not lodge its 2012 income tax return on the due date. An explanation was provided to Mr Boyd months later, but there is no means of assessing the truth of that explanation and it was implausible on its face. 256 LCM submits that a finding should be made that the return was not lodged because those controlling CIA knew it to be insolvent. I am not satisfied that inference should be drawn, having regard to Allmine’s recent entry into the EFIC bond facility agreement and Mr Hill's evidence as to the solvency of CIA throughout the relevant period. 257 I infer, however, from the references in the 12 October 2012 headroom report to the payment of income tax being deferred and from CIA's entry into the third payment arrangement in December 2012, a few weeks before CIA was due to lodge its 2012 income tax return, that CIA delayed lodging the return in order to defer crystallising the liability to pay income tax, and thereby preserve liquidity. 258 I do not draw that inference past 18 March 2013, as CIA did not have a director after that date. In the absence of evidence as to whom, if anyone, was exercising management control of CIA after that date, I am not satisfied that any inference should be drawn as to why the tax return was not lodged thereafter. 259 The schedule of creditors attached to the liquidator's circular to creditors dated 2 July 2013 recorded the debt due to the ATO on liquidation to be $564,250.44.39 That figure does not appear to have included the 2012 prospective tax debt, CIA not having lodged its 2012 income tax return prior to the appointment of the liquidators. The state of CIA's books and records 260 Mr Brown's evidence, which I accept, was that CIA and Arccon used the 'Cheops' computerised accounting system, and that the liquidators initially acquired a copy of CIA's Cheops file from the receivers and managers. 261 However, that file only contained data to November 2011. 262 The receivers advised the liquidators' staff on 22 March 2016 that they were unable to provide a more recent Cheops file, due to one of the tapes taken at their appointment being corrupted. 39 Ex A22, appendix P. -- 51 of 118 -- [2026] WASC 327 COBBY J Page 52 263 So far as the physical books and records of CIA are concerned, the receivers appear to have taken possession of those documents upon their appointment. 264 Mr Brown's evidence was to the effect that the liquidators' staff sought a full list of CIA's books and records held by the receivers on 7 November 2013. On 14 November 2013 the receivers' staff advised, in effect, that the records held by the receivers in relation to CIA were stored in a number of boxes, but were intermingled with the records of other companies in the Allmine Group. The receivers nonetheless offered to make the whole of the boxes available to the liquidators, subject to the liquidators' undertaking to only examine those records relating to CIA and Arccon. 265 Mr Brown's evidence was that the liquidators did not request all of the boxes held by the receivers, but sought certain boxes when needed for review. 266 He did not locate any aged creditor reports for CIA in the boxes obtained from the receivers. 267 It was common ground between Messrs Strawbridge and Hill that they had not been provided with documents which they would consider formed part of a company's normal financial records, including: (a) monthly aged creditor reports setting out details of the amounts owed and ageing of debts to specific creditors, other than monthly aged creditor reports for December 2012, March 2013 and June 2013; (b) monthly aged debtor reports, other than aged debtor reports as at 31 December 2012, 31 March 2013 and 19 June 2013; (c) 13-week cash flow forecasts for CIA, other than a single weekly cash flow forecast for the period 27 October 2012 to 26 January 2013 which appears to have accompanied CIA's request to the Commissioner dated 25 October 2012 to enter into a payment arrangement in relation to certain outstanding tax; (d) monthly balance sheet statements for December 2012 and May 2013; (e) a monthly profit and loss statement for May 2013; (f) cash flow statements; -- 52 of 118 -- [2026] WASC 327 COBBY J Page 53 (g) work in progress reports, other than for August 2012 and March 2013 (h) plant and equipment listings, although a list was provided attached to a report as to affairs provided to the liquidators for lodgement with the ASIC; (i) monthly reports by CIA's chief financial officer, other than for 30 September 2012 and November 2012; (j) board reports; (k) general ledger reports including details for key accounts; (l) material contracts; and (m) given the contents of what the parties referred to as the 'headroom reports', aged creditor reports for the same dates as the headroom reports which included a detailed listing of overdue creditors. The headroom reports 268 In the absence of the accounting records usually used to assess a company’s solvency, Messrs Strawbridge and Hill had regard to the headroom reports, although they disagreed on a range of matters regarding them, particularly as to what reliance could be placed on those documents for the purposes of determining CIA's financial position at any particular time. 269 Each headroom report purported to forecast CIA's financial position at the end of the month in which it was prepared - usually a period of about two weeks. 270 Each headroom report showed a closing cash balance (i.e. cash at bank) on the date of the report, which appears to have been derived from CIA's actual cash at bank. The report then recorded amounts said to be due to CIA from trade debtors in respect of particular contracts in the current and next months, and the amounts due by the end of the month in respect of those claims. 271 Each report also recorded CIA's payroll obligations to the end of the month, the amount to be paid to the ATO at the end of the month, and estimated creditor payments to the end of the month. With the exception of the ATO, the headroom reports did not identify individual trade creditors. -- 53 of 118 -- [2026] WASC 327 COBBY J Page 54 272 The headroom reports did not purport to contain any information regarding the ageing of creditors which existed at the end of the previous month, nor whether any individual creditor's debt was outside the agreed terms for payment by CIA (including any agreement that payment of the debt be deferred) or was disputed. 273 At the time Messrs Strawbridge and Hill first prepared their initial reports, there were only seven headroom reports available to the parties, all but one of which was in PDF form. 274 Approximately 250 headroom reports, in the form of Excel spreadsheets, were subsequently obtained on subpoena from Mr Franklin. Those additional documents established that the headroom reports were prepared regularly by CIA and formed part of its ordinary management reporting. 275 In his first report, Mr Strawbridge stated that the headroom reports were not proper cash flow forecasts because they: (a) were prepared for a period of approximately two weeks, which he considered insufficient given his opinion that CIA's trading conditions were declining; (b) made a separate analysis of outstanding debtors and retentions regardless of due dates against only creditors and payroll obligations relating to the month of the forecast; (c) forecast the receipt of all overdue debtors every month, which given their ageing, appeared unrealistic; and because that (d) it was unclear whether the estimated creditor payments included any ongoing expenses which were not invoiced to CIA, so that cash outflows might be understated; and (e) the April 2013 Headroom Report did not include actual transfers of funds to related entities during the period of the forecast. 276 In his second report, Mr Strawbridge's evidence was to the effect that the approximately 250 Excel documents identified after his first report was prepared contained the following worksheets: (a) 'Forecast to EOM', being a detailed cash flow timeline to the end of the month of the report detailing actual due dates for debtors, creditors, payroll and tax items; -- 54 of 118 -- [2026] WASC 327 COBBY J Page 55 (b) 'ATO Payment Arrangements' which detailed ATO debts subject to payment arrangements and their due dates; (c) 'Unpresented Cheques' which set out unpresented cheques issued by CIA; and (d) 'Payroll and Oncost Cashflow' which detailed amounts and expected due dates for payroll, PAYGW, superannuation, redundancy and payroll tax. 277 Mr Strawbridge's evidence was that the existence of those worksheets supported the use of the headroom reports for assessing solvency as they showed the workings behind the reports, and, in the absence of detailed cashflow forecasts and creditor ageing reports, were 'reasonable' or 'appropriate' documents to assess the debts due and payable by CIA and its solvency. 278 Mr Strawbridge acknowledged, however, that other than those worksheets he had not identified in the additional documents provided to him after his first report any other financial records relevant to verifying the numbers and calculations in the headroom reports.40 279 Nor was Mr Strawbridge provided with documents to verify with any degree of certainty whether actual receipts and payments to and from CIA's bank accounts matched the forecast receipts and payments in the headroom reports, or if the amounts said to be due and payable or expected to be recovered were correct. 280 Although the headroom reports did not identify individual creditors other than the ATO, in Mr Strawbridge's opinion the identification of individual creditors was not necessary to be able to rely on the headroom reports for the purpose of assessing solvency, since the assessment of solvency looks at all of the company's debts.41 281 Mr Strawbridge's evidence was that the absence of additional documentation to verify the amounts, terms and the like stated in the headroom reports did not make the documents inappropriate or the information contained within incorrect, but that they instead comprised the books and records of CIA used to assess its cash position and its ability or inability to pay its creditors.42 40 Ex 228 [5.2.2 (e)]. 41 Ex 228 [5.2.2(m)]. 42 Ex 228 [5.2.3] -- 55 of 118 -- [2026] WASC 327 COBBY J Page 56 282 He considered, however, that adjustments would need to be made to the headroom reports to use them in the assessment of solvency in these proceedings, including: (a) removing debtors and retentions not recovered with the benefit of hindsight; (b) including the full balance of the ATO debts subject to payment arrangements; and (c) disregarding the amounts in the 'Total Amounts Due Up to Date (incl. GST)' far right-hand column of the Headroom Reports as they are for indeterminate time periods. 283 Each of the headroom reports calculated the total payment claims issued by CIA to its customers in the previous month, which in each report are forecast to be collected in the following month. 284 The worksheets which comprised part of the Excel spreadsheet versions of the headroom reports showed that, of the amount forecast to be collected, the reports assumed that CIA would generate a 10% margin on the payment claims, so that CIA's costs in respect of those amounts were assumed to be 90% of the amounts invoiced. 285 The estimated payroll costs were then deducted from the estimated costs, to derive an estimate of the creditors payable at the middle and end of the month the subject of the report. 286 Further, Mr Hill's evidence was that the Microsoft Excel versions of the headroom reports indicated that those estimated end of month creditor amounts for each report between 31 August 2012 and 21 March 2013 were increased by amounts between $275,000 and $2.2 million. Of particular significance for present purposes was an increase of $2.2 million in the headroom report dated 12 October 2012. 287 Mr Hill's evidence was that the Excel spreadsheets showed that the adjustments made to the prior month's balance varied during the month. His unchallenged evidence was that during October 2012 the adjustment in the headroom report dated 1 October 2012 was $2 million, was increased to $2.2 million in the 12 October 2012 report, reduced to $1 million in the report dated 17 October 2012 and increased to $2 million in the report dated 31 October 2012. In Mr Hill's opinion, those changes, in the absence of explanation, were inconsistent with what should have been the known amount of outstanding creditors from the prior month. -- 56 of 118 -- [2026] WASC 327 COBBY J Page 57 288 Similarly, it was recorded in the worksheets relating to the headroom report dated 13 December 2012 that Mr Youngberg, added $2.2 million to estimated creditors, with the comment 'Reasonableness check appears low, $2.0m added'. 289 If those increases were not included in the headroom reports, the reports would have shown CIA to be achieving cash flow surpluses at the end of each month from 31 October 2012. 290 In a number of cases, the adjustment to the calculation of the amounts due to creditors produced a figure which was less than the payroll for that month, resulting in a positive figure owed to CIA. 291 That outcome appears unlikely, given the nature of those entries. Where that occurred, the increase was offset by the inclusion of a negative creditor balance. 292 Mr Hill's opinion was that, given the formulaic calculation of the creditor amounts recorded in the headroom reports and the subsequent adjustments to them, the amounts recorded as being due to creditors at the middle or end of each month might bear little resemblance to the amounts actually due as at those dates. 293 Mr Strawbridge opined, however, that 'a lack of other documentation to understand the calculations and amounts in the headroom reports does not mean that the amounts are necessarily incorrect'.43 He considered that the manual adjustments to the headroom reports indicated that the creditors amounts were not solely calculated using the formula (which I understood to be the formula identified by Mr Hill) and that there was a review process. Mr Strawbridge's evidence was that the adjustments could be viewed with the intended purpose of 'making the cell value equal to a certain creditors amount', which Mr Strawbridge regarded as evidence that the contents of the headroom reports were reviewed. 294 The gravamen of the evidence is therefore: (a) Mr Strawbridge's view is that the headroom reports were appropriate documents to make an assessment of the amount of CIA's debts which were due and payable and its solvency, in the absence of other classes of documents which would ordinarily be used to do so; 43 Ex 228 [5.2.16]. -- 57 of 118 -- [2026] WASC 327 COBBY J Page 58 (b) the numbers and calculations used in the headroom reports could not be verified; (c) Mr Strawbridge was unable to verify actual receipts and payments to and from CIA's bank accounts against the forecast receipts and payments in the headroom reports, but in Mr Strawbridge's view not being able to conduct an analysis whether the forecasts were accurate did not mean that they were incorrect; (d) the headroom reports did not identify individual creditors other than the ATO. 295 I am not satisfied that the headroom reports should be accepted as satisfactory evidence of the state of CIA's financial position at any particular time. I find that the formulaic calculation of CIA's profit margin, which produced an estimated position rather than a calculation of the actual costs and margins achieved; the inability to verify the figures and calculations which appear in the reports, in a context where substantial changes are made to the reports from time to time the reasons for which themselves cannot be identified or verified; the inability to assess whether the forecasts contained in the headroom reports were at least reasonably accurate as compared to actual receipts and payments for the periods forecast in the reports; and the lack of identification of creditors, including the aging of their debts, means that the accuracy and reliability of the information contained in the reports is problematic. 296 In my opinion, the fact that the headroom reports appear to have been used by CIA's management did not establish that the contents of those reports were sufficiently reliable to draw any conclusions as to the solvency or otherwise of CIA at any particular point in time. 297 Any conclusions said to have been derived from the headroom reports as to CIA's solvency at any point in time must therefore be approached with considerable caution. The liquidator's trade creditors analysis and Mr Hill's adjusted trade creditors analysis 298 Exhibit 441 (the liquidators' trade creditors analysis) comprised an Excel spreadsheet containing 5,952 lines of data related to an analysis of the payment of CIA's trade creditors over the period 1 July 2012 to 30 April 2013.44 44 Sixty invoices were included in the analysis with no date of payment recorded. -- 58 of 118 -- [2026] WASC 327 COBBY J Page 59 299 For each invoice paid, the spreadsheet set out the name of the creditor; the date of the invoice; the invoice number; the date the invoice was received; the amount of the invoice including GST; the payment terms; the date when payment was due to be made by CIA; and the date the invoice was paid. 300 Mr Brown's evidence45 was that the spreadsheet was prepared by members of the liquidators' staff spending hours or days entering the information contained in the physical invoices held by the liquidators on a computer. 301 Mr Hill reviewed the analysis for the purposes of these proceedings. His evidence was that the accuracy of the information recorded for each invoice varied, with some information not being recorded for each invoice, including: (a) while payment terms were recorded for 4,673 invoices, that information was not recorded in respect of 1,279 invoices; (b) where payment terms were entered, it appears that over 80% of invoices have payment terms of either 30 days or 30 days from end of month; (c) payment terms for certain creditors were inconsistent across the invoices recorded for those creditors; (d) the date received has been entered for 5,189 invoices, with no received date recorded for 763 invoices; (e) the invoice date is not recorded, or not properly recorded for 33 invoices; (f) due dates are not recorded for 6 invoices; and (g) the date paid is not recorded for 61 invoices. 302 Mr Hill also identified 208 invoices which may have been incorrectly recorded in the analysis, based on the information contained within the analysis itself. Those potential errors included: (a) 171 invoices where the date the invoice was received is before the invoice issue date; (b) 17 invoices where the date due is before the invoice issue date; 45 Ts 421 -- 59 of 118 -- [2026] WASC 327 COBBY J Page 60 (c) 16 invoices where the date paid is before the invoice issue date; and (d) 26 invoices where the date paid is before the date the invoice was received. 303 In addition, Mr Hill reviewed a random sample of 250 payment records with the spreadsheet. In reviewing those records, Mr Hill noted that there were a number of stamps or other marks on the documents recording the date received, the date due, and payment details, date and approval. 304 He noted that in some cases, the invoices included a due date on the face of the invoices or its trading terms (e.g. 30 days) as well as (presumably) a CIA stamp recording a different due date. In those cases, he relied upon the information on the face of the invoice rather than any stamp on the invoices to determine the accuracy of the Trade Creditors Analysis. 305 Of the 250 invoices reviewed by Mr Hill, the information recorded in the trade creditors analysis matched the information shown in the invoices in 74.9% of the invoices reviewed. Of the remaining 25.1%, the errors comprised:46 Invoice not listed in Trade Creditors Analysis within the analysis period 12 Duplicate invoices 3 Invoice number incorrect 3 Invoice amount incorrect 14 Date due incorrect 30 Stamp date does not match analysis 6 Stamped date received does not match analysis 8 Stamped date paid does not match analysis 2 306 Having regard to the errors in the spreadsheet and the sample of invoices Mr Hill had reviewed, Mr Hill's opinion was that the analysis was unreliable. His evidence was that he reviewed and amended the methodology for determining whether an invoice had been paid late, as follows: 46 The number of errors is greater than the number of invoices incorrectly as there were multiple errors in respect of certain invoices. -- 60 of 118 -- [2026] WASC 327 COBBY J Page 61 (a) where the received date for the invoice was recorded as being after the due date, he calculated the revised due date as being the date calculated from the received date by applying the recorded trading terms (e.g. 30 days) from that date. If the trading terms were not recorded, it was assumed the payment terms were the amount of days between the invoice date and due date recorded in the Trade Creditors Analysis; (b) where the invoice was received more than seven days after the invoice date, Mr Hill calculated a revised due date by applying the trading terms to the received date. If the trading terms were not stated, it was assumed the terms were the amount of days between the invoice date and due date recorded in the Trade Creditors Analysis; (c) where the invoice was received within seven days of the invoice date, the due date in the Trade Creditors Analysis was left unchanged. 307 Mr Hill's evidence is that, once those adjustments are made, all invoices paid by CIA during the relevant period (including invoices paid on time) were paid, on average, 9.4 days late. If Mr Hill's adjustments are not made, then the average for all invoices was 18.8 days late. In each case, those averages were across the whole of the period 1 July 2012 to 30 April 2013. 308 CIA paid 1088 invoices during the relevant period. Mr Hill's opinion was that a payment profile averaging 9.4 days late over that period is not indicative of a company undergoing an endemic cash flow shortage. 309 Mr Strawbridge was not instructed to consider the liquidators' trade creditors analysis. His evidence was that he did not have regard to it, although I note that he stated at [4.2.9] of his second report that the analysis showed $3,565,366.90 in debts were due and unpaid by 30 November 2012. 310 Further, Mr Strawbridge criticised Mr Hill's review of the liquidators' trade creditors analysis on the basis that Mr Hill excluded invoices which were not paid during the relevant period.47 However, Mr Hill's analysis was of the delay in CIA's payment of invoices, as shown in the trade creditors analysis. Due to the nature of Mr Hill's 47 Ex 21 [5.3.7(a)]. -- 61 of 118 -- [2026] WASC 327 COBBY J Page 62 analysis, the exclusion of invoices which were not paid by Mr Hill was consistent with the task being undertaken. 311 LCM's failure to instruct Mr Strawbridge to consider the liquidators' trade creditors analysis is surprising, given Mr Strawbridge's initial opinion that the headroom reports were inadequate to form a view about cashflows, and the difficulties with CIA's books and records generally. 312 Clause 16.2.1 of the assignment deed made between CIA, the liquidators and LCM dated 17 January 2022 required the liquidators to give to LCM copies of any books of CIA or the liquidators in so far as they bore on any assigned claim and were in the possession or under the control of the liquidators. 313 As the liquidators' trade creditors' analysis appears to have been prepared prior to the liquidators' assignment of the claims pursued by LCM in these proceedings, there would seem to have been no reason why LCM could not have remedied any defect in the analysis, or carried out the task afresh. 314 In my assessment, the liquidators' trade creditors' analysis, as adjusted by Mr Hill, constitutes some evidence as to whether CIA was paying its trade debtors, and when it was doing so. As Mr Hill acknowledged, the analysis is not entirely reliable, given the errors obvious on the face of the document and as identified in Mr Hill's review of a small sample of invoices. 315 The liquidators' trade creditors' analysis is therefore not conclusive evidence, but some evidence, as to whether CIA paid its trade creditors when due. Was CIA insolvent as at 12 October 2012? 316 Mr Strawbridge's evidence in his first report was that creditors 'were being stretched' at least during the period July 2012 to December 2012, but he did not have sufficient information to reliably quantify the portion of total creditors each month that were not paid in accordance with trading terms,48 nor whether payments were made to creditors in rounded amounts.49 317 As at 27 September 2012, CIA was indebted to the Commissioner in the amount of $1,350,664.14, which was immediately due and payable. 48 Ex 20 [8.10.1] 49 Ex 20 [8.14.1]. -- 62 of 118 -- [2026] WASC 327 COBBY J Page 63 318 As at that date, CIA's cash at bank comprised $1.55 million. Its other assets were essentially its trade receivables. 319 Mr Strawbridge's evidence was that, based on his review of the PAYGW from 1 July 2012, CIA failed to pay PAYGW from 20 September 2012 to 29 October 2012, a period of 40 days. 320 Outside of these dates, CIA largely complied with its PAYGW withholding payment obligations, failing to pay on time on one occasion on 27 August 2012. 321 On 5 October 2012 Mr Youngberg informed the Commissioner that CIA was unable to pay its CAC debt of $1,374,715.48 in full, and sought a payment arrangement. 322 On 15 October 2012, Mr Franklin, having received the 12 October 2012 headroom report, emailed other officers of CIA to the effect that the company had $3.9 million in overdue debtors, insufficient cash to pay mid-month creditors and payroll of that week 'let alone the tax man', and that Allmine did not have funds to advance to CIA in the short term. 323 It appears that Mr Franklin's reference to $3.9 million in overdue debtors was a reference to CIA's forecast funding requirement as at 31 October 2012 of $3,868,363.50 324 As I have said, it is not clear to me whether Mr Franklin was aware that the figure for creditors in the 12 October 2012 headroom report had been increased by $2.2 million. I assume from his reference to $3.9 million that he was not aware of that change. 325 Neither Mr Youngberg's statement nor Mr Franklin's email are sufficient to establish that CIA was insolvent as at 12 October 2012, although they evidence an inability to pay the debt due to the Commissioner and potentially other debts at that point in time. Neither man directly addressed the question whether CIA would be able to make those payments in the near future. Both statements also fall to be considered in the context of neither Arccon nor the directors of CIA having taken any step in 2012 to appoint administrators to CIA. 326 CIA did not pay its weekly PAYGW liabilities in October 2012, with the consequence that CIA's debt to the ATO increased to $3,335,135.84 by 2 November 2012, with cash at bank of $1,801,987.04 as at that date. 50 Ex -- 63 of 118 -- [2026] WASC 327 COBBY J Page 64 327 Proof of a failure to pay one debt ordinarily does not prove insolvency,51 s 95A being concerned with the inability to pay all debts as and when they fall due. Further, unwillingness to pay one's debts is distinct from an inability to pay those debts as and when they fall due.52 328 There is, however, nothing to suggest that CIA did not pay its tax debt in October 2012 for any reason other than the lack of presently available funds with which to do so. An email from Mr Youngberg to the directors of CIA and others dated 3 October 2012 evidences that Mr Youngberg was, at the least, suggesting to the directors that CIA defer payment to the ATO of PAYGW tax and GST during October 'as required', while still prioritising those payments to minimise the interest that might be imposed for late payment.53 329 Proof that CIA was unable to pay its existing tax debt within the assessment period would be strong evidence of insolvency, because it would constitute evidence that it could not pay all its debts as and when they become due. 330 However, as Barrett J said in Noxequin Pty Ltd v Commissioner of Taxation: The emphasis must be upon the extent of cash and other liquid assets (by which I mean assets readily convertible into cash), compared with the quantum of debts due and payable and to become due and payable in the immediate future. A comparison between the two can be made only as at a particular point but a state of solvency requires that, at each such point, the cash and liquid assets be sufficient to cover the debts due and payable and to become due and payable in the immediate future. But it is going too far to say that insolvency exists if there is, at a particular point, insufficiency. Such insufficiency is indicative of insolvency but is also consistent with the possibility of a temporary lack of liquidity. The indication of insolvency will be confirmed if the insufficiency represents an 'endemic shortage of working capital': Hymix Concrete Pty Ltd v Garritty (1977) 2 ACLR 559 Noxequin Pty Ltd v Commissioner of Taxation [2007] NSWSC 87 [15]. 331 Mr Strawbridge's opinion, based on the headroom reports as at 12 September 2012, 12 October 2012, 14 November 2012 and 13 December 2012, and accounting for their key limitations, was that CIA was unable to pay its due and payable debts by the end of each month and had a significant shortfall of resources to do so.54 51 Sandell v Porter (1966) 115 CLR 666 at 671-2. 52 Re Sarina; Ex parte Wollondilly Shire Council (1980) 32 ALR 596, 599. 53 Ex 288. 54 Ex A20 [2.2.17]. -- 64 of 118 -- [2026] WASC 327 COBBY J Page 65 332 In reaching that view, Mr Strawbridge placed reliance on the 12 October 2012 headroom report showing creditors due but not paid from September 2012 to be $1.7 million.55 333 Mr Strawbridge agreed in cross-examination that the level of creditors to be paid during October 2012 could not be verified,56 and that the headroom reports were not reliable documents for the purposes of assessing solvency.57 334 I have found that the headroom reports are not a reliable source of information for assessing the solvency of the company. At [5.1.6] of the Updated Joint Expert Report,58 Mr Strawbridge opined (in the context of whether it had been shown that CIA was solvent during the relevant period) that, 'if the Headroom Reports are not appropriate documents to assess solvency, there is also insufficient documentation to determine all of the due and payable debts of the Company and to satisfy the forward- looking aspect in proving solvency'. 335 With respect to Mr Strawbridge, I do not see why a similar approach should not be taken to the headroom reports on which he relied in coming to the view that CIA was insolvent as at 12 October 2012. In my assessment, the deficiencies in those documents remained the same throughout the period material to these proceedings. 336 In assessing CIA's solvency as at 12 October 2012, a determination has to be made as to whether CIA was capable of paying its creditors as and when they fell due. If the figure of $1.7 million for creditors said to be due in September 2012 but not paid in the 12 October 2012 headroom report is not reliable, because it cannot be verified, there is limited evidence as to whether CIA was not paying its other creditors when due as at that date. 337 The exception is CIA's aged creditors listing as at 31 December 2012, which showed debts totalling $507,697 in creditors outstanding for more than 90 days. Those debts would therefore have been due and payable as at 12 October 2012. 338 There is no evidence as to whether any particular debt was disputed or the subject of any agreement as to delayed payment. 55 Ex A20 [2.2.19(a)]. 56 ts 532. 57 ts 533. 58 Ex A23. -- 65 of 118 -- [2026] WASC 327 COBBY J Page 66 339 In the Updated Joint Expert Report, Mr Strawbridge referred to the liquidators' trade creditors analysis as 'indicating that significant debts were paid past their due dates from November 2012 to March 2013. In particular, debts totalling $3,565,366.90 were due and unpaid by 30 November 2012', which Mr Strawbridge opined supported his assessment of CIA's insolvency as at 12 October 2012, while also pointing out that he had not been provided with and not reviewed that analysis.59 340 It was not explained why Mr Strawbridge did not draw upon the liquidators' trade creditors analysis to assess CIA's level of unpaid creditors as at 12 October 2012. 341 LCM bears the onus of proof of establishing that CIA was insolvent as at 12 October 2012. Given the state of CIA's books and records and the unreliability of the headroom reports, the best indication as to whether CIA was paying its creditors as and when they fell due at 12 October 2012 was to consider all of its debts as at that date and when those debts were due and payable. 342 In Quick v Stoland Pty Ltd,60 Emmett J said: Under s 95A of the Corporations Law, a person who is not solvent is insolvent and a person is solvent if and only if the person is able to pay all the person's debts, as and when they become due and payable. In order to determine whether the Company was solvent at a given time, it would be relevant to consider the following matters: • All of the Company's debts as at that time in order to determine when those debts were due and payable. • All of the assets of the Company as at that time in order to determine the extent to which those assets were liquid or were realisable within a time frame that would allow each of the debts to be paid as and when it became payable. • The Company's business as at that time in order to determine its expected net cash flow from the business by deducting from projected future sales the cash expenses which would be necessary to generate those sales. • Arrangements between the Company and prospective lenders, such as its bankers and shareholders, in order to determine whether any shortfall in liquid and realisable assets and cash flow could be 59 Ex A23 [5.1.3(q)]. 60 Quick v Stoland Pty Ltd (1998) 87 FCR 371, 379. -- 66 of 118 -- [2026] WASC 327 COBBY J Page 67 made up by borrowings which would be repayable at a time later than the debts. 343 His Honour's reference to the consideration of all of the company's debts is apposite in this case, given the accounting records relevant to the assessment of solvency Messrs Strawbridge and Hill agreed were unavailable and the liquidators having, however imperfectly, undertaken that analysis. In cross-examination, Mr Strawbridge accepted that the biggest problem he and Mr Hill faced in preparing their reports was a lack of books and records of CIA. 344 As LCM was entitled to a copy of CIA's books and records, it was within LCM's ability to produce evidence of which of CIA's debts were due and payable as at 12 October 2012 and which remained unpaid. 345 Following the payment of $1.9 million by CIA to the Commissioner pursuant to the payment arrangements made between 2 November and 14 December 2012,61 CIA remained indebted to the Commissioner in the amount of $2,731,363.06 as at 21 December 2012,62 being the date the relevant period commenced. 346 CIA had cash at bank of approximately $4.38 million as at that date. 347 Although that is not determinative of CIA's solvency, in assessing CIA's ability to pay its debts looking forward, Mr Strawbridge accepted in his first report that CIA could pay its debts from 31 January to 30 April 2013, although that was based on the headroom reports as adjusted by him.63 Mr Strawbridge's opinion was that CIA's cash position improved from 31 January 2013 due to the winding down in CIA's operations. 348 In particular, Mr Strawbridge accepted that CIA had cash in excess of the 2012 income tax debt (which I have characterised as a prospective liability due and payable as of 15 January 2013), the debt the subject of the third payment arrangement with the ATO and its overdue invoices as at 31 January 2013, although he did not concede that CIA was solvent as at that date. 349 Given the limited evidence as to whether CIA was paying its debts on time as at 12 October 2012, it is significant that a number of the recognised indicia of insolvency are not present in relation to the company as at 12 October 2012. An inquiry into whether insolvency existed at a particular time is usually assisted by ascertaining whether 61 Ex 715. 62 Ex 786. 63 Ex A20 [6.2.79], [6.3.55]. -- 67 of 118 -- [2026] WASC 327 COBBY J Page 68 what Palmer J described as 'the usual indicia of insolvency' in Lewis v Doran,64 are present, being: (a) a history of dishonoured cheques; (b) suppliers insisting on COD terms; (c) the issue of post-dated or 'rounded sum' cheques; (d) special arrangements with creditors; (e) inability to produce timely, audited accounts; (f) unpaid group tax, payroll tax, workers compensation premiums or superannuation contributions; (g) demands from bankers to reduce overdraft and other evidence of deteriorating relations with bankers; (h) receipt of letters of demand, statutory demands and court processes for debt. 350 Other than one letter of demand from a supplier advising of a debt of $17,889.78 and that CIA's account was suspended until payment was made,65 there was no evidence of CIA's suppliers having required payment on delivery or that some other payment be made before resuming supply. 351 It could reasonably be expected, if CIA was failing to pay its creditors timeously, that those persons would have demanded to be paid, but there was no evidence that occurred. 352 With the exception of the NILAs issued by the Commissioner on 10 October and 11 December 2012, there is no evidence that creditors threatened to commence debt recovery proceedings against or threatened to wind up the company during the period to 31 January 2013. 353 Mr Hill's evidence was that CIA made a large number of payments by cheque, but Messrs Hill and Strawbridge agreed that there was no evidence of the dishonour of any cheques or of cheques being postdated, nor any evidence of payments being made to trade creditors in rounded sums. 64 Lewis v Doran [2004] NSWSC 608; (2004) 208 ALR 385. 65 Ex A20 [8.9.1]. -- 68 of 118 -- [2026] WASC 327 COBBY J Page 69 354 There was no suggestion that CIA's employees were not paid on time during the relevant period, or that their superannuation entitlements were not paid. 355 Mr Walkem resigned as director of CIA on 5 November 2012, but stayed on to complete a limited number of tasks at the request of the board. 356 In my opinion, acknowledging that the liquidators’ trade creditors analysis is to be regarded as unreliable to an extent, when the evidence is viewed as a whole the court can be reasonably satisfied that CIA was paying its debts within a period generally acceptable to its creditors during the period 12 October 2012 to 31 January 2013, so that, viewed as a matter of commercial reality, CIA has not been shown to be insolvent as at 12 October 2012. 357 In my assessment, it is telling that there is no evidence that CIA's creditors were pressing for payment, or that CIA was making unusual payment arrangements. The absence of evidence of postdated and dishonoured cheques, the lack of payments to creditors in round figures and the absence of evidence of suppliers insisting on cash on delivery or other special trading terms are all strong indications that it is more likely than not that CIA was able to pay, and was in fact paying, its trade creditors as and when they fell due, or at least within a period those creditors considered acceptable, over the assessment period. 358 In saying that, I do not suggest that the balance of the debt due to the Commissioner which formed the subject of the third payment arrangement did not remain due and payable, nor that the 2012 income tax debt should not be regarded as having been immediately due and payable from 15 January 2013, when CIA should have lodged its tax return, for the purposes of assessing CIA’s solvency. 359 Having regard to the whole of the evidence, I am therefore not satisfied on the balance of probabilities that CIA was insolvent as at 12 October 2012. 360 In making that finding, I have given no weight to Mr Strickland's expert report, or the reasons given in relation to the objection to that report in attachment A. 361 The consequences of my finding that I am not satisfied that CIA was insolvent as at 12 October 2012 are that the statutory presumption of insolvency relied upon by LCM in respect of the relevant period does not -- 69 of 118 -- [2026] WASC 327 COBBY J Page 70 arise, and that LCM bears the onus of proof as to whether CIA was insolvent during that period. Was CIA insolvent during the relevant period? 362 There is insufficient evidence to support a finding that CIA was insolvent during the relevant period. 363 Messrs Strawbridge and Hill agreed that CIA was profitable in December 2012 and January 2013 and incurred losses in February to April 2013, there being no management accounts for May and June 2013. 364 Mr Strawbridge's opinion was that there is conflicting evidence as to whether CIA was insolvent during that time.66 Although he acknowledged that CIA had net positive assets and cash at bank of approximately $4.9 million as at 30 April 2013, he considered that there were indications in April 2013 that CIA might close its business, which might lead to CIA incurring unidentified costs and Westpac calling the Westpac guarantee. 365 As stated above, Mr Strawbridge accepted that the adjusted headroom reports showed CIA would have positive cashflows at the end of each month, although the inclusion of the 2012 income tax debt would indicate a deficit of $1,000 at the end of March 2013, which he considered was insufficient to support ongoing trading by CIA.67 366 Mr Strawbridge put it no higher than it was questionable whether CIA could pay the debt the subject of the third payment agreement (although the balance of that debt was discharged by February 2013) and the 2012 income tax debt by 30 April 2013 based on CIA's actual cashflows and considering that CIA would need to pay other debts and retain funds for working capital.68 367 In Mr Strawbridge's opinion, there was significant uncertainty regarding CIA's future trading conditions and its ability to pay its debts as and when they became due and payable, having regard to, amongst other things, the possibility that the Westpac would call on CIA's guarantee; the headroom reports only forecasting net cash flows for the current month; a significantly declining work pipeline; and draft profit and loss forecasts 66 Ex A23 [5.1.5]. 67 Ex 23 [5.1.5(a)]. 68 Ex [5.1.5(c).] -- 70 of 118 -- [2026] WASC 327 COBBY J Page 71 for CIA dated February 2013 and updated 4 April 2013, showed projected net losses before tax of $4.6 million in the 2013 financial year.69 368 Further, all of CIA's directors had resigned by 18 March 2013. How CIA conducted its business after that date was not explained in the evidence, but that situation was likely to adversely impact upon CIA's trading results, even taking into account that its business was winding down.70 369 Mr Hill's evidence was that CIA had cash at bank of: (a) $4,383,286 as at 21 December 2012; (b) $3,335,722 as at 31 December 2012; and (c) $4,260,406 as at 21 June 2013. 370 In addition, Mr Hill's opinion was that CIA's trade debtors were significantly higher than trade creditors in January, February and March 2013, as recorded in CIA's management accounts. CIA's monthly management accounts showed the company's debtors for the period 31 January to 30 April 2013 as follows: 31/01/13 28/02/13 31/03/13 30/04/13 12,844,000 12,148,000 10,574,000 4,523,000 371 Mr Hill's evidence was that the total of the cash held by CIA together with its trade debtors were significantly higher than CIA's outstanding debt to the ATO (including the 2012 prospective tax debt) and trade creditors as at each of 31 January, 28 February and 31 March 2013. 372 Further, his evidence was that he was unable to identify with any certainty the debts that were due and payable by CIA at any particular point during the relevant period. There was an aged creditors report for CIA as at 31 March 2013, which stated: 69 Ex A23 [5.1.5(h)]. 70 Ex [5.1.5(h)(v)]. -- 71 of 118 -- [2026] WASC 327 COBBY J Page 72 Ageing Value ($) % of total Current 286,910 26 30 days 528,913 48 60 days 96,208 9 90 days 39,726 4 120+ days 77,325 7 Retentions 71,805 7 Total 1,100,866 100 373 The report did not identify the individual creditors, nor how long each creditor's debt had been outstanding as at that date. Nor was there any information as to whether any particular debt was disputed, or if there were any arrangements to extend payment terms. CIA's debts to the Commissioner during the relevant period 374 CIA paid its tax debts in accordance with the third payment arrangement and otherwise as they arose. Of the approximately $7.2 million paid to the ATO by CIA during the relevant period, approximately $4.2 million related to tax liabilities which accrued due during that period. 375 That figure of $4.2 million does not include the 2012 prospective income tax debt, which did not become due and payable until lodgment of CIA's 2012 income tax return, but which would have been due for payment on 15 January 2013. Accounting for that prospective debt, CIA's liability to the ATO as at 15 January 2013 was approximately $3.126 million.71 376 CIA's recorded debt to the Commissioner72 was reduced regularly over the period between the entry into the third payment agreement on 18 December 2012 and February 2013, when CIA completed the payments due under that arrangement. 377 Thereafter the balance of CIA's running balance account remained nil or slightly in credit for the balance of the relevant period. The running balance account should be regarded, however, as understating CIA's debt to the Commissioner by not less than $1,264,087 during that period, to take into account the prospective income tax debt which would have arisen on 15 January 2013 had CIA lodged its tax return when due. 71 Ex 776, read with Ex 51. 72 Noting that the prospective tax debt was not recorded by the ATO as payable, no tax return having been lodged. -- 72 of 118 -- [2026] WASC 327 COBBY J Page 73 CIA's outstanding trade creditors as at 21 June 2013 378 Mr Hill also conducted a comparison of the claims submitted in the liquidation against CIA's average monthly operating expenses, as recorded in its management accounts for January to April 2013, being the last management accounts available prior to the appointment of the liquidators in June 2013. 379 The claims submitted in the liquidation were identified from the proofs of debt received by the liquidators and, where there was no proof of debt, the amount identified in the liquidators' circular to creditors dated 2 July 2013. 380 Mr Hill excluded, for the purposes of his analysis, claims that did not appear to relate to operational matters such as employees' claims, amounts due to Westpac and the ATO, and Concreting Australia's claims regarding the equipment not having been returned to it. He did not include wages because there was no indication that wages were not paid when due, the employee claims submitted in the liquidation appearing to be limited to redundancy and leave entitlements. 381 On that basis, Mr Hill calculated the amounts claimed by creditors in the liquidation of CIA related to operating expenses to be approximately $1.942 million, compared to an average operating cost over the 4 months for which management accounts were available of $1.906 million. 382 While acknowledging the limitations of that analysis, and noting that the results should only be considered indicative, in Mr Hill's opinion, the level of operating expenses claimed in the liquidation, being 102% of the average operating expenses over 4 months, was consistent with CIA meeting its operating debts on 30 day trading terms, and did not indicate a company that was insolvent. Other indicia of insolvency 383 There was no evidence that CIA had a poor relationship with Westpac. That is unsurprising, since its banking relationship with Westpac appears to have been limited to maintaining operating accounts with that bank. 384 However, as Westpac did not provide any direct financial accommodation to CIA, and CIA was a wholly owned subsidiary of Arccon, there is no reason to think Westpac or another bank would have been prepared to offer funds to CIA separate from the Allmine Group when regard is had to the existence of the Westpac guarantee. -- 73 of 118 -- [2026] WASC 327 COBBY J Page 74 385 For the same reasons, there is no basis for finding that CIA had an ability to raise further equity capital. 386 Having held that the headroom reports are unreliable, it is also difficult to assess CIA's ability to produce accurate and timely financial information regarding the company's trading performance and make reliable forecasts, in the absence of CIA's computerised accounting records. CIA was able to produce 13 week cash flows, as evidenced by the cashflows produced in October 2012, but there is no evidence as to whether those reports were regularly generated. 387 As previously noted, the liquidators' trade creditors analysis indicated, without definitively establishing, that CIA's trade creditors were being paid late but not substantially beyond CIA's likely trading terms. 388 As with the period prior to 31 December 2012, there was no evidence of demands for payment, the dishonour or postdating of cheques, the payment of round sums to creditors, suppliers regarding cash on delivery or other special payment terms, or employees' entitlements, including superannuation, being paid late or not at all. Conclusion on solvency during the relevant period 389 Although it must be accepted that the liquidators' trade creditors analysis, as adjusted by Mr Hill, was not entirely reliable, such that the analysis cannot be regarded as conclusive in the way suggested by Emmett J in Quick v Stoland, the large number of debts considered by the liquidators' staff, as adjusted by Mr Hill, gives the analysis some weight when considered in combination with the absence of other indicia of insolvency. 390 I have also had regard to LCM's failure to produce evidence demonstrating that the trade creditors analysis was unreliable to an extent that it should not be regarded as evidence of LCM's ability to pay its debts. As LCM was in possession of, or entitled to call for, a copy of CIA's books and records, including the invoices necessary to establish whether CIA had paid its debts when due, I consider that its failure to instruct Mr Strawbridge to do so is a factor to be considered in assessing whether the Commissioner has provided that it is more likely than not that CIA was solvent during the relevant period. 391 Other than the extent of the unreliability of the trade creditors' analysis, there are four matters which can be said to militate against a finding of solvency. -- 74 of 118 -- [2026] WASC 327 COBBY J Page 75 392 First, the fact that CIA had not identified work to substitute for the MCC contracts. It cannot be doubted that CIA would eventually wind down its operations, in the absence of winning new work. In Mr Strawbridge's opinion, that was a matter tending to establish the insolvency of CIA. 393 However, in this case the question is whether CIA was insolvent at the time each of the impugned payments was made. The company's insolvency is therefore to be assessed at each of those dates, rather than at some future time. Evidence that CIA would likely become insolvent at a future date, is indicative of insolvency, but not determinative of the question whether CIA was insolvent at the time each payment was made. 394 For similar reasons, the existence of the contingent debt due to Westpac is not determinative of CIA's solvency during the relevant period. Although CIA would have been insolvent had Westpac made demand under the guarantee, that did not occur and, for the reasons already stated, I am not satisfied that Westpac would have done so prior to 21 June 2013. 395 Third, the prospective income tax debt which would arise upon CIA's lodgement of its income tax return for the 2012 financial year, which it was accepted should have been lodged on 15 January 2013. But the evidence of both Messrs Hill and Strawbridge is that debt likely could have been paid by CIA in the relevant period. 396 Finally, each of the directors of CIA resigned over the period November 2012 to March 2013. There was no evidence that any person was appointed by Arccon to act as a director of CIA in their place. 397 It can be inferred that CIA's problematic financial position likely played a part in the decisions of each of Messrs Franklin, Millen and Walkem to resign, but their decisions to do so are equally explicable by a desire to avoid the risks inherent in being a director of a company of doubtful solvency as an acceptance by each of them that CIA was actually insolvent. 398 Having regard to the whole the evidence, I am not satisfied on the balance of probabilities that CIA was insolvent prior to 21 June 2013. Payments made by Arccon to the Commissioner 399 I turn to consider the payments made by Arccon to the Commissioner, in case I am wrong in failing to find that CIA was insolvent as at 12 October 2012 or during the relevant period. -- 75 of 118 -- [2026] WASC 327 COBBY J Page 76 400 Section 588FA(1) provides that a transaction is an unfair preference given by a company to a creditor of a company if, and only if: (a) the company and the creditor are parties to the transaction (even if someone else is also a party); and (b) the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in the winding up of the company. 401 LCM alleged that Arccon made 20 payments, totalling $478,084.31, to the Commissioner in reduction of CIA's tax debts over the period 18 April to 30 May 2013. Of that $478,084.31, $353,086.04 was alleged to have been paid in April 2013. 402 As Brereton J explained in Re Evolvebuilt Pty Ltd73 for a plaintiff to establish that there has been an unfair preference within the meaning of s 588FA(1) it must be shown that: (a) there is a transaction to which the company and the creditor are both parties; and (b) the creditor received from the company more than the creditor would receive from the company in respect of the debt if the transaction was set aside and the creditor proved for the debt in the winding-up of the company. 403 It is not necessary that payment is sourced from the company's own moneys, it being sufficient if the debtor company directs a third party who holds funds to its account to make payment to the creditor.74 404 In Cant v Mad Brothers Earth Moving Pty Ltd,75 the Victorian Court of Appeal considered the meaning of the phrase 'from the company' in s 588FA(1)(b). The Court of Appeal concluded at [120] that: (a) The words 'given by a company' in s 588FA(1) do not form part of the definition of an unfair preference. They are descriptive of the position when the elements of the definition in paragraphs (a) and (b) are met. 73 Re Evolvebuilt Pty Ltd [2017] NSWSC 901 [19]. 74 Sheahan v Carrier Air Conditioning Pty Ltd (in liq) [1997] HCA 37; (1997) 189 CLR 407. 75 Cant v Mad Brothers Earth Moving Pty Ltd [2020] VSC 198; (2020) 63 VR 222 [120]. -- 76 of 118 -- [2026] WASC 327 COBBY J Page 77 (b) A company may be a party to a transaction for the purposes of s 588FA(1)(a) as a result of giving a third party a direction as to the making of a payment to a creditor, or by authorising or ratifying such a payment. However, this does not necessarily mean that the payment is received 'from the company'. (c) The words 'from the company' in s 588FA(1)(b) have the effect of retaining the requirement under the previous law that the preference be received from the company's own money, meaning money or assets to which the company is entitled. (d) It is necessary, in order for a preference to be 'from the company' that the receipt of it by the creditor has the effect of diminishing the assets of the company available to creditors. (e) On the other hand, a payment by a third party which does not have the effect of diminishing the assets of the company available to creditors is not a payment received 'from the company' and is therefore not an unfair preference. 405 Although Rees J expressed disquiet in Re Western Port Holdings Pty Ltd (recs and mgrs apptd)76 that the language of s 588FA(1)(b) did not readily permit a construction that it is necessary to demonstrate a diminution in the assets of a company for there to be an unfair preference, her Honour recognised that the decision in Mad Brothers was one of an intermediate appellate court, and, not being clearly wrong, should be followed. Other courts have taken a similar approach at first instance,77 and I consider that I should do the same. 406 To have a preferential effect, and thereby give the creditor a priority or advantage over other creditors, a payment must therefore result in a decrease in the net value of assets that are available to creditors. It is therefore necessary to determine if the payments made by Arccon were made from CIA's funds or assets to which it was entitled. 407 The Commissioner submitted that the evidence did not establish that at the time each of the payments was made, Arccon was indebted to CIA and the balance of that loan was diminished by the making of the payments. 408 LCM pleaded that CIA was a party to the payments, with each transaction involving: 76 Re Western Port Holdings Pty Ltd (recs and mgrs apptd) [2021] NSWSC 232. 77 See BounceLED Pty Ltd v Clear Skies Corp Pty Ltd (in liq) [2023] NSWSC 121 [44], LCM Recoveries Pty Ltd v Commissioner of Taxation (Cth) [2023] WASC 181 [9] and Pacific Plumbing Pty Ltd (in liq) v Leiden Excavations Pty Ltd [2024] NSWSC 525 [20]. -- 77 of 118 -- [2026] WASC 327 COBBY J Page 78 (a) a payment being made from CIA's bank account to Arccon bank account; (b) on the same day as that payment was made, Arccon made a payment in the same amount to the Commissioner, being recorded in CIA's running balance account with the Commissioner; (c) the intercompany loan accounts between CIA and Arccon being periodically adjusted 'to record the effect the payments (sic) identified'. 409 In opening, the only evidence identified by LCM relating to these payments was general ledger accounts78 and the running balance account maintained by the Commissioner in respect of CIA. 410 The Arccon general journal report refers to ledger account 1.116-6, described in the report as 'Intercompany Loan CIA Cleari', which I infer should be read to mean 'Intercompany Loan CIA Clearing account'. On that basis, I infer that there existed an intercompany loan account between the Company and Arccon, to which the payments credited as received by Arccon would likely ultimately have been posted. 411 It can therefore be readily inferred that there was some arrangement made between CIA and Arccon that Arccon would make payment to the Commissioner, and that CIA would make an equivalent payment to Arccon. Those inferences arise from the congruence of the amounts, the number of payments and the date of the payments made between Arccon and the Commissioner, and between CIA and Arccon. 412 I am satisfied that the ledger account shows that the source of each payment made to the Commissioner by Arccon was, in effect, CIA. Each payment made by Arccon to the Commissioner was offset by the transfer of funds by CIA the same day, so that the financial impact of the making of each payment on Arccon was neutral. 413 That, however, is not the end of the matter. On the authority of Mad Brothers, what LCM must demonstrate is that the making of each payment diminished the assets of CIA available to its creditors. In Re Eliana Construction and Developing Group Pty Ltd (No 2)79 Robson J adopted Brereton J's reasoning in Evolvebuilt, stating: In my opinion, where the transaction involves a reduction in the debtor's assets which can be measured in money and a consequential discharge of 78 Exhibits 550 - 551. 79 Re Eliana Construction and Developing Group Pty Ltd (No 2) [2019] VSC 546. -- 78 of 118 -- [2026] WASC 327 COBBY J Page 79 the creditor's debt by that sum, then the transaction can be said to involve a payment by the debtor to the creditor within the meaning of s 588FA(1)(b) of the Act. Where, however, a payment by the third party which discharges the debtor's debt to the creditor is authorised and ratified by the debtor and only involves the debtor incurring a liability in favour of the third party, and no reduction of assets of the debtor, then, in my opinion, the payment does not, on that ground, constitute a payment by the debtor to the creditor within the meaning of s 588FA(1)(b) of the Corporations Act. 414 Although LCM expressly pleaded at [53](c) of the further amended statement of claim that the intercompany loan accounts between Arccon and the Company were 'periodically adjusted' to record the effect of those payments, there was no direct evidence that occurred. 415 In particular, there was no direct evidence of the state of any intercompany loan account between CIA and Arccon following each, or for that matter any, of the payments made by Arccon. 416 The issue is whether it should be inferred, in the absence of any evidence of the reasons why each payment was affected in the way that it was and any evidence of the state of affairs between CIA and Arccon at the time of each payment, that the effect of each payment was to reduce the assets of CIA available to its creditors. 417 I am not satisfied that inference should be drawn on the material identified in the particulars. In the absence of evidence of the state of any loan account between CIA and Arccon at the time each payment was made, I am not satisfied that it should be inferred that the making of each payment diminished the assets of CIA available to creditors. 418 In closing, LCM sought to refer for the first time to CIA's balance sheet for the period July 2012 to November 2012,80 its general ledger trial balance for the period ending 30 April 2013, and [6.2.19](a) to (c), [7.2.3(c)] and tables 18, 19 and 36 of Mr Strawbridge's first report. 419 The Commissioner objected to that being permitted. He asserted that he had been prejudiced by the manner in which LCM has conducted its case on this point. Although the specific prejudice was not identified, I note that Mr Strawbridge was not cross-examined about those portions of his first report. 80 Ex 614. -- 79 of 118 -- [2026] WASC 327 COBBY J Page 80 420 It is not necessary to determine the objection, as I consider that the additional material does not establish that CIA's assets were diminished in the manner necessary for it to succeed on these claims. 421 Although CIA's balance sheet for July 2012 to November 2012 does indicate that Arccon was indebted to CIA in an amount of $1,058,092 as at November 2012, the document shows the position more than five months prior to the date of the first payment by Arccon alleged to have constituted a preference. As junior counsel for LCM acknowledged in the course of his submissions on this point, no accounting information was available for the period between January and April 2013.81 422 CIA's general ledger trial balance is stated to have been prepared for period 10 ending 30 April 2013 - that is, April 2013. Although the document shows what would seem to be a loan balance of $3,091,031 as at 30 April 2013, it also shows a total debit balance for the month of only $25,130 and no credit balance, in a month where LCM alleges $353,086.04 was transferred to Arccon and (in essence) on-paid to the Commissioner. It may be those payments formed part of the amount of $430,711.54 shown as having been debited to the suspense account that month, but that is no more than speculation. 423 As for LCM's reliance upon Mr Strawbridge's first report, at [6.2.17] of the same report Mr Strawbridge stated that, without accounting ledgers he was unable to determine what transactions with (relevantly) Arccon might be loans and what might constitute 'normal trading payments for services rendered'. Similarly, at [7.2.3(c)(iii)] of the same report, Mr Strawbridge stated that he was unable to reconcile the figures in Table 36 (said to identify the related party balances recorded on the balance sheets) with those in Table 19, said to state the related party inflows and outflows derived from the bank statements. 424 In those circumstances, I am not satisfied that it should be inferred that the payments made by Arccon to the Commissioner should be found to have diminished the assets of CIA available to its creditors. 425 I accordingly find that LCM has not made out its claims in respect of the total of $478,084.31 paid by Arccon to the Commissioner and applied in reduction of the Company's running balance account with the Commissioner. 81 ts 801. -- 80 of 118 -- [2026] WASC 327 COBBY J Page 81 The s 588FG(2) defence 426 In the event that I am wrong in failing to find that CIA was insolvent as at 12 October 2012 or during the relevant period, I proceed to consider whether the Commissioner has made out the defence to LCM's claim pursuant to s 588FG(2). 427 Section 588FG(2) provides: (2) A court is not to make under section 588FF an order materially prejudicing a right or interest of a person if the transaction is not an unfair loan to the company, or an unreasonable director-related transaction of the company, and it is proved that: (a) the person became a party to the transaction in good faith; and (b) at the time when the person became such a party: (i) the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in paragraph 588FC(b); and (ii) a reasonable person in the person's circumstances would have had no such grounds for so suspecting; and (c) the person has provided valuable consideration under the transaction or has changed his, her or its position in reliance on the transaction. 428 A person acts in good faith for the purposes of s 588FG(2)(a) of the Act if they act with propriety and honesty. The test is wholly subjective: White v ACN 153 152 731 Pty Ltd (in liq).82 A creditor receiving payment who knows the insolvent circumstances of a debtor, or who suspects insolvency on reasonable grounds, will not ordinarily be acting in good faith.83 429 The references to suspicion in s 588FG(2)(b) require a suspicion of actual and existing insolvency, not a suspicion or belief that the debtor may be insolvent.84 The elements that the Commissioner must satisfy in s 588FG(2)(b)(i) and (ii) each require the Commissioner to satisfy an 82 White v ACN 153 152 731 Pty Ltd (in liq) [2018] WASCA 119; (2018) 53 WAR 234 [108] (White). 83 Queensland Bacon Propriety Limited v Rees [1966] HCA 21; (1966) 115 CLR 266, 287; White [109]. 84 White [112]. -- 81 of 118 -- [2026] WASC 327 COBBY J Page 82 objective standard and require the court to apply a standard of reasonableness.85 430 In Sutherland t/as Southern Livestock Nutrition v Lofthouse,86 the Victorian Court of Appeal when considering what 'suspicion' meant stated: The effect of the section is to put the burden on the creditor of establishing both the subjective and objective legs of the defence. It follows that in this case the burden was on the appellants to establish both that they had no reasonable grounds for suspecting that the company was insolvent and that a reasonable person in their circumstances would not have had reasonable grounds for so suspecting. 'Suspicion' for that purpose means a mistrust of the company's ability to pay its debts as they become due and of the effect which acceptance of a payment would have as between the appellants and the company's other creditors. (citations omitted) 431 The Commissioner bears the onus of proving that the ATO acted in good faith, on the balance of probabilities. To succeed, the Commissioner must negate any suggestion of actual apprehension of insolvency based on objective circumstances.87 432 A failure to pay a debt, or to pay it in a timely way, may of itself not ground a suspicion of insolvency but instead indicate the mere presence of a liquidity problem or perhaps raise a possibility that the debtor is insolvent but without providing sufficient foundation for the formation of an actual suspicion that the debtor is actually insolvent. A failure to pay a debt or its late payment must be considered in the context of the history of the dealings between the parties and all the commercial circumstances.88 433 Where the defendant is a company or government body, the determination to be made is whether on the whole of the evidence of that defendant's knowledge before the court, including any failure to adduce particular evidence, the defendant has discharged the onus.89 434 It is not, however, necessarily required that a defendant call all individuals whose states of mind might be relevant to the question whether the defendant suspected that the company might be insolvent. In particular, '[a] person's involvement in debt collecting for a company does not in itself signify that the person is involved in an executive, as opposed 85 Badenoch Integrated Logging Pty Ltd v Bryant [2021] FCAFC 64; (2021) 284 FCR 590 [126]. 86 Sutherland t/as Southern Livestock Nutrition v Lofthouse [2007] VSCA 197; (2007) 214 FLR 157 [16]. 87 Dean-Willcocks v Commissioner of Taxation (Cth) [2004] NSWSC 1058; (2004) 51 ACSR 353 [28]. 88 White [113]. 89 Cook's Construction Pty Ltd v Brown [2004] NSWCA 105; (2004) 49 ACSR 62 [19] - [23]; [26]; [55] - [59]; [73]; Dean-Willcocks v Commissioner of Taxation [2008] NSWSC 1113; (2008) 73 ATR 801 [15], [60] - [61]. -- 82 of 118 -- [2026] WASC 327 COBBY J Page 83 to an administrative, capacity in the transaction by which payment is received'.90 435 LCM submits that the 588FG(2) defence must fail in this case, because the Commissioner failed to lead evidence: (a) of the hierarchy or delegation within the ATO, so that it was not really possible to identify who was involved in making the relevant decisions; (b) of the 'analytical team' which, on the evidence of Mr Tropea, 'would categorise the debt in various risks and then allocate it to [his] team'; (c) as to the use of computer algorithms by the ATO to assess the risk presented by taxpayers; (d) from Mr Zylbersztajn and Ms Jesuarajah. 436 Addressing those submissions in turn, I reject the submission that the evidence led by the Commissioner did not adequately disclose which of the witnesses ultimately made the decisions taken by the Commissioner in his dealings with CIA, or that evidence of the ATO's decision making hierarchy was necessary to understand what information was available to the ATO's officers and who had acted upon it. 437 Each of the Siebel notes identified when a particular ATO officer, generally at the APS3 level, considered that they lacked the delegated authority to determine whether to adopt a particular course, and their referral of the relevant decision, with their recommendation, to their team leader or an APS6 level person for a decision by that person. Each of those persons, with the exception of Mr Zylbersztajn and Ms Jesuarajah, gave evidence of their practice in 2012 as to what they would do when a decision was outside the scope of their authority. 438 Each of the team leaders to whom those decisions were referred and who made those decisions were called, including Ms Francis, who was the person who determined to accept the recommendations of each of Mr Zylbersztajn and Ms Jesuarajah, and gave evidence as to the matters they considered when a decision was recommended to them for approval by an ATO officer who lacked the authority to make it, and confirmed their Siebel notes recording that they had approved the recommendations made to them. 90 White [154]. -- 83 of 118 -- [2026] WASC 327 COBBY J Page 84 439 Having regard to the evidence as a whole, and leaving to one side for the moment the absence of Mr Zylbersztajn and Ms Jesuarajah, I am comfortably satisfied, given the effluxion of time, that the evidence disclosed the basis on which each decision was made on the Commissioner's behalf, the process by which that occurred, and what factors were considered in coming to each decision. 440 LCM's submissions regarding any failure on the part of the Commissioner to adduce evidence from 'the analytical team that categorised the debt into various risks' (by which I understood LCM to mean the risks presented by particular categories of taxpayers), the Operational Analytics team and the use and effect of computer algorithms used to assess risk were, in my judgment, not to the point. 441 What evidence there was regarding the use of computer algorithms by the ATO to identify the risks presented by particular groups of taxpayers or the categorisation by business units within the ATO of a particular taxpayer as low or high risk did not go so far, with the exception of the referral of CIA's failure to lodge its 2012 income tax return to Mr Boyd for investigation, as to suggest that what the Commissioner knew of CIA's financial position exceeded the information CIA supplied to the Commissioner in the tax returns and business activity statements it lodged and in the course of its communications with the ATO's staff. 442 Even then, the evidence was to the effect that the use of those methods was to identify which taxpayers should be dealt with directly by officers of the ATO, which is what occurred in the case of CIA. 443 In Australian Securities and Investments Commission v Hellicar91 the plurality stated: Disputed questions of fact must be decided by a court according to the evidence that the parties adduce, not according to some speculation about what other evidence might possibly have been led. Principles governing the onus and standard of proof must faithfully be applied. And there are cases where demonstration that other evidence could have been, but was not, called may properly be taken to account in determining whether a party has proved its case to the requisite standard. But both the circumstances in which that may be done and the way in which the absence of evidence may be taken to account are confined by known and accepted principles which do not permit the course taken by the Court of Appeal of discounting the cogency of the evidence tendered by ASIC. 91 Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345 [165]. -- 84 of 118 -- [2026] WASC 327 COBBY J Page 85 444 In my judgment, it is no more than speculation to suggest that there may have been a category of evidence which would have called into question the evidence of the Siebel notes and of the persons who made those notes. 445 I turn to LCM's submission that the Commissioner's reliance on the s 588FG(2) defence must fail because the Commissioner did not call Mr Zylbersztajn and Ms Jesuarajah. It submits that the state of the Commissioner's knowledge was not adequately disclosed in the absence of those witnesses. 446 There was no explanation as to why Mr Zylbersztajn and Ms Jesuarajah did not give evidence. 447 However, the evidence to be assessed included Mr Zylbersztajn's and Ms Jesuarajah's notes. Having regard to the evidence regarding the Siebel and RMS systems, I find that Mr Zylbersztajn's and Ms Jesuarajah's respective notes were most likely made contemporaneously or near contemporaneously with the communications to which their notes referred. 448 There is nothing in the text of Mr Zylbersztajn’s note of his conversation with Mr Youngberg on 5 October 2012 that suggests that Mr Zylbersztajn should have been on inquiry as to whether CIA was insolvent, as opposed to having a temporary liquidity problem, which is what he was being told by Mr Youngberg. 449 Although LCM submits that it should be found that Mr Zylbersztajn requested Mr Youngberg provide a cashflow in support of CIA's October 2012 request, as I have already said, that is not the effect of what is recorded in Mr Zylbersztajn's Siebel note recording the conversation. 450 As for Ms Jesuarajah, her note shows her to have been aware of Nexia’s submission of 26 October 2012 that CIA was taking steps to improve its cashflow, consistent with what the submissions made to the ATO throughout October 2012. There is nothing in her note which indicates a suspicion on her part that CIA might be insolvent. 451 The evidence that Mr Zylbersztajn and Ms Jesuarajah might have provided related to events which occurred in October 2012. The trial occurred in May 2024, approximately 111/2 years after the events in which each participated. Their respective Siebel notes do not indicate that the events there recorded were likely to have been of such significance that it could be expected that they would be able to give evidence of them in -- 85 of 118 -- [2026] WASC 327 COBBY J Page 86 2024 from their independent recollection, let alone that their evidence would elucidate a matter not recorded in the note. 452 Although each of the witnesses who were called by the Commissioner stated in their affidavit that they had refreshed their memory by looking at the notes that they had recorded at the time of the event in question, it was obvious in cross-examination that each witness had no independent recollection of the subject matter of their note, and that, so far as their evidence concerned their state of mind, their evidence rose no higher than the contents of their respective notes. That is not to criticise the witnesses, but simply to point out that it was unrealistic to expect them to have a clear and independent recollection of events so long in the past. 453 That is particularly so when it appeared that each of the witnesses engaged in similar transactions with taxpayers every working day. 454 There is nothing to suggest that the position might have been any different with Mr Zylbersztajn and Ms Jesuarajah. 455 In RHG Mortgage Ltd v Ianni,92 McColl JA said: The circumstances for drawing a Jones v Dunkel inference are found where the uncalled witness is 'a person presumably able to put the true complexion on the facts relied on [by a party] as the ground' for any inference favourable to the plaintiff: Jones v Dunkel (at 308) per Kitto J; Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345; 286 ALR 501; 88 ACSR 246; [2012] HCA 17 at [168] per French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ. 456 The High Court emphasised that a missing witness will only be significant where the evidence which such a person is expected to give would (not might) elucidate a particular matter in issue in the passage from Australian Securities and Investments Commission v Hellicar to which McColl JA there referred. 457 In Cook's Construction Pty Ltd v Brown,93 Hodgson JA, in the context of considering whether the s588FG(2) defence had been made out, said:94 where a party has to prove something and prima facie has available evidence that would directly deal with the question, a court will be very hesitant in drawing an inference in that party’s favour from indirect and 92 RHG Mortgage Ltd v Ianni [2015] NSWCA 56. 93 Cook's Construction Pty Ltd v Brown [2004] NSWCA 105; (2004) 49 ACSR 62. 94 At [42]. -- 86 of 118 -- [2026] WASC 327 COBBY J Page 87 second-hand evidence, when the party doesn’t call the direct evidence that prima facie it could have called, at least unless some explanation is given, or the circumstances themselves provide an explanation … (emphasis added) 458 In my opinion, the lapse of more than 11 years since the events in question provide an explanation as to why it would be unrealistic to expect that either Mr Zylbersztajn or Ms Jesuarajah would be able to give any evidence beyond the contents of their respective notes. In the absence of anything to suggest that either of the absent witnesses would have been able to elucidate any particular matter, I find that the Commissioner's failure to call one or both of Mr Zylbersztajn and Ms Jesuarajah does not require a finding that the s 588FG(2)(b) defence fails, as submitted by LCM. 459 Nor do I consider that any inference adverse to the Commissioner should be drawn against the Commissioner as a consequence of failing to call each witness in the circumstances of this particular case. 460 The question whether the Commissioner has established that he had no reason to suspect that CIA was insolvent is therefore to be determined on the whole of the evidence adduced at the trial, rather than by any formulaic approach to the availability of the defence. 461 LCM submits that the Commissioner should be found to have acted as an insistent creditor, relying on the NILA issued on 13 December 2011 in the amount of $4,271,907.36 (notwithstanding that the bulk of that amount was found not to be due) and that in April 2012 an officer of the ATO was actively seeking payment of an income tax debt. 462 LCM's submissions do not address that CIA entered into a payment arrangement and complied with its obligations under that agreement, a matter indicating a lack of liquidity rather than insolvency. 463 Closer to the commencement of the relevant period, LCM points to the NILAs issued on 10 October and 11 December 2012, each of which required payment of the outstanding debt or that CIA contact the ATO to discuss payment, issued in each case after CIA had failed to contact the ATO within the time that had been agreed regarding CIA's requests for payment agreements. 464 Assessing the sum of the Commissioner's knowledge in this case, I find that the Commissioner is to be taken to have known that: -- 87 of 118 -- [2026] WASC 327 COBBY J Page 88 (a) CIA had previously entered into a payment arrangement in relation to the payment of income tax and complied with that arrangement in respect of the previous financial year; (b) CIA, by Mr Youngberg, contacted the ATO on 5 October 2012 and advised that CIA could not pay outstanding tax due to a liquidity problem; (c) in October 2012 CIA and its external accountants were advising the ATO that it was taking steps to address that issue, which included entry into the bond facility agreement with EFIC; (d) CIA lodged its outstanding returns on 30 October 2012 when its failure to have done so was raised with it; (e) CIA's explanation for the failure to pay GST was attributed to a mistake on the part of a director of CIA, who said to have made a mistake about the extent of the existing payment arrangement, with which CIA had been complying; (f) although NILAs were issued to CIA following its failure to submit proposal for payments arrangements within agreed times, CIA engaged with the ATO within the times stated in each NILA; (g) CIA continued to meet its obligations under the first payment arrangement, and its tax obligations as they arose more generally, while the ATO considered whether to enter into the third payment arrangement; (h) CIA agreed to increase the payments in the third payment arrangement, so that its outstanding debt would be discharged within the same period as contemplated under the first payment arrangement. 465 In my judgment, both Mr Youngberg's explanation of CIA's inability to pay offered on 5 October 2012 and the tax agent's later explanation for the failure to pay GST provided were plausible, considered in the context of CIA’s past dealings with the ATO and what was regarded by the ATO as a generally proactive approach on CIA’s part to addressing its outstanding debt. 466 Although it is doubtful, and there is no evidence, that any officer of the ATO addressed their mind to whether CIA was complying with the payment arrangement made on 18 December 2012, at the commencement -- 88 of 118 -- [2026] WASC 327 COBBY J Page 89 of the relevant period CIA had paid $1.9 million, and was otherwise complying with its obligations as they arose. 467 In my judgment, assessed objectively there was no reason for the Commissioner to suspect that CIA was insolvent, as opposed to experiencing cashflow difficulties due to the relatively recent change in the frequency in which it was to pay PAYGW and the timing differences between its receiving payment for its services and its obligations to pay its debts, and which the tax agent had informed the Commissioner that CIA had taken steps to address through the EFIC bond facility. Contrary to LCM's submission, viewed objectively the release of $2.6 million to CIA the ATO was told would result from that bond facility did not need to be sufficient to discharge all of CIA's then outstanding debt to the Commissioner, its relevance being that there was reason to think what had been represented to the Commissioner as a short-term liquidity problem was being addressed. 468 In my view, none of the items of knowledge or information held by ATO officers was itself sufficient, or when regarded in combination, to engender a rational and well based suspicion that a state of present and actual insolvency existed at the time the Commissioner entered into the third payment arrangement. 469 Subject to what follows regarding CIA’s failure to lodge its 2012 income tax return on time or at all, I am comfortably satisfied that, when the whole of the knowledge and information held by the ATO is considered, and having due regard to the Commissioner's failure to call Mr Zylbersztajn and Ms Jesuarajah, the Commissioner has nonetheless established that prior to 13 May 2013 he did not have reasonable grounds for suspecting that CIA was insolvent or would become insolvent through the making of the impugned payments at the time each was made. 470 Although LCM submitted that the Commissioner 'inexplicably' did not take action when CIA failed to lodge its 2012 tax return on 15 January 2013, a failure to file a tax return does not, in itself, give rise to a suspicion of insolvency: Dean-Willcocks v Commissioner of Taxation [2008] NSWSC 1113 [58]. 471 In White, the Court of Appeal adopted the proposition that information in the possession of a creditor includes the knowledge that something is not known to the creditor, but not information which the reasonable person would have obtained had enquiries been made.95 95 White [123]-[124]. -- 89 of 118 -- [2026] WASC 327 COBBY J Page 90 472 As to whether the Commissioner should be taken to have known that CIA had not lodged its 2012 income tax return, no officer of the ATO dealt with CIA or its tax affairs after the approval of the third payment arrangement on 14 December 2012 until 13 May 2013, when Mr Boyd was tasked with contacting CIA regarding its failure to file the return. Although a number of the Commissioner's witnesses referred to a practice of checking whether the taxpayer's lodgements were up to date when considering a request to enter into a payment arrangement, no occasion to do so arose in relation to CIA after 18 December 2012. 473 In Dean-Willcocks v Commissioner of Taxation,96 Young CJ in Equity said: When the first 6-month period of the arrangement had expired on 20 August 1998 Mr Elmer renewed the arrangement until 28 February 1999 without taking proper precautions to obtain adequate information as to whether the company was paying other creditors and had filed its statutory returns with the ATO which were due. In view of the decision of the Court of Appeal in Cussen (as liq of AKAI Pty Ltd (in liq)) v Cmr of Taxation (2004) 22 ACLC 1528 , I consider what the Commissioner could have found out had his officers made enquiries is immaterial. However, it is said that as at 14 August 1998 the company should have filed statutory returns with the Commissioner but failed to do so. It was at least impliedly submitted that an officer of the Commissioner must have known as at 20 August 1998 that those returns had not been lodged. The general law cases show a distinction between being aware of something and appreciating its significance. Both processes must usually be undergone before one can be said to 'know' that something: R v Barnier [1980] 1 SCR (Con) 1124 at 1136–7 ; Cooper v R [1980] 1 SCR 1149 at 1161 . The matter of when one knows a negative is even more complicated. It is probably correct to say that some computer or file somewhere in the ATO would have recorded that no return had been received by the due date. However, I should not presume that that negative fact was appreciated by any ATO officer. I also consider that the mere fact that a taxpayer is 6 days late in filing a return is not weighty material on the matter of solvency. 96 Dean-Willcocks v Commissioner of Taxation [2004] NSWSC 1058; (2004) 51 ACSR 353. -- 90 of 118 -- [2026] WASC 327 COBBY J Page 91 474 Although information may be known to a corporation if it is known by the appropriate officer or agent, or is contained in the current official records of the corporation,97 that will not always be the case of all purposes.98 475 There appears to be no other authority as to whether the Commissioner should be taken to know, for the purposes of s 588FG(2)(b), the contents of the ATO's records in relation to a particular taxpayer if no officer of the ATO has had occasion to consider them. I note that Windeyer J held in Apex People Pty Limited (In Liquidation) The Commissioner of Taxation99 that the Commissioner should be taken to have known that a BAS statement had not been lodged by the due date, but in that case an ATO officer had been dealing with the taxpayer for some weeks thereafter regarding the outstanding payment of tax, and should therefore be taken to have known of the failure to lodge the statement. 476 It can be inferred, in my view, from Mr Boyd's evidence that in January 2013 there was a record that CIA had not lodged its 2012 income tax return by the due date, but that no officer of the ATO was aware of that fact until May 2013 and that consequently no inquiry was made of CIA as to the reason for that failure until 13 May 2013, when Mr Boyd did so. 477 In Sims v Celcast Pty Ltd100 Williams J, with whom Cox and Mullighan JJ agreed, held that each of s 588FG(2)(b)(i) and s 588FG(2)(b)(ii) have work to do independently of the other and then said: Therefore, under sub-par (b)(ii) the court will be concerned with the conclusion (in terms of logic or commonsense) which a reasonable person ought reasonably to have made in terms of a relevant suspicion. Under sub-par (b)(i) the court will assess the conclusion which ought reasonably to have been reached by a creditor who in fact has taken a particular step or steps formally or informally in the process of deductive reasoning.[9] Thus, Williams J reasoned that sub-par (b)(i) requires consideration of whether the particular creditor, with its perspicacity, the information available to it, and with such analysis (if any) of that information as it had made, had reasonable grounds to suspect the debtor's insolvency. Sub-par (b)(ii) on the other hand, requires consideration of whether a reasonable person in the creditor's circumstances, using the information reasonably 97 Cargill Australia Ltd v Viterra Malt Pty Ltd (No 28) [2022] VSC 13 [2620] (Cargill). 98 Cargill, [2622] - [2633]. 99 Apex People Pty Limited (In Liquidation) The Commissioner of Taxation [2006] NSWSC 133. 100 Sims v Celcast Pty Ltd (1998) 71 SASR 142. -- 91 of 118 -- [2026] WASC 327 COBBY J Page 92 available in those circumstances and making the analysis of that information which a reasonable person would make, would have had reasonable grounds to suspect the debtor's insolvency. This is because a reasonable person in the circumstances of the creditor (sub-par (b)(ii)) may have grounds for suspicion whereas the particular creditor, acting reasonably in its perception and analysis (if any) of the circumstances (sub-par (b)(i)) may not, and vice versa. 478 Considered in the context of the authorities concerning the application of s 588FG(2)(b) to date, which have emphasised what has been known to individuals regarding the company's affairs, I am not satisfied that the approach taken by Young CJ in Eq in Dean-Willcocks v Commissioner of Taxation is clearly wrong, such that I should not follow it. 479 Assuming, contrary to that approach, that the Commissioner should be taken to have known that CIA had not lodged its income tax return by the due date, I am not satisfied that fact alone was sufficient to give rise to a reasonable suspicion on the part of the Commissioner that CIA was insolvent, in circumstances where CIA was meeting its obligations under the existing payment arrangements and its other tax obligations. 480 Although the knowledge the Commissioner is to be taken to have known would not have included the amount of the income tax payable by CIA for the 2012 financial year, the Commissioner should be taken to have known that it was possible that CIA would be liable to pay some amount of income tax in respect of that year, because the Commissioner is to be taken to have known the amounts of GST and PAYGW paid by CIA in that financial year as a result of ATO officers having considered CIA's request for payment arrangements, and the amounts paid in respect of those taxes suggested that CIA might also be liable to pay income tax. 481 The amount of income tax due likely to be due in respect of the 2012 financial year would be an important factor in determining whether it might reasonably be suspected that the failure to lodge the return was due to insolvency. Further, the longer the delay in lodging the return, the greater the ground for suspicion that the delay was due to insolvency, rather than some other reason, particularly when considered in the context of CIA's past practice of seeking to enter into payment arrangements. 482 In the present case, I find that the Commissioner became fixed with knowledge of CIA's failure to file its 2012 tax return on 13 May 2013, upon Mr Boyd being assigned to deal with that failure. -- 92 of 118 -- [2026] WASC 327 COBBY J Page 93 483 At that point, the Commissioner had reasonable grounds for suspecting that CIA was insolvent because the lodgement of the return was then nearly four months overdue; the explanation for failing to lodge the return offered by the tax agent to Mr Boyd, namely, that CIA was in the process of 'consolidation', was implausible; and because, unlike in the past, CIA had not sought to enter into a payment arrangement. 484 I therefore find that the Commissioner failed to make out the defence in relation to the impugned payments made after 13 May 2013. The Commissioner's submission that the court should decline relief 485 Senior counsel for the Commissioner sought to contend that the court should decline LCM relief pursuant to s 588F(1) in the event that LCM made out its case that some or all of the impugned payments constituted unfair preferences. 486 The Commissioner submitted that the powers conferred by s 588F(1) are discretionary, and, in effect, that the court should decline to order that the Commissioner repay some or all of the payments he received should they be held to constitute unfair preferences. 487 That case was not directly raised on the pleadings. Senior counsel for the Commissioner submitted that was due to an Excel spreadsheet having been provided to the Commissioner by LCM shortly before the trial, which demonstrated for the first time that there had likely been no prospect of the creditors of CIA receiving any benefit from the litigation, as the terms of the deed of assignment ensured that LCM would receive any funds remaining after payment of legal costs. 488 The effect of the assignment deed was that the liquidators sold all claims the liquidators might have against the Commissioner in return for: (a) the Initial Sum of $10,000; (b) up to $440,000 to be applied to the liquidators' invoices; (c) payment of $85,607 to be applied to payment of Lavan's invoices, Lavan being the solicitors for the liquidators; (d) an indemnity of up to $350,000 in respect of adverse costs incurred by CIA prior to the execution of the assignment deed; and an (e) indemnity as to adverse costs incurred prior to completion of the assignment. -- 93 of 118 -- [2026] WASC 327 COBBY J Page 94 489 CIA's creditors were therefore to receive nothing from the approximately $536,000 payable under the assignment deed. 490 CIA would, however, receive 60% of the amount calculated by deducting three times the Recovery Costs (including GST) from the Net Proceeds. The Net Proceeds were defined to mean the aggregate value recovered by LCM, together with any Recovery Costs reimbursed by any third party to LCM, less any Recovery Costs. 491 The Recovery Costs were defined to mean any costs and expenses reasonably and properly incurred by LCM in recovery or attempted recovery under the Claims, of which examples were provided in the assignment deed. 492 The effect of the assignment deed was that if LCM recovered an amount from the Commissioner in these proceedings: (a) LCM's Recovery Costs would be paid from the total received, which included any payment of any award of costs made in favour of LCM; (b) LCM then received a further three times its Recovery Costs; and (c) LCM would receive 40%, and CIA 60%, of any remaining balance. 493 Mr Hurt's evidence was that he had reviewed a calculation that, assuming LCM's Recovery costs to be $1,860,163 and CIA to be wholly successful in the proceedings, CIA (as opposed to the liquidators) might receive $1,435,056 in total, while LCM would receive $8,397,356. 494 Assuming payment of the liquidators' fees and their (as opposed to those of LCM, which were dealt with separately) legal costs in full, on the liquidators' calculation only $206,916 would have been available for distribution to creditors if LCM had been wholly successful, which would result in no return whatsoever for CIA's ordinary unsecured creditors, and a potential dividend of 79 cents in the dollar to the company's priority creditors. 495 Mr Hurt accepted in cross-examination that if the Recovery Costs incurred by LCM exceeded the estimate of $1.86 million by (in effect) $200,000, there would be no return to any creditor of CIA. -- 94 of 118 -- [2026] WASC 327 COBBY J Page 95 496 As the Commissioner did not seek to amend the defence to expressly plead the issue now being considered, I curtailed the Commissioner's cross-examination of Mr Hurt during the trial. 497 It is notable that, on the liquidators' calculations, $889,234 in liquidators' fees and $1,990,944 in legal or recovery costs would have been incurred in order to secure $206,916 for CIA's creditors, although it possible that an award of costs in favour of LCM might have improved that return. 498 It was not clear to me whether those figures took into account the payments made in respect of the liquidators' fees and costs by LCM pursuant to the assignment deed, and the liquidators' calculation did not make provision for an award of costs in favour of LCM in the action. 499 The Excel spreadsheet provided by LCM prior to trial indicated that the percentage suggested to be received by CIA in the course of negotiations had initially been 50%, the result of which would have been that, on the liquidators' calculations of the distributions of the amounts to be distributed under the assignment deed, all of CIA's creditors would receive nothing even if LCM was entirely successful (again noting that the calculations made no provision for an award of costs in favour of LCM). 500 In those circumstances, the Commissioner sought to submit that it would not be an appropriate exercise of the discretion to award relief to LCM. 501 The balance of authority supports the proposition that s 588FF(1) confers a discretion not to make an order for the repayment of some or all of payments held to constitute an unfair preference, rather than jurisdiction: see the decisions cited by Jagot, Edelman and Moshinsky JJ in Great Investments Ltd v Warner,101 and the decision of Davies J in Bryant (in their capacities as joint and several liquidators of Gunns Ltd (in liq) (recs and mgrs apptd) v Edenborn Pty Ltd.102 502 In Bryant, Davies J held that the power of the Court under s 588FF is discretionary, but that the discretion to make one or more of the orders prescribed in s 588FF(1) must be exercised judicially, in light of the purpose and object of the preference provisions in Pt 5.7B of the Act.103 Her Honour identified the purpose of the unfair preference law is to 101 Great Investments Ltd v Warner [2016] FCAFC 85; (2016) 243 FCR 516 [141]. 102 Bryant (in their capacities as joint and several liquidators of Gunns Ltd (in liq) (recs and mgrs. apptd) v Edenborn Pty Ltd [2020] FCA 715; (2020) 381 ALR 190. 103 At [207]. -- 95 of 118 -- [2026] WASC 327 COBBY J Page 96 ensure that unsecured creditors are treated equally in the period leading to liquidation.104 503 The Commissioner sought to submit that, as there was never any realistic prospect that the creditors of CIA would receive any return from these proceedings following the liquidators' entry into the deed of assignment, the discretion should be exercised against awarding relief, because the statutory purpose of s 588FF(1) would not be served by making an award in this case. 504 I have considerable sympathy with that approach, particularly here, where the defendant is the Commissioner and any award would therefore come from, in effect, the public purse. 505 However, the substantial difficulty is that the pleadings did not raise the issue, and this court had approved the assignment. 506 Senior counsel submitted that the Commissioner had not been in a position to plead that the court should exercise its discretion to refuse relief because at least some of the information on which the Commissioner sought to rely had only been disclosed to the Commissioner shortly before the trial. 507 Ultimately, I do not accept that submission. In my view, the operation of the terms of the assignment, as disclosed in Mr Hurt's affidavit, seriously called into question whether the interests of justice required that the court approve the assignment, and provided an adequate foundation for pleading the basis on which relief should be refused. 508 LCM objected, as was to be expected, to the Commissioner pursuing the issue, due to it not having been pleaded. 509 Although LCM submitted that the fundamental objective of the preference avoidance provisions is equality among creditors of the same class, it is difficult to see how that objective is advanced by an award in favour of an assignee of the right of action which results in no benefit to the class of creditors. 510 LCM also relied upon the decision of Black J in Re Cardinal Group Ltd (in liq),105 where his Honour, considering a proposed amendment to include a further claim of $214,000, said: 104 At [209]. 105 Re Cardinal Group Ltd (in liq) [2015] NSWSC 1761; (2015) ACSR 176, at [34]. -- 96 of 118 -- [2026] WASC 327 COBBY J Page 97 …[if]f the proceedings were pursued to seek to recover the liquidators' costs or funding which had been devoted to the conduct of the proceedings, it seems to me that that is a proper purpose, where liquidators would less readily accept appointment, and litigation funders would less readily fund proper proceedings in liquidation, if liquidators could not recover their remuneration or litigation funders could not recover the funding which they provided. It seems to me that that approach is consistent with that of the Court of Appeal in Hall v Poolman. (citation omitted). 511 However, in Hall v Poolman106 the New South Wales Court of Appeal considered the lack of balance or proportionality between the liquidators costs of $2 million and a possible maximum recovery of $6 million, and 'the fact that the proceedings would produce, at best, only a token benefit to creditors, and the possibility that the proceedings may have been commenced and prosecuted for the benefit of the liquidators and the funder rather than for the benefit of creditors' to be factors which, taken together with others, suggested there was a foundation for an inquiry into the liquidators' conduct.107 512 Further, the effect of s 100-5 of the Insolvency Practice Schedule (Corporations), being Schedule 2 to the Act, is that: (a) the external administrator of a company has power to assign any right to sue that is conferred on external administrators under the Act; (b) where an external administrator has already commenced proceedings, then the right to sue cannot be assigned unless the external administrator has the approval of the court; (c) prior to assigning any right to sue under section 100-5(1) of the Act, external administrators are required to give notice of the proposed assignment to the creditors of the company over which the external administrators are appointed and to which the right to sue relates; and (d) if a right to sue is assigned under section 100-5, then a reference in the Act to the external administrator in relation to the action is taken to be a reference to the person to whom the right has been assigned. 513 On its face, s 100-5 contemplates that any statutory cause of action conferred by the Act upon an external administrator may be assigned. In 106 Hall v Poolman [2009] NSWCA 64; (2009) 71 ACSR 139. 107 At [82]. -- 97 of 118 -- [2026] WASC 327 COBBY J Page 98 my judgment, the requirement that the external administrator obtain the court's approval of the assignment where proceedings have been commenced indicates that the court is to exercise a supervisory role in relation to any proposed assignment. 514 In Hall v Poolman,108 the Court of Appeal stated: The appellants were critical of Palmer J's statement (at [388]) that if the liquidators' funding arrangements provide no more than a token benefit to the creditors and are in truth a means for the litigation funder and the liquidator to profit handsomely, the liquidator should be directed not to proceed. We do not detect error in that proposition, since his Honour seems to have in mind a case where the purpose of the liquidator and litigation funder is to generate profit for themselves without any substantial benefit to creditors. That should be distinguished from a case where, though creditors are unlikely to obtain any substantial benefit from the litigation, a successful outcome will recoup properly and reasonably incurred costs and expenses of the liquidator (see at [150]-[151]).109 515 In this case, there was no evidence as to what occurred before the court in relation the application for approval of the assignment, that application having been made ex parte. 516 A further concern is that the extent of LCM's Recovery Costs is not known, nor what amount LCM might have recovered by way of costs had it been successful in the proceedings, which was an integer not considered in the liquidators' calculations and relevant to whether there ultimately might have been a return to creditors. 517 Allegations of professional misconduct or impropriety should be expressly pleaded,110 and, in my view, it was arguably implicit in the case the Commissioner sought to run that the liquidators had acted improperly in entering into the assignment deed, or, perhaps, in respect of what the court may have been told in support of the application for approval of the assignment. 518 Acknowledging that it might be said that the court was in a position to exercise the discretion to decline relief without reaching a view on either of those matters, in my view procedural fairness required that the issue be expressly pleaded as against LCM, so that the case to be met was defined with precision. I am also of the view that further evidence would have been required, having regard to Hall v Poolman and Re Cardinal 108 Hall v Poolman [2009] NSWCA 64; (2009) 71 ACSR 139. 109 At [186]. 110 Oldfield Knott Architects Pty Ltd v Ortiz Investments Pty Ltd [2000] WASCA 255 [39]. -- 98 of 118 -- [2026] WASC 327 COBBY J Page 99 Group Ltd (in liq), for the court to have been in a position to make a considered decision on the issue. 519 In the end result, the issue not having been pleaded and no application to amend the pleadings having been made, on the evidence as it stood in this case I would not have refused LCM relief in the exercise of discretion pursuant to s 588FF(1) had it otherwise established its claims. 520 Having found, however, that LCM has failed to do so, the action must be dismissed. My preliminary view is that costs should follow the event, but I will hear from the parties as to costs once they have had an opportunity to consider these reasons. -- 99 of 118 -- [2026] WASC 327 COBBY J Page 100 Attachment A Outstanding Objections to Evidence 521 The trial proceeded on the basis that documents would be tendered as exhibits as the parties referred to trial bundle numbers, unless objection was taken.111 In that regard, the parties failed to comply with orders made prior to the commencement of trial regarding the identification of and conferral concerning objections to evidence. 522 One consequence was that there were a number of objections to evidence which, given that some arose on the Sunday prior to closing addresses, the parties agreed should be resolved in the course of delivering the reasons for decision. The Commissioner's Objections to the Expert Reports and LCM's Response 523 On the Sunday before closing addresses were to commence, the Commissioner took objection to a series of statements in the expert reports filed by the parties, essentially on the basis that those statements were derived from information contained in what was referred to as the '333 Advisory report' dated June 2013. 524 On its face, the 333 Advisory report was prepared on the instructions of Allmine, and was intended to set out the results of a 'detailed review of the financial position, management and operations of Allmine Group'. 525 The 333 Advisory report, including annexures, comprised 407 pages. 526 In the course of the trial I refused the tender of the whole of the 333 Advisory report on the basis that, when asked which statement in the documents LCM intended to tender, junior counsel for LCM had identified that LCM wished to rely upon every statement in the report, and that being the case, the probative value of every statement in the report was outweighed by the undue consumption of time that the determination of the admissibility of each statement would require. 527 I left open the possibility that counsel might identify the particular statements that LCM sought to rely upon. 528 Although LCM objected to the Commissioner raising objections to those portions of the expert reports at such a late stage of the trial, by that time the expert reports made reference to material which was not in 111 ts 245; 423 - 424. -- 100 of 118 -- [2026] WASC 327 COBBY J Page 101 evidence as a result of the refusal of the tender of the 333 Advisory report. Objection having been successfully taken to the tender of that report, there was nothing unusual or improper in the Commissioner then objecting to opinion evidence founded upon that inadmissible material. 529 LCM's response to the objections was that, as a consequence of the Commissioner having taken objection to the expert reports, it now wished to tender a number of statements contained in an unsigned discussion draft of the 333 Advisory report, being: (a) the consolidated profit and loss statement showing financial performance to 30 April 2013: TB 585 pdf20; (b) the consolidated balance sheet for the Allmine Group showing financial position as at 30 April 2013 (together with notes to that balance sheet): TB 585 pdf21-24 (c) the statements in TB 585 pdf 16 (the section in the 'comments' in the left hand and middle columns on the bottom row, as well as the 'description' box for 'Construction'), referred to in the Strawbridge Report at [5.3.3]; (d) the statement in TB 585 pdf 65 to the effect that 'the Group's relationship with MCC largely underpinned FY12 and FY13 results for the Group', referred to in the Strawbridge Report at [5.3.3]; (e) the statement in the 333 Report at TB 585 pdf58, referred to in the Strawbridge Report at [6.2.45(c)]; (f) the statement in the 333 Report at TB 585 pdf 9 that 'For the 10 months to 30 April 2013 actual sales revenue was $78.7 million generating a loss before tax of $9.4 million', referred to in the Strawbridge Report at [6.3.34(a)(v)]; (g) the letter of engagement in TB 585 pdf 73 - 76. 530 Although I had anticipated that any further application to adduce statements in the 333 Advisory Report would be made prior to each party closing its case, I accept that I did not make that clear to the parties. 531 Dealing with the statements which LCM has identified it wished to tender in turn, it first seeks to adduce what on its face is the contents of profit and loss statement for the Allmine Group for the financial year to -- 101 of 118 -- [2026] WASC 327 COBBY J Page 102 30 April 2013, in which the results of companies within the group are isolated. 532 A note to those statements reads 'Engineering and Construction division accounts as at 30 April 2013 and as per Version 21.05.2013'. 533 Section 79C(2a) of the Evidence Act 1906 (WA) provides that in any proceedings where direct oral evidence of a fact or opinion would be admissible, any statement in a document and tending to establish the fact or opinion shall, on production of the document, be admissible as evidence of that fact or opinion if: (a) the statement is, or directly or indirectly reproduces, or is derived from, a business record; and (b) the court is satisfied that the business record is a genuine business record. 534 The court may draw any reasonable inference from the form or contents of the document in which the statement is contained, or from any other circumstances for the purpose of deciding whether or not a statement is admissible as evidence.112 535 I infer that the information in the profit and loss statement was derived from information in the business records of each of, relevantly, Allmine, CIA and Arccon, and is accordingly admissible pursuant to s 79C(2a). 536 For the same reason, I find that the consolidated balance sheet for the Allmine Group as at 30 April 2013 is admissible. 537 The statements identified in [9](c) above comprise: (a) Under the heading 'Mining and Building Services': 'The operations have been hit by the decline of the mining sector and has seen revenue decrease from $71.16 million in FY2011 to a forecast of $20.9 million in FY2013. The business has downsized substantially over the past year and is forecast to make a before tax loss of $1.2 million in FY2013.' (b) Under the heading Construction: 'The construction division operates through CIA which is a subsidiary of Arccon (WA). The main operations performed by 112 s 79C(5)(a) Evidence Act 1906 (WA). -- 102 of 118 -- [2026] WASC 327 COBBY J Page 103 CIA include civil construction, structural, mechanical and piping construction and hydro testing. CIA is often a subcontractor to Arccon mining but also operates independently of this business.' 'The operations have been hit by the decline of the mining sector and currently have no active jobs. The business has downsized substantially over the past year and is forecast to make a before tax loss of $4.3 million in FY2013.' 538 The references to decreases in revenue and forecast before tax losses appear to be derived from financial accounts and accounting cashflow forecasts and are accordingly admissible, as are the statements that CIA was a subsidiary of Arccon and that 'the business has downsized substantially over the last year', on the basis that each statement is ultimately derived from a business record. 539 I accept that the 333 Advisory report is to be regarded as a business record of that business, because it serves a function of recording the advice provided by that business: see Lang v Davey [2020] SASC 160 [47] - [48]; De Castro v Rhodes (No 2) [2023] WASC 93 [45]-[48]. 540 I have greater difficulty with the remaining statements, which appear to record instructions provided to 333 Advisory by an unknown person. To the extent that they constitute opinions, it is doubtful that they are admissible, at least where the identity of the maker of the statement is unknown and their expertise is unknown: see Smith J's discussion of the issue in Wright Prospecting Pty Ltd v Hancock Prospecting Pty Ltd [2023] WASC 380, [44] - [51], [65] - [67]. 541 On balance, however, I consider that the remaining statements are to be characterised as statements of fact, and I find them to be admissible. 542 Next is the statement that 'the Group's relationship with MCC largely underpinned FY12 and FY13 results for the Group'. I find that information appears to be ultimately derived from the financial records of the Group, and is accordingly admissible. 543 LCM also seeks to rely upon what are identified as 'Key Observations' at pdf 58 of the report, which appear to comprise a combination of statements derived from accounting records and, ultimately, contracts made between MCC, Arccon and CIA. Those contracts would ordinarily comprise business records of the entities which were parties to them, and I accordingly hold those statements to be admissible. -- 103 of 118 -- [2026] WASC 327 COBBY J Page 104 544 LCM also seeks to tender the statement at page 8 of the report that 'For the 10 months to 30 April 2013 actual sales revenue was $78.7 million generating a loss before tax of $9.4 million'. It is clear from the document that statement related to the affairs of the Allmine Group, not CIA. 545 I accept, however, that it is a statement ultimately derived from a business record or records, being the financial records of the Allmine Group, and is accordingly admissible. 546 Finally, LCM seeks to tender a letter of instruction provided by 333 Advisory (which I note from the letter appears to be a trading name owned by 333 Management Pty Ltd) to Allmine dated 30 April 2013, signed on behalf of Allmine. 547 LCM has not identified any statement in that letter on which it seeks to rely. The tender of the letter is accepted on the basis that it appears to be a copy of a document sent by 333 Advisory to Allmine which records the terms of 333 Advisory's engagement. 548 In assessing the weight to be given to the statements identified as admissible in this section, I have had regard to the evidence that CIA had no directors by the time 333 Advisory was instructed by Allmine, and that 333 Advisory recorded that its 'ability to comprehensively undertake the review' had been impeded by: • 'The inability to gain access to the Group's ex-CEO and ex- CFO • The inability of the Group's management to access systems and records maintained by the Group's previous head office in Melbourne. • Numerous requests for information have been submitted to the ex-CEO for information in respect of the maintenance and corporate divisions. Our information requests were met slowly or not at all. Accordingly, we have been unable to confirm and substantiate the accuracy of the majority of information provided to us. • The absence of a dedicated CFO to the Group has undoubtedly contributed to the poor quality and timeliness of the information provided.' 549 It follows that the Commissioner's objections to those aspects of the Messrs Strawbridge's and Hill's respective reports which are not -- 104 of 118 -- [2026] WASC 327 COBBY J Page 105 supported by those statements in the 333 Advisory Report which are identified above are upheld. 550 Although LCM referred in its written submissions to Seltsam Pty Ltd v McGuiness,113 in which Spigelman CJ referred to the phrase 'not admissible' as used in the New South Wales evidence legislation as meaning 'not admissible over objection', the objections were taken by the Commissioner prior to the closing submissions, and the better view is that, where inadmissible evidence has been adduced without objection, the court should reach its decision on the basis of the legally admissible evidence, rather than giving inadmissible evidence probative value it would not otherwise have.114 551 I was not inclined to restrict the Commissioner's right to object to the admissibility of the expert reports when LCM had failed to comply with the court's orders prior to trial and the objection to the 333 Advisory report had been foreshadowed. LCM's Reliance Upon Mr Strickland's Report 552 In closing, senior counsel for LCM made submissions relying upon a report prepared by Mr Strickland, one of the liquidators, dated 15 May 2020. 553 It is clear that the report was prepared for use in these proceedings. It comprised 2355 pages. The text of Mr Strickland's report comprised 39 pages, with the balance comprising appendices. 554 The appendices included, amongst other things, a copy of the Federal Court of Australia's Expert Evidence Practice Note, the Australian Securities and Investments Commission's Regulatory Guide 16 regarding its reporting and lodging requirements for external administrators, copies of correspondence between officers and employees of companies within the Allmine Group, a copy of the business finance agreement made between Allmine and Westpac (tendered separately in the course of the trial) documents related to the bank guarantee granted by companies in the Allmine Group to Westpac (again tendered separately), Allmine's bank statements (also tendered separately), and more. 555 Mr Strickland's report expressed his opinion as to the solvency or otherwise of CIA. 113 Seltsam Pty Ltd v McGuiness [2000] NSWCA 29; (2000) 49 NSWLR 262 [149]. 114 Fitzroy River Ltd Liability Company v Tucker (as joint and several administrators of Yeeda Pastoral Co Pty Ltd) (Subject to Deed of Co Arrangement) [2025] WASCA 118 [112]. -- 105 of 118 -- [2026] WASC 327 COBBY J Page 106 556 Also of significance at the time LCM sought to rely upon the report was that, amongst the documents attached to the report was a discussion draft of the 333 Advisory report. Although LCM sought to tender the statements contained in the 333 Advisory report identified above, as LCM had been invited to do previously, it also sought to rely upon statements in the draft of the report if I did not permit LCM to do so. 557 The significance of the attachments to the report accordingly falls away, subject to what follows. 558 In the course of the cross-examination of Mr Brown, he was asked by senior counsel for the Commissioner, by reference to the trial bundle number, about paragraph 5.4 of Mr Strickland's report. That paragraph concerned what Mr Strickland had referred to as cashflow forecasts, but which Mr Brown confirmed to have been some of the headroom reports.115 559 Mr Brown's evidence was that he (Mr Brown) was the author of that paragraph of the report. He accepted that the paragraph was to the effect that the headroom reports were not an accurate means of testing cashflow solvency. 560 Mr Brown was then asked about the liquidators' 'trade creditors' analysis, which became exhibit 441, and gave evidence as to how that analysis had been prepared.116 561 The following then occurred: ROSEWARNE, MR: Thank you, Mr Brown. Your Honour, at one point in time, at least, there was some objection taken to reliance upon the Strickland report and this analysis. I understand – I've just been told that that's no longer pressed. But - - - ZAPPIA, MR: That's – I can confirm that's correct. No objection is taken to the – these documents. ROSEWARNE, MR: Yes. If it was, I was going to tender it through this witness, but I don't have to do that any more. Can we go back to your affidavit, thanks, Mr Brown. 562 Mr Brown was not re-examined. 115 ts 420. 116 ts 421. -- 106 of 118 -- [2026] WASC 327 COBBY J Page 107 563 Mr Strawbridge was subsequently cross-examined as to the same paragraph of Mr Strickland's report, but his evidence was to the effect that he was not aware of it.117 564 Mr Hill was similarly cross-examined by senior counsel for LCM regarding a summary of profit and loss statements contained in Mr Strickland's report, and paragraph 4.6 of the report, without objection. Mr Strawbridge was then asked by senior counsel to express his views regarding Mr Hill's evidence on those matters. 565 Senior counsel for LCM referred to Mr Strickland's report in closing, relying upon it to support the submission that CIA had been insolvent. The Commissioner subsequently objected to the use of the report, on the following grounds: (a) Following its substitution as plaintiff, LCM sought leave to adduce further expert evidence on the issue of solvency at a strategic conference held on 24 August 2022. On that occasion, junior counsel for LCM informed the court that LCM would not rely upon expert reports which had been filed by Mr Strickland. (b) On 25 August 2022 the court ordered that: The parties have leave to adduce expert evidence at the trial in respect of solvency of Construction Industries Australia Ltd (ACN 137 079 095) (in liquidation) by calling one expert each of whom is a registered liquidator. The evidence to be adduced by the plaintiff to be in substitution of the experts reports of Kimberley Andrew Strickland, dated 23 May 2018 and 15 May 2020. (c) Consistent with that order, Mr Strickland did not participate in the expert conclave held prior to the trial. His views were not addressed in either the joint expert report or the amended joint expert report filed by Messrs Strawbridge and Hill. (d) By letter dated 6 October 2023 LCM's solicitors objected, in essence, to Mr Hill having made reference to Mr Strickland's report in his (Mr Hill's) expert report. It was said that privilege had not been waived in Mr Strickland's report and, if the Commissioner did not call Mr Strickland, his report would be inadmissible hearsay. The letter went on '[t]o be clear, [LCM] does not propose to lead any evidence from Mr Strickland at trial'. 117 ts 534. -- 107 of 118 -- [2026] WASC 327 COBBY J Page 108 (e) Mr Strickland's report was not mentioned in LCM's pleadings, nor was there any reference to Mr Strickland's report in LCM's written and oral opening submissions. (f) Mr Hill was not cross-examined regarding any aspect of Mr Strickland's report. As Mr Strickland was not called, the Commissioner was denied the opportunity to cross-examine him as to the opinions expressed in his report. 566 Contrary to the last point, as noted Mr Hill was very briefly cross-examined about two aspects of Mr Strickland's report. 567 Although LCM was prohibited from tendering the report by order of the court, that is not what occurred. At least the text of the report was intended to be tendered by the Commissioner, as evidenced by the exchange as to the need to do so set out above. 568 That LCM has avoided the court's order of 25 August 2022 and sought to rely upon evidence which it did not identify at any stage in its case prior to closing submissions does not alter that outcome. It points out, correctly, that Mr Strickland's report was tendered by the Commissioner, not LCM. 569 It was therefore open to LCM to refer to it in the course of its closing address. 570 However, Mr Strickland did not participate in the expert conclave, so that I did not have the benefit of any exchange of views as between him and Messrs Strawbridge and Hill. Mr Strawbridge's evidence was to the effect that he had not paid any significant regard to Mr Strickland's report. 571 Unsurprisingly, given the court's order of 25 August 2022, Mr Strickland was not made available for cross-examination at the trial. 572 Nor did counsel for the Commissioner seek to elicit Mr Hill's views regarding the contents of Mr Strickland's report, no doubt in the belief it would not be in evidence. 573 Although the Commissioner tendered Mr Strickland's report, it is clear that the Commissioner did not intend to rely upon the opinions expressed in Mr Strickland's report as to whether CIA was insolvent at any point. The cross-examination of Mr Brown established no more than that Mr Brown was the author of [5.4] of the report, which concerned the -- 108 of 118 -- [2026] WASC 327 COBBY J Page 109 reliability of the headroom reports, and, in essence, that Mr Brown remained of the view there expressed. 574 As addressed below, the Commissioner sought to withdraw the tender of the attachments to Mr Strickland's report, but not the text of the report. 575 As it is highly doubtful that this court has a discretion to exclude admissible evidence in civil proceedings118 and the document was intended to be tendered, although most likely due to inadvertence, I dismiss the objection. 576 However, as Mr Strickland did not participate in the expert conclave, Mr Strawbridge had not had regard to Mr Strickland's report, Mr Hill did not give evidence regarding the views expressed in the report and Mr Strickland was not cross-examined on his report, I have given his report no weight in considering the solvency of CIA. 577 In doing so, I have not overlooked LCM's submission that it was incongruous for the Commissioner to submit that Mr Strickland's report should be given no weight and to have criticised Mr Strawbridge for failing to have regard to it in preparing his reports. That may be so, but the procedural steps which this court requires as a matter of standard practice in order to ensure that the court has a proper appreciation of an expert's opinion evidence did not take place in relation to Mr Strickland's report, and his evidence, which employed a different methodology from Mr Strawbridge, was untested. 578 I was not prepared to give Mr Strickland's report weight in those circumstances. The Commissioner's Application to Withdraw the Tender of Mr Strickland's Report 579 As noted, an attachment to Mr Strickland's report was a discussion draft of what the parties referred to as the 333 Advisory report. 580 In closing, LCM sought to rely upon statements in the discussion draft of the 333 Advisory report, in the event that I did not permit it to seek to tender statements contained in the final version of the document. 581 In that context, the Commissioner sought to withdraw the tender of the appendices to Mr Strickland's report, on the basis that counsel for the Commissioner had not appreciated that the report included the 118 CDJ v VAJ (No 1) [1998] HCA 67; (1998) 197 CLR 172, [142] n 80. -- 109 of 118 -- [2026] WASC 327 COBBY J Page 110 attachments when the document came to be tendered. I accept that explanation, there being no evident forensic purpose for the tender of the whole of Mr Strickland's report, nor, given Mr Brown's evidence in cross-examination, for the more limited tender of paragraph 5.4 of Mr Strickland's report. The liquidators' trade creditors' analysis was tendered separately. 582 That would result in the draft 333 Advisory report not having been tendered. To some extent, LCM's attempt to rely upon the tender of the draft report itself involved a misconception of the operation of s 79C of the Evidence Act, the effect of which is to make particular statements in a document, rather than the document itself, admissible in evidence. 583 There is surprisingly little authority as to whether the tender of an exhibit may be withdrawn in civil proceedings. 584 In a criminal trial, exhibits may be withdrawn on the basis that whatever probative value they may have is outweighed by the prejudice to an accused that could arise through the exhibit being available for consideration by a jury: R v Liristis [2004] NSWCCA 287 [97] - [100]; R v Patsalis & Spathis (No 6) [1999] NSWSC 746. 585 In a civil case, Motorola Solutions Inc v Hytera Communications Corporation Ltd [2020] FCA 1469, Perram J was prepared to assume that the Court had power to grant a party leave to withdraw the tender of a document. In the result, however, his Honour refused leave, saying '[d]ecisions have to be made in the course of a trial and there must be a reasonable expectation that they will not be revisited. That is not to say that it can never happen only that the circumstances in which it will be appropriate are likely to be rare'.119 586 Although the court may always revisit an earlier ruling on evidence,120 the principal, if not the only, significance of the tender of the attachments to Mr Strickland's report in this case was that they contained the draft 333 Advisory report. It might be thought that LCM intended to attempt to avoid the consequences of its decision to adduce all of the statements contained in the 333 Advisory report by seeking to tender a more limited set of statements contained in the draft report, but the rulings I have made in the context of the objections to Messrs Hill's and Strawbridge's reports and the final version of the 333 Advisory report have made that course unnecessary. 119 Motorola Solutions Inc v Hytera Communications Corporation Ltd [2020] FCA 1469 [8]. 120 Assafiri v Horne [2004] WASCA 40 [45] - [49]. -- 110 of 118 -- [2026] WASC 327 COBBY J Page 111 587 In my judgment, it is appropriate to allow the withdrawal of the tender of the appendices to Mr Strickland's report in the particular circumstances of this case. As I have given no weight to Mr Strickland's report, the court is not assisted by the tender of 2,316 pages of documents to which, other than the draft of the 333 Advisory report, no one made reference in the course of the trial. -- 111 of 118 -- [2026] WASC 327 COBBY J Page 112 Attachment B 588 In accordance with sections 91 and 513B of the Corporations Act 2001 (Cth) (Act), the relation-back day for the Company is 21 June 2013. 589 The relevant period (Relevant Period) in which payments may be avoided pursuant to section 588FE of the Act is 22 December 2012 to 21 June 2013. 590 Section 95A of the Act provides that: (1) A person is solvent if, and only if, the person is able to pay all the persons [sic] debts as and when they become due and payable. (2) A person who is not solvent is insolvent. 591 There are fundamentally two tests of solvency: (a) The cash flow or commercial test, which considers whether liabilities incurred are capable of being paid when due. This test considers the timing of when payments are due and the liquidity of the company's assets or other resources, including borrowings, that may be available to meet those liabilities;121 and (b) The balance sheet test that holds that solvency is demonstrated by assets exceeding liabilities. 592 The preferred test is the cash flow test as stated by Justice Dodds-Streeton in Crema Pty Ltd v Land Mark Property Developments Pty Ltd:122 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 realisable 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. 593 First, in the case of establishing insolvency for the purpose of liquidator recovery proceedings:123 121 Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213; [2001] NSWSC 621; Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126; [2003] VSC 123 at [370] - [380] aff’d Elliott v Australian Securities and Investments Commission (2004) 10 VR 369; [2004] VSCA 54; and see Re Swan Services Pty Limited (in liq) [2016] NSWSC 1724 at [136]. 122 [2006] VSC 338; (2006) 58 ACSR 631 [141]. -- 112 of 118 -- [2026] WASC 327 COBBY J Page 113 (a) insolvency is a question of objective fact to be ascertained from a consideration of the company’s financial position taken as a whole. 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; and (b) as such is to be determined retrospectively. 594 Second, whether the Company is able to pay its debts as and when they fall due and payable is a question of fact to be determined objectively and without hindsight in all the circumstances, including the nature of its assets and business, and the Court will have regard to commercial realities in that regard.124 595 Third, the Court will assess the question of insolvency retrospectively and: (a) will have the inestimable benefit of the wisdom of hindsight. One can see the whole picture, both before, as at and after the alleged date of insolvency. The court will be able to see whether as at the alleged date of insolvency the company was, or was not, actually paying all of its debts as they fell due and whether it did, or did not, actually pay all those debts which, although not due as at the alleged date of insolvency, nevertheless became due at a time which, as a matter of commercial reality and common sense, had to be considered as at the date of insolvency. By reference to what actually happened, rather than to conflicting experts’ opinions as to the implications of balance sheets, the court’s task in assessing insolvency as at the alleged date should not be very difficult;125 (b) can look at the arrangements which were actually made, and resources accessed to pay debts rather than artificially excluding them from consideration. To look at what actually happened avoids the possibility that the court is forced to conclude that, as a 123 Lewis v Doran (2004) 50 ACSR 175 at [103], [106] - [108]. 124 Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation above at [54]; White Constructions (ACT) Pty Ltd (in liq) v White (2004) 49 ACSR 220 at [289]; Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran [2005] NSWCA 243; (2005) 54 ACSR 410 at [103] - [116]; Bentley Smythe Pty Ltd v Anton Fabrications (NSW) Pty Ltd (2011) 248 FLR 384; [2011] NSWSC 186 at [48] - [49] (Bentley v Anton). 125 Bentley v Anton at [108]. -- 113 of 118 -- [2026] WASC 327 COBBY J Page 114 matter of law, a company could not pay all its relevant debts when, as a matter of fact, the company clearly did pay those debts. 596 Fourth, the conclusion of insolvency ought to be clear from a consideration of the debtor's financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the company's inability, utilising such cash resources as it can command through the use of its assets, to meet its debts as they fall due which indicates insolvency.126 597 Fifth, in determining solvency it is necessary to take into account the financial position of a company having regard to ‘commercial reality’.127 That commercial reality of the company’s situation may include the availability of financial support from within a corporate group structure.128 598 Sixth, a company is not insolvent on a given day only because on that day or for some short period thereafter the company was unable from readily available liquid assets to pay its debts as they became due and payable.129 That may be evidence of a mere temporary lack of liquidity.130 But, while a lack of liquidity is not equivalent to insolvency, the fact that a company has liquid assets is not conclusive of its solvency: a company is not necessarily solvent on a particular day if it was, on that day, in a position to meet any demand which might properly be brought by a creditor.131 599 Seventh, on a retrospective analysis it will not suffice to point to assets or financial resources that could have been used to pay the company’s debts but were not.132 However, the existence of such assets may be relevant in assessing whether the company’s failure to pay its debts was due to inability or unwillingness.133 600 Eighth, if liquidating assets or utilising resources would result in a disruption to, or a breaking up of, the company’s business or the company 126 Expo International Pty Ltd v Chant [1979] 2 NSWLR 820 at 839 127 Cribb v Kingsbury (No 2) [2021] FCA 1397 at [42]. 128 Westgem Investments Pty Ltd v Commonwealth Bank of Australia Ltd (No 6) [2020] WASC 302 at [1053]. 129 Downey v Aira Pty Ltd (1996) 14 ACLC 1068, 1071 130 The proper approach is set out in Expo International Pty Ltd v Chant (supra) at 839 where Needham J states that: 'if temporary inability to pay debts is established, one can look to the debtor’s asset position to see whether the temporary embarrassment is caused only by a lack of liquidity. If it is, then one should take account of readily realisable assets'. 131 Expo International Pty Ltd v Chant (supra) at 837 132 Smith v Bone [2015] FCA 319; (2015) 104 ACSR 528 at [339], [340] (Smith v Bone). 133 Smith v Bone, supra at [340]. -- 114 of 118 -- [2026] WASC 327 COBBY J Page 115 breaching a contract then they are not to be considered as available to satisfy the company’s present and future indebtedness.134 601 Ninth, the words “as and when they become due and payable” in section 95A of the Act require looking into the future beyond the particular day on which the question of solvency or insolvency is to be determined. That usually involves looking only to the reasonably immediate future. 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.135 Unexpected later discovery of a liability, or later quantification of a liability at an unexpected level, may be excluded from consideration if the liability was properly unknown or seen in lesser amount at the relevant time.136 602 Tenth, there are limits to what future debts will be taken into account. The court is concerned with existing debts which will fall due, or, at the most, contingent or prospective debts. But there must be an appropriate degree of certainty as to those debts and whether (and, if so, when) they will become due and payable within the immediate future. The court does not consider whether circumstances may arise at some future time which will then cause the company to be in a position whereby it will not be able to meet its liabilities which will then exist.137 603 Eleventh, in considering the relevance of contingent or prospective debts to a company’s solvency, there must be an appropriate degree of certainty as to whether they will become due and payable within the immediate future and, if so, when.138 604 Twelfth, a contingent debt exists if there is an existing obligation out of which a liability on the part of the debtor to pay a sum of money will arise in a future event, whether it be an event that must happen or only an event that may happen.139 A prospective debt is one not immediately 134 Queensland Phosphate v Korda [No 2] [2019] VSCA 215 at [138 135 New Cap Reinsurance Corporation Ltd (in liq) & Anor V A E Grant & Ors, Lloyd’s Syndicate No. 991 [2008] NSWSC 1015 at [44] citing Bank of Australasia v Hall (1907) 4 CLR 1514 at 1527; Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran [2005] NSWCA 243 at [103], Brooks v Heritage Hotel Adelaide Pty Ltd (1996) 20 ACSR 61 at 65 and Re Kolback Group Ltd (1991) 4 ACSR 165 at 169; Barboutis v The Kart Centre Pty Ltd (No 2) [2020] WASCA 41 at [123] (Buss P, Mitchell and Vaughan JJA) citing Melbase Corporation Pty Ltd v Segenhoe Ltd (1995) 17 ACSR 187 at 198. 136 Lewis v Doran (supra) at [103]. 137 Barboutis v The Kart Centre Pty Ltd (No 2) (supra) at [124]. 138 Barboutis v The Kart Centre Pty Ltd (No 2) (supra) at [124]. 139 New Cap Reinsurance Corporation Ltd (in liq) & Anor V A E Grant & Ors, Lloyd’s Syndicate No. 991 (supra) at 194 [75] per White J citing Community Development Pty Ltd v Engwirda Construction Co (1969) 120 CLR 455 at 459; Re Melbournehomes.com Pty Ltd (in liq) (2020) 356 FLR 390 per Hetyey AsJ at 413 [83]; Edwards v Attorney General (supra) at [59] citing Re International Harvester Australia (1983) 1 ACLC 700 at 703 as to meaning of contingent creditor. -- 115 of 118 -- [2026] WASC 327 COBBY J Page 116 payable but which will certainly become due in the future on a date which is presently determined or which will be determined by reference to future events.140 605 Thirteenth, whilst contingent or prospective creditors are taken into account in assessing solvency possible future claims that might crystallise are not. The distinction is vital.141 606 Fourteenth, a loan which is technically repayable on demand will not be treated as immediately due and payable for the purposes of assessing solvency where there is evidence that the lender does not intend to demand repayment prior to a particular event occurring.142 607 Fifteenth, as section 95A of the Corporations Act 2001 (Cth) [sic] refers to a person's inability to pay all the person's debts, there is no reason to exclude contingent or prospective debts. Contingent or prospective creditors are taken into account in assessing solvency.143 In would be strange if [sic], in determining insolvency as defined by section 95A for the purposes of Pt 5.7B, the Court was not able to take into account contingent or prospective liabilities of a company when such liabilities are required to be taken into account when determining whether a company should be wound up on the ground of insolvency.144 608 Sixteenth, the law expressly recognises the propriety (if not the need) to take contingent liabilities into consideration, but the significance of them very much depends on the degree of likelihood that they will crystallise into actual, present liabilities, falling due in the short-term future.145 609 Seventeenth, outstanding taxes are an indicator of insolvency,146 and regard should also be had to whether particular taxation liabilities are due and payable during the period in which a company's solvency is being 140 New Cap Reinsurance Corporation Ltd (in liq) & Anor V A E Grant & Ors, Lloyd’s Syndicate [No. 991] (supra) at [75] citing Edwards v Attorney General (supra) at 679 [59] citing Stonegate Securities Ltd v Gregory [1980] Ch 576 and Re Simionato Holdings Pty Ltd; Commissioner of Taxation v Simionato Holdings Pty Ltd (1997) 15 ACLC 477. 141 Edwards v Attorney General (supra) at [60]. 142 International Cat (2013) 97 ACSR 200, 224 [108]; Quin (in his capacity as liquidator of Roderick Group Pty Ltd (In Liq)) v Vlahos [2021] VSCA 20 [2013] QCA 372; at [56] ; Clifton v Kerry J Investment Pty Ltd trading as Clenergy [2017] FCA 1379 at [188]. 143 New Cap Reinsurance Corporation Ltd (in liq) & Anor V A E Grant & Ors, Lloyd’s Syndicate No. 991 (supra) at [76] citing Edwards v Attorney General (supra) at 679 [60] per Young CJ in Eq (with whom Spigelman CJ and Mason P generally agreed). 144 New Cap Reinsurance Corporation Ltd (in liq) & Anor V A E Grant & Ors, Lloyd’s Syndicate No. 991 (supra) at [77] citing Expo International Pty Ltd (In liq) v Chant (supra) at 839. 145 Brooks v Heritage Hotel Adelaide Pty Ltd (supra) at [65]. 146 Rococo Group at [118] (Hetyey AsJ). -- 116 of 118 -- [2026] WASC 327 COBBY J Page 117 assessed.147 If a taxpayer enters into a payment arrangement with the Commissioner of Taxation with respect to an outstanding tax debt then as a matter of law and commercial reality unless the debt is deferred or it is stayed, the entire amount of the tax debt remains presently payable as to do any unpaid amounts of the tax debt throughout the duration of the payment arrangement.148 This is mandated by the provisions of Taxation Administration Act 1953 (Cth)149 and has been confirmed by the Full Court of the Federal Court in Clifton.150 610 Eighteenth, Mandie J in ASIC v Plymin (2003) 465 ACSR 126 [sic], provides a list of some indicators of insolvency:151 (a) Continuing losses; (b) Liquidity ratios of less than 1; (c) Overdue Commonwealth and State taxes; (d) Poor relationship with present bank, including an inability to borrow further funds; (e) No access to alternative finance; (f) Inability to raise further equity capital; (g) Suppliers placing the company on cash on delivery terms or otherwise demanding special payments before resuming supply; (h) Creditors unpaid outside trading terms; (i) Issuing of post-dated cheques; (j) Dishonoured cheques; (k) Special arrangements with selected creditors; (l) Payments to creditors of rounded sums which are not reconcilable to specific invoices; 147 Rococo Group at [118]. 148 Smith v Bone (supra) at [38] - [44]; Clifton (Liquidator) v Kerry J Investment Pty Ltd trading as Clenergy [2020] FCAFC 5 considering the meaning of 'due and payable' in s.255-15 at [504] - [515], considering any other basis to treat liability as deferred at [516] - [532] and concluding that debt is due and payable despite entry into arrangement at [533] - [541]. 149 Taxation Administration Act 1953 (Cth), s255-15 of Sch 1. 150 Clifton (Liquidator) v Kerry J Investment Pty Ltd trading as Clenergy (supra). 151 See also Morris v Danoz Directions Pty Ltd (in liq) (No 2) [2010] FCA 836 at [13]. -- 117 of 118 -- [2026] WASC 327 COBBY J Page 118 (m) Inability to produce timely and accurate information to display the company's trading performance and financial position and make reliable forecasts. I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia. RH Associate to the Hon Justice Cobby 7 AUGUST 2026 -- 118 of 118 --