FEDERAL COURT OF AUSTRALIA Hancock v Conergy Pty Limited (in liquidation), in the matter of DCM Solar Pty Limited (in liquidation) [2015] FCA 738 Citation: Hancock v Conergy Pty Limited (in liquidation), in the matter of DCM Solar Pty Limited (in liquidation) [2015] FCA 738 Parties: GEOFFREY TRENT HANCOCK IN HIS CAPACITY AS LIQUIDATOR OF DCM SOLAR PTY LIMITED (IN LIQUIDATION) (ACN 137 772 813) v CONERGY PTY LIMITED (IN LIQUIDATION) (ACN 112 387 569) File number(s): NSD 249 of 2014 Judge(s): YATES J Date of judgment: 21 July 2015 Catchwords: CORPORATIONS – voidable transactions – insolvent transactions – whether deed entered into by parties and/or payments made giving effect to deed constitute unfair preferences CORPORATIONS – leave to proceed against company in liquidation Legislation: Corporations Act 2001 (Cth) ss 9, 95A, 439C, 500, 513A, 513C, 588FA, 588FB, 588FC, 588FE, 588FF, 588FG Federal Court Rules 2011 r 39.06 Income Tax Assessment Act 1936 (Cth) s 95 Cases cited: Australian Securities and Investments Commission v Plymin (2003) 175 FLR 124 Lewis v Doran (2004) 208 ALR 385 Morris v Danoz Directions Pty Ltd (in liq) (No 2) [2010] FCA 836 Playspace Playground Pty Ltd v Osborn [2009] FCA 1486 Re Damilock Pty Ltd (in liq); Lewis and Carter as Liquidators of Damilock Pty Ltd (in liq) v VI SA Australia Pty Ltd (2008) 252 ALR 533 Australian Securities and Investments Commission, Information Sheet 42 – Insolvency: A Guide for Directors (Australian Securities and Investments Commission, 2008) http://www.asic.gov.au/ viewed 21 July 2015 Date of hearing: 6 July 2015 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 83 Counsel for the Plaintiff: Mr C Harris SC Solicitor for the Plaintiff: Mills Oakley Lawyers Counsel for the Defendant: The defendant did not appear IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 249 of 2014 IN THE MATTER OF DCM SOLAR PTY LIMITED (IN LIQUIDATION) (ACN 137 772 813) BETWEEN: GEOFFREY TRENT HANCOCK IN HIS CAPACITY AS LIQUIDATOR OF DCM SOLAR PTY LIMITED (IN LIQUIDATION) (ACN 137 772 813) Plaintiff AND: CONERGY PTY LIMITED (IN LIQUIDATION) (ACN 112 387 569) Defendant JUDGE: YATES J DATE OF ORDER: 21 JULY 2015 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Pursuant to s 588FF(1)(a) of the Corporations Act 2001 (Cth), the defendant pay DCM Solar Pty Limited (in liquidation) (the company) the sum of $6,181,334.83 (the sum). 2. The defendant pay the company interest on the sum from and including 2 September 2011 to and including 21 July 2015, calculated in accordance with the rates specified in r 39.06 of the Federal Court Rules 2011. 3. The defendant pay the plaintiff's costs, as taxed or agreed. 4. Leave be granted to the plaintiff to approach the Associate to Yates J to re-list the proceeding for further hearing on the question of the granting of declaratory relief, such leave to be exercised by no later than 4.00 pm on 24 July 2015. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 249 of 2014 IN THE MATTER OF DCM SOLAR PTY LIMITED (IN LIQUIDATION) (ACN 137 772 813) BETWEEN: GEOFFREY TRENT HANCOCK IN HIS CAPACITY AS LIQUIDATOR OF DCM SOLAR PTY LIMITED (IN LIQUIDATION) (ACN 137 772 813) Plaintiff AND: CONERGY PTY LIMITED (IN LIQUIDATION) (ACN 112 387 569) Defendant JUDGE: YATES J DATE: 21 JULY 2015 PLACE: SYDNEY REASONS FOR JUDGMENT Introduction 1 The plaintiff, Geoffrey Trent Hancock, is the liquidator of DCM Solar Pty Limited (in liquidation) (the company). He has commenced three proceedings against separate defendants seeking relief under s 588FF of the Corporations Act 2001 (Cth) (the Act). This proceeding is one of them. The other proceedings are NSD 707 of 2014, which has been brought against Allan John Barker and Barbara Anne Barker trading as Sunlord Solar (Sunlord and the Barker proceeding, respectively) and NSD 248 of 2014, which has been brought against Diamond Energy Pty Limited (the Diamond Energy proceeding). 2 The three proceedings were ordered to be heard together, with evidence in each proceeding being taken as evidence in the other proceedings. However, early in the hearing, the Barker proceeding and the Diamond Energy proceeding were resolved. 3 This proceeding, NSD 249 of 2014, has been brought against Conergy Pty Limited (Conergy). On 30 June 2015, shortly before the commencement of the hearing, the members of Conergy passed a resolution for its winding up. The winding up is a creditors' voluntary winding up. At the commencement of the hearing, Mr Hancock sought leave to continue the proceeding against Conergy. The liquidators of Conergy neither opposed nor consented to leave being granted. I granted leave pursuant to s 500(2) of the Act subject to the usual condition that any judgment or order obtained against Conergy is not to be enforced without leave of a Court as defined in s 9 of the Act. 4 The liquidators of Conergy did not appear at the hearing of Mr Hancock's claim for relief under s 588FF. The relief sought includes an order that Conergy pay the sum of $6,181,334.83 to the company in respect of a series of payments made by the company to Conergy in the period 10 September to 8 October 2010. 5 The case is put in a number of ways. Mr Hancock says that each payment made by the company to Conergy is an unfair preference and an insolvent transaction. Mr Hancock also alleges that a deed entered into between the company and Conergy is an uncommercial transaction and, either alone or taken with the payments, is an unfair preference and an insolvent transaction. In this way, he alleges that each "transaction" so identified is a voidable transaction within the meaning of s 588FE of the Act. 6 The relation-back day is 10 March 2011, being the date when Mr Hancock and Michael Charles Hird were appointed joint and several administrators of the company: s 513B(b) and s 513C(b) of the Act. 7 On 14 April 2011, Mr Hancock and Mr Hird were appointed as the joint and several liquidators of the company pursuant to a resolution of creditors under s 439C of the Act. On 12 December 2012, Mr Hird ceased to be a liquidator of the company. 8 Mr Hancock alleges that the company was insolvent before the challenged payments were made to Conergy. Indeed, on his case, the company was insolvent by on or around 5 August 2010 and remained so. He alleges that the payments were acts undertaken to give effect to an insolvent transaction that is voidable under s 588FE(2) of the Act. 9 In its defence as filed, Conergy denies the company's insolvency at relevant times and seeks to invoke s 588FG(2) of the Act. Conergy pleads that: it became a party to the relevant transaction in good faith and that, at that time, had no reasonable grounds for suspecting that the company was or would become insolvent; a reasonable person would have had no such grounds; and, implicitly, valuable consideration was provided for the transaction. However, this defence was not supported by evidence adduced at the hearing. Indeed, as I have noted, Conergy's liquidators did not appear at the hearing. 10 For the reasons that follow, I am satisfied that Mr Hancock is entitled to the order for payment he seeks. On the evidence before me, I accept that the company was insolvent by no later than 9 September 2010 and that the payments made by the company to Conergy were acts undertaken to give effect to an insolvent transaction that is voidable under s 588FE(2) of the Act. The Company 11 Up until approximately 14 October 2009, the company was called DCM Sanctuary Pty Limited. It was, from at least that time, the trustee of the DCM Sanctuary Unit Trust. 12 During 2009, 2010 and 2011, the company carried on business selling and installing domestic 1kw solar power systems, primarily to retirement homes under the Solar Homes Communities Plan (the SHCP). This business was conducted by the company as trustee of the DCM Sanctuary Unit Trust. It was also involved in selling and installing a commercial solar power system at the Sydney Theatre Company at Walsh Bay, Sydney on its own account. 13 The SHCP was an initiative of the Commonwealth Government under which rebates and other benefits were paid by the Commonwealth for the installation of domestic solar power systems. The rebates and benefits were payable in the first instance to the customer for whom the system was installed. However, the company would purchase the components for the system and install it for the customer on the basis that the customer assigned the customer's entitlement to the rebates and other benefits to the company. In this way, the company received payments directly from the Commonwealth. 14 The company's activities initially involved the procuration from customers of applications under the SHCP, and the lodgement of those applications for approval. These activities were completed by about the end of June 2009. In about September 2009, the company was notified that approximately 7,000 of the applications it had lodged were successful. However, the company was also informed that the SHCP would terminate at the end of June 2009, and that subsidies would only be paid on systems that had been installed by that time, and for which all approvals and paperwork had been lodged with the Commonwealth. 15 The company thus had about nine months within which to source and install approximately 7,000 solar power systems at sites located in Queensland, New South Wales and Victoria. 16 The Commonwealth subsequently extended the operation of the SHCP to include all systems fully installed by 31 July 2010, and for which the necessary documentation had been lodged by 1 October 2010. 17 On 20 August 2009, the company entered into a Facility and Guarantee Deed with Skiptan Pty Limited (Skiptan) under which Skiptan agreed to advance funds to the company for the purpose of paying invoices rendered by Conergy for the supply of solar panels, and invoices rendered by Fieldforce Services Pty Ltd for the installation of solar panels. The company's obligations were to be secured by a fixed and floating charge over its assets. According to Mr Hancock, it appears that, on start-up, the company had very little or no working capital to carry on its business and therefore needed Skiptan's financial assistance. 18 The Facility and Guarantee Deed expired on 30 June 2010. On 13 August 2010, Skiptan and the company entered into a Deed of Release, whereby they acknowledged that "[t]he transaction contemplated by the Facility and Guarantee Deed has now completed". The Facility and Guarantee Deed was thereby "terminated by completion and performance". No further or other finance facility appears to have been entered into by the company for the period commencing on and from 1 July 2010. 19 Mr Hancock gave evidence that, from at least June 2010, it was the intention of the company's directors that the company would complete the installation of all solar power systems approved under the SHCP, complete the installation of the solar power system for the Sydney Theatre Company, and then cease trading. The company's business would then be wound up and that, after the realisation of its assets and the payment of its debts and other liabilities, the available surplus would be distributed to the unit holders of the DCM Sanctuary Unit Trust. No evidence of this matter was given by a director of the company, but a financial analysis in evidence, prepared by Mr Meredith (see below), shows that very little new business was written by the company after July 2010 and, taken with other evidence, supports an inference that, at about this time, the company's business was being wound down. 20 Two directors of the company recognised that there might be ongoing opportunities to install solar power systems beyond the end of the SHCP. On 9 February 2010, they incorporated DCM Green Pty Limited (DCMG). DCMG was placed in voluntary administration on 10 March 2011 and, at a meeting of its creditors held on 14 April 2011, went into liquidation. The evidence indicates that the company assisted DCMG in various ways and that various liabilities were incurred by the company on account of these activities. 21 The company did not lodge income tax returns and did not pay goods and services tax (GST) on the rebates it received under the SHCP. 22 Between at least January and July 2010, the company purchased components for solar power installations from Conergy and other suppliers. Its accounts were operated on credit, thereby creating debts between the company and its suppliers. The company made payments from time to time in reduction of these debts. The debts were unsecured. The company's relations with Conergy 23 A cash flow review prepared as at 5 August 2010 by the company's chief financial officer, Mr Moldrich, shows that the company owed Conergy at least $8.4 million. By that time approximately $800,000 of this debt had been outstanding for more than 90 days. The company had forecasted a payment of $2.4 million to Conergy. However, apparently due to delays in receiving rebates under the SHCP, the company was only proposing, at that time, to pay $1.3 million to Conergy in reduction of its indebtedness. 24 The finance facility that the company had with Skiptan had ceased on 30 June 2010. However, even before then, Conergy was issuing penalty invoices to the company for amounts due on unpaid invoices, including invoices issued during March 2010. Conergy's general manager, Mr McCallum sent an email to the company on 25 May 2010 inquiring whether the facility with Skiptan was still accessible by the company through to 30 June 2010 to meet all drawdowns required to ensure payments to Conergy were "made within the 30 day payment term". 25 On 5 July 2010, Conergy threatened to commence proceedings against the company unless it immediately put in place "bank guarantees and other securities" in relation to the company's indebtedness. 26 The cash flow review as at 5 August 2010 noted that, in that week, the company had received $2.3 million in rebates. The review records Mr Moldrich's view that, in light of that receipt, Conergy would be expecting a larger payment than the $1.3 million the company was proposing to make. Mr Moldrich apparently thought that the company could manage Conergy's expectations by stating that the company could not make a larger payment at that time because it needed to pay installers "to ensure rebates paperwork is collected". 27 The review records that Sunlord had placed the company on "stop trade" due to an overdue account. The debt to Sunlord was $4.3 million. The company proposed to pay Sunlord $500,000 in reduction of that debt. 28 The review also records that another supplier, Solar Power, was "irate" and had threatened "legal/collection action". At that time, the company was indebted to Solar Power for $348,000. It proposed to pay Solar Power $50,000 in reduction of that debt. 29 A cash flow review prepared as at 20 August 2010 records that the company was indebted to Conergy for $7.1 million and that 18.2% of this debt had been outstanding for more than 90 days. The review records that Conergy's managing director, Mr Meads, had requested that the company seek alternative financing in order to pay its indebtedness to Conergy. The evidence reveals that Mr Meads' "request" was somewhat more direct than the notes to the review indicate. In an email sent to one of the company's directors, Mr Koumoukelis, Mr Meads said: Dear Arthur, I called this afternoon to advise you of my concern of the way we have been treated. I understand that Mal will transfer some ~$400K to us but now not until Monday. This is unacceptable and is without justification. I am intending to put a notice of demand on you if this cant be resolved. Get your own finance I have run out of patience. (Errors in original.) 30 The review as at 20 August 2010 also records that Mr Moldrich had spoken to Conergy's finance director, Mr Koorsen. The review records: FEEDBACK: Spoke with Johan Koorsen - he was not very happy or impressed Complained that we were using rebate funds for our operating cashflow I stated that we are paying the majority to Conergy with remainder to installers He stated that our account was firmly on the "radar" of their parent company and that they will consider further action - claimed we were being reckless He has a bad feeling about this situation - I advised I would feedback to our board 31 The company had advanced the delayed receipt of rebates from the Commonwealth as the reason for not meeting its indebtedness to Conergy. Conergy did not accept this explanation. On 24 August 2010, Mr Meads wrote to one of the company's directors, Mr Baynes. Mr Meads said: Thank you for your emails, I can see you are burning the midnight oil on this matter and acknowledge the delayed payment as being partly at the feet of the department and their process issues. It is however interesting to note that even without the processing and payment delays Conergy would still not be paid within the agreed terms. I know this has got everyone on edge and unfortunately we appear to be also paying a second penalty of not seeing any more business with DCM despite the inference from your earlier email that you are using your line of credit to purchase inventory. The finance arrangements with St George is obviously not been used for Conergy and I would comment that I don't like being put at the end of the priority list, should this be what you are doing with your available funds. Your actions are penalising Conergy at present. In conclusion I will have no choice but to move to recovery status should this not be resolved by next week and all our outstanding invoices paid. You are within your rights to run your business in the best interests of your shareholders and so am I. I can't stand by knowingly supporting you when all you are doing is purchasing inventory from my competitors using Conergy as a financier to do this. I would rather shut this down now and at least no one gets the benefit of our shareholders funds and our overdraft. I just don't understand what you guys don't understand about this? We have offered you all I can do, virtually unlimited line of credit, priority over our over customers and world class products. We have had no choice but to supply other customers who pay simply to ensure our own cash flow as it would appear you believe we have a bottomless pit of funds and paying us is not a priority. I would have expected some courtesy of discussing with us other arrangements rather than you run off to our competitors. Anyway you are on notice so please ensure this is resolved next week. (Errors and emphasis in original.) 32 The reference in this correspondence to the St George Bank relates to the company's account into which rebates from the Commonwealth were paid. It appears to have been the company's main operating account. Matters between Conergy and the company were not "resolved". Although, by 9 September 2010, the company's indebtedness to Conergy had been reduced to $6,181,334.83, by 1 August 2010 it had incurred further late payment fees amounting to $151,057.50. 33 On 9 September 2010, the company and Conergy entered into a Deed which provided for Conergy to be a signatory to the company's account with St George Bank "to provide Conergy security and certainty of payment of its debts …". 34 Clause 3.2 of the Deed provided for directions to be given to St George Bank as to the operation of the account. The clause states: 3.2 Directions to St George The parties will sign and undertake to provide directions to St George Bank so that the DCM Solar Rebate Bank Account operates under the following conditions: (a) Signatories may operate and issue instructions by facsimile or original written direction to St George bank; (b) St George Bank will be requested and directed to: (i) provide copies of the weekly bank statements to Conergy and DCM Solar on the Friday morning of each week; (ii) not provide any bank statements or information to Conergy as to DCM Solar's banking arrangements in respect of the DCM Solar Rebate Bank Account or for the period prior to 1 September 2010 and not provide any banking information or client information in relation to DCM Solar for any other account at any time; (iii) other than as limited in accordance with (ii) above, respond and answer any queries in relation to the DCM Solar Rebate Bank Account; (iv) when advised by the parties or Conergy that the Debt has been paid in full or when either party advises the St George Bank that an amount equal to the Debt has been transferred from the DCM Rebate Bank Account to the Conergy Account, arrange to remove the Conergy signatories as signatories of the DCM Solar Rebate Bank Account; (v) accept facsimile directions signed by the DCM Solar or Conergy signatories in relation to any transfers of funds from the DCM Solar Rebate Bank Account; 35 The Deed regulated the way in which funds in the account were to be used. Clause 4.1 states: 4.1 Transfers from DCM Solar Rebate Account As from 1 September, Conergy and DCM Solar signatories will permit, sign and direct and issue directions from St George Bank for transfers from the DCM Solar Rebate Bank on a weekly basis and no later than Monday close of business each week in the following order, manner and priority: (a) $100,000 for working capital requirements of DCM Solar to be transferred to the DCM Solar Account; (b) Of the balance of the rebates paid into and held in the DCM Solar Rebate Bank Account of the rebates paid during the preceding week (after deducting the transfer referred to in (a) above), 50% of the rebates to be paid to the Conergy Account in payment of the Debt; (c) The balance of the rebates paid into and held in the DCM Solar Rebate Bank Account of the rebates paid during the preceding week (after deducting the transfer referred to in (a) and (b) above) to be paid to the DCM Solar Account for payment of DCM Solar's creditors and working capital needs. 36 Thus, by 9 September 2010, the company had placed its main operating account under joint control with its supplier Conergy as a means of attempting to pay its debt. 37 Following this arrangement, the company made the following payments to Conergy in discharge of its indebtedness: 10 September 2010 $1,330,000 17 September 2010 $1,588,000 24 September 2010 $1,370,000 1 October 2010 $1,294,000.00 8 October 2010 $599,334.83 Total: $6,181,334.83 38 These are the payments that Mr Hancock seeks to recover under s 588FF of the Act. 39 On 19 August 2011, Mr Hancock demanded repayment of these sums within 14 days, on the basis that they constituted an unfair preference. The demand was not met. Payment was not made by 1 September 2011. inSolvency Introduction 40 Mr Hancock relies on the following reports on the question of the company's solvency: Douglas Warren Meredith dated 22 May 2014; and Aaron Ross Randell dated 17 March 2015. Mr Meredith's report 41 In his report, Mr Meredith expressed the view that the company became insolvent within the meaning of s 95A of the Act on about 5 August 2010, and did not permanently return to a state of solvency after that date. 42 Based on the company's financial records, Mr Meredith prepared profit results for the year ended 30 June 2010, and for the period 1 July 2010 to 10 March 2011 (the review period). In preparing these results, Mr Meredith included an amount for income tax, notionally assessed at $3,741,603 as at 30 June 2010. Mr Meredith made certain adjustments to the company's general ledger trial balances which he considered to be necessary in order to match revenue and expenses for each month in the review period. 43 After making these adjustments, Mr Meredith noted that the company made trading losses in each month in the review period other than for February 2011, with a gross loss of $494,791 and a net loss (before tax) of $2,858,235 at the end of the period. 44 When reviewing the company's current assets, Mr Meredith noted that, in the review period, the company had advanced $6,329,535 to related parties. 45 When reviewing the company's current liabilities, Mr Meredith noted that the company had recorded current liabilities of $1,226,756. Mr Meredith expressed the opinion that a further amount of $5,910,251 should be added to take account of: a debt due to Soanar Pty Limited of $3,967,439 which had been incurred on behalf of the company by DCMG; an amount of $279,454 for unremitted PAYG deductions; and, an amount of $436,602.39 to reflect the company's running balance account with the Australian Taxation Office, which did not appear to have been recorded in the company's books. 46 Mr Meredith analysed aged trade creditors' balances at each month-end in the review period and noted that, by the end of July 2010, 86.8% of the company's trade debts were due for payment within the following month, up from 47.3% at the end of June 2010. By month-end in August and September 2010, 84.2% and 88.7% respectively of the value of trade debts were due for payment in the following month. 47 Mr Meredith referred to the question of GST on SHCP rebates and noted that no liability for GST had been recorded in the company's books. It does not appear, however, that Mr Meredith made specific provision for this liability when considering the company's profitability as at 30 June 2010 or during the review period. 48 Mr Meredith analysed the rate of current assets to current liabilities for each month in the review period and concluded that, for August 2010, the ratio was 1.0. This ratio fell below 1.0 in the succeeding months, thereby reflecting a lack of current assets to meet current liabilities. 49 Mr Meredith noted that, as at 30 June 2010, related-party loans stood at $277,401. However, as at 10 March 2011, related party loans stood at $5,135,762. Mr Meredith concluded that none of these loans was available to assist in paying the company's trade creditors and that the making of these advances in the review period exacerbated the company's financial difficulties. 50 Mr Meredith had regard to the following indicia of insolvency. First, he noted the company's trading losses in each month in the review period. Secondly, he noted the company's liquidity ratios for each month in the review period, with the ratio falling below 1.0 in September and each succeeding month. Thirdly, he noted that, from as early as July 2010, the company began to make regular payments to its trade creditors in "rounded sums" that were not reconcilable to specific invoices. This conduct persisted in at least August and September 2010. Fourthly, he noted that the company was paying its major creditors outside of normal trading terms from as early as June 2010. In this connection, Mr Meredith had regard to the company's weekly cash flow reviews. I have referred to some of these above: see [23]-[30]. Fifthly, Mr Meredith noted the special payment arrangements between the company and Conergy as reflected in the Deed of 9 September 2010 following Conergy's threats to take action against the company in respect of its unpaid indebtedness. Sixthly, Mr Meredith noted what he assessed to be the irrecoverability of related-party loans made by the company in the period July to December 2010. Finally, Mr Meredith noted the apparent absence of audited accounts for the company for the year ended 30 June 2010 and the period ended 30 November 2010. 51 Mr Meredith considered that "the persistent prevalence" of the third, fourth and fifth matters noted above, in the months of July and August 2010, clearly indicated that the company was not able to pay all its debts in full when they were due. He opined that the company's apparent insolvent position in early to mid-August continued through September 2010 and for the remainder of the review period. Mr Meredith's identification of 5 August 2010 as the likely date of insolvency appears to be based on the company's intended dealings with its trade creditors as revealed in the weekly cash flow review prepared as at that date: see [23]-[28]. Mr Randell's report 52 Mr Randell was engaged to express an opinion on whether the company, as trustee of the DCM Sanctuary Unit Trust, had an income tax liability for the year ended 30 June 2010, or as at 30 June 2010—it being recalled that Mr Meredith had taken such a liability into account and had assessed that liability at $3,741,603 as at 30 June 2010. Mr Randell was also engaged to express an opinion on whether the company was obliged to account for GST in respect of the rebates or other benefits under the SHCP it received. 53 Mr Randell expressed the opinion that the company did not have an income tax liability for the year ended 30 June 2010 or as at 30 June 2010. However, correspondingly, he said that the company did have a liability to unit holders as at midnight on 30 June 2010 in respect of their proportionate entitlements to trust income for the year ended 30 June 2010. This liability was a current liability for an amount exceeding $8 million at the commencement of and throughout the review period. Recognition of this liability means that, although the attribution of a liability for income tax in the amount of $3,741,603 should not be made, the company had a far greater current liability for which account had not been taken in Mr Meredith's report. 54 In this connection, clause 10(a) of the DCM Sanctuary Unit Trust Deed provides: The Trustee may determine whether a receipt or gain or outgoing is to be treated as being on account of capital or income or partly on account of one and partly on account of the other. If the Trustee does not make a determination under this sub-clause prior to midnight on 30 June in a financial year, the amount which under the provisions of the Act represent the net income (within the meaning of s 95 of the Income Tax Assessment Act, 1936 "the Act") for that year in relation to the Trust Fund is the income of the Trust Fund for the purposes of this deed. 55 Clause 10(b) provides: The unit holders (in the same proportions as they hold units in the Trust Fund as at the end of the financial year) are presently and absolutely entitled to the net income of the Trust Fund for that financial year. 56 Clause 10(e) provides: Net income of the Trust Fund to which a unit holder is entitled at the end of a financial year and which has not been distributed ceases to form part of the Trust Fund and is to be held by the Trustee as a separate fund upon trust absolutely for the unit holder entitled (without however any entitlement to interest or earnings on such amount and any interest or earnings form part of the Trust Fund). The Trustee has power in respect of the assets of each separate fund to mix and invest them with the assets of the Trust Fund for ease of administration. 57 On the evidence before me, the company did not make a determination as at midnight on 30 June 2010 to categorise receipts, gains or outgoings as either capital or income. The effect of clause 10(a) of the Deed was that the income of the DCM Sanctuary Unit Trust as at 30 June 2010 was to be the amount calculated under s 95 of the Income Tax Assessment Act 1936 (Cth). This amount is identified in Table 1 to Mr Meredith's report. The effect of clause 10(b) of the Deed was that, as at midnight on 30 June 2010, the unit holders were presently and absolutely entitled to this amount and could call for its immediate payment. Absent any distribution, this amount was separately held on trust for the unit holders, although, for ease of administration, the company, as trustee, was entitled to mix these funds and invest them with the Trust Fund. 58 Mr Randell also expressed the opinion that the company had a liability to account for GST in respect of income received by way of rebates and other benefits obtained under the SHCP. This view is consistent with taxation advice that the company itself received from KPMG Tax Lawyers Pty Limited on 30 November 2009. Mr Randell noted errors in the company's accounting for GST. He concluded that the company's current assets as recorded in its books and records were overstated by an amount of approximately $5.0 million from at least July 2010. 59 Thus, taking into account Mr Randell's opinions, the company's financial position—and, in particular, its solvency—in the review period was worse than portrayed in Mr Meredith's already bleak assessment. The test for insolvency 60 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: s 95A(1) of the Act. A person who is not solvent is insolvent: s 95A(2). The test enshrined in s 95A of the Act is a cash flow test. 61 The present case is not one that requires an analysis of the authorities discussing how the test under s 95A is to be applied. The test involves a question of fact to be determined on the balance of probabilities. In the present case, the plaintiff bears that onus. Expert evidence is admissible. 62 An inquiry into the insolvency or otherwise of a company can be assisted by considering various accepted indicia of insolvency. These indicia are referred to and discussed in a number of cases: see, for example, Australian Securities and Investments Commission v Plymin (2003) 175 FLR 124 at [386]; Lewis v Doran (2004) 208 ALR 385 at [75]; Re Damilock Pty Ltd (in liq); Lewis and Carter as Liquidators of Damilock Pty Ltd (in liq) v VI SA Australia Pty Ltd (2008) 252 ALR 533 at [16]; Playspace Playground Pty Ltd v Osborn [2009] FCA 1486 at [41]. The Australian Securities and Investments Commission has published an information sheet listing what it regards to be key indicia of insolvency: Information Sheet 42 – Insolvency: A Guide for Directors. 63 In Morris v Danoz Directions Pty Ltd (in liq) (No 2) [2010] FCA 836, Perram J described (at [13]) such indicia as "commonsense indicators of insolvency". In Damilock, Mansfield J observed (at [16]) that, in any particular case, one or more of these indicia may have particular significance and that the absence of one or more of them does not, of itself, establish solvency. 64 As will be apparent from my summary above, Mr Meredith referred to a number of indicia of insolvency (referred to in the above cases) when forming his opinion that the company was insolvent as at 5 August 2010. I have taken these indicia into account when forming my own assessment of the company's solvency. Assessment of solvency 65 I can see no reason why I should not act on the unchallenged financial analyses and expert accounting opinions expressed by Mr Meredith and the unchallenged expert taxation opinions expressed by Mr Randell, as summarised above. When these are taken into account with the objective facts which I have recorded at [23]-[37], a cogent case is presented that, by about early to mid-August 2010, and certainly by no later than 9 September 2010, the company was, and thereafter remained, insolvent. 66 In my view, the company's weekly cash flow reviews in August 2010 are telling. They show that the company was unable to pay its trade creditors in a timely way let alone its other liabilities. The company was making decisions as to how it could reduce its indebtedness to a number of trade creditors by making payments of various rounded figure sums. The picture that is presented is not one of the company experiencing a temporary liquidity problem. The picture is one of a chronic and entrenched inability to pay creditors the amounts that were due and owing to them in circumstances where, in some cases, supply had been stopped and, in other cases, threats of legal action had been made to recover the outstanding debt. 67 Even if one puts to one side its liabilities to unit holders (on the assumption that unit holders may have been prepared to forego their entitlements, although there is no evidence to suggest that they would), the company had, prior to 9 September 2010, a significant and, on the evidence before me, indubitable present liability for GST for which it seems to have made no provision. The evidence shows that this liability, and the company's existing liabilities to then pay trade creditors, were not capable of being met through income received by way of rebates and other benefits under the SHCP—the only real source of income available to the company to pay all its creditors. 68 The fact that, by 9 September 2010, the company was forced into its special arrangements with Conergy—which, on any measure, were most unusual—reveals that the company had no available resources to pay down its debt to Conergy other than its receipt of rebates and other benefits under the SHCP. Conergy realised that the company was in financial difficulty. It did not see this difficulty to be merely one of timing brought about by the delayed receipt of rebates and other benefits. From a business perspective, Mr Meads plainly appreciated that the company lacked the financial resources to pay its trade debts when due, notwithstanding its continuing, albeit delayed, receipt of rebates and other benefits under the SHCP: see [31]. In this way, the special arrangements with Conergy can be seen as an attempt to obtain repayment of the company's debt to Conergy out of its only apparent source of funds, in priority to, and at the expense of, other creditors whose debts could only be paid from the same source of funds in competition with Conergy. 69 I am satisfied, therefore, that, on balance, the company was insolvent by no later than 9 September 2010 and remained insolvent. The impugned PAYMENTS 70 Section 588FA(1) of the Act provides: (1) A transaction is an unfair preference given by a company to a creditor of the 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 a winding up of the company; even if the transaction is entered into, is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency. 71 The impugned payments were made pursuant to the arrangements put in place by the Deed. I am satisfied that it is appropriate to treat the making of the Deed and the impugned payments as one transaction for the purposes of s 588FA(1). 72 Mr Hancock has given evidence that he has realised all of the company's assets that are of value. Although the company has been in liquidation for over four years, he has not been able to pay a dividend to creditors because the company does not have assets or funds that would enable a dividend to be paid. The only funds that may become available for distribution to creditors will be those that might be received in the proceedings to which I have referred, including the present proceeding. In other words, because of the special arrangements it had made with the company, Conergy has been paid in full whereas, had it not been paid in full, it would have had to stand rateably with other unsecured creditors. 73 I am satisfied, on the basis of Mr Hancock's evidence, that the transaction resulted in Conergy receiving more than it would if the payments were set aside and it were to prove for its debt in the winding up of the company with the company's other unsecured creditors. 74 I am satisfied, therefore, that the transaction to which I have referred was an unfair preference within the meaning of s 588FA(1). In the circumstances, it is not necessary for me to consider the plaintiff's alternative case that the Deed was an uncommercial transaction within the meaning of s 588FB of the Act. 75 Section 588FC(a) relevantly provides: A transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company … and: (a) any of the following happens at a time when the company is insolvent: (i) the transaction is entered into; or (ii) an act is done, or an omission is made, for the purpose of giving effect to the transaction; … 76 I am satisfied that transaction was entered into at a time when the company was insolvent and that the impugned payments were made for the purpose of giving effect to the transaction. It follows that the transaction is an insolvent transaction within the meaning of s 588FC of the Act. 77 Section 588FE of the Act deals with voidable transactions. Section 588FE(2) provides: (2) The transaction is voidable if: (a) it is an insolvent transaction of the company; and (b) it was entered into, or an act was done for the purpose of giving effect to it: (i) during the 6 months ending on the relation-back day; or (ii) after that day but on or before the day when the winding up began. 78 Given that the transaction is an insolvent transaction of the company, and given that the each payment made by the company to Conergy from 17 September to 8 October 2010 was an act done during the six months ending on the relation-back day for the purpose of giving effect to the transaction, I am satisfied that the transaction is voidable within the meaning of s 588FE(2) of the Act. 79 Conergy pleaded a defence under s 588FG(2) of the Act, which provides: (1) 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. 80 Conergy bears the onus of establishing the defence. It has not played an active role in the hearing of this proceeding. The defence fails for want of prosecution and proof. In any event, the evidence to which I have referred at [23]-[37] sits inconsistently with a finding that Conergy had no reasonable grounds for suspecting that the company was insolvent as at 9 September 2010 or that a reasonable person in Conergy's circumstances would have had no such grounds for so suspecting. 81 In the circumstances, I am satisfied that it is appropriate to grant relief under s 588FF(1)(a) of the Act directing Conergy to pay the company the sum of $6,181,334.83, being an amount equal to the money that the company paid to Conergy under the transaction. DISPOSITION 82 An order under s 588FF(1)(a) of the Act, as foreshadowed, should be made. In light of the unmet demand on Conergy on 19 August 2011, I will also order that interest be paid on the sum from 2 September 2011. Mr Hancock should have his costs. 83 Mr Hancock also seeks declaratory relief. I am not presently persuaded that declaratory relief is necessary or has utility. However, I am prepared to entertain further submissions on that question. I certify that the preceding eighty-three (83) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates. Associate: Dated: 21 July 2015