Supreme Court New South Wales Medium Neutral Citation: Re Harmony Homes Pty Ltd (in liq) (No 2) [2023] NSWSC 816 Hearing dates: 10 July 2023 Date of orders: 10 July 2023 Decision date: 10 July 2023 Jurisdiction: Equity - Corporations List Before: Ball J Decision: See [8] Catchwords: CORPORATIONS — Winding up — Voidable transactions — Unfair preferences — Separate question — Whether company was insolvent in the six months prior to its entry into external administration, or at some date in that period —Liquidator's report clearly establish that the Company could not pay its debts, as and when they fell due Legislation Cited: Corporations Act 2001 (Cth) Cases Cited: Sutherland & Anor as joint liquidators of Australian Coal Technology v Hanson Construction Materials Pty Ltd [2009] NSWSC 232 Category: Procedural rulings Parties: Jason Porter as Liquidator of Harmony Homes Pty Limited (In Liquidation) (Plaintiff) Bunnings Group Limited (First Defendant) Teepee Metal Roofing Pty Ltd (Second Defendant) Nezz & Co Pty Ltd t/as Kaizen Tiles (Third Defendant) John Zahra (Fourth Defendant) Ozi Render & Construction Pty Ltd (Fifth Defendant) MD Brick (NSW) Pty Ltd (Sixth Defendant) Wayne Taylor Holdings Pty Limited t/as Taylor Group Plumbing (Seventh Defendant) Davtan Interiors Pty Ltd (Eighth Defendant) Representation: Counsel: JR Anderson (Plaintiff) N Larman-Yalda (First Defendant) Solicitors: Emerson Lewis (Plaintiff) Henry William Lawyers (First Defendant) File Number(s): 2023/39855 Publication restriction: Nil EX TEMPORE JUDGMENT 1. In these proceedings, the liquidator of Harmony Homes Pty Ltd (the Company) seeks to recover from the six remaining defendants amounts said to have been unfair preferences paid to them by the Company. 2. On 20 March 2023, the Court ordered that the following question be determined separately and in advance of the other issues in the proceedings, namely: Whether Harmony Homes Pty Ltd (in liq) was insolvent in the six months prior to its entry into external administration, or at some date in that period? 1. The liquidator seeks the following answer to that question, namely: Harmony Homes Pty Ltd (in liq) was insolvent at all times during the six months prior to its entry into external administration. 1. In support of that answer, the liquidator filed an affidavit annexing a solvency report prepared by him. None of the defendants filed evidence opposing the question to be answered in that way. There was only one appearance, which was on behalf of the first defendant, Bunnings Group Limited. That defendant did not oppose the question being answered in the way contended for by the liquidator. 2. Section 95A of the Corporations Act 2001 (Cth) states: (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. It has been held that s 95A of the Act calls attention principally to the cashflow test of insolvency, with subsidiary relevance being afforded to the balance sheet test: see Sutherland & Anor as joint liquidators of Australian Coal Technology v Hanson Construction Materials Pty Ltd [2009] NSWSC 232 at [8]-[9] per Barrett J. 1. The Company was placed into liquidation on 1 July 2019. Consequently, the relevant period is the period between 1 January to 30 June 2019. Prior to the Company being placed into liquidation, it operated a construction business from leased premises in Baulkham Hills and carried out building projects in NSW. The following matters are apparent from the liquidator's report: 1. The Company's liquidity ratio (that is, the ratio of current assets over current liabilities) was significantly less than one during the whole of the relevant period and was trending downwards; 2. The Company had no capacity to borrow money or to raise additional capital. There was no reason to think its directors had a capacity or willingness to provide further significant funding to the Company. In fact, both directors, who had guaranteed the liabilities of the Company, had been made bankrupt; 3. The Company suffered significant trading losses over the relevant period; 4. The Company had overdue Commonwealth and State taxes which had increased from $538,221.18 on 2 January 2019 to $675,365.10 on 28 June 2019. It had defaulted on a number of occasions on payment arrangements it had reached with the Australian Taxation Office; 5. Suppliers had placed the Company on cash delivery terms and a number of suppliers had demanded payment, threatened to commence proceedings or commenced proceedings. As at 30 June 2019, trade creditor liabilities in excess of $1 million and representing more than 50 percent of all creditors were more than 3 months overdue. That was the position throughout the whole of the period; 6. An analysis of the Company's bank statements indicates that it made a substantial number of rounded payments to creditors that cannot be reconciled to the payment of specific debts; and 7. The Company was unable to produce timely and accurate information concerning its financial position. 1. In my opinion, these matters clearly establish that the Company could not pay its debts, as and when they fell due, during the whole of the relevant period. Accordingly, it is appropriate to make the orders sought by the liquidator. 2. The orders of the Court are: 1. The question of whether Harmony Homes Pty Ltd (in liq) was insolvent in the six months prior to its entry into external administration, or at some date in that period, be answered as follows: Harmony Homes Pty Ltd (in liq) was insolvent at all times during the six months prior to its entry into external administration. 1. These proceedings, and each of the following proceedings: 1. Jason Porter in his capacity as Liquidator of Harmony Homes Pty Limited (In Liquidation) v Bunnings Group Limited (2022/00184759); 2. Jason Porter in his capacity as Liquidator of Harmony Homes Pty Limited (In Liquidation) v TeePee Metal Roofing Pty Ltd (2022/00184684); 3. Jason Porter in his capacity as Liquidator of Harmony Homes Pty Limited (In Liquidation) v Nezz & Co Pty Ltd Trading As Kaizen Tiles (2022/00184698); 4. Jason Porter in his capacity as Liquidator of Harmony Homes Pty Limited (In Liquidation) v Ozi Render & Construction Pty Ltd t/as Ozi Rendering (2022/00184712); 5. Jason Porter in his capacity as Liquidator of Harmony Homes Pty Limited (In Liquidation) v Wayne Taylor Holdings Pty Ltd T/As Taylor Group Plumbing (2022/00184714); and 6. Jason Porter in his capacity as Liquidator of Harmony Homes Pty Limited (In Liquidation) v Davtan Interiors Pty Ltd (2022/00184734), be listed for further directions in the Corporations Directions List on 24 July 2023 at 10:00 am. 1. Costs reserved. ********** Amendments 12 July 2023 - Typographical errors in [5], replacing in 5(1) "A person is insolvent" with "A person is solvent" and "person's4debts" with "person's debts" DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 12 July 2023