New South Wales Supreme Court CITATION : Hymans Asset Management Pty Ltd v Opal Press Pty Ltd [2010] NSWSC 1300 HEARING DATE(S) : 08/11/10 JUDGMENT DATE : 8 November 2010 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Barrett J EX TEMPORE JUDGMENT DATE : 8 November 2010 DECISION : Order for winding up in insolvency. Order for appointment of liquidator. CATCHWORDS : CORPORATIONS - winding up - application for winding up in insolvency - plaintiff has benefit of presumption of insolvency - defendant seeks to prove solvency - onus not discharged - no matter of principle LEGISLATION CITED : Corporations Act 2001 (Cth), ss 459C(2)(a), 459G, 459P, 459S CATEGORY : Principal judgment CASES CITED : Deputy Commissioner of Taxation v Lencal Excavations Pty Ltd [2004] NSWSC 783 Expile Pty Limited v Jabb's Excavations Pty Ltd [2003] NSWCA 163; (2003) 45 ACSR 711 PARTIES : Hymans Asset Management Pty Ltd - Plaintiff Opal Press Pty Limited - Defendant FILE NUMBER(S) : SC 2010/265535 COUNSEL : Mr T C Russell - Plaintiff Ms K Breukers, Director of Defendant in person SOLICITORS : ERA Legal - Plaintiff Ms K Breukers, Director of Defendant in person IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J MONDAY 8 NOVEMBER 2010 10/265535 HYMANS ASSET MANAGEMENT PTY LTD v OPAL PRESS PTY LIMITED JUDGMENT 1 The plaintiff makes application under s 459P of the Corporations Act 2001 (Cth) for an order that the defendant be wound up and an order appointing a liquidator. 2 The plaintiff relies solely on the ground that the defendant is insolvent. The plaintiff served on the defendant a statutory demand dated 9 June 2010 in respect of an alleged debt of $53,983.90. The defendant did not comply with the demand; nor was there any application under s 459G for an order that the demand be set aside. The plaintiff therefore has the benefit of the presumption of solvency under s 459C(2)(a) for the purpose of the winding up application now before me. 3 It follows that the defendant has the onus of proving that it is solvent, that being, in the circumstances, the only ground of defence available to it. 4 Ms Breukers, the sole director of the defendant, has spoken for it today. She has relied on two affidavits, to which I shall come, in submitting that the court should find that the defendant is solvent. 5 Ms Breukers' first point is that the debt the subject of the statutory demand should not be taken into account in judging the financial position of the defendant because that debt is not in reality one that is owing due or payable by the defendant. The debt is a judgment debt. Ms Breukers refers to moves made to have the relevant District Court judgment set aside and matters apparently going to the merits of the claim that resulted in that judgment. 6 The proposition that that debt does not exist is not one that I am permitted to take into account in the present context. This is because of s 459S of the Corporations Act which says that, in a case where the plaintiff relies on a failure by the defendant company to comply with the statutory demand, that defendant company may not without the leave of the court oppose the winding up application on a ground that it could have relied on for the purposes of an application to have the statutory demand set aside. 7 There was, as I have said, no application by the defendant to have the statutory demand set aside. A contention that the relevant debt was not owing, due and payable (or, more precisely, that there is a genuine dispute in that respect) is a ground that could have been relied on in making such an application but was not. 8 There has been no grant of leave under s 459S. Therefore the court must in the present context proceed on the footing that the debt of $53,983.90 is properly taken into account as a liability for the defendant. 9 Beyond the matter I have just mentioned, the defendant relies on an affidavit of Ms Breukers and an affidavit of Mr Prendergast, an accountant. I shall deal first with Ms Breukers' affidavit. 10 In that affidavit, Ms Breukers rehearses a number of matters going to the question of the indebtedness the subject of the statutory demand. For reasons I have stated, it is not open to the court on this application to have regard to those matters. 11 Otherwise, the affidavit puts before the court the financial statements of the defendant for the years ended 30 June 2008, 30 June 2009 and 30 June 2010. The last, being the most recent, received particular attention. The balance sheet as at 30 June 2010 annexed to Ms Breukers' affidavit shows on its face a surplus of current assets over current liabilities from which it might be possible to draw the conclusion that the defendant was solvent at 30 June 2010. 12 I put the matter that way (in terms of possibility only) because there are certain questions about the balance sheet to which Mr Russell, on behalf of the plaintiff, referred including, in particular, a somewhat curious suggestion that "petty cash" to the extent of over $100,000 was on hand at the balance date. There is no way of testing this and the proposition, as I say, seems curious. 13 More fundamentally, however, there are two points. First the balance sheet does not show anything really about the current financial position, that is, the position as at today. Second, the only real verification of the content of the balance sheet comes from the fact that Ms Breukers herself has adopted it in her affidavit. 14 The court has said on numerous occasions that the unsupported evidence of the defendant company's controller is insufficient to prove solvency in this kind of matter: see, for example, Deputy Commissioner of Taxation v Lencal Excavations Pty Ltd [2004] NSWSC 783 at [15]. 15 I do not lose sight of the fact that there is annexed to the balance sheet or more precisely to the financial statements of which the balance sheet forms part, a report of Mr Lazar, a chartered accountant. But that report, while stating that the financial statements have been compiled having regard to accounting standards, goes on to say: "Our procedures use accounting expertise to collect, classify and summarise the financial information which the directors provide in compiling the financial statements. Our procedures do not include verification or validation procedures. No audit or review has been performed and accordingly no assurance is expressed. The special purpose financial statements were compiled exclusively for the benefit of the directors of Opal Press Pty Limited. We do not accept responsibility to any other person, whatever for the contents of the special purpose financial statement." 16 The message here is that the balance sheet in question (which, as I have said, purports to present the picture prevailing more than four months ago) does no more than record uncritically what Mr Lazar was told by "the directors" (presumably, Ms Breukers as the sole director) and that he has in no way checked or verified anything given to him – added to which he "takes no responsibility" to anyone other than "the directors" for the content of the balance sheet. 17 I turn now to the evidence of Mr Prendergast. He too is an accountant and apparently practises in partnership with Mr Lazar. Mr Prendergast has worked as a public accountant for thirty-five years. He says in his affidavit: "I have recently examined the books and financial records of Opal Press Pty Limited ACN 110 777 205 and I am of the view that this company is solvent and able to pay its debts as and when they fall due. Now produced and shown to me and marked with the letters JHE1 is a certificate of solvency signed by me." 18 That certificate is in these terms: "After examining the books and financial performance of the above company and after reviewing cash flow budget for the ensuing year I have formed the view that this company is in a solvent state. There is no doubt that this company is able to pay its debts as and when they fall due." 19 The evidence of Mr Prendergast is of no value as expert opinion. It fails the fundamental test of stating the facts and assumptions by reference to which the opinion was reached, at the same time making clear the material to which reference has been had in such a way that anyone reading the opinion can understand the processes of analysis, reasoning and deduction that were undertaken so as to distil from the identified material and the relevant body of fact and assumption the opinion ultimately stated. 20 Mr Prendergast's statement is no more than bald assertion. There is no explanation of how the conclusion was reached or of the basis on which it was reached. No one can possibly test – or even understand – any such basis. 21 In Expile Pty Limited v Jabb's Excavations Pty Ltd [2003] NSWCA 163; (2003) 45 ACSR 711, the Court of Appeal emphasised the need for a defendant seeking to rebut the presumption of insolvency to present the fullest and best evidence of the financial position. The defendant has failed to do that in this case. The Court of Appeal also observed that unaudited accounts, unverified claims of ownership or valuation are not ordinarily probative of solvency nor are bald assertions of solvency arising from a general review of accounts, even if made by qualified accountants who have detailed knowledge of how the accounts were prepared. 22 That is what the court has before it here. The court cannot know whether Mr Prendergast has detailed knowledge of how the accounts were prepared. But in any event, as I have said, his evidence represents no more than bald assertion and it is not improved by the like assertions of Ms Breukers. 23 The defendant has failed in its attempt to prove solvency. The presumption of insolvency prevails. I therefore record – inevitably - my conclusion that the defendant is insolvent. 24 There being no apparent basis for any other outcome, the orders of the court are as follows: 1. Order that Opal Press Pty Limited ACN 110 777 225 be wound up in insolvency. 2. Order that David Ross of Hall Chadwick, Level 14, 35 William Street, Melbourne, an official liquidator, be appointed liquidator of Opal Press Pty Limited. 3. Order that the defendant pay the plaintiff's costs of the proceedings. ********** 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.