Supreme Court New South Wales Medium Neutral Citation: In the matter of JKAM Investments Pty Limited ACN 159 084 018 [2016] NSWSC 1951 Hearing dates: Friday, 1 April 2016 Date of orders: 01 April 2016 Decision date: 01 April 2016 Jurisdiction: Equity - Corporations List Before: Brereton J Decision: Originating process dismissed with costs, except those in respect of which a special costs order has previously been made. Catchwords: CORPORATIONS – winding up – winding up in insolvency – whether company rebutted presumption of insolvency – current assets and liabilities of company – evidence substantiates current assets exceeding current liabilities – held, company is able to pay debts as and when they fall due. Category: Principal judgment Parties: Champion Homes Sales Pty Ltd ACN 082 497 247 (plaintiff) JKAM Investments Pty Limited ACN 159 084 018 (defendant) Representation: Counsel: C Stomo (plaintiff) M Mando (defendant) Solicitors: Team Legal Group (plaintiff) JK Solicitors (defendant) File Number(s): 2015/372042 Judgment (ex tempore) 1. HIS HONOUR: On 15 February 2016, I heard the plaintiff's application for an order that the defendant be wound up in insolvency and liquidators appointed. For reasons which I then gave, I concluded that the plaintiff had proved its case and was entitled to an order that the defendant be wound up because the defendant, having failed to comply with the creditor's statutory demand, was presumed to be insolvent, and the evidence which the defendant sought to adduce to rebut the presumption of insolvency was totally inadequate to do so. However, as I then observed, the plaintiff's reasons for rejecting the tender of a bank cheque which would have satisfied its debt were less than convincing, and despite the gross deficiencies in the defendant's evidence as to solvency, I suspected that the company might well be solvent. I therefore afforded the defendant an opportunity to put its evidence in order to address the issue of solvency, but on the basis that it would have to bear its own costs of the extra opportunity to do so. The proceedings were adjourned to enable that to happen. 2. After a number of hiccups in producing witnesses for cross-examination, the further hearing took place today when two witnesses, Mr Moutevelis (an accountant who had prepared a balance sheet) and Mr Elie Elia (a director who had provided relevant information to the accountant), were cross-examined. The only real question to be resolved is whether or not the company has rebutted the presumption of insolvency. 3. Although the balance sheet in evidence refers to some non-current assets and liabilities, the issue really turns on the current assets and current liabilities of the company. The balance sheet, which is signed by Mr Elia as director and verified by the accountant Mr Moutevelis, discloses the following liabilities: $63,383 "Champion Homes Cost Assessment" (this is the plaintiff's debt); $7,538 accounts payable and accrued expenses; $11,357 income tax; and $52,999 GST. The total disclosed current liabilities are therefore in the sum of $135,187. There was no suggestion that there were any other liabilities, and it was not put to either witness that there were any further or undisclosed current liabilities. Longer term liabilities comprise a contingent liability for legal costs of $10,000, and a director's loan of $71,235. In the scheme of things, these are of little significance, although the director's loan is of some relevance to the asset side of the equation. 4. So far as current assets are concerned, the balance sheet refers to cash and cash equivalents of $71,235. That sum comprises cash at bank, a small amount of cash on hand, and a bank cheque in favour of the plaintiff for $63,383 – this being the amount of its debt which founded the creditor's statutory demand and its status as a creditor in these proceedings. The cash and cash equivalents referred to in the balance sheet are substantiated by the documentary and other evidence before the Court. 5. For a time, I wondered whether the bank cheque was properly described as an asset of the company, because it was not apparent that it was drawn from the company's assets. However, it is now clear that the director's loan to which I have referred represents an advance to the company by Mr Elia, which was used to purchase the bank cheque, which is therefore correctly treated in the balance sheet as an asset of the company, offset by the long term liability to repay to Mr Elia the amount of his advance. 6. Although a submission was made that the bank cheque had not been unconditionally tendered, the evidence discloses that the plaintiff was asked whether it would accept the cheque, and responded that it did not intend to do so but would proceed to wind the defendant up. In those circumstances, I do not see that the plaintiff can legitimately complain that there has not been any further attempt to tender the cheque. The fact is that the plaintiff could have, by accepting the tender of the cheque, had its debt paid in full many months ago, but chose instead to proceed with the winding up application. 7. The next current asset is "Receivable judgment for $138,000". The evidence establishes that on 20 March 2015, in proceedings 2014/21077, Rein J gave judgment for the company against Karl Damien for $138,000. On the face of the judgment, that appears to be a net amount due to the company after allowing for a set-off in favour of Mr Damien. Subsequently, Rein J granted leave to the company to lodge a caveat as security for that sum, in respect of Mr Damien's property at 9 Keating Place, Denham Court. There is a sworn valuation of that property at $1,831,000 to $1,975,000. It is subject to two prior encumbrances – a mortgage to the Bendigo Bank which the evidence shows secures $1.260 million, and a caveat to a law firm, which the amount of the stamp on the caveat suggests secures in the order of $50,000. That leaves equity in excess of $500,000 in the property, which is ample to cover the judgment debt in favour of the company. 8. Thus the two items in current assets to which I have referred are substantiated by the evidence and together total $209,000, thereby exceeding the current liabilities of $135,000. 9. In addition, other current assets include trade debtors of $245,000, and work in progress of $32,000. Those assets are substantiated by invoices issued for the amounts in question, which appear to be regular business records of the company. The cross-examination did not suggest that the work the subject of those invoices had not been done, nor that the debts that they gave rise to were not payable. There was a suggestion that they had not yet been paid, but as I understand the evidence of Mr Moutevelis, at least some have since been paid. Thus, there is basis for concluding that these are trade debts accrued in the ordinary course of business which are highly likely to be paid in due course. 10. In my view, the evidence now substantiates the current assets of $486,000; but even if a significant discount is made from that figure on account of the risk that some of the debtors are work in progress, or that the judgment debt might not be recovered, the current assets would still exceed the current liabilities. 11. In those circumstances, the longer term or contingent assets and liabilities are of limited significance. There is nothing about them which would detract from the company's present ability to pay its debts as and when they fall due. 12. I am satisfied that the company is able to pay its debts as and when they fall due. 13. The Court orders that: 1. The originating process be dismissed; and 2. The plaintiff pay the defendant's costs, except those in respect of which a special costs order has previously been made. ********** 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: 13 July 2017