SUPREME COURT OF QUEENSLAND

CITATION:	Newstart Homes Australia Pty Ltd v Kodiak Concrete Pty Ltd [2024] QSC 129 	
PARTIES:	NEWSTART HOMES AUSTRALIA PTY LTD ACN 616 573 463
(applicant)
v
KODIAK CONCRETE PTY LTD ACN 636 336 322
(respondent)	
FILE NO/S:	BS 14327 of 2023	
DIVISION:	Trial Division	
PROCEEDING:	Originating Application	
ORIGINATING COURT:	Supreme Court at Brisbane	
DELIVERED ON:	19 June 2024 	
DELIVERED AT:	Brisbane	
HEARING DATE:	16 May 2024	
JUDGE:	Cooper J	
ORDER:	Application dismissed	
CATCHWORDS:	CORPORATIONS – WINDING UP – OTHER GROUNDS FOR WINDING UP – ABUSE OF PROCESS – where the respondent performed works pursuant to a subcontract for the applicant – where the works performed by the respondent were allegedly defective and not rectified by the respondent as required by the subcontract – where the applicant sought to recover the rectification costs of the allegedly defective works by serving a statutory demand on the respondent – where the respondent disputed the debt which was the subject of the statutory demand – where, in the present proceedings, the applicant applied to wind up the respondent for insolvency as the debt which was the subject of the statutory demand was not paid – where the respondent argues that the application for winding up is an abuse of process – where, in arguing that it is solvent, the respondent sought to argue that there is a genuine dispute as to the existence of the debt contained in the statutory demand – where the respondent did not apply to set aside the statutory demand – where, in circumstances where the respondent disputed that its work was defective, the amount due and payable under the subcontract could not be ascertained until the applicant had established in a proceeding for breach of the subcontract that the respondent’s work was defective – whether service of the statutory demand by the applicant constituted an abuse of process 
CORPORATIONS – WINDING UP – WINDING UP IN INSOLVENCY – STATUTORY DEMAND – where two accounting reports were provided addressing the issue of the respondent’s solvency – where the first report undertook a cash flow, profit and loss statement, and balance sheet analysis to demonstrate that the respondent was solvent – where the second report’s purpose was to review and comment on the conclusions in the first report – where the second report stated that there were numerous faults in the financial information available on which the first report was based and that the methodology used in the first report was not a proper basis upon which to assess the solvency of the respondent – where the second report opined that the respondent was insolvent at 31 December 2023 and remains insolvent – where the expert who prepared the first report prepared another report responding to the comments in the second report confirming that the respondent was solvent – where it was disputed that a director’s loan was owed by the respondent’s director to the respondent and repayable on demand by the respondent – where it was disputed whether the director’s loan should be included in the solvency analysis – whether the respondent is insolvent
Corporations Act 2001 (Cth), s 459A, s 459C, s 459E, s 459F, s 459G, s 459P

Australian Beverage Distributors Pty Ltd v The Redrock Co Ltd (2007) 213 FLR 450, cited 
David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265, cited 
Powell v Fryer (2001) 37 ACSR 589, approved 
Redglove Holdings Pty Ltd v GNE and Associates Pty Ltd (2001) 165 FLR 72, considered 
Re Kornucopia Pty Ltd (No 4) [2020] VSC 7, approved 
RH Mortgage Corporation Ltd v Kerry Ann Properties Pty Ltd [2011] NSWSC 298, considered 
Rothwells Ltd v Nommack (No 100) Pty Ltd [1990] 2 Qd R 85, considered 
State Bank of New South Wales v Tela (No 2) (2002) 188 ALR 702, considered 
TS Recoveries Pty Ltd v Sea-Slip Marinas (Aust) Pty Ltd (2007) 25 ACLC 1371, cited 
Williams v Spautz (1992) 174 CLR 509, cited
	
COUNSEL:	SK Long for the applicant
NJ Derrington for the respondent	
SOLICITORS:	Arrow White Lawyers for the applicant
McInnes Wilson Lawyers for the respondent	

[1]	
[1]	The applicant (Newstart) applies, as a creditor, to wind up the respondent (Kodiak) on the ground of insolvency.
[2]	Newstart served a statutory demand on Kodiak on 28 September 2023.  Kodiak did not apply to set that statutory demand aside.  Nor did it comply with the statutory demand within the required timeframe.  This means that the Court must presume that Kodiak is insolvent.  That presumption operates except so far as the contrary is proved for the purpose of the application.
[3]	Kodiak opposes the winding up application on two bases.  First, Kodiak submits that the present application is an abuse of process in circumstances where Newstart has knowingly used the statutory demand process to apply pressure to recover payment of a claim for damages as a debt.  Secondly, Kodiak submits that the evidence it relies upon rebuts the presumption of insolvency.
[4]	In submitting that it is solvent, Kodiak seeks to argue that there is a genuine dispute with respect to the existence of the debt contained in the statutory demand served by Newstart.  That is a ground that Kodiak could have relied on for the purposes of an application to set aside the statutory demand.  Accordingly, Kodiak may not oppose this winding up application on that ground without the leave of the Court.  The Court is not to grant such leave unless it is satisfied that the ground is material to proving Kodiak is solvent.
[5]	For the reasons which follow, the winding up application is dismissed.
Abuse of process and winding up applications
[6]	The High Court recognised in David Grant & Co Pty Ltd v Westpac Banking Corporation that a winding up application in respect of a solvent company might be threatened or made for an improper purpose which amounts to an abuse of process in the technical sense, as explained in Williams v Spautz. That is, a proceeding which is brought as a means of obtaining some advantage for which it is not designed or which is brought to obtain some collateral advantage beyond what the law offers will have been brought for an improper purpose and will thus constitute an abuse of process.  The improper purpose must be the predominant purpose in bringing the proceeding.  The onus on the party alleging that there has been an abuse of process is a heavy one.
[7]	It is not an abuse of process to bring proceedings for the purpose of pursuing them to a conclusion to obtain whatever entitlement or benefit the law provides if the proceedings terminate in the applicant’s favour.
[8]	In arguing abuse of process, Kodiak relies upon the observation of Barrett J in RH Mortgage Corporation Ltd v Kerry Ann Properties Pty Ltd that the statutory demand procedure permits a creditor to whom a debt is owing, due and payable to achieve the benefit of a presumption of insolvency for the purposes of pursuing winding up proceedings.  It does not, however, countenance the obtaining of the benefit of such a presumption by a person to whom a debt is not owing, due and payable by the company, who has no more than some imperfectly articulated claim for damages and who knows that to be the position.  In such a situation, the applicant will have resorted to the statutory demand procedure for a purpose for which the law does not allow.  
[9]	In the circumstances of that case, Barrett J concluded that the creditor had served a statutory demand referring to what was (and was known to the creditor to be) a “false and spurious debt” and that the “egregious” misuse of the statutory demand procedure meant that any application to wind up the company relying on its failure to comply with the purported demand would be an abuse of process.
[10]	Reliance upon abuse of process as a ground for opposing a winding up application, where the application is alleged to have been brought for an improper purpose, falls outside the regime imposed by Part 5.4 of the Act.  One consequence of this is that reliance on abuse of process as a basis to oppose a winding up application is not precluded by s 459S(1) of the Act if the company has not sought to set aside the statutory demand.  Nevertheless, in Re Kornucopia Pty Ltd (No 4), Sifris J held that, given the starting point is the presumption of insolvency, a company that seeks to establish that a winding up application is being used for the improper purpose of compelling payment of a disputed debt must adduce evidence of solvency.  The question whether Kodiak has adduced evidence of its insolvency is a matter to which I will return in addressing the second ground of opposition.
[11]	Abuse of process is concerned predominantly with propriety of purpose, and the proper purpose for serving a statutory demand is different to that of bringing a winding up application.  The principal purpose for serving a statutory demand is to obtain payment of a debt, although a subsidiary purpose may be to obtain the benefit of the presumption of insolvency if the primary purpose of eliciting payment is not achieved. The purpose for bringing a winding up application – pursued in circumstances where a presumption of insolvency has arisen – is to secure the imposition of a scheme of insolvent administration aimed at ending the company’s activities, seeing assets marshalled and the claims of creditors ascertained and payment to creditors of whatever is available from the insolvent estate.
[12]	If a company does not seek to have a statutory demand set aside on the basis that there is a dispute as to the existence or amount of the claimed debt, the fact that a creditor knows of that dispute when it brings a winding up application will not generally be sufficient to establish improper purpose.  In State Bank of New South Wales v Tela (No 2), Barrett J found it to be “perfectly legitimate” for a creditor to proceed with a winding up application in such circumstances.  To similar effect, in Redglove Holdings Pty Ltd v GNE and Associates Pty Ltd, Palmer J concluded that if the company failed to substantiate the dispute as to the existence or amount of the debt then it cannot, without more, be an abuse of process for the creditor to proceed with a winding up application in reliance upon the presumption of insolvency, this being the very procedure which the legislature has devised to “secure either the prompt payments of just debts or else the winding up of insolvent companies unable to pay their just debts.” (emphasis added).
The circumstances leading to the winding up application
[13]	Kodiak has operated a concreting business since September 2019, providing concreting services to builders and construction companies for both residential and commercial developments.  It currently employs approximately 20 people.
[14]	In April 2023, Kodiak entered into a subcontract with Newstart to complete concreting work at a job site in Loganlea.  The concreting works involved the construction of concrete footings which combined concrete piers and screw piers.
[15]	The issue of defective work was addressed in cll 9 and 16 of the subcontract.
[16]	Clause 9(d) conferred a right upon Newstart to direct Kodiak to rectify work that did not comply with the subcontract and an obligation on Kodiak to comply with such a direction.  Clause 9(e) provided that if Kodiak failed to comply with (relevantly) the obligation imposed by cl 9(d), Newstart was entitled to perform the obligation on Kodiak’s part or have the work carried out by other persons and that “[t]he reasonable costs incurred by [Newstart] in doing so may be recovered by [Newstart] as a debt due and payable from [Kodiak] to [Newstart].”
[17]	To similar effect, cll 16(a) and 16(b) provided for Newstart to give notice to Kodiak of any defects in, or omissions from, the subcontract works, prior to the expiration of the defects liability period and for Kodiak to rectify defects notified to it within a specified period at no cost to Newstart.  Clause 16(c) provided that if Kodiak failed to rectify defects notified to it in accordance with cl 16(a), Newstart was entitled to perform the obligation on Kodiak’s part or have the work carried out by other persons and that “[t]he reasonable costs incurred by [Newstart] in doing so may be recovered by [Newstart] as a debt due and payable from [Kodiak] to [Newstart].” 
[18]	On 2 May 2023, the engineers engaged by Newstart carried out a pier inspection at the site before Kodiak commenced work.  Kodiak was provided with a copy of the report prepared following that inspection.  The report gave approval to Kodiak to proceed with the concreting work but noted that one missing screw pier needed to be installed.
[19]	On 16 May 2023, the engineers carried out an inspection of the footings at the site which identified matters to be attended to before Kodiak completed the concrete pour for the footings.  One of the outstanding matters was a requirement that Kodiak ensure that all screw pier caps had been installed.  Kodiak completed the concrete pour for the footings on 17 May 2023.
[20]	On 18 May 2023, Mr Crowley, an estimator employed by Newstart, forwarded an email to Kodiak which stated that none of the screw caps had been installed before the footings were poured.  Mr Crowley described this as a “serious blue” on Kodiak’s part and suggested that Kodiak start considering its options.
[21]	Mr Brittain, the sole director of Kodiak, responded to Mr Crowley by asserting that the work undertaken by Kodiak at the site had been approved by the engineers and completed in accordance with the design plans prepared by Newstart’s engineers.  He stated that the engineers would not have approved the pouring of the footings if the screw pier caps had not been installed.  Notwithstanding this response, Mr Brittain made inquiries with his insurer and his insurance broker about Newstart’s complaint.
[22]	Both Mr Brittain and Mr Chapman, Newstart’s managing director, gave evidence about subsequent discussions between them concerning the work undertaken by Kodiak.  
[23]	Mr Brittain deposed that in those discussions he reiterated the position he had indicated to Mr Crowley (see [21] above).  
[24]	Mr Chapman’s evidence was that, during a discussion with Mr Brittain at the site on 22 May 2023, he explained that Newstart would be performing invasive investigations to verify that the works undertaken by Kodiak were not performed in accordance with the terms of the subcontract.  He explained that the options to rectify the works would likely include removing the footings and re-establishing the building pad or, alternatively, Newstart and Kodiak could explore alternative designs to effectively bridge over the redundant footings if Kodiak was prepared to contribute to the cost of those alternative works.  Mr Chapman’s evidence was that Mr Brittain responded with words to the effect that Kodiak could supply labour and make Newstart whole for the costs if there was an approved alternative design but that the option of removing the footings would more than likely “sink him”.  
[25]	Mr Chapman’s evidence of this discussion is unsatisfactory in several respects.  The evidence was provided very late, being set out in an affidavit sworn by Mr Chapman on 15 May 2024, the day before the application was heard.  That was in circumstances where Kodiak’s argument that the winding up application constituted an abuse of process was explained in written submissions provided on 15 April 2024 and a direction had been made for Newstart to file any further material it sought to rely upon for the hearing of the application by 1 May 2024.  Newstart did not provide any explanation for the late service of the affidavit.  Compounding the late service of the affidavit, Mr Chapman’s version of the conversation on 22 May 2023 was not put to Mr Brittain in cross-examination with the result that Mr Brittain was not afforded an opportunity to respond to that evidence.
[26]	Despite these concerns, I have not found it necessary to resolve the apparent conflict between the evidence of Mr Brittain and Mr Chapman about their verbal discussions.  Even if I was to accept Mr Chapman’s evidence about Mr Brittain’s response to the alternatives raised on 22 May 2023, I would not characterise those statements as an unqualified acceptance by Mr Brittain that Kodiak was liable to Newstart in respect of the allegedly defective work.  In subsequent communications, Mr Brittain made it clear that Kodiak disputed it was liable to Newstart under the subcontract.
[27]	On 12 June 2023, Mr Chapman sent an email to Mr Brittain attaching a draft deed of settlement concerning the alleged defective works.  Mr Brittain did not sign that deed of settlement.
[28]	On 19 June 2023, Mr Brittain met Mr Chapman at Newstart’s offices.  Mr Chapman told Mr Brittain that Kodiak’s options were to pay $40,000 to put a slab over the existing footing and pier works or pay $160,000 to rip up the existing footing and pier works and re-perform those works.  Mr Brittain’s evidence was that, in response, he informed Mr Chapman that Kodiak denied that the work was defective.  He said that he made an offer to Mr Chapman to attempt to resolve the dispute on a commercial basis, but that offer was rejected.  Mr Chapman did not address what was said at the meeting on 19 June 2023 and Mr Brittain’s evidence of what he said was not challenged in cross-examination.  I accept Mr Brittain’s evidence that he advised Mr Chapman at that meeting that Kodiak denied the work it performed under the subcontract was defective.
[29]	On 20 June 2023, Mr Chapman sent an email to Mr Brittain which reiterated Newstart’s position.  Relevantly, that email recorded the fact that Mr Brittain continued to insist that Kodiak installed the pier caps.  It also recorded Mr Brittain as having agreed that bar chairs were not installed because the engineer gave Kodiak a verbal instruction not to install them.  Newstart proposed that Kodiak pay $40,000 plus GST towards the construction of a proposed alternative design and provide all necessary labour to prepare, box and pour the slab.  Mr Chapman asked Mr Brittain to advise within 48 hours whether Newstart’s proposal was acceptable to Kodiak.
[30]	Mr Brittain did not advise Mr Chapman that Newstart’s proposal was acceptable to Kodiak.  Instead, on 22 June 2023, Mr Brittain sent an email to Mr Chapman advising that he had sent Newstart’s offer to Kodiak’s insurance broker and that the offer was being reviewed by its insurer.  
[31]	On 28 June 2023, Mr Chapman sent an email to Mr Brittain providing a direction under the subcontract for Kodiak to rectify the work Newstart claimed to be defective.  The email then stated:
“Ignoring this issue will not in any way assist in rectifying the defects.  As you are aware we have contractual obligations that we need to fulfill therefor [sic] any protracted response will only further hamper the situation and result in additional costs and damages.
In the interest of providing a fair and reasonable opportunity for [Kodiak] please advise which of the following options you wish to proceed with no later than 03/07/23;
a.	Remove, rebuild and replace the footings as per above and … cover all associated costs reasonably incurred in overcoming the defect
b.	Execute the deed, carry out and indemnify Newstart for the rectification provided for in the deed
…
Failure to respond by 03/07/23 date will result in a breach of contract and Newstart will have to engage third party contractors to carry out all the tasks reasonably necessary to overcome the defective work.  Newstart will be seeking full indemnity on costs and damages against [Kodiak] pursuant to clause 9 E of the … subcontract.”
[32]	On 3 July 2024, Mr Brittain sent an email to Mr Chapman which again advised that Kodiak was waiting on a response from its insurer and had been advised that it should not enter into any agreement with Newstart until it was made aware of the position taken by its insurer.
[33]	On 14 August 2023, Newstart’s solicitors sent a letter to Kodiak which restated Newstart’s claim that Kodiak’s work was defective and did not accord with the requirements of the subcontract.  The letter relevantly stated:
“Failure to rectify defective works as directed by [Newstart] is a substantial breach of the [subcontract].  You will note pursuant to clause 9(e) and 16(c) of the [subcontract], Kodiak’s failure to rectify defective work entitles [Newstart] to engage another Contractor to rectify defective work and recovery [sic] the cost from Kodiak.  We therefore put you on notice that our client has engaged another contractor to rectify the defective work and will seek to recover these costs from Kodiak.
…
[Newstart’s] cost to rectify the defective work is estimated to be in excess of $200,000.00.  In the interest of avoiding formal proceedings, we are instructed to invite Kodiak to make a reasonable proposal to settle to [sic] this dispute.
If we do not receive a response to this letter by 4pm on Monday 21 August 2023, we are instructed to immediately file and serve Court proceedings, which our client will seek legal costs and interest against Kodiak, without further notice to you.”
[34]	The reference to settling “this dispute” in the penultimate paragraph of the extract of the letter above, is consistent with Newstart (by Mr Chapman) having been informed that Kodiak disputed the assertion that its work was defective and, it must follow, that Newstart was entitled to recover any costs incurred in rectifying the allegedly defective work.  Further, the reference in the final paragraph of the extract to the commencement of proceedings in which Newstart would seek interest and costs from Kodiak indicates an awareness on the part of Newstart and its solicitors of the need to bring a claim for breach of the subcontract to recover the costs incurred in rectifying the allegedly defective work.  To succeed on such a claim, Newstart would have to establish that (i) Kodiak’s work was defective and (ii) any costs paid to another contractor to rectify the defective work were reasonable such that those costs could be recovered as a debt due and payable by Kodiak under either cl 9(e) or cl 16(c) of the subcontract.
[35]	On 27 September 2023, Newstart served the statutory demand on Kodiak.  The statutory demand stated that Kodiak owed $177,643.84 as a debt due and payable to Newstart.  That figure was the total of various invoices issued to Newstart for materials and labour related to the site.  I infer those invoices are relied upon by Newstart to quantify the cost of rectifying the work it claimed to be defective.  Mr Chapman affirmed an affidavit accompanying the statutory demand in which he deposed that the total amount of the debt was due and payable by Kodiak and that he believed there was no genuine dispute about the existence or the amount of any of the debts.  In cross-examination, Mr Chapman accepted that the information provided in the Schedule to the statutory demand was the first time that Newstart informed Kodiak of the itemised cost of rectifying the work Newstart claimed to be defective.
[36]	On 16 October 2023, Mr Brittain caused Kodiak to send a letter to Newstart disputing the claim for rectification costs.  Mr Brittain did not, however, cause Kodiak to apply to set aside the statutory demand.  That failure seems to be explained by his having been unfamiliar with the statutory demand process and having acted in reliance on incorrect advice provided by his insurance broker.
[37]	Newstart filed the winding up application on 10 November 2023.
[38]	On 14 November 2023, Mr Chapman sent an email to Mr Brittain which referred to the application and stated:
“This is not how we want to play mate, but you have refused to negotiate and even went so far as to say Newstart wont [sic] receive ‘any money’ which left us with no choice but to wind up Kodiak.
This is your final chance to come back to us with a sensible offer, otherwise we will leave it to the liquidators on [sic] to recover the debt in full.”
Is the winding up application an abuse of process?
[39]	Having regard to the statements of principle set out at [6]-[12] above, the difference between the positions described in Tela and Redglove Holdings on the one hand and in RH Mortgage Corporation on the other is whether, in the circumstances of a particular case, the amount claimed in the statutory demand cannot, to the knowledge of the creditor, be properly characterised as a debt.
[40]	The term “debt” is not defined in the Act.  
[41]	In Rothwells Ltd v Nommack (No 100) Pty Ltd, a case concerning a statutory demand under earlier but analogous provisions, McPherson J (as his Honour then was) described a debt as a liquidated sum in money presently due, owing and payable by one person, called the debtor, to another person, called the creditor.  
[42]	In Vimblue Pty Ltd v Toweel, Barrett J adopted that description of the term debt and drew a distinction between a liquidated sum and a liquidated demand.  A liquidated sum only exists when the amount to which the creditor is entitled can be ascertained by a process of valuation or assessment of the application of some standard of measurement.  
[43]	In AMD Resources Ltd v TRS Management Pty Ltd, Randall AsJ applied this reasoning in concluding that where a contract or agreement between parties provides for a mechanism to calculate or ascertain a specific amount that is due and payable, that amount is a liquidated sum and is a debt for the purposes of s 459E of the Act, but where such a mechanism is not provided an amount claimed under the contract will only constitute a liquidated claim or a liquidated demand and will not constitute a debt for the purposes of s 459E of the Act. 
[44]	The subcontract between Newstart and Kodiak did not provide a mechanism for calculating or ascertaining the specific amount that might be payable by Kodiak under either cl 9(e) or cl 16(c).  As noted at [34] above, in circumstances where (to Newstart’s knowledge) Kodiak disputed that its work under the contract was defective or that Newstart was entitled to recover any costs for rectifying the allegedly defective works, the amount due and payable (if any) under the subcontract could not be ascertained until Newstart had established in a proceeding for breach of the subcontract that Kodiak’s work was defective and the amount of reasonable costs incurred by Newstart in rectifying that defective work.  In those circumstances, the amount of $177,643.84 claimed in the statutory demand was not a liquidated sum.  It was no more than a liquidated claim or a liquidated demand and, consequently, did not constitute a debt for the purposes of s 459E of the Act.  
[45]	Having regard to the content of the letter sent by Newstart’s solicitors on 14 August 2023, and the matters referred to at [34] above, I am satisfied that Newstart was aware of the need for it to bring proceedings for breach of the subcontract to establish the amount which might be due and payable under either cl 9(e) or cl 16(c).  Put another way, I am satisfied that, at the time it issued the statutory demand, Newstart (by Mr Chapman) was aware that the amount of $177,643.84 was not then due and payable.
[46]	In those circumstances, Newstart’s conduct in serving the statutory demand falls within the situation described in RH Mortgage Corporation.  Newstart was not entitled to obtain the benefit of a presumption of insolvency for the purposes of pursuing winding up proceedings when the debt claimed in the statutory demand was not then due and payable and Newstart was aware of that.  On that basis, Newstart engaged the statutory demand procedure for a purpose for which the law does not allow.  I am satisfied that this misuse of the statutory demand procedure renders the present application to wind up Kodiak, relying on its failure to comply with the improper statutory demand, an abuse of process.
Principles relating to the issue of solvency
[47]	A corporation is insolvent if it is unable to pay its debts as they fall due.  To displace the presumption of insolvency referred to in [2] above, the burden is on Kodiak to establish on the balance of probabilities that it is solvent: that is, it is able to pay its debts when due.  The question of solvency must be assessed at the date of the hearing of the winding up application.
[48]	In Powell  v Fryer, Olsson J (with whom Duggan and Williams JJ agreed), noted the following principles regarding insolvency:
“(1)	Whether or not a company is insolvent at a given point in time is a question of fact to be determined by the trial judge.  Expert evidence may be of assistance, but it is not conclusive.
(2)	The conclusion of insolvency must be derived from a proper consideration of the company’s financial position, in its entirety, based on commercial reality.  Generally speaking, it ought not to be drawn simply from evidence of a temporary lack of liquidity.  Regard should be had not only to the company’s cash resources immediately available, but also to moneys which it can procure by realisation by sale, or borrowing against the security of its assets, or otherwise reasonably raise from those associated with, or supportive of, it.  It is the inability, utilising such resources as are available through the use of assets or which may otherwise realistically be raised to meet debts as they fall due which indicates insolvency.
(3)	It is legitimate to take into account any indulgences extended to a company by its creditors as to trading terms.  However, absent a firm arrangement with all of its creditors for an extension of terms of trade, the court will usually apply the normal terms of trading when assessing solvency.
(4)	It is not appropriate to base an assessment on the prospect that the company might be able to trade profitably in the future, thereby restoring its financial position.  The question is whether it, at the relevant time, is able to pay its debts as they become due — not whether it might be able to do so in the future, if given time to trade profitably.”
[49]	As will become apparent, Newstart criticises the quality of the financial records which Kodiak has provided for the purpose of seeking to establish that it is insolvent.  This submission relies on the observation by Hayne J in Commonwealth Bank of Australia v Begonia that, ordinarily, it would be expected that a company would provide “the fullest and best” material in support of its case in opposition to the application that it be wound up in insolvency.  However, Newstart acknowledges that there is no inflexible rule that a company may only prove insolvency by producing audited accounts.
Evidence of Kodiak’s financial position
[50]	In submitting that it has displaced the presumption of insolvency, Kodiak relies principally on two reports prepared by David Johnstone, a partner at KordaMentha.
[51]	Newstart relies on a report prepared by Matthew Hudson, an associate director at SV Partners.
[52]	Mr Brittain and Mrs Brittain also provided affidavits which went to the issue of solvency.
First report of Mr Johnstone
[53]	Mr Johnstone provided his first report on 8 February 2024.  Having regard to various indicators, Mr Johnstone concluded in his first report that Kodiak was solvent at 30 June 2023 (being the date of the last full statutory account available to him) and at 8 February 2024.
[54]	The primary analysis undertaken by Mr Johnstone in his first report involved his consideration and adjustment of a monthly cash flow forecast for Kodiak’s business for the period February 2024 to January 2025 prepared by the company’s external accountant.  The cash flow forecast prepared by Kodiak’s accountant projected that the company’s cash balance would increase from $126,244.34 at the end of February 2024 to $501,043.05 at the end of January 2025.  
[55]	Mr Johnstone identified that this cash flow forecast omitted some expenditure items and failed to include provision for repayment of a payroll tax debt.  Mr Johnstone prepared an adjusted cash flow forecast which took account of these items.  That adjusted cashflow forecast projected that the company’s cash balance would increase from $28,292.19 at the end of February 2024 to $279,753.57 at the end of January 2025.  
[56]	A significant difference between the original cash flow forecast and Mr Johnstone’s adjusted cash flow forecast is Mr Johnstone’s assumption that, in the absence of a current payment arrangement with the Queensland Revenue Office, Kodiak would be required to pay its outstanding payroll tax debt of $68,493.17 in February 2024.  In April 2024, after Mr Johnstone’s first report had been completed, Kodiak entered into a payment arrangement with the Queensland Revenue Office which requires it to pay weekly instalments of $1,000.  Even without that payment arrangement in place, Mr Johnstone described the adjusted cash flow forecast as being conservative.  He further concluded that this cash flow analysis indicated that Kodiak is solvent.
[57]	In addition to this cash flow analysis, Mr Johnstone undertook an analysis of Kodiak’s balance sheet position at 30 June 2023 and at 31 December 2023.  This analysis showed that Kodiak had:
(a)	net assets of $722,816.64 at 30 June 2023 and $745,956.17 at 31 December 2023;
(b)	a current ratio (calculated as current assets divided by current liabilities) of 0.90 at 30 June 2-23 and 0.76 at 31 December 2023, if a loan from Kodiak to Mr Brittain (director’s loan) is treated as a non-current asset;
(c)	a current ratio of 1.81 at 30 June 2023 and 1.58 at 31 December 2023, if the director’s loan is treated as a current asset;
(d)	a deficit of working capital (calculated as current assets less current liabilities) of $77,114.40 at 30 June 2023 and $206,824.37 at 31 December 2023, if the director’s loan is treated as a non-current asset;
(e)	positive working capital of $631,821.64 at 30 June 2023 and $502,111.67 at 31 December 2023, if the director’s loan is treated as a current asset.
[58]	Mr Johnstone considered that, if the director’s loan is treated as a current asset, both positive working capital and the current ratio analysis indicates that Kodiak is solvent.  This caused Mr Johnstone to consider the willingness and capacity of Mr Brittain to repay the loan from Kodiak.  Mr Johnstone concluded that Mr Brittain (and Mrs Brittain, who is a co-owner with a 99% interest in their family home) had both the willingness and the capacity to repay the director’s loan to Kodiak in extenuating circumstances with the equity available in the family home.
[59]	Mr Johnstone also considered the profit and loss statement for the year ended 30 June 2023 prepared by Kodiak’s external account.  That statement showed:
(a)	in the year to 30 June 2023, a before tax profit of $360,727.02 and an after-tax profit of $181,861.19;
(b)	in the year to 30 June 2022, a before tax profit of $207,372.14 and an after-tax loss of $8,301.64.
[60]	Mr Johnstone concluded that the profit and loss statement indicated that Kodiak is solvent.
[61]	Mr Johnstone also stated that other indicators were consistent with Kodiak being solvent: he saw no evidence of suppliers placing Kodiak on cash on delivery trading terms; he saw no evidence of any special payment arrangements with creditors or suppliers, save for a series of payment plans with the Australian Tax Office; Kodiak is complying with its payment arrangements with the ATO; Kodiak’s loan facilities are all in order.
[62]	The only indicators which Mr Johnstone considered pointed to a contrary conclusion was the poor quality of Kodiak’s financial records, historical cash flows not having been provided and the overdue payroll tax debt referred to at [56] above (which has since been made the subject of a payment plan approved by the Queensland Revenue Office).
Report of Mr Hudson
[63]	Mr Hudson was instructed to review Mr Johnstone’s first report and to comment on the conclusions set out in that report.
[64]	In his report dated 22 March 2024, Mr Hudson stated:
(a)	Mr Johnstone’s methodology, which Mr Hudson described as primarily comprising a balance sheet analysis rather than a cash flow analysis, is not a proper basis upon which to assess the solvency of Kodiak;
(b)	the limited nature of the books and records provided to Mr Johnstone limits the extent to which any conclusions can be drawn from his analysis; and 
(c)	although, Mr Hudson was unable to determine when Kodiak became insolvent due to the lack of financial information provided to him or contained in Mr Johnstone’s first report, Mr Hudson’s opinion was that Kodiak was insolvent at 31 December 2023 and remains insolvent. 
[65]	Mr Hudson raised the following issues:
(a)	there was insufficient information to conclude that the director’s loan was an asset of Kodiak or that (if it was) it was recoverable from Mr Brittain;
(b)	Mr Johnstone failed to consider the effect of the present winding up application as an event of default which caused Kodiak’s secured debts to become immediately due and payable;
(c)	Mr Johnstone did not identify the debts of Kodiak at the relevant date, when those debts fell due for payment, or the resources available to Kodiak to meet those debts;
(d)	the absence of relevant financial records;
(e)	Kodiak cannot simply sell or leverage its assets to support its business;
(f)	when the director’s loan is excluded as an asset, and non-current liabilities are reclassified as current liabilities due to the acceleration of the debts by reason of the present winding up application, Kodiak is shown to have a deficiency of net assets, a material deficiency in working capital and a current liquidity ratio materially below 1; and
(g)	when the acceleration of Kodiak’s debts, the debt claimed by Newstart, and taxation debts are accounted for in the cash flow analysis, Kodiak is shown to have a significant negative cash outflow of $1,201,503.51 (which shortfall could not be covered by the director’s loan or other equity in Mr Brittain’s family home).
Second report of Mr Johnstone 
[66]	Mr Johnstone was instructed to respond to Mr Hudson’s comments.  That response was set out in his second report which was provided on 5 April 2024.
[67]	In his second report, Mr Johnstone confirmed that:
(a)	he was satisfied that the director’s loan was a documented, genuine loan that was recoverable by Kodiak and that Mr Brittain and his wife had the willingness and the ability for Mr Brittain to repay that loan if a demand was made by Kodiak;
(b)	although most agreements between Kodiak and its secured lenders and trade creditors had event of default clauses, he did not consider that those clauses operated to make all of the debts immediately due and payable because Kodiak had not defaulted in its repayment obligations and, in his experience, it is very unlikely that creditors would rely upon a non-monetary default to accelerate the debt under the event of default clauses;
(c)	his adjustment of the cash flow test referred to in his first report demonstrated that Kodiak would have sufficient cash flow to pay its future debts as and when they fell due;
(d)	although he had identified certain records which were not provided to him and which might have assisted in his analysis, he was satisfied that the records he was provided with were sufficient for him to review Kodiak’s financial position and to form the view that Kodiak was solvent at the date of his first report.  He would not have reached that conclusion if there was insufficient financial information in the records provided to him;
(e)	in undertaking his analysis of Kodiak’s financial position, he had found no evidence indicating that the company was unable to utilise the equity in its assets to access more capital if required.  His view is that Kodiak has the ability to refinance, sell or leverage its assets in accordance with the existing securities;
(f)	he had not included the debt claimed by Newstart in his analysis because of his understanding that the debt was disputed by Kodiak with the result that it would not become due and payable unless and until that dispute was resolved by a judgment in Newstart’s favour; and
(g)	having regard to these matters, he considered the revised cash flow test prepared by Mr Hudson to be incorrect.
The cross-examination of Mr Johnstone
[68]	Mr Johnstone was cross-examined on an aged payables report for Kodiak at 31 December 2023 which was derived from Kodiak’s online Xero accounts.  He accepted that he had access to the online Xero accounts and would have been able to access that aged payables report although he did not specifically recall seeing it.  He accepted that the report showed that invoices issued by certain trade creditors remained unpaid after the due date recorded on the report.  He did not accept, however, that a historical cash flow analysis was relevant to his instructions to assess Kodiak’s solvency at the date of his report on a forward-looking basis.
[69]	Mr Johnstone was also cross-examined about a copy of a loan agreement between Kodiak and Mr Brittain documenting the director’s loan (addressed further below in considering the evidence relating to the director’s loan).  He confirmed that he was not provided with that loan agreement before he prepared his first report.  Mr Johnstone was asked whether he accepted that, if the Court found that the loan document was not authentic (a submission addressed further below), he had not seen any other financial documentation which showed that Mr Brittain owed the director’s loan to Kodiak.  Mr Johnstone responded by stating that the director’s loan is recorded on Kodiak’s balance sheet and that he had seen transactions in the online Xero accounts supporting the amount of the loan.  The amount of the loan was recorded in the online Xero accounts as being $708,936.04.
[70]	Mr Johnstone was asked questions about a ledger accounts enquiry report for the period 1 July 2019 to 30 June 2023, which was derived from Kodiak’s online Xero accounts.  That report set out the balances owed under loan accounts for related parties.  The outstanding balance for the related party loan accounts for the 2022 financial year was $496,265.61.  The outstanding balance for the related party loan accounts for the 2023 financial year was $212,670.43.  The total of these outstanding balances was $708,936.04, the same as the amount of the director’s loan recorded in Kodiak’s online Xero accounts.
[71]	Mr Johnstone was taken to statements for one of Kodiak’s bank accounts which showed amounts recorded as having been paid by Kodiak to Mr Brittain on a regular basis.  He agreed that those payments matched amounts recorded in a detailed general ledger report as drawings taken by Mr Brittain on a periodic basis.  He also agreed that the detailed general ledger report recorded monthly credits of $10,389.00 which were manual journal entries with the description “Monthly wages to offset director drawings”.  The detailed general ledger report showed that the total amount of director’s drawings taken by Mr Brittain, after crediting his monthly wages, was $206,989.90.  That figure reconciled to the amount recorded in the ledger accounts enquiry report (referred to in [70] above) for the largest related party loan account described as “Matt Drawings”.  Mr Johnstone stated that wages paid by Kodiak to Mr Brittain would be an expense of the company but that drawings made by Mr Brittain from the company bank account for his personal use might be treated as a loan repayable by Mr Brittain to Kodiak.
[72]	As to his adjusted cash flow forecast from February 2024 to January 2025, Mr Johnstone’s evidence under cross-examination was:
(a)	a figure of $19,856 which he had adopted for monthly loan repayments which Kodiak was required to make had been provided by Kodiak’s accountant and he understood it to relate to loans for the equipment Kodiak used in operating its business.  If it was established that a monthly repayment of $3,216.16 per month, concerning an excavator purchased using finance in September 2023, had not been included in the monthly loan repayment figure provided by Kodiak’s accountant then the cash flow forecast would need to be further adjusted to take account of that payment;
(b)	the cash flow forecast would also need to be further adjusted to reflect the approval by the Queensland Revenue Office of Kodiak’s payment plan for its payroll tax debt (see [56] above);
(c)	if it was established that Kodiak was paying Mr Brittain an amount of $4,000 per week as wages, and that amount had not been included in the wages figure recorded in the cash flow forecast then that figure would need to be adjusted upwards;
(d)	he did not directly answer a question as to whether these further adjustments (said to increase Kodiak’s monthly expenditure by $17,500.00) would alter his conclusion that Kodiak was solvent.
[73]	As to his adjusted balance sheet at 31 December 2023, Mr Johnstone’s evidence was:
(a)	if it was established that the director’s loan was not in fact a loan payable by Mr Brittain to Kodiak then that loan would need to be excluded as an asset on the adjusted balance sheet;
(b)	if the loan for the excavator purchased using finance in September 2023 had not been included as liability in the balance sheet then that would also need to be done;
(c)	he did not agree that removing the director’s loan from the balance sheet as an asset and including the excavator loan from the balance sheet as a liability would result in Kodiak’s liabilities exceeding its assets;
(d)	he did not accept that his adjusted balance sheet was not an accurate statement of Kodiak’s balance sheet position.
The cross-examination of Mr Hudson
[74]	Mr Hudson accepted in cross-examination that, having considered affidavits of Mr Brittain and Mrs Brittain (addressed further below in considering the evidence relating to the director’s loan) which were filed after he had prepared his report, it appeared the director’s loan was a loan account which Mr Brittain owed to Kodiak.  Mr Hudson confirmed that, in his experience, that loan account should be treated as a current asset of Kodiak.  He also accepted that those affidavits evidenced a willingness on the part of Mr Brittain and Mrs Brittain to facilitate the repayment of the director’s loan to Kodiak.
[75]	Mr Hudson was also cross-examined on his assessment of the available equity in the family home on the basis that Mr Brittain and Mrs Brittain were liable under personal guarantees.  Although the amount of that liability was unknown, Mr Hudson’s assessment proceeded on the basis that it was $600,000.  He accepted that figure was a guess.  He agreed that, to his knowledge, none of the personal guarantees had been called upon.  He also accepted that all of the personal guarantees relate to the obligations of Kodiak so that if the guarantees were to be called upon they would operate to reduce the debts owed by Kodiak.  In those circumstances he accepted that it was unnecessary to attempt to quantify and deduct the liability owed under the personal guarantee when making an assessment of the available equity in the family home which could be used to support Kodiak’s ability to pay its debts as they became due and payable.
[76]	Ultimately, Mr Hudson accepted that if Mr Brittain and Mrs Brittain are willing and able to draw down on the available equity in their family home to repay the director’s loan then that should be included as a current asset in Kodiak’s balance sheet.
[77]	On the question of the acceleration of Kodiak’s debts under event of default clauses, Mr Hudson confirmed that he was not aware of any creditor other than Newstart demanding repayment of the debts owed to them by Kodiak.  Nevertheless, he maintained that standards issued by the Australian Accounting Standards Board required that those debts be treated as immediately due and payable even without a demand by the relevant creditor for immediate payment (although he did not identify in either his report or in his cross-examination where in the AASB standards that requirement could be found).
Mr Brittain’s evidence relating to solvency
[78]	In his first affidavit, Mr Brittain stated that he was not aware of any creditor of Kodiak (other than Newstart) having made any demand on Kodiak, having issued any notice of default to Kodiak, or having taken any enforcement action against Kodiak.  He stated that Kodiak’s business is currently trading profitably and that he is not aware of any risks to it continuing to do so.  He said that Kodiak has significant equity in the equipment which it owns and, if Kodiak requires financial support in the future, he would cause the company to borrow against that plant and equipment in order to raise funds.
[79]	As to the director’s loan, Mr Brittain stated that the loan arose from work which Kodiak performed in relation to the construction of his family’s home.  He acknowledged that the loan is repayable by him to Kodiak on demand.  He stated that he has, since the time that the loan was advanced, been willing to cause Kodiak to demand repayment of the director’s loan, or so much of the outstanding balance as might be required to provide adequate financial support for the company.  He deposed to a willingness to borrow against the equity in the family home to repay the director’s loan to Kodiak if the company requires financial support in the future.
[80]	The documents which were identified and verified, without objection, in Mr Brittain’s first affidavit as records of Kodiak or records held by him in his personal capacity, included:
(a)	the signed loan agreement between himself and Kodiak referred to at [69] above, which has 15 September 2020 written on the execution page as the date the agreement was signed;
(b)	a valuation of Mr Brittain’s family home indicating it had a market value of $2.3 million;
(c)	statements for two loan accounts of Mr and Mrs Brittain showing that the amount they owed on the family home at 31 December 2023 was approximately $1 million;
(d)	statutory declarations signed by each of Mr Brittain and Mrs Brittain confirming the amounts owed under the loans secured by mortgage over the family home;
(e)	an undertaking and acknowledgement executed by Mr Brittain on 7 February 2024 in which he: acknowledged that he was indebted to Kodiak in the amount of $708,936.04; undertook to cause Kodiak to demand repayment of that loan, or so much of the outstanding balance as required to provide adequate financial support to Kodiak; and, undertook to comply with that demand by paying the sum demanded to Kodiak; and
(f)	an undertaking and acknowledgement executed by Mrs Brittain on 6 February 2024 in which she: acknowledged that Mr Brittain was indebted to Kodiak in the amount of $708,936.04; and, undertook to assist Mr Brittain to comply with a demand by Kodiak for repayment of the loan, including by consenting for Mr Brittain to obtain further finance upon the security of the family home.
[81]	In his second affidavit, Mr Brittain deposed to the approval by the Queensland Revenue Office of the payment plan for Kodiak’s payroll tax debt and Kodiak’s compliance with that approved payment plan (see [56] and [72](b) above).  He also exhibited a profit and loss statement for Kodiak, prepared by Kodiak’s bookkeeper, which showed the company had generated a net profit of $295,447.23 for the current financial year up to 15 May 2024.
[82]	In cross-examination, Mr Brittain said that the director’s loan arose in circumstances where Kodiak had performed earthworks and concreting services for the construction of his family home.  That work was performed around June 2021.  When shown a copy of the signed loan agreement (see [80](a) above), he said that he could not recall when he signed that document but agreed that the execution page included his signatures and the date of 15 September 2020.  The family home is at an address in Nerang.  Mr Brittain confirmed that he and Mrs Brittain purchased the land on which the family home is built in about March 2021.  The construction of the family home commenced in about June 2021.  Mr and Mrs Brittain moved into the family home in about October 2022.  Before moving into the family home, Mr and Mrs Brittain had lived in a rental property at Helensvale for seven years.  In those circumstances, Mr Brittain was unable to explain why the loan agreement, which was apparently signed on 15 September 2020, recorded his address as being the address of the family home in Nerang.  Nevertheless, he denied that he had only signed the loan agreement in the months prior to the hearing of the winding up application or that he does not in fact owe anything under a loan from Kodiak.
[83]	Mr Brittain was asked questions about the contents of the ledger accounts enquiry report (see [70] above) and the detailed general ledger report (see [71] above) which had been created from Kodiak’s online Xero accounts.  He lacked any real grasp of the detail of the company’s financial accounts.  He repeatedly stated that he relied on Kodiak’s bookkeeper and accountant to maintain the financial records of the company.  He was not able to explain why the total amounts recorded on the ledger accounts enquiry report for related party loans in the 2022 and 2023 financial years was the same figure provided to Mr Johnstone as the amount of the director’s loan which he attributed to the provision of earthworks and concreting services in the construction of the family home.
[84]	When he was taken to copies of Kodiak’s bank statements, Mr Brittain acknowledged that amounts had been paid from the company’s accounts into his personal bank accounts.  He accepted that weekly payments made by Kodiak to his personal accounts were payments of his salary and that those amounts were not repayable by him to the company.  He maintained, however, that he remained indebted to Kodiak under the director’s loan.
Mrs Brittain’s evidence relating to solvency
[85]	Mrs Brittain deposed that:
(a)	she is the co-owner of the family home, together with Mr Brittain;
(b)	the current amount secured by mortgage over the family home is slightly less than $1 million;
(c)	she is aware that Mr Brittain owes $708,936.04 to Kodiak and that loan is repayable on demand;
(d)	if Mr Brittain considers that Kodiak requires financial support and asks her to jointly borrow against the security of the family home to raise funds to provide to Kodiak then she would do so, and she would provide the funds raised to Mr Brittain so that he can pay them to Kodiak in repayment of the director’s loan.
[86]	Mrs Brittain was not required for cross-examination.
Consideration of Kodiak’s solvency
[87]	Based on Kodiak’s financial records, I am satisfied that the company traded profitably in the 2022 and 2023 financial years and that it continued to trade profitably in the 2024 financial year up to the date of the hearing of the winding up application.
[88]	I am also satisfied that no creditor other than Newstart has made any demand on Kodiak for repayment of a debt owed by the company, issued any notice of default to Kodiak or taken any enforcement action against Kodiak in respect of any outstanding debt.
[89]	In addition to these considerations, the question whether Kodiak has displaced the presumption of insolvency requires a determination whether:
(a)	the issues Mr Johnstone raised about errors in Kodiak’s management accounts, or criticisms Newstart makes about the quality of the evidence led by Kodiak to demonstrate its solvency, would preclude the Court from relying upon that evidence to make a finding that Kodiak is solvent;
(b)	the director’s loan is in fact owed by Mr Brittain to Kodiak such that it should be considered an asset of the company to which recourse could be had, by demanding repayment from Mr Brittain, to increase the funds available to pay debts as and when they fall due;
(c)	Kodiak’s failure to comply with the statutory demand and the filing of Newstart’s winding up application has the result that Kodiak’s secured debts should be treated as having become immediately due and payable;
(d)	any further adjustments to Mr Johnstone’s adjusted cash flow forecast would alter the outcome of that cash flow analysis to the extent that it could not be concluded that Kodiak is able to pay its debts as and when they fall due.
The accuracy and reliability of Kodiak’s financial records
[90]	Although Mr Johnstone found errors in Kodiak’s management accounts, his evidence was that he did not have regard to those accounts and instead sought and was provided with further information which he found to be a sufficient basis for his conclusion that the company was solvent.  I accept that evidence.  I do not accept that, in the circumstances of this case, Newstart’s criticisms of the reliability of Kodiak’s financial records diminishes the probity of Mr Johnstone’s cash flow forecast to such an extent that I should disregard that analysis as a basis for finding that Kodiak is solvent.
[91]	In my view, taking account of the conclusions I have reached on the matters to which I now turn, Kodiak’s financial records and the adjusted cash flow forecast which Mr Johnstone prepared having regard to those records are a sufficient basis to find that Kodiak has established that it is able to pay its debts as and when they fall due.
The director’s loan
[92]	The inclusion of Mr Brittain’s address in Nerang on a loan agreement purportedly signed in September 2020, some nine months before he and Mrs Brittain purchased the land at Nerang on which the family home was eventually constructed, raises doubt as to whether that document was signed on the date it bears, or at some later time.
[93]	Similarly, the fact that the amount of the director’s loan is identical to the sum of various related party loans which were shown to relate in large part to cash payments drawn by Mr Brittain from Kodiak’s bank account for personal purposes (not to the cost of earthworks and concreting services provided during the construction of Mr Brittain’s family home), raises doubt as to the circumstances from which the director’s loan arose.  As was accepted by Kodiak’s counsel during submissions at the hearing, it would be a remarkable coincidence for those unrelated personal drawings to equal the cost of earthworks and concreting services which Kodiak is said to have provided for the benefit of Mr Brittain and his family.  
[94]	It seems to me more likely that the director’s loan reflects amounts drawn by Mr Brittain from Kodiak’s account in excess of his salary.  The crediting of amounts in the detailed general ledger report for Mr Brittain’s monthly salary (see [71] above), which partially offset the amount of Mr Brittain’s drawings, satisfies me that there were amounts drawn by Mr Brittain in each of the 2022 and 2023 financial years which exceeded the salary he was paid by Kodiak.  Given Mr Brittain’s limited understanding of Kodiak’s financial accounts, I prefer the information set out in the detailed general ledger report to Mt Brittain’s oral evidence on this issue (see [84] above).
[95]	Notwithstanding these matters, I am ultimately satisfied that the director’s loan is owed by Mr Brittain to Kodiak and repayable on demand by the company.  As Mr Johnstone observed, the director’s loan is recorded in Kodiak’s financial accounts as an asset of the company and there are entries in those financial accounts which support the amount of the loan.  The amounts recorded in the general ledger enquiry report and the detailed general ledger report discussed at [70] and [71] above support Mr Johnstone’s conclusion on this issue.
[96]	Whatever the genesis of the director’s loan might have been, the evidence clearly establishes that Mr Brittain has acknowledged the existence of the loan and undertaken to cause Kodiak to demand that he repay the loan if that is necessary to provide the company with funds to pay its debts as and when they fall due.  The evidence also establishes that Mr and Mrs Brittain are both willing and able to draw upon the equity available in the family home to enable Mr Brittain to repay the loan if, and when, Kodiak demands it.  To the extent that Mr Hudson suggested to the contrary in his report, he largely retreated from that position under cross-examination.
[97]	In those circumstances, I am satisfied that the director’s loan is a current asset of Kodiak which should be included on its balance sheet and in the calculation of its current liquidity ratio and working capital.  More importantly, it provides Kodiak with access to substantial funds with which to pay its debts as and when they fall due in the event those debts cannot be paid out of profits earned from the company’s business operations.
Have Kodiak’s debts become immediately due and payable?
[98]	I do not accept Mr Hudson’s evidence that, following Kodiak’s failure to comply with the statutory demand and the filing of the winding up application, its debts should be treated as being immediately due and payable by reason of the operation of “event of default” provisions in various lending agreements.  This is for two reasons.
[99]	First, only one of the lending agreements identified by Mr Hudson has an event of default provision which is expressed in terms which could be construed as having the effect that Kodiak’s debt became immediately due and payable upon the failure to comply with the statutory demand or the making of the winding up application without any action on the part of the relevant creditor.  Even if that is the proper construction of that lending agreement (a matter which was not the subject of argument), that would not support a finding that all of Kodiak’s secured debts should be treated as being immediately due and payable.  The evidence included numerous lending agreements which either do not define failure to comply with the statutory demand or the making of the winding up application as an event of default or, if there was such an event of default, are expressed in terms which make it clear that upon such default the creditor may treat the whole of the debt as immediately due and payable.  I have already noted that the evidence on this application is that no other creditor has elected to treat Kodiak’s default (if such default arises under the relevant lending agreement) as having that effect. 
[100]	Secondly, an analysis which treats a company’s debts as immediately due and payable upon a default of this type, even though the company’s creditors have not demanded immediate repayment of the whole of the debts owed to them or taken any other enforcement steps against the company does not, in my view, reflect a proper consideration of the company’s financial position, in its entirety, based on commercial reality (see [48] above).
What impact do any further adjustments have on the adjusted cash flow forecast?
[101]	The criticisms which Newstart made about Mr Johnstone’s cash flow forecast do not cause me to conclude that the analysis has an insufficient basis for a finding that Kodiak is solvent.
[102]	Although Mr Johnstone did not provide a direct answer when he was asked whether further adjustments to the cash flow forecast would change his conclusion that Kodiak was solvent (see [72](d) above), the impact of the further adjustments can be assessed by considering the adjusted cash flow forecast itself.  Once the cash flow forecast is adjusted to remove the repayment of the entire payroll tax debt of $68,493 in February 2024, the cash balance available to Kodiak each month is sufficient to pay its loan obligations even if further adjustments were to be made which increase Kodiak’s monthly expenditure by $17,500.  In all but one month during the period of the cash flow forecast, accounting for an increase of $17,500 in Kodiak’s expenditure would still result in a projected profit (albeit in a lesser amount).  Likewise, if the net profit of $295,447.23 for the current financial year up to 15 May 2024 is reduced to account for additional expenses of $17,500 per month (an annual figure of $210,000) the result would still be a net profit for Kodiak, albeit in a smaller amount.
[103]	Further, I do not accept Newstart’s criticism of Mr Johnstone for accepting the opening bank balance of $110,000 in the cash flow forecast provided by Kodiak’s accountant without verifying that figure.  The evidence includes a statement for one of Kodiak’s bank accounts for the period 10 December 2023 to 9 January 2024 which shows an opening balance of $169,847.12 and a closing balance of $52,158.15.  In addition, Mr Brittain gave evidence in cross-examination, which was not challenged, that he had repaid an amount of $60,000 to Kodiak under the director’s loan in the past few months.  That repayment, together with the closing balance at 9 January 2024, explains the opening bank balance of $110,000 included in the cash flow forecast prepared by Kodiak’s accountant and adopted by Mr Johnstone in his adjusted cash flow forecast.  Even if that were not the case, I accept Kodiak’s submission that the cash flow forecast prepared by its accountant was tendered as a business record without objection and admitted for all purposes as to the truth of its contents.  That Newstart chose not to object to the admission of that document into evidence is sufficient to dispose of its attempt to challenge the accuracy of facts recorded in it.
Kodiak has established that it is solvent
[104]	For the reasons given above, I am satisfied that Kodiak has established to the requisite standard that it is solvent: that is, it can pay its debts as and when they fall due.  Having regard to the availability of repayment by Mr Brittain of the director’s loan as a source of funds to pay Kodiak’s debts, that is a conclusion I have reached even if the debt claimed to be owing to Newstart was to be included in the solvency analysis.  It is therefore unnecessary for Kodiak to seek leave under s 459S of the Act to rely upon a ground which it could have raised in seeking to have the statutory demand set aside (its dispute about the existence and amount of the debt claimed by Newstart).
Conclusion
[105]	Kodiak has succeeded on both grounds it relied upon to resist the winding up application.  The application is dismissed.
[106]	I cannot presently see any reason why costs should not follow the event but will hear from the parties on that issue before making any order as to costs.