FEDERAL COURT OF AUSTRALIA

Smith v Boné, in the matter of ACN 002 864 002 Pty Ltd (in liq) [2015] FCA 319 

Citation:	Smith v Boné, in the matter of ACN 002 864 002 Pty Ltd (in liq) [2015] FCA 319	
		
Parties:	MICHAEL JOHN MORRIS SMITH IN HIS CAPACITY AS LIQUIDATOR OF ACN 002 864 002 PTY LTD (IN LIQUIDATION) FORMERLY KNOWN AS PETROLINK PTY LTD and ACN 002 864 002 PTY LTD (IN LIQUIDATION) FORMERLY KNOWN AS PETROLINK PTY LTD ACN 002 864 002 v BARRY BONÉ and VALVELINK PTY LTD ACN 053 332 808	
		
File number:	NSD 1030 of 2013	
		
Judge:	GLEESON J	
		
Date of judgment:	7 April 2015	
		
Catchwords:	BANKRUPTCY AND INSOLVENCY – whether director caused company to trade while insolvent – whether reasonable grounds for suspecting company was insolvent – whether director failed to prevent company from incurring debts when aware of reasonable grounds to suspect company was insolvent – whether reasonable person in director’s position would have been aware of reasonable grounds for suspecting company was insolvent – where company made payment arrangements to repay tax debts – whether director acted honestly and ought fairly to be excused for contravention of civil penalty provision or breach of duty – amount of recoverable compensation – whether director entitled to set off – whether preferential payment made –  Corporations Act 2001 (Cth), ss 588M, 588FF, 1317S, 1318  	
		
Legislation:	Corporations Act 2001 (Cth), ss 95A, 436A, 553C, 588E, 588G, 588H, 588M, 588FA, 588FC, 588FE, 588FF, 588FG, 1317S, 1318 
Evidence Act 1995 (Cth), ss 79(1), 140
Income Tax Assessment Act 1936 (Cth), s 222AOC
Tax Administration Act 1953 (Cth), Sch 1 	
		
Cases cited:	Australian Securities and Investment Commission v Plymin (No 1) [2003] VSC 123; (2003) 175 FLR 124 
Australian Securities and Investments Commission v Edwards (No 3) [2006] NSWSC 376; (2006) 57 ACSR 209
Australian Securities and Investments Commission v Edwards [2005] NSWSC 831; (2005) 54 ACSR 583
Australian Securities and Investments Commission v Healey (No 2) [2011] FCA 1003; (2011) 196 FCR 430
Australian Securities and Investments Commission v Vines [2005] NSWSC 1349; (2005) 65 NSWLR 281
Bank of Australasia v Hall  [1907] HCA 78; (1907) 4 CLR 1514 
Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239; (2008) 39 WAR 1
Bluestone Property Services Pty Ltd (in liq) v First Equilibrium Pty Ltd [2013] FCA 876
Buzzle Operation Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2011] NSWCA 109; (2011) 81 NSWLR 47
Campbell Street Theatre Pty Ltd (receiver and manager appointed) (in liq) v Commercial Mortgage Trade Pty Ltd [2012] NSWSC 669
Carr v Baker (1936) 36 SR(NSW) 301 
Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389
Commonwealth Bank v Friedrich (1991) 5 ACSR 115
Crema Pty Ltd v Land Mark Property Developments Pty Ltd [2006] VSC 338; (2006) 58 ACSR 631 
Daniels v Anderson (1995) 37 NSWLR 438
Deputy Commissioner of Taxation v Dick [2007] NSWCA 190; (2007) 242 ALR 152
Edenden v Bignell [2007] NSWSC 1122
Ellis v Wallsend District Hospital (1989) 17 NSWLR 553
Federal Commissioner of Taxation v Wade [1951] HCA 66; (1951) 84 CLR 105
Hall v Poolman [2007] NSWSC 1330; (2007) 65 ACSR 123 
Harrington-Smith v Western Australia (No 2) [2003] FCA 893; (2003) 130 FCR 424
Hawkins v Bank of China (1992) 26 NSWLR 562
Hicks v Minister for Immigration and Multiculturalism and Indigenous Affairs [2003] FCA 757
Hymix Concrete Pty Ltd v Garritty (1977) 13 ALR 321
Jetaway Logistics Pty Ltd v Deputy Commissioner of Taxation [2009] VSCA 319; (2009) 26 VR 567
Lewis v Doran [2004] NSWSC 608; (2004) 208 ALR 385
Lewis v Doran [2005] NSWCA 243; (2005) 219 ALR 555 
Lewis, Re Damilock Pty Ltd (in liq) v VI SA Australia Pty Ltd [2008] FCA 1801; (2008) 252 ALR 533
Manson v Smith [1997] 2 BCLC 161
Maritime Electric Co Ltd v. General Dairies Ltd [1937] AC 610
McLellan v Carroll [2009] FCA 1415; (2009) 76 ACSR 67
Melbase v Segenhoe (1995) 17 ACSR 187
Minister for Immigration, Local Government and Ethnic Affairs v Kurtovic (1990) 21 FCR 193 
Morley v Australian Securities and Investments Commission (No 2) [2011] NSWCA 110; (2011) 83 ACSR 620
Morley v ASICAustralian Securities and Investments Commission [2010] NSWCA 331; (2010) 274 ALR 205
Mulherin v Bank of Western Australia Ltd [2006] QCA 175
New South Wales v Buckland [2000] NSWCA 72 
Oamington Pty Ltd (Receiver & Manager Appointed) v Commissioner of Land Tax (1997) 98 ATC 5051
Ozecom vvc Hudson Investment Group [2007] NSWSC 1441
Playspace Playground Pty Ltd v Osborn [2009] FCA 1486
Powell v Fryer [2001] SASC 59; (2001) 37 ACSR 589 
Queensland Bacon v Rees [1996] HCA 21; (1996) 115 CLR 266
Quick v Stoland Pty Ltd (1998) 87 FCR 371
Re ACN 007 534 000 Pty Ltd (in liq); Ex parte Parker (1997) 80 FCR 1
Sandell v Porter [1966] HCA 28; (1966) 115 CLR 666 
Sarina v Council of the Shire of Wollondilly (1980) 32 ALR 596
Scott v Duncan [2007] FCAFC 30 
Sheahan v Hertz Australia Pty Ltd (1995) 16 ACSR 765 at 769
Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation [2001] NSWSC 621; (2001) 53 NSWLR 213 
Switz Pty Ltd v Glowbind Pty Ltd [1999] NSWSC 1296
Tourprint International Pty Ltd (in liq) v Bott [1999] NSWSC 581; (1999) 32 ACSR 201 
Tru Floor Service Pty Ltd v Jenkins (No 2) (2006) 232 ALR 532
Versteeg v R (1988) 36 A Crim R 68 
White Constructions (ACT) Pty Ltd (in liq) v White [2004] NSWSC 71; (2004) 49 ACSR 220

Date of hearing:	8, 9, 10, 11, 15, 16 September 2014	
		
Place:	Sydney	
		
Division:	GENERAL DIVISION	
		
Category:	Catchwords	
		
Number of paragraphs:	450	
		
Counsel for the Plaintiffs:	Mr S Golledge	
		
Solicitor for the Plaintiffs:	Watson Mangioni Lawyers Pty Ltd	
		
Counsel for the Defendants:	Mr F Assaf	
		
Solicitor for the Defendants:	Sparke Helmore	

Table of Corrections	
		
27 April 2015	In paragraph 413, “s 22AOC” has been replaced with “s 222AOC”.	
		
27 April 2015	From paragraph 413, the paragraph numbering has been changed. The paragraph number on the cover page and in the certification have been amended to reflect this change. 	
		
27 April 2015	In paragraph 414 (formerly paragraph 416), the words “to take” have been omitted.	

IN THE FEDERAL COURT OF AUSTRALIA		
NEW SOUTH WALES DISTRICT REGISTRY		
GENERAL DIVISION	NSD 1030 of 2013	

IN THE MATTER OF ACN 002 864 002 PTY LTD (IN LIQ) FORMERLY KNOWN AS PETROLINK PTY LTD
 
BETWEEN:	MICHAEL JOHN MORRIS SMITH IN HIS CAPACITY AS LIQUIDATOR OF ACN 002 864 002 PTY LTD (IN LIQUIDATION) FORMERLY KNOWN AS PETROLINK PTY LTD
First Plaintiff

ACN 002 864 002 PTY LTD (IN LIQUIDATION) FORMERLY KNOWN AS PETROLINK PTY LTD ACN 002 864 002
Second Plaintiff
	
AND:	BARRY BONÉ
First Defendant

VALVELINK PTY LTD ACN 053 332 808
Second Defendant

JUDGE:	GLEESON J	
DATE OF ORDER:	7 April 2015	
WHERE MADE:	SYDNEY	

THE COURT ORDERS THAT:

1.	The parties file and serve an agreed short minute of orders to give effect to these reasons on or before Friday 17 April 2015.
2.	In the event that the parties are unable to agree proposed orders, each party file and serve proposed short minutes of order on or before Friday 17 April 2015.
3.	The matter be listed on Tuesday 21 April 2015 at 9.30 am with a view to making final orders disposing of this proceeding.
4.	The parties have leave to file short written submissions in support of the proposed orders on or before Monday 20 April 2015.
5.	Liberty to apply on 24 hours’ notice.

Note:	Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA		
NEW SOUTH WALES DISTRICT REGISTRY		
GENERAL DIVISION	NSD 1030 of 2013	

IN THE MATTER OF ACN 002 864 002 PTY LTD (IN LIQ) FORMERLY KNOWN AS PETROLINK PTY LTD

BETWEEN:	MICHAEL JOHN MORRIS SMITH IN HIS CAPACITY AS LIQUIDATOR OF ACN 002 864 002 PTY LTD (IN LIQUIDATION) FORMERLY KNOWN AS PETROLINK PTY LTD
First Plaintiff

ACN 002 864 002 PTY LTD (IN LIQUIDATION) FORMERLY KNOWN AS PETROLINK PTY LTD ACN 002 864 002
Second Plaintiff
	
AND:	BARRY BONÉ
First Defendant

VALVELINK PTY LTD ACN 053 332 808
Second Defendant

JUDGE:	GLEESON J	
DATE:	7 April 2015	
PLACE:	SYDNEY	

REASONS FOR JUDGMENT

1		In December 2011, the first plaintiff (“liquidator”) was appointed official liquidator of the second plaintiff, formerly known as Petrolink Pty Ltd (“Petrolink” or “the company”) on the application of the Deputy Commissioner of Taxation. Petrolink was incorporated in 1984 and, by the time of the liquidation, had been in business for over 25 years. Its business involved designing, installing and supporting industrial petro-chemical storage and delivery systems.  The company had a diverse range of customers, including government entities and mining operations. In each of the three financial years prior to its liquidation, the company had an annual turnover exceeding $3 million.
2		The liquidator contends that Petrolink became insolvent on 30 June 2009 and thereafter remained insolvent until the company was placed into liquidation.  The plaintiffs’ principal claims for relief are:
a.	As against the first defendant (“Mr Boné”), compensation pursuant to s 588M of the Corporations Act 2001 (Cth) (“the Act”) in respect of losses suffered by creditors of Petrolink as a result of that company’s insolvency. In closing submissions, the amount claimed was quantified at $844,491.43, which is said to be the total of the debts allegedly incurred by Petrolink to its creditors, including the Commissioner of Taxation, during the period whilst it was insolvent; 
b.	As against the second defendant (“Valvelink”), an order pursuant to s 588FF of the Act in respect of payments made and credits allowed to Valvelink by Petrolink during the relation back period, from 31 March 2011 to 30 September 2011. The amount claimed is $95,065.41, being the net reduction in the amount due to Valvelink from Petrolink during that period. 
3		Mr Boné was the sole director of Petrolink at all relevant times, as well as the sole director of Valvelink.
4		The parties agree that the relation-back day in respect of the winding up of Petrolink is 30 September 2011.  On that date, the Deputy Commissioner of Taxation filed the originating process which sought that Petrolink be wound up in insolvency.
5		The defendants concede, for the purposes of this proceeding only, that Petrolink was insolvent from 7 July 2011. They say that, during the period 7 July 2011 to 7 December 2011, Petrolink incurred tax debts in the amount of $122,752 and other debts totalling $46,301.47, but that any liability to pay compensation under s 588M is to be set off against the company’s liabilities to Mr Boné pursuant to s 553C of the Act.
6		The defendants deny that the plaintiffs are entitled to the relief sought and contend that the proceeding should be dismissed with costs.
SUMMARY OF CONCLUSIONS
7		I have concluded that Petrolink was insolvent at all times from no later than 12 May 2010.  On this date, Petrolink incurred substantial liabilities for goods and services tax (“GST”) and pay as you go tax withheld (“PAYG”), having failed to comply with its sixth payment arrangement with the Australian Taxation Office (“ATO”) by the end of March 2010. Its tax debt then due and payable was approximately $556,300.11.
8		Based on the ATO portal itemised account exhibited to Mr Boné’s September 2014 affidavit (“Petrolink’s ATO portal itemised account”), from 12 May 2010 until 7 December 2011, Petrolink incurred tax debts of approximately [696,987.23 less $495,745.11=] $201,242.12 and debts to trade creditors totalling approximately [$399,792.36 (the total of Schedule B to the amended statement of claim) less $17,931.47 (eight debts not demonstrated to have been incurred from 12 May 2010, and three debts found to have been paid)=] $385,294.74. On these figures, Petrolink incurred debts totalling $586,536.86 while insolvent, which remain unpaid.
9		In addition, Petrolink incurred and paid further debts to the Commissioner of Taxation during the period 12 May 2010 to 7 December 2011. Those payments resulted in a recovery of $140,000 from the ATO in accordance with s 588FF of the Act, pursuant to orders made by Emmett J on 25 September 2012.  Accordingly, the debt incurred to the Commissioner of Taxation during the period from 12 May 2010 that remains unpaid includes the amount of $140,000.
10		I am satisfied that during the whole of the period from 12 May 2010, there were reasonable grounds for suspecting that Petrolink was insolvent. I have concluded that Mr Boné contravened s 588G of the Act by failing to prevent Petrolink from incurring the tax debts that Petrolink incurred from 12 May 2010 and the debts incurred to trade creditors from that date, because Mr Boné was aware at all times from 12 May 2010 of reasonable grounds to suspect that Petrolink was insolvent. Alternatively, a reasonable person in a like position in a company in Petrolink’s circumstances would have been aware that there were reasonable grounds for suspecting that Petrolink was insolvent at all times from 12 May 2010.
11		I reject Mr Boné’s defences and his claim for relief under s 1317S or s 1318 of the Act. Taking into account Mr Boné’s claim to a set off which I allow in the sum of $56,954, on my calculations the liquidator is entitled to recover from Mr Boné an amount of approximately $669,582.86.
12		I am also satisfied that a transaction of Petrolink with Valvelink is voidable because of s 588FE and that, as a result, the Court should direct Valvelink to pay to the liquidator the sum of $95,065.41.
CLAIM AGAINST MR BONÉ
Statutory provisions
13		Section 588M of the Act provides relevantly:
(1)	This section applies where: 
(a)	a person (in this section called the director) has contravened subsection 588G(2) or (3) in relation to the incurring of a debt by a company; and 
(b)	the person (in this section called the creditor ) to whom the debt is owed has suffered loss or damage in relation to the debt because of the company's insolvency; and 
(c)	the debt was wholly or partly unsecured when the loss or damage was suffered; and 
(d)	the company is being wound up; 
whether or not: 
(e)	the director has been convicted of an offence in relation to the contravention; or 
(f)	a civil penalty order has been made against the director in relation to the contravention. 
(2)	The company's liquidator may recover from the director, as a debt due to the company, an amount equal to the amount of the loss or damage.
14		Section 588G provides:
(1)	This section applies if: 
(a)	a person is a director of a company at the time when the company incurs a debt; and 
(b)	the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and 
(c)	at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and 
(d)	that time is at or after the commencement of this Act. 		
(2)	By failing to prevent the company from incurring the debt, the person contravenes this section if: 
(a)	the person is aware at that time that there are such grounds for so suspecting; or 
(b)	a reasonable person in a like position in a company in the company's circumstances would be so aware.
15		It is not disputed that Mr Boné was a director of Petrolink at all relevant times, so that s 588G(1)(a) and (d) are satisfied in this case. Accordingly, s 588G applies if the plaintiffs are able to meet the requirements of s 588G(1)(b) and (c).
16		By s 588E(3), if a company is being wound up and it is proved that the company was insolvent at a particular time during the 12 months ending on the relation-back day, it must be presumed that the company was insolvent throughout the period beginning at that time and ending on that day.

17		The defendants drew attention to the fact that s 588G(2) is expressed to apply in relation to individual debts. They noted that the plaintiffs must establish each of the elements of s 588G for each debt said to have been incurred.
18		By s 588H(2), it is a defence to proceedings for a contravention of s 588G(2) if it is proved that, at the time the debt was incurred, the person had reasonable grounds to expect, and did expect, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time. 
19		By s 588H(5), it is also a defence if it is proved that the person took all reasonable steps to prevent the company from incurring the debt. Section 588H(6) provides that, in determining whether a defence under s 588H(5) has been proved, the matters to which regard is to be had include, but are not limited to: 
1.	any action the person took with a view to appointing an administrator of the company; and 
2.	when that action was taken; and 
3.	the results of that action. 
20		These proceedings are “eligible proceedings” within the meaning of s 1317S of the Act. Section 1317S provides relevantly: 
(1)	If: 
(a)	eligible proceedings are brought against a person; and 
(b)	in the proceedings it appears to the court that the person has, or may have, contravened a civil penalty provision but that: 
(i)	the person has acted honestly; and 
(ii)	having regard to all the circumstances of the case (including, where applicable, those connected with the person's appointment as an officer, or employment as an employee, of a corporation or of a Part 5.7 body), the person ought fairly to be excused for the contravention; 
(2)	the court may relieve the person either wholly or partly from a liability to which the person would otherwise be subject, or that might otherwise be imposed on the person, because of the contravention.              
(3)	In determining under subsection (2) whether a person ought fairly to be excused for a contravention of section 588G, the matters to which regard is to be had include, but are not limited to: 
(a)	any action the person took with a view to appointing an administrator of the company or Part 5.7 body; and 
(b)	when that action was taken; and 
(c)	the results of that action. 
…
(7)	Nothing in this section limits, or is limited by, section 1318. 
21		Section 1318 of the Act provides relevantly:
(1)	If, in any civil proceeding against a person to whom this section applies for negligence, default, breach of trust or breach of duty in a capacity as such a person, it appears to the court before which the proceedings are taken that the person is or may be liable in respect of the negligence, default or breach but that the person has acted honestly and that, having regard to all the circumstances of the case, including those connected with the person's appointment, the person ought fairly to be excused for the negligence, default or breach, the court may relieve the person either wholly or partly from liability on such terms as the court thinks fit. 
…             
(4)	This section applies to a person who is: 
(a)	an officer or employee of a corporation; …
22		Section 553C of the Act provides for a set-off of mutual debts between an insolvent company that is being wound up and a person who wants to have a debt or claim admitted against the company. It is in the following terms:
(1)	Subject to subsection (2), where there have been mutual credits, mutual debts or other mutual dealings between an insolvent company that is being wound up and a person who wants to have a debt or claim admitted against the company: 
(a)	an account is to be taken of what is due from the one party to the other in respect of those mutual dealings; and 
(b)	the sum due from the one party is to be set off against any sum due from the other party; and 
(c)	only the balance of the account is admissible to proof against the company, or is payable to the company, as the case may be.              
(2)	A person is not entitled under this section to claim the benefit of a set-off if, at the time of giving credit to the company, or at the time of receiving credit from the company, the person had notice of the fact that the company was insolvent. 
Onus and standard of proof
23		The onus of establishing a contravention of s 588G lies upon the party asserting the contravention: Playspace Playground Pty Ltd v Osborn [2009] FCA 1486 at [43]. The standard of proof is the balance of probabilities, taking into account the nature and consequences of the facts to be proved: Evidence Act 1995 (Cth), s 140; Playspace Playground Pty Ltd v Osborn at [43]; Australian Securities and Investment Commission v Plymin (No 1) (“Plymin (No 1)”) [2003] VSC 123; (2003) 175 FLR 124 at [367]; Tru Floor Service Pty Ltd v Jenkins (No 2) (2006) 232 ALR 532 at 546.
SOLVENCY
Legal principles
24		Under s 95A of the Act, a company is solvent if, and only if, it is able to pay all its debts, as and when they become due and payable. By s 95A(2), a company that is not solvent is insolvent. Section 95A adopts a “cash flow” test of insolvency which is directed to income sources that are available to the company and expenditure obligations it has to meet, rather than a balance sheet test which focuses on the value of the company’s assets and liabilities reflected in the company’s books, although a balance sheet test can provide context for the application of the cash flow test: Campbell Street Theatre Pty Ltd (receiver and manager appointed) (in liq) v Commercial Mortgage Trade Pty Ltd [2012] NSWSC 669 at [23], citing Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation [2001] NSWSC 621; (2001) 53 NSWLR 213 (“Southern Cross”); Plymin (No 1); Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239; (2008) 39 WAR 1. The focus of the cash flow test of insolvency is the liquidity and viability of the company’s business: Crema Pty Ltd v Land Mark Property Developments Pty Ltd [2006] VSC 338; (2006) 58 ACSR 631 at [141].
25		Whether or not a company is insolvent at a particular point in time is a question of fact to be ascertained from a consideration of the company’s position taken as a whole, including the nature of its assets and business, having regard to “commercial realities” and common sense: Bluestone Property Services Pty Ltd (in liq) v First Equilibrium Pty Ltd [2013] FCA 876 at [42]; Southern Cross. The Court’s task is to decide whether the company is suffering from an “endemic shortage of working capital”: Hymix Concrete Pty Ltd v Garritty (1977) 13 ALR 321 at 328.
26		Thus, a temporary lack of liquidity does not constitute insolvency: Sandell v Porter [1966] HCA 28; (1966) 115 CLR 666 at 670 (Barwick CJ).  “In assessing whether a company’s position as a whole reveals surmountable temporary illiquidity or insurmountable endemic illiquidity resulting in insolvency, it is proper to have regard to the commercial reality that, in normal circumstances, creditors will not always insist on payment strictly in accordance with their terms of trade but that does not result in the company thereby having a cash or credit resource which can be taken into account in determining solvency”: Southern Cross at [54].
27		In considering a company’s ability to pay debts “as they become due”, it is appropriate to consider the immediate future, precisely how far into the future being a matter that depends on circumstances including the nature of the company’s business and, if known, the future liabilities: Lewis v Doran [2005] NSWCA 243; (2005) 219 ALR 555 at [103] (Giles JA); Melbase v Segenhoe (1995) 17 ACSR 187 at 198. So, for example, “if it appears that the debtor will not be able to pay a debt which will certainly become due in, say, a month…by reason of an obligation already existing, and which may before that day exhaust all his available resources, how can it be said that he is able to pay his debts ‘as they become due,’ out of his own moneys?”: Bank of Australasia v Hall  [1907] HCA 78; (1907) 4 CLR 1514 at 1528 (Griffith CJ).
28		Concerning the correct approach to determining when a contract debt is due and payable for the purposes of assessing solvency, in Southern Cross, Palmer J said, relevantly at [54]:
(v) in assessing solvency, the Court acts upon the basis that a contract debt is payable at the time stipulated for payment in the contract unless there is evidence, proving to the Court’s satisfaction, that:
·	there has been an express or implied agreement between the company and the creditor for an extension of the time stipulated for payment; or
·	there is a course of conduct between the company and the creditor sufficient to give rise to an estoppel preventing the creditor from relying upon the stipulated time for payment; or
·	there has been a well established and recognised course of conduct in the industry in which the company operates, or as between the company and its creditors as a body, whereby debts are payable at a time other than that stipulated in the creditors’ terms of trade or are payable only on demand: …
[Re Newark Pty Ltd (in liq) [1993] 1 Qd R 409] at 260; [Standard Chartered Bank of Australia Ltd v Antico (Nos 1 & 2) (1995) 38 NSWLR 290] at 331; [Melbase Corporation Pty Ltd v Segenhoe Ltd (1995) 17 ACSR 187]; Cuthbertson & Richards Sawmills Pty Ltd v Thomas [(1998) 28 ACSR 310]; [Fryer v Powell (2001) 159 FLR 433] at 600;  
(vi) it is for the party asserting that a company’s contract debts are not payable at the times contractually stipulated to make good that assertion by satisfactory evidence: Fryer v Powell (at 444-445); Melbase; Cuthbertson v Thomas. 
29		The propositions set out immediately above should not be read as prescriptive, but as stating the basis upon which courts have generally assessed the significance of indulgences granted by a creditor: White Constructions (ACT) Pty Ltd (in liq) v White [2004] NSWSC 71; (2004) 49 ACSR 220 at [290] to [294].
30		If the Court is satisfied that, as a matter of commercial reality, the company has a resource available to pay all its debts as they become payable then it will not matter that the resource is an unsecured borrowing or a voluntary extension of credit by another party: Lewis v Doran [2004] NSWSC 608; (2004) 208 ALR 385 at [116]; Lewis v Doran [2005] NSWCA 243; (2005) 219 ALR 555 at [109] and [110] (Giles JA); Scott v Duncan [2007] FCAFC 30 at [38]. The likelihood that directors will continue to support by a company by lending it money is relevant to the assessment of solvency: see Mulherin v Bank of Western Australia Ltd [2006] QCA 175 at [113] to [115].
31		In Plymin (No 1) at [386], Mandie J set out a list of common features in insolvency situations, namely:
• continuing losses;
• liquidity ratios below one;
• overdue Commonwealth and State taxes;
• poor relationship with present bank, including inability to borrow further funds;
• no access to alternative finance;
• inability to raise further equity capital;
• suppliers placing company on cash on delivery or otherwise demanding special payments before resuming supply;
• creditors unpaid outside trading terms;
• issuing of post-dated cheques;
• dishonoured cheques;
• special arrangements with selected creditors;
• solicitors’ demands, summonses and the like;
• payments to creditors of rounded amounts not reconcilable to specific invoices; and
• inability to produce timely and accurate financial information to indicate trading performance and financial position, and to make reliable forecasts.
32		The list was referred to with approval by Mansfield J in Lewis, Re Damilock Pty Ltd (in liq) v VI SA Australia Pty Ltd [2008] FCA 1801; (2008) 252 ALR 533 at [16]. Mansfield J noted that, “[i]n any particular case, one or more of those factors, or other factors, may have particular significance and one or more of them may not exist. The absence of one or more of those factors does not, of itself, establish solvency.”
When a debt is incurred
33		Section 588G(1) requires consideration of the company’s solvency “at the time when the company incurs a debt”. In Hawkins v Bank of China (1992) 26 NSWLR 562 at 572, Gleeson CJ said, relevantly:
The words “incurs” and debt” are not words of precise and inflexible denotation. When they appear in s 556 [of the Companies (New South Wales) Code, a statutory predecessor to s 588G] they are to be applied in a practical and commonsense fashion, consistent with the context and with the statutory purposes.
…
…the word “incurs” takes its meaning from its context and is apt to describe, in an appropriate case, the undertaking of an engagement to pay a sum of money at a future time, even if the engagement is conditional and the amount involved is uncertain. Once it is accepted that the “debt” may include a contingent debt then there is no obstacle to the conclusion that, in the present context, a debt may be taken to have been incurred when a company entered a contract by which it subjected itself to a conditional but unavoidable obligation to pay a sum of money at a future time.
34		In Harrison v Lewis [2001] VSC 27; (2001) 19 ACLC 566, Mandie J said:
[27]…Although it is necessary to consider the terms of the relevant contract, the question when the debt is incurred within the meaning of the section does not depend on strict legal analysis but turns on when, in substance and commercial reality, the company is exposed to the relevant liability. The reason for the emphasis upon substance and commercial reality lies in the need to ensure that the language is interpreted, or applied to the facts, in a way which serves the purpose, or fits the context, of a provision punishing insolvent trading and in a way which avoids absurd results.

[28] The words “incurs a debt” cannot be disregarded but, because of the aim and intent of the section, the focus must be on the conduct and choice of the alleged insolvent company. It is necessary to identify the time when the conduct and choice of the company caused the debt to be incurred because it is at that time that it must be shown that the director who has failed to prevent the company from incurring the debt had or ought to have had the requisite awareness that there were reasonable grounds for suspecting insolvency.
35		In the case of services where the price is determined by the application of a previously agreed rate or price to the amount of work or service performed, a debt is incurred whenever an amount owing becomes ascertainable: Versteeg v R (1988) 36 A Crim R 68 at 82.
When tax debts are incurred
36		The plaintiffs contended that the relevant debts were incurred on the dates specified in a document annexed to the amended statement of claim and headed “AIS Account List: For Internal Use Only” (“AIS account list”).
37		In their written submissions, the defendants accepted that the relevant tax debts were incurred within the meaning of s 588G: cf Powell v Fryer [2001] SASC 59; (2001) 37 ACSR 589 at [72]. The defendants did not make submissions disputing the times at which the relevant tax debts were incurred. As I understood the defendants’ position as articulated at the commencement of the hearing, it was that the “effective date” stated on the AIS account list against an amount stated in the running balance column was the date on which the company’s outstanding tax liability was the amount in the running balance column. It would follow that a debit listed in the column headed “posting amount” against a date in the “effective date” column is a debt incurred on that date.
Payment arrangements
38		Section 255-15 of Schedule 1 to the Tax Administration Act 1953 (Cth) (“TAA”) provides:
(1)  The Commissioner may, having regard to the circumstances of your particular case, permit you to pay an amount of a tax-related liability by instalments under an arrangement between you and the Commissioner (whether or not the liability has already arisen). 
(2)  The arrangement does not vary the time at which the amount is due and payable. 
Note: Despite an arrangement under this section, any general interest charge or other relevant penalty, if applicable for any unpaid amount of the liability, begins to accrue when the liability is due and payable under the relevant taxation law, or at that time as varied under section 255- 10 or 255-20. 
39		By s 255-1(1) a “tax-related liability” is a pecuniary liability to the Commonwealth arising directly under a taxation law (including a liability the amount of which is not yet due and payable).
40		Section 255-15 may be contrasted with s 255-10 of Schedule 1 to the TAA, which states relevantly:
(1)  The Commissioner may, having regard to the circumstances of your particular case, defer the time at which an amount of a tax-related liability is, or would become, due and payable by you (whether or not the liability has already arisen). If the Commissioner does so, that time is varied accordingly. 
Note: General interest charge or any other relevant penalty, if applicable for any unpaid amount of the liability, will begin to accrue from the time as varied. See, for example, paragraph 5-15(a) of the Income Tax Assessment Act 1997. 
(2)  The Commissioner must do so by written notice given to you.          
41		Counsel for the plaintiffs, Mr Golledge, referred to Hall v Poolman [2007] NSWSC 1330; (2007) 65 ACSR 123 in which Palmer J rejected a submission that a tax debt was not payable because it was disputed. At [91], his Honour said:
…the decisive answer to the defendants’ appeal to “commercial reality” in their submission that the Commissioner’s debt was not payable during the period is that the tax legislation clearly and unequivocally made that debt payable. If the legislature clearly says that a tax debt is payable at a certain time, neither the Court nor a company director can disregard that statutory imperative by an appeal to commercial reality. Absent an agreement by the commissioner to defer payment, it is not commercial reality to treat a present liability, statutorily imposed, as if it does not exist.
42		At [110], Palmer J said:
If the company obtains either an agreed deferment of payment under s 255-10 [of Schedule 1 to the TAA] or a stay of enforcement proceedings from the Court, obviously a director of the company may take that fact into account as a commercial reality in ascertaining the company’s present and projected cashflow position. But if the company obtains neither a deferment nor a stay, the director must take account of the fact that the debt, as a matter of law and commercial reality, is not a contingent liability and remains presently payable.

43		As will appear below, none of the numerous payment arrangements between Petrolink and the ATO caused a tax debt which was due and payable to cease to be due and payable. 
44		The defendants contended that, in the circumstances of this case, even if the outstanding tax liabilities were due and payable at relevant times, “had the Commissioner sought to enforce the outstanding tax liability prior to 6 July 2011 he or she would have been prevented from doing so by operation of an estoppel” based upon the existence of a payment arrangement. I do not accept that submission. No conduct on the part of the Commissioner could operate as an estoppel against the operation of the Act: Federal Commissioner of Taxation v Wade [1951] HCA 66; (1951) 84 CLR 105 at 117 (Kitto J); Maritime Electric Co Ltd v. General Dairies Ltd [1937] AC 610. More generally, no estoppel is effective against the operation of a statute: Oamington Pty Ltd (Receiver & Manager Appointed) v Commissioner of Land Tax (1997) 98 ATC 5051. See also Minister for Immigration, Local Government and Ethnic Affairs v Kurtovic (1990) 21 FCR 193 at 208ff.
THE PLAINTIFFS’ CASE ON PETROLINK’S INSOLVENCY
45		The plaintiffs’ case was that the company was insolvent throughout the period 30 June 2009 to 7 December 2011, so that s 588G(1)(b) is satisfied for all debts incurred by the company during that period.
46		The liquidator relies on the following matters in support of the contention that Petrolink was insolvent from 30 June 2009:
a.	During the whole of the period from 30 June 2009 to 7 December 2011, Petrolink’s liabilities exceeded its assets;
b.	During the whole of the period from 30 June 2009 to 7 December 2011, the company was unable to trade at a profit and incurred trading losses in each of the financial years ended 30 June 2009, 2010 and 2011;
c.	The company had a cash flow shortfall on its immediate obligations as at each of 30 June 2009, 2010 and 2011;
d.	The company had a deficiency of current assets to current liabilities as at each of 30 June 2009, 2010 and 2011;
e.	The company had a deficiency of total assets to current liabilities as at each of 30 June 2009, 2010 and 2011;
f.	As at 30 June 2009, the company was indebted to the Commissioner of Taxation in an amount of $356,254.15;
g.	As at 30 March 2011, the company was indebted to the Commissioner of Taxation in an amount of at least $600,000.00, and it remained indebted to the Commissioner of Taxation for at least that amount until the commencement of the winding up;
h.	As at 7 December 2011, the company was indebted to the Commissioner of Taxation for $697,206.72.
i.	During the period from 30 June 2009 to 7 December 2011, the company made six instalment arrangements with the Australian Taxation Office for payment of the outstanding tax debt and failed to comply with each of those arrangements;
j.	The company was insolvent as at 1 October 2010 and by virtue of the terms of s 588E(3) of the Act is to be presumed to have remained insolvent from that date to the relation back date of 30 September 2011.
THE DEFENDANTS’ CASE ON PETROLINK’S INSOLVENCY
47		The defendants contended that Petrolink was not insolvent before 7 July 2011.  They contended that, prior to 7 July 2011, apart from outstanding tax liabilities, there was an absence of the usual indicia of insolvency. Further, they argued that when a proper analysis of Petrolink’s financial position is performed as at each of 30 June 2009, 2010 and 2011, the alleged shortfall of liquid assets was actually a surplus, suggesting that Petrolink was able to pay all of its debts as and when they fell due on each of those dates.
48		In his oral evidence, the expert chartered accountant and liquidator called by the defendants, Mr Needham, clarified that his view was not that Petrolink became insolvent for the first time on 7 July 2011. His opinion was that the company became “finally and ultimately insolvent” on that date.  Mr Needham’s opinion was that “the further you move back in time from 7 July [2011], the less likely it was that [Petrolink] was insolvent at all times, but there were features where I thought over that two and a half year period that there were times where it may have been insolvent but didn’t ultimately remain so”.
49		The defendants submitted that, even assuming that the liquidator’s evidence is admissible and establishes insolvency, that evidence could only establish insolvency at 30 June 2009, 30 June 2010 and 30 June 2011. It was said that the liquidator’s analysis does not allow the Court to draw conclusions as to solvency at any other times. 
EVIDENCE CONCERNING PETROLINK’S FINANCIAL SITUATION
50		The plaintiffs read two affidavits made by the liquidator dated 20 August 2013 and tendered accompanying exhibits including a report entitled “Report as to solvency” (“solvency report”), and a further affidavit of the liquidator dated 5 September 2014.
51		The defendants read two affidavits made by Mr Boné, dated 12 December 2013 and 2 September 2014, an affidavit made by Mr Boné’s wife, Helen Boné, dated 2 September 2014 and two reports prepared by Mr Needham dated 12 December 2013 and 4 September 2014.
52		A joint report of the liquidator and Mr Needham was also part of the evidence.
Books and records of Petrolink
53		Petrolink used MYOB accounting software. The liquidator obtained a copy of Petrolink’s MYOB records. The plaintiffs tendered an “aged payables” report from the MYOB records as evidence of debts incurred by the company to trade creditors and as evidence of the time that the debts were incurred. In some cases, that evidence was supplemented by other documents, particularly invoices.
54		The plaintiffs tendered documents entitled “Special purpose financial reports” for Petrolink for the financial years ended 30 June 2009, 2010 and 2011 (“financial reports”). The precise provenance of the reports was not identified.  The liquidator’s affidavit evidence was that they were either provided by Petrolink’s external accountants, Lower Russell & Farr, or otherwise formed part of the books and records of Petrolink. In his expert report, the liquidator said that they were provided under cover of Lower Russell & Farr’s letter dated 20 May 2012 and personally to a member of his staff. 
55		The defendants submitted that the evidence upon which the liquidator relied to form his opinion on solvency was “potentially unreliable”.  This submission was directed, at least, to the financial reports. The defendants observed that the financial reports were unsigned and unaudited and “based solely upon information provided by Mr Boné”. In the case of the financial reports for the year ended 30 June 2011, they are marked “draft”.
56		The defendants noted that the liquidator and his staff had not asked for signed financial reports for 2009 and 2010, but they did not adduce evidence that there were in existence other reports, whether signed or unsigned, that were different from the financial reports in evidence.  The defendants did not submit that the financial reports did not form part of the books and records of Petrolink.
57		The defendants also noted that the financial reports for the years ended 30 June 2009 and 2010 had not been verified by reference to the primary books and records of the company. However, they did not identify any particular inaccuracy in the financial reports. They identified minor discrepancies between the figures for trade creditors in the financial reports and “payables reconciliation” summaries apparently printed from MYOB records and found in the books and records of the company. 
58		Mr Boné did not identify particular information which he had provided for the preparation of the reports which was unreliable or otherwise give evidence to suggest that the reports should be discounted because they were prepared on the basis of information provided by him.  He did not suggest that the MYOB records of Petrolink were inaccurate in any significant respect. Indeed, his evidence relied upon the MYOB records at several points.
59		The liquidator acknowledged that the 2011 financial report was marked “draft”.  The defendants noted a discrepancy between the current assets figure of $888,651.13 in the draft 2011 financial report’s balance sheet and a balance sheet spreadsheet apparently printed from the MYOB records and found in the books and records of the company (“Petrolink balance sheet spreadsheet”). However, they did not adduce evidence that the MYOB figure was more reliable.
60		In my view, the 2009 and 2010 financial reports should be accepted as reliable evidence of the facts stated in the reports, because they formed part of the books and records of the company, they were obtained from Petrolink or its external accountants and the defendants did not identify any substantial inaccuracy in the reports.  
61		As to the draft 2011 financial report, that is evidence of the facts stated in the reports, although the weight of that evidence is affected by its draft status. Again, the defendants did not identify any substantial inaccuracy in the draft 2011 financial report although, as I have noted above, attention was drawn to a substantial discrepancy relating to the figure for current assets.
62		For the same reasons, I also accept documents created from Petrolink’s MYOB records as evidence of the facts stated in them, unless there is evidence to contradict those facts.
Proof of Petrolink’s tax debt from time to time
63		As noted above, the amended statement of claim annexes the AIS account list as purported particulars of the tax debts incurred while Petrolink was allegedly insolvent. On the basis of that document and a recovery from the Commissioner of Taxation of $140,000, it is alleged that the debt incurred to the ATO during the period 30 July 2009 to 7 December 2011 is $480,952.57. The AIS account list formed part of the liquidator’s evidence, as an attachment to his solvency report. He described it as the “Running Balance Account” and “RBA ledger”. At the commencement of the hearing, I questioned the document’s provenance. However, its provenance was not proved. 
64		At the outset, I accept the liquidator’s sworn evidence that the $140,000 was received by him.
65		As I understand the plaintiffs’ case, they seek to rely on the AIS account list as proof of the company’s “RBA deficit debt” within the meaning of the TAA from time to time.  I raised a concern about the probative value of the AIS account list on the first day of the hearing.
66		There is no evidence as to what is meant by words and codes that appear on the document, including “AIS Account”, “Process Date”, “Effective Date” and “Rev Prod”.  Particularly in the light of the heading on the AIS account list (which states “for internal use only”), I am not prepared to infer from its face alone that the Commissioner established an RBA for the company. Nor am I prepared to accept without more that the figures in the column headed “Running Balance” are the “RBA deficit debt” on the company’s “RBA” at the end of the “Effective Date”, which I understand to be the plaintiffs’ contention. However, I do accept that amounts in the column headed “Posting amount” and marked “CR” were payments made by Petrolink to the ATO on or about the corresponding “process date” because the defendants referred to the “AIS account list” as evidence of payments made by Petrolink to the ATO. 
67		I have considered whether the various letters recording payment arrangements (discussed below) assist in proving the “RBA deficit debt” at various times. In each case, the letter is headed “Payment Arrangement Integrated Client Account”. There is no evidence as to the relationship between the company’s “Integrated Client Account” and any “RBA”.
68		It is also not possible to determine the precise tax due from the various letters because the arrangements provide “for payment of an estimated GIC [general interest charge] amount which is included in the payment schedule. Any variation to the payment dates or a variation in the rate of GIC will affect the final GIC amount payable.”
69		Although I am not satisfied as to the existence or amount of an “RBA deficit debt” from time to time, there was other evidence (particularly evidence tendered by the defendants) of Petrolink’s tax debt from time to time. In particular, there was “Petrolink’s ATO portal itemised account”. This document itemises the “balance” of the account owing from time to time, as well as credit and debit amounts. The account includes two columns headed “process date” and “effective date”. In the absence of any evidence of particular errors in this document, I am satisfied that this document evidences Petrolink’s ATO tax debt from 26 June 2009 to at least 7 December 2011. A commonsense reading of the document indicates that Petrolink incurred as debts the debit amounts itemised in the account on the dates specified in the column headed “effective date”.
70		The plaintiffs allege that during the period between 30 June 2009 and 7 December 2011, Petrolink incurred debts to the Commissioner of Taxation of $340,952.57 which were unpaid as well as debts of a further $186,949 which were paid but were the subject of the $140,000 recovery.
Proof of debts incurred to trade creditors
71		The defendants contended that the plaintiffs assumed certain debts were incurred during the period 30 June 2009 to 7 July 2011, but, for the most part, did not prove this.
72		The amended statement of claim annexes a schedule of debts totalling $399,792.36. The schedule identifies creditors, dates and amounts. It was prepared by reference to a document headed “aged payables” and dated 7 December 2011, printed from the Petrolink’s MYOB records by staff of the liquidator in March 2013 and annotated with various handwritten markings. There is no reason to suspect that its contents were not added to the MYOB records in the ordinary course of business and no reason to suspect that they are not accurate. Items in the “aged payables” report that have been crossed through relate to debts paid since the liquidator’s appointment.
73		In order to make out a contravention of s 588G concerning a debt in the schedule, the plaintiffs must prove that that debt claimed was incurred during the relevant period.  The Court must form an actual belief to a reasonable satisfaction that the debt was incurred, in order to find for the plaintiffs on the balance of probabilities: Tourprint International Pty Ltd (in liq) v Bott [1999] NSWSC 581; (1999) 32 ACSR 201 at [53].  The defendants emphasised the requirements for drawing inferences, particularly that an inference must be reasonable and definite (or reasonably definite), in contrast with conflicting inferences of equal degrees of probability: Morley v Australian Securities and Investments Commission [2010] NSWCA 331; (2010) 274 ALR 205 at [631], and must be distinguished from an impermissible conjecture: cf New South Wales v Buckland [2000] NSWCA 72 at [59]; Carr v Baker (1936) 36 SR(NSW) 301 at 306.
74		The defendants also argued that the Court should not draw inferences in favour of the liquidator when he made no attempt to prove matters by direct evidence and where no relevant questions were directed to Mr Boné in cross-examination: cf Ozecom v Hudson Investment Group [2007] NSWSC 1441 at [56], referring to Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418 – 419.  I am not convinced that such a strict approach should be taken in a case of this kind, where the issue is a matter within the knowledge of the defendants and only within the knowledge of the liquidator to the extent that he has the books and records of the company and such other investigations as he chooses to undertake. An unduly strict approach would be liable to expose the liquidator to significant costs to prove a matter that ought not to be seriously in dispute.
75		The plaintiffs submitted that their case preparation and evidence relied upon admissions which they say were made in the defendants’ defence to the effect that the identified trade debts were incurred during the period between 30 June 2009 and 7 December 2011.  The plaintiffs pleaded that, during that period, Petrolink incurred debts to creditors other than the ATO totalling $503,538.86.
76		In response to that allegation, the defendants stated:
Denied, as these debts totalled a greater amount.
77		Even if this pleading is to be read as an admission that Petrolink incurred trade debts of over $503,538.86 between 30 June 2009 and 7 December 2011, that admission was likely to be difficult to deploy against the defendants in the event that the company was found not to be insolvent at all times from 30 June 2009.  Further, the lack of clarity of the defendants’ position warranted inquiry as to precisely what was in dispute. 
78		The liquidators identified 68 trade creditors to which Petrolink allegedly incurred debts during the relevant period. The liquidator tendered invoices and other documents relating to some but not all of the creditors. In some cases, the liquidator relied solely on the date in Petrolink’s “aged payable” report as evidence of the time when the debt was incurred.
79		The defendants did not generally dispute that the debts were incurred. However, counsel for the defendants, Mr Assaf, submitted that an acknowledgement of debt (such as might be found in the “aged payables” report) did not prove the time at which the debt was incurred. The main suggestion was that the debts may have been incurred before any time at which it might be found that the company was insolvent. However, it was also contended that amounts identified in the “aged payables” report were not necessarily debts. In short, the liquidator was required to adduce better evidence to prove that the amounts on the “aged payables” report were debts incurred by Petrolink, and when they were incurred. 
80		In considering this submission, it is relevant that Mr Boné was the sole director of Petrolink at all relevant times and therefore well placed to identify any deficiencies in the “aged payables” report, any creditors who might have rendered invoices a substantial time after a debt was incurred or any reasons why the aged payables might not be debts incurred by the company. Further, Petrolink’s administration manager and company secretary, Ms Tajsic, was present in Court for substantial parts of the hearing but did not give evidence.  
81		Having regard to the fact that the “aged payables” report is a record obtained from the MYOB records of the company not shown to be unreliable in any significant respect, I am prepared to infer from the inclusion of the various amounts in the “aged payables” report, particularly where that report also includes reference to the receipt of an invoice, that each amount is a debt incurred by Petrolink by the date identified in the report at the latest. 
82		In my view, the likelihood is that the date for each debt on the “aged payables” report is the date on which the debts were entered into the company’s MYOB system. This inference is supported by a comparison between the dates on the “aged payables” report and the dates of invoices where available, which shows that the date on the report generally (although not invariably) post-dates the date of the invoice by a few days. 
83		Further, in my view, it appears that from the “aged payables” report that the debts identified on that report were included in the MYOB system generally as a result of the receipt of an invoice. In my opinion, in the ordinary course of business, the receipt of an invoice typically follows the provision of goods or services the subject of the invoice. Where invoices are available, it is generally possible to identify or infer from the information contained in the relevant invoice approximately when the relevant goods or services were provided. Where invoices are not available or do not identify when the relevant goods or services were provided, I am prepared to infer that the debt for the relevant goods or services was probably incurred within about three or four months of the inclusion of the debt on the “aged payables” report on the basis that in the ordinary course of business, creditors generally render invoices at the time of or shortly after providing goods or services; in the ordinary course, those invoices are likely to be delivered to the creditor within a few days of having been rendered and no evidence was adduced by the defendants that Petrolink’s creditors delayed in the rendering or delivery of invoices.  
84		I have applied these inferences in making the findings below as to when the trade creditor debts included in Schedule B to the amended statement of claim were incurred.
Trade creditor debts dated before 30 June 2010
85		The “aged payables” report includes a debt to Groundsearch for $814.00. The date recorded for the item is 30 April 2010. 
86		Similarly, debts of $385.00, $330.00 and $330.00 are recorded with dates of 29 March, 12 April and 26 May 2011 respectively. 
87		No invoices are in evidence in relation to these debts. I infer that these debts were incurred within a few months of the date nominated in the “aged payables” report.
88		The “aged payables” report includes two debts to F&G Electrics Pty Ltd, each dated 10 June 2010. The debt of $1,698.40 is conceded to have been incurred around 10 June 2010. For the second debt, no invoice is in evidence. I infer that it was incurred within a few months of 10 June 2010.
Trade creditor debts dated July to December 2010
89		There are six creditors recorded in the “aged payables” report for debts dated during this period.
90		There are three debts of $1,250.00 recorded for Impact Training Institute Pty Ltd, each dated 25 August 2010 and a fourth debt for $864.00 dated 31 August 2010. The tax invoices show that they are for training of some description. The $1,250 invoices were stated to be due by 30 June 2010. The $864.00 invoice was due for payment by 24 April 2010. I infer that each of these debts was due on the due date stated in the invoice. Similarly for the two debts recorded for Impact Training dated in May 2011, I infer that they were due by 11 October 2010. The debt of $914.00 dated 1 June 2011 was due by 1 July 2011.
91		There is an amount of $74,350.50 dated 31 August 2010 and marked “adjust” referring to Fibretank Systems Pty Ltd.  However, there is a tax invoice from Fibretank for the supply of two tanks dated 24 August 2010 for an amount of $116,215.00. A list of “weekly commitments” annexed to Mr Boné’s December 2013 affidavit notes the latter amount as outstanding for over 90 days, with an amount of $78,848.00 outstanding for 45-90 days. 
92		A letter from Fibretank’s director dated 19 April 2011 calculates Petrolink’s debt as at 19 April 2011 to include an amount of $116,215.00 for “Invoice for Parchem Site invoiced August 2010” and $78,848.00 for “Balance on Integral Energy – Work in progress”.
93		I conclude that Petrolink incurred a debt to Fibretank of $116,215.00 in about late August 2010.
94		A second amount payable to Fibretank in the sum of $21,084.31 appears on the “aged payables” report dated 4 August 2011 but is not included in Schedule B to the amended statement of claim. 
95		Mr Boné gave affidavit evidence that, in about September 2011, he paid Fibretank Systems the sum of $10,000. He says that he did not keep any record of this payment. In the absence of more evidence about the payment of the sum of $21,084.31, I accept that there was a payment of $10,000 but I do not conclude that it was made in reduction of the debt of $78,848.
96		For John Smith Concreting, there is an amount of $2,506.00 dated 30 November 2010. No supporting invoice was tendered. On the basis of the inferences referred to in paragraphs 82 to 83 above, I infer that this debt was incurred within about a few months of 30 November 2010.
97		For Labmark Pty Ltd, there are nine debts dated in December 2010. The first, for $1,103.34, is dated 9 December 2010. The other eight are dated 16 December 2010 and range in value from $456.50 to $1,221.00. There are also numerous dated from January 2011.
98		There is a supply ledger which records a balance of $34,647.91 following transactions between April 2010 and 4 December 2011. There is a large bundle of tax invoices (and a statement dated 17 January 2011) from LabMark which show that five of the invoices included in the “aged payables” report in December 2010 were dated between March and June 2010. These debts total $3,241.70.
99		I infer from the invoices that they were probably rendered within a short time after the supply of the services identified in the invoices. Accordingly, I infer that the debts identified in the “aged payables” report were incurred within a few months of the date in the “aged payables” report, except for the first five amounts dated 16 December 2010 which I conclude were debts incurred within a few months of each of the corresponding invoices. 
100		For PCS Measurement, there is a debt of $583.50 dated 16 December 2010. There is an ID number 86528882, which also appears on the relevant supply ledger with a date of 6 December 2010 and an amount of $1,006.50. No supporting invoice was tendered, but there are tax invoices for two other debts to PCS Measurement in the “aged ledger” dated 3 and 24 February 2011. On the basis of the inferences referred to in paragraphs 78 to 79 above, I infer that the debt of $583.50 was incurred within about a few months of December 2010.  For the other two debts to PCS Measurement, I find that they were each incurred within a few months of February 2011.
101		For Barker Ryan Stewart, there is a debt of $990.00 dated 17 December 2010. This amount is the balance due following a debt recorded in December 2010 of $7,590.00. That debt was preceded by a fee proposal dated 26 October 2010. I infer from the “aged payables” report read with the fee proposal that the debt was incurred after 26 October 2010.
Trade creditor debts dated From January 2011 to 30 June 2011
102		I have addressed debts dated from January 2011 for Labmark, PCS Measurement, Groundsearch and Impact Training above. 
103		There is a creditor called CWS recorded in the “aged payables” report for two debts dated, respectively, 28 February and 15 March 2011.  The second of the two debts, an amount of $125.40, is conceded to have been incurred in February 2011. As to the first, no supporting invoice was tendered. I infer that the debt of $1,107.57 was incurred within about a few months of February 2011.  
104		Safe-Quip Industrial Supplies is identified in the “aged payables” report as a creditor for two debts dated March 2011 and October 2011. I infer from the invoices which correspond to the two amounts and their inclusion on the “aged payables” report that this creditor supplied the relevant goods (pipes and fire extinguishers) around the date of the invoices. The defendants submit that the creditor has the benefit of a Romalpa clause, but did not adduce any evidence that the creditor could exercise that right in relation to the relevant goods. I am prepared to infer that the debts were incurred around the dates of the invoices.
105		Best Western Petroleum Services Pty Ltd is identified in the “aged payables” report as a creditor for two debts dated May and October 2011. The second debt of $1,343.32 is conceded to have been incurred on 8 September 2011. I infer that the debt of $49.51 was incurred within about a few months of May 2011.  
106		Envirowest Consulting Pty Ltd is identified in the “aged payables” report as a creditor for four debts dated between May and November 2011. The defendants concede that the debts were incurred respectively on 23 May, 2 August, 6 September and 8 November 2011.
107		AllFab Constructions Pty Ltd is included in the “aged payables” report as a creditor for one debt of $15,546.20 dated 7 June 2011. The invoice, dated 30 May 2011, describes the services as “Fabricate walkway and stairs to your quotation 20110408”. I infer from the invoice that the described services were supplied within a few months of the date of the invoice.  Accordingly, I find that the debt was incurred within a few months of 30 May 2011.
108		Active Environmental Solutions is listed in the “aged payables” report as a creditor for three debts, all dated in June 2011. The third debt is conceded to have been incurred (as to $220.00) on 23 June 2011. Why the remaining $22.00 (apparently GST, specified on the invoice) is not conceded is unclear. I find the total debt was incurred on that date. The first amount ($3,007.30) corresponds with a tax invoice dated 15 June 2011 for $4,007.30, on which is marked a record of a payment of $1,000 on 18 November 2011. I infer from the invoice and from the inclusion of the amount in the “aged payables” report that the described services were supplied within a few months of the date of the invoice.  Accordingly, I find that the debt was incurred within a few months of 15 June 2011.
109		As to the second debt ($55.00), I infer that it was incurred within about a few months of 24 June 2011.
Trade creditor debts dated From 1 July 2011
110		For debts identified in the “aged payables” report in amounts less than $5,000 and dated after 1 July 2011, I infer that those debts were probably incurred no earlier than several months before the date specified in the report. As to the debt of $1,732.50 incurred to 2x2.com.au Pty Ltd, and the debt of $1,701.35 incurred to Potter Automotive, Mr Boné gave evidence that he paid these debts by personal visa card or in cash and did not have any records of the payment. On the basis that I have concluded that Mr Boné was an honest witness, I accept this evidence.
111		The following creditors are included in the report for amounts exceeding $5,000 and dated after 1 July 2011 (excluding creditors already addressed above):
·	Mainteck Services Pty Ltd
·	SITA Australia Pty Ltd
·	Lower Russell & Farr
·	Lindsay Dynan
·	DJ Batchen Pty Ltd
·	Velocity Electrical
·	Greg Hinchcliffe Concrete Constructions
·	MBL Premium Funding
112		Mainteck Services Pty Ltd is listed in the “aged payables” report as a creditor for two amounts:  $34,176.51 dated 5 July 2011 and $6,143.50 dated 3 August 2011. 
113		The liquidator tendered an invoice dated 29 June 2011 from Mainteck for “supply hydraulic pipework” in the amount of $34,001.00. I infer from the invoice and from the inclusion of the amount in the “aged payables” report that the pipework was supplied within a few months of the date of the invoice.  Accordingly, I find that the debt identified in the “aged payables” report was incurred within a few months of 29 June 2011.  I acknowledge that the amount in the report is some $175.00 more than the amount of the invoice, but I adopt the “aged payables” report figure on the basis that it is a generally reliable record of the company.
114		The liquidator also tendered an invoice dated 30 June 2011 from Mainteck for “supply blender pipework” in the amount of $6,143.50. I infer from the invoice and from the inclusion of the amount in the “aged payables” report that the pipework was supplied within a few months of the date of the invoice.  Accordingly, I find that the debt was incurred within a few months of 30 June 2011.
115		SITA Australia Pty Ltd is listed in the “aged payables” report as a creditor for seven debts dated between September and November 2011. There are no supporting invoices. In the absence of any evidence to the contrary, I infer that those debts were probably incurred within several months of the dates specified in the report.
116		Lower Russell & Farr is listed in the “aged payables” report as a creditor for a debt of $6,770.50 dated 29 August 2011. A statement dated May 2011 refers to a balance outstanding of $6,772.50 for two bills, dated 7 February 2011 and 5 April 2011, with a credit of $531.50 on 29 March 2011. The 7 February 2011 tax invoice is for services in connection with the preparation of records for the year ended 30 June 2010.
117		The statement is annotated with the notation “$3,680 paid 01/07/11”. A payables reconciliation dated 30 June 2011 and printed 23 August 2011 shows a total due to Lower Russell & Farr of $9,374.00 comprising a debt less than 30 days old of $2,018.50, a debt 46 to 90 days old of $2,937 and a debt over 90 days old of $4,418.50. The figure of $2,937 corresponds with an invoice for services from Lower Russell & Farr dated 5 April 2011 which is expressed to be a fee for services rendered for the period ended 6 April 2011.  
118		From these documents, I infer that, as at 1 July 2011, there was an amount outstanding to Petrolink of $5,694 ($9,374 less $3,680) comprising a debt for services rendered not earlier than 1 July 2010. I therefore conclude that the amount of $6,770.50 is probably a debt incurred by Petrolink for services rendered after 1 July 2010. 
119		Lindsay Dynan is listed in the “aged payables” report as a creditor for a single debt of $15,026 dated 13 September 2011. There is a tax invoice from Lindsay & Dynan Consulting Engineers dated 8 September 2011 for design and documentation in connection with the Boggabri Mine fuel unloading area and access loop. In the absence of any material to the contrary, I infer that the services described in the invoice were provided within several months of the date of the invoice.
120		DJ Batchen is listed in the “aged payables” report as a creditor for a single debt of $6,584.60 dated 28 October 2011. Mr Boné gave evidence that this debt was paid in about June 2012. In support of that evidence, Mr Boné referred to a document printed from the MYOB system dated 2 September 2014 which records payments to DJ Batchen Pty Ltd of an invoice #340931 of two amounts of $3,300 on each of 3 October 2012 and 12 December 2012. Having regard to my finding that the MYOB records can be accepted as evidence of the facts stated in them, except where contradicted, I accept Mr Boné’s evidence that this debt has been paid.
121		Velocity Electrical is listed in the “aged payables” report as a creditor for six debts totalling $32,337.84 dated in October and November 2011. The defendants accept that:
(1)	the second amount ($4,994.00) is a debt incurred in October 2011;
(2)	the third amount ($1,998.70) is a debt incurred in September or October 2011;
(3)	the sixth amount ($330.00) is a debt incurred in November 2011. 
122		As to the first amount ($4,500.14), there is an invoice dated 17 October 2011 for $8,615.64 with a reference number that corresponds to the ID# on the “aged payables” report.  The invoice refers to the supply of materials and work described as “full re-wire to existing wall isolators”. I infer from the invoice and the “aged payables” report that the amount of $4,500.14 comprises a portion of the amount due under the 17 October 2011 for materials and services which were supplied within a few months of the date of the invoice.As to the fourth and fifth amounts, no supporting invoices were tendered. However, I infer from the invoices for the other amounts, that these amounts were included in the MYOB system following the receipt of invoices with ID# references of the kind that appear on the other invoices and which also appear on the “aged payables” report. Accordingly, I infer that the amounts are debts for goods and/or services provided within a few months of 7 November 2011, being the date specified in the “aged payables” report.
123		Greg Hinchcliffe Concrete Constructions is listed in the “aged payables” report as a creditor for three debts, of which two have been struck out by hand. The remaining debt is dated 24 November 2011 and is for an amount of $19,360.  Although no supporting invoice was identified, based on the “aged payables” report and in the absence of any evidence to the contrary, I infer that the amount is a debt for goods and or services provided within a few months of 24 November 2011.
124		MBL Premium Funding is listed in the “aged payables” report as a creditor for a single debt, dated 1 December 2011 for an amount of $8,045.59. Although no supporting invoice was identified, based on the “aged payables” report, I infer that the amount is a debt for services provided within a few months of 1 December 2011.
125		The defendants contended that four of Petrolink’s creditors had the benefit of a Romalpa clause, namely:
·	Pacific Gauge
·	Pirtek (Penrith) Pty Ltd
·	Safe-Quip Industrial Supplies
·	Workin’ Gear
126		I have addressed the position of the debts owed to Safe-Quip Supplies earlier.
127		The defendants concede that the debt to Pacific Gauge was incurred around 17 November 2011. As to the other two creditors, the defendants contend that the relevant invoices do not evidence when the relevant debts were incurred. The invoices are dated in October and November 2011 (Pirtek) and November 2011 (Workin’ Gear). Based on those invoices and the references to these creditors in the “aged payables” report, I am satisfied that debts of the amounts set out in the “aged payables” report were incurred within a few months of their inclusion in that report. 
128		The defendants submit that, since each of these creditors had the benefit of a Romalpa clause, they were either a secured creditor or the liquidator has not proved that the creditor suffered any loss. That issue will be addressed below.
Admissibility and weight of liquidator’s opinions concerning solvency
129		The defendants challenged the admissibility, or alternatively, the weight, of the opinions expressed in the liquidator’s expert report, on the following bases:
1.	The opinions expressed by the liquidator are not “wholly or substantially” based on his specialised knowledge in conformity with s 79(1) of the Evidence Act 1995 (Cth); 
2.	The liquidator’s opinions are based upon assumed facts which have either not been established or, alternatively, are far removed from the actual facts, rendering Mr Smith’s opinion irrelevant; and
3.	Having regard to the numerous errors in the report and the evidence that the liquidator has not taken steps to verify the information relied upon for his opinions, the Court cannot be satisfied as to the reliability of the opinions so expressed.
Opinion not wholly or substantially based on liquidator’s specialised knowledge
130		At paragraph 4.1 of his report, the liquidator expressed the opinion that, from at least 30 June 2009, Petrolink was insolvent and remained insolvent from that date. In summary, he identified five reasons for his opinion, being:
·	Cash flow shortfalls on immediate obligations as at each of 30 June 2009, 2010 and 2011;
·	Deficiencies of current assets to current liabilities at each of these dates;
·	Deficiencies of total assets to total liabilities at each of these dates;
·	Trading losses for the period 1 July 2008 to 30 June 2011; and
·	That Petrolink was unable to pay its tax debts to the ATO as they became due and payable from at least January 2009.
131		It is not suggested that the liquidator’s expertise did not entitle him to express an opinion as to solvency. The defendants submitted, in effect, that the liquidator’s opinion was inadmissible because it did not involve the application of the liquidator’s specialised knowledge, it being based merely on figures derived from Petrolink’s financial records: cf Quick v Stoland Pty Ltd (1998) 87 FCR 371. In Switz Pty Ltd v Glowbind Pty Ltd [1999] NSWSC 1296 at [35], Austin J summarised the effect of that decision as follows:
If there is evidence in the form of financial statements which the Court can read for itself, the opinion of an accountant based solely on those statements is not based on specialised knowledge arising out of training, study or experience and is not admissible under s 79 of the Evidence Act 1995 (NSW) and its Commonwealth counterpart. If however, the accountant's report contains some financial analysis based upon the financial statements or, more pertinently, the accounting records to which they relate, then the accountant's opinion is to that extent an expert opinion and admissible as such.
132		In this case, the report contains some analysis of the material on which it is based, particularly in relation to the identification of current assets and current liabilities, for the purpose of making a judgment as to the existence and quantum of cashflow shortfalls. In my view, that analysis renders the liquidator’s opinions admissible under s 79. 
133		If I am wrong, then the report may be treated as a submission as to the facts upon which the Court should find that Petrolink was insolvent from 30 June 2009 onwards.
Opinion based on facts not established
134		The defendants relied on the following statement by Lindgren J in Harrington-Smith v Western Australia (No 2) [2003] FCA 893; (2003) 130 FCR 424 at [24] to [25]:
In relation to the second deficiency (failure to distinguish between assumed facts and opinion) the Evidence Act does not, in terms, require, as a condition of admissibility, that an expert witness state distinctly and fully the facts assumed as the basis of his or her opinion: cf ALRC Report No 26 (“Evidence”) vol 1, par 750; Quick v Stoland Pty Ltd (1998) 87 FCR 371 at 373-374 per Branson J; Daniel v Western Australia (2000) 178 ALR 542 (RD Nicholson J) at [5]; Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd (2002) 55 IPR 354 per Branson J at [10].

But expert opinion will not be relevant if there is an insufficient correspondence between all the facts assumed by the expert as the basis for his or her opinion, and those proved or admitted: cf Ramsay v Watson (1961) 108 CLR 642 at 648-649; Paric v John Holland (Constructions) Pty Ltd [1984] 2 NSWLR 505 at 509-510; Paric v John Holland (Constructions) Pty Ltd (1985) 59 ALJR 844 at 845-846.
135		They identified five assumptions made by the liquidator which were said to be incorrect, concerning:
1.	Whether the tax debt to the Commissioner of Taxation was due and payable at relevant times, particularly 30 June 2009 and 30 June 2010;
2.	The trading terms of AJL Heavy Equipment Pty Ltd;
3.	Whether payment terms of 30 days were being achieved;
4.	Whether trade debtors were not paying within 30 days; and
5.	Whether Petrolink had available to it external resources throughout the relevant period.
136		For the reasons given below, I have found that the liquidator’s assumptions as to points 1 and 5 were correct. As to the other matters, I do not consider any divergence between the facts as found and the liquidator’s assumptions to be so significant as to render his report and the opinions contained therein irrelevant.
Reliability of information relied upon by liquidator
137		I have found above that the 2009 and 2010 financial reports are reliable evidence of the facts stated in the reports. The draft 2011 financial reports are also evidence of the facts stated in those reports, albeit they are of less weight. Accordingly, I am satisfied that the liquidator’s report is not rendered inadmissible by reason of his reliance on that material although, of course, to the extent that the facts are contradicted by other evidence, that may affect the weight of his evidence.
138		The defendants criticised the liquidator for failing to check various figures which he took from the records of the company. In the absence of any evidence that the figures were wrong in circumstances where the accuracy of the figures was a matter that was or should have been within the knowledge of Mr Boné, I do not accept that the liquidator was obliged to audit or otherwise check the figures in order to rely upon them for the purposes of giving admissible opinion evidence.. 
139		In cross-examination, the liquidator acknowledged that he had incorrectly identified as Petrolink’s terms of trade a document which was plainly not those terms. He agreed that he had over calculated the tax debt due to the Commissioner of Taxation as to 30 June 2010 by an amount of approximately $30,000. He also conceded that he had undertaken a “general review” of the receivables summary for the year ended 30 June 2011, rather than an “analysis”. The defendants criticised the liquidator for failing to inform himself about the meaning of certain expressions contained in certain MYOB reports.  
140		These matters may affect the weight of the liquidator’s opinions. However, in my view, they are not of sufficient weight to render his report so unreliable as to be inadmissible.
Payment arrangements with the ATO
141		The defendants submitted that “at all material times” Petrolink had in place payments arrangements with the ATO but were not specific about which arrangements were in place at various times.
142		The liquidator tendered ten letters from the ATO purporting to record payment arrangements with Petrolink, dated from 25 July 2006 to 13 April 2011. Six of these letters are dated after 30 June 2009, that is, during the period in which Petrolink’s solvency is disputed. On their face and subject to the possibility of oral arrangements (considered below), in the absence of a suggestion that there were other written payment arrangements, these documents tend to contradict the proposition that Petrolink had payment arrangements in place with the ATO at all material times. 
143		On some occasions, a new payment arrangement letter pre-dated the final payment specified in the previous arrangement. In those cases, and again subject to the possibility of oral arrangements, I have assumed that the new arrangement superseded the old arrangement so that, once a new arrangement was made, Petrolink was no longer required to comply with the previous arrangement to the extent that it had not been completed. 
144		It emerges from the correspondence between Mr Boné and the ATO that there were disagreements between them about the terms of payment arrangements in place. For example, on 7 October 2010, Mr Boné wrote to the ATO asserting that the “current arrangement” was “to pay $6,000 per month off the debt in addition to keeping current”. That description of the arrangement was inconsistent with arrangement as set out in a letter from the ATO dated 7 October 2010. On 4 February 2011, Mr Boné wrote to the ATO disputing the terms of a payment arrangement as recorded in a letter from the ATO dated 22 January 2011.  I have proceeded upon the basis, favourable to the defendants, that Petrolink had the benefit of all the payment arrangements documented in the ATO letters despite any dispute as to whether an arrangement was mutually agreed at the relevant time. 
145		If the payment arrangement letters accurately and completely recorded the payment arrangements between the ATO and Petrolink, then there was no payment arrangement in place during the following periods from 30 June 2009 because the date for the final payment specified in the previous arrangement had passed:
1.	29 March to 7 June 2010;
2.	15 June to 19 August 2010;
3.	4 to 6 October 2010;
4.	2 November 2010 to 21 January 2011;
5.	14 May to 7 July 2011.
146		I have addressed the evidence as to the terms and duration of the various payment arrangements below, in the context of my findings as to Petrolink’s financial situation from time to time.
Preferred approach to “cash flow” analysis
147		The liquidator excluded all creditors and debtors recorded in the most recent month of June from his analysis for each year ended 30 June. In each case, this had the effect of reducing trade debtors (and thus liquid assets) substantially and reducing creditors due and payable by a smaller amount. The liquidator’s rationale for his approach was an assumption of 30 days trading terms. 
148		The assumption that no trade debtors paid their bills within 30 days was not clearly borne out by the MYOB records. For example, the receivables reconciliation for 30 June 2009 records that 46.2% of the total due was received within 30 days. For 30 June 2010, the figure is 62.4%. It is possible that these figures are atypically high, possibly as a result of debtors seeking to make payments before the end of the financial year. However, a record of customer payments for 1 July 2010 to 30 June 2011 also records many payments within 30 days including substantial payments. Examples of relevantly substantial debtors who paid within 30 days during the course of the financial year ended 30 June 2011 include Baseline Construction Pty Ltd, Blue Mountains Bus Co and Camden Council.
149		Having regard to that material, I do not agree that recent trade debtors should be excluded from the cash flow analysis. (The liquidator did not suggest that recent creditors should be excluded if recent trade debtors were not excluded.) The analysis is not determinative of the solvency of a company: it is a tool that assists in the assessment of solvency along with other considerations. Bearing that in mind, in my view, all creditors and debtors should be taken into account in the calculation of liquid assets and expenditure obligations unless, in the case of debtors, they are shown not to be available sources of income within a particular time and, in the case of creditors, they were not due and payable. The commercial realities of the business under consideration including, for example, evidence of payment arrangements with debtors or creditors, may indicate that the calculation over or underestimates the company’s solvency.
Petrolink’s business
150		At all relevant times, Petrolink’s business was divided into the following four divisions:
·	Engineering, which supplied design solutions for all types of petro-chemical installations. This aspect of the business involved the storage and handling of dangerous goods including the implementation of appropriate safety measures. Petrolink claimed to be a leading company in the field;
·	Projects – the majority of Petrolink’s income was derived from project management for petro-chemical installations and construction;
·	Service and maintenance – the defendants contended that Petrolink’s service and maintenance division was well known around Australia and provided support to many of Australia’s leading transport companies including Australia Post, Linfox, Toll, Queensland Rail, Railcorp New South Wales, Rio Tinto and BHP; and
·	Environmental planning and dangerous goods consultancy – the defendants’ contended that Petrolink was also recognised as an industry expert in both environmental and dangerous goods issues regarding petroleum storage and a leading “dangerous goods consultancy” in New South Wales.
151		In their final written submissions, the defendants stated that Petrolink had a head office in Penrith, a branch office in Brisbane (Meadowbrook) and a factory unit in Toronto in the Hunter Valley region of New South Wales. It is not clear whether the branch office and the factory unit were still operational at the time of the winding up. According to the liquidator, Petrolink closed two satellite offices in Brisbane and Newcastle following an overhaul of operations in May 2011. Even so, at the time of the winding up Petrolink still employed about 15 staff.
152		Petrolink was a customer of Valvelink, which was in the business of importing, stocking and distributing valves, pipes, fittings, actuators and other goods.
Petrolink’s financial situation
Overview
153		The defendants contended that financial challenges resulting from the global financial crisis (“GFC”) led it to make payment plans with its creditors including the ATO. As the defendants put it, like other small businesses, Petrolink was not immune from the effects of the GFC and it experienced financial challenges as a result. The liquidator accepted that the GFC affected businesses generally in Australia.
154		Mr Needham agreed that, according to the books and records that he saw, Petrolink did not trade profitably for any of the years ended 30 June 2009, 2010 and 2011 and nor did it trade profitably from 1 July 2011 until the commencement of the winding up in December 2011. 
Prior to January 2009
155		Despite the defendants’ contention to the contrary, Petrolink’s financial problems pre-dated the GFC. In a questionnaire completed by Mr Boné on 12 December 2011, he identified the following five causes of the failure of Petrolink:
1.	Former employee stole work contracts.
2.	Former employee stole further IP resulting in 60% loss.
3.	Major customer failed in GFC.
4.	Transfield poaches staff and steals contract using our IP.
5.	The ATO debt has gradually increased as other funds dried up.
156		The first two matters referred to a dispute that occurred in about 2004, that is, well before the GFC.
157		In addition, the liquidators tendered documents purporting to record payment arrangements with the ATO made on the following dates and requiring payments during the following periods:
25 July 2006		30 July 2006 to 28 March 2007 
12 July 2007		31 July 2007 to 31 March 2008 
158		On the basis of these documents, I reject the defendants’ contention that Petrolink’s payment plans with the ATO commenced in 2008. 
159		The 25 July 2006 payment arrangement required the company to make nine monthly payments totalling $70,486.98. The letter documenting the arrangement (and all the other nine payment arrangement letters) contained the following statements:
We refer to your recent request regarding your outstanding account and agree to accept an arrangement for payment by instalments. The conditions of this arrangement are:
-	Payments must be made as detailed in the schedule below
-	All future lodgement obligations must be met by the due dates
-	All future payment obligations must be made by the due dates
…
Failure to meet all these conditions may result in the commencement of legal action without further notice.
If you have difficulties in meeting any of these conditions, please contact us immediately.
…
The arrangement we have agreed to is conditional upon the information you have provided being accurate. Should this not be the case, or should your circumstances change, the arrangement may be varied or terminated. If the arrangement is terminated, the remainder of your debt, together with any accrued general interest charge (GIC), will become payable immediately.
160		The 12 July 2007 written payment arrangement required the company to make nine monthly payments totalling $127,379.02. 
161		For the year ended 30 June 2008, Petrolink incurred a net trading loss of $61,732. 
162		On 11 July 2008, the ATO sent Petrolink a letter documenting a third written payment arrangement. The letter required the company to make 21 monthly payments totalling $239,507.65, and covering the period until 25 March 2010. Consistently with the written payment arrangement, Mr Boné gave evidence that on 11 July 2008, “the ATO confirmed a payment arrangement with Petrolink for a series of instalments to be made between 25 July 2008 and 25 March 2010”.  
163		The first three payment arrangements demonstrate that Petrolink experienced difficulties meeting its tax obligations from time to time in each of the three years preceding 30 June 2009. 
Position as at January 2009
164		A weekly report dated 23 January 2009, found in Petrolink’s records identifies a “taxation amount owed…RBA, GST, PAYG” of $157,469.  A draft profit and loss statement dated 23 January 2009 showed that the company had incurred a year to date loss of $394,957.
165		Around that time, speaking notes were prepared and used by Mr Boné in discussions with staff. The notes included the following:
All staff will be given the option of working a 4 day week at their current daily rate, from February 14th, or seeking employment elsewhere. I realize this may cause some hardship and I am willing to listen to any other alternatives however this is nopew [sic] a case of business survival so there is not much room to move. I don’t like having to do this but it is now a question of survival.
166		By letter dated 31 January 2009, the ATO purported to record a fourth written payment arrangement. Mr Boné gave evidence that on 31 January 2009, “the ATO confirmed a new payment arrangement with Petrolink for a series of instalments to be made between 25 February 2009 and 25 March 2010”. This evidence corresponds with the ATO 31 January 2009 letter. I conclude that there was a fourth payment arrangement between Petrolink and the ATO on the terms set out in the 31 January 2009 letter (“fourth payment arrangement”). The fourth payment arrangement required the company to make 14 monthly payments totalling $146,420.46.  The fourth payment arrangement did not cause the tax debts the subject of the arrangement to cease to be due and payable.
February to June 2009
Compliance with  fourth payment arrangement
167		Mr Boné’s evidence was that Petrolink made payments in accordance with the 31 January 2009 arrangement. Based on the “AIS account list” (and Petrolink’s ATO portal itemised account for the second payment), I find that Petrolink made the following payments on about the following dates in the period 31 January to 30 June 2009:
·	3 March 2009			$10,500.00
·	30 June 2009			$28,756.00
168		The amounts payable for this period, according to the fourth payment arrangement, were:
·	25 February 2009		$10,500.00
·	25 March 2009		$10,500.00
·	25 April 2009			$10,500.00
·	25 May 2009			$10,500.00
·	25 June 2009			$10,500.00
169		In the absence of evidence of any other payments, I do not accept that Petrolink made payments in accordance with the fourth payment arrangement for the period 31 January 2009 to 30 June 2009. I reject Mr Boné’s evidence to the contrary.
Position as at 30 June 2009
170		For the year ended 30 June 2009, Petrolink reported a net trading loss of $610,472.  
171		Based on Petrolink’s balance sheet as at 30 June 2009, as the liquidator determined, the company’s assets totalled $983,266.91 and liabilities totalled $1,563,374 producing a net asset deficiency of $580,107. Petrolink’s balance sheet recorded current assets of $758,989 current liabilities of $1,143,404.95 including trade creditors of $360,771.90, producing a net deficiency of current assets to current liabilities as at 30 June 2009 of $384,416.
172		Mr Boné exhibited to his December 2013 affidavit a spreadsheet which he described as “Petrolink’s balance sheet from the MYOB system”. That document shows a liability of $356,254.15 for “ATO integrated client account” for the month of July 2009. The ATO portal itemised account shows, as at 30 June 2009, a balance of the same amount.
173		Based on these two documents tendered by the defendants, I am satisfied that, as at 30 June 2009, Petrolink’s liability to the Commissioner of Taxation was $356,254.15.  This liability was a debt due and payable notwithstanding the fourth payment arrangement.
174		As at 30 June 2009, Petrolink was in default of the fourth payment arrangement with the ATO. Further, by 30 June 2009, Petrolink had twice received payment arrangements from the ATO which required the discharge of Petrolink’s outstanding liability by March 2010. In my opinion, it is relevant to take into account, in assessing the solvency of Petrolink as at 30 June 2009, that it was in default of the fourth payment arrangement, and that it had successfully negotiated several payment arrangements but also that the arrangements were increasingly onerous and there was no reason to suppose that they would become less so. Thus, in my opinion, based on Petrolink’s experience up until that point, the commercial reality as at 30 June 2009 was that Petrolink could probably expect to negotiate a further payment arrangement with the ATO but that it could not expect to negotiate an arrangement extending beyond about March 2010. It follows that, even if Petrolink’s outstanding tax liabilities were not due and payable, they should be taken into account in the overall assessment of Petrolink’s solvency as at 30 June 2009 as future liabilities. 
175		The liquidator calculated that, as at 30 June 2009, Petrolink had a shortfall of liquid assets on its immediate obligations as at of $145,341. This figure is calculated as follows:
Debts due and payable 		$699,843
Less liquid assets		$554,502
				$145,341
176		The figure of $699,843 is the sum of trade creditors of $343,589 and a tax debt of $356,254. The trade creditors figure is less that the figure disclosed in the financial statements because the liquidator did not include trade creditors less than 30 days old. For the reasons explained earlier, I consider it appropriate to include all trade creditors as at 30 June 2009 in this calculation. Based on my conclusion that the tax debt of $356,254.15 was due and payable, , I accept the liquidator’s contention that the tax debt should be included in the figure for debts due and payable. Accordingly, I find that Petrolink’s debts due and payable as at 30 June 2009 totalled $717,026 (ie $360,772 + $356,254).
177		The liquid assets figure comprises cash, debtors over 30 days, stock and related party loans. In his expert report, Mr Needham expressed the opinion that additional current assets, comprising debtors within 30 day terms and totalling $304,487, should be added to the cash flow calculation. For the reasons explained earlier, I accept this submission. 
178		On these figures, I do not find that, as at 30 June 2009, the cash flow test produces a shortfall of liquid assets. My calculation is as follows:
Liquid assets			$858,989
Less debts due and payable	$717,026
				$141,963
179		However, a payables reconciliation summary for 30 June 2009, dated 21 April 2010, shows that 73.9% of Petrolink’s trade creditors were over 90 days old.  In cross-examination, Mr Boné gave the following evidence:
And if the company had had the ability from its ordinary trading activities to pay those accruing tax debts during the first half of 2009, it would have done so, wouldn’t it, sir?‑‑‑It – it would have.

Right.  I mean, there was no deliberate strategy on your behalf not to pay accruing tax debt, was there?‑‑‑That’s correct.

So the only explanation, if the facts be established that accruing tax debt was not paid, was that Petrolink did not have the capacity to pay it.  That’s the case, isn’t it, sir?‑‑‑No.  I’ve said before that Petrolink was managing its cash flow very – very strongly.

But, sir, if Petrolink – you understood as a director of the company that it was an important matter for Petrolink to meet its ongoing tax liabilities as they accrued, didn’t you, sir?‑‑‑That’s correct.

That, indeed, would have been a very high priority in your mind in terms of the management of Petrolink’s affairs.  Isn’t that right, sir?‑‑‑Which is why my communications with the Taxation Department were – were numerous.

And if you had the money available to you – or, rather, if Petrolink had the money available to it during those six months to July 2009 to meet not the accrued debt but just the accruing, that is, the new debt between those periods, then Petrolink would have paid those debts.  Isn’t that, sir – isn’t that so, sir?‑‑‑The – the Taxation Department is not a secured creditor when there were other companies that we were dealing with that also needed to be paid.  So it was a question of trying to pay everybody as much as possible from the funds that we had available.

And the unfortunate position of the company during those six months is that it just did not have the funds available to pay everybody the amounts then due to them, didn’t it, sir?‑‑‑In lump sums, that’s correct.  That’s why we had the instalment plans.

And that remained the position affecting this company’s business right until December 2011, didn’t it, sir?‑‑‑That’s correct.
180		On the other hand, a receivables reconciliation summary for 30 June 2009, also dated 21 April 2010, shows that 48.1% of receivables were owing for more than 60 days.
181		Finally, I note that the liquidator accepted during cross-examination that he had not seen any statutory demands or dishonoured cheques for the year ended 30 June 2009.
182		This evidence reveals that, as at 30 June 2009, Petrolink was experiencing at least two of the common features of insolvency identified by Mandie J in Plymin (No 1), namely overdue taxes and special arrangements with a selected creditor (the Commissioner of Taxation). There is also some evidence that its trading losses were an ongoing, rather than an isolated, issue in that there were substantial trading losses as at January 2009 and in about January 2009, Mr Boné met with staff to discuss, a need to reduce staff or staff hours. 
July to December 2009
Fifth and Sixth payment arrangements
183		By letter dated 24 July 2009, the ATO purported to record a fifth written payment arrangement. Again, Mr Boné gave evidence that on this date “the ATO confirmed a new payment arrangement with Petrolink for a series of instalments to be made between 31 July 2009 and 30 January 2010”. This evidence corresponds with the terms of the 24 July 2009 letter, which required Petrolink to pay its outstanding account by 30 January 2010. I conclude that there was a fifth payment arrangement between Petrolink and the ATO on the terms set out in the 24 July 2009 letter (“fifth payment arrangement”). This arrangement required the company to make seven monthly payments, comprising six payments of $5,000 each and a final payment of $347,423. The payments totalled $377,423.  I infer that this arrangement displaced the fourth payment arrangement, so that Petrolink was no longer required to make payments under the fourth arrangement
184		The amounts payable for the period 24 July 2009 to 9 December 2009 under the fifth payment arrangement were:
·	31 July 2009				$5,000.00
·	31 August 2009			$5,000.00
·	30 September 2009			$5,000.00
·	30 October 2009			$5,000.00
·	30 November 2009			$5,000.00
185		Based on the “ATO portal itemised account”, I find that Petrolink made the following payments referrable to the fifth payment arrangement, on about the following dates in the period 1 July to 31 December 2009:
·	28 July 2009			$5,000.00
·	1 September 2009		$5,000.00
·	1 October 2009		$5,000.00
·	2 November 2009		$5,000.00
·	30 November 2009		$5,000.00
186		However, Petrolink did not pay all of its accruing liabilities. The liquidator contends that, as at 30 November 2009, Petrolink’s tax debt had grown to $478,795.45. Based on Petrolink’s ATO portal itemised account, this is correct.
187		As a result of Petrolink’s failure to meet its accruing payment obligations by the due date, I accept the plaintiffs’ submission that Petrolink did not comply with the fifth payment arrangement in the period until 9 December 2009.  I also conclude that the increase in Petrolink’s tax debt over the period July to November 2009 reflected a worsening in the company’s solvency position.
188		Non-compliance with the fifth payment arrangement may explain why, by letter dated 9 December 2009, the ATO purported to agree to a sixth written payment arrangement. Mr Boné’s evidence confirms that a payment arrangement was made on 9 December 2009 “for a series of instalments to be made between 30 December 2009 and 28 March 2010”. This evidence corresponds with the terms of the 9 December 2009 letter. I conclude that there was a sixth payment arrangement between Petrolink and the ATO on the terms set out in the 9 December 2009 letter (“sixth payment arrangement”).
189		Again, I infer that this arrangement displaced the fifth payment arrangement, so that Petrolink was no longer required to make payments under the fifth arrangement. The period covered by the sixth payment arrangement was again shorter than the previous arrangement. The sixth payment arrangement required the company to make four monthly payments, comprising three payments of $5,000 each and a final payment of $474,588.58 on 28 March 2010. The payments totalled $489,588.58.  
190		Under the sixth payment arrangement, a payment of $5,000 was required on 30 December 2009. I am satisfied that this payment was made.
Position as at December 2009
191		Based on Petrolink’s ATO portal itemised account, Petrolink’s tax debt as at 21 December 2009 was $469,866.
192		Although Petrolink had payment arrangements with the ATO for almost all of the previous six month period, and although it complied with those arrangements, Petrolink’s financial position gradually deteriorated over the period July to December 2009, evidenced by the increase in its total tax liability of over $100,000.
193		The financial stress experienced by Petrolink is illustrated by Petrolink’s payment by instalments of a significant trade creditor in this period. According to a supplier ledger, AJL Heavy Equipment Pty Ltd received approximately weekly payments of $1,000 in the July to December 2009 period. At the end of the period, the company was owed $38,409.89. As noted above, payments to creditors of rounded amounts not reconcilable to specific invoices is a common feature of insolvency.
194		Mr Boné accepted that, as at 9 December 2009 (when the sixth payment arrangement was made), Petrolink did not have liquid funds that would have provided a source from which the final payment of $474,588.58 could have been made.
195		Minutes of a meeting including Mr Boné and senior Petrolink staff on 13 January 2010 records:
December 2009 results are now finalized and were tabled at the meeting. Generally, performance is down on the 1st quarter. While the net revenues increased in the December quarter, net profits fell to a YTD loss of $15k, compared to profit of $63k in the September quarter. Operating overheads remained on track…The main area of concern was a significant drop in GP from 37.6% in the September quarter to 28.4% in the December 2009.
196		The minutes did, however, state that cash flow for the business was generally good and that sales performance had strengthened, and dollar values and quality of opportunities had increased.
January to June 2010
Compliance with sixth payment arrangement
197		The amounts payable under the sixth payment arrangement were:
·	30 December 2009			$5,000.00
·	30 January 2010			$5,000.00
·	28 February 2010			$5,000.00
·	28 March 2010			$474,588.58
198		Based on the “ATO portal itemised account”, I find that Petrolink made the following payments referrable to the sixth payment arrangement on about the following dates in the period 30 December 2009 to 30 June 2010:
·	1 February 2010			$5,000.00
·	1 March 2010				$5,000.00
·	6 April 2010				$5,000.00
·	4 May 2010				$5,000.00
199		In the absence of evidence of any other payments, I find that Petrolink did not comply with the sixth payment arrangement. 
200		The liquidator submitted that, as at 28 March 2010, Petrolink had a tax debt of $475,109.20 which was immediately due and payable and was not the subject of any deferral arrangement with the ATO. Based on Petrolink’s ATO portal itemised account, I accept that Petrolink had a tax debt of approximately this amount as at 26 March 2010. 
May 2010 non-payment of GST and PAYG withholding tax and threat of legal action
201		In May 2010 Petrolink incurred liabilities for PAYG withholding tax and GST totalling about $87,000, which were not paid. These comprised:
·	$39,890.00 for GST on 12 May 2010
·	$20,665.00 for PAYG tax withheld on 12 May 2010
·	$26,571.00 for PAYG tax withheld on 21 May 2010
202		By letter dated 25 May 2010, the ATO threatened legal action against Petrolink without further notice to recover an amount of $561,055.07 said to be outstanding on the company’s account, unless payment in full was received by 4 June 2010. This claim broadly corresponds with the debt then outstanding according to the ATO portal itemised account. It indicates a further increase in Petrolink’s tax liability of approximately $100,000 in the five months since the end of 2009. 
203		In late May 2010, Mr Boné was in China. However, he was informed of the ATO demand by email and in a telephone conversation with Ms Tasjic on 29 May 2010. An email dated 31 May 2010 between Petrolink’s administration manager and company secretary, Ms Tasjic and its financial adviser Lyle Holm, recorded the following details of a conversation with an officer of the ATO:
4. They will not enter into any payment arrangements until they have the P&L.
…
6.	He would not guarantee further action would not be taken prior to BB’s return.
...
9. He advised that due to the account regularly defaulting, the ATax Office would be very reluctant to agree to payment terms unless they could see a definite reduction in the debt being achieved, but strongly advised a substantial contribution is made to bring the debt down, and then a payment plan may be discussed.

204		The email concluded:
Lyle, I cannot with the cash flow situation at the moment see there being any chance of me making any payments to the tax office in the next 3 weeks – it will be hard enough to meet the Superannuation payments which are due to be paid by the end of June and wages, Your advise please.
205		Mr Holm replied on 31 May 2010 by saying, among other things:
…my advice is the same as the other day:
1.	Contact Neil and put in place an Administrator to help manage through this phase.
2.	Put together a rescue plan that entails a major restructure of the business to make major and immediate cuts to costs so he can keep the core business and the resources needed to convert the jobs. I believe this needs to be worked on as a priority, as it will be central to convincing the ATO to back off. There is enough project and maintenance work to support the business albeit at a much lower volume. It is his best option. It can also serve to revitalise the business, get rid of dead wood and retain an income stream that will allow him to keep his private assets.
206		This advice implies that Mr Holm was of the opinion that Petrolink was insolvent, or likely to become insolvent at some future time: cf s 436A of the Act. In cross-examination, Mr Boné denied that Mr Holm gave him advice that he should have moved to appoint a voluntary administrator. It was not clear whether Mr Boné received Mr Holm’s 31 May 2010 email.   
207		An email from Neil Cottle of Lower Russell & Farr apparently sent around 1 June 2010 to Ms Tajsic and Mr Boné, records that Mr Cottle also had a telephone discussion with Mr Boné while Mr Boné was in China. The email records:
…
iii) Barry indicated that he had not received a directors notice in relation to the PAYG withholding requiring immediate action or enforcing the debt to him personally. I understand Craig is collecting Barry’s mail and should be on the watch for this letter. Being outside the country is not a defence against a personal claim brought under this section
iv) Barry has indicated that he can organise $5,000 whilst he is overseas however, I would imagine that the tax office would like to see the payment of the March & April BAS and that all future payments made on time
v) Barry needs to consider how he is willing to financially support the company in the short term. I know other actions have been taken to improve cashflow and reduce costs but this is a catalyst for further immediate operational action and strategic reflection
vi) Barry has instructed to take steps to defer the tax office until his return. I have advised that this may result in the commencement of legal action
vii) To date the company has operated under the implicit consent of the tax office. This might be a possible defence against any insolvent trading claims however Barry needs to consider the personal ramifications of continuing to trade and the implications and costs of appointing an administrator/liquidator
viii) I understand Barry will be returning on 17th June…
208		Points iii) and iv) appear to relate to the PAYG withholding tax and GST liabilities incurred on 12 and 21 May 2010.  Point vii) contains an obvious implication that a claim could be made that Petrolink had been insolvent or that, if it continued to trade, a claim could be made that Petrolink was trading while insolvent.
209		On 1 June 2010, Ms Tasjic wrote to the ATO stating that Mr Boné was overseas until 18 June 2010 and proposing a payment of $2000 per week commencing that Friday for four weeks.  The paucity of that proposal in the face of the ATO threat of legal action is strong evidence of Petrolink’s inability to pay its tax debts at that time.
210		On 7 June 2010, the ATO issued a letter refusing to accept a payment arrangement of monthly instalments of $15,000 for 36 months, and required payment in full of $563,633.74 within seven days. The letter said that failure to pay may result in the commencement of legal action for the recovery of the amounts outstanding without further notice.
211		By facsimile dated 8 June 2010, Ms Tajsic told the ATO that Petrolink had reduced staff the previous year and was trying to keep 20 employees. 
212		In response to a message from Ms Tajsic to Mr Boné that the ATO had refused to accept the payment arrangement, Mr Boné replied “try again I will make donation on return”.  In cross-examination, Mr Boné said that this email reflected his “sense of humour”. 
Alleged oral payment arrangement in about June 2010
213		The defendants contended that the evidence established the existence of an unwritten payment arrangement with the ATO in or around June 2010. The evidence identified in support of this contention was paragraph 7(f) of Mr Boné’s December 2013 affidavit which refers, relevantly, to:
·	A written communication (not identified) on 24 June 2010 from Mr Boné to the ATO “confirming the arrangement in place to pay $5,000 per month”.
·	A conversation on 24 June 2010 between Mr Boné and George Halteh of the ATO. In that conversation, Mr Boné “confirmed” that Petrolink would continue to pay $5,000 per month towards its debt. Mr Halteh asked Mr Boné to send him a three year business plan for Petrolink for the purpose of enabling him to “review” the terms of Petrolink’s payment arrangement”.
214		By facsimile dated 21 June 2010 to the ATO, Mr Boné asserted that “an agreement was confirmed” prior to his departure overseas. At the hearing, no evidence was given of any such agreement except for a reference to the assertion in the 21 June 2010 letter in Mr Boné’s December 2013 affidavit. In that letter, Mr Boné also said:
It may be that I have to arrange reconsolidation of some finances and a re-mortgage of property and this will take the time that it takes.

I suggest that it would be unreasonable of the ATO to continue with its high handed tactics whilst I endeavour to reach a solution.
215		The defendants submitted that Mr Boné’s evidence of an oral payment arrangement in around June 2010 was corroborated by the following note in the ATO’s records:
*Previously TP defaulted quite a number of payment arrangements. 
*Last payment made on 12/8/10 $40,002.00
*Although there is no active payment plan, however client is regularly paying $5000.00 as voluntary payment since July 2009 on top of ongoing liability.
…
*It is evident taxpayer is taking all available stops [sic] to endure [sic] the liability is cleared within the shortest possible time frame. 
216		I reject the submission that the ATO’s note corroborates Mr Boné’s evidence. To the contrary, I read the note to say that there was no payment arrangement, but that Petrolink was voluntarily making regular payments to reduce its debt. 
217		I do not accept that the evidence establishes that a payment arrangement was made with the ATO in or around June 2010. In my opinion, there was an assertion by Mr Boné of such an arrangement, without any assent on the part of the ATO beyond a promise to consider whether to make a further arrangement and, if so, on what terms.
218		Accordingly, I conclude that the only payment arrangement in the period January to June 2010 was the sixth payment arrangement, with which Petrolink did not comply at least from 28 March 2010.
23 June 2010 meeting between Mr Boné and Petrolink’s external accountants
219		On 23 June 2010, Mr Boné met with financial advisers to discuss Petrolink’s financial position. A record of the meeting prepared by Mr Cottle shows that Mr Holm and Ms Tajsic attended the meeting. The record includes the following:
Current Petrolink position - owing ATO $560k plus Apr & May IAS of $40k. ATO response is payment of 25% plus balance over 24 mths. Given previous history with tax office they are unwilling to be flexible and have indicated the possibility of legal action. 

i)	Discussed the implication of insolvent trading. Potential argument up to this point has been with the support of creditors. Going forward company responsibilities can be assigned to directors. This could force Directors into personal bankruptcy and as a consequence the investment trust into liquidation. Discussed access of creditors to assets. Minimal value transferred out of Petrolink. Petrolink has been financially supported by Valvelink. No excessive contributions to super or overdrawn shareholder/director loans
ii)	Discussed the implications, pros & cons of voluntary administration/liquidation and a court appointed liquidator. Barry would prefer to continue the business as is at this stage.
…
iv)	To consider entering into any new contracts through a different entity with work subcontracted to Petrolink. Admin staff and estimator to be transferred to new entity. This would help isolate the liability associated with dangerous work, position the business for the introduction of new investors, structure for new types of work to be undertaken and ensure ultimate control on the finalisation of the contracts in the event of a loss of control of Petrolink….
v)	Barry to consider the injection of further funds. He will meet with credit union and BOQ for company funding and consider contributing further personal funds. An assessment needs to be made as to what is the most efficient use of the funds and can Petrolink continue in its existing form. Funds could be contributed by way of loan supported by a charge (possibly in Helen’s name) or mortgage over the equipment or as the purchase of the equipment and IP from Petrolink. Formal independent valuations will need to be in place to support any transfer
vi)	Barry to consider introducing an equity partner or JV. He also needs to consult with his sons as to their ability to contribute funds.
220		The plaintiffs submitted that the Court should infer that during the discussions on 23 June 2010, Mr Boné was informed by his advisers that, in their view, Petrolink was insolvent and that Mr Boné was at risk of committing insolvent trading if Petrolink did not enter some form of insolvency administration. Mr Boné accepted that there was discussion about the implications of insolvent trading for directors at the 23 June 2010 meeting.  Mr Boné said that Mr Cottle routinely advised him that he “must be aware of trading when you’re insolvent” and that he, Mr Boné, was “very much aware of that”.  However, he denied that there was a discussion at the meeting about whether Petrolink was in fact insolvent.
221		Based on Mr Cottle’s notes, particularly from the words “Discussed the implication of insolvent trading. Potential argument up to this point has been with the support of creditors.” I reject Mr Boné’s evidence that there was no discussion at the 23 June 2010 meeting about whether Petrolink was insolvent.  To the contrary, I infer from Mr Cottle’s notes that one or more of Mr Boné’s advisers at least advised him that Petrolink had engaged in insolvent trading albeit with the support of creditors, and Petrolink may or would engage in insolvent trading if the business continued to trade.  
Position as at 30 June 2010
222		As at 30 June 2010, Petrolink was in default of the sixth written payment arrangement with the ATO.
223		For the year ended 30 June 2010, Petrolink reported a net trading loss of $152,067.  
224		Based on Petrolink’s balance sheet as at 30 June 2010, the company’s assets totalled $1,008,082 and liabilities totalled $1,740,254 producing a net asset deficiency of $732,172. Petrolink’s balance sheet recorded current assets of $808,134, current liabilities of $1,312,217 including trade creditors of $450,189, producing a net deficiency of current assets to current liabilities as at 30 June 2009 of $504,083.
225		The Petrolink balance sheet spreadsheet shows a liability of $561,570.58 for “ATO integrated client account” for the month of June 2010.
226		Petrolink’s ATO portal itemised account shows a tax debt on about 30 June 2010 of $561,571.
227		Based on those documents, I am satisfied that, as at 30 June 2010, Petrolink’s liability to the Commissioner of Taxation was around $561,571.  For the reasons set out above, I am satisfied that this liability was due and payable notwithstanding the sixth payment arrangement.
228		The liquidator calculated that, as at 30 June 2010, Petrolink had a shortfall of liquid assets on its immediate obligations as at of $608,021. This figure is calculated as follows:
Debts due and payable 		$978,514
Less liquid assets		$370,473
				$608,021
229		The figure of $978,514 is the sum of trade creditors of $388,224 incurred prior to 1 June and a tax debt of $590,290. Based on my conclusion that a tax debt of $561,571 was due and payable, and taking into account that Petrolink was in default of the sixth payment arrangement as at 30 June 2009, I agree that the tax debt should be included in the figure for debts due and payable. As for the year ended 30 June 2009, I include total trade creditors in the sum. Accordingly, I find that Petrolink’s debts due and payable as at 30 June 2010 totalled $1,011,760 (ie $450,189 + $561,571).
230		The liquid assets figure comprises cash, debtors, stock and related party loans. Mr Needham identified additional current assets including debtors within 30 day terms, totalling $452,232. Including this amount, liquid assets as at 30 June 2010 are [370,473+ $452,232 =] $822,705.
231		Accordingly, I find that, as at 30 June 2010, Petrolink had a shortfall of liquid assets on its immediate obligations. My calculation is as follows:
Liquid assets			$822,705
Less debts due and payable	$1,011,760
				$189,055
232		I note that Mr Needham calculated a shortfall of $217,754. The difference between this figure and the amount of $189,055 is substantially explained by his adoption of the higher figure of $590,290 for Petrolink’s tax debt.
233		A payables reconciliation summary for 30 June 2010, dated 27 January 2011, shows that 31.7% of Petrolink’s trade creditors were over 90 days old,  and 58.9% were over 60 days old.
234		On the other hand, a receivables reconciliation summary for 30 June 2010, also dated 27 January 2011, shows that 23.7% of receivables were owing for more than 60 days.
235		In cross-examination, the liquidator did not recall any dishonoured cheques for the year ended 30 June 2010.
Mr Needham’s working capital calculations
236		Mr Needham prepared a table of calculations of Petrolink’s working capital position from which he concluded that “it was not until approximately December 2010 that the company’s working capital had become a concern and not until after 30 June 2011 that it was beginning to experience difficulty in managing its cash”. A revised table was handed to the Court on 16 September 2014. Importantly, the working capital calculations did not include amounts for Petrolink’s tax liability at the relevant dates. If the figures set out in the revised table for the “ATO integrated account” are included the working capital calculations (and those figures appear low in comparison to the ATO portal itemised account), there would be a working capital deficit as at each of 31 July 2009, 30 September 2009, 31 December 2009 and every three months thereafter.
237		As at 31 March 2010, the deficit (including the tax liability) was $115,459, increasing to $395,808 as at 30 June 2010. On these figures, all other things being equal, there was a substantial worsening in Petrolink’s working capital position between 31 March and 30 June 2010.
July to December 2010
Payment arrangements
238		In cross examination, Mr Boné gave the following evidence:
See, what – again, your hope – your approach to the outstanding tax debt throughout the period after June 2010 was that ultimately you hoped to pay the debt off by 24 months or 36 months worth of instalments?‑‑‑Unless I could come up with the bulk amount. 

And what you were told on every occasion when you approached the Tax Office with a view to obtaining or seeking instalment arrangements was that they would only consider a period of long-term instalments after there had been a substantial reduction in the tax debt?‑‑‑That’s correct. 

So a precondition ‑ ‑ ‑?‑‑‑So they kept on accepting, yes. 

‑ ‑ ‑ to the acceptance of any proposal for a period of long-term instalments was that you make a substantial upfront reduction?‑‑‑That’s correct. 

And you never did?‑‑‑I was never given the opportunity. 
Alleged oral payment arrangement on about 12 August 2010
239		Mr Boné gave hearsay evidence of an oral payment arrangement made on 12 August 2010 whereby Petrolink would pay $6,000 per month. I admitted the evidence of the conversation, but not as evidence of the truth of what was attributed to Mr Sarkar on behalf of the ATO. No other evidence was adduced of this conversation.
240		In a facsimile dated 17 August 2010 from Mr Boné to the ATO, Mr Boné notes that “[w]e discussed making alternative arrangements should the banks not provide funding”. The facsimile includes the following:
Abul has given Petrolink 3 months of paying 6K as above and we will have a further review at that time, unless the financiers make arrangements during this time.
241		This email reveals that, on Mr Boné’s understanding in August 2010, any oral payment arrangement whereby Petrolink would pay $6,000 per month was for three months only.
242		It was contended that the existence of the arrangement was corroborated by the AIS account list which records payments of the following amounts on the following dates:
7 September 2010			$6,000.00
20 September 2010			$3,000.00
27 September 2010			$2,000.00
1 October 2010				$3,000.00
1 November 2010			$4,000.00
1 November 2010			$6,000.00
243		I accept that these payments were made, but not that the payments corroborate the existence of an oral payment arrangement. In my view, they are at least equally consistent with an attempt by Petrolink, in the absence of an arrangement apart from the written payment arrangements to reduce its tax debt in order to minimise the risk of enforcement action by the ATO.
244		Accordingly, I am not satisfied that the alleged oral arrangement was made.
Alleged oral payment arrangement on about 19 August 2010
245		The defendants submitted that on 19 August 2010, the ATO granted an interim arrangement for one month until 20 September 2010.
246		In support of this submission, the defendants relied upon an ATO record of a conversation with Mr Boné on 19 August 2010. It records, relevantly:
I advised we received your fax on 17/8/10 in relation to the review payment arrangement for 3 months. In the fax you mentioned outcome of the finance from the bank will be available within next 2 weeks. Therefore we can arrange an interim payment arrangement for 1 month which is until 20/9/10. Within that time you need to ring us and take necessary next step whether the Bank approve the finance or not…Interim arrangement may be granted for 1 month…I amended payment proposal and recommend granting an interim payment arrangement where TP will pay $6,000.00 on 3/9/10.
247		A facsimile dated 19 August 2010 from Mr Boné to the ATO said relevantly:
In our discussions on Tuesday, we agreed on a time of 3 months for the next review of Petrolink’s RBA with the ATO.

Both parties accepted this arrangement, and then you telephoned me to advise your Supervisor would not accept this timeframe and had changed the review date to 1 month.

This is most unacceptable.
Seventh written payment arrangement
248		By letter dated 20 August 2010, the ATO agreed to a seventh written payment arrangement. The period covered by this arrangement was only six weeks. The arrangement required the company to make a payment of $6,000 on 3 September 2010 and a payment of $560,219.79 on 3 October 2010. 
249		Having regard to this document, on the balance of probabilities, I conclude that no oral payment arrangement was made on 19 August 2010 as alleged by the defendants or, if such an arrangement was made, it was immediately displaced by the seventh written payment arrangement.
250		By facsimile dated 30 August 2010, Mr Boné wrote to the ATO referring to correspondence dated 20 August 2010 referring to an “interim arrangement which addresses a portion of our current debt”. In his fax, Mr Boné said, relevantly:
Our arrangement is as outlined in our correspondence of 17th August, 2010 – “Petrolink  committed to a regular payment (weekly) to the ATO of $6000 per month until such time as we obtain an answer from the banks. This is in addition to being up to date and current with the monthly and quarterly BAS lodgements and payments. Note this arrangement replaces our previous arrangement that was made with the ATO in November 2009 to pay $5000.00 per month.”
251		The facsimile also referred to a suggestion by Mr Sarker of the ATO that “if Petrolink was to pay out ½ or a portion of the ATO debt then he would be open to a payment arrangement for the balance directly from Petrolink. We all agreed with this approach and Petrolink will maintain this arrangement” (emphasis added)”. The facsimile also stated:
Petrolink has approached several financial institutions in an effort to raise funds to be able to pay out this debt, however, it is common knowledge that at this point in time small businesses are having great difficulty obtaining additional finance from banks. We are doing our best.

Petrolink is not avoiding its responsibility and has taken all possible avenues to raise the necessary funds. 
Alleged oral payment arrangement in September/October 2010
252		There is evidence that, on about 30 September 2010, Mr Boné contacted the ATO and asserted the existence of “an interim arrangement to pay $6,000.00 per month whilst he seeked [sic] finance.” The ATO records also record that, later that day, an ATO officer said “we will extend the current arrangement until the end of Oct 29/10/10. Which is $6,000 per month until the finance decision has been finalised.” Another ATO record dated 6 October 2010 states:
Review arrangement has been granted for $6,000 paid by 31/10/210 and the balance to be negotiated pending the outcome of the finance and the GIC remission.”
253		Based on these records, an oral arrangement was made on or about 30 September 2010 for a duration that is unclear in the absence of evidence about when the “finance decision” was finalised. 
Eighth written payment arrangement
254		By letter dated 7 October 2010, the ATO purported to record a further (eighth) written payment arrangement. The period covered by this purported arrangement was less than one month (7 October to 1 November 2010). It required a payment of $6,000 on 31 October 2010 and a payment of $558,403.08 on 1 November 2010. 
255		Mr Boné did not address this letter in his evidence. Nor was the letter addressed in the defendants’ submissions. I conclude from the 7 October 2010 letter that the ATO agreed to accept payments from Petrolink in accordance with the terms of that letter.
256		In the absence of any evidence to the contrary, I accept the plaintiffs’ submission that as at 7 October 2010, Petrolink had no capacity to pay the residual debt to the Commissioner of Taxation in the October 2010 payment arrangement.
Alleged oral payment arrangement in December 2010
257		The defendants may have sought to rely upon an ATO record of a conversation with Mr Boné on 1 December 2010 to contend that there was a further oral payment arrangement. The ATO record states, relevantly:
I explained to Mr Bone we are willing to enter into a review arrangement but you haven’t paid ITW for oct10 of $26,000 and only paid part the arrears payment for Nov10. Mr Bone advised the [sic] is chasing up the payments from the Bobcat sale as the person is not paying as promised.
I explain to Mr Bone you need to contact the case officer by the end of this week to discuss the situation so we can enter the review arrangement. 
258		To the extent that it is suggested, I do not accept that this record evidences an oral payment arrangement. Rather, it refers to the possibility of a further “review” arrangement.
Conclusions about payment arrangements in the July to December 2010 period
259		The arrangements that I have found were made were of short duration. None of them produced the result that Petrolink was not required to pay its outstanding tax liability imminently. Thus, in my view, none of these payment arrangements (whether written or oral) had a material effect on the solvency of Petrolink. 
Other matters
260		By facsimile dated 1 July 2010, Mr Boné told the ATO that Petrolink had reduced staff by four persons to reduce its costs.
261		By letter dated 12 August 2010, Petrolink provided the ATO with a business plan and financials. In the letter, Mr Boné mentioned that he had met with Petrolink’s financiers and was “looking to a successful outcome”. At that time, he expected a response from the bank within two weeks. 
262		Mr Boné agreed that it was “possibly” the delay in the banking application process that was the basis upon which in October 2010 he asked the ATO for a further short extension. Ultimately, the application for finance was rejected.
263		By facsimile dated 29 October 2010, Mr Boné wrote to the ATO submitting for approval “our arrangements moving forward to attenuate our ATO debt”.  The letter stated, relevantly:
Our submission then is as follows:

November		$10,000
December		$10,000
January			$10,000
February		$10,000
February		$250,000 (from sale of property)

This will reduce the debt by a further $290,000 at which time I would hope you will have made an adjustment of the interest charges as previously discussed, which should further reduce the balance by approximately $100,000.

I would expect then to be in a position to negotiate a run out payment plan which would suit both parties.

I trust that you find this proposal satisfactory and look forward to your confirmation and letter of approval. 
264		There is no evidence that this proposal was accepted by the ATO.
265		Petrolink’s ATO portal itemised account shows a tax debt on about 24 December 2010 of $574,174 (that is an increase from 30 June 2010 of just over $100,000).
266		I am satisfied that, as at 31 December 2010, Petrolink’s liability to the Commissioner of Taxation was around $574,174.  For the reasons set out above, I am satisfied that this liability was due and payable notwithstanding the various payments arrangements in existence during the six months ending 31 December 2010.
267		As had been the case in 2009, Petrolink’s financial difficulties again led it to pay trade creditors by instalments. An example of Petrolink’s payment by instalments of a trade creditor in the period July to December 2010 is Q-Max Pumping Systems. According to a supplier ledger, that company received 8 payments of $3,000 and 5 payments of $700 between July 2010 and February 2011.
Director penalty notice
268		On 30 September 2010, the Commissioner issued a Director Penalty Notice to Mr Boné. The notice related to unpaid PAYG withholding amounts for 13 months over the period from December 2007 to April 2010.  This notice indicates that Petrolink’s cash flow had been assisted, from time to time over a significant period, by its failure to remit these amounts in accordance with taxation law.
Mr Needham’s working capital calculations
269		Mr Needham’s revised table of working calculations, mentioned earlier, and adjusted to include his figures for the “ATO integrated account” show a working capital deficit of $490,373 as at 30 September 2010 and a deficit of $580,000 as at 31 December 2010. On these figures, all other things being equal, there was a further substantial worsening in Petrolink’s working capital position during the second half of the 2010 calendar year.  
January to June 2011
Alleged oral arrangement to pay $10,000 per month 
270		On 8 January 2011, the ATO sent a payment demand to Petrolink requiring immediate payment of $574,194.46.
271		The defendants submitted that the ATO’s records corroborated the existence of a payment arrangement with the ATO as at 8 January 2011. The submissions did not identify the corroborative record but appear to refer to ATO records dated 19 and 21 January 2011 which state, relevantly:
Explained to Barry that the previous payment demand letter was sent out automatically as he was not in a formal arrangement with the ATO, though he does have a verbal arrangement with the ATO ($10,000 a month). Advised that we could not put him into an arrangement as he has not paid his ongoings…

And

Clearly advised that if he does not make a payment by the due dates, or does not pay his ongoing liabilities, the arrangement will default. Due to the instability of Barry’s clients, advised that if he is not able to make a payment to call the ATO 3-5 working days before to advise the ATO.
272		The existence of “verbal agreements” is also mentioned in the ATO record dated 21 January 2011. 
273		I accept on the basis of the 19 January 2011 record that, as at 8 January 2011, Petrolink had a verbal arrangement with the ATO by which the ATO agreed to accept $10,000 per month as payments for Petrolink’s outstanding tax debts. There is no evidence as to precisely when this arrangement was made.  According to the AIS account list, only two $10,000 payments were made, in February and March 2011. 
22 January 2011 (ninth) written payment arrangement letter
274		Whenever it was made, the verbal arrangement was shortly followed by the ATO’s letter dated 22 January 2011 purporting to record a payment arrangement requiring Petrolink to make the following payments on the following dates:
·	31 January 2011			$33,043.00
·	28 February 2011			$10,000.00
·	31 March 2011			$10,000.00
·	30 April 2011				$549,652.11
275		Mr Boné gave the following evidence:
There was no realistic possibility in place as at January 2011 which, if it crystallised or materialised, would see a receipt of that sum of money by the end of April 2011, was there, sir?‑‑‑Not by the end of April, no. 
276		By facsimile dated 4 February 2011 to the ATO, Mr Boné stated that the 30 April 2011 payment was not agreed. He said:
This letter makes no mention of the other aspects that were discussed therefore this letter from the ATO is to be taken as advice only until ATO representative can correctly confirm both sides of the discussion. 
…
Petrolink intend to make a lump sum contribution towards the balance following completion of property sale, hopefully in April.
277		The first three payments were made broadly in accordance with the 22 January 2011 letter.
278		The 22 January 2011 letter evidences that the ATO agreed to accept payments from Petrolink in accordance with the terms of that letter and, by inference, that the previous oral arrangement was varied or displaced by the arrangement set out in the 22 January 2011 letter. To the extent that the contrary was suggested, there was no legal impediment to the ATO notifying Petrolink that it “agree[d] to accept” a payment arrangement on the terms of the letter. 
Second Director penalty notice
279		A second Director Penalty Notice dated 21 March 2011 shows that Petrolink failed to remit withholding tax for the month ended 31 December 2010 and due at the end of February 2011. 
Alleged oral payment arrangement in about April 2011
280		An ATO record dated 8 April 2011 states, relevantly:
Advised Barry…

…we have decided to grant the review payment arrangement with $2,500 monthly payments up until the date of the [blanked out] + 7 days for the client to contact the ATO with the result….

…the review date for the payment arrangement will be 13/05/2011.
281		There is no evidence of the date blanked out. Mr Boné gave evidence that the arrangement was discussed with Mr Soria of the ATO on 1 April 2011 and confirmed by Mr Boné in writing on 5 April 2011 but provided no written evidence of these facts.
282		I accept that a verbal arrangement was made on about 8 April 2011 requiring monthly payments of $2,500 until a period that was specified but not in evidence before the Court.
Final payment arrangement
283		By letter dated 13 April 2011, the ATO recorded a payment arrangement requiring the following payments on the following dates:
·	11 April 2011		$2,500.00
·	11 May 2011		$2,500.00
·	13 May 2011		$541,761.38
284		The 13 April 2011 letter evidences that the ATO agreed to accept payments from Petrolink in accordance with the terms of that letter and, by inference, that the previous verbal arrangement was varied or displaced by the arrangement set out in the 13 April 2011 letter. To the extent that the contrary was suggested, there was no legal impediment to the ATO notifying Petrolink that it “agree[d] to accept” a payment arrangement on the terms of the letter. In particular, the verbal arrangement made on about 8 April 2011 did not preclude the ATO from agreeing to accept payments on the terms in the letter.
285		The plaintiffs submitted that, as at 11 April 2011, Petrolink had no resources presently available to it, or which might conceivably have become available, that would have enabled it to pay the residual debt on 13 May 2011. I accept that submission, particularly in the light of the absence of evidence of steps taken to obtain sources of finance for a payment of this size in the foreseeable future. 
286		Payments of $2,500 were made to the ATO on 11 April 2011 and 31 May 2011. The payment due on 13 May 2011 was not made. 
Alleged 90 day oral payment arrangement?
287		An ATO record dated 10 May 2011 records, relevantly:
Barry also requested to continue to pay the agreed $2,500 a month [balance of sentence blacked out].
288		In a facsimile dated 13 May 2011 to the ATO, Mr Boné said relevantly:
I will keep up with your confirmed arrangement of $2500 per month and current BAS lodgements and payments. The previous arrangement of $10,000 per month was too onerous and put too much pressure on the business. This amount is much more manageable. We should have another review after 90 days to assess how things are progressing.
289		An ATO record dated 6 June 2011 records, relevantly:
Fax received on 18/05/2011…also mentions that the client will continue with the confirmed review arrangement of $2,500 per month over the next 90 days.
…
Client continues to pay their ongoing liabilities and an amount of $2,500 at the beginning of each month which is not acceptable when considering the size of the debt and the fact that we had not received financial information as requested. If payment in full or a suitable arrangement is not received by the 13th June a s 459E demand will be issued on the next review.
…
Legal action to commence after 13/06/2011 if payment in full has not been received.
290		The defendants submitted that the ATO view that payments of $2,500 per month were “not acceptable” was not conveyed to Mr Boné. Accepting that this is so, in my view, the evidence does not demonstrate that there was a 90 day payment arrangement in May 2011. Rather, in my view, Mr Boné asserted the existence of an arrangement based upon a proposal he had made in the absence of any assent by the ATO to the proposal.  The mere assertion by Petrolink as debtor that an arrangement (to pay less than what is due and owing) is “confirmed” did not make it so in the absence of any confirmation by the ATO. 
291		By facsimile dated 29 June 2011 to the ATO, Mr Boné again asserted that a payment arrangement was made to continue to meet current tax obligations “and continue to pay $2,500 per month off the old debt as suggested by you”. However, no evidence was adduced from any of the ATO officers who were allegedly party to the conversation in which the arrangement was made. In their absence, and without any written corroborative evidence of the arrangement (beyond Mr Boné’s assertions), I find that no such arrangement was made.
Conclusions about payment arrangements in the January to June 2011 period
292		I do not accept that any of these payment arrangements had a material effect on the solvency of Petrolink because of the shortness of their duration and the fact that none of them had the effect that Petrolink was not required to pay its outstanding tax liability imminently. They demonstrate that Petrolink was continuing to experience common features of insolvency.
Other events during January to June 2011
293		According to the liquidator, from early 2011, the company’s poor trading began to impact on its ability to pay debts due to ordinary creditors. Mr Boné agreed in cross examination that Petrolink was “managing” its cash flow by paying creditors by instalments in both August 2010 and April 2011. Supplier ledgers showed that creditors were being paid in instalments, for example, G-Tech (April to December 2011), Snowy Mountains Sand & Gravel (April to October 2011), Fibretank Systems Pty Ltd (May to December 2011), and Labmark Pty Ltd (May to December 2011).
294		On 21 March 2011, the ATO issued a “point in time garnishee notice” to the Bank of Queensland in the sum of $592,131.90 or 30% of available funds. The ATO sent a copy of the notice to Petrolink. The letter stated:
Our records show that an amount of $592,131.90, being a debt payable to the Commonwealth, remains unpaid on your account with this office.
295		The same day the ATO issued a Director Penalty Notice to Mr Boné for the sum of $30,806 in respect of PAYG withholding payments for the period 1 to 31 December 2010.
296		By facsimile dated 25 March 2011 to the ATO, Mr Boné told the ATO that the “forced bank withdrawal” (which seems to refer to the garnishee notice) had “seriously destabilised” Petrolink’s cash position.  The amount received by the ATO from the Bank of Queensland was about $12,000. 
297		Mr Boné proposed the following “short term plan” for the ATO’s approval:
1.	Petrolink will make monthly payments of $2,500 towards the existing debt.
2.	On settlement of my property presently up for sale, the majority of the funds realised after costs and disbursements will be used towards reducing the existing debt. This amount is estimated to be between $200,000 and $250,000 depending on the final sale price. The ATO have confirmed that the remaining 50% of GIC will be removed to the account at this time.
3.	Any outstanding debt left after the above transaction will be paid by continuing with a monthly repayment amount similar to point 1, to be confirmed at the time of a full review taking place of this debt, and a long term repayment arrangement being put into place. 
298		The plaintiffs submitted that, as at 30 March 2011, the company was indebted to the Commissioner of Taxation in an amount of at least $600,000.00, and it remained indebted to the Commissioner of Taxation for at least that amount until the commencement of the winding up. The ATO portal itemised account shows a debt as at 25 March 2011 of $604,640.45.
299		By letter dated 6 April 2011, the ATO informed Petrolink that it had remitted $66,003.90  of general interest charge. The ATO portal itemised account records a credit of $66,598.57 on that date and a balance owing of $538,041.88.
300		On 19 April 2011, Mr Boné received an email from George Palmer of Fibretank Systems Pty Ltd complaining about outstanding accounts. The email attached a letter which stated relevantly:
In summary we have current debts and work in progress of $254,943.40 some of which is agreed interest on prior debt accommodation not paid along with tank supply on which credit has been extended for 8 months with no payment and currently a commitment for $78,848.00 which is feeling progressively like a bad job with no security as requested, and we are not hearing from you as promised.

I am sorry that it has come to this but my confidence is eroded to the point that I believe there is every likelihood you will drag me under. I need reassurance the outstanding accounts will be settled against a plan and I require some security to support your commitment.
301		In May 2011, Petrolink undertook a review and overhaul of its operations and cost structure, as a result of which it closed its two satellite offices and reduced operating costs substantially.
302		On 6 May 2011, Mr Boné informed the ATO that his investment property in Penrith had not sold at auction, but that he was going to continue to market it for sale.
Alleged payment arrangements with trade creditors
303		The defendants contended that Petrolink had payment arrangements with 19 trade creditors as at 11 May 2011.  They argued that these creditors (whose debts totalled $285,608.25 as at 30 June 2011) should be deducted from the calculation of trade creditors for the cash flow analysis as at 30 June 2011.  However, even with that deduction, the defendants themselves calculated a current net asset shortfall as at 30 June 2011 of $207,566.75.
304		The evidence as to the existence of the payment arrangements was unsatisfactory. Generally, it revealed that Petrolink’s creditors were acquiescing in receiving payment by instalments rather than making explicit agreements to extend credit.
305		On 6 June 2011, Petrolink received a notice of intended legal action from the ATO which stated that the amount outstanding on Petrolink’s integrated client account was $545,798.69.
306		On about 16 June 2011, Petrolink received a statutory demand from the ATO. The statutory demand stated that Petrolink owed the Deputy Commissioner of Taxation $547,583.76, being the running balance account deficit debt as at 16 June 2011.
307		On 27 June 2011, Ms Tasjic, resigned from Petrolink because of its financial position.
Position as at January 2011
308		The plaintiffs submitted that as at January 2011 Petrolink did not have the funds available to it, and had no prospect of generating from its own activities, the money needed to make that final instalment at the end of April. I accept that submission. Having regard to the 4 February 2011 facsimile, the most that Petrolink intended to do was to make a “lump sum contribution” towards repaying the tax debt following the sale of a property. In particular, there is no evidence that Mr Boné took steps to make available to Petrolink his own funds for the purpose of paying Petrolink’s tax debt.  
Position as at 30 June 2011
309		As at 30 June 2011, Petrolink was in default of the final written payment arrangement.
310		For the year ended 30 June 2011, Petrolink reported a net trading loss of $292,755.  
311		Based on Petrolink’s balance sheet as at 30 June 2010, the company’s assets totalled $1,052,420 and liabilities totalled $2,077,347 producing a net asset deficiency of $1,024,927. Petrolink’s balance sheet recorded current assets of $888,651, and current liabilities of $1,713,738 including trade creditors of $698,497, producing a net deficiency of current assets to current liabilities as at 30 June 2009 of $825,087.
312		The Petrolink balance sheet spreadsheet shows a liability of $551,386 for “ATO integrated client account” for the month of June 2011.
313		The defendants submitted that, as at 30 June 2011, the amount owing to the ATO was $547,293.59. This figure is taken from the “AIS account list”. 
314		Petrolink’s ATO portal itemised account also shows a tax debt on about 30 June 2011 of the same figure (although it also shows a higher figure of $644,035.39 after including self-assessed amounts of PAYG withheld and GST  for the periods ended 31 May 2011 and 30 June 2011).
315		I am satisfied that, as at 30 June 2011, Petrolink’s liability to the Commissioner of Taxation was around $547,294.  For the reasons set out above, I am satisfied that this liability was due and payable notwithstanding the April 2011 written payment arrangement.
316		The liquidator calculated that, as at 30 June 2011, Petrolink had a shortfall of liquid assets on its immediate obligations as at of $796,021. This figure is calculated as follows:
Debts due and payable 		$1,261,094
Less liquid assets		$   464,956
				$   796,138
317		The figure of $1,261,094 is the sum of trade creditors of $622,966 incurred prior to 1 June, other creditors of $67,014 and a tax debt of $571,114. Based on my conclusion that that a tax debt of $547,294 was due and payable, and taking into account that Petrolink was in default of the April 2011 payment arrangement as at 30 June 2011, I agree that the tax debt should be included in the figure for debts due and payable. Mr Smith’s figure for “other creditors” was not challenged by the defendants, and appears to have been for payroll tax liability. A higher figure for NSW payroll tax liability is recorded in the balance sheet spreadsheet for June 2011. Including total trade creditors, Petrolink’s debts due and payable as at 30 June 2011 were [$1,261,094 + $75,531=] $1,336,625.
318		The defendants submitted that the figure for trade creditors should be reduced by an amount of $282,301.84 to account for payment arrangements in place with those creditors as at 30 June 2011.  I do not accept that this reduction would be appropriate where the evidence indicated at most that trade creditors were acquiescing in the receipt of instalment payments in reduction of their debts.
319		The liquid assets figure again comprises cash, debtors, stock and related party loans. Mr Needham identified additional current assets including debtors within 30 day terms, totalling $503,695. Including this amount, liquid assets as at 30 June 2011 were $968,651.
320		Accordingly, I find that, as at 30 June 2011, Petrolink had a shortfall of liquid assets on its immediate obligations. My calculation is as follows:
Liquid assets			$968,651
Less debts due and payable	$1,336,625
				$367,974.
321		I note that Mr Needham also calculated a shortfall of $367,974. In their submissions, the defendants calculated a shortfall of $207,566.75.
322		The liquidator accepted during cross-examination that he had not seen any dishonoured cheques or letters of demand (except from the ATO) for the year ended 30 June 2011.
After June 2011
323		After Petrolink received the statutory demand in June 2011, it continued to trade. Mr Boné did not make it his business to tell Petrolink’s suppliers about the statutory demand.
324		An ATO record dated 6 July 2011 records:
Received a call from Mr Bone (dir) I then advised him that we are not prepared to withdraw the s 459E demand and will in fact file in the Courts for a wind-up order.
325		A further request for an instalment arrangement was rejected in late September 2011.
326		An “aged payables” spreadsheet records debtors of $503,538.86 as at 7 December 2011.
327		The ATO portal itemised account shows that, as at about 5 December 2011, Petrolink’s tax debt was about $696,987.23.
328		By deed of appointment dated 22 December 2011, the liquidator appointed himself as administrator of Petrolink. The deed of appointment records that the liquidator had conducted a preliminary review of the financial and operational affairs of Petrolink and determined that a better return for creditors would be more likely under a voluntary administration than an official liquidation. The deed also records that on 21 December 2011, a judge of this Court granted leave for the liquidator to appoint himself administrator.
329		The administration was terminated on 29 March 2012.
330		In his affidavit in support of the application for leave to appoint himself as liquidator, Mr Smith said:
I am informed by Mr Bone and verily believe that he intends to put forward a Deed of Company Arrangement proposal. Whilst the proposal is in its preliminary stages, it is expected that the proposal will involve the following:
(a)	A continuation of trading by the Company under the control of its director;
(b)	The establishment of a Deed Fund for the benefit of creditors into which will be paid an injection of funds from external sources which would not otherwise be available to creditors and part of the trading surplus generated during the period of the Deed of Company Arrangement; 
(c)	A further injection of funding by Mr Bone and/or associated parties to be utilised by the Company for working capital. 
331		The liquidator also deposed to the facts that his investigations to that point had not identified any evidence of insolvent trading.
332		Ultimately, Mr Boné did not submit a DOCA proposal.
Funds available to Petrolink from external sources
333		Mr Needham prepared calculations of Petrolink’s “adjusted net asset position” on the assumption that financial support was available to the company at relevant times. The calculations show positive adjusted net assets as at 30 June 2009 and 2010, and negative adjusted net assets as at 30 June 2011.
334		Mr Needham’s opinion was that, if the amounts he assumed were the extent of the financial support available to the company and its assets could be realised in an orderly manner at book value then, the position of creditors looking to the company’s assets for payment of their debt was “becoming perilous at some stage during the financial year ended 30 June 2011”.
335		Mr Needham assumed that there was financial support comprising:
1.	Mr Boné’s shareholders loan;
2.	Loans secured by a third party; and
3.	An available equity contribution.
336		In the joint expert report, Mr Needham identified an available equity contribution of $450,000 as a factor in his opinion that the date of insolvency is 7 July 2011.  I understood the defendant’s case to involve two elements, namely:
1.	That the available financial support affected net assets, this being a relevant factor in determining solvency; and
2.	That the available equity contribution might, to the extent that it was liquid, be taken into account in calculating whether Petrolink was solvent at any particular time. 
337		In their written submissions, the defendants relied upon Mr Boné’s September 2014 affidavit to support findings as to the external resources available to Petrolink.
338		In Mr Boné’s December 2013 affidavit, he gave evidence of the assets and income streams that were available throughout the period from 30 June 2009 to 30 June 2011 and from which he could personally have met Petrolink’s obligations.
339		In closing submissions, Mr Golledge referred to statements of Palmer J in Lewis v Doran [2004] NSWSC 608; 208 ALR 385, in relation to the prospective question whether a company should be wound up in insolvency. He referred to the Court’s “reluctance to conclude that a company will be able to pay those debts which must be taken into account as a matter of commercial reality as at the relevant date only because it claims to have access to funds which a third party is said to be willing to lend without security”. Palmer J noted that, if the question is “retrospective insolvency”, the Court can look at what actually happened, thereby avoiding the possibility of a conclusion that a company could not pay its debts when it clearly did pay those debts.
340		In my opinion, Palmer J’s analysis is only relevant to this case in that it underscores the unreality of the defendants’ contention that funds were available to Petrolink although they were not used to pay Petrolink’s debts.
341		The defendants seemed to submit that the true position was that Petrolink was able to pay its debts, but was simply unwilling to do so. They referred to the decisions of Queensland Bacon v Rees [1996] HCA 21; (1996) 115 CLR 266 at 292 and Sarina v Council of the Shire of Wollondilly (1980) 32 ALR 596. In Queensland Bacon, Barwick CJ made the observation that insolvency requires the debtor to be unable, as distinct from merely unwilling, to pay his debts as they fall due. That observation was made in the context of considering the law about whether a creditor was a payee in good faith, not knowing or having reason to suspect the fact of the debtor’s insolvency. In Sarina v Council of the Shire of Wollondilly (1980) 32 ALR 596, the debtor paid into Court the full amount allegedly owing together with an amount on account of costs. In neither case was evidence of the kind now put forward accepted as evidence of a debtor’s solvency.
342		This submission is inconsistent with Mr Boné’s evidence, set out at paragraph 176 above, that he did not engage in a deliberate strategy of not paying Petrolink’s accruing debt. As he said, “it was a question of trying to pay everybody as much as possible from the funds that we had available”. In correspondence dated 30 August 2010, Mr Boné told the ATO that Petrolink had “taken all possible avenues to raise the necessary funds” without success. 
343		In his September 2014 affidavit, Mr Boné said:
In my personal capacity I was ready, willing and able to provide Petrolink with the funds I have set out in my first affidavit. However, I chose not to use the funds that could have been obtained by realising my personal assets or those of my wife or [BHB Management Pty Ltd] during the period June ’09 and July 2011 because throughout that period it was my view, as managing director of Petrolink, that it was not necessary for Petrolink to access those funds.
344		I reject the submission that the assets and income streams identified by Mr Boné were truly available to Petrolink at any relevant time, those assets and income streams not having been used to meet Petrolink’s obligations.  I accept that Mrs Boné’s evidence on the subject was given honestly, but its weight is necessarily limited having been given in hindsight.
345		Further, on Mr Boné’s affidavit evidence set out above, his belief that it was not necessary to make funds available to Petrolink caused those funds to be unavailable to the company.  Accordingly, that evidence does not assist the defendants’ case.
346		Contrary to what the defendants seemed to suggest, the Court was not required to accept Mr Boné’s evidence as to external sources of funding, merely on the basis that it was not challenged in cross-examination particularly where, as in this case, it was inherently improbable having regard to the events which actually happened and Mr Boné’s own evidence to the contrary: cf Ellis v Wallsend District Hospital (1989) 17 NSWLR 553 at 586 and 587.
347		Further facts demonstrating that there were no external funds available to Petrolink which ought to be taken into account in assessing Petrolink’s insolvency are the following:
a.	Mr Boné did not make substantial loans to Petrolink over the relevant period. He was not a “banker” for Petrolink; rather, from time to time he made small loans which seems to have been re-paid reasonably quickly;
b.	The internal discussion of Petrolink’s need for funds in June 2010 did not produce any substantial equity contribution;
c.	There was no substantial equity contribution made, or even proposed, while the company was in administration.
348		In the absence of any evidence that a particular source of money was identified in around October 2010, I accept the plaintiffs’ submission that, as at that time, the only possible source of money from which a debt of the size of Petrolink’s tax debt could be paid within the time limit identified by the ATO in the payment arrangement dated 20 August 2010 was the bank to which finance applications were made around that time. Those applications were unsuccessful.
349		In particular, there was no evidentiary basis for the submission in the defendant’s “alternative solvency calculations” that Petrolink had available to it external funding of $608,021 as at 30 June 2010 and $796, 138 as at 30 June 2011. These figures were the shortfalls of liquid assets over debts calculated by the liquidator in his solvency report which, he agreed in cross examination would be reduced to nil if Petrolink had external sources of funding in those amounts.
Conclusions as to liquidator’s particulars of insolvency
350		Based on the evidence and findings above, I am satisfied as to the facts relied upon by the liquidator as particulars of insolvency to the following extent:
1.	As at 30 June 2009, 30 June 2010 and 30 June 2011, Petrolink’s liabilities exceeded its assets; 
2.	During the whole of the period from 30 June 2009 to 7 December 2011, the company was unable to trade at a profit and incurred trading losses in each of the financial years ended 30 June 2009, 2010 and 2011;
3.	The company had a cash flow shortfall on its immediate obligations as at each of 30 June 2010 and 2011;
4.	The company had a deficiency of current assets to current liabilities as at each of 30 June 2009, 2010 and 2011;
5.	The company had a deficiency of total assets to current liabilities as at each of 30 June 2009, 2010 and 2011;
6.	As at 30 June 2009, the company was indebted to the Commissioner of Taxation in an amount of $356,254.15;
7.	As at 30 March 2011, the company was indebted to the Commissioner of Taxation in an amount of at least $600,000.00, and it remained indebted to the Commissioner of Taxation for over $500,000 (and over $600,000 from late July 2011) at least until the commencement of the winding up;
8.	As at 7 December 2011, the company was indebted to the Commissioner of Taxation for a little over $696,987.23; and
9.	During the period from 30 June 2009 to 7 December 2011, the company made six written instalment arrangements with the Australian Taxation Office for payment of the outstanding tax debt and failed to comply with each of those arrangements.
351		The liquidator’s cash flow analysis, undertaken on the revised figures set out above, shows a significant shortfall at each of 30 June 2010 and 30 June 2011. There are no mitigating facts or circumstances which would lead to a conclusion that Petrolink was able to pay its debts as and when they became due and payable on either of those dates.  In particular, there was no payment arrangement with the ATO as at either of those dates. Further, there are no resources that were available as a matter of commercial reality to enable Petrolink to pay its debts as and when they fell due at either date.  I accept the liquidator’s opinion that Petrolink was insolvent as at each of 30 June 2010 and 30 June 2011 having regard to the matters he identified.
352		While I accept the general proposition that a company may move in and out of solvency, in my view, the evidence in this case does not suggest that this was the case for Petrolink, at least after 30 June 2010. At all times from 30 June 2010, Petrolink had a very substantial tax liability which was due and payable and which it was unable to pay. The payment arrangements made with the ATO after that date were of such a short duration that they did not materially improve Petrolink’s solvency. The evidence does not indicate that, at any point after 30 June 2010, Petrolink’s financial position improved to the extent that it became solvent. To the contrary, Petrolink continued to be unable to make any substantial reduction in its very substantial tax debt and exhibited other features of insolvency including substantial difficulties in paying its trade creditors. It was unable to obtain alternative finance or to raise further equity capital.
353		There is also  evidence that Petrolink’s financial position steadily worsened including Mr Needham’s working capital calculations, adjusted to include Petrolink’s tax liabilities from time to time. Thus, in my view, Petrolink was insolvent at all times from at least 30 June 2010.
354		The position before 30 June 2010 is less clear. However, in my view, the events of May and June 2010 lead me to conclude that Petrolink was insolvent by this time. Specifially, the ATO portal itemised account shows that on 12 May 2010 Petrolink incurred debits of $39,890 for GST and $20,665 for PAYG tax withheld. It is reasonable to infer that the failure to meet these obligations, together with the further debit of $26,571 for PAYG tax withheld on 21 May 2010 may have been the trigger for the ATO’s threat of legal action on 25 May 2010. 
355		In my view, it is possible, and even quite likely, that Petrolink was insolvent before 12 May 2010, however, I am not satisfied about this for any particular date or for the whole of the period from 30 June 2009 on the balance of probabilities having regard to the positive cash flow calculation as at 30 June 2009 and the absence of any other cash flow analysis between June 2009 and May 2010. In saying this, I acknowledge that Mr Needham’s working capital calculations, adjusted to take into account the tax debt, plainly indicate financial problems over the period from 31 July 2009.
356		For the purposes of s 588E(3), if I am wrong that Petrolink was insolvent at all times from 12 May 2010, I find that it was insolvent on each of the following particular dates:
(1)	3 October 2010, when it failed to make the payment of $560,219.79 required under the seventh written payment arrangement;
(2)	1 November 2010, when it failed to make the payment of $558,403.08 required under the eighth written payment arrangement;
(3)	28 February 2011, when it failed to remit withholding tax for the month ended 31 December 2010;
(4)	30 April 2011, when it failed to make the payment of $549,652.11 required under the ninth written payment arrangement;
(5)		13 May 2011, when it failed to make the payment of $541,761.38 required under the final payment arrangement;
(6)	30 June 2011, on the basis of matters concerning Petrolink’s financial position as at that date set out above.
357		The defendants observed that the various arrangements made between Petrolink and the ATO were sufficient to stave off the commencement of enforcement action against the company until 16 June 2011, when the statutory demand was served. They submitted that it can be inferred from the available evidence that the ATO was “content” with the manner in which Petrolink was discharging its taxation obligations. Even if this is an appropriate inference to draw, that is not a matter that materially affects the assessment of Petrolink’s solvency.
358		I reject the submission that the Commissioner “took the view that the time for payment of [Petrolink’s] tax liability had been deferred notwithstanding there was “no strict compliance with s 255-10(2) of Schedule 1 to the TAA.  The available evidence, comprising the written payment arrangements, contradicts that submission.
359		The defendants submitted that, at its core, Petrolink was a “fundamentally sound business”. In support of that proposition, the defendants noted that the liquidators had taken the unusual step of appointing himself as administrator of the company shortly after his appointment. This was said to demonstrate the liquidator’s opinion that the company could be rescued and that no insolvent trading claims were worth pursuing.  Again, these considerations do not alter my assessment of Petrolink’s solvency. In particular, I do not think that too much weight can be placed on the administration of the company following its liquidation because this appears to have occurred in the context of an expectation of injections of funds which did not eventuate. 
360		The defendants submitted that Mr Boné devoted “considerable energy and enthusiasm to ensure that Petrolink’s debtors were paid within timeframes suitable to both Petrolink and creditors”.  I accept that Mr Boné made considerable efforts to pay Petrolink’s debtors as best he could out of the resources available to it. Mr Boné may well have thought that those efforts should have been suitable to Petrolink’s creditors, including the Commissioner of Taxation. However, the evidence demonstrates that those efforts did not cause the ATO to defer Petrolink’s payment obligations with the result that those efforts did not have a material impact on Petrolink’s solvency from time to time.
Debts incurred when Petrolink was insolvent
361		I find that all debts incurred by Petrolink from 12 May 2010 were incurred whilst the company was insolvent. For tax debts, these amounts are identified on the ATO portal itemised account. Taking into account the liquidator’s recovery of $140,000 from the ATO in accordance with s 588FF of the Act, pursuant to orders made by Emmett J on 25 September 2012. On my calculations, the tax debt incurred between 12 May 2010 and 7 December 2011 is approximately [$201,242.12 ($696,987.23 - $495,745.11) + $140,000=] $341,242.12.
362		For trade creditors, for the reasons given above, I am satisfied on the balance of probabilities that the debts incurred by Petrolink from 12 May 2010 comprise all the debts in Schedule B to the Amended Statement of Claim, with the following exceptions:
(1)	Groundsearch ($814.00);
(2)	F&G Electrics ($2,723.32);
(3)	Impact Training Institute Pty Ltd ($864.00)
(4)	Labmark (five debts: $1,221.00, $666.60, $456.50, $187.00 and $710.60).
363		All of these debts remain unpaid in the winding up with the following exceptions:
(1)	DJ Batchem Pty Ltd ($6,584.60);
(2)	2x2.com.au Pty Ltd ($1,732.50); 
(3)	Potter Automotive ($1,701.35). 
DID MR BONÉ HAVE REASONABLE GROUNDS FOR SUSPECTING INSOLVENCY?
364		“The inquiry relevant to s 588G(1)(c) is not an enquiry concerning the particular director whose conduct is under scrutiny. It is an inquiry into the objectively formed state of mind of a person of ordinary competence”: Australian Securities and Investments Commission v Edwards [2005] NSWSC 831; (2005) 54 ACSR 583 at [249].
365		As to the relevant state of mind, in Queensland Bacon v Rees [1996] HCA 21; (1996) 115 CLR 266 at 303, Kitto J said:
In the first place, the precise force of the word “suspect” needs to be noticed. A suspicion that something exists is more than a mere idle wondering whether it exists or not; it is a positive feeling of actual apprehension or mistrust, amounting to ‘a slight opinion, but without sufficient evidence’, as Chambers’s Dictionary expresses it. Consequently, a reason to suspect that a fact exists is more than a reason to consider or look into the possibility of its existence. The notion which ‘reason to suspect’ expresses in sub-s. (4) is, I think, of something which in all the circumstances would create in the mind of a reasonable person in the position of the payee an actual apprehension or fear that the situation of the payer is in actual fact that which the subsection describes — a mistrust of the payer's ability to pay his debts as they become due and of the effect which acceptance of the payment would have as between the payee and the other creditors.
366		The liquidator alleges that during the whole of the period from 30 June 2009 to 7 December 2011, there were reasonable grounds for suspecting that the company was insolvent.
367		“Reasonable” in this context imports the standard of reasonableness appropriate to a director of reasonable competence and diligence, seeking properly to perform his or her duties as imposed by law (when viewed as a whole) and capable of reaching a reasonably informed opinion as to Petrolink’s financial capacity: Plymin (No 1) at [423].  Accordingly, in determining whether s 588(1)(c) is satisfied, the Court must ascertain:
(1)	What  facts concerning the ability of Petrolink to pay its debts as they fell due were, or should have been, known to Mr Boné as a competent director of Petrolink during the period from 30 June 2009 to 7 December 2011; and
(2)	Whether those facts constituted reasonable grounds for suspicion of insolvency.
368		The defendants submitted that a reasonable person of ordinary competence would not have suspected that Petrolink was insolvent prior to 7 July 2011 because: 
·	The GFC was a once in a lifetime event which affected all businesses. Petrolink had been in business for 25 years and a reasonable director would assume that it could “weather the storm”;
·	Very few of the usual indicia of insolvency existed. Petrolink’s creditors were content to trade with the company and did not take action to recover their debts; and
·	The tax debt was being managed. The ATO took no steps to enforce its outstanding liability for nearly three years from the date of the first instalment plan.
369		In my view, Mr Boné had reasonable grounds to suspect that Petrolink was insolvent throughout the company’s insolvency being:
(1)	The level of its tax debt from time to time, being a debt that was at all times due and payable;
(2)	Petrolink’s inability to pay the tax debt at all times;
(3)	The terms of the arrangements negotiated with the ATO from at least the fourth written payment arrangement which demonstrated that the ATO required Petrolink to pay its tax debt in full or at least substantially within a very short space of time, 
(4)	The fact that Petrolink never had access to resources which could have given Mr Boné reason to believe that Petrolink could comply fully with any written payment arrangement in place from 12 May 2010;
(5)	Petrolink’s non-payment of PAYG withholding tax in March and April 2010 and the ATO’s subsequent threats of legal action in May and June 2010;
(6)	From 23 June 2010, the meeting on that date at which I have found that Mr Boné was advised that  Petrolink had engaged in insolvent trading albeit with the support of creditors, and Petrolink may or engage in insolvent trading if the business continued to trade;
(7)	From July 2009, Petrolink’s progressive inability to pay trade creditors in a timely way.
370		Those facts constituted reasonable (and ample) grounds for suspecting insolvency because a director of reasonable competence and diligence, aware of those facts, would have concluded that Petrolink was unable to pay its tax debts in full at all times from 12 May 2010 and was unable to pay those tax debts in accordance with any arrangement in place at the time that such a director gave consideration to the question. 
371		The defendants did not explain how the GFC and the company’s lengthy experience are matters that could have alleviated the suspicions of a director of reasonable competence and diligence arising from the facts I have identified. As to the former, I do not accept that it is a matter that could reasonably have been weighed in Petrolink’s favour in an assessment of its financial capacity. As to the latter, the defendants did not identify particular aspects of the company’s experience that would be relevant to an assessment in the period 12 May 2010 to 7 December 2011. 
372		As to the question of indicia of insolvency, it is not correct to say that “very few of the usual indicia of insolvency existed”. Several important indicia were demonstrated by evidence, as noted above. The overall picture was one in which Petrolink was “managing” (to use Mr Boné’s word) its relationship with its trade creditors by non-compliance with its tax obligations. 
373		As to the relationship with the ATO, in my view, a director of reasonable competence and diligence would have taken some comfort from his or her ability to negotiate successive payment plans with the ATO but would also have recognised that those plans did not affect the status of the tax debt as due and payable. Thus, those arrangements would not have been sufficient to cause a director of reasonable competence and diligence not to suspect Petrolink’s insolvency.
374		Mr Boné’s situation is analogous to that described by Barrett J in ASIC v Edwards [2005] NSWSC 831; 54 ACSR 583 at [215]. That is, it was one in which a director of ordinary competence, viewing objectively the whole of Petrolink’s circumstances at the time of incurring the relevant debts from May 2010, would have had no real idea at all where the necessary money to pay those debts would be found.
DID MR BONÉ HAVE A REASONABLE EXPECTATION AS TO PETROLINK’S SOLVENCY?
Legal principles
375		An expectation of solvency requires a higher degree of certainty than mere hope or possibility. The defence requires an actual expectation that Petrolink was and would continue to be solvent: Tourprint International Pty Ltd v Bott [199] NSWSC 581; (1999) 32 ACSR 201 at 215.
376		There must be an expectation held on reasonable grounds that recourse to funds will enable debts to be paid, not at some indefinite time in the future, but at the time those debts are due for payment: Sheahan v Hertz Australia Pty Ltd (1995) 16 ACSR 765 at 769; Hall v Poolman [2007] NSWSC 1330; (2007) 65 ACSR 123 at [265].
Consideration
377		The defendants relied upon the payment arrangements with the ATO as reasonable grounds for expecting that Petrolink was solvent. In addition, they relied upon the company’s generation of significant revenue and the availability of external sources of funding to meet any shortfall in liquidity. 
378		These matters are insufficient to demonstrate a reasonable expectation of the relevant kind. As to the payment arrangements, I have found that they did not cause Petrolink’s tax debts not to be due and payable. The mere fact that the company was generating significant revenue goes nowhere while its debts continued to be unpaid. There were no available sources of funding.
379		Accordingly, the systems in place to manage Petrolink’s financial situation, referred to by the defendants in their closing submissions, do not support a conclusion that Mr Boné had a reasonable expectation as to his company’s solvency. 
DID MR BONÉ TAKE REASONABLE STEPS TO PREVENT PETROLINK INCURRING THE RELEVANT DEBTS?
Meaning of “reasonable steps”
380		The defendants referred to the following passage in the Public Exposure Draft and Explanatory Paper for the Corporate Law Reform Bill 1992 (Cth), concerning the then proposed s 588H(5):
The use of the word reasonable in this provision requires the court to have regard to factors such as the size and complexity of the company concerned, the size of the debt which was incurred and the nature of the grounds which gave rise to the suspicion of insolvency. Clearly, where a company has liquidity problem, a court might expect a company to more stringently monitor its expenditure and income, and where reasonable grounds exist for suspecting that the particular transaction would result in the insolvency of the company, for that to cause immediate action to be taken to ascertain whether or not this would result. To take advantage of s 588H(5) a court might require unequivocal action on the part of those directors seeking to rely on the defence to exercise what powers and functions they possess, either to prevent the incurring of the debt directly or to bring the matter to the attention, either or an officer with the necessary authority to prevent the incurring of the debt or to the board of directors where that is required. The provision is not intended to hamstring the company by requiring that every transaction no matter how small be scrutinised because of an academic possibility of the company’s trading whilst insolvent. 
Consideration
381		The defendants did not make detailed submissions on this defence, but referred to evidence that Mr Boné took steps to scale back Petrolink’s operations and reduce staff numbers, and evidence of “stringent monitoring” of the company’s expenditure. I do not accept that evidence of this kind supports any finding that any steps were taken amounts to prevent the company incurring debt within the meaning of s 588H(5).
382		Accordingly, this defence is rejected.
DOES S 588M APPLY?
383		For s 588M to apply, the plaintiffs must demonstrate that:
(a)	The Commissioner of Taxation and the various trade creditors to whom debts were owed have “suffered loss or damage in relation to the debts because of the company’s insolvency”; and
(b)	Each relevant debts was wholly or partly unsecured when the loss or damage was suffered.
384		The defendants deny that the creditors have suffered loss. They say that the liquidator has failed to establish that the creditors have suffered loss and damage and, if so, the quantum of any such claim for any period. 
385		I do not accept this submission. I have made findings as to the debts incurred by Petrolink whilst insolvent. With the exception of DJ Batchen, there is no evidence that any of these debts has been paid. Mr Smith gave evidence that, as at 5 September 2014, there were no available funds in the liquidation and that, in the absence of a recovery in this proceeding, he did not expect that any dividend would be paid to the company’s unsecured creditors. 
386		The defendants also sought to rely upon Mr Needham’s opinion that the loss and damage “is not simply the amount of the debt alleged to have been incurred”. 
387		Mr Needham referred to the following commentary in Australian Law Reform Commission, Report No 45: General Insolvency Inquiry (1988) at [317]:
…the Commission proposed that the court have a very broad power to give judgment in favour of the company in such amount as is just having regard to the interests of the creditors. It is not sufficient simply to provide that the measure of damages should be an amount equal to the sum of the unpaid debts which were incurred during the period of insolvent trading. If the court did not have a discretion of the kind proposed in DP32, the directors could use the assets of the company to pay off the creditors whose debts were incurred during the period of insolvent trading. This would extinguish the cause of action even though the assets available for other creditors would have been reduced if not exhausted. 
388		The defendants did not make any detailed submission in support of Mr Needham’s contention. In so far as I can understand it, the point draws its force from the substantial reduction in trade creditors between 7 July 2011 and the date of winding up. Since I have found that the company was insolvent at all times from 12 May 2010, and there was a substantial increase in trade creditors from that time until the winding up, I am not satisfied that there is a basis for concluding that the identified creditors suffered loss in a lesser amount than the total of the unpaid debts.
389		The creditors’ loss, being the amount recoverable from the director by way of compensation will, in the ordinary course, be the equivalent of their outstanding debts: Powell v Fryer [2001] SASC 59; (2001) 37 ACSR 589 at [88]; Tourprint International Pty Ltd (in liq) v Bott [1999] NSWSC 581; (1999) 32 ACSR 201 at [78].
390		I accept that the amounts of the outstanding debts are the amounts of the creditors’ losses.
391		As to the question of security, the defendants admitted that the debts to the Commissioner of Taxation were unsecured. Although this fact is denied in relation to trade creditors, the only submission that I detected against it concerned the Romalpa clauses affecting four creditors.
392		The defendants noted that Pacific Gauge does not appear to have proved as an unsecured creditor in the liquidation, while Safe-Quip has only proved to the extent of $565.40. They did not explain why the existence of the Romalpa clause produced the result that the debts to Pacific Gauge, Pirtek, Safe-Quip and Workin’ Gear were wholly or partly secured within the meaning of s 588M when each creditor suffered loss. As the plaintiffs observed, the general effect of the Romalpa clauses was that property in the goods the subject of the debt did not pass to Petrolink. I am not satisfied that the Romalpa clauses provide a basis for concluding that these debts were wholly or partly secured within the meaning of s 588M.
SHOULD MR BONÉ BE GRANTED RELIEF FROM LIABILITY?
Legal principles
393		Relief from liability for a contravention of s 588G is available under s 1317S including proceedings for relief under s 588M: Hall v Poolman [2007] NSWSC 1330; (2007) 65 ACSR 123 at [311].
394		Section 1317S confers a very wide discretion: Hall v Poolman [2007] NSWSC 1330; (2007) 65 ACSR 123 at [315]. The purpose of s 1317S is to “excluse company officers from liability in situations where it would be unjust and oppressive not to do so, recognising that such officers are businessmen and women who act in an environment involving risk in commercial decision-making: Daniels v Anderson (1995) 37 NSWLR 438 at 525; Hall v Poolman [2007] NSWSC 1330; (2007) 65 ACSR 123 at [315].
395		Sections 1317S and 1318 make substantially identical provision for the relied of persons who have or may have contravened a civil penalty provision: Australian Securities and Investments Commission v Healey (No 2) [2011] FCA 1003; (2011) 196 FCR 430 at [83] and [84]. Each provision involves the following three stages of inquiry: 
(1)	Whether the applicant for relief had acted honestly;
(2)	Whether having regard to all the circumstances, the applicant ought fairly to be excused;
(3)	Whether the applicant should be relieved from liability wholly or in part and, if partly, to what extent: Australian Securities and Investments Commission v Healey (No 2) [2011] FCA 1003; (2011) 196 FCR 430 at [84].
396		In Deputy Commissioner of Taxation v Dick [2007] NSWCA 190; (2007) 242 ALR 152 at [78], Santow JA explained s 1318 as a “dispensing power”, as following:
What is salient is that in the United Kingdom, dating back from s 32 of the English Companies Act 1907 (UK), later adopted in the Australian States, there is a consistent theme that the court should have power to relieve, in order that penal provisions or quasi penal provisions should not operate unfairly or harshly. Relief so extended does not strictly speaking exonerate the person in question by removing the breach; rather it operates as a dispensing power excusing the contravenor. “Exonerate” used in this s 1318 context has therefore the sense of taking a burden from a person who has committed a breach. It does not mean that the breach is deemed never to have occurred. Rather the person concerned seeks to satisfy the court that “having regard to all the circumstances of the case” he or she “ought fairly to be excused” so as to receive dispensation.
397		In Morley v Australian Securities and Investments Commission (No 2) [2011] NSWCA 110; (2011) 83 ACSR 620 at [125] to [126], the New South Wales Court of Appeal said:
Accepting that the need for personal deterrence is low, nonetheless general deterrence is in our view an important consideration given the nature and significance of the cash flow analysis contravention. As well, it is necessary that relief be granted appropriate to mark significant failure in performance of the duties of a senior executive of a large public corporation and to maintain public confidence in the law's upholding of corporate standards.

In a picturesque phrase, in Re One.Tel (In liquidation); Australian Securities and Investments Commission v Rich [2003] NSWSC 186; (2003) 44 ACSR 682 at [26] Bryson J observed that “[n]o-one should be sacrificed to the public interest”. That was taken up in Australian Securities and Investments Commission v Beekink  at [113]. Protection of the public, including by general deterrence, is at the heart of disqualification orders, and a delinquent officer against whom a disqualification order is made is not sacrificed. The phrase is a reminder that the public interest and the need to protect the public from repeated conduct or like conduct of others is balanced against the hardship to the officer. In our view, the balance requires a period of disqualification.
Consideration
398		In causing Petrolink to incur debts for a substantial period while that company was insolvent, Mr Boné failed to respond to the clear signs that the company was insolvent, preferring to argue to the ATO that he had or ought to have the benefit of purported arrangements that had not been made in the favourable terms which he asserted. The defendants submitted that there was no doubt in this case that Mr Boné was honest. I do not conclude that Mr Boné conducted himself dishonestly. If the test is whether Mr Boné acted without moral turpitude: cf Commonwealth Bank v Friedrich (1991) 5 ACSR 115 at 196 and Australian Securities and Investments Commission v Vines [2005] NSWSC 1349; (2005) 65 NSWLR 281 at [43], then I accept that Mr Boné so acted.
399		The next question is whether Mr Boné “ought fairly to be excused” from liability for his breaches. The issue to be resolved is whether he “acted honourably, fairly, in good faith and in a common sense manner as judged by the standards of others of a similar professional background”: Australian Securities and Investments Commission v Edwards (No 3) [2006] NSWSC 376; (2006) 57 ACSR 209 at [10]. 
400		The defendants submitted that Mr Boné’s conduct was relevantly similar to that of the director, Mr Irving, in Hall v Poolman [2007] NSWSC 1330; (2007) 65 ACSR 123 and of the director in McLellan v Carroll [2009] FCA 1415; (2009) 76 ACSR 67 at [201] to [206].
401		The defendants submitted that Mr Boné relied upon the following advice and took the following steps:
(1)	Mr Boné relied upon Ms Tajsic and Phillip Dent who were responsible for maintaining the company books and records and reporting to Mr Boné on Petrolink’s financial position;
(2)	Mr Boné also relied upon advice from Mr Holm, Mr Nastase and Mr Cottle throughout the period from 2009 to 2011 about the company’s financial position. Weekly reports were provided to Mr Boné in that regard;
(3)	Mr Boné gave unchallenged evidence that he relied on the information provided to him by Petrolink’s executive staff as to the company’s financial position on the basis of which he expected that the company was solvent throughout the period from 2009 to 2011;
(4)	Mr Boné was not told by any of these people during the relevant period that Petrolink was insolvent. Specifically, Mr Cottle did not advise Mr Boné that the company was insolvent;
(5)	Mr Holm did not give advice to Mr Boné that in his view the company should have moved to appoint a voluntary administrator.
402		Although Mr Boné may well have relied upon his advisers, he did not give evidence that he was ever advised during the period from 12 May 2010 that Petrolink was solvent, or that he received advice from any of his advisers that they did not believe that the company was insolvent.
403		I have rejected Mr Boné’s evidence that there was no discussion at the 23 June 2010 about whether Petrolink was insolvent.  I have concluded that one or more of Mr Boné’s advisers at the 23 June 2010 meeting at least advised him that Petrolink had previously engaged in insolvent trading albeit with the support of creditors, and that Petrolink may engage in  insolvent trading if the business continued to trade.  
404		In those circumstances, even if Mr Cottle did not advise Mr Boné that the company was insolvent, I attach little weight to that fact because there is no evidence that Mr Boné was actively seeking advice about the company’s solvency in circumstances where, at the very least, the issue was plainly a live one by 23 June 2010 if not earlier.
405		I also attach little weight to Mr Boné’s evidence that Mr Holm did not give him advice that the company should have moved to appoint a voluntary administrator, when there was no evidence that Mr Boné sought Mr Holm’s advice about the company’s solvency.
406		In those circumstances, I do not consider Mr Boné’s circumstances to be relevantly similar to the circumstances considered in Hall v Pollman and McLellan v Carroll.
407		I do not consider that the evidence demonstrates that Mr Boné’s conduct was of a kind that warrants him being excused from liability. This conclusion is based on the absence of evidence that Mr Boné sought advice as to the company’s solvency (except the advice recorded in the notes of the 23 June 2010 meeting), or evidence that Mr Boné received credible advice that the company was solvent at any time after 12 May 2010. In those circumstances, Mr Boné cannot be said to have been permitting Petrolink to continue to trade on the basis of expert advice that the company was solvent. 
408		Further, after May 2010, Petrolink made four payment arrangements with the ATO in circumstances where it had no clear plan as to how it would meet all the payments covered by the arrangements. There was no evidence that a reasonable, commercially experienced director would have made payment arrangements of the relevant kind in the circumstances. In doing so, I consider that Mr Boné’s conduct fell well short of the kind of conduct that would justify the application of s 1317S or s 1318.
409		I do not accept that Mr Boné’s conduct in dealing with its creditors from 12 May 2010, particularly the Commissioner of Taxation but also those trade creditors who were left unpaid or only partly paid, was fair in the circumstances. To the contrary, that conduct strongly suggested an attitude on Mr Boné’s part that he was entitled to decide what was in the best interests of the creditors and that, in the case of the ATO, he would (or should) be able to negotiate and renegotiate payment plans with them until Petrolink’s tax was fully paid, even if that would take years. I do not accept that Mr Boné’s conduct meets the standard identified in Edwards (No 3), such that he ought to be excused from liability for his contraventions of s 588G.
AMOUNT OF RECOVERABLE COMPENSATION
410		In Edenden v Bignell [2007] NSWSC 1122 at [30], Barrett J explained the operation of s 588M as follows:
This section does not allow recovery of the amount of the creditor’s debt as such. Rather, it is a provision allowing recovery of compensation measured by reference to loss or damage suffered by the creditor in relation to the debt because of the debtor’s insolvency. In some cases – perhaps most cases - this will be the equivalent of the amount of the debt: see, for example, Powell v Fryer [2001] SASC 59; (2001) 37 ACSR 589. In others – for example where a proof of debt is admitted and a substantial payment is made to all creditors rateably – the relevant loss or damage may be less than the amount of the debt. There may perhaps be circumstances in which the amount of the loss or damage exceeds the amount of the debt. The separateness of the debt, on the one hand, and the loss and damage, on the other, is emphasised by the statement in s.588M(3) that an amount equal to the loss or damage may be recovered “as a debt due to the creditor”.
411		In my view, the circumstances of this case do not warrant a conclusion other than that the recoverable compensation should be the total amount of the debts incurred and remaining unpaid during the period of insolvency 
412		The defendants submitted that there should be a deduction from the Commissioner of Taxation’s loss for the sum of $243,000 paid by Mr Boné in payment of a director’s penalty notice. 
413		I do not accept this submission for the following reasons: 
(1)	The amount paid was in the nature of a statutory penalty imposed upon Mr Boné (as opposed to Petrolink) by s 222AOC of the Income Tax Assessment Act 1936 (Cth) in respect of the liabilities of Petrolink;
(2)	At least as to $180,877.40 of the amount paid, the liabilities of Petrolink were incurred before the period of insolvency which commenced on 12 May 2010.
414		The defendants also submitted that the loss and damage of the Commissioner of Taxation should be reduced by an unspecified amount because, it was said, the ATO should have realised that Petrolink was insolvent. No authority was cited in support of this submission and I do not accept it. That issue was resolved, at least partly, by the preference proceedings in which the liquidator recovered $140,000.
SET OFF UNDER S 553C OF THE ACT
415		Petrolink is an insolvent company that is being wound up. Mr Boné is a person who wants to have a debt or claim admitted against Petrolink.
416		Mr Boné contends that there have been mutual credits, mutual debts or other mutual dealings between himself and Petrolink. The amended defence refers to an amount of $493,437,  but the particulars of the set off are:
·	Shareholder loan in the amount of “at least” $109,146;
·	Employee entitlements in the amount of “at least” $84,000.
417		The defendants written submissions quantified the set off at $193,146.
418		The plaintiffs conceded that the claimed set off has first instance support in the decisions of Re ACN 007 534 000 Pty Ltd (in liq); Ex parte Parker (1997) 80 FCR 1 at 11 and Hall v Poolman [2007] NSWSC 1330; (2007) 65 ACSR 123, and in the reasons of Young JA in Buzzle Operation Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2011] NSWCA 109; (2011) 81 NSWLR 47.  Nevertheless, it was argued that a set off is not available in answer to proceedings that are appropriately characterised as “misfeasance proceedings” because there is a lack of mutuality, by reference to the judgment of Millett LJ in Manson v Smith [1997] 2 BCLC 161. In Re Parker, Mansfield J said relevantly:
The debt in this instance…[arising under ss 588V and 588W], may not arise from any dealings between the two companies. In my view, that does not mean that the debt may not qualify for set-off under s 553C of the law. … the two debts are between the same companies. The burden of them would lie in the same interests. They are commensurable, in that they both sound in money. I see no reason why, having regard to the substance of the two debts, they should not be set-off. There is no reason in logic or principle to exclude statutory debts from the compass of provisions such as s 553C: Re Kolb; ex parte England v Federal Commissioner of Taxation (1994) 51 FCR 31. Although mutual credits and mutual debits will ordinarily result from prior dealings between the two parties, I do not think that is necessarily so. See Hankey v Smith [1789] EngR 2627; (1789) 3 T R 507n; Forster v Wilson [1843] EngR 1141; (1843) 12 M & W 191. As the Court in Gye v McIntyre said…: “the word `mutual' conveys the notion of reciprocity rather than of correspondence”.
419		French J, as he then was, said in Hicks v Minister for Immigration and Multiculturalism and Indigenous Affairs [2003] FCA 757 at [75] to [76]: 
It is well established that a judge of this Court should follow an earlier decision of another judge unless of the view that it is plainly wrong - Takapana Investments Pty Ltd v Teco Information Systems Co Ltd (1998) 82 FCR 25 at 33 (Goldberg J), citing Towney v Minister for Land and Water Conservation for New South Wales (1997) 147 ALR 402 at 412 and Esso Australia Resources Ltd v Commissioner of Taxation (Cth) (1997) 150 ALR 117 at 121. See also La Macchia v Minister for Primary Industries and Energy (1992) 110 ALR 201 at 204 where Burchett J said: 

`The doctrine of stare decisis does not, of course, compel the conclusion that a judge must always follow a decision of another judge of the same court. Even a decision of a single justice of the High Court exercising original jurisdiction, while "deserving of the closest and respectful consideration", does not make that demand upon a judge of this court: Businessworld Computers Pty Ltd v Australian Telecommunications Commission (1988) 82 ALR 499 at 504. But the practice in England, and I think also in Australia, is that "a judge of first instance will as a matter of judicial comity usually follow the decision of another judge of first instance [scil of coordinate jurisdiction] unless he is convinced that the judgment was wrong": Halsbury, 4th ed, vol 26, para 580. The word "usually" indicates that the approach required is a flexible one, and the authorities illustrate that its application may be influenced, either towards or away from an acceptance of the earlier decision, by circumstances so various as to be difficult to comprehend within a single concise formulation of principle...'

The injunction to judicial comity does not merely advance mutual politeness as between judges of the same or co-ordinate jurisdictions. It tends also to uphold the authority of the courts and confidence in the law by the value it places upon consistency in judicial decision-making and mutual respect between judges. And where questions of law, and statutory construction, are concerned the proposition that a judge who has taken one view of the law or a statute is `clearly wrong' is one not lightly to be advanced having regard to the choices that so often confront the courts particularly in the area of statutory construction. Indeed, where a serious doubt arises on the part of one judge, about the correctness of the law as stated by another, in a matter of importance, it may be desirable for a case to be stated to the Full Court for early resolution of the question in contention. 
420		The plaintiffs did not make detailed submissions on this issue, but sought to preserve their position in the event of an appeal. In my view, I should adopt the approach of Mansfield J for the reasons he gave in Re ACN 007 534 000 Pty Ltd (in liq); Ex parte Parker (1997) 80 FCR 1.
421		Accordingly, subject to the operation of s 553C(2), the sum of $193,146 is to be set off against the sum due from Mr Boné to Petrolink.
422		By s 553C(2), Mr Boné is not entitled to claim the benefit of the set-off above if, at the time of giving credit to the company, he had notice of the fact that the company was insolvent.              
423		In Jetaway Logistics Pty Ltd v Deputy Commissioner of Taxation [2009] VSCA 319; (2009) 26 VR 567, the Victorian Court of Appeal considered what constitutes “notice of the fact that the company was insolvent”. At [21] and [22], the Court said:
A person will have “notice of the fact” that a company is insolvent if the person has actual notice of facts which disclose that the company lacks the ability to pay its debts when they fall due, within the meaning of s 95. It is unnecessary to show that the person actually formed the view that the company lacked that ability. As the New South Wales Court of Appeal said in Hathaway Shirt Co Pty Ltd v B Rawe GmbH Company, it is “well established that there is a difference in law between receiving notice of a fact and being made fully and subjectively aware of the fact”.

What is required is proof of facts known to the creditor which warranted the conclusion of insolvency. Since “grounds for suspecting” insolvency will not suffice, it is not enough that insolvency is a possible inference from the known facts. Whether it must be the only reasonable inference open is a question we need not decide. …
424		As to the shareholder loans, the figure of $109,146 appears as a liability of Petrolink as at the end of each month from April to July 2011 in the Petrolink balance sheet spreadsheet. That spreadsheet discloses a loan balance of $56,954.11 as at June 2010. I infer from the spreadsheet that Mr Boné made loans to Petrolink totalling $52,192 after June 2010 with the rest of the loan balance having been advanced before that time. 
425		The applicable date for the purpose of considering the possible application of s 553C(2) in relation to the employee entitlements is not clear.  In the absence of evidence about when Mr Boné gave credit to Petrolink for this amount, I cannot be satisfied that s 553C(2) does not apply, and accordingly, I am not satisfied that he is entitled to the benefit of a set-off for this amount. 
426		In my view, Mr Boné had notice of the fact that Petrolink was insolvent at all times from 12 May 2010 because, at all times from that date he was aware of the extent of Petrolink’s tax debt, of the various payments made to the ATO and the various tax liabilities incurred from time to time, of the various payment arrangements from time to time and of Petrolink’s lack of capacity to comply with those payment arrangements. 
427		It follows that the set off to which Mr Boné is entitled under s 553C(1) must be reduced by the amount of [$52,192+$84,000=] $136,192. Therefore, the amount of the set off is $193,146 less $136,192 = $56,954.
CLAIM AGAINST VALVELINK
Statutory provisions
428		Section 588FF of the Act provides relevantly:
(1)	Where, on the application of a company's liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders: 
(a)	an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction; …
429		Section 588FE provides relevantly:
(1)	If a company is being wound up: 
(a)	a transaction of the company may be voidable because of any one or more of subsections (2) to (6) if the transaction was entered into on or after 23 June 1993; …
(2)	The transaction is voidable if
(a)	it is an insolvent transaction of the company; and 
(b)	it was entered into, or an act was done for the purpose of giving effect to it: 
(i)	during the 6 months ending on the relation-back day; or 
(ii)	after that day but on or before the day when the winding up began. 
…
(4)	The transaction is voidable if:
(a)	it is an insolvent transaction of the company; and 
(b)	a related entity of the company is a party to it; and 
(c)	it was entered into, or an act was done for the purpose of giving effect to it, during the 4 years ending on the relation-back day. 
… 
430		By s 588FC, a transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company, or an uncommercial transaction of the company, and: 
(a)	any of the following happens at a time when the company is insolvent: 
(i)	the transaction is entered into; or 
(ii)	an act is done, or an omission is made, for the purpose of giving effect to the transaction; or 
(b)	the company becomes insolvent because of, or because of matters including: 
(i)	entering into the transaction; or 
(ii)	a person doing an act, or making an omission, for the purpose of giving effect to the transaction.
431		Section 588FA provides:
(1)	A transaction is an unfair preference given by a company to a creditor of the company if, and only if: 
(a)	the company and the creditor are parties to the transaction (even if someone else is also a party); and 
(b)	the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company; 
even if the transaction is entered into, is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency. 
(2)	For the purposes of subsection (1), a secured debt is taken to be unsecured to the extent of so much of it (if any) as is not reflected in the value of the security. 
(3)	Where: 
(a)	a transaction is, for commercial purposes, an integral part of a continuing business relationship (for example, a running account) between a company and a creditor of the company (including such a relationship to which other persons are parties); and 
(b)	in the course of the relationship, the level of the company's net indebtedness to the creditor is increased and reduced from time to time as the result of a series of transactions forming part of the relationship; 
(4)	then: 
(a)	subsection (1) applies in relation to all the transactions forming part of the relationship as if they together constituted a single transaction; and 
(b)	the transaction referred to in paragraph (a) may only be taken to be an unfair preference given by the company to the creditor if, because of subsection (1) as applying because of paragraph (c) of this subsection, the single transaction referred to in the last-mentioned paragraph is taken to be such an unfair preference.
432		By s 588FG(1)(b), a court is not to make under section 588FF an order materially prejudicing a right or interest of a person other than a party to the transaction if it is proved that in relation to each benefit that the person received because of the transaction: 
(i)	the person received the benefit in good faith; and 
(ii)	at the time when the person received the benefit: 
(A)	the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in paragraph 588FC(b); and 
(B)	a reasonable person in the person's circumstances would have had no such grounds for so suspecting.
Alleged preferential payments to Valvelink
433		The disputed payments were allegedly made between 30 March 2011 and 7 December 2011.
434		As noted earlier, the relation-back day is 30 September 2011.
435		The liquidator contends that the net reduction in Petrolink’s debt due to Valvelink during the relation back period conferred an unfair preference on Valvelink within the meaning of s 588FA of the Act. 
436		The company’s records show that, as at 31 March 2011, Petrolink was indebted to Valvelink in the sum of $100,919.38. The records also show that between 30 March 2011 and 7 December 2011, Petrolink made 12 payments and allowed credits to Valvelink in the sum of $129,733.47 in respect of the debt owed, during that period, by Petrolink to Valvelink. The payments and credits are:
Amount		Transaction date
$50,698.93		31 March 2011
$7,810.00		5 April 2011
$10,000,00		20 April 2011
$7,810.00		23 May 2011
$17,016.97		10 June 2011
$11,857.00		19 July 2011
$5,853.97		19 September 2011
$5,941.12		19 September 2011
$3,944.43		22 September 2011
$2,226.40		30 September 2011
$3,469.52		26 October 2011
$3,105.13		4 December 2011
437		After taking into account goods and services provided by Valvelink during this period, by the time of the winding up, the debt due to Valvelink was completely repaid.
438		The defendants admit that Valvelink held no security in respect of any relevant debt.
439		Valvelink says that the sum of $129,733.47 reflects a running balance between Petrolink and Valvelink for amounts that were offset against each other in the period prior to 30 March 2011.  
440		The liquidator now contends that the 12 payments and credits totalling $129,733.47 were an integral part of a running account between Petrolink and Valvelink and that, in the course of that running account, the level of Petrolink’s net indebtedness to Petrolink was increased and reduced from time to time as the result of a series of transactions forming part of the relationship. I accept this contention, which I did not understand to be disputed by the defendants, except as to the particular character of the first payment or credit, discussed below. 
441		It follows that s 588FA(1) applies in relation to all the transactions forming part of the relationship as if they together constituted a single transaction, which transactions may only be taken to be an unfair preference given by Petrolink to Valvelink if, because of s 588FA(1) as applying because of paragraph 588FA(3)(c), the single transaction is taken to be such an unfair preference. 
442		On the liquidator’s calculations, the single transaction involved total receipts or credits by Valvelink from Petrolink of $95,065.41 ($100,919.38 less $5,853.97). The amount of $5,853.97 appears to have been paid by Valvelink to the liquidator some time in 2012. The amount of $95,065.41 was demanded from Valvelink by the liquidator by letter dated 29 August 2012. It is admitted that Valvelink has failed or refused to pay that amount.
443		The defendants dispute that the credit of $50,698.93 in Valvelink’s favour (being the first of the 12 payments/credits constitutes a preference payment, and refer to Mr Boné’s evidence that the amount related to goods and services supplied by Valvelink between August 2010 and March 2011. Valvelink says that the amount was a “credit” or “contra” made up of seven amounts charged from 23 July 2010 to 31 December 2010 by Petrolink to Valvelink on the one hand and for goods supplied and involved by Valvelink prior to 30 March 2011 on the other hand.
444		Mr Assaf did not submit that the credit was not a “transaction” within the meaning of s ss 588FA and 588FE. Rather, he submitted that the credit was not a transaction during the 6 months ending on the relation-back day. Instead, the credit was an accounting adjustment reflecting the substance of a transaction that had taken place well before 31 March 2011. In response, the liquidator contended that the relevant transaction was not the accrual of the debt, but its payment by credit or contra. I accept Mr Golledge’s submission on that point. As I read Mr Boné’s evidence, goods and services were provided by Valvelink to Petrolink for which invoices were issued dated between August 2010 and 29 March 2011. Three payments were made in part payment of three of the invoices. That evidence does not lead to an inference that the “accounting adjustment” of $50,698.93 in Valvelink’s favour was referable to a credit or payment that had occurred prior to the date of the adjustment. 
445		Subject to this issue, the defendants do not dispute that Valvelink received a benefit totalling $95,065.41 in respect of an existing unsecured indebtedness due to it, more that Valvelink would have received from Petrolink in respect of its outstanding debt if the payment was set aside and Valvelink was to prove for that debt in the winding up of Petrolink.  This benefit was received during the six months ending on the relation-back day.
446		It follows that, the amount of $95,065.41 is an unfair preference within the meaning of s 588FA and an insolvent transaction within the meaning of s 588FC and a voidable transaction within the meaning of s 588FE(2) of the Act.
447		The first plaintiff made a demand for the sum of $95,065.41 which was not satisfied.
448		By their defence, the defendants claim that Valvelink:
a.	Received the benefit of the relevant transactions in good faith within the meaning of s 588FG(1)(b)(i) of the Act;
b.	At the time when the said benefits were received by Valvelink, Valvelink had no reasonable grounds for suspecting Petrolink was insolvent and a reasonable person in Valvelink’s circumstances would have no such grounds for so suspecting within the meaning of s 588FG(1)(b)(ii) of the Act;
c.	In the premises, the Court should not make an order under s 588FF of the Act pursuant to s 588FG(1) of the Act.
449		The defendants did not address defence in their final submissions. To the extent that it is maintained, I reject it having regard to Mr Boné’s position as a director of Valvelink and his knowledge of the matters concerning Petrolink’s insolvency at all relevant times from March to December 2011.
CONCLUSIONS
450		The parties will be directed to prepare short minutes of orders to give effect to these reasons. The parties should use their best endeavours to agree on proposed orders but, in the event that they are unable to agree, should each prepare a draft of the orders they submit ought to be made. 

I certify that the preceding four hundred and fifty (450) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.	

Associate: 

Dated:	7 April 2015