Implications There are a number of lessons that can be taken from the case. They include: • The Court takes a number of factors into consideration when determining whether a company is solvent at a particular date – the critical test is the cashflow test. Consideration of indicia of insolvency is an important exercise but is secondary to the application of the cashflow test (at 4-6). • A presumption of insolvency is not proved under s286 of the Act just because a company does not maintain completely accurate financial records (at 44). • Get your story straight. Cross examination evidence often carries a lot more weight than affidavit evidence, particularly when the deponent makes concessions or statements that are contrary to his or her affidavit evidence (at 9). Even though the Liquidator was successful, Black J made a point of noting that “the Liquidator was unable to address the detail of several issues raised with him in cross-examination, referring to his need to review his work papers in order to do so” (at 7). • Secured creditors need to ensure that their security, and the underlying transaction, confers an actual benefit on all parties. If no real benefit is conferred, the Court may deem the transaction uncommercial, essentially relegating the creditor to the rank of an unsecured one. In other words, just because a transaction appears to do something does not necessarily mean that it does so. Transactions which cannot be explained by normal commercial practice, as they amount to a bargain of extreme magnitude for one party and have no substantive benefit to the other, are likely to uncommercial (at 51-55).
For more information, please contact:
TurkAlert
Pieter Oomens & Alison Malek | September 2013
Pieter Oomens Partner T: 02 8257 5709 M: 0417 268 334 pieter.oomens@turkslegal.com.au
Alison Malek Lawyer T: 02 8257 5775 M: 0411 482 219 alison.malek@turkslegal.com.au
www.turkslegal.com.au Syd | Lvl 44, 2 Park St, NSW 2000 T: 02 8257 5700 | F: 02 9264 5600 Melb | Lvl 10 North Tower, 459 Collins St, VIC 3000 T: 03 8600 5000 | F: 03 8600 5099