Queensland Judgments
Authorised Reports & Unreported Judgments
  • sclq logo
  1. Caselaw
  2. QSC
  3. 2020
  4. In the matter of Cullen Group Australia Pty Ltd (in liq) - [2020] QSC 367

Authorised Reports & Unreported Judgments
Exit Distraction Free Reading Mode
  • Unreported Judgment

In the matter of Cullen Group Australia Pty Ltd (in liq)[2020] QSC 367

In the matter of Cullen Group Australia Pty Ltd (in liq)[2020] QSC 367

SUPREME COURT OF QUEENSLAND

CITATION:

In the matter of Cullen Group Australia Pty Ltd (in liq) [2020] QSC 367

PARTIES:

CULLEN GROUP AUSTRALIA PTY LTD (IN LIQUIDATION)

ACN 131 442 843

(first applicant)

MICHAEL JOHN CASPANEY IN HIS CAPACITY AS LIQUIDATOR OF CULLEN GROUP AUSTRALIA PTY LTD (IN LIQUIDATION)

ACN 131 442 843

(second applicant)

v

ACTIVE STEEL PTY LTD

ACN 068 669 296

(first respondent)

and Ors as per Schedule 1

FILE NO:

BS No 7608 of 2019

DIVISION:

Trial Division

PROCEEDING:

Application

ORIGINATING COURT:

Supreme Court at Brisbane

DELIVERED ON:

16 December 2020

DELIVERED AT:

Brisbane

HEARING DATE:

8 December 2020

JUDGE:

Martin J

ORDER:

  1. The answer to the preliminary question is: Cullen Group Australia Pty Ltd was insolvent on and from 23 June 2016 to 22 December 2016.
  2. With respect to the third and fifth respondents, the costs of determining the preliminary question be the applicants’ costs in the cause.
  3. The first, second, fourth, seventh, eighth, tenth, twelfth, fourteenth, sixteenth, seventeenth, eighteenth, nineteenth, twentieth, twenty-first, twenty-second, twenty-third, twenty-fourth, twenty-sixth, twenty-seventh, twenty-eighth and twenty-ninth respondents pay the applicants’ costs of determining the preliminary question.

CATCHWORDS:

CORPORATIONS – WINDING UP – WINDING UP IN INSOLVENCY – WHAT CONSTITUTES INSOLVENCY – EVIDENCE OF INSOLVENCY – where the applicants commenced proceedings against 29 respondents seeking declarations that certain payments made to them by the first applicant were unfair preferences – where the court ordered that a preliminary question be determined before the trial of the principal proceedings – whether the first applicant was insolvent on and from 23 June 2016 to 22 December 2016

PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – COSTS – ISSUES AND COUNTERCLAIMS – OTHER PARTICULAR CASES – where a preliminary question was ordered – where the respondents were given an opportunity to make an election as to whether to admit the preliminary question by 13 November 2020 – where the third and fifth respondents admitted the preliminary question within the allocated time – where the liquidator changed his position a number of times regarding costs – where the applicants seek an order that the third and fifth respondents pay the applicants’ costs of determining the preliminary question up until the date on which the third and fifth respondents admitted the first applicant’s insolvency – whether costs, with respect to the third and fifth respondents, should be the applicants’ costs in the cause

Corporations Act 2001 (Cth), s 95A, s 588FA, s 588FF

Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126, cited

Baulderstone Hornibrook Pty Ltd v Qantas Airways Ltd [2003] FCA 325, cited

Emanuel Management Pty Ltd v Foster’s Brewing Group [2003] QSC 205, cited

Re Bias Boating Pty Ltd (in liq) (2019) 135 ACSR 27, distinguished

Rexel Electrical Supplies Pty Ltd v Morton (2015) 110 ACSR 341, cited

Smith (in his capacity as liquidator of ACN 002 864 002 Pty Ltd (in liq) (formerly known as Petrolink Pty Ltd)) v Boné (2015) 104 ACSR 528, cited

Williams (as liquidator of Scholz Motor Group Pty Ltd (in liq)) v Scholz [2008] QCA 94, cited

COUNSEL:

L Copley for the first and second applicants

G Wu (sol) for the first respondent

R Champney (sol) for the third respondent

AF Messina for the fifth respondent

SOLICITORS:

Taylor David Lawyers for the first and second applicants

Turks Legal for the first respondent

RedChip Lawyers for the third respondent

Scoglio Law for the fifth respondent

  1. [1]
    This is the trial of a question ordered to be determined before the trial of the principal proceedings, namely, whether the company, Cullen Group Australia Pty Ltd, was insolvent on and from 23 June 2016 to 22 December 2016.

The principal action

  1. [2]
    The applicants have commenced proceedings against 29 respondents asserting that certain payments made to them by the first applicant (“the company”) were unfair preferences. The relevant relation back period is from 23 June 2016 to 22 December 2016. The applicants seek a declaration that the payments made by the company to the respondents are unfair preferences within the meaning of s 588FA of the Corporations Act 2001 (Cth) (“the Corporations Act”) and an order pursuant to s 588FF that the respondents pay to the second applicant the amount of such unfair preferences and interest.
  2. [3]
    The company was incorporated on 4 June 2008. It was involved in the construction business - building, designing and managing commercial and large-scale residential developments throughout south-east Queensland and northern New South Wales.
  3. [4]
    It was placed into liquidation on 22 December 2016.
  4. [5]
    Each of the respondents is an unsecured creditor of the company.

The various parties and their responses

  1. [6]
    Proceedings have been discontinued against six respondents.
  2. [7]
    Two respondents have admitted that the company was insolvent at the material times.
  3. [8]
    Thirteen respondents have informed the applicants that they will not contest the preliminary question and will abide the order of the court.
  4. [9]
    Eight respondents have not said what their position is with respect to the preliminary question.

What is the test to be applied?

  1. [10]
    Section 95A of the Corporations Act provides:
  1. “(1)
    A person is solvent if, and only if the person is able to pay all the person’s debts, as and when they become due and payable.
  1. (2)
    A person who is not solvent is insolvent.”
  1. [11]
    Whether or not a company is insolvent at a particular time is a question of fact. That involves a proper consideration of its financial position based on commercial reality. It is not merely an arithmetical exercise made with reference to the balance sheet, the profit and loss account, or both. Necessary enquiries might extent to matters such as whether or not the company had access to funds from directors, related companies or others.[1]
  2. [12]
    A concise consideration of the relevant matters to be taken into account was given by Gleeson J in Smith (in his capacity as liquidator of ACN 002 864 002 Pty Ltd (in liq) (formerly known as Petrolink Pty Ltd)) v Boné.[2] Her Honour reviewed the authorities and made the following observations:[3]
    1. (a)
      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.
    2. (b)
      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. The court’s task is to decide whether the company is suffering from an ‘endemic shortage of working capital.
    3. (c)
      A temporary lack of liquidity does not constitute insolvency.
    4. (d)
      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.
    5. (e)
      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. The likelihood that directors will continue to support by a company by lending it money is relevant to the assessment of solvency.
  3. [13]
    The concept of commercial reality and its use in considering whether or not a company is insolvent was described by Chesterman J in Emanuel Management Pty Ltd v Foster’s Brewing Group[4] as being “designed to prevent over-hasty adjudications of insolvency in the case of companies suffering a temporary shortage of cash. It was not meant, in my view, to allow companies in a chronic state of illiquidity who evade, by one means or another, determined actioned by a creditor to wind them up, by that evasion, to be deemed solvent.”[5]
  4. [14]
    I was referred by the applicants to the decision of Mandie J in Australian Securities and Investments Commission v Plymin (No 1)[6] and a list of 14 factors relating to insolvency.
  5. [15]
    The list set out by Mandie J in [386] of his Honour’s reasons is not a complete set of indicia of insolvency. Rather, his Honour noted that the expert accountant who had been called for one of the defendants accepted that the list “brought to mind very common features in insolvency situations”.[7] The list, which is a useful aide memoire, is just that. It is not a proxy for the test of insolvency expressed in s 95A of the Corporations Act.[8]

Evidence of insolvency

  1. [16]
    The liquidator, Mr Caspaney, has compiled a detailed report relating to the circumstances of the company at the relevant times. Mr Caspaney has been a practising accountant for about 35 years and a registered liquidator for nearly five years. He has the relevant level of expertise to examine and comment upon the records and status of the company. Although Mr Caspaney, as a party, is not independent in the sense usually associated with expert witnesses, he is an officer of the court. He has duties to the court and is subject to the supervision by the court when carrying out those duties. I am satisfied that he is an expert and that his evidence was given on the basis of his expertise and his independence as an official liquidator[9]
  2. [17]
    Mr Caspaney has concluded that the company was insolvent from at least 1 April 2016 and during the relation back period between 23 June 2016 and 22 December 2016. He arrived at this conclusion by considering a number of factors which are relevant to the solvency of the company:
    1. (a)
      the value of the company’s net assets, the working capital available to it, and the liquidity ratio of the company,
    2. (b)
      the net cash flow of the company,
    3. (c)
      the continuing losses of the company,
    4. (d)
      the company’s cash in hand available at the relevant time, and
    5. (e)
      the company’s capacity (or incapacity) to borrow extra material funds at the relevant time.
  3. [18]
    He concluded that from 1 April 2016 the value of net assets was materially negative (approximately negative $7.6 million) and during the relation back period those net assets deteriorated consistently from negative $3.1 million to negative $12.6 million at the date of appointment of the first liquidators.
  4. [19]
    The deficiency in working capital was negative $6.7 million in April, negative $4.4 million in June, negative $1.8 million in July and negative $10.7 million at 22 December 2016.
  5. [20]
    The liquidity ratio (calculated by dividing the current assets by the current liabilities) was below 1 at all relevant times. It had deteriorated to 0.5 at the time of the appointment of the liquidator.
  6. [21]
    The company suffered cumulative losses for each month between January to December 2016 and they were significant. For example, in April 2019 the figure was $10,001,000, in May $8,044,000, in October $9,169,000 and in each of November and December the figure exceeded $9 million.
  7. [22]
    The unpaid creditors grew from $10,163,000 in June 2016 with 31.3% of them outside the terms of payment to $21,486,292 in December with 88.93% outside the terms of payment.
  8. [23]
    Mr Caspaney analysed the projects that the company had been working on in 2016 and concluded that, while it was successful when completing smaller projects, when it embarked on the larger projects its systems and management could not sustain the level of work required. In his analysis of the contracts that had been secured, he concluded that, after work had commenced, the actual margin upon which the company was operating was negative. Of the 22 projects over $1 million in contract value, 12 made losses to the aggregate sum of $6,058,592.
  9. [24]
    In a table created by Mr Caspaney, he demonstrates that the company did not make a margin on its projects and did not contribute any profit.
  10. [25]
    In early 2016, the company sought funding of $10 million from Westpac. While it obtained some of that ($2.4 million), it was still more than $7 million less than had been sought. Finance was obtained between October and December 2016 but that was only an amount of approximately $1.1 million, which was much less than the approximately $8 million which would have been needed at that time. Mr Caspaney concludes that although the company was able to obtain some finance in 2016, it was nowhere near the amount necessary for it to continue.
  11. [26]
    Mr Caspaney created a table which demonstrates that the number of demands by creditors grew substantially over the 2016 calendar year. In January of that year, the cumulative demands amounted to 13, but by December the number of cumulative demands had risen to 933. As he comments at [9.31] of his report:

“The number of demands is a fundamental indicator that the company was not paying its creditors when their debts were due and payable.”

  1. [27]
    From August 2015 to June 2016 the company’s cash deteriorated from $5.95 million to zero while, in the same period, its overdraft went from zero to about $2 million. There was an approximate deterioration of $8 million in the primary resource of the company to pay due and payable debts.

Costs 

  1. [28]
    The issue of insolvency was not the subject of debate at the hearing of this application. The parties were content to rely upon material which had been filed. The contest arose with respect to the appropriate costs order to be made with respect to the third and fifth respondents.
  2. [29]
    The applicants seek two costs orders. As against the third and fifth respondents, they seek an order that those respondents pay the applicants’ costs of determining the preliminary question up until 13 November 2020. As against the remaining respondents, an order is sought that they pay the applicants’ costs of determining the preliminary question.
  3. [30]
    The third and fifth respondents argue that any costs order against them should only be that the applicants’ costs of the determination of the preliminary question be costs in the proceeding.
  4. [31]
    The ordinary rule is that, subject to the usual discretions available, costs should follow the event. That general rule is applicable to the determination of separate questions.[10]
  5. [32]
    The applicants rely upon the decision of Black J in Re Bias Boating Pty Ltd (in liq) (“Bias Boating”).[11] In that case, Bias Boating Pty Ltd was found to have been continuously insolvent for the relevant period. That determination was made in a separate hearing. A number of defendants were ordered to pay the costs of the application on the basis that they had not admitted the solvency of the company. Other defendants did not wish to participate in the separate hearing. Thus, the plaintiff was required to prove insolvency.
  6. [33]
    Black J referred to the decisions concerning costs on the determination of separate questions. His Honour said that the consequence of the non-admission, in the face of the evidence led by the plaintiffs, required the plaintiff to go to proof. Some of the defendants argued that insolvency could only be proved by the plaintiffs. Black J did not accept that proposition. The liquidator’s solvency report had been served and the relevant defendants did not take steps to amend their defence as a consequence of receiving that evidence. His Honour said that it should have been apparent to the remaining defendants, or their legal advisors, that the evidence served by the plaintiffs would establish the insolvency of the company in the relevant period.
  7. [34]
    The third and fifth respondents argue that the circumstances are different in this case. They resist the order for costs on the basis that they had been afforded an opportunity to make an election as to whether to admit the preliminary question. That election was to be made after they had received all of the liquidator’s evidence as to the date of insolvency. The court had made a number of orders with respect to the date upon which such an election might be made. The most recent order allowed an election by 13 November 2020.
  8. [35]
    The liquidator has changed his position over time with respect to the question of costs. Last year he advised the parties that he would seek costs against any respondent who did not admit the question, agreed to abide by the order of the court, or denied the question. The third and fifth respondents say they do not fit into any of those categories.
  9. [36]
    The only substantive evidence is the liquidator’s report on solvency. His first report was dated 6 July 2017. Amendments to that report were made in which areas were corrected but, it must be said, the substance of the report remained the same.
  10. [37]
    The case for the applicants consisted of the liquidator’s report. Unlike Bias Boating there were no pleadings with respect to either the separate question or the claim for declarations as to preferences. Thus, the respondents were put on notice only to the extent of the report.
  11. [38]
    The third and fifth respondent’s admitted the insolvency question within the regime laid down by the orders of this court. Those respondents argue that, having received the final version of the liquidator’s report, they assessed the situation and admitted the question. They did so within the time allowed them under the order made in November this year.
  12. [39]
    The circumstances of this case are distinguishable from those in Bias Boating. I am satisfied that the proper exercise of discretion, with respect to the third and fifth respondents, results in order that the costs of determining the preliminary question be the applicants’ costs in the cause.
  13. [40]
    The first respondent was the only other party who appeared at the hearing. On its behalf it was argued that any costs order against it should only concern steps taken after the last date for making an election. But, the first respondent made no election. It was content to abide the order of the court. Thus, it required that the applicants prove their case. There is no reason that costs should not follow the event.
  14. [41]
    So far as all respondents (other than the third and fifth respondents) are concerned, they should pay the applicants’ costs of determining the preliminary question.

Conclusion

  1. [42]
    I am satisfied that the report of Mr Caspaney accurately and adequately sets out the financial position of the company at the relevant time. The company was not able to pay all of its debts, as and when they became due and payable, during the period from 23 June 2016 to 22 December 2016.
  2. [43]
    The answer to the preliminary question is: Cullen Group Australia Pty Ltd was insolvent on and from 23 June 2016 to 22 December 2016.
  3. [44]
    With respect to the third and fifth respondents, the costs of determining the preliminary question be the applicants’ costs in the cause.
  4. [45]
    The first, second, fourth, seventh, eighth, tenth, twelfth, fourteenth, sixteenth, seventeenth, eighteenth, nineteenth, twentieth, twenty-first, twenty-second, twenty-third, twenty-fourth, twenty-sixth, twenty-seventh, twenty-eighth and twenty-ninth respondents pay the applicants’ costs of determining the preliminary question.

Schedule 1

1st Respondent

Active Steel Pty Ltd

ACN 068 669 296

2nd Respondent

Bryan A Horstman & Sharyn L Obst t/a Blue Diamond Constructions

ABN 43 460 977 417

3rd Respondent

BBC Painting and Rendering Pty Ltd

ACN 119 248 752

4th Respondent

Border Joinery Pty Ltd

ACN 103 236 237

5th Respondent

Concretor Solutions Pty Ltd

ACN 153 752 428

7th Respondent

Direct Painting Services Pty Ltd

ACN 141 728 109

8th Respondent

Dynamic Bradview Roofing Pty Ltd

ACN 161 333 991

10th Respondent

Finch Earthmoving Pty Ltd

ACN 604 829 905

12th Respondent

Faranu Pty Ltd

ACN 002 573 391

14th Respondent

Innov8 Pools & Landscapes Pty Ltd

ACN 164 145 279

16th Respondent

Lyndons Pty Ltd

ACN 010 583 721

17th Respondent

Michael Shale as Trustee of MPM Contracting Unit Trust

18th Respondent

Paul William Davis as Trustee of MPM Contracting Unit Trust

19th Respondent

Matthew Davis as Trustee of MPM Contracting Unit Trust

20th Respondent

O'Neill Electrical Industries Pty Ltd

ACN 114 164 108

21st Respondent

Penfolds Projects Pty Ltd

ACN 091 451 311

22nd Respondent

Powerspec Pty Ltd

ACN 165 425 450

23rd Respondent

Professional Builders Cleaning Pty Ltd

ACN 603 564 674

24th Respondent

Roberts Construction and Design Pty Ltd

ACN 169 260 020

26th Respondent

Stair Lock Pty Ltd

ACN 611 507 254

27th Respondent

Summit Roofing Holdings Pty Ltd

ACN 093 535 178

28th Respondent

Superior Concrete Testing Pty Ltd

ACN 118 392 797

29th Respondent

Williams Group Australia Pty Ltd

ACN 128 744 990

Footnotes

[1]Williams (as liquidator of Scholz Motor Group Pty Ltd (in liq)) v Scholz [2008] QCA 94.

[2](2015) 104 ACSR 528.

[3]Smith (in his capacity as liquidator of ACN 002 864 002 Pty Ltd (in liq) (formerly known as Petrolink Pty Ltd)) v Boné (2015) 104 ACSR 528 at 533-535.

[4][2003] QSC 205.

[5]Emanuel Management Pty Ltd v Foster’s Brewing Group [2003] QSC 205 at [86].

[6](2003) 46 ACSR 126.

[7]Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126 at 214 [386].

[8]Rexel Electrical Supplies Pty Ltd v Morton (2015) 110 ACSR 341 at 352-353 [31] per Fraser JA.

[9]See, eg, Davies & Nicol as Joint and Several Liquidators of Harris Scarfe Ltd v Chicago Boot Co Ltd [2011] SASC 27.

[10]See Baulderstone Hornibrook Pty Ltd v Qantas Airways Ltd [2003] FCA 325 at [5].

[11](2019) 135 ACSR 27.

Close

Editorial Notes

  • Published Case Name:

    In the matter of Cullen Group Australia Pty Ltd (in liq)

  • Shortened Case Name:

    In the matter of Cullen Group Australia Pty Ltd (in liq)

  • MNC:

    [2020] QSC 367

  • Court:

    QSC

  • Judge(s):

    Martin J

  • Date:

    16 Dec 2020

Appeal Status

Please note, appeal data is presently unavailable for this judgment. This judgment may have been the subject of an appeal.

Cases Cited

Case NameFull CitationFrequency
Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126
3 citations
Jump To
Cite 1 - (2003) 46 ACSR 126
Cite 2 - (2003) 46 ACSR 126
Cite 3 - (2003) 46 ACSR 126
Baulderstone Hornibrook Pty Ltd v Qantas Airways Ltd [2003] FCA 325
2 citations
Jump To
Cite 1 - [2003] FCA 325
Cite 2 - [2003] FCA 325
Davies & Nicol as Joint and Several Liquidators of Harris Scarfe Ltd v Chicago Boot Co Ltd [2011] SASC 27
1 citation
Jump To
Cite 1 - [2011] SASC 27
Emanuel Management Pty Ltd v Foster's Brewing Group Ltd [2003] QSC 205
3 citations
Jump To
Cite 1 - [2003] QSC 205
Cite 2 - [2003] QSC 205
Cite 3 - [2003] QSC 205
In the matter of Bias Boating Pty Limited (Receivers and Managers Appointed) (in liquidation) (2019) 135 ACSR 27
2 citations
Jump To
Cite 1 - (2019) 135 ACSR 27
Cite 2 - (2019) 135 ACSR 27
Rexel Electrical Supplies Pty Ltd v Morton (2015) 110 ACSR 341
2 citations
Jump To
Cite 1 - (2015) 110 ACSR 341
Cite 2 - (2015) 110 ACSR 341
Smith v Bone (2015) 104 ACSR 528
3 citations
Jump To
Cite 1 - (2015) 104 ACSR 528
Cite 2 - (2015) 104 ACSR 528
Cite 3 - (2015) 104 ACSR 528
Williams v Scholz [2008] QCA 94
2 citations
Jump To
Cite 1 - [2008] QCA 94
Cite 2 - [2008] QCA 94

Cases Citing

Case NameFull CitationFrequency
In the matter of Cullen Group Australia Pty Ltd (in liq) [2021] QSC 1132 citations
1

Require Technical Assistance?

Message sent!

Thanks for reaching out! Someone from our team will get back to you soon.

Message not sent!

Something went wrong. Please try again.