The Victorian Court of Appeal (“VSCA”), in Quin v Vlahos [2021] VSCA 205 (“the Quin Case”), recently confirmed that:
- A liquidator may rely on unreconciled accounts to prove that a company is insolvent; and that
- Director and other third party funds may be taken into account in assessing a company’s solvency if there is a degree of assurance the funds will in fact be made available to pay the company’s debts.
Unreconciled Accounts
In the Quin Case, the VSCA determined that, pursuant to Section 1305 of the Corporations Act 2001 (Cth), the tendering of a company’s accounts is evidence of the matters recorded in those accounts and will be proven, unless other evidence convinces a court to the contrary on the balance of probabilities.
Third Party Funding
In the Quin Case, the VSCA determined that:
- The availability of funds must be considered objectively from the perspective of the relevant company rather than the putative third party funder;
- There must be cogent evidence to enable a court to conclude that there is a degree of commitment from the third party to fund a company’s debts as and when they become due and payable; and
- In the case of a director providing third party funding, the director should not have ‘an unfettered discretion’ as to when and if any funds in a personal account are to be made available to pay the debts of the company and, if so, which debts.
The Quin Case has thankfully brought further clarity to the solvency determination process.
If you have any queries regarding the solvency of you or your client’s company, please reach out to our team and we will be happy to assist.
About the author
Benjamin Mitchell is a Senior Insolvency Accountant at HLB Mann Judd Insolvency WA. Benjamin assists the Partners with the many Corporate and Personal insolvency appointments managed by the HLB Insolvency team.
If you have any queries about insolvency matters, please feel free to contact the team on 08 9215 7900.
