Squirrel Limited (In Liquidation) [2021] NSWSC 1658

“Victory with no word from the misbehaving NZ director? No problem.”

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Ps, liquidators of a holding Co whose subsidiaries provided cloud-based SMSF software and support, sued three of the Co’s directors, and settled the claims against two of them: [2]

They pursued the remaining director, D.

D was served with the originating process (the document that kicked off the litigation) in NZ, but did not appear (or participate) in the litigation: [4]

The Ps sought summary judgment against D i.e. victory in D’s absence: [5]

The bar for summary judgment is high. The Court must be satisfied there is no underlying defence to the claim (even if the D has failed to raise it): [7]

The claim was that D allowed the Co to incur debts when it was insolvent: [12]

The Ps were appointed liqs on 8 October 2019: [21]

The Ps alleged the Co was insolvent from 1 October 2018: [22]

The Ps claimed D allowed the Co to incur around $3m in debts while insolvent, to 18 creditors: [23]

The liqs gave detailed evidence about the debts: [27]

The Court when through the forensic process of analysing each debt and forming a view as to whether it was incurred before or after 1 October 2018. It found some were, and some were not: [29] - [45]

Of course, a Co is solvent only if it is able to pay all of its debts as and when they become due and payable: [46]

The Court considers, and accepted, expert evidence regarding indicia of the Co’s insolvency including: insufficient cash at bank to meet current liabilities [51], a large negative net profit margin [52], a negative ROI margin [53], a lack of income aside from R and D grants [54], and a liquidity ratio below 1 [56].

Failed attempts at refinancing and a net indebtedness to other companies in the group were also in evidence: [68], [70]

The Court found this was “no finely balanced case” and the evidence “overwhelmingly” pointed to Co being insolvent from at least 1 October 2018: [74] 

The Court found it difficult to conceive evidence to cast doubt on this: [82]

Defences D could have raised, but did not, would be within D’s control and knowledge (like reliance on info from others, a good reason precluding D from taking part in the Co’s mgmt, or a course D pursued likely to leave to a better outcome) did not preclude the entry of summary judgment: [82]

Victory, then, for Ps in the D's absence: [86]

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