A successful litigation strategy is often highly reliant on the expert evidence and testimony of an expert.
Strong cases and claims can be impacted by weak independent evidence that does not focus on the details and the nuances of the situation. Likewise, deficient cases attempt to bolster their position by using expert evidence, which is based on inappropriate information or assumptions, and ultimately provide a false perception of likely success.
The experts at Vincents have been providing expert reports and evidence across a wide range of cases and industries for in excess of 30 years including determination of loss and damages, business value and opinion as to the solvency of a company.
What is expert evidence?
An expert witness is typically engaged to give opinion evidence in a proceeding or to express an opinion that may be relied upon in the dispute resolution process such as mediation or a conference of experts. The expert must utilise their experience and knowledge to assist the Court in reaching its decision, by providing technical analysis and opinion on issues based on the information provided. It is important to note that the experts in court proceedings should not be an advocate for the party and their duty is to the Court.
Expert Evidence – Solvency Reports
An expert solvency report is a form of expert evidence that provides comprehensive analysis of the solvency of an entity. The solvency assessment of the entity is for a point in time and considers the historical and current financial position and performance needs to take into consideration any financial arrangements in place. This assessment will determine if the entity was or is in a solvent position.
The purpose of the report may vary, such as:
- For the purposes of initiating an insolvent trading claim against the entity or a director
- Defending a winding up proceeding; or
- Defending an unfair preference claim against your company.
A well prepared and thorough analytical solvency report is essential in supporting your position.
Why an Understanding Matters – Case Study
Recently, Vincents director and forensic accountant Mariano Rossetto was engaged by plaintiff, Wetherill Park Plaza Pty Ltd (“WPP”) to provide expert evidence in the matter of Wetherill Park Holdings Pty Ltd  NSWSC 282.
WPP sought to appoint a liquidator to the defendant, Wetherill Park Holdings Pty Ltd (“WPH”) on the grounds of insolvency by reason of its failure to comply with a statutory demand, which was entered against WPH in a default judgement. This application was opposed by WPH and its secured creditors.
In defence of their winding up, WPH engaged an expert witness to prove the solvency of WPH. In evidence provided by the expert of WPH, it was claimed that WPH was solvent on the basis that WPH had ongoing support of third-party lenders and access to capital required to service any outstanding debt as and when the debt was due and payable. However, WPH’s independent expert relied heavily on the information and correspondence provided by WPH and did not consider external issues that may impact WPH’s and the secured lenders’ position.
The expert for WPH claimed WPH was solvent based on the reliance of funding from secured lenders. No proper solvency assessment was carried out on the secured lenders solvency position by the expert for WPH and reliance was placed on instructions provided by the secured lender. An example of such reliance was in relation to claims by the secured lenders of placing monies into a solicitors’ trust account as support for payment of the debt. Yet no support or evidence of a guaranteed deed was provided to demonstrate that these funds would not be withdrawn by the secured lenders. Furthermore, the secured lenders were not prepared to put these funds “into Court” as security. The judge said “I expect the funds would be immediately withdrawn should a liquidator be appointed to the company. The inclusion of this amount in the balance sheet for the defendant is nothing but window dressing” [para 123].
In the hearing on costs in this matter, the judge stated that WPHs expert “was content to opine on the solvency of the defendant on the basis of the instructions and material provided by Mr Werry without critical analysis”
Mr Rossetto was engaged by the defendant’s lawyers to provide evidence of the solvency status of the defendant, WPH.
In contrast to the expert evidence of the plaintiff’s expert, the expert evidence provided by Mr Rossetto demonstrated that WPH was insolvent and as the claim of solvency relied upon the solvency of the secured lenders, Mr Rossetto gave evidence that there was insufficient analysis performed to demonstrate that the secured lenders were solvent.
The judge found, “The quality of the financial information in respect of the secured lenders was poor. No recent signed financial statements were available. The evidence provided by Mr Werry as to the financial circumstances of these companies was cursory at best. The most recent bank statements of the secured lenders, in isolation, tell me nothing about their overall ability to support the defendant in respect of a substantial construction project.” [para 161]
Supreme Court Judge Kelly Rees preferred the evidence of Mr Rossetto, suggesting that WPH’s expert evidence approach was “high level” and “not interested in the detail”. Based on the evidence provided, Justice Kelly Rees made an order Pursuant to section 459A of the Corporations Act 2001 (Cth), that the defendant be wound up on the grounds of insolvency.
On 4 November 2021, Mr Werry and the secured lenders who funded the litigation were found liable for costs in respect of expenses incurred by WPP. An excellent result for our client.
An Important Message
While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.