Case No: HC13C0072
Neutral Citation Number: [2013] EWHC 2371 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

ON APPEAL FROM THE BIRMINGHAM COUNTY COURT
His Honour Judge Purle QC
Rolls Building
Fetter Lane
London EC4 1NL
Date: 31/07/2013
Before :

MR JUSTICE WARREN
- - - - - - - - - - - - - - - - - - - -

Between :

	IN THE MATTER OF CASA ESTATES (UK) LIMITED (in liquidation)
AND IN THE MATTER OF THE INSOLVENCY ACT 1986

RUSSELL JOHN CARMAN
(Liquidator of Casa Estates (UK) Limited) 	

Appellant	
	- and -		
	JOANNE MARIE BUCCI	Respondent	

- - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - -

Hermann Boeddinghaus (instructed by Geldards) for the Appellant
James Morgan (instructed by Shakespeares) for the Respondent

Hearing date: 19 June 2013
- - - - - - - - - - - - - - - - - - - - -
Judgment
Mr Justice Warren : 
Introduction
1.	This is an appeal from the judgment of HH Judge Purle QC dated 17 December 2012 (“the Judge” and “the Judgment”).  The Applicant in the proceedings is the appellant in this appeal (“Mr Carman”) in his capacity as liquidator of Casa Estates (UK) Limited (“the Company”).  Mr Carman sought the recovery from the respondent in this appeal (“Mrs Bucci”) of payments made to her or for her benefit under section 238, alternatively in relation to some of the payments under section 239, of the Insolvency Act 1986.  References to section numbers in this judgment are to that Act unless otherwise indicated.
2.	The payments in question fall into two categories:
i)	The first category (totalling some £55,783) consists of remuneration and pension contributions made during the course of 2007 and 2008 in respect of services which Mrs Bucci claimed to have provided to the Company. Mr Carman sought to recover these payments, in whole or in part, as payments at undervalue pursuant to section 238.  Of that amount £16,283.32 was paid in the years ending 5 April 2007 and 5 April 2008, £29,999.00 in the year ending 5 April 2009, with pension contributions totalling £9,500.00 paid over the same periods. 
ii)	The second category (totalling some £48,205) consists of three payments of £4,000 each between January and July 2008 (described in the Company’s accounts as “dividends”) and a payment to HMRC of £36,205 made in discharge of a tax liability of Mrs Bucci.  She accepted that the three payments could not be justified as dividends but she claimed to have been a creditor of the Company and that the three payments and the payment to HMRC discharged the amount owing.  Mr Carman disputed that Mrs Bucci was a creditor but advanced the alternative case (in case the Judge should have held that she was a creditor) that the payments were recoverable as preferences pursuant to section 239.
3.	In relation to the second category, the Judge rejected Mrs Bucci’s case that the payments were made as repayment of loans owing to her.  There is no appeal against that decision.  Section 239 ceases to be of relevance.  In relation to both categories, the Judge decided that all of the payments sought to be recovered by Mr Carman constituted transactions at undervalue within section 238.  
4.	However, he also decided that the payments were not recoverable because the time of each payment was not a relevant time by virtue of section 240(2), on the basis that payment, the Company was not “unable to pay its debts within the meaning of section 123…” and did not become unable to do so as a result of the payment in question.  
5.	Mr Carman now appeals on the basis that the Company was, contrary to the Judge’s conclusion, unable to pay its debts within the meaning of section 123.  He says that the Judge erred in law in the approach which he adopted to the issue whether the Company was unable to pay its debts and gave inappropriate weight to various factors which he identified.  He also submits that certain payments received by the Company never became its own assets but were held on Quistclose trusts, a factor which Mr Boeddinghaus (who appears for Mr Carman) submits has a serious impact on the answer to the question of solvency.  There is a dispute about whether this point was properly raised before the Judge and, if not, whether or not I should allow it to be raised for the first time on this appeal.
The statutory provisions
6.	I have found it helpful to set out parts of section 123, 238 and 240 very early in this judgment. Section 123 provides so far as material  
 “(1)	A company is deemed unable to pay its debts—
(a)	if a creditor (by assignment or otherwise) to whom the company is indebted in a sum exceeding £750 then due has served on the company, by leaving it at the company’s registered office, a written demand (in the prescribed form) requiring the company to pay the sum so due and the company has for 3 weeks thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor, or
(b)	if, in England and Wales, execution or other process issued on a judgment, decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part, or
…
(e)	if it is proved to the satisfaction of the court that the company is unable to pay its debts as they fall due.
(2)	A company is also deemed unable to pay its debts if it is proved to the satisfaction of the court that the value of the company’s assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities.”
7.	Section 238 provides so far as material:
“(1)   This section applies in the case of a company where—
…
(b) 	the company goes into liquidation;

and “the office-holder” means … the liquidator...
 
(2)	Where the company has at a relevant time (defined in section 240) entered into a transaction with any person at an undervalue, the office-holder may apply to the court for an order under this section.
(3)	Subject as follows, the court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if the company had not entered into that transaction.
(4)	For the purposes of this section and section 241, a company enters into a transaction with a person at an undervalue if—
(a)	the company makes a gift to that person or otherwise enters into a transaction with that person on terms that provide for the company to receive no consideration, or
(b)	the company enters into a transaction with that person for a consideration the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth, of the consideration provided by the company.
…….”
8.	Section 240 provides so far as material:
“(1)	Subject to the next subsection, the time at which a company enters into a transaction at an undervalue or gives a preference is a relevant time if the transaction is entered into, or the preference given—
(a)	in the case of a transaction at an undervalue or of a preference which is given to a person who is connected with the company (otherwise than by reason only of being its employee), at a time in the period of 2 years ending with the onset of insolvency (which expression is defined below),
(b)	in the case of a preference which is not such a transaction and is not so given, at a time in the period of 6 months ending with the onset of insolvency
…
(2)	Where a company enters into a transaction at an undervalue or gives a preference at a time mentioned in subsection (1)(a) or (b), that time is not a relevant time for the purposes of section 238 or 239 unless the company—
(a)	is at that time unable to pay its debts within the meaning of section 123 in Chapter VI of Part IV, or
(b)	becomes unable to pay its debts within the meaning of that section in consequence of the transaction or preference;
but the requirements of this subsection are presumed to be satisfied, unless the contrary is shown, in relation to any transaction at an undervalue which is entered into by a company with a person who is connected with the company.
(3)	For the purposes of subsection (1), the onset of insolvency is—
…
(e)	in a case where section 238 or 239 applies by reason of a company going into liquidation at any other time, the date of the commencement of the winding up.”
9.	It was common ground before the Judge (and this remains the position before me) that Mrs Bucci was a person connected with the Company, so that the relevant period within which a transaction is open to attack is 2 years before the onset of insolvency and the statutory (rebuttable) presumption of insolvency applies to transactions at an undervalue.
The facts
10.	Paragraphs 4 to 11 of the Judgment contain a summary of certain agreed facts and certain findings by the Judge.  I do not need to repeat them in full.  The following can be taken from those paragraphs and other parts of the Judgment:
i)	The Company was incorporated on the 23rd February 2005 and carried on business as an introducer of investors to Dubai property.  It received payments from investors by way of deposits for properties and payment of instalments towards the purchase price.  It appears also to have operated as a dealer in its own right.  It was under the day-to-day management of its sole director, Franco Bucci (“Mr Bucci”) who is Mrs Bucci’s husband.  Mrs Bucci was company secretary.  They were the owners of the company, as equal shareholders.  There were no other shareholders.  Since it did not broker sales of any UK properties, it was not required to, and did not in fact, keep a separate client account.  
ii)	Casa Dubai Real Estate Brokers LLC (“Casa Dubai”) was the Company’s agent and intermediary in Dubai.  It was incorporated in the UAE and was owned (as required under the local law) by two UAE nationals.  Mr Bucci acted as general manager of Casa Dubai.
iii)	The Company ceased trading in December 2008 following the collapse of the Dubai property market.  One of the developers with which the company dealt, Al Barakah, which promised investors a 50% return in 6 months, was unable to meet its obligations.  Mr Bucci quickly reached the conclusion that the company could not survive in the light of Al Barakah’s failure.
iv)	Mr and Mrs Bucci were also the sole shareholders of Gianluca (UK) Limited (“GUL”).  Initially, both Mr and Mrs Bucci appear to have provided consultancy services to third parties through GUL, at least down to June 2007.  Mrs Bucci is an experienced businesswoman in her own right.
v)	In June 2007 GUL launched a drinks distribution business. It entered into a loan agreement with the “Company” in June 2007 (resulting in a total of over £474,000 being lent by the Company to GUL by December 2008) which Mr Bucci signed for both parties.  Advances were made between January 2007 and December 2008.  GUL was loss-making from the start of its drinks business, though its turnover was on the increase until it ceased to trade, and Mr Bucci doubtless hoped that it would, with the company’s financial support, come good eventually.   It entered into creditors’ voluntary liquidation on 29 January 2009, following the Company ceasing to trade.  Mr Bucci in its statement of affairs identified the Company as a creditor for £480,044, though the true figure was slightly less than this.  
vi)	There is no doubt that monies were in fact advanced to GUL, and that GUL was throughout its existence dependent on the company for its viability.  The Buccis, had the Company continued in business and been profitable, would probably have declared dividends so as to cover the outstanding loan, effectively treating it as repaid by their dividends.  They saw the monies taken out of the Company and put into GUL as surplus funds available to the shareholders.  
vii)	The Company was wound up compulsorily on its own petition by an order made on 4 March 2009.  According to the statement of affairs provided by Mr Bucci, the Company had a net deficit as regards creditors of £1,222,027.  Its creditors include investors who found that their payments to the Company had not been paid to the vendor in Dubai. 
viii)	The petition had been presented on 15 January 2009.  That therefore became the date of the onset of insolvency for the purpose of the relevant statutory provisions to which I have referred.  All the payments with which the Judge was concerned were made in the period of 2 years ending with the onset of insolvency.  GUL had already been wound up with assets of under £15,000 and liabilities (mainly in the shape of unpaid loans from the Company) of over £500,000.  
11.	Mr Boeddinghaus records in his skeleton argument – and there can be no doubt that this is right as a matter of fact – that the Company failed to keep adequate accounting records and that it has been difficult to state with accuracy the financial position of the Company at any time (and in particular to ascertain which of the funds controlled by the Company represented investor payments which had not been paid to the Dubai vendors/developers).  The Company filed no accounts for the years ended 31 December 2007 and 31 December 2008.  
12.	It is also the case that the Company dealt with something around 750 customers from its introductions business, being paid a commission averaging 6% by the developers/vendors concerned.  The Company itself also acquired a number of properties which, according to Mr Bucci, were financed out of the Company’s profits.  The Company also introduced a number of investors to a scheme with a developer called Al Barakah which promised a return of 50% over 6 months.  After the collapse of Lehman Brothers in September 2008, there was a slow-down of the Dubai property market and developers stopped paying commissions.  Mr Morgan says – this may not actually be in evidence but I do not think it is controversial – that in particular Al Barakah itself became the subject of media attention in early December and in early January 2009, creditors were notified that it was insolvent.  This left the Company with a liability under a guarantee to a Mr Lees, one of its customers, in the sum of some £280,000.
13.	There is one other piece of financial information which I would mention at this stage.   Mr Bucci’s evidence was that the Company was owed, prior to the crash, some £745,000 by developers (to be paid through Casa Dubai) but because of their financial difficulties, it was not realisable.  It is certainly the case that that money never reached the Company although some of it may have reached Casa Dubai.  By that time, the prospect of recovery from Casa Dubai had vanished.
14.	The Judge dealt with the two categories of payment (the first category in paragraphs 16 to 30 and the second in paragraphs 31 to 42) reaching the conclusion that all of the payments were payments at undervalue.  There is no appeal from those findings.  In principle, therefore, section 238 was of application but that was subject to the provisions of section 240(2).
15.	The Judge then addressed the question of solvency in the remainder of the Judgment.  It is worth setting out what he said in paragraph 44 in some preliminary remarks directed at section 123:
“There is no suggestion in this case that any creditor served a statutory demand or obtained any judgment against the company at any time.  In fact, there was no creditor pressure at any time, and the company was in fact paying its debts as they fell due.  The company had no cash flow problem at the time of any of the payments.  The question therefore is whether the company was at the material times deemed to be unable to pay its debts on the ground that the value of the company’s assets was less than the amount of its liabilities, taking into account its contingent and prospective liabilities.  This is what is sometimes called the “balance sheet test” as opposed to the “cash flow test” otherwise applicable.”
16.	The Judge was therefore dismissive of the suggestion that there was a cash flow problem and that the Company was insolvent under the cash flow test.  The focus of his decision was therefore on the balance sheet test
17.	Before I turn to the Judge’s findings about the Company’s solvency and the way in which he applied the cash flow test and the balance sheet test, I wish to say something about the authorities on section 123.
The Authorities on section 123
18.	So far as section 123(1) (e) is concerned useful guidance is to be found in the decision of the Supreme Court in Eurosail Corporate Trustee Services Ltd v Eurosail-UK 2007-3BL plc [2013] UKSC 28, [2013] 1 WLR 1408 (“Eurosail”), affirming the approach of Briggs J (as he then was) in Re Cheyne Finance plc [2007] EWHC 240 (Ch), [2008] 2 All ER 987 (“Cheyne”).   The discussions in both Lord Walker’s speech in Eurosail and in the judgment of Briggs J in Cheyne include a review of the predecessor legislation.  Until the Insolvency Act 1985, the words “as they fall due” did not appear in the relevant insolvency legislation.  Nor did express reference to the test of “the value of the company’s assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities”.  Instead, one test of a company being deemed to be unable to pay it debts was found in section 518(1)(e) of the Companies Act 1985, the test being “if it is proved to the satisfaction of the court that the company is unable to pay its debts (and, in determining that question, the court shall take into account the company’s contingent and prospective liabilities)”.  That single test was replaced by the two complementary provisions of what are now section 123(1)(e) and section 123(2).  In that context, Lord Walker, at [34] of his speech approved of what Briggs J had said in [56] of his judgment:
“56.	In my judgment, the effect of the alterations to the insolvency test made in 1985 and now found in section 123 of the 1986 Act was to replace in the commercial solvency test now found in section 123(1)(e), one futurity requirement, namely to include contingent and prospective liabilities, with another more flexible and fact sensitive requirement encapsulated in the new phrase ‘as they fall due’”.
19.	Briggs J went on, in [57] to note that, 
“in the case of a company still trading, and where there is therefore a high degree of uncertainty as to the profits of its future cash flow, an appreciation that section 123(1)(e) permits a review of the future will often make little difference. In many, if not most, cases the alternative balance sheet test will afford a petitioner for winding up a convenient alternative means of proof of a deemed insolvency.”
20.	Briggs J did not address section 123(2) any further than that.  He at least clearly saw section 123(2) as adding something of importance to section 123(1)(e).  Before looking at what he said, I need to mention some of the authorities to which Lord Walker referred.
21.	The first (see [28] of his speech) is Re European Life Assurance Society (1869) LR 9 Eq 122.  In the course of his judgment, Sir James Wigram V-C said that the court 
“…has nothing whatever to do with the question of the probability whether any business which the company may carry on tomorrow or hereafter will be profitable or unprofitable.  That is a matter for those who my choose to be the customers of the company and for the shareholders to consider.”
22.	The next case is re A Company (No 006794 of 1983) [1986] BCLC 261 (also referred to as Bond Jewellers), decided by Nourse J on 21 December 1983.  As Lord Walker described it (see at [30] of his speech),
“It concerned a tenant company with a propensity for postponing payment of its debts until threatened with litigation. Nourse J felt unable to make an order under section 223(d), and considered, but ultimately did not make an order, on the “just and equitable” ground in section 222(f). The case is of interest as illustrating (at p 263) that the phrase “as they fall due”, although not part of the statutory text, was understood to be implicit in section 223(d). It is also of interest for the judge's observation on the second point in section 223(d) (now embodied, in different words, in section 123(2) of the 1986 Act): ”
“Counsel says that if I take into account the contingent and prospective liabilities of the company, it is clearly insolvent in balance sheet terms. So indeed it is if I treat the loans made by the associated companies [I remark in relation to this that these were loans which the Judge had concluded had been used to prop up the company] as loans which are currently repayable. However, what I am required to do is to ‘take into account’ the contingent and prospective liabilities. That cannot mean that I must simply add them up and strike a balance against assets. In regard to prospective liabilities I must principally consider whether, and if so when, they are likely to become present liabilities.”
23.	That case was considered by Nicholls LJ in Byblos Bank SAL v Al-Khudhairy [1987] BCLC 232, observing that the considerations leading to Nourse J’s conclusions did not appear from the report.  Nicholls LJ did not see anything inconsistent in what Nourse J had said with his own conclusions (which I will come to in a moment).  
24.	That brings me to Byblos Bank.  The company was insolvent looking at its balance sheet alone.  But the company had a hope of receiving a further capital injection.  Nicholls LJ held that the focus of what was then relevant provision, section 223(d) Companies Act 1948, was on the assets and liabilities of the company at the time when insolvency was alleged and that account could not be taken of future assets.  It is worth repeating the citation from the judgment of Nicholls LJ in the speech of Lord Walker:
“Construing this section first without reference to authority, it seems to me plain that, in a case where none of the deeming paras (a), (b) or (c) is applicable, what is contemplated is evidence of (and, if necessary, an investigation into) the present capacity of a company to pay all its debts. If a debt presently payable is not paid because of lack of means, that will normally suffice to prove that the company is unable to pay its debts. That will be so even if, on an assessment of all the assets and liabilities of the company, there is a surplus of assets over liabilities. That is trite law.
It is equally trite to observe that the fact that a company can meet all its presently payable debts is not necessarily the end of the matter, because para (d) requires account to be taken of contingent and prospective liabilities. Take the simple, if extreme, case of a company whose liabilities consist of an obligation to repay a loan of £100,000 one year hence, and whose only assets are worth £10,000. It is obvious that, taking into account its future liabilities, such a company does not have the present capacity to pay its debts and as such it 'is' unable to pay its debts. Even if all its assets were realised it would still be unable to pay its debts, viz, in this example, to meet its liabilities when they became due. It might be that, if the company continued to trade, during the year it would acquire the means to discharge its liabilities before they became presently payable at the end of the year. But in my view paragraph (d) is focusing attention on the present position of a company. I can see no justification for importing into the paragraph, from the requirement to take into account prospective and future liabilities, any obligation or entitlement to treat the assets of the company as being, at the material date, other than they truly are. Of course a company's prospects of acquiring further assets before it will be called upon to meet future liabilities will be very relevant when the court is exercising its discretion: for example, regarding the making of a winding up order or the granting of short adjournments of a winding-up petition.”
25.	What I think can be taken from the decisions of Nourse J and Nicholls LJ, read with the analysis of the law undertaken by Briggs J, is that the starting point under the pre-1985 legislation was to examine cash flow insolvency – to see whether a company is commercially able to pay its debts as they fall due – and then to examine whether future liabilities have any impact on the conclusion.  Balance sheet insolvency is not irrelevant to the ability to pay debts as they fall due.
26.	It is fair to say, however, that the precise relationship between the two limbs of the pre-1985 section was never clearly and fully analysed and did not, on the facts of the particular cases, need to be analysed.  Further, even in relation to cash flow insolvency, the cases do not disclose factual situations where the company has put off paying debts which have fallen due and where the creditors have simply failed to complain or make demands for payment.  
27.	Moreover, within the old section, there were two tests, albeit perhaps hidden away.  On the face of the old section, there was only one question: Is the company unable to pay its debts?  Implicit in that (see Lord Walker at [30]) was the phrase “as they fall due”.  But if it was clear that a company was balance sheet insolvent, it could nonetheless be wound up notwithstanding that it was cash flow solvent.  Even applying the discredited “point of no return” test, a company might fail that test and yet be able to pay its debts as they fall due.  A fortiori, following the decision of the Supreme Court in Eurosail, it remains possible for a company to pass the section 123(1)(e) test but fail the section 123(2) test.  
28.	Returning to Lord Walker’s speech in Eurosail, after observing the difference as a matter of form between the current statutory test and the position under the Companies Act 1985, he noted that there is no indication of how the two new provisions – section 123(1)(e) and section 123(2) – interact.  He then went on at [37]:
“37.	Despite the difference of form, the provisions of section 123(1) and (2) should in my view be seen, as the Government spokesman in the House of Lords indicated, as making little significant change in the law. The changes in form served, in my view, to underline that the “cash-flow” test is concerned, not simply with the petitioner's own presently-due debt, nor only with other presently-due debt owed by the company, but also with debts falling due from time to time in the reasonably near future. What is the reasonably near future, for this purpose, will depend on all the circumstances, but especially on the nature of the company's business. That is consistent with the Bond Jewellers case (In re A Company (No 006794 of 1983)) [1986] BCLC 261, Byblos Bank SAL v Al-Khudhairy [1987] BCLC 232 and In re Cheyne Finance plc (No 2) [2008] Bus LR 1562. The express reference to assets and liabilities is in my view a practical recognition that once the court has to move beyond the reasonably near future (the length of which depends, again, on all the circumstances) any attempt to apply a cash-flow test will become completely speculative, and a comparison of present assets with present and future liabilities (discounted for contingencies and deferment) becomes the only sensible test. But it is still very far from an exact test, and the burden of proof must be on the party which asserts balance-sheet insolvency…”
29.	One can see, therefore, that both under the old section and under section 123 there were, and are, two different ways of showing that a company is unable to pay its debts.  The first is that the company is unable to pay its debts as they fall due.  As part of that exercise, account can be taken of future and contingent debts falling due within the reasonably near future.  The second is whether liabilities exceed assets.  Although the separation of the old section into two separate subsections may not have been intended to effect a significant change in the law, that separation is, I think, an indication of how the drafstman saw the pre-existing law.  As Lord Walker noted, once the court has to move beyond the reasonably near future, any attempt to apply the cash flow test becomes speculative.  A comparison of assets and liabilities becomes the only sensible test.  In applying that test, the judgment of Nicholls LJ in Byblos Bank shows that account can only be taken of existing assets: the logic of his reasoning means that expected profits cannot be taken into account as an asset in assessing the cash flow test any more than the balance sheet test.  That is not to say that the anticipated income and outgoings over the “reasonably near future” cannot be taken into account.  If one is applying a cash flow test then ex hypothesi one is dealing with a situation which is not, in the view of the court, speculative but is capable of rational prediction with some degree of certainty.
30.	Further, in applying the balance sheet test, future and contingent liabilities only need to be taken into account: they do not have to be brought into the balance at their face value or even a discounted value to reflect the time to the date of payment.  Instead, all the relevant circumstances have to be considered and the result, as in Eurosail itself, may be that the liabilities are of a nature such that they do not result in the total assets being less than the total liabilities.  There is, however, nothing in that approach which mandates bringing in liabilities which are immediately payable at anything less than their full value.  Once one moves away from a pure cash flow assessment (taking into account prospective and contingent liabilities in cases where the debts will be due in the reasonably near future), it seems to me to follow, inevitably, that the solvency of a company with contingent and prospective liabilities will properly be judged on a balance sheet test; if its current liabilities exceed it current assets, then it will be insolvent even if it has managed (and is likely to be able to manage in the reasonably near future ) to pay all of its debts from time to time, for instance by a series of loans from its backers such as shareholders and directors.  
31.	The decision of the Court of Appeal in Eurosail (see [2011] 1 WLR 2524) had generated a considerable amount of discussion in the light of certain things that Lord Neuberger MR had said.  In his discussion, Lord Neuberger adopted the approach of Professor Sir Roy Goode in Principles of Corporate Insolvency Law (3rd ed, 2005) where the professor had written this:
“If the cash flow test were the only relevant test [for insolvency] then current and short-term creditors would in effect be paid at the expense of creditors to whom liabilities were incurred after the company had reached the point of no return because of an incurable deficiency in its assets.”
32.	Lord Neuberger reasoned to the conclusion which adopted the “point of no return” as the test which the court is to apply in deciding upon insolvency under section 123(2).  The “point of no return” was, however, expressly rejected by Lord Walker as a paraphrase of the test in section 123(2) (see [42] and [48] of his speech), albeit that it “illuminates” the purpose of the subsection as Toulson LJ had put it in his own judgment in the Court of Appeal.   Lord Walker at (42) of his speech explained his approach further when agreeing with the following passage from Toulson LJ’s judgment at [119]:
“Essentially, section 123(2) requires the court to make a judgment whether it has been established that, looking at the company's assets and making proper allowance for its prospective and contingent liabilities, it cannot reasonably be expected to be able to meet those liabilities. If so, it will be deemed insolvent although it is currently able to pay its debts as they fall due. The more distant the liabilities, the harder this will be to establish.”
33.	The last sentence in that quotation puts the same point as was made by Lord Neuberger in [62] of his own judgment when he said:
“Clearly, the closer in time a future liability is to mature, or the more likely the contingency which would activate a contingent liability, and the greater the size of the likely liability, the more probable it would be that section 123(2) will apply.”
34.	Notwithstanding what Lord Walker said, the difference in form between the old and the new provisions cannot be wholly ignored.  What the new form achieves is to throw into focus the distinction between considerations of cash flow and considerations of assets and liabilities.  It requires the court to focus clearly on the debts which are due or will fall due in the reasonably near future when applying section 123(1)(e) and which debts are future debts to be brought into account under section 123(2).  A given liability of a company, it seems to me, either is or is not a debt which is to be taken into account in applying section 123(1)(e).  If it is such a debt (because it is due or will fall due within the reasonably near future) then it will be taken into account in assessing whether the company is able to pay its debts as they fall due.  But if it not such a debt, then the liability is necessarily a prospective or contingent liability.  On this hypothesis, the debt is not taken into account in assessing cash flow solvency and it is necessary to go on to consider section 123(2).  In doing so, the court has to make a judgment about whether the company can (adopting the approach of Toulson LJ approved by Lord Walker) reasonably be expected to meet its liabilities – not just the future liabilities but all of the company’s liabilities.  I do not, in any case, detect in what Lord Walker said (or indeed in Toulson LJ’s analysis in the section of his judgment dealing with the history of the provision) a rigid demarcation between section 123(1)(e) and section 123(2).  They feature as part of a single exercise, namely to determine whether a company is unable to pay its debts.  
35.	Consider then a company which is balance sheet insolvent on the basis of its current debts that is to say debts which have fallen due for payment or will in the reasonably near future fall due for payment.  Those are precisely the debts which need to be taken into account in making as assessment under the cash flow test in accordance with section 123(1)(e).  It is difficult to see how the company could then be said, with nothing more, to be cash flow solvent.   However, immediate cash flow problems might be subject to amelioration; for instance, immediate debts could be covered by a short term loan or by an overdraft facility, although that assumes the creation of new liabilities on the part of the Company which will either be themselves liabilities which will fall due for payment within the reasonably near future, in which case the cash flow problem still arises, or one posits a series of loans running past the reasonably near future, in which case the commercial reality is no different from that of a prospective liability to which it would be appropriate to apply section 123(2), with liabilities exceeding assets.   The same would apply if a particular creditor (eg a shareholder or director) agreed to postpone the calling-in of his debt.  In contrast, if immediate liabilities were to be financed by further long-term funding, then that funding would give rise to a prospective or contingent liability which would not fall to be taken account of when applying the section 123(1)(e) test; but that is just the sort of case where the test in section 123(2) would apply with the result in this example, that liabilities exceed assets.
The Judge’s approach and findings
36.	Reading the Judgment as a whole, there can be no doubt that the Judge applied the “point of no return” test in reaching his conclusion about balance sheet insolvency.  He did not consider, or apply in the alternative, any other test.  He was right to apply that test in the light of the law as was when he delivered the Judgment.  
37.	Mr Boeddinghaus submits that had the Judge applied the correct test he would inevitably have come to the conclusion that the Company was unable to pay its debts within the meaning of section 123 when each of the payments was made.
38.	Further, he says that Judge was incorrect in what he said in paragraph 47 of the Judgment:
“47.	Whilst those comments [ie of Lord Neuberger] primarily concerned the approach to be taken towards prospective and contingent liabilities, its effect is not so limited.  Take, for example, the case of a company which is dependent upon the support of its directors.  The directors’ loan accounts may, in strict analysis, be current liabilities, but, if the directors have no immediate intention of calling the loans in, the company could not be said to have reached the point of no return, even if the size of the directors’ loan accounts meant that current liabilities exceeded current assets.  The company would not in those circumstances be deemed to be unable to pay its debts under section 123(2).”
39.	He was wrong, Mr Boeddinghaus submits, not only because, once again, he was adopting the “point of no return” test, but also because he was inadmissibly treating a present liability as if it were simply a contingent or prospective liability.  A present liability is precisely that – a liability which is due for immediate payment – and if the value of a company’s assets are less than the amount of its liabilities due for immediate payment, it falls within section 123(2).  
40.	In late 2008, there was a generally unanticipated collapse in the Dubai property market, after the last of the payments was made to Mrs Bucci: see paragraph 49 of the Judgment.  It is on that basis and on the basis of the lack of creditor pressure referred to in paragraph 44 (see paragraph 15 above) that the Judge was able to make the finding, in that paragraph, that the Company was solvent on a cash flow basis until the collapse.  He did so, according to Mr Boeddinghaus, notwithstanding that Mrs Bucci’s own expert, Mr Vigar, gave no evidence at all on the question of cash-flow insolvency in his expert report nor in evidence in chief: his only evidence was in cross-examination and there was nothing unhelpful to Mr Carman’s case in what he said.  
41.	It is true that very little was said about cash flow insolvency on behalf of Mrs Bucci.  However, her evidence and that of Mr Bucci was that the Company was profitable and had met all of its liabilities and in that the Judge appears to have agreed with them (although I have some observations to make later).  Mr Vigar dealt with it only very briefly in his expert report.  At section 2 he set out how his opinion on the questions raised in his instructions could be summarised.  He stated in 2.1 that “the cash flow position is considered in 2.5 below” and in 2.5 he stated that the Company remained solvent throughout 2008 until the cash deposits held in Dubai could not be recalled.  His detailed reasons were stated to be contained in section 3.  Most of the report is concerned with the balance sheet and not with cash flow.  Cash flow is dealt with in a very short section, 3.5, of the report, incorporating Appendix 5 to the report.  Appendix 5 summarised the Company’s net assets month by month throughout 2008.  Mr Vigar acknowledged that the figures for May and June looked “highly suspect” so that it would be prudent to average the two months.  He concluded that the Company was making profits up to and including July when it started to make losses. But the Company “remained solvent throughout 2008 until the cash funds held in Dubai could not be recalled”.
42.	Appendix 5 comprises a table setting out the reconstructed balance sheet for each month of 2008.  It shows a positive balance each month increasing from just over £356,000 in January to £990,500 in August and then decreasing to £763,000 in December but with a sudden glitch in May when a deficit of nearly £610,000 is shown.   The assets include the GUL loan, the amount of which is shown as increasing from nearly £299,000 in January to just over £474,000 in December.  
43.	Mrs Bucci’s then counsel (Mr David Berkley QC) included a single paragraph in his skeleton argument to the effect that the Company held large cash reserves; there was no evidence of any demands, pressing creditors, unsatisfied debts or anything else to suggest that until December 2008 the Company was not meeting its liabilities or paying its debts as they fell due.  It operated its bank accounts without default and had a £50,000 overdraft facility.  But for the Dubai crash, it would have continued to meet its obligations.
44.	His closing written submissions were also quite brief on the issue of cash-flow comprising three material paragraphs 12.3 to 12.5.  In summary:
i)	The Company was not facing creditor claims.  The evidence was of a cash-rich company.
ii)	The explanations given by Mr Bucci for not having forwarded deposits or instalments to developers was consistent with his attempting to safeguard and ringfence investor’s money.  He was able to show that monies had been withheld because of poor performance or non-performance by developers.
iii)	Bank balances at June 2008 show healthy balances (something over £97,000 in total and the Company had the use of a £50,000 overdraft facility).
45.	I ought to record at this point that Mr Carman himself, in his first witness statement at paragraph 47, explained that the Company was cash flow solvent but this was because it took substantial deposits from investors wishing to purchase properties. He said that it was, at the time of his witness statement, unclear whether, through the set-off arrangements (as to which see paragraph 47 below), these monies were transferred in full to Casa Dubai or whether they were ever remitted to the Dubai developers.
46.	In paragraphs 50 to 52 of the Judgment, the Judge set out very briefly some further factual aspects.  It is worth setting them out in full:
“50.	The company’s profit consisted primarily of its commission from sales.  It did however receive customer deposits for ultimate onward transmission to the developer via Casa Dubai.  To save on exchange control losses, the company retained some customer deposits.  Some were passed on to Casa Dubai directly.  Others were treated as remitted to Casa Dubai via a set-off arrangement against monies due the other way.  (The set-off operation is explained in the liquidator’s letter to Mr Lees, an investor, dated 7th August 2009).  The company did not set up a separate account for handling customer deposits.  Technically, those arrangements gave rise to liabilities of the company towards its depositors until such time as the deposits were paid to the developer in satisfaction of the customers’ contractual obligations.  There were corresponding amounts due from Casa Dubai in respect of monies remitted to and still held by Casa Dubai or treated as remitted under the set-off arrangements.  
51.	There was a rapid expansion of the business in 2007 and 2008.  This increased the apparent profits of the company up to July 2008 (as ascertainable from its SAGE accounts system) but also resulted in additional liabilities to customers whose deposits had not reached the developer, either because the development had not reached the appropriate stage justifying payment or because the developer could not hold deposits.  The SAGE accounting system was operated in a way which was far from ideal.  Nevertheless, the SAGE records gave a broadly accurate picture of the company’s profitability, a point confirmed by Mr Vigar.
52.	As a result of the sudden collapse of the property market in Dubai, which post-dated the September 2008 collapse of Lehman Brothers by over two months, Casa Dubai failed and the company’s substantial liabilities to its customers crystallised, without the possibility of recovering any of those liabilities from Casa Dubai, or outstanding commissions.  However, until that point, the company’s liabilities to customers were effectively contingent upon the failure of Casa Dubai or the developers.  The company had no cash flow difficulties until then, and had not reached the point of no return.  When it did so, it reached the point of no return very suddenly, and ceased its business.”
47.	It is apparent from the way the Judge expressed himself in paragraph 50 that he accepted the evidence about set-off.  This was a set-off of commissions due against money due to developers.  According to Mr Bucci, a client would pay the Company in the UK.  The administrator would advise the Dubai office (that is Casa Dubai) that payment had been received.  Casa Dubai would pay the developer from commissions received from developers.  If the commissions were not enough to pay the developer, a transfer would be requested from the company in the UK and sufficient funds would be transferred.  It is not at all clear to me from what I have been shown how this would actually work in practice given that commissions averaged at 6% but deposits were of a larger percentage than that.  Further, it is not on every sale that a commission was immediately payable.  
48.	Moreover, there ought ordinarily not to have been more than a very few days between receipt of monies by the Company from a customer and its onward transmission, via Casa Dubai, to the developer.  It is clear from the evidence, however, that if all deposits and instalment payments had been paid to the developers in that time-scale, the Company would not have been able to build up funds with which to make the GUL loans and incur other expenditure in acquisition of its own properties nor would it have ended up with liabilities, by the time it went into liquidation, of over £640,000 to customers.  In that context, even if the explanation given by Mr Bucci about why certain deposits and instalments were retained, the expenditure of those monies in other ways, such as loans to GUL or acquisition of illiquid assets, would have resulted in those assets being unavailable to meet the Company’s cash flow needs.  Given that, ordinarily, a new deposit ought to have been passed across within a very few days, it would not have been available to meet outstanding deposits or instalments.   The whole edifice depended, it seems to me, on a continuing flow of new business at the same or even greater level than in the past.
49.	Mr James Morgan, who now appears for Mrs Bucci, asserts that the Company was profitable even during 2008, a profit driven by average monthly commissions of around £120,000, pointing out that the Judge accepted that the SAGE reports from which this figure was derived gave a broadly accurate picture of the Company’s profitability.  But a currently profitable company is not necessarily either cash flow solvent or balance sheet solvent, so the Judge’s finding of fact does not lead inevitably to a conclusion of cash flow solvency.
50.	Mr Boeddinghaus does not accept that the Judge could properly have decided that the Company was profitable.  The SAGE reports were not reliable (not a fault of SAGE but of the way it was operated).  The spreadsheet produced by Mr Vigar (his Appendix 5 mentioned above) itself relied on the SAGE reports.  The spreadsheet contains a line at the bottom showing the monthly increase (or in one case decrease) in assets throughout the year.   This is what was relied on by Mr Vigar as demonstrating the profitability of the Company.  However, if one takes Appendix 5 at face value, the balance sheet reveals a positive position even if one strips out of assets the amount of the GUL loan from time to time, and attributes a nil value to it.  I do not understand how that factor is consistent with what was recorded by the Judge namely that the experts were agreed that if the GUL loan was valued at nil, the Company was balance sheet insolvent at all times after 31 December 2007.  It is not possible, either, to see how the monthly balance sheets are consistent with a starting point, on 31 December 2007 of a net deficit (of £30,161 on Mr Minshall’s figures).   And even Mr Vigar stated in his report that the figures for May and June looked “highly suspect”.  
51.	It is important to record what the Judge said in paragraph 56 of the Judgment namely that the experts were agreed that the Company was marginally insolvent on a balance sheet basis in March 2007.   I am not sure that is a totally correct summary: Mr Vigar had produced a balance sheet which showed a position of net liabilities of £10,750 at March 2007.  The expert for Mr Carman, Mr Minshall, agreed that the Company was insolvent on that date but did not, so far as I can see, ever commit himself to that figure, being of the view that the data was unreliable.  In any case, this was not really of much relevance on the Judge’s approach since he concluded that the Company had not reached the “point of no return” and was not, therefore, insolvent.  
52.	Moving ahead to December 2007, the Judge stated that the Company was balance sheet solvent taking into account the GUL loans at face value but not if the loan was valued at nil.  In his view (see paragraph 57 of the Judgment) it did not matter which:
“Either way, the company had not reached the point of no return, and was trading profitably. Business was increasing, and there was no likelihood of the company being called upon to refund the customer deposits.  The company continued to trade profitably overall in 2008.”
53.	This, unfortunately, seems to ignore why the company was not called on to refund deposits, a matter about which the Judge made no finding.  It might well have been because the depositors did not know that their deposits had not been paid,
54.	The Judge said that he was able to reach the conclusion which he did without needing to place any value of the GUL loan.  He said in paragraph 58 that he was inclined to the view, without deciding, that the GUL loan had no value.  That, he acknowledged, weakened the balance sheet but did not “point to the company having reached the point of no return”.  The Company was able to make the payments it did to GUL and to Mrs Bucci “precisely because it had not reached the point of no return, and had been trading profitably overall in 2007 and 2008”.  However, in paragraph 10, he had said that he did not consider that GUL was ever good for the money it owed to the Company or that it would be proper to regard the loans as having any significant value when considering the Company’s solvency following the advances.  It is not immediately obvious how the statements by the Judge in paragraphs 10 and 58 are to be reconciled: I shall explain how I consider this can, and should be, done later in this judgment (see at paragraph 99 below).
55.	Both experts were, as the Judge said in paragraph 58 of the Judgment, of the view that if the GUL loans were valued at nil, the Company was insolvent in December 2007 and at all times after that.  That was not an end of the matter because, as he explained, neither expert was applying the test of “point of no return”.  Each expert
“approached the matter as a mathematical exercise.  This is a helpful starting point, but does not answer the question of when the point of no return was reached, which is a question I have to answer based on the evidence as a whole”
56.	Carrying out that exercise, the Judge concluded that the “point of no return” was reached in December 2008 and not before.  He placed particular reliance on the explanations given by Mr Bucci of the business activities, both in the UK and in Dubai, with which he was involved.  Even though Mr Bucci was subject to sometimes justified criticisms by Mr Boeddinghaus, for example in not segregating customer’s monies in a separate account and in keeping records that were at times shambolic, the Judge accepted Mr Bucci’s explanations of the course the business was taking throughout 2007 and 2008.  Mr Bucci had emphasised the suddenness of the Dubai property collapse, and that, until then, the business was viable and the Judge accepted that evidence.
57.	The Judge saw the result of the Dubai crash in this way at paragraph 60 of the Judgment:
“60.	The result of the Dubai crash it that the Company’s liabilities towards depositors, which would but for the crash have been dealt with in the ordinary course of business, have come to fruition, without any possibility of recoupment from Casa Dubai.  This itself excited the suspicion of Mr Boeddinghaus, but I do not consider this evaporation to be the responsibility of Mr Bucci, or a reason for rejecting his evidence concerning the company’s trading activities.  Any balance sheet prepared with hindsight can now show the gloomiest of pictures, with customer balances in Dubai being written down to nil whilst the liabilities remain.  That was not the position until the end of 2008, however.”
58.	I have already mentioned the absence of any express reference to a trust claim or to authorities such as Quistclose in Mr Boeddinghaus’ submissions to the Judge.  The matter did come up later, however.  After delivering the Judgment, the Judge heard two applications from Mr Boeddinghaus one of which was an application for permission to appeal.  In the course of an oral judgment on that application the Judge said this:
“In addition, it is said by Mr Boeddinghaus that the position is transformed if, as Mr Vigar appeared to accept, the depositors' monies were treated as trust assets.  I am not satisfied that that would have any material impact upon whether or not the company was or was not able to pay its debts at the material times.  The fact is that the company, rightly or wrongly, mixed up depositors' assets with its own assets, and that gave rise to a liability which would have been discharged in the ordinary course of business but for the Dubai property crash, because if the property market had not crashed and the developers had not failed, then the developments would have been completed, the payments would have been made and the company would have been discharged from all liability.  It seems to me that, by not setting up a separate account for customer deposits, the company increased its own liabilities, which must be recognised, but, equally, what must be recognised is that the assets available to it to match those liabilities were also increased.  The fact that there might have been created within the accounting systems a notional trust account does not alter the fact that the monies were in fact treated as the company's and mixed up with its own, and that its liabilities and assets must be looked at at any given moment against the facts as they were and not in the light of the facts as they should have been.”
59.	This reflects, I think, a passage in the cross-examination of Mr Vigar where he accepted (i) that the Company should have had a client account but never did have one (ii) that the monies belonged to the clients until it was passed over to Dubai (by which was meant not Casa Dubai but the developer) and (iii) that the monies were in effect trust monies (perhaps a matter for the Judge rather than the witness).  And it reflects what the Judge himself said in the exchange with Mr Boeddinghaus when making the application for permission to appeal: “I was thinking more of the cases that you get from time to time: ‘Has the company set up an effective trust account to protect people currently putting in money?’ and things like that.  You look at what the company did”. 
60.	The possibility of a trust was mentioned in one of the documents in the trial bundle, namely a proof of debt from a Mr Rashid, a solicitor.  He was an intending purchase of a property in Dubai and states in his proof of debt form that he had paid 20% of the purchase price to the Company “for onward distribution to the developer but was unlawfully retained by [the Company]….. The money was subject to a purpose trusts and should fall back to myself as the payer since it falls outside [the Company’s] insolvent estate”.  There was no evidence to suggest that the developer was in fact paid the 20%.  
61.	Apart from that, there was no focus on the trust point.  It was not addressed in the witness statements or skeleton arguments for trial; it was not a point which Mrs Bucci had addressed, since it had not been raised.
62.	Before turning to the Grounds of Appeal, I should make one further comment about paragraph 60 of the Judgment.  The Judge stated that, but for the crash, the Company’s liability to depositors would have been met in the ordinary course of business.  The ordinary course of business, however, involved the continued receipt of deposits through new sales and the generation of commission.  Although the Judge clearly considered that the liabilities of existing depositors would be met in this way, he made no finding about the consequences of the further business which he envisaged or the longer-term position; indeed, he did not even mention this aspect.  There was not a Ponzi scheme, as the Judge found, but he did not suggest that the existing liabilities (which related not only to deposits but also to instalment payments of the purchase price) would be met simply out of commission rather than by utilisation of future deposits and instalment payments to generate cash-flow.  The way in which the liabilities would be met is clearly a factor which needs to be taken into account in assessing solvency, certainly once one moves away from the “point of no return” test and possibly even applying such a test.  If a liability can only be discharged by creating another liability (eg by borrowing from a bank or receiving deposits or instalment payments which have to be applied contractually in a particular way) then the net asset position is not changed.  The Company may not, on that basis, have been cash flow insolvent but that is not to say that it was not balance sheet insolvent.
The Grounds of Appeal 
63.	The Grounds of Appeal were as originally formulated as follows:
i)	The Judge erred in law in holding that the monies paid to the Company by investors (which were monies paid by them to meet their deposits or instalment payment obligations in respect of property purchases in Dubai) became the property of the Company which it could use for its own commercial purposes.
ii)	Alternatively, Judge erred in fact in so holding.
iii)	Of particular importance in that context are (i) the (incorrect) reliance by the Judge, in concluding that the monies became assets of the Company, on the absence of a separate client account and (ii) the (correct) view of Mrs Bucci’s own expert that the Company ought to have kept a separate client account.
64.	Accordingly, the Judge should have held that the monies were trust monies, held on Quistclose trusts for the purpose of meeting deposit and instalment payment obligations on the part of investors.  The practical consequence of that, it is said, is that if monies advanced by investors and held by the Company (or used for its own commercial purposes) were taken out of account when considering the Company’s financial position, the Judge would have concluded that the Company was insolvent at all material times, not only on a balance sheet basis but on a cash flow basis.  
65.	The Grounds of Appeal also allege that the Judge erred in fact in that his conclusions on the question of insolvency were against the weight of the evidence in that:
i)	He failed to attach any weight to the fact that the GUL loan had no value.
ii)	He accepted (when he should not have done) the explanation put forward by Mr Bucci that the Company had applied monies paid by investors by the operation of a set-off system when the explanation was not credible nor would they account for the fact that commission payable by developers to the Company cannot have matched in amount the sums paid by investors.
iii)	He gave insufficient weight to the circumstances of the Company’s last 18 months of trading in concluding that the Company’s point of no return was not reached until December 2008.  
66.	I can deal with those last three matters quite briefly.
i)	As to the first, he expressly stated that the judge reached his conclusion without placing any value on the GUL loan.  He therefore recognised that the test which he was applying – the “point of no return” test – would operate in the context of an adjusted balance sheet which ignored the amount of the loan as an asset.  It is difficult to see what more weight he could have given to the point.  Mr Boeddinghaus’ complaint is surely not that the Judge attached no weight to the nil value of the loan but that, having done so, he reached the wrong conclusion: but that is a different point.
ii)	As to the second, I am wholly unconvinced by this.  I do not understand why Mr Bucci’s explanation is said not to be credible.  The Judge accepted it and that is not a finding with which I should interfere.  The Judge did not suggest, I should add, that all of the deposits were paid in this way and to have done so would have been contrary to Mr Bucci’s own explanation of how the set-off operated.  In particular, his evidence was that if Casa Dubai did not have enough money (representing commissions) in hand, further funds would be remitted from the UK.  
iii)	Since the “point of no return” does not provide the right test, it becomes irrelevant whether the Judge was right or wrong.  The question now is whether applying the correct test, I am in a position to be able to decide whether the Company was unable to pay its debts giving due weight to the factor which Mr Boeddinghaus identifies.
67.	In his skeleton argument (produced before the decision of the Supreme Court in Eurosail), Mr Boeddinghaus submitted that, if  the “point of no return” test was the correct test, it had no application in the present case. He took issue with the Judge’s statement at paragraph 47 of the Judgment to this effect: that although Lord Neuberger’s comments primarily concerned the approach to be taken towards prospect and contingent liabilities, the effect of that approach is not so limited.  Mr Boeddinghaus’ submission is that Lord Neuberger was addressing only the effect of prospective and contingent liabilities in a case where the company is not balance sheet insolvent on the basis only of its current liabilities (and so would be able, at least apparently, to continue trading).  In the present case, prospective and contingent liabilities were not in issue and there was no need to invoke the “point of no return” test at all.  Had the Company not made use of investor monies, and on the correct assumption that the GUL loan had no value, the Company could not have continued to pay its debts because (as both experts believed) it was insolvent on a balance sheet basis.
68.	Following the decision of the Supreme Court, Mr Boeddinghaus produced a further skeleton argument in which he submitted that it is now clear that Mr Carman’s claim should succeed.  The “point of no return” test had been rejected and Mrs Bucci was unable to demonstrate, applying the correct test, that the Company had sufficient assets to be able to meet even its present liabilities: the burden of proof falls on her under section 240(2) under which the requirement that a company is unable to pay its debts is presumed to be satisfied unless the contrary is shown by the company.
69.	At this stage, I should mention that Mr Morgan identifies what he describes as a complete change of emphasis in Mr Carman’s case, with another change – the allegation of a Quistclose trust – being an entirely new issue which he submitted Mr Carman should not be entitled to raise at this late stage.  That change of emphasis is the reliance in this appeal on cash-flow insolvency which, according to him, hardly featured in the hearing below.  Mr Carman’s counsel, in opening, stated that balance sheet insolvency was the key issue.  Let me get that point out of the way now.  Cash flow insolvency is not a new point raised for the first time in this appeal as is shown by the matters I have mentioned at paragraph 41 above.  The emphasis of a case frequently changes as it works its way up the Court system.  That does not mean to say that a particular cannot be given greater prominence on an appeal.  Mr Boeddinghaus is perfectly entitled to make what he can of cash flow insolvency on this appeal.
Discussion 
70.	The first question I wish to address is the one of legal dispute between the parties.  The question can be asked this way:  If a company has current liabilities the amount of which exceeds the value of its assets, is it necessarily deemed unable to pay its debts under section 123(2)?  By “current” I intend to refer to liabilities which are currently due for payment or which will fall due for payment in the reasonably near future and which are therefore relevant to the cash flow test.  I deliberately do not insert the word “current” before assets because, in the present case, it is not suggested that there are any contingent or prospective assets (to use the mirror of contingent and prospective liabilities) the amount of which have to be brought into account.  Of course, Mr Bucci’s evidence was that he hoped that the Company would have a future income stream by way of commission, a hope which was dashed by the property collapse in Dubai.  But it cannot sensibly be argued that that hope (before it was dashed) could be brought into account as an asset in its own right. 
71.	On a literal reading of section 123(2), Mr Boeddinghaus is correct.  On the hypothesis underlying the question as I have formulated it, the value of the debts clearly is less than the amount of the liabilities and the difficulties which arise out of how prospective and contingent debts are to be taken account of simply do not arise.  
72.	Mr Morgan submits that this literal reading is not the correct approach.  Rather, the starting point is section 123(1)(e) and whether a company is able to pay its debts as they fall due.  In answering this question, the court is to take account of the company’s ability to pay its debts over the reasonably short period.  He relies on the passage which I have cited from Cheyne and the approval by Lord Walker of what Toulson LJ had said in the Court of Appeal.  In particular, he submits that what Lord Walker said lends powerful support to the view that the short term, and indeed the reasonably foreseeable future, is dealt with by section 123(1)(e) and that recourse to section 123(2) is appropriate only once one has to move from the reasonably near future, when application of the cash flow test becomes speculative and a comparison of present assets with present and future liabilities becomes the only sensible test.  And so, Mr Morgan submits, if the company is able to pay its debts as they fall due, section 123(2) is a means of deeming the company insolvent on the basis of its present, prospective and contingent debts.  But it is not concerned with deeming a company to be insolvent on the basis of its present assets and liabilities alone when otherwise it can pay its debts as they fall due.  Recourse only needs to be had to section 123(2) where there are in fact prospective or contingent debts.  In any case, the court should not apply a mechanistic test but should conduct a value judgment as to whether in all the circumstances it is or was at the relevant time reasonably likely that the company will be able to meet its liabilities.
73.	I have already considered Eurosail and other cases earlier in this judgment.  There are, however, some additional points to make in the light of the submissions of both Mr Boeddinghaus and Mr Morgan.  
74.	The first point to note is that neither Briggs J nor Lord Walker was addressing the question which I have identified.  Briggs J’s focus was on the way in which the cash-flow test was to apply and, in that context he concluded that it involved an element of futurity, “as they fall due” replacing “taking into account its prospective and contingent liabilities” which had appeared in the Companies Act 1985.  He expressly recorded that in many cases “the alternative balance sheet test will afford a petitioner a convenient alternative means of proof of a deemed insolvency”.  
75.	The second point to note arises from the example given by Nicholls LJ in Byblos Bank contained in the passage of his judgment set out at paragraph 24 above.  This was the extreme (to use Nicholls LJ’s own word) example of a company liable to repay a £100,000 loan one year hence and whose only asset was worth £10,000.  It was obvious that such a company did not have the present capacity to pay its debts and as such was “unable to pay its debts”.  If one alters Nicholls LJ’s example a little, and posits that the debt of £100,000 is immediately payable but is one which the creditor (suppose a shareholder) has indicated he does not, for the moment, intend to call in, then the company is, I suggest, as insolvent as the one in Nicholls LJ’s example.  On Mr Morgan’s approach, it would not be insolvent because it can pay its debts as they fall due and the case is not one of a prospective or contingent liability.  Perhaps that is not fair to Mr Morgan: he could say that a debt which has been postponed in this way is properly to be seen as a prospective debt and is thus to be treated as such in the application of the test adumbrated by Lord Walker (and Toulson LJ).  
76.	Before moving away from Byblos, it seems to me that the passage of the Judgment of Nicholls LJ starting with the words “It might be that, if the company continued to trade…” to the end of the extract set out at paragraph 24 above does lends some support to Mr Boeddinghaus’ position.  On the basis, as stated by Lord Walker, that section 123 is not intended to represent a significant change in the law, it remains the case that the future profitability of a company cannot result in the assets of the company at any time being treated as other than what they are.
77.	I do, nonetheless, accept that there is some force in Lord Neuberger’s observations in [44] of his judgment in Eurosail in the Court of Appeal.  In that paragraph, he said that in practical terms it would be rather extraordinary if section 123(2) was satisfied every time a company’s liability’s exceeded its assets: many companies are solvent and successful, and many companies early on in their lives would be deemed unable to pay their debts if this was the meaning of section 123(2).  He rejected Mr Sheldon’s submission, made to meet that point, to the effect that the Court had a discretion to refuse to make a winding-up order in such circumstances.  
78.	I consider that one must treat with some circumspection Lord Neuberger’s rejection of Mr Sheldon submission.  Toulson LJ took the view (see [118]) that there may well be situations in which a company may be unable to pay its debts within the meaning of section 123(2) but for a particular reason the court does not consider that the best course would be to order that it should be wound up.  And Nicholls LJ, albeit in a slightly different context, acknowledged that the prospect of a further injection of capital was something to be taken account of in the exercise of the discretion whether to wind up a company.  Moreover, Lord Neuberger’s practical concerns were an important element in driving him to the conclusion that the “point of no return” was the correct test.  With that test having been rejected, the consequence may be that what Lord Neuberger regarded as an extraordinary result will be commonplace.
79.	One can return, then, to the words of Toulson LJ, expressly approved by Lord Walker, and ask “whether it [the company] cannot reasonably be expected to be able to meet those liabilities”.  A reading of the passage from which those words are taken shows that “those liabilities” are prospective and contingent liabilities but there can be no doubt, in my view, that the question raised by Toulson LJ subsumes the question whether the company is in fact not able to meet its current liabilities.  This is a different question from cash-flow insolvency.  A company may be able to pay its debts as they fall due by obtaining a loan from a bank or from a shareholder or director and, depending on the facts, this may mean that section 123(1)(e) does not apply.   But such a loan would not improve its balance sheet and it would remain necessary, in my view, to consider section 123(2) as a separate matter.  I therefore reject Mr Morgan’s submission that it is necessarily only section 123(1)(e) which is engaged, and not section 123(2), in cases of immediate liabilities exceeding assets.
80.	I do, of course, accept that the deeming provision of section 123(2) may not apply even though the balance sheet shows a large deficit.  That was the case in Eurosail itself because prospective and contingent liabilities were brought into the balance sheet on the basis of certain accounting conventions.  On that basis, Eurosail was in the position of having net liabilities of £75m but was still held not to be insolvent.   Those liabilities reflected, however, a large amount of long-term debt in relation to which the outcome was wholly speculative: see [49] of Lord Walker’s speech.  It was for that reason that Lord Walker considered that it had not been demonstrated that the company was unable to pay its debts.  
81.	But I also reject Mr Boeddinghaus’ submission that an excess of immediate liabilities over assets necessarily means that the company is insolvent, at least when it is expressed in that unqualified way.  It still has to be asked, I consider, whether the company cannot reasonably be expected to meet its liabilities.  The answer to the question, when asked in the context of immediate liabilities exceeding assets, may be clear on the facts of a particular case and I accept that the court might be relatively easily satisfied that the company is insolvent.  I would go this far with Mr Boeddinghaus, that is to say that I accept that the starting point must be that a company which has immediate liabilities which exceed assets is unable to pay its debts.  Although, in the case of a winding-up petition, it is for the petitioner to establish to the satisfaction of the court that the case falls within section 123(2), the fact that a balance sheet shows a deficit is, by itself, enough to raise a prima facie case of insolvency; there is then an evidential burden on the company to show why it can, notwithstanding its balance sheet, reasonably be expected to meet its liabilities.
82.	That approach meets, in my view, the sort of example given by Lord Neuberger.  If one asks why a successful company or a start-up company with such a balance sheet deficit is not unable to pay its debts, the answer can only be given by looking at the facts of the particular case which show, for some reason, that the liability will be met.  Start-up companies (those early in their lives as contemplated by Lord Neuberger at [44]) are solvent because those financing them have confidence in their eventual profitability and either provide term loans (so that one is looking at prospective debts and not immediate debts) or loans payable on demand but with the expectation that the loans will not be called on for some time.  Although it is not for the court to speculate about the commercial success of a company, it can, and sometimes must, take a view, on the evidence, about the likelihood of loans being called in and of the likelihood of the company being able to meet them when called in.  For example, if a company has a significant balance sheet deficit all of which can be attributed to shareholder loans which, in practice, will not be called in so long as the company is profitable, it may be possible to reach the conclusion that the company is not unable to pay its debts.  But if, to take an extreme example, there is no prospect at all of the company ever making sufficient profit to repay the loans, it would not be correct to describe the company as able to pay its debts when considering the application of section 123(2) even if it is able to meet its liabilities as they fall due in the short term and even though the expectation is that the company will continue to trade for the foreseeable future.
83.	From what I have already said, it can be seen that Mr Morgan’s submission takes no account of the future beyond the reasonable period contemplated by Lord Walker’s analysis in relation to the cash flow basis.  But as I have already observed, there is not a rigid division between section 123(1)(e) and section 123(2) and considerations relevant to one will inform the other.  It is still necessary to look to the future in cases where it is suggested that a current liability such as director’s loan account can be ignored on the basis that it will not be called in.  Lord Walker explained (see [37] of his speech) that a cash flow test becomes completely speculative once a court has to move beyond the reasonably near future (a period depending on all the circumstances) and hence a comparison of present assets with present and future liabilities becomes the only sensible test.  Similarly, if it is necessary to rely on the future state of the affairs of the company, and in particular its retained profits over a period of many months or even years, in order to justify a departure from a strict arithmetical comparison, the foundation for that future state of affairs must be firm; otherwise it is mere speculation and the balance sheet test is no more sensible than the cash flow test.
84.	In the present case, it is said that the loan accounts standing to the credit of Mr and Mrs Bucci were long term loans and would not be paid out unless and until the Company could afford to do so.  They accounted for a significant figure.  If they were left out of account as liabilities, the balance sheet as of 31 December 2007 might have produced a positive figure rather than a deficit.  
85.	They cannot, however, simply be left out of account in assessing whether liabilities exceed assets.  It still remains pertinent to ask whether the Company could be reasonably expected to meet the liability in respect of those accounts in due course.  If the time for repayment is pushed beyond the reasonably near future, then the loan falls to be treated, I think, in the same was as any other prospective or contingent liability to which the balance sheet test is applicable.  If that liability can, for section 123(2) purposes, be brought into account at some value less than its actual amount, then it may be difficult for a potential petitioner to satisfy the court that the value of the assets is less than the amount of its liabilities.  But if that cannot be done, I see no reason why it section 123(2) should not apply with the result that the Company is deemed unable to pay its debts.  
86.	The present case is different.  It is one where, for reasons I come to next, the burden is on Mrs Bucci to demonstrate that the Company was able to pay its debts.  That, in my judgment, requires her to show, on the balance of probabilities, that the loans would be repaid. Toulson LJ observed, in a situation where the burden is on the person asserting insolvency to prove it, that the more distant the prospective and contingent liabilities are, the harder it will to be establish that the company cannot reasonably be expected to be able to meet its liabilities.  In my view, the same applies in reverse: where the burden is on a person (Mrs Bucci in the present case) to rebut the presumption of insolvency, the further into the future one needs to go the harder it will be to prove that the company can reasonably be expected to be able to meet its liabilities.
87.	Turning to the burden of proof, it seems to me that the principal function of section 123 (appearing as it does in the group of sections starting at section 122 under the heading “Grounds and effect of winding-up petition”) is to define the situations in which a company is, or is deemed to be, unable to pay its debts for the purposes of bringing winding-up proceedings under section 122 – see section 122(1)(f).  But that is not its only purpose. Section 123 is also invoked in relation to administration applications: see paragraph 11(1) Schedule B1 where the court has to be satisfied that the company is or is likely to become unable to pay its debts, a phrase which has the same meaning as in section 123: see paragraph 11.   In these cases, it is clear that the court must be satisfied on a balance of probabilities that the company is unable to pay its debts.  This burden is reflected in what Lord Walker said at [49], a burden to show the court “on the balance of probabilities, that a company has insufficient assets to be able to meet all its liabilities….”.  He said that the movements of currencies and interest rates prior to the final redemptions dates were incapable of prediction with any confidence with the consequence that “the court could not be satisfied that there will eventually be a deficiency”.   Because matters were speculative, it could not be said with confidence that the debts would not be satisfied so that the burden on the person alleging insolvency was not satisfied.  It is relevant to note that the existence of the liabilities of the company was not in question: the issue was whether the assets were insufficient to meet those liabilities and, because of the need for speculation about the match of assets and liabilities in the future, it could not be said that the liabilities would not be met.
88.	It is not a corollary of those conclusions that the court would necessarily have been satisfied, had it needed to decide, on a balance of probabilities that the company did have sufficient assets to meet its liabilities.  It is the nature of speculation that it is uncertain either way.  The conclusion was not that, on the balance of probabilities, there would not be a deficiency.  The conclusion was that the uncertainty and speculation about the outcome meant that the court could not be satisfied that there would be an eventual deficiency, and thus that its assets were less than its liabilities.  In other words, there was a possibility that the company would in the long term be able to meet its liabilities at the time when they fell due for payment.
89.	Under section 240, the burden is the other way round in the case of persons connected with the company.  Where there is an alleged transaction at undervalue, the time of the transaction is not a “relevant time” unless one or both of the conditions of section 240(2) are fulfilled.  Condition (a) is that “at that time [the company] is unable to pay its debts within the meaning of section 123…”.  The subsection goes on to provide that the requirements of those conditions are presumed to be satisfied unless the contrary is shown in the case of a transaction with a person connected with the company, as in the present case. In the case of a transaction with a person who is not connected with the company, it is clear that the burden would be on the applicant (eg a liquidator) to show that the company was unable to pay its debts.  The position would be no different from that which obtains in relation to the presentation of a petition for winding-up.  
90.	In the case of a transaction with a connected person, the position is different.  The result of the presumption is that the burden is on the person seeking to uphold the validity of the transaction (Mrs Bucci in the present case) to show the contrary, that is to say to show that the requirements of section 240(2) are not satisfied.  In other words, Mrs Bucci must show that the Company was able to pay its debts within the meaning of section 123.  
91.	In my judgement, reading sections 123 and 240(2) together, it is necessary for Mrs Bucci to prove to the satisfaction of the court both (i) that the Company was at material times not unable to pay its debts as they fell due and (ii) that the value of the Company’s assets equalled or exceeded the amount of its liabilities, taking into account its contingent and prospective liabilities (but note the argument dealt with in paragraph 123 below).  Adapting the analysis of Lord Walker and making necessary adjustments to the approach of Toulson LJ in [119] of his judgment, the court has to make a judgment about whether it has been established that, looking at the Company’s assets and making proper allowance for its prospective and contingent liabilities, it can reasonably be expected to meet those liabilities.  In the context of Eurosail itself, it would not have been possible, had there been a similar reversal of the burden of proof, to reach that conclusion any more than it was possible to reach the conclusion actually arrived at when the burden was on the liquidator.
92.	There is one further point to make in the context of section 240.  It relates to what Lord Neuberger regarded as “rather extraordinary”: see [44] of his judgment.  In saying what he did, he did not address the different context of section 238.  It is not at all extraordinary to my mind that a transfer at undervalue should be open to attack if it was made at a time when the amount of the company’s immediate liabilities exceeded the value of its assets in the case of a transaction with a connected person.  Thus if a company was to be put into winding-up in reliance on a failure to meet a statutory demand pursuant to section 123(1)(a), I do not think that it would be extraordinary for the liquidator to be able to recover property transferred to a connected persons at an undervalue a few months before the date of the statutory demand if it can be demonstrated that the company’s balance sheet then showed liabilities immediately due exceeding assets.  Some caution must be exercised in the weight to be attached to the “extraordinary” result which Lord Neuberger perceived.  
93.	There has been some debate about the nature of the Company’s obligations in relation to the monies received by investors and the extent of its liabilities as a result.  Mr Boeddinghaus wishes to assert that these monies never became assets of the Company but were held on Quistclose trusts, the purpose of the trusts being to pay to the developer/vendor of a property the relevant deposit or instalment payment received by the Company from its client.  The application of monies for any other purpose was a breach of trust and/or contract; the monies were simply not properly available to meet other obligations so that, in assessing whether the Company was cash-flow solvent, reliance could not be placed on the availability of these funds other than for the payment of the actual deposit or instalment to which the relevant receipt related.  Further, these funds were not assets when it came to assessing the ability of the Company to pay its debts for the purposes of section 123(2).  I will deal with that aspect later.  
94.	Assuming for the moment that the Quistclose argument is not available to Mr Carman, it remains the case that the Company had a liability matching each payment received by it.  To the extent at any time that the monies received by the Company by way of deposit and instalment payments exceeded payments to the vendors, the Company had a contractual liability to pay the developer or to return the money to the client for instance if the sale fell through for some reason.  As the Judge said in paragraph 50 of the Judgment, the arrangements gave rise to liabilities to clients until the deposits were paid to the developer in satisfaction of the client’s obligation to the developer.  So too in his ex tempore judgment refusing permission to appeal, he considered that, by not setting up a separate client account, it had to be recognised the Company increased its liabilities. One way or another, it seems to me, the Company had a liability, for the purposes of section 123(2) in respect of monies received equal to the amount received and not applied in payment to developers. 
95.	It is here that Mrs Bucci faces a dilemma.  Either she accepts that all of the liabilities of the Company were ones giving rise to debts which were immediately due and payable or would become so within the reasonably near future or she does not accept that in which case the liabilities which she rejects as immediate are properly to be seen as prospective or contingent liabilities.  Under the first scenario, the Company fails the cash flow test at a given time unless it can be shown that it had at that time the liquid resources necessary to meet those liabilities.  If she maintains that certain liabilities are only future liabilities, then she may make it easier to satisfy the cash flow test but she is left having to satisfy the balance sheet test since the case would then be one of prospective and contingent liabilities.
96.	Before I address the components of that dilemma, there are some additional points to make.  The first is that Mr Morgan makes play of the fact that the balance sheet position indicating a deficiency at 31 December 2007 needed to place reliance on the directors’ loan accounts.  If those were taken out of the equation, then even on Mr Minshall’s figures, assets exceeded liabilities. That is true, but there is no scope for the sort of speculation which arose in Eurosail about the value to be placed on those loan accounts.  Those accounts would, one day, become payable.  In contrast, in Eurosail it could not be said what, if anything, would be owing at maturity.  Accordingly, if section 123(2) is in play, the argument which Mrs Bucci would need to deploy is that the loans are in effect prospective liabilities which might not be called in for a long time and that it is therefore not possible to say that the Company cannot reasonably be expected to be able to meet those liabilities. 
97.	The next point is that it was common ground that if the value of the GUL loan was nil, then the Company was insolvent in December 2007 and thereafter.  As the Judge put it at paragraph 57 of the Judgment, the Company was balance sheet solvent (having been in a position, I would add, of net liability as shown in the balance sheet in March 2007) if the GUL loan was taken into account at the amount outstanding as at 31 December 2007 but not if the loan was valued at nil.  The Judge’s conclusion at paragraph 10 of the Judgment was that GUL was never good for the money.  I suppose that could mean that part of the loan might be repaid but even if that is so, the Judge did not consider that it would be proper to regard the GUL loan as having any significant value when considering the company’s solvency following the advances.  I take that to mean that as at 31 December 2007, the advances made by that time were such that, if the value of the GUL loans was nil, the Company was insolvent.  The Judge also stated that he did not consider that it would be proper to regard the loans as having any significant value when considering the Company’s solvency following the advances.  I take that, likewise, to mean that no significant value should be attached to the GUL loans as at 31 December 2007 in respect of advances which had been made by that time.  But in paragraph 58 the Judge appears to have left the matter more open, simply saying that he was inclined to accept the evidence of Mr Carman’s expert that the value of the GUL loan was indeed nil.  
98.	Mr Morgan submits to me (i) that the Judge did not make up his mind because it was unnecessary for him to do so and (ii) that it is difficult to see how the Judge could be seen as having made a final decision without resolving the points of difference between the experts.  In any event, the Judge pointed out that this was not simply a mathematical exercise so that, according to Mr Morgan, neither expert adopted the right approach.  But nor, I add, did the Judge adopt the correct approach since he adopted the wrong test – the “point of no return” – as he was bound to do in the state of the law as it stood before the decision of the Supreme Court in Eurosail.  On my view of the law, the experts were right to adopt the approach of comparing assets and liabilities, at least as their starting point.  
99.	If Mr Morgan is right in the submission which I have just numbered (i) and (ii), then I cannot myself answer the question whether the Judge’s inclination was in fact correct unless it is possible to do so by an examination of their reports and what they actually said in oral evidence.  I have not been taken through their reports to see where they disagree and why although I have read them both carefully, as well as their joint agreed statement.  Still less have I had the advantage of hearing and seeing the two experts in order to resolve their differences.  That was the function of the Judge but he, having adopted the “point of no return” test did not need to resolve the issue.  However, it seems to me that the clear thrust of the Judge’s actual decision was that the GUL loans were of no significant value at any time after any of the advances had been made.  I take that as his finding of fact (or perhaps mixed fact and law) which is one I should not interfere with unless I am sure it was wrong (which I am not – indeed it seems to me likely to have been correct).  If there is an apparent inconsistency between what he said in paragraph 10 and 58, it can be resolved by drawing a distinction between the GUL loans having no significant value and having no value at all.  An insignificant value would not, on the figures, make any difference to the solvency or otherwise of the Company at any material time.
100.	Given the agreement between the experts that if a nil value is attributed to the GUL loans the Company was insolvent as at 31 December 2007 and at all times thereafter, Mrs Bucci obviously has a steep uphill task to persuade the court, the burden being on her if section 123(2) is in point at all, that the Company could reasonably expect to be able to repay the directors’ loans when they were likely to be called in and thus to rebut the presumption of insolvency under section 240(2).  
101.	The position prior to 31 December 2007 is problematical.  I do not understand Mr Vigar to have accepted that the Company was then insolvent in the sense required by section 123 even ignoring the amount of the GUL loan.  However, the starting point even for Mr Vigar has to be that the liabilities did exceed the assets, albeit on one view only marginally, on that date since that much was common ground.  The presumption under section 240(2) is that the Company was then unable to pay its debts by virtue of section 123(2) with the burden being on Mrs Bucci to show the contrary.  A deficit on balance sheet is not an attractive launching pad for an argument by her that the Company was, in fact, solvent although it is at least a theoretical possibility.  
102.	I will consider that point further in a moment.  But before I do, I should record that, according to Mr Carman’s evidence which has not been challenged on this point, the only payment made to Mrs Bucci or to HMRC by way of pension contributions before 5 April 2007 was one small payment of £416.67.  Accordingly, the position prior to that date was of little significance and no point was taken to distinguish the state of solvency of the Company on the making of that payment from the state of solvency on 31 March 2007.  In practice, therefore, if the Company was deemed insolvent under section 123(2) on 31 March 2007, it can be taken to have been insolvent on the occasion of that small payment too.
103.	Turning to the actual figures:
i)	It was and remains common ground that the Company was in a marginal net liability position of £10,751 on 31 March 2007 as shown in the balance sheet prepared by Mr Vigar.  This deficit reflected a figure for long-term creditors of £12,486.  There was no directors’ loan.  Indeed, the directors’ accounts appeared to be overdrawn.   I have not been told anything about the nature of the long-term creditors or about how long-term the loans are.  In the application of section 123(2) (if it applied in the first place) I can see no reason for bringing it into account at other than its face value when taking account of prospective and contingent liabilities.
ii)	As at 31 December 2007, Mr Minshall stated the deficit to be £30,116.  This included a loan by the directors of the Company of £35,615.  Although included under the heading “Long Term Liabilities I do not know anything about the terms of this loan.  It may be that it is simply a loan payable on demand with an understanding that it would not in fact be called unless and until the Company could afford to pay it.  There were also differences between the experts which the Judge left unresolved, although the figures concerned were modest - £3,256 in respect of depreciation and £2,833 in respect of the existence or otherwise of a debt owing to Let’s Talk Marketing.  Ignoring those items, if the directors loans are stripped out, the Company would not have been in deficit at all according to the balance sheet prepared by Mr Minshall. 
iii)	However, Mr Minshall’s balance sheet must be read subject to the substance of his report.  The figure which he shows under Creditors short term is actually an asset of £58,456.  That is a figure which results from figures extracted from SAGE (and adopted by Mr Vigar in his second reconstruction of the balance sheet) debtors at £10,788,369, creditors at £11,096,056 and  Casa Dubai funds held in Dubai of £366,143 (a figure which matches the figure shown in Mr Carman’s second reconstruction of the balance sheet).  In relation to the SAGE figures for debtors and creditors, Mr Minshall stated (see paragraph 21 of his report) that he did not accept either of those figures, although the difference between them was “more credible”.  He thought it entirely feasible, in the light of the factors related at paragraph 47 and 48 of his report, that the creditors figure is materially understated.  The Judge did not deal with this aspect of the evidence.  
104.	As I have already noted, the Judge referred to the Company as trading profitably.  It seems that he placed reliance – indeed this may be the sum total of his reasoning – on Appendix 5 to Mr Vigar’s report.  I have already explained that I do not understand how that Appendix is consistent with the common ground that, if the GUL loan is valued at nil, the Company showed net liabilities on the balance sheet at all times from and after 31 December 2007.  There is more to say about profit, however.  In paragraph 90 of his report, Mr Minshall expressed the view that there was no adequate information for Mr Vigar to reach the conclusion about profit which he did.  Mr Minshall had earlier on given his analysis which justified that view.  Mr Minshall commented that it was unclear whether, in making his statement about profit, Mr Vigar had considered the Company’s position with specific reference to either it actual accounts or results.  I have been shown no evidence that he did so.  The Judge did not address Mr Minshall’s criticism; indeed, his justification for his conclusion about profitability appears to me to be slightly circular.  Thus, he expressed the view that the SAGE figures gave a broadly accurate picture of the Company’s profitability “a point confirmed by Mr Vigar”.  But there was nothing, at least nothing I am aware of, which would have lead the Judge to conclude that the SAGE reports did give a valid indication other than Mr Vigar’s statement to that effect.  So, it seems, the Judge accepted the picture presented by the SAGE reports simply because Mr Vigar says that they presented an accurate picture.  The Judge did not refer to Mr Minshall’s evidence about the unreliability of the SAGE reports or give any reasons why he preferred Mr Vigar to Mr Minshall on this topic.  I have not been taken to those reports nor received any submissions about their reliability and can form no independent view of my own.  
105.	In addition, Mr Minshall was highly critical of Appendix 5, which he dealt with in paragraph 103 of his report.  I do not set those criticisms out at length in this judgment.  They appear to me to have considerable force.  They were not addressed by the Judge.  
106.	As already noted, not much was said about cash flow insolvency on behalf of Mrs Bucci.  More was said on behalf of Mr Carman although he acknowledged that the Company was cash flow solvent but only on the basis that it was using deposits from later purchasers to pay the deposits of earlier purchasers.  I have already set out the Judge’s reasoning on this issue in paragraph 40 above referring to paragraphs 44 and 49 of the Judgment.  Essentially, his conclusion was based on the fact that the Company had not in practice had any cash flow difficulty until the collapse of the Dubai property market in late 2008.  
107.	The asserted absence of creditor pressure is, however, only part of the picture.  As a matter of fact, there were at least four creditors who did express concern about the non-transfer of their deposits to the developer.  I say at least because they were four of a larger group where the details concerning payment or not as the case may be of deposits was not before the court.  Those amounts relevant to those four creditors amounted to a modest sum, around £10,000 in total.  The Judge did not mention them expressly in the Judgment: perhaps he considered them de minimis and not such as to affect the profitability of the Company and its ability to meet its liabilities.   Mr Bucci gave an explanation in cross-examination of why the monies had not been remitted although it is not clear whether that related to all four cases.  It is not clear whether the Judge accepted that evidence although there is perhaps an indication that he did in paragraph 51 of the Judgment (see paragraph 46 above) 
108.	Perhaps more significant is what is contained in paragraph 61 of Mr Minshall’s report where, in addressing the four cases just referred to, he produced a table concerning the ageing of creditors.  As he put it:
“I have also created an age-analysis of the creditors received and verified into the liquidation (ie excluding the other creditors not yet verified)
The analysis reveals the following:….”
109.	There follows a table headed “Ageing of creditors”.  This lists against each month a figure for the debts incurred that month outstanding and still outstanding at the time of the liquidation.  I do not propose to set out the table in this judgment, but it can be seen that for all months in 2008, significant amounts of unpaid debts accrued.  And for 2007, significant amounts accrued in May, June, August and September and December.  This resulted in a total outstanding at the commencement of the liquidation of over £648,000.  Mr Minshall concluded that  
“As is seen, there are substantial creditors of considerable age implying that the Company was not remitting funds onwards to its developers, and/or [Casa Dubai] on a timely basis.  This material supports the hypothesis that the Company was unable to pay this debts as they fell due.”
110.	It is also the case that Mr Bucci himself stated in his Preliminary Information  Questionnaire that there were 34 clients exposed to loses of over £488,00 in relation to the failure, as the question is framed in the PIQ, “to supply goods or services for which its customers have paid a deposit, paid in part of paid in full”.   Read in conjunction with the schedule of ageing creditors, this is confirmation of a failure over a substantial period to pay significant sums of money which were on any view due for payment.  There was also evidence in the form of an attendance note of a meeting between Mr Carman and Mr Bucci on 8 October 2009 in which Mr Bucci is recorded as saying that he compiled the list of creditors (that is to say, the 34 creditors referred to above) by collating complaints from investors who had stated that their funds had not been invested.  Mr Boeddinghaus submits that the fact of such non-payment is of itself evidence of the Company’s inability to pay its debts as they fell due.
111.	The Judge did not address the evidence referred to in the preceding four paragraphs in the Judgment.  It does not seem to me that any of these matters is a trivial matter.  The evidence ought properly to have been considered in assessing the cash flow solvency of the Company.
112.	The Judge treated insolvency under section 123(1)(e) and section 123(2) as discrete matters.  It does not appear that counsel then acting for Mrs Bucci addressed to the Judge the argument which Mr Morgan has addressed to me to the effect that section 123(2) is concerned only with prospective and contingent debts so that a company whose balance sheet shows a deficit on the basis of current liabilities is not necessarily insolvent.  Accordingly, the Judge dealt with the issue of balance sheet insolvency as a separate matter and, applying the “point of no return” test concluded that the Company was not balance sheet insolvent.  Applying that test, he did not need to deal with another argument which Mr Morgan makes namely that, if the directors’ loan accounts as at 31 December 2007 are ignored, the Company was not balance sheet insolvent.  Since the loans would not in practice be called in, it could reasonably be expected that the Company, given its profitability, to be able to meet all of its liabilities.
113.	The problem which I face with that argument, however, is that I do not have the material to enable me to make a fully-informed decision about this.  I have already dealt (see paragraphs 104 and 105 above) with what the evidence (including the expert evidence) revealed about profitability.  I note also the fairly generalised comments in a number of paragraphs in the Judgment: examples can be found in paragraphs 51, 57, 58 and 59 containing references to profitability and viability.
114.	All in all, it does seem to me that there are reasons to doubt that the Company was profitable and, given the absence of consideration by the Judge to the matters raised by Mr Minshall, it must be open to question when the directors’ loan accounts could in practice be paid off if, indeed, they could be paid off out of profit at all.
115.	There is a risk, it seems to me, in attaching too much weight to the suggestion that the directors would not have called in their loans. That clearly has an impact on cash flow solvency because it may be possible to leave out of account altogether a postponed loan in assessing what cash is available to meet other immediate creditors.  But the fact that the loan may be postponed does not improve the balance sheet position.  
116.	Accordingly, if one is looking at the balance sheet test rather than the cash flow test, the question (given that the burden of proof is on Mrs Bucci under section 240(2)) is whether the Company can reasonably be expected to meet its liability on directors’ loan accounts in the context of its liabilities overall.  The further into the future one posits the need to repay the account, the harder it is to satisfy that requirement – this is the converse of what Toulson LJ said where the burden is the other way round: “The more distant the liabilities, the harder this will be to establish”.
117.	This is particularly so given that the making of profit in order to meet the liability depends on the effectiveness of sales and the earning of commission.  The payment of outstanding liabilities depended on the utilisation of deposits in respect of new sales (and possibly on instalment payments in respect of previous and future sales).  Those sales would, themselves, have generated further liabilities in the form of an obligation to make onward transmission of the new deposits to developers.  This may not have been a Ponzi scheme, but the onward payment of deposits from earlier sales required, in the light of the way the Company was actually run, the utilisation of deposits from future sales.  It is not at all clear to me how it can be said that Company could reasonably expect to meet the liabilities on directors’ loan account at any time before the collapse of the Dubai property market albeit that the Company could continue trading in the way which it did.  
118.	So far as the 31 March 2007 balance sheet is concerned, I have addressed this at paragraph 103(i) above.  There is insufficient evidence – or if there was evidence before the Judge, it has not been drawn to my attention – to satisfy me on a balance of probabilities that the Company could reasonably be expected to meet the long-term creditors of £12,486.  Accordingly, the Company was, in my judgment, balance sheet insolvent as at 31 March 2007.  It follows from what I have said already that it was therefore balance sheet insolvent throughout the tax year 2006-07.
119.	For the period from 31 March 2007 to 31 December 2008, there is no material which has been drawn to my attention to show that the Company’s balance sheet would have shown a positive net asset position attributing a nil value to the amount outstanding on the GUL loan.  Indeed, by the time we get to the 31 December, the position is a deficit of over £30,000 on Mr Minshall’s figures.  Mr Vigar’s figures show a rather smaller deficit – about £9,000 – if one strips out the GUL loan from the balance sheet produced by him.  
120.	I have addressed the 31 December 2007 balance sheet at paragraph 103(ii), (iii) above.  Attributing a nil value to the GUL loan at all times (which I do) the Company was balance sheet insolvent at all material times unless the directors loans can be left out of account.  For the reasons given in above, in particular in paragraphs 115 to 117 above, I do not consider that they can be left out of account.
121.	My conclusion, therefore, is that, subject to the matter identified in paragraph 123 below, Mrs Bucci is unable to rebut the presumption which arises under section 240(2) in respect of balance sheet insolvency.  The Company was at all material times in a position of net liabilities as disclosed by the balance sheets prepared by both experts if the GUL loan is valued at nil.  Given the burden of proof, there is nothing, in my judgement, in the argument that the directors’ loan accounts would be left outstanding.  I am bound to say that, even if the burden had remained on Mr Carman rather than Mrs Bucci, I would be satisfied, on the evidence before me, that the assets were less than the liabilities.  It seems to me that the loan accounts cannot effectively be left out of account since, sooner or later, the indebtedness would have to be paid.  
122.	I therefore reach a different conclusion from the Judge.  But he was applying a different test – the “point of no return”.  He cannot be criticised for doing that since that test represented the law at the time when he gave his decision.  But it does mean that the exercise which he carried out was flawed and one which must be put right on appeal.
123.	The matter referred to in paragraph 121 above is this.  It is the argument that if all of a company’s liabilities are immediate or will be so within the reasonably near future, section 123(2) does not come into play.  In other words, when applying the cash flow test under section 123(1)(e), all of the company’s liabilities are taken into account and there is therefore no need to look further to section 123(2).  On the facts of the present case, I do not consider that there is any scope for the application of this argument.  It could not be suggested that, had the Company stopped trading on any particular date after 31 March 2007, that it would have been able to meet all of its liabilities: its balance sheet shows (valuing the GUL loan at nil) an excess of liabilities over assets.  It would not then have been able to pay its debts as they fell due.  Its ability to do so depended on having sufficient cash flow which in turn depended on receiving further deposits and/or instalment payments.  However, the further income received by the Company would have given rise to a further immediate debt, or one due in a very few days, so that, in my view, it could not be said that the Company was able to pay its debts as they fell due.  The new monies received would not, properly, have been available to pay the old debts at all.  
124.	But even if that were not a problem, it remains the case that cash flow solvency could be established, even on Mr Morgan’s argument, only if the directors’ loan account could be left out of account.  It is my view, in accordance with the analysis carried out earlier in this judgment, that the regular postponement of the debt on directors’ loan accounts will result inevitably in a liability which is not due in the reasonably near future and will become a postponed debt.  If that happens, then section 123(2) must come into play if it is not already in play.  In that case, the position is as discussed above.
Conclusion 
125.	My conclusion, therefore, is that Mrs Bucci is unable to rebut the presumption which arises under section 240(2) with the result that each of the payments in the first and second categories identified in paragraph 2 above was made at a relevant time.  Mr Carman’s appeal therefore succeeds.
Further issues
126.	This conclusion makes it unnecessary to consider Mr Carman’s submission based on the existence of a Quistclose trust.  The points having been argued, I will express by views very briefly indeed.  
127.	In the first place, I do not consider that this is a point which Mr Carman should be permitted to raise on this appeal.  There was nothing in Mr Carman’s witness statements which raised the point and nothing, so far as I am aware from what I have been told, in Mr Boeddinghaus’ skeleton arguments before the Judge.  The issue of trust was touched on in cross-examination but the only mention in Mr Boeddinghaus’ written closing was a single reference to Mrs Bucci’s expert’s oral evidence where he referred to client money as trust monies.  No cases were referred to the Judge in support of the imposition of a trust although, no doubt, the Judge was familiar with the Quistclose concept.  It was not until the application for permission to appeal that the matter took on any significance.  The Judge plainly thought that it made no difference as one can see from the passage which I have set out at paragraph 58 above.  It was, in any case, too late for the matter to be raised so as to be considered as part of the trial process with relevant findings being made in a judgment.  Had the point been clearly raised before the matter came to trial, one can imagine that some evidence addressing the point would have been adduced by each side – certainly by Mrs Bucci.  She will have no opportunity to do so if I allow the point to be raised now.  The existence of a trust of the nature alleged is not purely a matter of law; rather, it represents an application of the law to specific facts.  In the present case, I cannot be sure that the relevant factual evidence was all put before the Judge and he was not, in any case, invited to make any findings.  In my view, it is now far too late to raise the point.
128.	But in the second place, I incline to the view (but do not decide) on the evidence before me that the existence of such a trust is made out.  The evidence such as it is supports the view that Company received investor’s deposits and other payment on the basis of an obligation to apply those monies only for the authorised purpose, namely the payment of the relevant deposit or making of the other payment, giving rise to a trust to apply the monies for that purpose and no other.
129.	On that basis, the case for saying that the Company was cash flow insolvent would be even stronger than it is.  Although Mr Morgan has submitted that the Company was cash flow solvent at all times, I consider that he would be in great difficulty in even maintaining an argument to that effect if there was a Quistclose trust. 
A final point
130.	It might be suggested that I should not have reached any conclusion about whether Mrs Bucci is able to rebut the presumption of insolvency in relation to the balance sheet test on the basis that further findings of fact are required and perhaps the admission of further evidence.  If that were right – obviously I do not think it is – the correct course would be to allow the appeal and remit the matter to the Judge.  It would then be entirely for him whether to allow any further evidence to be given and whether to allow Mr Carman to raise the Quistclose point or any other point.  
Disposition	
131.	Mr Carman’s appeal is allowed.  Each of the payments in the first and second categories referred to in paragraph 2 above is a transaction falling within section 238 made at a relevant time within section 240.