Briefing

Insolvency litigation and company books and proofs: Evidentiary lessons for Australian liquidators

Two recent Federal Court of Australia decisions – Grow Surge and Marsden – highlight how courts assess disputed payments when the underlying commercial rationale must be reconstructed years later using imperfect records, a problem which is commonly encountered by liquidators and other office holders.

One claim succeeded; the other failed. Together they show the importance of the availability and quality of a company’s books and records and the inferences which may be drawn by the court in the absence of such documentary evidence.

Background

Australian companies are required, by law, to keep certain books and records (statutory books and records). Under section 1305 of Australia’s Corporations Act, a company’s statutory books and records are:

admissible as evidence before the court; and

prima facie evidence of the information stated or transactions recorded therein.

Section 1305 can therefore be helpful to office holders who are appointed to administer or wind up a company and who have no prior knowledge of the company’s affairs. If the section 1305 presumption applies, it is assumed that the document (e.g. a financial report) accurately states the company’s affairs. If the company disagrees, the onus is on the company to rebut that presumption and prove their version of events, with contrary evidence.

The decisions

In Grow Surge Pty Ltd (In Liquidation) v Videriva Pty Ltd (In Liquidation) [2026] FCA 974 (Grow Surge), four related companies (which were also in liquidation) sought to prove for a combined total of AU$272,976.90 from the liquidation estate of Videriva Pty Ltd (Videriva) on the basis that payments made to Videriva between 2020 and 2022 were repayable advances. The companies submitted proofs of debt to Videriva’s liquidator, which were rejected because there was no contemporaneous, objective explanation for the transactions. The companies appealed.

The Court allowed the appeal and admitted all four proofs in full. Videriva’s only explanation for retaining the money (provided by the sole director) was an account of consultancy services that emerged only after court proceedings commenced. This explanation evolved over time, was uncorroborated by any invoice or engagement letter and was attributed to an unidentifiable intermediary known only as “Ian”. The Court found it more probable that the payments to Videriva were repayable advances than consideration for services rendered. No personal costs order was made against the liquidator, who was found to have acted reasonably in rejecting the proofs on the material then available.

In Marsden, in the matter of Empire Consortium Group Pty Ltd (in liq) v Nationwide Plant Hire Pty Ltd [2026] FCA 911 (Marsden), the liquidators of Empire Consortium Group Pty Ltd sued a related company, Nationwide Plant Hire Pty Ltd (NWPH), to recover an alleged intercompany debt, arguing in the alternative that it was an uncommercial transaction. The companies’ dealings were recorded in an MYOB ledger (an online accounting tool) which was admitted as prima facie evidence of Empire’s financial transactions under section 1305 of the Corporations Act. The ledger closed with a nil balance due to two large “zeroed out” entries (Zero Entries) made shortly before Empire’s administrators were appointed. Empire’s records were not well kept, and to complicate matters further, the director who had knowledge of the transactions, and who was on the board of both Empire and NWPH, was deceased (the Director).

The liquidators subpoenaed a small number of third-party records to establish that there was a running loan account and argued that only those verified entries should be included in the assessment of the sums owed to / by Empire and NWPH. The Court disagreed, suggesting that other entries which could, similarly, be verified by third party records should have been checked¹, expressing little sympathy about the costs of such an exercise².

The Court dismissed the claim. Although a running loan account could be inferred, the liquidators failed to prove that the Zero Entries were illegitimate, and their selective exclusion of unhelpful entries was rejected as an impermissible inversion of the onus of proof. Suspicion about the timing of the Zero Entries and benefit to the Director was not enough to displace the section 1305 presumption and the Court declined to draw a ‘Jones v Dunkel’ inference to fill the evidentiary gaps in the liquidators’ case. The liquidators of Empire were ordered to pay NWPH’s costs.

Key takeaways for insolvency practitioners

The operation and implications of section 1305 of the Corporations Act

Adopting the principles stated in Crispino v Kiparoglou [2026] VSC 80, in Marsden the Court stated that³:

a court can rely on the prima facie evidence found in a company’s books and records in accordance with section 1305(1) of the Act. However, the weight of that evidence is to be measured in the context of the entire body of evidence before the court;
evidence casting doubt on the reliability of the company’s books − drafts, inconsistent versions, or indefensible entries − can undermine the section 1305 presumption; and
in the case of loans, the court is more likely to infer that a loan existed if there is no dispute over whether the relevant book entries reflect the parties’ intention to enter into a loan.

A significant point is that the section 1305 presumption that the company’s books are accurate operates over the whole book, including outcomes unfavourable to the party invoking it.

In Marsden, the liquidators calculated the alleged debt owed by NWPH to Empire by excluding hundreds of entries in the MYOB ledger, alleging that those entries were illegitimate. The Court called this an “inversion” of the section 1305 presumption⁴, which is that: the ledger was presumed to be accurate and the liquidators cannot simply ignore entries that contradict their case.

Contemporaneous corroboration outweighs after-the-fact assertion

In Grow Surge, the liquidators failed to prove that consultancy services had been provided because their case lacked contemporaneous documents supporting their position and answering basic commercial questions (rates, engagement method, client contact). The Court rejected the director’s explanation regarding the transactions, which only emerged after proceedings were commenced and which kept changing⁵. In short, bare assertion without other objective documents is insufficient to establish a position.

A Jones v Dunkel inference will not repair a thin case

In Marsden, NWPH did not file significant evidence in support of its denial of Empire’s claim, choosing instead to put the liquidators to proof (to establish, by way of evidence, that NWPH was indebted to Empire).

The Court described the liquidators’ evidence as “limited” and “relatively slim”. This may seem curious, given the section 1305 presumption that the MYOB ledger was correct, plus the liquidators’ ability to verify the transactions recorded in the MYOB by reference to Empire’s other books and records (e.g. “source documents” attached to certain entries in the MYOB ledger) and their statutory power to investigate Empire’s affairs.

However, the liquidators argued that, in the circumstances, the Zero Entries were clearly suspicious and they relied on the lack of contrary evidence filed by NWPH, asking the Court to apply the principle in Jones v Dunkel (1959) 101 CLR 298 (Jones v Dunkel) and infer that NWPH did not file further evidence, evidence which was within its power to produce, because the missing evidence would not assist NWPH’s case. The Court declined to draw a Jones v Dunkel inference, noting that to do so would be to “fill the evidential lacuna left by the liquidators’ slim presentation of this case”⁶.

The onus of proof under section 1305 of the Act was on the liquidators and, while the Court noted that the Zero Entries were “suspicious”, mere suspicion was insufficient, rejecting the argument that NWPH’s silence on the Zero Entries should be held against it.

Investigation costs do not excuse a lack of evidence

The liquidators in Marsden may have decided not to extensively investigate Empire’s financial dealings because of the costs⁷. While liquidators (and other office holders) must bear in mind the expense of copious investigations and their duty to maximise returns to creditors, this is a balancing act and sufficient investigations must be carried out, and evidence gathered, if a claim is to succeed.

Bare assertion and mere suspicion will not suffice to establish a legal claim. The evidential rules which apply when an individual or body corporate litigate on their own account apply equally to insolvency litigation, as does the section 1305 presumption.

In some cases, a company’s liquidation estate has insufficient funds to investigate and litigate a claim with merit, in which case third party funding (e.g. by a creditor) or professional litigation funding may prove helpful.

Reasonable rejection of a proof of debt: Liquidators are not automatically exposed personally

Despite losing the appeal, no personal costs order was made against Videriva’s liquidator in Grow Surge. When he rejected the proofs of debt the liquidator acted reasonably, having regard to the information which was available at that time − even though a fuller, later hearing reached a different result.

Commentary

Both cases turn on the practical cost of poor record-keeping. In Grow Surge, Videriva’s own financial statements disclosed no liabilities beyond a nominal loan, and its director could point to no invoices, contracts or consistent business description to justify retaining the payments. In Marsden, Empire’s failure to maintain financial records required by section 286 of the Corporations Act for part of the relevant period, combined with the death of the only person with direct knowledge of the arrangements, left the liquidators with the difficult task of reconstructing years of intercompany dealings from an incomplete ledger with no audit trail to assist with deciphering hundreds of disputed entries.

The burden of poor record-keeping falls disproportionately on whoever bears the onus of proof when a dispute arises − typically the party seeking recovery. Unsurprisingly, adequate contemporaneous documentation (invoices, receipts, bank account statements, contracts, loan agreements, resolutions recording financial decisions and intercompany arrangements and a consistent narrative) is often the difference between a claim succeeding and failing, especially if there are no other means of corroborating the claim (e.g. witness evidence).

Together, these cases show two ends of the same evidentiary spectrum: absent the company books, liability must be established by inference from surrounding circumstances (Grow Surge). Where books exist, section 1305 provides a presumption in favour of what they say, including potentially unfavourable outcomes, and that presumption will not yield to a bare assertion that the books must be wrong because the result is inconvenient or unpalatable (Marsden). A claimant must establish the more probable inference on the whole of the evidence and cannot expect the court to fill evidentiary gaps.

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Footnotes