Babcock & Brown was solid enough and well positioned to face any financial troubles for at least ten months prior to its failure, according to the testimony given by the investment bank's former director before a Federal Court on Tuesday, as investigation on the bank's failure continues.

Michael Sharp was Babcock & Brown's non-executive director from September 2004 to August 2008 and used to sit as director of the bank's audit and risk management committee.

Mr Sharp told Deloitte, the bank's liquidators, that Babcock & Brown initially took a careful approach on its investments during the first half of 2008, fully aware that the credit market was tightening at that time while a brewing trouble on the global economy slowly unveiling some symptoms.

The former director said that by May of the same year, Babcock was performing well and was even on the verge of collecting a billion dollars in cash reserves and unutilised credit yet in the succeeding months, the global financial crisis unleashed its full force which Mr Sharp said was an event that caught everyone by surprised.

Hard hit by the downturn and incurring huge losses of more than $5 billion, Babcock & Brown sued for administration in March 2009, citing mounting debt and plunging asset prices.

Mr Sharp said that prior to his departure from the bank's board in August 2008, he was present at a board meeting and personally witnessed the board's move of compelling then-CEO Phil Green to relinquish his post.

He said that the board's decision that time was the right decision as he observed that the subsequent decline of Babcock & Brown's share prices and a key business deal failure in 2008 contributed to Mr Green's faltering performance as chief executive of the company then.

Mr Sharp allowed that he agreed with the board's decision to sack the chief executive as he felt that following the successive slips by Mr Green, "it was right to have a change in the chief executive of the company."