Key takeaways

Given the increasing number of insolvencies in the construction industry, this case (In the matter of Nicolas Criniti Pty Ltd (in liq) [2022] NSWSC 1149) provides timely guidance to liquidators, contractors and creditors alike.

Contractors should not wait too long to utilise the machinery of the SOP Act when they are unpaid, in dispute, and suspect the principal is in financial strife. If left too long and the principal enters liquidation, a contractor’s proof of debt may not be admissible in the liquidation.

Insolvency practitioners should carefully consider the timing of any steps in the adjudication process against the company in relation to the company’s entry into administration or liquidation.

What happened in this case?

The Supreme Court recently considered when a legally enforceable debt arises under the SOP Act for the purposes of a proof of debt under section 553(1) of the Corporations Act 2001 (Cth).

A builder made a payment claim against Nicolas Criniti Pty Ltd (Company) and a nil payment schedule was provided by the Company in response. An adjudication application was made under the SOP Act in relation to the disputed claim.

An adjudicator was appointed and determined the payment claim in favour of the builder. However, after the appointment of the adjudicator but before the adjudicator made the determination, the Company entered voluntary administration.

Subsequently, the Company was wound up and the builder submitted a proof of debt to the liquidator for the claimed (and determined) amount. This claim was rejected by the liquidator on the basis that it was not a ‘statutory debt’ under the SOP Act at the relevant date.

What was the outcome?

The Court upheld the liquidator’s decision that the builder did not have a proof of debt in the liquidation.

Critical to the decision was the Court’s confirmation that where there is a payment schedule, the amount in dispute must be subject to an adjudication determination to give rise to a statutory debt. The making of a payment claim, payment schedule or adjudication application are not circumstances which give rise to a statutory debt.

Accordingly, because the Company entered voluntary administration prior to the making of the adjudicator’s determination, the builder did not have a provable debt in the Company’s liquidation. 

Further information / assistance regarding the issues raised in this article is available from the author, Sarah Hammond, Special Counsel, Emily Barnett, Paralegal, or your usual contact at Moray & Agnew.