Executive Summary
In Re Nicolas Criniti in Liquidation, the interplay of the Corporations Act and the NSW SOP Act came to a head in an appeal against the rejection of a builder’s proof of debt in the winding up of the developer entity.
The Court found that the builder was unable to rely upon an adjudication determination in its proof of debt that was awarded after the date the relevant respondent company entered into voluntary administration. In this case, the liquidator was entitled to reject the proof of debt, on the basis that there was no enforceable debt at the time of the voluntary administration.
The Supreme Court of NSW upheld the liquidator’s decision and rejected the builder’s proof of debt. The case demonstrates the important distinction between the processes under the SOP Act and when enforceable debts arise.
What happened?
In the matter of Nicolas Criniti Pty Ltd (in Liquidation) [2022] NSWSC 1149 (Re Nicolas Criniti in Liquidation) regarding the intersection of winding up provisions in the Corporations Act 2001 (Cth) (the Corporations Act) with the Building and Construction Industry Security of Payment Act 1999 (NSW) (the SOP Act), the Plaintiff, a builder, was engaged by the First Defendant, the “Company”, to construct a 27-unit residential development in Westmead, Sydney.
On 17 October 2019, the Plaintiff issued a payment claim on the Company under the SOP Act for $1,125,988.43. Following submission of the payment claim, the following events occurred:
- 31 October 2019: the Company served a payment schedule for $nil;
- 14 November 2019: the Plaintiff made an adjudication application under the SOP Act;
- 20 November 2019: Australian Solutions Centre, an authorised nominating authority, confirmed acceptance of the application by an adjudicator;
- 22 November 2019: the Company entered into voluntary administration. The administrator wrote to the Plaintiff noting the adjudication application was stayed due to the voluntary administration; and
- 6 December 2019: after the Company failed to provide any adjudication response, the adjudicator issued an adjudication determination in favour of the Plaintiff for $927,727.80.
Insolvency process
On 24 February 2020, the Company was wound up pursuant to a resolution passed by its creditors, and a liquidator was appointed, the Second Defendant (the Liquidator). Under clause 553(1) of the Corporations Act, the ‘relevant date’ in determining the debts payable by, and claims against, the Company which were admissible to proof against the Company was 22 November 2019, the date the Company entered into voluntary administration. On 16 March 2021, the Plaintiff lodged a ‘formal proof of debt’ under the Corporations Act, for the adjudication determination amount of $927,727.80. The proof of debt relied upon the adjudication determination as being the creation of the debt, citing the date 4 December 2019.1
However, on 31 March 2021, the Liquidator rejected this proof of debt on the basis that there was no statutory debt under the SOP Act as of the relevant date (because the adjudication determination was determined on 6 December 2019, after the relevant date of 22 November 2019).
The Plaintiff appealed this decision.
Decision
The Plaintiff argued that the circumstances giving rise to the debt was not the adjudication determination, but rather the construction contract. Therefore, the Plaintiff was owed a proof of debt prior to the relevant date. The Liquidator argued as of the relevant date there was no statutory debt, and only once the adjudication determination was awarded did a debt arise.2
Hammerschlag CJ dismissed the Plaintiff’s argument and held there was no enforceable debt prior to the relevant date. In coming to his decision, it was held that:
- whilst there was a payment schedule prior to the relevant date, for an enforceable debt to arise, there must be an ‘intrusion of an adjudicator who must exercise the powers conferred upon him or her … and issue a written determination which includes reasons’;3 and
- the payment claim, payment schedule and making of an adjudication application are pre-conditions to the adjudication determination. They do not create a statutory debt, but rather, an assessment by an adjudicator does.
However, Hammerschlag CJ held that the Plaintiff’s rights against the Company were still preserved. The Plaintiff was still entitled to prove its claim in the winding up of the Company but was unable to rely upon the adjudication determination as a statutory debt.
Implications
This case provides important guidance on some of the relevant considerations relating to the intersection of the SOP Act and the Corporations Act when submitting a proof of debt for adjudicated amounts.
We have previously discussed the interplay between the Corporations Act and the SOP Act in relation to a proof of debt (see SOPA Payment Claim not enough to prove debt is due and payable – HWL Ebsworth Lawyers), where a statutory demand relying upon a payment claim was not enough to displace the argument there was a genuine dispute. Now, in Re Nicolas Criniti in Liquidation, we can see further interaction between the Corporations Act and the SOP Act insofar as they concern the winding up process.
Both cases are good reminders to highlight how different Acts can apply, and how best to deal with them.
This article was written by Alan Chiang, Partner, and Chris Kipouridis, Associate.
1 [2022] NSWSC 1149, [11], [33].
2 [2022] NSWSC 1149, [38-39].
3 [2022] NSWSC 1149, [46].
