In the matter of Nicolas Criniti Pty Ltd (in Liquidation) [2022] NSWSC 1149, the Supreme Court of New South Wales considered a significant question concerning the intersection between the winding up provisions in the Corporations Act 2001 (Cth) (Corporations Act) and the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act).
In that case, the Court was required to determine whether the circumstances giving rise to the debt or claim under the SOP Act, the subject of the relevant proof of debt, had arisen before Nicholas Criniti Pty Ltd (Developer) appointed Schon Gregory Condon as voluntary administrator (Administrator).
Background
In May 2017, the Developer engaged the builder, Zadro Constructions Pty Ltd (Builder), to construct a 27-unit residential block in Westmead, Sydney.
On 17 October 2019, the Builder made a payment claim under the SOP Act and the Developer served a nil payment schedule on the Builder in reply on 31 October 2019.
On 14 November 2019 the Builder made an adjudication application under the SOP Act and the relevant adjudicator accepted their appointment on 20 November 2019.
On 22 November 2019 (being two days after the adjudicator accepted their appointment), the Developer appointed the Administrator. The Developer did not serve an adjudication response.
On 6 December 2019 the adjudicator issued an adjudication determination in favour of the Builder (Adjudication Determination).
On 24 February 2020, the Developer was wound up and the Administrator became the liquidator (Liquidator).
On 16 March 2021, the Builder lodged a formal proof of debt in the winding up. The proof of debt disclosed that the debt relied upon was that created by the Adjudication Determination.
On 31 March 2022, the Liquidator notified the Builder that the proof of debt had been wholly disallowed.
On 13 April 2022, the Builder appealed to the Supreme Court of New South Wales against the rejection of its proof of debt. In their oral submissions to the Court:
- the Builder submitted that the circumstances giving rise to the debt was the entry into the relevant construction contract, and that the machinery of the SOP Act, which culminated in the Adjudication Determination, merely quantifies the debt; and
- the Liquidator submitted that as at the relevant date referred to in section 553(1) of the Corporations Act, being the date of the voluntary administration, the Builder had no statutory debt because the circumstance which gives rise to a debt under the SOP Act is an adjudication determination.
The Court’s decision
In dismissing the appeal, the Court stated:
- (at [48]): “The service of a payment claim and a payment schedule and the making of an adjudication application are pre-conditions to the making of an adjudication determination, but they are not, in my opinion, circumstances which give rise to the statutory debt … The determination itself is the source of the debt”; and
- (at [44]): “… it is apt to observe that the words of s 553(1) of the Corporations Act indicate an intention to define provable claims widely and to capture all the debts and liabilities of the insolvent, and in the case of a company to deal with all the claims against it so that its affairs can be fully wound up or so that it can resume trading”.
Take home points
- Under the SOP Act, a statutory debt does not arise until the adjudicator makes an adjudication determination; and
- For the statutory debt to be valid for the purposes of a proof of debt, it must have arisen prior to the date on which administrator(s) were appointed.
More information
For information about this case or for advice, please contact:
Darren Cain, Principal Lawyer and
Head of Construction and Infrastructure
(03) 8600 8835 or dcain@kcllaw.com.au
Dominic Brown, Senior Associate
(03) 8600 8851 or djbrown@kcllaw.com.au
Author
This Construction and Infrastructure case note was authored by Dominic Brown, Senior Associate.
Note: This update is a guide only and is not intended to constitute legal advice.