The New South Wales Supreme Court recently confirmed that an insolvent construction contractor is not able to immediately enforce its right to payment of an adjudication decision under the NSW Security of Payment legislation (Building and Construction Industry Security of Payment Act 1999 (NSW)) against another party which has an offsetting claim.

In Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq); Ostwald Bros Pty Ltd (in liq) v Seymour Whyte Constructions Pty Ltd [2018] NSWSC 412 (5 April 2018), the Supreme Court considered that the parties' rights need to be determined in accordance with section 533C of the Corporations Act 2001, which allows set-offs for mutual credits/debts/dealings against an insolvent company. This position is consistent with other State court decisions in respect of insolvent contractors enforcement rights to payments under Security of Payment legislation.

In its decision, the NSW Supreme Court said that the Victorian Court of Appeal in Facade Treatment Engineering Pty Ltd (in liq) v Brookfield Multiplex Constructions Pty Ltd [2016] VSCA 247 (Facade) was "plainly wrong" when it decided that once a construction contractor is wound up in liquidation it cannot enforce any right to payment under the equivalent Victorian Security of Payment legislation against another party even if that other party has no offsetting claim.

The impact of this decision

Whilst the NSW decision will impact how a party should deal with outstanding payments owed to an insolvent company, if the claim relates to construction work in Victoria, until the Victorian Court of Appeal reverses its position in Façade, it remains the case that a company in liquidation would not be able to rely on the Victorian Security of Payment legislation for a payment claim.

Click here to read the full judgment.

Dealing with a company in external administration

If you are dealing with a company in external administration, to avoid jeopardising your position, you should immediately:

  • seek advice as to whether you are entitled to hold onto payments and retentions owing to a company in external administration; and
  • seek assistance in preparing correspondence and documentation to the external administrator.