The recent decision In the matter of Nicolas Criniti Pty Ltd (In Liquidation) [2022] NSWSC 1149 (Criniti) considers the intersection of winding up provisions within the Corporations Act 2001 (Cth)1 (CA) and adjudication determinations under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA).

Background

The plaintiff builder was engaged by the first defendant, Nicolas Criniti Pty Ltd. (Nicolas), to construct a 27-unit residential block in Sydney. On 17 October 2019, the builder made a payment claim under the SOPA. Nicolas issued a nil payment schedule in response to the claim.  

The builder issued an adjudication application under the SOPA. On 22 November 2019, before the adjudication determination was issued, Nicolas appointed the second defendant as voluntary administrator. On 6 December 2019, the adjudicator issued a determination in favour of the builder against Nicolas for AU$927,727.80. 

Nicolas was wound up on 24 February 2020, and the builder lodged a proof of debt in the winding up for the amount determined by the adjudicator. The liquidator rejected this on the basis that the builder had not established that there was a valid “statutory debt”. The builder’s appeal of the liquidator’s decision is the subject matter of this case.

Decision

In making his determination, Hammerschlag CJ found that the serving of a payment claim and payment schedule, and the making of an adjudication application, are pre-conditions to an adjudication determination. However, His Honour held that those same preconditions do not give rise to a statutory debt. Rather, it is the adjudicator’s determination itself that is the source of the debt.

As the appointment of the voluntary administrator occurred before the adjudicator issued the determination, His Honour dismissed the appeal.

Critically, if the adjudicator’s determination were issued before the appointment of the voluntary administrator, the builder would have been able to rely on the determination for the purposes of proving its debt.

Observations

This case illustrates the dangers in applying for adjudication in respect of a claim against a company in financial distress, and provides guidance as to when the matters which are the subject of a payment claim will become a legally enforceable debt in the context of a winding up.

The decision, however, does not obstruct a party’s rights under a construction contract and their ability to make claims for the purposes of s 553(1) of the CA.