In New South Wales (NSW), unlike in Victoria, claimants in liquidation have been able to make claims under Security of Payments Acts (SOPA). This has been recently reaffirmed in the case of Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In Liquidation) [2019] NSWCA 11 (Seymour), where the court doubled-down on this position and further explained why the NSW position differs from the position taken by the Victorian Court of Appeal in the infamous Faade Treatment Engineering Pty Ltd (in liq) v Brookfield Multiplex Constructions Pty Ltd [2016] VSCA 247 (Faade).

However, Seymour is soon to become somewhat academic. The position in NSW will be altered upon commencement of the Building and Construction Industry Security of Payment Amendment Act 2018 (NSW) (Amendment Act). Section 32B of the Amendment Act explicitly prohibits a corporation in liquidation from serving, or taking action to enforce, a payment claim or an adjudication determination.

The Amendment Act was passed on 21 November 2018, however, it has not yet commenced. This date is still awaiting proclamation and, given the state election occurred recently, it may be some time before the government gets around to arranging this.

This legislation will mark a sharp change in the right of insolvent claimants. This client update sets out the position on insolvent claimant's SOPA rights currently, and once the Amendment Act commences.

Insolvent Claimants' Current Right to Make a Claim Under SOPA

In Seymour, the NSW Court of Appeal re-affirmed that there is no requirement that the person must continue to carry out construction work. The court found that SOPA merely requires a person to satisfy two conditions in order to be a "claimant":

1.The person must have undertaken to carry out construction work under a construction contract

2.A reference date under the construction contract must have arisen

The court also held that the Victoria Court of Appeal's assumption that a company ceases to trade by the very fact of a winding up order was incorrect, because a liquidator may continue to trade and carry out works.

Somewhat paradoxically, whilst claimant in liquidation can continue make claims under the SOPA in NSW, such claims are subject to the very real risk that any success in such a claim would be met by a successful stay application brought by a respondent (see, for example, Grosvenor Constructions (NSW) Pty Ltd (in admin) v Musico [2004] NSWSC 344).

This remains unchanged following Seymour. In fact, the Court of Appeal highlighted that a stay of execution of the judgment debt is available to respondents to minimise the risk of injustice.

On another note, the court said nothing about whether the SOPA also applies to individuals in bankruptcy. Presumably, the position in respect of individuals may be the same absent a decision to the contrary.

A Shift in the Paradigm Insolvent Claimants' future right to make a claim under SOPA

The Amendment Act will insert a new section 32B into Part 3 of the SOPA. This new section explicitly states that, "A corporation in liquidation cannot serve a payment claim on a person under this Part or take action under this Part to enforce a payment claim (including by making an application for adjudication of the claim) or an adjudication determination."

This amendment, once it commences, explicitly prohibits a corporation in liquidation from serving, or taking action to enforce, a payment claim or an adjudication determination under SOPA. This will render questions regarding stays irrelevant and, in doing so, will hopefully bring greater clarity to the parties' rights when a corporate claimant goes insolvent in NSW.

The Amendment Act, however, fails to clarify the position with respect to individuals in bankruptcy. Absent a decision to the contrary, such individuals may be able to continue relying on Seymour and the line of authorities behind it to serve and enforce payment claims made under SOPA.