Timing is everything when Corps Act and SOP collide

Appointees dealing with creditors asserting a statutory debt based on the Building and Construction Industry Security of Payment Act 1999 (NSW) (the SOP Act) can breath easier following the delivery of reasons this week In the matter of Nicolas Criniti Pty Ltd (in Liquidation) [2022] NSWSC 1149.

In this case a builder commenced the process for the hearing of an adjudication of its progress payment claim under the SOP Act prior to the company appointing Schon Condon of Condon Associates as voluntary administrator (VA) on November 22, 2019.

“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. That is created by the adjudicator’s assessment only. An adjudicator may reject the claim or award less than the amount claimed for any number of reasons. The determination itself is the source of the debt.” Justice David Hammerschlag.

On 6 December 2019, an adjudicator issued an adjudication determination (the determination) under the SOP Act in favour of the builder against Nicholas Criniti Pty Ltd for $927,727.80.

After he was appointed liquidator in February 2020, Condon rejected the plaintiff’s proof on two grounds, the second of which moved his honour to make astringent comment.

“On 31 March 2022, the liquidator notified the plaintiff that the proof of debt had been wholly disallowed,” the judge said.

“The thrust of the reasons given were that the plaintiff had not provided sufficient documentation to establish that, as at the date of liquidation, there was a valid “statutory debt” as asserted by the plaintiff against the company, and that for a valid statutory debt to exist legal proceedings are required to be commenced against the company prior to the appointment of an administrator.

“It is appropriate to observe that the second component of his position is plainly wrong,” his honour added.

That misapprehension however had no bearing on the question Justice Hammerschlag identified as being critical to a resolution of the question.

“Had the circumstances giving rise to the debt or claim the subject of the proof of debt arisen before 22 November 2019,” he pondered.

“Both sides provided written submissions in advance of the hearing, from which they substantially departed in oral submissions because, it seems, both sides had operated under the misapprehension that the relevant date referred to in s 553(1) of the Corporations Act was the date the company was wound up (24 February 2020), rather than the date of the voluntary administration. 

“The critical difference is that, by the date of the winding up, the plaintiff had the adjudication determination.”

But as the judge pointed out, applying for a determination and obtaining one are not the same.

“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,” he said.

“That is created by the adjudicator’s assessment only. An adjudicator may reject the claim or award less than the amount claimed for any number of reasons. The determination itself is the source of the debt.”

As in so many areas of human endeavour, timing is everything and his honour ruled that because the appointment of a voluntary administrator pre-dated the delivery of the determination the builder’s application must be dismissed. Strap in for the fight over costs.