By Georgina King a Senior Associate of Matthews Folbigg, in our Insolvency, Restructuring and Debt Recovery Group
The recent decision of Hakea Holdings Pty Ltd v Denham Constructions Pty Ltd  NSWSC 1120 provides an example of when it may be possible to stay an adjudication determination issued under the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act), on the basis that the party holding the determination may be unable to repay the determination amount in due course due to insolvency.
Denham Constructions Pty Ltd had obtained adjudication determinations under the Act against Hakea Holdings Pty Ltd and BaptistCare NSW & ACT for respective amounts of $1,138,045.33 and $475,322.32.
Hakea had since the date of the adjudication determination commenced proceedings against Denham for damages of approximately $6 million for breach of contract. BaptistCare intended to claim damages from Denham in the amount of $5.4 million.
Given concerns about Denham’s financial position and inability to repay the adjudication determination amounts in the event that Hakea and Baptistcare succeeded with their claims, Hakea and BaptistCare applied for orders from the Court extending previous orders preventing Denham from recovering the adjudication determination sums.
Having considered the evidence, the Judge concluded that Hakea and BaptistCare both had strong cases, having regard to their claims against Denham, that they did not owe the adjudication determination amounts.
Further, there was little prospect that they would be able to recover any amount they paid to Denham. In particular, it was found based on the evidence that Denham’s business had declined rapidly over the past three years, that it was likely to have a substantial deficiency in current assets to meet its current liabilities indefinitely, and there was a substantial risk Denham would be wound up in the near future and this would remain the case whether the adjudication determination sums were paid to Denham or not.
Having reached these conclusions, previous orders restraining enforcement of the adjudication determinations were allowed to continue.
Particularly given the prevalence of insolvency in the construction industry, in circumstances where a claim is intended to be made against a party holding an adjudication determination, it is important to consider before paying the adjudication sum, whether there might be basis to consider the party unlikely to be able to repay the adjudication amount. If there is such basis it may be possible to avoid paying a significant amount which may never be recovered due to the payment recipient’s insolvency.
Read the judgment here: (link is external)http://www.austlii.edu.au/(link is external)cgi-bin(link is external)/sinodisp(link is external)/au/cases/nsw/NSWSC(link is external)/2016/1120.html?stem=0&synonyms=0&query=hakea(link is external)%20holdings(link is external)
If you would like more information or advice in relation to insolvency, restructuring or debt recovery law, contact Georgina King on (02) 9806 7485 or firstname.lastname@example.org, or a Principal of the Matthews Folbigg Insolvency, Restructuring & Debt Recovery Group:
Jeffrey Brown on (02) 9806 7446 or email@example.com
Stephen Mullette on (02) 9806 7459 or firstname.lastname@example.org