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Insolvency set-off trumps building and construction security of payments regime

By Georgina King a Senior Associate of Matthews Folbigg, in our Insolvency, Restructuring and Debt Recovery Group

Three recent Supreme Court cases, in 2 different States and the Australian Capital Territory, have dealt with insolvent companies seeking to rely upon Building and Construction Industry Security of Payment legislation to recover amounts from parties that have significant set off claims and grounds to dispute the amounts sought to be recovered.

The judgments and comments made by the Courts in each case make it clear that notwithstanding the ordinary operation of the security of payment provisions, which are designed to provide for quick interim payment of progress claims by construction companies, the provisions are not to be interpreted as providing for amounts to be recovered by currently or soon to be insolvent companies without any right of set off or challenge to the debt by the opposing party being taken into account.

Two of the cases, concerning the same construction company now in liquidation, involved applications to stay action by the company to enforce a judgment or adjudication determination obtained pursuant to Building and Construction Industry Security of Payment legislation. The stays were sought so that any right of set off or challenge to the debt was able to be taken into account before payment was made. This was critical in terms of the net result for these parties given the impact the insolvency of the company would have had on their ability to recover any amount they paid.
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