In the matter of Leralais Pty Ltd

[2025] NSWSC 893

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Leralais Pty Ltd [2025] NSWSC 893

Hearing dates:

27 June, 17 July 2025

Date of orders:

11 August 2025

Decision date:

11 August 2025

Jurisdiction:

Equity - Corporations List

Before:

Brereton J

Decision:

The originating process and the interlocutory process are dismissed with costs.

Catchwords:

CORPORATIONS – application for winding up on ground of insolvency – application for freezing order – whether presumption of insolvency is established under s 459C(2)(b) of the Corporations Act 2001 (Cth) – whether partly unsatisfied garnishee order is sufficient to trigger presumption of insolvency – whether writ for levy of property enlivens presumption of insolvency – whether writ was returned – whether writ was returned unexecuted or unsatisfied – whether defendant is insolvent pursuant to s 95A of the Corporations Act – where defendant is able but unwilling to pay debts as and when they fall due – finding defendant is solvent – applications dismissed with costs

Legislation Cited:

Building and Construction Industry Security of Payment Act 1999 (NSW)

Civil Procedure Act 2005 (NSW)

Corporations Act 2001 (Cth)

Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:

Blatch v Archer (1774) 1 Cowp 63; 98 ER 969

Bloc (ACT) Pty Ltd v Crafted Capitol Pty Ltd [2021] ACTSC 81

Crema (Vic) Pty Ltd v Land Mark Property Developments (Vic) Pty Ltd [2006] VSC 338; 58 ACSR 631

Demir Pty Ltd v Graf Plumbing Pty Ltd [2004] NSWSC 553

First Strategic Development Corp Ltd (in liq) v Chan [2014] QSC 60; 11 ABC(NS) 698

Francis v Eggleston Mitchell Lawyers Pty Ltd [2014] FCAFC 18; 12 ABC(NS) 25

Greenaways Australia Pty Ltd v CBC Management Pty Ltd [2004] NSWSC 1186

Hall v Poolman [2007] NSWSC 1330; 65 ACSR 123

Haridemos v ACT Builders Pty Ltd (2017) 250 FCR 254; [2017] FCA 25

In the matter of Aquaqueen International Pty Ltd [2014] NSWSC 1645

In the matter of Ashington Bayswater Pty Ltd (in liq) [2013] NSWSC 1008

In the matter of Tanamerah Estates Pty Ltd [2016] NSWSC 1644; 317 FLR 55

Lewis (as liquidator of Doran Constructions Pty Ltd (in liq)) v Doran [2005] NSWCA 243; 54 ACSR 410

Lewis v Doran [2004] NSWSC 608; 50 ACSR 175

Lewis v Lamb [2012] FMCA 392

Martinus Rail Pty Ltd v Qube RE Services (No 2) Pty Ltd [2025] NSWCA 49

Melbase Corporation Pty Ltd v Segenhoe Ltd (1995) 17 ACSR 187

Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140

Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266; [1966] HCA 21

Quick v Stoland Pty Ltd (1998) 87 FCR 371; [1998] FCA 1200

Re: Cube Footwear Pty Ltd [2013] 2 Qd R 501; [2012] QSC 398

Re Hunter; Ex parte Dowell Industries (Aust) Pty Ltd (1968) 11 FLR 265

Re Worsley; Ex parte Gill (1957) 19 ABC 105

Sandell v Porter (1966) 115 CLR 666; [1966] HCA 28

Shakespeares Pie Co Australia Pty Ltd v Multipye Pty Ltd [2005] NSWSC 1338

WAM Active Ltd v Keybridge Capital Ltd (No 2) [2024] NSWSC 1496

Texts Cited:

Edwards, CJ, The Law of Execution: Upon Judgments and Orders of the Chancery and Queen’s Bench Divisions of the High Court of Justice (1888)

Category:

Principal judgment

Parties:

Xela Projects Pty Ltd (plaintiff)
Leralais Pty Ltd (defendant)

Representation:

Counsel:
F Corsaro SC / M Hazan (plaintiff)
RD Marshall SC / N Li (defendant)

Solicitors:
Memcorp Lawyers (plaintiff)
Francom Group (defendant)

File Number(s):

2024/468374

Publication restriction:

Nil

Judgment

1. The plaintiff (Xela) is a building company. It entered into a building contract with the defendant (Leralais) on 17 June 2022. The contract provided for the construction of 7 townhouses on land owned by Leralais in Bowral, in the Southern Highlands of NSW. Xela and Leralais have had a falling out over the contract. Xela has 3 judgments against Leralais from the District Court, all arising from the operation of the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA). The total amount of the 3 judgments is $867,107.61. Leralais has sued Xela in the District Court by way of cross-claim, alleging that it does not owe the amounts claimed by Xela and seeks restitution under the SOPA and damages for alleged breaches of the building contract. It contends (as it can under the SOPA) that it is not indebted to Xela under the terms of the building contract.

2. Xela has attempted to enforce the judgments in various ways, so far with limited success. Xela now makes an application under s 459P of the Corporations Act 2001 (Cth) for Leralais to be wound up in insolvency. The Court has power to wind up Leralais on such an application by virtue of s 459A. Xela also seeks a freezing order.

3. Leralais contends that it is in a position to pay to Xela the amounts that are the subject of the judgments but that it does not wish to do so pending the adjudication of its cross-claim. It contends that it fears that if it makes the payment now and succeeds on its cross-claim, it risks losing whatever is paid above any net liability that is found to exist.

4. For the reasons set out below, Xela’s applications must fail. The short reason why that is so is that Leralais is solvent.

5. There are two main questions that arise for consideration. The first is whether there is a rebuttable presumption that Leralais is insolvent. The second (having concluded that Leralais is not presumed to be insolvent) is whether Xela has established that Leralais is insolvent.

Is there a presumption of insolvency?

6. Xela contends that the Court must (rebuttably) presume that Leralais is insolvent by reason of s 459C of the Corporations Act. That section has effect for the purposes of an application under s 459P. It relevantly provides as follows:

(2)    The Court must presume that the company is insolvent if, during or after the 3 months ending on the day when the application was made:…

(b)    execution or other process issued on a judgment, decree or order of an Australian court in favour of a creditor of the company was returned wholly or partly unsatisfied…

7. Xela has secured judgments as follows:

1. a judgment issued by the District Court on 15 August 2024 in the sum of $129,157.06;

2. a judgment issued by the District Court on 3 October 2024 in the sum of $200,079.61; and

3. a consent judgment in the sum of $537,870.94 made on 14 October 2024.

The first two judgments arose from the registration of adjudication certificates issued under the SOPA. The third reflected summary judgment pursuant to s 15 of the SOPA by consent in respect of part of a claim brought by Xela in the District Court. Leralais is pursuing a cross-claim in those proceedings, which includes allegations that none of the debts that are the subject of the judgments are properly payable.

8. Xela has taken various enforcement steps which, it contends, give rise to a presumption of insolvency under s 459C(2)(b).

The garnishee order

9. Xela relies on a garnishee order that it obtained from the District Court on 19 August 2024 against the Commonwealth Bank of Australia for debts in the amount of $129,157.06. This was an enforcement step taken in respect of the first of the 3 judgments that have been issued in Xela’s favour. The CBA paid Xela $90,947.35 on 26 August 2024 in response to the order. Leralais contends that a garnishee order is not an “execution or other process issued on a judgment, decree or order of an Australian court”, and so does not satisfy s 459C(2)(b).

10. In Bloc (ACT) Pty Ltd v Crafted Capitol Pty Ltd [2021] ACTSC 81 at [58], Mossop J proceeded on the basis that a garnishee order “returned partially unsatisfied” was capable of triggering s 459C(2)(b), but the matter does not appear to have been argued. In this case, Leralais made detailed arguments. It is unnecessary for me to address them. That is because if it makes sense to speak of the date that garnishee order was returned “partly unsatisfied”, that date was 26 August 2024, which was more than 3 months before the application for an order that Leralais be wound up was made on 17 December 2024. It follows s 459C(2) is not engaged and a presumption of insolvency does not arise from the garnishee order.

The writ for levy of property

11. On 16 October 2024, a writ for levy of property was issued by the District Court. By that writ, the Court directed the Sheriff to levy on specified property in Ingleside, or at other locations nominated by Xela, to the amount of $200,681.61 (reflecting the second judgment listed above, plus enforcement costs and interest). On 5 November 2024, the Sheriff issued a notice of non-levy to Xela, which detailed a failed execution attempt at the Ingleside property. A further notice of non-levy was issued to Xela on 10 December 2024, which revealed a further unsuccessful attempt to levy on the property at Ingleside. On 26 June 2025, the Sheriff issued a third notice of non-levy, this time reporting a failed attempt to execute a levy on the property located at Bowral, where the construction work had been undertaken by Xela under the contract with Leralais.

12. The writ for levy of property was issued by the District Court on an application made by Xela under UCPR r 39.2. In order for s 459C(2)(b) to be engaged, the writ must have been “returned wholly or partly unsatisfied”. There is a long history of law concerning what is meant by an execution having been returned: see for example Re Hunter; Ex parte Dowell Industries (Aust) Pty Ltd (1968) 11 FLR 265 and CJ Edwards, The Law of Execution: Upon Judgments and Orders of the Chancery and Queen’s Bench Divisions of the High Court of Justice (1888).

13. I accept Leralais’s submission that the word “returned” in s 459C(2)(b) is to be understood by reference to the court procedures by which the writ for the levy of property was issued. The procedure for the return of the writ in this case is provided by UCPR r 39.51, which states as follows:

On request by the judgment creditor, the Sheriff must return the writ to the court by which it was issued, together with a notice indicating —

(a) what action, if any, has been taken in execution of the writ, and

(b) whether or not the writ has been satisfied.

There is no evidence that Xela has made any request pursuant to this rule and no evidence of any return of the writ to the District Court. The notices of non-levy provided to Xela do not constitute a return of the writ.

14. In any event, if the notices provided to Xela constituted a “return” of the writ, the writ was not returned “wholly or partly unsatisfied”, rather it has been returned unexecuted. The distinction between a writ which is returned “unexecuted” and one returned “unsatisfied” was drawn by Manning J in Re Worsley; Ex parte Gill (1957) 19 ABC 105 at 107. An extended and useful analysis of relevant authorities and principles is found in Lewis v Lamb [2012] FMCA 392 (per Smith FM). That analysis was applied by Farrell J to a case concerning s 459C(2)(b) in Haridemos v ACT Builders Pty Ltd (2017) 250 FCR 254; [2017] FCA 25 at [40]-[49].

15. The authorities make it clear that it is necessary to consider the written report of the Sheriff in order to determine whether the writ has been executed but the levy of property has failed to generate the amount referred to in the writ, or whether the writ has not been executed. It is necessary to consider each of the notices provided to Xela by the Sheriff.

16. The first notice is dated 5 November 2024. The notice in evidence is incomplete because it only includes the first page. The notice makes it plain that a levy was not made. Execution was attempted but did not occur. The Sheriff’s officers attended the Ingleside address but did not get access to it. This notice indicates that the writ was unexecuted, not that it is was unsatisfied.

17. The second notice, dated 10 December 2024, is a stronger candidate for Xela. It also states that the Sheriff has not made a levy under the writ. Once again, execution was “attempted”, but entry was refused and the Sheriff’s officers were not able to inspect inside the premises. The notice included the following statement:

In accordance with s 39.21(1)(b) of the Uniform Civil Procedure Rules 2005, the Sheriff is unable to obtain satisfaction of the Writ by proceeding further against the goods of the judgment debtor.

This uses the language of “satisfaction” which, superficially at least, points to the possibility that the writ has been returned unsatisfied. However, this is not the case.

18. The notice cites UCPR r 39.21(1)(b). Rule 39.21(1) provides as follows:

(1)    A judgment creditor may file an affidavit verifying —

(a)    the registration of a writ for the levy of property —

(i)    in the Register kept under the Real Property Act 1900, pursuant to section 105 of that Act, or

(ii)    in the General Register of Deeds kept under the Conveyancing Act 1919, pursuant to section 186 of that Act, and

(b)    the receipt by the judgment creditor of advice from the Sheriff to the effect that the Sheriff cannot obtain satisfaction of the writ by proceeding further against the goods of the judgment debtor.

Rule 39.21(2) gives the judgment creditor the right to obtain a notice from the registrar advising the judgment debtor that the judgment creditor intends that land of the judgment debtor be sold. Section 113 of the Civil Procedure Act 2005 (NSW) is engaged.

19. I interpret the statement in the notice dated 10 December 2024 as advice given by the Sheriff that she cannot obtain satisfaction of the writ by proceeding further against the goods of Leralais located at the Ingleside property. Receipt of the notice means that Xela would be justified in filing an affidavit in accordance with r 39.21, with a verification of the matters required by r 39.21(1)(b). The affidavit is a step along the way of enforcing the writ by the sale of land. The notice reveals that the Sheriff considered that she was unable to obtain satisfaction of the writ against the goods of Leralais but contemplated the possibility of execution by the sale of land. It follows that the writ remained unexecuted and was not returned wholly or partly unsatisfied.

20. The third notice dated 26 June 2025 indicates that the Sheriff did not make a levy under the writ because execution was attempted at the Bowral property, but the townhouses were unoccupied and vacant. Attempts to contact the judgment creditor had failed. The Sheriff invited Xela to provide further information in the event Xela wished the Sheriff to attempt re-execution. Leralais is the registered proprietor of the Bowral property. There is no evidence that Xela has taken any further steps to have the writ executed, either against goods on the Bowral land or by the sale of the Bowral land.

21. The position is that the Sheriff has attempted execution of the writ on 3 occasions without success. But the writ has not been spent. It remains unexecuted and it has not been returned wholly or partly unsatisfied. There has been no evidence or explanation about why no steps have been taken to have the Bowral land sold in order to satisfy the writ. The land is owned by Leralais and, as explained below, there appears to be ample equity in the property to satisfy the judgment debts.

22. It follows that I am not required to presume that Leralais is insolvent.

Is Leralais insolvent?

23. The issue of whether there is a presumption that Leralais is insolvent is ultimately of little moment in this case. A presumption that a company is insolvent under s 459C(2) may be rebutted, see s 459C(3). Leralais filed evidence seeking to prove that it is not insolvent, presumably against the possibility that Xela would succeed in establishing that Leralais was presumptively insolvent. Xela filed responsive evidence seeking to establish that Leralais is insolvent and maintained that even if there is no presumption, it has established on the evidence that Leralais is insolvent, which would engage s 459A. The question of Leralais’s solvency or insolvency can be decided on the basis of the evidence. The starting presumption is not determinative.

24. Xela has standing to apply to wind up Leralais in insolvency because it is a creditor: s 459P(1)(b).

Principles – inability or unwillingness

25. Xela contends that Leralais is insolvent within the meaning of s 95A of the Corporations Act, which provides:

(1)    A person is solvent if, and only if, the person is able to pay all the person's debts, as and when they become due and payable.

(2)    A person who is not solvent is insolvent.

This section has been considered in many cases. It reflects a cashflow test of insolvency, rather than a balance sheet test. It is necessary to address the question objectively and without the benefit of hindsight, having regard to the commercial realities. A useful statement of principle is found in In the matter of Ashington Bayswater Pty Ltd (in liq) [2013] NSWSC 1008 at [3]-[4]. Other cases cited by Xela that make statements to similar effect are: Melbase Corporation Pty Ltd v Segenhoe Ltd (1995) 17 ACSR 187 at 198-199; Crema (Vic) Pty Ltd v Land Mark Property Developments (Vic) Pty Ltd [2006] VSC 338; 58 ACSR 631 at [141] and Re: Cube Footwear Pty Ltd [2013] 2 Qd R 501; [2012] QSC 398 at [1].

26. Xela contends, and Leralais accepts, that there are debts now due from Leralais to Xela arising from the three judgments and that Leralais has not paid them. Leralais contends that it is able to pay the debts but is unwilling to do so, and on that basis it is not insolvent. Xela contends that Leralais is both unwilling and unable to pay the debts, and so is insolvent.

27. A distinction between being able to pay and being merely unwilling to pay debts can been drawn. In Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266; [1966] HCA 21, Barwick CJ observed (at 292) that to be insolvent, the debtor must be unable, as distinct from being merely unwilling, to pay his debts as they fall due. The decision in Sarina v Wollondilly Shire Council [1980] FCA 138; 32 ALR 596 addressed the meaning of the words “he is able to pay his debts” in s 52(2) of the Bankruptcy Act 1966 (Cth). Bowen CJ, C A Sweeney and Lockhart JJ observed at 599 (ALR):

These considerations negate the existence of any policy underlying the Act that a debtor should be made bankrupt if he is able to pay his debts but is unwilling to do so. If a debtor is able to pay his debts but is recalcitrant, his creditors may resort to the remedies otherwise afforded by the law such as execution against his property and garnishee proceedings. The words “able to pay his debts” in s 52(2) of the Act do not mean “willing and able” to do so.

The distinction between an unwillingness to pay as opposed to an inability to pay has been recognised in the context of the Corporations Act in Shakespeares Pie Co Australia Pty Ltd v Multipye Pty Ltd [2005] NSWSC 1338 at [10], where Barrett J observed:

The fact that the particular debt remains unpaid throws no light on the matter, particularly where, as here, the company considers itself not liable. Non-payment, in those circumstances, is consistent with unwillingness to pay as opposed to inability to pay.

See also WAM Active Ltd v Keybridge Capital Ltd (No 2) [2024] NSWSC 1496 at [164].

28. I recognise that a company may be both unwilling and unable to pay a debt. The relevant distinction lies between a company that is both unable and unwilling and one that able but unwilling (i.e. it is merely unwilling). I also recognise that the question of inability is an objective one, whereas the concept of unwillingness imports subjective considerations. In the context of a company, this requires attributing a state of mind to the company. It may be that if a director who controlled a company was unwilling to cause the company to pay particular debts for no rational reason that could be defended as consistent with the exercise of his or her duties as a director, the company should be held to be unable to pay its debts as and when they fall due, and thus to be insolvent. In such a case, the unwilling state of mind of the director might not be attributed the company, with the consequence that the company is unable to pay because its director is unwilling.

28. If I conclude that Leralais is able to pay the judgment debts but has failed to pay them, and continues to fail to do so, because of unwillingness, I could not conclude that Leralais is insolvent within the meaning of s 95A. If Leralais is able (but unwilling) to pay the debts, I could not make an order winding up Leralais in insolvency, for the simple reason that it is not insolvent. That would not leave Xela without a remedy. It would be perverse if a debtor could avoid paying a debt merely because it was unwilling to pay. In this case, there was (and is) the potential for Xela to take further steps to procure execution of the writ for levy of property. In some cases it is conceivable that a company that is able but unwilling to pay a debt would be at risk of being wound up on just and equitable grounds under s 461(1)(k).

Why Leralais is unwilling to pay

30. It is relevant to consider and test why Leralais contends that it is unwilling to pay the debts that it accepts are outstanding. That is because a professed unwillingness may in truth be driven by an inability or bear upon the question of ability.

31. The debts that are now due to Xela total some $776,160.26. That is the only non-related party debt owed by Leralais. It is the only debt that is contended to be relevant to the assessment of the solvency of Leralais. This is not a case where there are multiple unpaid creditors or where Leralais is expected to continue to trade on an ongoing basis – save to sell the 7 completed townhouses and deal with the ongoing litigation with Xela.

32. Mr Tony Antoun is one of the two directors of Leralais and gave evidence. He was not required for cross-examination. He takes responsibility for the decision not to have Leralais pay what it owes to Xela pursuant to the judgment debts. The reason he gives for that decision is that:

I was concerned that, given Leralais’s claim against Xela that if Leralais paid Xela the amounts demanded by Xela and Leralais later obtained judgment against Xela in respect of defective and incomplete work then Xela may not be able to satisfy that judgment.

This evidence was admitted only to evidence Mr Antoun’s concern (and in any event is only expressed to be evidence of concern). In short, the concern is that if Leralais pays the $776,160.26 that it owes, but then Leralais secures a judgment against Xela, Xela will not have the ability to pay that debt, presumably because the $776,160.26 will have been disbursed by Xela and Xela would be otherwise unable to pay the debt.

33. Xela conducts a building and construction business. Mr Sam Al-Mir, who gave evidence in the proceedings, is the sole director and shareholder. Xela does not own any land but owns some motor vehicles (some subject to financing). Xela’s company tax return for the year ended 30 June 2024 records total income of $6,300,393 and total expenses of $6,188,962, yielding a profit of $111,431. Xela’s cash at hand fluctuates. As at 6 January 2025, it had $58,507.28 in its bank account and as at 31 March 2025 it had $235,554.14. It is an operating company with 3 current projects. There was no submission that Xela is insolvent. A payment of $776,160.26 to Xela would no doubt enhance Xela’s financial wellbeing. The risk that this or some other amount would not be paid to Leralais in the event its cross-claim is successful really seems to rest on the proposition that Mr Al-Mir would sooner allow Xela to fail than to make a payment to Leralais, although this was not explored with him in cross-examination.

34. Mr Antoun’s evidence goes on to express a wish for Leralais to be able to have its cross-claim determined and for there to be a set-off before making a payment, if any, to Xela. By the cross-claim, Leralais alleges that it has paid to Xela $4,024,761.78 of the total amount claimed by Xela, being $4,876,228.30. It contends that Xela is in breach of contract by reason of various building defects. It also contends that Xela is not entitled to the amounts that gave rise to the 3 judgments that Xela has obtained against it under the SOPA. It seeks restitution under s 32 of the SOPA from Xela of all amounts paid by Leralais in excess of $4,094,909 (being the alleged true value of the work performed by Xela). At the moment, the amount that could be claimed by way of restitution appears to be small because Leralais has failed to pay any of the amounts that are the subject of judgments secured by Xela in reliance upon the SOPA, apart from $90,947.35 that Xela received pursuant to the garnishee order. Xela denies that Leralais is entitled to any relief on its cross-claim and maintains it has an underlying legal entitlement to the amounts reflected in the judgments it obtained using the mechanisms provided by the SOPA.

35. A key intention of the SOPA is relevantly to shift the risk of insolvency from the builder to the owner, and may be encapsulated in the expression “pay now, argue later”: Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140 at [96]; Bloc v Crafted Capitol at [56]. In this case, Leralais wants to place the risk of insolvency on the builder. It wants to argue first and pay (if necessary) later. Leralais has taken no steps to secure a stay of the enforcement of the 3 judgments from the District Court. There is a heavy burden on a party who seeks a stay pending the outcome of proceedings of the kind contemplated by s 32 of the SOPA due to the possible, or even likely, insolvency of the payee at a later date: Martinus Rail Pty Ltd v Qube RE Services (No 2) Pty Ltd [2025] NSWCA 49 at [297]. Leralais has not sought to obtain a stay.

36. The position in summary is that Leralais has an existing legal obligation to pay Xela some $776,160.26. It asserts an offsetting claim but it cannot raise that claim as a lawful basis to delay payment to Xela. Mr Antoun, and hence Leralais, has a rational and not arbitrary basis to wish to postpone payment, but they have no legal basis to do so.

SOPA and the Corporations Act

37. The SOPA gives to Xela various rights and mechanisms to secure payment from Leralais. So far, those rights and mechanisms have largely failed. The current proceedings reflect a further step taken by Xela to get paid. I cannot, however, construe or limit the provisions of the Corporations Act by reference to the policy intentions that lie behind the SOPA: Demir Pty Ltd v Graf Plumbing Pty Ltd [2004] NSWSC 553 at [20]. Thus, for example, a statutory demand that rests upon a judgment debt obtained by filing an adjudication certificate issued under the SOPA will be set aside under s 459H(1)(b) of the Corporations Act if the judgment debtor can show that there is an offsetting claim: Greenaways Australia Pty Ltd v CBC Management Pty Ltd [2004] NSWSC 1186 at [15]-[20].

38. It is necessary for me to consider whether Xela has established that Leralais is insolvent within the meaning of the Corporations Act, and that task is not to be performed in a way that seeks to give effect to the policy of the SOPA. The SOPA provides important context, but the Corporations Act is not to be construed or limited by reference to the policy imperatives of the SOPA.

Leralais’s ability to pay

39. It is necessary to consider the ability of Leralais to pay the judgment debts owed to Xela.

The Bowral townhouses

40. Leralais is the corporate trustee of the Leralais Family Trust and has a right of indemnity against the assets of that trust. That is the company’s principal asset. The assets of the trust include the Bowral property, which essentially now comprises the 7 townhouses that have been constructed and are expected to be ready for sale reasonably soon. Leralais is the registered proprietor of the Bowral land. It is subject to a mortgage to Klakcwe Enterprises Pty Ltd, which is related to Leralais and is owed $2,920,000. Klakcwe lent money to Leralais to enable it to purchase the land.

41. An occupation certificate is required before the townhouses are ready to be sold. Leralais relied on evidence from Mr Gordon Xue, a scheduling expert, who gave evidence in a report dated 1 April 2025, that an occupation certificate could be obtained by 2 May 2025. However, it became apparent during cross-examination that he had not been given instructions about at least one matter (an expected completion notice) that was critical to forming a view about the timing of an occupation certificate. I am unable to place any weight on Mr Xue’s conclusion about the timing of an occupation certificate. Leralais has retained Mr Steven Berlyn, a sales executive at a real estate agency in Bowral, to market the properties. His evidence was that once the parties go to market, it will take approximately 6-9 months to sell all of them.

42. Both parties relied on valuation evidence. Xela relied on a report from Mr Richard Perry while Leralais relied on a report from Mr Bruce Clisdell. The valuers produced a joint report. They agreed on the value of all 7 townhouses, assuming they were sold separately. The total value is estimated to be $10,845,000. Mr Perry also expressed the opinion (which was not challenged) that the properties could be sold in 1 line for $9,218,250. Mr Clisdell did not comment on this valuation.

43. The timing of the first sale of any units is uncertain but on the evidence adduced by Leralais, it is at least several months away. There was no evidence about how long would be required to undertake a fire sale, and it is evident that Leralais’s intention is to conduct an orderly sale to seek to maximise the financial return from the sale process.

44. Leralais funded the acquisition and development of the Bowral property from debt secured from related party creditors. It is indebted to related party creditors in the amount of $6,606,473.09 under a series of facility agreements. There is no evidence that any related parties are pressing for payment or are unwilling to wait until the sale of the Bowral units before being paid. The debt to Xela is Leralais’s only debt to an unrelated party. From a balance sheet perspective (taking the Bowral property at value and not at cost), Leralais is in a comfortable financial position.

45. If the only recourse open to Leralais to obtain funds to pay its debts to Xela was the sale of the Bowral properties, that would not be sufficient to demonstrate solvency on a cashflow basis. That is because the debts are due (and have been for many months) and it is clear that Leralais cannot and will not realise the assets within a “relatively short time” to pay the debts: see Sandell v Porter (1966) 115 CLR 666; [1966] HCA 28 at 670-671; Francis v Eggleston Mitchell Lawyers Pty Ltd [2014] FCAFC 18; 12 ABC(NS) 25 at [32]-[40]; Hall v Poolman [2007] NSWSC 1330; 65 ACSR 123 at [187]. However, Leralais contends that it has other resources available to it that would enable it to pay the debts to Xela if it was willing to pay them.

Recourse to other funding

46. Leralais has headroom under its related party loan facilities to drawdown a further amount, in total, of more than $5,775,000. Xela contends that Leralais has not demonstrated that those funds would be available to Leralais in the event it decided it wished to pay what it owes to Xela. It relies on Lewis v Doran (2004) 208 ALR 385; [2004] NSWSC 608; 50 ACSR 175. In that case, Palmer J concluded at [116]:

If the court is satisfied that as a matter of commercial reality the company has a resource available to pay all its debts as they become payable then it will not matter that the resource is an unsecured borrowing or a voluntary extension of credit by another party.

The decision was upheld on appeal: Lewis (as liquidator of Doran Constructions Pty Ltd (in liq)) v Doran [2005] NSWCA 243; 54 ACSR 410. Xela also relied on First Strategic Development Corporation Ltd (in liq) v Chan [2014] QSC 60; 11 ABC(NS) 698. In that decision, Philip McMurdo J held at [69] that:

The prospects of obtaining necessary funds from a party, which is not obliged to provide them, must be such as to give the company something more than a chance of paying its debts: the prospects must be sufficient to make the company able to do so. That does not mean that the provision of the funds must be free of any uncertainty or contingency. But there must be a sufficient likelihood for the company, and those directing it, to be able to rely upon the availability of those funds when incurring the relevant debts.

Xela also submitted that the Court should conclude that Leralais is insolvent because it has not led objective evidence to support an assessment of its assets and liabilities, relying on In the matter of Tanamerah Estates Pty Ltd [2016] NSWSC 1644; 317 FLR 55 at [61]. In the context of a case where there is no presumption of insolvency, I take this to be a submission that is founded on the proposition that I am to weigh the evidence according to the proof which it was in the power of Leralais to have produced: Blatch v Archer (1774) 1 Cowp 63; 98 ER 969.

47. Leralais’s second largest creditors are Mr Andre Sekulic and Ms Rosie Sekulic. They are Mr Antoun’s parents-in-law. They are owed $2,192,788.34 under a facility with a limit of $3,800,000. Their daughter, Ms Serena Antoun, is the other director of Leralais with her husband, Mr Antoun. Mr and Ms Sekulic also control Klakcwe, which holds a registered mortgage over the Bowral land and is Leralais’s largest creditor. Leralais relied on affidavit evidence from both Mr and Ms Sekulic. Neither of them were required for cross-examination. The effect of their evidence is that they have paid $776,160.26 into the trust account of Leralais’s lawyers for the purpose of demonstrating that money is available to Leralais to draw upon to pay Xela if it chose to do so. This amount is subject to a separate facility deed and is not an amount that would be drawn on the other facility with the $3,800,000 limit. Mr and Ms Sekulic’s evidence supports the conclusion that if Mr Antoun asked to draw on those funds to pay Xela, they would consent to and facilitate that drawdown. The terms of the facility agreement do not appear to give Mr and Ms Sekulic much, if any, discretion to withhold funding under the facility in any event.

48. I am satisfied that the commercial reality is that if Leralais was willing to pay Xela, it could readily do so within a short period (hours or days, not weeks). It could not get that funding in that time from the sale of the Bowral units, but the undisputed value of those units would give its related party lenders (including Mr and Ms Sekulic) considerable comfort that Leralais would be able to repay an advance of $776,160.26, as well as all other debts. There is evidence that Mr and Ms Sekulic are able to fund that amount (they have deposited that amount into a trust account) and are willing to do so (that is their unchallenged affidavit evidence). There is a facility agreement in place that Leralais could rely on to compel them to make the advance if it ever came to it (which seems highly unlikely because they would voluntarily do so).

49. The evidence in this case indicates that if Leralais drew on the facility to enable it to pay Xela, Leralais would have the ability to pay the new debt to Mr and Ms Sekulic. Under the terms of the loan facility, effectively the new debt would not be required to be paid until after there was sufficient funds available from the sale of the townhouses. This is not a case where a debtor would merely replace one debt that is due with another that it was unable to pay: compare Tanamerah Estates at [67]. Leralais has not drawn on the $776,160.26, perhaps because the money would then be susceptible to a garnishee order. That may be a factor pointing to insolvency, see Tanamerah Estates at [68]. However, Leralais does hold property (land in Bowral) that appears susceptible to enforcement action. As the townhouses are sold it may be expected that Leralais will receive cash, which may give Xela other enforcement opportunities if required.

50. While the debts that Leralais is refusing to pay are judgment debts and can be enforced like any judgment debt, they are debts arising from the SOPA and not because there has been a determination by a Court on the merits. Leralais has the right to challenge the underlying liability to Xela and is doing so. It is possible that it will be established that Xela’s claims that gave rise to the judgment debts are unfounded. Leralais recognises that the consequences of the way the SOPA operates is that it is indebted to Xela by reason of 3 judgment debts. It has no lawful excuse not to pay the debts. But it maintains that ultimately the debts will be shown to lack a proper contractual foundation. I do not consider this to be a case where the decision made by the controlling director is entirely arbitrary or lacking in explanation, even if there is no legal justification to decline to pay. The commercial explanation for the decision is not an irrational one. The circumstances of this case are unlike those considered in In the matter ofAquaqueen International Pty Ltd [2014] NSWSC 1645, see particularly [29]-[30]. Leralais has a legally enforceable right to obtain funds to pay the debts to Xela from funders who have the capacity to provide the funds and who have previously provided funding to Leralais. I am not satisfied that Mr and Ms Sekulic could or would withhold funds if Leralais sought to draw on the funding in order to pay Xela.

Expert evidence

51. Xela relied on expert evidence from Ms Jenny Nettleton. Leralais relied on expert evidence from Mr Mark Roufiel. Both are chartered accountants. They both (without objection) expressed an opinion about the solvency of Leralais: Ms Nettleton’s view was that Leralais was insolvent as at 30 April 2025 and Mr Roufiel expressed the opposite view. The two experts produced a joint report that conveniently exposed areas of agreement and disagreement. Ms Nettleton was cross-examined briefly and Mr Roufiel not at all. I was assisted by the analysis by the experts, even if technically some of the evidence may have been inadmissible, although could have been received as a submission: see the different views expressed in Quick v Stoland Pty Ltd (1998) 87 FCR 371; [1998] FCA 1200 at 375F (Branson J); 381F (Emmett J); 383B (Finkelstein J).

52. Ms Nettleton observed that “assessment of solvency is reliant on application of legal principles which are borne out in judgments”. In assessing expert evidence of this nature it is important to distinguish true opinion evidence from assumptions made about legal principles and conclusions about pure matters of fact. Ms Nettleton’s conclusion that Leralais is insolvent relied on the observation that the related party funding “is not unconditionally available to Leralais”. Strictly speaking, it is true that the related party funding is not unconditionally available, although it is very close to it. However, the law looks to the commercial realities and likelihoods, not “unconditional availability”. Ms Nettleton’s conclusion rests on an erroneous view about what the law requires. Ms Nettleton also cites Aquaqueen and Tanamerah Estates, but in my view both of those cases should be distinguished on the facts. The application of legal principles is sensitive to factual nuance.

Conclusion on solvency

53. It is easy to understand Xela’s frustration. For a company turning over around $6,000,000, an outstanding debt of around $770,000 can be expected to be a matter of considerable concern. As I have noted, a key intention of SOPA is relevantly to shift the risk of insolvency from the builder to the owner. Leralais is denying to Xela payments to which it is entitled. Xela should not have to wait until Leralais’s cross-claim is litigated before it is paid – that cuts across the policy imperative of the SOPA.

54. However, Xela’s application to have Leralais wound up requires that it proves that Leralais is insolvent. It has failed to do so. Leralais is able to pay its debts as and when they fall due, including the debts it now owes to Xela, but is unwilling to pay the debts to Xela. That does not render Leralais insolvent and I cannot accede to an application to wind the company up on the ground of insolvency. The application to wind up Leralais must be dismissed.

53. Xela may still have resort to other processes to seek to enforce the debts, including under the writ for levy of property which remains unexecuted. On the evidence in this case, Xela has not exhausted other means to enforce the debts. Xela would have been in a much stronger position if the writ for levy of property had been returned unsatisfied, not just because that would give rise to a presumption of insolvency. A conclusion that Leralais is insolvent would be easier to come to if Xela had exhausted the mechanisms by which judgments can be enforced under the UCPR and the Civil Procedure Act. In that case, Xela would have the benefit of the presumption of insolvency and Leralais would have a more difficult task in seeking to rebut it.

Freezing orders

56. I would also dismiss the application for freezing orders. The primary reason for seeking the orders was to aid the prospective liquidator. That reason falls away with the failure of the winding up application. In any event, the facts do not lend themselves to such an order. One aspect of Xela’s argument on the winding up application is that Leralais is unable to pay its debts because the (valuable) assets it holds cannot be realised in the short term, and that it is likely to take over 12 months for all of the townhouses to be sold. There is no immediate risk that Leralais will sell the townhouses and place the proceeds beyond the reach of Xela.

Orders

57. The originating process and the interlocutory process are dismissed with costs.

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Decision last updated: 11 August 2025