In the matter of Civil Mechanical Engineering Contractors Pty Ltd

Medium Neutral Citation: In the matter of Civil Mechanical Engineering Contractors Pty Ltd [2026] NSWSC 319

Hearing dates: 09 March 2026

Date of orders: 02 April 2026

Decision date: 02 April 2026

Jurisdiction: Equity - Corporations List

Before: Brereton J

Decision: Liquidator to reimburse the substituted plaintiff out of the property of the defendant

Catchwords: CORPORATIONS – winding up – costs in the winding up – application to fix amount of costs – priority of costs – whether costs of substitution application and post‑winding up steps are “costs in respect of the application for the order” – interaction of s 466 and s 556 of the Corporations Act 2001 (Cth) – gross sum costs – broad‑brush assessment – reasonableness of itemised bill – gross sum fixed

Legislation Cited: Civil Procedure Act 2005 (NSW)
Corporations Act 2001 (Cth)
Legal Profession Uniform Law Application Act 2014 (NSW)
Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited: Bechara trading as Bechara and Company v Bates [2016] NSWCA 294
Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd (In Liq) [2006] NSWSC 434
Expile Pty Ltd v Jabb’s Excavations Pty Ltd [2004] NSWSC 284
In the matter of bCode Pty Limited and In the matter of bCode Middle East Africa Holdings Limited [2012] NSWSC 1530
Morepine Pty Ltd v Crush Pacific Industries Pty Ltd (1996) 20 ACSR 41

Texts Cited: N.A.

Category: Procedural rulings

Parties: Civil Mechanical Engineering Contractors Pty Ltd (In Liquidation) (applicant/defendant)
KGB Coatings-Site Services Pty Ltd (plaintiff)
Big River Group Pty Ltd (respondent/substituted plaintiff)

Representation: Counsel:
E Young (applicant/defendant)
P Kucharski (respondent/substituted plaintiff)
Solicitors:
Hugh & Associates Lawyers (applicant/defendant)
Patane Lawyers (respondent/substituted plaintiff)
No other appearances

File Number(s): 2022/287290

Publication restriction: N.A.

JUDGMENT

1. The current application arose out of proceedings commenced on 26 September 2022, when KGB Coatings-Site Services Pty Ltd applied to wind up Civil Mechanical Engineering Contractors Pty Ltd (Civil Mechanical).

2. By an interlocutory process filed in the winding up proceedings, on 24 February 2023 Big River Group Pty Ltd (Big River) applied for an order that it be substituted as plaintiff in the proceedings under s 465B of the Corporations Act 2001 (Cth). The application was opposed by Civil Mechanical, but orders for substitution were made by Black J on 13 March 2023. Big River is the substituted plaintiff in the winding up proceedings.

3. The winding up application was heard by Black J on 24 March 2023. His Honour noted that the matter “ultimately presents as a relatively straightforward application”. His Honour made orders that Civil Mechanical be wound up in insolvency, and appointed Mr Bradd Morelli as liquidator. His Honour also made the following order:

The costs of Big River Group Pty Ltd of its application for substitution and of the winding up be costs in the winding up.

4. Since that order was made, some 2 years ago, Big River and the Liquidator have been unable to resolve the question of the costs to be paid under the order.

5. By an amended interlocutory process filed on 9 March 2026 in the winding up proceedings, the Liquidator seeks orders to fix an amount in respect of the costs arising from the order made by Black J on 24 March 2023. The Liquidator seeks orders that the costs be fixed in the sum of $9,000, or such other amount as the Court deems appropriate. The application is made pursuant to the inherent jurisdiction of the Court, s 98 of the Civil Procedure Act 2005 (NSW), s 556 and/or s 466 of the Corporations Act, and/or r 42.4(1) of the Uniform Civil Procedure Rules 2005 (NSW).

6. Big River submits that the Court should order, pursuant to s 98(4)(c) of the C**ivil P**rocedure Act, that the costs ordered on 24 March 2023 be fixed in the gross sum of $50,045.93, being the amount in its final itemised bill of costs issued on 12 November 2025, or such other amount as the Court deems appropriate. It seeks an order pursuant to s 466 of the Corporations Act that the Liquidator pay that amount to Big River out of the Civil Mechanical’s property in the order of priority provided by s 556(1)(b) of the Corporations Act. It seeks, in the alternative, orders that will facilitate an assessment of Big River’s costs.

7. Both parties seek incidental orders as to costs in relation to the interlocutory process.

8. There is a long history of correspondence between the Liquidator and Big River concerning the payment of costs pursuant to the order made by Black J. I do not need to set out that history in detail. Briefly, relevant steps include the following:

(a) on 22 June 2023, the Liquidator asked Big River to provide the winding up costs it incurred so that they may be paid in priority; (b) on 5 September 2024 (i.e. 15 months later), the solicitor for Big River provided an itemised bill of costs (including 1,085 items) seeking payment of $47,450.67; (c) following some correspondence, the solicitors for the Liquidator notified Big River on 4 February 2025 that the Liquidator would require the costs to be assessed, including because of the significant quantum claimed; (d) in September 2025, solicitors for the Liquidator informed the solicitors for Big River that the Liquidator could not pay the significant amount for costs claimed by Big River, including because Big River was not the original petitioning creditor and so avoided the majority of the costs usually incurred by the petitioning creditor, and indicated that the Liquidator had little option but to have the issue determined by the Court or a costs assessor; (e) the solicitors for Big River rejected the proposition that the matter was a “usual” winding up where costs would be fixed in the amount of $5,000-$10,000; (f) in November 2025, the solicitors for Big River provided a draft application for assessment of ordered costs, which included a narration of 830 items and claimed a total of $50,045.93; (g) on 1 December 2025, the Liquidator’s solicitors served formal objections to the draft assessment application, disputing (among other things) that Big River could claim GST, asserting that substantial portions of the bill related to administrative tasks or to periods outside the scope of the costs order, and repeating the submission that the usual range of winding up costs is $5,000-$10,000; (h) on 25 February 2026, Big River served a consolidated bundle including an updated itemised bill of costs and an added narrative and invited amended objections; and (i) on 2 March 2026, before the costs assessment process concluded, the Liquidator filed an interlocutory process seeking that Big River’s costs instead be summarily fixed by the Court.

9. The Liquidator made the present application because:

(a) he is concerned about the significant time and cost which has already been incurred in the winding up dealing and is worried about further time and delays if those costs are determined by a costs assessment; (b) he does not believe it would be in the interests of creditors to incur further time and cost in dealing with Big River’s costs claim, including the cost of preparing further objections to the consolidated bundle served in February 2026; (c) he believes it would be in the best interests of creditors for the Court to determine Big River’s costs claim; and (d) the delay in finalising the costs claim has and continues to hinder the orderly winding up of Civil Mechanical.

10. Mr Marcellus Dignam, the solicitor for Civil Mechanical and the Liquidator, has given evidence that, based on his experience dealing with winding up proceedings, with respect to the costs claimed by Big River:

(a) costs are invariably fixed by the Court when making a winding up order and are commonly fixed between $6,000 and $10,000 (but rarely more than this); (b) it would take between 4 and 6 months for an assessor to issue a determination; and (c) if the matter proceeds to assessment, he estimates that Big River would be allowed costs of between $6,000 and $10,000.

11. Big River relied on evidence from Mr Patane and Ms Kalkman, who were solicitors acting for Big River in respect of the winding up of Civil Mechanical. They give detailed evidence about the work undertaken in respect of the substitution application and the winding up. Mr Patane’s affidavit also included a report from Mr Paul Cameron, who is a court-appointed costs assessor in Queensland. Mr Cameron’s report concludes that total fees of $50,045.93 (as well as his fees of $1,694.00) are recoverable pursuant to s 76 of the Legal Profession Uniform Law Application Act 2014 (NSW).

12. The current application, as it was argued, does not simply invite the Court to fix an amount in respect of a costs order. Questions arose during the course of argument about the operation of s 466 and s 556 of the Corporations Act.

13. Section 466 relevantly provides:

(1) The persons, other than the company itself or the liquidator of the company, on whose application any winding up order is made must, at their own cost, prosecute all proceedings in the winding up until a liquidator has been appointed under this Part.

(2) The liquidator must, unless the Court orders otherwise, reimburse the applicant out of the property of the company the taxed costs incurred by the applicant in any such proceedings...

Section 556(1) relevantly provides:

(1) Subject to this Division, in the winding up of a company the following debts and claims must be paid in priority to all other unsecured debts and claims:

(a) first, expenses (except deferred expenses) properly incurred by a relevant authority in preserving, realising or getting in property of the company, or in carrying on the company's business;

(b) if the Court ordered the winding up--next, the costs in respect of the application for the order (including the applicant's taxed costs payable under section 466)…

14. Following the hearing, the parties provided (by leave) some short further written submissions dealing with issues concerning the application of those sections.

15. The costs that are propounded by Big River include costs associated with the application for substitution as well as various costs incurred after the winding up order was made. At the oral hearing, it was submitted for the Liquidator that the costs in these categories are not “costs in respect of the application for the order” within the meaning of s 556(1)(b).

16. In the written submissions provided after the hearing, the Liquidator accepted that “a substitution application may fall within s 556(1)(b)”, but submitted that costs incurred “after the making of the winding up order or prior to it but not for the preparation of the case relating to it” could not justifiably be claimed.

17. The intersection of s 466 and s 556 has been considered in a number of decisions. My attention was drawn to Morepine Pty Ltd v Crush Pacific Industrie**s Pty Ltd (1996) 20 ACSR 41; Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd (In Liq) [2006] NSWSC 434 and In the matter of bCode Pty Limited and I**n the matter of bCode Middle East Africa Holdings Limited [2012] NSWSC 1530.

18. Section 466(2) imposes an obligation on a liquidator to reimburse the applicant on a winding up application for the “taxed costs incurred by the applicant in any such proceedings”. They must be reimbursed out of the property of the company. The obligation is subject to other order by the Court. I note that taxation of costs passed into history in NSW a long time ago: see Morepine at 43.

19. Section 556 serves a different function. It is concerned with priorities in the making of payments. Section 556(1)(b) gives a specified priority to “costs in respect of the application for the [winding up] order (including the applicant’s taxed costs payable under section 466)”. Section 556(1)(b) may include costs in addition to taxed costs payable under s 466: see bCode at [12].

20. The policy lying behind s 556(1)(b) was explained by Palmer J in Expile Pty Ltd v Jabb’s Excavations Pty Ltd [2004] NSWSC 284 in the following terms (at [56]):

That the costs of the successful applicant for the winding up of a company are given second priority under s 556(1)(b) in the insolvent administration reflects a well established policy of the law that it is in the public interest that insolvent companies be wound up rather than be permitted to trade: see eg Re Data Homes Pty Ltd (in liq) [1972] 2 NSWLR 22, at 26. Consistently with that policy, creditors are to be encouraged, rather than discouraged, to undertake the financial burden of proceedings to wind up a company which is insolvent by the consideration that in the winding up the costs of their application will receive high priority for payment. That is not regarded as unfair to other creditors because the applicant creditor is seen as seeking the winding up order, not for his or her exclusive benefit, but for the benefit of the class of creditors of which he or she is a member…

21. The order made by Black J on 24 March 2023 was that the costs of Big River of its application for substitution and of the winding up be costs in the winding up. The effect of that order is twofold. It means that for the purposes of s 466(2), the costs “incurred by the applicant in any such proceedings” include the costs incurred on the substitution application, as well as the winding up application itself. Those costs, once agreed or assessed, would engage s 466(2). It also means that for the purposes of s 556(1)(b), the costs payable pursuant to the order achieve the s 556(1)(b) priority.

22. Even if the order made on 24 March 2023 did not expressly include the costs of the substitution application, there would have been a strong argument that the costs of that application achieved the s 556(1)(b) priority as costs “in respect of” the application for the winding up order. Any costs incurred before the winding up order will be the subject of the s 556(1)(b) priority if they are properly said to be “in respect of the application”. In Bidald (at [43]), Campbell J concluded that the costs that a company was ordered to pay in separate proceedings taken to set aside a deed of company arrangement were relevantly costs “in respect of” the application for winding up for the purposes of s 556(1)(b). See also bCode at [15]. In this case, the substitution application was made in the winding up proceedings and was plainly “in respect of” the application for the winding up order.

23. I do not accept that costs incurred after an order for winding up cannot be costs in respect of the application for a winding up order within the meaning of s 556(1)(b). As Young J observed in Morepine at 44, the words “in respect of” are words of wide meaning and describe relationships with a wide range of proximity: see also bCode at [13]. There is no reason to construe s 556(1)(b) artificially and narrowly to extend only to costs incurred before a winding up order is made. What is required is a sufficient connection between the costs and the application to permit the conclusion that the costs are in respect of the application, whenever those costs have been incurred.

24. Having regard to the reasons in Morepine, it appears that an option for a liquidator who considers that the applicant on a winding up application is making an excessive claim for reimbursement of costs under s 466(2), and seeks priority under s 566(1)(b) for that claim, is to approach the Court to seek an order under s 466(2) that addresses costs. There is no difficulty with a liquidator making that application after the winding up order has been made. That is because s 466(2) contemplates an application by the liquidator and he or she will only have been appointed as a consequence of the winding up application. It is impossible for a liquidator to seek an order under s 466(2) until after a winding up order is made. Costs that are excessive may not be “costs in respect of the application” under s 556(1)(b) and the Court could make an order under s 466(2) that identifies those costs that are to be reimbursed under that section.

… when one looks at what little authorities there are as to what is normally included in the costs allowed to a plaintiff in proceedings to wind up an insolvent company, one can see that ordinarily the court takes a fairly benign view. Doubtless this is because the plaintiff has gone out of his or her way at personal expense to bring about a just result in the interests of creditors as a whole…

On the other hand, Re A and N Thermo Products Ltd [1963] 1 WLR 1341, makes it clear that the plaintiff does not have open slather…

In that case, Young J considered whether there was reason to think that “more work was put into the case than would normally be the situation” and that “the bill does tend to show an inordinate length of time taken by the solicitors for the plaintiff to do work which other lawyers would be expected to do in a fraction of the time”. The Liquidator says the same thing applies here.

26. Young J made observations that the costs claimed in that case appeared excessive notwithstanding evidence that a costs assessor would likely allow all of the costs as reasonable on a party and party basis (at 45). His Honour commented that allowing 7 hours to peruse 830 pages appeared “ludicrous”, including because judges of this Court are usually allowed about an hour to peruse many more pages than that. I recognise, as did Young J, that the rate of perusal will depend on the absorption that is demanded in the particular case. Sometimes it is impossible to peruse 830 pages in an hour. Sometimes it is easy.

27. In any event, I have perused the most recent bill of costs relied upon by Big River. I have not conducted an assessment or considered every line item. My approach has been broad-brush. The bill is based on the Queensland Court Scale (which is where the practitioners were based), which is said (without challenge) to reflect a discount to the full commercial rates and also to the hourly rates contemplated under the NSW Costs Assessment Rules Committee Guidelines for senior practitioners. The bill does not include generous periods to peruse documents, of the kind that concerned Young J in Morepine. It includes $1,730.70 for a period of 4 hours and 24 minutes for a solicitor to appear before Black J at the hearing of the substitution application on 13 March 2023 and $480.75 for the appearance at the winding up application on 24 March 2023. Those amounts do not appear to be excessive. While the winding up application turned out to be reasonably straightforward at the hearing, the matter had not been straightforward in the lead up to the hearing. A large amount of the total bill is made up of many items of small value, such as “electronically imaging and saving email to virtual file - $0.65”.

28. There could be some complexity in the precise manner in which s 98 of the Civil Procedure Act and s 466 and s 556 of the Corporations Act all intersect. I do not need to descend into that complexity, which has not been the subject of full argument. The way I propose to approach this application is to proceed on the basis that the Liquidator seeks an order under s 466(2) of the Corporations Act to fix an amount of costs that the Liquidator must reimburse to Big River out of the property of the company. In fixing that amount, I am guided by the principles that apply in fixing a gross lump-sum costs order pursuant to s 98(4)(c) of the Civil Procedure Act. Once fixed, that amount will achieve the priority contemplated by s 556(1)(b) of the Corporations Act.

29. The considerations arising when the Court is asked to make a gross lump-sum costs order pursuant to s 98(4)(c) of the Civil Procedure Act were considered by the Court of Appeal in Bechara trading as Bechara and Company v Bates [2016] NSWCA 294 at [12]-[15]. The Court observed that the power to award a lump sum should only be exercised when the Court considers it can do so fairly between the parties and where an appropriate sum can be determined from the available materials. The Court recognised that a broad-brush approach is appropriate and noted that typically a discount is applied in assessing costs on a gross sum basis.

(a) I am in a position to identify a gross sum in a way that is fair between the parties and appropriate; (b) it is desirable to fix a sum given that the amounts involved are not particularly large but the dispute has generated a lot of extra work and taken a considerable amount of time, to the detriment of the winding up; (c) Big River should prima facie have the benefit of recovery, from the property of the company of its reasonable costs, on a party and party basis, incurred in the winding up application, including the costs associated with the substitution application and also the costs incurred after the winding up order but which were incurred to perfect the winding up order; and (d) on a broad-brush approach, the costs claimed by Big River have been comprehensively set out in a bill of costs and appear to be reasonable costs for the work that was performed and also to be costs incurred by Big River in the winding up proceedings.

31. Consistently with what Young J said in Morepine, I propose to take a relatively benign approach to Big River’s costs, while recognising the need to guard against excessive or wasteful costs. I consider that some discount is appropriate to reflect the contingencies that would be relevant in a formal costs assessment. I consider that a discount of approximately 10% is reasonable in this case. That reflects the benign approach, gives due recognition to the discounted charge rates reflected in the bill of costs but allows for the possibility that on a formal assessment not all of the items claimed would be recovered.

32. The orders of the Court are as follows:

33. Pursuant to s 466(2) of the Corporations Act, the liquidator of Civil Mechanical Engineering Contractors Pty Ltd (In Liq) is to reimburse Big River Group Pty Ltd the amount of $45,000 out of the property of the company.

34. If the parties cannot agree to an appropriate order as to the costs of this application, they should notify my Associate of that fact by 5pm on 10 April 2026 and a time will be fixed for a short oral hearing to determine the issue.

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