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[2026] NSWSC 39
General information, not legal advice.
Supreme Court of NSW
2026-02-09
Black J
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Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: In the matter of Woodworx Joinery Holdings Ltd (in liquidation) [2026] NSWSC 39
Hearing dates: 3 February 2026
Date of orders: 9 February 2026
Decision date: 09 February 2026
Jurisdiction: Equity - Corporations List
Before: Black J
Decision: Plaintiff successful in establishing insolvent trading claims against the Defendant.
Catchwords: CORPORATIONS — insolvent trading — claim against director under ss 558G and 588M of the Corporations Act 2001 (Cth) for insolvent trading — whether companies were insolvent or became insolvent by incurring the debts — whether there were reasonable grounds to suspect that company was insolvent or may become insolvent by incurring the debt — whether director was aware that there were reasonable grounds to suspect insolvency or a reasonable person would have been aware
Legislation Cited: - Civil Procedure Act 2005 (NSW), s 100
- Corporations Act 2001 (Cth), ss 9, 9AC, 95A, 286, 530A, 588E, 588G, 588M, 1274B
- Corporations Law s 60
- Evidence Act 1995 (NSW), ss 136, 140
Cases Cited: - Alora Davies Developments 104 Pty Ltd (in liq) & Ors v Raphael & Anor [2024] NSWSC 547
- Anchorage Capital Masters Offshore Ltd v Sparkes (2023) 111 NSWLR 304; [2023] NSWCA 88
- Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126; [2003] VSC 123
- Australian Securities and Investments Commission v Rich (2009) 236 FLR 1; (2009) 75 ACSR 1; [2009] NSWSC 1229
- Bentley Smythe Pty Ltd v Anton Fabrications (NSW) Pty Ltd (2011) 248 FLR 384; [2011] NSWSC 186
- Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34
- Crema Pty Ltd v Land Mark Property Developments Pty Ltd (2006) 58 ACSR 631; [2006] VSC 338
- Deputy Commissioner of Taxation v Austin (1998) 28 ACSR 565; 16 ACLC 1555
- Edenden v Bignell [2007] NSWSC 1122
- Elliott v Australian Securities and Investments Commission (2004) 10 VR 369; [2004] VSCA 54
- Fisher v Divine Homes Pty Ltd (2011) 85 ACSR 512; [2011] NSWSC 8
- Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6
- Hall v Poolman (2007) 65 ACSR 123; [2007] NSWSC 1330
- Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran (2005) 54 ACSR 410; [2005] NSWCA 243
- Mistmorn Pty Ltd (in liq) v Yasseen (1996) 21 ACSR 173; 14 ACLC 1387
- Mitchell Warren Ball (in his capacity as official liquidator of Wealthfarm Group Services) v Nicholas Quinn Sinclair [2015] NSWSC 2103
- Natcomp Technology Australia Pty Ltd v Graiche (2001) 19 ACLC 1117; [2001] NSWCA 120
- Powell v Fryer (2001) 37 ACSR 589; [2001] SASC 59
- Re ACN 092 745 330 [2017] NSWSC 241
- Re Central Management (NSW) Pty Ltd [2017] NSWSC 1258
- Re Custom Bus Australia Pty Ltd (in liq) [2021] NSWSC 1036
- Re Humur Pty Ltd [2020] NSWSC 1759
- Re Novo Pty Ltd (in liq) [2025] NSWSC 1033
- Re Shire Lind Developments (NSW) Pty Ltd (in liq) [2024] NSWSC 1454
- Re SSET Construction Pty Ltd (in liq); Sims v Khattar [2010] NSWSC 102
- Re Swan Services Pty Ltd (in liq) [2016] NSWSC 1724
- Smithton Ltd v Naggar [2015] 1 WLR 189; [2014] EWCA Civ 939
- Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 39 ACSR 305; [2001] NSWSC 621
- Stone (liquidator), Ironbark Blacksmithing Pty Ltd (in liq) v Mizzi [2024] FCA 696
- White Constructions (ACT) Pty Ltd (in liq) v White (2004) 49 ACSR 220; [2004] NSWSC 71
- Woodgate v Fawcett (2008) 67 ACSR 611; [2008] NSWSC 868
Category: Principal judgment
Parties: Mohammad Najjar in his capacity as Liquidator of Woodworx Joinery Holdings Pty Ltd (in liquidation) ACN 619 223 773 (First Plaintiff)
Woodworx Joinery Holdings Pty Ltd (in liquidation) ACN 619 223 773 (Second Plaintiff)
Eoin Michael Daniels (Defendant)
Representation: Counsel:
T Cleary (Plaintiffs)
Solicitors:
HP Legal (Plaintiffs)
File Number(s): 2025/404806
By Originating Process filed on 21 October 2025, the Plaintiffs, Woodworx Joinery Holdings Pty Ltd (“Woodworx”) and Mr Najjar, as its liquidator, seek relief against the Defendant, Mr Daniels, in respect of alleged insolvent trading. The Plaintiffs subsequently filed a Statement of Claim (“SOC”) on 3 November 2025, to which I refer below. Mr Daniels did not appear at the hearing and the proceedings have been determined in his absence.
By way of background, Woodworx commenced trading on about 25 April 2022 when it acquired a joinery manufacturing and installation business, possibly after other companies associated with Mr Daniels were placed in voluntary administration or liquidation. It traded for a relatively short period between that date and 29 March 2023 (“Appointment Date”), when Mr Najjar was appointed as voluntary liquidator of Woodworx (Ex P1, CB 55). The Plaintiffs contend that Woodworx was insolvent in the period (“Solvency Period”) between 31 July 2022 and the Appointment Date.
The Plaintiffs originally sought an order under s 588M(2) of the Corporations Act 2001 (Cth) (“Act”) that Mr Daniels pay the amount of $10,966,262 to Mr Najjar, as a debt due to Woodworx. The Plaintiffs subsequently reduced the amount of that claim at the hearing.
“Director's duty to prevent insolvent trading by company
(1) This section applies if:
(a) a person is a director of a company at the time when the company incurs a debt; and
(b) the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and
(c) at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and
(d) that time is at or after the commencement of this Act.
(1A) For the purposes of this section, if a company takes action set out in column 2 of the following table, it incurs a debt at the time set out in column 3.
(2) By failing to prevent the company from incurring the debt, the person contravenes this section if:
(a) the person is aware at that time that there are such grounds for so suspecting; or
(b) a reasonable person in a like position in a company in the company's circumstances would be so aware.”
The applicable principles as to proof of insolvency are well-established, and I have here drawn on my summaries of them in Re Swan Services Pty Limited (in liq) [2016] NSWSC 1724 at [136]ff (“Swan”), Re Humur Pty Ltd [2020] NSWSC 1759 at [16]ff and Re Novo Pty Ltd (in liq) [2025] NSWSC 1033 at [15]ff (“Novo”). In order to establish liability for insolvent trading on the part of Mr Daniels under s 588G of the Act, the Plaintiffs must establish, relevantly, that: (1) he was a director of Woodworx at the time it incurred a debt; (2) Woodworx was insolvent at the time the debt was incurred, or became insolvent by incurring the debt; (3) at the time the debt was incurred, there were reasonable grounds to suspect that Woodworx was insolvent or may become insolvent by incurring the debt; and (4) Mr Daniels was aware that there were reasonable grounds to suspect insolvency or a reasonable person would have been aware of that matter. An insolvent trading claim must be established having regard to the standard of proof recognised in the general law in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361–362; [1938] HCA 34 and under s 140 of the Evidence Act 1995 (NSW) (“Evidence Act”), which similarly provides that, in a civil proceeding, the Court must find the case of a party proved if it is satisfied that the case has been proved on the balance of probabilities and that, without limiting the matters that the Court may take into account in deciding whether it is so satisfied, it is to take into account the nature of the cause of action or defence, the nature of the subject-matter of the proceeding and the gravity of the matters alleged: Swan at [25]; Re Shire Lind Developments (NSW) Pty Ltd (in liq) [2024] NSWSC 1454 at [330] (“Shire”).
The Plaintiffs here read an affidavit dated 21 October 2025 of Mr Najjar, the liquidator of Woodworx, and I address that evidence below in dealing with the relevant issues. By his second affidavit dated 23 January 2026, Mr Najjar leads further evidence to seek to establish that Woodworx was insolvent at all times during the Solvency Period. He also there refers to receipts of $2,419,001.50 into Woodworx since his appointment, including an amount of $700,000 received from the Commissioner of Taxation in respect of the settlement of an unfair preference claim. By an affidavit dated 3 February 2026, Mr Skelton, who is a principal employed by the liquidator’s firm, addressed Woodworx’s current financial position, including claims by secured creditors, priority employee creditors and unsecured creditors, its total assets and the anticipated further costs of the liquidation. He also pointed to potential unfair preference claims against numerous entities, which had been sent letters of demand, and referred in a summary way, to the response to demands. He noted that the liquidator had instructed solicitors to pursue the unfair preference claims. Mr Skelton there identified potential dividends to priority creditors would be reflected in dividends to the Department of Employment and Workplace Relations (“DEWR”) and the Australian Taxation Office in respect of the superannuation guarantee charge debt, in a wide range, depending on whether unfair preference claims are successful or unsuccessful. The Plaintiffs have rightly accepted that they cannot establish, on the balance of probabilities, loss that does not allow for the success of those preference claims and reduced the amount claimed on that basis. I return to that matter below.
The Plaintiffs plead (SOC [5]-[6]) that Mr Daniels was appointed as director of Woodworx on 19 May 2017 and resigned as a director on 15 December 2022, but continued to act as a director of Woodworx within the meaning of s 9AC(1)(b) of the Act after that date. I recognise that the definition of the term “director” in former s 9 of the Act may properly be applicable here, but little turns on that where those definitions are in relevantly identical terms.
The records maintained by the Australian Securities & Investments Commission (“ASIC”) record that Mr Daniels was appointed as director of Woodworx from its incorporation on 19 May 2017 and that he ceased to be a director on 15 December 2022 (Ex P1, CB 51-52). I accept that this record, being an extract of ASIC registers, is, under s 1274B of the Act, prima facie evidence that Mr Daniels was appointed as a director for the period up until 15 December 2022, and there is no evidence to the contrary. I therefore find that Mr Daniels was a statutory director of Woodworx between, relevantly, 31 July 2025 and 15 December 2022.
The Plaintiffs contend, second, that Mr Daniels was a de facto or shadow director of Woodworx for a further three and a half months from 15 December 2022 until the Appointment Date. I here draw on my summary of the applicable principles in A**lora Davies Developments 104 Pty Ltd (in liq) & Ors v Raphael & Anor [2024] NSWSC 547 at [84]ff (“Alora Davies”). The definition of the term “director” in former s 9 of the Act extends, in paragraph (b)(i) (unless the contrary intention appears), to a person who is not validly appointed as a director, but who is acting in the position of director. A person may be a "de facto" director if he or she is engaged in the affairs of a company generally, as distinct from performing specific functions as a consultant: Mistmorn Pty Ltd (in liq) v Yasseen (1996) 21 ACSR 173 at 183; 14 ACLC 1387 (“Mistmorn”). In Deputy Commissioner of Taxation v Austin (1998) 28 ACSR 565; 16 ACLC 1555 (“Austin”), Madgwick J observed (at 570) that whether a person acts as a director:
“will often be a question of degree, and requires a consideration of the duties performed by that person in the context of the operations and circumstances of the particular company concerned.”
His Honour also observed (at 569) that, in order to establish that a person was "acting in the position of a director" so as to fall within the definition of "director" in the former s 60 of the Corporations Law, it would be necessary to show that he or she "exercises what might be called the actual (and statutorily extended) top level of management functions". His Honour noted (at 570) that a conclusion that a person acted in the position of a director could well be justified if he or she acted in relation to matters of great importance for a small company, other than as an arm's length expert engaged for a limited purpose. In Natcomp Technology Australia Pty Ltd v Graiche (2001) 19 ACLC 1117; [2001] NSWCA 120, Stein JA (with whom Spigelman CJ and Heydon JA agreed) applied the approach in Austin and noted (at [13]) that issues relevant to whether a person acted as a de facto director would include how outsiders who dealt with the company would have reasonably perceived that person and whether that person held himself or herself out as director.
“Whether a person has acted in the position of a director is a question of substance and not simply of how that person has been denominated in, or by, the company: see s 9 “director” (a). The fact that a person has been designated a “consultant” for the performance of functions for a company will not as of course mean that person cannot be found to be a director. Whether or not he or she will be a director will turn on the nature and extent of the functions to be performed (both in and beyond the consultancy) and on the constraints imposed thereon. A limited and specific consultancy is unlikely on its own to be caught by the s 9 definition. Not so, a general and unconstrained one which permitted taking an active part in directing the affairs of the company even if not necessarily on a full-time basis: compare Mistmorn at 183 ... Though we do not consider that the question actually requires determination in this case and thus we do not need to express a concluded view on it, we consider that if a consultant is a corporation and what it does through its own directors or officers results in “acting in the position of a director”, then, and consistently with the policy of s 201B (which requires a director to be a natural person), it will be a question of fact as to which director (or officer) in the consultant company is (or are) the de facto director(s) of the corporation.”
“That a company has an active director or directors apart from the alleged de facto director, or has a properly constituted and apparently “functioning” board (whatever that might mean in a given setting), does not preclude a finding that the person in question was a director: see for example Mistmorn (one active director); Austin (functioning board); International Cat (one de jure director). That person’s activities may, for example, have simply been accepted as of course or acquiesced in by the de jure director(s) whatever their formal powers may have been to disavow them. Or they may be acting together “on an equal footing … in directing the affairs of the company”: Re Richborough Furniture Ltd [1996] 1 BCLC 507 at 524 (Re Richborough); [Revenue and Customs Commissioners v] Holland [[2010] 1 WLR 2793; [2011] 1 All ER 430 ; [2010] UKSC 51] at [91]; by for example, sharing (formally or otherwise) responsibilities for the company’s affairs…”
The Full Court also noted (at [75]) that perceptions by others that the person was a director can have evidentiary significance, particularly if those perceptions were “independently formed, reasonable in the circumstances and support the appearance that the person was acting ‘under colour of office’”.
“(a) whether the person has assumed responsibility to act as a director;
(b) the nature of the corporate governance structure and the position the person occupies within it;
(c) what the person actually did, as distinct from any job title;
(d) the cumulative effect of the activities relied on, with the whole of the circumstances being looked at “in the round”;
(e) whether the company regarded the person as a director and held him or her out as such;
(f) whether third parties considered that the person was a director; and
(g) whether the person was consulted about or participated in directorial decisions.”
I adopted the same approach in Re Central Management (NSW) Pty Ltd [2017] NSWSC 1258 (at [26])ff and in Alora Davies.
Turning now to the evidence as to this matter, Mr Najjar gave opinion evidence as to why Mr Daniels had resigned as a director of Woodworx on 15 December 2022. That evidence was admitted because Mr Daniels was not present and did not object to it but I give little weight to that evidence. I recognise that emails dated 7 December 2022 between Mr Daniels and a solicitor acting for Woodworx support the inference that Mr Daniels resigned as a director of Woodworx in order to avoid limitations on its contractor’s licence, where he was then a director of another company under external administration (Ex P1, CB 76). Mr Cleary, who appears for the Plaintiffs, rightly accepted in oral submissions that it does not follow, without more, that that resignation was not genuine or that Mr Daniels would continue to act as a director of Woodworx following his resignation.
Mr Najjar’s evidence (Najjar 21.10.25 [12]) is also that:
“Based on my investigations [Mr Daniels] had day-to-day control of [Woodworx] and continued to do so beyond his formal resignation as director of [Woodworx]. For example:
(a) [Mr Daniels] remained the sole signatory on [Woodworx’s] bank account;
(b) [Mr Daniels] appeared to act in the position of a director, including assuming the responsibility for making the high-level management decisions of [Woodworx], to the exclusion of [Woodworx’s] director as at the Appointment Date, Mr David Byrne, and
(c) Mr David Byrne appeared to act in accordance with [Mr Daniels] instructions.”
Again, because Mr Daniels did not appear, no objection was taken to evidence in that form. Had objection been taken, that evidence would likely have been admitted with a limiting order under s 136 of the Evidence Act as submission only, and I give limited weight to Mr Najjar’s evidence as to this matter.
I have had regard to the documentary evidence as to this matter. I place limited weight on notices of overdue payroll tax issued by Revenue NSW to Woodworx, addressed to Mr Daniels, since the issue of those notices addressed to him does not indicate that he performed the role of a director in responding to them (Ex P1, CB 1651, 1653, 1655), although those documents are relevant to his knowledge of Woodworx’s insolvency, which I address below. I give significant weight to the fact that Mr Daniels remained as the sole signatory of Woodworx’s bank account after 15 December 2022, to the exclusion of its statutory director after that date, Mr Byrne (Najjar 23.1.26 [14]), which seems to be consistent only with his exercising the control of its assets that would be exercised by a director. Mr Daniels also continued to describe himself in emails as Woodworx’s “managing director”, at least until 26 January 2023 (Ex P1, CB 1884–1885), although he subsequently appears to have change his description to “executive manager” (Ex P1, CB 1883). Mr Byrne also used the title “General Manager” rather than the title “director” in his emails after 15 December 2022, a matter which is also consistent with Mr Daniels retaining the control of the company that would be exercised by a director. Mr Daniels also continued to deal with creditors in respect of unpaid amounts after he had resigned as a statutory director of Woodworx (Ex P1, CB 1883, 1885); he continued to direct staff of Woodworx as to dealings with trade creditors and was plainly informed of significant unpaid debts owed to those creditors (Ex P1, CB 1915ff); he also dealt with third parties and with Woodworx’s solicitors in respect of settlement agreements with particular creditors, although I accept that would not be sufficient, in itself, to establish that he was performing the role of a director of Woodworx (Ex P1, CB 1930); and he also gave direction to staff as to dealing with at least one creditor on a cash on delivery basis (Ex P1, CB 1936). Mr Daniels also took the primary role in dealing with Mr Najjar from 22 March 2023, in the week prior to the voluntary liquidation, although the statutory director of Woodworx, Mr Byrne, attended several meetings on 22 March, 24 March, 26 March and 29 March 2023 together with Mr Daniels, and in the case of the fourth meeting, other shareholders in Woodworx (Ex P1, CB 103–104).
It seems to me that the totality of Mr Daniels’ conduct, and particularly his control of Woodworx’s bank account, together with the titles that he adopted in dealing with third parties and his instructing staff as to the debts to be paid, is sufficient to establish that he continued to act as a de facto director of Woodworx in the period after his resignation as a statutory director.
The Plaintiffs rely (SOC [8]-[9]) on a presumption of insolvency arising under s 588E(4) of the Act, on the basis that Woodworx failed to keep and maintain proper financial records throughout the whole of the period in which Mr Daniels was a director until Mr Najjar was appointed as liquidator of Woodworx. That section provides for a presumption of insolvency throughout a period in which a company has failed to keep financial records as required by s 286(1) of the Act, which requires that a company keep financial records that correctly record and explain the company’s transactions and financial position and performance, and which would enable true and fair financial statements to be prepared and audited. The effect of that section is that a company is presumed insolvent throughout the period in which a failure to comply with s 286 of the Act existed.
In order to establish the presumption of insolvency for a particular period, the position must be separately and distinctly proved for that period; and it must be proved either that no documents within the description of “financial records” were kept in that period or that the documents which were kept were “deficient as to content” because they did not correctly record and explain the company’s transactions and financial position and performance (for example, because they did not accurately record the matters purportedly recorded) or would not enable true and fair financial reports to be prepared and audited: Woodgate v Fawcett (2008) 67 ACSR 611; [2008] NSWSC 868; Re SSET Construction Pty Ltd (in liq); Sims v Khattar [2010] NSWSC 102; Fisher v Divine Homes Pty Ltd (2011) 85 ACSR 512; [2011] NSWSC 8 at [24] (“Fisher”). The presumption under s 588E(4) of the Act does not arise merely because of a failure to keep or prepare income tax returns, business activity statements, balance sheets or profit and loss accounts, but may arise if the financial records maintained by a company are deficient to the point that they did not “correctly record and explain the company’s transactions and financial position and performance”: Fisher at [23]– [24].
Mr Najjar referred (Najjar 21.10.25 [22]–[24]) to the financial records of Woodworx that had been made available to him in response to a notice issued to Mr Daniels under s 530A of the Act. He also there referred to his access to accounting software platforms in relation to payroll systems, time sheets and payment claims; noted that he did not receive certain documents, including primary records such as sales invoices, receipts and purchase orders, and documents relating to payments to related entities; and expressed the opinion that the records of Woodworx that were provided to him were incomplete. Again, that opinion was admitted because Mr Daniels was not present and took no objection to it, but Mr Najjar’s opinion of that matter does not establish the asserted fact; and the fact that Mr Najjar did not receive those documents from Mr Daniels does not establish that Woodworx had not kept them. Mr Najjar also expresses the view (Najjar 21.10.25 [25]) that Woodworx’s financial records do not comply with the requirements of s 286 of the , but his view of that matter also does not establish the relevant fact.
The Plaintiffs alternatively plead (SOC [12]) that Woodworx was insolvent, in fact, during the Solvency Period, namely 31 July 2022 to the Appointment Date, 29 March 2023. The question whether Woodworx was insolvent, in fact, at the time the relevant debts were incurred or became insolvent by incurring those debts is to be determined by reference to s 95A(1) of the Act. That section provides that a company is solvent if, and only if, it is able to pay all its debts, as and when they become due and payable. Section 95A(2) of the Act has the effect that a person who is not solvent is insolvent. That definition adopts a “cash flow test” of insolvency which turns upon the income sources available to the company and the expenditure obligations that it has to meet, although a balance sheet test can provide context for the application of the cash flow test: Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 39 ACSR 305; [2001] NSWSC 621 (“Southern Cross Interiors”); Australian Securities and Investments Commission v Plymin (No 1) (2003) 46 ACSR 126; [2003] VSC 123 at [370]ff (“Plymin”), aff'd Elliott v Australian Securities and Investments Commission (2004) 10 VR 369; [2004] VSCA 54; Novo at [16]ff.
In Crema Pty Ltd v Land Mark Property Developments Pty Ltd (2006) 58 ACSR 631; [2006] VSC 338, Dodds-Streeton J observed that
“Section 95A of the Act enshrines the cash flow test of insolvency which, in contrast to a balance sheet test, focuses on liquidity and the viability of the business. While an excess of assets over liabilities will satisfy a balance sheet test, if the assets are not readily realisable so as to permit the payment of all debts as they fall due, the company will not be solvent. Conversely, it may be able to pay its debts as they fall due, despite a deficiency of assets.”
Although s 95A(2) adopts a “cash flow test”, a balance sheet test can provide context for the application of the cash flow test: Re Custom Bus Australia Pty Ltd (in liq) [2021] NSWSC 1036 at [33] (“Custom Bus”); Novo at [18]. The test of solvency is “directed to a present inability to pay all debts as and when they become due and payable, including debts that will become immediately payable in the future”: Anchorage Capital Masters Offshore Ltd v Sparkes (2023) 111 NSWLR 304; [2023] NSWCA 88 at [253]. Whether a company is able to pay its debts as and when they fall due and payable is a question of fact to be determined objectively and without hindsight in all the circumstances, and the Court will have regard to commercial realities, including the nature of its assets and business in that regard: Southern Cross Interiors at [54]; White Constructions (ACT) Pty Ltd (in liq) v White (2004) 49 ACSR 220; [2004] NSWSC 71 at [289]; Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran (2005) 54 ACSR 410; [2005] NSWCA 243 at [103]; Bentley Smythe Pty Ltd v Anton Fabrications (NSW) Pty Ltd (2011) 248 FLR 384; [2011] NSWSC 186 at [48]–[49]. Matters which may support a finding of insolvency include those referred to in Plymin at [386], where Mandie J identified several indicia of insolvency, including: continuing losses; liquidity ratios below one; overdue Commonwealth and State taxes; a poor relationship with the lenders, including any inability to borrow further funds; no access to alternative finance; inability to raise further equity capital; suppliers placing a company on cash on delivery arrangements or otherwise demanding special payments before resuming supply; creditors unpaid outside trading terms; the issuing of postdated cheques; dishonoured cheques; special arrangements with selected creditors; solicitors’ letters, summonses, judgments or warrants issued against a company; payments to creditors of rounded sums not reconcilable to specific invoices; and inability to produce timely and accurate financial information to display a company’s trading performance and financial position, and make reliable forecasts.
In Shire, Nixon J observed at [256]ff that:
“Whether a company is able to pay its debts as and when they fall due and payable is a question of fact to be determined objectively and without hindsight in all the circumstances, including the nature of the company’s assets and business, and the Court will have regard to commercial realities in that regard…
In assessing a company’s capacity to pay its debts, the Court should have regard to all of the assets of the company as at the relevant time in order to determine the extent to which those assets were liquid or realisable within a timeframe that would allow each of the debts to be paid as and when they became due…
In Quick v Stoland Pty Ltd [1998] FCA 1200, Emmett J observed that:
‘In order to determine whether the Company was solvent at a given time, it would be relevant to consider the following matters:
● All of the Company's debts as at that time in order to determine when those debts were due and payable.
● All of the assets of the Company as at that time in order to determine the extent to which those assets were liquid or were realisable within a timeframe that would allow each of the debts to be paid as and when it became payable.
● The Company's business as at that time in order to determine its expected net cash flow from the business by deducting from projected future sales the cash expenses which would be necessary to generate those sales.
● Arrangements between the Company and prospective lenders, such as its bankers and shareholders, in order to determine whether any shortfall in liquid and realisable assets and cash flow could be made up by borrowings which would be repayable at a time later than the debts.’
The test in s 95A ‘is directed to a present inability to pay all debts as and when they become due and payable, including debts that will become payable in the immediate future’. The ‘correct question is whether, at the date of alleged insolvency, it can be said that the company is already in a state of inability to pay those debts when they fall due’…
In considering whether a company is insolvent at a particular point in time, it is necessary to have regard to all of the company’s debts as at that time in order to determine when those debts are due and payable, and whether the company is able to pay all of those debts as and when they become due and payable. This is a question of fact to be determined objectively and without hindsight in all the circumstances pertaining at the relevant time.” [some citations omitted]
“, the Solvency Report identifies at 2.2.1 that [Woodworx] consistently had a significant net cash flow shortfall throughout the period 31 July 2022 and 29 March 2023 (Solvency Period). That is, as at 30 July 2022, there was a net cash flow shortfall of $1,246,000, and this cashflow shortfall increased steadily until 29 March 2023, at which point the shortfall was $7,179.000, and [Woodworx] went into liquidation.
In the more detailed analysis of the cash flow test commencing at part 6 of the Solvency Report, it is identified inter alia that there were no other cash resources, no assets capable of being converted to cash (given security interests), and no apparent capacity to obtain additional funding. It is clear that [Woodworx] was insolvent from at the latest 30 July 2022 on the basis of the cash flow test of solvency.
Similarly, [Woodworx] was insolvent throughout the Solvency Period having regard to its assets and liabilities disclosed on its balance sheet, as described at 2.3 of the Solvency Report. This relevantly included, from 30 September 2022, a net asset deficiency of $2,368,000 which increased every subsequent month until [Woodworx] went into liquidation with a net asset deficiency of $6,913,000 (which, as matters eventuated, dramatically understated the true extent of the liabilities, per [14] above).
At part 8.1, the Solvency Report also identifies that many of those indicia identified above, including most notably continued losses, a current ratio below one, and significant overdue Commonwealth and State taxation liabilities, were present in respect of [Woodworx], from at the latest 31 July 2022. Each of those indicia are examined in some detail in the Solvency Report.”
That solvency report indicates that Woodworx had a substantial cash shortfall as at 31 July 2022 (Ex P1, CB 843), being the amount by which its debts then due and payable was less than its cash resources (comprising money at bank and petty cash), and that cash shortfall continued (although varying in amount) until 29 March 2023, by which date it had increased to over $7.1 million. Importantly, Woodworx owed GST and PAYG liabilities in excess of $1.25 million from 31 August 2022 onwards, increasing to a liability of $3.3 million on 30 November 2022 and ultimately to a liability in excess of $4 million on 29 March 2023, and that liability was neither reduced nor discharged during the Solvency Period (Ex P1, CB 843, 850–851). Woodworx also had a significant superannuation guarantee charge liability (Ex P1, CB 843, 850–851) in excess of $177,000 from 31 October 2022 onward, which increased to $572,000 on 28 February 2023, although it was subsequently reduced by a payment made shortly before Woodworx was placed in voluntary liquidation. Woodworx also had an unpaid liability for payroll tax (Ex P1, CB 843, 851) of $178,000 on 31 July 2022, and the amount of payroll tax unpaid generally increased throughout the period to reach $459,000 on 29 March 2023, although with minor reductions on 31 August 2022 and 31 October 2022. Mr Cleary also points out that these figures are based on Woodworx’s management accounts provided to Mr Najjar, which appear to understate the amount of debts owed to trade creditors as proved in the liquidation.
Mr Najjar also there notes that Woodworx did not have assets which could be realised to pay its debts then due and payable within a period of less than six months; did not have the capacity to obtain additional funding from external sources; and projected cashflows from existing projects did not suggest that it could improve its cashflow or reduce its operating expenses. Where Mr Daniels has not participated in the proceedings, he has not sought to lead evidence to the contrary. A finding of insolvency from no later than 31 July 2022 is also supported by Woodworx’s balance sheet position (Ex P1, CB 846), where it had a significant asset deficiency exceeding $2 million and ultimately increasing to over $6.9 million in the Solvency Period, with an exception as at 31 August 2022 when its net asset deficiency was briefly reduced.
Mr Najjar’s evidence (Najjar 21.10.25 [29]ff) is also that Woodworx had a net cash shortfall throughout the Solvency Period; had a net asset deficiency throughout the Solvency Period; did not have assets that were capable of being converted into cash within a relatively short time and did not have cash resources or opportunities to obtain additional funding from external sources; exhibited significant indicia of insolvency throughout the Solvency Period, including having a current ratio below one, an excess of liabilities over assets, outstanding trade creditors, overdue Commonwealth taxes and superannuation guarantee liabilities and overdue State taxes including payroll tax; and made substantial operating loss in excess of $6.3 million between 1 July 2022 and 29 March 2023. Mr Najjar expresses the view (Najjar 21.10.25 [34]) that Woodworx was insolvent throughout the Solvency Period.
“falls somewhere between a belief that insolvency exists, on the one hand, and a mere wondering whether it exists, on the other. Suspicion is a positive feeling of apprehension, an admittedly tentative belief, without sufficient evidence to form a concluded and supportable opinion.”
“The test to be applied in relation to s 588G(1)(c) is objective: Metropolitan Fire Systems Pty Ltd v Miller (1997) 23 ACSR 699 at 702*–*3. As Duggan J pointed out in Group Four Industries Pty Ltd v Brosnan (1991) 56 SASR 234 at 238; 5 ACSR 649, the state of knowledge of a particular director and any assessment which he may have made as to the ability of the company to pay its debts is irrelevant. The court must make its own judgment on the basis of facts as they existed at the relevant time and without the benefit of hindsight.”
The question whether such reasonable grounds to suspect insolvency existed is to be determined by reference to the position of a director of reasonable competence and diligence, who performed his or her duties imposed by law, and reached a reasonably informed opinion as to Woodworx’s financial capacity: Swan at [178]ff; Novo at [31].
Mr Cleary submits that:
“[Mr Daniels] was, or should have been aware of the grounds on which a suspicion of solvency ought to have been formed. This particularly so where [Mr Daniels] appeared to exercise complete control of [Woodworx], including engaging in detailed negotiations and settlements with suppliers and creditors, as discussed above. Certainly, [Mr Daniels’] email of 13 September 2022 to Revenue NSW demonstrates his detailed understanding and knowledge of the financial affairs of [Woodworx] as well as the many related entities to it that had been under his control and failed.
In that context, all of the matters identified above were, or appear to have been in the knowledge of [Mr Daniels] as director of [Woodworx]. Armed with that knowledge, [Mr Daniels], and at the very least a reasonable person in a like position to [Mr Daniels], would have a fear that [Woodworx] was unable to pay its debts.”
“The last few years have been the most devastating time in our industry and my business life. I was forced to put some of the businesses into administration and then into liquidation. I sold my home, my possessions and everything I had to ensure that I could save my staff, suppliers and sub-contractors from suffering any financial loss. It has been a very traumatic time, but we have been able to fight through it with the support of some of our main clients. …
On review of [Woodworx’s] current financial condition, I find it necessary to request a payment plan from Revenue NSW until [Woodworx’s] financial state improves. [Woodworx’s]current NSW payroll tax liability is $237,758.39. I propose to pay this amount through 12 monthly payments of $20K each.
We are an honest and hardworking business and have just been victim of a pandemic that devastated the economy. I hope you understand my situation and consider my request. I will inform you of any change in my financial situation. I am looking forward to your kind co-operation and I hope you can approve our proposed plan.”
Revenue NSW then approved Woodworx’s request for an extended 12-month instalment plan (Ex P1, CB 1662). However, the increasing payroll tax liability to Revenue NSW in the Solvency Period suggests that payment plan was not complied with.
Mr Daniels’ knowledge of Woodworx’s financial position is also indicated by the fact that, as I noted above, he continued to deal with creditors in respect of unpaid amounts after he had resigned as a statutory director of Woodworx (Ex P1, CB 1883, 1885); he continued to direct staff of Woodworx as to dealings with trade creditors and was plainly informed of significant unpaid debts owed to those creditors (Ex P1, CB 1915ff); he also dealt with third parties and with Woodworx’s solicitors in respect of settlement agreements with particular creditors, although I accept that would not be sufficient, in itself, to establish that he was performing the role of a director of Woodworx (Ex P1, CB 1930); and he also gave direction to staff as to dealing with at least one creditor on a cash on delivery basis (Ex P1, CB 1936).
I am satisfied that, having regard to knowledge of these matters, he knew or there were reasonable grounds for Mr Daniels to suspect that Woodworx was insolvent at the time it incurred the relevant debts (s 588G(1)) and, at least, a reasonable person in a like position to Mr Daniels in a company in Woodworx’s circumstances would be aware of that matter (s 588G(2)(b)). I am also satisfied that Mr Daniels failed to prevent Woodworx from incurring the relevant debts, and his failure to do so contravened s 588G of the Act.
“Recovery of compensation for loss resulting from insolvent trading
(1) This section applies where:
(a) a person (in this section called the director) has contravened subsection 588G(2) or (3) in relation to the incurring of a debt by a company; and
(b) the person (in this section called the creditor) to whom the debt is owed has suffered loss or damage in relation to the debt because of the company's insolvency; and
(c) the debt was wholly or partly unsecured when the loss or damage was suffered; and
(d) the company is being wound up.”
“[Section 588M] does not allow recovery of the amount of the creditor’s debt as such. Rather, it is a provision allowing recovery of compensation measured by reference to loss or damage suffered by the creditor in relation to the debt because of the debtor’s insolvency. In some cases — perhaps most cases — this will be the equivalent of the amount of the debt: see, for example, Powell v Fryer (2001) 37 ACSR 589. In others — for example where a proof of debt is admitted and a substantial payment is made to all creditors rateably — the relevant loss or damage may be less than the amount of the debt. There may perhaps be circumstances in which the amount of the loss or damage exceeds the amount of the debt. The separateness of the debt, on the one hand, and the loss and damage, on the other, is emphasised by the statement in s 588M(3) that an amount equal to the loss or damage may be recovered ‘as a debt due to the creditor’.”
“The concept of ‘loss and damage’ adopted in [s 588M] seems to require that account be taken of matters that will reduce the amount of that loss or damage, including recoveries by the liquidator that will allow a distribution to creditors, and that result is consistent with fairness so far as it does not result in the defendant, in a claim under s 588M of the Corporations Act, being required to compensate for loss and damage which will not be suffered once other recoveries are made. While the process of establishing loss or damage taking into account future recoveries may be challenging in a particular case, it is by no means impossible. That approach seems to me necessary to establish the amount of ‘loss or damage’ that a creditor will in fact incur and should avoid or limit the risk that judgments are given under s 588M of the Corporations Act for more than the amount of that loss or damage.”
The first component of this claim initially comprised debts owed to trade creditors in the amount of $1,247,550.88. I am satisfied that the amount claimed in respect of trade creditors, as set out in a schedule to Mr Cleary’s submissions, and with one correction made by Mr Cleary, is supported by documents supporting creditors’ proofs of debt as tendered in the proceedings, or by the record of debts owed to those trade creditors contained in aged payable reports maintained by Woodworx, particularly as at 31 December 2022 and 31 March 2023 (Ex P1, CB 1013ff, 1060ff). The correction made by Mr Cleary reduces the amount of the claim referable to trade creditors to $1,245,007.88.
The second component of this claim initially comprises statutory debts to the Deputy Commissioner of Taxation (“DCT”) on account of running balance account liabilities in the amount of $4,004,634.63, reflecting the amount claimed in the proof of debt lodged by the Australian Taxation Office (Ex P1, CB 320). I am satisfied that debt was incurred in the Solvency Period, where a debt incurred prior to 31 July 2022 had been paid out in the early part of that period. A substantial part of that debt was incurred by an amendment to an earlier activity statement made on 1 February 2023, with an effective date of 25 August 2022 (Ex P1, CB 1612). In closing submissions, Mr Cleary accepted that this claim should be reduced by $5,263.05, where the supporting documents identify a liability of $3,996,880.98, reflecting a credit of $5,263.05 applied to the liability after the proof of debt was lodged (Ex P1, CB 1608).
The third component of this claim comprises statutory debts owed to the DCT in respect of superannuation guarantee charges in the amount of $2,490.60. That amount had been significantly reduced, as noted above, by a payment made on 15 March 2023, shortly before Woodworx was placed in voluntary liquidation (Ex P1, CB 1614–1615). In closing submissions, Mr Cleary accepts this amount should be reduced by 93.3%, being $2,323.73, where it is a priority liability that may receive a dividend to that extent. The fourth component of this claim comprises statutory debts to the Chief Commissioner of Revenue (NSW) (“CCR”). Mr Cleary submits, and I accept, that this liability began to accrue from 1 April 2022, with debts of $105,929.82 incurred from that date, but payments were then made in excess of $105,929.82 and should be treated as discharging that liability. Further liabilities of Woodworx to the CCR were then incurred in the Solvency Period in the amount of $458,841.11 (Ex P1, CB 1621). The fifth component of this debt is a liability to the Commonwealth (represented by DEWR) under the Fair Entitlements Guarantee scheme in the sum of $740,111.88 (Ex P1, CB 523), which can be claimed under this section: Mi**tchell Warren Ball (in his capacity as official liquidator of Wealthfarm Group Services) v Nicholas Quinn Sinclair [2015] NSWSC 2103 at [13]. In closing submissions, Mr Cleary accepted that this claim should be reduced by 93.3%, being $690,524.38, where this is also a priority liability that may receive a dividend to that extent.
The Plaintiffs also claim (SOC [18]) interest under s 100 of the Civil Procedure Act 2005 (NSW) from the date the cause of action arose, being the dates that each debt was incurred or, at the latest, the Appointment Date of 29 March 2023. I accept Mr Cleary’s calculation of interest in closing submissions on the latter basis, being $1,326,502.82. An order for costs should follow the event in the usual way, and Mr Daniels must pay the Plaintiffs’ costs of the proceedings against him, as agreed or as assessed.
I direct the Plaintiffs to bring in short minutes of order to give effect to this judgment within 7 days.
**********
(2023) 111 NSWLR 304
(2009) 236 FLR 1
(2011) 248 FLR 384
(1938) 60 CLR 336
(2004) 10 VR 369
(2012) 200 FCR 296
(1991) 56 SASR 234
The Plaintiffs also read the affidavits dated 29 October 2025 and 5 November 2025 of Mr John Stewart, relating to service of the Originating Process and Statement of Claim upon Mr Daniels. The Plaintiffs also led evidence of notice given to Mr Daniels, by post and email, of orders made in these proceedings on 8 December 2025. I am satisfied that Mr Daniels has been served with these proceedings and had an opportunity to appear at this hearing.
It seems to me that the Plaintiffs have not established the allegation that Woodworx failed to keep and retain proper financial records so as to give rise to the presumption of insolvency under s 588E(4) of the Act. Mr Najjar’s evidence is not sufficient to establish that he made any or any adequate inquiries to obtain any available books and records of Woodworx, to the extent they were held by persons other than Mr Daniels (for example, Woodworx’s statutory director or its accountants) to allow a finding that those records were not kept. The Plaintiffs have therefore not established a failure to keep or maintain adequate books or records from Woodworx so as to give rise to a presumption of insolvency on that basis.
I also have regard to Woodworx’s assets and liability position. A summary of affairs (Form 509) signed by Mr Daniels (Ex P1, CB 79–81) indicated that as at 13 April 2023,Woodworx then had debtors with an estimated realisable value of$2.5 million; had cash on hand in the sum of $90,000; had stock with an estimated realisable value of $500,000; had plant and machinery with an estimated realisable value of $700,000; and its then creditors were then owed $6,674,627. Even on Mr Daniels’ account, Woodworx plainly had a significant deficiency of assets against liabilities. Mr Najjar expresses the view (Najjar 21.10.25 [20]) that the listing of creditors prepared by his staff indicate that Woodworx had substantially larger employee claims than Mr Daniels had estimated, in the amount of $1,243,879.25, and also had unsecured creditors in a significantly larger amount than Mr Daniels had estimated, in the amount of $8,977,956.42.
By his second affidavit dated 23 January 2026, Mr Najjar also refers to the very substantial debts owed by Woodworx to trade creditors; the increase of Woodworx’s liability to the Australian Taxation Office by in excess of $4 million between 31 August 2022 and the Appointment Date and by in excess of $3.25 million from 31 August 2022 to 15 December 2022, the date of Mr Daniels’ resignation as a director of Woodworx; and the extent to which Woodworx’s current liabilities exceeded its current assets.
The matters which I have noted above, and the incurring of the revenue debts and the trade debts and the fact that they were not paid and significantly increased over the Solvency Period, support a finding that Woodworx was unable to pay them as and when they fell due over that period. I am satisfied that the fact of Woodworx’s insolvency has been established for the Solvency Period.
I accept that the claim for these amounts are established, with the deductions noted above, and judgment should be given for the Plaintiffs in the amount of $5,750,484.34 on this basis.